Tyson Foods, Inc. Business Information, Profile, and History

Company Perspectives:

Our vision at Tyson is to be the world's first choice for protein while maximizing shareholder value. We are dedicated to producing and marketing trusted quality food products that fit today's changing lifestyles and to attracting, rewarding and retaining the best people in the food industry.

History of Tyson Foods, Inc.

Founded in 1935, Arkansas-based Tyson Foods, Inc. is the world's largest processor and marketer of chicken, beef, and pork. The company produces a wide variety of brand name, processed food products--including fresh meats, processed and precooked meats, refrigerated and frozen prepared foods, and animal feeds--and is the recognized market leader in almost every retail and foodservice market it serves. A $24-billion operation, Tyson supplies about 25 billion pounds of chicken, beef, and pork per year to McDonald's, Wal-Mart, and most major supermarket and restaurant chains in the United States. The company employs about 120,000 people and operates in 32 states and 22 countries. The Tyson family controls 80 percent of the company's voting power.

1935 to Early 1960s: The Early Years

During the Depression, John Tyson moved to Springdale, Arkansas, with his wife and one-year-old son Don. In 1935, he bought 50 "springer" chickens and hauled them to Chicago to sell at a profit. Two years later, he named his business Tyson Feed & Hatchery. Over the next 13 years the company prospered by buying and selling chickens, aided by the postwar boom, which brought improved kitchen appliances and the first supermarkets. Gradually, however, Tyson became involved in raising chickens, which allowed him better control over the quality of what he sold. In 1947, the company was incorporated.

Five years later, Don Tyson graduated from college and joined the company as head of operations. Father and son were said to have made a dynamic team, the older Tyson more cautious and the younger one pushing forward. For example, Don convinced his father to raise rock cornish game hens, a market that Tyson would one day dominate.

For the next six years, Tyson focused on expanding production facilities, and, in 1957, the company opened a processing plant in Springdale, Arkansas, the site of the company headquarters. Tyson also introduced its first ice-pack processing line, which brought the company into a more competitive industry bracket. By achieving more complete vertical integration, its dependence on other suppliers lessened.

During the early 1960s, many amateur chicken producers were lured into the market by the drop in feed-grain prices and the easy availability of credit. As a result, broiler production rose about 13 percent between 1965 and 1967. The glut that followed caused big price cuts and accounted for about $50 million in losses in the industry. Several small companies were forced out of business, but the demand for low-priced chicken soared. People were eating four times as much chicken as they did in 1950.

Mid-1960s through 1970s: A Growing Company in a New Industry

In 1963, Tyson went public and changed its name to Tyson's Foods, Incorporated. It also made its first acquisition, the Garrett Poultry Company, based in Rogers, Arkansas. In 1966, John Tyson and his wife died in an automobile accident, and Don Tyson took over the business as president.

Technological improvements in the 1960s fundamentally changed the poultry industry. Broiler production had become one of the most industrialized, automated parts of U.S. agriculture. Through the development of better feeds and better disease control methods, chickens were maturing more quickly. These improvements, combined with increased competition, meant lower prices for consumers, but, for processors, it meant lower earnings. In 1967, despite a 37 percent gain in sales, Tyson lost more than a dollar per share in earnings. Nonetheless, the company took advantage of a situation in which several smaller companies were floundering, and, with its acquisition of Franz Foods, Inc., continued its pattern of buying out smaller poultry concerns. It also began to give its corporate name more visibility, printing "Tyson Country Fresh Chicken" on its wrappers instead of the name of the supermarket to which the chickens were sold.

In 1968, Tyson went to court with two other processors when an Agriculture Department officer alleged that the processors had discriminated against Arkansas chicken farmers who were members of an association of poultry farmers. At that time, processors customarily hired farmers to raise their chickens; Tyson and the others had been accused of "boycotting and blacklisting" association members in 1962. In 1969, a federal appeals court ruled that the Agriculture Department had "erred" in treating the chicken processors like meatpackers and, therefore, did not have the authority under existing laws to take any action against them.

Also in 1969, Tyson acquired Prospect Farms, Inc., the company that became its precooked chicken division. That year Tyson produced more than 2 percent of the nation's chickens, 70 percent for retail sale and 30 percent for institutions. The company had grown from 15 to 3,000 employees and operated five chicken-processing plants and four protein-processing plants in northwest Arkansas and southwest Missouri.

During the 1970s, Tyson continued to grow and diversify. In 1970, a new egg facility was built, and, in 1971, a computerized feed mill and a plant in Nashville, Arkansas, were completed. Also in 1971 the company's name was changed from Tyson's Foods to Tyson Foods. In 1972, Tyson acquired the Ocoma Foods Division of Consolidated Foods Corporation, including three new plants, as well as Krispy Kitchens, Inc., and the poultry division of Wilson Foods. That year Tyson began selling the Ozark Fry, the first breaded chicken breast patty, and also bought a hog operation in Creswell, North Carolina, from First Colony Farms.

1972 was a shakeout year in the poultry business, and several large processors sold out to those with better prospects of survival, easing competition. Because of the rising prices of beef and pork, chicken consumption was increasing at a rapid rate, and new products and technological developments seemed to promise improved profits for the industry. Tyson was already a leader in introducing new products like its chicken patty, chicken hotdog, and chicken bologna; by 1979, it had 24 specialty products. Tyson also operated three plants that used the new deep chill (rather than ice-pack) process, in which the moisture of the bird was frozen at 28 degrees--one degree warmer than the temperature at which chicken meat freezes, leaving the meat still tender and doubling shelf life to about 25 days.

In the early 1970s Tyson closed its unprofitable plant in Shelbyville, Tennessee, but reopened it in 1974 to produce more popular processed and precooked chicken products. In 1973, Tyson bought Cassady Broiler Company, another small poultry concern, and in the next year acquired Vantress Pedigree, Inc. A civil antitrust lawsuit brought against Tyson and other broiler processors in 1974 for conspiring to fix, maintain, and stabilize broiler prices was settled in 1977. Tyson agreed to pay a $975,663 fine to about 30 chicken purchasers. In 1978, Tyson acquired the rest of Wilson Foods Corporation. A year later the company sold its two North Carolina chicken processing plants.

1980s to Early 1990s: Bigger Gains and Growing Pains

By the early 1980s, consumers' nutritional concerns and the continuously high prices of beef and pork had caused the nation's poultry consumption to increase 30 percent since 1970. This increase was also partly due to innovative, easy-to-prepare products from companies like Tyson and the industry's ability to improve breeding and feed techniques. Some of Tyson's experiments had produced six-pound chickens in just six weeks.

In 1980, Tyson introduced its Chick 'n Quick line of products, which included a variety of chicken portions that were easy to prepare. By then Tyson was the largest grower of Rock Cornish game hens and one of the nation's largest hog producers. As it perfected its precooked chicken patty for restaurants, its institutional sales grew. In 1983, Tyson implemented its new advertising slogan, "Doing our best ... just for you" with television commercials on all three major networks in the United States. The company also acquired Mexican Original Products, Inc., a manufacturer of tortillas, taco shells, tostados, and tortilla chips.

In 1984, Cobb, Inc., and Tyson began a joint venture called Arkansas Breeders to breed and develop the Cobb 500, a female with fast growth, low fat, and high meat content. Later that same year, Tyson acquired 90 percent of another poultry firm, Valmac Industries. By then, Tyson had expanded its operations into six states--Georgia, North Carolina, Missouri, Tennessee, Louisiana, and Arkansas--and many of its products were being distributed internationally. In 1986, The Wall Street Transcript named Don Tyson the gold award winner in the meat and poultry industry. The company acquired Lane Processing Inc., a closely held poultry-processing firm that had been bankrupt since 1984.

In October 1988, Tyson made a takeover bid for Memphis-based Holly Farms Corporation, the national leader in brand name chicken sales. Holly Farms had begun more than a century before as a cotton compressor. Over the years it had evolved into a chicken and foodservice firm with vast holdings and a 19 percent share of the brand name chicken market. It had been the first processor to use its own name rather than the retail seller's on its packaging, which gave the company a longstanding credibility with consumers and made it a very attractive purchase. Holly Farms rejected the bid, nodding to Tennessee takeover laws, and agreed to merge with ConAgra, Inc., one of the nation's largest food companies and a leading poultry producer based in Omaha, Nebraska. Holly Farms also agreed to sell its poultry assets to ConAgra should the merger not come to fruition. In mid-November, Tyson sued Holly Farms and ConAgra to stop the merger. A few days later, a federal judge ruled that Tennessee's anti-takeover laws were unconstitutional and could not be used to halt Tyson's bid, opening an eight-month fight between Tyson and ConAgra for control of Holly Farms.

Tyson's rapid growth in the fast-food chicken business had put a strain on its production facilities, and Tyson needed Holly Farms's chicken supply. More than half of Tyson's business now was with institutions and restaurants, and Tyson's name was not as popular as Holly Farms's in grocery stores. Finally in June 1989, Don Tyson agreed to pay $1.29 billion for Holly Farms, and the company was fully merged into Tyson later that year. In 1990, its first full year with Holly Farms under its wing, Tyson's sales increased 50.7 percent. The purchase of Holly Farms made Tyson the undisputed king of the chicken industry. It also gained a stronger position in beef and pork through Holly Farms's further-processing operations. Tyson's Beef and Pork Division grew substantially over the next several years and claimed 11 percent of the company's revenue by 1995.

In 1991, Leland E. Tollett, a college classmate of Don Tyson whom Tyson had brought into the firm in the late 1950s, was named president and chief executive officer; Tyson remained chairman of the board, but was slowly reducing his responsibilities.

Tyson next turned its attention to seafood in an effort to further diversify its operations. In 1992 Tyson acquired Arctic Alaska Fisheries Corporation, a vertically integrated seafood products company, and Louis Kemp Seafood Company, which was purchased from Oscar Mayer Foods Corporation. Tyson's resulting Seafood Division experienced some rocky initial years, and the firm was forced to take a write-down of $205 million on its seafood assets in 1994, the first major write-down in Tyson's history. The Seafood Division was subsequently revamped and then bolstered by the 1995 acquisition of the seafood division of International Multifoods Corp., which had $65 million in sales in 1994 and produced simulated crabmeat, lobster, shrimp, and scallops.

Arkansas Governor Bill Clinton's presidential election campaign and his subsequent term in office brought unwanted attention to the condition of Tyson's chicken processing plants and eventually embroiled the company in controversies. As governor of Arkansas, Clinton had strongly supported the chicken industry, and Don Tyson was a major contributor to Clinton's presidential bid. During the campaign several journalistic investigations of the chicken industry in Arkansas, such as one published in Time, revealed that many of the plants were unsanitary and dangerous and staffed by low-paid workers often subject to such difficult conditions as line speed-ups. Environmentalists had also charged that Clinton, while he was governor, had allowed the Arkansas poultry industry to dump tons of chicken waste in Arkansas streams.

After Clinton took office, the close ties between Tyson and the president aroused controversy first when reports stated that James Blair, Tyson's general counsel and a close friend of Bill Clinton and Hillary Rodham Clinton, had helped Hillary Rodham Clinton make a killing in the commodity markets. Then came reports in 1994 that Mike Espy, agriculture secretary under Clinton, had accepted a trip on a Tyson jet and football tickets from Tyson in exchange for favorable treatment from poultry inspectors. Espy subsequently resigned over this matter. Tyson denied any wrongdoing.

Tyson had traditionally expanded its chicken processing capacity through the purchase of existing facilities, but when it decided it needed to expand in 1994, no suitable plants could be found that were for sale. The company then decided to build--at a cost of about $400 million--four new poultry plants over a four-year period, each of which would be able to process 1.3 million chickens a week. That year Tyson also bought a controlling interest in Trasgo, S.A. de C.V., a Mexican joint venture started in 1988. Trasgo held the number three position in the growing chicken market in Mexico.

Also in 1994, Tyson acquired Culinary Foods, Inc., a maker of specialty frozen foods mostly for the foodservice market, and Gorges Foodservice, Inc., a further processor of beef for the foodservice market. Tyson failed, however, to acquire a much larger prize, WLR Foods Inc., a $700 million Virginia-based producer of high-quality turkey and chicken products sold primarily under the Wampler-Longacre brand. Similar to Tyson's experience with Holly Farms, WLR management fought Tyson's $330 million attempt to take over the company in early 1994, an attempt that then turned hostile. WLR instituted a takeover defense, which Tyson fought in federal district court as unconstitutional. This time, unlike the Holly Farms case, the judge ruled against Tyson in a decision that summer. Early in 1995, Tyson announced it would appeal the decision to the U.S. Circuit Court of Appeals.

The Seafood Division write-down had soured Tyson's 1994 results and it posted a $2 million loss, its first in years. Not to be deterred, the company continued its aggressive expansion in 1995 with the purchase of the chicken plants of Cargill, which had decided it could no longer compete with Tyson's chicken empire. This purchase added more than 2.5 million chickens per week to Tyson's processing capacity. Another 2.4 million chickens per week were added later in the year with the acquisition of McCarty Farms Inc., a Mississippi-based closely held firm.

An important era for Tyson ended in April 1995 when Don Tyson retired as chairman, denying that the firm's recent controversies had prompted the move. Tyson remained involved in the firm as senior chairman, but day-to-day operations were handed over to Tollett, who became chairman in addition to his previous position as CEO, and Donald "Buddy" Wray, who became president in addition to his previous position as chief operating officer. Like Tollett, Wray was another college classmate of Tyson's and had joined the firm in 1961. John Tyson, Don's then-41-year-old son, was reportedly being groomed to eventually run the company and held the position of president of the Beef and Pork Division.

Mid-1990s and Beyond: Tyson's Plate Gets Crowded

By 1995, Tyson Foods enjoyed a strong position as the leading chicken firm in the United States and looked forward to continuing tremendous growth. Sales had more than doubled from the pre-Holly Farms level of $2.54 billion in 1989 to $5.11 billion in 1994. Tyson was diversifying its operations to become more than just a poultry company, aiming to be a leader in all "center-of-the-plate" proteins. In 1994, poultry accounted for only 75 percent of Tyson's revenues. From this strong position, Tyson appeared ready to more aggressively pursue overseas opportunities, evidenced by the formation of a joint venture in the People's Republic of China in 1994, the opening of an office in Moscow in 1995, and the formation in 1995 of a subsidiary, World Resource, Inc., designed to help Tyson's customers throughout the world source products. About 10 percent of the firm's revenues (about $500 million) derived from international sales.

Tyson's past investment in seafood continued to be problematic. In February 1996, the company agreed to pay Alaska up to $5.85 million over ten years to settle allegations of illegal fishing off the Alaska Peninsula in the early 1990s, a legal problem Tyson assumed when it purchased Arctic Alaska Fisheries Corp. in 1992. Later in 1996, the Securities and Exchange Commission accused Donald Tyson of tipping off a friend who then made a quick profit in the stock of Arctic Alaska Fisheries while the sale of the seafood company to Tyson was pending. Tyson quickly agreed to pay a civil penalty of $46,125.

In the fall of 1997, Tyson announced that it planned to acquire the fourth-largest U.S. poultry processor, Hudson Foods Inc., for $642.4 million. The move meant that Tyson would gain control of 30 percent of the U.S. poultry market. However impressive the move, the year ended on an embarrassing note for Tyson, with the company pleading guilty to giving former agriculture secretary Mike Espy $12,000 in illegal gratuities. According to Susan Schmidt writing for The Washington Post, "Tyson Foods admitted to lavishing gifts on Espy--including football tickets, airline trips, meals and scholarship money for his girlfriend--at a time when his department was considering action on several matters affecting the company's business, including safe handling instructions on poultry packaging." Tyson consented to pay $6 million in fines and costs.

As the poultry industry was faced with an oversupply and low prices, Tyson took a number of measures designed to reduce production, improve its product mix, and focus on higher added-value products. Consequently, 1998 and 1999 for Tyson were years marked by restructuring and streamlining, including some divesting of nonchicken businesses. In 1998, Tyson closed a laying-hen-processing plant in Bloomer, Arkansas, and sold off a turkey processing plant in Minnesota. That same year, the company created a new division, the Tyson Prepared Foods Group, under which many of Tyson's businesses realigned. In 1999, Tyson sold its seafood and pork groups.

After about twenty years of double-digit profit growth, Tyson shares peaked in late 1998, and then dropped sharply over the next two years. Despite its efforts to address a chicken oversupply and low prices, Tyson saw a dramatic 45 percent drop in its second quarter profits for 2000. Still, Tyson had its 65th anniversary to celebrate. As part of the celebration, the company launched a major campaign to fight hunger. Partnering with Share Our Strength (SOS), Tyson committed to providing $10 million in product and support to local communities over three years. The company also announced that it would donate 650,000 pounds of chicken to local hunger organizations. Total sales for 2000 fell just short of the previous year's, at $7.158 billion, compared to 1999's $7.363 billion. Year 2000 net income fell to $151 million, from the previous year's $230 million. In 2001, Tyson began test marketing an organically grown chicken product, Nature's Farm Organic Chicken, in an effort to find a way to compete in the growing organic and natural foods markets.

Even though Tyson's past was checkered with failed attempts to diversify into beef, pork and seafood, the company still sought a way to go beyond chicken. In mid-2001, Tyson made its boldest move to diversify, and this time, the company seemed to get it right. Tyson acquired IBP, the world's largest beef processor, for $4.4 billion, transforming the company from a giant chicken-only operation into the largest diversified meat company in the world. The acquisition made Tyson a $23-billion enterprise, responsible for processing nearly one-quarter of all meat sold in the United States, and earned the company a third-place U.S. ranking as a packaged food company, behind Philip Morris's Kraft Foods division and ConAgra. Profits and sales surged after the acquisition: profits tripled in the most recent quarter after the sale; chicken prices rose during the summer as glut-busting production cuts took effect and demand for wings and legs improved; and pork sales grew by more than tenfold to $508.7 million.

The year for Tyson ended on a negative note, however, as the company faced serious allegations of illegal hiring practices, brought on by a two-and-a-half-year investigation by the Department of Justice. Tyson and several employees were indicted for conspiring to smuggle illegal immigrants across the United States-Mexico border and put them to work with false documentation. Tyson was investigated for financial gains derived from the alleged offense, which was estimated to be in excess of $100 million.

IBP's businesses continued to benefit Tyson's bottom line into 2002. Tyson's mid-year profits jumped to a sixfold increase, raising net income to $107 million, compared to 2001. Also, in that same time frame, revenue tripled to $5.9 billion from $1.92 billion. International sales, however, were less successful. Russia, the world's leading poultry importer, halted purchases from the United States, citing concerns over sanitation and handling practices. China also imposed import restrictions, further hurting Tyson's foreign sales.

Principal Operating Units:Foodservice and International Unit; Retail and Consumer Products Unit; Fresh Meats.

Principal Competitors:Cagle's; Cargill; ConAgra; ContiGroup; Farmland Industries; Foster Farms; Gold Kist; Hormel; Keystone Foods; Perdue; Pilgrim's Pride; Sanderson Farms; Sara Lee Foods; Smithfield Foods.

Chronology

• Key Dates:
• 1935: Company founder, John Tyson, begins selling chickens in Springdale, Arkansas.
• 1947: Tyson Feed & Hatchery is incorporated.
• 1957: The company's first processing plant opens on the north side of Springdale.
• 1963: The company goes public and changes its name to Tyson's Foods, Incorporated.
• 1966: The founder's son, Don, becomes president of the company.
• 1970: Tyson's debuts on the Fortune 1000.
• 1971: The company name changes to Tyson Foods.
• 1977: Tyson becomes the nation's largest hog producer.
• 1982: Tyson debuts on the Fortune 500.
• 1986: Tyson becomes number one in poultry processing.
• 1989: Tyson acquires Holly Farms and nearly doubles its national market share.
• 1992: Tyson goes into the seafood business with the purchase of Arctic Alaska Fisheries, Inc., and Louis Kemp Seafood.
• 1998: Tyson merges with longtime competitor Hudson Foods. The founder's grandson, John Tyson, becomes chairman of the board.
• 2000: Tyson celebrates its 65th anniversary. John Tyson becomes CEO.
• 2001: Tyson acquires IBP and becomes the world's largest processor and marketer of chicken, beef, and pork.