SEC Info - Tyson Foods, Inc. - ‘10-Q’ for 1/2/21

Sales

i 10,460

i 10,815

Cost of Sales

i 9,283

i 9,375

Gross Profit

i 1,177

i 1,440

Selling, General and Administrative

i 472

i 682

Operating Income

i 705

i 758

Other (Income) Expense:

Interest income

( i 2)

( i 3)

Interest expense

i 110

i 120

Other, net

( i 19)

( i 16)

Total Other (Income) Expense

i 89

i 101

Income before Income Taxes

i 616

i 657

Income Tax Expense

i 144

i 148

Net Income

i 472

i 509

Less: Net Income Attributable to Noncontrolling Interests

i 5

i 4

Net Income Attributable to Tyson

i 467

i 505

Weighted Average Shares Outstanding:

Class A Basic

i 293

Class B Basic

i 70

Diluted

i 365

i 367

Net Income Per Share Attributable to Tyson:

Class A Basic

i 1.31

i 1.42

Class B Basic

i 1.18

i 1.27

Diluted

i 1.28

i 1.38

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

Three Months Ended

Net Income

i 472

i 509

Other Comprehensive Income (Loss), Net of Taxes:

Derivatives accounted for as cash flow hedges

i 1

i 3

Investments

i —

Currency translation

i 75

i 35

Postretirement benefits

i 1

i —

Total Other Comprehensive Income (Loss), Net of Taxes

i 77

i 38

Comprehensive Income

i 549

i 547

Less: Comprehensive Income Attributable to Noncontrolling Interests

i 5

i 4

Comprehensive Income Attributable to Tyson

i 544

i 543

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share and per share data)

(Unaudited)


	January 2, 2021		October 3, 2020
Assets
Current Assets:
Cash and cash equivalents	$	i 2,406	$	i 1,420
Accounts receivable, net	i 1,900		i 1,952
Inventories	i 3,915		i 3,859
Other current assets	i 323		i 367
Total Current Assets	i 8,544		i 7,598
Net Property, Plant and Equipment	i 7,664		i 7,596
Goodwill	i 10,913		i 10,899
Intangible Assets, net	i 6,719		i 6,774
Other Assets	i 1,618		i 1,589
Total Assets	$	i 35,458	$	i 34,456

Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt	$	i 566	$	i 548
Accounts payable	i 1,997		i 1,876
Other current liabilities	i 2,286		i 1,810
Total Current Liabilities	i 4,849		i 4,234
Long-Term Debt	i 10,791		i 10,791
Deferred Income Taxes	i 2,331		i 2,317
Other Liabilities	i 1,706		i 1,728
Commitments and Contingencies (Note 15)	i		i
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares, issued 378 million shares	i 38		i 38
Convertible Class B-authorized 900 million shares, issued 70 million shares	i 7		i 7
Capital in excess of par value	i 4,411		i 4,433
Retained earnings	i 15,399		i 15,100
Accumulated other comprehensive gain (loss)	( i 102)		( i 179)
Treasury stock, at cost – 83 million shares at January 2, 2021 and October 3, 2020	( i 4,115)		( i 4,145)
Total Tyson Shareholders’ Equity	i 15,638		i 15,254
Noncontrolling Interests	i 143		i 132
Total Shareholders’ Equity	i 15,781		i 15,386
Total Liabilities and Shareholders’ Equity	$	i 35,458	$	i 34,456

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In millions)

(Unaudited)

Three Months Ended

Amount

Class A Common Stock:

Balance at beginning and end of period

i i 378 /

i i 38 /

i i 378 /

i i 38 /

Class B Common Stock:

Balance at beginning and end of period

i i 70 /

i i 7 /

i i 70 /

i i 7 /

Capital in Excess of Par Value:

Balance at beginning of period

i 4,433

i 4,378

Stock-based compensation

( i 22)

( i 24)

Balance at end of period

i 4,411

i 4,354

Retained Earnings:

Balance at beginning of period

i 15,100

i 13,655

Net income attributable to Tyson

i 467

i 505

Dividends

( i 168)

( i 166)

Balance at end of period

i 15,399

i 13,994

Accumulated Other Comprehensive Income (Loss), Net of Tax:

Balance at beginning of period

( i 179)

( i 117)

Other comprehensive income (loss)

i 77

i 38

Balance at end of period

( i 102)

( i 79)

Treasury Stock:

Balance at beginning of period

i 83

( i 4,145)

i 82

( i 4,011)

Purchase of Class A common stock

i —

( i 17)

i 2

( i 132)

Stock-based compensation

i —

i 47

( i 1)

i 64

Balance at end of period

i 83

( i 4,115)

i 83

( i 4,079)

Total Shareholders’ Equity Attributable to Tyson

i 15,638

i 14,235

Equity Attributable to Noncontrolling Interests:

Balance at beginning of period

i 132

i 144

Net income attributable to noncontrolling interests

i 5

i 4

Other

i 6

( i 1)

Total Equity Attributable to Noncontrolling Interests

i 143

i 147

Total Shareholders’ Equity

i 15,781

i 14,382

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended
	January 2, 2021		December 28, 2019
Cash Flows From Operating Activities:
Net income	$	i 472	$	i 509
Depreciation and amortization	i 298		i 288
Deferred income taxes	i 17		( i 13)
Other, net	i 18		i 27
Net changes in operating assets and liabilities	i 580		i 83
Cash Provided by Operating Activities	i 1,385		i 894
Cash Flows From Investing Activities:
Additions to property, plant and equipment	( i 289)		( i 312)
Purchases of marketable securities	( i 14)		( i 35)
Proceeds from sale of marketable securities	i 15		i 19
Proceeds from sale of business	i —		i 29
Other, net	i 29		( i 82)
Cash Used for Investing Activities	( i 259)		( i 381)
Cash Flows From Financing Activities:
Proceeds from issuance of debt	i 29		i 38
Payments on debt	( i 29)		( i 31)
Borrowings on revolving credit facility	i —		i 180
Payments on revolving credit facility	i —		( i 250)
Proceeds from issuance of commercial paper	i —		i 4,675
Repayments of commercial paper	i —		( i 4,855)
Purchases of Tyson Class A common stock	( i 17)		( i 132)
Dividends	( i 159)		( i 150)
Stock options exercised	i 4		i 20
Other, net	( i 1)		( i 2)
Cash Used for Financing Activities	( i 173)		( i 507)
Effect of Exchange Rate Changes on Cash	i 16		i 7
Increase in Cash and Cash Equivalents and Restricted Cash	i 969		i 13
Cash and Cash Equivalents and Restricted Cash at Beginning of Year	i 1,466		i 484
Cash and Cash Equivalents and Restricted Cash at End of Period	i 2,435		i 497
Less: Restricted Cash at End of Period	i 29		i —
Cash and Cash Equivalents at End of Period	$	i 2,406	$	i 497

See accompanying Notes to Consolidated Condensed Financial Statements.

TYSON FOODS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: i 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 3, 2020, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on February 11, 2021 (the “10-K/A”). 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 January 2, 2021, and the results of operations for the three months ended January 2, 2021, and December 28, 2019. 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.

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 the impact 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.

Revision of Previously Issued Unaudited Consolidated Condensed Financial Statements

As previously disclosed in the 10-K/A for the year ended October 3, 2020, during the first quarter of fiscal 2021, the Company discovered information that led to an internal investigation relating to one of its cattle suppliers and determined that this supplier made misrepresentations regarding the number of cattle the supplier purchased on behalf of the Company’s Beef segment. Based upon its investigation, the Company determined that the misappropriation of Company funds by the supplier caused the Company to overstate live cattle inventory for fiscal years and interim periods from 2017 through 2020. The resulting loss to the Company and related inventory misstatement was isolated to the Beef segment and was attributable solely to this cattle supplier. Although the Company evaluated the materiality of the misstatements and concluded that the misstatements did not have a material impact on the previously issued annual or interim financial statements, the Company revised its previously issued 2020, 2019 and 2018 annual financial statements to correct for such misstatements as set forth in the 10-K/A. In connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the accompanying consolidated condensed interim financial statements as of and for the quarter ended December 28, 2019 to correct for the impact of the misstatements. The applicable notes to the accompanying financials have also been corrected to reflect the impact of the revisions of the previously filed consolidated condensed interim financial statements.

The following tables represent revisions to our consolidated condensed financial information for the first quarter of fiscal 2020:

First Quarter

in millions, except per share data

Quarter ended December 28, 2019

As originally reported

Adjustments

As revised

Consolidated Statement of Income:

Selling, General and Administrative

i 614

i 68

i 682

Operating Income

i 826

( i 68)

i 758

Income before Income Taxes

i 725

( i 68)

i 657

Income Tax Expense (Benefit)

i 164

( i 16)

i 148

Net Income

i 561

( i 52)

i 509

Net Income Attributable to Tyson

i 557

( i 52)

i 505

Net Income Per Share Attributable to Tyson

Class A Basic

i 1.56

( i 0.14)

i 1.42

Class B Basic

i 1.40

( i 0.13)

i 1.27

Diluted

i 1.52

( i 0.14)

i 1.38

Consolidated Statement of Comprehensive Income:

Net Income

i 561

( i 52)

i 509

Comprehensive Income

i 599

( i 52)

i 547

Comprehensive Income Attributable to Tyson

i 595

( i 52)

i 543

As of December 28, 2019

As originally reported

Adjustments

As revised

Consolidated Balance Sheet:

Inventories

i 4,304

( i 247)

i 4,057

Total Current Assets

i 7,193

( i 247)

i 6,946

Total Assets

i 33,811

( i 247)

i 33,564

Deferred Income Taxes

i 2,369

( i 63)

i 2,306

Retained Earnings(a)

i 14,178

( i 184)

i 13,994

Total Tyson Shareholders' Equity

i 14,419

( i 184)

i 14,235

Total Shareholders' Equity

i 14,566

( i 184)

i 14,382

Total Liabilities and Shareholders' Equity

i 33,811

( i 247)

i 33,564

Quarter ended December 28, 2019

As originally reported

Adjustments

As revised

Consolidated Statement of Cash Flows:

Net Income

i 561

( i 52)

i 509

Deferred income taxes

i 3

( i 16)

( i 13)

Net changes in operating assets and liabilities

i 15

i 68

i 83

(a) The adjustment to retained earnings includes an impact of $ i 132 million related to misstatements that originated prior to fiscal 2020.

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“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 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 applied through December 21, 2022, 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.

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. Early adoption is permitted for periods for which financial statements have not yet been issued, beginning our fiscal 2020. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. The application of the guidance requires various transition methods depending on the specific amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Changes in Accounting Principles

In June 2016, the FASB issued guidance that provides more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2019, our fiscal 2021. For available-for-sale debt securities previously impaired, the amendments should be applied prospectively; otherwise, the modified-retrospective transition method should be applied. We adopted this guidance in the first quarter of fiscal 2021 using the modified retrospective transition method. Prior periods were not adjusted and, based on our implementation assessment, no cumulative-effect adjustment was made to the opening balance of retained earnings. The adoption of this standard did not have a material impact on our consolidated financial statements. For further description of our policy for available-for-sale debt securities, refer to Note 11: Fair Value Measurements.

NOTE 2: i i 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 January 2, 2021, 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 3, 2020.

The following table reflects the major components of inventory (in millions):


	January 2, 2021		October 3, 2020
Processed products	$	i 2,142	$	i 2,223
Livestock	i 1,068		i 977
Supplies and other	i 705		i 659
Total inventory	$	i 3,915	$	i 3,859

NOTE 3: i PROPERTY, PLANT AND EQUIPMENT

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


	January 2, 2021		October 3, 2020
Land	$	i 208	$	i 196
Buildings and leasehold improvements	i 5,030		i 4,961
Machinery and equipment	i 9,112		i 9,013
Land improvements and other	i 424		i 420
Buildings and equipment under construction	i 1,079		i 991
	i 15,853		i 15,581
Less accumulated depreciation	i 8,189		i 7,985
Net Property, Plant and Equipment	$	i 7,664	$	i 7,596

NOTE 4: i RESTRUCTURING AND RELATED CHARGES

In the first quarter of fiscal 2020, the Company approved a restructuring program (the “2020 Program”), which is expected to contribute to the Company’s overall strategy of financial fitness through the elimination of overhead and consolidation of certain enterprise functions. We recognized $ i 60 million of cumulative pretax charges in fiscal 2020 associated with the 2020 Program consisting of severance and employee related costs. As part of the 2020 Program, we are eliminating positions across several areas and job levels, with eliminated positions originating from the corporate offices in Springdale, Arkansas and Chicago, Illinois, as well as certain production facility and supply chain administrative positions. The majority of the positions have already been or are expected to be eliminated by the end of fiscal 2021. We do not anticipate future costs of the 2020 Program to be significant.

For the three months ended January 2, 2021, we did not incur restructuring and related charges. For the three months ended December 28, 2019, we recognized restructuring and related charges of $ i 52 million, primarily consisting of severance and employee related costs, of which $ i 9 million was recorded in Cost of Sales and $ i 43 million was recorded in Selling, General and Administrative in our Consolidated Condensed Statements of Income.

Our restructuring liability was $ i 23 million at January 2, 2021 and $ i 37 million at October 3, 2020. The change in the restructuring liability was due to reductions of $ i 14 million, primarily consisting of payments, during the three months ended January 2, 2021.

NOTE 5: i OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):


	January 2, 2021		October 3, 2020
Accrued salaries, wages and benefits	$	i 655	$	i 823



Taxes payable	i 407		i 152
Accrued current legal contingencies	i 339		i 18
Other	i 885		i 817
Total other current liabilities	$	i 2,286	$	i 1,810

NOTE 6: i DEBT

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


	January 2, 2021		October 3, 2020
Revolving credit facility	$	i —	$	i —
Commercial paper	i —		i —
Senior notes:
2.25% Notes due August 2021	i 500		i 500
4.50% Senior notes due June 2022	i 1,000		i 1,000
3.90% Senior notes due September 2023	i 400		i 400
3.95% Notes due August 2024	i 1,250		i 1,250
4.00% Notes due March 2026 (“2026 Notes”)	i 800		i 800
3.55% Notes due June 2027	i 1,350		i 1,350
7.00% Notes due January 2028	i 18		i 18
4.35% Notes due March 2029 (“2029 Notes”)	i 1,000		i 1,000
6.13% Notes due November 2032	i 160		i 160
4.88% Notes due August 2034	i 500		i 500
5.15% Notes due August 2044	i 500		i 500
4.55% Notes due June 2047	i 750		i 750
5.10% Notes due September 2048 (“2048 Notes”)	i 1,500		i 1,500
Discount on senior notes	( i 44)		( i 45)




Term loan:
Term loan facility due March 2022 (1.69% at 1/2/2021)	i 1,500		i 1,500
Other	i 231		i 216
Unamortized debt issuance costs	( i 58)		( i 60)
Total debt	i 11,357		i 11,339
Less current debt	i 566		i 548
Total long-term debt	$	i 10,791	$	i 10,791

Term Loan Facility due March 2022

On March 27, 2020, we executed a new $ i 1.5 billion term loan facility to refinance our short-term promissory notes (“commercial paper program”), repay outstanding balances under our revolving credit facility and for general liquidity purposes. In February 2021, we repaid $750 million of the $1.5 billion outstanding. The term loan facility expires on March 27, 2022 and is subject to prepayment under certain conditions. Additionally, the term loan facility contains covenants that are similar to those contained in the revolving credit facility.

Revolving Credit Facility and Letters of Credit

We have a $ i 1.75 billion revolving credit facility that 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 March 2023. At January 2, 2021, amounts available for borrowing under this facility totaled $ i 1.75 billion and we had i no borrowings and i no outstanding letters of credit issued under this facility. At January 2, 2021, we had $ i 101 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 leasing and 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.

Commercial Paper Program

We have a commercial paper program under which we may issue unsecured short-term promissory notes up to an aggregate maximum principal amount of $ i 1 billion. As of January 2, 2021, we had i no commercial paper outstanding. Our ability to access commercial paper in the future may be limited or its costs increased, due to market conditions which have been impacted in part by COVID-19.

Debt Covenants

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 January 2, 2021.

NOTE 7: i EQUITY

Share Repurchases

As of January 2, 2021, i 18.9 million shares remained available for repurchase under our 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. i A summary of share repurchases of our Class A stock is as follows (in millions):

Three Months Ended

Dollars

Shares repurchased:

Under share repurchase program

i —

i 1.1

i 100

To fund certain obligations under equity compensation plans

i 0.3

i 17

i 0.4

i 32

Total share repurchases

i 0.3

i 17

i 1.5

i 132

NOTE 8: i INCOME TAXES

Our effective tax rate was i 23.4% and i 22.5% for the first quarter of fiscal 2021 and 2020, respectively. The effective tax rates for the first quarter of fiscal 2021 and 2020 were higher than the federal statutory tax rate primarily due to state taxes, partially offset by various tax benefits.

Unrecognized tax benefits were $ i 163 million and $ i 165 million at January 2, 2021 and October 3, 2020, respectively. We do not expect material changes to our unrecognized tax benefits during the next twelve months.

NOTE 9: i 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
	January 2, 2021		December 28, 2019
Numerator:
Net income	$	i 472	$	i 509
Less: Net income attributable to noncontrolling interests	i 5		i 4
Net income attributable to Tyson	i 467		i 505
Less dividends declared:
Class A	i 138		i 137
Class B	i 30		i 29
Undistributed earnings	$	i 299	$	i 339

Class A undistributed earnings	$	i 246	$	i 279
Class B undistributed earnings	i 53		i 60
Total undistributed earnings	$	i 299	$	i 339

Denominator:
Denominator for basic earnings per share:
Class A weighted average shares	i 293		i 293
Class B weighted average shares, and shares under the if-converted method for diluted earnings per share	i 70		i 70
Effect of dilutive securities:
Stock options, restricted stock and performance units	i 2		i 4

Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions	i 365		i 367





Net income per share attributable to Tyson:
Class A basic	$	i 1.31	$	i 1.42
Class B basic	$	i 1.18	$	i 1.27
Diluted	$	i 1.28	$	i 1.38
Dividends Declared Per Share:
Class A	$	i 0.470	$	i 0.465
Class B	$	i 0.423	$	i 0.419

Approximately i 6 million and i 2 million of our stock-based compensation shares were antidilutive for the three months ended January 2, 2021 and December 28, 2019, respectively. These shares were not included in the diluted earnings per share calculation.

We have i two 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 i 90% of the cash dividends paid to holders of Class A stock.

We allocate undistributed earnings based upon a i 1.0 to i 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: i 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 January 2, 2021.

We had the following aggregated outstanding notional amounts related to our derivative financial instruments:

in millions, except soybean meal tons

Metric

Commodity:

Corn

Bushels

i 5

i 43

Soybean Meal

Tons

i 579,833

i 428,300

Live Cattle

Pounds

i 165

i 234

Lean Hogs

Pounds

i 254

i 283

Foreign Currency

United States dollar

i 412

i 536

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. As of January 2, 2021, we have $ i 16 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 three months ended January 2, 2021 and December 28, 2019, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges. For the three months ended January 2, 2021 and December 28, 2019, we recognized i i no / gains or losses 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 insignificant for the three months ended January 2, 2021, and December 28, 2019. i The carrying amount of fair value hedge (assets) liabilities as of January 2, 2021 and October 3, 2020 were as follows (in millions):

Consolidated Condensed Balance Sheets Classification

Inventory

i 8

i 6

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

Three Months Ended

Cost of Sales

i 9,283

i 9,375

Interest Expense

i 110

i 120

Other, net

( i 19)

( i 16)

/ i

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

Three Months Ended

Cost of Sales

Gain (Loss) on cash flow hedges reclassified from OCI to Earnings:

Commodity contracts

( i 1)

( i 2)

Gain (Loss) on fair value hedges:

Commodity contracts (a)

( i 2)

i 16

Gain (Loss) on derivatives not designated as hedging instruments:

Commodity contracts

i 98

i 29

Total

i 95

i 43

Interest Expense

Gain (Loss) on cash flow hedges reclassified from OCI to Earnings:

Interest rate contracts

i —

( i 1)

Other, net

Gain (Loss) on derivatives not designated as hedging instruments:

Foreign exchange contracts

i 1

i 4

(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: Fair Value Measurements.

NOTE 11: i 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):

Level 1

Level 2

Level 3

Netting (a)

Total

Other Current Assets:

Derivative financial instruments:

Designated as hedges

i —

i 1

i —

i 1

Undesignated

i —

i 210

i —

( i 146)

i 64

Other Assets:

Available-for-sale securities:

Non-current

i —

i 57

i 51

—

i 108

Deferred compensation assets

i 11

i 373

i —

—

i 384

Total assets

i 11

i 641

i 51

( i 146)

i 557

Other Current Liabilities:

Derivative financial instruments:

Designated as hedges

i —

i 9

i —

( i 9)

i —

Undesignated

i —

i 98

i —

( i 82)

i 16

Total liabilities

i —

i 107

i —

( i 91)

i 16

Level 1

Level 2

Level 3

Netting (a)

Total

Other Current Assets:

Derivative financial instruments:

Designated as hedges

i —

i 4

i —

( i 2)

i 2

Undesignated

i —

i 96

i —

( i 51)

i 45

Other Assets:

Available-for-sale securities:

Non-current

i —

i 55

i 53

—

i 108

Deferred compensation assets

i 19

i 336

i —

—

i 355

Total assets

i 19

i 491

i 53

( i 53)

i 510

Other Current Liabilities:

Derivative financial instruments:

Designated as hedges

i —

i 10

i —

( i 10)

i —

Undesignated

i —

i 74

i —

( i 59)

i 15

Total liabilities

i —

i 84

i —

( i 69)

i 15

(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 January 2, 2021, and October 3, 2020, we had $ i 22 million and $ i 16 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):


	Three Months Ended
	January 2, 2021		December 28, 2019
Balance at beginning of year	$	i 53	$	i 52
Total realized and unrealized gains (losses):
Included in earnings	i —		i —
Included in other comprehensive income (loss)	i —		i —
Purchases	i 5		i 3
Issuances	i —		i —
Settlements	( i 7)		( i 6)
Balance at end of period	$	i 51	$	i 49
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	$	i —	$	i —

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: 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 i 12 months are included in Other current assets in the Consolidated Condensed Balance Sheets and primarily include certificates of deposit and commercial paper. All other marketable debt securities are included in Other Assets in the Consolidated Condensed Balance Sheets and have maturities generally less than i 40 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):

Amortized
Cost Basis

Fair
Value

Unrealized
Gain (Loss)

Amortized
Cost Basis

Fair
Value

Unrealized
Gain (Loss)

Available-for-sale securities:

Debt securities:

U.S. treasury and agency

i 57

i —

i 55

i —

Corporate and asset-backed

i 49

i 51

i 2

i 51

i 53

i 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 in earnings and non-credit related losses in 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 months ended January 2, 2021, and October 3, 2020.

Deferred Compensation Assets: We maintain non-qualified deferred compensation plans for certain executives and other highly compensated employees. Investments are 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-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. 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 three months ended January 2, 2021, and October 3, 2020.

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):

Fair Value

Carrying Value

Fair Value

Carrying Value

Total debt

i 13,332

i 11,357

i 12,982

i 11,339

NOTE 12: i PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of the net periodic cost for the pension and postretirement benefit plans for the three months ended January 2, 2021 and December 28, 2019 are as follows (in millions):

Pension Plans

Three Months Ended

Service cost

i —

Interest cost

i 2

i 10

Expected return on plan assets

i —

( i 9)

Amortization of net actuarial loss

i 1

Net periodic cost (credit)

i 3

i 2

Postretirement Benefit Plans

Three Months Ended

Interest cost

i —

Amortization of prior service cost (credit)

i —

Net periodic cost (credit)

i —

Net periodic benefit cost, excluding the service cost component, was recorded in the Consolidated Condensed Statements of Income in Other, net.

NOTE 13: i 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

Before Tax

Tax

After Tax

Before Tax

Tax

After Tax

Derivatives accounted for as cash flow hedges:

(Gain) loss reclassified to interest expense

i —

i 1

i —

i 1

(Gain) loss reclassified to cost of sales

i 1

i —

i 1

i 2

i —

i 2

Currency translation:

Translation adjustment

i 75

i —

i 75

i 35

i —

i 35

Postretirement benefits:

Unrealized gain (loss)

i 1

i —

i 1

i —

Total other comprehensive income (loss)

i 77

i —

i 77

i 38

i —

i 38

NOTE 14: i SEGMENT REPORTING

We operate in i 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.

Beef: Beef includes our operations related to processing live fed cattle and fabricating dressed beef 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 sales from allied 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 allied 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 allied 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

Sales:

Beef

i 3,987

i 3,838

Pork

i 1,439

i 1,379

Chicken

i 2,831

i 3,292

Prepared Foods

i 2,113

i 2,140

International/Other

i 469

i 498

Intersegment

( i 379)

( i 332)

Total sales

i 10,460

i 10,815

Three Months Ended