TYSON FOODS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations OBJECTIVE The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and within the Company’s Annual Report on Form 10-K filed for the fiscal year ended October 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 Description of the Company We are one of the world’s largest food companies and a recognized leader in protein. Founded in 1935 by John W. Tyson and grown under three generations of family leadership, the Company has a broad portfolio of products and brands like Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost and availability of live cattle and hogs, raw materials and feed ingredients; and operating efficiencies of our facilities. We operate in four reportable segments: Beef, Pork, Chicken, and Prepared Foods. We measure segment profit as operating income (loss). International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC. 24 Overview COVID-19 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. 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 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 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. 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. 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 and worker absenteeism. • 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. 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. 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. • 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. 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. 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. 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. 25 General 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. 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 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 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 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. Strategy Our strategy is to sustainably feed the world with the fastest growing protein brands. We intend to achieve our strategy as we: grow our business by delivering superior value to consumers and customers; deliver fuel for growth and returns through commercial, operational and financial excellence; and sustain our company and our world for future generations. 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 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. 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. • $16 million pretax, or ($0.03) per diluted share, of Beef production facility fire costs, net of insurance proceeds. 26 Summary of Results Sales 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 % 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 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 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 % 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 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 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. 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 $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. 27 Selling, General and Administrative 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 % 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 $43 million from restructuring and related charges. • Decrease of $10 million in travel and entertainment expenses. • Decrease of $10 million in brokerage and commissions costs. • Increase of $14 million in employee costs primarily from incentive-based compensation. • Increase of $12 million in professional fees. Interest Expense in millions Three Months Ended January 2, 2021 December 28, 2019 Cash interest expense $ 114 $ 123 Non-cash interest expense (4) (3) Total interest expense $ 110 $ 120 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 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. 28 Segment Results We operate in four segments: Beef, Pork, Chicken, and Prepared Foods. The following table is a summary of sales and operating income (loss), which is how we measure segment profit. in millions Sales Three Months Ended 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 International/Other 469 498 Intersegment sales (379) (332) Total $ 10,460 $ 10,815 in millions Operating Income (Loss) Three Months Ended January 2, 2021 December 28, 2019 Beef $ 528 $ 342 Pork 116 191 Chicken (216) 57 Prepared Foods 266 158 International/Other 11 10 Total $ 705 $ 758 Beef Segment Results in millions Three Months Ended January 2, 2021 December 28, 2019 Change Sales $ 3,987 $ 3,838 $ 149 Sales volume change 5.6 % Average sales price change (1.7) % Operating income $ 528 $ 342 $ 186 Operating margin 13.2 % 8.9 % 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. 29 Pork Segment Results in millions Three Months Ended January 2, 2021 December 28, 2019 Change Sales $ 1,439 $ 1,379 $ 60 Sales volume change (3.0) % Average sales price change 7.4 % Operating income $ 116 $ 191 $ (75) Operating margin 8.1 % 13.9 % 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 in millions Three Months Ended January 2, 2021 December 28, 2019 Change Sales $ 2,831 $ 3,292 $ (461) Sales volume change (7.0) % Average sales price change 2.7 % Operating income/(loss) $ (216) $ 57 $ (273) Operating margin (7.6) % 1.7 % 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 in millions Three Months Ended January 2, 2021 December 28, 2019 Change Sales $ 2,113 $ 2,140 $ (27) Sales volume change (8.8) % Average sales price change 7.5 % Operating income $ 266 $ 158 $ 108 Operating margin 12.6 % 7.4 % 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. 30 International/Other Results 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 Our cash needs for working capital, capital expenditures, growth opportunities, repurchases of senior notes, repayment of maturing debt, the payment of dividends and share repurchases are expected to be met with current cash on hand, cash flows provided by operating activities or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature and timing of any capital market transactions will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions. 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 other cash preservation actions as necessary. Cash Flows from Operating Activities in millions Three Months Ended January 2, 2021 December 28, 2019 Net income $ 472 $ 509 Non-cash items in net income: Depreciation and amortization 298 288 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 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 in millions Three Months Ended January 2, 2021 December 28, 2019 Additions to property, plant and equipment $ (289) $ (312) Proceeds from sale of (purchases of) marketable securities, net 1 (16) Proceeds from sale of business — 29 Other, net 29 (82) Net cash used for investing activities $ (259) $ (381) 31 • 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 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 in millions Three Months Ended January 2, 2021 December 28, 2019 Proceeds from issuance of debt $ 29 $ 38 Payments on debt (29) (31) Borrowings on revolving credit facility — 180 Payments on revolving credit facility — (250) Proceeds from issuance of commercial paper — 4,675 Repayments of commercial paper — (4,855) Purchases of Tyson Class A common stock (17) (132) Dividends (159) (150) Stock options exercised 4 20 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: • $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. Liquidity in millions Commitments Expiration Date Facility Amount Outstanding Letters of Credit (no draw downs) Amount Borrowed Amount Available at January 2, 2021 Cash and cash equivalents $ 2,406 Short-term investments — Term loan facility March 2022 $ 1,500 $ — $ 1,500 — Revolving credit facility March 2023 $ 1,750 $ — $ — 1,750 Commercial paper — Total liquidity $ 4,156 • 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 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. 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 1.8 to 1 at January 2, 2021 and October 3, 2020. 32 • 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. We manage our worldwide cash requirements by reviewing available funds among our foreign subsidiaries and the cost effectiveness with which those funds can be accessed. We intend to repatriate excess cash (net of applicable withholding taxes) not subject to regulatory requirements and to indefinitely reinvest outside of the United States the remainder of cash held by foreign subsidiaries. We do not expect the regulatory restrictions or taxes on repatriation to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. Capital Resources Credit 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. 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. Our term loan facility is funded by a syndicate of 5 banks, with commitments ranging from $200 million to $350 million per bank. The syndicate includes bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements. Commercial Paper Program Our commercial paper program provides a low-cost source of borrowing to fund general corporate purposes including working capital requirements. The maximum borrowing capacity under the commercial paper program is $1 billion. The maturities of the notes may vary, but may not exceed 397 days from the date of issuance. 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 To monitor our credit ratings and our capacity for long-term financing, we consider various qualitative and quantitative factors. We monitor the ratio of our net debt to EBITDA as support for our long-term financing decisions. At 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 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 25, 2021 Borrowing Spread March 26, 2021 through March 27, 2022 A-/A3/A- or above 1.250 % 1.500 % BBB+/Baa1/BBB+ 1.375 % 1.625 % BBB/Baa2/BBB (current level) 1.500 % 1.750 % BBB-/Baa3/BBB- 1.750 % 2.000 % BB+/Ba1/BB+ or lower 2.000 % 2.250 % 33 Revolving Credit Facility 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 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 % BBB+/Baa1/BBB+ 0.100 % 1.125 % BBB/Baa2/BBB (current level) 0.125 % 1.250 % BBB-/Baa3/BBB- 0.175 % 1.375 % BB+/Ba1/BB+ or lower 0.225 % 1.625 % 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. Debt Covenants 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; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain minimum interest expense coverage and maximum debt-to-capitalization ratios. Our senior notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets. We were in compliance with all debt covenants at January 2, 2021 and we expect that we will maintain compliance for the foreseeable future. RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS Refer to the discussion of recently issued/adopted accounting pronouncements under Part I, Item 1, Notes to Consolidated Condensed Financial Statements, Note 1: Accounting Policies. CRITICAL ACCOUNTING ESTIMATES We consider accounting policies related to: contingent liabilities; revenue recognition; accrued self-insurance; defined benefit pension plans; impairment of long-lived assets and definite life intangibles; impairment of goodwill and indefinite life intangible assets; business combinations; and income taxes to be critical accounting estimates. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 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 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. In addition to the COVID-19 impacts we have already experienced, and continue to experience, there are likely to be future impacts, the 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. CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain information in this report constitutes forward-looking statements. 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. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. 34 Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following: (i) the 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.