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Item 1. Financial Statements

2023-08-10 compared with 2023-05-08 · 160 added, 129 removed, 736 unchanged (28% of the section changed)

3 unchanged sentences

(In millions, except per share data)

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Sales $ 13,140 $ 13,495 $ 39,533 $ 39,545

2 unchanged sentences

Selling, General and Administrative 579 578 1,656 1,717

Goodwill Impairment 448 — 448 —

Operating Income (Loss) ( 350 ) 1,033 68 3,644

5 unchanged sentences

Income (Loss) before Income Taxes ( 426 ) 986 ( 122 ) 3,483

Income Tax Expense (Benefit) ( 39 ) 254 75 538

Income Tax Expense 9 233 84 771

Net Income (Loss) ( 435 ) 753 ( 206 ) 2,712

13 unchanged sentences

(In millions)

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net Income (Loss) $ ( 435 ) $ 753 $ ( 206 ) $ 2,712

6 unchanged sentences

Comprehensive Income (Loss) ( 470 ) 642 ( 138 ) 2,629

Comprehensive Income Attributable to Noncontrolling Interests 6 4 10 9

Comprehensive Income (Loss) Attributable to Noncontrolling Interests ( 18 ) 3 ( 8 ) 12

Comprehensive Income (Loss) Attributable to Tyson $ ( 452 ) $ 639 $ ( 130 ) $ 2,617

3 unchanged sentences

(In millions, except share and per share data)

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Current Assets:

26 unchanged sentences

Accumulated other comprehensive gain (loss) ( 229 ) ( 297 )

Treasury stock, at cost – 92 million shares at April 1, 2023 and 88 million shares at October 1, 2022 ( 4,955 ) ( 4,683 )

Treasury stock, at cost – 92 million shares at July 1, 2023 and 88 million shares at October 1, 2022 ( 4,958 ) ( 4,683 )

Total Tyson Shareholders’ Equity 18,779 19,702

6 unchanged sentences

(In millions)

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Shares Amount Shares Amount Shares Amount Shares Amount

14 unchanged sentences

Balance at beginning of period ( 194 ) ( 144 ) ( 297 ) ( 172 )

Other comprehensive income 21 28 103 28

Other comprehensive income (loss) ( 35 ) ( 111 ) 68 ( 83 )

Balance at end of period ( 229 ) ( 255 ) ( 229 ) ( 255 )

7 unchanged sentences

Balance at beginning of period $ 159 $ 142 $ 109 $ 131

Net income attributable to noncontrolling interests 6 4 10 9

Net income (loss) attributable to noncontrolling interests ( 18 ) 3 ( 8 ) 12

Distributions to noncontrolling interest ( 2 ) ( 1 ) ( 2 ) ( 1 )

Business combinations — — 28 —

6 unchanged sentences

(In millions)

Six Months Ended

April 1, 2023 April 2, 2022

Nine Months Ended

July 1, 2023 July 2, 2022

Cash Flows From Operating Activities:

Net income $ 229 $ 1,959

Net income (loss) $ ( 206 ) $ 2,712

Depreciation and amortization 943 892

Deferred income taxes ( 54 ) 149

Impairment of goodwill 448 —

Other, net 200 62

18 unchanged sentences

Other, net ( 5 ) —

Cash Used for Financing Activities ( 101 ) ( 1,767 )

Cash Provided by (Used for) Financing Activities 101 ( 2,128 )

Effect of Exchange Rate Changes on Cash 10 ( 18 )

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Actual results could differ from those estimates.

We believe the accompanying consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature necessary to state fairly our financial position as of April 1, 2023 and the results of operations for the three and six months ended April 1, 2023 and April 2, 2022.

We believe the accompanying consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature necessary to state fairly our financial position as of July 1, 2023 and the results of operations for the three and nine months ended July 1, 2023 and July 2, 2022.

Results of operations and cash flows for the periods presented are not necessarily indicative of results to be expected for the full year.

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If the carrying amount of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill.

During fiscal 2022, we determined that all of our material reporting units’ estimated fair value exceeded their carrying value by more than 20 %, other than one of our Chicken segment reporting units and two of our International reporting units with goodwill totaling $ 0.6 billion and $ 0.2 billion, respectively, at October 1, 2022.

Conditions existed as of the end our first quarter that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $ 0.2 billion at December 31, 2022;

Conditions existed as of the end of our first quarter of fiscal 2023 that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $ 0.2 billion as of December 31, 2022;

we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value.

Our qualitative assessment for the second quarter did not indicate that it was more likely than not the fair value of any of our reporting units may be impaired, and as such, no quantitative goodwill test was deemed necessary.

Our qualitative assessment for the second quarter of fiscal 2023 did not indicate that it was more likely than not the fair value of any of our reporting units may be impaired, and as such, no quantitative goodwill test was deemed necessary at that time.

During the third quarter of fiscal 2023, we experienced lower than previously anticipated operating results and changing market fundamentals, as well as a drop in our market capitalization to below our book value.

Consequently, based on our qualitative assessment, we determined the fair values of our reporting units were more likely than not less than the carrying amount and proceeded to perform a quantitative assessment for all our reporting units.

Based on this assessment, we determined that all of our material reporting units’ estimated fair value exceeded their carrying value other than one of our Chicken segment reporting units and two of our International reporting units with goodwill totaling $ 0.6 billion and $ 0.2 billion, respectively, at the time of our third quarter assessment.

For these reporting units, we recorded a $ 448 million goodwill impairment charge of which $ 210 million and $ 238 million was recognized in our Chicken segment and International/Other, respectively.

Following the third quarter of fiscal 2023 quantitative assessment, the following reporting units’ estimated fair value exceeded their carrying value by less than 20 %:

our Chicken segment reporting units, our Beef reporting unit and our Pork reporting unit with goodwill totaling $ 3.1 billion, $ 0.7 billion and $ 0.4 billion, respectively, at July 1, 2023.

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

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We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In November 2021, the FASB issued guidance requiring additional disclosures for transactions with a government that are accounted for by analogizing to a government grant or contribution accounting model to increase transparency of government assistance.

The additional disclosures will include information on the type and nature of the government assistance and the accounting and financial effect of the assistance to our financial statements.

This guidance is effective for annual reporting periods beginning after December 15, 2021, our fiscal 2023 and can be applied using either the prospective or retrospective approach.

We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.

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ACQUISITIONS AND DISPOSITIONS

In the second quarter of fiscal 2023, the Company announced it had reached a definitive agreement to acquire Williams Sausage Company, which we anticipate upon closing will be included in the Prepared Foods segment.

The transaction, which is expected to close in the back half of fiscal 2023, is subject to certain customary closing conditions.

There can be no assurance that the acquisition will close at such time.

In the first quarter of fiscal 2023, we completed the acquisition of a 60 % equity stake in Supreme Foods Processing Company ("SFPC"), a producer and distributor of value-added and cooked chicken and beef products, and a 15 % equity stake in Agricultural Development Company ("ADC"), a fully integrated poultry company, for a total purchase price of approximately $ 75 million, net of cash acquired.

On May 22, 2023, we acquired Williams Sausage Company for $ 223 million, net of cash acquired, subject to certain adjustments, as part of our growth strategy to increase our capacity and product portfolio.

Its results, subsequent to the acquisition closing, are included in Prepared Foods for segment presentation.

Certain estimated values for the acquisition, including goodwill, intangible assets, property, plant and equipment, other liabilities, and deferred taxes are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

The preliminary purchase price allocation includes $ 3 million of net working capital, including $ 3 million of cash acquired, $ 67 million of Property, Plant and Equipment, $ 118 million of Goodwill, $ 65 million of Intangible Assets, and $ 27 million of Deferred Income Taxes.

Intangible Assets include brands and trademarks and customer relationships which will be amortized over a life of 20 and 12 years, respectively.

A portion of the goodwill is deductible for U.S.

income tax purposes.

The acquisition of Williams Sausage Company was accounted for using the acquisition method of accounting.

Both SFPC and ADC were subsidiaries of Tanmiah Food Company.

The results of SFPC, subsequent to the acquisition closing, are included in International/Other for segment presentation.

SFPC's results from the date of acquisition through April 1, 2023 were insignificant to our Consolidated Condensed Statements of Income.

SFPC's results from the date of acquisition through July 1, 2023 were insignificant to our Consolidated Condensed Statements of Income.

We are accounting for the investment in ADC under the equity method.

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Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, livestock grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories.

At April 1, 2023, the cost of inventories was determined by either the first-in, first-out method or the weighted-average method, which is consistent with the methods used at October 1, 2022.

Inventories are presented net of lower of cost or net realizable value adjustments of $ 145 million and $ 60 million at April 1, 2023 and October 1, 2022, respectively.

At July 1, 2023, the cost of inventories was determined by either the first-in, first-out method or the weighted-average method, which is consistent with the methods used at October 1, 2022.

Inventories are presented net of lower of cost or net realizable value adjustments of $ 137 million and $ 60 million as of July 1, 2023 and October 1, 2022, respectively.

The following table reflects the major components of inventory (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Processed products $ 2,927 $ 3,188

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The major categories of property, plant and equipment and accumulated depreciation are as follows (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Land $ 218 $ 214

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Other current liabilities are as follows (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Accrued salaries, wages and benefits $ 702 $ 995

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In conjunction with the 2022 Program, the Company is bringing 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 which commenced in early calendar year 2023.

In the third quarter of fiscal 2023, the Company approved an extension to the program related to removing additional redundancies in corporate overhead.

Additionally, we revised the total 2022 Program anticipated expenses down $ 39 million due to revised estimates related to relocation, lease terminations, professional and other fees, based on actual experience, which were partially offset by increased severance costs associated with the third quarter program extension.

We anticipate the 2022 Program and associated expenses will be substantially complete in our fiscal 2025.

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Included in the table above are $ 210 million of charges that have resulted or will result in cash outflows and $ 22 million in non-cash charges.

The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the second quarter of fiscal 2023 by reportable segment (in millions):

The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the third quarter of fiscal 2023 by reportable segment (in millions):

Beef Pork Chicken Prepared Foods International/Other Total

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Total $ 13 $ 4 $ 10 $ 14 $ 9 $ 50

For the second quarter of fiscal 2023, we recorded restructuring and related charges of $ 26 million in Selling, General and Administrative and a reduction of $ 4 million in Cost of Sales in our Consolidated Condensed Statements of Income.

For the third quarter of fiscal 2023, we recorded restructuring and related charges of $ 19 million and $ 31 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income.

Included in the above results are $ 45 million of charges that have resulted or will result in cash outflows and $ 5 million in non-cash charges.

The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the first six months of fiscal 2023 by reportable segment (in millions):

The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the first nine months of fiscal 2023 by reportable segment (in millions):

Beef Pork Chicken Prepared Foods International/Other Total

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Total $ 26 $ 8 $ 11 $ 33 $ 15 $ 93

For the first six months of fiscal 2023, we recorded restructuring and related charges of $ 4 million and $ 39 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income.

For the first nine months of fiscal 2023, we recorded restructuring and related charges of $ 23 million and $ 70 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income.

Included in the above results are $ 80 million of charges that have resulted or will result in cash outflows and $ 13 million in non-cash charges.

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Total $ 42 $ 13 $ 17 $ 69 $ 18 $ 159

As of the second quarter of fiscal 2023, we recorded restructuring and related charges to date of $ 22 million and $ 87 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income.

As of the third quarter of fiscal 2023, we recorded restructuring and related charges to date of $ 41 million and $ 118 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income.

Included in the above results are $ 146 million of charges to date that have resulted or will result in cash outflows and $ 13 million in non-cash charges to date.

The following table reflects our liability related to the 2022 Program, which was recognized in other current liabilities in our Consolidated Condensed Balance sheet as of April 1, 2023 (in millions):

Balance at October 1, 2022 Restructuring Expense Payments Changes in Estimates Balance at

April 1, 2023

The following table reflects our liability related to the 2022 Program, which was recognized in other current liabilities in our Consolidated Condensed Balance sheet as of July 1, 2023 (in millions):

Balance at October 1, 2022 Restructuring Expense Payments Changes in Estimates Balance at July 1, 2023

Severance costs $ 66 $ 56 $ 12 $ ( 14 ) $ 96

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Plant Closures

In the second quarter of fiscal 2023, in order to further optimize our network to reach full capacity in our facilities, management approved and communicated the planned closure of two of the Company's Chicken facilities in Glen Allen, Virginia and Van Buren, Arkansas.

As a result, we recorded $ 92 million in closure charges, primarily related to grower contract terminations, accelerated depreciation, and severance, retention and related costs.

The facilities are expected to cease operations in the third quarter of fiscal 2023.

In the second quarter of fiscal 2023, after a strategic review of assets within its Chicken segment, the Company approved the closure of two of the Company's Chicken facilities in Glen Allen, Virginia and Van Buren, Arkansas, to optimize network asset utilization.

As a result, we recorded $ 15 million and $ 107 million in closure charges, primarily related to grower contract terminations, accelerated depreciation, severance, retention and related costs for the three and nine months ended July 1, 2023, respectively.

We shifted production to other facilities and ceased operations at the impacted locations in the third quarter of fiscal 2023.

The charges are reflected in the Consolidated Condensed Statements of Income in Cost of Sales.

Our plant closure liability was $ 72 million at July 1, 2023 and we had no plant closure liability at October 1, 2022.

In August 2023, as part of the ongoing strategic review, the Company approved the closure of four Chicken segment processing facilities, located in Corydon, Indiana;

Dexter, Missouri;

Noel, Missouri;

and North Little Rock, Arkansas, to further optimize network asset utilization.

We expect to shift production to other facilities and cease operations at the impacted locations in our first two quarters of fiscal 2024.

We continue to evaluate the financial statement impact of the closures for charges related to contract terminations, impairments, accelerated depreciation, severance and retention.

Based on our preliminary analysis, we currently estimate total charges of $ 300 million to $ 400 million which we expect to be recorded beginning in the fourth quarter of fiscal 2023 through the planned closure dates.

We continue to strategically evaluate optimization of such items as network capacity, manufacturing efficiencies and business technology.

If we have a significant change in strategies, outlook, or a manner in which we plan to use these assets, we may be exposed to future impairments.

The major components of debt are as follows (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Revolving credit facility $ — $ —

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Discount on senior notes ( 37 ) ( 39 )

Term loan facility due May 2026 (6.32% at July 1, 2023) 1,000 —

Term loan facility due May 2028 — —

Other 173 175

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The facility will mature and the commitments thereunder will terminate in September 2026 with options for two one-year extensions.

At April 1, 2023, amounts available for borrowing under this facility totaled $ 2.25 billion before deducting amounts to backstop our commercial paper program.

At April 1, 2023 we had no outstanding borrowings and no outstanding letters of credit issued under this facility.

At April 1, 2023 we had $ 102 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon.

At July 1, 2023, amounts available for borrowing under this facility totaled $ 2.25 billion and we had no outstanding borrowings and no outstanding letters of credit issued under this facility.

At July 1, 2023 we had $ 97 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon.

Our letters of credit are issued primarily in support of workers’ compensation insurance programs and other legal obligations.

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We have a commercial paper program under which we may issue unsecured short-term promissory notes up to an aggregate maximum principal amount of $ 1.5 billion.

As of April 1, 2023, we had $ 593 million of commercial paper outstanding at a weighted average interest rate of 5.41 % with maturities of less than 25 days .

As of July 1, 2023, we had no commercial paper outstanding .

Our ability to access commercial paper in the future may be limited or its costs increased.

Term Loan Facilities

On May 3, 2023, we executed two new term loan facilities totaling $ 1.75 billion to refinance our short-term promissory notes ("commercial paper program") and for general corporate purposes.

The first term loan facility totaling $ 1.0 billion matures three years following the date of the initial borrowing.

The second term loan facility totaling $ 750 million matures five years from May 3, 2023, the date of closing.

In the third quarter of fiscal 2023, we executed two new term loan facilities totaling $ 1.75 billion to refinance our short-term promissory notes ("commercial paper program") and for general corporate purposes.

The first term loan facility totaling $ 1.0 billion matures on May 3, 2026 and we borrowed the full $ 1.0 billion available under this loan facility and used it to repay $ 610 million of outstanding commercial paper obligations.

The second term loan facility totaling $ 750 million matures on May 3, 2028 and at July 1, 2023, we had no outstanding borrowings under this facility.

Both term loans may be prepaid under certain conditions.

The interest rate on both term loan facilities will be equal to SOFR plus a predetermined borrowing spread determined by our credit rating.

Additionally, the term loan facilities contain covenants that are similar to those contained in the revolving credit facility.

Debt Covenants

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

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

create liens and encumbrances;

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

We were in compliance with all debt covenants at April 1, 2023.

We were in compliance with all debt covenants at July 1, 2023.

Share Repurchases

As of April 1, 2023, 7.3 million shares remained available for repurchase under the Company's share repurchase program.

As of July 1, 2023, 7.3 million shares remained available for repurchase under the Company's share repurchase program.

The program has no fixed or scheduled termination date and the timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, markets, industry conditions, liquidity targets, limitations under our debt obligations and regulatory requirements.

1 unchanged sentence

A summary of share repurchases of our Class A stock is as follows (in millions):

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Shares Dollars Shares Dollars Shares Dollars Shares Dollars

3 unchanged sentences

Total share repurchases 0.2 $ 11 1.9 $ 170 5.4 $ 343 8.1 $ 693

Our effective tax rate was 29.4 % on pretax loss for the second quarter of fiscal 2023, 23.4 % on pretax income for the second quarter of fiscal 2022, and 24.7 % and 21.6 % on pretax income for the first six months of fiscal 2023 and 2022, respectively.

In all periods presented, the effective tax rates were increased due to state taxes and include the impact of various tax benefits;

Our effective tax rate was ( 1.8 )% on pretax loss for the third quarter of fiscal 2023, 23.6 % on pretax income for the third quarter of fiscal 2022, ( 67.9 )% on pretax loss for the first nine months of fiscal 2023 and 22.1 % on pretax income for the first nine months of fiscal 2022.

The percentage impacts of items on the effective tax rate were greater in fiscal 2023 due to the level of pretax income (loss) in fiscal 2023 compared to fiscal 2022.

The effective tax rates for the third quarter and first nine months of fiscal 2023 include the impacts of a $ 448 million non-deductible goodwill impairment.

In all periods presented, the effective tax rates include the impacts of state tax expense and various tax benefits;

however, tax benefits increase the effective tax rate in a period of pretax loss and decrease the effective tax rate in a period of pretax income.

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

Unrecognized tax benefits were $ 157 million and $ 152 million at April 1, 2023 and October 1, 2022, respectively.

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

Unrecognized tax benefits were $ 156 million and $ 152 million at July 1, 2023 and October 1, 2022, respectively.

In December 2021, we received an assessment from the Mexican tax authorities related to the 2015 sale of our direct and indirect equity interests in subsidiaries which held our Mexico operations.

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The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except per share data):

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net income (loss) $ ( 435 ) $ 753 $ ( 206 ) $ 2,712

Net income attributable to noncontrolling interests 6 4 10 9

Net income (loss) attributable to noncontrolling interests ( 18 ) 3 ( 8 ) 12

Net income (loss) attributable to Tyson ( 417 ) 750 ( 198 ) 2,700

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Class B $ 0.432 $ 0.414 $ 1.314 $ 1.256

Approximately 10 million and 5 million of our stock-based compensation shares were antidilutive for the three and six months ended April 1, 2023, respectively.

Approximately 2 million of our stock-based compensation shares were antidilutive for the three and six months ended April 2, 2022.

Approximately 9 million of our stock-based compensation shares were antidilutive for the three and nine months ended July 1, 2023.

Approximately 2 million of our stock-based compensation shares were antidilutive for the three and nine months ended July 2, 2022.

These shares were not included in the diluted earnings per share calculation.

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Additionally, our derivative contracts are mostly short-term in duration and we generally do not make use of credit-risk-related contingent features.

No significant concentrations of credit risk existed at April 1, 2023.

No significant concentrations of credit risk existed at July 1, 2023.

We had the following net aggregated outstanding notional amounts related to our derivative financial instruments:

in millions, except soybean meal tons Metric April 1, 2023 October 1, 2022

in millions, except soybean meal tons Metric July 1, 2023 October 1, 2022

Corn Bushels 75 44

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Gains and losses representing hedge ineffectiveness are recognized in earnings in the current period.

Ineffectiveness related to our cash flow hedges was not significant for the three and six months ended April 1, 2023, and April 2, 2022.

As of April 1, 2023, we had $ 13 million of realized losses related to treasury rate locks in connection with the issuance of the 2026, 2029 and 2048 Notes, which will be reclassified to earnings over the lives of these notes.

During the six months ended April 1, 2023 and April 2, 2022, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges.

For the six months ended April 1, 2023 and April 2, 2022, we had no gains or losses recognized in OCI on derivatives designated as cash flow hedges.

Ineffectiveness related to our cash flow hedges was not significant for the three and nine months ended July 1, 2023, and July 2, 2022.

As of July 1, 2023, we had $ 13 million of realized losses related to treasury rate locks in connection with the issuance of the 2026, 2029 and 2048 Notes, which will be reclassified to earnings over the lives of these notes.

During the nine months ended July 1, 2023 and July 2, 2022, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges.

For the nine months ended July 1, 2023 and July 2, 2022, we had no gains or losses recognized in OCI on derivatives designated as cash flow hedges.

Fair Value Hedges

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We include the gain or loss on the hedged items (e.g., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the related livestock forward position.

Ineffectiveness related to fair value hedges was not significant for the three and six months ended April 1, 2023, and April 2, 2022.

The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of April 1, 2023 and October 1, 2022 (in millions):

Consolidated Condensed Balance Sheets Classification April 1, 2023 October 1, 2022

Ineffectiveness related to fair value hedges was not significant for the three and nine months ended July 1, 2023, and July 2, 2022.

The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of July 1, 2023 and October 1, 2022 (in millions):

Consolidated Condensed Balance Sheets Classification July 1, 2023 October 1, 2022

Inventory $ 23 $ ( 12 )

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The following table sets forth the total amounts of each income and expense line item presented in the Consolidated Condensed Statements of Income in which the effects of hedges are recorded (in millions):

Consolidated Condensed Statements of Income Classification Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Consolidated Condensed Statements of Income Classification Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Cost of Sales $ 12,463 $ 11,884 $ 37,361 $ 34,184

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The following table sets forth the pretax impact of the cash flow, fair value and undesignated derivative instruments in the Consolidated Condensed Statements of Income (in millions):

Consolidated Condensed Statements of Income Classification Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Consolidated Condensed Statements of Income Classification Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Cost of Sales Gain (Loss) on cash flow hedges reclassified from OCI to Earnings:

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The following tables set forth by level within the fair value hierarchy our financial assets and liabilities accounted for at fair value on a recurring basis according to the valuation techniques we used to determine their fair values (in millions):

April 1, 2023 Level 1 Level 2 Level 3 Netting (a) Total

July 1, 2023 Level 1 Level 2 Level 3 Netting (a) Total

Other Current Assets:

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(a) Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us.

Additionally, at April 1, 2023, and October 1, 2022, we had $ 45 million and $ 10 million, respectively, of net cash collateral with various counterparties where master netting arrangements exist and held no cash collateral.

Additionally, at July 1, 2023, and October 1, 2022, we had $ 101 million and $ 10 million, respectively, of net cash collateral with various counterparties where master netting arrangements exist and held no cash collateral.

The following table provides a reconciliation between the beginning and ending balance of marketable debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions):

Six Months Ended

April 1, 2023 April 2, 2022

Nine Months Ended

July 1, 2023 July 2, 2022

Balance at beginning of year $ 35 $ 48

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Balance at end of period $ 31 $ 38

Total gains (losses) for the six month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period

Total gains (losses) for the nine month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

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The following table sets forth our available-for-sale securities’ amortized cost basis, fair value and unrealized gain (loss) by significant investment category (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Cost Basis Fair

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We consider many factors in determining whether a loss is credit-related, including the financial condition and near-term prospects of the issuer, borrower repayment characteristics for asset-backed securities, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

We recognized no direct write-offs or allowances for credit losses in earnings for the three and six months ended April 1, 2023, and April 2, 2022.

We recognized no direct write-offs or allowances for credit losses in earnings for the three and nine months ended July 1, 2023, and July 2, 2022.

Deferred Compensation Assets

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Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges and, with respect to our equity investments without readily determinable fair values, recorded by applying the measurement alternative for which such investments are recorded at cost and adjusted for an observable price change in an orderly transaction for an identical or similar investment of the same issuer.

We did not have any significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the six months ended April 1, 2023.

In the six months ended April 2, 2022, we recognized gains of $ 37 million in Other, net in the Consolidated Condensed Statements of Income, based upon observable price changes.

In the third quarter of fiscal 2023, we recorded goodwill impairment charges of $ 210 million and $ 238 million in our Chicken segment and International/Other, respectively.

We estimated the fair value of our reporting units utilizing various valuation techniques, with the primary technique being an income approach (discounted cash flow method) and another technique being a market approach (guideline public company method), which incorporated significant unobservable Level 3 inputs.

We did not have any other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the nine months ended July 1, 2023.

In the nine months ended July 2, 2022, we recognized gains of $ 37 million in Other, net in the Consolidated Condensed Statements of Income, based upon observable price changes.

Equity investments without readily determinable fair values are measured using Level 3 inputs and are included in Other Assets in the Consolidated Condensed Balance Sheets.

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Fair value and carrying value for our debt are as follows (in millions):

April 1, 2023 October 1, 2022

July 1, 2023 October 1, 2022

Fair Value Carrying Value Fair Value Carrying Value

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The before and after-tax changes in the components of other comprehensive income (loss) are as follows (in millions):

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Before Tax Tax After Tax Before Tax Tax After Tax Before Tax Tax After Tax Before Tax Tax After Tax

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Information on segments and a reconciliation to income before income taxes are as follows (in millions):

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Beef $ 4,956 $ 4,959 $ 14,296 $ 14,995

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Total Sales $ 13,140 $ 13,495 $ 39,533 $ 39,545

Three Months Ended Six Months Ended

April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022

Three Months Ended Nine Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Operating Income (Loss):

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Prepared Foods 206 186 705 635

International/Other 1 ( 2 ) ( 4 ) 7

International/Other (c)

( 234 ) 12 ( 238 ) 19

Total Operating Income (Loss) ( 350 ) 1,033 68 3,644

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Income (Loss) before Income Taxes $ ( 426 ) $ 986 $ ( 122 ) $ 3,483

(a) Beef segment results for the six months ended April 1, 2023 included $ 42 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales.

(b) Chicken segment results for the six months ended April 1, 2023 included $ 7 million of costs related to a fire at one of our production facilities, net of insurance proceeds, recognized in Cost of Sales.

Chicken segment results for the three months ended April 1, 2023 included $ 92 million of costs related to plant closures, recognized in Cost of Sales.

Additionally, Chicken segment results for the three months ended April 2, 2022 included $ 5 million of costs related to a fire at one of our production facilities, net of insurance proceeds.

Chicken segments results for the six months ended April 2, 2022 included $ 18 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales.

(a) Beef segment results for the nine months ended July 1, 2023 included $ 42 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales.

Additionally, Beef segment results for the three and nine months ended July 2, 2022 included $ 27 million recognized in Cost of Sales of insurance proceeds related to a fire at one of our production facilities in the fourth quarter of fiscal 2019.

(b) Chicken segment results for the three and nine months ended July 1, 2023 included insurance proceeds, net of costs incurred, of $ 22 million and $ 15 million, respectively, recognized in Cost of Sales, and costs related to plant closures of $ 15 million and $ 107 million, respectively, recognized in Cost of Sales.

Chicken segment results for the three and nine months ended July 1, 2023 included charges of $ 38 million related to the recognition of a legal contingency accrual, recognized as a reduction to Sales pursuant to FASB guidance related to accounting for revenue from contracts with customers, and $ 210 million of goodwill impairment.

Additionally, Chicken segment results for the three and nine months ended July 2, 2022 included insurance proceeds, net of costs incurred, of $ 8 million and $ 26 million, respectively, recognized in Cost of Sales.

(c) International/Other results for the three and nine months ended July 1, 2023 included $ 238 million of goodwill impairment.

The following tables further disaggregate our sales to customers by major distribution channels (in millions):

Three months ended April 1, 2023

Three months ended July 1, 2023

Foodservice (b)

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Total $ 5,926 $ 3,916 $ 1,917 $ 1,381 $ — $ 13,140

Three months ended April 2, 2022

Three months ended July 2, 2022

Foodservice (b)

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Total $ 5,897 $ 3,939 $ 2,089 $ 1,570 $ — $ 13,495

Six months ended April 1, 2023

Nine months ended July 1, 2023

Foodservice (b)

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Total $ 17,851 $ 11,569 $ 5,703 $ 4,410 $ — $ 39,533

Six months ended April 2, 2022

Nine months ended July 2, 2022

Foodservice (b)

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(d) Includes sales to industrial food processing companies that further process our product to sell to end consumers and any remaining sales not included in the Retail, Foodservice or International categories .

For the third quarter and nine months of fiscal 2023, the Chicken segment included a $ 38 million reduction in Other due to the recognition of a legal contingency accrual.

COMMITMENTS AND CONTINGENCIES

We guarantee obligations of certain outside third parties, consisting primarily of grower loans, which are substantially collateralized by the underlying assets.

The remaining terms of the underlying obligations cover periods up to 8 years, and the maximum potential amount of future payments as of April 1, 2023, was not significant.

The remaining terms of the underlying obligations cover periods up to 8 years, and the maximum potential amount of future payments as of July 1, 2023, was not significant.

The likelihood of material payments under these guarantees is not considered probable.

At April 1, 2023 and October 1, 2022, no significant liabilities for guarantees were recorded.

At July 1, 2023 and October 1, 2022, no significant liabilities for guarantees were recorded.

We have cash flow assistance programs in which certain livestock suppliers participate.

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Our maximum commitment associated with these programs is limited to the fair value of each participating livestock supplier’s net tangible assets.

The potential maximum commitment as of April 1, 2023 was approximately $ 295 million.

The total receivables under these programs were $ 11 million and $ 6 million at April 1, 2023 and October 1, 2022, respectively.

The potential maximum commitment as of July 1, 2023 was approximately $ 280 million.

The total receivables under these programs were $ 20 million and $ 6 million at July 1, 2023 and October 1, 2022, respectively.

These receivables are included, net of allowance for uncollectible amounts, in Accounts Receivable in our Consolidated Condensed Balance Sheets.

Even though these programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with these programs by obtaining security interests in livestock suppliers’ assets.

After analyzing residual credit risks and general market conditions, we had a $ 3 million allowance for these programs’ estimated uncollectible receivables at April 1, 2023, and no allowance at October 1, 2022.

After analyzing residual credit risks and general market conditions, we had a $ 6 million allowance for these programs’ estimated uncollectible receivables at July 1, 2023, and no allowance at October 1, 2022.

When constructing new facilities or making major enhancements to existing facilities, we will occasionally enter into incentive agreements with local government agencies in order to reduce certain state and local tax expenditures.

These funds are generally considered restricted cash, which is reported in the Consolidated Condensed Balance Sheets in Other Assets.

We had no deposits at April 1, 2023 and October 1, 2022.

We had no deposits at July 1, 2023 and October 1, 2022.

Additionally, under certain agreements, we transfer the related assets to various local government entities and receive Industrial Revenue Bonds.

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The Industrial Revenue Bonds and the associated obligations for the leases of the facilities offset, and the underlying assets remain in property, plant and equipment.

At April 1, 2023, the total amount under these types of arrangements totaled $ 797 million.

At July 1, 2023, the total amount under these types of arrangements totaled $ 797 million.

Contingencies

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Listed below are certain claims made against the Company for which the magnitude of the potential exposure could be material to the Company’s Consolidated Financial Statements.

There were no significant changes to the loss contingency accruals described below reflected in the Company’s Consolidated Condensed Statements of Income for the three and six months ended April 1, 2023.

There were no other significant changes to the loss contingency accruals described below reflected in the Company’s Consolidated Condensed Statements of Income for the three months and nine months ended July 1, 2023.

Broiler Antitrust Civil Litigation

Beginning in September 2016, a series of purported federal class action lawsuits styled In re Broiler Chicken Antitrust Litigation (the “Broiler Antitrust Civil Litigation”) were filed in the United States District Court for the Northern District of Illinois against us and certain of our poultry subsidiaries, as well as several other poultry processing companies.

Beginning in September 2016, a series of putative federal class action lawsuits styled In re Broiler Chicken Antitrust Litigation (the “Broiler Antitrust Civil Litigation”) were filed in the United States District Court for the Northern District of Illinois against us and certain of our poultry subsidiaries, as well as several other poultry processing companies.

The operative complaints, which have been amended throughout the litigation, contain allegations that, among other things, assert that beginning in January 2008, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of broiler chickens in violation of United States antitrust laws.

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Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future.

The first trial in this matter, which will involve claims brought by the Direct Purchaser Plaintiff Class and certain direct-action plaintiffs, is scheduled to begin on September 12, 2023.

On June 30, 2023, the court granted, in part, and denied, in part, summary judgment motions the Company had filed and joined, narrowing the scope of the claims the Company is facing in this first trial.

On January 19, 2021, we announced that we had reached agreements to settle certain class claims related to the Broiler Antitrust Civil Litigation.

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While we do not admit any liability as part of the settlements, we believe that the settlements were in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation.

During the first six months of fiscal 2023 and the full fiscal 2022, the Company reduced its total recorded legal contingency accrual by $ 11 million and $ 179 million, respectively, for amounts it had paid in connection with settlements related to this matter.

Accordingly, at April 1, 2023 and October 1, 2022 , the legal contingency accrual for claims related to this matter was $ 111 million and $ 122 million, respectively.

During the three months and nine months ended July 1, 2023, the Company recorded an additional $ 38 million charge related to this matter.

Additionally, during the first nine months of fiscal 2023 and fiscal 2022, the Company reduced its total recorded legal contingency accrual by $ 11 million and $ 197 million, respectively, for amounts it had paid in connection with settlements related to this matter.

Accordingly, at July 1, 2023 and October 1, 2022, the legal contingency accrual for claims related to this matter was $ 149 million and $ 122 million, respectively.

Government Investigations

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State Matters .

The Offices of the Attorney General in New Mexico, Alaska and Washington have filed complaints against us and certain of our poultry subsidiaries, as well as several other poultry processing companies and Agri Stats, Inc., an information services provider (“Agri Stats”).

The Offices of the Attorneys General in New Mexico and Alaska have filed complaints against us and certain of our poultry subsidiaries, as well as several other poultry processing companies and Agri Stats, Inc., an information services provider (“Agri Stats”).

The complaints are based on allegations similar to those asserted in the Broiler Antitrust Civil Litigation and allege violations of state antitrust, unfair trade practice, and unjust enrichment laws.

In October 2022, we reached an agreement to settle all claims with the Washington Attorney General for $ 10.5 million for which the Company recorded an accrual in its Consolidated Financial Statements as of October 1, 2022, and on October 24, 2022, the Court entered the related consent decree resolving all claims in this matter between us and the Washington Attorney General.

The Company paid the settlement during the first quarter of fiscal 2023.

While we do not admit any liability as part of the settlement, we believe that the settlement was in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation.

The other claims with the Offices of Attorney General in New Mexico and Alaska remain outstanding.

In addition, we are cooperating with various state governmental agencies and officials, including the Offices of the Attorney General for Florida and Louisiana, investigating or otherwise seeking information, testimony and/or documents, regarding the conduct alleged in the Broiler Antitrust Civil Litigation and related matters.

We are cooperating with various state governmental agencies and officials, including the Offices of the Attorneys General for Florida and Louisiana, investigating or otherwise seeking information, testimony and/or documents, regarding the conduct alleged in the Broiler Antitrust Civil Litigation and related matters.

The Company has not recorded any liability in connection with these matters as it does not believe a loss is probable or reasonably estimable at this time in respect of the claims by the New Mexico and Alaska Attorneys General and the investigations by the Florida and Louisiana Attorneys General.

Broiler Chicken Grower Litigation

On January 27, 2017 and March 26, 2017, putative class action complaints were filed against us and certain of our poultry subsidiaries, as well as several other vertically integrated poultry processing companies, in the United States District Court for the Eastern District of Oklahoma styled In re Broiler Chicken Grower Litigation.

The plaintiffs allege, among other things, that the defendants colluded not to compete for broiler raising services “with the purpose and effect of fixing, maintaining, and/or stabilizing grower compensation below competitive levels.” The plaintiffs also allege that the defendants “agreed to share detailed data on [g]rower compensation with one another, with the purpose and effect of artificially depressing [g]rower compensation below competitive levels.” The plaintiffs contend these alleged acts constitute violations of the Sherman Antitrust Act and Section 202 of the Grain Inspection, Packers and Stockyards Act of 1921.

The plaintiffs are seeking treble damages, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative class.

Additional named plaintiffs filed similar class action complaints in federal district courts in North Carolina, Colorado, Kansas and California.

All actions were subsequently consolidated in the Eastern District of Oklahoma.

In June 2021, we reached an agreement to settle with the putative class of broiler chicken farmers all claims raised in this consolidated action on terms not material to the Company for which the Company recorded an accrual in its Consolidated Financial Statements as of October 2, 2021.

The Court granted preliminary approval of the settlement on August 23, 2021 and final approval on February 18, 2022, and the Company paid the settlement during fiscal 2022.

In October 2022, the DOJ’s Antitrust Division opened a civil investigation into grower contracts and performance-based compensation.

Following the settlement of our previously disclosed In re Broiler Chicken Grower Litigation during fiscal 2022, in October 2022, the DOJ’s Antitrust Division opened a civil investigation into broiler chicken grower contracts and alleged non-competitive practices involving performance-based compensation sharing for the purpose of stabilizing compensation below competitive levels.

We continue to cooperate with the investigation.

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We received a subpoena dated April 21, 2022 from the New York Attorney General’s Bureau of Consumer Frauds & Protection seeking information regarding our sales, prices and production costs of beef, pork and chicken products.

After we had made an initial production of information, we were unable to agree with the New York Attorney General's office on the appropriate scope of the subpoena and, as of August 3, 2022, the parties are litigating the issue before a New York state court.

After we had made an initial production of information, we were unable to agree with the New York Attorney General's office on the appropriate scope of the subpoena.

Following initial litigation on the scope of the subpoena, we are reviewing and producing documents.

Wage Rate Litigation

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In the third quarter of fiscal 2021, the Company recorded an accrual for the estimated probable losses that it expects to incur for this matter in the Company’s Consolidated Condensed Financial Statements.

There was no change to the accrual in fiscal 2022 or the first six months of fiscal 2023.

There was no change to the accrual in fiscal 2022 or the first nine months of fiscal 2023.

The DOJ’s Antitrust Division has opened a civil investigation into human resources at several poultry companies.

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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 1. Financial Statements