What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-02-11 compared with 2020-08-03 · 217 added, 340 removed, 222 unchanged (72% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended October 3, 2020, as amended.

Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.

RESULTS OF OPERATIONS

12 unchanged sentences

We measure segment profit as operating income (loss).

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.

We continue to monitor and respond to the evolving nature of the global novel coronavirus pandemic (“COVID-19” or “pandemic”) 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.

In addition to our ongoing internal COVID-19 task force formed for the primary purposes of maintaining the health and safety of our team members, ensuring our ability to operate our processing facilities and maintaining the liquidity of our business, we have expanded our medical team with the addition of a chief medical officer.

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 third quarter of fiscal 2020 and are anticipated to continue for the remainder of fiscal 2020 and 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.

These challenges increased our operating costs and negatively impacted our sales volumes for the first quarter of fiscal 2021 and are anticipated to continue through fiscal 2021.

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

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

As a result, we expect to continue to see decreased volumes for the remainder of fiscal 2020 in our Chicken and Prepared Foods segments.

These current trends will likely continue for the remainder of fiscal 2020, while the long term 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.

We currently expect that we will remain profitable for the remainder of fiscal 2020, although the combination of operational challenges and volume impacts will likely have a negative impact on overall earnings.

As a result, we expect to continue to see decreased volumes through fiscal 2021 in our Chicken and Prepared Foods segments.

These current trends will likely continue through fiscal 2021, while the long-term 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, and effectively distribute and administer vaccinations, 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 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 employees, we have encouraged employees 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 employees who support the Company’s operations during the COVID-19 pandemic.

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

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

To protect our team members, we 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.

We have also hired a chief medical officer, added 200 nursing staff and developed an “always-on ” testing strategy rooted in contact tracing.

• 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 operating 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 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.

1 unchanged sentence

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 third quarter 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 third quarter 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, President Trump 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 Coronavirus Aid, Relief and Economic Security 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.

In the third quarter of fiscal 2020, we began implementing the deferral of the employer portion of social security payments and intend to continue that for the remainder of the year, which will have a favorable impact on liquidity.

We currently estimate that the fiscal 2020 deferral amount will exceed $160 million.

In the third quarter of fiscal 2020, we recognized a benefit of approximately $20 million related to the refundable payroll tax credit provision.

Liquidity – We generated $ 2,708 million of operating cash flows during the nine months ended June 27, 2020 .

At June 27, 2020 , we had approximately $3,117 million of liquidity, which included availability under our revolving credit facility and $1,365 million of cash and cash equivalents.

• Liquidity – We generated $1,385 million of operating cash flows during the three months ended January 2, 2021.

At January 2, 2021, we had approximately $4,156 million of liquidity, which included availability under our revolving credit facility and $2,406 million of cash and cash equivalents.

We have $566 million of current debt.

5 unchanged sentences

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.

We 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 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.

Sales declined 8% in the third quarter of fiscal 2020 but grew 1% in the first nine months of fiscal 2020 compared to the third quarter and first nine months of fiscal 2019 , respectively, as the impact of acquisitions and increased average sales prices in the first nine months of fiscal 2020 was offset primarily by lower production throughput associated with the impact of COVID-19 in the third quarter of fiscal 2020.

Our operating income of $2,102 million was down slightly for the first nine months of fiscal 2020 , and operating income of $ 775 million was down for the third quarter of fiscal 2020, as strong Beef and Pork results were offset by a decline in Prepared Foods and Chicken results.

In the nine months ended June 27, 2020 , our results were impacted by $54 million of restructuring and related charges.

In the nine months ended June 29, 2019 , our results were impacted by $37 million of acquisition related costs associated with the Keystone Foods acquisition and $31 million of restructuring and related charges.

During the third quarter of fiscal 2020, we incurred direct incremental expenses related to COVID-19 totaling approximately $340 million, of which approximately $315 million and $25 million were recorded in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed 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 employees, which was partially offset by the CARES Act credits.

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

Revision of Previously Issued Financial Statements

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the revision of our previously reported consolidated condensed financial statements for the three months ended December 28, 2019.

For additional information and a detailed discussion of the revision, refer to Part I, Item 1, Notes to the Consolidated Condensed Financial Statements, Note 1:

Accounting Policies.

Sales declined 3% in the first quarter of fiscal 2021 primarily due to reduced sales volumes across each of our segments, other than the Pork segment, as well as a $320 million legal contingency accrual recognized as a reduction to Sales.

Our operating income of $705 million was down slightly for the first quarter of fiscal 2021, as strong Beef and Prepared results were offset by a decline in Pork and Chicken results.

In the three months ended December 28, 2019, our results were impacted by $52 million of restructuring and related charges and $16 million of costs, net of insurance proceeds, associated with a fire at one of our beef production facilities.

During the first quarter of fiscal 2021, we incurred direct incremental expenses related to COVID-19 totaling approximately $120 million, which was recorded in Cost of Sales in our Consolidated Condensed Statements of Income.

These COVID-19 direct incremental expenses primarily included team member costs associated with worker health and availability, including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades, rendered product and certain professional fees, 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 and the degree of production and worker availability disruptions they have experienced, and thus, our Beef segment 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, livestock lower-of-cost-or-net-realizable-value (“LCNRV ” ) adjustments and other market driven impacts to margin and demand.

1 unchanged sentence

Market Environment

According to the United States Department of Agriculture (USDA), domestic protein production (beef, pork, chicken and turkey) decreased approximately 5% in the third quarter of fiscal 2020 compared to the same period in fiscal 2019 .

According to the United States Department of Agriculture (“USDA ” ), domestic protein production (beef, pork, chicken and turkey) was relatively flat in the first quarter of fiscal 2021 compared to the same period in fiscal 2020.

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

All segments experienced increased operating costs in the nine months ended June 27, 2020 .

All segments experienced inflation in operating costs, especially in labor, freight and certain materials, in the three months ended January 2, 2021, and we expect this trend to continue throughout fiscal 2021.

We pursue recovery of these increased costs through pricing.

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

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

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

Margins – Our total operating margin was 7.7% in the third quarter of fiscal 2020 .

Operating margins by segment were as follows:

Chicken – (3.9)%

Prepared Foods – 7.1%

The Beef segment experienced strong demand and ample supply of market-ready cattle.

The Pork segment experienced strong demand but had lower production throughput associated with the impacts of COVID-19.

The Chicken segment experienced increased costs, volatile market conditions and lower production throughput, which included impacts associated with COVID-19.

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

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

3 unchanged sentences

and sustain our company and our world for future generations.

On November 30, 2018, we acquired Keystone Foods, and its results from operations are included in the Chicken segment and International/Other.

On June 3, 2019, we acquired Thai and European operations, and the results from operations of these businesses since their acquisition date are included in International/Other for segment presentation.

For further description of these transactions, refer to Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 2:

Acquisitions.

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.

As a result of this restructuring program, we expect savings of approximately $55 million and $65 million in fiscal 2020 and fiscal 2021, respectively.

This restructuring program resulted in $39 million of pretax charges consisting of severance and employee related costs in the first nine months of fiscal 2020.

As part of this program, we estimate the elimination of approximately 500 positions across several areas and job levels with most of the eliminated positions originating from the corporate offices in Springdale, Arkansas and Chicago, Illinois.

We do not anticipate future costs of this restructuring program to be significant.

In the fourth quarter of fiscal 2017, our Board of Directors approved a multi-year restructuring program (the "2017 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.

Refer to Part I, Item 1, Notes to the Consolidated Condensed Financial Statements, Note 6:

Restructuring and Related Charges.

in millions, except per share data

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Margins – Our total operating margin was 6.7% in the first quarter of fiscal 2021.

Operating margins by segment were as follows:

• Beef – 13.2%

• Pork – 8.1%

• Chicken – (7.6)%

• Prepared Foods – 12.6%

in millions, except per share data Three Months Ended

January 2, 2021 December 28, 2019

Net income attributable to Tyson $ 467 $ 505

Net income attributable to Tyson – per diluted share 1.28 1.38

Third quarter – Fiscal 2020 – Net income attributable to Tyson included the following items:

$6 million pretax, or $0.01 per diluted share, due to gain from pension plan termination.

First quarter – Fiscal 2021 – Net income attributable to Tyson included the following items:

• $320 million pretax, or ($0.67) per diluted share, related to the recognition of a legal contingency accrual.

• $6 million pretax, or $0.01 per diluted share, of Beef production facility fire insurance proceeds, net of costs incurred.

Nine months – Fiscal 2020 – Net income attributable to Tyson included the following items:

$52 million pretax, or ($0.11) per diluted share, of restructuring and related charges.

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

Third quarter – Fiscal 2019 – Net income attributable to Tyson included the following items:

$15 million pretax, or ($0.03) per diluted share, of restructuring and related charges.

$55 million pretax, or $0.11 per diluted share, from gain on sale of an investment.

$105 million post tax, or $0.29 per diluted share, from recognition of previously unrecognized tax benefit.

Nine months – Fiscal 2019 – Net income attributable to Tyson 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.

First quarter – Fiscal 2020 – Net income attributable to Tyson included the following items:

• $52 million pretax, or ($0.11) per diluted share, of restructuring and related charges.

$55 million pretax, or $0.11 per diluted share, from gain on sale of an investment.

$105 million post tax, or $0.29 per diluted share, from recognition of previously unrecognized tax benefit.

• $16 million pretax, or ($0.03) per diluted share, of Beef production facility fire costs, net of insurance proceeds.

Summary of Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Sales $ 10,460 $ 10,815

Change in sales volume (4.4) %

Change in average sales price 4.2 %

Third quarter – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $1,146 million, primarily driven by decreased volumes in each of our segments primarily due to lower production throughput associated with the impact of COVID-19, partially offset by incremental volumes from a business acquisition in International/Other.

Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $283 million.

The increase in average sales price was primarily attributable to favorable product mix related to strong demand in the consumer products channel across all of our segments, partially offset by approximately $10 million of incremental discounted sales in the Prepared Foods segment.

Nine months – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $356 million, primarily driven by decreased volumes in each of our segments due to lower production throughput associated with the impact of COVID-19 during the third quarter of fiscal 2020 and decreased sales volume in the first quarter of fiscal 2020 in our Beef segment due to a reduction in live cattle processing capacity from the temporary closure of a production facility as a result of a fire, partially offset by incremental volumes from business acquisitions in our Chicken segment and International/Other.

Sales growth (3.3) %

First quarter – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $480 million, driven by decreased volumes in our Pork, Chicken and Prepared Foods segments primarily due to lower production throughput associated with the impact of COVID-19, partially offset by increased volumes in our Beef segment due to a reduction in production 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.

• Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $445 million.

The increase in average sales price was primarily attributable to strong demand in product mix related to strong demand in the consumer products channel across all of our segments and the pass through of higher raw material costs in the Prepared Foods segments, partially offset by approximately $45 million of incremental discounted sales in the Prepared Foods segment.

The increase in average sales price was primarily attributable to favorable product mix related to strong demand in the retail channel across all of our segments.

• The above change in average sales price for the three months ended January 2, 2021 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual.

Cost of Sales

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Cost of sales $ 9,283 $ 9,375

Gross profit $ 1,177 $ 1,440

Cost of sales as a percentage of sales 88.7 % 86.7 %

Third quarter – Fiscal 2020 vs Fiscal 2019

Cost of sales decreased $840 million, which included a net increase of $66 million related to the impact of results from acquisitions.

For the remaining decrease, lower sales volume decreased cost of sales $1,103 million while higher input cost per pound increased cost of sales $197 million .

The $197 million impact of higher input cost per pound was impacted by:

Increase of $315 million of direct incremental expenses related to COVID-19.

Increase due to net derivative losses of approximately $12 million in the third quarter of fiscal 2020, compared to net derivative gains of approximately $102 million in the third quarter of fiscal 2019 due to our risk management activities.

These amounts exclude offsetting impacts from related physical purchase transactions, which are included in the change in live cattle and hog costs and raw material and feed ingredient costs described herein.

Decrease of approximately $30 million in our Chicken segment related to net decreases in feed ingredient costs, growout expenses and outside meat purchases.

Decrease in live hog costs of approximately $160 million in our Pork segment.

Decrease in live cattle costs of approximately $205 million in our Beef segment.

Decrease of approximately $15 million in our Beef segment related to insurance proceeds net of costs related to the fire at our production facility.

Remaining 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.

The $1,103 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.

Nine months – Fiscal 2020 vs Fiscal 2019

Cost of sales increased $313 million, which included a net increase of $703 million related to the impact of results from acquisitions.

For the remaining decrease, lower sales volume decreased cost of sales $1,198 million while higher input cost per pound increased cost of sales $808 million .

First quarter – Fiscal 2021 vs Fiscal 2020

• Cost of sales decreased $92 million.

Lower sales volume decreased cost of sales $415 million while higher input cost per pound increased cost of sales $323 million.

• The $323 million impact of higher input cost per pound was impacted by:

• Increase of $120 million of direct incremental expenses related to COVID-19.

• Increase in live hog costs of approximately $50 million in our Pork segment.

• Increase of approximately $45 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.

Increase due to net derivative losses of approximately $69 million for the first nine months of fiscal 2020, compared to net derivative gains of approximately $69 million for the first nine months of fiscal 2019 due to our risk management activities.

Increase in raw material and other input costs of approximately $100 million as well as an increase in inventory write downs of approximately $35 million in our Prepared Foods segment.

• Increase in raw material and other input costs of approximately $35 million in our Prepared Foods segment.

• Decrease in live cattle costs of approximately $150 million in our Beef segment.

Decrease in live hog costs of approximately $65 million in our Pork segment.

Remaining 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.

The $1,198 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 third quarter 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.

• Decrease due to net derivative gains of $95 million in the first quarter of fiscal 2021, compared to net derivative gains of $43 million in the first quarter of fiscal 2020 due to our risk management activities.

• Decrease of approximately $16 million in our Beef segment of costs, net of insurance proceeds, related to a fire at a production facility during the first quarter of fiscal 2020.

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

• The $415 million impact of lower sales volume, was primarily driven by decreased sales volume in our Pork, Chicken and Prepared Foods segments due to lower production throughput associated with the impact of COVID-19, partially offset by increased volumes in our Beef segment due to a the prior year impact of a fire which caused the temporary closure of a production facility for the majority of the first quarter of fiscal 2020.

Selling, General and Administrative

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Selling, general and administrative expense $ 472 $ 682

As a percentage of sales 4.5 % 6.3 %

Third quarter – Fiscal 2020 vs Fiscal 2019

First quarter – Fiscal 2021 vs Fiscal 2020

• Decrease of $210 million in selling, general and administrative was primarily driven by:

• Decrease of $123 million from the change in the impact of a cattle supplier’s misappropriation of Company funds, resulting from a $55 million gain related to the recovery of cattle inventory in the three months ended January 2, 2021 as compared to a $68 million loss recognized in the three months ended December 28, 2019.

• Decrease of $48 million in marketing, advertising and promotion expenses.

Decrease of $12 million due to restructuring and related charges.

Decrease of $7 million in professional fees and merger and integration costs.

• Decrease of $43 million from restructuring and related charges.

• Decrease of $10 million in travel and entertainment expenses.

Decrease of $8 million in commissions and other selling costs.

Increase of $25 million in employee costs primarily from incentive-based compensation.

Increase of $25 million from direct incremental expenses related to COVID-19.

Increase of $11 million from fiscal 2019 acquisitions not owned by us for all of the third quarter of fiscal 2019.

Nine months – Fiscal 2020 vs Fiscal 2019

Increase of $12 million in selling, general and administrative was primarily driven by:

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

Increase of $25 million from direct incremental expenses related to COVID-19.

Increase of $14 million from donations.

• Decrease of $10 million in brokerage and commissions costs.

• Increase of $14 million in employee costs primarily from incentive-based compensation.

Decrease of $47 million in professional fees and merger and integration costs.

Decrease of $36 million in marketing, advertising and promotion expenses.

Decrease of $17 million in travel and entertainment expenses.

• Increase of $12 million in professional fees.

Interest Expense

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Cash interest expense $ 114 $ 123

1 unchanged sentence

Total interest expense $ 110 $ 120

Third quarter and nine months– Fiscal 2020 vs Fiscal 2019

Cash interest expense primarily included interest expense related to our senior notes, term loan 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 connection with business acquisitions and higher interest rates.

Other (Income) Expense, net

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Total other (income) expense, net

Nine months – Fiscal 2020

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

Nine months – Fiscal 2019

Included $55 million of pretax gain on the sale of an investment in the three months ended June 29, 2019, as well as $22 million of insurance proceeds and other income and $17 million of equity earnings in joint ventures, partially offset by $26 million of net periodic pension and postretirement benefit cost primarily related to a pension plan settlement in the nine months ended June 29, 2019.

First quarter – Fiscal 2021 vs Fiscal 2020

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

The decrease in cash interest expense in fiscal 2021 was primarily due to the change in outstanding commercial paper as well as the settlement of the 2020 notes during fiscal 2020, partially offset by interest expense related to the term loan facility.

Effective Tax Rate

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Third quarter and nine months– Fiscal 2020 vs Fiscal 2019

The third quarter and first nine months of fiscal 2019 effective tax rate included a 17.3% and 6.4% reduction, respectively, due to a change in tax reserves which did not recur in fiscal 2020.

January 2, 2021 December 28, 2019

23.4 % 22.5 %

First quarter – Fiscal 2021 vs Fiscal 2020

• Our effective income tax rate was 23.4% for the first quarter of fiscal 2021 compared to 22.5% for the same period of fiscal 2020.

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.

Segment Results

2 unchanged sentences

The following table is a summary of sales and operating income (loss), which is how we measure segment profit.

in millions Sales

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2, 2021 December 28, 2019

Beef $ 3,987 $ 3,838

Pork 1,439 1,379

Chicken 2,831 3,292

Prepared Foods 2,113 2,140

1 unchanged sentence

Intersegment sales (379) (332)

Operating Income (Loss)

Total $ 10,460 $ 10,815

in millions Operating Income (Loss)

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2, 2021 December 28, 2019

Beef $ 528 $ 342

Chicken (216) 57

Prepared Foods 266 158

International/Other 11 10

Total $ 705 $ 758

Beef Segment Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

Sales $ 3,987 $ 3,838 $ 149

Sales volume change 5.6 %

2 unchanged sentences

Operating margin 13.2 % 8.9 %

Third quarter and nine months – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales volume decreased in the third quarter and the first nine months of fiscal 2020 primarily due to lower production throughput associated with the impact of COVID-19 in the third quarter 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.

Average Sales Price – Average sales price increased in the third quarter and first nine months of fiscal 2020 as beef demand remained strong amid supply disruptions related to the impact of COVID-19.

Operating Income – Operating income increased in the third quarter and first nine months of fiscal 2020 primarily due to 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.

Additionally, operating income in the third quarter of fiscal 2020 was impacted by approximately $45 million of net derivative gains and $15 million of net insurance proceeds from a production facility fire.

First quarter – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume increased primarily due to strong domestic and export demand as well as the prior year impact of a fire which caused the temporary closure of a production facility for the majority of the first quarter of fiscal 2020.

• Average Sales Price – Average sales price decreased primarily due to increased availability of market-ready live cattle.

• Operating Income – Operating income increased due to strong demand as we continued to optimize revenues relative to live cattle supply, partially offset by production inefficiencies and direct incremental expenses related to COVID-19.

Additionally, operating income in the first quarter of fiscal 2021 was impacted by a cattle supplier's misappropriation of Company funds, which resulted in a $55 million gain related to the recovery of cattle inventory as compared to a $68 million loss recognized in the first quarter of fiscal 2020.

Pork Segment Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

Sales $ 1,439 $ 1,379 $ 60

Sales volume change (3.0) %

2 unchanged sentences

Operating margin 8.1 % 13.9 %

Third quarter and nine months – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales volume decreased in the third quarter and first nine months of fiscal 2020 primarily due to lower production throughput associated with COVID-19 despite strong demand for our pork products and increased domestic availability of live hogs.

Average Sales Price – Average sales price increased in the third quarter and first nine months of fiscal 2020 as pork demand remained strong amid supply disruptions related to the impact of COVID-19.

Operating Income – Operating income increased in the third quarter and first nine months of fiscal 2020 primarily due to 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.

First quarter – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased due to the temporary idling of a production facility for a portion of the quarter related to a mechanical malfunction, partially offset by strong demand.

• Average Sales Price – Average sales price increased due to strong demand.

• Operating Income – Operating income decreased primarily due to production inefficiencies and direct incremental expenses related to COVID-19 as well as periods of compressed pork margins as livestock costs increased faster than sales prices.

Chicken Segment Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

Sales $ 2,831 $ 3,292 $ (461)

Sales volume change (7.0) %

2 unchanged sentences

Operating margin (7.6) % 1.7 %

Third quarter and nine months – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales volume decreased in the third quarter and first nine months of fiscal 2020 primarily due to lower production throughput associated with the impact of COVID-19 in the third quarter of fiscal 2020 and lower foodservice demand, partially offset by increased volumes in consumer products.

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

Average sales price was relatively flat in the first nine months of fiscal 2020 as reduced sales volumes of lower priced rendering and blending products had the effect of increasing average sales price, which was largely offset by weaker chicken pricing as a result of market conditions.

Operating Income (Loss) – Operating income decreased in the third quarter and first nine months of 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 further impacted by $110 million of net derivatives losses in each of the third quarter and first nine months of fiscal 2020, and by approximately $50 million in increased feed ingredient costs in first nine months of fiscal 2020, as compared to the same periods in fiscal 2019.

Additionally, operating income was impacted by $21 million in restructuring costs incurred in the first nine months of fiscal 2020.

First quarter – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased due to lower production throughput including impacts associated with COVID-19.

• Average Sales Price – Average sales price increased due to favorable sales mix and overall retail market conditions.

The change in average sales price for the three months ended January 2, 2021 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual.

• Operating Income (Loss) – Operating income decreased primarily due to a $320 million loss from the recognition of a legal contingency accrual as well as production inefficiencies and direct incremental expenses related to COVID-19.

Additionally, operating income in the first quarter of fiscal 2021 was impacted by $70 million of incremental net derivative gains as compared to the first quarter of fiscal 2020.

Prepared Foods Segment Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

Sales $ 2,113 $ 2,140 $ (27)

Sales volume change (8.8) %

2 unchanged sentences

Operating margin 12.6 % 7.4 %

Third quarter and nine months – Fiscal 2020 vs Fiscal 2019

Sales Volume – Sales volume decreased in the third quarter and first nine months of fiscal 2020 as growth in volume across the consumer products 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 in the third quarter of fiscal 2020.

Average Sales Price – Average sales price increased in the third quarter and first nine months of fiscal 2020 due to favorable product mix associated with the surge in consumer product demand, as well as the pass through of increased raw material costs.

Operating Income – Operating income decreased in the third quarter and first nine months of fiscal 2020 primarily due to increased operating costs, including a $135 million increase in net raw material costs and derivative losses in the first nine months of fiscal 2020, as well as production inefficiencies and direct incremental expenses related to COVID-19 in the third quarter of fiscal 2020.

Additionally, operating income was impacted by $22 million restructuring costs incurred in the first nine months of fiscal 2020.

First quarter – Fiscal 2021 vs Fiscal 2020

• 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 as well as lower production throughput due to the impact of COVID-19.

• Average Sales Price – Average sales price increased in the first quarter due to favorable product mix and the pass through of increased raw material costs.

• Operating Income – Operating income increased due to lower commercial spend and favorable product mix partially offset by increased operating costs, including a $35 million increase in raw material costs, as well as production inefficiencies related to COVID-19.

International/Other Results

Three Months Ended

Nine Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Operating income/(loss)

Third quarter and nine months – Fiscal 2020 vs Fiscal 2019

Sales – Sales increased in the third quarter and first nine months of fiscal 2020 primarily from the incremental sales from the acquisition of our Thai and European operations as well as strong demand in our China operations.

Sales also increased in the first nine months of fiscal 2020 from the incremental sales from the acquisition of Keystone Foods.

Operating Income/(Loss) – Operating income increased in the first nine months of fiscal 2020 primarily from better performance in our China operations and inclusion of results from the Keystone Foods and Thai and European operations acquisitions, but decreased in the third quarter of fiscal 2020 primarily due to demand volatility associated with the impact of COVID-19.

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

Sales $ 469 $ 498 $ (29)

Operating income 11 10 1

First quarter – Fiscal 2021 vs Fiscal 2020

• Sales – Sales decreased primarily due to lower production throughput associated with the impact of COVID-19.

• Operating Income – Operating income was relatively flat due to demand volatility associated with the impact of COVID-19 offset by reduced raw material costs.

LIQUIDITY AND CAPITAL RESOURCES

10 unchanged sentences

Cash Flows from Operating Activities

Nine Months Ended

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Net income $ 472 $ 509

Non-cash items in net income:

1 unchanged sentence

Deferred income taxes 17 (13)

Other, net 18 27

Net changes in operating assets and liabilities 580 83

Net cash provided by operating activities $ 1,385 $ 894

Cash flows associated with net changes in operating assets and liabilities for the nine months ended:

June 27, 2020 – Increased primarily from decreased inventory and accounts receivable and increased taxes payable, partially offset by decreased accounts payable .

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

The increase in taxes payable is primarily due to timing of payments, in large part as a result of the extension of tax payment due dates in response to COVID-19.

June 29, 2019 – Decreased primarily due to increased inventory and accounts receivable and decreased income taxes payable.

The increases in inventory and accounts receivable are primarily due to timing of sales and payments.

The decrease in income taxes payable is primarily due to timing of payments related to the sale of non-protein businesses in fiscal 2018 and timing of other tax payments.

• Cash flows associated with net changes in operating assets and liabilities for the three months ended:

• January 2, 2021 – Increased primarily from increased taxes payable, accounts payable and legal accrual, partially offset by decreased accrued salaries, wages and benefits .

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

The increase in accounts payable is largely due to timing of payments.

The decrease in accrued salaries, wages and benefits is primarily due to the payment of the annual incentive plan.

• December 28, 2019 – Increased primarily from decreased accounts receivable and increased income taxes payable, partially offset by increased inventories.

The decrease in accounts receivable is primarily due to timing of sales and receipts.

The increase in income taxes payable is primarily due to timing of tax payments.

The increase in inventory is primarily due to increased volumes and costs in the Beef segment.

Cash Flows from Investing Activities

Nine Months Ended

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Additions to property, plant and equipment $ (289) $ (312)

Purchases of marketable securities, net

Acquisitions, net of cash acquired

Proceeds from sale of (purchases of) marketable securities, net 1 (16)

Proceeds from sale of business — 29

Acquisition of equity investments

Other, net 29 (82)

Net cash used for investing activities $ (259) $ (381)

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

We expect capital spending for fiscal 2020 to approximate $1.2 billion.

Acquisitions, net of cash acquired, related to the acquisition of Keystone Foods in the first quarter of fiscal 2019 and the Thai and European operations in the third quarter of fiscal 2019.

For further description refer to Part I, Item I, Notes to the Consolidated Condensed Financial Statements, Note 2:

Acquisitions.

Acquisition of equity investments relates to the purchase 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.

Other, net for the first nine months of fiscal 2020 primarily included deposits for capital expenditures and for the first nine months of fiscal 2019 primarily included proceeds from the sale of an investment.

We expect capital spending for fiscal 2021 to approximate $1.3 billion to $1.5 billion.

• Other, net for the first three months of fiscal 2021 and the first three months of fiscal 2020 primarily included changes in deposits for capital expenditures.

Cash Flows from Financing Activities

Nine Months Ended

June 27, 2020

June 29, 2019

in millions Three Months Ended

January 2, 2021 December 28, 2019

Proceeds from issuance of debt $ 29 $ 38

5 unchanged sentences

Purchases of Tyson Class A common stock (17) (132)

Dividends (159) (150)

Stock options exercised 4 20

Net cash provided by (used for) financing activities

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.

On April 1, 2020, we borrowed the full $1.5 billion available under the term loan facility and used it to repay the $1.0 billion of outstanding commercial paper obligations and to repay the $200 million outstanding balance under the revolving credit facility.

During the first nine months of fiscal 2020 , we extinguished the $350 million outstanding balance of our senior notes due June 2020 using cash on hand.

During the first nine months of fiscal 2019, proceeds of $4,619 million 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 pending acquisition of the Thai and European operations.

During the first nine months of fiscal 2019, we extinguished the $1,800 million outstanding balance of our 364-day term loan and the $300 million outstanding balance of our May 2019 Notes using proceeds received from the issuance of debt and cash on hand.

Pursuant to our commercial paper program, we had net repayments of $999 million during the first nine months of fiscal 2020 and net issuances of $90 million during the first nine months of fiscal 2019 .

Other, net (1) (2)

Net cash used for financing activities $ (173) $ (507)

• During the first three months of fiscal 2020, we had net repayments of $180 million in unsecured short-term promissory notes (commercial paper) pursuant to our commercial paper program.

• Purchases of Tyson Class A stock included:

$150 million of shares repurchased pursuant to our share repurchase program during each of the nine months ended June 27, 2020 , and June 29, 2019 .

$50 million and $75 million of shares repurchased to fund certain obligations under our equity compensation programs during the nine months ended June 27, 2020 , and June 29, 2019 , respectively.

Dividends paid during the nine months ended June 27, 2020 reflected a 12% increase to our fiscal 2019 quarterly dividend rate.

Expiration Date

• $100 million of shares repurchased pursuant to our share repurchase program during the three months ended December 28, 2019.

• $17 million and $32 million of shares repurchased to fund certain obligations under our equity compensation programs during the three months ended January 2, 2021, and December 28, 2019, respectively.

• Dividends paid during the three months ended January 2, 2021 reflected a 6% increase to our fiscal 2020 quarterly dividend rate.

• In February 2021, subsequent to the end of the first quarter of fiscal 2021, we repaid $750 million of the $1.5 billion outstanding term loan facility.

Expiration Date Facility

Amount Outstanding

Letters of Credit

(no draw downs)

June 27, 2020

(no draw downs) Amount

Borrowed Amount

January 2, 2021

Cash and cash equivalents $ 2,406

Short-term investments —

Term loan facility

Revolving credit facility

Term loan facility March 2022 $ 1,500 $ — $ 1,500 —

Revolving credit facility March 2023 $ 1,750 $ — $ — 1,750

Commercial paper —

1 unchanged sentence

• 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 June 27, 2020 , we had current debt of $750 million , which we intend to refinance or repay with cash generated from our operating activities and other existing or new liquidity sources.

• At January 2, 2021, we had current debt of $566 million, which we intend to refinance or 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.

Our maximum borrowing under the revolving credit facility during the three months ended June 27, 2020 , was $200 million.

We had no borrowings under the revolving credit facility during the three months ended January 2, 2021.

• We expect net interest expense to approximate $430 million for fiscal 2021.

Our current ratio was 1.80 to 1 and 1.30 to 1 at June 27, 2020 and September 28, 2019 , respectively.

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

At June 27, 2020 , approximately $350 million of our cash was held in the accounts of our foreign subsidiaries.

• Our current ratio was 1.8 to 1 at January 2, 2021 and October 3, 2020.

• At January 2, 2021, approximately $447 million of our cash was held in the accounts of our foreign subsidiaries.

Generally, we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs.

6 unchanged sentences

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.

Additionally, we have a $1.5 billion committed term loan facility which was fully drawn as of June 27, 2020.

At June 27, 2020 , amounts available for borrowing under our revolving credit and term loan facilities totaled $1.75 billion.

Additionally, we have a $1.5 billion committed term loan facility which was fully drawn as of January 2, 2021.

In February 2021, subsequent to our first quarter of fiscal 2021, we repaid $750 million of the $1.5 billion outstanding on this facility.

At January 2, 2021, 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 20 banks, with commitments ranging from $30 million to $204 million per bank.

5 unchanged sentences

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

As of June 27, 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.

As of January 2, 2021, 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 by COVID-19.

Capitalization

1 unchanged sentence

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

At June 27, 2020 , and September 28, 2019 , the ratio of our net debt to EBITDA was 2.7x and 2.9x , respectively.

Refer to Part I, Item 3, EBITDA Reconciliations, for an explanation and reconciliation to comparable GAAP measures.

At January 2, 2021, and October 3, 2020, the ratio of our net debt to EBITDA was 2.1x and 2.3x, respectively.

Refer to Part I, Item 3, EBITDA Reconciliations, for an explanation and reconciliation to comparable Generally Accepted Accounting Principles (“GAAP ” ) measures.

Credit Ratings

1 unchanged sentence

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

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 25, 2021 Borrowing Spread

March 26, 2021 through March 27, 2022

6 unchanged sentences

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 ("Undrawn Letter of Credit Fee and Borrowing Spread") that corresponds to the applicable ratings levels from S&P, Moody's and Fitch.

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

Facility Fee Rate

All-in Borrowing Spread

The below table outlines the fees paid on the unused portion of the facility (“Facility Fee Rat ” ) 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.

Ratings Level (S&P/Moody's/Fitch) Facility Fee Rate All-in Borrowing Spread

A-/A3/A- or above 0.090 % 1.000 %

18 unchanged sentences

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

We were in compliance with all debt covenants at June 27, 2020 and we expect that we will maintain compliance for the foreseeable future.

We were in compliance with all debt covenants at January 2, 2021 and we expect that we will maintain compliance for the foreseeable future.

RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS

11 unchanged sentences

and income taxes to be critical accounting estimates.

These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 28, 2019 .

These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 3, 2020, as amended.

Refer to Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1:

Accounting Policies, for updates to our significant accounting policies during the nine months ended June 27, 2020 .

These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

Accounting Policies, for updates to our significant accounting policies during the three months ended January 2, 2021.

These critical accounting policies require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes.

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

4 unchanged sentences

Certain information in this report constitutes forward-looking statements.

Such forward-looking statements include, but are not limited to, current views and estimates of our outlook for the remainder of fiscal 2020 and fiscal 2021, other future economic circumstances, industry conditions in domestic and international markets, our performance and financial results (e.g., debt levels, return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy).

Such forward-looking statements include, but are not limited to, current views and estimates of our outlook for fiscal 2021, other future economic circumstances, industry conditions in domestic and international markets, our performance and financial results (e.g., debt levels, return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy).

These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results and experiences to differ materially from anticipated results and expectations expressed in such forward-looking statements.

2 unchanged sentences

Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following:

(i) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy;

(ii) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins;

(iii) outbreak of a livestock disease (such as African swine fever (ASF), avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an adverse effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets;

(iv) the effectiveness of our financial fitness program;

(v) the implementation of an enterprise resource planning system;

(vi) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics;

(vii) changes in availability and relative costs of labor and contract farmers and our ability to maintain good relationships with employees, labor unions, contract farmers and independent producers providing us livestock;

(viii) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation;

(ix) changes in consumer preference and diets and our ability to identify and react to consumer trends;

(x) effectiveness of advertising and marketing programs;

(xi) our ability to leverage brand value propositions;

(xii) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook;

(xiii) impairment in the carrying value of our goodwill or indefinite life intangible assets;

(xiv) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws;

(xv) adverse results from litigation;

(xvi) cyber incidents, security breaches or other disruptions of our information technology systems;

(xvii) our ability to make effective acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations;

(xviii) risks associated with our commodity purchasing activities;

(xix) the effect of, or changes in, general economic conditions;

(xx) significant marketing plan changes by large customers or loss of one or more large customers;

(xxi) impacts on our operations caused by factors and forces beyond our control, such as natural disasters, fire, bioterrorism, pandemics or extreme weather;

(xxii) failure to maximize or assert our intellectual property rights;

(xxiii) our participation in multiemployer pension plans;

(xxiv) the Tyson Limited Partnership’s ability to exercise significant control over the Company;

(xxv) effects related to changes in tax rates, valuation of deferred tax assets and liabilities, or tax laws and their interpretation;

(xxvi) volatility in capital markets or interest rates;

(xxvii) risks associated with our failure to integrate Keystone Foods’ operations or to realize the targeted cost savings, revenues and other benefits of the acquisition;

(xxviii) pandemics or disease outbreaks, such as the global novel coronavirus (COVID-19), may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect our operations and results of operations;

(xxix) the outbreak of the COVID-19 global pandemic and associated responses has had, and is expected to continue to have, an adverse impact on our business and operations;

and (xxx) those factors listed under Item 1A.

“Risk Factors” in this report and Part I, Item 1A.

“Risk Factors” included in our Annual Report filed on Form 10-K for the year ended September 28, 2019 , our Current Report on Form 8-K filed March 13, 2020 and our Quarterly Report filed on Form 10-Q for the period ended March 28, 2020.

(i) the outbreak of the COVID-19 global pandemic and associated responses has had, and is expected to continue to have, an adverse impact on our business and operations;

(ii) our ability to make effective acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations;

(iii) the effectiveness of our financial fitness program;

(iv) the implementation of an enterprise resource planning system;

(v) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics;

(vi) cyber incidents, security breaches or other disruptions of our information technology systems;

(vii) risks associated with our failure to consummate favorable acquisition transactions or integrate certain acquisitions' operations;

(viii) the Tyson Limited Partnership’s ability to exercise significant control over the Company;

(ix) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy;

(x) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins;

(xi) outbreak of a livestock disease (such as African swine fever (ASF), avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an adverse effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets;

(xii) changes in consumer preference and diets and our ability to identify and react to consumer trends;

(xiii) effectiveness of advertising and marketing programs;

(xiv) significant marketing plan changes by large customers or loss of one or more large customers;

(xv) our ability to leverage brand value propositions;

(xvi) changes in availability and relative costs of labor and contract farmers and our ability to maintain good relationships with team members, labor unions, contract farmers and independent producers providing us livestock;

(xvii) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation;

(xviii) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws;

(xix) adverse results from litigation;

(xx) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook;

(xxi) impairment in the carrying value of our goodwill or indefinite life intangible assets;

(xxii) our participation in multiemployer pension plans;

(xxiii) volatility in capital markets or interest rates;

(xxiv) risks associated with our commodity purchasing activities;

(xxv) the effect of, or changes in, general economic conditions;

(xxvi) impacts on our operations caused by factors and forces beyond our control, such as natural disasters, fire, bioterrorism, pandemics or extreme weather;

(xxvii) failure to maximize or assert our intellectual property rights;

(xxviii) effects related to changes in tax rates, valuation of deferred tax assets and liabilities, or tax laws and their interpretation;

(xxix) the effectiveness of our internal control over financial reporting, including identification of additional material weaknesses;

and (xxx) those factors discussed within Item 1, Item 1A and Item 7 of our Annual Report on Form 10-K for the year ended October 3, 2020, as amended, and our other periodic filings with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis