Document and Entity Information

3 Months Ended

Dec. 31, 2016

Entity Registrant Name

TYSON FOODS INC

Entity Central Index Key

0000100493

Current Fiscal Year End Date

--09-30

Entity Filer Category

Large Accelerated Filer

Document Type

10-Q

Document Period End Date

Dec. 31, 2016

Document Fiscal Year Focus

2017

Document Fiscal Period Focus

Q1

Amendment Flag

false

Class A [Member]

Entity Common Stock, Shares Outstanding

286,947,904

Class B [Member]

Entity Common Stock, Shares Outstanding

70,010,755

Consolidated Condensed Statements Of Income (USD $)

In Millions, except Per Share data, unless otherwise specified

3 Months Ended

Dec. 31, 2016

Jan. 2, 2016

Sales

$ 9,182

$ 9,152

Cost of Sales

7,699

7,951

Gross Profit

1,483

1,201

Operating Expenses:

Selling, General and Administrative

501

425

Operating Income

982

776

Other (Income) Expense:

Interest income

(2)

Interest expense

58

67

Other, net

14

(1)

Total Other (Income) Expense

70

64

Income before Income Taxes

912

712

Income Tax Expense

318

251

Net Income

594

461

Less: Net income attributable to noncontrolling interest

1

0

Net Income Attributable to Tyson

$ 593

$ 461

Weighted Average Shares Outstanding:

Diluted, Shares

373

400

Net Income Per Share Attributable to Tyson:

Diluted (USD per share)

$ 1.59

$ 1.15

Class A [Member]

Weighted Average Shares Outstanding:

Basic, Shares

297

325

Net Income Per Share Attributable to Tyson:

Basic (USD per share)

$ 1.64

$ 1.18

Dividends Declared Per Share:

Dividends Declared (USD per share)

$ 0.300

$ 0.200

Class B [Member]

Weighted Average Shares Outstanding:

Basic, Shares

70

Net Income Per Share Attributable to Tyson:

Basic (USD per share)

$ 1.49

$ 1.09

Dividends Declared Per Share:

Dividends Declared (USD per share)

$ 0.270

$ 0.180

Consolidated Condensed Statements of Comprehensive Income (USD $)

In Millions, unless otherwise specified

3 Months Ended

Dec. 31, 2016

Jan. 2, 2016

Statement of Comprehensive Income [Abstract]

Net Income

$ 594

$ 461

Other Comprehensive Income (Loss), Net of Taxes:

Derivatives accounted for as cash flow hedges

3

0

Investments

(1)

Currency translation

(14)

(5)

Postretirement benefits

(3)

(2)

Total Other Comprehensive Income (Loss), Net of Taxes

(15)

(8)

Comprehensive Income

579

453

Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests

1

0

Comprehensive Income Attributable to Tyson

$ 578

$ 453

Consolidated Condensed Balance Sheets (USD $)

In Millions, unless otherwise specified

Dec. 31, 2016

Oct. 1, 2016

Assets

Cash and cash equivalents

$ 307

$ 349

Accounts receivable, net

1,512

1,542

Inventories

2,767

2,732

Other current assets

156

265

Total Current Assets

4,742

4,888

Net Property, Plant and Equipment

5,206

5,170

Goodwill

6,669

Intangible Assets, net

5,064

5,084

Other Assets

576

562

Total Assets

22,257

22,373

Liabilities and Shareholders' Equity

Current debt

66

79

Accounts payable

1,591

1,511

Other current liabilities

1,315

1,172

Total Current Liabilities

2,972

2,762

Long-Term Debt

5,901

6,200

Deferred Income Taxes

2,538

2,545

Other Liabilities

1,279

1,242

Commitments and Contingencies (Note 16)

Shareholders' Equity:

Capital in excess of par value

4,342

4,355

Retained earnings

8,837

8,348

Accumulated other comprehensive loss

(60)

(45)

Treasury stock, at cost - 80 million shares at December 31, 2016 and 73 million shares at October 1, 2016

(3,613)

(3,093)

Total Tyson Shareholders' Equity

9,550

9,608

Noncontrolling Interest

17

16

Total Shareholders' Equity

9,567

9,624

Total Liabilities and Shareholders' Equity

22,257

22,373

Class A [Member]

Shareholders' Equity:

Common stock

37

36

Convertible Class B [Member]

Shareholders' Equity:

Common stock

$ 7

Condensed Consolidated Balance Sheets (Parentheticals) (USD $)

In Millions, except Per Share data, unless otherwise specified

Dec. 31, 2016

Oct. 1, 2016

Treasury Stock, shares

80

73

Class A [Member]

Common stock, par value

$ 0.10

Common stock, shares authorized

900

Common stock, shares issued

367

364

Convertible Class B [Member]

Common stock, par value

$ 0.10

Common stock, shares authorized

900

Common stock, shares issued

70

Consolidated Condensed Statements Of Cash Flows (USD $)

In Millions, unless otherwise specified

3 Months Ended

Dec. 31, 2016

Jan. 2, 2016

Cash Flows From Operating Activities:

Net Income

$ 594

$ 461

Depreciation and amortization

177

172

Deferred income taxes

(4)

69

Other, net

7

(1)

Net changes in operating assets and liabilities

360

394

Cash Provided by Operating Activities

1,134

1,095

Cash Flows From Investing Activities:

Additions to property, plant and equipment

(200)

(188)

Purchases of marketable securities

(15)

(12)

Proceeds from sale of marketable securities

13

10

Other, net

(12)

(1)

Cash Used for Investing Activities

(214)

(191)

Cash Flows From Financing Activities:

Payments on debt

(20)

Borrowings on revolving credit facility

435

0

Payments on revolving credit facility

(735)

0

Purchases of Tyson Class A common stock

(576)

(387)

Dividends

(79)

(54)

Stock options exercised

6

34

Other, net

12

23

Cash Used for Financing Activities

(957)

(404)

Effect of Exchange Rate Changes on Cash

(5)

(1)

Increase (Decrease) in Cash and Cash Equivalents

(42)

499

Cash and Cash Equivalents at Beginning of Year

349

688

Cash and Cash Equivalents at End of Period

$ 307

$ 1,187

Accounting Policies

ACCOUNTING POLICIES

Basis of Presentation

The consolidated condensed financial statements are unaudited and have been prepared by Tyson Foods, Inc. (“Tyson,” “the Company,” “we,” “us” or “our”). Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations of the United States Securities and Exchange Commission. Although we believe the disclosures contained herein are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended October 1, 2016. Preparation of consolidated condensed financial statements requires us to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. 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 December 31, 2016, and the results of operations for the three months ended December 31, 2016, and January 2, 2016. Results of operations and cash flows for the periods presented are not necessarily indicative of results to be expected for the full year.

Consolidation

The consolidated condensed financial statements include the accounts of all wholly-owned subsidiaries, as well as majority-owned subsidiaries over which we exercise control and, when applicable, entities for which we have a controlling financial interest or variable interest entities for which we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued guidance which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, our fiscal 2021. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017, and the prospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In November 2016, the FASB issued guidance which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted and the retrospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In October 2016, the FASB issued guidance which requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted and the modified retrospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In August 2016, the FASB issued guidance which aims to eliminate diversity in the practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted and the retrospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In June 2016, the FASB issued guidance that provides more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2019, our fiscal 2021. Early adoption is permitted for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. The application of the guidance requires various transition methods depending on the specific amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In March 2016, the FASB issued guidance which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows and impact on earnings per share. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016, our fiscal 2018. Early adoption is permitted and the application of the guidance requires various transition methods depending on the specific amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued guidance which created new accounting and reporting guidelines for leasing arrangements. The guidance requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The guidance also requires qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. Early adoption is permitted and the modified retrospective method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In January 2016, the FASB issued guidance that requires most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The guidance also impacts financial liabilities under the fair value option and the presentation and disclosure requirements on the classification and measurement of financial instruments. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. It should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, unless, equity securities do not have readily determinable fair values, in which case, the amendments should be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In July 2015, the FASB issued guidance which requires management to evaluate inventory at the lower of cost and net realizable value. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016, our fiscal 2018. Early adoption is permitted and the prospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In May 2014, the FASB issued guidance changing the criteria for recognizing revenue. The guidance provides for a single five-step model to be applied to all revenue contracts with customers. The standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted for fiscal years beginning after December 15, 2016, our fiscal 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Recently Issued Accounting Pronouncements

CHANGES IN ACCOUNTING PRINCIPLES

In October 2016, the FASB issued guidance on how a reporting entity, that is the single decision maker of a variable interest entity ("VIE"), should treat indirect interests in the entity held through related parties that are under common control with the reporting entity, when determining whether it is the primary beneficiary of that VIE. This guidance is effective for annual reporting periods and interim periods within those annual reporting periods, beginning after December 15, 2016, our fiscal 2018. We were required to adopt this guidance at the same time that we adopted the amendments in ASU 2015-02; therefore, we early adopted this guidance, retrospectively, in the first quarter of fiscal 2017. The adoption did not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued guidance on the recognition of fees paid by a customer for cloud computing arrangements. The guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the software license consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017, and should be applied prospectively or retrospectively. We adopted this guidance, prospectively, in the first quarter of fiscal 2017. As a result, prior period balances were not retrospectively adjusted. The adoption did not have a material impact on our consolidated financial statements.

In February 2015, the FASB issued guidance (ASU 2015-02) changing the analysis procedures that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance affects the following areas: (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of related parties on the primary beneficiary determination, and (5) certain investment funds. This guidance is effective for annual reporting periods and interim periods within those annual reporting periods, beginning after December 15, 2015, our fiscal 2017. We adopted this guidance, retrospectively, in the first quarter of fiscal 2017. The adoption did not have a material impact on our consolidated financial statements.

Inventories

INVENTORIES

Processed products, livestock and supplies and other are valued at the lower of cost or market. Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories.

At both December 31, 2016, and October 1, 2016, 61% of the cost of inventories was determined by the first-in, first-out ("FIFO") method. The remaining cost of inventories for both periods is determined by the weighted-average method.

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



	December 31, 2016		October 1, 2016
Processed products	$	1,517	$	1,530
Livestock	851		772
Supplies and other	399		430
Total inventory	$	2,767	$	2,732

Property, Plant And Equipment

PROPERTY, PLANT AND EQUIPMENT

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



	December 31, 2016		October 1, 2016
Land	$	128	$	126
Buildings and leasehold improvements	3,671		3,662
Machinery and equipment	6,815		6,789
Land improvements and other	301		300
Buildings and equipment under construction	405		290
	11,320		11,167
Less accumulated depreciation	6,114		5,997
Net property, plant and equipment	$	5,206	$	5,170

Other Current Liabilities

OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):



	December 31, 2016		October 1, 2016
Accrued salaries, wages and benefits	$	417	$	563
Income taxes payable	263		7
Accrued marketing, advertising and promotion expense	193		212
Other	442		390
Total other current liabilities	$	1,315	$	1,172

Debt

DEBT

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



	December 31, 2016			October 1, 2016
Revolving credit facility	$	—		$	300
Senior notes:
7.00% Notes due May 2018	120			120
2.65% Notes due August 2019	1,000			1,000
4.10% Notes due September 2020	284			284
4.50% Senior notes due June 2022	1,000			1,000
3.95% Notes due August 2024	1,250			1,250
7.00% Notes due January 2028	18			18
6.13% Notes due November 2032	163			163
4.88% Notes due August 2034	500			500
5.15% Notes due August 2044	500			500
Discount on senior notes	(8		)	(8		)
Term loans:
Tranche B due April 2019 (1.94% at 12/31/16)	500			500
Tranche B due August 2019 (2.31% at 12/31/16)	552			552
Amortizing notes - tangible equity units (see Note 7: Equity)	53			71
Other	62			58
Unamortized debt issuance costs	(27		)	(29		)
Total debt	5,967			6,279
Less current debt	66			79
Total long-term debt	$	5,901		$	6,200

Revolving Credit Facility

We have a $1.25 billion revolving credit facility that supports short-term funding needs and letters of credit. The facility will mature and the commitments thereunder will terminate in September 2019. After reducing for the amount borrowed and outstanding letters of credit issued under this facility, the amount available for borrowing at December 31, 2016, was $1,243 million. At December 31, 2016, we had outstanding letters of credit issued under this facility totaling $7 million, none of which were drawn upon. We had an additional $90 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 leasing obligations and workers’ compensation insurance programs.

If in the future any of our subsidiaries shall guarantee any of our material indebtedness, such subsidiary shall be required to guarantee the indebtedness, obligations and liabilities under this facility.

Debt Covenants

Our revolving credit and term loan facilities contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain minimum interest expense coverage and maximum debt-to-capitalization ratios.

Our senior notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at December 31, 2016.

Equity

EQUITY

Share Repurchases

As of December 31, 2016, 31.7 million shares remained available for repurchase under our share repurchase program. The share repurchase 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. In addition to the share repurchase program, we purchase shares on the open market to fund certain obligations under our equity compensation plans.

A summary of share repurchases of our Class A stock for the three months ended December 31, 2016, and January 2, 2016, is as follows (in millions):



	Three Months Ended
	December 31, 2016			January 2, 2016
	Shares	Dollars		Shares	Dollars
Shares repurchased:
Under share repurchase program	8.6	$	550	7.6	$	357
To fund certain obligations under equity compensation plans	0.4	26		0.7	30
Total share repurchases	9.0	$	576	8.3	$	387

Tangible Equity Units

In fiscal 2014, we completed the public issuance of 30 million 4.75% tangible equity units (TEUs). Total proceeds, net of underwriting discounts and other expenses, were $1,454 million. Each TEU, which has a stated amount of $50, is comprised of a prepaid stock purchase contract and a senior amortizing note due July 15, 2017. We allocated the proceeds from the issuance of the TEUs to equity and debt based on the relative fair values of the respective components of each TEU. The fair value of the prepaid stock purchase contracts, which was $1,295 million, is recorded in Capital in Excess of Par Value, net of issuance costs. The fair value of the senior amortizing notes, which was $205 million, was recorded in debt. Issuance costs associated with the TEU debt were recorded as deferred debt issuance cost and is amortized over the term of the instrument to July 15, 2017.

The aggregate values assigned upon issuance of each component of the TEUs, based on the relative fair value of the respective components of each TEU, were as follows (in millions, except price per TEU):



	Equity Component			Debt Component			Total
Price per TEU	$	43.17		$	6.83		$	50.00
Gross proceeds	1,295			205			1,500
Issuance cost	(40		)	(6		)	(46		)
Net proceeds	$	1,255		$	199		$	1,454

Each senior amortizing note has an initial principal amount of $6.83 and bears interest at 1.5% per annum. On each January 15, April 15, July 15 and October 15, we will pay equal quarterly cash installments of $0.59 per amortizing note, which cash payment in the aggregate (principal and interest) is equivalent to 4.75% per year with respect to the $50 stated amount per TEU. Each installment constitutes a payment of interest and partial repayment of principal.

As of December 31, 2016, holders have settled 20.4 million purchase contracts and, in exchange, the Company has issued 21.7 million shares of its Class A stock. Upon early settlement of these purchase contracts, the corresponding amortizing notes remain outstanding and beneficially owned by the holders that settled purchase contracts early. As of December 31, 2016, 9.6 million TEUs remained outstanding. The remaining TEUs will continue to be held pursuant to their original terms and conditions, including automatic settlement on July 15, 2017. As a result of the purchase contracts tendered as of December 31, 2016, our remaining obligation is to deliver between a minimum of 10.3 million shares and a maximum of 12.9 million shares of our Class A stock, subject to adjustment, based upon the Applicable Market Value (as defined below) of our Class A stock as described below:


•	If the Applicable Market Value is equal to or greater than the conversion price of $46.79 per share, we will deliver 1.0685 shares of Class A stock per purchase contract, or a minimum of 10.3 million Class A shares.


•	If the Applicable Market Value is greater than the reference price of $37.44 but less than the conversion price of $46.79 per share, we will deliver a number of shares per purchase contract equal to $50, divided by the Applicable Market Value.


•	If the Applicable Market Value is less than or equal to the reference price of $37.44 per share, we will deliver 1.3358 shares of Class A stock per purchase contract, or a maximum of 12.9 million Class A shares.

The "Applicable Market Value" means the average of the closing prices of our Class A stock on each of the 20 consecutive trading days beginning on, and including, the 23rd scheduled trading day immediately preceding July 15, 2017.

On December 15, 2016, we paid our quarterly dividend to shareholders of record at December 1, 2016, equal to $0.225 per share on our Class A stock. The amount of the distribution exceeded the $0.075 per share dividend threshold amount. Consequently, the settlement rates, reference price and conversion price were adjusted and are reflected above.

The TEUs have a dilutive effect on our earnings per share. The 10.3 million minimum shares to be issued are included in the calculation of Class A Basic weighted average shares. The 2.6 million share difference between the minimum shares and the 12.9 million maximum shares are potentially dilutive securities, and accordingly, are included in our diluted earnings per share on a pro rata basis to the extent the Applicable Market Value is higher than the reference price but is less than the conversion price at period end.

Income Taxes

INCOME TAXES

The effective tax rate was 34.9% and 35.2% for the first quarter of fiscal 2017 and 2016, respectively. The effective tax rates for the first quarter of fiscal 2017 and fiscal 2016 were impacted by such items as the domestic production deduction and state income taxes.

Unrecognized tax benefits were $309 million and $305 million at December 31, 2016, and October 1, 2016, respectively.

We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $8 million primarily due to expiration of statutes of limitations in various jurisdictions.

Other Income And Charges

OTHER INCOME AND CHARGES

During the first quarter of fiscal 2017, we recorded $16 million of legal cost related to a 1995 plant closure of an apparel manufacturing facility operated by a former subsidiary of The Hillshire Brands Company, which was acquired by us in fiscal 2014, $1 million in net foreign currency exchange losses and $3 million of equity earnings in joint ventures, which were recorded in the Consolidated Condensed Statements of Income in Other, net.

During the first quarter of fiscal 2016, we recorded $1 million in net foreign currency exchange losses and $2 million of equity earnings in joint ventures, which were recorded in the Consolidated Condensed Statements of Income in Other, net.

Earnings Per Share

EARNINGS PER SHARE

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



	Three Months Ended
	December 31, 2016		January 2, 2016
Numerator:
Net income	$	594	$	461
Less: Net income attributable to noncontrolling interests	1		—
Net income attributable to Tyson	593		461
Less dividends declared:
Class A	86		58
Class B	19		13
Undistributed earnings	$	488	$	390

Class A undistributed earnings	$	403	$	327
Class B undistributed earnings	85		63
Total undistributed earnings	$	488	$	390
Denominator:
Denominator for basic earnings per share:
Class A weighted average shares	297		325
Class B weighted average shares, and shares under the if-converted method for diluted earnings per share	70		70
Effect of dilutive securities:
Stock options, restricted stock and performance units	6		5
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions	373		400

Net income per share attributable to Tyson:
Class A basic	$	1.64	$	1.18
Class B basic	$	1.49	$	1.09
Diluted	$	1.59	$	1.15

Approximately 2 million of our stock-based compensation shares were antidilutive for the three months ended December 31, 2016, and January 2, 2016. These shares were not included in the diluted earnings per share calculation.

We have two classes of capital stock, Class A stock and Class B stock. Cash dividends cannot be paid to holders of Class B stock unless they are simultaneously paid to holders of Class A stock. The per share amount of cash dividends paid to holders of Class B stock cannot exceed 90% of the cash dividends paid to holders of Class A stock.

We allocate undistributed earnings based upon a 1 to 0.9 ratio per share to Class A stock and Class B stock, respectively. We allocate undistributed earnings based on this ratio due to historical dividend patterns, voting control of Class B shareholders and contractual limitations of dividends to Class B stock.

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

Our business operations give rise to certain market risk exposures mostly due to changes in commodity prices, foreign currency exchange rates and interest rates. We manage a portion of these risks through the use of derivative financial instruments to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Our risk management programs are periodically reviewed by our Board of Directors' Audit Committee. These programs are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize industry-standard models that take into account the implicit cost of hedging. Risks associated with our market risks and those created by derivative instruments and the fair values are strictly monitored, using value-at-risk and stress tests. Credit risks associated with our derivative contracts are not significant as we minimize counterparty concentrations, utilize margin accounts or letters of credit, and deal with credit worthy counterparties. 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 December 31, 2016.

We had the following aggregated outstanding notional amounts related to our derivative financial instruments (in millions, except soy meal tons):



	Metric	December 31, 2016		October 1, 2016
Commodity:
Corn	Bushels	52		50
Soy meal	Tons	334,300		389,700
Live cattle	Pounds	54		28
Lean hogs	Pounds	204		158
Foreign currency	United States dollar	$	52	$	38

We recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Condensed Balance Sheets, with the exception of normal purchases and normal sales expected to result in physical delivery. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged (i.e., cash flow hedge or fair value hedge). We designate certain forward contracts as follows:


•	Cash Flow Hedges – include certain commodity forward and option contracts of forecasted purchases (i.e., grains) and certain foreign exchange forward contracts.


•	Fair Value Hedges – include certain commodity forward contracts of firm commitments (i.e., livestock).

Cash Flow Hedges

Derivative instruments are designated as hedges against changes in the amount of future cash flows related to procurement of certain commodities utilized in our production processes. For the derivative instruments we designate and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. 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 months ended December 31, 2016, and January 2, 2016. As of December 31, 2016, the net amounts expected to be reclassified into earnings within the next 12 months are pretax gains of $2 million. During the three months ended December 31, 2016, and January 2, 2016, we did not reclassify significant pretax gains/losses into earnings as a result of the discontinuance of cash flow hedges.

The following table sets forth the pretax impact of cash flow hedge derivative instruments on the Consolidated Condensed Statements of Income (in millions):



	Gain (Loss) Recognized in OCI On Derivatives					Consolidated Condensed Statements of Income Classification	Gain (Loss) Reclassified from OCI to Earnings
	Three Months Ended						Three Months Ended
	December 31, 2016		January 2, 2016				December 31, 2016			January 2, 2016
Cash flow hedge – derivatives designated as hedging instruments:
Commodity contracts	$	1	$	(2	)	Cost of sales	$	(4	)	$	(1	)
Foreign exchange contracts	—		—			Other income/expense	—			—
Total	$	1	$	(2	)		$	(4	)	$	(1	)

Fair Value Hedges

We designate certain derivative contracts as fair value hedges of firm commitments to purchase livestock for harvest. Our objective of these hedges is to minimize the risk of changes in fair value created by fluctuations in commodity prices associated with fixed price livestock firm commitments. For these derivative instruments we designate and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the same period. We include the gain or loss on the hedged items (i.e., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the related livestock forward position.




	Consolidated Condensed Statements of Income Classification	Three Months Ended
	Consolidated Condensed Statements of Income Classification	December 31, 2016			January 2, 2016
Gain (Loss) on forwards	Cost of sales	$	28		$	33
Gain (Loss) on purchase contract	Cost of sales	(28		)	(33		)

Ineffectiveness related to our fair value hedges was not significant for the three months ended December 31, 2016, and January 2, 2016.

Undesignated Positions

In addition to our designated positions, we also hold derivative contracts for which we do not apply hedge accounting. These include certain derivative instruments related to commodities price risk, including grains, livestock, energy and foreign currency risk. We mark these positions to fair value through earnings at each reporting date.

The following table sets forth the pretax impact of the undesignated derivative instruments in the Consolidated Condensed Statements of Income (in millions):



	Consolidated Condensed Statements of Income Classification	Gain (Loss) Recognized in Earnings
		Three Months Ended
		December 31, 2016			January 2, 2016
Derivatives not designated as hedging instruments:
Commodity contracts	Sales	$	51		$	9
Commodity contracts	Cost of sales	(1		)	(15		)
Foreign exchange contracts	Other income/expense	—			—
Total		$	50		$	(6	)

The fair value of all outstanding derivative instruments in the Consolidated Condensed Balance Sheets are included in Note 12: Fair Value Measurements.

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:

Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:


•	Quoted prices for similar assets or liabilities in active markets;


•	Quoted prices for identical or similar assets in non-active markets;


•	Inputs other than quoted prices that are observable for the asset or liability; and


•	Inputs derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

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):



December 31, 2016	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative financial instruments:
Designated as hedges	$	—	$	4	$	—	$	—		$	4
Undesignated	—		48		—		(22		)	26
Available-for-sale securities:
Current	—		3		1		—			4
Non-current	—		39		54		—			93
Deferred compensation assets	8		249		—		—			257
Total assets	$	8	$	343	$	55	$	(22	)	$	384
Liabilities:
Derivative financial instruments:
Designated as hedges	$	—	$	17	$	—	$	(17	)	$	—
Undesignated	—		24		—		(23		)	1
Total liabilities	$	—	$	41	$	—	$	(40	)	$	1



October 1, 2016	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative financial instruments:
Designated as hedges	$	—	$	72	$	—	$	(27	)	$	45
Undesignated	—		38		—		(34		)	4
Available-for-sale securities:
Current	—		2		2		—			4
Non-current	—		38		55		—			93
Deferred compensation assets	18		236		—		—			254
Total assets	$	18	$	386	$	57	$	(61	)	$	400
Liabilities:
Derivative financial instruments:
Designated as hedges	$	—	$	1	$	—	$	(1	)	$	—
Undesignated	—		68		—		(68		)	—
Total liabilities	$	—	$	69	$	—	$	(69	)	$	—

(a)

Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2016, and October 1, 2016, we had posted with various counterparties $18 million and $8 million, respectively, of cash collateral related to our commodity derivatives and held no cash collateral. At December 31, 2016, we had posted, with a single counterparty, $1 million of cash collateral where a legally enforceable master netting arrangement did not exist.

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):



	Three Months Ended
	December 31, 2016			January 2, 2016
Balance at beginning of year	$	57		$	61
Total realized and unrealized gains (losses):
Included in earnings	—			—
Included in other comprehensive income (loss)	(1		)	—
Purchases	4			4
Issuances	—			—
Settlements	(5		)	(6		)
Balance at end of period	$	55		$	59
Total gains (losses) for the three-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:

Derivative Assets and Liabilities: Our derivative financial instruments primarily include exchange-traded and over-the-counter contracts which are further described in Note 11: Derivative Financial Instruments. We record our derivative financial instruments at fair value using quoted market prices adjusted for credit and non-performance risk and internal models that use as their basis readily observable market inputs including current and forward market prices. We classify these instruments in Level 2 when quoted market prices can be corroborated utilizing observable current and forward commodity market prices on active exchanges or observable market transactions.

Available-for-Sale Securities: Our investments in marketable debt securities are classified as available-for-sale and are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. Short-term investments with maturities of less than 12 months are included in Other current assets in the Consolidated Condensed Balance Sheets and primarily include certificates of deposit and commercial paper. All other marketable debt securities are included in Other Assets in the Consolidated Condensed Balance Sheets and have maturities ranging up to 32 years. We classify our investments in U.S. government, U.S. agency, certificates of deposit and commercial paper debt securities as Level 2 as fair value is generally estimated using discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other readily available relevant economic measures. We classify certain corporate, asset-backed and other debt securities as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated condensed financial statements.

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):



	December 31, 2016						October 1, 2016
	Amortized Cost Basis		Fair Value		Unrealized Gain (Loss)		Amortized Cost Basis		Fair Value		Unrealized Gain (Loss)
Available-for-sale securities:
Debt securities:
U.S. treasury and agency	$	42	$	42	$	—	$	40	$	40	$	—
Corporate and asset-backed	55		55		—		56		57		1

Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in OCI until the security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are temporary in nature. Losses on equity securities are recognized in earnings if the decline in value is judged to be other than temporary. If losses related to our debt securities are determined to be other than temporary, the loss would be recognized in earnings if we intend, or more likely than not will be required, to sell the security prior to recovery. For debt securities in which we have the intent and ability to hold until maturity, losses determined to be other than temporary would remain in OCI, other than expected credit losses which are recognized in earnings. We consider many factors in determining whether a loss is temporary, including the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. We recognized no other than temporary impairment in earnings for the three months ended December 31, 2016, and January 2, 2016. No other than temporary losses were deferred in OCI as of December 31, 2016, and October 1, 2016.

Deferred Compensation Assets: We maintain non-qualified deferred compensation plans for certain executives and other highly compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at fair value based on quoted market prices and are included in Other Assets in the Consolidated Condensed Balance Sheets. We classify the investments which have observable market prices in active markets in Level 1 as these are generally publicly-traded mutual funds. The remaining deferred compensation assets are classified in Level 2, as fair value can be corroborated based on observable market data. Realized and unrealized gains (losses) on deferred compensation are included in earnings.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. 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 three ended December 31, 2016, and January 2, 2016.

Other Financial Instruments

Fair value of our debt is principally estimated using Level 2 inputs based on quoted prices for those or similar instruments. Fair value and carrying value for our debt are as follows (in millions):



	December 31, 2016				October 1, 2016
	Fair Value		Carrying Value		Fair Value		Carrying Value
Total debt	$	6,138	$	5,967	$	6,698	$	6,279

Pension and Other Postretirement Benefit Plans

Pension and Other Postretirement Benefits Disclosure [Text Block]

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of the net periodic cost for the pension and postretirement benefit plans for the three months ended December 31, 2016, and January 2, 2016, are as follows (in millions):



	Pension Plans
	Three Months Ended
	December 31, 2016			January 2, 2016

Service cost	$	3		$	4
Interest cost	16			20
Expected return on plan assets	(15		)	(17		)
Amortization of:
Net actuarial loss	2			1
Settlement (gain) loss (a)	—			(12		)
Net periodic cost (credit)	$	6		$	(4	)



	Postretirement Benefit Plans
	Three Months Ended
	December 31, 2016			January 2, 2016

Interest cost	$	—		$	1
Amortization of:
Prior service credit	(6		)	(4		)
Net periodic cost (credit)	$	(6	)	$	(3	)

(a) We made lump-sum settlement payments using plan assets of $265 million for the three months ended January 2, 2016, to certain deferred vested participants within our qualified pension plans.

We contributed $9 million and $32 million to our pension plans for the three months ended December 31, 2016, and January 2, 2016, respectively. We expect to contribute an additional $31 million during the remainder of fiscal 2017. The amount of contributions made to pension plans in any year is dependent upon a number of factors including minimum funding requirements in the jurisdictions in which we operate. As a result, the actual funding in fiscal 2017 may differ from the current estimate.

Other Comprehensive Income

Other Comprehensive Income (Loss)

OTHER COMPREHENSIVE INCOME (LOSS)

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



	Three Months Ended
	December 31, 2016									January 2, 2016
	Before Tax			Tax			After Tax			Before Tax			Tax		After Tax

Derivatives accounted for as cash flow hedges:
(Gain) loss reclassified to cost of sales	$	4		$	(2	)	$	2		$	1		$	—	$	1
Unrealized gain (loss)	1			—			1			(2		)	1		(1		)

Investments:
Unrealized gain (loss)	(1		)	—			(1		)	(1		)	—		(1		)

Currency translation:
Translation adjustment	(14		)	—			(14		)	(5		)	—		(5		)

Postretirement benefits	(4		)	1			(3		)	(3		)	1		(2		)
Total other comprehensive income (loss)	$	(14	)	$	(1	)	$	(15	)	$	(10	)	$	2	$	(8	)

Segment Reporting

SEGMENT REPORTING

We operate in four reportable segments: Chicken, Beef, Pork, and Prepared Foods. We measure segment profit as operating income (loss). Other primarily includes our foreign chicken production operations in China and India, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.

Chicken: Chicken includes our domestic operations related to raising and processing live chickens into, and purchasing raw materials for, fresh, frozen and value-added chicken products, as well as sales from allied products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes logistics operations to move products through our domestic supply chain and the global operations of our chicken breeding stock subsidiary.

Beef: Beef includes our operations related to processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes sales from allied products such as hides and variety meats, as well as logistics operations to move products through the supply chain.

Pork: Pork includes our operations related to processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes our live swine group, related allied product processing activities and logistics operations to move products through the supply chain.

Prepared Foods: Prepared Foods includes our operations related to manufacturing and marketing frozen and refrigerated food products and logistics operations to move products through the supply chain. This segment includes brands such as Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, State Fair®, Van's®, Sara Lee® and Chef Pierre®, as well as artisanal brands Aidells®, Gallo Salame®, and Golden Island®. Products primarily include pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, flour and corn tortilla products, desserts, appetizers, snacks, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes, breadsticks and processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets.

We allocate expenses related to corporate activities to the segments, except for third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC, which are included in Other.

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



	Three Months Ended
	December 31, 2016				January 2, 2016
Sales:
Chicken	$	2,706			$	2,636
Beef	3,528				3,614
Pork	1,252				1,213
Prepared Foods	1,895				1,896
Other	90				99
Intersegment sales	(289		)		(306		)
Total sales	$	9,182			$	9,152

Operating income (loss):
Chicken	$	263			$	358
Beef	299				71
Pork	247				158
Prepared Foods	190				207
Other	(17		)	^(a)	(18		)	^(a)
Total operating income	982				776

Total other (income) expense	70				64

Income before income taxes	$	912			$	712

(a) Other includes third-party merger and integration costs and corporate overhead of Tyson New Ventures, LLC of $7 million and $5 million for the three months ended December 31, 2016, and January 2, 2016, respectively.

The Chicken segment had sales of $7 million and $3 million in the first quarter of fiscal 2017 and 2016, respectively, from transactions with other operating segments of the Company. The Beef segment had sales of $72 million in both the first quarter of fiscal 2017 and 2016, from transactions with other operating segments of the Company. The Pork segment had sales of $210 million and $231 million in the first quarter of fiscal 2017 and 2016, respectively, from transactions with other operating segments of the Company. The aforementioned sales from intersegment transactions, which were at market prices, were included in the segment sales in the above table.

Commitments And Contingencies

COMMITMENTS AND CONTINGENCIES

Commitments

We guarantee obligations of certain outside third parties, consisting primarily of leases, debt and grower loans, which are substantially collateralized by the underlying assets. Terms of the underlying debt cover periods up to 10 years, and the maximum potential amount of future payments as of December 31, 2016, was $34 million. We also maintain operating leases for various types of equipment, some of which contain residual value guarantees for the market value of the underlying leased assets at the end of the term of the lease. The remaining terms of the lease maturities cover periods over the next 11 years. The maximum potential amount of the residual value guarantees is $92 million, of which $84 million could be recoverable through various recourse provisions and an additional undeterminable recoverable amount based on the fair value of the underlying leased assets. The likelihood of material payments under these guarantees is not considered probable. At December 31, 2016, and October 1, 2016, no material liabilities for guarantees were recorded.

We have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay an amount for livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts of such payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers are obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the agreement. 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 December 31, 2016, was approximately $380 million. The total receivables under these programs were $8 million and $2 million at December 31, 2016, and October 1, 2016, 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 have no allowance for these programs’ estimated uncollectible receivables at December 31, 2016, and October 1, 2016.

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. Under these agreements, we transfer the related assets to various local government entities and receive Industrial Revenue Bonds. We immediately lease the facilities from the local government entities and have an option to re-purchase the facilities for a nominal amount upon tendering the Industrial Revenue Bonds to the local government entities at various predetermined dates. 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 December 31, 2016, total amounts under these type of arrangements totaled $505 million.

Contingencies

We are involved in various claims and legal proceedings. We routinely assess the likelihood of adverse judgments or outcomes to those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. We record accruals for such matters to the extent that we conclude a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. Such accruals are reflected in the Company’s consolidated condensed financial statements. In our opinion, we have made appropriate and adequate accruals for these matters. Unless noted otherwise below, we believe the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the consolidated financial condition or results of operations. Listed below are certain claims made against the Company and/or our subsidiaries for which the potential exposure is considered material to the Company’s consolidated condensed financial statements. We believe we have substantial defenses to the claims made and intend to vigorously defend these matters.

Below are the details of six lawsuits involving our beef, pork and prepared foods plants in which certain present and past employees allege that we failed to compensate them for the time it takes to engage in pre- and post-shift activities, such as changing into and out of protective and sanitary clothing and walking to and from the changing area, work areas and break areas in violation of the Fair Labor Standards Act and various state laws. The plaintiffs seek back wages, liquidated damages, pre- and post-judgment interest, attorneys’ fees and costs. Each case is proceeding in its jurisdiction.

•

Bouaphakeo (f/k/a Sharp), et al. v. Tyson Foods, Inc., N.D. Iowa, February 6, 2007 - A jury trial was held involving our Storm Lake, Iowa, pork plant which resulted in a jury verdict in favor of the plaintiffs for violations of federal and state laws for pre- and post-shift work activities. The trial court also awarded the plaintiffs liquidated damages, resulting in total damages awarded in the amount of $5,784,758. The plaintiffs' counsel has also filed an application for attorneys' fees and expenses in the amount of $2,692,145. We appealed the jury's verdict and trial court's award to the Eighth Circuit Court of Appeals. The appellate court affirmed the jury verdict and judgment on August 25, 2014, and we filed a petition for rehearing on September 22, 2014, which was denied. We filed a petition for a writ of certiorari with the United States Supreme Court, which was granted on June 8, 2015, and oral arguments before the Supreme Court occurred on November 10, 2015. On March 22, 2016, the Supreme Court affirmed the appellate court’s rulings and remanded to the trial court to allocate the lump sum award among the class participants. On remand, the trial court determined that the lump sum award should be allocated to class participants according to the method prescribed by plaintiffs’ expert at trial. The trial court has yet to enter a judgment.


•	Edwards, et al. v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, Inc., S.D. Iowa, March 20, 2008 - The trial court in this case, which involves our Perry and Waterloo, Iowa, pork plants, decertified the state law class and granted other pre-trial motions that resulted in judgment in our favor with respect to the plaintiffs’ claims. The plaintiffs have filed a motion to modify this judgment.


•	Murray, et al. v. Tyson Foods, Inc., C.D. Illinois, January 2, 2008; and DeVoss v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, C.D. Illinois, March 2, 2011 - These cases involve our Joslin, Illinois, beef plant and are in their preliminary stages.


•	Dozier, Southerland, et al. v. The Hillshire Brands Company, E.D. North Carolina, September 2, 2014 - This case involves our Tarboro, North Carolina, prepared foods plant. On March 25, 2016, the parties filed a joint motion for settlement totaling $425,000, which includes all of the plaintiffs’ attorneys’ fees and costs.

•

Awad, et al. v. Tyson Foods, Inc. and Tyson Fresh Meats, Inc., M.D. Tennessee, February 12, 2015 - On October 12, 2016, the parties filed a joint motion for approval of a $725,000 settlement, and plaintiffs filed an application for attorneys’ fees and costs. The court granted its preliminary approval of the parties’ joint motion and the application for attorneys’ fees and costs, on October 21, 2016, and dismissed the action with prejudice.

On September 2, 2016, Maplevale Farms, Inc., acting on behalf of itself and a putative class of direct purchasers of poultry products, filed a class action complaint against us and certain of our poultry subsidiaries, as well as several other poultry processing companies, in the Northern District of Illinois. Subsequent to the filing of this initial complaint, additional lawsuits making similar claims on behalf of putative classes of direct and indirect purchasers were filed in the United States District Court for the Northern District of Illinois. The court consolidated the complaints, for pre-trial purposes, into actions on behalf of three different putative classes: direct purchasers, indirect purchasers/consumers and commercial/institutional indirect purchasers. These three actions are styled In re Broiler Chicken Antitrust Litigation. Several amended and consolidated complaints have been filed on behalf of each putative class. The currently operative complaints allege, among other things, 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. The complaints on behalf of the putative classes of indirect purchasers also include causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. The complaints also allege that defendants “manipulated and artificially inflated a widely used Broiler price index, the Georgia Dock.” It is further alleged that the defendants concealed this conduct from the plaintiffs and the members of the putative classes. The plaintiffs are seeking treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative classes. We have filed motions to dismiss these actions.

On October 17, 2016, William Huser, acting on behalf of himself and a putative class of persons who purchased shares of Tyson Foods' stock between November 23, 2015, and October 7, 2016, filed a class action complaint against Tyson Foods, Inc., Donnie Smith and Dennis Leatherby in the Central District of California. The complaint alleged, among other things, that our periodic filings contained materially false and misleading statements by failing to disclose that the Company has colluded with other producers to manipulate the supply of broiler chickens in order to keep supply artificially low, as alleged in In re Broiler Chicken Antitrust Litigation, stating that its industry is competitive, and failing to disclose that we lacked effective internal control over financial reporting. The complaint sought damages, pre- and post-judgment interest, costs, and attorneys’ fees. Subsequent to the filing of this initial complaint, additional lawsuits making similar claims were filed in the United States District Courts for the Southern District of New York, the Western District of Arkansas, and the Southern District of Ohio. Each of those cases have now been transferred to the United States District Court for the Western District of Arkansas and consolidated, and lead plaintiffs have been appointed. The lead plaintiffs have not yet filed a consolidated complaint.

On January 20, 2017, the Company received a subpoena from the Securities and Exchange Commission in connection with an investigation related to the Company. We are cooperating with the investigation, which is at an early stage. Based upon the limited information we have, we believe the investigation is based upon the allegations in In re Broiler Chicken Antitrust Litigation.

Our subsidiary, The Hillshire Brands Company (formerly named Sara Lee Corporation), is a party to a consolidation of cases filed by individual complainants with the Republic of the Philippines, Department of Labor and Employment and the National Labor Relations Commission (NLRC) from 1998 through July 1999. The complaint is filed against Aris Philippines, Inc., Sara Lee Corporation, Sara Lee Philippines, Inc., Fashion Accessories Philippines, Inc., and Attorney Cesar C. Cruz (collectively, the “respondents”). The complaint alleges, among other things, that the respondents engaged in unfair labor practices in connection with the termination of manufacturing operations in the Philippines in 1995 by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In late 2004, a labor arbiter ruled against the respondents and awarded the complainants PHP3,453,664,710 (approximately US$70 million) in damages and fees. The respondents appealed the labor arbiter's ruling, and it was subsequently set aside by the NLRC in December 2006. Subsequent to the NLRC’s decision, the parties filed numerous appeals, motions for reconsideration and petitions for review, certain of which remained outstanding for several years. While various of those appeals, motions and/or petitions were pending, The Hillshire Brands Company, on June 23, 2014, without admitting liability, filed a settlement motion requesting that the Supreme Court of the Philippines order dismissal with prejudice of all claims against it and certain other respondents in exchange for payments allocated by the court among the complainants in an amount not to exceed PHP342,287,800 (approximately US$6.9 million). Based in part on its finding that the consideration to be paid to the complainants as part of such settlement was insufficient, the Supreme Court of the Philippines denied the respondents’ settlement motion and all motions for reconsideration thereof. The Supreme Court of the Philippines also set aside as premature the NLRC’s December 2006 ruling. As a result, the cases were remanded back before the NLRC to rule on the merits of the case. On December 15, 2016, we learned that the NLRC rendered its decision on November 29, 2016, regarding the respondents’ appeals regarding the labor arbiter’s 2004 ruling in favor of the complainants. The NLRC increased the award for 4,922 of the total 5,984 complainants to PHP14,858,495,937 (approximately US$299 million). However, the NLRC approved of a prior settlement reached with the group comprising approximately 18% of the class of 5,984 complainants, pursuant to which The Hillshire Brands Company agreed to pay each settling complainant PHP68,000 (approximately US$1,369). The settlement payment was made on December 21, 2016, to the NLRC, which is responsible for distributing the funds to each settling complainant. On December 27, 2016, the respondents filed motions for reconsideration with the NLRC asking that the award be set aside. We await the NLRC’s decision on those pending motions and are evaluating our right to further challenge the NLRC decision through appeals to the courts in the event the motions for reconsideration are denied by the NLRC. We have recorded an accrual for this matter for the amount of loss that, at this time, we deem probable and enforceable. This accrual is reflected in the Company’s consolidated condensed financial statements and reflects an increase over the previous accrual for this matter, though significantly less than the amount awarded by the labor arbiter in 2004 (i.e., PHP3,453,664,710 (approximately US$70 million)). The ultimate enforceable loss is uncertain, and if our accrual is not adequate, an adverse outcome could have a material effect on the consolidated financial condition or results of operations.

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Basis Of Presentation