Back to GetFilings.com

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

FORM 10-Q

(X)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2005

        OR

(  )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 

For the transition period from _________to________

001-14704
(Commission File Number)

TYSON FOODS, INC.
(Exact name of registrant as specified in its charter)

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.             Yes [X]      No [  ]

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 2, 2005.

TYSON FOODS, INC.
INDEX

2

PART I.  FINANCIAL INFORMATION 

Item 1.  Financial Statements

TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)

3

TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except per share data)

 4

Table of Contents

TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

5

Table of Contents

TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1:   ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated condensed financial statements have been prepared by Tyson Foods, Inc. (the Company), and are unaudited, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  Although the management of the Company believes that the disclosures contained herein are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended October 2, 2004.  The preparation of consolidated condensed 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 condensed financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Management believes the accompanying consolidated condensed financial statements contain all adjustments, including normal recurring accruals, adjustments related to plant closings as disclosed in Note 2 and bovine spongiform encephalopathy (BSE) related charges as disclosed in Note 3, necessary to present fairly the financial position as of April 2, 2005, and the results of operations and cash flows for the three and six months ended April 2, 2005, and March 27, 2004.  The results of operations and cash flows for the three and six months ended April 2, 2005, and March 27, 2004, are not necessarily indicative of the results to be expected for the full year.

STOCK OPTIONS

 On December 29, 2002, the Company adopted Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148).  SFAS 148, which amended Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting for Stock-Based Compensation," does not require use of the fair value method of accounting for stock-based employee compensation.  The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock compensation plans.  Accordingly, no compensation expense was recognized for its stock option issuances as stock options are issued with an exercise price equal to the closing price at the date of grant.  The Company does issue restricted stock and records the fair value of such awards as deferred compensation amortized over the vesting period.  Had compensation expense for the employee stock compensation plans been determined based on the fair value method of accounting for the Company's stock compensation plans, the tax-effected impact would be as follows (in millions, except per share data):

6

INVESTMENTS

The Company has investments in marketable debt securities.  As of April 2, 2005, $1 million were due in one year or less and were classified in other current assets in the Consolidated Condensed Balance Sheets and $131 million were classified in other assets in the Consolidated Condensed Balance Sheets, with maturities ranging from one to 30 years.  As of October 2, 2004, $63 million were due in one year or less and were classified in other current assets in the Consolidated Condensed Balance Sheets and $36 million were classified in other assets in the Consolidated Condensed Balance Sheets, with maturities ranging from one to two years.  The Company has applied Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), and has determined that all of its marketable debt securities are to be classified as available-for-sale investments. These investments are reported at fair value as of the balance sheet date, with unrealized gains and losses, net of tax, recorded in other comprehensive income.  The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.  Such amortization is recorded in interest income. The cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of debt securities and declines in value judged to be other than temporary are recorded in other income, net.  Interest and dividends on securities classified as available-for-sale are recorded in interest income.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations," an interpretation of FASB Statement No. 143 (the Interpretation).  Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143), was issued in June 2001 and requires an entity to recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made.  SFAS No. 143 applies to legal obligations associated with the retirement of a tangible long-lived asset that resulted from the acquisition, construction, development and (or) the normal operation of a long-lived

7

asset.  The associated asset costs are capitalized as part of the carrying amount of the long-lived asset.    The Interpretation clarifies that the term "conditional asset retirement obligation" as used in SFAS No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity.  The Interpretation requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.  Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.  SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation.  The Interpretation is effective for fiscal years ending after December 15, 2005.  The Company is currently in the process of evaluating any potential effects of the Interpretation but does not believe its adoption will have a material impact on its consolidated financial statements. 

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS No. 123R), which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).  SFAS No. 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash Flows."  The revision requires companies to measure and recognize compensation expense for all share-based payments to employees, including grants of employee stock options, in the financial statements based on the fair value at the date of the grant.  SFAS No. 123R permits companies to adopt its requirements using either the modified prospective method or the modified retrospective method.  Under the modified prospective method, compensation cost is recognized beginning with the effective date for all share-based payments granted after the effective date and for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date.  The modified retrospective method includes the requirements of the modified prospective method, but also permits entities to restate either all prior periods presented or prior interim periods of the year of adoption for the impact of adopting this standard.  The Company will apply the modified prospective method upon adoption.  In April 2005, the Securities and Exchange Commission announced it would provide for phased-in implementation of SFAS No. 123R.  As a result, SFAS No. 123R is effective for the first interim or annual reporting period of the registrant's first fiscal year beginning on or after June 15, 2005.  The Company estimates that compensation expense related to employee stock options for fiscal 2006 will be approximately $11 million.  SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as financing cash flow, rather than as an operating cash flow as required under current literature.  This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.  The Company believes this reclass will not have a material impact on its Consolidated Statements of Cash Flows.

In December 2004, the 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.

In October 2004, the President signed into law the American Jobs Creation Act (the AJC Act).  The AJC Act provides for the elimination of the Extraterritorial Income Exclusion (ETI) and allows for a federal income tax deduction for a percentage of income earned from certain domestic production activities.  The Company's domestic, or U.S., production activities will qualify for the deduction.  Based on the effective date of this provision of the AJC Act, the Company will be eligible for this deduction beginning in fiscal 2006.  This provision will be phased in from fiscal 2006 through 2011 and provides for a deduction of

8

between 3% and 9% of qualifying domestic production income over that period.  Additionally, on December 21, 2004, the FASB issued FASB Staff Position 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes (SFAS No. 109), to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" (FSP 109-1).  FSP 109-1, which was effective upon issuance, states the deduction under this provision of the AJC Act should be accounted for as a special deduction in accordance with SFAS No. 109.  The Company has not yet quantified the benefit that will be realized from this provision of the AJC Act. 

The AJC Act also allows for an 85% dividends received deduction on the repatriation of certain earnings of foreign subsidiaries.  On December 21, 2004, the FASB issued FASB Staff Position 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" (FSP 109-2).  FSP 109-2, which was effective upon issuance, allows companies time beyond the financial reporting period of enactment to evaluate the effect of the AJC Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109.  Additionally, FSP 109-2 provides guidance regarding the required disclosures surrounding a company's reinvestment or repatriation of foreign earnings.  The Company continues to evaluate this provision of the AJC Act to determine the amount of foreign earnings to repatriate and expects to complete its evaluation by the end of fiscal 2005.  Currently the Company does not expect the potential repatriation to have a material impact on its effective tax rate. 

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 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 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

9

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.

RECLASSIFICATIONS

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

NOTE 2:   OTHER CHARGES

In December 2004, the Company announced its decision to close its Portland, Maine, facility. The Portland operation employed approximately 285 people and produced sliced meats and cooked roast beef.  The plant ceased operations February 4, 2005, and the production from this facility has been transferred to other locations.  As a result of the decision, the Company recorded total costs of $4 million ($3 million and $1 million in the first and second quarters, respectively, of fiscal 2005) that included $2 million of estimated impairment charges for assets to be disposed and $2 million of employee termination benefits. This amount is reflected in the Prepared Foods segment as a reduction of operating income and included in the Consolidated Condensed Statements of Income in other charges. The Company is accounting for the closing of the Portland operation in accordance with Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No. 146) and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144).  As of April 2, 2005, $1 million of employee termination benefits had been paid.  No material adjustments to the total accrual are anticipated at this time. 

In February 2004, the Company announced 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 at 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.  The Jackson location employed approximately 800 people and was a poultry processing facility, including processing and deboning operations.  As a result of this decision, the Company recorded total costs of approximately $9 million ($8 million in the second quarter of fiscal 2004 and $1 million in the third quarter of fiscal 2004) that included approximately $8 million of estimated impairment charges for assets to be disposed of and $1 million of employee termination benefits.  The Company accounted for the closing of the Jackson operation in accordance with SFAS No. 146 and SFAS No. 144.  This amount is reflected in the Chicken segment as a reduction of operating income and included in the Consolidated Statements of Income in other charges.  The Jackson location ceased operations in August 2004.  As of October 2, 2004, the Company had fully paid its estimated termination benefits of $1 million.  No material adjustments have been made to the accrual in fiscal 2005, and none are anticipated.

In April 2003, the Company announced its decision to close its Berlin, Maryland, poultry operation.  The Berlin poultry operation employed approximately 650 people and included a hatchery, a feed mill, live production and a processing facility.  The facility ceased processing chickens November 12, 2003.  As a result of this decision, the Company recorded total costs of $29 million ($4 million in the first quarter of fiscal 2004 and $25 million in fiscal 2003) that included $14 million related to closing the plant and $15 million of estimated impairment charges for assets to be disposed.  These amounts are reflected in the Chicken segment as a reduction of operating income and included in the Consolidated Condensed Statements of Income in other charges. The costs related to closing the plant include $9 million for estimated liabilities for the resolution of the Company's obligations under 209 grower contracts, and $5 million of other related costs associated with the closing of the operation, including plant clean-up costs and employee termination benefits.  The Company accounted for the closing of the Berlin operation in accordance with SFAS No. 146 and SFAS No. 144.  At October 2, 2004, $9 million of obligations under

10

grower contracts and $3 million of other closing costs had been paid.  Additionally, a $2 million decrease to the original accrual was recorded in the fourth quarter of fiscal 2004.  No material adjustments have been made to the accrual in fiscal 2005, and none are anticipated.

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.  The production from these facilities has been transferred to other locations.  The Manchester operation employed approximately 550 people and primarily produced sandwich meat for foodservice customers.  The Augusta facility employed approximately 170 people and produced hot dogs, sausages, boneless hams and deli turkey products.  These locations ceased operations during the second quarter of fiscal 2004.  As a result of this decision, the Company recorded total costs of $24 million ($21 million in the first quarter of fiscal 2004 and $3 million in the second quarter of fiscal 2004) that included $4 million of costs related to closing the plants and $20 million of estimated impairment charges for assets to be disposed.  These amounts were reflected in the Prepared Foods segment as a reduction of operating income and included in the Consolidated Condensed Statements of Income in other charges in fiscal 2004.  The costs related to closing the plants included $2 million of employee termination benefits and $2 million of other plant closing related costs.  The Company accounted for the closing of the Manchester and Augusta operations in accordance with SFAS No. 146 and SFAS No. 144.  The Company has fully paid its employee termination benefits of $2 million and other plant closing related costs of $2 million.

 In the fourth quarter of fiscal 2002, the Company recorded $26 million of costs related to the restructuring of its live swine operations that consisted of $21 million of estimated liabilities for resolution of Company obligations under producer contracts and $5 million of other related costs associated with this restructuring, including lagoon and pit closure costs and employee termination benefits.  In the fourth quarter of 2004, the Company recorded an additional reserve of $6 million related to lagoon and pit closures costs.  The Company is accounting for the restructuring of its live swine operations in accordance with Emerging Issues Task Force No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity" and SFAS No. 144.  At April 2, 2005, the remaining accrual balance was $14 million, as $6 million of obligations under grower contracts and $12 million of other related costs had been paid.    No material adjustments to the total accrual are anticipated at this time.

NOTE 3:   BSE-RELATED CHARGES

On December 23, 2003, the U.S. Department of Agriculture announced that a single case of BSE had been diagnosed in a Washington State dairy cow.  The effect on the Company's Beef segment caused by that announcement, along with the decision of various countries to restrict imports of U.S. beef products, resulted in the Company recording BSE-related pretax charges of approximately $61 million in the first quarter fiscal 2004.  These charges were included in cost of sales and primarily related to the decline in value of finished product inventory destined for international markets, whether in-transit, located at the shipping ports or located within domestic storage, as well as live cattle inventory and open futures positions.  No additional material charges have been made subsequent to the initial BSE-related charges recorded in first quarter of fiscal 2004.

NOTE 4:   FINANCIAL INSTRUMENTS

The Company purchases certain commodities in the course of normal operations such as corn, soybeans, livestock and natural gas.  As part of the Company's commodity risk management activities, the Company uses derivative financial instruments, primarily futures and swaps, to reduce its exposure to various market risks related to these purchases.  Generally, contract terms of a financial instrument qualifying as 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 the risk reduction and correlation

11

criteria are recorded using hedge accounting, as defined by Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended.  If a derivative instrument is a hedge, as defined by SFAS No. 133, changes in the fair value of the instrument will either be 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 will be immediately recognized in earnings as a component of cost of sales. 

The Company had derivative related balances of $91 million and $87 million recorded in other current assets at April 2, 2005, and October 2, 2004, respectively, and $84 million and $83 million in other current liabilities at April 2, 2005, and October 2, 2004, respectively.

Cash flow hedges:  The Company uses derivatives to moderate the financial and commodity market risks of its business operations. Derivative products, such as futures and option contracts, are considered to be a hedge against changes in the amount of future cash flows related to commodities procurement. The Company also enters into interest rate swap agreements to adjust the proportion of total long-term debt and leveraged equipment loans that are subject to variable interest rates. Under these interest rate swaps, the Company agrees to pay a fixed rate of interest times a notional principal amount and to receive in return an amount equal to a specified variable rate of interest times the same notional principal amount. These interest rate swaps are considered to be a hedge against changes in the amount of future cash flows associated with the Company's variable rate interest payments.

The effective portion of the cumulative gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in shareholders' equity and recognized into earnings in the same period or periods during which the hedged transaction affects earnings (for grain commodity hedges when the chickens that consumed the hedged grain are sold).  The remaining cumulative gain or loss on the derivative instrument in excess of the cumulative change in the present value of the future cash flows of the hedged item, if any, is recognized in earnings during the period of change.  Ineffectiveness recorded related to the Company's cash flow hedges was not significant during the three and six months ended April 2, 2005, and March 27, 2004.

Derivative products related to grain procurement, such as futures and option contracts that meet the criteria for SFAS No. 133 hedge accounting, are considered cash flow hedges, as they hedge against changes in the amount of future cash flows related to commodities procurement.  The Company applies SFAS No. 133 hedge accounting to derivative products related to grain procurement that are hedging physical grain contracts that have previously been purchased.  The Company does not purchase derivative products related to grain procurement in excess of its physical grain consumption requirements.  The Company's grain procurement hedging activities are for the grain commodity purchase price only and do not hedge other components of grain cost such as basis differential and freight costs.  The after tax losses, net of gains, recorded in other comprehensive income (loss) at April 2, 2005, related to cash flow hedges, were $0.3 million.  These losses will be recognized within the next 12 months.  The Company generally does not hedge cash flows related to commodities beyond 12 months.  Of this amount, the portion resulting from the Company's open mark-to-market SFAS No. 133 hedge positions was not significant as of April 2, 2005.

Fair value hedges: The Company designates certain futures contracts as fair value hedges of firm commitments to purchase livestock for slaughter and natural gas for the operation of its plants.  From time to time, the Company also enters into foreign currency forward contracts to hedge changes in fair value of receivables and purchase commitments arising from changes in the exchange rates of foreign currencies; however, the Company has not entered into any such contracts during the three and six months ended April 2, 2005, and March 27, 2004.  Changes in the fair value of a derivative that is highly effective and

12

that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current period earnings.  Ineffectiveness results when the change in the fair value of the hedge instrument differs from the change in fair value of the hedged item.  Ineffectiveness recorded related to the Company's fair value hedges was not significant during the three and six months ended April 2, 2005, and March 27, 2004.

Undesignated positions:  The Company holds positions as part of its risk management activities, primarily certain grain, livestock and natural gas futures for which it does not apply SFAS No. 133 hedge accounting, but instead marks these positions to fair value through earnings at each reporting date.  Changes in market value of derivatives used in the Company's risk management activities surrounding inventories on hand or anticipated purchases of inventories or supplies are recorded in cost of sales.  Changes in market value of derivatives used in the Company's risk management activities surrounding forward sales contracts are recorded in sales. The Company generally does not enter into undesignated positions beyond 12 months.

Based on the Company's evaluation of the grain markets, the Company has at times entered into a portion of its derivative products related to grain procurement prior to purchasing the physical grain contracts. The Company has not applied SFAS No. 133 hedge accounting treatment for these derivative positions.  In connection with these risk management activities, the Company recognized pretax net gains of approximately $0 and $2 million in cost of sales for the three and six months ended April 2, 2005, respectively.  For the three and six months ended March 27, 2004, the Company recognized pretax gains of $90 million and $97 million, respectively.  The gains in the prior year were due primarily to the increase in grain futures prices during the second quarter of fiscal 2004 and the Company having a higher number of derivative positions in place as compared to the current year.

Additionally, the Company enters into certain forward sales of boxed beef and pork at fixed prices and has positions in livestock futures to mitigate the market risk associated with these fixed price forward sales. The fixed price sales contract locks in the proceeds from a sale in the future, although, the cost of the livestock and the related boxed beef and pork market prices at the time of the sale will vary from this fixed price, creating market risk. Therefore, as fixed forward sales are entered into, the Company also enters into the appropriate number of livestock futures positions.  The Company believes this is an effective economic hedge; however, the correlation does not qualify for SFAS No. 133 hedge accounting. Consequently, changes in market value of the open livestock futures positions are marked to market and reported in earnings at each reporting date even though the economic impact of the Company's fixed sales price being above or below the market price is only realized at the time of sale.  In connection with these livestock futures, the Company recorded a net gain of $12 million and a net loss of $1 million for the three and six months ended April 2, 2005, respectively, which included an unrealized pretax gain on open mark-to-market futures positions of approximately $14 million as of April 2, 2005.  

13

NOTE 5:   INVENTORIES

Processed products, livestock (excluding breeders) and supplies and other are valued at the lower of cost (first-in, first-out) or market.  Livestock includes live cattle, live chicken and live swine.  Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, contract grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories.  Live chicken consists of broilers and breeders.  Breeders are stated at cost less amortization.  The costs associated with breeders, including breeder chicks, feed and medicine, are accumulated up to the production stage and amortized to broiler inventory over the productive life of the flock using a standard unit of production.  Total inventory consists of the following (in millions):

NOTE 6:   PROPERTY, PLANT AND EQUIPMENT

The major categories of property, plant and equipment and accumulated depreciation, at cost, are as follows (in millions):

NOTE 7:   OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):

14

NOTE 8:   LONG-TERM DEBT

The major components of long-term debt are as follows (in millions):

The revolving credit agreements, senior notes, notes and accounts receivable securitization debt contain various covenants, the more restrictive of which contain a maximum allowed leverage ratio and a minimum required interest coverage ratio.  The Company was in compliance with all of its covenants at April 2, 2005.

The Company has unsecured revolving credit facilities totaling $1.0 billion that support the Company's commercial paper program, letters of credit and other short-term funding needs.  These facilities consist of $250 million that expire in September 2006 and $750 million that expire in June 2009.  At April 2, 2005, the Company had outstanding letters of credit totaling approximately $219 million issued primarily in support of workers' compensation insurance programs, derivative activities and leveraged equipment loans.  There were no draw downs under these letters of credit at April 2, 2005.  At April 2, 2005, and October 2, 2004, there were no amounts drawn under the revolving credit facilities; however, the outstanding letters of credit reduce the amount available under the revolving credit facilities.

The Company has a receivables purchase agreement with three co-purchasers to sell up to $750 million of trade receivables that consists of $375 million expiring in August 2005 and $375 million expiring in August 2007.  The receivables purchase agreement has been accounted for as a borrowing and has an interest rate based on commercial paper issued by the co-purchasers.  Under this agreement, substantially all of the Company's accounts receivable are sold to a special purpose entity, Tyson Receivables Corporation (TRC), which is a wholly-owned consolidated subsidiary of the Company.  TRC has its own separate creditors that are entitled to be satisfied out of all of the assets of TRC prior to any value becoming available to the Company as TRC's equity holder.  At April 2, 2005, $82.5 million was outstanding under the receivables purchase agreement expiring in August 2005 and $82.5 million was outstanding under the receivables purchase agreement expiring in August 2007.  At October 2, 2004, $150

15

million was outstanding under the receivables purchase agreement expiring in August 2005 and $150 million was outstanding under the receivables purchase agreement expiring in August 2007.

The Company guarantees debt of outside third parties, which involve a lease and grower loans, all of which are substantially collateralized by the underlying assets.  Terms of the underlying debt range from nine to 11 years and the maximum potential amount of future payments as of April 2, 2005, was $59 million.  The Company also maintains operating leases for various types of equipment, some of which contain residual value guarantees for the market value for assets at the end of the term of the lease. The terms of the lease maturities range from one to seven years.  The maximum potential amount of the residual value guarantees is approximately $106 million, of which, approximately $24 million would be recoverable through various recourse provisions and an undeterminable recoverable amount based on the fair market value of the underlying leased assets.  The likelihood of payments under these guarantees is not considered to be probable.  At April 2, 2005, and October 2, 2004, no liabilities for guarantees were recorded.

The Company has fully and unconditionally guaranteed $476 million of senior notes issued by Tyson Fresh Meats, Inc. (TFM; formerly known as IBP, inc.), a wholly-owned subsidiary of the Company.

The following condensed consolidating financial information is provided for the Company, as guarantor, and for TFM, as issuer, as an alternative to providing separate financial statements for the issuer.

16

Table of Contents

 17

Table of Contents

18

Table of Contents

19

Table of Contents

20

Table of Contents

21

Table of Contents

22

Table of Contents

23

Table of Contents

24

Table of Contents

NOTE 9:   CONTINGENCIES

Listed below are certain claims made against the Company and its subsidiaries.  In the Company's opinion, it has made appropriate and adequate reserves, accruals and disclosures where necessary and the Company believes the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals and reserves are not adequate, an adverse outcome could have a material effect on the consolidated financial condition or results of operations of the Company.  The Company believes it has substantial defenses to the claims made and intends to vigorously defend these cases. 

Wage and Hour/ Labor Matters:   In 2000, the Wage and Hour Division of the U.S. Department of Labor (DOL) conducted an industry-wide investigation of poultry producers, including the Company, to ascertain compliance with various wage and hour issues.  As part of this investigation, the DOL inspected 14 of the Company's processing facilities.  On May 9, 2002, a civil complaint was filed against the Company in the U.S. District Court for the Northern District of Alabama, Elaine L. Chao, Secretary of Labor, United States Department of Labor v. Tyson Foods, Inc.  The complaint alleges that the Company violated the overtime provisions of the federal Fair Labor Standards Act (FLSA) at the Company's chicken-processing facility in Blountsville, Alabama.  The complaint does not contain a definite statement of what acts constituted alleged violations of the statute, although the Secretary of Labor has indicated in discovery that the case seeks to require the Company to compensate all hourly chicken processing workers for pre- and post-shift clothes changing, washing and related activities and for one of two unpaid 30-minute meal periods.  The Secretary of Labor seeks unspecified back wages for all employees at the Blountsville facility for a period of two years prior to the date of the filing of the complaint, an additional amount in unspecified liquidated damages, and an injunction against future violations at that facility and all other chicken processing facilities operated by the Company.  Discovery is in process.  No trial date has been set.  The matter has been stayed pending the outcome of two other similar matters involving the donning and doffing of certain personal protective clothing and equipment, Alvarez, et al. v. IBP (Alvarez, see below) and Tum, et al. v. Barber Foods, Inc. (Tum) presently before the U.S. Supreme Court. 

On June 22, 1999, 11 current and former employees of the Company filed the case of M.H. Fox, et al. v. Tyson Foods, Inc. (Fox) in the U.S. District Court for the Northern District of Alabama claiming the Company violated requirements of the FLSA.  The suit alleges the Company failed to pay employees for all hours worked and/or improperly paid them for overtime hours. The suit specifically alleges that (1) employees should be paid for time taken to put on and take off certain working supplies at the beginning and end of their shifts and breaks and (2) the use of "mastercard" or "line" time fails to pay employees for all time actually worked. Plaintiffs seek to represent themselves and all similarly situated current and former employees of the Company, and plaintiffs seek reimbursement for an unspecified amount of unpaid wages, liquidated damages, attorney fees and costs.  To date, approximately 5,100 consents have been filed with the District Court. Plaintiff's motion for conditional collective treatment and court-supervised notice to additional putative class members was denied on February 27, 2004.  The plaintiffs refiled their motion for conditional collective treatment and court-supervised notice to additional putative class members on April 2, 2004, and the District Court has not ruled on this motion.  Discovery is in process.  No trial date has been set.  The matter has been stayed pending the outcome of Alvarez and Tum presently before the U.S. Supreme Court. 

On August 22, 2000, seven employees of the Company filed the case of De Asencio v. Tyson Foods, Inc. in the U.S. District Court for the Eastern District of Pennsylvania. This lawsuit is similar to Fox in that the employees claim violations of the FLSA for allegedly failing to pay for time taken to put on, take off and sanitize certain working supplies, and violations of the Pennsylvania Wage Payment and Collection Law.  Plaintiffs seek to represent themselves and all similarly situated current and former employees of the

25

poultry processing plant in New Holland, Pennsylvania, and plaintiffs seek reimbursement for an unspecified amount of unpaid wages, liquidated damages, attorney fees and costs. There are approximately 560 additional current or former employees who have filed consents to join the lawsuit. The District Court, on January 30, 2001, ordered that notice of the lawsuit be issued to all potential plaintiffs at the New Holland facilities.  On July 17, 2002, the District Court granted the plaintiffs' motion to certify the state law claims.  On September 23, 2002, the Third Circuit Court of Appeals agreed to hear the Company's petition to review the District Court's decision to certify the state law claims.  On September 8, 2003, the Court of Appeals reversed the District Court's certification of a class under the Pennsylvania Wage Payment & Collection Law, ruling that those claims could not be pursued in federal court.  The Court of Appeals further ruled that the Company must reissue notice of their potential FLSA claims to approximately 2,170 employees who did not previously receive notice.  The Court of Appeals remanded the matter to the District Court to proceed accordingly on September 30, 2003, and notice was reissued. Further proceedings in the District Court are pending, and no trial date has been set.  The District Court has stayed the proceedings in this matter pending the outcome of Alvarez  and Tum presently before the U.S. Supreme Court.

In 1998, a lawsuit entitled Alvarez, et al. v. IBP (Alvarez) was filed in the U.S. District Court for the Eastern District of Washington against IBP (n/k/a Tyson Fresh Meats, Inc. or TFM) by employees of its Pasco, Washington beef slaughter and processing facility.  Plaintiffs brought this action on behalf of themselves and TFM's Pasco employees alleging violations of the Fair Labor Standards Act, 29 U.S.C. Sections 201-219; the Washington Minimum Wage Act, Revised Code of Washington ("RCW") Chapter 49.46; the Industrial Welfare Act, RCW Chapter 49.12; the Wages-Reductions-Contributions Rebates Act, RCW Chapter 49.52; and related regulations.  Eight hundred fifteen plaintiffs sought additional compensation principally for the time required to (1) don and doff protective clothing at the beginning and the end of the workday and at meal periods; (2) walk between lockers or other locations where protective clothing was stored or distributed and their workstations; and (3) wash protective clothing and other equipment items at the end of the work shift.  Trial was held from September 27, 2000, until October 27, 2000.  On September 14, 2001, the District Court entered its Findings of Fact and Conclusions of Law, which resulted in a $3.1 million judgment against TFM, comprised of back wages, exemplary damages, and liquidated damages, with as yet no specified amount for prejudgment interest.  On December 14, 2001, the District Court awarded an additional $2 million for attorney fees and costs. TFM filed a timely Notice of Appeal and Plaintiffs filed a timely notice of Cross-Appeal.  On August 5, 2003, the Ninth Circuit Court of Appeals affirmed the District Court's decision in part and reversed in part, and remanded the case to the District Court for recalculation of damages.  If the ruling of the Court of Appeals is upheld in its entirety, TFM will have additional exposure in Alvarez of approximately $5 million.  TFM filed a petition for rehearing by the panel of the Court of Appeals or, in the alternative, a rehearing en banc, which was denied on December 2, 2003.  It also filed a petition to certify state law claims to the Washington Supreme Court which was denied on September 23, 2003.  On December 5, 2003, TFM filed a Petition to Stay the Mandate stating it would file a Petition for Certiorari with the U.S. Supreme Court seeking the Court's review of the Ninth Circuit's adverse opinion.  A Stay of the Mandate was ordered by the Ninth Circuit on December 10, 2003.  A Petition for Certiorari was filed with the U.S. Supreme Court on February 26, 2004.  Briefing on the Petition was completed by the parties, and, on May 3, 2004, the Court invited the U.S. Solicitor General to express its views on the pending Petition.  On October 25, 2004, the Solicitor filed its response, acknowledging the issues warranted further review but advising that a First Circuit case (Tum) would be better suited for the Court's consideration of the issues.  On February 22, 2005, the U.S. Supreme Court granted certiorari  on both  the Alvarez or Tum petitions.  The opening brief in Alvarez is due May 16, 2005.

On November 5, 2001, a follow-on lawsuit to Alvarez, entitled Maria Chavez, et al. v. IBP, Lasso Acquisition Corporation and Tyson Foods, Inc. (Chavez) was filed in the U.S. District Court for the Eastern District of Washington by employees of TFM's Pasco, Washington beef slaughter, processing and

26

hides facilities, again alleging violations of the FLSA, 29 U.S.C. Sections 201 - 219, as well as violations of the Washington State Minimum Wage Act, RCW chapter 49.46, Industrial Welfare Act, RCW chapter 49.12, and the Wage Deductions-Contribution-Rebates Act, RCW chapter 49.52. The Chavez lawsuit similarly alleges TFM and/or the Company required employees to perform unpaid work related to the donning and doffing of certain personal protective clothing and equipment, both prior to and after their shifts, as well as during meal periods.   Plaintiffs further allege the holdings in Alvarez support a claim of collateral estoppel and/or res judicata as to many of the issues raised in this litigation.  Chavez initially was pursued as an opt-in, collective action under 29 U.S.C. 216(b), but the District Court granted Plaintiff's motion seeking certification of a class of opt-out, state law plaintiffs under Federal Rule of Civil Procedure 23 and notice was sent to potential state law claim class members.  The state-law class contains approximately 3,900 class members, including approximately 1,200 on the federal claim.  The trial was held from September 7, 2004, through October 4, 2004. The District Court issued its proposed findings of fact and conclusions of law on December 8, 2004.  The parties provided the District Court with their objections to the proposed findings of fact and conclusions of law and submitted trial briefs on damages. The District Court heard oral arguments based upon the party's objections and damages briefings March 29, 2005.  The District Court will next file an order outlining its final findings of facts and conclusions of law.  The damages phase of the trial will now commence June 2, 2005 before a judgment is entered.

On November 21, 2002, a lawsuit entitled Emily D. Jordan, et al. v. IBP, inc. and Tyson Foods, Inc., was filed in the U.S. District Court for the Middle District of Tennessee.  Ten current and former hourly employees of TFM's case-ready facility in Goodlettsville, Tennessee, filed a complaint on behalf of themselves and other unspecified, allegedly "similarly situated" employees, claiming that the defendants have violated the overtime provisions of the FLSA.  The suit alleges that defendants failed to pay employees for all hours worked from the plant's commencement of operations in April 2001.  In particular, the suit alleges that employees should be paid for the time it takes to collect, assemble and put on, take off and wash their health, safety and production gear at the beginning and end of their shifts and during their meal period.  The suit also alleges that the Company deducts 30 minutes per day from employees' paychecks regardless of whether employees obtain a full 30-minute period for their meal.  Plaintiffs are seeking a declaration that the defendants did not comply with the FLSA, and an award for an unspecified amount of back pay compensation and benefits, unpaid entitlements, liquidated damages, prejudgment and post-judgment interest, attorney fees and costs.  On January 15, 2003, the Company filed an answer to the complaint denying any liability. On January 14, 2003, the named plaintiffs filed a motion for expedited court-supervised notice to prospective class members.   The motion sought to conditionally certify a class of similarly situated employees at all of TFM's non-union facilities that have not been the subject of FLSA litigation.  Plaintiffs then withdrew a request for conditional certification of similarly situated employees at all of TFM's non-union facilities and rather sought to include all non-exempt employees that have worked at the Goodlettsville facility since its opening.  On June 9, 2003, the Company filed a Motion for Summary Judgment seeking the applicability of the injunction entered by the U.S. District Court for the District of Kansas and affirmed by the U.S. Court of Appeals for the Tenth Circuit (Metzler v. IBP, inc. 127 F. 3^rd 959, 10^th Cir. 1997), which the Company contends has a preclusive effect as to plaintiffs' claims based on pre- and post-shift activities.  The plaintiffs conducted discovery limited to that issue and responded to said Motion on June 18, 2004.  The Company filed its reply on July 2, 2004.  On October 12, 2004, the District Court denied the Company's motion for summary judgment.  On November 17, 2003, the District Court conditionally certified a collective action composed of similarly situated current and former employees at the Goodlettsville facility based upon clothes changing and washing activities and unpaid production work during meal periods, since the plant operations began in April 2001.  Class Notices to approximately 4,500 prospective class members were mailed on January 21, 2004.   Approximately 525 current and former employees have opted into the class.  The District Court stayed discovery on November 8, 2004, and administratively closed the action January 21, 2005 pending the U.S. Supreme Court's determinations in Alvarez and Tum.

27

Securities Matters:  Between June 22 and July 20, 2001, various plaintiffs commenced actions (the Delaware Federal Actions) against the Company, Don Tyson, John Tyson and Les Baledge in the U.S. District Court for the District of Delaware, seeking monetary damages on behalf of a purported class of those who sold IBP, inc. (IBP) stock from March 29, 2001, when the Company announced its intention to terminate its merger agreement with IBP, through June 15, 2001, when a Delaware state court rendered its Post-Trial Opinion ordering the merger to proceed.  Plaintiffs in the various actions alleged that the defendants violated federal securities laws by making, causing or allowing to be made, certain allegedly false and misleading statements in a March 29, 2001, press release issued in connection with the Company's attempted termination of the merger agreement.  The plaintiffs alleged that, as a result of the defendants' alleged conduct, purported class members were harmed by an alleged artificial deflation in the price of IBP's stock during the proposed class period. The various actions were subsequently consolidated under the caption In re Tyson Foods, Inc. Securities Litigation and, on December 4, 2001, the plaintiffs in the consolidated action filed a Consolidated Class Action Complaint.  On January 22, 2002, the defendants filed a motion to dismiss the consolidated complaint.  By memorandum order dated October 23, 2002, the District Court granted in part and denied in part the defendants' motion to dismiss.  On October 6, 2003, the District Court certified a class consisting of those who purchased IBP securities on or before March 29, 2001, and subsequently sold such securities from March 30 through June 15, 2001, inclusive, and sustained damages as a result of such transaction.    Following the conclusion of discovery in the case, plaintiffs and defendants each filed motions for summary judgment.  On June 17, 2004, the District Court rendered an opinion in favor of defendants and against plaintiffs on all of plaintiffs' claims, and entered an order to that effect.  On June 28, 2004, defendants filed a motion requesting the District Court to modify its order to include judgment in defendants' favor against the class and on July 30, 2004, the District Court entered such an order.  On August 6, 2004, plaintiffs filed a Notice of Appeal.  Plaintiffs filed their brief on the appeal on December 8, 2004, defendants filed their response on January 24, 2005 plaintiffs filed their reply brief on February 24, 2005.  No date for oral arguments on the appeal has been set.

General Matters:  In July 1996, certain cattle producers filed Henry Lee Pickett, et al. v. IBP, inc. in the U.S. District Court, Middle District of Alabama, seeking certification of a class of all cattle producers. The complaint alleged that TFM used its market power and alleged "captive supply" agreements to reduce the prices paid by TFM on purchases of cattle in the cash market in alleged violation of the Packers and Stockyards Act (PSA).  Plaintiffs sought injunctive and declaratory relief, as well as actual and punitive damages.  Plaintiffs submitted an amended expert report on November 19, 2003, showing alleged damages on all cash market purchases by TFM of approximately $2.1 billion.  Trial of this matter began on January 12, 2004, and concluded on February 10, 2004.  On February 17, 2004, a jury returned a verdict against TFM on liability and gave an "advisory" verdict on damages that estimated the impact on the cash market (i.e., a group larger than the class) to be $1.28 billion.  On February 25, 2004, TFM filed a renewed motion requesting the District Court to enter a judgment as a matter of law (JMOL) for TFM.  On March 1, 2004, the plaintiffs filed motions asking the District Court to enter the $1.28 billion advisory verdict as an award of damages to the plaintiffs and requesting prejudgment interest.  On March 22, 2004, the District Court denied the plaintiff's motions for entry of a damages award.  On April 23, 2004, the District Court granted TFM's JMOL motion, and held (i) TFM had legitimate business reasons for using "captive supplies," (ii) there was "no evidence before the Court to suggest that [TFM's] conduct is illegal," and (iii) "plaintiffs failed to present evidence at trial to sustain their burden with respect to liability and damages."  The plaintiffs have appealed the District Court's entry of judgment in favor of TFM to the 11^th Circuit Court of Appeals.  Oral arguments were heard by the Court of Appeals on December 17, 2004 and the Company is presently awaiting their decision.

On September 12, 2002, 82 individual plaintiffs filed Michael Archer, et al. v. Tyson Foods, Inc. and The Pork Group, Inc., CIV 2002-497, in the Circuit Court of Pope County, Arkansas.  On August 18, 2002,

28

the Company announced a restructuring of its live swine operations which, among other things, resulted in the discontinuance of relationships with approximately 130 contract hog producers, including the plaintiffs.  In their complaint, the plaintiffs allege that the Company committed fraud and should be promissorily estopped from terminating the parties' relationship.  The plaintiffs seek an unspecified amount of compensatory damages, punitive damages, attorney fees and costs.  Trial is scheduled to begin August 1, 2005.

NOTE 10:   DEFERRED COMPENSATION

In July 2003, the Compensation Committee authorized the Company to award performance-based shares of the Company's Class A common stock to certain senior executive officers on the first business day of each of the Company's 2004, 2005 and 2006 fiscal years having an initial maximum aggregate value of $4.4 million on the date of each award.  In September 2004, the Compensation Committee authorized the expansion of the fiscal 2005 awards to include additional senior officers, which increases the initial maximum aggregate value for the 2005 grants by $2.1 million.  The vesting of the performance-based shares for the 2004 and 2005 awards is over three years, and the vesting of the 2006 award is over two and one-half years (the Vesting Period), each award being subject to the attainment of Company goals determined by the Compensation Committee prior to the date of the award.  The Company reviews progress towards the attainment of Company goals each quarter during the Vesting Period to determine the appropriate adjustment to the deferred compensation liability for the anticipated vesting of the shares.  The attainment of Company goals can only be finally determined at the end of the Vesting Period.  If the shares vest, the ultimate cost to the Company will be equal to the Class A common stock price on the date the shares vest times the number of shares awarded.

NOTE 11:   PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost for the pension and other postretirement benefit plans that were recognized in the Consolidated Condensed Statements of Income were as follows (in millions):

29

During the three and six months of fiscal 2005, no contributions were made to the Company's pension plans.  However, the Company continues to anticipate contributions of approximately $9 million to the pension plans for fiscal year 2005.  The Company contributed $2 million and $5 million to its other postretirement benefit plans during the three and six months of fiscal 2005, respectively, and additional contributions of approximately $4 million are expected throughout the remainder of fiscal 2005.

NOTE 12:   INCOME TAXES 

The effective tax rate for both the three and six months of fiscal 2005 was 36.6%, as compared to 36.8% and 36.4% for the same periods of fiscal 2004.  The estimated ETI amount reduced the effective rate by 0.7% and 1.1% for three and six months of fiscal 2005, as compared to 0.4% and 1.1% for the same periods of fiscal 2004.  On October 11, 2004, the Senate passed the American Jobs Creation Act of 2004 (the AJC Act), which was signed into law by the President on October 22, 2004.  This new law provides for the repeal of the ETI deduction and the replacement with a domestic production deduction.  The phase out of the ETI deduction for fiscal 2005 will allow the Company to take 100% of the prior law deduction for the first quarter of fiscal 2005 and 80% of the prior law deduction for the remainder of the year.  In addition, the Company anticipates its production income will qualify for the domestic production deduction which will be applicable to the Company beginning in fiscal 2006.  This provision will be phased in from fiscal 2006 through fiscal 2011 and provides for a deduction of between 3% and 9% of qualifying domestic production income over that period.  During fiscal 2004, the law that allowed certain general business credits available to the Company expired.  In the first quarter of fiscal 2005, the law was extended retroactively, therefore the benefit of the credits from 2004 were recognized in the first quarter, thus reducing the first quarter effective tax rate. 

The AJC Act also contains a provision which allows for an 85% dividends received deduction with respect to certain dividends received from foreign subsidiaries.  The U.S. Treasury recently issued guidance that appears to clarify some of the provisions of the AJC Act.  Additional guidance is expected which includes a Technical Corrections Bill from the U.S. Congress and further guidance from the U.S. Treasury and the internal revenue service.  Subject to such guidance, the Company might repatriate up to $400 million in extraordinary dividends under the provisions of the AJC Act.  The range of income tax effect of such extraordinary dividends cannot be reasonably estimated until the further guidance mentioned above is received.  However, at this time, the Company does not expect the potential extraordinary dividend to have a material impact on its effective tax rate.

30

NOTE 13:   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data):