UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended April 2,December 31, 2022
or
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☐ | 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)
| | | | | | | | | | | | | | | | | | | | | | | |
| Delaware | | 71-0225165 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| | | | | | | |
| 2200 West Don Tyson Parkway, | | | | | |
| Springdale, | Arkansas | | 72762-6999 | |
| (Address of Principal Executive Offices) | | (Zip Code) | |
| | (479) | 290-4000 | | | |
(Registrant’s telephone number, including area code) |
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Class A Common Stock | Par Value | $0.10 | TSN | New York Stock Exchange |
| | | | |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
Non-Accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ |
| | | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 2,December 31, 2022.
| | | | | | | | |
Class | | Outstanding Shares |
Class A Common Stock, $0.10 Par Value (Class A stock) | | 291,539,008285,615,602 |
Class B Common Stock, $0.10 Par Value (Class B stock) | | 70,010,355 |
Class B stock is not listed for trading on any exchange or market system. However, Class B stock is convertible into Class A stock on a share-for-share basis.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Sales | Sales | $ | 13,117 | | | $ | 11,300 | | | $ | 26,050 | | | $ | 21,760 | | Sales | $ | 13,260 | | | $ | 12,933 | | |
Cost of Sales | Cost of Sales | 11,382 | | | 10,047 | | | 22,300 | | | 19,330 | | Cost of Sales | 12,292 | | | 10,918 | | |
Gross Profit | Gross Profit | 1,735 | | | 1,253 | | | 3,750 | | | 2,430 | | Gross Profit | 968 | | | 2,015 | | |
Selling, General and Administrative | Selling, General and Administrative | 579 | | | 533 | | | 1,139 | | | 1,005 | | Selling, General and Administrative | 501 | | | 560 | | |
Operating Income | Operating Income | 1,156 | | | 720 | | | 2,611 | | | 1,425 | | Operating Income | 467 | | | 1,455 | | |
Other (Income) Expense: | Other (Income) Expense: | | Other (Income) Expense: | | |
Interest income | Interest income | (3) | | | (2) | | | (6) | | | (4) | | Interest income | (9) | | | (3) | | |
Interest expense | Interest expense | 97 | | | 110 | | | 197 | | | 220 | | Interest expense | 84 | | | 100 | | |
Other, net | Other, net | (25) | | | (12) | | | (77) | | | (31) | | Other, net | (42) | | | (52) | | |
Total Other (Income) Expense | Total Other (Income) Expense | 69 | | | 96 | | | 114 | | | 185 | | Total Other (Income) Expense | 33 | | | 45 | | |
Income before Income Taxes | Income before Income Taxes | 1,087 | | | 624 | | | 2,497 | | | 1,240 | | Income before Income Taxes | 434 | | | 1,410 | | |
Income Tax Expense | Income Tax Expense | 254 | | | 147 | | | 538 | | | 291 | | Income Tax Expense | 114 | | | 284 | | |
Net Income | Net Income | 833 | | | 477 | | | 1,959 | | | 949 | | Net Income | 320 | | | 1,126 | | |
Less: Net Income Attributable to Noncontrolling Interests | Less: Net Income Attributable to Noncontrolling Interests | 4 | | | 1 | | | 9 | | | 6 | | Less: Net Income Attributable to Noncontrolling Interests | 4 | | | 5 | | |
Net Income Attributable to Tyson | Net Income Attributable to Tyson | $ | 829 | | | $ | 476 | | | $ | 1,950 | | | $ | 943 | | Net Income Attributable to Tyson | $ | 316 | | | $ | 1,121 | | |
Weighted Average Shares Outstanding: | Weighted Average Shares Outstanding: | | Weighted Average Shares Outstanding: | | |
Class A Basic | Class A Basic | 291 | | | 293 | | | 291 | | | 293 | | Class A Basic | 286 | | | 292 | | |
Class B Basic | Class B Basic | 70 | | | 70 | | | 70 | | | 70 | | Class B Basic | 70 | | | 70 | | |
Diluted | Diluted | 364 | | | 365 | | | 364 | | | 365 | | Diluted | 358 | | | 365 | | |
Net Income Per Share Attributable to Tyson: | Net Income Per Share Attributable to Tyson: | | Net Income Per Share Attributable to Tyson: | | |
Class A Basic | Class A Basic | $ | 2.34 | | | $ | 1.34 | | | $ | 5.50 | | | $ | 2.65 | | Class A Basic | $ | 0.91 | | | $ | 3.16 | | |
Class B Basic | Class B Basic | $ | 2.11 | | | $ | 1.20 | | | $ | 4.95 | | | $ | 2.38 | | Class B Basic | $ | 0.81 | | | $ | 2.84 | | |
Diluted | Diluted | $ | 2.28 | | | $ | 1.30 | | | $ | 5.35 | | | $ | 2.58 | | Diluted | $ | 0.88 | | | $ | 3.07 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Net Income | Net Income | $ | 833 | | | $ | 477 | | | $ | 1,959 | | | $ | 949 | | Net Income | $ | 320 | | | $ | 1,126 | | |
Other Comprehensive Income (Loss), Net of Taxes: | Other Comprehensive Income (Loss), Net of Taxes: | | Other Comprehensive Income (Loss), Net of Taxes: | | |
Derivatives accounted for as cash flow hedges | Derivatives accounted for as cash flow hedges | 1 | | | 1 | | | 1 | | | 2 | | Derivatives accounted for as cash flow hedges | 1 | | | — | | |
Investments | Investments | (3) | | | (1) | | | (4) | | | (1) | | Investments | — | | | (1) | | |
Currency translation | Currency translation | 28 | | | (49) | | | 27 | | | 26 | | Currency translation | 81 | | | (1) | | |
Postretirement benefits | Postretirement benefits | 2 | | | 1 | | | 4 | | | 2 | | Postretirement benefits | — | | | 2 | | |
Total Other Comprehensive Income (Loss), Net of Taxes | Total Other Comprehensive Income (Loss), Net of Taxes | 28 | | | (48) | | | 28 | | | 29 | | Total Other Comprehensive Income (Loss), Net of Taxes | 82 | | | — | | |
Comprehensive Income | Comprehensive Income | 861 | | | 429 | | | 1,987 | | | 978 | | Comprehensive Income | 402 | | | 1,126 | | |
Less: Comprehensive Income Attributable to Noncontrolling Interests | Less: Comprehensive Income Attributable to Noncontrolling Interests | 4 | | | 1 | | | 9 | | | 6 | | Less: Comprehensive Income Attributable to Noncontrolling Interests | 4 | | | 5 | | |
Comprehensive Income Attributable to Tyson | Comprehensive Income Attributable to Tyson | $ | 857 | | | $ | 428 | | | $ | 1,978 | | | $ | 972 | | Comprehensive Income Attributable to Tyson | $ | 398 | | | $ | 1,121 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except share and per share data)
(Unaudited)
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Assets | Assets | | Assets | |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,151 | | | $ | 2,507 | | Cash and cash equivalents | $ | 654 | | | $ | 1,031 | |
Accounts receivable, net | Accounts receivable, net | 2,408 | | | 2,400 | | Accounts receivable, net | 2,295 | | | 2,577 | |
Inventories | Inventories | 4,990 | | | 4,382 | | Inventories | 5,596 | | | 5,514 | |
Other current assets | Other current assets | 448 | | | 533 | | Other current assets | 408 | | | 508 | |
Total Current Assets | Total Current Assets | 8,997 | | | 9,822 | | Total Current Assets | 8,953 | | | 9,630 | |
Net Property, Plant and Equipment | Net Property, Plant and Equipment | 8,193 | | | 7,837 | | Net Property, Plant and Equipment | 9,120 | | | 8,685 | |
Goodwill | Goodwill | 10,548 | | | 10,549 | | Goodwill | 10,550 | | | 10,513 | |
Intangible Assets, net | Intangible Assets, net | 6,397 | | | 6,519 | | Intangible Assets, net | 6,213 | | | 6,252 | |
Other Assets | Other Assets | 1,763 | | | 1,582 | | Other Assets | 1,842 | | | 1,741 | |
Total Assets | Total Assets | $ | 35,898 | | | $ | 36,309 | | Total Assets | $ | 36,678 | | | $ | 36,821 | |
| Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity | |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Current debt | Current debt | $ | 79 | | | $ | 1,067 | | Current debt | $ | 490 | | | $ | 459 | |
Accounts payable | Accounts payable | 2,269 | | | 2,225 | | Accounts payable | 2,530 | | | 2,483 | |
Other current liabilities | Other current liabilities | 2,309 | | | 3,033 | | Other current liabilities | 2,094 | | | 2,371 | |
Total Current Liabilities | Total Current Liabilities | 4,657 | | | 6,325 | | Total Current Liabilities | 5,114 | | | 5,313 | |
Long-Term Debt | Long-Term Debt | 8,270 | | | 8,281 | | Long-Term Debt | 7,859 | | | 7,862 | |
Deferred Income Taxes | Deferred Income Taxes | 2,297 | | | 2,195 | | Deferred Income Taxes | 2,473 | | | 2,458 | |
Other Liabilities | Other Liabilities | 1,518 | | | 1,654 | | Other Liabilities | 1,445 | | | 1,377 | |
Commitments and Contingencies (Note 14) | | |
Commitments and Contingencies (Note 15) | | Commitments and Contingencies (Note 15) | |
Shareholders’ Equity: | Shareholders’ Equity: | | Shareholders’ Equity: | |
Common stock ($0.10 par value): | Common stock ($0.10 par value): | | Common stock ($0.10 par value): | |
Class A-authorized 900 million shares, issued 378 million shares | Class A-authorized 900 million shares, issued 378 million shares | 38 | | | 38 | | Class A-authorized 900 million shares, issued 378 million shares | 38 | | | 38 | |
Convertible Class B-authorized 900 million shares, issued 70 million shares | Convertible Class B-authorized 900 million shares, issued 70 million shares | 7 | | | 7 | | Convertible Class B-authorized 900 million shares, issued 70 million shares | 7 | | | 7 | |
Capital in excess of par value | Capital in excess of par value | 4,510 | | | 4,486 | | Capital in excess of par value | 4,524 | | | 4,553 | |
Retained earnings | Retained earnings | 19,119 | | | 17,502 | | Retained earnings | 20,225 | | | 20,084 | |
Accumulated other comprehensive gain (loss) | Accumulated other comprehensive gain (loss) | (144) | | | (172) | | Accumulated other comprehensive gain (loss) | (215) | | | (297) | |
Treasury stock, at cost – 86 million shares at April 2, 2022 and 83 million shares at October 2, 2021 | (4,516) | | | (4,138) | | |
Treasury stock, at cost – 92 million shares at December 31, 2022 and 88 million shares at October 1, 2022 | | Treasury stock, at cost – 92 million shares at December 31, 2022 and 88 million shares at October 1, 2022 | (4,944) | | | (4,683) | |
Total Tyson Shareholders’ Equity | Total Tyson Shareholders’ Equity | 19,014 | | | 17,723 | | Total Tyson Shareholders’ Equity | 19,635 | | | 19,702 | |
Noncontrolling Interests | Noncontrolling Interests | 142 | | | 131 | | Noncontrolling Interests | 152 | | | 109 | |
Total Shareholders’ Equity | Total Shareholders’ Equity | 19,156 | | | 17,854 | | Total Shareholders’ Equity | 19,787 | | | 19,811 | |
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | $ | 35,898 | | | $ | 36,309 | | Total Liabilities and Shareholders’ Equity | $ | 36,678 | | | $ | 36,821 | |
See accompanying Notes to Consolidated Condensed Financial Statements.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | | December 31, 2022 | | January 1, 2022 | |
| | Shares | Amount | | Shares | Amount | | Shares | Amount | | Shares | Amount | | | Shares | Amount | | Shares | Amount | |
Class A Common Stock: | Class A Common Stock: | | | Class A Common Stock: | | |
Balance at beginning and end of period | Balance at beginning and end of period | 378 | | $ | 38 | | | 378 | | $ | 38 | | | 378 | | $ | 38 | | | 378 | | $ | 38 | | | Balance at beginning and end of period | 378 | | $ | 38 | | | 378 | | $ | 38 | | |
| Class B Common Stock: | Class B Common Stock: | | | Class B Common Stock: | | |
Balance at beginning and end of period | Balance at beginning and end of period | 70 | | 7 | | | 70 | | 7 | | | 70 | | 7 | | | 70 | | 7 | | | Balance at beginning and end of period | 70 | | 7 | | | 70 | | 7 | | |
| Capital in Excess of Par Value: | Capital in Excess of Par Value: | | | Capital in Excess of Par Value: | | |
Balance at beginning of period | Balance at beginning of period | | 4,471 | | | 4,411 | | | 4,486 | | | 4,433 | | | Balance at beginning of period | | 4,553 | | | 4,486 | | |
| Stock-based compensation and Other | Stock-based compensation and Other | | 39 | | | 32 | | | 24 | | | 10 | | | Stock-based compensation and Other | | (29) | | | (15) | | |
| Balance at end of period | Balance at end of period | | 4,510 | | | 4,443 | | | 4,510 | | | 4,443 | | | Balance at end of period | | 4,524 | | | 4,471 | | |
| Retained Earnings: | Retained Earnings: | | | Retained Earnings: | | |
Balance at beginning of period | Balance at beginning of period | | 18,453 | | | 15,399 | | | 17,502 | | | 15,100 | | | Balance at beginning of period | | 20,084 | | | 17,502 | | |
Net income attributable to Tyson | Net income attributable to Tyson | | 829 | | | 476 | | | 1,950 | | | 943 | | | Net income attributable to Tyson | | 316 | | | 1,121 | | |
Dividends | Dividends | | (163) | | | (159) | | | (333) | | | (327) | | | Dividends | | (175) | | | (170) | | |
Balance at end of period | Balance at end of period | | 19,119 | | | 15,716 | | | 19,119 | | | 15,716 | | | Balance at end of period | | 20,225 | | | 18,453 | | |
| Accumulated Other Comprehensive Income (Loss), Net of Tax: | Accumulated Other Comprehensive Income (Loss), Net of Tax: | | | Accumulated Other Comprehensive Income (Loss), Net of Tax: | | |
Balance at beginning of period | Balance at beginning of period | | (172) | | | (102) | | | (172) | | | (179) | | | Balance at beginning of period | | (297) | | | (172) | | |
Other comprehensive income (loss) | | 28 | | | (48) | | | 28 | | | 29 | | | |
Other comprehensive income | | Other comprehensive income | | 82 | | | — | | |
Balance at end of period | Balance at end of period | | (144) | | | (150) | | | (144) | | | (150) | | | Balance at end of period | | (215) | | | (172) | | |
| Treasury Stock: | Treasury Stock: | | | Treasury Stock: | | |
Balance at beginning of period | Balance at beginning of period | 85 | | (4,394) | | | 83 | | (4,115) | | | 83 | | (4,138) | | | 83 | | (4,145) | | | Balance at beginning of period | 88 | | (4,683) | | | 83 | | (4,138) | | |
Purchase of Class A common stock | Purchase of Class A common stock | 2 | | (175) | | | — | | (17) | | | 6 | | (523) | | | — | | (34) | | | Purchase of Class A common stock | 5 | | (313) | | | 4 | | (348) | | |
| Stock-based compensation | Stock-based compensation | (1) | | 53 | | | — | | 9 | | | (3) | | 145 | | | — | | 56 | | | Stock-based compensation | (1) | | 52 | | | (2) | | 92 | | |
Balance at end of period | Balance at end of period | 86 | | (4,516) | | | 83 | | (4,123) | | | 86 | | (4,516) | | | 83 | | (4,123) | | | Balance at end of period | 92 | | (4,944) | | | 85 | | (4,394) | | |
| Total Shareholders’ Equity Attributable to Tyson | Total Shareholders’ Equity Attributable to Tyson | | $ | 19,014 | | | $ | 15,931 | | | $ | 19,014 | | | $ | 15,931 | | | Total Shareholders’ Equity Attributable to Tyson | | $ | 19,635 | | | $ | 18,403 | | |
| Equity Attributable to Noncontrolling Interests: | Equity Attributable to Noncontrolling Interests: | | | Equity Attributable to Noncontrolling Interests: | | |
Balance at beginning of period | Balance at beginning of period | | $ | 139 | | | $ | 143 | | | $ | 131 | | | $ | 132 | | | Balance at beginning of period | | $ | 109 | | | $ | 131 | | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 4 | | | 1 | | | 9 | | | 6 | | | Net income attributable to noncontrolling interests | | 4 | | | 5 | | |
Distributions to noncontrolling interest | | — | | | — | | | — | | | (2) | | | |
Other | | (1) | | | (5) | | | 2 | | | 3 | | | |
| Business combinations | | Business combinations | | 28 | | | — | | |
Currency translation and other | | Currency translation and other | | 11 | | | 3 | | |
Total Equity Attributable to Noncontrolling Interests | Total Equity Attributable to Noncontrolling Interests | | $ | 142 | | | $ | 139 | | | $ | 142 | | | $ | 139 | | | Total Equity Attributable to Noncontrolling Interests | | $ | 152 | | | $ | 139 | | |
| Total Shareholders’ Equity | Total Shareholders’ Equity | | $ | 19,156 | | | $ | 16,070 | | | $ | 19,156 | | | $ | 16,070 | | | Total Shareholders’ Equity | | $ | 19,787 | | | $ | 18,542 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| | | Six Months Ended | | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | | December 31, 2022 | | January 1, 2022 | |
Cash Flows From Operating Activities: | Cash Flows From Operating Activities: | | | Cash Flows From Operating Activities: | | |
Net income | Net income | $ | 1,959 | | | $ | 949 | | | Net income | $ | 320 | | | $ | 1,126 | | |
Depreciation and amortization | Depreciation and amortization | 595 | | | 604 | | | Depreciation and amortization | 303 | | | 300 | | |
Deferred income taxes | Deferred income taxes | 98 | | | 27 | | | Deferred income taxes | 8 | | | 77 | | |
Other, net | Other, net | 27 | | | 46 | | | Other, net | 68 | | | 11 | | |
Net changes in operating assets and liabilities | Net changes in operating assets and liabilities | (1,455) | | | (277) | | | Net changes in operating assets and liabilities | 63 | | | (82) | | |
Cash Provided by Operating Activities | Cash Provided by Operating Activities | 1,224 | | | 1,349 | | | Cash Provided by Operating Activities | 762 | | | 1,432 | | |
Cash Flows From Investing Activities: | Cash Flows From Investing Activities: | | | Cash Flows From Investing Activities: | | |
Additions to property, plant and equipment | Additions to property, plant and equipment | (847) | | | (557) | | | Additions to property, plant and equipment | (589) | | | (408) | | |
Purchases of marketable securities | Purchases of marketable securities | (18) | | | (41) | | | Purchases of marketable securities | (7) | | | (7) | | |
Proceeds from sale of marketable securities | Proceeds from sale of marketable securities | 18 | | | 41 | | | Proceeds from sale of marketable securities | 7 | | | 7 | | |
| Acquisition, net of cash acquired | | Acquisition, net of cash acquired | (39) | | | — | | |
Acquisition of equity investments | Acquisition of equity investments | (96) | | | — | | | Acquisition of equity investments | (36) | | | (45) | | |
Other, net | Other, net | 58 | | | 49 | | | Other, net | (5) | | | (6) | | |
Cash Used for Investing Activities | Cash Used for Investing Activities | (885) | | | (508) | | | Cash Used for Investing Activities | (669) | | | (459) | | |
Cash Flows From Financing Activities: | Cash Flows From Financing Activities: | | | Cash Flows From Financing Activities: | | |
Proceeds from issuance of debt | Proceeds from issuance of debt | 47 | | | 557 | | | Proceeds from issuance of debt | 54 | | | 26 | | |
Payments on debt | Payments on debt | (1,088) | | | (1,570) | | | Payments on debt | (58) | | | (43) | | |
| Purchases of Tyson Class A common stock | Purchases of Tyson Class A common stock | (511) | | | (34) | | | Purchases of Tyson Class A common stock | (313) | | | (348) | | |
Dividends | Dividends | (328) | | | (318) | | | Dividends | (169) | | | (164) | | |
Stock options exercised | Stock options exercised | 113 | | | 22 | | | Stock options exercised | 4 | | | 46 | | |
Other, net | Other, net | — | | | (2) | | | Other, net | — | | | (1) | | |
Cash Used for Financing Activities | Cash Used for Financing Activities | (1,767) | | | (1,345) | | | Cash Used for Financing Activities | (482) | | | (484) | | |
Effect of Exchange Rate Changes on Cash | Effect of Exchange Rate Changes on Cash | 6 | | | 10 | | | Effect of Exchange Rate Changes on Cash | 12 | | | 2 | | |
Decrease in Cash and Cash Equivalents and Restricted Cash | (1,422) | | | (494) | | | |
(Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | | (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | (377) | | | 491 | | |
Cash and Cash Equivalents and Restricted Cash at Beginning of Year | Cash and Cash Equivalents and Restricted Cash at Beginning of Year | 2,637 | | | 1,466 | | | Cash and Cash Equivalents and Restricted Cash at Beginning of Year | 1,031 | | | 2,637 | | |
Cash and Cash Equivalents and Restricted Cash at End of Period | Cash and Cash Equivalents and Restricted Cash at End of Period | 1,215 | | | 972 | | | Cash and Cash Equivalents and Restricted Cash at End of Period | 654 | | | 3,128 | | |
Less: Restricted Cash at End of Period | Less: Restricted Cash at End of Period | 64 | | | 95 | | | Less: Restricted Cash at End of Period | — | | | 172 | | |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | $ | 1,151 | | | $ | 877 | | | Cash and Cash Equivalents at End of Period | $ | 654 | | | $ | 2,956 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ACCOUNTING POLICIES
Basis of Presentation
The consolidated condensed financial statements are unaudited and have been prepared by Tyson Foods, Inc. (“Tyson,” “the Company,” “we,” “us” or “our”). 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 of the United States Securities and Exchange Commission (the “SEC”). Although we believe 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 our Annual Report on Form 10-K for the fiscal year ended October 2, 2021.1, 2022. Preparation of consolidated condensed financial statements requires us to make estimates and assumptions that affect 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.
We believe the accompanying consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature necessary to state fairly our financial position as of April 2,December 31, 2022 and the results of operations for the three and six months ended April 2,December 31, 2022 and April 3, 2021.January 1, 2022. Results of operations and cash flows for the periods presented are not necessarily indicative of results to be expected for the full year.
Consolidation
The consolidated condensed financial statements include the accounts of all wholly-owned subsidiaries, as well as majority-owned subsidiaries over which we exercise control and, when applicable, entities for which we have a controlling financial interest or variable interest entities for which we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Goodwill
Goodwill is initially recorded at fair value and not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not less than carrying amount, or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. During fiscal 2022, we determined that all of our material reporting units’ estimated fair value exceeded their carrying value by more than 20%, other than one of our Chicken segment reporting units and two of our International reporting units with goodwill totaling $0.6 billion and $0.2 billion, respectively, at October 1, 2022. Conditions existed as of the end our first quarter that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $0.2 billion at December 31, 2022. Based on the interim assessment, we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value.
Some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in additional material impairments of our goodwill.
Use of Estimates
The consolidated condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
We have considered During the impactfirst quarter of the global novel coronavirus pandemic (“COVID-19” or “pandemic”) on our consolidated condensed financial statements. In addition to the COVID-19 impacts already experienced, there likely will be future impacts, the extent of which is uncertain and largely subject to whether the severity worsens or duration lengthens. Consequently, this may subject us to future risk of material goodwill, intangible and long-lived asset impairments, increased reserves for uncollectible accounts and adjustments for inventory and market volatility for items subject to fair value measurements such as derivatives and investments. There have been no material changes to the summary of certain accounting estimates, the description of thefiscal 2023, we revised estimates and the levelsrecorded adjustments of subjectivity and judgment they require found in our Annual Report on Form 10-K for the fiscal year endedapproximately $30 million primarily to reduce certain employee compensation accruals recorded as of October 2, 2021.1, 2022.
Recently Issued Accounting Pronouncements
In March 2020, September 2022, the Financial Accounting Standards Board ("FASB"(the "FASB") issued guidance that requires additional disclosures for supplier finance programs to allow users to better understand the nature, activity and potential magnitude of the programs. The guidance, except for a requirement for rollforward information, is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2022, our fiscal 2024. Disclosure of rollforward information is effective for fiscal years after December 15, 2023, our fiscal 2025. Early adoption is permitted and the retrospective transition method should be applied for all amendments except rollforward information, which should be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020 and can be appliedwas set to end on December 31, 2022, was extended by new guidance issued by the FASB on December 21, 2022 to apply through December 31, 2022,2024. The temporary accounting relief provided in the optional guidance has not impacted our consolidated financial statements. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2022.
Changes in Accounting Principles
In August 2020, the FASB issued guidance that simplifies the accounting for debt with conversion options, revises the criteria for applying the derivative scope exception for contracts in an entity’s own equity and improves the consistency for the calculation of earnings per share. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2021, our fiscal 2023. Early adoption is permitted for annual periods and interim periods within those annual periods beginning after December 15, 2020, our fiscal 2022. We elected to early adopt this guidance beginning in the first quarter of fiscal 2022 and it did not have an impact on our consolidated financial statements.
In December 2019, the FASB issued guidance that simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and clarifies other general principles by adding certain requirements to Topic 740. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2020, our fiscal 2022. We adopted this guidance in the first quarter of fiscal 2022 and it did not have an impact on our consolidated financial statements.2024.
NOTE 2: ACQUISITIONS AND DISPOSITIONS
Acquisition
In the thirdfirst quarter of fiscal 2021,2023, we acquiredcompleted the acquisition of a 49% minority interest60% equity stake in Supreme Foods Processing Company ("SFPC"), a Malaysian producer and distributor of feedvalue-added and cooked chicken and beef products, and a 15% equity stake in Agricultural Development Company ("ADC"), a fully integrated poultry productscompany, for $44a total purchase price of approximately $75 million, net of cash acquired. Both SFPC and ADC were subsidiaries of Tanmiah Food Company. The results of SFPC, subsequent to the acquisition closing, are included in additionInternational/Other for segment presentation. SFPC's results from the date of acquisition through December 31, 2022 were insignificant to future contingent paymentsour Consolidated Condensed Statements of up to approximately $65 million.Income. We are accounting for the investment in ADC under the equity method.
Disposition
We completed the sale of our pet treats business, which was included in our Prepared Foods segment, on July 6, 2021 for $1.2 billion, subject to certain adjustments. As a result of the sale, we recorded a pretax gain of $784 million, or post tax gain of $510 million, which was reflected in Cost of Sales in our Consolidated Statement of Income in the fourth quarter of fiscal 2021. The business had a net carrying value of approximately $411 million, which included $44 million of working capital consisting of inventory, accounts receivable and accounts payable, $17 million of property, plant and equipment and $350 million of goodwill. The goodwill was not deductible for tax purposes. The Company concluded the business was not a significant disposal and did not represent a strategic shift, and therefore was not classified as a discontinued operation for any of the periods presented.
NOTE 3: INVENTORIES
Processed products, livestock and supplies and other are valued at the lower of cost or net realizable value. Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, livestock grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories. At April 2,December 31, 2022, the cost of inventories was determined by either the first-in, first-out (“FIFO”) method or the weighted-average method, which is consistent with the methods used at October 2, 2021.1, 2022.
The following table reflects the major components of inventory (in millions):
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Processed products | Processed products | $ | 2,778 | | | $ | 2,426 | | Processed products | $ | 3,160 | | | $ | 3,188 | |
Livestock | Livestock | 1,361 | | | 1,215 | | Livestock | 1,535 | | | 1,454 | |
Supplies and other | Supplies and other | 851 | | | 741 | | Supplies and other | 901 | | | 872 | |
Total inventory | Total inventory | $ | 4,990 | | | $ | 4,382 | | Total inventory | $ | 5,596 | | | $ | 5,514 | |
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated depreciation are as follows (in millions):
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Land | Land | $ | 219 | | | $ | 210 | | Land | $ | 218 | | | $ | 214 | |
Buildings and leasehold improvements | Buildings and leasehold improvements | 5,496 | | | 5,370 | | Buildings and leasehold improvements | 5,830 | | | 5,742 | |
Machinery and equipment | Machinery and equipment | 9,690 | | | 9,507 | | Machinery and equipment | 10,036 | | | 9,960 | |
Land improvements and other | Land improvements and other | 478 | | | 453 | | Land improvements and other | 526 | | | 516 | |
Buildings and equipment under construction | Buildings and equipment under construction | 1,326 | | | 976 | | Buildings and equipment under construction | 1,934 | | | 1,461 | |
| | 17,209 | | | 16,516 | | | 18,544 | | | 17,893 | |
Less accumulated depreciation | Less accumulated depreciation | 9,016 | | | 8,679 | | Less accumulated depreciation | 9,424 | | | 9,208 | |
Net Property, Plant and Equipment | Net Property, Plant and Equipment | $ | 8,193 | | | $ | 7,837 | | Net Property, Plant and Equipment | $ | 9,120 | | | $ | 8,685 | |
NOTE 5: OTHER CURRENT LIABILITIES
Other current liabilities are as follows (in millions):
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Accrued salaries, wages and benefits | Accrued salaries, wages and benefits | $ | 774 | | | $ | 897 | | Accrued salaries, wages and benefits | $ | 665 | | | $ | 995 | |
| Taxes payable | Taxes payable | 466 | | | 729 | | Taxes payable | 302 | | | 277 | |
Accrued current legal contingencies (a) | Accrued current legal contingencies (a) | 267 | | | 567 | | Accrued current legal contingencies (a) | 194 | | | 215 | |
Other | Other | 802 | | | 840 | | Other | 933 | | | 884 | |
Total other current liabilities | Total other current liabilities | $ | 2,309 | | | $ | 3,033 | | Total other current liabilities | $ | 2,094 | | | $ | 2,371 | |
(a) $64
NOTE 6: RESTRUCTURING AND RELATED CHARGES
2022 Program
In the fourth quarter of fiscal 2022, the Company approved a restructuring program (the “2022 Program”), which is expected to improve business performance, increase collaboration, enhance team member agility, enable faster decision-making and reduce redundancies. In conjunction with the 2022 Program, the Company plans to bring together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation commencing in early calendar year 2023. We anticipate the 2022 Program and associated expenses will be substantially complete in our fiscal 2025. The following table reflects the total pretax anticipated expenses associated with the 2022 Program (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 23 | | $ | 8 | | $ | 7 | | $ | 51 | | $ | 12 | | $ | 101 | | |
Relocation and related costs | 35 | | 15 | | 1 | | 57 | | 1 | | 109 | | |
Accelerated depreciation | 6 | | 2 | | — | | 12 | | — | | 20 | | |
Contract and lease terminations | — | | — | | — | | 31 | | — | | 31 | | |
Professional and other fees | 4 | | 1 | | — | | 7 | | 1 | | 13 | | |
Total 2022 Program | $ | 68 | | $ | 26 | | $ | 8 | | $ | 158 | | $ | 14 | | $ | 274 | | |
Restructuring costs include severance expenses, and related charges include costs directly associated with the 2022 Program such as relocation, contract and lease terminations, professional fees and accelerated depreciation resulting from the closure of facilities. We anticipate that $56 million and $127$218 million of funds heldthe total pretax anticipated expense will be recorded in an escrow account for litigation settlements were included as restricted cash within Other current assetsCost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the table above are $256 million of charges that have resulted or will result in cash outflows and $18 million in non-cash charges.
The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the first quarter of fiscal 2023 by reportable segment (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 2 | | $ | 1 | | $ | — | | $ | 4 | | $ | 5 | | $ | 12 | | |
Relocation and related costs | 1 | | 1 | | 1 | | 1 | | — | | 4 | | |
Accelerated depreciation | 2 | | — | | — | | 4 | | — | | 6 | | |
Contract and lease terminations | — | | — | | — | | (2) | | — | | (2) | | |
Professional and other fees | — | | — | | — | | 1 | | — | | 1 | | |
Total | $ | 5 | | $ | 2 | | $ | 1 | | $ | 8 | | $ | 5 | | $ | 21 | | |
For the first quarter of fiscal 2023, we recorded restructuring and related charges associated with the 2022 Program of $8 million and $13 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Balance Sheets asStatements of April 2, 2022Income. Included in the above results are $17 million of charges that have resulted or will result in cash outflows and October 2, 2021, respectively.$4 million in non-cash charges.
The following table reflects the pretax 2022 Program charges to date by reportable segment (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 18 | | $ | 6 | | $ | 6 | | $ | 40 | | $ | 8 | | $ | 78 | | |
Relocation and related costs | 1 | | 1 | | 1 | | 1 | | — | | 4 | | |
Accelerated depreciation | 2 | | — | | — | | 4 | | — | | 6 | | |
Contract and lease terminations | — | | — | | — | | (2) | | — | | (2) | | |
Professional and other fees | — | | — | | — | | 1 | | — | | 1 | | |
Total | $ | 21 | | $ | 7 | | $ | 7 | | $ | 44 | | $ | 8 | | $ | 87 | | |
As of the first quarter of fiscal 2023, we recorded restructuring and related charges to date associated with the 2022 Program of $26 million and $61 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the above results are $83 million of charges to date that have resulted or will result in cash outflows and $4 million in non-cash charges to date.
The following table reflects our liability related to the 2022 Program, which was recognized in other current liabilities in our Consolidated Condensed Balance sheet as of December 31, 2022 (in millions):
| | | | | | | | | | | | | | | | | | |
| |
| Balance at October 1, 2022 | Restructuring Expense | Payments | Changes in Estimates | Balance at December 31, 2022 | |
Severance costs | $ | 66 | | $ | 12 | | $ | 5 | | $ | — | | $ | 73 | | |
Relocation and related costs | — | | 4 | | 2 | | — | | 2 | | |
Professional and other fees | — | | 1 | | 1 | | — | | — | | |
Total | $ | 66 | | $ | 17 | | $ | 8 | | $ | — | | $ | 75 | | |
As the Company continues to evaluate its business strategies and long-term growth targets, additional restructuring activities may occur.
NOTE 6:7: DEBT
The major components of debt are as follows (in millions):
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Revolving credit facility | Revolving credit facility | $ | — | | | $ | — | | Revolving credit facility | $ | — | | | $ | — | |
Commercial paper | Commercial paper | — | | | — | | Commercial paper | — | | | — | |
Senior notes: | Senior notes: | | Senior notes: | |
| 4.50% Senior notes due June 2022 | — | | | 1,000 | | |
| 3.90% Senior notes due September 2023 | 3.90% Senior notes due September 2023 | 400 | | | 400 | | 3.90% Senior notes due September 2023 | 400 | | | 400 | |
3.95% Notes due August 2024 | 3.95% Notes due August 2024 | 1,250 | | | 1,250 | | 3.95% Notes due August 2024 | 1,250 | | | 1,250 | |
4.00% Notes due March 2026 (“2026 Notes”) | 4.00% Notes due March 2026 (“2026 Notes”) | 800 | | | 800 | | 4.00% Notes due March 2026 (“2026 Notes”) | 800 | | | 800 | |
3.55% Notes due June 2027 | 3.55% Notes due June 2027 | 1,350 | | | 1,350 | | 3.55% Notes due June 2027 | 1,350 | | | 1,350 | |
7.00% Notes due January 2028 | 7.00% Notes due January 2028 | 18 | | | 18 | | 7.00% Notes due January 2028 | 18 | | | 18 | |
4.35% Notes due March 2029 (“2029 Notes”) | 4.35% Notes due March 2029 (“2029 Notes”) | 1,000 | | | 1,000 | | 4.35% Notes due March 2029 (“2029 Notes”) | 1,000 | | | 1,000 | |
6.13% Notes due November 2032 | 6.13% Notes due November 2032 | 160 | | | 160 | | 6.13% Notes due November 2032 | 158 | | | 160 | |
4.88% Notes due August 2034 | 4.88% Notes due August 2034 | 500 | | | 500 | | 4.88% Notes due August 2034 | 500 | | | 500 | |
5.15% Notes due August 2044 | 5.15% Notes due August 2044 | 500 | | | 500 | | 5.15% Notes due August 2044 | 500 | | | 500 | |
4.55% Notes due June 2047 | 4.55% Notes due June 2047 | 750 | | | 750 | | 4.55% Notes due June 2047 | 750 | | | 750 | |
5.10% Notes due September 2048 (“2048 Notes”) | 5.10% Notes due September 2048 (“2048 Notes”) | 1,500 | | | 1,500 | | 5.10% Notes due September 2048 (“2048 Notes”) | 1,500 | | | 1,500 | |
Discount on senior notes | Discount on senior notes | (40) | | | (42) | | Discount on senior notes | (38) | | | (39) | |
| Other | Other | 207 | | | 212 | | Other | 203 | | | 175 | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (46) | | | (50) | | Unamortized debt issuance costs | (42) | | | (43) | |
Total debt | Total debt | 8,349 | | | 9,348 | | Total debt | 8,349 | | | 8,321 | |
Less current debt | Less current debt | 79 | | | 1,067 | | Less current debt | 490 | | | 459 | |
Total long-term debt | Total long-term debt | $ | 8,270 | | | $ | 8,281 | | Total long-term debt | $ | 7,859 | | | $ | 7,862 | |
Revolving Credit Facility and Letters of Credit
In September 2021, we amended our existingWe have a $2.25 billion revolving credit facility which, among other things, increased our line of credit from $1.75 billion to $2.25 billion with the option to establish incremental commitment increases of up to $500 million if certain conditions are met. The revolving credit facilitythat supports short-term funding needs and serves as a backstop to our commercial paper program. The facility will mature and the commitments thereunder will terminate in September 2026 with options for two one-year extensions. At April 2,December 31, 2022, amounts available for borrowing under this facility totaled $2.25 billion and we had no borrowings and no outstanding letters of credit issued under this facility. At April 2,December 31, 2022 we had $93$103 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon. Our letters of credit are issued primarily in support of workers’ compensation insurance programs and other legal obligations. In the future, if any of our subsidiaries shall guarantee any of our material indebtedness, such subsidiary shall be required to guarantee the indebtedness, obligations and liabilities under this facility. In November 2022, we entered into an amendment to change the reference rate from the London interbank offered rate (commonly referred to as LIBOR) to a rate based on the secured overnight financing rate (commonly referred to as SOFR).
Commercial Paper Program
We have a commercial paper program under which we may issue unsecured short-term promissory notes. In December 2021, we amended our existing commercial paper program, which increased ournotes up to an aggregate maximum borrowing capacity toprincipal amount of $1.5 billion. As of April 2,December 31, 2022, we had no commercial paper outstanding. Our ability to access commercial paper in the future may be limited or its costs increased.
June 2022 Notes
On March 15, 2022, we redeemed the $1 billion outstanding balance of the Senior Notes due June 2022 using cash on hand.
Debt Covenants
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain a minimum interest expense coverage ratio.
Our senior notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets.
We were in compliance with all debt covenants at April 2,December 31, 2022.
NOTE 7:8: EQUITY
Share Repurchases
As of April 2,December 31, 2022, 13.87.3 million shares remained available for repurchase under ourthe Company's share repurchase program. The share repurchase program has no fixed or scheduled termination date and the timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, markets, industry conditions, liquidity targets, limitations under our debt obligations and regulatory requirements. In addition to the share repurchase program, we purchase shares on the open market to fund certain obligations under our equity compensation plans. A summary of share repurchases of our Class A stock is as follows (in millions):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
| | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | |
Shares repurchased: | Shares repurchased: | | Shares repurchased: | | |
Under share repurchase program | Under share repurchase program | | 1.5 | | | $ | 132 | | | — | | | $ | — | | | 5.1 | | | $ | 432 | | | — | | | $ | — | | Under share repurchase program | | 4.7 | | | $ | 300 | | | 3.6 | | | $ | 300 | | |
To fund certain obligations under equity compensation plans | To fund certain obligations under equity compensation plans | | 0.5 | | | 43 | | | 0.2 | | | 17 | | | 1.1 | | | 91 | | | 0.5 | | | 34 | | To fund certain obligations under equity compensation plans | | 0.2 | | | 13 | | | 0.6 | | | 48 | | |
Total share repurchases | Total share repurchases | | 2.0 | | | $ | 175 | | | 0.2 | | | $ | 17 | | | 6.2 | | | $ | 523 | | | 0.5 | | | $ | 34 | | Total share repurchases | | 4.9 | | | $ | 313 | | | 4.2 | | | $ | 348 | | |
NOTE 8:9: INCOME TAXES
Our effective tax rate was 23.4%26.1% and 23.5%20.2% for the secondfirst quarter of fiscal 20222023 and 2021, respectively and 21.6% and 23.5% for the first six months of fiscal 2022, and 2021, respectively. The effective tax ratesrate for the secondfirst quarter and first six months of fiscal 2022 and 2021 were2023 was higher than the federal statutory tax rate primarily due to state taxes, partially offset by various tax benefits.taxes. The effective tax rate for the first six monthsquarter of fiscal 2022 also includes the impact of state taxes, offset by a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter.quarter of fiscal 2022, and various other tax benefits.
Unrecognized tax benefits were $157$154 million and $152 million at April 2,December 31, 2022 and October 2, 2021,1, 2022, respectively. We do not expect material changes to our unrecognized tax benefits during the next twelve months.
In December 2021, we received an assessment from the Mexican tax authorities related to the 2015 sale of our direct and indirect equity interests in subsidiaries which held our Mexico operations. At that time, theThe assessment totaledtotals approximately $380$411 million (7.8(8.3 billion Mexican pesos), which includes tax, inflation adjustment, interest and penalties. We believe the assertions made in the assessment letter have no merit and will defend our positions through the Mexican administrative appeal process and litigation, if necessary. Based on our analysis of this assessment in accordance with FASB guidance related to unrecognized tax benefits, we have not recorded a liability related to the issue.
NOTE 9:10: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Numerator: | Numerator: | | Numerator: | | |
Net income | Net income | $ | 833 | | | $ | 477 | | | $ | 1,959 | | | $ | 949 | | Net income | $ | 320 | | | $ | 1,126 | | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | 4 | | | 1 | | | 9 | | | 6 | | Less: Net income attributable to noncontrolling interests | 4 | | | 5 | | |
Net income attributable to Tyson | Net income attributable to Tyson | 829 | | | 476 | | | 1,950 | | | 943 | | Net income attributable to Tyson | 316 | | | 1,121 | | |
Less dividends declared: | Less dividends declared: | | Less dividends declared: | | |
Class A | Class A | 134 | | | 131 | | | 274 | | | 269 | | Class A | 143 | | | 140 | | |
Class B | Class B | 29 | | | 28 | | | 59 | | | 58 | | Class B | 32 | | | 30 | | |
Undistributed earnings | Undistributed earnings | $ | 666 | | | $ | 317 | | | $ | 1,617 | | | $ | 616 | | Undistributed earnings | $ | 141 | | | $ | 951 | | |
| Class A undistributed earnings | Class A undistributed earnings | $ | 547 | | | $ | 261 | | | $ | 1,329 | | | $ | 507 | | Class A undistributed earnings | $ | 116 | | | $ | 782 | | |
Class B undistributed earnings | Class B undistributed earnings | 119 | | | 56 | | | 288 | | | 109 | | Class B undistributed earnings | 25 | | | 169 | | |
Total undistributed earnings | Total undistributed earnings | $ | 666 | | | $ | 317 | | | $ | 1,617 | | | $ | 616 | | Total undistributed earnings | $ | 141 | | | $ | 951 | | |
| Denominator: | Denominator: | | Denominator: | | |
Denominator for basic earnings per share: | Denominator for basic earnings per share: | | Denominator for basic earnings per share: | | |
Class A weighted average shares | Class A weighted average shares | 291 | | | 293 | | | 291 | | | 293 | | Class A weighted average shares | 286 | | | 292 | | |
Class B weighted average shares, and shares under the if-converted method for diluted earnings per share | Class B weighted average shares, and shares under the if-converted method for diluted earnings per share | 70 | | | 70 | | | 70 | | | 70 | | Class B weighted average shares, and shares under the if-converted method for diluted earnings per share | 70 | | | 70 | | |
Effect of dilutive securities: | Effect of dilutive securities: | | Effect of dilutive securities: | | |
Stock options, restricted stock and performance units | Stock options, restricted stock and performance units | 3 | | | 2 | | | 3 | | | 2 | | Stock options, restricted stock and performance units | 2 | | | 3 | | |
| Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions | Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions | 364 | | | 365 | | | 364 | | | 365 | | Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions | 358 | | | 365 | | |
| | Net income per share attributable to Tyson: | Net income per share attributable to Tyson: | | Net income per share attributable to Tyson: | | |
Class A basic | Class A basic | $ | 2.34 | | | $ | 1.34 | | | $ | 5.50 | | | $ | 2.65 | | Class A basic | $ | 0.91 | | | $ | 3.16 | | |
Class B basic | Class B basic | $ | 2.11 | | | $ | 1.20 | | | $ | 4.95 | | | $ | 2.38 | | Class B basic | $ | 0.81 | | | $ | 2.84 | | |
Diluted | Diluted | $ | 2.28 | | | $ | 1.30 | | | $ | 5.35 | | | $ | 2.58 | | Diluted | $ | 0.88 | | | $ | 3.07 | | |
Dividends Declared Per Share: | Dividends Declared Per Share: | | Dividends Declared Per Share: | | |
Class A | Class A | $ | 0.460 | | | $ | 0.445 | | | $ | 0.935 | | | $ | 0.915 | | Class A | $ | 0.500 | | | $ | 0.475 | | |
Class B | Class B | $ | 0.414 | | | $ | 0.401 | | | $ | 0.842 | | | $ | 0.824 | | Class B | $ | 0.450 | | | $ | 0.428 | | |
Approximately 4 million and 2 million of our stock-based compensation shares were antidilutive for the three and six months ended April 2, 2022. Approximately 5 million of our stock-based compensation shares were antidilutive for the threeDecember 31, 2022 and six months ended April 3, 2021.January 1, 2022, respectively. These shares were not included in the diluted earnings per share calculation.
We have 2two classes of capital stock, Class A stock and Class B stock. 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 cash dividends paid to holders of Class B stock cannot exceed 90% of the cash dividends paid to holders of Class A stock.
We allocate undistributed earnings based upon a 1.0 to 0.9 ratio per share to Class A stock and Class B stock, respectively. We allocate undistributed earnings based on this ratio due to historical dividend patterns, voting control of Class B shareholders and contractual limitations of dividends to Class B stock.
NOTE 10:11: DERIVATIVE FINANCIAL INSTRUMENTS
Our business operations give rise to certain market risk exposures mostly due to changes in commodity prices, foreign currency exchange rates and interest rates. We manage a portion of these risks through the use of derivative financial instruments to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Our risk management programs are periodically reviewed by our Board of Directors’ Audit Committee. These programs and risks are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize various industry-standard models that take into account the implicit cost of hedging. Credit risks associated with our derivative contracts are not significant as we minimize counterparty exposure by dealing with credit-worthy counterparties and utilizing exchange traded instruments, margin accounts or letters of credit. Additionally, our derivative contracts are mostly short-term in duration and we generally do not make use of credit-risk-related contingent features. No significant concentrations of credit risk related to our derivative financial instruments existed at April 2,December 31, 2022.
We had the following net aggregated outstanding notional amounts related to our derivative financial instruments:
| in millions, except soybean meal tons | in millions, except soybean meal tons | Metric | | April 2, 2022 | | October 2, 2021 | in millions, except soybean meal tons | Metric | | December 31, 2022 | | October 1, 2022 |
Commodity: | Commodity: | | Commodity: | |
Corn | Corn | Bushels | | 30 | | | 37 | | Corn | Bushels | | 61 | | | 44 | |
Soybean Meal | Soybean Meal | Tons | | 404,200 | | | 1,026,733 | | Soybean Meal | Tons | | 574,600 | | | 532,700 | |
Live Cattle | Live Cattle | Pounds | | 255 | | | 417 | | Live Cattle | Pounds | | 143 | | | 280 | |
Lean Hogs | Lean Hogs | Pounds | | 426 | | | 413 | | Lean Hogs | Pounds | | 338 | | | 339 | |
Foreign Currency | Foreign Currency | United States dollar | | $ | 218 | | | $ | 130 | | Foreign Currency | United States dollar | | $ | 164 | | | $ | 249 | |
We recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Condensed Balance Sheets, with the exception of normal purchases and normal sales expected to result in physical delivery. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged (e.g., cash flow hedge or fair value hedge). We designate certain forward contracts as follows:
•Cash Flow Hedges – include certain commodity forward and option contracts of forecasted purchases (e.g., grains), interest rate swaps and locks and certain foreign exchange forward contracts
•Fair Value Hedges – include certain commodity forward contracts of firm commitments (e.g., livestock)
Cash Flow Hedges
Derivative instruments are designated as hedges against changes in the amount of future cash flows related to procurement of certain commodities utilized in our production processes as well as interest rates related to our variable rate debt. For the derivative instruments we designate and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses representing hedge ineffectiveness are recognized in earnings in the current period. Ineffectiveness related to our cash flow hedges was not significant for the three months ended December 31, 2022, and January 1, 2022. As of April 2,December 31, 2022, we had $14$13 million of realized losses related to treasury rate locks in connection with the issuance of the 2026, 2029 and 2048 Notes, which will be reclassified to earnings over the lives of these notes. During the sixthree months ended April 2,December 31, 2022 and April 3, 2021,January 1, 2022, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges. For the sixthree months ended April 2,December 31, 2022 and April 3, 2021,January 1, 2022, we had no gains or losses recognized in OCI on derivatives designated as cash flow hedges.
Fair Value Hedges
We designate certain derivative contracts as fair value hedges of firm commitments to purchase livestock for harvest. Our objective of these hedges is to minimize the risk of changes in fair value created by fluctuations in commodity prices associated with fixed price livestock firm commitments. For these derivative instruments we designate and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the same period. We include the gain or loss on the hedged items (e.g., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the related livestock forward position. Ineffectiveness related to fair value hedges was not significant for the three and six months ended April 2,December 31, 2022, and April 3, 2021.January 1, 2022. The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of April 2,December 31, 2022 and October 2, 20211, 2022 (in millions):
| | Consolidated Condensed Balance Sheets Classification | Consolidated Condensed Balance Sheets Classification | | April 2, 2022 | | October 2, 2021 | | Consolidated Condensed Balance Sheets Classification | | December 31, 2022 | | October 1, 2022 | |
Inventory | Inventory | | $ | 23 | | | $ | (6) | | | Inventory | | $ | 7 | | | $ | (12) | | |
|
Undesignated Positions
In addition to our designated positions, we also hold derivative contracts for which we do not apply hedge accounting. These include certain derivative instruments related to commodities price risk, including grains, livestock, energy and foreign currency risk. We mark these positions to fair value through earnings at each reporting date.
Reclassification to Earnings
The following table sets forth the total amounts of each income and expense line item presented in the Consolidated Condensed Statements of Income in which the effects of hedges are recorded (in millions):
| | Consolidated Condensed Statements of Income Classification | Consolidated Condensed Statements of Income Classification | Three Months Ended | | Six Months Ended | Consolidated Condensed Statements of Income Classification | Three Months Ended | |
April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | December 31, 2022 | | January 1, 2022 | |
Cost of Sales | Cost of Sales | $ | 11,382 | | | $ | 10,047 | | | $ | 22,300 | | | $ | 19,330 | | Cost of Sales | $ | 12,292 | | | $ | 10,918 | | |
Interest Expense | Interest Expense | 97 | | | 110 | | | 197 | | | 220 | | Interest Expense | 84 | | | 100 | | |
Other, net | Other, net | (25) | | | (12) | | | (77) | | | (31) | | Other, net | (42) | | | (52) | | |
The following table sets forth the pretax impact of the cash flow, fair value and undesignated derivative instruments in the Consolidated Condensed Statements of Income (in millions):
| | Consolidated Condensed Statements of Income Classification | Consolidated Condensed Statements of Income Classification | Three Months Ended | | Six Months Ended | Consolidated Condensed Statements of Income Classification | Three Months Ended | |
April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | December 31, 2022 | | January 1, 2022 | |
Cost of Sales | Cost of Sales | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | Cost of Sales | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | |
| | Commodity contracts | $ | — | | | $ | — | | | $ | — | | | $ | (1) | | | Commodity contracts | $ | — | | | $ | — | | |
| | Gain (Loss) on fair value hedges: | | | Gain (Loss) on fair value hedges: | | |
| | Commodity contracts (a) | (13) | | | (13) | | | (16) | | | (15) | | | Commodity contracts (a) | (3) | | | (3) | | |
| | | Gain (Loss) on derivatives not designated as hedging instruments: | | | Gain (Loss) on derivatives not designated as hedging instruments: | | |
| | Commodity contracts | 99 | | | (2) | | | 180 | | | 96 | | | Commodity contracts | 15 | | | 81 | | |
Total | Total | | $ | 86 | | | $ | (15) | | | $ | 164 | | | $ | 80 | | Total | | $ | 12 | | | $ | 78 | | |
| Interest Expense | Interest Expense | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | Interest Expense | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | |
| | Interest rate contracts | $ | (1) | | | $ | (1) | | | $ | (1) | | | $ | (1) | | | Interest rate contracts | $ | (1) | | | $ | — | | |
| | Other, net | Other, net | Gain (Loss) on derivatives not designated as hedging instruments: | | Other, net | Gain (Loss) on derivatives not designated as hedging instruments: | | |
| | Foreign exchange contracts | $ | 4 | | | $ | — | | | $ | 4 | | | $ | 1 | | | Foreign exchange contracts | $ | 5 | | | $ | — | | |
|
(a) Amounts represent gains/(losses) on commodity contracts designated as fair value hedges of firm commitments that were realized during the period presented, which were offset by a corresponding gain/(loss) on the underlying hedged inventory. Gains or losses related to changes in the fair value of unrealized commodity contracts, along with the offsetting gain or loss on the hedged inventory, are also marked-to-market through earnings with no impact on a net basis.
The fair value of all outstanding derivative instruments in the Consolidated Condensed Balance Sheets are included in Note 11:12: Fair Value Measurements.
NOTE 11:12: FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:
Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.
Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets in non-active markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs derived principally from or corroborated by other observable market data.
Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following tables set forth by level within the fair value hierarchy our financial assets and liabilities accounted for at fair value on a recurring basis according to the valuation techniques we used to determine their fair values (in millions):
| April 2, 2022 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total | |
December 31, 2022 | | December 31, 2022 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total |
Other Current Assets: | Other Current Assets: | | Other Current Assets: | |
Derivative financial instruments: | Derivative financial instruments: | | Derivative financial instruments: | |
Designated as hedges | Designated as hedges | $ | — | | | $ | 2 | | | $ | — | | | $ | (1) | | | $ | 1 | | Designated as hedges | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | |
Undesignated | Undesignated | — | | | 320 | | | — | | | (215) | | | 105 | | Undesignated | — | | | 110 | | | — | | | (38) | | | 72 | |
| Available-for-sale securities (current) | | Available-for-sale securities (current) | — | | | 2 | | | — | | | — | | | 2 | |
| Other Assets: | Other Assets: | | Other Assets: | |
Available-for-sale securities | — | | | 59 | | | 46 | | | — | | | 105 | | |
Available-for-sale securities (non-current) | | Available-for-sale securities (non-current) | — | | | 67 | | | 33 | | | — | | | 100 | |
Deferred compensation assets | Deferred compensation assets | 28 | | | 400 | | | — | | | — | | | 428 | | Deferred compensation assets | 29 | | | 357 | | | — | | | — | | | 386 | |
Total assets | Total assets | $ | 28 | | | $ | 781 | | | $ | 46 | | | $ | (216) | | | $ | 639 | | Total assets | $ | 29 | | | $ | 537 | | | $ | 33 | | | $ | (38) | | | $ | 561 | |
Other Current Liabilities: | Other Current Liabilities: | | Other Current Liabilities: | |
Derivative financial instruments: | Derivative financial instruments: | | Derivative financial instruments: | |
Designated as hedges | Designated as hedges | $ | — | | | $ | 25 | | | $ | — | | | $ | (25) | | | $ | — | | Designated as hedges | $ | — | | | $ | 8 | | | $ | — | | | $ | (8) | | | $ | — | |
Undesignated | Undesignated | — | | | 207 | | | — | | | (203) | | | 4 | | Undesignated | — | | | 70 | | | — | | | (60) | | | 10 | |
| Total liabilities | Total liabilities | $ | — | | | $ | 232 | | | $ | — | | | $ | (228) | | | $ | 4 | | Total liabilities | $ | — | | | $ | 78 | | | $ | — | | | $ | (68) | | | $ | 10 | |
| October 2, 2021 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total | |
October 1, 2022 | | October 1, 2022 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total |
Other Current Assets: | Other Current Assets: | | Other Current Assets: | |
Derivative financial instruments: | Derivative financial instruments: | | Derivative financial instruments: | |
Designated as hedges | Designated as hedges | $ | — | | | $ | 18 | | | $ | — | | | $ | (10) | | | $ | 8 | | Designated as hedges | $ | — | | | $ | 14 | | | $ | — | | | $ | (6) | | | $ | 8 | |
Undesignated | Undesignated | — | | | 169 | | | — | | | (89) | | | 80 | | Undesignated | — | | | 154 | | | — | | | (58) | | | 96 | |
| Available-for-sale securities (current) | | Available-for-sale securities (current) | — | | | 1 | | | — | | | — | | | 1 | |
| Other Assets: | Other Assets: | | Other Assets: | |
Available-for-sale securities | — | | | 61 | | | 48 | | | — | | | 109 | | |
Available-for-sale securities (non-current) | | Available-for-sale securities (non-current) | — | | | 65 | | | 35 | | | — | | | 100 | |
Deferred compensation assets | Deferred compensation assets | 14 | | | 397 | | | — | | | — | | | 411 | | Deferred compensation assets | 38 | | | 327 | | | — | | | — | | | 365 | |
Total assets | Total assets | $ | 14 | | | $ | 645 | | | $ | 48 | | | $ | (99) | | | $ | 608 | | Total assets | $ | 38 | | | $ | 561 | | | $ | 35 | | | $ | (64) | | | $ | 570 | |
Other Current Liabilities: | Other Current Liabilities: | | Other Current Liabilities: | |
Derivative financial instruments: | Derivative financial instruments: | | Derivative financial instruments: | |
Designated as hedges | Designated as hedges | $ | — | | | $ | 12 | | | $ | — | | | $ | (12) | | | $ | — | | Designated as hedges | $ | — | | | $ | 2 | | | $ | — | | | $ | (2) | | | $ | — | |
Undesignated | Undesignated | — | | | 159 | | | — | | | (143) | | | 16 | | Undesignated | — | | | 106 | | | — | | | (72) | | | 34 | |
| Total liabilities | Total liabilities | $ | — | | | $ | 171 | | | $ | — | | | $ | (155) | | | $ | 16 | | Total liabilities | $ | — | | | $ | 108 | | | $ | — | | | $ | (74) | | | $ | 34 | |
(a) Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. Additionally, at April 2,December 31, 2022, and October 2, 2021,1, 2022, we had $12$30 million and $56$10 million, respectively, of net cash collateral with various counterparties where master netting arrangements exist and held no cash collateral.
The following table provides a reconciliation between the beginning and ending balance of marketable debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions):
| | | Six Months Ended | | Three Months Ended |
| | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 |
Balance at beginning of year | Balance at beginning of year | $ | 48 | | | $ | 53 | | Balance at beginning of year | $ | 35 | | | $ | 48 | |
Total realized and unrealized gains (losses): | Total realized and unrealized gains (losses): | | Total realized and unrealized gains (losses): | |
| Included in other comprehensive income (loss) | Included in other comprehensive income (loss) | (2) | | | (1) | | Included in other comprehensive income (loss) | — | | | (1) | |
Purchases | Purchases | 4 | | | 14 | | Purchases | 2 | | | 1 | |
Issuances | Issuances | — | | | — | | Issuances | — | | | — | |
Settlements | Settlements | (4) | | | (13) | | Settlements | (4) | | | (2) | |
Balance at end of period | Balance at end of period | $ | 46 | | | $ | 53 | | Balance at end of period | $ | 33 | | | $ | 46 | |
Total gains (losses) for the six month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period | $ | — | | | $ | — | | |
Total gains (losses) for the three month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period | | Total gains (losses) for the three month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period | $ | — | | | $ | — | |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative Assets and Liabilities
Our derivative financial instruments primarily include exchange-traded and over-the-counter contracts which are further described in Note 10:11: Derivative Financial Instruments. We record our derivative financial instruments at fair value using quoted market prices, adjusted where necessary for credit and non-performance risk and internal models that use readily observable market inputs as their basis, including current and forward market prices and rates. We classify these instruments in Level 2 when quoted market prices can be corroborated utilizing observable current and forward commodity market prices on active exchanges or observable market transactions.
Available-for-Sale Securities
Our investments in marketable debt securities are classified as available-for-sale and are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. Short-term investments with maturities of less than 12 months are included in Other current assets in the Consolidated Condensed Balance Sheets and primarily include certificates of deposit and commercial paper.Sheets. All other marketable debt securities are included in Other Assets in the Consolidated Condensed Balance Sheets and have maturities generally less than 5047 years.
We classify our investments in U.S. government, U.S. agency, certificates of deposit and commercial paper debt securities as Level 2 as fair value is generally estimated using discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other readily available relevant economic measures. We classify certain corporate, asset-backed and other debt securities as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated condensed financial statements.
The following table sets forth our available-for-sale securities’ amortized cost basis, fair value and unrealized gain (loss) by significant investment category (in millions):
| | | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
| | Amortized Cost Basis | | Fair Value | | Unrealized Gain (Loss) | | Amortized Cost Basis | | Fair Value | | Unrealized Gain (Loss) | | Amortized Cost Basis | | Fair Value | | Unrealized Gain (Loss) | | Amortized Cost Basis | | Fair Value | | Unrealized Gain (Loss) |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Debt securities: | Debt securities: | | Debt securities: | |
U.S. treasury and agency | U.S. treasury and agency | $ | 62 | | | $ | 59 | | | $ | (3) | | | $ | 61 | | | $ | 61 | | | $ | — | | U.S. treasury and agency | $ | 74 | | | $ | 69 | | | $ | (5) | | | $ | 71 | | | $ | 66 | | | $ | (5) | |
| Corporate and asset-backed | Corporate and asset-backed | 47 | | | 46 | | | (1) | | | 47 | | | 48 | | | 1 | | Corporate and asset-backed | 35 | | | 33 | | | (2) | | | 37 | | | 35 | | | (2) | |
|
Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in OCI until the security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are due to credit or non-credit factors. Losses on debt securities where we have the intent, or will more than likely be required, to sell the security prior to recovery, would be recorded as a direct write-off of amortized cost basis through earnings. Losses on debt securities where we do not have the intent, or would not more than likely be required to sell the security prior to recovery, would be further evaluated to determine whether the loss is credit or non-credit related. Credit-related losses would be recorded through an allowance for credit losses inthrough earnings and non-credit related losses inthrough OCI.
We consider many factors in determining whether a loss is credit-related, including the financial condition and near-term prospects of the issuer, borrower repayment characteristics for asset-backed securities, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. We recognized no direct write-offs or allowances for credit losses in earnings for the three and six months ended April 2,December 31, 2022, and April 3, 2021.January 1, 2022.
Deferred Compensation Assets
We maintain non-qualified deferred compensation plans for certain executives and other highly compensated employees.team members. Investments are generally maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at fair value based on quoted market prices and are included in Other Assets in the Consolidated Condensed Balance Sheets. We classify the investments which have observable market prices in active markets in Level 1 as these are generally publicly tradedpublicly-traded mutual funds. The remaining deferred compensation assets are classified in Level 2, as fair value can be corroborated based on observable market data. Realized and unrealized gains (losses) on deferred compensation are included in earnings.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges and, with respect to our equity investments without readily determinable fair values, recorded by applying the measurement alternative for which such investments are recorded at cost and adjusted for an observable price change in an orderly transaction for an identical or similar investment of the same issuer.
In the sixthree months ended April 2,January 1, 2022, we recognized gains of $37$30 million in Other, net in the Consolidated Condensed Statements of Income, based upon observable price changes. Equity investments without readily determinable fair values are measured using Level 3 inputs and are included in Other Assets in the Consolidated Condensed Balance Sheets. We did not have any significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the sixthree months ended April 3, 2021.December 31, 2022.
Other Financial Instruments
Fair value of our debt is principally estimated using Level 2 inputs based on quoted prices for those or similar instruments. Fair value and carrying value for our debt are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| April 2, 2022 | | October 2, 2021 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Total debt | $ | 8,874 | | | $ | 8,349 | | | $ | 10,810 | | | $ | 9,348 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | October 1, 2022 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Total debt | $ | 7,840 | | | $ | 8,349 | | | $ | 7,762 | | | $ | 8,321 | |
NOTE 12:13: OTHER COMPREHENSIVE INCOME (LOSS)
The before and after-tax changes in the components of other comprehensive income (loss) are as follows (in millions):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
| | Before Tax | Tax | After Tax | | Before Tax | Tax | After Tax | | Before Tax | Tax | After Tax | | Before Tax | Tax | After Tax | | Before Tax | Tax | After Tax | | Before Tax | Tax | After Tax | |
| Derivatives accounted for as cash flow hedges: | Derivatives accounted for as cash flow hedges: | | Derivatives accounted for as cash flow hedges: | | |
(Gain) loss reclassified to interest expense | (Gain) loss reclassified to interest expense | $ | 1 | | $ | — | | $ | 1 | | | $ | 1 | | $ | — | | $ | 1 | | | $ | 1 | | $ | — | | $ | 1 | | | $ | 1 | | $ | — | | $ | 1 | | (Gain) loss reclassified to interest expense | $ | 1 | | $ | — | | $ | 1 | | | $ | — | | $ | — | | $ | — | | |
(Gain) loss reclassified to cost of sales | — | | — | | — | | | — | | — | | — | | | — | | — | | — | | | 1 | | — | | 1 | | |
| | | Investments: | Investments: | | Investments: | | |
| Unrealized gain (loss) | Unrealized gain (loss) | (4) | | 1 | | (3) | | | (1) | | — | | (1) | | | (5) | | 1 | | (4) | | | (1) | | — | | (1) | | Unrealized gain (loss) | — | | — | | — | | | (1) | | — | | (1) | | |
| Currency translation: | Currency translation: | | Currency translation: | | |
| Translation adjustment | Translation adjustment | 28 | | — | | 28 | | | (49) | | — | | (49) | | | 27 | | — | | 27 | | | 26 | | — | | 26 | | Translation adjustment | 81 | | — | | 81 | | | (1) | | — | | (1) | | |
| | Postretirement benefits: | Postretirement benefits: | | Postretirement benefits: | | |
Unrealized gain (loss) | Unrealized gain (loss) | 3 | | (1) | | 2 | | | 1 | | — | | 1 | | | 5 | | (1) | | 4 | | | 2 | | — | | 2 | | Unrealized gain (loss) | — | | — | | — | | | 2 | | — | | 2 | | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | 28 | | $ | — | | $ | 28 | | | $ | (48) | | $ | — | | $ | (48) | | | $ | 28 | | $ | — | | $ | 28 | | | $ | 29 | | $ | — | | $ | 29 | | Total other comprehensive income (loss) | $ | 82 | | $ | — | | $ | 82 | | | $ | — | | $ | — | | $ | — | | |
NOTE 13:14: SEGMENT REPORTING
We operate in 4four reportable segments: Beef, Pork, Chicken, and Prepared Foods. We measure segment profit as operating income (loss). International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.
Beef
Beef includes our operations related to processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. Products are marketed domestically to consumer products and food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes sales from alliedspecialty products such as hides and variety meats, as well as logistics operations to move products through the supply chain.
Pork
Pork includes our operations related to processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products. Products are marketed domestically to consumer products and food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes our live swine group, related alliedspecialty product processing activities and logistics operations to move products through the supply chain.
Chicken
Chicken includes our domestic operations related to raising and processing live chickens into, and purchasing raw materials for fresh, frozen and value-added chicken products, as well as sales from alliedspecialty products. Our value-added chicken products primarily include breaded chicken strips, nuggets, patties tenders, wings and other ready-to-fix or fully cooked chicken parts. Products are marketed domestically to consumer products and food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes logistics operations to move products through our domestic supply chain and the global operations of our chicken breeding stock subsidiary.
Prepared Foods
Prepared Foods includes our operations related to manufacturing and marketing frozen and refrigerated food products and logistics operations to move products through the supply chain. This segment includes brands such as Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, State Fair®, as well as artisanal brands Aidells®, and Gallo Salame®. Products primarily include ready-to-eat sandwiches, sandwich components such as flame-grilled hamburgers and Philly steaks, pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, flour and corn tortilla products, appetizers, snacks, prepared meals, ethnic foods, side dishes, meat dishes, breadsticks and processed meats. Products are marketed domestically to consumer products and food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities, the military and other food processors, as well as to international export markets.
We allocate expenses related to corporate activities to the segments, except for third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC, which are included in International/Other. Intersegment transactions, which were at market prices, are included in the segment sales in the table below.
Information on segments and a reconciliation to income before income taxes are as follows (in millions):
| | | Three Months Ended | | Six Months Ended | | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | | December 31, 2022 | | January 1, 2022 | |
Sales: | Sales: | | | Sales: | | |
Beef | Beef | $ | 5,034 | | | $ | 4,046 | | | $ | 10,036 | | | $ | 8,033 | | | Beef | $ | 4,723 | | | $ | 5,002 | | |
Pork | Pork | 1,565 | | | 1,477 | | | 3,191 | | | 2,916 | | | Pork | 1,529 | | | 1,626 | | |
Chicken | Chicken | 4,086 | | | 3,553 | | | 7,976 | | | 6,384 | | | Chicken | 4,263 | | | 3,890 | | |
Prepared Foods | Prepared Foods | 2,393 | | | 2,164 | | | 4,726 | | | 4,277 | | | Prepared Foods | 2,538 | | | 2,333 | | |
International/Other | International/Other | 565 | | | 487 | | | 1,115 | | | 956 | | | International/Other | 612 | | | 550 | | |
Intersegment | Intersegment | (526) | | | (427) | | | (994) | | | (806) | | | Intersegment | (405) | | | (468) | | |
Total Sales | Total Sales | $ | 13,117 | | | $ | 11,300 | | | $ | 26,050 | | | $ | 21,760 | | | Total Sales | $ | 13,260 | | | $ | 12,933 | | |
| | | Three Months Ended | | Six Months Ended | | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | | December 31, 2022 | | January 1, 2022 | |
Operating Income (Loss): | Operating Income (Loss): | | | Operating Income (Loss): | | |
Beef(a) | Beef(a) | $ | 638 | | | $ | 445 | | | $ | 1,594 | | | $ | 973 | | | Beef(a) | $ | 166 | | | $ | 956 | | |
Pork | Pork | 59 | | | 67 | | | 223 | | | 183 | | | Pork | (21) | | | 164 | | |
Chicken(b) | Chicken(b) | 198 | | | 6 | | | 338 | | | (210) | | | Chicken(b) | 69 | | | 140 | | |
Prepared Foods | Prepared Foods | 263 | | | 217 | | | 449 | | | 483 | | | Prepared Foods | 258 | | | 186 | | |
International/Other(c) | International/Other(c) | (2) | | | (15) | | | 7 | | | (4) | | | International/Other(c) | (5) | | | 9 | | |
Total Operating Income | Total Operating Income | 1,156 | | | 720 | | | 2,611 | | | 1,425 | | | Total Operating Income | 467 | | | 1,455 | | |
| Total Other (Income) Expense | Total Other (Income) Expense | 69 | | | 96 | | | 114 | | | 185 | | | Total Other (Income) Expense | 33 | | | 45 | | |
| Income before Income Taxes | Income before Income Taxes | $ | 1,087 | | | $ | 624 | | | $ | 2,497 | | | $ | 1,240 | | | Income before Income Taxes | $ | 434 | | | $ | 1,410 | | |
(a) Beef segment results for the sixthree months ended April 3, 2021December 31, 2022 included a $55$42 million gain from the recovery of cattle inventory from a cattle supplier that misappropriated Company funds.insurance proceeds, net of costs incurred, recognized in Cost of Sales.
(b) Chicken segment results for the three months ended April 2,December 31, 2022 included $5$7 million of costs related to a fire at one of our production facilities, net of insurance proceeds.proceeds, recognized in Cost of Sales. Additionally, Chicken segment results for the sixthree months ended April 2,January 1, 2022 included $18$23 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales. Additionally, Chicken segment results for the six months ended April 3, 2021 included a $320 million chargeSales, related to the recognition of a legal contingency accrual. The accrual was recorded as a reduction to Sales pursuant to FASB guidance related to accounting for revenue from contracts with customers.
(c) International/Other results for the three and six months ended April 3, 2021 included a $19 million loss related to the relocation of afire at our production facility in China.the fourth quarter of fiscal 2021.
The following tables further disaggregate our sales to customers by major distribution channels (in millions):
| | | Three months ended April 2, 2022 | | Three months ended December 31, 2022 |
| | Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total | | Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | Beef | $ | 2,213 | | | $ | 1,264 | | | $ | 808 | | | $ | 603 | | | $ | 146 | | | $ | 5,034 | | Beef | $ | 2,134 | | | $ | 1,129 | | | $ | 697 | | | $ | 647 | | | $ | 116 | | | $ | 4,723 | |
Pork | Pork | 430 | | | 122 | | | 267 | | | 401 | | | 345 | | | 1,565 | | Pork | 458 | | | 117 | | | 332 | | | 350 | | | 272 | | | 1,529 | |
Chicken | Chicken | 1,699 | | | 1,590 | | | 277 | | | 485 | | | 35 | | | 4,086 | | Chicken | 1,881 | | | 1,606 | | | 246 | | | 513 | | | 17 | | | 4,263 | |
Prepared Foods | Prepared Foods | 1,410 | | | 897 | | | 44 | | | 42 | | | — | | | 2,393 | | Prepared Foods | 1,505 | | | 938 | | | 56 | | | 39 | | | — | | | 2,538 | |
International/Other | International/Other | — | | | — | | | 565 | | | — | | | — | | | 565 | | International/Other | — | | | — | | | 612 | | | — | | | — | | | 612 | |
Intersegment | Intersegment | — | | | — | | | — | | | — | | | (526) | | | (526) | | Intersegment | — | | | — | | | — | | | — | | | (405) | | | (405) | |
Total | Total | $ | 5,752 | | | $ | 3,873 | | | $ | 1,961 | | | $ | 1,531 | | | $ | — | | | $ | 13,117 | | Total | $ | 5,978 | | | $ | 3,790 | | | $ | 1,943 | | | $ | 1,549 | | | $ | — | | | $ | 13,260 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 3, 2021 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 2,036 | | | $ | 945 | | | $ | 593 | | | $ | 368 | | | $ | 104 | | | $ | 4,046 | |
Pork | 410 | | | 101 | | | 296 | | | 361 | | | 309 | | | 1,477 | |
Chicken | 1,576 | | | 1,356 | | | 166 | | | 441 | | | 14 | | | 3,553 | |
Prepared Foods | 1,306 | | | 787 | | | 30 | | | 41 | | | — | | | 2,164 | |
International/Other | — | | | — | | | 487 | | | — | | | — | | | 487 | |
Intersegment | — | | | — | | | — | | | — | | | (427) | | | (427) | |
Total | $ | 5,328 | | | $ | 3,189 | | | $ | 1,572 | | | $ | 1,211 | | | $ | — | | | $ | 11,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 2, 2022 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 4,431 | | | $ | 2,500 | | | $ | 1,664 | | | $ | 1,165 | | | $ | 276 | | | $ | 10,036 | |
Pork | 908 | | | 258 | | | 571 | | | 799 | | | 655 | | | 3,191 | |
Chicken | 3,332 | | | 3,150 | | | 498 | | | 933 | | | 63 | | | 7,976 | |
Prepared Foods | 2,735 | | | 1,826 | | | 90 | | | 75 | | | — | | | 4,726 | |
International/Other | — | | | — | | | 1,115 | | | — | | | — | | | 1,115 | |
Intersegment | — | | | — | | | — | | | — | | | (994) | | | (994) | |
Total | $ | 11,406 | | | $ | 7,734 | | | $ | 3,938 | | | $ | 2,972 | | | $ | — | | | $ | 26,050 | |
| | | Six months ended April 3, 2021 | | Three months ended January 1, 2022 |
| | Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total | | Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | Beef | $ | 4,170 | | | $ | 1,766 | | | $ | 1,211 | | | $ | 691 | | | $ | 195 | | | $ | 8,033 | | Beef | $ | 2,218 | | | $ | 1,236 | | | $ | 856 | | | $ | 562 | | | $ | 130 | | | $ | 5,002 | |
Pork | Pork | 842 | | | 193 | | | 589 | | | 703 | | | 589 | | | 2,916 | | Pork | 478 | | | 136 | | | 304 | | | 398 | | | 310 | | | 1,626 | |
Chicken | Chicken | 3,012 | | | 2,541 | | | 318 | | | 491 | | | 22 | | | 6,384 | | Chicken | 1,633 | | | 1,560 | | | 221 | | | 448 | | | 28 | | | 3,890 | |
Prepared Foods | Prepared Foods | 2,609 | | | 1,527 | | | 61 | | | 80 | | | — | | | 4,277 | | Prepared Foods | 1,325 | | | 929 | | | 46 | | | 33 | | | — | | | 2,333 | |
International/Other | International/Other | — | | | — | | | 956 | | | — | | | — | | | 956 | | International/Other | — | | | — | | | 550 | | | — | | | — | | | 550 | |
Intersegment | Intersegment | — | | | — | | | — | | | — | | | (806) | | | (806) | | Intersegment | — | | | — | | | — | | | — | | | (468) | | | (468) | |
Total | Total | $ | 10,633 | | | $ | 6,027 | | | $ | 3,135 | | | $ | 1,965 | | | $ | — | | | $ | 21,760 | | Total | $ | 5,654 | | | $ | 3,861 | | | $ | 1,977 | | | $ | 1,441 | | | $ | — | | | $ | 12,933 | |
(a) Includes sales to consumer products and food retailers, such as grocery retailers, warehouse club stores and internet-based retailers.
(b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military.
(c) Includes sales to international markets for internationally produced products or export sales of domestically produced products.
(d) Includes sales to industrial food processing companies that further process our product to sell to end consumers and any remaining sales not included in the Retail, Foodservice or International categories. For the six months ended April 3, 2021, the Chicken segment included a $320 million reduction in Other due to the recognition of a legal contingency accrual.
NOTE 14:15: COMMITMENTS AND CONTINGENCIES
Commitments
We guarantee obligations of certain outside third parties, consisting primarily of grower loans, which are substantially collateralized by the underlying assets. The remaining terms of the underlying obligations cover periods up to 98 years, and the maximum potential amount of future payments as of April 2,December 31, 2022, was not significant. The likelihood of material payments under these guarantees is not considered probable. At April 2,December 31, 2022 and October 2, 2021,1, 2022, no significant liabilities for guarantees were recorded.
We have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay an amount for livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts of such payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers are obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the agreement. Our maximum commitment associated with these programs is limited to the fair value of each participating livestock supplier’s net tangible assets. The potential maximum commitment as of April 2,December 31, 2022 was approximately $295$290 million. The total receivables under these programs were $5$7 million and $6 million at April 2,December 31, 2022 and October 2, 2021.1, 2022, respectively. These receivables are included, net of allowance for uncollectible amounts, in Accounts Receivable in our Consolidated Condensed Balance Sheets. Even though these programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with these programs by obtaining security interests in livestock suppliers’ assets. After analyzing residual credit risks and general market conditions, we havehad no allowance for these programs’ estimated uncollectible receivables at April 2,December 31, 2022, and October 2, 2021.January 1, 2022.
When constructing new facilities or making major enhancements to existing facilities, we will occasionally enter into incentive agreements with local government agencies in order to reduce certain state and local tax expenditures. Certain arrangements may require cash to be deposited into a fund to cover future expenditures. These funds are generally considered restricted cash, which is reported in the Consolidated Condensed Balance Sheets in Other Assets. We had no deposits at April 2,December 31, 2022 and $3 million of deposits at October 2, 2021.1, 2022. Additionally, under certain agreements, we transfer the related assets to various local government entities and receive Industrial Revenue Bonds. We immediately lease the facilities from the local government entities and have an option to re-purchase the facilities for a nominal amount upon tendering the Industrial Revenue Bonds to the local government entities at various predetermined dates.
The Industrial Revenue Bonds and the associated obligations for the leases of the facilities offset, and the underlying assets remain in property, plant and equipment. At April 2,December 31, 2022, the total amount under these types of arrangements totaled $717$797 million.
Contingencies
In the normal course of business, we are involved in various claims, lawsuits, investigations and legal proceedings, including those specifically identified below. Each quarter, we determine whether to accrue for loss contingencies based on our assessment of whether the potential loss is probable, reasonably possible or remote and to the extent a loss is probable, whether it is reasonably estimable. We record accruals in the Company’s Consolidated Financial Statements for matters that we conclude are probable and the financial impact is reasonably estimable. Regardless of the manner of resolution, frequently the most significant changes in the status of a matter may occur over a short time period, often following a lengthy period of little substantive activity. While these accruals reflect the Company’s best estimate of the probable loss for those matters as of the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those matters. Listed below are certain claims made against the Company for which the magnitude of the potential exposure could be material to the Company’s Consolidated Financial Statements. There were no significant changes to our loss contingency accruals reflected in the Company’s Consolidated Condensed Consolidated Statements of Income for the three and six months ended April 2,December 31, 2022 and January 1, 2022.
Broiler Antitrust Civil Litigation
Beginning in September 2016, a series of purported federal class action lawsuits styled In re Broiler Chicken Antitrust Litigation (the “Broiler Antitrust Civil Litigation”) were filed in the United States District Court for the Northern District of Illinois against us and certain of our poultry subsidiaries, as well as several other poultry processing companies. The operative complaints, which have been amended throughout the litigation, contain allegations that, among other things, assert that beginning in January 2008, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of broiler chickens in violation of United States antitrust laws. The plaintiffs also allege that defendants “manipulated and artificially inflated a widely used Broiler price index, the Georgia Dock.” The plaintiffs further allege that the defendants concealed this conduct from the plaintiffs and the members of the putative classes. The plaintiffs seek treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative classes. In addition, the complaints on behalf of the putative classes of indirect purchasers include causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future.
Settlements
On January 19, 2021, we announced that we had reached agreements to settle certain class claims related to the Broiler Antitrust Civil Litigation. Settlement terms were reached with the putative Direct Purchaser Plaintiff Class, the putative Commercial and Institutional Indirect Purchaser Plaintiff Class and the putative End-User Plaintiff Class (collectively, the “Classes”). Under the terms of the settlements, we agreed to pay the Classes an aggregate amount of $221.5 million in settlement of all outstanding claims brought by the Classes. On February 23, 2021, March 22, 2021 and October 15, 2021, the Court granted preliminary approval of the settlements with the putative Direct Purchaser Plaintiff Class, the putative End-User Plaintiff Class and the putative Commercial and Institutional Indirect Purchaser Plaintiff Class, respectively. On June 29, 2021, December 20, 2021 and April 18, 2022, the Court granted final approval to the settlements with the Direct Purchaser Plaintiff Class, the End-User Plaintiff Class and the Commercial and Institutional Indirect Purchaser Plaintiff Class, respectively. The foregoing settlements do not settle claims made by plaintiffs who opt out of the Classes in the Broiler Antitrust Civil Litigation.
We are currently pursuing settlement discussions with the remaining opt-out plaintiffs with respect to the remaining claims. While we do not admit any liability as part of the settlements, we believe that the settlements were in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation.
During the first quarter of fiscal 2023 and the full fiscal 2022, the Company reduced its total recorded legal contingency accrual by $11 million and $179 million, respectively, for amounts it had paid in connection with settlements related to this matter. Accordingly, at
December 31, 2022 and October 1, 2022
, the legal contingency accrual for claims related to this matter was $111 million and $122 million, respectively.
Government Investigations
U.S. Department of Justice (“DOJ”) Antitrust Division. On June 21, 2019, the DOJ filed a motion to intervene and sought a limited stay of discovery in the Broiler Antitrust Civil Litigation, which the court granted in part. Subsequently, we received a grand jury subpoena from the DOJ seeking additional documents and information related to the chicken industry. On June 2, 2020, a grand jury for the District of Colorado returned an indictment charging four individual executives employed by two other poultry processing companies with conspiracy to engage in bid-rigging in violation of federal antitrust laws. On June 10, 2020, we announced that we uncovered information in connection with the grand jury subpoena that we had previously self-reported to the DOJ and have been fully cooperating with the DOJ as part of our application for leniency under the DOJ’s Corporate Leniency Program. Subsequently, the DOJ has announced indictments against additional individuals, as well as other poultry processing companies, alleging a conspiracy to fix prices and rig bids for broiler chicken products from at least 2012 until at least early 2019. In August 2021, the Company was granted conditional leniency by the DOJ for the matters we self-reported, which means that provided the Company continues to fully cooperate with the DOJ, neither the Company nor any of our cooperating employees will face prosecution or criminal fines or penalties. We continue to fully cooperate with the DOJ in connection with the ongoing federal antitrust investigation.
State Matters. The Offices of the Attorney General in New Mexico, Alaska and Washington have filed complaints against us and certain of our poultry subsidiaries, as well as several other poultry processing companies and Agri Stats, Inc., an information services provider (“Agri Stats”). The complaints are based on allegations similar to those asserted in the Broiler Antitrust Civil Litigation and allege violations of state antitrust, unfair trade practice, and unjust enrichment laws. In October 2022, we reached an agreement to settle all claims with the Washington Attorney General for $10.5 million for which the Company recorded an accrual in its Consolidated Financial Statements as of October 1, 2022, and on October 24, 2022, the Court entered the related consent decree resolving all claims in this matter between us and the Washington Attorney General. The Company haspaid the settlement during the first quarter of fiscal 2023. While we do not recordedadmit any liability foras part of the foregoing matters as it does notsettlement, we believe a loss is probable or reasonably estimable at this time becausethat the proceedings aresettlement was in preliminary stages.the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation. In addition, we are fully cooperating with various state governmental agencies and officials, including the Offices of the Attorney General for Florida and Louisiana, investigating or otherwise seeking information, testimony and/or documents, regarding the conduct alleged in the Broiler Antitrust Civil Litigation and related matters.
Broiler Chicken Grower Litigation
On January 27, 2017 and March 26, 2017, putative class action complaints were filed against us and certain of our poultry subsidiaries, as well as several other vertically integrated poultry processing companies, in the United States District Court for the Eastern District of Oklahoma styled In re Broiler Chicken Grower Litigation.Litigation. The plaintiffs allege, among other things, that the defendants colluded not to compete for broiler raising services “with the purpose and effect of fixing, maintaining, and/or stabilizing grower compensation below competitive levels.” The plaintiffs also allege that the defendants “agreed to share detailed data on [g]rower compensation with one another, with the purpose and effect of artificially depressing [g]rower compensation below competitive levels.” The plaintiffs contend these alleged acts constitute violations of the Sherman Antitrust Act and Section 202 of the Grain Inspection, Packers and Stockyards Act of 1921. The plaintiffs are seeking treble damages, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative class. Additional named plaintiffs filed similar class action complaints in federal district courts in North Carolina, Colorado, Kansas and California. All actions were subsequently consolidated in the Eastern District of Oklahoma. In June 2021, we reached an agreement to settle with the putative class of broiler chicken farmers all claims raised in this consolidated action on terms not material to the Company for which the Company recorded an accrual in its Consolidated Financial Statements as of October 2, 2021. The Court granted preliminary approval of the settlement on August 23, 2021 and final approval on February 18, 2022, and the Company paid the settlement during fiscal 2022.
The DOJ’s Antitrust Division has opened a civil investigation into grower contracts and performance-based compensation. We are cooperating with the investigation.
Pork Antitrust Litigation
Beginning June 18, 2018, a series of putative class action complaints were filed against us and certain of our pork subsidiaries, as well as several other pork processing companies, in the United States District Court for the District of Minnesota styled In re Pork Antitrust Litigation (the “Pork Antitrust Civil Litigation”). The plaintiffs allege, among other things, that beginning in January 2009, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of pork and pork products in violation of federal antitrust laws. The complaints on behalf of the putative classes of indirect purchasers also include causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. The plaintiffs seek treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative classes. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
The Offices of the Attorney General in New Mexico and Alaska have filed complaints against us and certain of our pork subsidiaries, as well as several other pork processing companies and Agri Stats. The complaints are based on allegations similar to those asserted in the Pork Antitrust Civil Litigation and allege violations of state antitrust, unfair trade practice, and unjust enrichment laws based on allegations of conspiracies to exchange information and manipulate the supply of pork. The Company has not recorded any liability for the foregoing matters as it does not believe a loss is probable or reasonably estimable at this time because the proceedings are in preliminary stages.
Beef Antitrust Litigation
On April 23, 2019, a putative class action complaint was filed against us and our beef and pork subsidiary, Tyson Fresh Meats, Inc. (“Tyson Fresh Meats”), as well as other beef packer defendants, in the United States District Court for the Northern District of Illinois. The plaintiffs allege that the defendants engaged in a conspiracy from January 2015 to the present to reduce fed cattle prices in violation of federal antitrust laws, the Grain Inspection, Packers and Stockyards Act of 1921, and the Commodities Exchange Act by periodically reducing their slaughter volumes so as to reduce demand for fed cattle, curtailing their purchases and slaughters of cash-purchased cattle during those same periods, coordinating their procurement practices for fed cattle settled on a cash basis, importing foreign cattle at a loss so as to reduce domestic demand, and closing and idling plants. In addition, the plaintiffs also allege the defendants colluded to manipulate live cattle futures and options traded on the Chicago Mercantile Exchange. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. Other similar lawsuits were filed by cattle ranchers in other district courts which were then transferred to the United States District Court for the District of Minnesota and consolidated and styled as In Re Cattle Antitrust Litigation. On February 18, 2021, we moved to dismiss the amended complaints, and on September 23,14, 2021, the court granted the motion with respect to certain state law claims but denied the motion with respect to the plaintiffs’ federal antitrust claims. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On April 26, 2019, a putative class of indirect purchasers filed a class action complaint against us, other beef packers, and Agri Stats in the United States District Court for the District of Minnesota. The plaintiffs allege that the packer defendants conspired to reduce slaughter capacity by closing or idling plants, limiting their purchases of cash cattle, coordinating their procurement of cash cattle, and reducing their slaughter numbers so as to reduce beef output, all in order to artificially raise prices of beef. The plaintiffs seek, among other things, damages under state antitrust and consumer protection statutes and the common law of approximately 30 states, as well as injunctive relief. The indirect consumer purchaser litigation is styled Peterson v. JBS USA Food Company Holdings, et al. Additional complaints have been filed on behalf of a putative class of direct purchasers of beef containing allegations of violations of Section 1 of the Sherman Act based on an alleged conspiracy to artificially fix, raise, and stabilize the wholesale price for beef, as well as on behalf of a putative class of commercial and institutional indirect purchasers of beef containing allegations of violations of Section 1 of the Sherman Act, various state antitrust laws and unjust enrichment based on an alleged conspiracy to artificially inflate the price for beef. On February 18, 2021, we moved to dismiss the plaintiffs’ amended complaints, and on September 23,14, 2021, the court granted the motion with respect to certain state law claims but denied the motion with respect to the plaintiffs’ federal antitrust claims. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On February 18, 2022, a putative class action was commenced against us, Tyson Fresh Meats, and other beef packer defendants in the Supreme Court of British Columbia styled Bui v. Cargill, Incorporated et al. The plaintiff alleges that the defendants conspired to fix, maintain, increase, or control the price of beef, as well as to fix, maintain, control, prevent, or lessen the production or supply of beef by agreeing to reduce the number of cattle slaughtered, reduce slaughter capacity, refrain from increasing slaughter and beef processing capacity, limit purchases of cattle on the cash market, and coordinate purchases of and bids for cattle to lower the supply of fed cattle. The plaintiff advances causes of action under the Competition Act, civil conspiracy, unjust enrichment, and the Civil Code of Québec. The plaintiff seeks to certify a class comprised of all persons or entities in Canada who directly or indirectly purchased beef in Canada, either for resale or for their own consumption between January 1, 2015, and the present and seeks declarations regarding the alleged conspiracy, general damages, aggravated, exemplary, and punitive damages, injunctive relief, costs, and interest. On March 24, 2022, a putative class action was commenced against the same defendants in the Superior Court of Québec styled De Bellefeuille v. Cargill, Incorporated et al. The plaintiff is making substantially the same allegations as those made in the British Columbia action. On behalf of the putative class of persons who purchased beef in Québec since January 1, 2015, the plaintiff is seeking compensatory damages, costs of investigation and interest. The Company has not recorded any liability for the foregoing matters as it does not believe a loss is probable or reasonably estimable at this time because the proceedings are in preliminary stages.
On October 31, 2022, a class action complaint was filed on behalf of putative classes of indirect cattle producers against us, Tyson Fresh Meats, and other beef packer defendants in the United States District Court for the District of Kansas. The plaintiffs allege that the defendants engaged in a conspiracy in violation of Section 1 of the Sherman Act, the Packers and Stockyards Act of 1921 and various state unfair competition and consumer protection laws from January 2015 to the present to reduce the price of cows, cattle, calves, steers or heifers by periodically reducing their slaughter volumes so as to reduce demand for fed cattle, curtailing their purchases and slaughters of cash-purchased cattle during those same periods, coordinating their procurement practices for fed cattle settled on a cash basis, importing foreign cattle at a loss so as to reduce domestic demand, and closing and idling plants. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest under state antitrust and consumer protection statutes and the common law of approximately 33 states, as well as declaratory and injunctive relief. The indirect producer litigation is styled Sprecht et. al. v. Tyson, Inc., et al. A notice of potential tag-along has been filed with the Judicial Panel on Multi-District Litigation to transfer and consolidate the case with In re Cattle and Beef Antitrust Litigation, MDL No. 3031. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On May 22, 2020, December 23, 2020 and October 29, 2021, we received civil investigative demands (“CIDs”) from the DOJ’s Civil Antitrust Division. The CIDs request information related to the fed cattle and beef packing markets. We have been cooperating with the DOJ with respect to the CIDs. The Offices of the Attorney General for multiple states are participating in the investigation and coordinating with the DOJ.
We recently received a subpoena dated April 21, 2022 from the New York Attorney General’s Bureau of Consumer Frauds & Protection seeking information regarding our sales, prices and production costs of beef, pork and chicken products. We are currently evaluatingAfter we had made an initial production of information, we were unable to agree with the New York Attorney General's office on the appropriate scope of the subpoena.
subpoena and, as of August 3, 2022, the parties are litigating the issue before a New York state court.Wage Rate Litigation
On August 30, 2019, a putative class of non-supervisory production and maintenance employees at chicken processing plants in the continental United States filed class action complaints against us and certain of our subsidiaries, as well as several other poultry processing companies, in the United States District Court for the District of Maryland. The plaintiffs allege that the defendants directly and through a wage survey and benchmarking service exchanged information regarding labor rates in an effort to depress and fix the rates of wages for non-supervisory production and maintenance workers in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. Additional lawsuits making similar allegations were consolidated including an amended consolidated complaint containing additional allegations concerning turkey processing plants naming additional defendants. We moved to dismiss the amended consolidated complaint. On September 16, 2020, the court dismissed claims against us and certain other defendants without prejudice because the complaint improperly grouped together corporate subsidiaries. The court otherwise denied the defendants’ motions to dismiss and sustained claims based on alleged conspiracies to fix wages and exchange information against five other defendants. The plaintiffs filed a second amended consolidated complaint on November 2, 2020. We moved to dismiss the complaint on December 18, 2020 based on a lack of standing to assert claims on behalf of the purported class. The court denied the motion to dismiss on March 10, 2021. On February 16, 2022, the plaintiffs filed a third amended consolidated complaint naming additional poultry processors as defendants and expanding the scope of the claims to include employees at hatcheries and feed mills. We moved to dismiss the claims related to hatchery and feed mill employees. The court denied the motion to dismiss is currently pending.on July 19, 2022. In the third quarter of fiscal 2021, the Company recorded an accrual for the estimated probable losses that it expects to incur for this matter in the Company’s Consolidated Condensed Financial Statements. There was no change to the accrual in fiscal 2022 or the first quarter of fiscal 2023.
The DOJ’s Antitrust Division has opened a civil investigation into human resources at several poultry human resources.companies. We will fully cooperateare cooperating with the investigation.
On November 11, 2022, a putative class of employees at beef-processing and pork-processing plants in the continental United States filed a class action complaint against us and certain of our subsidiaries, as well as several other beef-processing and pork-processing companies, in the United States District Court for the District of Colorado. The plaintiffs allege that the defendants directly and through a wage survey and benchmarking service exchanged information regarding labor rates in an effort to depress and fix the rates of wages for employees in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the case remains at the pleading stage and the classes have not yet been defined or certified by the court.
Other Matters
Our subsidiary, The Hillshire Brands Company (formerly named Sara Lee Corporation), is a party to a consolidation of cases filed by individual complainants with the Republic of the Philippines, Department of Labor and Employment and the National Labor Relations Commission (“NLRC”) from 1998 through July 1999. The complaint was filed against Aris Philippines, Inc., Sara Lee Corporation, Sara Lee Philippines, Inc., Fashion Accessories Philippines, Inc., and Attorney Cesar C. Cruz (collectively, the “respondents”). The complaint alleges, among other things, that the respondents engaged in unfair labor practices in connection with the termination of manufacturing operations in the Philippines in 1995 by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In late 2004, a labor arbiter ruled against the respondents and awarded the complainants approximately $68$62 million in damages and fees. From 2004 through 2014, the parties filed numerous appeals, motions for reconsideration and petitions for review, certain of which remained outstanding for several years. On December 15, 2016, we learned that the NLRC rendered its decision on November 29, 2016, regarding the respondents’ appeals from the labor arbiter’s 2004 ruling in favor of the complainants. The NLRC increased the award for 4,922 of the total 5,984 complainants to approximately $292$267 million. However, the NLRC approved a prior settlement reached with the group comprising approximately 18% of the class of 5,984 complainants, pursuant to which The Hillshire Brands Company agreed to pay each settling complainant approximately $1,300.$1,200. The parties filed numerous appeals, motions for reconsideration and petitions for review related to the NLRC award and settlement payment. The Court of Appeals subsequently vacated the NLRC’s award on April 12, 2018. Complainants have filed motions for reconsideration with the Court of Appeals which were denied. Claimants have since filed petitions for writ of certiorari with the Supreme Court of the Philippines, which has accepted. The Company continues to maintain an accrual for estimated probable losses for this matter in the Company’s Consolidated Financial Statements.
Various claims have been asserted against the Company, its subsidiaries, and its officers and agents by, and on behalf of, team members who claim to have contracted COVID-19 in our facilities. The Company has not recorded any liability for these matters as it does not believe a loss is probable or reasonably estimable at this time because it believes the allegations in the claims are without merit.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
OBJECTIVE
The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended October 2, 2021.1, 2022. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
RESULTS OF OPERATIONS
Description of the Company
We are one of the world’s largest food companies and a recognized leader in protein. Founded in 1935 by John W. Tyson and grown under four generations of family leadership, the Company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost and availability of live cattle and hogs, raw materials and feed ingredients; availability of team members to operate our production facilities; and operating efficiencies of our facilities.
We operate in four reportable segments: Beef, Pork, Chicken, and Prepared Foods. We measure segment profit as operating income (loss). International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.
Overview
General
Sales grew 3% in the first quarter of fiscal 2023 largely due to higher average sales prices and sales growth in our Chicken and Prepared Foods segments. The higher average sales prices were primarily due to the current inflationary environment and recovery of rapidly rising costs, such as labor, freight and transportation, livestock, feed ingredients and other input costs. Operating income of $467 million for the first quarter of fiscal 2023 was down 68% as we experienced lower operating income in our Beef, Pork and Chicken segments, partially offset by improved operating income in our Prepared Foods segment. In the first quarter of fiscal 2023, our operating income was impacted by $21 million of restructuring and related charges and benefited from $35 million of insurance proceeds related to fires at our production facilities, net of costs incurred. In the first quarter of fiscal 2022, our results were impacted by $23 million of insurance proceeds, net of costs, related to a fire at one of our Chicken segment production facilities.
Market Environment
According to the United States Department of Agriculture, domestic protein production (beef, pork, chicken and turkey) was relatively flat in the first quarter of fiscal 2023 compared to the same period in fiscal 2022. All segments experienced inflation in operating costs, especially in labor, freight and transportation and certain materials, and we expect these trends to continue through fiscal 2023, though at a lower rate than experienced in fiscal 2022. Additionally, grain and feed ingredient costs have increased substantially, which impacts all of our segments. We pursue recovery of these increased costs through pricing. The Federal Reserve recently increased interest rates, and it is anticipated that interest rates will continue to rise in the near term. Our direct exposure to rising interest rates is somewhat tempered given our strong liquidity position in addition to our current debt structure in which nearly all of our borrowings have fixed interest rates. At December 31, 2022, we had $2.9 billion of liquidity and our current debt was $490 million. Should we need to issue additional debt or borrow under our existing revolving credit facility, we may be exposed to higher interest rates than our current outstanding borrowings. The Beef segment experienced sufficient supply of market-ready cattle and increased live cattle costs. The Pork segment experienced sufficient supply, despite herd health challenges in the industry, and increased live hog costs. The Chicken segment experienced increased feed ingredient and other input costs, in addition to excess domestic supply as a result of challenging export market conditions associated with avian influenza. The Prepared Foods segment experienced increased costs largely due to the impacts of an inflationary environment.Additionally, the conflict between Ukraine and Russia has led to economic sanctions against Russia and certain regions of Ukraine and Belarus. As of December 31, 2022, the impact of this conflict has not had a material direct impact on our financial performance. However, the conflict is still ongoing and there are many risks and uncertainties in relation to the conflict that are outside of our control. If the conflict escalates further or if additional countries join the conflict and additional economic sanctions are imposed, it could have a material impact on our business operations and financial performance.
COVID-19
We continue to proactively monitor and respond to the evolving nature of the global novel coronavirusCOVID-19 pandemic (“COVID-19” or “pandemic”) and its impact to our global business. Our ongoing COVID-19 task force was formed for the primary purposes of maintaining the health and safety of our team members, ensuring our ability to operate our processing facilities and maintaining the liquidity of our business. We have experienced and continue to experience multiple challenges related to the pandemic. The most significant challenge we face is the availability of team members to operate our production facilities as our production facilities continue to experience varying levels of absenteeism. In the second quarter of fiscal 2022, we experienced an increase in COVID-19 cases associated with the Omicron variant. The health and safety of our team members remains our top priority, and we continue to provide a variety of health and safety resources and services to team members and their family members. Additionally, we have experienced some challenges in our supply chain such as volatility of inputs, availability of shipping containers and port congestion. These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in the first six monthsquarter of fiscal 20222023 as compared to the same period inprevious fiscal 2021, and we expect this trend to continue throughout the remainder of fiscal 2022. For fiscal 2022, we expect retail demand to remain elevated as compared to the pre-pandemic levels and foodservice demand to continue to return to more historic levels. However, theyears. The long-term impacts of COVID-19 remainsremain uncertain and will depend on future developments, including the duration and spread of the pandemic, COVID-19 variants and resurgences, and related actions taken by federal, state and local government officials to prevent and manage disease spread, and effectively distribute and administer vaccinations, all of which contain some level of uncertainty and cannot be easily predicted.
Margins
Our total operating margin was 3.5% in the first quarter of fiscal 2023. Operating margins by segment were as follows:
•Beef – 3.5%
•Pork – (1.4)%
•Chicken – 1.6%
•Prepared Foods – 10.2%
Strategy
Our strategy is to sustainably feed the world with the fastest growing protein brands. We intend to achieve our strategy as we: grow our business by delivering superior value to consumers and customers; deliver fuel for growth and returns through commercial, operational and financial excellence; and sustain our Company and our world for future generations.
Beginning in fiscal 2022, we launched a new productivity program, which is designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision making.decision-making. The execution of this program will beis supported by a program management office that will ensureensures delivery of key project milestones and reportreports on savings achievements connected with the three pillars of the program. The first pillar is operational and functional excellence, which includes functional efficiency efforts in Finance, HR and Procurement focused on applying best practices to reduce costs. The second pillar is the use of new digital solutions like artificial intelligence and predictive analytics to drive efficiency in operations, supply chain planning, logistics and warehousing. The third pillar is automation, which will leverage automation and robotics technologies to automate difficult and higher turnover positions. We are targeting $1 billion inexpect the productivity savings byto be recognized in each of our reportable segments as they benefit from the endachievements connected with the three pillars of fiscal 2024 and more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline. We are currently on track to achieve our planned productivity savings for fiscal 2022.the program. At this time, we do not anticipate costs associated with this program to be material.
General
Sales grew 16%material and 20%capital expenditures associated with automation and other activities are included in our capital expenditure expectations. We were targeting $1 billion in productivity savings by the second quarter and first six monthsend of fiscal 2024 relative to a fiscal 2021 cost baseline. We realized more than $700 million of productivity savings in fiscal 2022, respectively, largely due to increased average sales prices across eachwhich partially offset the impacts of inflationary market conditions, and we believe we will exceed our segments and a $320 million legal contingency accrual recognized as a reduction to sales$1 billion target in fiscal 2023.
In the first quarter of fiscal 2021. The higher average sales prices were primarily due to the current inflationary environment and recovery of rapidly rising costs, such as labor, freight and transportation, livestock, feed ingredients and other input costs. Operating income of $1,156 million for the secondfourth quarter of fiscal 2022, was up 61% duethe Company approved a restructuring program, the 2022 Program, which is expected to improved operating incomeimprove business performance, increase collaboration, enhance team member agility, enable faster decision-making and reduce redundancies. In conjunction with the 2022 Program, the Company plans to bring together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation commencing in early calendar year 2023. We recognized $21 million of pretax charges in the three months ended December 31, 2022 associated with the 2022 Program consisting of severance related costs, relocation and related costs, accelerated depreciation, contract and lease termination and professional and other fees. The Company currently anticipates the 2022 Program will result in cumulative pretax charges of approximately $274 million. The following tables set forth the pretax impact of restructuring and related charges in the Consolidated Condensed Statements of Income and the pretax impact by our reportable segments. For further description refer to Part I, Item 1, Notes to the Consolidated Condensed Financial Statements, Note 6: Restructuring and Related Charges (in millions).
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| Three months ended |
| December 31, 2022 |
Cost of Sales | $ | 8 | |
Selling, General and Administrative | 13 | |
Total Restructuring and related charges, pretax | $ | 21 | |
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| Three months ended | 2022 Program charges to date | Total estimated |
| December 31, 2022 | December 31, 2022 | 2022 Program charges |
Beef | $ | 5 | | $ | 21 | | $ | 68 | |
Pork | 2 | | 7 | | 26 | |
Chicken | 1 | | 7 | | 8 | |
Prepared Foods | 8 | | 44 | | 158 | |
International/Other | 5 | | 8 | | 14 | |
Total Restructuring and related charges, pretax | $ | 21 | | $ | 87 | | $ | 274 | |
Summary of Results
Sales
| | | | | | | | | | | | | | | |
in millions | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
Sales | $ | 13,260 | | | $ | 12,933 | | | | | |
Change in sales volume | 0.8 | % | | | | | | |
Change in average sales price | 1.7 | % | | | | | | |
Sales growth | 2.5 | % | | | | | | |
First quarter – Fiscal 2023 vs Fiscal 2022
•Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $105 million, driven by increased volumes in our Beef, Chicken and Prepared Foods segments partially offset by a decline in the results of our Pork segment. Operating income of $2,611 million for the first six months of fiscal 2022 was up 83% due to improved operating income in our Beef, Pork, and Chicken segments, partially offset by a decline in the results of our Prepared Foods segment. In the second quarter of fiscal 2022, our operating income was impacted by $5 million of ongoing costs related to a fire in the fourth quarter of fiscal 2021 at one of our Chicken segment production facilities, net of insurance proceeds. In the six months ended April 2, 2022, our operating income was impacted by $18 million of insurance proceeds, net of costs, related to the same fire. In the six months ended April 3, 2021, our results were impacted by $19 million of charges related to the relocation of a production facility in China.
Market Environment
According to the United States Department of Agriculture (“USDA”), domestic protein production (beef, pork, chicken and turkey) decreased less than 1% in the second quarter of fiscal 2022 compared to the same period in fiscal 2021. All segments experienced strong demand, challenging labor conditions and inflation in operating costs, especially in labor, freight and transportation and certain materials, and we expect these trends to continue through the remainder of fiscal 2022. Additionally, grain and feed ingredient costs have increased substantially, which impacts all of our segments. We pursue recovery of these increased costs through pricing. The Beef segment experienced strong global demand, sufficient supply of market-ready cattle and increased live cattle costs. The Pork segment experienced adequate supply of live hogs. The Chicken segment experienced strong demand and increased feed ingredient costs. Feed ingredient costs are expected to be higher for fiscal 2022 versus fiscal 2021. The Prepared Foods segment experienced increased costs largely due to the impacts of an inflationary environment.Additionally, the conflict between Ukraine and Russia has led to economic sanctions against Russia and certain regions of Ukraine and Belarus. As of April 2, 2022, the impact of this conflict has not had a material direct impact on our financial performance. However, the conflict is still ongoing and there are many risks and uncertainties in relation to the conflict that are outside of our control. If the conflict escalates further or if additional countries join the conflict and additional economic sanctions are imposed, it could have a material impact on our business operations and financial performance.
Margins
Our total operating margin was 8.8% in the second quarter of fiscal 2022. Operating margins by segment were as follows:
•Beef – 12.7%
•Pork – 3.8%
•Chicken – 4.8%
•Prepared Foods – 11.0%
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in millions, except per share data | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
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Net income attributable to Tyson | $ | 829 | | | $ | 476 | | | $ | 1,950 | | | $ | 943 | |
Net income attributable to Tyson – per diluted share | 2.28 | | | 1.30 | | | 5.35 | | | 2.58 | |
Second quarter – Fiscal 2022 – Net income attributable to Tyson included the following items:
•$5 million pretax, or ($0.01) per diluted share, of production facilities fire costs, net of insurance proceeds.
Six months – Fiscal 2022 – Net income attributable to Tyson included the following items:
•$40 million pretax, or $0.09 per diluted share, of production facilities fire insurance proceeds net of costs incurred.
•$36 million post tax, or $0.10 per diluted share, from remeasurement of net deferred tax liabilities at lower enacted state tax rates.
Second quarter – Fiscal 2021 – Net income attributable to Tyson included the following items:
•$19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.
Six months – Fiscal 2021 – Net income attributable to Tyson included the following items:
•$320 million pretax, or ($0.67) per diluted share, related to the recognition of a legal contingency accrual.
•$6 million pretax, or $0.01 per diluted share, of Beef production facility fire insurance proceeds, net of costs incurred.
•$19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.
Summary of Results
Sales
| | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Sales | $ | 13,117 | | | $ | 11,300 | | | $ | 26,050 | | | $ | 21,760 | |
Change in sales volume | (1.5) | % | | | | (0.7) | % | | |
Change in average sales price | 17.6 | % | | | | 18.7 | % | | |
Sales growth | 16.1 | % | | | | 19.7 | % | | |
Second quarter – Fiscal 2022 vs Fiscal 2021
•Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $166 million, driven by decreased volumes in our Pork and Prepared Foods segments and impacts associatedsegment as a result of balancing our supply with the challenging labor environment and continued supply chain constraints, partially offset by slight increases in sales volume in our Beef and Chicken segments.customer demand during a period of margin compression.
•Average Sales Price – Sales were positively impacted by higher average sales prices in our Pork, Chicken and Prepared Foods segments, partially offset by lower average sales prices in our Beef segment, which accounted for an increase of $1,983$222 million. The increase in average sales price was primarily due to the current inflationary environment and recovery of rapidly rising costs.
Six months – Fiscal 2022 vs Fiscal 2021
•Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $130 million, driven by decreased volumes in our Beef, Pork and Prepared Foods segments and impacts associated with the challenging labor environment and continued supply chain constraints, partially offset by increases in sales volume in our Chicken segment.
•Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $4,100 million. The increase in average sales price was primarily due to the current inflationary environment and recovery of rapidly rising costs.
•The above change in average sales price for the first six months of fiscal 2022 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual in the first six months of fiscal 2021.
Cost of Sales
| in millions | in millions | Three Months Ended | | Six Months Ended | in millions | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Cost of sales | Cost of sales | $ | 11,382 | | | $ | 10,047 | | | $ | 22,300 | | | $ | 19,330 | | Cost of sales | $ | 12,292 | | | $ | 10,918 | | |
Gross profit | Gross profit | $ | 1,735 | | | $ | 1,253 | | | $ | 3,750 | | | $ | 2,430 | | Gross profit | 968 | | | 2,015 | | |
Cost of sales as a percentage of sales | Cost of sales as a percentage of sales | 86.8 | % | | 88.9 | % | | 85.6 | % | | 88.8 | % | Cost of sales as a percentage of sales | 92.7 | % | | 84.4 | % | |
SecondFirst quarter – Fiscal 20222023 vs Fiscal 20212022
•Cost of sales increased $1,335$1,374 million. LowerHigher sales volume decreasedincreased cost of sales $145$89 million while higher input cost per pound increased cost of sales $1,480$1,285 million.
•The $1,480$1,285 million impact of higher input cost per pound was impacted by:
•Increase in live cattle costs of approximately $545$530 million in our Beef segment.
•Increase of approximately $160$175 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses, andpartially offset by reduced outside meat purchases.
•Increase in raw material and other input costs of approximately $210 million in our Prepared Foods segment.
•Increase in live hog costs of approximately $115 million in our Pork segment.
•Increase in freight and transportation costs of approximately $145 million.
•Increase of approximately $25 million in frontline bonuses.
•Increase of approximately $5 million in our Chicken segment related to costs incurred related to the fire at our production facility, net of insurance proceeds.
•Decrease due to net derivative gains of $86$12 million in the secondfirst quarter of fiscal 2022,2023, compared to net derivative lossgains of $15$78 million in the secondfirst quarter of fiscal 20212022 due to our risk management activities. These amounts exclude offsetting impacts from related physical purchase transactions, which are included in the change in live cattle and hog costs and raw material and feed ingredient costs described herein.
•Increase in live hog costs of approximately $55 million in our Pork segment.
•Increase in raw material and other input costs of approximately $50 million in our Prepared Foods segment.
•Increase of $30 million in our Chicken segment due to $7 million of costs incurred, net of insurance proceeds, for the first quarter of fiscal 2023 compared to $23 million of insurance proceeds, net of costs incurred, in the first quarter of fiscal 2022 related to a fire at our production facility in the fourth quarter of fiscal 2021.
•Increase of $25 million related to inventory lower of cost or net realizable value adjustments.
•Increase in freight and transportation costs of approximately $25 million.
•Decrease of approximately $42 million in our Beef segment from insurance proceeds related to the fire at our production facility in the fourth quarter of fiscal 2019.
•Remaining increase in costs across all of our segments primarily driven by net impacts on average cost per pound from mix changes as well as the impact of the inflationary environment on our labor and other input costs.costs, partially offset by savings from our productivity program.
•The $145$89 million impact of lowerincreased sales volume was primarily driven by decreased volumes in our Prepared Foods and Pork segments.
Six months – Fiscal 2022 vs Fiscal 2021
•Cost of sales increased $2,970 million. Lower sales volume decreased cost of sales $114 million while higher input cost per pound increased cost of sales $3,084 million.
◦The $3,084 million impact of higher input cost per pound was impacted by:
▪Increase in live cattle costs of approximately $990 million in our Beef segment.
•Increase of approximately $400 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.
•Increase in raw material and other input costs of approximately $425 million in our Prepared Foods segment.
•Increase in live hog costs of approximately $220 million in our Pork segment.
•Increase in freight and transportation costs of approximately $300 million.
•Increase of approximately $75 million in frontline bonuses.
•Decrease due to net derivative gains of $164 million in the first six months of fiscal 2022, compared to net derivative gains of $80 million in the first six months of fiscal 2021 due to our risk management activities. These amounts exclude offsetting impacts from related physical purchase transactions, which are included in the change in live cattle and hog costs and raw material and feed ingredient costs described herein.
•Decrease of approximately $18 million in our Chicken segment related to insurance proceeds net of costs incurred related to the fire at our production facility.
•Remaining increase in costs across all of our segments primarily driven by net impacts on average cost per pound from mix changes as well as the impact of the inflationary environment on our labor and other input costs.
•The $114 million impact of lower sales volume was primarily driven by decreased volumes in our Beef, Chicken and Prepared Foods and Pork segments.
Selling, General and Administrative
| in millions | in millions | Three Months Ended | | Six Months Ended | in millions | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Selling, general and administrative expense | Selling, general and administrative expense | $ | 579 | | | $ | 533 | | | $ | 1,139 | | | $ | 1,005 | | Selling, general and administrative expense | $ | 501 | | | $ | 560 | | |
As a percentage of sales | As a percentage of sales | 4.4 | % | | 4.7 | % | | 4.4 | % | | 4.6 | % | As a percentage of sales | 3.8 | % | | 4.3 | % | |
SecondFirst quarter – Fiscal 20222023 vs Fiscal 20212022
•IncreaseDecrease of $46$59 million in selling, general and administrative was primarily driven by:
•IncreaseDecrease of $20$56 million in employee costs primarily from incentive-based compensation.
•Decrease of $27 million in technology related costs.
•Decrease of $18 million in professional fees.
•Increase of $19$13 million in marketing, advertising and promotion expenses.
•DecreaseIncrease of $12$13 million in commissionrestructuring and brokerage feesrelated costs.
•Remaining increase is primarily attributable to increased travel and entertainment costs, professional fees and increased donations.
Six months – Fiscal 2022 vs Fiscal 2021
•Increase of $134$12 million in selling, general and administrative was primarily driven by:
◦Increase of $55 million from the change in the impact of a cattle supplier’s misappropriation of Company funds, as the result of a $55 million gain related to the recovery of cattle inventory in the six months ended April 3, 2021, as compared to no gain or loss recognized in the six months ended April 2, 2022.
◦Increase of $35 million in employee costs.
◦Increase of $22 million in technology related costs.
◦Increase of $19 million in marketing, advertising and promotion expenses.
◦Increase of $12 million professional fees.
◦Decrease of $20 million in commission and brokerage fees.
◦Remaining increase is primarily attributable to increased travel and entertainment costs and increased donations.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Cash interest expense | $ | 104 | | | $ | 113 | | | $ | 209 | | | $ | 227 | |
| | | | | | | |
| | | | | | | |
Non-cash interest expense | (7) | | | (3) | | | (12) | | | (7) | |
Total interest expense | $ | 97 | | | $ | 110 | | | $ | 197 | | | $ | 220 | |
| | | | | | | | | | | | | | | |
in millions | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| $ | 84 | | | $ | 100 | | | | | |
SecondFirst quarter and six months – Fiscal 20222023 vs Fiscal 20212022
•Cash interestInterest expense primarily included interest expense related to our senior notes, in addition to commitment fees incurred on our revolving credit facility. The decrease in cash interest expense in fiscalfor the three months ended December 31, 2022 was primarily due to the redemption of senior notes in fiscal 2022 and repayments of term loans and the redemption of the August 2021 Notes in fiscal 2021.2022.
Other (Income) Expense, net
| | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Total other (income) expense, net | $ | (25) | | | $ | (12) | | | $ | (77) | | | $ | (31) | |
| | | | | | | | | | | | | | | |
in millions | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
| $ | (42) | | | $ | (52) | | | | | |
SecondFirst quarter and six months – Fiscal 2022 vs2023
•Included $15 million of joint venture earnings and $25 million of foreign exchange gains in the first quarter of fiscal 2023.
First quarter – Fiscal 20212022
•Included $22 million of production facilities firesfire insurance proceeds and $37a $30 million of gainsgain on an equity investmentsinvestment due to an observable price changes in the first six months of fiscal 2022.change.
Effective Tax Rate
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
| 23.4 | % | | 23.5 | % | | 21.6 | % | | 23.5 | % |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
| 26.1 | % | | 20.2 | % | | | | |
SecondFirst quarter and six months – Fiscal 20222023 vs Fiscal 20212022
•Our effective income tax rate was 23.4%26.1% for the secondfirst quarter of fiscal 20222023 compared to 23.5%20.2% for the same period of fiscal 2021, and the effective income tax rates for the first six months of fiscal 2022 and 2021 were 21.6% and 23.5%, respectively.2022. The effective tax rates for the secondfirst quarter and first six months of fiscal 20222023 and 20212022 were increased by state taxes and decreased by various tax benefits. Additionally, thetaxes. The effective tax rate for the first six monthsquarter of fiscal 2022 includesalso included a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter.quarter of fiscal 2022, and various other tax benefits.
Net Income Attributable to Tyson
| | | | | | | | | | | | | | | |
in millions, except per share data | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income attributable to Tyson | $ | 316 | | | $ | 1,121 | | | | | |
Net income attributable to Tyson – per diluted share | 0.88 | | | 3.07 | | | | | |
First quarter – Fiscal 2023 – Net income attributable to Tyson included the following items:
•$35 million pretax, or $0.07 per diluted share, of production facilities fire insurance proceeds, net of costs incurred.
•$21 million pretax, or ($0.04) per diluted share, of restructuring and related charges.
First quarter – Fiscal 2022 – Net income attributable to Tyson included the following items:
•$45 million pretax, or $0.10 per diluted share, of production facilities fire insurance proceeds net of costs incurred.
•$36 million post tax, or $0.10 per diluted share, from remeasurement of net deferred tax liabilities at lower enacted state tax rates.
Segment Results
We operate in four segments: Beef, Pork, Chicken, and Prepared Foods. The following table is a summary of sales and operating income (loss), which is how we measure segment profit.
| in millions | in millions | Sales | in millions | Sales |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 | |
Beef | Beef | $ | 5,034 | | | $ | 4,046 | | | $ | 10,036 | | | $ | 8,033 | | Beef | $ | 4,723 | | | $ | 5,002 | | |
Pork | Pork | 1,565 | | | 1,477 | | | 3,191 | | | 2,916 | | Pork | 1,529 | | | 1,626 | | |
Chicken | Chicken | 4,086 | | | 3,553 | | | 7,976 | | | 6,384 | | Chicken | 4,263 | | | 3,890 | | |
Prepared Foods | Prepared Foods | 2,393 | | | 2,164 | | | 4,726 | | | 4,277 | | Prepared Foods | 2,538 | | | 2,333 | | |
International/Other | International/Other | 565 | | | 487 | | | 1,115 | | | 956 | | International/Other | 612 | | | 550 | | |
Intersegment sales | Intersegment sales | (526) | | | (427) | | | (994) | | | (806) | | Intersegment sales | (405) | | | (468) | | |
Total | Total | $ | 13,117 | | | $ | 11,300 | | | $ | 26,050 | | | $ | 21,760 | | Total | $ | 13,260 | | | $ | 12,933 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
in millions | Operating Income (Loss) |
| Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Beef | $ | 638 | | | $ | 445 | | | $ | 1,594 | | | $ | 973 | |
Pork | 59 | | | 67 | | | 223 | | | 183 | |
Chicken | 198 | | | 6 | | | 338 | | | (210) | |
Prepared Foods | 263 | | | 217 | | | 449 | | | 483 | |
International/Other | (2) | | | (15) | | | 7 | | | (4) | |
Total | $ | 1,156 | | | $ | 720 | | | $ | 2,611 | | | $ | 1,425 | |
| | | | | | | | | | | | | | | |
in millions | Operating Income (Loss) |
| Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | | | |
Beef | $ | 166 | | | $ | 956 | | | | | |
Pork | (21) | | | 164 | | | | | |
Chicken | 69 | | | 140 | | | | | |
Prepared Foods | 258 | | | 186 | | | | | |
International/Other | (5) | | | 9 | | | | | |
Total | $ | 467 | | | $ | 1,455 | | | | | |
Beef Segment Results
| in millions | in millions | Three Months Ended | | Six Months Ended | in millions | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | Change | | April 2, 2022 | | April 3, 2021 | | Change | | December 31, 2022 | | January 1, 2022 | | Change | |
Sales | Sales | $ | 5,034 | | | $ | 4,046 | | | $ | 988 | | | $ | 10,036 | | | $ | 8,033 | | | $ | 2,003 | | Sales | $ | 4,723 | | | $ | 5,002 | | | $ | (279) | | |
Sales volume change | Sales volume change | | 0.6 | % | | (2.9) | % | Sales volume change | | 2.9 | % | |
Average sales price change | Average sales price change | | 23.8 | % | | 27.8 | % | Average sales price change | | (8.5) | % | |
Operating income | Operating income | $ | 638 | | | $ | 445 | | | $ | 193 | | | $ | 1,594 | | | $ | 973 | | | $ | 621 | | Operating income | $ | 166 | | | $ | 956 | | | $ | (790) | | |
Operating margin | Operating margin | 12.7 | % | | 11.0 | % | | 15.9 | % | | 12.1 | % | | Operating margin | 3.5 | % | | 19.1 | % | | |
SecondFirst quarter and six months – Fiscal 20222023 vs Fiscal 20212022
•Sales Volume- – Sales volume was up slightly in the second quarter of fiscal 2022increased driven by strong global demand, partially offset by a challenging labor environmentsufficient supply of live cattle and continued supply chain constraints. Sales volume decreased for the first six months due to the impacts associated with a challenging labor environment and increased supply chain constraints, partially offset by strong global demand.improved operational performance.
•Average Sales Price –- Average sales price decreased due to reduced export demand and softening domestic demand associated with increased supply of competing proteins in the second quarter and the first six months of fiscal 2022 as input costs such as live cattle, labor, freight and transportation costs increased and demand for our beef products remained strong.market.
•Operating Income –- Operating income decreased as margins compressed from historically high levels, paired with continued increased inoperating costs as a result of the second quarter and first six months of fiscal 2022 due to strong demand as we continued to optimize revenues relative to live cattle supply and a reduction in direct incremental expenses related to COVID-19, partially offset by production inefficiencies due to the impacts associated with a challenging labor environment and continued supply chain constraints.inflationary market environment. Additionally, operating income in fiscal 2021 was impacted by a $55benefited from $42 million gain from the recovery of cattle inventoryinsurance proceeds related to a cattle supplier's misappropriationfire at a production facility in the fourth quarter of Company funds.fiscal 2019.
Pork Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | Change | | April 2, 2022 | | April 3, 2021 | | Change |
Sales | $ | 1,565 | | | $ | 1,477 | | | $ | 88 | | | $ | 3,191 | | | $ | 2,916 | | | $ | 275 | |
Sales volume change | | | | | (4.8) | % | | | | | | (2.3) | % |
Average sales price change | | | | | 10.8 | % | | | | | | 11.7 | % |
Operating income | $ | 59 | | | $ | 67 | | | $ | (8) | | | $ | 223 | | | $ | 183 | | | $ | 40 | |
Operating margin | 3.8 | % | | 4.5 | % | | | | 7.0 | % | | 6.3 | % | | |
Second quarter and six months – Fiscal 2022 vs Fiscal 2021 | | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | Change | | | | | | |
Sales | $ | 1,529 | | | $ | 1,626 | | | $ | (97) | | | | | | | |
Sales volume change | | | | | (7.4) | % | | | | | | |
Average sales price change | | | | | 1.4 | % | | | | | | |
Operating income (loss) | $ | (21) | | | $ | 164 | | | $ | (185) | | | | | | | |
Operating margin | (1.4) | % | | 10.1 | % | | | | | | | | |
•Sales Volume – Sales volume decreased in the second quarter and first six months of fiscal 2022 primarily due to the impacts associated with a challenging labor environment.
•Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2022 as input costs such as live hogs, labor, freight and transportation costs increased, partially offset by unfavorable mix associated with labor shortages.
•Operating Income – Operating income decreased slightly in the second quarter of fiscal 2022 due to higher input costs such as live hogs, labor and freight and transportation costs. Operating income for the first six months of fiscal 2022 increased as we optimized revenues relative to live hog supply and due to a reduction in direct incremental expenses related to COVID-19, partially offset by higher inputs costs and the impacts associated with a challenging labor environment.
Chicken Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | Change | | April 2, 2022 | | April 3, 2021 | | Change |
Sales | $ | 4,086 | | | $ | 3,553 | | | $ | 533 | | | $ | 7,976 | | | $ | 6,384 | | | $ | 1,592 | |
Sales volume change | | | | | 0.6 | % | | | | | | 2.1 | % |
Average sales price change | | | | | 14.4 | % | | | | | | 16.9 | % |
Operating income (loss) | $ | 198 | | | $ | 6 | | | $ | 192 | | | $ | 338 | | | $ | (210) | | | $ | 548 | |
Operating margin | 4.8 | % | | 0.2 | % | | | | 4.2 | % | | (3.3) | % | | |
Second quarter and six months – Fiscal 2022 vs Fiscal 2021
•Sales Volume – Sales volume increased in the second quarter and first six months of fiscal 2022 primarily due to a strong demand environment partially offset by continued supply chain constraints.
First quarter – Fiscal 2023 vs Fiscal 2022
•Sales Volume - Sales volume decreased as a result of balancing our supply with customer demand during a period of margin compression.
•Average Sales Price –- Average sales price increased primarily due to a shift to higher value specialty products.
•Operating Income (Loss) - Operating income decreased due to compressed pork margins and increased operating costs as a result of the inflationary market environment. Additionally, volatile market conditions resulted in net derivative losses of $20 million in the secondfirst quarter of fiscal 2023 and net derivative gains of $15 million in the first six monthsquarter of fiscal 2022, which excludes the impacts of related physical purchase transactions.
Chicken Segment Results
| | | | | | | | | | | | | | | | | | | | | | | |
in millions | Three Months Ended | | |
| December 31, 2022 | | January 1, 2022 | | Change | | | | | | |
Sales | $ | 4,263 | | | $ | 3,890 | | | $ | 373 | | | | | | | |
Sales volume change | | | | | 2.5 | % | | | | | | |
Average sales price change | | | | | 7.1 | % | | | | | | |
Operating income | $ | 69 | | | $ | 140 | | | $ | (71) | | | | | | | |
Operating margin | 1.6 | % | | 3.6 | % | | | | | | | | |
First quarter – Fiscal 2023 vs Fiscal 2022
•Sales Volume - Sales volume increased primarily due to improved domestic production partially offset by inventory growth and strategic initiative mix impacts.
•Average Sales Price - Average sales price increased primarily due to the effects of pricing initiatives in an inflationary cost environment.environment, partially offset by challenging export market conditions due to the impacts of avian influenza.
•Operating Income (Loss) –- Operating income increased in the second quarter and first six months of fiscal 2022decreased primarily due to increased sales volume and higher average sales prices, partially offset by the impacts of inflationary market conditions including increased supply chain costs and a challenging labor environment. In the second quarter of fiscal 2022, we experienced $100costs. Operating income was impacted by $225 million of higher feed ingredient costs, and $101coupled with $20 million of net derivative gains as compared to $10 million of net derivative gains in the second quarter of fiscal 2021. In the first six months of fiscal 2022, we experienced $285 million of higher feed ingredient costs and $159 million of net derivative gains as compared to $83$60 million of net derivative gains in the first six monthsquarter of fiscal 2021.2022. Additionally, operating income in the first six months of fiscal 2022 was impacted by $18a $30 million ofreduction in insurance proceeds, net of costs incurred related to a fire at a production facility and was impacted incompared to the first quarter of fiscal 2021 by a $320 million loss from the recognition of a legal contingency accrual.2022.
Prepared Foods Segment Results
| in millions | in millions | Three Months Ended | | Six Months Ended | in millions | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | Change | | April 2, 2022 | | April 3, 2021 | | Change | | December 31, 2022 | | January 1, 2022 | | Change | |
Sales | Sales | $ | 2,393 | | | $ | 2,164 | | | $ | 229 | | | $ | 4,726 | | | $ | 4,277 | | | $ | 449 | | Sales | $ | 2,538 | | | $ | 2,333 | | | $ | 205 | | |
Sales volume change | Sales volume change | | (5.3) | % | | (4.0) | % | Sales volume change | | 1.2 | % | |
Average sales price change | Average sales price change | | 15.9 | % | | 14.5 | % | Average sales price change | | 7.6 | % | |
Operating income | Operating income | $ | 263 | | | $ | 217 | | | $ | 46 | | | $ | 449 | | | $ | 483 | | | $ | (34) | | Operating income | $ | 258 | | | $ | 186 | | | $ | 72 | | |
Operating margin | Operating margin | 11.0 | % | | 10.0 | % | | 9.5 | % | | 11.3 | % | | Operating margin | 10.2 | % | | 8.0 | % | | |
SecondFirst quarter and six months – Fiscal 20222023 vs Fiscal 20212022
•Sales Volume – Sales volume decreased in the second quarter and first six months of fiscal 2022increased due to lower production throughput primarily associated with a challenging laborincreased retail demand and supply environment, uneven foodservice recovery and the divestiture of our pet treats business in the fourth quarter of fiscal 2021.improved operational performance.
•Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2022 primarily due to the effects of revenue management in an inflationary cost environment and favorable product mix.
•Operating Income – Operating income increased in the second quarter of fiscal 2022 due to higher average sales prices and increased sales volumes, partially offset by the impacts of inflationary market conditions, including $210$50 million of increased raw materials and other input costs in addition to increased supply chain costs and a challenging labor environment. Operating income decreased in the first six months of fiscal 2022 due to the impacts of inflationary market conditions, including $425 million of increased raw materials and other input costs, increased supply chain costs and a challenging labor environment, partially offset by higher average sales prices.costs.
International/Other Results
| in millions | in millions | Three Months Ended | | Six Months Ended | in millions | Three Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | Change | | April 2, 2022 | | April 3, 2021 | | Change | | December 31, 2022 | | January 1, 2022 | | Change | |
Sales | Sales | $ | 565 | | | $ | 487 | | | $ | 78 | | | $ | 1,115 | | | $ | 956 | | | $ | 159 | | Sales | $ | 612 | | | $ | 550 | | | $ | 62 | | |
| Operating income (loss) | Operating income (loss) | (2) | | | (15) | | | 13 | | | $ | 7 | | | $ | (4) | | | $ | 11 | | Operating income (loss) | (5) | | | 9 | | | (14) | | |
|
Second
First quarter and six months – Fiscal 20222023 vs Fiscal 20212022
•Sales – Sales increased in the second quarter and first six months of fiscal 2022 primarily due to increased pricing from favorable product mixvolume growth and increased volume.improved pricing.
•Operating Income (Loss) – Operating income increased in the second quarter and first six months of fiscal 2022decreased primarily due to a $19 million charge incurred in the second quartercontinued impacts of fiscal 2021 related to the relocation of a production facilityCOVID-19 in China partially offset by increased advertising and promotional investments as well as increased raw material and other input costs.the impacts of global inflationary market conditions.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs for working capital, capital expenditures, growth opportunities, repurchases of senior notes, repayment of maturing debt, the payment of dividends and share repurchases are expected to be met with current cash on hand, cash flows provided by operating activities or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Cash Flows from Operating Activities | in millions | in millions | Six Months Ended | in millions | Three Months Ended |
| | April 2, 2022 | | April 3, 2021 | | December 31, 2022 | | January 1, 2022 |
Net income | Net income | $ | 1,959 | | | $ | 949 | | Net income | $ | 320 | | | $ | 1,126 | |
Non-cash items in net income: | Non-cash items in net income: | | Non-cash items in net income: | |
Depreciation and amortization | Depreciation and amortization | 595 | | | 604 | | Depreciation and amortization | 303 | | | 300 | |
Deferred income taxes | Deferred income taxes | 98 | | | 27 | | Deferred income taxes | 8 | | | 77 | |
Other, net | Other, net | 27 | | | 46 | | Other, net | 68 | | | 11 | |
Net changes in operating assets and liabilities | Net changes in operating assets and liabilities | (1,455) | | | (277) | | Net changes in operating assets and liabilities | 63 | | | (82) | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 1,224 | | | $ | 1,349 | | Net cash provided by operating activities | $ | 762 | | | $ | 1,432 | |
•The decrease in net cash provided by operating activities was due to higher payments related to legal accruals, deferred payroll tax liabilities under the CARES Act and income taxes and an increase in inventory primarily due to increased finished inventory, offset by higherlower earnings as a result of strong operations, offset by decreases in fiscal 2022.legal and annual incentive payments and an increase in insurance proceeds received.
•In fiscal 2023, we anticipate a net cash outflow related to changes in our operating assets and liabilities as we grow our business in addition to inflationary market conditions.
Cash Flows from Investing Activities
| | | | | | | | | | | |
in millions | Six Months Ended |
| April 2, 2022 | | April 3, 2021 |
Additions to property, plant and equipment | $ | (847) | | | $ | (557) | |
Proceeds from sale of (purchases of) marketable securities, net | — | | | — | |
| | | |
| | | |
Acquisition of equity investments | (96) | | | — | |
Other, net | 58 | | | 49 | |
Net cash used for investing activities | $ | (885) | | | $ | (508) | |
| | | | | | | | | | | |
in millions | Three Months Ended |
| December 31, 2022 | | January 1, 2022 |
Additions to property, plant and equipment | $ | (589) | | | $ | (408) | |
| | | |
Acquisition, net of cash acquired | (39) | | | — | |
| | | |
Acquisition of equity investments | (36) | | | (45) | |
Other, net | (5) | | | (6) | |
Net cash used for investing activities | $ | (669) | | | $ | (459) | |
•Additions to property, plant and equipment included spending for production growth, safety and animal well-being, acquiring new equipment, infrastructure replacements and upgrades to maintain competitive standing and position us for future opportunities.
◦•Capital spending for fiscal 20222023 is expected to approximate $2$2.5 billion and will includeincludes spending for capacity expansion and utilization, automation to alleviate labor challenges and brand and product innovations.
•Other,Acquisition, net of cash acquired for the first sixthree months ended December 31, 2022 included our 60% equity stake in Supreme Foods Processing Company, a producer and distributor of fiscal 2022 primarily included insurance proceeds received related to a fire at one of our Chicken production facilities, proceeds from the disposition of assetsvalue-added and change in deposits for capital expenditures. For the first six months of fiscal 2021, Other, net primarily included changes in deposits for capital expenditures.cooked chicken and beef products.
Cash Flows from Financing Activities
| | | | | | | | | | | |
in millions | Six Months Ended |
| April 2, 2022 | | April 3, 2021 |
Proceeds from issuance of debt | $ | 47 | | | $ | 557 | |
Payments on debt | (1,088) | | | (1,570) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Purchases of Tyson Class A common stock | (511) | | | (34) | |
Dividends | (328) | | | (318) | |
Stock options exercised | 113 | | | 22 | |
Other, net | — | | | (2) | |
Net cash used for financing activities | $ | (1,767) | | | $ | (1,345) | |
•During the first six months of fiscal 2021, proceeds of $557 million from issuance of debt included $500 million of proceeds from the issuance of a term loan facility due March 2023.
•In March 2022, we extinguished the $1 billion outstanding balance of our senior notes due June 2022.
•During the first six months of fiscal 2021, we extinguished the $1.5 billion outstanding balance of our term loan facility using proceeds received from the issuance of debt and cash on hand. | | | | | | | | | | | |
in millions | Three Months Ended |
| December 31, 2022 | | January 1, 2022 |
Proceeds from issuance of debt | $ | 54 | | | $ | 26 | |
Payments on debt | (58) | | | (43) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Purchases of Tyson Class A common stock | (313) | | | (348) | |
Dividends | (169) | | | (164) | |
Stock options exercised | 4 | | | 46 | |
Other, net | — | | | (1) | |
Net cash used for financing activities | $ | (482) | | | $ | (484) | |
•Purchases of Tyson Class A stock included:
◦•$420300 million of cash paid for shares repurchased pursuant to our share repurchase program during the sixthree months ended April 2,December 31, 2022 and January 1, 2022.
◦•$9113 million and $34$48 million of shares repurchased to fund certain obligations under our equity compensation programs during the sixthree months ended April 2,December 31, 2022 and April 3, 2021,January 1, 2022, respectively.
•Dividends paid during the sixthree months ended April 2,December 31, 2022 reflected a 3%4% increase to our fiscal 20212022 quarterly dividend rate.
Liquidity
| in millions | in millions | | in millions | |
| | Commitments Expiration Date | | Facility Amount | | Outstanding Letters of Credit (no draw downs) | | Amount Borrowed | | Amount Available at April 2, 2022 | | Commitments Expiration Date | | Facility Amount | | Outstanding Letters of Credit (no draw downs) | | Amount Borrowed | | Amount Available at December 31, 2022 |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,151 | | Cash and cash equivalents | | $ | 654 | |
Short-term investments | Short-term investments | | — | | Short-term investments | | 2 | |
| Revolving credit facility | Revolving credit facility | September 2026 | | $ | 2,250 | | | $ | — | | | $ | — | | | 2,250 | | Revolving credit facility | September 2026 | | $ | 2,250 | | | $ | — | | | $ | — | | | 2,250 | |
Commercial paper | Commercial paper | | — | | Commercial paper | | — | |
Total liquidity | Total liquidity | | $ | 3,401 | | Total liquidity | | $ | 2,906 | |
•Liquidity includes cash and cash equivalents, short-term investments and availability under our revolving credit facility, less the outstanding commercial paper balance.
•At April 2,December 31, 2022, we had accrued legal contingencies and current debt of $267$490 million, and $79 million, respectively, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.
•The revolving credit facility supports our short-term funding needs and also serves to backstop our commercial paper program. We had no borrowings under the revolving credit facility during the sixthree months ended April 2,December 31, 2022. Under the terms of the facility, we have the option to establish incremental commitment increases of up to $500 million if certain conditions are met.
•In the second quarter of fiscal 2023 through the date of this filing, we increased our commercial paper balance by $355 million for operational purposes.
•We expect net interest expense to approximate $360$330 million for fiscal 2022.2023.
•Our current ratio was 1.91.8 to 1 at April 2,December 31, 2022 and 1.6 toOctober 1, at October 2, 2021. The increase in the six months ended April 2, 2022 was primarily due to the $1 billion debt repayment and payments of deferred payroll tax liabilities under the CARES Act and income taxes, partially offset by increased inventory.2022.
•At April 2,December 31, 2022, approximately $454$465 million of our cash was held in the accounts of our foreign subsidiaries. Generally, we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs. We manage our worldwide cash requirements by reviewing available funds among our foreign subsidiaries and the cost effectiveness with which those funds can be accessed. We intend to repatriate excess cash (net of applicable withholding taxes) not subject to regulatory requirements and to indefinitely reinvest outside of the United States the remainder of cash held by foreign subsidiaries. We do not expect the regulatory restrictions or taxes on repatriation to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future.
Capital Resources
Credit Facility
Cash flows from operating activities and cash on hand are our primary sources of liquidity for funding debt service, capital expenditures, dividends and share repurchases. We also have a revolving credit facility, with a committed capacity of $2.25 billion, to provide additional liquidity for working capital needs and to backstop our commercial paper program.
At April 2,December 31, 2022, amounts available for borrowing under our revolving credit facility totaled $2.25 billion. Our revolving credit facility is funded by a syndicate of 20 banks, with commitments ranging from $35 million to $175 million per bank.
Commercial Paper Program
Our commercial paper program provides a low-cost source of borrowing to fund general corporate purposes including working capital requirements. The maximum borrowing capacity under the commercial paper program is $1.5 billion. The maturities of the notes may vary, but may not exceed 397 days from the date of issuance. As of April 2,December 31, 2022, we had no commercial paper outstanding under this program. Our ability to access commercial paper in the future may be limited or its costs increased.
Capitalization
To monitor our credit ratings and our capacity for long-term financing, we consider various qualitative and quantitative factors. We monitor the ratio of our net debt to EBITDA as support for our long-term financing decisions. At April 2,December 31, 2022, and October 2, 2021,1, 2022, the ratio of our net debt to EBITDA was 1.0x1.6x and 1.2x,1.3x, respectively. Refer to Part I, Item 3, EBITDA Reconciliations, for an explanation and reconciliation to comparable Generally Accepted Accounting Principles (“GAAP”) measures.
Credit Ratings
Revolving Credit Facility
Standard & Poor’s Rating Services’, a Standard & Poor’s Financial Services LLC business (“S&P”), applicable rating is “BBB+”. Moody’s Investor Service, Inc.’s (“Moody’s”) applicable rating is “Baa2”. The below table outlines the fees paid on the unused portion of the facility (“Facility Fee Rate”) and letter of credit fees and borrowings (“All-in Borrowing Spread”) that corresponds to the applicable ratings levels from S&P and Moody’s.
| | | | | | | | |
Ratings Level (Moody’s/S&P) | Facility Fee Rate | All-in Borrowing Spread |
A2/A or above | 0.070 | % | 0.875 | % |
A3/A- | 0.090 | % | 1.000 | % |
Baal/BBB+ (current level) | 0.100 | % | 1.125 | % |
Baa2/BBB | 0.125 | % | 1.250 | % |
Baa3/BBB- or lower | 0.175 | % | 1.375 | % |
In the event the rating levels fall within different levels, the applicable rate will be based upon the higher of the two Levels or, if there is more than a one-notch split between the two Levels, then the Applicable Rate will be based upon the Level that is one Level below the higher Level.
Debt Covenants
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain a minimum interest expense coverage ratio.
Our senior notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets.
We were in compliance with all debt covenants at April 2,December 31, 2022, and we expect that we will maintain compliance.
RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS
Refer to the discussion of recently issued/adopted accounting pronouncements under Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1: Accounting Policies.
CRITICAL ACCOUNTING ESTIMATES
We consider accounting policies related to: contingent liabilities; revenue recognition; accrued self-insurance; defined benefit pension plans; impairment of long-lived assets and definite life intangibles; impairment of goodwill and indefinite life intangible assets; business combinations; and income taxes to be critical accounting estimates. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021.1, 2022. Refer to Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1: Accounting Policies, for updates to our significant accounting policies during the sixthree months ended April 2,December 31, 2022. These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes.
As further described in the impairment of goodwill and indefinite life intangible assets critical accounting estimate included in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022, we assess goodwill and indefinite life assets for impairment at least annually as of the first day the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions existed as of the end our first quarter that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $0.2 billion at December 31, 2022. The interim assessment was deemed necessary due to higher discount rates used in estimating the fair value of the reporting units as well as lower than anticipated operating results during the first quarter of fiscal 2023. Based on the interim assessment, we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value. Had we assumed future operating margins consistent with those realized in the first quarter of the current fiscal year, both reporting units would have failed the quantitative step of the interim impairment test, which may have resulted in a goodwill impairment loss. The goodwill for these reporting units originated from acquisitions in fiscal 2019 and fiscal 2018, and we are still integrating them and investing in our international and global business strategy, in addition to managing through the temporary impacts of COVID-19. The reporting units' projected long-term operating margins included in the interim impairment test had to exceed an average of 4% to achieve breakeven results in the analysis. A hypothetical increase in the discount rates of approximately 50 basis points, with all other assumptions unchanged, at December 31, 2022, would have caused the carrying values of these reporting units to approximate their fair values.
Our impairment analysis contains inherent estimates and assumptions, many of which are outside the control of management including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings, which could positively or negatively impact the anticipated future economic and operating conditions. The assumptions and estimates used in determining fair value require considerable judgement and are sensitive to changes in underlying assumptions. These assumptions can change in future periods as a result of overall economic conditions, including the impacts of inflationary pressures, increased interest and discount rates and global supply chain constraints, amongst others. As a result, there can be no assurance that estimates and assumptions made for the purpose of assessing impairments will prove to be an accurate prediction of the future. Potential circumstances that could have a negative effect on the fair value of our reporting units include, but are not limited to, lower than forecasted growth rates or operating margins and changes in discount rates. A reduction in the estimated fair value of the reporting units could trigger an impairment in the future. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of our goodwill and indefinite lived assets.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain information in this report constitutes forward-looking statements. These statements are intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, current views and estimates of our outlook for fiscal 2022,2023, other future economic circumstances, industry conditions in domestic and international markets, our performance and financial results (e.g., debt levels, return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy). Words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “forecast,” “target,” “outlook,” “may,” “should,” “could,” and similar expressions, as well as statements written in the future tense, identify forward-looking statements. These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results and experiences to differ materially from anticipated results and expectations expressed in such forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which are expressly qualified in their entirety by this cautionary statement and speak only as of the date made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following: (i) the COVID-19 global pandemic and associated responses thereto have had an adverse impact on our business and operations, and the extent that the COVID-19 pandemic continues to impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, public adoption rates of COVID-19 vaccines and their effectiveness against emerging variants of COVID-19, the speed and effectiveness of new vaccine and treatment developments and their deployment and COVID-19 related impacts on the market, including production delays, labor shortages and increases in costs and inflation; (ii) the effectiveness of our financial excellence programs; (iii) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics; (iv) cyberattacks, other cyber incidents, security breaches or other disruptions of our information technology systems; (v) risks associated with our failure to consummate favorable acquisition transactions or integrate certain acquisitions’ operations; (vi) the Tyson Limited Partnership’s ability to exercise significant control over the Company; (vii) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy; (viii) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins; (ix) outbreak of a livestock disease (such as African swine fever (ASF), avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an adverse effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets;conduct our operations; (x) changes in consumer preference and diets and our ability to identify and react to consumer trends; (xi) effectiveness of advertising and marketing programs; (xii) significant marketing plan changes by large customers or loss of one or more large customers; (xiii) our ability to leverage brand value propositions; (xiv) changes in availability and relative costs of labor and contract farmers and our ability to maintain good relationships with team members, labor unions, contract farmers and independent producers providing us livestock;livestock, including as a result of our plan to relocate certain corporate team members to our world headquarters in Springdale, Arkansas; (xv) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (xvi) the effect of climate change and any legal or regulatory response thereto; (xvii) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws; (xvii)(xviii) adverse results from litigation; (xviii)(xix) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook; (xix)(xx) impairment in the carrying value of our goodwill or indefinite life intangible assets; (xx)(xxi) our participation in a multiemployer pension plan; (xxi)(xxii) volatility in capital markets or interest rates; (xxii)(xxiii) risks associated with our commodity purchasing activities; (xxiii)(xxiv) the effect of, or changes in, general economic conditions; (xxiv)(xxv) impacts on our operations caused by factors and forces beyond our control, such as natural disasters, fire, bioterrorism, pandemics, armed conflicts or extreme weather; (xxv)(xxvi) failure to maximize or assert our intellectual property rights; (xxvi)(xxvii) effects related to changes in tax rates, valuation of deferred tax assets and liabilities, or tax laws and their interpretation; (xxvii) the effectiveness of our internal control over financial reporting, including identification of material weaknesses; and (xxviii) those factors discussed within Item 1, Item 1A and Item 7 of our Annual Report on Form 10-K for the year ended October 2, 20211, 2022 and our other periodic filings with the SEC.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Market risk relating to our operations results primarily from changes in commodity prices, interest rates and foreign exchange rates, as well as credit risk concentrations. To address certain of these risks, we enter into various derivative transactions as described below. If a derivative instrument is accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument either will be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be 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 is recognized immediately.
Further, we hold certain positions, primarily in grain and livestock futures that either do not meet the criteria for hedge accounting or are not designated as hedges. With the exception of normal purchases and normal sales that are expected to result in physical delivery, we record these positions at fair value, and the unrealized gains and losses are reported in earnings at each reporting date.
The sensitivity analyses presented below are the measures of potential changes in fair value resulting from hypothetical changes in market prices related to commodities. Sensitivity analyses do not consider the actions we may take to mitigate our exposure to changes, nor do they consider the effects such hypothetical adverse changes may have on overall economic activity. Actual changes in market prices may differ from hypothetical changes.
Commodities Risk
We purchase certain commodities, such as grains and livestock, in the course ofduring normal operations. As part of our commodity risk management activities, we use derivative financial instruments, primarily forwards and options, to reduce the effect of changing prices and as a mechanism to procure the underlying commodity. However, as the commodities underlying our 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 could result in volatility in our results of operations. Contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts designated and highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting. We generally do not hedge anticipated transactions beyond 18 months. The following table presents a sensitivity analysis resulting from a hypothetical change of 10% in market prices as of April 2,December 31, 2022, and October 2, 2021,1, 2022, on the 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 forward and option prices. The market risk exposure analysis included both derivatives designated as hedge instruments and derivatives not designated as hedge instruments.
| Effect of 10% change in fair value | Effect of 10% change in fair value | | in millions | Effect of 10% change in fair value | | in millions |
| | April 2, 2022 | | October 2, 2021 | | December 31, 2022 | | October 1, 2022 |
Livestock: | Livestock: | | Livestock: | |
Live Cattle | Live Cattle | $ | 23 | | | $ | 42 | | Live Cattle | $ | 20 | | | $ | 14 | |
Lean Hogs | Lean Hogs | 45 | | | 38 | | Lean Hogs | 33 | | | 30 | |
Grain: | Grain: | | Grain: | |
Corn | Corn | 45 | | | 24 | | Corn | 32 | | | 40 | |
Soybean Meal | Soybean Meal | 39 | | | 26 | | Soybean Meal | 21 | | | 25 | |
Interest Rate Risk
At April 2,December 31, 2022, we had variable rate debt of $8$46 million with a weighted average interest rate of 3.0%6.1%. A hypothetical 10% increase in interest rates effective at April 2,December 31, 2022, and October 2, 2021,1, 2022, would not have a significant effect on variable interest expense.
Additionally, changes in interest rates impact the fair value of our fixed-rate debt. At April 2,December 31, 2022, we had fixed-rate debt of $8,341$8,303 million with a weighted average interest rate of 4.5%. Market risk for fixed-rate debt is estimated as the potential increase in fair value, resulting from a hypothetical 10% decrease in interest rates. A hypothetical 10% decreasechange in interest rates would have increasedchanged the fair value of our fixed-rate debt by approximately $180$218 million at April 2,December 31, 2022 and $154$215 million at October 2, 2021.1, 2022. The fair values of our debt were estimated based on quoted market prices and/or published interest rates.
We are subject to interest rate risk associated with our pension and post-retirement benefit obligations. Changes in interest rates impact the liabilities associated with these benefit plans as well as the amount of income or expense recognized for these plans. Declines in the value of the plan assets could diminish the funded status of the pension plans and potentially increase the requirements to make cash contributions to these plans. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 16:15: Pensions and Other Postretirement Benefits in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021,1, 2022, for additional information.
Foreign Currency Risk
We have foreign exchange exposure from fluctuations in foreign currency exchange rates primarily as a result of certain receivable and payable balances. The primary currencies we have exposure to are the Australian dollar, the Brazilian real, the British pound sterling, the Canadian dollar, the Chinese renminbi, the European euro, the Malaysian ringgit, the Mexican peso, and the Thai baht. We periodically enter into foreign exchange forward and option contracts to hedge some portion of our foreign currency exposure. A hypothetical 10% change in foreign exchange rates related to the foreign exchange forward and option contracts would have had a $22$16 million and $13$25 million impact on pretax income at April 2,December 31, 2022, and October 2, 20211, 2022 respectively.
Concentration of Credit Risk
Refer to our market risk disclosures set forth in our Annual Report filed on Form 10-K for the fiscal year ended October 2, 2021,1, 2022, for a detailed discussion of quantitative and qualitative disclosures about concentration of credit risks.
EBITDA Non-GAAP Reconciliations
A reconciliation of net income to EBITDA is as follows (in millions, except ratio data):
| | | Six Months Ended | | Fiscal Year Ended | | Twelve Months Ended | | | Three Months Ended | | Fiscal Year Ended | | Twelve Months Ended | |
| | April 2, 2022 | | April 3, 2021 | | October 2, 2021 | | April 2, 2022 | | | December 31, 2022 | | January 1, 2022 | | October 1, 2022 | | December 31, 2022 | |
| Net income | Net income | $ | 1,959 | | | $ | 949 | | | $ | 3,060 | | | $ | 4,070 | | | Net income | $ | 320 | | | $ | 1,126 | | | $ | 3,249 | | | $ | 2,443 | | |
Less: Interest income | Less: Interest income | (6) | | | (4) | | | (8) | | | (10) | | | Less: Interest income | (9) | | | (3) | | | (17) | | | (23) | | |
Add: Interest expense | Add: Interest expense | 197 | | | 220 | | | 428 | | | 405 | | | Add: Interest expense | 84 | | | 100 | | | 365 | | | 349 | | |
Add: Income tax expense | Add: Income tax expense | 538 | | | 291 | | | 981 | | | 1,228 | | | Add: Income tax expense | 114 | | | 284 | | | 900 | | | 730 | | |
Add: Depreciation | Add: Depreciation | 466 | | | 463 | | | 934 | | | 937 | | | Add: Depreciation | 243 | | | 236 | | | 945 | | | 952 | | |
Add: Amortization (a) | Add: Amortization (a) | 124 | | | 132 | | | 261 | | | 253 | | | Add: Amortization (a) | 58 | | | 62 | | | 246 | | | 242 | | |
EBITDA | EBITDA | $ | 3,278 | | | $ | 2,051 | | | $ | 5,656 | | | $ | 6,883 | | | EBITDA | $ | 810 | | | $ | 1,805 | | | $ | 5,688 | | | $ | 4,693 | | |
| Total gross debt | Total gross debt | | $ | 9,348 | | | $ | 8,349 | | | Total gross debt | | $ | 8,321 | | | $ | 8,349 | | |
Less: Cash and cash equivalents | Less: Cash and cash equivalents | | (2,507) | | | (1,151) | | | Less: Cash and cash equivalents | | (1,031) | | | (654) | | |
Less: Short-term investments | Less: Short-term investments | | — | | | — | | | Less: Short-term investments | | (1) | | | (2) | | |
Total net debt | Total net debt | | $ | 6,841 | | | $ | 7,198 | | | Total net debt | | $ | 7,289 | | | $ | 7,693 | | |
| Ratio Calculations: | Ratio Calculations: | | | Ratio Calculations: | | |
Gross debt/EBITDA | Gross debt/EBITDA | | 1.7x | | 1.2x | | Gross debt/EBITDA | | 1.5x | | 1.8x | |
Net debt/EBITDA | Net debt/EBITDA | | 1.2x | | 1.0x | | Net debt/EBITDA | | 1.3x | | 1.6x | |
(a) Excludes the amortization of debt issuance and debt discount expense of $5$2 million for the sixthree months ended April 2,December 31, 2022 $9 million for the six months ended April 3, 2021, $19and January 1, 2022 and $11 million for the fiscal year ended October 2, 2021,1, 2022 and $15 million for the twelve months ended April 2,December 31, 2022 as it is included in interest expense.
EBITDA represents net income, net of interest, income tax expense, depreciation and amortization. Net debt to EBITDA represents the ratio of our debt, net of cash and short-term investments, to EBITDA. EBITDA and net debt to EBITDA are presented as supplemental financial measurements in the evaluation of our business. We believe the presentation of these financial measures helps investors to assess our operating performance from period to period, including our ability to generate earnings sufficient to service our debt, and enhances understanding of our financial performance and highlights operational trends. These measures are widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies; however, the measurements of EBITDA and net debt to EBITDA may not be comparable to those of other companies, which limits their usefulness as comparative measures. EBITDA and net debt to EBITDA are not measures required by or calculated in accordance with GAAP and should not be considered as substitutes for net income or any other measure of financial performance reported in accordance with GAAP or as a measure of operating cash flow or liquidity. EBITDA is a useful tool for assessing, but is not a reliable indicator of, our ability to generate cash to service our debt obligations because certain of the items added to net income to determine EBITDA involve outlays of cash. As a result, actual cash available to service our debt obligations will be different from EBITDA. Investors should rely primarily on our GAAP results, and use non-GAAP financial measures only supplementally, in making investment decisions.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”“1934 Act”)). Based on that evaluation, the CEO and CFO have concluded that, as of April 2,December 31, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the quarter ended April 2,December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Refer to the description of the Broiler Antitrust Civil Litigation, the Broiler Chicken Grower Litigation, the Pork Antitrust Litigation, the Beef Antitrust Litigation and the Wage Rate Litigation under the heading “Commitments and Contingencies” in Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 14:15: Commitments and Contingencies, which discussion is incorporated herein by reference. Other than as set forth below and in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021,1, 2022, there are no additional updates to the legal proceedingsproceedings involving the Company and/or its subsidiaries.
On DecemberJuly 8, 2022, Barber Foods, LLC (“Barber Foods”), an indirect wholly owned subsidiary of the Company, received correspondence from the Environmental Protection Agency (“EPA”) extending an opportunity to confer and negotiate a Consent Agreement and Final Order (“CAFO”) for each of two Barber Foods frozen poultry storage facilities located in Portland, Maine (the “Maine Facilities”). Included in the correspondence was a proposed CAFO for each facility. Each proposed CAFO alleges violations of the Clean Air Act resulting from EPA compliance inspections conducted in June 2019 at the Maine Facilities. The alleged violations include the failure to comply with process safety information requirements, failure to comply with mechanical integrity requirements and failure to adequately identify, evaluate, and control hazards. The proposed CAFOs set forth a proposed aggregate civil penalty of $541,243 for the alleged violations at the Maine Facilities. Barber Foods is currently in negotiations with the EPA with respect to the matter.
On June 19, 2019, a putative class2005, the Attorney General and the Secretary of direct purchasersthe Environment of the State of Oklahoma filed a class action against us, other turkey suppliers, and Agri Stats, Inc.complaint in the United States District Court for the Northern District of Illinois.Oklahoma against Tyson Foods, Inc., three subsidiaries and six other poultry integrators. The plaintiffs allege, among other things,complaint, which was subsequently amended, asserts a number of state and federal causes of action including, but not limited to, counts under the Comprehensive Environmental Response, Compensation, and Liability Act, Resource Conservation and Recovery Act, and state-law public nuisance theories. Oklahoma alleges that the defendants and certain contract growers who were not joined in the lawsuit polluted the surface waters, groundwater and associated drinking water supplies of the Illinois River Watershed through the land application of poultry litter. Oklahoma’s claims were narrowed through various rulings issued before and during trial and its claims for natural resource damages were dismissed by the district court in a ruling issued on July 22, 2009, which was subsequently affirmed on appeal by the Tenth Circuit Court of Appeals. A non-jury trial of the remaining claims including Oklahoma’s request for injunctive relief began on September 24, 2009. Closing arguments were held on February 11, 2010. On January 18, 2023, the district court entered intoFindings of Fact and Conclusions of Law in favor of the State of Oklahoma and directed the parties to confer in attempt to reach an agreement to exchange competitively sensitive information regarding turkey supply, production and pricing plans, all with the intent to artificially inflate the price of turkey, in violation of the Sherman Act. Plaintiffs are seeking treble damages, pre- and post-judgment interest, costs and attorneys’ fees on behalf of the putative class. On April 13, 2020, a similar complaint was filed in the United States District Court for the Northern District of Illinois on behalf of a putative class of indirect purchasers of turkey alleging claims based on the Sherman Act and various state law causes of action. The plaintiffs are seeking treble damages, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative class. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future. In April 2021, we reached agreement to settle all claims with the putative direct purchaser class for $4.625 million and with the putative commercial and institutional indirect purchaser class for $1.75 million. On May 25, 2021, the Court granted preliminary approval of the settlement with the putative direct purchaser class, and on January 10, 2022, the Court granted final approval of the settlement with that class. On July 28, 2021, the court granted preliminary approval of the settlement with the putative commercial and institutional indirect purchaser class, and on February 10, 2022, the Court granted final approval of the settlement with that class. While we do not admit any liability as part of the settlements, we believe that the settlements were in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation.appropriate remedies by March 17, 2023.
Other Matters
As of October 2, 2021,1, 2022, we had approximately 137,000142,000 team members and, at any time, have various employment practices matters outstanding. In the aggregate, these matters are important to the Company, and we devote considerable resources to managing employment issues. Additionally, we are subject to other lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. While the ultimate results of these matters cannot be determined, they are not expected to have a material adverse effect on our consolidated results of operations or financial position.
Item 1A.Risk Factors
Our business is subject to a variety of risks and uncertainties. These risks are described in this Quarterly Report on Form 10-Q and elsewhere in our other filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 2, 2021.1, 2022. The risks identified in such reports have not changed in any material respect.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides information regarding our purchases of Class A stock during the three months ended April 2,December 31, 2022.
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Period | Total Number of Shares Purchased (2) | | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
January 2, 2022 to January 29, 2022 | 203,354 | | | $ | 90.57 | | — | | | 15,260,698 | |
January 30, 2022 to March 5, 2022 | 217,663 | | | 96.06 | | — | | | 15,260,698 | |
March 6, 2022 to April 2, 2022 | 1,550,134 | | | 87.16 | | 1,513,137 | | | 13,747,561 | |
Total | 1,971,151 | | | $ | 88.50 | | 1,513,137 | | | 13,747,561 | |
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Period | Total Number of Shares Purchased (2) | | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
October 2, 2022 to October 29, 2022 | 32,042 | | | $ | 65.79 | | — | | | 11,957,990 | |
October 30, 2022 to December 3, 2022 | 1,942,276 | | | 66.23 | | 1,795,735 | | | 10,162,255 | |
December 4, 2022 to December 31, 2022 | 2,886,042 | | | 63.30 | | 2,860,855 | | | 7,301,400 | |
Total | 4,860,360 | | | $ | 64.49 | | 4,656,590 | | | 7,301,400 | |
(1)On February 7, 2003, we announced that our Board of Directors had approved a program to repurchase up to 25 million shares of outstanding Class A common stock from time to time in open market or privately negotiated transactions. On May 3, 2012, our Board of Directors approved an additional 35 million shares, on January 30, 2014, our Board of Directors approved an additional 25 million shares and on February 4, 2016, our Board of Directors approved an additional 50 million shares, in each case, authorized for repurchase under our share repurchase program. The program has no fixed or scheduled termination date.
(2)We purchased 458,014203,770 shares during the three months ended April 2,December 31, 2022 that were not made pursuant to our previously announced stock repurchase program but were purchased to fund certain Company obligations under our equity compensation plans. These transactions included 405,77778,903 shares purchased in open market transactions and 52,237124,867 shares withheld to cover required tax withholdings related to the vesting of restricted stock. Shares withheld to cover required tax withholdings related to the vesting of restricted stock do not reduce our total share repurchase authority.
(3)We purchased 1.54.7 million shares during the three months ended April 2,December 31, 2022 pursuant to our previously announced stock repurchase program.
Item 3. Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not Applicable.
Item 5.Other Information
None.On February 1, 2023, the Compensation and Leadership Development Committee of our Board of Directors approved and adopted certain amendments to the Company’s Executive Severance Plan, as amended and restated effective February 15, 2020 (the “Executive Severance Plan”), effective October 1, 2023. The material changes in this amendment include changing performance-based payouts under the provisions of the Company’s Annual Incentive Plan such that when a covered officer’s Date of Termination (as defined in the Executive Severance Plan) occurs in the first, second or third quarters of the Company’s fiscal year, the performance-based payout will be based on actual performance for such fiscal year (rather than target performance for such fiscal year) and such amount will be determined following the disclosure of performance results and any adjustments, and clarifying additional circumstances under which severance pay and benefits may be canceled or refunded back to the Company. The other material terms and conditions in the Executive Severance Plan remain substantially unchanged and in full force and effect.
The foregoing summary of the amendments to the Executive Severance Plan does not purport to be complete and is qualified in its entirety by reference to the full text of amended Executive Severance Plan, which is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q.
Item 6.Exhibits
The Exhibit Index below contains a list of exhibits filed or furnished with this Form 10-Q.
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Exhibit No. | | Exhibit Description | |
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10.1 | * ** | | |
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10.2 | * ** | | |
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10.3 | * ** | | |
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10.4 | * ** | | |
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10.5 | * ** | | |
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10.6 | * ** | | |
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10.7 | * ** | | |
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10.8 | * ** | | |
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10.9 | * ** | | |
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10.10 | * ** | | |
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10.11 | * ** | | |
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10.12 | * ** | | |
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10.13 | * ** | | |
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10.14 | * ** | | |
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10.15 | * ** | | |
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31.1 | ** | | |
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31.2 | ** | | |
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32.1 | *** | | |
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32.2 | *** | | |
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101 | | The following information from our Quarterly Report on Form 10-Q for the quarter ended April 2,December 31, 2022, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Consolidated Condensed Statements of Income, (ii) Consolidated Condensed Statements of Comprehensive Income, (iii) Consolidated Condensed Balance Sheets, (iv) Consolidated Condensed Statements of Shareholders' Equity, (v) Consolidated Condensed Statements of Cash Flows, and (vi) the Notes to Consolidated Condensed Financial Statements. | |
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104 | | Cover Page Interactive Data File formatted in iXBRL. | |
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| * | Indicates a management contract or compensatory plan or arrangement. | |
| ** | Filed herewith | |
| *** | Furnished herewith | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | TYSON FOODS, INC. |
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Date: May 9, 2022February 6, 2023 | | | /s/ Stewart GlendinningJohn R. Tyson |
| | | Stewart GlendinningJohn R. Tyson |
| | | Executive Vice President and Chief Financial Officer |
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Date: May 9, 2022February 6, 2023 | | | /s/ Phillip W. Thomas |
| | | Phillip W. Thomas |
| | | Vice President, Controller and Chief Accounting Officer |
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