What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-14 compared with 2021-11-15 · 179 added, 194 removed, 492 unchanged (43% of the section changed)

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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.

Refer to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2020 for additional information related to fiscal 2020.

DESCRIPTION OF THE COMPANY

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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 including Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®.

Tyson and grown under four generations of family leadership, the Company has a broad portfolio of products and brands including Tyson®, Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, Aidells®, ibp® and State Fair®.

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.

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

We continue to monitor and respond to the evolving nature of the COVID-19 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 during fiscal 2021.

We have experienced and continue to experience multiple challenges related to the pandemic.

These challenges increased our operating costs during fiscal 2020 and fiscal 2021.

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

Each of our segments experienced a shift in demand from foodservice to retail during 2020 and have seen varying levels of foodservice recovery and the return of volumes during fiscal 2021.

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

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

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.

In addition to hiring a Chief Medical Officer, we have added 200 nurse and administrative support staff positions and developed an “always-on” testing strategy rooted in contact tracing.

In August 2021, we announced all domestic team members were required to be fully vaccinated by November 1, 2021.

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.

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.

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.

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 due to our production facilities experiencing varying levels of absenteeism and due to labor shortages associated with the economic impact of the pandemic.

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.

We generated $3.8 billion of operating cash flows during fiscal 2021.

At October 2, 2021, we had $4.8 billion of liquidity, which included availability under our revolving credit facility and $2.5 billion of cash and cash equivalents.

We have $1.1 billion 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.

Our accounting cycle resulted in a 52-week year for both fiscal 2021 and 2019 and a 53-week year for fiscal 2020.

Sales grew 9% in fiscal 2021 over fiscal 2020 to $47.0 billion, primarily due to increased average sales prices in each of our segments, partially offset by the impact of an additional week in fiscal 2020.

Fiscal 2021 operating income increased compared to fiscal 2020, as strong Beef results and the gain on the sale of our pet treats business were partially offset by a decline in operating income in the Chicken and Pork segments.

In fiscal 2021, our results were impacted by $626 million of charges related to legal contingency accruals, $27 million of charges related to the relocation of a production facility in China, $17 million of production facilities fire costs, net of insurance proceeds and a $784 million gain on the sale of our pet treats business.

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

During fiscal 2021, we incurred direct incremental expenses related to COVID-19 totaling approximately $335 million, which were recorded in Cost of Sales in our Consolidated Statements of Income.

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

These COVID-19 direct incremental expenses in fiscal 2020 and fiscal 2021 primarily included team member costs associated with worker health and availability and production facility downtime, including direct costs for personal protection equipment, production facility sanitization, COVID-19 testing and vaccinations, donations, product downgrades, rendered product, certain professional fees and $114 million of thank you bonuses to frontline team members in fiscal 2020, which was partially offset by the CARES Act credits.

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

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

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

The Company’s accounting cycle resulted in a 52-week year for fiscal 2022 and fiscal 2021 and a 53-week year for fiscal 2020.

Sales grew 13% in fiscal 2022 over fiscal 2021 to $53.3 billion largely due to increased sales growth across each of our segments primarily due to higher average sales prices combined with $545 million in legal contingency accruals recognized as a reduction to sales in fiscal 2021.

The higher average sales prices were primarily due to the current inflationary environment and recovery of rapidly rising costs, such as labor, freight and transportation, livestock, feed ingredients and other input costs.

Operating income of $4,410 million in fiscal 2022 was up slightly compared to fiscal 2021, as improved Chicken results were offset by a decline in operating income in the Beef, Pork and Prepared Foods segments.

In fiscal 2022, our operating income was impacted by $66 million of restructuring and related charges and $62 million of insurance proceeds, net of costs incurred, related to fires at our production facilities.

In fiscal 2021, our operating income was impacted by $626 million of charges related to legal contingency accruals, $27 million of charges related to the relocation of a production facility in China, $23 million of production facilities fire costs, net of insurance proceeds and a $784 million gain on the sale of our pet treats business.

Market Environment

According to the USDA, domestic protein production (beef, pork, chicken and turkey) was relatively flat in fiscal 2022 compared to fiscal 2021.

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

Additionally, all segments experienced increased operating costs in fiscal 2021.

We will pursue recovery of these increased costs through pricing.

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

The Pork segment experienced strong demand and lower hog supplies.

The Chicken segment experienced strong demand relative to supply.

The Prepared Foods segment experienced growth, but faced increased costs partially due to the impact of an inflationary environment and challenging labor and supply conditions during fiscal 2021.

All segments experienced inflation in operating costs, especially in labor, freight and transportation and certain materials, and we expect these trends to continue through fiscal 2023.

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 Federal Reserve recently increased interest rates, and it is anticipated that interest rates will continue to rise in the near term.

Our direct exposure to rising interest rates is somewhat tempered given our strong liquidity position in addition to our current debt structure in which nearly all of our borrowings have fixed interest rates.

At October 1, 2022, we had $3.3 billion of liquidity and our current debt was $459 million.

Should we need to issue additional debt or borrow under our existing revolving credit facility, we may be exposed to higher interest rates than our current outstanding borrowings.

The Beef segment experienced strong demand, sufficient supply of market-ready cattle and increased live cattle costs.

The Pork segment experienced reduced domestic availability of live hogs.

The Chicken segment experienced strong demand and increased feed ingredient and other input costs.

The Prepared Foods segment experienced increased costs largely due to the impacts of an inflationary environment.

Additionally, the conflict between Ukraine and Russia has led to economic sanctions against Russia and certain regions of Ukraine and Belarus.

As of October 1, 2022, the impact of this conflict has not had a material direct impact on our consolidated financial performance.

However, the conflict is still ongoing and there are many risks and uncertainties in relation to the conflict that are outside of our control.

If the conflict escalates further or if additional countries join the conflict and additional economic sanctions are imposed, it could have a material impact on our business operations and financial performance.

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

Our ongoing COVID-19 task force was 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 experienced and continue to experience multiple challenges related to the pandemic.

The most significant challenge we face is the availability of team members to operate our production facilities as our production facilities continue to experience varying levels of absenteeism.

The health and safety of our team members remains our top priority, and we continue to provide a variety of health and safety resources and services to team members and their family members.

Additionally, we have experienced some challenges in our supply chain such as volatility of inputs, availability of shipping containers and port congestion.

These challenges impacted our operating costs, but generally, we experienced lower direct incremental costs associated with COVID-19 in fiscal 2022 as compared to fiscal 2021.

The long-term impacts of COVID-19 remain uncertain and will depend on future developments, including the duration and spread of the pandemic, COVID-19 variants and resurgences, 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 contain some level of uncertainty and cannot be easily predicted.

Our total operating margin was 8.3% in fiscal 2022.

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and sustain our Company and our world for future generations.

• In the second quarter of fiscal 2021, we initiated a plan to sell our pet treats business, which is included in our Prepared Foods segment.

• In the second quarter of fiscal 2021, we initiated a plan to sell our pet treats business, which was included in our Prepared Foods segment.

In the third quarter of fiscal 2021, we entered into a definitive agreement to sell the business for $1.2 billion in cash, subject to certain adjustments.

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The transaction closed on July 6, 2021, and we recognized a gain of $784 million from the sale of this business, which is reflected in cost of sales in our Consolidated Statement of Income for fiscal 2021.

• Beginning in fiscal 2022, we are launching a new productivity program, which is designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision making.

We are targeting $1 billion in productivity savings by fiscal 2024, relative to a fiscal 2021 cost baseline.

The execution of this program will be supported by a program management office that will ensure delivery of key project milestones and report on savings achievements connected with the three pillars of the program.

• Beginning in fiscal 2022, we launched a new productivity program, which is designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision-making.

We were targeting $1 billion in productivity savings by the end of fiscal 2024, which included more than $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline.

The execution of this program is supported by a program management office that ensures delivery of key project milestones and reports on savings achievements connected with the three pillars of the program.

The first pillar is operational and functional excellence, which includes functional efficiency efforts in Finance, HR and Procurement focused on applying best practices to reduce costs.

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The third pillar is automation, which will leverage automation and robotics technologies to automate difficult and higher turnover positions.

At this time, we do not anticipate costs associated with this program to be material.

in millions, except per share data

Net income attributable to Tyson $ 3,047 $ 2,061

Net income attributable to Tyson - per diluted share 8.34 5.64

2021 – Included the following items:

• $626 million pretax, or ($1.31) per diluted share, related to the recognition of legal contingency accruals.

• $784 million pretax, or $1.40 per diluted share, related to the gain on the sale of our pet treats business.

• $34 million pretax, or $0.07 per diluted share, from a defined benefit plan gain.

• $17 million pretax, or ($0.04) per diluted share, of production facilities fire costs, net of insurance proceeds.

• $27 million pretax, or ($0.06) per diluted share, related to the relocation of a production facility in China.

2020 – Included the following items:

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

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

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

We expect the productivity savings to be recognized in each of our reportable segments as they benefit from the achievements connected with the three pillars of the program.

At this time, we do not anticipate costs associated with this program to be material and capital expenditures associated with automation and other activities are included in our capital expenditure expectations.

We realized more than $700 million of productivity savings in fiscal 2022, which partially offset the impacts of inflationary market conditions, and we now believe we will exceed our $1 billion target in fiscal 2023.

• In the fourth quarter of fiscal 2022, the Company approved a restructuring program, the 2022 Program, which is expected to improve business performance, increase collaboration, enhance team member agility, enable faster decision-making and reduce redundancies.

In conjunction with the 2022 Program, the Company plans to bring together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation commencing in early calendar year 2023.

We have recognized $66 million of pretax charges in fiscal 2022 associated with the 2022 Program consisting of severance related costs.

The Company currently anticipates the 2022 Program will result in cumulative pretax charges of approximately $293 million, which consists primarily of severance costs, relocation and related costs, accelerated depreciation, contract and lease terminations and professional and other fees.

The following tables set forth the pretax impact of restructuring and related charges incurred in fiscal 2022 in the Consolidated Statements of Income and the pretax impact by our reportable segments.

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

Restructuring and Related Charges.

Cost of Sales $ 18

Selling, General and Administrative 48

Total Restructuring and related charges, pretax $ 66

Total estimated

2022 charges Estimated future charges 2022 Program charges

Beef $ 16 $ 58 $ 74

Chicken 6 2 8

Prepared Foods 36 135 171

International/Other 3 7 10

Total Restructuring and related charges, pretax $ 66 $ 227 $ 293

SUMMARY OF RESULTS

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Sales growth 13.2 % 8.9 %

• Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of $121 million, driven by decreased volumes in our Pork and Prepared Foods segments and impacts associated with the challenging labor environment and continued supply chain constraints, partially offset by an increase in sales volume in our Chicken segment.

• Average Sales Price – Sales were positively impacted by higher average sales prices, which accounted for an increase of $5,809 million.

The increase in average sales price was primarily due to the current inflationary environment and recovery of rapidly rising costs.

• The above change in average sales price for fiscal 2022 excludes the impact of a $545 million reduction of Sales from the recognition of legal contingency accruals in fiscal 2021.

• Sales Volume – Sales were negatively impacted by a decrease in sales volume across each of our segments, which accounted for a decrease of $1,190 million, due in part to the impacts of a challenging labor environment as well as the impact of an additional week in fiscal 2020.

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• The above change in average sales price for fiscal 2021 excludes a $545 million reduction of Sales from the recognition of legal contingency accruals.

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

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

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

Cost of Sales in millions

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• The $6,195 million impact of higher input cost per pound was impacted by:

• Increase in live cattle costs of approximately $1,950 million in our Beef segment.

• Increase of approximately $635 million in our Chicken segment related to the net impact of increased feed ingredient costs and growout expenses, partially offset by a reduction in outside meat purchases.

• Increase in raw material and other input costs of approximately $615 million in our Prepared Foods segment.

• Increase in live hog costs of approximately $270 million in our Pork segment.

• Increase in freight and transportation costs of approximately $485 million.

• Increase of approximately $120 million in frontline bonuses.

• Increase due to the recognition of a $784 million gain on the sale of our pet treats business in fiscal 2021.

• Decrease due to net derivative gains of $225 million in fiscal 2022, compared to net derivative gains of $14 million in fiscal 2021 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 $81 million in our Chicken segment related to the recognition of legal contingency accruals in fiscal 2021.

• Decrease of approximately $58 million in our Chicken segment related to insurance proceeds, net of costs incurred, related to the fire at our production facility in the fourth quarter of fiscal 2021.

• Decrease of approximately $27 million in our Beef segment related to insurance proceeds related to the fire at our production facility in the fourth quarter of fiscal 2019.

• Remaining increase in costs across all of our segments primarily driven by net impacts on average cost per pound from mix changes, the impact of the inflationary environment on our labor and other input costs and restructuring and related charges, partially offset by savings from our productivity program.

• The $104 million impact of lower sales volume was primarily driven by decreased volumes in our Pork and Prepared Foods segments.

• Cost of sales increased $2,722 million.

Lower sales volume decreased cost of sales $1,041 million while higher input cost per pound increased cost of sales $3,763 million.

• The $3,763 million impact of higher input cost per pound was impacted by:

• Increase in live hog costs of approximately $980 million in our Pork segment.

• Increase of approximately $945 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.

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• The $1,041 million impact of lower sales volume was primarily driven by decreased volume in each of our segments in fiscal 2021 due to lower production throughput associated with the impact of COVID-19 and a challenging labor environment as well as the impact of an additional week in fiscal 2020.

• Cost of sales increased $418 million.

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

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

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

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

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

• Increase of approximately $80 million in our Chicken segment related to net increases in feed ingredient costs, growout expenses and outside meat purchases.

• Increase in raw material and other input costs of approximately $90 million as well as an increase in inventory write downs of approximately $15 million in our Prepared Foods segment.

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

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

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

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

Selling, General and Administrative in millions

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As a percentage of sales 4.2 % 4.5 %

• Increase of $128 million in selling, general and administrative was primarily driven by:

• Increase of $48 million in restructuring and related costs.

• Increase of $47 million in marketing, advertising and promotion expenses.

• Increase of $38 million in technology related costs.

• Increase of $34 million in employee costs.

• Increase of $24 million in donations.

• Increase of $15 million in travel and entertainment costs.

• Decrease of $33 million in commission and brokerage fees.

• Decrease of $27 million in depreciation and amortization.

• Decrease of $16 million from the change in the impact of a cattle supplier’s misappropriation of Company funds, resulting from a $71 million gain related to the recovery of cattle inventory in the fiscal year ended October 1, 2022 as compared to a $55 million gain recognized in the fiscal year ended October 2, 2021.

• Decrease of $246 million in selling, general and administrative was primarily driven by:

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• Increase of $30 million in technology related costs.

• Increase of $124 million in selling, general and administrative was primarily driven by:

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

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

• Increase of $49 million from the impact of a cattle supplier’s misappropriation of Company funds.

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

• Increase of $35 million from technology related costs.

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

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

• Decrease of $26 million in travel and entertainment expenses.

Interest Expense in millions

Cash interest expense $ 448 $ 497

Non-cash interest (expense) income (20) (12)

Total Interest Expense $ 428 $ 485

2022 / 2021 –

• 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.

The decrease in cash interest expense in fiscal 2021 was primarily due to the change in outstanding commercial paper, decrease in average amount outstanding under the term loans in fiscal 2021, redemption of the August 2021 Notes as well as the settlement of the 2020 notes during fiscal 2020.

• Interest expense primarily included interest expense related to our senior notes and commitment fees incurred on our revolving credit facility less capitalized interest.

The decrease in interest expense in fiscal 2022 was primarily due to the redemption of senior notes in fiscal 2022 and repayments of term loans and the redemption of the August 2021 Notes in fiscal 2021.

Other (Income) Expense, net in millions

$ (87) $ (65)

2022 – Included $58 million of foreign exchange losses, $52 million of production facilities fires insurance proceeds, $45 million of joint venture earnings and $37 million of gains on equity investments due to observable price changes in fiscal 2022.

2021 – Included $34 million from a defined benefit plan gain.

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

Effective Tax Rate

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• Our effective income tax rate was 21.7% for fiscal 2022 compared to 24.3% for fiscal 2021.

State taxes increased the effective tax rate by 3.3% and 2.9% for fiscal 2021 and 2020, respectively.

The non-deductible goodwill associated with the sale of our pet treats business unfavorably impacted the effective tax rate for fiscal 2021 by 1.8%, and the tax benefit from the foreign-derived intangible income deduction decreased the effective tax rate for fiscal 2021 by 1.1%.

The fiscal 2022 effective tax rate includes a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in fiscal 2022.

The non-deductible goodwill associated with the sale of our pet treats business unfavorably impacted the effective tax rate for fiscal 2021 by 1.8%.

Net Income Attributable to Tyson in millions, except per share data

Net income attributable to Tyson $ 3,238 $ 3,047

Net income attributable to Tyson - per diluted share 8.92 8.34

2022 – Included the following items:

• $114 million pretax, or $0.23 per diluted share, of production facilities fire insurance proceeds, net of costs incurred.

• $66 million pretax, or ($0.14) per diluted share, of restructuring and related charges.

• $36 million post tax, or $0.10 per diluted share, from remeasurement of net deferred tax liabilities at lower enacted state tax rates.

2021 – Included the following items:

• $626 million pretax, or ($1.31) per diluted share, related to the recognition of legal contingency accruals.

• $784 million pretax, or $1.40 per diluted share, related to the gain on the sale of our pet treats business.

• $34 million pretax, or $0.07 per diluted share, from a defined benefit plan gain.

• $17 million pretax, or ($0.04) per diluted share, of production facilities fire costs, net of insurance proceeds.

• $27 million pretax, or ($0.06) per diluted share, related to the relocation of a production facility in China.

SEGMENT RESULTS

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Operating Margin 12.6 % 18.0 % 10.0 %

• Sales Volume – Sales volume was relatively flat in fiscal 2022.

• Average Sales Price – Average sales price increased as input costs such as live cattle, labor and freight and transportation costs increased and demand for our beef products remained strong in the first half of the fiscal year.

• Operating Income – Operating income decreased as margins compressed from historically high levels, paired with continued increased operating costs as a result of inflationary market environment.

Operating income benefited from a $71 million gain due to a settlement in fiscal 2022, compared to a $55 million gain from the recovery of cattle inventory in fiscal 2021, related to a cattle supplier’s misappropriation of Company funds.

Additionally, operating income in fiscal 2022 benefited from $27 million of insurance proceeds related to a fire at a production facility in the fourth quarter of fiscal 2019, partially offset by $16 million of restructuring and related charges.

• Sales Volume – Sales volume was relatively flat due to strong global demand, partially offset by the impacts associated with a challenging labor environment, severe weather in the second quarter of fiscal 2021 and the additional week in fiscal 2020.

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Additionally, operating income in 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 $106 million loss recognized in fiscal 2020.

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

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

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

Additionally, results were impacted by losses of $106 million and $57 million in fiscal years 2020 and 2019, respectively, from a cattle supplier's misappropriate of Company funds.

Pork Segment Results in millions

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Operating Margin 3.0 % 5.2 % 11.0 %

• Sales Volume – Sales volume decreased due to reduced domestic availability of live hogs.

• Average Sales Price – Average sales price increased as input costs such as live hogs, labor, freight and transportation costs increased, partially offset by unfavorable mix associated with labor shortages.

• Operating Income – Operating income decreased due to periods of compressed pork margins and increased operating costs as a result of the inflationary market environment.

Additionally, volatile market conditions resulted in net derivative gains of $10 million in fiscal 2022 and net derivative losses of $90 million in fiscal 2021, which excludes the impacts of related physical purchase transactions.

• Sales Volume – Sales volume decreased despite strong global demand in fiscal 2021 primarily due to the impacts of an additional week in fiscal 2020 and the impacts of lower hog supplies and a challenging labor environment in fiscal 2021.

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Additionally, volatile market conditions resulted in net derivative losses of $90 million in fiscal 2021 and net derivative gains of $70 million in fiscal 2020, which were offset by the impacts of related physical purchase transactions.

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

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

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

Chicken Segment Results in millions

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Operating Margin 5.6 % (4.6) % 0.9 %

• Sales Volume – Sales volume increased primarily due to improved domestic production partially offset by inventory growth and strategic initiative mix impacts.

• Average Sales Price – Average sales price increased primarily due to the effects of pricing initiatives in an inflationary cost environment.

• Operating Income (Loss) – Operating income increased in fiscal 2022 primarily due to higher average sales prices and increased sales volume, partially offset by the impacts of inflationary market conditions including increased supply chain and labor costs.

Operating income in fiscal 2022 was impacted by $595 million of higher feed ingredient costs, offset by $195 million of net derivative gains as compared to $65 million of net derivative gains in fiscal 2021.

Additionally, operating income in fiscal 2022 benefited from $35 million of insurance proceeds, net of costs incurred related to a fire at a production facility.

Operating income in fiscal 2021 was impacted by $626 million of losses from the recognition of legal contingency accruals and $23 million of expenses related to a fire at a production facility.

• Sales Volume – Sales volume decreased from the impacts associated with a decline in hatch rate, a challenging labor environment, disruptions due to severe weather in the second quarter of fiscal 2021 and an additional week in fiscal 2020.

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• Operating Income (Loss) – Operating income decreased primarily due to a $626 million loss from the recognition of legal contingency accruals, $735 million of higher feed ingredient costs as compared to fiscal 2020, increased supply chain costs, $23 million of expenses related to a fire at a production facility, decline in hatch rate and disruptions due to severe weather, partially offset by favorable product mix, reduced direct incremental expense associated with COVID-19 and $65 million of net derivative gains in fiscal 2021 as compared to $50 million of net derivative losses in fiscal 2020.

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

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

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

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

Prepared Foods Segment Results in millions

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Operating Margin 7.7 % 16.4 % 8.7 %

• Sales Volume – Sales volume decreased in fiscal 2022 due to the impacts of uneven foodservice recovery, the divestiture of our pet treats business in the fourth quarter of fiscal 2021, increased pricing and a challenging supply environment impacting the first half of fiscal 2022.

• Average Sales Price – Average sales price increased due to the effects of revenue management in an inflationary cost environment.

• Operating Income – Operating income decreased in fiscal 2022 due to the recognition of a $784 million gain on the sale of our pet treats business in the fourth quarter of fiscal 2021.

Higher average sales prices were offset by the impacts of inflationary market conditions, including $615 million of increased raw materials and other input costs in fiscal 2022 in addition to increased supply chain and labor costs.

Additionally, operating income in fiscal 2022 was impacted by $36 million of restructuring and related charges.

• Sales Volume – Sales volume decreased driven by lower production throughput primarily associated with a challenging labor and supply environment, reduced foodservice demand in the first half of fiscal 2021 and the impact of an additional week in fiscal 2020.

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These impacts were partially offset by the impact of inflationary market conditions including a $520 million increase in raw material and other input costs during fiscal 2021, increased supply chain costs and a challenging labor environment.

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

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

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

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

International/Other Results in millions

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Sales $ 2,355 $ 1,990 $ 365 $ 1,856 $ 134

Operating Loss (3) (2) (1) (7) 5

Operating Income (Loss) 14 (3) 17 (2) (1)

• Sales – Sales increased due to volume growth and higher pricing in an inflationary cost environment.

• Operating Loss – Operating income increased primarily due to $27 million of charges incurred in 2021 related to the relocation of a production facility in China which did not recur in fiscal 2022, partially offset by the impacts of global inflationary market conditions.

• Sales – Sales increased due to increased pricing from favorable product mix.

• Operating Loss – Operating loss increased slightly due to a $27 million charge related to the relocation of a production facility in China, partially offset by improved results in our international operations in fiscal 2021.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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Net cash provided by operating activities $ 2,687 $ 3,840

• Gain on disposition of business related to the sale of our pet treats business.

• Gain on disposition of business related to the sale of our pet treats business in fiscal 2021.

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

Acquisitions and Dispositions.

• Other, net included a $34 million defined benefit plan gain in fiscal 2021 and a $112 million gain related to pension plan terminations in fiscal 2020.

• Cash flows associated with changes in operating assets and liabilities:

• 2021 – Decreased primarily from increased accounts receivable, accrued salaries, wages and benefits and inventories, offset by increased accounts payable, taxes payable and legal accruals .

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

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

The increase in inventories is primarily due to increased livestock, raw material and grain costs.

The increase in accounts payable is largely due to increased input costs as well as the timing of payments.

The increase in taxes payable is driven by the timing of payments primarily related to the gain from the sale of our pet treats business in the fourth quarter of fiscal 2021.

The increase in legal accruals is due primarily to legal contingencies recorded during fiscal 2021.

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

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

The decrease in inventories is primarily due to decreased inventory volumes in the Prepared Foods segment.

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

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

• The remaining decrease in net cash provided by operating activities was due to higher payments related to income taxes, legal accruals and deferred payroll tax liabilities under the CARES Act and an increase in inventory primarily due to increased finished inventory, partially offset by a decrease in accounts receivable and higher earnings as a result of strong operations in fiscal 2022.

• In fiscal 2023, we anticipate a net cash outflow related to changes in our operating assets and liabilities as we grow our business in addition to inflationary market conditions.

Cash Flows from Investing Activities in millions

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Proceeds from sale of businesses — 1,188

Acquisitions of Equity Investments (44) (183)

Acquisition of equity investments (177) (44)

Other, net 130 125

Net cash provided by (used for) investing activities $ (1,935) $ 58

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

• 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.

• Approximately $2.4 billion will be necessary to complete buildings and equipment under construction at October 1, 2022.

• Capital spending for fiscal 2023 is expected to approximate $2.5 billion and will include spending for capacity expansion and utilization, automation to alleviate labor challenges and brand and product innovation.

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

• Proceeds from sale of businesses related to the proceeds received from sale of our pet treats business in fiscal 2021 and the sale of a prepared foods business in fiscal 2020.

• Proceeds from sale of businesses related to the proceeds received from sale of our pet treats business in fiscal 2021.

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

Acquisitions and Dispositions.

• Acquisition of equity investments for fiscal 2021 related to the purchase of a 49% minority interest in a Malaysian producer of feed and poultry products, and for fiscal 2020, included 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 fiscal 2021 and fiscal 2020 primarily included changes in deposits for capital expenditures and for fiscal 2021, the receipt of $69 million related to split-dollar life insurance proceeds.

• Acquisition of equity investments for fiscal 2022 included the purchase of 35% minority interest in a South American-based fully integrated poultry company.

• Other, net for fiscal 2022 primarily included insurance proceeds received related to fires at our production facilities, proceeds from the disposition of assets and changes in deposits for capital expenditures.

Other, net for fiscal 2021 primarily included changes in deposits for capital expenditures.

Cash Flows from Financing Activities in millions

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Payments on debt (1,191) (2,632)

Borrowings on revolving credit facility — 1,210

Payments on revolving credit facility — (1,280)

Proceeds from issuance of commercial paper — 14,272

Repayments of commercial paper — (15,271)

Purchases of Tyson Class A common stock (702) (67)

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Net cash used for financing activities $ (2,323) $ (2,731)

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

• During fiscal 2021, proceeds of $585 million from issuance of debt included $500 million of proceeds from the issuance of a term loan facility due March 2023.

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

• Payments on debt included:

• 2021 – In February 2021, we repaid $750 million of the $1.5 billion outstanding under our revolving credit facility.

On March 22, 2021, we executed a new $500 million term loan facility due March 2023.

The Company used the proceeds of the new term loan, together with $250 million in cash on hand, to repay in full the remaining $750 million outstanding under the Company's existing $1.5 billion term loan facility due March 2022.

On September 30, 2021, the Company used cash on hand to repay in full the $500 million term loan facility due March 2023.

• 2022 – In March 2022, we extinguished the $1 billion outstanding balance of our senior notes due June 2022.

• 2021 – During 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.

On July 23, 2021, we redeemed the $500 million outstanding balance of the Senior Notes due August 2021 using cash on hand.

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

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

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

On September 30, 2021, we used cash on hand to repay in full the $500 million term loan facility due March 2023.

• Purchases of Tyson Class A common stock included:

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

• $587 million of cash paid for shares repurchased pursuant to our share repurchase program in fiscal 2022.

• $115 million and $67 million for shares repurchased to fund certain obligations under our equity compensation plans in fiscal 2022 and 2021, respectively.

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

• At October 2, 2021, we had current debt and accrued legal contingencies of $1,067 million and $567 million, respectively, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.

• At October 1, 2022, we had current debt of $459 million, which we intend to pay with cash generated from our operating activities and other existing or new liquidity sources.

• The revolving credit facility supports our short-term funding needs and also serves to backstop our commercial paper program.

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• Our ratio of short-term assets to short-term liabilities (“current ratio”) was 1.8 to 1 and 1.6 to 1 at October 1, 2022, and October 2, 2021, respectively.

The decrease in fiscal 2021 was primarily due to increased accounts payable, current debt and legal contingency accruals, partially offset by increased cash, accounts receivable and inventories.

The increase in fiscal 2022 was primarily due to increased accounts receivable and inventories and decreased current debt and legal contingency accruals, partially offset by decreased cash and cash equivalents and increased accounts payable.

• At October 1, 2022, $465 million of our cash was held in the international accounts of our foreign subsidiaries.

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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 intend to repatriate any 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.

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Ratings Level (S&P/Moody’s) 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 %

A2/A or above 0.700 % 0.875 %

A3/A- 0.090 % 1.000 %

Baal/BBB+ (current level) 0.100 % 1.125 %

Baa2/BBB 0.125 % 1.250 %

Baa3/BBB or lower 0.175 % 1.375 %

In the event the ratings fall within different levels, the applicable rate will be based upon the higher of the two Levels or, if there is more than a one-notch split between the two Levels, then the Applicable Rate will be based upon the Level that is one Level below the higher Level.

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The funded status of the plans is an underfunded position of $159 million at the end of fiscal 2022 as compared to an underfunded position of $215 million at the end of fiscal 2021.

We expect to contribute approximately $14 million of cash to our pension plans in fiscal 2022 as compared to approximately $15 million in fiscal 2021.

We contributed $13 million in fiscal 2022 and expect to contribute approximately $13 million of cash to our pension plans in fiscal 2023.

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

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

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

(5) Amounts include agreements with a remaining term in excess of one year to purchase goods or services that are enforceable and legally binding and specify all significant terms, including:

fixed or minimum quantities to be purchased;

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

Amount also consists of $134 million of payroll tax deferrals associated with the CARES Act, which we expect will be paid in fiscal 2023.

We are unable to reliably estimate the amount and timing of the remaining payments beyond fiscal 2022;

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The potential maximum contractual obligation associated with our cash flow assistance programs at October 1, 2022, based on the estimated fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $290 million.

After analyzing residual credit risks and general market conditions, we had no allowance for these programs' estimated uncollectible receivables at October 2, 2021.

After analyzing residual credit risks and general market conditions, we had no allowance for these programs' estimated credit losses at October 1, 2022.

OTHER KEY FINANCIAL MEASURES

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Actual results could differ from those estimates.

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

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

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

Consequently, this may subject us to future risk of material goodwill, intangible and long-lived asset impairments, increased reserves for uncollectible accounts, and adjustments for inventory and market volatility for items subject to fair value measurements such as derivatives and investments.

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

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Effect if Actual Results Differ From Assumptions

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

Other than those potential impacts, we do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances.

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

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

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

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

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

Other than those potential impacts, we do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances.

Defined benefit pension plans

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The projected benefit obligation was $183 million at the end of fiscal 2022.

Unrecognized actuarial loss was $40 million at the end of fiscal 2021.

Unrecognized actuarial gain was $13 million at the end of fiscal 2022.

We currently expect net periodic benefit cost associated with our pension plans to be approximately $6 million in fiscal 2023.

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We have elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill and indefinite life intangible assets.

However, we could be required to evaluate the recoverability of goodwill and indefinite life intangible assets outside of the required annual assessment if, among other things, we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of the business or a sustained decline in market capitalization.

Judgments and Uncertainties

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Generally, we utilize operating margin assumptions based on future expectations, operating margins historically realized in the reporting units’ industries and industry marketplace valuation multiples.

Our Chicken segment reporting units had goodwill at October 2, 2021 of $3.3 billion.

We generally assumed operating margins in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction.

Had we assumed future operating margins consistent with those realized in the current fiscal year, we would have failed the quantitative step of the annual impairment test, which may have resulted in a material goodwill impairment loss.

The current year results were not indicative of future market participant expectations in an exit transaction primarily due to a decline in hatch rate, a challenging labor environment and market disruptions, which impacts we expect to be mostly temporary in nature.

To pass the first step of the annual impairment test in fiscal 2021, projected long-term operating margins, utilizing the discounted cash flow method, had to exceed approximately 3.1% on a weighted average basis, which has been achieved in eight of the previous ten years.

An increase in the discount rates of approximately 130 basis points on a weighted average basis would have caused the carrying values of our material Chicken reporting units to exceed their discounted cash flows' fair values.

All of our material reporting units' estimated fair values exceeded their carrying values by more than 20% at the date of the most recent estimated fair value determination other than one Chicken segment reporting unit and two International reporting units.

One of our Chicken segment reporting units had goodwill at October 1, 2022 of $0.6 billion.

The reporting unit's projected operating margins included in the annual impairment test in fiscal 2022 averaged approximately 5%, which was consistent with the reporting unit's fiscal 2022 performance.

Additionally, a hypothetical increase in the discount rate of approximately 100 basis points at the date of the 2022 test, with all other assumptions unchanged, would have caused the carrying value of this reporting unit to approximate its fair value.

Our International reporting units, which are presented in International/Other for segment presentation, had goodwill at October 1, 2022 of $0.4 billion, which originated from acquisitions in fiscal 2019 and fiscal 2018.

We generally assumed operating margins in future years would increase as we continue to integrate recent acquisitions and implement our international growth strategy, as we believe this is consistent with market participant views in an exit transaction.

Had we assumed future operating margins consistent with those realized in the current fiscal year, reporting units with goodwill totaling $0.2 billion at October 2, 2021 would have failed the quantitative step of the annual impairment test, which may have resulted in a material goodwill impairment loss.

We are still integrating the recent acquisitions and executing our international and global business strategy, in addition to managing through the temporary impacts of COVID-19.

To pass the first step of the annual impairment test in fiscal 2021, projected long-term operating margins, utilizing the discounted cash flow method, had to exceed 2%.

An increase in the discount rates of approximately 50 basis points would have caused the carrying values of the International reporting units to exceed their discounted cash flows' fair values.

Had we assumed future operating margins consistent with those realized in the current fiscal year, two reporting units with goodwill totaling $0.2 billion at October 1, 2022 would have failed the quantitative step of the annual impairment test, which may have resulted in a goodwill impairment loss.

We are still integrating the recent acquisitions and investing in our international and global business strategy, in addition to managing through the temporary impacts of COVID-19.

The reporting units' projected long-term operating margins included in the annual impairment test in fiscal 2022 had to exceed an average of 4% to achieve breakeven results in the analysis.

A hypothetical increase in the discount rates of approximately 50 basis points, with all other assumptions unchanged, at the date of the test would have caused the carrying values of the International reporting units to approximate their fair values.

The fair value of our indefinite life intangible assets is calculated principally using multi-period excess earnings and relief-from-royalty valuation approaches, which uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy, and is believed to reflect market participant views which would exist in an exit transaction.

Under these valuation approaches, we are required to make estimates and assumptions about sales growth, operating margins, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

Our impairment analysis contains uncertainties due to uncontrollable events that could positively or negatively impact the anticipated future economic and operating conditions.

Our impairment analysis contains uncertainties due to uncontrollable events and assumptions, many of which are outside the control of management, which could positively or negatively impact the anticipated future economic and operating conditions.

Effect if Actual Results Differ From Assumptions

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During fiscal 2022, 2021 and 2020, all of our material reporting units and indefinite life intangible assets passed the impairment analysis.

Some of the inherent estimates and assumptions used in determining fair value of the reporting units and indefinite life intangible assets are outside the control of management, including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings.

While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units and indefinite life intangibles, it is possible a material change could occur.

If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in material impairments of our goodwill.

All of our material reporting units’ estimated fair value exceeded their carrying value by more than 20% at the date of their most recent estimated fair value determination, other than the Chicken segment and International reporting units.

Our impairment analysis contains inherent estimates and assumptions, many of which are outside the control of management including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings, which could positively or negatively impact the anticipated future economic and operating conditions.

The assumptions and estimates used in determining fair value require considerable judgement and are sensitive to changes in underlying assumptions.

These assumptions can change in future periods as a result of overall economic conditions, including the impacts of inflationary pressures, increased interest and discount rates and global supply chain constraints, amongst others.

As a result, there can be no assurance that estimates and assumptions made for the purpose of assessing impairments will prove to be an accurate prediction of the future.

Potential circumstances that could have a negative effect on the fair value of our reporting units include, but are not limited to, lower than forecasted growth rates or operating margins and changes in discount rates.

A reduction in the estimated fair value of the reporting units could trigger an impairment in the future.

We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of our goodwill and indefinite lived assets.

All of our material reporting units’ estimated fair value exceeded their carrying value by more than 20% at the date of their most recent estimated fair value determination, other than one Chicken segment reporting unit and two International reporting units.

Consequently, we do not currently consider any of our other material reporting units at significant risk of impairment.

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Consequently, we do not currently consider any of our material indefinite life intangible assets at significant risk of impairment.

We evaluated the changing macro-economic conditions that occurred in the fourth quarter subsequent to the date of our annual impairment assessment, including inflationary pressures, rising interest rates, demand outlook and export markets as well as the Company’s decreased market capitalization.

Based on this evaluation, we did not identify additional risk of our goodwill reporting units and indefinite life intangible assets in which estimated fair value did not exceed their carrying value by more than 20% as of October 1, 2022, other than the one Chicken segment reporting unit and two International reporting units previously described.

Impairment of long-lived assets and definite life intangibles

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When evaluating long-lived assets and definite life intangibles for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows.

An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset.

An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group.

For assets held for sale, we compare the carrying value of the disposal group to fair value.

The impairment is the excess of the carrying value over the fair value of the asset.

We recorded impairment charges related to long-lived assets and definite life intangibles of $60 million, $48 million and $94 million, in fiscal 2021, 2020 and 2019, respectively.

We recorded impairment charges related to long-lived assets of $34 million, $60 million and $48 million, in fiscal 2022, 2021 and 2020, respectively.

Judgments and Uncertainties

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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-K

Item 7. Management’s Discussion and Analysis