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Item 7. Management’s Discussion and Analysis

2020-11-16 compared with 2019-11-12 · 283 added, 217 removed, 374 unchanged (57% of the section changed)

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Tyson and grown under three generations of family leadership, the Company has a broad portfolio of products and brands including 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;

and operating efficiencies of our facilities.

We operate in four reportable segments:

Beef, Pork, Chicken and Prepared Foods.

International/Other primarily includes our foreign operations in Australia, China, South Korea, Malaysia, Mexico, the Netherlands, Thailand and the United Kingdom, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.

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.

For further description of the business, refer to Part I, Item 1, Business.

Fiscal year – Our accounting cycle resulted in a 52-week year for fiscal 2019, 2018 and 2017.

General – Sales grew 6% in fiscal 2019 over fiscal 2018, primarily due to acquisitions and increased average sales prices in the Beef and Prepared Foods segments.

Fiscal 2019 operating income decreased compared to fiscal 2018 , as record Beef segment results were offset by a decline in operating income in the Chicken and Pork segments.

We continue to monitor and respond to the evolving nature of COVID-19 and its impact to our global business.

We formed an internal COVID-19 task force 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.

These challenges increased our operating costs and negatively impacted our sales volumes for the back half of fiscal 2020 and are anticipated to continue into fiscal 2021.

Operationally, we experienced slowdowns and temporary idling of production facilities due to team member absenteeism and choices we made to ensure team member health and safety.

As a result, we have experienced lower levels of productivity and higher costs of production.

This will likely continue in the short term until the effects of COVID-19 diminish.

Each of our segments has also experienced a shift in demand from foodservice to retail during 2020;

however, the volume increases in retail have not been sufficient to offset the decreases in foodservice.

These current trends, including the combination of operational challenges and volume impacts, will likely continue into fiscal 2021 and have a negative impact on overall earnings.

The ultimate impact of COVID-19 remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials to prevent and manage disease spread, all of which are uncertain and cannot be predicted.

Team Members – The health and safety of our team members is our top priority.

To protect our team members, we have implemented and will continue to implement safety measures recommended by the Centers for Disease Control and Prevention ("CDC") and the Occupational Safety and Health Administration ("OSHA") in our facilities and coordinate with other health officials as appropriate, including, but not limited to, checking the temperature of team members as they enter company facilities, restricting visitor access, increasing efforts to deep clean and sanitize facilities, requiring the use of protective face coverings and making protective face coverings and other protective equipment available to team members and encouraging team members who feel sick to stay at home through relaxed attendance policies and enhanced benefits.

We implemented additional ways to promote social distancing in our production facilities by creating additional breakroom space and allowing extra time between shifts to reduce interaction of team members, as well as erecting dividers between workstations or increasing the space between workers on the production floor.

For office-based team members, we have encouraged team members capable of working from home to do so, and are prioritizing team member safety as we begin to reintegrate into our offices over time.

We paid $1,000 bonuses to approximately 106,000 domestic frontline team members who support the Company’s operations during the pandemic.

Additionally, we experienced positive COVID-19 cases and worker absenteeism throughout our production network during the back half of fiscal 2020, which led to some temporary idling of production facilities.

We are currently compensating our team members for sick time and COVID-19 related idling or shift cancellations.

Customers and Production – Our most significant impacts from COVID-19 relate to channel shifts and lower production.

We are committed to doing our best to ensure the continuity of our business and the availability of our products to customers.

We have seen a shift in demand from our foodservice to our retail sales channels as schools and in-dining restaurants remain closed or continue to operate at reduced capacity across the country.

Our production capabilities, including our large scale and geographic proximities, allow us to adapt some of our facilities to the changing demand by shifting certain amounts of production from foodservice to retail.

Not all of our facilities can be adapted and as a result we experienced a net negative impact to our volumes.

In addition, our production facilities experienced varying levels of production impacts, including reduced volumes, due to the implementation of additional worker health precautions, worker absenteeism and temporary COVID-19 related idling at some of our production facilities.

Additionally, we temporarily idled certain facilities, shifts, and/ or lines that service the foodservice channel as we balanced the shifting demand between foodservice and retail sales channels.

On April 28, 2020, the President issued an Executive Order stating the importance of the continued operation of meat and poultry processing facilities and directing the Secretary of Agriculture to issue rules and orders to ensure the continued supply of meat and poultry, consistent with the guidance for the operations of meat and poultry processing facilities jointly issued by the CDC and OSHA.

This order provides clarity on what standards should apply at our meat and poultry processing facilities and we anticipate continuing to work with the United States Department of Agriculture ("USDA") and other government officials in our efforts to ensure that we are able to operate our facilities safely.

Supply Chain – Our supply chain has stayed largely intact as we have built contingency plans for redundant supply for our production facilities as well as our external suppliers.

We have been able to leverage our extensive distribution network and large private transportation fleet to help mitigate the impacts of COVID-19.

We have experienced and expect to continue to experience volatility in commodity inputs, which has impacted our input costs, in part due to impacts caused by COVID-19.

Production facility downtime in the back half of fiscal 2020 impacted all our segments' supply chains.

Our Prepared Foods segment depends on adequate supplies of raw materials necessary for its production.

High levels of industry pork facility idling during the back half of fiscal 2020 impacted the availability of certain raw materials which temporarily limited production capability and increased formulation costs of various Prepared Foods products.

Additionally, our Chicken segment had to divert some of its live production to rendering and suboptimal product mixes, while our Beef and Pork segments had to delay deliveries of live cattle and hogs and also dealt with the impact of heavier harvest weights.

Since we also export globally, container availability and port capacities have been among the challenges in meeting the global demand for our products.

Insurance and CARES Act – Although we maintain insurance policies for various risks, we do not believe most COVID-19 impacts will be covered by our policies.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of the employer portion of social security payments, and a number of income tax provisions.

The provisions related to income tax will not have a significant impact on our financial statements.

We began implementing the deferral of the employer portion of social security payments in the back half of the fiscal year, which had a favorable impact on liquidity.

This resulted in the deferral of approximately $185 million of payroll taxes in fiscal 2020.

We recognized a benefit of approximately $30 million related to the refundable payroll tax credit provision.

Liquidity – We generated approximately $3.9 billion of operating cash flows during fiscal 2020 .

At October 3, 2020 , we had $3.2 billion of liquidity, which included availability under our revolving credit facility and $1,420 million of cash and cash equivalents.

We have $548 million of current debt.

Combined with the cash expected to be generated from the Company’s operations, we anticipate that we will maintain sufficient liquidity to operate our business, make capital expenditures, pay dividends and address other needs including our ability to meet maturing debt obligations.

However, we will continue to monitor the impact of COVID-19 on our liquidity and, if necessary, take action to preserve liquidity and ensure that our business can operate during these uncertain times.

This may include temporarily suspending share repurchases, suspending or reducing dividend payments or other cash preservation actions as necessary.

Overall Financial Condition – We continue to proactively manage the Company and its operations through the pandemic.

The major challenge we face is the availability of team members to operate our production facilities as our production facilities are experiencing varying levels of absenteeism.

We will continue to operate our production facilities with team member health and safety as a top priority.

The COVID-19-related slowdowns and temporary idling drive higher labor and production costs, which we expect to continue until the return of more normal conditions.

However, some of the higher labor and other costs may become more permanent in nature.

We also experienced COVID-19-related demand shifts away from foodservice and into retail, and we responded to the demand shifts by adjusting parts of our production capacity accordingly.

Despite adjusting parts of our operational footprint, higher retail volumes did not fully offset the reduced volumes in foodservice.

Additionally, the price and mix of these volume shifts resulted in lower margin realization for portions of the year in our Prepared Foods and Chicken segments.

Further, idling of pork facilities could have downstream impacts on the availability of raw material for parts of our Prepared Foods business, which could subsequently impact its ability to produce at normal levels.

Consequently, the challenges created by absenteeism and our proactive, temporary idling of production facilities due to COVID-19, adversely affects our operating costs and reduces what would otherwise be a stronger margin environment.

However, we cannot predict the ultimate impact that COVID-19 will have on our short- and long-term demand at this time, as it will depend on, among other things, the severity and duration of the COVID-19 pandemic.

Our liquidity is expected to be adequate to continue to run our operations and meet our obligations as they become due.

Our accounting cycle resulted in a 53-week year for fiscal 2020 and a 52-week year for fiscal 2019 and 2018.

Sales grew 2% in fiscal 2020 over fiscal 2019 to $43.2 billion, primarily due to the impact of the additional week and increased average sales prices in the Beef, Pork and Prepared Foods segments.

Fiscal 2020 operating income increased compared to fiscal 2019 , as strong Beef and Pork segment results were partially offset by a decline in operating income in the Chicken and Prepared Foods segments.

In fiscal 2020, our results were impacted by $77 million of restructuring and related charges offset by the positive impact of the additional week.

In fiscal 2019, our results were impacted by a $41 million impairment associated with the planned divestiture of a business, $41 million of restructuring and related charges, $37 million related to Keystone Foods purchase accounting and acquisition related costs and $31 million of costs associated with a fire at one of our beef production facilities.

In fiscal 2018, our results were impacted by $109 million of one-time cash bonus to frontline employees, as we continued to make investments in our talent, $68 million impairment, net of realized gains, associated with the divestitures of non-protein businesses, and $59 million of restructuring and related charges.

Market Environment – According to the United States Department of Agriculture ("USDA"), domestic protein production (beef, pork, chicken and turkey) increased approximately 2% in fiscal 2019 compared to fiscal 2018 .

Currently, we are experiencing impacts to domestic and export prices across all of our segments resulting from uncertainty in trade policies and increased tariffs.

Additionally, all segments experienced increased operating and labor costs in fiscal 2019.

During fiscal 2020, we incurred direct incremental expenses related to COVID-19 totaling approximately $540 million, of which approximately $500 million and $40 million were recorded in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Statements of Income.

These COVID-19 direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime, including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades, rendered product, certain professional fees and $114 million of thank you bonuses to frontline team members, which was partially offset by the CARES Act credits.

Due to the nature of these direct incremental COVID-19 expenses, our segments were primarily impacted based on their relative number of team members, absenteeism and the degree of production disruptions they have experienced, and thus, our Beef and Chicken segments incurred a greater proportion of the total costs.

These direct incremental COVID-19 related costs exclude market related impacts that may have been driven in part by COVID-19, including such items as derivatives, deferred compensation investments and other market driven impacts to margin and demand.

Other indirect costs associated with COVID-19 are not reflected in these amounts, including costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers, and pricing discounts.

Market Environment

According to the USDA, domestic protein production (beef, pork, chicken and turkey) increased approximately 2% in fiscal 2020 compared to fiscal 2019 .

We continue to monitor recent trade and tariff activity as well as COVID-19 and its potential impacts to exports and input costs across all of our segments.

Additionally, all segments experienced increased operating costs in fiscal 2020.

We will pursue recovery of these increased costs through pricing.

The Beef segment experienced strong demand offset by increased costs associated with a fire at one of our beef production facilities.

The Pork segment experienced increased livestock costs during a time of excess domestic availability of pork products due to export constraints, which made market conditions challenging.

Our Chicken segment also faced challenging pricing conditions associated with increased domestic availability of supply.

Our Prepared Foods segment continued its strong performance due to demand despite increased raw material costs and reduced volumes from the divestiture of certain non-protein businesses in fiscal 2018.

The Beef and Pork segments experienced strong demand but had lower production throughput associated with the impacts of COVID-19 and also experienced lower livestock costs.

The Chicken segment experienced volatile market conditions associated with increased domestic availability of supply and lower production throughput associated with COVID-19.

The Prepared Foods segment continued to experience growth in the retail channel but faced increased raw material costs and lower production throughput associated with COVID-19.

Margins – Our total operating margin was 7.2% in fiscal 2020 .

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Prepared Foods – 8.7%

Liquidity – We generated approximately $2.5 billion of operating cash flows during fiscal 2019 .

At September 28, 2019 , we had $1.2 billion of liquidity, which included $484 million of cash and cash equivalents and the availability under our revolving credit facility after deducting amounts outstanding under our commercial paper program.

Strategy – Our strategy is to sustainably feed the world with the fastest growing protein brands.

Our strategy is to sustainably feed the world with the fastest growing protein brands.

We intend to achieve our strategy as we:

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Acquisitions and Dispositions.

During fiscal 2018, we acquired three operations for a total of approximately $1.5 billion, net of cash acquired.

These operations, which consisted of American Proteins Inc., a poultry rendering and blending operation, Tecumseh Poultry, LLC, a vertically integrated valued-added business, and Original Philly Holdings, Inc., a value-added protein business, were acquired as part of our growth and sustainability initiatives and our acquisition strategy of new brands, new capabilities, scale and synergy, and new geographies and markets.

For further description refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

During fiscal 2018, we sold four non-protein operations for net proceeds of $805 million, as part of our strategic focus on protein brands.

These operations, which were all part of our Prepared Foods segment, included Sara Lee® Frozen Bakery, Van’s®, Kettle and TNT Crust.

For further description refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

In the fourth quarter of fiscal 2017, our Board of Directors approved a multi-year restructuring program (the “Financial Fitness Program”), which is expected to contribute to the Company’s overall strategy of financial fitness through increased operational effectiveness and overhead reduction.

Through a combination of synergies from the integration of business acquisitions and additional elimination of non-valued added costs, the program is focused on supply chain, procurement and overhead improvements, and net savings are expected to be realized in the Prepared Foods and Chicken segments.

No liability exists under this program at September 28, 2019.

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.

In the fourth quarter of fiscal 2020, the Company extended the 2020 Program as it identified additional opportunities to eliminate overhead by optimizing organizational structures and other activities.

As a result of this restructuring program, we expect to realize savings of approximately $140 million and $160 million in fiscal 2021 and fiscal 2022, respectively.

We have recognized $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.

For further description refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 7:

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2020 – Included the following items:

$75 million pretax, or ($0.16) per diluted share, of restructuring and related charges.

$65 million pretax, or $0.14 per diluted share, related to the additional week in fiscal 2020.

$116 million pretax, or $0.24 per diluted share, due to gain from pension plan terminations.

2019 – Included the following items:

$37 million pretax, or ($0.08) per diluted share, of Keystone Foods purchase accounting and acquisition related costs, which included an $11 million purchase accounting adjustment for the amortization of the fair value step-up of inventory and $26 million of acquisition related costs.

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$15 million pretax, or ($0.03) per diluted share, due to a pension plan termination charge.

2018 – Included the following items:

$1,003 million post tax, or $2.71 per diluted share, tax benefit from remeasurement of net deferred tax liabilities at lower enacted tax rates.

$109 million pretax, or ($0.22) per diluted share, related to one-time cash bonus to frontline employees.

$68 million pretax, or ($0.34) per diluted share, impairments net of realized gains associated with the divestitures of non-protein businesses.

$59 million pretax, or ($0.12) per diluted share, of restructuring and related charges.

SUMMARY OF RESULTS

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Change in average sales price

Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $278 million primarily due to incremental volumes from business acquisitions as well as the impact of an additional week in fiscal 2020, partially offset by decreased volumes in each of our segments in fiscal 2020 due to lower production throughput associated with the impact of COVID-19.

Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $502 million.

The increase in average sales price was primarily attributable to favorable product mix related to robust demand in the retail channel across all of our segments and beef and pork demand remaining strong amid supply disruptions related to COVID-19, partially offset by approximately $45 million of incremental discounted sales in the Prepared Foods segment.

Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $3,539 million primarily driven by incremental volumes from business acquisitions which impacted the Chicken segment and International/Other, partially offset by business divestitures in fiscal 2018 in our Prepared Foods segment.

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The above amounts include a net increase of $2,209 million related to the impact of results from acquisitions and divestitures.

Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $1,041 million.

The Beef, Chicken and Prepared Foods segments had an increase in sales volume driven by strong demand for our beef products and incremental volumes from business acquisitions in the Chicken and Prepared Foods segments net of business divestitures in the Prepared Foods segment.

Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $751 million.

All segments had an increase in average sales price, other than the Pork segment.

The Beef segment experienced strong demand, while the Chicken and Prepared Foods segments were positively impacted by improved mix and business acquisitions net of business divestitures in the Prepared Foods segment.

The above amounts included an incremental impact of $1,060 million in fiscal 2018 related to the inclusion of the AdvancePierre results post acquisition through the first anniversary of the acquisition on June 7, 2018.

Cost of Sales

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This included a net increase of $667 million primarily related to the impact of results from acquisitions and divestitures.

For the remaining $249 million decrease, higher input cost per pound increased cost of sales $393 million, offset by lower sales volume, which decreased cost of sales $642 million.

The $393 million impact of higher input cost per pound was impacted by:

Increase across all of our segments primarily driven by net impacts on average cost per pound from mix changes as well as production inefficiencies due in part to the impact of COVID-19 in fiscal 2020.

Increase of approximately $500 million of direct incremental expenses related to COVID-19.

Increase of approximately $80 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 $90 million as well as an increase in inventory write downs of approximately $15 million in our Prepared Foods segment.

Increase in incentive-based compensation of approximately $70 million.

Decrease in live cattle costs of approximately $530 million in our Beef segment.

Decrease in live hog costs of approximately $255 million in our Pork segment.

The $642 million impact of lower sales volume, excluding the impact of acquisitions, was primarily driven by decreased sales volume in each of our segments due to lower production throughput associated with the impact of COVID-19 in the back half of fiscal 2020 as well as a reduction in live cattle processing capacity from the temporary closure of a production facility in the first quarter of fiscal 2020 as a result of a fire, partially offset by the impact of the additional week in fiscal 2020.

Cost of sales increased $2,427 million.

This included a net increase of $2,120 million primarily related to the impact of results from acquisitions and divestitures.

For the remaining $307 million increase, higher input cost per pound increased cost of sales $445 million, offset by lower sales volume, which decreased cost of sales $138 million.

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Increase due to $31 million of incremental costs associated with a fire at one of our Beef production facilities.

Decrease due to one-time cash bonus to front line employees of $108 million in fiscal 2018.

Decrease due to one-time cash bonus to front line team members of $108 million in fiscal 2018.

Decrease due to impairment charges of $101 million associated with the divestiture of a non-protein business in fiscal 2018, partially offset by a $41 million impairment related to the planned divestiture of a business in fiscal 2019 and a $33 million gain related to a sale of a non-protein business in fiscal 2018.

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The $138 million impact of lower sales volume, excluding the impact of acquisitions and divestitures, was driven by a decrease in sales volume in our Chicken segment.

Cost of sales increased $1,758 million.

This included a net increase of $813 million primarily related to the impact of results from acquisitions and divestitures.

For the remaining $945 million increase, higher input cost per pound increased cost of sales $948 million while lower sales volume decreased cost of sales $3 million.

The $948 million impact of higher input cost per pound was primarily driven by:

Increase in freight of approximately $270 million incurred across all our segments.

Increase from one-time cash bonus to frontline employees of $108 million.

Increase due to impairment charges of $101 million associated with the divestiture of a non-protein business in fiscal 2018, partially offset by $33 million of realized gains related to the sale of non-protein businesses in fiscal 2018 and impairment charges of $44 million related to our San Diego Prepared Foods operation in fiscal 2017.

Increase of approximately $52 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.

Decrease in live cattle costs of approximately $25 million in our Beef segment.

Decrease in live hog costs of approximately $90 million in our Pork segment.

Decrease due to net realized derivative losses of $30 million for fiscal 2018, compared to net realized derivative loss of $79 million for fiscal 2017 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 costs described above.

Additionally, cost of sales decreased due to net unrealized losses of $3 million for fiscal 2018, compared to net unrealized losses of $40 million for fiscal 2017, primarily due to our Beef segment commodity risk management activities.

Remaining net change across all of our segments was primarily driven by increased operating costs and impacts on average input cost per pound from mix changes.

Selling, General and Administrative

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Increase of $75 million in selling, general and administrative was primarily driven by:

Increase of $83 million in employee costs primarily from incentive-based compensation and the impact of the extra week in fiscal 2020.

Increase of $56 million from fiscal 2019 acquisitions not owned by us for all of fiscal 2019.

Increase of $40 million from direct incremental expenses associated with COVID-19.

Increase of $35 million from technology related costs.

Decrease of $55 million in professional fees and merger and integration costs.

Decrease of $49 million in marketing, advertising and promotion expenses.

Decrease of $26 million in travel and entertainment expenses.

Increase of $131 million in selling, general and administrative was primarily driven by:

Increase of $87 million related to the Keystone Foods acquisition.

Increase of $26 million in employee costs primarily from incentive-based compensation.

Increase of $26 million in team member costs primarily from incentive-based compensation.

Increase of $18 million from technology related costs.

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Decrease of $18 million from restructuring and related charges.

Decrease of $77 million in selling, general and administrative was primarily driven by:

Decrease of $92 million in employee costs primarily from stock-based and incentive-based compensation, which also included a reduction of $24 million compensation and benefit integration expense incurred in fiscal 2017 that did not recur in fiscal 2018.

Decrease of $56 million from restructuring and related charges.

Decrease of $49 million in AdvancePierre acquisition related fees incurred as part of the acquisition in fiscal 2017 that did not recur in fiscal 2018.

Decrease of $18 million in commission and brokerage fees.

Decrease of $14 million in non-restructuring severance related expenses.

Decrease of $10 million in marketing, advertising, and promotion expense.

Increase of $153 million related to the AdvancePierre acquisition through the first anniversary of the acquisition on June 7, 2018, which included $91 million in incremental amortization and $62 million from the inclusion of AdvancePierre results post-acquisition.

Increase of $15 million from technology related costs.

Remainder of net change was primarily related to reduction in professional fees.

Interest Income

2019 / 2018 – Interest income increased slightly primarily due to higher interest rates.

Interest Expense

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2020 / 2019 –

Cash interest expense primarily included interest expense related to our senior notes, term loans and commercial paper, in addition to commitment/letter of credit fees incurred on our revolving credit facility.

The increase in cash interest expense in fiscal 2019 was primarily due to debt issued in connection with business acquisitions and higher interest rates.

Cash interest expense primarily included interest expense related to our senior notes, term loans and commercial paper, in addition to commitment fees incurred on our revolving credit facility.

The increase in cash interest expense in fiscal 2020 was primarily due to debt issued in fiscal 2019 in connection with business acquisitions and higher interest rates, partially offset by term loans extinguished in fiscal 2020.

Non-cash interest expense primarily included interest capitalized, partially offset by the amortization of debt issuance costs and discounts/premiums on note issuances.

Other (Income) Expense, net

2020 – Included $116 million of gains related to pension plan terminations.

2019 – Included $55 million of pretax gain on the sale of an investment, $23 million of insurance proceeds and other income and $20 million of equity earnings in joint ventures, partially offset by $48 million of net periodic pension and postretirement benefit costs and pension plan settlements.

2018 – Included $21 million of equity earnings in joint ventures and $11 million in insurance proceeds.

Also includes $23 million of net periodic pension and postretirement benefit credit, excluding the service cost component, retrospectively recognized in accordance with recently adopted accounting guidance.

Effective Tax Rate

Our effective income tax rate was 22.4% for fiscal 2020 compared to 16.3% for fiscal 2019 .

The effective tax rates reflect impacts of the Tax Cuts and Jobs Act (the "Tax Act") signed into law on December 22, 2017.

These impacts include a statutory federal tax rate of 21% for fiscal 2019 and 24.5% for fiscal 2018.

These impacts also include a 37.9% benefit in fiscal 2018 related to the remeasurement of deferred taxes existing at the date of enactment and favorable timing differences deductible in fiscal 2018 at the 24.5% blended tax rate, but reversing in future years at 21%.

State taxes increased the effective tax rate by 3.0% and 2.9% for fiscal 2020 and 2019, respectively.

The effective tax rate for fiscal 2019 includes a 6.6% benefit due to changes in tax reserves, primarily expirations of federal, state and foreign statutes of limitations.

The non-deductible impairment and sale of certain assets in our non-protein businesses increased the fiscal 2018 rate 3.1%.

The fiscal 2018 effective tax rate also includes a 1.7% benefit related to domestic production activity deduction which was repealed with the Tax Act beginning with our fiscal 2019.

SEGMENT RESULTS

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Beef, Pork, Chicken, and Prepared Foods.

Additional information regarding the geographic areas of our foreign operations is set forth in Part II, Item 8, Notes to Consolidated Financial Statements, Note 18:

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Operating Margin

Sales Volume – Sales volume decreased primarily due to lower production throughput associated with the impact of COVID-19 during portions of fiscal 2020 and a reduction in live cattle harvest capacity as a result of a fire that caused the temporary closure of a production facility for the majority of the first quarter of fiscal 2020, partially offset by the impact of an additional week in fiscal 2020.

Average Sales Price – Average sales price increased as beef demand remained strong amid supply disruptions related to the impact of COVID-19.

Operating Income – Operating income increased primarily due to market conditions, including COVID-19 disruptions, which increased the spread between preexisting contractual agreements and the cost of fed cattle, partially offset by price reductions offered to customers, as well as production inefficiencies and direct incremental expenses related to COVID-19.

Sales Volume – Sales volume decreased due to a reduction in live cattle processing capacity from the temporary closure of a production facility as a result of a fire.

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Operating Income – Operating income increased as we continued to maximize our revenues relative to live fed cattle costs, partially offset by increased operating costs and $31 million of net incremental costs from the production facility fire.

Sales Volume – Sales volume increased due to improved availability of cattle supply, stronger demand for our beef products and increased exports.

Average Sales Price – Average sales price increased as demand for our beef products and strong exports outpaced the increase in live cattle supplies.

Operating Income – Operating income increased as we continued to maximize our revenues relative to live fed cattle costs, partially offset by increased labor and freight costs and one-time cash bonus to frontline employees of $27 million.

Pork Segment Results

Change 2020 vs.

Change 2018 vs.

Sales Volume Change

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Operating Margin

Sales Volume – Sales volume increased primarily due to the impact of the additional week, partially offset by lower production throughput associated with COVID-19 during portions of fiscal 2020 despite strong demand for our pork products and increased domestic availability of live hogs.

Average Sales Price – Average sales price increased as pork demand remained strong amid supply disruptions related to the impact of COVID-19.

Operating Income – Operating income increased primarily due to market conditions, including COVID-19 disruptions, which increased the spread between preexisting contractual agreements and the cost of live hogs, partially offset by production inefficiencies and direct incremental expenses related to COVID-19.

Sales Volume – Sales volume increased due to increased domestic availability of live hogs and strong demand for our pork products.

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Operating Income – Operating income decreased due to periods of compressed pork margins caused primarily by the combination of increased livestock supplies, excess domestic availability of pork and export constraints, which drove livestock costs up faster than sales prices.

Sales Volume – Sales volume decreased as a result of balancing our supply with customer demand during a period of margin compression.

Average Sales Price – The average sales price decrease was associated with lower livestock costs.

Operating Income – Operating income decreased from prior year record results due to periods of compressed pork margins caused by excess domestic availability of pork, higher labor and freight costs, and one-time cash bonus to frontline employees of $12 million.

Chicken Segment Results

Change 2020 vs.

Sales Volume Change

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Operating Margin

Sales Volume – Sales volume was relatively flat in fiscal 2020 as the impact of the additional week and increased volumes in retail were offset by lower production throughput associated with the impact of COVID-19 and lower foodservice demand.

Average Sales Price – Average sales price decreased in fiscal 2020 primarily due to weaker chicken pricing as a result of market conditions.

Operating Income – Operating income decreased in fiscal 2020 primarily from market conditions, unfavorable product mix, as well as production inefficiencies and direct incremental expenses related to COVID-19.

Operating income was also impacted by $34 million in restructuring costs incurred in fiscal 2020.

Sales Volume – Sales volume increased primarily due to incremental volume from business acquisitions.

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Additionally, operating income was impacted in fiscal 2019 by approximately $40 million of net feed ingredient costs and realized and mark-to-market derivative losses.

Sales Volume – Sales volume increased primarily due to incremental volume from business acquisitions.

Average Sales Price – Average sales price increased due to sales mix changes and price increases associated with cost inflation.

Operating Income – Operating income decreased due to increased labor, freight and growout expenses, in addition to $103 million of higher feed ingredient costs and net realized and mark-to-market derivative losses, and one-time cash bonus to frontline employees of $51 million.

Prepared Foods Segment Results

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Operating Margin

Sales Volume – Sales volume decreased as growth in volume across the retail channel was offset by a reduction in the foodservice channel related to reduced demand and lower production throughput due to the impact of COVID-19, partially offset by the impact of an additional week in fiscal 2020.

Average Sales Price – Average sales price increased due to favorable product mix associated with the surge in retail demand, as well as the pass through of increased raw material costs.

Operating Income – Operating income decreased primarily due to increased operating costs, including a $105 million increase in net raw material costs and derivative losses, as well as production inefficiencies and direct incremental expenses related to COVID-19.

Additionally, operating income was impacted by $28 million in restructuring costs.

Sales Volume – Sales volume decreased primarily from business divestitures.

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Operating income in fiscal 2018 was impacted by a $68 million impairment, net of realized gains, associated with the divestiture of non-protein businesses.

Sales Volume – Sales volume increased primarily due to incremental volume from business acquisitions net of business divestitures.

Excluding the impact of the business divestitures, sales volumes in fiscal 2018 increased by 9.8%.

Average Sales Price – Average sales price increased due to product mix which was positively impacted by business acquisitions and divestitures.

Operating Income – Operating income increased due to improved mix and net incremental results from business acquisitions, net of divestitures, partially offset by higher input and freight costs and one-time cash bonus to frontline employees of $19 million.

Additionally, operating income was impacted in fiscal 2018 by $68 million of impairments, net of realized gains, related to the divestitures of non-protein businesses.

For fiscal 2017, operating income was impacted from $34 million of AdvancePierre purchase accounting and acquisition related costs, $97 million of impairments related to our San Diego Prepared Foods operation and the expected sale of a non-protein business, $30 million of compensation and benefits integration expense and $82 million of restructuring and related charges.

International/Other Results

Change 2020 vs.

Operating Loss

Sales – Sales increased primarily from the incremental sales from the the first full year of results from the acquisitions of Keystone Foods and the Thai and European operations.

Operating loss – Operating results improved due to lower third-party merger and integration costs partially offset by reduced profitability in our international operations primarily from the impacts of COVID-19.

Sales – Sales increased primarily from the incremental sales from the acquisitions of Keystone Foods and the Thai and European operations.

Operating loss – Operating loss decreased primarily from better performance in our China operations and inclusion of results of the Keystone Foods acquisition, partially offset by increased third-party merger and integration costs associated with the Keystone Foods acquisition.

Sales – Sales decreased due to a decline in sales volume in our foreign chicken production operations.

Operating loss – Operating loss improved primarily from lower third-party merger and integration costs.

LIQUIDITY AND CAPITAL RESOURCES

Our cash needs for working capital, capital expenditures, growth opportunities, the repurchases of senior notes and share repurchases are expected to be met with current cash on hand, cash flows provided by operating activities, or short-term borrowings.

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.

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and overall market conditions.

In addition, we will continue to monitor the impact of COVID-19 on our liquidity and, if necessary, take action to preserve liquidity and ensure that our business can operate during these uncertain times.

This may include temporarily suspending share repurchases, suspending or reducing dividend payments or taking other cash preservation actions as necessary.

Cash Flows from Operating Activities

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Net cash provided by operating activities

Deferred income taxes for fiscal 2018 included a $1,004 million benefit related to remeasurement of net deferred income tax liabilities at newly enacted tax rates.

Gain on dispositions of businesses in fiscal 2018 primarily related to the sale of the Sara Lee® Frozen Bakery, Kettle, Van’s® and TNT Crust businesses.

Impairment of assets included the following:

2019 – Included a $41 million impairment related to the planned sale of a business.

For further description regarding this charge refer to Part II, Item 8, Notes to Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

2018 – Included a $101 million impairment related to the expected sale of a non-protein business.

For further description regarding this charge refer to Part II, Item 8, Notes to Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

Impairment of assets in fiscal 2019 included a $41 million impairment related to the planned sale of a business.

Other, net in fiscal 2020 included a $112 million gain related to pension plan terminations.

Cash flows associated with changes in operating assets and liabilities:

2020 – Increased primarily due to decreased accounts receivable, increased accrued salaries, wages & benefits, and increased taxes payable, partially offset by decreased accounts payable.

The changes in accounts receivable and accounts payable are largely due to the timing of payments and sales.

The increase in accrued salaries, wages and benefits is primarily due to increased incentive-based compensation.

The increase in taxes payable is primarily related to timing of payments, in large part due to payroll tax deferrals associated with the CARES Act.

2019 – Decreased primarily due to increased accounts receivable and inventory and decreased income taxes payable.

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Decreased income taxes payable is primarily due to reduced taxable income, change in federal tax rate and timing of payments related to the sale of non-protein businesses in fiscal 2018.

2018 – Decreased primarily due to increased inventory and decreased accrued employee costs, partially offset by increased income taxes payable.

The increase in inventory is primarily due to livestock inventories.

The decrease in accrued salaries and wages is primarily due to reduced restructuring and incentive-based compensation accruals.

Increased taxes payable is due to timing of payments related to the sale of non-protein businesses in the fourth quarter.

Cash Flows from Investing Activities

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Proceeds from sale of businesses

Acquisitions of Equity Investments

Net cash used for investing activities

Additions to property, plant and equipment included spending for production growth, safety and animal well-being, in addition to acquiring new equipment, infrastructure replacements and upgrades to maintain competitive standing and position us for future opportunities.

Capital spending for fiscal 2020 is expected to approximate $1.3 billion and will include spending for production growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that are expected to result in production and labor efficiencies, yield improvements and sales channel flexibility.

Capital spending for fiscal 2021 is expected to approximate $1.2 billion to $1.4 billion and will include spending for capacity expansion, growth, safety, animal well-being, infrastructure replacements and upgrades, and operational improvements that are expected to result in production and labor efficiencies, yield improvements and sales channel flexibility.

Purchases of marketable securities included funding for our deferred compensation plans.

Acquisitions, net of cash acquired, included:

2019 – We acquired two valued-added protein businesses in fiscal 2019.

For further description regarding these acquisitions refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

2018 – We acquired three valued-added protein businesses in fiscal 2018.

Acquisitions, net of cash acquired, included the acquisition of two valued-added protein businesses in fiscal 2019.

For further description regarding these acquisitions refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

Proceeds from sale of businesses related to the proceeds received from sale of a chicken further processing facility in fiscal 2019 and the proceeds received from sale of non-protein businesses during fiscal 2018.

Acquisition of equity investments in fiscal 2020 is related to the purchases of a 40% interest in a vertically integrated Brazilian poultry producer and a 50% interest in a joint venture serving the worldwide fats and oils market.

Proceeds from sale of businesses related to the proceeds received from sale of a prepared foods business in fiscal 2020 and a chicken further processing facility in fiscal 2019.

For further description refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 3:

Acquisitions and Dispositions.

Other, net for fiscal 2019 primarily related to the net proceeds from the sale of an investment.

Other, net primarily included deposits for capital expenditures in fiscal 2020 and primarily related to the net proceeds from the sale of an investment in fiscal 2019.

Cash Flows from Financing Activities

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Proceeds from issuance of debt and borrowings/payments on revolving credit facility:

2020 – On March 27, 2020, we executed a new $1.5 billion term loan facility to repay our commercial paper, repay outstanding balances under our revolving credit facility and for general liquidity purposes.

2019 – Proceeds from issuance of debt included $1,800 million proceeds from the issuance of a 364-day term loan for the initial financing of the Keystone Foods acquisition and subsequent issuance of $2,800 million senior unsecured notes which were primarily used to extinguish our 364-day term loan and to repay commercial paper obligations used to fund the Keystone Foods acquisition as well as to fund all or a portion of the purchase price for the acquisition of the Thai and European operations.

2018 – Proceeds from issuance of long-term debt included a $250 million increase in our Term Loan Tranche B due August 2020, primarily to fund an acquisition.

Subsequently, proceeds from issuance of long-term debt included $400 million Senior Notes due 2023 and $500 million Senior Notes due 2048, which were primarily used to extinguish our Term Loan Tranche B due August 2020 and to repay commercial paper obligations.

Payments on debt included:

2020 – We extinguished the $350 million outstanding balance of our senior notes due June 2020, the $400 million outstanding balance of our senior notes due August 2020 and the $278 million outstanding balance of our senior notes due September 2020 using cash on hand.

2019 – We extinguished the $1,800 million outstanding balance of our 364-day term loan, the $300 million outstanding balance of our May 2019 Notes and the $1,000 million outstanding balance of our August 2019 Notes using proceeds received from the issuance of debt, cash on hand and other liquidity sources.

2018 – We extinguished the $750 million outstanding balance of the Term Loan Tranche B due August 2020, which was increased during fiscal 2018 by $250 million, using cash on hand and proceeds from the issuance of Senior Notes due 2023 and 2048.

We extinguished the $427 million outstanding balance of the Term Loan Tranche B due August 2019 using cash on hand and proceeds received from the sale of our Kettle business.

We extinguished the $120 million outstanding balance of the Senior Notes due May 2018 using cash on hand.

Proceeds from issuance and repayment of short-term debt in the form of commercial paper:

2019 – We had net issuances of $395 million to our unsecured short-term promissory notes ("commercial paper") pursuant to our commercial paper program.

2018 – We had net repayments of $173 million to our unsecured short-term promissory notes pursuant to our commercial paper program.

2020 – We had net repayments of $999 million to our unsecured short-term promissory notes ("commercial paper") pursuant to our commercial paper program.

2019 – We had net issuances of $395 million to our commercial paper pursuant to our commercial paper program.

Purchases of Tyson Class A common stock included:

$150 million and $350 million for shares repurchased pursuant to our share repurchase program in fiscal 2019 and 2018 , respectively.

$150 million for shares repurchased pursuant to our share repurchase program in both fiscal 2020 and fiscal 2019 .

$57 million and $102 million for shares repurchased to fund certain obligations under our equity compensation plans in fiscal 2020 and 2019 , respectively.

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Outstanding Letters of Credit (no draw downs)

Outstanding Amount

Amount Available at September 28, 2019

Amount Available at October 3, 2020

Cash and cash equivalents

Short-term investments

Term loan facility

Revolving credit facility

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Total liquidity

Liquidity includes cash and cash equivalents, short-term investments, and availability under our revolving credit facility, less outstanding commercial paper balance.

At September 28, 2019 , we had current debt of $2,102 million , which we intend to repay with cash generated from our operating activities and other existing or new liquidity sources.

Liquidity includes cash and cash equivalents, short-term investments, and availability under our revolving credit and term loan facilities, less outstanding commercial paper balance.

At October 3, 2020 , we had current debt of $548 million , which we intend to repay 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.

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We expect net interest expense will approximate $440 million for fiscal 2021 .

Our ratio of short-term assets to short-term liabilities ("current ratio") was 1.30 to 1 and 1.13 to 1 at September 28, 2019 , and September 29, 2018 , respectively.

The increase in fiscal 2019 was primarily due to increased inventory and accounts receivable balances.

At September 28, 2019 , $467 million of our cash was held in the international accounts of our foreign subsidiaries.

Our ratio of short-term assets to short-term liabilities ("current ratio") was 1.9 to 1 and 1.3 to 1 at October 3, 2020 , and September 28, 2019 , respectively.

The increase in fiscal 2020 was primarily due to increased cash and reduced current debt.

At October 3, 2020 , $466 million of our cash was held in the international 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.

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Capital Resources

Credit Facility

Cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service, capital expenditures, dividends and share repurchases.

Credit and Term Loan Facilities

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 $1.75 billion, to provide additional liquidity for working capital needs and to backstop our commercial paper program.

As of September 28, 2019 , we had $70 million in borrowings and no outstanding letters of credit issued under this facility, which left $1.68 billion available for borrowing, before deducting amounts to backstop our commercial paper program.

Additionally, we have a $1.5 billion committed term loan facility which was fully drawn as of October 3, 2020.

At October 3, 2020 , amounts available for borrowing under our revolving credit and term loan facilities totaled $1.75 billion .

Our revolving credit facility is funded by a syndicate of 39 banks, with commitments ranging from $0.3 million to $123 million per bank.

The syndicate includes bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements.

Our term loan facility is funded by a syndicate of 5 banks, with commitments ranging from $200 million to $350 million per bank.

The syndicates include bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements.

Commercial Paper Program

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The maturities of the notes may vary, but may not exceed 397 days from the date of issuance.

As of September 28, 2019 , $1 billion was outstanding under this program with maturities less than 25 days.

As of October 3, 2020 , 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, due to the current market environment which has been impacted in part by COVID-19.

Capitalization

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We monitor the ratio of our net debt to EBITDA as support for our long-term financing decisions.

At September 28, 2019 , and September 29, 2018 , the ratio of our net debt to EBITDA was 2.9x and 2.4x, respectively.

At October 3, 2020 , and September 28, 2019 , the ratio of our net debt to EBITDA was 2.2x and 2.9x, respectively.

Refer to Part II, Item 6, Selected Financial Data, for an explanation and reconciliation to comparable GAAP measures.

The increase in this ratio for fiscal 2019 is due to an increase in net debt of $1,845 million.

The decrease in this ratio for fiscal 2020 is due to a decrease in net debt of $1,528 million and an increase in EBITDA.

Credit Ratings

Term Loan Facility due March 2022

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." Fitch Ratings', a wholly owned subsidiary of Fimlac, S.A.

("Fitch"), applicable rating is "BBB." The below table outlines the borrowing spread on the outstanding principal balance of our term loan that corresponds to the applicable ratings levels from S&P, Moody's and Fitch.

Ratings Level (S&P/Moody's/Fitch)

Borrowing Spread through March 30, 2021

Borrowing Spread

March 31, 2021 through March 27, 2022

A-/A3/A- or above

BBB+/Baa1/BBB+

BBB/Baa2/BBB (current level)

BBB-/Baa3/BBB-

BB+/Ba1/BB+ or lower

Revolving Credit Facility

Standard & Poor's Rating Services', a Standard & Poor's Financial Services LLC business ("S&P"), corporate credit rating is "BBB." Moody’s Investor Service, Inc.'s ("Moody's") applicable rating is "Baa2." Fitch Ratings', a wholly owned subsidiary of Fimlac, S.A.

("Fitch"), applicable rating is "BBB." The below table outlines the fees paid on the unused portion of the facility ("Facility Fee Rate") and letter of credit fees and borrowings ("Undrawn Letter of Credit Fee and Borrowing Spread") that corresponds to the applicable ratings levels from S&P, Moody's and Fitch.

S&P's applicable rating is "BBB+." Moody's applicable rating is "Baa2." Fitch's applicable rating is "BBB." 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, Moody's and Fitch.

Ratings Level (S&P/Moody's/Fitch)

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BB+/Ba1/BB+ or lower

In the event the rating levels are split, the applicable fees and spread will be based upon the rating level in effect for two of the rating agencies, or, if all three rating agencies have different rating levels, the applicable fees and spread will be based upon the rating level that is between the rating levels of the other two rating agencies.

In the event the rating levels are split for either facility, the applicable fees and spread will be based upon the rating level in effect for two of the rating agencies, or, if all three rating agencies have different rating levels, the applicable fees and spread will be based upon the rating level that is between the rating levels of the other two rating agencies.

Debt Covenants

Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to:

Our revolving credit and term loan facilities contain affirmative and negative covenants that, among other things, may limit or restrict our ability to:

create liens and encumbrances;

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and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at September 28, 2019 .

We were in compliance with all debt covenants at October 3, 2020 and expect that we will maintain compliance.

Pension Plans

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CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of September 28, 2019 :

The following table summarizes our contractual obligations as of October 3, 2020 (in millions):

Payments Due by Period

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Operating lease obligations (4)

Livestock grower obligations (5)

Purchase obligations (5)

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Interest payments include interest on all outstanding debt.

Payments are estimated for variable rate and variable term debt based on effective interest rates at September 28, 2019 , and expected payment dates.

Payments are estimated for variable rate and variable term debt based on effective interest rates at October 3, 2020 , and expected payment dates.

Amounts include guarantees of obligations related to certain outside third parties, which consist of leases, debt and livestock grower loans, all of which are substantially collateralized by the underlying assets, as well as residual value guarantees covering certain operating leases for various types of equipment.

The amounts included are the maximum potential amount of future payments.

Amounts include minimum lease payments under lease agreements.

We have agreements with livestock growers that can have fixed and variable payment structures, but are generally cancelable and based on flocks placed with the livestock growers.

Amounts include fixed or estimable non-cancelable commitments related to these agreements.

For additional information regarding operating leases, refer to Part II, Item 8, Notes to the Consolidated Financial Statements, Note 6:

Amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms, including:

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The purchase obligations amount included items, such as future purchase commitments for grains and livestock purchase contracts, that provide terms that meet the above criteria.

For certain grain purchase commitments with a fixed quantity provision, we have assumed the future obligations under the commitment based on available commodity futures prices as published in observable active markets as of September 28, 2019 .

We have excluded future purchase commitments for contracts that do not meet these criteria.

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Contracts for goods or services that contain termination clauses without penalty have also been excluded.

Amounts include estimated amounts to complete buildings and equipment under construction as of September 28, 2019 .

Amounts include estimated amounts to complete buildings and equipment under construction as of October 3, 2020 .

Other long-term liabilities primarily consist of deferred compensation, deferred income, self-insurance and asset retirement obligations.

We are unable to reliably estimate the amount of these payments beyond fiscal 2019;

Amount also consists of $185 million of payroll tax deferrals associated with the CARES Act, which we expect will be paid in fiscal 2022 and fiscal 2023.

We are unable to reliably estimate the amount and timing of the remaining payments beyond fiscal 2020 ;

therefore, we have only included the total liability in the table above.

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Pensions and Other Postretirement Benefits.

In addition to the amounts shown above in the table, we have unrecognized tax benefits of $149 million and related interest and penalties of $46 million at September 28, 2019 , recorded as liabilities.

The potential maximum contractual obligation associated with our cash flow assistance programs at September 28, 2019 , based on the estimated fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $300 million .

After analyzing residual credit risks and general market conditions, we had no allowance for these programs' estimated uncollectible receivables at September 28, 2019 .

In addition to the amounts shown above in the table, we have unrecognized tax benefits of $146 million and related interest and penalties of $51 million at October 3, 2020 , recorded as liabilities.

The potential maximum contractual obligation associated with our cash flow assistance programs at October 3, 2020 , based on the estimated fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $320 million .

After analyzing residual credit risks and general market conditions, we had no allowance for these programs' estimated uncollectible receivables at October 3, 2020 .

RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS

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Actual results could differ from those estimates.

We have considered the impact of the global COVID-19 pandemic on our consolidated financial statements.

In addition to the COVID-19 impacts we have already experienced, and continue to experience, there are likely to be future impacts, the ultimate extent of which is uncertain and largely subject to whether the severity worsens or duration lengthens.

These impacts could include but may not be limited to risks and uncertainty related to worker availability, our ability to operate production facilities, demand-driven production facility closures, shifts in demand between sales channels and market volatility in our supply chain.

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.

The following is a summary of certain accounting estimates we consider critical.

Judgments and Uncertainties

Effect if Actual Results Differ From

Contingent liabilities

Description :

We are subject to lawsuits, investigations and other claims related to wage and hour/labor, antitrust, environmental, product, taxing authorities and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses.

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We disclose contingent liabilities when the risk of loss is reasonably possible or probable.

Judgments and Uncertainties :

Our contingent liabilities contain uncertainties because the eventual outcome will result from future events, and determination of current reserves requires estimates and judgments related to future changes in facts and circumstances, differing interpretations of the law and assessments of the amount of damages, and the effectiveness of strategies or other factors beyond our control.

Effect if Actual Results Differ From Assumptions :

We have not made any material changes in the accounting methodology used to establish our contingent liabilities during the past three fiscal years.

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Revenue Recognition

Description :

We recognize revenue for the sale of our product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale.

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Variable consideration related to these programs is recorded as a reduction to revenue based on amounts we expect to pay.

Judgments and Uncertainties :

The transaction price contains estimates of known or expected variable consideration.

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We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified.

Effect if Actual Results Differ From Assumptions :

We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize revenue.

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Accrued self-insurance

Description :

We are self-insured for certain losses related to health and welfare, workers’ compensation, auto liability and general liability claims.

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Our policy is to maintain an accrual at the actuarial estimated median.

Judgments and Uncertainties :

Our self-insurance liability contains uncertainties due to assumptions required and judgment used.

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Incident rates, including frequency and severity, could increase or decrease causing estimates in our self-insurance liability to change.

Effect if Actual Results Differ From Assumptions :

We have not made any material changes in the accounting methodology used to establish our self-insurance liability during the past three fiscal years.

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However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material.

A 10% change in the actuarial estimate at September 28, 2019, would not have a significant impact on our liability.

A 10% change in the actuarial estimate at October 3, 2020, would not have a significant impact on our liability.

Description :

We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we earn income.

Income tax includes an estimate for withholding taxes on earnings of foreign subsidiaries expected to be remitted to the United States but does not include an estimate for taxes on earnings considered to be indefinitely invested in the foreign subsidiary.

Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse.

Valuation allowances are recorded when it is likely a tax benefit will not be realized for a deferred tax asset.

We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due.

Judgments and Uncertainties :

Effect if Actual Results Differ From

Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.

Changes in projected future earnings could affect the recorded valuation allowances in the future.

Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations across the tax jurisdictions where we operate.

Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds.

Effect if Actual Results Differ From Assumptions:

We do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances.

However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities.

To the extent we prevail in matters for which unrecognized tax benefit liabilities have been established, or are required to pay amounts in excess of our recorded unrecognized tax benefit liabilities, our effective tax rate in a given financial statement period could be materially affected.

An unfavorable tax settlement would require use of our cash and generally result in an increase in our effective tax rate in the period of resolution.

A favorable tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution.

Defined benefit pension plans

We sponsor nine defined benefit pension plans that provide retirement benefits to certain employees.

Currently we are in the process of liquidating three of our nine defined benefit pension plans.

We also participate in multi-employer plans that provide defined benefits to certain employees covered by collective bargaining agreements.

Description :

We sponsor six defined benefit pension plans that provide retirement benefits to certain team members.

We also participate in multi-employer plans that provide defined benefits to certain team members covered by collective bargaining agreements.

Such plans are usually administered by a board of trustees composed of the management of the participating companies and labor representatives.

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We accumulate and amortize the effect of actuarial gains and losses over future periods.

Net periodic benefit cost for the defined benefit pension plans was $30 million in fiscal 2019.

Net periodic benefit credit for the defined benefit pension plans was $103 million in fiscal 2020, primarily due to the termination of two of our defined benefit pension plans during fiscal 2020.

The projected benefit obligation was $269 million at the end of fiscal 2020.

Unrecognized actuarial gain was $7 million at the end of fiscal 2019.

We currently expect net periodic benefit cost for fiscal 2020 to be approximately $10 million, excluding the pending settlement as described in Note 15:

Pension and Other Postretirement Benefits.

Plan assets are currently comprised of approximately 73% fixed income securities.

Fixed income securities can include, but are not limited to, direct bond investments and pooled or indirect bond investments.

Unrecognized actuarial loss was $49 million at the end of fiscal 2020.

We currently expect net periodic benefit cost for fiscal 2021 to be approximately $11 million.

We expect to contribute approximately $13 million of cash to our pension plans in fiscal 2021.

The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements.

Judgments and Uncertainties :

Our defined benefit pension plans contain uncertainties due to assumptions required and judgments used.

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The net pension cost of the multi-employer plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts.

Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees.

Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our team members.

The future cost of these plans is dependent on a number of factors including the funded status of the plans and the ability of the other participating companies to meet ongoing funding obligations.

Effect if Actual Results Differ From Assumptions :

We have not made any material changes in the accounting methodology used to establish our pension obligations and net periodic benefit cost during the past three fiscal years.

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However, if actual results are not consistent with our estimates or assumptions, they are accumulated and amortized over future periods and, therefore generally affect the net periodic benefit cost in future periods.

A 1% change in the discount rate at September 28, 2019, would not have a significant impact on the projected benefit obligation or net periodic benefit cost.

A 1% change in the return on plan assets at September 28, 2019, would not have a significant impact on net periodic benefit cost.

A 1% change in the discount rate at October 3, 2020, would not have a significant impact on the projected benefit obligation or net periodic benefit cost.

A 1% change in the return on plan assets at October 3, 2020, would not have a significant impact on net periodic benefit cost.

The sensitivities reflect the impact of changing one assumption at a time with the remaining assumptions held constant.

Economic factors and conditions often affect multiple assumptions simultaneously and that the effect of changes in assumptions are not necessarily linear.