What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2021-02-11 · 181 added, 139 removed, 300 unchanged (52% of the section changed)

18 unchanged sentences

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.

These challenges increased our operating costs and negatively impacted our sales volumes for the second quarter and first six months 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;

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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.

Additionally, we continue to assess the potential of more permanent impacts to our businesses.

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

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

In preparation for vaccinations, the Company has been providing expert resources and education about the vaccine to team members.

Currently, over 42,000 of our U.S.

employees have been vaccinated at events held onsite at Tyson facilities or through an external source across the country.

We have also extended onsite vaccination to family members of employees as well as others living in their homes.

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

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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.

• Liquidity – We generated $1,349 million of operating cash flows during the six months ended April 3, 2021.

At April 3, 2021, we had approximately $2,627 of liquidity, which included availability under our revolving credit facility and $877 million of cash and cash equivalents.

We have $580 million of current debt.

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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.

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.

Sales grew 4% in the second quarter and were relatively flat in the first six months of fiscal 2021 compared to the second quarter and first six months of fiscal 2020, respectively, due to sales growth across each of our segments in the second quarter of fiscal 2021, partially offset by a $320 million legal contingency accrual recognized as a reduction to Sales in the first quarter of fiscal 2021.

Our operating income of $1,425 million was up 12% for the first six months of fiscal 2021, and operating income of $720 million for the second quarter of fiscal 2021 was up 40% as strong results in our Beef and Prepared Foods segments were offset by a decline in the results of Pork and Chicken segments.

In the six months ended April 3, 2021, our results were impacted by $19 million of charges related to the relocation of a production facility in China.

In the six months ended March 28, 2020, 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 second quarter and first six months of fiscal 2021, we incurred direct incremental expenses related to COVID-19 totaling approximately $95 million and $215 million, respectively, 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 and vaccinations, 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.

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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.

According to the United States Department of Agriculture (“USDA”), domestic protein production (beef, pork, chicken and turkey) decreased 2% in the second 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.

All segments experienced inflation in operating costs, especially in labor, freight and certain materials, and we expect this trend to continue through fiscal 2021.

Additionally, grain and feed ingredient costs have increased substantially, which impacts all of our segments.

We pursue recovery of these increased costs through pricing.

The Beef segment experienced strong 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.

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.

The Beef segment experienced strong demand and ample supply of market-ready cattle but had lower production throughput associated with the impacts of a challenging labor environment and severe winter weather during the second quarter of fiscal 2021.

The Pork segment experienced strong demand but had lower production throughput partially associated with severe winter weather.

The Chicken segment experienced increased costs, volatile market conditions and lower production throughput, which included impacts associated with COVID-19, severe winter weather and a decline in hatch rate during the second quarter of fiscal 2021.

We expect that lower hatch rates will continue in the short-term and may result in added costs, including increased growout expenses and outside meat purchases.

The Prepared Foods segment continued to experience growth in the retail channel but faced increased costs and lower production throughput partially due to the impact of a challenging labor and supply environment and severe winter weather during the second quarter of fiscal 2021.

Our total operating margin was 6.4% in the second quarter of fiscal 2021.

Operating margins by segment were as follows:

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• Prepared Foods – 10.0%

in millions, except per share data Three Months Ended

January 2, 2021 December 28, 2019

in millions, except per share data Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Net income attributable to Tyson $ 476 $ 376 $ 943 $ 881

Net income attributable to Tyson – per diluted share 1.30 1.03 2.58 2.41

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

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

• $19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.

Six months – Fiscal 2021 – Net income attributable to Tyson included the following items:

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

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

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

• $19 million pretax, or ($0.04) per diluted share, related to the relocation of a production facility in China.

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

• $110 million pretax, or $0.23 per diluted share, due to gain from pension plan terminations.

Six 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.

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

• $110 million pretax, or $0.23 per diluted share, due to gain from pension plan terminations

Summary of Results

in millions Three Months Ended

January 2, 2021 December 28, 2019

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Sales $ 11,300 $ 10,888 $ 21,760 $ 21,703

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Sales growth 3.8 % 0.3 %

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.

Second quarter – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $405 million, driven by decreased volumes in each of our segments primarily due to lower production throughput associated with the impact of COVID-19 and severe winter weather in the second quarter of fiscal 2021.

• Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $817 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.

Six months – Fiscal 2021 vs Fiscal 2020

• Sales Volume - Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $885 million, driven by decreased volumes in each of our segments primarily due to lower production throughput associated with the impact of COVID-19 and severe winter weather in the second quarter of fiscal 2021, partially offset by increased volumes in our Beef segment during the first quarter of fiscal 2021 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 $1,262 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 six months ended April 3, 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

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Cost of sales $ 10,047 $ 9,867 $ 19,330 $ 19,242

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Cost of sales as a percentage of sales 88.9 % 90.6 % 88.8 % 88.7 %

First quarter – Fiscal 2021 vs Fiscal 2020

• Cost of sales decreased $92 million.

Second quarter – Fiscal 2021 vs Fiscal 2020

• Cost of sales increased $180 million.

Lower sales volume decreased cost of sales $370 million while higher input cost per pound increased cost of sales $550 million.

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• Increase in raw material and other input costs of approximately $70 million in our Prepared Foods segment.

• Increase in freight and transportation costs of approximately $40 million.

• Decrease in live cattle costs of approximately $190 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.

• Decrease due to net derivative losses of approximately $15 million in the second quarter of fiscal 2021, compared to net derivative losses of approximately $100 million in the second 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.

• 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 $370 million impact of lower sales volume was primarily driven by decreased sales volume in each of our segments due to lower production throughput associated with the impact of COVID-19 and severe winter weather in the second quarter of fiscal 2021.

Six months – Fiscal 2021 vs Fiscal 2020

• Cost of sales increased $88 million.

Lower sales volume decreased cost of sales $785 million while higher input cost per pound increased cost of sales $873 million.

• The $873 million impact of higher input cost per pound was impacted by:

• Increase of $215 million of direct incremental expenses related to COVID-19.

• Increase in live hog costs of approximately $135 million in our Pork segment.

• Increase of approximately $240 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 $105 million in our Prepared Foods segment.

• Increase in freight and transportation costs of approximately $80 million.

• Decrease in live cattle costs of approximately $340 million in our Beef segment.

• Decrease due to net derivative gains of approximately $80 million for the first six months of fiscal 2021, compared to net derivative losses of approximately $55 million for the first six months 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.

• 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.

• The $785 million impact of lower sales volume was primarily driven by decreased sales volume in each of our segments due to lower production throughput associated with the impact of COVID-19 and severe winter weather in the second quarter of fiscal 2021.

Selling, General and Administrative

in millions Three Months Ended

January 2, 2021 December 28, 2019

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Selling, general and administrative expense $ 533 $ 506 $ 1,005 $ 1,188

As a percentage of sales 4.7 % 4.6 % 4.6 % 5.5 %

First quarter – Fiscal 2021 vs Fiscal 2020

Second quarter – Fiscal 2021 vs Fiscal 2020

• Increase of $27 million in selling, general and administrative was primarily driven by:

• Increase of $40 million in employee costs primarily from incentive-based compensation.

• Increase of $30 million in professional fees.

• Increase of $14 million from the impact of a cattle supplier's misappropriation of Company funds recognized in the three months ended March 28, 2020.

• Decrease of $38 million in marketing, advertising and promotion expenses.

• Decrease of $12 million in donations.

• Decrease of $6 million in travel and entertainment expenses.

Six months – Fiscal 2021 vs Fiscal 2020

• Decrease of $183 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 $109 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 six months ended April 3, 2021 as compared to a $54 million loss recognized in the six months ended March 28, 2020.

• Decrease of $86 million in marketing, advertising and promotion expenses.

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• Decrease of $16 million in travel and entertainment expenses.

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

• Decrease of $16 million in donations.

• Increase of $54 million in employee costs primarily from incentive-based compensation.

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Interest Expense

in millions Three Months Ended

January 2, 2021 December 28, 2019

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Cash interest expense $ 113 $ 122 $ 227 $ 245

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Total interest expense $ 110 $ 119 $ 220 $ 239

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

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

Effective Tax Rate

Three Months Ended

January 2, 2021 December 28, 2019

Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

23.5 % 25.1 % 23.5 % 23.6 %

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Our effective income tax rate was 23.5% for the second quarter of fiscal 2021 compared to 25.1% for the same period of fiscal 2020, and the effective income tax rates for the first six months of fiscal 2021 and 2020 were 23.5% and 23.6%, respectively.

The effective tax rates for the second quarter and first six months 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

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in millions Sales

Three Months Ended

January 2, 2021 December 28, 2019

Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Beef $ 4,046 $ 3,979 $ 8,033 $ 7,817

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in millions Operating Income (Loss)

Three Months Ended

January 2, 2021 December 28, 2019

Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 April 3, 2021 March 28, 2020

Beef $ 445 $ 123 $ 973 $ 465

Pork 67 93 183 284

Chicken 6 99 (210) 156

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Beef Segment Results

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 Change April 3, 2021 March 28, 2020 Change

Sales $ 4,046 $ 3,979 $ 67 $ 8,033 $ 7,817 $ 216

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Operating margin 11.0 % 3.1 % 12.1 % 5.9 %

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased during the second quarter of fiscal 2021 due to a reduction in live cattle processed partially associated with the impacts of severe winter weather and a challenging labor environment.

Sales volume was relatively flat for the first six months of fiscal 2021 as the impacts in the second quarter were partially offset by 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 increased in the second quarter and first six months of fiscal 2021 as demand for our beef products remained strong.

• Operating Income – Operating income increased in the second quarter and first six months of fiscal 2021 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 was impacted by approximately $60 million and $50 million of incremental net derivative gains in the second quarter and first six months of fiscal 2021, respectively, as compared to the second quarter and first six months of fiscal 2020.

Further, operating income in the first six months 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 $54 million loss recognized in the first six months of fiscal 2020.

Pork Segment Results

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 Change April 3, 2021 March 28, 2020 Change

Sales $ 1,477 $ 1,266 $ 211 $ 2,916 $ 2,645 $ 271

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Operating margin 4.5 % 7.3 % 6.3 % 10.7 %

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased during the second quarter and first six months of fiscal 2021 due to a reduction in live hogs processed primarily associated with severe winter weather, which was partially offset by strong demand.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2021 due to strong demand.

• Operating Income – Operating income decreased in the second quarter and first six months of fiscal 2021 primarily due to production inefficiencies and direct incremental expenses related to COVID-19.

Additionally, operating income in the second quarter and first six months of fiscal 2021 was impacted by approximately $50 million and $70 million, respectively, of incremental net derivative losses as compared to the second quarter and first six months of fiscal 2020.

Chicken Segment Results

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 Change April 3, 2021 March 28, 2020 Change

Sales $ 3,553 $ 3,397 $ 156 $ 6,384 $ 6,689 $ (305)

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Operating margin 0.2 % 2.9 % (3.3) % 2.3 %

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased during the second quarter and first six months of fiscal 2021 due to lower production throughput associated with COVID-19, disruptions due to severe winter weather, decline in hatch rate and a challenging labor environment.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2021 due to favorable sales mix and overall market conditions.

The change in average sales price for the six months ended April 3, 2021 excludes a $320 million reduction of Sales from the recognition of a legal contingency accrual.

• Operating Income (Loss) – Operating income decreased in the second quarter and first six months of fiscal 2021 primarily due to a $320 million loss from the recognition of a legal contingency accrual in the first quarter as well as $125 million and $140 million of higher feed ingredient costs in the second quarter and first six months of fiscal 2021, respectively.

Operating income was further impacted in the second quarter and first six months of fiscal 2021 by production inefficiencies and direct incremental expenses related to COVID-19 and disruptions due to severe winter weather.

Additionally, operating income in the second quarter and first six months of fiscal 2021 was impacted by $40 million and $110 million, respectively, of incremental net derivative gains as compared to the second quarter and first six months of fiscal 2020.

Prepared Foods Segment Results

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 Change April 3, 2021 March 28, 2020 Change

Sales $ 2,164 $ 2,080 $ 84 $ 4,277 $ 4,220 $ 57

3 unchanged sentences

Operating margin 10.0 % 9.2 % 11.3 % 8.3 %

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.

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Sales Volume – Sales volume decreased during the second quarter and first six months of fiscal 2021 as growth in volume across the retail channel was offset by a reduction in the foodservice channel related to lower demand from the impact of COVID-19.

Additionally, sales volume decreased during the second quarter and first six months of fiscal 2021 due to lower production throughput partially associated with a challenging labor and supply environment and the impact of severe winter weather.

• Average Sales Price – Average sales price increased in the second quarter and first six months of fiscal 2021 due to favorable product mix and the pass through of increased raw material costs.

• Operating Income – Operating income increased in the second quarter and first six months of fiscal 2021 due to lower commercial spend and favorable product mix partially offset by increased operating costs, including a $105 million increase in raw material costs during the first six months of fiscal 2021, as well as production inefficiencies due in part to the impact of a challenging labor and supply environment along with the impact of severe winter weather.

Additionally, operating income in the second quarter and first six months of fiscal 2021 was impacted by $35 million and $45 million, respectively, of incremental net derivative gains as compared to the second quarter and first six months of fiscal 2020.

International/Other Results

in millions Three Months Ended

January 2, 2021 December 28, 2019 Change

in millions Three Months Ended Six Months Ended

April 3, 2021 March 28, 2020 Change April 3, 2021 March 28, 2020 Change

Sales $ 487 $ 465 $ 22 $ 956 $ 963 $ (7)

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.

Operating income (loss) (15) 9 (24) $ (4) $ 19 $ (23)

Second quarter and six months – Fiscal 2021 vs Fiscal 2020

• Sales – Sales increased during the second quarter due to increased pricing and were relatively flat for the first six months of fiscal 2021.

• Operating Income (Loss) – Operating income decreased primarily due to a $19 million charge related to the relocation of a production facility in China.

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flows from Operating Activities

in millions Three Months Ended

January 2, 2021 December 28, 2019

in millions Six Months Ended

April 3, 2021 March 28, 2020

Net income $ 949 $ 888

5 unchanged sentences

Net cash provided by operating activities $ 1,349 $ 1,260

• 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.

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

• April 3, 2021 – Decreased primarily from increased accounts receivable, inventories, derivative net assets and decreased accrued salaries, wages and benefits, partially offset by increased taxes payable and legal accrual .

The increase in accounts receivable is largely due to the timing of sales.

The increase in inventory is primarily due to increased raw material and grain costs.

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.

The increase in taxes payable is primarily due to payroll tax deferrals associated with the CARES Act.

The increase in legal accrual is due primarily to a legal contingency recorded in the first quarter of fiscal 2021.

• March 28, 2020 – Decreased primarily from decreased accounts payable and increased accounts receivable .

The changes in these balances are largely due to timing of payments and sales.

Cash Flows from Investing Activities

in millions Three Months Ended

January 2, 2021 December 28, 2019

in millions Six Months Ended

April 3, 2021 March 28, 2020

Additions to property, plant and equipment $ (557) $ (624)

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Proceeds from sale of business — 29

Acquisition of equity investments — (184)

Other, net 49 (81)

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• 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.

We expect capital spending for fiscal 2021 to be at the lower end of the $1.3 billion to $1.5 billion range.

• 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 six months of fiscal 2021 and the first six 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

in millions Six Months Ended

April 3, 2021 March 28, 2020

Proceeds from issuance of debt $ 557 $ 68

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Net cash used for financing activities $ (1,345) $ (339)

• 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.

• During the first six months of fiscal 2021, proceeds of $557 million from issuance of debt included $500 million of proceeds from the issuance of a term loan facility due March 2023.

• On March 27, 2020, we executed a $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 six months of fiscal 2021, we extinguished the $1.5 billion outstanding balance of our term loan facility using proceeds received from the issuance of debt and cash on hand.

• During the first six months of fiscal 2020, the net impact from our commercial paper activity was not significant.

• 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.

• $150 million of shares repurchased pursuant to our share repurchase program during the six months ended March 28, 2020.

• $34 million and $46 million of shares repurchased to fund certain obligations under our equity compensation programs during the six months ended April 3, 2021, and March 28, 2020, respectively.

• Dividends paid during the six months ended April 3, 2021 reflected a 6% increase to our fiscal 2020 quarterly dividend rate.

Expiration Date Facility

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Borrowed Amount

January 2, 2021

April 3, 2021

Cash and cash equivalents $ 877

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• 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.

• At April 3, 2021, we had current debt of $580 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 had no borrowings under the revolving credit facility during the six months ended April 3, 2021.

• We expect net interest expense to approximate $420 million for fiscal 2021.

• 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.

• Our current ratio was 1.7 to 1 at April 3, 2021 and 1.8 to 1 at October 3, 2020.

• At April 3, 2021, approximately $414 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.

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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.

Additionally, we have a $500 million committed term loan facility which was fully drawn as of April 3, 2021.

At April 3, 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

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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.

As of April 3, 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.

Capitalization

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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.

At April 3, 2021, and October 3, 2020, the ratio of our net debt to EBITDA was 2.2x 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

Revolving Credit Facility

Standard & Poor's Rating Services', a Standard & Poor's Financial Services LLC business (“S&P”), applicable rating is “BBB+”.

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(“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 %

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.

The below table outlines the fees paid on the unused portion of the facility (“Facility Fee Rate ” ) and letter of credit fees and borrowings (“All-in Borrowing Spread ” ) that corresponds to the applicable ratings levels from S&P, Moody's and Fitch.

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

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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.

We were in compliance with all debt covenants at April 3, 2021 and we expect that we will maintain compliance for the foreseeable future.

RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS

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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.

Accounting Policies, for updates to our significant accounting policies during the six months ended April 3, 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.

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Certain information in this report constitutes forward-looking statements.

These statements are intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements include, but are not limited to, current views and estimates of our outlook for fiscal 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).

Words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “forecast,” “target,” “outlook,” “may,” “should,” “could,” and similar expressions, as well as statements written in the future tense, identify forward-looking statements.

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

We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

We wish to caution readers not to place undue reliance on any forward-looking statements, which are expressly qualified in their entirety by this cautionary statement and speak only as of the date made.

We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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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