Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

         For the fiscal year ended October 2, 2004

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

         For the transition period from ________________ to ________________

         Commission File No. 001-14704

TYSON FOODS, INC.
(Exact Name of Registrant as specified in its Charter)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

On March 27, 2004, the aggregate market value of the Class A Common and Class B Common voting stock held by non-affiliates of the registrant was $4,396,597,967 and $650,303, respectively.  Class B Common stock is not publicly listed for trade on any exchange or market system. However, Class B Common stock is convertible into Class A Common stock on a share-for-share basis, so the market value was calculated based on the market price of Class A Common stock.

On October 30, 2004, there were outstanding 249,897,383 shares of the registrant's Class A Common Stock, $0.10 par value, and 101,625,548 shares of its Class B Common Stock, $0.10 par value.

Page 1 of 84 Pages
The Exhibit Index appears on pages 74 through 80

INCORPORATION BY REFERENCE

        The following indicated portions of the registrant's definitive Proxy Statement for the registrant's Annual Meeting of Shareholders to be held February 4, 2005 (the Proxy Statement) are incorporated by reference into the indicated portions of this Annual Report on Form 10-K: 

Part III

        Item 10. Directors and Executive Officers of the Registrant

        The information set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.

        Item 11. Executive Compensation

        The information set forth under the caption "Executive Compensation and Other Information" in the Proxy Statement.

        Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement.

        Equity Compensation Plan Information

        The information set forth under the caption "Equity Compensation Plan Information" in the Proxy Statement.

        Item 13. Certain Relationships and Related Transactions

        The information set forth under the caption "Certain Transactions" in the Proxy Statement.

        Item 14. Principal Accounting Fees and Services

        The information set forth under the captions "Audit Fees," "Audit-Related Fees," "Tax Fees" and "All Other Fees" in the Proxy Statement.

2

TABLE OF CONTENTS

 3

Table of Contents

PART I

ITEM 1. BUSINESS

GENERAL

Tyson Foods, Inc. and its subsidiaries (collectively, "the Company" or "Tyson"), with world headquarters in Springdale, Arkansas, produce, distribute and market chicken, beef, pork, prepared foods and related allied products.  The Company commenced business in 1935, was incorporated in Arkansas in 1947, and was reincorporated in Delaware in 1986.  The Company has engaged in a number of acquisitions, including the acquisitions of IBP, inc. (now called Tyson Fresh Meats, Inc. (TFM)) in 2001, Hudson Foods, Inc. in 1998 and Holly Farms Corporation in 1989.  In addition to being the world's largest processor and marketer of chicken, beef and pork products, the Company is also the second largest publicly traded food company in the United States and has one of the most recognized brand names in the food industry.

The Company operates a totally integrated poultry production process.  Through its wholly owned subsidiary, Cobb-Vantress, Tyson is the number one breeding stock supplier in the world.  Tyson invests in breeding stock research and development which allows the Company to breed into its flocks the natural characteristics found to be most desirable.  The Company's integrated operations consist of breeding and raising chickens, as well as the processing, further-processing and marketing of these food products and related allied products, including animal and pet food ingredients.

The Company is also involved in the processing of live fed cattle and hogs and fabrication of dressed beef and pork carcasses into primal and sub-primal meat cuts, case-ready products and fully-cooked beef and pork products.  In addition, the Company derives value from allied products such as hides and variety meats for sale to further processors.  

The Company produces a wide range of fresh, value-added, frozen and refrigerated food products.  The Company's products are marketed and sold to national and regional grocery retailers, regional grocery wholesalers, meat distributors, clubs and warehouse stores, military commissaries, industrial food processing companies, national and regional chain restaurants or their distributors, international export companies and domestic distributors who service restaurants, foodservice operations such as plant and school cafeterias, convenience stores, hospitals and other vendors.  Sales are made by the Company's sales staff primarily located in Springdale, Arkansas, and Dakota Dunes, South Dakota.  Additionally, sales to the military and a portion of sales to international markets are made through independent brokers and trading companies.

FINANCIAL INFORMATION OF BUSINESS SEGMENTS

The Company operates in five business segments: Chicken, Beef, Pork, Prepared Foods and Other.  The contribution of each business segment to net sales and operating income, and the identifiable assets attributable to each business segment are set forth in Note 20, "Segment Reporting" of the Consolidated Financial Statements included herein at pages 63 through 64.

DESCRIPTION OF BUSINESS SEGMENTS

Chicken  The Company's chicken operations primarily are involved in the processing of live chickens into fresh, frozen and value-added chicken products.  The Chicken segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  The Chicken segment also includes sales from allied products and the chicken breeding stock subsidiary.

Beef  The Company's beef operations primarily are involved in the processing of live fed cattle and fabrication of dressed beef carcasses into primal and sub-primal meat cuts and case-ready products.  It also involves deriving value from allied products such as hides and variety meats for sale to further processors and others.  The Beef segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  Allied products are also marketed to manufacturers of pharmaceuticals and technical products.

Eight of the Company's fed beef plants include hide processing facilities.  The uncured hides from the Company's other fed beef plants are transported to these facilities, which include brine curing operations and, in four locations, chrome hide tanneries.  The chrome tanning process produces a semi-finished product that is shipped to leather good manufacturers worldwide.  Brine-cured hides are sold to other tanneries.  Tyson is the largest chrome tanner of cattle hides in the United

4

Table of Contents

States.

Pork  The Company's pork operations involve the processing of live market hogs and fabrication of pork carcasses into primal and sub-primal cuts and case-ready products.  This segment also represents the Company's live swine group and related allied product processing activities. The Pork segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  It also sells allied products to pharmaceutical and technical products manufacturers, as well as live swine to pork processors.

Additionally, the Company has farrow-to-finish swine operations, which include genetic and nutritional research, weaned and feeder pig sales, feeder pig finishing and the marketing of live swine to regional and national packers that are conducted in Arkansas, Missouri and Oklahoma.

Prepared Foods  The Company's prepared foods operations manufacture and market frozen and refrigerated food products.  Products include pepperoni, beef and pork toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes and meat dishes, as well as branded and processed meats.  The Prepared Foods segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.

Other  The Company's Other segment includes the logistics group and other corporate activities not identified with specific protein groups.

RAW MATERIALS AND SOURCES OF SUPPLY

Chicken  The primary raw materials used by the Company in its chicken operations consist of live chickens that are raised primarily by independent contract growers.  The Company's vertically-integrated chicken process begins with the grandparent breeder flocks.  Breeder farms specialize in producing the generations of male and female strains, with the broiler being the final progeny.  The breeder flocks are raised to maturity in grandparent growing and laying farms where fertile eggs are produced.  The fertile eggs are incubated at the grandparent hatchery and produce male and female pullets (i.e., the parents).  The pullets are sent to breeder houses, and the resulting eggs are sent to Company hatcheries.  Once the chicks have hatched, they are sent to broiler farms.  There, contract growers care for and raise the chicks according to Company standards while receiving advice from Company technical service personnel until the broilers have reached the desired processing weight.  The adult chickens are caught and hauled to processing plants. The finished products are sent to distribution centers and then transported to customers.  The Company operates its own feed mills to produce scientifically-formulated feeds.  Corn and soybean meal are major production costs in the poultry industry, representing roughly 44% of the cost of growing a chicken.  In addition to feed ingredients to grow the chickens, the Company uses cooking ingredients, packaging materials and cryogenic agents.  The Company believes that its sources of supply for these materials are adequate for its present needs and the Company does not anticipate any difficulty in acquiring these materials in the future.  While the Company produces substantially all of its inventory of breeder chickens and live broilers, it from time-to-time purchases live, ice-packed or deboned chicken to meet production requirements.

Beef  The primary raw material used by the Company in its beef operations is live cattle.  The Company does not have facilities of its own to raise cattle in the United States.  The Company has approximately 60 cattle buyers located throughout cattle producing areas that visit feed yards and buy live cattle on the open spot market.  These buyers are trained to select high quality animals and their performance is continually measured by the Company.  The Company also enters into various risk-sharing and procurement arrangements with producers that help secure a supply of livestock for daily start-up operations at its facilities.  The Company's Canadian subsidiary, Lakeside Farm Industries LTD (Lakeside), primarily has cattle feeding facilities and a beef carcass production and boxed beef processing facility.  In 2004, Lakeside's feedlots provided approximately 15% of that facility's fed cattle needs.

Pork  The primary raw material used by the Company in its pork operations is live swine.  The Company raises live swine to sell to outside processors and supplies a minimal amount of live swine for its own processing needs.  The majority of the Company's live swine supply is obtained through various procurement arrangements with producers.  The Company also employs buyers who purchase hogs on a daily basis, generally a few days before the animals are required for processing.

5

Table of Contents

Prepared Foods  The primary raw materials used by the Company in its prepared foods operations are typically commodity based raw materials, including fresh and frozen chicken, beef and pork, corn, flour and frozen vegetables.  Some of these raw materials are provided by the Chicken, Beef and Pork segments and can also be purchased from numerous suppliers and manufacturers.

SEASONAL DEMAND

The demand for the Company's chicken and beef products generally increases during the spring and summer months and generally decreases during the winter months. The Company's pork and prepared foods products generally experience increased demand during the winter months due to the holiday season and decreased demand during the spring and summer months.

CUSTOMERS

The Company had one customer that accounted for more than 10% of consolidated sales in fiscal 2004, Wal-Mart Stores, Inc. accounted for approximately 12% of the Company's fiscal 2004 consolidated sales.  Sales to Wal-Mart Stores, Inc. were included in the Chicken, Beef, Pork and Prepared Foods segments.  Any extended discontinuance of sales to this customer could, if not replaced, have a material impact on the Company's operations; however, the Company does not anticipate any such occurrences due to the demand for its products.

BACKLOG OF ORDERS

As of October 2, 2004, there was no significant backlog of unfilled orders for the Company's products.

COMPETITION

The Company's food products compete with those of other national and regional food producers and processors and certain prepared food manufacturers, including Cargill Incorporated, Foster Farms, Gold Kist, Inc., Hormel Foods Corporation, Kraft Foods, Inc., Perdue Farms Inc., Pilgrim's Pride Corp., Sanderson Farms Inc., Sara Lee Corporation, Smithfield Foods Inc., and Swift and Company.  Additionally, the Company's food products compete in international markets around the world.  The Company's principal marketing and competitive strategy is to identify target markets for value-added products, to concentrate production, sales and marketing efforts in order to appeal to and enhance the demand from those markets and, utilizing its national distribution systems and customer support services, seek to achieve a leading market position for its products.  Past efforts have indicated that customer demand generally can be increased and sustained through application of the Company's marketing strategy, as supported by its distribution systems.  The principal competitive elements are brand identification, breadth and depth of the product offering, product quality, customer service and price.

INTERNATIONAL

The Company exported to more than 80 foreign countries in fiscal 2004. Major export markets include Canada, China, European Union, Japan, Mexico, Puerto Rico, Russia, Taiwan and South Korea.

The Company continues to explore growth opportunities in Brazil, Canada, China and Mexico and believes each offers potential in terms of expanding or developing processing facilities.  The Company's subsidiary in Mexico continues to show growth with a focus on further processed chicken products.  The Company's Canadian subsidiary, Lakeside, has cattle feeding facilities and a beef carcass production and boxed beef processing facility.  The Company's wholly owned subsidiary, Cobb-Vantress, has operations in Argentina, Brazil, India, Indonesia, Japan, the Philippines, Poland, Spain, the United Kingdom, Venezuela and the Netherlands.  The Company also owns a majority interest in and operates a chicken further processing facility in China.  The Company has minority interests in a Chinese pork processing facility and a Canadian chicken further processing facility, and a 50% interest in a Chinese casing operation.  The Company continues to be involved in a technical service agreement with Grupo Melo in Panama to assist Grupo Melo with the production of further processed chicken products and to allow it to license the Tyson brand.  Additional information regarding the Company's export sales, long-lived assets located in foreign markets and income from foreign operations is set forth in Note 20, "Segment Reporting" of the Consolidated Financial Statements included herein at pages 63 through 64.

RESEARCH AND DEVELOPMENT

The Company conducts continuous research and development activities to improve finished product development, to develop ways to automate manual processes in its processing plants and growout operations and to improve the strains of primary chicken breeding stock.  The annual cost of such research and development programs is less than one percent of total consolidated annual sales.

6

Table of Contents

REGULATION AND FOOD SAFETY

The Company's facilities for processing chicken, beef, pork, prepared foods, milling feed and for housing live chicken and swine are subject to a variety of federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials into the environment, and to the health and safety of its employees.  The Company's chicken, beef and pork processing facilities are participants in the government's Hazardous Analysis Critical Control Point (HACCP) program and are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002.  The cost of compliance with such laws and regulations has not had a material adverse effect upon the Company's capital expenditures, earnings or competitive position and it is not anticipated to have a material adverse effect in the future.  In 2004, the Company incurred expenses of approximately $98 million to maintain compliance with such regulations.  These expenditures relate principally to the normal operation and maintenance of wastewater treatment facilities (Wastewater Treatment Facilities), where the Company biologically treats these wastes, and the associated land application of wastes generated at these treatment facilities.  The Company incurred $4 million in capital expenditures, related to its Wastewater Treatment Facilities, in fiscal 2004 and anticipates capital expenditures of approximately $5 million in fiscal 2005 for environmental projects related to the Wastewater Treatment Facilities.  The Company believes that it is in substantial compliance with such applicable laws and regulations and the Company is not aware of any violations of, or pending changes in, such laws and regulations that are likely to result in material penalties or material increases in compliance costs, except as disclosed in Item 3.

The Company works to ensure its products meet high standards of food quality and safety.   The Company's chicken, beef, pork and prepared foods products are subject to inspection prior to distribution, primarily by the United States Department of Agriculture and the United States Food and Drug Administration.  Notwithstanding these efforts, food producers are at risk that their products may contain pathogens.

The Company is exposed to risk if its products are determined to be contaminated or cause illness or injury.   These risks include (1) the cost of adverse publicity and product recalls, including the associated negative consumer reaction; (2) exposure to related civil litigation; and (3) regulatory administrative penalties, which can include injunctive relief and other civil remedies, including plant closings.

EMPLOYEES AND LABOR RELATIONS

As of October 2, 2004, the Company employed approximately 114,000 team members. The Company believes that its overall relations with its workforce are good.

Set forth below is a listing of the Company facilities which have employees subject to a collective bargaining agreement together with the name of the union party to the collective bargaining agreement, the number of employees at the facility subject thereto and the expiration date of the collective bargaining agreement currently in effect.

7

UFCW - United Food and Commercial Workers Union
RWDSU - Retail, Wholesale, Department Store Union
IUOE - International Union of Electrical Workers
CTM - Confederacion de Trabajadores de Mexico

FNCSI - Sindicato Industrial de Trabajadores de Nuevo Leon

CROM - Confederacion Reginal Obrera de Mexico

CROC - Confederacion Reginal de Obreros y Campesinos

(1) Contracts are currently under negotiations

As of October 2, 2004, the Company was not experiencing any strike or work stoppage that had a material impact on operations.

8

Table of Contents

MARKETING AND DISTRIBUTION

The Company's principal marketing objective is to be the primary provider of chicken, beef, pork and prepared foods products for our customers.  The Company identifies distinct markets and business opportunities through continuous consumer and market research.  The Company's branding strategy focuses on one national protein brand, the Tyson brand, as well as a number of strong regional brands.  The Company has de-emphasized some of its prepared foods brand names and replaced them with the Tyson Brand.  All communications stress the quality, convenience and protein power benefits of our products while supporting and building brand awareness.  Communications efforts are built around the "Powered by Tyson" strategy and utilize a fully integrated and coordinated mix of activities designed to connect with customers and consumers on both a rational and emotional level. The Company utilizes its national distribution system and customer support services to achieve the leading market position for its products.

The Company has the ability to produce and ship fresh, frozen and refrigerated products.  The Company's nationwide distribution system extends to a broad network of food distributors which is supported by cold storage warehouses owned or leased by the Company, by public cold storage facilities and by the Company's transportation system.  The Company ships products from Company-owned consolidated frozen food distribution centers, from a network of public cold storages, from other owned and leased facilities and directly from plants.  The Company's distribution centers facilitate accumulating fresh and frozen products so that it can fill and consolidate less-than-truckload orders into full truckloads, thereby decreasing shipping costs while increasing customer service. In addition, customers are provided with a wide selection of products that do not require large volume orders.  The Company's distribution system enables it to supply large or small quantities of products to meet customer requirements anywhere in the continental United States.

PATENTS AND TRADEMARKS

The Company has registered a number of patents and trademarks relating to its processes and products which either have been approved or are in the process of application. Because the Company does a significant amount of brand name and product line advertising to promote its products, it considers the protection of such trademarks to be important to its marketing efforts.  The Company has also developed non-public proprietary information regarding its production processes and other product-related matters.  The Company utilizes internal procedures and safeguards to protect the confidentiality of such information, and where appropriate, seeks patent protection for the technology it utilizes.

INDUSTRY PRACTICES

The Company's agreements with its customers are generally short-term, due primarily to the nature of its products, industry practice and the fluctuation in demand and price for such products.  In certain instances where the Company is selling further processed products to large customers, the Company may enter into written agreements whereby the Company will act as the exclusive or preferred supplier to the customer for periods up to five years and on pricing terms which are either fixed or variable.

AVAILABILITY OF SEC FILINGS AND CORPORATE GOVERANCE DOCUMENTS ON INTERNET WEBSITE

The Company maintains an internet website for investors at http://ir.tysonfoodsinc.com.  The Company makes available free of charge on this website annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments to any of those reports, as soon as reasonably practicable after providing such reports to the Securities and Exchange Commission.  Also available on the website for investors are the Company's corporate governance principles, Audit Committee charter, Compensation Committee charter, Governance Committee charter and code of conduct.   The Company's corporate governance documents are available in print to any shareholder who requests them.

9

Table of Contents

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report and other written reports and oral statements, made from time to time by the Company and its representatives, contain forward-looking statements with respect to their current views and estimates of future economic circumstances, industry conditions, Company performance and financial results, including, without limitation, 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 the Company's actual results and experiences to differ materially from the anticipated results and expectations expressed in such forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Tyson undertakes no obligation to publicly 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 the anticipated results and expectations expressed in such forward-looking statements are the following: (i) fluctuations in the cost and availability of raw materials, such as live cattle, live swine or feed grains; (ii) market conditions for finished products, including the supply and pricing of alternative proteins, and the demand for alternative proteins; (iii) risks associated with effectively evaluating derivatives and hedging activities; (iv) access to foreign markets together with foreign economic conditions, including currency fluctuations and import/export restrictions; (v) outbreak of a livestock disease which could have an effect on livestock owned by the Company, the availability of livestock for purchase by the Company, or the Company's ability to access certain markets; (vi) successful rationalization of existing facilities, and the operating efficiencies of the facilities; (vii) changes in the availability and relative costs of labor and contract growers; (viii) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (ix) adverse results from litigation; (x) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook; (xi) changes in regulations and laws (both domestic and foreign), including changes in accounting standards, environmental laws and occupational, health and safety laws; (xii) the ability of the Company to make effective acquisitions, and successfully integrate newly acquired businesses into existing operations; (xiii) effectiveness of advertising and marketing programs; and (xiv) the effect of, or changes in, general economic conditions.

10

Table of Contents

ITEM 2. PROPERTIES

The Company currently has sales offices and production and distribution operations in the following states: Alabama, Arkansas, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Mississippi, Missouri, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington and Wisconsin.  Additionally, the Company, either directly or through its subsidiaries, has facilities in or participates in joint venture operations in Argentina, Brazil, Canada, China, India, Indonesia, Japan, Mexico, the Netherlands, the Philippines, Puerto Rico, Russia, Singapore, South Korea, Spain, Taiwan, the United Arab Emirates, the United Kingdom and Venezuela.

Chicken  The Company's chicken operations consist of 58 processing plants.  These plants are devoted to various phases of slaughtering, dressing, cutting, packaging, deboning or further-processing.  The total slaughter capacity is approximately 49 million head per week.  In addition, the Company owns 11 rendering plants with the capacity to produce 32 million pounds of animal protein products per week and 20 ground pet food processing operations in connection with chicken processing plants capable of producing 10 million pounds of product per week.  In addition, there are two blending mill operations, 38 feed mills and 63 broiler hatcheries with sufficient capacity to meet the needs of the chicken growout operations.  During 2004, the feed mills operated at 78% of capacity, the hatcheries operated at 91% of capacity and the processing plants operated at 95% capacity.

Beef  The Company's beef operations consist of 14 beef production facilities, four of which include case-ready operations, and a Canadian cattle feedlot.  These plants are devoted to various phases of slaughtering live cattle, fabricating beef products and some treat and tan hides.  One of the beef facilities contains a tallow refinery and two of the case-ready operations share facilities with the Pork segment.  The carcass facilities reduce live cattle to dressed carcass form.  The processing facilities conduct fabricating operations to produce boxed beef and allied products.  The slaughtering processes operated in 2004 at approximately 74% of their capacities.  The total slaughter capacity is approximately 240,000 head per week.

Pork  The Company's pork operations consist of eight pork production facilities, two of which include case-ready operations.  These plants are devoted to various phases of slaughtering live hogs and fabricating pork products and allied products.  The two case-ready operations share facilities with the Beef segment.  The processing facilities operated in 2004 at approximately 85% of their production capacities.  The total slaughter capacity of these facilities is approximately 434,000 head per week.  Additionally the Company's live swine operations have 47 farrowing barns, 92 nursery houses, 77 finishing houses and two boar facilities.  The Company also utilizes live swine contract growers.  The swine growout operations are supported by one dedicated feed mill supplemented by production from the chicken operations' feed mills.

Prepared Foods  The Company's prepared foods operations consist of 30 processing plants which process fresh and frozen beef, pork, chicken and other raw materials into pizza toppings, branded and processed meats, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes and pizza crusts, flour and corn tortilla products and meat dishes.  These processing plants have the capacity to produce approximately 58 million pounds per week and operated in 2004 at approximately 76% of capacity.

Other  The Company's other operations consist of 11 distribution centers, as well as 11 cold storage facilities used by the beef and pork divisions, 44 cold storage facilities at chicken processing plants, three cold storage facilities at chicken rendering plants and four cold storage facilities used by prepared foods plants with a total capacity of approximately 306 million pounds.

The Company owns its major operating facilities with the following exceptions: one chicken emulsified plant is leased month to month, one hatchery is leased month to month, 387 chicken breeder farm houses are leased under agreements expiring at various dates through 2009, 31 chicken breeder farm houses are leased month to month and 30 broiler farms are leased year to year.  Additionally, the Company's live swine operation leases 24 farrowing barns, 20 nursery houses and 46 finishing houses, expiring at various dates through 2009.  One prepared foods distribution center is leased month to month and two prepared foods further processing facilities are leased until fiscal year 2005.

Management believes the Company's present facilities are generally adequate and suitable for its current purposes; however, seasonal fluctuations in inventories and production may occur as a reaction to market demands for certain products.  The Company regularly engages in construction and other capital improvement projects intended to expand capacity and improve the efficiency of its processing and support facilities.

11

Table of Contents

ITEM 3. LEGAL PROCEEDINGS

Refer to the discussion of certain legal proceedings pending against the Company under Part II., Item 8, Notes to Consolidated Condensed Financial Statements, Note 22: Contingencies, which discussion is incorporated herein by reference.  Listed below are certain additional legal proceedings involving the Company and its subsidiaries.

In January 1997, the State of Illinois Attorney General brought suit in the Circuit Court for the 14^th Judicial Circuit, Rock Island, Illinois, Chancery Division against TFM alleging that TFM's operations at its Joslin, Illinois, facility are violating the "odor nuisance" statutory provisions enacted in the State of Illinois. TFM has completed improvements at its Joslin facility to reduce odors from this operation, but denies the Illinois Attorney General's contention that its operations at any time amounted to a "nuisance." The Illinois Attorney General has alleged a damage claim ranging from approximately $1,800,000 to $2,700,000.  In May 2003, the State of Illinois attempted to add the Company as a defendant in the suit, which the court subsequently denied.  In September 2003, the State of Illinois served the Company with a complaint that had been filed in the Circuit Court for the 14^th Judicial Circuit, Rock Island County, Illinois Chancery Division alleging substantially the same causes of action against the Company as had been alleged in the action against TFM. On May 27, 2004, TFM and the State of Illinois Attorney General entered into a Preliminary Injunction Order to investigate and address the alleged "nuisance" issues. Damage claims will be addressed after completion of the Preliminary Injunction Order. At the same time, the State of Illinois Attorney General filed an Agreed Order of Dismissal regarding the September 2003 suit against the Company.

In May 2004, TFM met with U.S. Environmental Protection Agency (USEPA) staff regarding alleged wastewater and late report filing violations under the Clean Water Act relating to the 2002 Second and Final Consent Decree that governed compliance requirements for TFM's Dakota City, Nebraska facility.  During that meeting, TFM was verbally informed of USEPA's intent to potentially assess stipulated penalties for those alleged violations, with a maximum penalty figure of approximately $338,000.  No formal written demand for stipulated penalties pursuant to the Consent Decree has been presented at this time.  TFM vigorously disputes these allegations.  Additional discussions with USEPA regarding a potential settlement of this matter are expected.

On February 25, 2004 the Indiana Department of Environmental Management (IDEM) issued a Notice of Violation to the Company's facility in Portland, Indiana for alleged violations of Clean Air Act permitting regulations. During a meeting held in April 2004, IDEM requested an administrative penalty of approximately $195,000. The Company vigorously disputes these allegations, but has entered into preliminary discussions with IDEM regarding a potential settlement of this matter.

In June 2001, TFM was advised the SEC had commenced a formal investigation related to the restatement of earnings made by TFM in March 2001, including matters relating to certain improprieties in the financial statements of DFG, a wholly-owned subsidiary.  TFM is cooperating with this investigation.  On July 27, 2004, the SEC filed a Complaint for Permanent Injunction and Other Equitable Relief against three former employees of DFG.  One of the former employees, Philip J. Sexauer, has entered into a Consent Judgment with the SEC.  On August 23, 2004, staff of the SEC advised TFM that no enforcement action against TFM had been recommended by the staff to the SEC.

In March 2004, the Company was advised that the SEC had commenced a formal, non-public investigation concerning the Company's disclosures of executive perquisites.  In August 2004, the Company announced that it had received notice that the staff of the SEC intended to recommend that the SEC bring a civil enforcement action against the Company and that it was considering seeking a monetary penalty.  The notice alleged that the Company's proxy statements for fiscal years 1997 through 2003 had failed to comply with SEC regulations with respect to the disclosure and description of perquisites totaling approximately $1.7 million provided to Don Tyson, former Senior Chairman of the Company, and that the Company had failed to maintain an adequate system of internal controls regarding the personal use of Company assets and the disclosure of perquisites and personal benefits.  The SEC staff also advised the Company it was considering recommending that the SEC bring administrative cease-and-desist actions against two Company non-executive employees for allegedly causing these failures.  In addition, Don Tyson received notice the staff intended to recommend that the SEC bring a similar civil enforcement action against him.  The Company was subsequently advised that the SEC staff had withdrawn its proposed recommendations with respect to the two employees, and that it intended to recommend that the SEC seek monetary penalties against the Company and Don Tyson. 

In December 2004, following discussions with the staff regarding resolution of this matter, the Company and Don Tyson proposed that the Company, without admitting or denying wrongdoing, would pay a civil penalty of $1.5 million and
 

12

Table of Contents

consent to the entry of an administrative cease and desist order and that Don Tyson, also without admitting or denying wrongdoing, would pay a civil penalty of $200,000 and consent to the entry of an administrative cease and desist order.  These settlement proposals are subject to mutual agreement on the language of the order.  The SEC staff has agreed to recommend both of these offers of settlement to the SEC.  The proposed settlements and the proposed order are subject to final approval by the SEC.

In February 2002, the Company learned that a processing facility owned by Zemco Industries, Inc., a subsidiary of TFM, is the subject of an investigation by the U.S. Attorney's office in Bangor, Maine, into allegedly improper testing and recording practices.  The Company acquired Zemco as part of the Company's acquisition of TFM on September 28, 2001.  A former Zemco employee at the processing facility has pled guilty to charges in connection with the investigation.  To date there has been no claim by the U.S. Attorney against Zemco, and Zemco will continue to cooperate with the U.S. Attorney's office.

In August 2004, the Company received a subpoena requesting the production of documents from a federal grand jury sitting in the Western District of Arkansas.  The subpoena focused on events surrounding a workplace accident that resulted in the death of an employee at the River Valley Animal Foods rendering plant in Texarkana, Arkansas on October 10, 2003.  That workplace fatality had previously been the subject of an investigation by the Occupational Health and Safety Administration (OSHA) of the Department of Labor.  On April 9, 2004, OSHA issued citations to Tyson Foods, Inc. and Tyson Poultry, Inc., d/b/a River Valley Animal Foods, alleging violations of health and safety standards arising from the death of the employee due to hydrogen sulfide inhalation.  The citations consist of five willful, twelve serious, and two recordkeeping violations.  OSHA seeks abatement of the alleged violations and proposed penalties of $436,000.  The OSHA proceeding was stayed pending the completion of the grand jury investigation.  Since the receipt of the document subpoena, a number of company employees have provided grand jury testimony or informal interviews to government investigators.  Federal officials have not yet indicated whether they intend to pursue any action against the Company in connection with this investigation.

In July 2002, three cattle producers (Herman Schumacher, Michael P. Callicrate, and Roger D. Koch) filed a lawsuit in the U.S. District Court for the District of South Dakota, naming as defendants the Company and three other beef packers.  Since then, TFM has been substituted for the Company as the party defendant.  Plaintiffs claim that in 2001, during the first six weeks that the U.S. Department of Agriculture (USDA) began its mandatory price reporting program, defendants knowingly used the inaccurate boxed beef cutout prices (cutout prices are determined by the USDA through a formula that averages the prices of the various box beef cuts reported by all packers) calculated and published by USDA to negotiate the purchase of fed cattle from plaintiffs at prices substantially lower than would have been economically justified had plaintiffs known the accurate higher cutout prices.  Plaintiffs contend that defendants' conduct constituted an unfair or deceptive practice in violation of the Packers and Stockyards Act (PSA), 7 U.S.C. §192.  Plaintiffs also seek damages under state law unjust enrichment principles.  Plaintiffs submitted an affidavit from their expert on April 1, 2004, which maintained class damages were in the "tens of millions" of dollars.  On June 4, 2004, the District Court certified a class to pursue the PSA claims, consisting of "all persons or business associations that owned any interest in cattle that were intended for slaughter and who sold or permitted the sale of such cattle (excluding culled dairy and beef cows and bulls) to defendants on the open spot cash cattle market, or on a basis affected by that market, between April 2, 2001, to and including May 11, 2001."  Other classes were certified in connection with the state law unjust enrichment claims.  On June 22, 2004, defendants sought leave from the Eighth Circuit Court of Appeals to appeal the class certification ruling.  This request was denied on July 7, 2004.  During the period in question, TFM correctly reported beef sales information to the USDA.

Tyson and other poultry integrators have been advised by the Attorney General of Oklahoma that the State of Oklahoma intends to commence water quality litigation related to alleged nutrient loading in certain Oklahoma watersheds.  Specifically, the suit would presumably seek damages and injunctive relief based upon the alleged impact of excess nutrients associated with the land application of poultry litter by the companies and contract growers.   The Companies are presently attempting to negotiate a comprehensive settlement with the Attorney General of Oklahoma.

Other Matters  The Company has approximately 114,000 team members and at any time has various employment practices matters.  In the aggregate, these matters are significant to the Company and the Company devotes significant resources to handling employment issues.  Additionally, the Company is subject to other lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of its business.  While the ultimate results of these matters cannot be determined, they are not expected to have a material adverse effect on the Company's consolidated results of operations or financial position.

13

Table of Contents

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF THE COMPANY

Officers of the Company serve one year terms from the date of their election, or until their successors are appointed and qualified. The name, title, age and year of initial election to executive office of the Company's executive officers are listed below:

No family relationships exist among the above officers. Mr. John Tyson was appointed Chairman of the Board of Directors and Chief Executive Officer in 2001 after serving as Chairman of the Board of Directors, President and Chief Executive Officer since 2000, Chairman of the Board of Directors since 1998 and Vice Chairman of the Board of Directors since 1997.  Mr. Bond was appointed President and Chief Operating Officer in 2003, after serving as Co-Chief Operating Officer and Group President, Fresh Meats and Retail since 2001 and President and Chief Operating Officer of IBP since 1997 until the merger of IBP into a wholly owned subsidiary of the Company on September 28, 2001.  Mr. Bond is also a member of the Company's Board of Directors.  Mr. Lee was appointed Chief Administrative Officer and International President in 2003, after serving as Co-Chief Operating Officer and Group President, Food Service and International since 2001, Chief Operating Officer since 1999 and as President of the Foodservice Group since 1998.  Mr. Gonzalez-Pita was appointed Executive Vice President and General Counsel in 2004, after serving as General Counsel and Vice President for International Legal, Regulatory & External Affairs at BellSouth Corporation since 1999.  Mr. Leman was appointed Senior Group Vice President, Fresh Meats in 2001 after serving as IBP's President of Fresh Meats since 1997 until the merger of IBP into a wholly owned subsidiary of the Company on September 28, 2001.  Mr. Leatherby was appointed Senior Vice President, Finance and Treasurer and Interim Chief Financial Officer in 2004, after serving as Senior Vice President, Finance and Treasurer since 1998.  Mr. Hart was elected Senior Vice President, Controller and Chief Accounting Officer in 2004 after serving as Vice President of Special Projects since 2001 and Vice President and Controller of IBP since 1995 until the merger of IBP into a wholly owned subsidiary of the Company on September 28, 2001.

14

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company currently has issued and outstanding two classes of capital stock, Class A Common Stock (Class A stock) and Class B Common Stock (Class B stock).  Holders of Class B stock may convert such stock into Class A stock on a share-for-share basis.  Holders of Class B stock are entitled to 10 votes per share while holders of Class A stock are entitled to one vote per share on matters submitted to shareholders for approval.  On October 30, 2004, there were approximately 42,600 holders of record of the Company's Class A stock and 15 holders of record of the Company's Class B stock, excluding holders in the security position listings held by nominees.

DIVIDENDS

Cash dividends cannot be paid to holders of Class B stock unless they are simultaneously paid to holders of Class A stock.  The per share amount of the cash dividend paid to holders of Class B stock cannot exceed 90% of the cash dividend simultaneously paid to holders of Class A stock.  The Company has paid uninterrupted quarterly dividends on its common stock each year since 1977 and expects to continue its cash dividend policy during fiscal 2005.  In fiscal 2004, the annual dividend rate for Class A stock was $0.16 per share and the annual dividend rate for Class B stock was $0.144 per share.

MARKET INFORMATION

The Class A stock is traded on the New York Stock Exchange under the symbol "TSN."  No public trading market currently exists for the Class B stock.  The high and low closing sales prices of the Company's Class A stock for each quarter of fiscal 2004 and 2003 are represented in the table below.
 

 
ISSUER PURCHASES OF EQUITY SECURITIES
The table below provides information regarding purchases by the Company of its Class A Common Stock during the periods indicated.
 

(1)        On February 7, 2003, the Company announced that the board of directors of the Company had approved a plan to repurchase up to 25,000,000 shares of Class A Common Stock from time to time in open market or privately negotiated transactions.  The plan has no fixed or scheduled termination date.

(2)        The Company purchased 344,096 shares during the period that were not made pursuant to the Company's previously announced stock repurchase plan, but were purchased to fund certain Company obligations under its equity compensation plans.  These purchases were made in open market transactions.
 

15

ITEM 6. SELECTED FINANCIAL DATA

ELEVEN-YEAR FINANCIAL SUMMARY

16

Table of Contents

ELEVEN-YEAR FINANCIAL SUMMARY

17

Table of Contents

Notes to Eleven-Year Financial Summary

18

Tyson Foods is the world's largest protein company and the second largest publicly traded food company in the Fortune 500 with one of the most recognized brand names in the food industry.  Tyson produces, distributes and markets chicken, beef, pork and prepared foods and related allied products.  The Company's primary operations are conducted in four segments:  Chicken, Beef, Pork and Prepared Foods.  Some of the key factors that influence the Company's business are customer demand for the Company's 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 the Company's chicken, beef and pork products, the cost of live cattle and hogs, raw materials and grain and operating efficiencies of the Company's facilities.

In August 2004, the Company introduced a new marketing and communication campaign "Powered by Tyson." This is the largest fully integrated marketing campaign in Tyson history and is supported by an investment of $75 million from the Company's annual marketing budget. To support the Company's goals of building its value-added product portfolio, Tyson developed 400 new products this year. Additionally, the Company broke ground at its Corporate Center for the construction of facilities that will house expanded product development kitchens, a new pilot production plant, provide space for the consumer insights group and make provisions for team member development activities.

In fiscal 2004, the Company achieved record sales and earnings, driven largely by the strong performance of the Company's Chicken and Pork segments.  The Company continued to generate strong cash flow in fiscal 2004, as cash flow from operations increased $112 million from the prior year.  This allowed the Company to pay down debt by $242 million in fiscal 2004, and exceed the debt-to-capital ratio goal of 45% by reaching 44% at year end.  Earnings for fiscal 2004 were $403 million, or $1.13 per diluted share, compared to $337 million, or $0.96 per diluted share, in fiscal 2003.  The increase in earnings primarily was due to higher average selling prices, improved operating efficiencies in the Chicken segment, increased demand in the Chicken and Pork segments and improvements to the mix of our value-added products.    Earnings were negatively impacted by higher grain costs, partially offset by the Company's on-going commodity risk management activities, higher raw material costs and the continued limited access to export markets.  Also, fiscal 2004 pretax earnings included $40 million of costs, or $0.07 per diluted share, related to plant closings, $61 million of costs, or $0.11 per diluted share, of BSE-related charges, $21 million of costs, or $0.04 per diluted share, related to fixed asset write-downs and $25 million of costs, or $0.04 per diluted share, related to the impairment of various intangible assets.  Fiscal 2003 pretax earnings included $167 million received in connection with vitamin antitrust litigation, $76 million of costs related to plant closings and $10 million of charges related to the impairment of an equity interest in a live swine operation.

The Company's accounting cycle resulted in a 53-week year for fiscal year 2004, and a 52-week year for fiscal years 2003 and 2002.

The Company's goals for fiscal 2005 are to reduce the debt-to-capital ratio to 40%, improve the mix of value-added products to over 40% of sales and improve the return on invested capital to 14%.  Additionally, the Company anticipates expenses related to interest, foreign exchange and other charges to be approximately $250 million and the effective tax rate to be in the range of 36% to 37%.

Although uncertainty in global market conditions continues to make it difficult to predict future product demand, the Company believes the Chicken, Pork and Prepared Foods segments will be strong in fiscal 2005; however, the Beef segment operations will continue to be difficult.  The Company anticipates stronger export demand for chicken in fiscal 2005 due to the recent openings of the China and Japan markets, the liberalization of the Taiwanese market and the continuing emergence of the middle-eastern and African markets.  The Canadian border continues to be closed for live cattle; however, the U.S. government has recently initiated a review process to re-open the Canadian border.  Also, while there is a framework of an agreement for the resumption of trade with Japan, it appears trade will not resume for several months.  Currently live weights of cattle being slaughtered are considerably higher than last year, indicating supplies of

19

cattle in the near term will be more abundant; however, until international market access is restored and live cattle are permitted from Canada, margins in the Beef segment will be negatively impacted. 

Certain reclassifications have been made to prior periods to conform to current presentations.

Sales increased $1.9 billion or 7.7%, with a 9.4% increase in average price and a 1.5% decrease in volume.  The increase in sales primarily is due to higher average selling prices.  Volumes declined due to a reduction in international export activity related to the Chicken and Beef segments resulting from import restrictions imposed by various countries.  Additionally, the Company's Beef segment domestic volumes decreased due to tightened supply of live cattle, the effects of higher beef pricing and significant competing protein supplies in the marketplace.    

Cost of sales increased $1.7 billion or 7.7%.  As a percent of sales, cost of sales decreased from 92.9% to 92.8%.  The increase in cost of sales is due primarily to increases in grain costs in the Chicken segment, which were partially offset by gains resulting from the Company's on-going commodity risk management activities related to grain purchases, and in the Beef segment, higher live cattle prices and BSE-related charges.  Also included in 2004 cost of sales were $18 million to reduce self insurance reserves to the actuarially determined range.  The reserves are compared to actuarial estimates semi-annually.  The prior year had a $6 million reduction in self insurance reserves.  Additionally, fiscal 2003 cost of sales included $167 million received in connection with vitamin antitrust litigation.

Selling, general and administrative expenses increased $49 million or 5.9%.  As a percent of sales, selling, general and administrative expenses decreased from 3.4% to 3.3%.  The increase in expenses primarily was due to an increase in personnel and incentive-based compensation of approximately $40 million, an increase of approximately $20 million related to information system technology improvements, an increase of approximately $21 million in employee benefit costs, primarily due to prior year actuarial gains of $13 million related to certain retiree medical benefit plans and current year increases in healthcare-related costs.  The increases were partially offset by a reduction in auditing, legal and professional fees of approximately $27 million, which included $12 million received in fiscal 2004 related to legal settlements from the Company's insurance providers.

Other charges include plant closing costs of $40 million and $76 million recorded in fiscal years 2004 and 2003, respectively.  Fiscal 2004 costs were related primarily to the closings of the Company's Jackson, Mississippi, Manchester, New Hampshire and Augusta, Maine, facilities.  As part of its on-going plant rationalization efforts, the Company announced in February 2004 its decision to consolidate its manufacturing operations in Jackson, Mississippi, into the Company's Carthage, Mississippi, facility.  The Company acquired the Carthage facility when it purchased Choctaw Maid Farms in the fourth quarter of fiscal 2003 and, since that time, performed a comprehensive analysis of all operations in the area and determined this consolidation would most effectively maintain the Company's competitiveness in its Mississippi operations. In December 2003, the Company announced its decision to close its Manchester, New Hampshire, and Augusta, Maine, Prepared Foods operations to further improve long-term manufacturing efficiencies.  After thorough analysis, the Company determined that the amount of capital required to bring the Manchester and Augusta facilities to a competitive level and to maintain appropriate food safety standards, would be better spent to accommodate production in newer more modern facilities. The majority of the Manchester and Augusta production was consolidated into other Company facilities. The prior year costs were related to the closings of the Company's Berlin, Maryland, Stilwell, Oklahoma and Jacksonville, Florida, facilities.  Also included in other charges for fiscal 2004 were $25 million in charges related to the impairment of various intangible assets and $21 million related to fixed asset write-downs. The impairment charges apply primarily to trademarks acquired in the acquisition of Tyson Fresh Meats, Inc. (TFM; formerly known as IBP, inc.) in 2001.  These impairment charges resulted primarily from lower product sales under some of the Company's regional trademarks as products are increasingly being sold under the Tyson trademark. The fair value of the Company's trademarks is determined using a royalty rate method based on expected revenues by trademark. The trademarks, as well as all other intangible assets, are reviewed at least annually for impairment. The fixed asset write-down was the result of the Company implementing a control whereby all plant facilities conduct fixed asset inventories on a recurring basis.

Interest expense decreased $21 million or 7.1%, primarily resulting from an 8.2% decrease in the Company's average indebtedness.  The Company incurred $13 million of expenses in each fiscal year of 2004 and 2003, related to the on-going efforts to buy back bonds at attractive prices when available in the market and to the early redemption of Tyson de Mexico preferred shares.  The overall weighted average borrowing rate increased to 7.7% from 7.4%, primarily due to the fiscal 2004 reduction of short-term debt which carried lower interest rates.

20

Other expense decreased $3 million from the same period last year, primarily resulting from the $10 million write-down related to the impairment of an equity interest in a live swine operation recorded in fiscal 2003.  This decrease was partially offset by increased foreign exchange losses of approximately $9 million from the Company's Canadian operation in fiscal 2004.

The effective tax rate increased from 35.5% in fiscal 2003 to 36.6% in fiscal 2004.  The estimated Extraterritorial Income Exclusion (ETI) amount reduced the 2004 effective tax rate by 0.5% compared to 1.9% in fiscal 2003.  The decrease in the 2004 estimated ETI benefit resulted from a reduction in the estimated 2004 profit from export sales primarily due to the effects of BSE and avian influenza, along with an adjustment to the estimated 2003 benefit.  The 2004 estimated rate also increased due to the expiration of certain general business credits.  On October 22, 2004, the President signed into law the American Jobs Creation Act of 2004 which provides, among other things, for the repeal of the ETI benefit phased in from 2004 through 2006.  The Act also provided for a domestic production deduction which will be available to the Company beginning in the 2006 fiscal year.   The Company is currently in the process of evaluating the Act.

Tyson operates in five business segments: Chicken, Beef, Pork, Prepared Foods and Other.  The Company measures segment profit as operating income.

Chicken segment is involved primarily in the processing of live chickens into fresh, frozen and value-added chicken products. The Chicken segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  The Chicken segment also includes sales from allied products and the chicken breeding stock subsidiary.

Beef segment is involved primarily in the processing of live fed cattle and fabrication of dressed beef carcasses into primal and sub-primal meat cuts and case-ready products.  It also involves deriving value from allied products such as hides and variety meats for sale to further processors and others.   The Beef segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  Allied products are also marketed to manufacturers of pharmaceuticals and technical products.

Pork segment is involved primarily in the processing of live market hogs and fabrication of pork carcasses into primal and sub-primal meat cuts and case-ready products.  This segment also represents the Company's live swine group and related allied product processing activities.   The Pork segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.  It also sells allied products to pharmaceutical and technical products manufacturers, as well as live swine to pork producers.

Prepared Foods segment includes the Company's operations that manufacture and market frozen and refrigerated food products.  Products include pepperoni, beef and pork toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes and meat dishes, as well as branded and processed meats.  The Prepared Foods segment markets its products domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets throughout the world.

Other segment includes the logistics group and other corporate activities not identified with specific protein groups.

21

Chicken segment sales increased 13.1% in fiscal 2004 as compared to the same period last year.  Foodservice chicken sales increased 11.3%, retail chicken sales increased 16.2% and international chicken sales increased 14.5%.  Excluding plant closing related accruals of $13 million and $76 million recorded in fiscal 2004 and 2003, respectively, and fixed asset write-downs of $13 million recorded in fiscal 2004, operating income increased $340 million.  Sales and operating income increases primarily are due to increased average selling prices and sales volumes, as well as improvements in product mix and operating efficiencies.  Operating income was negatively impacted by approximately $239 million of increased grain costs, partially offset by a benefit of approximately $127 million from the Company's on-going commodity risk management activities related to grain purchases.  The increase in the Company's domestic Chicken segment sales volumes in fiscal 2004 was partially offset by decreased international sales volumes due to import restrictions by various countries caused by the avian influenza outbreaks in the United States.

Beef segment sales increased 0.1% in fiscal 2004 as compared to the same period last year.  Domestic fresh meat beef sales increased 6.0%, international beef sales decreased 31.6% and case-ready beef sales increased 18.0%.  Operating income for fiscal 2004 includes BSE-related charges of $61 million and $5 million of charges related to the impairment of various intangible assets and fixed asset write-downs.  Additionally, operating income was negatively impacted by increases in live cattle prices, production declines and decreased capacity utilization.  These decreases were partially offset by higher average selling prices and increased volumes and margins at the Company's Lakeside operation in Canada.

Pork segment sales increased 28.9% in fiscal 2004 as compared to the same period last year.  Domestic fresh meat pork sales increased 26.1%, international pork sales increased 60.2%, case-ready pork sales increased 29.4% and live swine sales of Company owned hogs decreased 14.8%.  The increase in the Pork segment's operating income primarily was due to higher average selling prices and increased demand as pork benefited from stronger domestic and international markets, more than offsetting increases in live hog costs.  Operating income was negatively impacted by approximately $1 million related to fixed asset write-downs recorded in the fourth quarter of fiscal 2004.

Prepared Foods segment sales increased 7.3% in fiscal 2004 as compared to the same period last year. Foodservice prepared foods sales increased 13.2%, international prepared foods sales increased 16.0% and retail prepared foods sales increased 0.5%.  Fiscal 2004 operating income increased $25 million, excluding plant closing costs of approximately $27 million, the impairment of various intangible assets of $22 million and fixed asset write-downs of $5 million, all of which were recorded in fiscal 2004. The increase in the Prepared Foods segment's operating income primarily was due to higher average selling prices and increased volumes, partially offset by increased raw material prices.

Other segment operating income decreased $145 million primarily due to settlements of $167 million received in 2003 in

22

connection with vitamin antitrust litigation.  Additionally in 2003, operating income was affected positively by actuarial gains of $13 million resulting from certain retiree medical benefit plans.

Certain reclassifications have been made to prior periods to conform to current presentations.

Sales increased $1.2 billion or 5.1%, with a slight increase in volume and a 5.0% increase in price. 

Cost of sales increased $1.3 billion or 5.8%.  As a percent of sales, cost of sales was 92.9% for 2003 compared to 92.2% for 2002.  This increase primarily is due to higher live cattle prices in the Beef segment, increases in grain costs in the Chicken segment and increased accruals related to on-going litigation, partially offset by $167 million received in connection with vitamin antitrust litigation.

Selling, general and administrative expenses decreased $46 million or 5.4%.  As a percent of sales, selling, general and administrative expenses decreased from 3.8% to 3.4%.  The decrease primarily is due to the expense reductions of approximately $42 million related to the sale of Specialty Brands, Inc. in the fourth quarter of fiscal 2002, and approximately $16 million associated with the integration of Tyson and Tyson Fresh Meats corporate functions.  Additional decreases were due to favorable investment returns of approximately $18 million on Company owned life insurance, actuarial gains of $13 million related to certain retiree medical benefit plans and decreased litigation costs of approximately $19 million resulting primarily from the reversal of certain legal accruals which are no longer required due to cases being closed.  The decreases in selling, general and administrative expenses were partially offset by increased professional fees of approximately $26 million, primarily related to the Company's on-going integration and strategic initiatives, and increased sales promotions and marketing costs of approximately $45 million, primarily due to the introduction and rollout of several new products.

Other charges include $76 million of plant closing costs incurred in fiscal 2003, and $53 million of charges incurred in fiscal 2002 related to the discontinuation of the Thomas E. Wilson brand and the restructuring of the Company's live swine operations.

Interest expense decreased $9 million or 2.8% compared to 2002, primarily resulting from an 8.2% decrease in the Company's average indebtedness.  As a percent of sales, interest expense was 1.2% compared to 1.3% for 2002.  The overall weighted average borrowing rate increased to 7.4% from 7.0%, primarily resulting from premiums paid on bonds repurchased in the first and fourth quarters of fiscal 2003.  Excluding the premiums paid, interest expense decreased $21 million.

Other expense increased $29 million, primarily resulting from the $10 million write-down related to the impairment of an equity interest in a live swine operation recorded in fiscal 2003, and the gain of $22 million from the sale of the Specialty Brands, Inc. subsidiary recorded in fiscal 2002.

The effective tax rate was 35.5% in both 2003 and 2002.  Several factors impacted the effective tax rate including average state income tax rates, the tax rates for international operations and the Extraterritorial Income Exclusion (ETI) for foreign sales. Taxes on international earnings were comparable for 2003 and 2002. Average state taxes added 2.2% and 3.0% to the effective tax rate for 2003 compared to 2002, and ETI reduced the effective rate by 1.9% in 2003 compared to a 1.4% reduction in 2002. 

23

Chicken segment sales increased 2.8% compared to fiscal 2002. Foodservice chicken sales increased 4.2%, retail chicken sales increased 2.3% and international chicken sales decreased 3.6%.  Excluding plant closing costs of $76 million recorded in fiscal 2003, operating income decreased $194 million. This decrease results primarily from higher grain costs as compared to fiscal 2002. 

Beef segment sales increased 13.8% compared to fiscal 2002.  Domestic fresh meat beef sales increased 11.8%, international beef sales increased 19.4% and case-ready beef sales increased 20.4%.  Beef segment operating income increased $100 million.  The Beef segment sales and operating income increases were caused by strong demand during the second half of fiscal 2003 caused in part by the U.S. ban on Canadian beef.  However, these increases were partially offset by an increase in live cattle prices.

Pork segment sales decreased 1.3% compared to fiscal 2002. Domestic fresh meat pork sales decreased 3.5%, international pork sales increased 2.8%, case-ready pork sales increased 52.3% and live swine sales decreased 42.6%.  Excluding the fourth quarter 2002 live swine restructuring charge of $26 million, operating income increased $24 million.  The decline in sales primarily is due to a reduction in live swine sales as a result of the fiscal 2002 live swine restructuring and lower average selling prices for our finished product.  Operating income was positively affected by the restructuring of the live swine operation, partially offset by higher live hog prices.

Prepared Foods segment sales decreased 13.4% compared to fiscal 2002.  Excluding fiscal 2002 Specialty Brands, Inc. sales of $244 million, segment sales decreased $166 million and 5.9% and volume declined slightly.  Segment operating income decreased $128 million excluding the Thomas E. Wilson brand write-down of $27 million recorded in fiscal 2002.  This decrease results primarily from the increases in raw material prices, lower average selling prices, increased costs related to the introduction of more than 75 new products in fiscal 2003 and temporary operating inefficiencies at certain plants.

Other segment operating income increased $171 million primarily due to settlements received in connection with vitamin antitrust litigation.  Fiscal 2003 operating income includes $167 million as compared to $30 million received in fiscal 2002.  Additionally, operating income was positively affected by actuarial gains recorded in fiscal 2003 of $13 million resulting from certain retiree medical benefit plans.

In September 2003, the Company purchased Choctaw Maid Farms, Inc. (Choctaw), an integrated poultry processor.  Since 1992, Tyson had been purchasing all of Choctaw's production under a "cost plus" supply agreement, which was scheduled to expire in 2007.  The Company had previously negotiated a purchase option with Choctaw's owners, which initially became exercisable in 2002.  The Company decided to exercise its purchase option rather than continue under the "cost plus" arrangement of the supply agreement.  The acquisition was recorded as a purchase in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141).  Accordingly, the assets and liabilities were adjusted for fair values with the remainder of the purchase price, $18 million, recorded as goodwill. The purchase price consisted of $1 million cash to exercise the purchase option in Tyson's supply agreement with Choctaw and the settlement of $85 million owed to Tyson by Choctaw. In addition, the Company assumed approximately $4 million of Choctaw's debt to a third party.  In June 2003, the Company exercised a $74 million purchase option to acquire assets leased from a third party which the Company had subleased to Choctaw.  Pro forma operating results reflecting the acquisition of Choctaw would not be materially different from the Company's actual results of operations.

24

In May 2002, the Company acquired the assets of Millard Processing Services, a bacon processing operation, for approximately $73 million in cash. The acquisition was accounted for as a purchase, and goodwill of approximately $14 million was recorded.

In September 2002, the Company completed the sale of its Specialty Brands, Inc. subsidiary.  The subsidiary had been acquired with the TFM acquisition, and its results of operations were included in the Company's Prepared Foods segment.  The Company received cash proceeds of approximately $131 million, which were used to reduce indebtedness, and recognized a pretax gain of $22 million.  Specialty Brands, Inc.'s sales and operating income for the year ended September 28, 2002, were $244 million and $2 million, respectively.

Cash provided by operations continues to be the Company's primary source of funds to finance operating requirements and capital expenditures. In 2004, net cash of $932 million was provided by operating activities, up $112 million from 2003.  The increase from fiscal 2003 primarily is due to the increase of $98 million from net income, excluding the non-cash effect of depreciation and amortization.  The Company's foreseeable cash needs for operations growth and capital expenditures are expected to continue to be met through cash flows provided by operating activities.  Additionally, at October 2, 2004, the Company had borrowing capacity of $1.1 billion consisting of $640 million available under its $1 billion unsecured revolving credit facilities and $450 million under its accounts receivable securitization.  At October 2, 2004, the Company had construction projects in progress that will require approximately $492 million to complete.  Capital spending for fiscal 2005 is expected to be in the range of $600 to $680 million, which reflects additional spending for a third fully dedicated case-ready plant, a new Corporate Center and a variety of projects that will increase automation and support value-added product growth.  The Company continues to evaluate potential international and domestic growth opportunities.

Total debt at October 2, 2004, was $3.4 billion, a decrease of $242 million from September 27, 2003.  The Company has unsecured revolving credit facilities totaling $1 billion that support the Company's commercial paper program, letters of credit and other short-term funding needs.  During the third quarter of fiscal 2004, the Company restructured and extended its revolving credit facilities.  These $1 billion in facilities now consist of $250 million that expire in September 2006 and $750 million that expire in June 2009. At October 2, 2004, there were no borrowings outstanding under these facilities. Outstanding debt at October 2, 2004, consisted of $2.8 billion of debt securities, $300 million under the receivables purchase agreement, $86 million of commercial paper and other indebtedness of $160 million.

The revolving credit facilities, senior notes, notes and accounts receivable securitization contain various covenants, the more restrictive of which contain a maximum allowed leverage ratio and a minimum required interest coverage ratio.  The Company is in compliance with all of its covenants at fiscal year end.

The Company does not have any off-balance sheet arrangements that are material to its financial position or results of operations. The off-balance sheet arrangements the Company has are guarantees of debt of outside third parties involving a lease, grower loans and residual value guarantees covering certain operating leases for various types of equipment. See Note 10 to the Consolidated Financial Statements for further discussions of these guarantees.

The following table summarizes the Company's contractual obligations as of October 2, 2004:

25

(1)        In the event of a default on payment or violation of debt covenants, acceleration of the principal payments would occur. At October 2, 2004, the Company was in compliance with all of its debt covenants.

(2)        Interest payments include only interest payments on fixed-rate and fixed-term debt, based on the expected payment dates.  The Company has other interest obligations on variable-rate, non-term debt; however, these obligations have been excluded, as the timing of payments and expected interest rates cannot be reasonably estimated.

(3)        Amounts included are for the guarantees of outside third parties, which involve a lease and grower loans, all of which are substantially collateralized by the underlying assets.  The amounts included are the maximum potential amount of future payments

(4)        Amounts included in operating lease obligations are minimum lease payments under lease agreements, as well as residual guarantee amounts.

(5)        Amounts included in purchase obligations are agreements to purchase goods or services that are enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.  Included in the purchase obligations amount are future purchase commitments for corn, soybeans, livestock and natural gas contracts that provide terms that meet the above criteria.  The Company has excluded future purchase commitments for contracts that do not meet these criteria.   Purchase orders have not been included in the table, as a purchase order is an authorization to purchase and is not considered an enforceable and legally binding contract.  Contracts for goods or services that contain termination clauses without penalty have also been excluded.

(6)        Amounts included in capital expenditures are estimated amounts to complete construction projects in progress as of October 2, 2004.

(7)        Amounts included in other long-term liabilities are items that meet the definition of a purchase obligation and are recorded in the Company's Consolidated Balance Sheets.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, "Inventory Costs" (SFAS No. 151).  SFAS No. 151 requires abnormal amounts of inventory costs related to idle facility, freight handling and wasted material expenses to be recognized as current period charges.  Additionally, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The standard is effective for fiscal years beginning after June 15, 2005.  The Company believes the adoption of SFAS No. 151 will not have a material impact on its consolidated financial statements.

On October 22, 2004, the President signed into law the American Jobs Creation Act of 2004 (the Bill).  The Company is currently in the process of evaluating the Bill.

In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share."  This issue involves the computation of earnings per share for companies that have multiple classes of common stock or have issued securities other than common stock that participate in dividends with common stock (participating securities).  The EITF concluded that companies

26

having participating securities are required to apply the two-class method to compute earnings per share.  The two-class method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.  The Company adopted EITF Issue No. 03-6 in the fourth quarter of fiscal 2004.  As required by EITF Issue No. 03-6, prior period earnings per share have been restated as follows:

In December 2003, the FASB revised Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS No. 132).  The revision of SFAS No. 132 requires expanded disclosures for defined benefit plans.  The standard's revisions are effective for fiscal years ending after December 15, 2003, and for interim periods beginning after December 15, 2003.  See Note 15 to the Consolidated Financial Statements for pensions and other postretirement benefits disclosures.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed.  The Act allows a possible subsidy to retirement health plan sponsors to help offset the costs of participant prescription drug benefits.  In March 2004, the FASB issued Staff Position No. 106-2, "Accounting and Disclosure Requirements Related to the Act" (the Position).  The Position is effective for interim or annual periods beginning after June 15, 2004.  The Position allows plan sponsors to recognize or defer recognizing the effects of the Act in its financial statements.  Specific accounting guidance for this federal subsidy is pending and, when issued, could require the Company to change previously reported information.  The Company's accumulated postretirement benefit obligation and net periodic pension cost do not reflect the effects of the Act.  The Company has elected to defer accounting for the Act and has estimated any future effect on its consolidated financial statements will not be material.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" (the Interpretation).  The Interpretation requires the consolidation of variable interest entities (VIE) in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.  Previously, entities were generally consolidated by an enterprise that had a controlling financial interest through ownership of a majority voting interest in the entity.  In December 2003, the FASB issued a revision of the Interpretation (the Revised Interpretation 46).  Revised Interpretation 46 codifies both the proposed modifications and other decisions previously issued through certain FASB Staff Positions and supersedes the original Interpretation to include: (1) deferring the effective date of the Interpretation's provisions for certain variable interests, (2) providing additional scope exceptions for certain other variable interests, (3) clarifying the impact of troubled debt restructurings on the requirement to reconsider (a) whether an entity is a VIE or (b) which party is the primary beneficiary of a VIE and (4) revising Appendix B of the original Interpretation to provide additional guidance on what constitutes  a variable interest.  Under the new guidance, application of the Revised Interpretation 46 is required in financial statements of public entities that have interests in structures that are commonly referred to as special-purpose entities for periods ending after December 15, 2003, and for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004.  The Company's adoption of Revised Interpretation 46 did not have a material impact on its consolidated financial statements.

The preparation of consolidated financial statements requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during

27

the reporting period.  Actual results could differ from those estimates.  The following is a summary of certain accounting estimates considered critical by the Company.

Financial instruments   The Company uses derivative financial instruments to manage its exposure to various market risks, including certain livestock, interest rates, grain and feed costs, natural gas and other commodities used in the normal course of operations. The Company may also hold positions for which hedge accounting, as defined by Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, is not applied.  Derivative financial instruments must be marked-to-market as of the end of each quarter in which the positions exist.  As the commodities underlying the Company's derivative financial instruments can experience significant price fluctuations, any requirement to mark-to-market the positions that have not been designated or do not qualify as hedges under SFAS No. 133 could result in volatility in the Company's results of operations.  See Item 7A. Quantitative and Qualitative Disclosure About Market Risks.

Contingent liabilities  The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, livestock procurement, securities, environmental, product, taxing authorities and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses.  A determination of the amount of reserves required, if any, for these contingencies are made after considerable analysis of each individual issue.  These reserves may change in the future due to changes in the Company's assumptions, the effectiveness of strategies or other factors beyond the Company's control.  See Note 22 to the Consolidated Financial Statements.

Accrued self insurance   Insurance expense for health and welfare, workers' compensation, auto liability and general liability risks are estimated using historical experience and actuarial estimates.  The assumptions used to arrive at periodic expenses are reviewed regularly by management.  However, actual expenses could differ from these estimates and could result in adjustments to be recognized.

Impairment of Long-Lived assets   The Company is required to assess potential impairments to its long-lived assets, which are primarily property, plant and equipment.  If impairment indicators are present, the Company must measure the fair value of the assets in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets," to determine if adjustments are to be recorded.

Goodwill and Other Intangible Asset Impairment   In assessing the recoverability of the Company's goodwill and other intangible assets, management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets.  If these estimates and related assumptions change in the future, the Company may be required to record impairment charges not previously recorded.  The Company assesses its goodwill and other intangible assets for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."  See Note 1 to the Consolidated Financial Statements.

NON-GAAP FINANCIAL MEASURES
This report and other public communications issued by the Company from time to time include certain non-GAAP financial measures, which are defined as numerical measures of a company's financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP in the Company's financial statements. 

Non-GAAP financial measures utilized by the Company include presentations of operating income and other GAAP measures of operating performance that exclude or include the effect of the closings of selected operations, BSE-related charges, fixed asset write-downs, impairment charges related to various intangible assets, litigation settlements and other similar events.  The Company's management believes these non-GAAP financial measures provide useful information to investors by removing the effect of variances in GAAP reported results of operations that are not indicative of fundamental changes in the Company's earnings.  Management also believes that the presentation of these non-GAAP financial measures is consistent with its past practice, as well as industry practice in general, and will enable investors and analysts to compare current non-GAAP measures with non-GAAP measures presented in prior periods.  The non-GAAP financial measures used by the Company should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

28

Market risks relating to the Company's operations result primarily from changes in commodity prices, interest rates and foreign exchange rates, as well as credit risk concentrations. To address certain of these risks, the Company enters into various derivative transactions as described below.  If a derivative instrument is a hedge, as defined by SFAS No. 133, as amended, depending on the nature of the hedge, changes in the fair value of the instrument will be either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings.  The ineffective portion of an instrument's change in fair value, as defined by SFAS No. 133, as amended, will be immediately recognized in earnings as a component of cost of sales.  Additionally, the Company holds certain positions, primarily in grain and livestock futures which do not meet the criteria for SFAS No. 133 hedge accounting. These positions are marked to fair value and the unrealized gains and losses are reported in earnings at each reporting date.  The changes in market value of derivatives used in the Company's risk management activities surrounding inventories on hand or anticipated purchases of inventories are recorded in cost of sales.  The changes in market value of derivatives used in the Company's risk management activities surrounding forward sales contracts are recorded in sales.

The sensitivity analyses presented below are the measures of potential losses of fair value resulting from hypothetical changes in market prices related to commodities.  Sensitivity analyses do not consider the actions management may take to mitigate the Company's exposure to changes, nor do they consider the effects that such hypothetical adverse changes may have on overall economic activity.  Actual changes in market prices may differ from hypothetical changes.

Commodities Risk The Company is a purchaser of certain commodities, such as corn, soybeans, livestock and natural gas in the course of normal operations.  The Company uses commodity futures to reduce the effect of changing prices and as a mechanism to procure the underlying commodity.  However, as the commodities underlying the Company's derivative financial instruments can experience significant price fluctuations, any requirement to mark-to-market the positions that have not been designated or do not qualify as hedges under SFAS No. 133 could result in volatility in the Company's results of operations.  Generally, contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts that are designated and highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting.  The following table presents a sensitivity analysis resulting from a hypothetical change of 10% in market prices as of October 2, 2004, and September 27, 2003, respectively, on fair value of open positions.  The fair value of such positions is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures prices.  The market risk exposure analysis includes hedge and non-hedge positions.  The underlying commodities hedged have a correlation to price changes of the derivative positions such that the values of the commodities hedged based on differences between commitment prices and market prices and the value of the derivative positions used to hedge these commodity obligations are inversely correlated.  The following sensitivity analysis reflects an inverse impact on earnings for changes in the fair value of open positions for livestock and natural gas and a direct impact on earnings for changes in the fair value of open positions for grain.

Interest Rate Risk The Company has exposure to changes in interest rates on its fixed-rate, long-term debt.  Market risk for fixed-rate, long-term debt is estimated as the potential increase in fair value, resulting from a hypothetical 10% decrease in interest rates, and amounts to approximately $51 million at October 2, 2004, and $62 million at September 27, 2003.  The fair values of the Company's long-term debt were estimated based upon quoted market prices and/or published interest rates.

The Company hedges exposure to changes in interest rates on certain of its financial instruments. Under the terms of

29

various leveraged equipment loans, the Company enters into interest rate swap agreements to effectively lock in a fixed interest rate for these borrowings. The maturity dates of these leveraged equipment loans range from 2005 to 2008 with interest rates ranging from 4.7% to 6.0%.  Because of the positions taken with respect to these swap agreements, an increase in interest rates would have a minimal effect on the fair value for fiscal years 2004 and 2003.

Foreign Currency Risk The Company has non-cash foreign exchange gain/loss exposure from fluctuations in foreign currency exchange rates as a result of certain receivables and payable balances.  The primary currency exchanges the Company has exposure to are the Canadian dollar, the Mexican peso, the European euro, the British pound sterling and the Brazilian real.  The Company periodically enters into foreign exchange forward contracts to hedge some of its foreign currency exposure.  There were no such contracts outstanding at October 2, 2004, and September 27, 2003.

Concentrations of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents and trade receivables. The Company's cash equivalents are in high quality securities placed with major banks and financial institutions. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral.  At October 2, 2004, and September 27, 2003, approximately 15.0% and 10.3%, respectively, of the Company's net accounts receivable balance was due from one customer.  No other single customer or customer group represents greater than 10% of net accounts receivable.

30

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

31

Table of Contents

CONSOLIDATED BALANCE SHEETS

32

Table of Contents

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

33

Table of Contents

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

34

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS