Final Prospectus Supplement
Table of Contents

Filed pursuant to Rule 424(b)(5)
Registration File No.: 333-197661

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of

Securities to be Registered

 

Amount
to be

Registered(1)

  Maximum
Offering Price
per Security
 

Maximum

Aggregate

Offering Price

 

Amount of

Registration Fee(2)

Class A Common Stock, par value $0.10 per share

  27,381,500   $37.80   $1,035,020,700.00   $133,310.67

 

 

(1) Includes 3,571,500 shares of Class A Common Stock that may be purchased by the underwriters pursuant to their option to purchase additional shares, solely to cover over-allotments, if any.
(2) Calculated in accordance with Rule 457(r) of the Securities Act of 1933, as amended.


Table of Contents
PROSPECTUS SUPPLEMENT   

(To Prospectus dated July 28, 2014)

23,810,000 Shares

 

LOGO

TYSON FOODS, INC.

CLASS A COMMON STOCK

 

 

We are offering 23,810,000 shares of our Class A common stock.

Our Class A common stock is listed on the New York Stock Exchange under the symbol “TSN.” On July 30, 2014, the last reported sale price of our Class A common stock on the New York Stock Exchange was $38.20 per share.

 

 

We intend to use the net proceeds of this offering, together with the net proceeds of the concurrent tangible equity units offering described in this prospectus supplement, cash on hand and the net proceeds from borrowings or issuances of indebtedness, to finance the acquisition of The Hillshire Brands Company as described in this prospectus supplement, and to pay related fees and expenses.

Concurrently with this offering of Class A common stock, we are offering 30,000,000 of our tangible equity units pursuant to a separate prospectus supplement. The underwriters do not have the option to purchase any additional tangible equity units to cover over-allotments or otherwise. The completion of this Class A common stock offering is not contingent on the completion of the tangible equity units offering, and the tangible equity units offering is not contingent on the completion of this Class A common stock offering. Neither this offering nor the tangible equity units offering is contingent on the consummation of the acquisition of The Hillshire Brands Company or any additional debt financing. Eight of our directors and officers and the Tyson Limited Partnership (of which 33.33% and 11.115% is controlled by our chairman John Tyson and director Barbara Tyson, respectively) will purchase an aggregate of approximately 758,400 Units in the tangible equity units offering. Such purchases will be made on the same terms and conditions as purchases by nonaffiliated investors and with a view toward investment, not resale.

 

 

Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page S-17 of this prospectus supplement.

 

 

PRICE $37.80 PER SHARE

 

 

 

      

Price to
Public

      

Underwriting
Discounts
and
Commissions

      

Proceeds to
Company

 

Per Share

       $37.80           $1.134           $36.666   

Total

       $900,018,000          $27,000,540          $873,017,460   

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to an additional 3,571,500 shares of our Class A common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any, within 30 days of the date of this prospectus supplement. If the underwriters exercise this option in full, the total price to the public would be $1,035,020,700, the total underwriting discounts and commissions would be $31,050,621 and the total proceeds to us would be $1,003,970,079.

The underwriters expect to deliver the Class A common stock to purchasers on or about August 5, 2014.

 

 

Joint Book-Running Managers

 

MORGAN STANLEY   J.P. MORGAN

RBC CAPITAL MARKETS

 

Co-Managers

 

HSBC   Mizuho Securities   Piper Jaffray   Rabo Securities
Credit Agricole CIB       MUFG

 

 

July 30, 2014


Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

     Page  

About This Prospectus Supplement

     S-ii   

Where You Can Find More Information

     S-iii   

Special Note On Forward-Looking Statements

     S-iv   

Important Information for Investors and Securityholders

     S-v   

Summary

     S-1   

The Offering

     S-13   

Summary Historical Consolidated Financial Information of Tyson

     S-15   

Summary Historical Consolidated Financial Information of Hillshire Brands

     S-16   

Risk Factors

     S-17   

Use of Proceeds

     S-21   

Price Range of Class A Common Stock and Dividends

     S-22   
     Page  

Ratio of Earnings to Fixed Charges

     S-23   

Capitalization

     S-24   

Unaudited Pro Forma Condensed Consolidated Financial Information

     S-26   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     S-37   

Description of Common Stock

     S-68   

Description of Indebtedness

     S-69   

Description of Tangible Equity Units

     S-73   

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Class  A Common Stock

     S-74   

Underwriting

     S-76   

Legal Matters

     S-81   

Experts

     S-81   
 

 

Prospectus

 

Our Company

     1   

Where You Can Find More Information

     2   

Special Note On Forward-Looking Statements

     3   

Risk Factors

     4   

Use of Proceeds

     4   

Ratio of Earnings to Fixed Charges

     4   

Description of Capital Stock

     5   

Description of Debt Securities

     6   

Description of Warrants

     19   

Description of Purchase Contracts

     20   

Description of Units

     21   

Forms of Securities

     21   

Plan of Distribution

     23   

Validity of Securities

     24   

Experts

     24   
 

 

S-i


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ABOUT THIS PROSPECTUS SUPPLEMENT

This prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the Securities and Exchange Commission using a shelf registration process.

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying prospectus. The second part, the accompanying prospectus, gives more general information, some of which does not apply to this offering.

Both this prospectus supplement and the accompanying prospectus include or incorporate by reference important information about us, our common stock and other information you should know before investing. You should read both this prospectus supplement and the accompanying prospectus as well as additional information described under “Where You Can Find More Information” in this prospectus supplement before investing in our Class A common stock.

Neither we nor the underwriters have authorized anyone to provide you with any information other than that contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

Unless the context otherwise requires, in this prospectus supplement the words “the Company,” “Tyson,” “we,” “us,” and “our” refer to Tyson Foods, Inc. and not to any of its subsidiaries.

Unless we specifically state otherwise, the information in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, assumes the completion of the concurrent tangible equity units offering described herein and that the underwriters for this offering of Class A common stock do not exercise their over-allotment option to purchase additional shares of Class A common stock. In addition, unless we specifically state otherwise, the information in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, does not give effect to the Hillshire Brands Acquisition or the Debt Financings (each as defined below).

During the second quarter of fiscal 2014, we began reporting our International operations as a separate segment, which was previously included in our Chicken segment. All amounts in this prospectus supplement reflect this reclassification, and all references to our Annual Report on Form 10-K for the fiscal year ended September 28, 2013 and to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 shall be deemed to include the reclassified amounts set forth in our Current Reports on Form 8-K filed with the Securities and Exchange Commission on July 28, 2014.

 

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public from the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room in Washington, D.C. located at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our Class A common stock is listed and traded on the New York Stock Exchange, or “NYSE.” You may also inspect the information we file with the SEC at the NYSE’s offices at 20 Broad Street, New York, New York 10005. Information about us, including certain SEC filings, is also available at our website at http://ir.tyson.com. However, the information on our website is not a part of this prospectus supplement or the accompanying prospectus.

The SEC allows us to “incorporate by reference” in this prospectus supplement and the accompanying prospectus the information in other documents that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated or deemed to be incorporated by reference is considered to be a part of this prospectus supplement and the accompanying prospectus, and information in documents that we file later with the SEC will automatically update and supersede information contained in documents filed earlier with the SEC or contained in this prospectus supplement and the accompanying prospectus.

We incorporate by reference in this prospectus supplement and the accompanying prospectus the documents listed below and any future filings that we may make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” prior to the termination of the offering under this prospectus supplement and the accompanying prospectus (provided, however, that we are not incorporating, in each case, any documents or information deemed to have been furnished and not filed in accordance with SEC rules):

 

    Our Annual Report on Form 10-K for the fiscal year ended September 28, 2013, including those portions of our Definitive Proxy Statement on Schedule 14A filed on December 20, 2013 that are specifically incorporated by reference into such Annual Report on Form 10-K (except for Part I, Items 1 and 2 and Part II, Items 6, 7 and 8, which were superseded by Part I, Items 1 and 2 and Part II, Items 6, 7 and 8, respectively, included in the Current Report on Form 8-K filed on July 28, 2014);

 

    Our Quarterly Reports on Form 10-Q for the quarters ended December 28, 2013 (except for Part I, Items 1 and 2, which were superseded by Part I, Items 1 and 2, respectively, included in the Current Report on Form 8-K filed on July 28, 2014) and March 29, 2014;

 

    Our Current Reports on Form 8-K filed with the SEC on February 4, 2014, June 4, 2014, June 10, 2014, July 1, 2014, July 2, 2014, July 17, 2014 and July 28, 2014 (except for Item 2.02 and related Exhibit 99.1); and

 

    Our Registration Statement on Form 8-A dated October 14, 1997.

In addition, we incorporate by reference in this prospectus supplement the risk factors disclosed in Part I, Item 1A of Hillshire Brands’ Annual Report on Form 10-K for the fiscal year ended June 29, 2013.

You may obtain a copy of any or all of the documents referred to above which may have been or may be incorporated by reference into this prospectus supplement and the accompanying prospectus (excluding certain exhibits to the documents) at no cost to you by writing or telephoning us at the following address:

Investor Relations Department

Tyson Foods, Inc.

2200 Don Tyson Parkway

Springdale, AR 72762-6999

(479) 290-4524

 

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This prospectus contains or incorporates by reference a number of forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward- looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. Such forward-looking statements include, but are not limited to, current views and estimates of our outlook for fiscal 2014, other future economic circumstances, industry conditions in domestic and international markets, our performance and financial results (e.g., debt levels, 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 from anticipated results and expectations expressed in such forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following: (i) the effect of, or changes in, general economic conditions; (ii) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy; (iii) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins; (iv) successful rationalization of existing facilities and operating efficiencies of the facilities; (v) risks associated with our commodity purchasing activities; (vi) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics; (vii) outbreak of a livestock disease (such as avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an adverse effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets; (viii) changes in availability and relative costs of labor and contract growers and our ability to maintain good relationships with employees, labor unions, contract growers and independent producers providing us livestock; (ix) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (x) changes in consumer preference and diets and our ability to identify and react to consumer trends; (xi) significant marketing plan changes by large customers or loss of one or more large customers; (xii) adverse results from litigation; (xiii) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook; (xiv) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws; (xv) our ability to make effective acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations; (xvi) effectiveness of advertising and marketing programs; and (xvii) those factors listed under Item 1A. “Risk Factors” included in our Annual Report filed on Form 10-K for the year ended September 28, 2013 and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. You should refer to the “Risk Factors” section of this prospectus supplement and the accompanying prospectus and to the Company’s periodic and current reports filed with the SEC for specific risks which would cause actual results to be significantly different from those expressed or implied by these forward-looking statements. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Accordingly, readers of this prospectus supplement and the accompanying prospectus are cautioned not to place undue reliance on the forward-looking statements.

 

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IMPORTANT INFORMATION FOR INVESTORS AND SECURITYHOLDERS

This communication is not an offer to buy or the solicitation of an offer to sell any securities of Hillshire Brands. A solicitation and an offer to buy shares of Hillshire Brands common stock is being made pursuant to a Tender Offer Statement (including an offer to purchase, a related letter of transmittal and other offer documents) that HMB Holdings, Inc., a wholly owned subsidiary of Tyson Foods, Inc., has filed with the U.S. Securities and Exchange Commission (the “SEC”). Hillshire Brands has also filed a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. Investors and Stockholders are urged to read the Tender Offer Statement (including an offer to purchase, a related letter of transmittal and other offer documents) and the Solicitation/Recommendation Statement on Schedule 14D-9, as well as other documents filed with the SEC, because they contain important information. The Tender Offer Statement and Solicitation/Recommendation Statement on Schedule 14D-9 have been sent free of charge to Hillshire Brands stockholders and these and other materials filed with the SEC may also be obtained from Hillshire Brands upon written request to the Investor Relations Department, 400 South Jefferson Street, Chicago, Illinois 60607, telephone number (312) 614-8100 or from Hillshire Brands’ website, http://investors.hillshirebrands.com. In addition, all of these materials (and all other documents filed with the SEC) will be available at no charge from the SEC through its website at www.sec.gov, or by directing requests for such materials to MacKenzie Partners, Inc., the Information Agent for the offer, at (800) 322-2885 (please call (212) 929-5500 (collect) if you are located outside the U.S.).

 

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SUMMARY

This summary highlights selected information contained elsewhere in or incorporated by reference in this prospectus supplement and the accompanying prospectus. This summary may not contain all the information that you should consider before investing in our Class A common stock. You should carefully read the entire prospectus supplement and the accompanying prospectus, including the section entitled “Risk Factors,” the documents incorporated by reference in this prospectus supplement and the accompanying prospectus and our consolidated financial statements and related notes incorporated by reference in this prospectus supplement and the accompanying prospectus, before making an investment decision.

OUR COMPANY

Founded in 1935, we are one of the world’s largest meat protein companies and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations are conducted in five segments: Chicken, Beef, Pork, Prepared Foods and International. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost and availability of live cattle and hogs, raw materials, grain and feed ingredients; and operating efficiencies of our facilities.

We operate a fully vertically integrated poultry production process. Our integrated operations consist of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through our wholly-owned subsidiary, Cobb-Vantress, Inc., we are one of the leading poultry breeding stock suppliers in the world. Investing in breeding stock research and development allows us to breed into our flocks the characteristics found to be most desirable.

We also process live fed cattle and hogs and fabricate dressed beef and pork carcasses into primal and sub-primal meat cuts, case ready beef and pork and fully-cooked meats. In addition, we derive value from allied products such as hides and variety meats sold to further processors and others.

We produce a wide range of fresh, value-added, frozen and refrigerated food products. Our products are marketed and sold primarily by our sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, military commissaries, industrial food processing companies, chain restaurants or their distributors, international export companies and domestic distributors who serve restaurants, foodservice operations such as plant and school cafeterias, convenience stores, hospitals and other vendors. Additionally, sales to the military and a portion of sales to international markets are made through independent brokers and trading companies.

On July 1, 2014, The Hillshire Brands Company, or Hillshire Brands, accepted an offer from us to be acquired at a price of $63.00 per share, as described below under “—Recent Developments.” Hillshire Brands is a manufacturer and marketer of high-quality, brand name food products. A leader in branded, convenient foods for the retail and foodservice markets, Hillshire Brands generated $3,920 million of net sales in the year ended June 29, 2013 and had approximately 9,100 employees at that time. Hillshire Brands’ portfolio includes iconic brands such as Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Sara Lee frozen bakery and Chef Pierre pies, as well as artisanal brands Aidells, Gallo Salame, Van’s Natural Foods and Golden Island premium jerky.

 

 

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We believe that the Hillshire Brands acquisition will provide us with several strategic and financial benefits, including:

 

    Compelling Investment Consistent with Strategic Priorities—We believe that Hillshire Brands’ product portfolio will provide us with growth in higher margin, branded foods. We believe this product portfolio will complement our existing product portfolio, and provide us with added presence in the convenience and snack foods markets.

 

    Create Market Leading Integrated Protein Platform—We believe that the addition of Hillshire Brands’ raw material platform will generate scale and profitability in our existing prepared foods business across both branded private label products and commodity products.

 

    Synergy Opportunity—We believe that the Hillshire Brands Acquisition presents meaningful synergy opportunities, including in the areas of purchasing, distribution, supply chain, raw material utilization and brand building.

CORPORATE INFORMATION

Tyson Foods, Inc. commenced business in 1935, was incorporated in Arkansas in 1947, and was reincorporated in Delaware in 1986.

Our principal executive offices are located at 2200 Don Tyson Parkway, Springdale, Arkansas 72762-6999. Our telephone number is (479) 290-4000. Our website is www.tysonfoods.com. Information on our website is not part of this prospectus supplement.

RECENT DEVELOPMENTS

Proposed Hillshire Brands Acquisition

On June 8, 2014, we submitted to Hillshire Brands a unilaterally binding offer to acquire it for $63.00 per share in cash. The offer was accompanied by a definitive agreement and plan of merger (the “Merger Agreement”) among Tyson, HMB Holdings, Inc., a Maryland corporation and a wholly-owned subsidiary of Tyson (“Merger Sub”), and Hillshire Brands, which was executed by Tyson and Merger Sub. The offer was contingent upon the termination of the merger agreement between Hillshire Brands and Pinnacle Foods, Inc., which occurred on July 1, 2014, at which time Hillshire Brands accepted the offer and executed the Merger Agreement. The Merger Agreement required that we pay to or on behalf of Hillshire Brands the termination fee of $163.0 million due to Pinnacle upon termination of the merger agreement between Hillshire Brands and Pinnacle Foods, Inc. We refer in this prospectus supplement to our acquisition of Hillshire Brands to the extent set forth in, and pursuant to, the Merger Agreement as the “Hillshire Brands Acquisition.”

On July 16, 2014, pursuant to the Merger Agreement, we commenced a tender offer to purchase all of the issued and outstanding shares of Hillshire Brands’ common stock at a purchase price of $63.00 per share in cash, without interest. The tender offer is scheduled to expire on August 12, 2014 and is subject to the condition that two-thirds of the outstanding shares of Hillshire Brands common stock shall have been validly tendered prior to the expiration of the tender offer and not withdrawn. The Merger Agreement also contains other customary conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Subject to certain conditions and limitations, Hillshire Brands granted Tyson an option to purchase from Hillshire Brands after the successful completion of the tender offer enough additional Hillshire Brands shares so that Tyson will own more than 90% of the outstanding shares of Hillshire Brands’ common stock, in order to facilitate the completion of the merger through the “short-form” procedures available under Maryland law. Following the consummation of the tender offer, and subject to the satisfaction or

 

 

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waiver of certain conditions set forth in the Merger Agreement, the Merger Agreement provides that Merger Sub will merge with and into Hillshire Brands, with Hillshire Brands surviving the merger as our wholly-owned subsidiary. At and following consummation of the merger, any remaining outstanding shares of Hillshire Brands common stock not owned, directly or indirectly, by us, Merger Sub or Hillshire Brands will be converted into the right to receive $63.00 per share in cash, without interest. Appraisal rights are not available under Maryland law for the tender offer or the merger.

Financing Transactions

In addition to this offering, we intend to obtain or otherwise incur additional financing for the Hillshire Brands Acquisition as follows:

Tangible Equity Units Offering. Concurrently with this offering, we are offering 30,000,000 of our tangible equity units pursuant to a separate prospectus supplement. The underwriters do not have the option to purchase any additional tangible equity units to cover over-allotments or otherwise. We expect to raise approximately $1,500.0 million in aggregate gross proceeds from the tangible equity units offering.

Debt Financings. We intend to obtain or otherwise incur up to approximately $5,750.0 million of indebtedness to fund the Hillshire Brands Acquisition, and related fees and expenses, which we refer to in this prospectus supplement as the “Debt Financings.” We currently expect that the Debt Financings will include:

 

    three-year and five-year senior unsecured term loans in an aggregate principal amount of up to approximately $2,500.0 million, which we refer to in this prospectus supplement as the “New Term Loans”; and

 

    one or more series of senior unsecured notes in an aggregate principal amount of up to approximately $3,250.0 million, which we refer to in this prospectus supplement as the “New Notes.”

On June 27, 2014, we also amended our existing revolving credit facility to, among other things, permit the Hillshire Brands Acquisition without resulting in the occurrence of a default or event of default under that facility. However, we do not expect to draw under this facility to fund any portion of the Hillshire Brands Acquisition. See “Description of Indebtedness.”

The completion of this Class A common stock offering is not contingent upon the completion of the tangible equity units offering, the Debt Financings or the Hillshire Brands Acquisition. Accordingly, even if the Hillshire Brands Acquisition or the other financing transactions do not occur, the shares of our Class A common stock sold in this offering will remain outstanding, and we will not have any obligation to offer to repurchase any or all of the shares of Class A common stock sold in this offering.

In addition, if the Hillshire Brands Acquisition is not consummated, we do not expect any debt under the proposed Debt Financings to be outstanding, other than the New Notes, which we expect to contain a special mandatory redemption requirement if the Hillshire Brands Acquisition is not consummated by a specified date. See “Use of Proceeds.”

We cannot assure you that we will complete the Hillshire Brands Acquisition or any of the other financing transactions on the terms contemplated in this prospectus supplement or at all.

 

 

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Preliminary Financial and Other Information for the Quarterly Period Ended June 28, 2014

On July 28, 2014, we issued a press release reporting the following preliminary results:

 

(in millions, except per share data)

   Third Quarter     Nine Months  
   2014     2013     2014     2013  

Sales

   $ 9,682      $ 8,731      $ 27,475      $ 25,480   

Operating Income

     351        419        1,124        959   

Income from Continuing Operations

     258        249        720        589   

Loss from Discontinued Operation, Net of Tax

            (4            (70
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     258        245        720        519   

Less: Net Income (Loss) Attributable to Noncontrolling Interests

     (2 )      (4     (7 )      2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Tyson

   $ 260      $ 249      $ 727      $ 517   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted¹ Operating Income from Continuing Operations

   $ 407      $ 419      $ 1,180      $ 959   

Net Income Per Share from Continuing Operations Attributable to Tyson

   $ 0.73      $ 0.69      $ 2.05      $ 1.61   

Adjusted¹ Net Income Per Share from Continuing Operations Attributable to Tyson

   $ 0.75      $ 0.69      $ 2.07      $ 1.56   

Net Income Per Share Attributable to Tyson

   $ 0.73      $ 0.68      $ 2.05      $ 1.42   

Adjusted¹ Net Income Per Share Attributable to Tyson

   $ 0.75      $ 0.68      $ 2.07      $ 1.52   

 

¹ Adjusted operating income and adjusted EPS is explained and reconciled to comparable GAAP measure below.

Third Quarter Highlights

 

    Reported EPS was $0.73; Adjusted EPS up 9% to $0.75 compared to EPS from continuing operations of $0.69 in third quarter of fiscal 2013

 

    Quarterly sales up to $9.7 billion resulting in 11% increase over third quarter of fiscal 2013

 

    Adjusted operating margin was 4.2%

 

    Acquisition of the Hillshire Brands on track for closing in fourth quarter of fiscal 2014

Segment Performance Review (in millions)

 

Sales

(for the third quarter and nine months ended June 28, 2014, and June 29, 2013)

 
     Third Quarter     Nine Months  
     2014     2013     Volume
Change
    Avg. Price
Change
    2014     2013     Volume
Change
    Avg. Price
Change
 

Chicken

   $ 2,829      $ 2,820        1.3     (1.0 )%    $ 8,327      $ 8,148        2.7     (0.5 )% 

Beef

     4,189        3,723        (0.9 )%      13.5     11,748        10,655        0.4     9.8

Pork

     1,766        1,332        5.0     26.3     4,677        4,006        1.1     15.4

Prepared Foods

     901        797        4.0     8.7     2,669        2,441        5.2     4.0

International

     365        343        17.2     (9.2 )%      1,020        1,001        14.0     (10.6 )% 

Other

                   n/a        n/a               47        n/a        n/a   

Intersegment Sales

     (368     (284     n/a        n/a        (966     (818     n/a        n/a   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 9,682      $ 8,731        2.2 %      8.5 %    $ 27,475      $ 25,480        2.5 %      5.4 % 
  

 

 

   

 

 

       

 

 

   

 

 

     

 

 

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Operating Income (Loss)

(for the third quarter and nine months ended June 28, 2014, and June 29, 2013)

 
     Third Quarter     Nine Months  
                 Operating Margin                  Operating Margin  
     2014     2013     2014     2013     2014     2013      2014     2013  

Chicken

   $ 195      $ 215        6.9     7.6   $ 682      $ 471         8.2     5.8

Beef

     101        114        2.4     3.1     194        134         1.7     1.3

Pork

     128        67        7.2     5.0     356        264         7.6     6.6

Prepared Foods

     (50     24        (5.5 )%      3.0     (13     85         (0.5 )%      3.5

International

     (15     5        (4.1 )%      1.5     (73             (7.2 )%     

Other

     (8     (6     n/a        n/a        (22     5         n/a        n/a   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 351      $ 419        3.6 %      4.8 %    $ 1,124      $ 959         4.1 %      3.8 % 
  

 

 

   

 

 

       

 

 

   

 

 

      

 

Note:   During the second quarter of fiscal 2014, we began reporting our International operation as a separate segment, which was previously included in our Chicken segment. The International segment includes our foreign operations related to raising and processing live chickens in Brazil, China, India and Mexico. All periods presented have been reclassified to reflect this change.

Third quarter and nine months of fiscal 2014

 

    Operating income was reduced by $49 million in the Prepared Foods segment for impairments related to the closure of three plants.

 

    Operating income was reduced by $7 million in Other for third party transaction fees incurred as part of the Hillshire Brands acquisition.

 

    Chicken—Sales volumes for the third quarter and nine months of fiscal 2014 grew as a result of stronger demand for chicken products and mix of rendered product sales. Average sales price decreased as feed ingredient costs declined, partially offset by mix changes. Operating income for the third quarter of fiscal 2014 was negatively impacted by rapidly rising costs of outside meat purchases as well as operational disruptions at two of our facilities. For the nine months of fiscal 2014, operating income increased due to higher sales volume and lower feed ingredient costs, partially offset by decreased average sales price. Feed costs decreased $120 million and $460 million for the third quarter and nine months of fiscal 2014, respectively.

 

    Beef—Sales volumes decreased for the third quarter of fiscal 2014 due to a reduction in live cattle processed. However, sales volumes were up for the nine months of fiscal 2014 due to better domestic demand for our beef products, partially offset by reduced exports. Average sales price increased due to lower domestic availability of fed cattle supplies, which additionally drove up livestock costs. Operating income decreased for the third quarter of fiscal 2014 due to higher fed cattle costs and periods of reduced demand for beef products, which made it difficult to pass along increased input costs, as well as lower sales volumes and increased operating costs. For the nine months of fiscal 2014, operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets, partially offset by increased operating costs.

 

    Pork—Sales volumes increased as a result of better domestic demand for our pork products. Average sales price increased due to lower total hog supplies, which additionally resulted in higher input costs. Operating income increased as we maximized our revenues relative to live hog markets, partially attributable to operational and mix performance.

 

   

Prepared Foods—Sales volumes increased as a result of improved demand for our prepared foods products and incremental volumes from the purchase of three businesses. Average sales price increased due to better product mix and price increases associated with higher input costs. Operating income

 

 

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decreased as a result of higher raw material and other input costs of approximately $95 million and $160 million for the third quarter and nine months of fiscal 2014, respectively, and additional costs incurred as we invested in our growth platforms. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect. Additionally, in the third quarter of fiscal 2014, we incurred a $49 million impairment charge related to the planned closure of three plants, which are expected to cease operation by mid-fiscal 2015.

 

    International—Sales volumes increased as we grew our businesses in Brazil and China. Average sales price decreased due to poor export market conditions in Brazil, supply imbalances associated with weak demand in China and a less favorable pricing environment in Mexico. Operating income decreased due to poor operational execution in Brazil, challenging market conditions in Brazil and China and additional costs incurred as we grew our International operation.

 

 

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TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     June 28, 2014     June 29, 2013     June 28, 2014     June 29, 2013  

Sales

   $ 9,682      $ 8,731      $ 27,475      $ 25,480   

Cost of Sales

     9,045        8,049        25,502        23,791   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     637        682        1,973        1,689   

Selling, General and Administrative

     286        263        849        730   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     351        419        1,124        959   

Other (Income) Expense:

        

Interest income

     (1     (2     (6     (5

Interest expense

     25        36        78        109   

Other, net

     17               18        (19
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Income) Expense

     41        34        90        85   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations before Income Taxes

     310        385        1,034        874   

Income Tax Expense

     52        136        314        285   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations

     258        249        720        589   

Loss from Discontinued Operation, Net of Tax

            (4            (70
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     258        245        720        519   

Less: Net Income (Loss) Attributable to Noncontrolling Interests

     (2     (4     (7     2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Tyson

   $ 260      $ 249      $ 727      $ 517   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to Tyson:

        

Net Income from Continuing Operations

     260        253        727        587   

Net Loss from Discontinued Operation

            (4            (70
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Tyson

   $ 260      $ 249      $ 727      $ 517   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding:

        

Class A Basic

     280        283        275        284   

Class B Basic

     70        70        70        70   

Diluted

     356        369        355        366   

Net Income Per Share from Continuing Operations Attributable to Tyson:

        

Class A Basic

   $ 0.75      $ 0.73      $ 2.15      $ 1.69   

Class B Basic

   $ 0.68      $ 0.66      $ 1.94      $ 1.52   

Diluted

   $ 0.73      $ 0.69      $ 2.05      $ 1.61   

Net Loss Per Share from Discontinued Operation Attributable to Tyson:

        

Class A Basic

   $      $ (0.01   $      $ (0.20

Class B Basic

   $      $ (0.02   $      $ (0.18

Diluted

   $      $ (0.01   $      $ (0.19

Net Income Per Share Attributable to Tyson:

        

Class A Basic

   $ 0.75      $ 0.72      $ 2.15      $ 1.49   

Class B Basic

   $ 0.68      $ 0.64      $ 1.94      $ 1.34   

Diluted

   $ 0.73      $ 0.68      $ 2.05      $ 1.42   

Dividends Declared Per Share:

        

Class A

   $ 0.075      $ 0.050      $ 0.250      $ 0.260   

Class B

   $ 0.068      $ 0.045      $ 0.226      $ 0.234   

Sales Growth

     10.9       7.8  

Margins: (Percent of Sales)

        

Gross Profit

     6.6     7.8     7.2     6.6

Operating Income

     3.6     4.8     4.1     3.8

Income from Continuing Operations

     2.7     2.9     2.6     2.3

Effective Tax Rate for Continuing Operations

     16.8     35.4     30.4     32.6

 

 

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TYSON FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

(Unaudited)

 

     June 28, 2014      September 28,
2013
 

Assets

     

Current Assets:

     

Cash and cash equivalents

   $ 587       $ 1,145   

Accounts receivable, net

     1,624         1,497   

Inventories

     3,061         2,817   

Other current assets

     241         145   
  

 

 

    

 

 

 

Total Current Assets

     5,513         5,604   

Net Property, Plant and Equipment

     3,941         4,053   

Goodwill

     1,925         1,902   

Intangible Assets

     151         138   

Other Assets

     525         480   
  

 

 

    

 

 

 

Total Assets

   $ 12,055       $ 12,177   
  

 

 

    

 

 

 

Liabilities and Shareholders’ Equity

     

Current Liabilities:

     

Current debt

   $ 41       $ 513   

Accounts payable

     1,496         1,359   

Other current liabilities

     1,075         1,138   
  

 

 

    

 

 

 

Total Current Liabilities

     2,612         3,010   

Long-Term Debt

     1,784         1,895   

Deferred Income Taxes

     404         479   

Other Liabilities

     545         560   

Total Tyson Shareholders’ Equity

     6,694         6,201   

Noncontrolling Interests

     16         32   
  

 

 

    

 

 

 

Total Shareholders’ Equity

     6,710         6,233   
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 12,055       $ 12,177   
  

 

 

    

 

 

 

 

 

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TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Nine Months Ended  
     June 28, 2014     June 29, 2013  

Cash Flows From Operating Activities:

    

Net income

   $ 720      $ 519   

Depreciation and amortization

     382        387   

Deferred income taxes

     (64     (21

Convertible debt discount

     (92       

Other, net

     76        80   

Net changes in working capital

     (479     (193
  

 

 

   

 

 

 

Cash Provided by Operating Activities

     543        772   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Additions to property, plant and equipment

     (437     (425

Purchases of marketable securities

     (25     (123

Proceeds from sale of marketable securities

     24        22   

Acquisitions, net of cash acquired

     (56     (106

Other, net

     44        36   
  

 

 

   

 

 

 

Cash Used for Investing Activities

     (450     (596
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Payments on debt

     (407     (69

Net proceeds from borrowings

     28        48   

Purchases of Tyson Class A common stock

     (286     (298

Dividends

     (76     (87

Stock options exercised

     61        93   

Other, net

     26        13   
  

 

 

   

 

 

 

Cash Used for Financing Activities

     (654     (300
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash

     3        (4
  

 

 

   

 

 

 

Decrease in Cash and Cash Equivalents

     (558     (128

Cash and Cash Equivalents at Beginning of Year

     1,145        1,071   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 587      $ 943   
  

 

 

   

 

 

 

 

 

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TYSON FOODS, INC.

EBITDA Reconciliations

(In millions)

(Unaudited)

 

     Nine Months Ended     Fiscal Year Ended     Twelve Months Ended  
     June 28, 2014     June 29, 2013     September 28, 2013     June 28, 2014  

Net income

   $ 720      $ 519      $ 778      $ 979   

Less: Interest income

     (6     (5     (7     (8

Add: Interest expense

     78        109        145        114   

Add: Income tax expense(a)

     314        287        409        436   

Add: Depreciation

     362        354        474        482   

Add: Amortization(b)

     15        12        17        20   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 1,483      $ 1,276      $ 1,816      $ 2,023   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross debt

       $ 2,408      $ 1,825   

Less: Cash and cash equivalents

         (1,145     (587

Less: Short-term investments

         (1     (2
      

 

 

   

 

 

 

Total net debt

       $ 1,262      $ 1,236   
      

 

 

   

 

 

 

Ratio Calculations:

        

Gross debt/EBITDA

         1.3x        0.9x   

Net debt/EBITDA

         0.7x        0.6x   

 

(a) Includes income tax expense of discontinued operation.
(b) Excludes the amortization of debt discount expense of $5 million and $21 million for the nine months ended June 28, 2014, and June 29, 2013, respectively, and $28 million for the fiscal year ended September 28, 2013, as it is included in Interest expense.

EBITDA represents net income, net of interest, income tax and depreciation and amortization. EBITDA is presented as a supplemental financial measurement in the evaluation of our business. We believe the presentation of this financial measure helps investors to assess our operating performance from period to period and enhances understanding of our financial performance and highlights operational trends. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies. However, the measurement of EBITDA may not be comparable to those of other companies in our industry, which limits its usefulness as a comparative measure. EBITDA is not a measure required by or calculated in accordance with GAAP and should not be considered as a substitute for net income or any other measure of financial performance reported in accordance with GAAP or as a measure of operating cash flow or liquidity. EBITDA is a useful tool for assessing, but is not a reliable indicator of, our ability to generate cash to service our debt obligations because certain of the items added to net income to determine EBITDA involve outlays of cash. As a result, actual cash available to service our debt obligations will be different from EBITDA. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.

 

 

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TYSON FOODS, INC.

EPS Reconciliations

(Unaudited)

 

     Three Months Ended      Nine Months Ended  
     June 28, 2014     June 29, 2013      June 28, 2014     June 29, 2013  

Reported net income from continuing operations per share attributable to Tyson

   $ 0.73      $ 0.69       $ 2.05      $ 1.61   

Less: $19 million recognized currency translation adjustment gain

                           (0.05

Less: $40 million gain on unrecognized tax benefit

     (0.11             (0.11       

Add: $29 million Hillshire Brands Acquisition fees paid to third parties

     0.05                0.05          

Add: $49 million impairment due to closure of three facilities

     0.08                0.08          
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income from continuing operations per share attributable to Tyson

   $ 0.75      $ 0.69       $ 2.07      $ 1.56   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

     Three Months Ended      Nine Months Ended  
     June 28, 2014     June 29, 2013      June 28, 2014     June 29, 2013  

Reported net income per share attributable to Tyson

   $ 0.73      $ 0.68       $ 2.05      $ 1.42   

Less: $19 million recognized currency translation adjustment gain

                           (0.05

Add: $56 million impairment of non-core assets in China

                           0.15   

Less: $40 million gain on unrecognized tax benefit

     (0.11             (0.11       

Add: $29 million Hillshire Brands Acquisition fees paid to third parties

     0.05                0.05          

Add: $49 million impairment due to closure of three facilities

     0.08                0.08          
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per share attributable to Tyson

   $ 0.75      $ 0.68       $ 2.07      $ 1.52   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per share attributable to Tyson (adjusted EPS) and adjusted net income from continuing operations per share attributable to Tyson (adjusted continuing EPS) are presented as supplementary financial measurements in the evaluation of our business. We believe the presentation of adjusted EPS and adjusted continuing EPS helps investors to assess our financial performance from period to period and enhances understanding of our financial performance. However, adjusted EPS and adjusted continuing EPS may not be comparable to those of other companies in our industry, which limits the usefulness as comparative measures. Adjusted EPS and adjusted continuing EPS are not measures required by or calculated in accordance with GAAP and should not be considered as substitutes for any measure of financial performance reported in accordance with GAAP. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.

 

 

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TYSON FOODS, INC.

Operating Income Reconciliation

(Unaudited)

 

     Three Months Ended      Nine Months Ended  
     June 28, 2014      June 29, 2013      June 28, 2014      June 29, 2013  

Reported from continuing operations

   $ 351       $ 419       $ 1,124       $ 959   

Add: Hillshire Brands Acquisition fees paid to third parties

     7                 7           

Add: Impairment due to closure of three facilities

     49                 49           
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted from continuing operations

   $ 407       $ 419       $ 1,180       $ 959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted operating income from continuing operations is presented as supplementary financial measurements in the evaluation of our business. We believe the presentation of adjusted operating income helps investors assess our financial performance from period to period and enhance understanding of our financial performance. However, adjusted operating income may not be comparable to those of other companies in our industry, which limits the usefulness as comparative measures. Adjusted operating income is not a measure required by or calculated in accordance with GAAP and should not be considered as a substitute for any measures of financial performance reported in accordance with GAAP. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally in making investment decisions.

The preliminary financial data included in this prospectus supplement has been prepared by and is the responsibility of our management. PricewaterhouseCoopers LLP has not audited, reviewed, or compiled the accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

 

 

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THE OFFERING

 

Issuer

  

Tyson Foods, Inc., a Delaware corporation

Class A Common Stock Offered

  

23,810,000 shares

Common Stock to be Outstanding After this Offering (excluding treasury shares)

  

Class A

  

305,552,209 shares

Class B

  

70,010,805 shares

Total

  

375,563,014 shares

Use of Proceeds

  

We estimate that the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $873 million (or approximately $1,004 million if the underwriters exercise their over-allotment option in full). We intend to use the net proceeds from this offering, together with the net proceeds of the concurrent tangible equity units offering, the Debt Financings and cash on hand to finance the Hillshire Brands Acquisition and to pay related fees and expenses. If for any reason the Hillshire Brands Acquisition is not consummated, then we intend to use the net proceeds from this offering for general corporate purposes. See “—Recent Developments” above.

 

As required by the Merger Agreement, the net proceeds of this offering and the concurrent tangible equity units offering (net of our good faith estimate of offering fees and expenses) will be placed into an escrow account, pending release upon consummation of, and to partially fund, the Hillshire Brands Acquisition (or, if earlier, upon termination of the Merger Agreement).

Concurrent Tangible Equity Units Offering

   Concurrently with this offering of Class A common stock, we are offering 30,000,000 of our 4.75% tangible equity units, each with a stated amount of $50, in an underwritten public offering pursuant to a separate prospectus supplement. The underwriters do not have the option to purchase any additional tangible equity units to cover over-allotments or otherwise. We estimate that the net proceeds from the tangible equity units offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $1,454 million, although there can be no assurance that the tangible equity units offering will be completed. The completion of this Class A common stock offering is not contingent on the completion of the tangible equity units offering and the completion

 

 

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   of the tangible equity units offering is not contingent on the completion of this Class A common stock offering. Neither this Class A common stock offering nor the tangible equity units offering is contingent on the consummation of the Hillshire Brands Acquisition or any additional debt financing. See “Description of Tangible Equity Units.”

NYSE Trading Symbol

   Our Class A common stock is listed on the New York Stock Exchange under the symbol “TSN.”

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Class A Common Stock

  


You should consult your tax advisor with respect to the U.S. federal income tax consequences of owning the Class A common stock in light of your own particular situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction. See “Material U.S. Federal Tax Considerations for Non-U.S. Holders of Class A Common Stock.”

Risk Factors

   See “Risk Factors” beginning on page S-17 of this prospectus supplement and other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus for a discussion of the factors you should carefully consider before deciding to invest in the Class A common stock.

The number of shares of our Class A common stock to be outstanding immediately after this offering is based on 23,810,000 shares to be issued in this offering and 281,742,209 shares (excluding treasury shares) outstanding as of July 21, 2014, and excludes:

 

    30,252,134 shares of our Class A common stock available for future grant under our existing equity incentive plans as of July 21, 2014; and

 

    15,529,465 shares of our Class A common stock issuable upon exercise of options and performance stock, outstanding as of July 21, 2014;

 

    3,571,500 shares of our Class A common stock that may be purchased by the underwriters to cover over-allotments.

Holders of our Class B common stock are entitled to ten votes for each share held of record on all matters submitted to a vote of stockholders, including the election of directors. Each share of Class B common stock is convertible into one fully paid and nonassessable share of Class A common stock.

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF TYSON

The following table presents our summary historical consolidated financial data. The summary historical consolidated financial information is derived from the financial statements we have incorporated by reference into this prospectus supplement and the accompanying prospectus.

You should read the summary historical consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and the related notes incorporated by reference into this prospectus supplement and the accompanying prospectus. See “Where You Can Find More Information” in this prospectus supplement.

 

     Fiscal Year Ended     Six Months Ended  
     September 28,
2013
    September 29,
2012
    October 1,
2011
    March 29,
2014
    March 30,
2013
 
     (in millions, except per share data)  

Summary of Operations:

          

Sales

   $ 34,374      $ 33,055      $ 32,032      $ 17,793      $ 16,749   

Cost of sales

     32,016        30,865        29,837        16,457        15,742   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     2,358        2,190        2,195        1,336        1,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     1,375        1,286        1,289        773        540   

Other (income) expense:

          

Interest income

     (7     (12     (11     (5     (3

Interest expense

     145        356        242        53        73   

Other, net

     (20     (23     (20     1        (19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other (income) expense

     118        321        211        49        51   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     1,257        965        1,078        724        489   

Income tax expense

     409        351        340        262        149   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     848        614        738        462        340   

Loss from discontinued operation, net of tax

     (70     (38     (5            (66
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     778        576        733        462        274   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

            (7     (17     (5     6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Tyson

   $ 778      $ 583      $ 750      $ 467      $ 268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per share:

          

Income from continuing operations

   $ 2.31      $ 1.68      $ 1.98      $ 1.32      $ 0.92   

Income (loss) from discontinued operation

     (0.19     (0.10     (0.01            (0.18

Net income

   $ 2.12      $ 1.58      $ 1.97      $ 1.32      $ 0.74   

Balance Sheet Data (at end of period):

          

Cash and cash equivalents

   $ 1,145      $ 1,071      $ 716      $ 438      $ 762   

Total assets

     12,177        11,896        11,071        11,886        11,789   

Net property, plant and equipment

     4,053        4,022        3,823        4,105        4,002   

Total debt

     2,408        2,432        2,182        1,940        2,416   

Total Shareholders’ equity

     6,233        6,042        5,685        6,464        6,114   

Other Financial Data:

          

Cash flow from operations

   $ 1,314      $ 1,187      $ 1,046      $ 265      $ 230   

Depreciation and amortization

     519        499        506        254        259   

Capital expenditures

     558        690        643        293        290   

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF HILLSHIRE BRANDS

The following table presents Hillshire Brands’ summary historical consolidated financial data, which is derived from the Hillshire Brands financial statements that we have incorporated by reference into this prospectus supplement and the accompanying prospectus. You should read the summary historical consolidated financial data together with Hillshire Brands’ historical consolidated financial statements and the related notes incorporated by reference into this prospectus supplement and the accompanying prospectus. See “Where You Can Find More Information” in this prospectus supplement.

 

     Fiscal Year Ended     Nine Months Ended  
     June 29,
2013
    June 30,
2012
    July 2,
2011
    March 29,
2014
    March 30,
2013
 
     (in millions, except per share data)  

Continuing Operations:

          

Net sales

   $ 3,920      $ 3,958      $ 3,884      $ 3,021      $ 2,958   

Cost of sales

     2,758        2,857        2,721        2,150        2,060   

Selling, general and administrative expenses

     855        930        883        609        642   

Net charges for exit activities, asset and business dispositions

     9        81        38        15        7   

Impairment charges

     1        14        15               1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     297        76        227        247        248   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     48        77        92        37        35   

Interest income

     (7     (5     (5     (7     (5

Debt extinguishment costs

            39        55                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before taxes

     256        (35     85        217        218   

Income tax expense (benefit)

     72        (15     27        32        69   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     184        (20     58        185        149   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued Operations:

          

Income from continuing operations net of tax expense(1)

     15        463        483        1        13   

Gain on sale of discontinued operations, net of tax expense(2)

     53        405        731               49   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from discontinued operations

     68        868        1,214        1        62   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     252        848        1,272        186        211   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per share:

          

Income (loss) from continuing operations:

   $ 1.49      $ (0.16   $ 0.46      $ 1.49      $ 1.21   

Net income

   $ 2.04      $ 7.13      $ 10.11      $ 1.50      $ 1.72   

Balance Sheet Data (at end of period):

          

Cash and equivalents

   $ 400      $ 235      $ 74      $ 219      $ 416   

Total assets

     2,434        2,450        9,482        2,531        2,486   

Property, net of accumulated depreciation

     818        847        858        814        824   

Total debt

     951        944        1,911        942        949   

 

(1) Tax expense (benefit) was $(8), $(603) and $82 in the fiscal years ended June 29, 2013, June 30, 2012 and July 2, 2011, respectively, and was $1 and $(7) in the nine months ended March 29, 2014 and March 30, 2013, respectively.
(2) Tax expense was $15, $367 and $573 in the fiscal years ended June 29, 2013, June 30, 2012 and July 2, 2011, respectively, and was nil and $14 in the nine months ended March 29, 2014 and March 30, 2013, respectively.

 

 

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RISK FACTORS

Any investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below and all of the information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus before deciding whether to purchase our Class A common stock. In addition, you should carefully consider, among other things, the matters discussed (i) under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2013, (ii) under “Risk Factors” in Hillshire Brands’ Annual Report on Form 10-K for the fiscal year ended June 29, 2013 and (iii) in other documents that we subsequently file with the Securities and Exchange Commission, all of which are incorporated by reference into this prospectus supplement. The risks and uncertainties described in such incorporated documents and described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of those risks actually occurs, our business, financial condition and results of operations would suffer. In that event, the trading price of our Class A common stock could decline, and you may lose all or part of your investment in our Class A common stock. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Special Note on Forward-Looking Statements.”

Risks Related to the Proposed Hillshire Brands Acquisition

If the Hillshire Brands Acquisition is consummated, we may be unable to successfully integrate Hillshire Brands’ operations or to realize targeted cost savings, revenues and other benefits of the Hillshire Brands Acquisition.

We entered into the Merger Agreement because we believe that the Hillshire Brands Acquisition will be beneficial to us and our stockholders. Achieving the targeted benefits of the Hillshire Brands Acquisition will depend in part upon whether we can integrate Hillshire Brands’ businesses in an efficient and effective manner. We may not be able to accomplish this integration process smoothly or successfully. The necessity of coordinating geographically separated organizations, systems and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. We and Hillshire Brands operate numerous systems, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance. Moreover, the integration of our respective operations will require the dedication of significant management resources, which is likely to distract management’s attention from day-to-day operations. Employee uncertainty and lack of focus during the integration process may also disrupt our business and result in undesired employee attrition. An inability of management to successfully integrate the operations of the two companies could have a material adverse effect on the business, results of operations and financial condition of the combined businesses.

In addition, we continue to evaluate our estimates of synergies to be realized from the Hillshire Brands Acquisition and refine them, so that our actual cost-savings could differ materially from our current estimates. Actual cost-savings, the costs required to realize the cost-savings and the source of the cost-savings could differ materially from our estimates, and we cannot assure you that we will achieve the full amount of cost-savings on the schedule anticipated or at all or that these cost-savings programs will not have other adverse effects on our business. In light of these uncertainties, you should not place undue reliance on our estimated cost-savings.

Finally, we may not be able to achieve the targeted operating or long-term strategic benefits of the Hillshire Brands Acquisition or could incur higher transition costs. An inability to realize the full extent of, or any of, the anticipated benefits of the Hillshire Brands Acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business, results of operations and financial condition.

 

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We will incur significant transaction and acquisition-related costs in connection with the Hillshire Brands Acquisition.

We expect to incur significant costs associated with the Hillshire Brands Acquisition and combining the operations of the two companies, including costs to achieve targeted cost-savings. The substantial majority of the expenses resulting from the Hillshire Brands Acquisition will be composed of transaction costs related to the Hillshire Brands Acquisition, systems consolidation costs, and business integration and employment-related costs, including costs for severance, retention and other restructuring. We may also incur transaction fees and costs related to formulating integration plans. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset incremental transaction and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all.

The announcement and pendency of the Hillshire Brands Acquisition could impact or cause disruptions in our and Hillshire Brands’ businesses.

Specifically:

 

    our and Hillshire Brands’ current and prospective customers and suppliers may experience uncertainty associated with the Hillshire Brands Acquisition, including with respect to current or future business relationships with us, Hillshire Brands or the combined business and may attempt to negotiate changes in existing business;

 

    our and Hillshire Brands’ employees may experience uncertainty about their future roles with us, which may adversely affect our and Hillshire Brands’ ability to retain and hire key employees;

 

    the Hillshire Brands Acquisition may give rise to potential liabilities, including as a result of pending and future Hillshire Brands shareholder lawsuits relating to the Hillshire Brands Acquisition;

 

    if the Hillshire Brands Acquisition is completed, the accelerated vesting of equity-based awards and payment of “change in control” benefits to some members of Hillshire Brands’ management on completion of the Hillshire Brands Acquisition could result in increased difficulty or cost in retaining Hillshire Brands’ officers and employees; and

 

    the attention of our management and that of Hillshire Brands may be directed toward the completion and implementation of the Hillshire Brands Acquisition and transaction-related considerations and may be diverted from the day-to-day business operations of the respective companies.

In connection with the Hillshire Brands Acquisition, we could also encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated in the Hillshire Brands Acquisition, as described in more detail above.

The Hillshire Brands Acquisition may not be successful.

We recently announced our entry into the Merger Agreement to acquire Hillshire Brands. Risks associated with the Hillshire Brands Acquisition include the risk that the transaction may not be consummated, the risk that regulatory approval that may be required for the transaction is not obtained or is obtained subject to certain conditions that are not anticipated, litigation risk associated with claims or potential claims brought by shareholders of Hillshire Brands to enjoin the transaction or seek monetary damages, and risks associated with our ability to issue debt to fund a portion of the purchase price. In addition, if the Hillshire Brands Acquisition does not close, we will have significant discretion to allocate the proceeds from this offering and our concurrent tangible equity units offering to other uses. We have no assurances that we will have opportunities to allocate the proceeds from this offering for other productive uses or that other uses of the proceeds from this offering and our concurrent tangible equity units offering will result in a favorable return to investors.

 

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Risks Related to the Class A Common Stock

The market price of our Class A common stock may be volatile, which could cause the value of your investment to decline.

The market price of our Class A common stock has experienced, and may continue to experience, significant volatility. Between October 2, 2011 (the first day of our fiscal year 2012) and July 30, 2014, the closing sale price of our Class A common stock on the New York Stock Exchange has ranged from a low of $14.17 per share to a high of $44.01 per share. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our Class A common stock. These risks include those described or referred to in this “Risk Factors” section and in the other documents incorporated herein by reference as well as, among other things:

 

    our operating and financial performance and prospects that vary from expectations of management, securities analysts and investors;

 

    our ability to repay our debt or adverse market reactions to any additional debt that we may incur;

 

    developments in our business or in sectors in which we operate generally;

 

    the operating and securities price performance of companies that investors consider to be comparable to us;

 

    investor perceptions of us and the industry and markets in which we operate;

 

    announcements of strategic developments, acquisitions and other material events by us or our competitors;

 

    failure to complete the Hillshire Brands Acquisition and, if completed, failure to realize the anticipated benefits of such acquisition;

 

    our dividend policy;

 

    future sales of equity or equity-related securities;

 

    changes in earnings estimates or buy/sell recommendations by analysts; and

 

    general financial, domestic, international, economic and other market conditions.

In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our Class A common stock, regardless of our operating performance. Furthermore, stockholders may initiate securities class action lawsuits if the market price of our stock drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management. As a result of these factors, among others, the value of your investment may decline, and you may be unable to resell your shares of our Class A common stock at or above the offering price.

Future sales of shares of our Class A common stock may depress its market price.

Sales of substantial numbers of additional shares of Class A common stock, including shares of Class A common stock underlying the tangible equity units and shares issuable upon exercise of outstanding options, restricted stock units or warrants, as well as sales of shares that may be issued in connection with future acquisitions or for other purposes, including to finance our operations and business strategy or to adjust our ratio of debt-to-equity, or the perception that such sales could occur, may have a harmful effect on prevailing market prices for our Class A common stock and our ability to raise additional capital in the financial markets at a time and price favorable to us. The price of our Class A common stock could also be affected by possible sales of our Class A common stock by investors who view the notes being offered in the concurrent notes offering as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity that we expect will develop involving our Class A common stock.

 

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This offering, the concurrent offering of tangible equity units and the issuance of additional stock in connection with acquisitions or otherwise will dilute all other shareholdings.

Upon issuance of the shares of Class A common stock in this offering, holders of our Class A common stock will incur immediate and substantial net tangible book value dilution on a per share basis. After this offering and the concurrent offering of tangible equity units, we will have an aggregate of approximately 524.2 million authorized but unissued shares of Class A common stock (excluding shares reserved for issuance under our option and compensation plans and under the tangible equity units being concurrently offered). Subject to certain volume limitations imposed by the New York Stock Exchange, we may issue all of these shares without any action or approval by our stockholders, including, without limitation, in connection with certain acquisitions. Any shares issued in connection with these activities, the exercise of stock options or otherwise would dilute the percentage ownership held by the investors who purchase our shares in this offering.

If we fail to consummate the Hillshire Brands Acquisition, we may redeem the purchase contracts for an amount of cash and/or a number of shares of our Class A common stock (depending on the price of our Class A common stock at the time of redemption), which could adversely affect you.

If the Hillshire Brands Acquisition is not consummated for any reason, we may redeem all, but not less than all, of the outstanding purchase contracts included in the tangible equity units in the concurrent tangible equity units offering, by delivering notice within the five business days immediately following April 1, 2015. We will pay or deliver, as the case may be, a redemption price to be determined based on the Class A common stock price at that time in cash or in shares of Class A common stock in accordance with the terms of the purchase contracts. If we elect to redeem the purchase contracts, we may be required by the holders of the amortizing notes to repurchase the amortizing notes at the repurchase price set forth in the amortizing notes.

Upon redemption of the purchase contracts included in the tangible equity units or separate purchase contracts upon a merger termination redemption, our Class A common stock may incur immediate net tangible book value dilution on a per share basis.

However, the completion of this Class A common stock offering is not contingent upon the completion of the Hillshire Brands Acquisition. Accordingly, even if the Hillshire Brands Acquisition does not occur, the shares of our Class A common stock sold in this offering will remain outstanding, and we will not have any obligation to offer to repurchase any or all of the shares of Class A common stock sold in this offering.

The concurrent tangible equity units offering may give rise to volatility in the market price of our Class A common stock as a result of arbitrage activity.

We expect that many investors in, and potential purchasers of, the concurrent tangible equity units offering will employ, or seek to employ, an arbitrage strategy with respect to the tangible equity units. Investors that employ an arbitrage strategy with respect to equity linked instruments typically implement that strategy by selling short the common stock underlying the equity linked instruments and dynamically adjusting their short position while they hold such instruments. Investors may also implement this strategy by entering into swaps on our Class A common stock in lieu of or in addition to short selling the Class A common stock. Arbitrage activity undertaken with respect to the concurrent tangible equity units offering could cause the market price of our Class A common stock to fluctuate or decline, materially reduce our stock price and your ability to sell your shares and increase the volatility in our stock price.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $873 million (or approximately $1,004 million if the underwriters exercise their over-allotment option in full). We intend to use the net proceeds from this offering, together with the net proceeds of the concurrent tangible equity units offering, the Debt Financings and cash on hand to finance the Hillshire Brands Acquisition and to pay related fees and expenses. If for any reason the Hillshire Brands Acquisition is not consummated, then we intend to use the net proceeds from this offering for general corporate purposes. See “Summary—Recent Developments.”

As required by the Merger Agreement, the net proceeds of this offering and the concurrent tangible equity units offering (net of our good faith estimate of offering fees and expenses) will be placed into an escrow account, pending release upon consummation of, and to partially fund, the Hillshire Brands Acquisition (or, if earlier, upon termination of the Merger Agreement).

The completion of this Class A common stock offering is not contingent upon the completion of the tangible equity units offering, the Debt Financings or the Hillshire Brands Acquisition. Accordingly, even if the Hillshire Brands Acquisition or the other financing transactions do not occur, the shares of our Class A common stock sold in this offering will remain outstanding, and we will not have any obligation to offer to repurchase any or all of the shares of Class A common stock sold in this offering.

The following table outlines the sources and uses of funds for the Hillshire Brands Acquisition. The table assumes that the Hillshire Brands Acquisition and the financing transactions are completed simultaneously, but this offering and the concurrent tangible equity units offering are expected to occur before completion of the Debt Financings and the Hillshire Brands Acquisition. Amounts in the table are in millions of dollars and are estimated, and actual amounts may vary from the estimated amounts.

 

Sources of Funds

    

Uses of Funds

 

Cash

   $ 362      

Total equity purchase price

   $ 8,081   

Common stock offered hereby(1)

   $ 900      

Transaction fees and expenses(2)

   $ 431   

Tangible equity units offering(1)

   $ 1,500         

Debt Financings(1)

   $ 5,750         
  

 

 

       

 

 

 

Total

   $ 8,512       Total    $ 8,512   
  

 

 

       

 

 

 

 

(1) Before discounts, commissions and expenses and assumes no exercise of the underwriters’ over-allotment option.
(2) Includes discounts, commissions and expenses of this offering.

 

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PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDENDS

Our Class A common stock is traded on the New York Stock Exchange under the symbol “TSN.” No public trading market currently exists for the Class B common stock. Cash dividends cannot be paid to holders of Class B common stock unless they are simultaneously paid to holders of Class A common stock. The per share amount of the cash dividend paid to holders of Class B common stock cannot exceed 90% of the cash dividend simultaneously paid to holders of Class A common stock. We have paid uninterrupted quarterly dividends on common stock each year since 1977. In fiscal 2013, the annual dividend rate for Class A common stock was $0.20 per share and the annual dividend rate for Class B common stock was $0.18 per share. In fiscal 2012, the annual dividend rate for Class A common stock was $0.16 per share and the annual dividend rate for Class B common stock was $0.144 per share. On November 15, 2012, the Board of Directors declared a special dividend of $0.10 per share for Class A common stock and $0.09 per share for Class B common stock, which was paid on December 14, 2012, to shareholders of record on November 30, 2012. Additionally, on November 14, 2013, the Board of Directors increased the quarterly dividend previously declared on August 1, 2013, to $0.075 per share on our Class A common stock and $0.0675 per share on our Class B common stock.

The following table sets forth, for the periods indicated, the high and low closing sales prices of our Class A common stock and per share dividends paid for the Class A common stock and the Class B common stock.

 

     Class A common
stock price range
     Dividends paid
per share
 
     High      Low      Class A      Class B  

Fiscal Year 2014:

           

First Quarter

   $ 33.97       $ 27.56       $ 0.075       $ 0.0675   

Second Quarter

     43.15         33.17         0.075         0.0675   

Third Quarter

     44.01         35.15         0.075         0.0675   

Fourth Quarter (through July 30, 2014)

     40.56         37.54         (a)         (a)   

Fiscal Year 2013:

           

First Quarter

   $ 19.79       $ 16.02       $ 0.15       $ 0.135   

Second Quarter

     24.82         19.40         0.05         0.045   

Third Quarter

     25.88         23.26         0.05         0.045   

Fourth Quarter

     31.83         26.03         0.05         0.045   

Fiscal Year 2012:

           

First Quarter

   $ 20.91       $ 16.68       $ 0.04       $ 0.036   

Second Quarter

     20.37         18.52         0.04         0.036   

Third Quarter

     19.58         17.66         0.04         0.036   

Fourth Quarter

     18.56         14.17         0.04         0.036   

 

(a) A $0.075 Class A dividend per share and a $0.0675 Class B dividend per share are scheduled to be paid in the fourth quarter on September 15, 2014 to holders of record as of August 29, 2014.

On July 30, 2014, the last reported sale price of our Class A common stock on the New York Stock Exchange was $38.20 per share. There were approximately 24,000 holders of record of our Class A common stock as of July 21, 2014.

 

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RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges for the Company for each year in the five year period ended September 28, 2013, and for the six months ended March 29, 2014. For the purposes of calculating the ratio of earnings to fixed charges, “earnings” consist of income (loss) from continuing operations before income taxes, fixed charges and amortization of capitalized interest, but excludes equity method investment earnings and capitalized interest. “Fixed charges” consist of (i) interest on indebtedness, whether expensed or capitalized, (ii) that portion of rental expense the Company believes to be representative of interest (one-third of rental expense) and (iii) amortization of debt discount and expense.

 

Six Months Ended
March 29, 2014

  Fiscal Years
  2013   2012   2011   2010   2009
8.80   6.71   4.58   4.48   4.38   (a)

 

(a) In fiscal 2009, our earnings were insufficient to cover our fixed charges by $540.0 million.

 

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CAPITALIZATION

The following table sets forth our cash position and capitalization as of March 29, 2014:

 

    on an actual basis;

 

    on an as adjusted basis to give effect to this offering (but not the application of the proceeds therefrom), based on the public offering price of $37.80 per share of our common stock, after deducting the underwriting discounts and commissions and estimated offering expenses (assuming no exercise of the underwriters’ over-allotment option to purchase additional shares of our Class A common stock);

 

    on an as further adjusted basis to give effect to the concurrent offering of our 4.75% tangible equity units after deducting the underwriting discounts and commissions and estimated offering expenses (but not the application of the proceeds therefrom); and

 

    on a pro forma as further adjusted basis to give further effect to (i) the Debt Financings and the payment of related fees and expenses and (ii) the Hillshire Brands Acquisition.

This table should be read in conjunction with the other sections of this prospectus supplement and our consolidated financial statements and related notes incorporated by reference in this prospectus supplement, including under “Unaudited Condensed Combined Pro Forma Financial Information.” See “Where You Can Find More Information” in this prospectus supplement. In addition, investors should not place undue reliance on the as adjusted, as further adjusted or pro forma as further adjusted information included below because this offering is not contingent upon completion of any of the transactions reflected in the adjustments below.

 

     As of March 29, 2014  
     (unaudited)  
     Actual     As adjusted     As further
adjusted
    Pro forma as
further
adjusted
 
     ($ in millions, except for share numbers)  

Cash and cash equivalents

   $ 438      $ 1,311      $ 2,766      $ 295   
  

 

 

   

 

 

   

 

 

   

 

 

 

Short-term debt:

        

Current debt

     52        52        117        409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term debt

     52        52        117        409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt:

        

Revolving credit facility

                            

Senior notes:

        

6.60% Senior Notes due April 2016

     638        638        638        638   

7.00% Notes due May 2018

     120        120        120        120   

4.50% Senior Notes due June 2022

     1,000        1,000        1,000        1,000   

7.00% Notes due January 2028

     18        18        18        18   

Discount on senior notes

     (5     (5     (5     (5

Senior amortizing notes that are components of the tangible equity units being offered concurrently (less current portion)

                   140        140   

GO Zone tax-exempt bonds due October 2033 (0.07% at 3/29/14)

     100        100        100        100   

Other

     17        17        17        17   

Hillshire debt (at fair value, less current portion)

                          869   

Debt Financings (less current portion) (1)

                          5,560   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term debt

     1,888        1,888        2,028        8,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total debt

     1,940        1,940        2,145        8,866   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     As of March 29, 2014  
     (unaudited)  
     Actual     As adjusted     As further
adjusted
    Pro forma as
further
adjusted
 
     ($ in millions, except for share numbers)  

Shareholders’ equity:

        

Common stock ($0.10 par value):

        

Class A—authorized 900 million shares; issued 322 million actual; 346 million as adjusted, as further adjusted and pro forma as further adjusted

     32        34        34        34   

Class B—authorized 900 million shares; issued 70 million shares

     7        7        7        7   

Capital in excess of par value

     2,181        3,052        4,307        4,307   

Retained earnings

     5,407        5,407        5,407        5,336   

Accumulated other comprehensive income

     (103     (103     (103     (103

Less treasury stock, at cost—43 million shares

     (1,088     (1,088     (1,088     (1,088
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Tyson shareholders’ equity

     6,436        7,309        8,564        8,493   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noncontrolling interests

     28        28        28        28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     6,464        7,337        8,592        8,521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 8,404      $ 9,277      $ 10,737      $ 17,387   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) If the Hillshire Brands Acquisition is not consummated, we do not expect any debt under the proposed Debt Financings to be outstanding, other than the New Notes, which we expect to contain a special mandatory redemption requirement if the Hillshire Brands Acquisition is not consummated by a specified date. See “Use of Proceeds.”

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On July 1, 2014, Tyson Foods, Inc., a Delaware corporation (“Tyson”), and HMB Holdings, Inc. (“HMB Holdings”), a Maryland corporation and wholly-owned subsidiary of Tyson, entered into a definitive agreement and plan of merger (the “Merger Agreement”) with The Hillshire Brands Company (“Hillshire”), a Maryland corporation. Under the Merger Agreement, Tyson and HMB Holdings will acquire Hillshire and its subsidiaries for a price of $63.00 per share in cash. The all-cash transaction is valued at approximately $8.9 billion, including the assumption of Hillshire’s net debt and breakage fees. The Merger Agreement contains representations, warranties and covenants of the parties customary for transactions of this type

Concurrently, and in connection with entering into the Merger Agreement, Tyson entered into a fully committed 364-day unsecured bridge facility from Morgan Stanley Senior Funding, Inc., J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. Tyson also entered into a senior unsecured term loan facility with the same lenders. The committed facilities, together with cash on hand, will be available to fund the Hillshire acquisition, including the payment of related fees and expenses. Permanent funding is expected to include a mix of term loans, senior notes issuance, common stock issuance, tangible equity unit issuance and cash on hand.

The following unaudited pro forma condensed consolidated financial information is based on the historical consolidated financial information of Tyson and Hillshire and has been prepared to reflect the proposed Hillshire acquisition and related financing transactions. For purposes of the pro forma financial information, we have assumed the acquisition financing will consist of: (a) $2,500 million aggregate principal amount of term loans; (b) $3,250 million aggregate principal amount of senior notes; (c) $900 million issuance of common stock; (d) $1,500 million issuance of tangible equity units, consisting of $1,295 million of prepaid stock purchase contracts and $205 million of senior amortizing notes; and (e) $362 million cash on hand. The final structure and terms of the acquisition financing will be subject to market conditions and may change materially from the assumptions used in the pro forma information. See “Notes to Unaudited Pro Forma Condensed Consolidated Financial Information” below.

The unaudited pro forma condensed consolidated financial information is provided for informational purposes only. The unaudited pro forma condensed consolidated statements of income are not necessarily indicative of operating results that would have been achieved had the acquisition been completed as of September 30, 2012 (first day of the most recently completed fiscal year) and does not intend to project the future financial results of Tyson after the Hillshire acquisition. The unaudited pro forma condensed consolidated balance sheet does not purport to reflect what Tyson’s financial condition would have been had the transactions closed on March 29, 2014 (latest interim balance sheet date) or for any future or historical period. The unaudited pro forma condensed consolidated statements of income and balance sheet are based on certain assumptions, described in the accompanying notes, which management believes are reasonable and do not reflect the cost of any integration activities or the benefits from the Hillshire acquisition and synergies that may be derived from any integration activities.

Tyson’s fiscal year ends in September, while Hillshire’s fiscal year ends in June. The unaudited condensed consolidated balance sheet combines the unaudited condensed consolidated balance sheet of Tyson as of March 29, 2014, and the unaudited condensed consolidated balance sheet of Hillshire as of March 29, 2014. The full-year unaudited pro forma condensed consolidated statement of income for the year ended September 28, 2013, combines the audited consolidated statement of income for Tyson for the fiscal year ended September 28, 2013 and the audited consolidated statement of income of Hillshire for the fiscal year ended June 29, 2013. The unaudited pro forma condensed consolidated statement of income for the six months ended March 29, 2014 combines the unaudited condensed consolidated statement of income of Tyson for the six months ended March 29, 2014 and Hillshire’s unaudited condensed consolidated statement of income for the six months ended March 29, 2014. The unaudited condensed consolidated statement of income of Hillshire for the six months ended March 29, 2014 was determined by subtracting Hillshire’s unaudited condensed consolidated statement of income for the three months ended September 28, 2013 (its first quarter of fiscal 2014) from the unaudited

 

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condensed consolidated statement of income for the nine months ended March 29, 2014. Sales of $984 million and net income of $29 million related to Hillshire’s first fiscal quarter ended September 28, 2013, are not included in the pro forma information.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the following information:

 

    notes to the unaudited pro forma condensed consolidated financial information;

 

    Tyson’s Current Report on Form 8-K filed on July 2, 2014, including exhibits thereto, which describes the Hillshire acquisition;

 

    audited consolidated financial statements of Tyson as of and for the year ended September 28, 2013, which are included in Tyson’s Current Report on Form 8-K filed with the SEC on July 28, 2014;

 

    audited consolidated financial statements of Hillshire as of and for the year ended June 29, 2013, which are included in Tyson’s Current Report on Form 8-K filed with the SEC on July 28, 2014;

 

    unaudited condensed consolidated financial statements of Tyson as of and for the six months ended March 29, 2014, which are included in Tyson’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, as filed with the SEC; and

 

    unaudited condensed consolidated financial statements of Hillshire as of and for the nine months ended March 29, 2014, which are included in Tyson’s Current Report on Form 8-K filed with the SEC on July 28, 2014.

 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of March 29, 2014

(in millions)

 

     Tyson
Historical
    Hillshire
Historical
    Pro Forma
Adjustments
    Pro Forma  

Assets

        

Current Assets

        

Cash and cash equivalents

   $ 438      $ 219      $ (362 )(1)    $ 295   

Accounts receivable, net

     1,548        205               1,753   

Inventories

     2,968        300        45 (2)      3,313   

Other current assets

     230        374        139 (3)      743   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

     5,184        1,098        (178     6,104   

Net Property, Plant and Equipment

     4,105        814        445 (4)      5,364   

Goodwill

     1,925        371        4,103 (5)      6,399   

Intangible Assets

     156        134        5,057 (6)      5,347   

Other Assets

     516        114        (18 )(7)      612   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 11,886      $ 2,531      $ 9,409      $ 23,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

        

Current Liabilities

        

Current debt

   $ 52      $ 102      $ 255 (8)    $ 409   

Accounts payable

     1,429        306               1,735   

Other current liabilities

     1,024        323        (63 )(9)      1,284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     2,505        731        192        3,428   

Long-Term Debt

     1,888        840        5,729 (8)      8,457   

Deferred Income Taxes

     444               2,032 (10)      2,476   

Other Liabilities

     585        359               944   

Commitments and Contingencies

        

Shareholders’ Equity

        

Common Stock

        

Class A

     32        1        1 (11)      34   

Class B

     7                      7   

Capital in excess of par value

     2,181        188        1,938 (11)      4,307   

Retained earnings

     5,407        603        (674 )(11)      5,336   

Accumulated other comprehensive loss

     (103     (140     140 (11)      (103

Unearned stock of ESOP

            (51     51 (11)        

Treasury stock, at cost

     (1,088                   (1,088
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Registrant Shareholders’ Equity

     6,436        601        1,456        8,493   

Noncontrolling Interests

     28                      28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity

     6,464        601        1,456        8,521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 11,886      $ 2,531      $ 9,409      $ 23,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Unaudited Pro Forma Condensed Consolidated Statements of Income

For the Twelve Months Ended

(in millions, except per share data)

 

    Tyson Historical
September 28, 2013
    Hillshire
Historical
June 29, 2013
    Pro Forma
Adjustments
    Pro Forma  

Sales

  $ 34,374      $ 3,920      $ (63 )(12)    $ 38,231   

Cost of Sales

    32,016        2,758        166 (13)      34,940   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

    2,358        1,162        (229     3,291   

Selling, General and Administrative

    983        865        (200 )(14)      1,648   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    1,375        297        (29     1,643   

Other (Income) Expense

       

Interest Income

    (7     (7            (14

Interest Expense

    145        48        177 (15)      370   

Other, net

    (20                   (20
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Income) Expense

    118        41        177        336   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations before Income Taxes

    1,257        256        (206     1,307   

Income Tax Expense

    409        72        (78 )(10)      403   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations

    848        184        (128     904   

Less: Net Income (Loss) Attributable to Noncontrolling Interests

                           
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income from Continuing Operations Attributable to Registrant

  $ 848      $ 184      $ (128   $ 904   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding:

       

Class A Basic

    282          56 (16)      338   

Class B Basic

    70            70   

Diluted

    367          63 (16)      430   

Net Income per Share from Continuing Operations

       

Class A Basic

  $ 2.46          $ 2.25   

Class B Basic

  $ 2.22          $ 2.07   

Diluted

  $ 2.31          $ 2.10   

 

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Unaudited Pro Forma Condensed Consolidated Statements of Income

For the Six Months Ended

(in millions, except per share data)

 

    Tyson
Historical
March 29, 2014
    Hillshire
Historical
March 29, 2014
    Pro Forma
Adjustments
    Pro Forma  

Sales

  $ 17,793      $ 2,037      $ (38 )(12)    $ 19,792   

Cost of Sales

    16,457        1,431        77 (13)      17,965   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

    1,336        606        (115     1,827   

Selling, General and Administrative

    563        414        (99 )(14)      878   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    773        192        (16     949   

Other (Income) Expense

       

Interest Income

    (5     (5            (10

Interest Expense

    53        24        86 (15)      163   

Other, net

    1                      1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Other (Income) Expense

    49        19        86        154   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations before Income Taxes

    724        173        (102     795   

Income Tax Expense

    262        17        (39 )(10)      240   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from Continuing Operations

    462        156        (63     555   

Less: Net Income (Loss) Attributable to Noncontrolling Interests

    (5                   (5
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income from Continuing Operations Attributable to Registrant

  $ 467      $ 156      $ (63   $ 560   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding:

       

Class A Basic

    272          56 (16)      328   

Class B Basic

    70            70   

Diluted

    355          63 (16)      418   

Net Income per Share from Continuing Operations

       

Class A Basic

  $ 1.40          $ 1.43   

Class B Basic

  $ 1.26          $ 1.31   

Diluted

  $ 1.32          $ 1.34   

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(dollars in millions, except per share data)

BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma condensed consolidated financial information presented is based on the historical audited and unaudited consolidated financial information of Tyson and the audited and unaudited consolidated financial information of Hillshire. The unaudited pro forma condensed consolidated balance sheet as of March 29, 2014 assumes the Hillshire acquisition was completed on that date. The unaudited pro forma condensed consolidated statements of income for the year ended September 28, 2013 and the six months ended March 29, 2014, assume the Hillshire acquisition was completed on September 30, 2012.

Pro forma adjustments reflected in the unaudited pro forma condensed consolidated balance sheet are based on items that are directly attributable to the Hillshire acquisition and related financing that are factually supportable. Pro forma adjustments reflected in the unaudited pro forma condensed consolidated statements of income are based on items directly attributable to the acquisition and related financing and are factually supportable and expected to have a continuing impact on Tyson.

The acquisition will be accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed are recorded based on their estimated fair values. The unaudited pro forma condensed consolidated statements of income do not reflect the cost of any integration activities or benefits from the acquisitions and synergies that may be derived from any integration activities, both of which may have a material effect on Tyson’s consolidated statements of income in periods following the completion of the Hillshire acquisition.

Certain amounts in Hillshire’s historical financial information have been reclassified to conform to Tyson’s presentation.

HILLSHIRE ACQUISITION TRANSACTION SUMMARY

Tyson intends to pay in cash a purchase price equal to $63.00 per share, or $8,081, at closing to consummate the Hillshire acquisition. In addition, Tyson paid $163 in cash for breakage costs incurred by Hillshire related to a previously proposed acquisition, and will assume Hillshire’s net debt which totaled $621 as of June 28, 2014. Pro forma adjustments related to the financing for the Hillshire acquisition have been made in the unaudited pro forma condensed consolidated balance sheet as of March 29, 2014 as if the Hillshire acquisition had closed on that date and in the unaudited pro forma condensed consolidated statements of income for the year ended September 28, 2013 and the six months ended March 29, 2014 as if the financings had been completed on September 30, 2012.

Financing Assumptions

Concurrently, and in connection with entering into the Merger Agreement, Tyson entered into a fully committed 364-day unsecured bridge facility from Morgan Stanley Senior Funding, Inc., J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. Tyson also entered into a senior unsecured term loan facility with the same lenders. The committed facilities, together with cash on hand, will be available to fund the Hillshire acquisition, including the payment of related fees and expenses. Notwithstanding the foregoing, for purposes of the pro forma financial information, Tyson has assumed the Hillshire Acquisition financing will consist of:

 

  a)   an assumed $1,306 aggregate principal amount of 3-year floating rate term loans with an amortizing base equal to 2.50% per quarter and with an assumed interest rate of 1.60%;

 

  b)   an assumed $594 aggregate principal amount of 5-year floating rate term loans with an amortizing base equal to 2.50% per quarter and with an assumed interest rate of 1.75%;

 

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  c)   an assumed $600 aggregate principal amount of 5-year floating rate term loans, with an assumed interest rate of 1.75%;

 

  d)   an assumed $3,250 aggregate principal amount of 5, 10, and 30-year fixed rate senior notes, with an assumed stated weighted average interest rate of 3.91%;

 

  e)   the sale of 23.8 million shares of common stock at a price of $37.80 per share resulting in estimated proceeds of $900 before deducting estimated discounts and commissions and estimated offering expenses (excluding any shares that may be issued if the underwriters exercise their option to purchase additional shares of common stock) and an increase in pro forma weighted-average shares outstanding by such amount of shares; and

 

  f)   the sale of $1,500 of tangible equity units, comprised of $1,295 of prepaid stock purchase contracts and $205 of senior amortizing notes issued at an assumed interest rate. The prepaid stock purchase contracts are assumed to have a “reference price” equal to $37.80 per share, such that the maximum number of shares issuable on the July 15, 2017 settlement date (which would be subject to postponement in certain limited circumstances) would be approximately 39.7 million and an increase in pro forma weighted-average shares outstanding by such amount of shares. The senior amortizing notes have a stated interest rate of 1.5%.

The final structure and terms of the Hillshire acquisition financing will be subject to market conditions and may change materially from the assumptions described above. Changes in the assumptions described above would result in changes to various components of the unaudited pro forma condensed consolidated balance sheet, including cash and cash equivalents, long-term debt and additional paid-in capital, and various components of the unaudited pro forma condensed consolidated statements of income, including interest expense, earnings per share and weighted-average shares outstanding. Depending upon the nature of the changes, the impact on the pro forma financial information could be material.

 

    Each 0.125% increase (decrease) in each of the respective stated interest rates assumed above for the term loans, senior notes, and senior amortizing notes would increase (decrease) pro forma interest expense by approximately $7 for the year ended September 28, 2013 and approximately $3 for the six months ended March 29, 2014, and would decrease (increase) pro forma earnings per share (basic and diluted) by $0.01 per share for the year ended September 28, 2013 and by less than $0.01 per share for the six months ended March 29, 2014 (assuming the principal balances and the pro forma weighted-average shares outstanding do not change from those assumed as described herein);

 

    Each $100 increase (decrease) in the principal amount of the term loans would increase (decrease) pro forma interest expense by approximately $2 for the year ended September 28, 2013 and approximately $1 for the six months ended March 29, 2014 and would decrease (increase) pro forma earnings per share (basic and diluted) by less than $0.01 per share for the year ended September 28, 2013 and the six months ended March 29, 2014 (assuming the stated interest rates on the term loans and the pro forma weighted-average shares outstanding do not change from those assumed as described herein);

 

    Each $100 increase (decrease) in the principal amount of the senior notes would increase (decrease) pro forma interest expense by approximately $4 for the year ended September 28, 2013 and approximately $2 for the six months ended March 29, 2014 and would decrease (increase) pro forma earnings per share (basic and diluted) by approximately $0.01 per share for the year ended September 28, 2013 and by less than $0.01 per share for the six months ended March 29, 2014 (assuming the stated interest rates on the senior notes and the pro forma weighted-average shares outstanding do not change from those assumed as described herein); and

 

    Should the underwriters fully exercise their option to purchase additional shares of common stock, which is limited to a maximum 3.6 million additional shares, our pro forma weighted-average shares outstanding would increase by such amount, and would decrease pro forma earnings per share (basic and diluted) by $0.02 per share for the year ended September 28, 2013 and by $0.01 per share for the six months ended March 29, 2014, respectively.

 

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At this time, Tyson has not completed detailed valuation analyses to determine the fair values of Hillshire’s assets and liabilities. Accordingly, the unaudited pro forma condensed consolidated financial information includes a preliminary fair value determination based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material. In addition, Tyson has not yet performed the due diligence necessary to identify all of the adjustments required to conform Hillshire’s accounting policies to Tyson’s or to identify other items that could significantly impact the fair value determination or the assumptions and adjustments made in the preparation of this unaudited pro forma condensed consolidated financial information. Upon completion of detailed valuation analyses, there may be additional increases or decreases to the recorded book values of the acquired assets and liabilities, including but not limited to inventories, brands, trademarks, customer relationships and other intangible assets, property, plant and equipment, and debt that could give rise to future amounts of depreciation and amortization expense and changes in related deferred taxes that are not reflected in the information contained in this unaudited pro forma condensed consolidated information. Accordingly, once the necessary valuation analyses have been performed and the final fair value determination has been completed, actual results may differ materially from the information presented in this unaudited pro forma condensed consolidated financial information. Additionally, the unaudited pro forma condensed consolidated statements of income do not reflect the cost of any integration activities or benefits from the Hillshire acquisition and synergies that may be derived from any integration activities, both of which may have a material effect on Tyson’s consolidated results of operations in periods following the completion of the Tyson acquisition.

Below is a summary of the preliminary reconciliation of purchase consideration to the book value of net assets acquired and certain valuation adjustments related to the Hillshire acquisition:

 

Total consideration (includes closing consideration, $163 breakage costs incurred by Hillshire related to a previously proposed acquisition and $43 change in control related costs)

   $ 8,287   
  

 

 

 

Historical net book value of Hillshire

   $ 601   

Preliminary valuation adjustment to inventories

     45   

Preliminary valuation adjustment for other assets

     51   

Preliminary valuation adjustment for property, plant and equipment

     445   

Preliminary valuation adjustment to identifiable intangible assets

     5,057   

Preliminary valuation adjustment to debt

     (29

Deferred and current tax impact of preliminary valuation adjustments

     (1,983

Write-off of deferred financing fees of Hillshire’s existing debt

     (3

Residual adjustment to goodwill created by the business combination

     4,103   
  

 

 

 

Total acquisition cost

   $ 8,287   
  

 

 

 

 

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The following table is an estimate of the total sources and uses of cash as a result of the Hillshire acquisition and related financing transactions.

 

Sources of cash

  

Cash on hand

   $ 362   

Term loans—3 year (amortizing)

     1,306   

Term loans—5 year (amortizing)

     594   

Term loans—5 year

     600   

Senior notes—5, 10 and 30 year

     3,250   

Common Equity

     900   

Tangible Equity Units(a)

     1,500   
  

 

 

 

Total sources of cash

   $ 8,512   
  

 

 

 

Uses of cash

  

Fund Hillshire acquisition

   $ 8,081   

Breakage cost

     163   

Change in control cost

     43   

Other estimated transaction fees and expenses

     225   
  

 

 

 

Total uses of cash

   $ 8,512   
  

 

 

 

 

a) The tangible equity units consist of $1,295 of prepaid stock purchase contracts accounted for as equity and $205 of senior amortizing notes accounted for as debt.

HILLSHIRE ACQUISITION PRO FORMA ADJUSTMENTS

 

1) After consideration of the expected financing transactions and related fees, Tyson estimates it will use $362 of cash on hand to consummate the Hillshire Acquisition.

 

2) Reflects the adjustment of Hillshire’s inventory to its preliminary estimated fair value.

 

3) Reflects a $51 reclass of Hillshire’s equity for an amount owed to Hillshire from its ESOP that will be collected upon the ESOP’s dissolution concurrent with the closing of the acquisition. Additionally, reflects the estimated tax benefit effect totaling $151 for certain transaction related fees and costs and a reduction of $63 for a reclass of current deferred tax liability to current deferred tax asset as described in note (9).

 

4) Reflects the adjustment of Hillshire’s property, plant and equipment to its preliminary estimated fair value.

 

5) Represents the incremental goodwill resulting from purchase accounting after estimating the fair value of the identifiable assets acquired and liabilities assumed. See “Hillshire Acquisition Transaction Summary” above.

 

6) For purposes of the preliminary fair value determination discussed in “Hillshire Acquisition Transaction Summary” above, Tyson estimated the fair value of Hillshire’s identifiable intangible assets at $5,191 including approximately $4,652 of brand and trademark related intangibles and approximately $539 of customer relationship intangibles representing an increase to the historical net book value of Hillshire’s intangible assets of $5,057. For purposes of determining incremental pro forma amortization expense to be recorded in the unaudited pro forma condensed consolidated statements of income, $4,363 of the brand names were assumed to have an indefinite life, $289 of the brand names were assumed to have a 20-year life to be amortized on a straight-line basis, and the customer relationship intangible assets were assumed to have a weighted average life of approximately 16 years to be amortized on a declining basis based on economic benefit derived over that period.

 

7)

Represents the net impact of reversing $3 of deferred financing fees recorded on Hillshire’s historical balance sheet for debt instruments and recording $49 of estimated issuance costs to be incurred on the debt

 

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  to be issued to finance the transaction. Additionally, $64 of Hillshire’s non-current deferred tax asset was reclassified to non-current deferred tax liability.

 

8) Current debt adjustment represents amounts expected to be due in the first year on the amortizing term loans and senior amortizing note component of the tangible equity units. Long-term debt reflects a $29 adjustment of Hillshire’s long-term debt to its preliminary estimated fair value and the estimated incremental new debt Tyson expects to incur to finance the Hillshire acquisition less the current portion. The estimated balance of new Tyson debt consists of the following components: term loans of $2,500 ($190 shown as current debt), senior notes of $3,250 and senior amortizing notes component of tangible equity units of $205 ($65 shown as current debt). See “Hillshire Acquisition Transaction Summary—Financing Assumptions” above for various assumptions made with respect to the estimated balances of the new Tyson debt.

 

9) Reflects a reclassification of Tyson’s net current deferred tax liability at March 29, 2014 to net against Hillshire’s net current deferred tax asset.

 

10) Income tax expense and deferred income tax impacts in the pro forma condensed consolidated balance sheet and condensed consolidated statements of income as a result of purchase accounting have been estimated at Tyson’s incremental statutory tax rate of 38%. Additionally, Deferred Income Taxes includes a reduction of $63 for a reclass of current deferred tax liability as described in note (7).

 

11) Reflects adjustments to remove Hillshire’s historical equity accounts to record the acquisition (the total of which is equal to its net book value) and reclass $51 related to a receivable from Hillshire’s ESOP as described in note (3). Additionally, includes adjustments to reduce retained earnings to reflect the after tax effect of certain acquisition related expenses as described in notes contained herein, to reduce capital in excess of par value for fees related to equity issuance, and to increase common stock and capital in excess of par value for the estimated net proceeds from the issuance of common stock and the prepaid stock purchase contract component of the tangible equity units. See “Hillshire Acquisition Transaction Summary—Financing Assumptions” above for various assumptions made with respect to estimated proceeds from the issuance of common stock and the prepaid stock purchase contract component of the tangible equity units.

 

12) Sales and Cost of Sales were adjusted to eliminate sales of $63 for the year ended September 28, 2013 and $38 for the six months ended March 29, 2014 between Tyson and Hillshire.

 

13) Reflects the elimination of Cost of Sales for intercompany sales as described in note (12) and an adjustment to reclass shipping and handling costs to Cost of Sales from Selling, General and Administrative expense of $249 for the year ended September 28, 2013 and $123 for the six months ended March 29, 2014. The reclass of shipping and handling costs is to conform Hillshire’s policy election to record shipping and handling costs in Selling, General and Administrative expense to Tyson’s policy to record such costs in Cost of Sales. Additionally, reflects a decrease in depreciation expense of $20 for the year ended September 28, 2013 and $8 for the six months ended March 29, 2014 driven by an extension of the historical useful lives of Hillshire’s property, plant and equipment, partially offset by the impact of fair value adjustments to their respective book values.

 

14) Reflects adjustments to reclass shipping and handling costs from Selling, General and Administrative expense to Cost of Sales as described in note (13) and amortization of intangible assets as described in note (6) of $51 for the year ended September 28, 2013 and $25 for the six months ended March 29, 2014. Additionally, reflects a decrease of $2 for the year ended September 28, 2013 and $1 for the six months ended March 29, 2014 for the changes in depreciation expense described in note (13) that are charged to Selling, General and Administrative expense.

 

15) As described in notes herein, Tyson expects to incur new debt to partially finance the Hillshire acquisition. The pro forma adjustments for the year ended September 28, 2013 and the six months ended March 29, 2014, reflect incremental interest expense, including amortization of deferred financing fees using the effective interest method, for new debt expected to be incurred by Tyson.

 

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16) As described in the notes herein, Tyson is issuing 23.8 million shares of common stock (assuming underwriters do not exercise their option to purchase up to 3.6 million additional shares) and 30 million tangible equity units to partially finance the Hillshire acquisition. The issuance of common stock results in a 23.8 million share increase to pro forma basic and diluted shares for both the year ended September 28, 2013, and the six months ended March 29, 2014. The issuance of tangible equity units results in a 31.7 million share increase to pro forma basic shares outstanding (based on the minimum stock purchase contract settlement rate) and a 39.7 million share increase to pro forma diluted shares outstanding (based on the maximum stock purchase contract settlement rate), for both the year ended September 28, 2013, and the six months ended March 29, 2014.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with our March 29, 2014 unaudited interim consolidated financial statements and related notes and with our fiscal year 2013 audited consolidated financial statements and related notes, both of which are incorporated by reference into this prospectus supplement and the accompanying prospectus. We also urge you to review and consider our disclosure describing various risks that may affect our business, which are set forth under the heading “Risk Factors.” Finally, the following information, including the fiscal 2014 outlook set forth under “Outlook,” does not give effect to the Hillshire Brands Acquisition. See “Summary—Recent Developments—Proposed Hillshire Brands Acquisition” and “Unaudited Pro Forma Condensed Combined Financial Information.”

Description of the Company

We are one of the world’s largest meat protein companies and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost and availability of live cattle and hogs, raw materials, feed ingredients; and operating efficiencies of our facilities. Our operations are conducted in five segments: Chicken, Beef, Pork, Prepared Foods and International. During the second quarter of fiscal 2014, we began reporting our International operation as a separate segment, which was previously included in our Chicken segment. Our International segment became a separate reportable segment as a result of changes to our internal financial reporting to align with previously announced executive leadership changes. The International segment includes our foreign operations primarily related to raising and processing live chickens into fresh, frozen and value-added chicken products in Brazil, China, India and Mexico. All periods presented have been reclassified to reflect this change. Beef, Pork, Prepared Foods and Other results were not impacted by this change. However, the fiscal 2014 outlook, set forth under “Outlook” below, does not account for the change in reportable segments.

Overview

 

    General—Operating income grew 53% in the second quarter of fiscal 2014 over the same period in fiscal 2013 and was led by strong earnings in our Chicken and Pork segments.

 

    We continued to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production, innovating products, services and customer insights and cultivating our talent development to support Tyson’s growth for the future.

 

    We also maintained focus on maximizing our margins through margin management and operational efficiency improvements. Margin management improvements occurred in the areas of mix, export sales, price optimization and value-added product initiatives. The operational efficiencies occurred in areas of yields, cost reduction and labor management.

 

    Market environment—Our Chicken segment delivered strong results in the second quarter of fiscal 2014 driven by favorable domestic market conditions associated with strong demand for our chicken products. Our Beef segment experienced record high fed cattle costs and reduced availability of fed cattle supplies but increased operating margins by maximizing our revenues relative to the rising live cattle markets. Our Pork segment results remained strong in the second quarter of fiscal 2014 due to mix changes and favorable market conditions associated with lower total pork supplies. Our Prepared Foods segment was challenged by volatile raw material prices in addition to costs incurred as we continue to invest in our lunchmeat business and growth platforms. Our International segment experienced losses due to challenging market conditions in China and Brazil.

 

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    Discontinued Operation—In the third quarter of fiscal 2013, we reported our Weifang operation in China, which was previously part of our Chicken segment, as a discontinued operation. Accordingly, Weifang’s results are reported as a discontinued operation for all periods presented.

 

    Margins—Our total operating margin was 4.0% in the second quarter of fiscal 2014. Operating margins by segment were as follows:

Chicken—8.2% Beef—0.9% Pork—7.2% Prepared Foods—2.4% International—(9.1)%

 

    Debt and Liquidity—During the second quarter of fiscal 2014 we used $96 million of cash to fund operations. Additionally, we repurchased, as part of our share repurchase program, 2.5 million shares of our Class A common stock for $100 million. At March 29, 2014, we had approximately $1.4 billion of liquidity, which includes availability under our credit facility and $438 million of cash and cash equivalents.

 

in millions, except per share data

   Three Months Ended     Six Months Ended  
   March 29,
2014
     March 30,
2013
    March 29,
2014
     March 30,
2013
 

Net income from continuing operations attributable to Tyson

   $ 213       $ 157      $ 467       $ 334   

Net income from continuing operations attributable to Tyson—per diluted share

     0.60         0.43        1.32         0.92   

Net loss from discontinued operation attributable to Tyson

             (62             (66

Net loss from discontinued operation attributable to Tyson—per diluted share

             (0.17             (0.18

Net income attributable to Tyson

     213         95        467         268   

Net income attributable to Tyson—per diluted share

     0.60         0.26        1.32         0.74   

Second quarter and six months—Fiscal 2013—Net income included the following item:

 

    $19 million, or $0.05 per diluted share, related to a recognized currency translation adjustment.

Summary of Results

Sales

 

in millions

   Three Months Ended      Six Months Ended  
   March 29, 2014     March 30, 2013      March 29, 2014     March 30, 2013  

Sales

   $ 9,032      $ 8,383       $ 17,793      $ 16,749   

Change in sales volume

     2.8        2.6  

Change in average sales price

     5.2        3.8  

Sales growth

     7.7        6.2  

Second quarter—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales were positively impacted by higher sales volume, which accounted for an increase of $141 million. All segments, with the exception of the Beef segment, had an increase in sales volume.

 

    Average Sales Price—Sales were positively impacted by higher average sales prices, which accounted for an increase of $508 million. The Beef and Pork segments had an increase in average sales price largely due to increased pricing associated with rising cattle and hog costs. These increases were partially offset by a decrease in average sales price in the Chicken, Prepared Foods and International segments which was driven by lower feed ingredient costs and volatile markets in our International segment.

 

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Six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales were positively impacted by higher sales volume, which accounted for an increase of $362 million. All segments, with the exception of the Pork segment, had an increase in sales volume.

 

    Average Sales Price—Sales were positively impacted by higher average sales prices, which accounted for an increase of $682 million. All segments, with the exception of the Chicken and International segments, had an increase in average sales price largely due to continued tight domestic availability of protein, increased pricing associated with rising live and raw material costs, and improved mix. These increases were partially offset by a decrease in average sales price in the Chicken and International segments driven by lower feed ingredient costs and volatile markets in our International segment.

Cost of Sales

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    March 29,
2014
    March 30,
2013
 

Cost of sales

   $ 8,381      $ 7,915      $ 16,457      $ 15,742   

Gross profit

   $ 651      $ 468      $ 1,336      $ 1,007   

Cost of sales as a percentage of sale

     92.8     94.4     92.5     94.0

Second quarter—Fiscal 2014 vs Fiscal 2013

 

    Cost of sales increased $466 million. Higher input cost per pound increased cost of sales $314 million and higher sales volume increased cost of sales $152 million.

 

    The $314 million impact of higher input cost per pound was primarily driven by:

 

    Increases in live cattle and live hog costs of approximately $355 million and $90 million, respectively.

 

    Increase in raw material and other input costs in our Prepared Foods segment of approximately $25 million.

 

    Decreases in feed costs of approximately $175 million in our Chicken segment and $13 million in our International segment.

 

    The $152 million impact of higher sales volume was driven by increases in sales volume in all of our segments other than our Beef segment.

Six months—Fiscal 2014 vs Fiscal 2013

 

    Cost of sales increased $715 million. Higher input cost per pound increased cost of sales $357 million and higher sales volume increased cost of sales $358 million.

 

    The $357 million impact of higher input cost per pound was primarily driven by:

 

    Increases in live cattle and live hog costs of approximately $450 million and $140 million, respectively.

 

    Increase in raw material and other input costs in our Prepared Foods segment of approximately $65 million.

 

    Decrease in feed costs of approximately $340 million in our Chicken segment and $18 million in our International segment.

 

    The $358 million impact of higher sales volume was driven by increases in sales volume in all of our segments other than our Pork segment.

 

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Selling, General and Administrative

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    March 29,
2014
    March 30,
2013
 

Selling, general and administrative expense

   $ 290      $ 232      $ 563      $ 467   

As a percentage of sales

     3.2     2.8     3.2     2.8

Second quarter—Fiscal 2014 vs Fiscal 2013

 

    Increase of $24 million related to employee costs including payroll and stock-based and incentive- based compensation.

 

    Increase of $18 million related to advertising, sales promotions and commissions.

 

    Increase of $12 million related to professional fees and charitable contributions.

Six Months—Fiscal 2014 vs Fiscal 2013

 

    Increase of $37 million related to employee costs including payroll and stock-based and incentive- based compensation.

 

    Increase of $35 million related to advertising, sales promotions and commissions.

 

    Increase of $20 million related to professional fees and charitable contributions.

 

in millions

   Three Months Ended      Six Months Ended  
   March 29,
2014
     March 30,
2013
     March 29,
2014
     March 30,
2013
 

Cash interest expense

   $ 24       $ 29       $ 49       $ 59   

Non-cash interest expense

     1         7         4         14   

Total Interest Expense

   $ 25       $ 36       $ 53       $ 73   

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Cash interest expense includes interest expense related to the coupon rates for senior notes and commitment/letter of credit fees incurred on our revolving credit facilities. The decrease is due to a lower average debt balance compared to the same period in fiscal 2013 as our 2013 Notes were paid off and retired on October 15, 2013.

 

    Non-cash interest expense primarily includes interest related to the amortization of debt issuance costs and discounts/premiums on note issuances. The decrease is due to lower amortization of debt issuance costs and discounts compared to the same period in fiscal 2013 as our 2013 Notes were paid off and retired on October 15, 2013.

Other (Income) Expense, net

 

in millions

   Three Months Ended     Six Months Ended  
   March 29, 2014     March 30, 2013     March 29, 2014      March 30, 2013  
   $ (2   $ (19   $ 1       $ (19

Six months—Fiscal 2014

 

    Included an expense of $6 million related to the impairment of an equity security investment, which was partially offset by income of $5 million of equity earnings in joint ventures and foreign currency exchange gains.

 

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Second quarter and six months—Fiscal 2013

 

    Included $19 million related to a currency translation adjustment gain recognized in conjunction with the receipt of proceeds constituting the final resolution of our investment in Canada.

Effective Tax Rate

 

     Three Months Ended   Six Months Ended
     March 29,
2014
   March 30,
2013
  March 29,
2014
  March 30,
2013
   38.3%    23.9%   36.2%   30.4%

Second quarter and six months—Fiscal 2014—The effective tax rate for continuing operations was impacted by:

 

    state income taxes;

 

    the domestic production deduction; and

 

    losses in foreign jurisdictions for which no benefit is recognized.

Second quarter and six months—Fiscal 2013—The effective tax rate for continuing operations was impacted by:

 

    the non-taxable currency translation adjustment gain;

 

    the retroactive extension of tax credits;

 

    change in tax reserves;

 

    state income taxes;

 

    the domestic production deduction; and

 

    losses in foreign jurisdictions for which no benefit is recognized.

Segment Results

We operate in five segments. Chicken, Beef, Pork, Prepared Foods and International. The following table is a summary of sales and operating income (loss), which is how we measure segment income.

 

in millions

   Sales  
   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    March 29,
2014
    March 30,
2013
 

Chicken

   $ 2,842      $ 2,733      $ 5,498      $ 5,328   

Beef

     3,825        3,447        7,559        6,932   

Pork

     1,487        1,311        2,911        2,674   

Prepared Foods

     861        803        1,768        1,644   

International

     328        331        655        658   

Other

            27               47   

Intersegment Sales

     (311     (269     (598     (534
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 9,032      $ 8,383      $ 17,793      $ 16,749   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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in millions

   Operating Income (Loss)  
   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    March 29,
2014
    March 30,
2013
 

Chicken

   $ 234      $ 143      $ 487      $ 256   

Beef

     35        (26     93        20   

Pork

     107        72        228        197   

Prepared Foods

     21        28        37        61   

International

     (30     (3     (58     (5

Other

     (6     22        (14     11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 361      $ 236      $ 773      $ 540   
  

 

 

   

 

 

   

 

 

   

 

 

 

Chicken Segment Results

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    Change     March 29,
2014
    March 30,
2013
    Change  

Sales

   $ 2,842      $ 2,733      $ 109      $ 5,498      $ 5,328      $ 170   

Sales Volume Change

         4.3         3.4

Average Sales Price Change

         (0.3 )%          (0.2 )% 

Operating Income

   $ 234      $ 143      $ 91      $ 487      $ 256      $ 231   

Operating Margin

     8.2     5.2       8.9     4.8  

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales volumes grew due to stronger demand for chicken products and mix of rendered product sales.

 

    Average Sales Price—The slight decrease in average sales price was primarily due to lower feed ingredient costs, partially offset by mix changes.

 

    Operating Income—Operating income was positively impacted by increased sales volume, operational improvements and lower feed ingredient costs, partially offset by decreased average sales price. Feed costs decreased $175 million and $340 million for the second quarter and first six months of fiscal 2014, respectively.

Beef Segment Results

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    Change     March 29,
2014
    March 30,
2013
    Change  

Sales

   $ 3,825      $ 3,447      $ 378      $ 7,559      $ 6,932      $ 627   

Sales Volume Change

         (1.8 )%          1.1

Average Sales Price Change

         13.0         7.9

Operating Income

   $ 35      $ (26   $ 61      $ 93      $ 20      $ 73   

Operating Margin

     0.9     (0.8 )%        1.2     0.3  

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales volumes decreased for the second quarter of fiscal 2014 due to a reduction in live cattle processed as a result of reduced export sales. However, sales volumes increased for the first six months of fiscal 2014 due to better demand for our beef products.

 

    Average Sales Price—Average sales price increased due to lower domestic availability of fed cattle supplies, which drove up livestock costs.

 

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    Operating Income—Operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets, partially offset by increased operating costs.

Pork Segment Results

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    Change     March 29,
2014
    March 30,
2013
    Change  

Sales

   $ 1,487      $ 1,311      $ 176      $ 2,911      $ 2,674      $ 237   

Sales Volume Change

         0.7         (0.7 )% 

Average Sales Price Change

         12.5         9.6

Operating Income

   $ 107      $ 72      $ 35      $ 228      $ 197      $ 31   

Operating Margin

     7.2     5.5       7.8     7.4  

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales volumes increased for the second quarter of fiscal 2014 as a result of better domestic demand for our pork products. However, sales volumes decreased for the first six months of fiscal 2014 as a result of reduced export sales during our first quarter of fiscal 2014.

 

    Average Sales Price—Average sales price increased primarily due to mix changes and lower total hog supplies, which resulted in higher input costs.

 

    Operating Income—Operating income increased due to maximizing our revenues relative to live hog markets, partially attributable to operational and mix performance.

Prepared Foods Segment Results

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    Change     March 29,
2014
    March 30,
2013
    Change  

Sales

   $ 861      $ 803      $ 58      $ 1,768      $ 1,644      $ 124   

Sales Volume Change

         8.1         5.7

Average Sales Price Change

         (0.9 )%          1.7

Operating Income

   $ 21      $ 28      $ (7   $ 37      $ 61      $ (24

Operating Margin

     2.4     3.5       2.1     3.7  

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales volumes increased as a result of improved demand for our prepared foods products and incremental volumes from the purchase of three businesses.

 

    Average Sales Price—Average sales price decreased slightly for the second quarter of fiscal 2014 due to mix changes. However, average sales price increased for the first six months of fiscal 2014 due to better product mix and price increases associated with higher input costs.

 

    Operating Income—Operating income decreased, despite increases in sales volumes, as a result of higher raw material and other input costs of approximately $25 million and $65 million for the second quarter and first six months of fiscal 2014, respectively, and additional costs incurred as we invested in our growth platforms. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect.

 

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International Segment Results

 

in millions

   Three Months Ended     Six Months Ended  
   March 29,
2014
    March 30,
2013
    Change     March 29,
2014
    March 30,
2013
    Change  

Sales

   $ 328      $ 331      $ (3   $ 655      $ 658      $ (3

Sales Volume Change

         13.8         12.4

Average Sales Price Change

         (12.9 )%          (11.4 )% 

Operating Income

   $ (30   $ (3   $ (27   $ (58   $ (5   $ (53

Operating Margin

     (9.1 )%      (0.9 )%        (8.9 )%      (0.8 )%   

Second quarter and six months—Fiscal 2014 vs Fiscal 2013

 

    Sales Volume—Sales volumes increased as we continue to grow our businesses in Brazil and China.

 

    Average Sales Price—Average sales price decreased due to poor export market conditions in Brazil, supply imbalances associated with weak demand in China and a less favorable pricing environment in Mexico.

 

    Operating Income—Operating income decreased due to poor operational execution in Brazil, challenging market conditions in Brazil and China and additional costs incurred as we continue to grow our International operation.

Outlook

In fiscal 2014, we expect overall domestic protein production (chicken, beef, pork and turkey) to decrease approximately 1% from fiscal 2013 levels, mainly due to further reductions in forecasted hog supplies. Grain supplies are expected to increase in fiscal 2014, which should result in lower input costs. The following is a summary of the fiscal 2014 outlook for each of our segments, as well as an outlook on sales, capital expenditures, net interest expense, debt and liquidity and share repurchases:

 

    Chicken—We expect domestic chicken production to increase around 2-3% in fiscal 2014 compared to fiscal 2013. Based on current futures prices, we expect lower feed costs in fiscal 2014 compared to fiscal 2013 of approximately $500 million. Many of our sales contracts are formula based or shorter-term in nature, but there may be a lag time for price changes to take effect. Due to the relative value of chicken compared to other proteins, we believe demand will remain strong in fiscal 2014. We believe our Chicken segment should be above its normalized range of 5.0%-7.0% for fiscal 2014.

 

    Beef—We expect to see a reduction of industry fed cattle supplies of 3-4% in fiscal 2014 as compared to fiscal 2013. Although we generally expect adequate supplies in regions we operate our plants, there may be periods of imbalance of fed cattle supply and demand. For fiscal 2014, we believe our Beef segment’s profitability will be similar to fiscal 2013, which was below its normalized range of 2.5%-4.5%.

 

    Pork—We expect industry hog supplies to decrease around 4-5% in fiscal 2014 compared to fiscal 2013, partially offset by increased average live weights. For fiscal 2014, we believe our Pork segment will be in its normalized range of 6.0%-8.0%.

 

    Prepared Foods—We expect operational improvements and pricing to offset increased raw material costs. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. As we continue to invest heavily in our growth platforms, we expect our Prepared Foods segment to be below its normalized range of 4.0%-6.0% for fiscal 2014.

 

   

International—We expect our International chicken production to increase around 15% in fiscal 2014 compared to fiscal 2013. Based on current futures prices, we expect lower feed costs in fiscal 2014

 

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compared to fiscal 2013 of approximately $40 million. Unless market conditions improve, we will incur losses for the remainder of the year; however the losses in the third and fourth quarters of fiscal 2014 should be lower than the losses sustained in the first two quarters of fiscal 2014.

 

    Sales—We expect fiscal 2014 sales to approximate $38 billion as we continue to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production, as well as price increases associated with rising cattle and hog costs.

 

    Capital Expenditures—We expect fiscal 2014 capital expenditures to be approximately $600 to $650 million.

 

    Net Interest Expense—We expect net interest expense will approximate $95 million for fiscal 2014.

 

    Debt and Liquidity—We expect total liquidity, which was $1.4 billion at March 29, 2014, to be above our goal to maintain liquidity in excess of $1.2 billion.

 

    Share Repurchases—We currently do not plan to repurchase shares other than to fund obligations under equity compensation programs.

Liquidity and Capital Resources

Our cash needs for working capital, capital expenditures, growth opportunities, the repurchases of senior notes and share repurchases are expected to be met with current cash on hand, cash flows provided by operating activities, or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

Cash Flows from Operating Activities

 

in millions

   Six Months Ended  
   March 29, 2014     March 30, 2013  

Net income

   $ 462      $ 274   

Non-cash items in net income:

    

Depreciation and amortization

     254        259   

Deferred income taxes

     (24     (24

Other, net

     32        57   

Convertible debt discount

     (92       

Changes in working capital

     (367     (336
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 265      $ 230   
  

 

 

   

 

 

 

 

    Operating cash outflow associated with the Convertible debt discount relate to the initial debt discount of $92 million on our 2013 Notes, which matured and were retired in the first quarter of fiscal 2014.

 

    Cash flows associated with changes in working capital for the six months ended:

 

    March 29, 2014—Decreased primarily due to higher inventory and accounts receivable balances and decreases in taxes payable and accrued salaries, wages and benefits balances, partially offset by an increase in accounts payable. The increase in inventory and accounts receivable balances is largely due to increased raw material costs and timing of sales.

 

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    March 30, 2013—Decreased primarily due to higher inventory and accounts receivable balances and decreases in accounts payable and accrued salaries, wages and benefits balances. The increase in inventory and accounts receivable balances is largely due to increased raw material costs and timing of sales.

Cash Flows from Investing Activities

 

in millions

   Six Months Ended  
   March 29, 2014     March 30, 2013  

Additions to property, plant and equipment

   $ (293   $ (290

(Purchases of)/Proceeds from marketable securities, net

     (3     (63

Acquisitions, net of cash acquired

     (56     (10

Other, net

     8        30   
  

 

 

   

 

 

 

Net cash used for investing activities

   $ (344   $ (333
  

 

 

   

 

 

 

 

    Additions to property, plant and equipment include acquiring new equipment and upgrading our facilities to maintain competitive standing and position us for future opportunities as well as ongoing development of our International segment.

 

    Capital spending for fiscal 2014 is expected to be approximately $650 to $700 million, and will include spending on our operations for production and labor efficiencies, yield improvements and sales channel flexibility, as well as expansion of our International segment.

 

    Acquisitions—During the first six months of fiscal 2014, we acquired a value-added food business as part of our strategic expansion initiative. The purchase price of the acquisition was $56 million, which included $12 million for property, plant and equipment, $27 million allocated to Intangible Assets and $18 million allocated to Goodwill.

Cash Flows from Financing Activities

 

in millions

   Six Months Ended  
   March 29, 2014     March 30, 2013  

Payments on debt

   $ (390   $ (55

Net proceeds from borrowings

     14        37   

Purchases of Tyson Class A common stock

     (275     (188

Dividends

     (50     (70

Stock options exercised

     49        69   

Other, net

     19        2   
  

 

 

   

 

 

 

Net cash used for financing activities

   $ (633   $ (205
  

 

 

   

 

 

 

 

    Our 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 common stock from available treasury shares. The 2013 Notes were initially recorded at a $92 million discount, which equaled the fair value of an equity conversion premium instrument. The portion of the payment of the Notes related to the initial $92 million discount was recorded in cash flows from operating activities. Simultaneous to the settlement of the conversion premium, we received 11.7 million shares of our Class A common stock from the call options.

 

    During the first six months of fiscal 2014, we received proceeds of $11 million and paid $21 million related to borrowings at our foreign subsidiaries. Total debt related to our foreign subsidiaries was $50 million at March 29, 2014 ($37 million current, $13 million long-term).

 

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    Purchases of Tyson Class A common stock included:

 

    $250 million and $150 million for shares repurchased pursuant to our share repurchase program during the six months ended March 29, 2014 and March 30, 2013, respectively; and

 

    $25 million and $38 million for shares repurchased to fund certain obligations under our equity compensation plans during the during the six months ended March 29, 2014 and March 30, 2013, respectively.

 

    Dividends during the first six months of fiscal 2014 included a 50% increase to our quarterly dividend rate. Dividends during the first six months of fiscal 2013 include a special dividend of $0.10 and $0.09 to holders of our Class A common stock and Class B common stock, respectively.

Liquidity

 

in millions

   Commitments
Expiration
Date
     Facility
Amount
     Outstanding
Letters of
Credit (no
draw downs)
     Amount
Borrowed
     Amount
Available
 

Cash and cash equivalents

               $ 438   

Short-term investments

               $ 2   

Revolving credit facility

     August 2017       $ 1,000       $ 45       $       $ 955   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liquidity

               $ 1,395   
              

 

 

 

 

    The revolving credit facility supports our short-term funding needs and letters of credit. The letters of credit issued under this facility are primarily in support of workers’ compensation insurance programs and derivative activities.

 

    In October 2013 our 2013 Notes matured at which time we paid the $458 million principal value with cash on hand.

 

    At March 29, 2014, approximately 71% of our cash was held in the international accounts of our foreign subsidiaries. Generally, we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs. Rather, we manage our worldwide cash requirements by reviewing available funds among our foreign subsidiaries and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations. Our U.S. income taxes, net of applicable foreign tax credits, have not been provided on undistributed earnings of foreign subsidiaries. Our intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so.

 

    Our current ratio was 2.07 to 1 and 1.86 to 1 at March 29, 2014, and September 28, 2013, respectively.

Capital Resources

Credit Facility

Cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service, capital expenditures, dividends and share repurchases. We also have a revolving credit facility, with a committed maximum capacity of $1.0 billion, to provide additional liquidity for working capital needs, letters of credit and a source of financing for growth opportunities. As of March 29, 2014, we had outstanding letters of credit totaling $45 million issued under this facility, none of which were drawn upon, which left $955 million available for borrowing. Our revolving credit facility is funded by a syndicate of 44 banks, with commitments ranging from $0.3 million to $90 million per bank. The syndicate includes bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements.

 

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Capitalization

To monitor our credit ratings and our capacity for long-term financing, we consider various qualitative and quantitative factors. We monitor the ratio of our debt to our total capitalization as support for our long-term financing decisions. At March 29, 2014, and September 28, 2013, the ratio of our debt-to-total capitalization was 23.1% and 27.9%, respectively. The reduction in this ratio at March 29, 2014 was due to the retirement of our 2013 Notes, which totaled $458 million, upon their maturity in our first quarter of fiscal 2014. For the purpose of this calculation, debt is defined as the sum of current and long-term debt. Total capitalization is defined as debt plus Total Shareholders’ Equity.

Credit Ratings

Revolving Credit Facility

S&P’s corporate credit rating for Tyson Foods, Inc. is “BBB.” Moody’s senior, unsecured, subsidiary guaranteed long-term debt rating for Tyson Foods, Inc. is “Baa3.” Fitch Ratings’, a wholly owned subsidiary of Fimalac, S.A. (Fitch), issuer default rating for Tyson Foods, Inc. is “BBB.” The below table outlines the fees paid on the unused portion of the facility (Facility Fee Rate) and letter of credit fees (Undrawn Letter of Credit Fee and Borrowing Spread) depending on the rating levels of Tyson Foods, Inc. from S&P, Moody’s and Fitch.

 

Ratings Level (S&P/Moody’s/Fitch)

   Facility Fee Rate     Undrawn Letter
of Credit Fee and
Borrowing Spread
 

BBB+/Baa1/BBB+ or above

     0.150     1.125

BBB/Baa2/BBB (current level)

     0.175     1.375

BBB-/Baa3/BBB-

     0.225     1.625

BB+/Ba1/BB+

     0.275     1.875

BB/Ba2/BB or lower or unrated

     0.325     2.125

In the event the rating levels are split, the applicable fees and spread will be based upon the rating level in effect for two of the rating agencies, or, if all three rating agencies have different rating levels, the applicable fees and spread will be based upon the rating level that is between the rating levels of the other two rating agencies.

Debt Covenants

Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; pay dividends or make other payments in respect of our capital stock; amend material documents; change the nature of our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain minimum interest expense coverage and maximum debt-to-capitalization ratios.

Our 2022 Notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at March 29, 2014.

Recently Adopted / Issued Accounting Pronouncements

Refer to the discussion of recently adopted / issued accounting pronouncements in our Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2014 under Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1: Accounting Policies.

 

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Critical Accounting Estimates

We consider accounting policies related to: contingent liabilities; marketing and advertising costs; accrued self-insurance; impairment of long-lived assets; impairment of goodwill and other intangible assets; and income taxes to be critical accounting estimates. These policies are summarized below under “—Prior Years (Fiscal 2013, 2012 and 2011)—Critical Accounting Estimates.”

Prior Years (Fiscal 2013, 2012 and 2011)

During the second quarter of fiscal 2014, we began reporting our International operation as a separate segment, which was previously included in our Chicken segment. Our International segment became a separate reportable segment as a result of changes to our internal financial reporting to align with previously announced executive leadership changes. The International segment includes our foreign operations primarily related to raising and processing live chickens into fresh, frozen and value-added chicken products in Brazil, China, India and Mexico. All periods presented have been reclassified to reflect this change. Beef, Pork, Prepared Foods and Other results were not impacted by this change.

Overview

 

    General—Operating income grew 7% in fiscal 2013 over fiscal 2012, which was led by record earnings in our Chicken segment and improved performance in our Beef segment. Revenues increased 4% to a record $34.4 billion, driven by price and mix improvements. We were able to overcome a $1.2 billion increase in input costs through strong operational execution and margin management. The following are a few of the key drivers:

 

    We continued to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales and international chicken production, innovating products, services and customer insights and cultivating our talent development to support Tyson’s growth for the future.

 

    Market environment—Our Chicken segment delivered record results in fiscal 2013 driven by strong demand and favorable domestic market conditions. The Chicken segment experienced increased feed costs but was able to offset the impact with operational, mix and price improvements. Our Beef segment’s operating performance improved, despite lower domestic availability of fed cattle supplies, due to better operational execution, less volatile live cattle markets, and stronger export markets. Our Pork segment results remained within its normalized operating margin range, but were down slightly from last year due to periods of increased domestic availability of pork products. Our Prepared Foods segment was challenged by product mix and rapidly increasing raw material prices. Our International segment improved in fiscal 2013 due to a more favorable pricing environment in Brazil and Mexico, however the segment still experienced losses due to challenging market conditions in China combined with additional costs incurred as we continued to grow our International business.

 

    Discontinued Operation—After conducting an assessment during fiscal 2013 of our long-term business strategy in China, we determined our Weifang operation (Weifang), which was previously part of our Chicken segment, was no longer core to the execution of our strategy given the capital investment it required to execute our future business plan. We completed the sale of Weifang in July 2013. Weifang’s results are reported as a discontinued operation for all periods presented.

 

    Margins—Our total operating margin was 4.0% in fiscal 2013. Operating margins by segment were as follows:

Chicken—6.2% Beef—2.1% Pork—6.1% Prepared Foods—3.0% International—(2.8)%

 

   

Debt and Liquidity—During fiscal 2013, we generated $1.3 billion of operating cash flows. We repurchased 21.1 million shares of our stock for $550 million under our share repurchase program

 

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in fiscal 2013. At September 28, 2013, we had $2.1 billion of liquidity, which includes the availability under our credit facility and $1.1 billion of cash and cash equivalents.

 

    Our accounting cycle resulted in a 52-week year for fiscal 2013, 2012 and 2011.

 

in millions, except per share data

   2013     2012     2011  

Net income from continuing operations attributable to Tyson

   $ 848      $ 621      $ 752   

Net income from continuing operations attributable to Tyson—per diluted share

     2.31        1.68        1.98   

Net loss from discontinued operation attributable to Tyson

     (70     (38