Document and Entity Information

9 Months Ended

Jul. 2, 2016

Entity Registrant Name

TYSON FOODS INC

Entity Central Index Key

0000100493

Current Fiscal Year End Date

--10-01

Entity Filer Category

Large Accelerated Filer

Document Type

10-Q

Document Period End Date

Jul. 02, 2016

Document Fiscal Year Focus

2016

Document Fiscal Period Focus

Q3

Amendment Flag

false

Class A [Member]

Entity Common Stock, Shares Outstanding

297,446,228

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

9 Months Ended

Jul. 2, 2016

Jun. 27, 2015

Jul. 2, 2016

Jun. 27, 2015

Sales

$ 9,403

$ 10,071

$ 27,725

$ 30,867

Cost of Sales

8,179

9,085

24,117

27,936

Gross Profit

1,224

986

3,608

2,931

Operating Expenses:

Selling, General and Administrative

457

423

1,361

1,312

Operating Income

767

563

2,247

1,619

Other (Income) Expense:

Interest income

(2)

(3)

(5)

(6)

Interest expense

60

73

191

221

Other, net

(2)

(25)

(6)

(32)

Total Other (Income) Expense

56

45 ¹

180

183 ¹

Income before Income Taxes

711

518

2,067

1,436

Income Tax Expense

226

174

687

471

Net Income

485

344

1,380

965

Less: Net income attributable to noncontrolling interest

1

3

Net Income Attributable to Tyson

$ 484

$ 343

$ 1,377

$ 962

Weighted Average Shares Outstanding:

Diluted, Shares

388

414

394

414

Net Income Per Share Attributable to Tyson:

Diluted (USD per share)

$ 1.25

$ 0.83

$ 3.50

$ 2.32

Class A [Member]

Weighted Average Shares Outstanding:

Basic, Shares

312

335

318

335

Net Income Per Share Attributable to Tyson:

Basic (USD per share)

$ 1.29

$ 0.86

$ 3.61

$ 2.41

Dividends Declared Per Share:

Dividends Declared (USD per share)

$ 0.150

$ 0.100

$ 0.500

$ 0.325

Class B [Member]

Weighted Average Shares Outstanding:

Basic, Shares

70

Net Income Per Share Attributable to Tyson:

Basic (USD per share)

$ 1.17

$ 0.78

$ 3.28

$ 2.20

Dividends Declared Per Share:

Dividends Declared (USD per share)

$ 0.135

$ 0.090

$ 0.450

$ 0.293

[1] Other (income) expense includes a $21 million gain on the sale of equity securities for the three and nine months ended June 27, 2015.

Consolidated Condensed Statements of Comprehensive Income (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Jul. 2, 2016

Jun. 27, 2015

Jul. 2, 2016

Jun. 27, 2015

Statement of Comprehensive Income [Abstract]

Net Income

$ 485

$ 344

$ 1,380

$ 965

Other Comprehensive Income (Loss), Net of Taxes:

Derivatives accounted for as cash flow hedges

2

1

2

1

Investments

0

(12)

0

(1)

Currency translation

(2)

2

3

(17)

Postretirement benefits

(2)

0

(5)

7

Total Other Comprehensive Income (Loss), Net of Taxes

(2)

(9)

0

(10)

Comprehensive Income

483

335

1,380

955

Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests

1

3

Comprehensive Income Attributable to Tyson

$ 482

$ 334

$ 1,377

$ 952

Consolidated Condensed Balance Sheets (USD $)

In Millions, unless otherwise specified

Jul. 2, 2016

Oct. 3, 2015

Assets

Cash and cash equivalents

$ 197

$ 688

Accounts receivable, net

1,599

1,620

Inventories

2,918

2,878

Other current assets

167

195

Total Current Assets

4,881

5,381

Net Property, Plant and Equipment

5,157

5,176

Goodwill

6,669

6,667

Intangible Assets, net

5,104

5,168

Other Assets

599

612

Total Assets

22,410

23,004

Liabilities and Shareholders' Equity

Current debt

79

715

Accounts payable

1,466

1,662

Other current liabilities

1,168

1,158

Total Current Liabilities

2,713

3,535

Long-Term Debt

6,099

6,010

Deferred Income Taxes

2,486

2,449

Other Liabilities

1,306

1,304

Commitments and Contingencies (Note 16)

Shareholders' Equity:

Capital in excess of par value

4,343

4,307

Retained earnings

8,010

6,813

Accumulated other comprehensive loss

(90)

Treasury stock, at cost - 65 million shares at July 2, 2016 and 47 million shares at October 3, 2015

(2,515)

(1,381)

Total Tyson Shareholders' Equity

9,791

9,691

Noncontrolling Interest

15

Total Shareholders' Equity

9,806

9,706

Total Liabilities and Shareholders' Equity

22,410

23,004

Class A [Member]

Shareholders' Equity:

Common stock

36

35

Convertible Class B [Member]

Shareholders' Equity:

Common stock

$ 7

Condensed Consolidated Balance Sheets (Parentheticals) (USD $)

In Millions, except Per Share data, unless otherwise specified

Jul. 2, 2016

Oct. 3, 2015

Treasury Stock, shares

67

47

Class A [Member]

Common stock, par value

$ 0.10

Common stock, shares authorized

900

Common stock, shares issued

363

346

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

9 Months Ended

Jul. 2, 2016

Jun. 27, 2015

Cash Flows From Operating Activities:

Net Income

$ 1,380

$ 965

Depreciation and amortization

526

524

Deferred income taxes

61

16

Other, net

45

57

Net changes in operating assets and liabilities

(139)

110

Cash Provided by Operating Activities

1,873

1,672

Cash Flows From Investing Activities:

Additions to property, plant and equipment

(515)

(636)

Purchases of marketable securities

(30)

(24)

Proceeds from sale of marketable securities

28

43

Proceeds from sale of businesses

0

165

Other, net

15

26

Cash Used for Investing Activities

(502)

(426)

Cash Flows From Financing Activities:

Payments on debt

(694)

(1,485)

Proceeds from Issuance of Long-term Debt

1

501

Borrowings on revolving credit facility

675

1,345

Payments on revolving credit facility

(525)

(1,345)

Purchases of Tyson Class A common stock

(1,293)

(197)

Dividends

(162)

(110)

Stock options exercised

89

71

Other, net

42

17

Cash Used for Financing Activities

(1,867)

(1,203)

Effect of Exchange Rate Changes on Cash

5

(10)

Increase (Decrease) in Cash and Cash Equivalents

(491)

33

Cash and Cash Equivalents at Beginning of Year

688

438

Cash and Cash Equivalents at End of Period

$ 197

$ 471

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 3, 2015. 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 July 2, 2016, and the results of operations for the three and nine months ended July 2, 2016, and June 27, 2015. 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 March 2016, the Financial Accounting Standards Board ("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 November 2015, the FASB issued guidance to simplify the presentation of deferred income taxes. The guidance requires that deferred tax liabilities and assets be classified as non-current in the balance sheet. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016, our fiscal 2018, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. This new guidance is not expected to have a material impact 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 2015, the FASB issued guidance which removes the requirement to categorize all investments within the fair value hierarchy for which fair values are measured using the net asset value per share practical expedient. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017. Early adoption is permitted and the retrospective transition method should be applied. This new guidance is not expected to 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 are currently evaluating the impact this guidance will have on our consolidated financial statements.

In April 2015, the FASB issued guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability; however, debt issuance costs related to revolving credit facilities will remain in other assets. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017. Early adoption is permitted and the retrospective transition method should be applied. This new guidance is not expected to have a material impact on our consolidated financial statements.

In February 2015, the FASB issued guidance 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. Early adoption is permitted and the retrospective or modified retrospective transition method should be applied. This new guidance is not expected to have a material impact 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.

Dispositions

DISPOSITIONS

In fiscal 2015, we sold the Brazil and Mexico chicken production operations which were included in Other within our segment reporting to JBS SA ("JBS") for a combined $575 million in cash, which was subject to certain adjustments. We completed the sale of the Brazil operation in the first quarter of fiscal 2015 and received net proceeds of $148 million including working capital, net debt adjustments and cash transferred. The sale did not result in a significant gain or loss as the carrying value of the Brazil operation approximated the sales proceeds at the time of sale.

We completed the sale of the Mexico operation in the fourth quarter of fiscal 2015 and received net proceeds of approximately $374 million including working capital, net debt adjustments and cash transferred. As a result of the sale, we recorded a pre-tax gain of

$161 million in the fourth quarter of fiscal 2015, which was reflected in Cost of Sales in our Consolidated Condensed Statements of Income.

To better align our overall production capacity with then-current cattle supplies, we ceased beef operations at our Denison, Iowa, plant in fiscal 2015. As a result, we recorded $12 million in closure and impairment charges during the fourth quarter of fiscal 2015. These charges impacted the Beef segment’s operating income and were reflected in Cost of Sales in our Consolidated Condensed Statements of Income.

In the fourth quarter of fiscal 2015, we recorded a $59 million impairment and other related charges associated with a Prepared Foods project designed to optimize the combined Tyson and Hillshire Brands network capacity and to enhance manufacturing efficiencies for the future. These charges were reflected in the Prepared Foods segment’s operating income in the fourth quarter of fiscal 2015, of which $49 million was included in the Consolidated Condensed Statements of Income in Cost of Sales and $10 million was included in the Consolidated Condensed Statements of Income in Selling, General and Administrative. As a result of this project, we sold our Chicago, Illinois, hospitality plant in June 2016 and closed our Jefferson, Wisconsin, plant in July 2016. The sale of our Chicago, Illinois, plant and closure of our Jefferson, Wisconsin, plant did not have a significant impact on the Company's operating results.

Additionally, in the third quarter of fiscal 2015, as part of our ongoing efforts to increase efficiencies in our Chicken business, we closed our Buena Vista, Georgia, plant. The closure costs did not have a significant impact on the Company's operating results.

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 July 2, 2016, 62% of the cost of inventories was determined by first-in, first-out ("FIFO") method as compared to 63% at October 3, 2015. 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):



	July 2, 2016		October 3, 2015
Processed products	$	1,559	$	1,631
Livestock	933		831
Supplies and other	426		416
Total inventory	$	2,918	$	2,878

Property, Plant And Equipment

PROPERTY, PLANT AND EQUIPMENT

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



	July 2, 2016		October 3, 2015
Land	$	126	$	122
Buildings and leasehold improvements	3,640		3,581
Machinery and equipment	6,707		6,452
Land improvements and other	291		286
Buildings and equipment under construction	347		375
	11,111		10,816
Less accumulated depreciation	5,954		5,640
Net property, plant and equipment	$	5,157	$	5,176

Other Current Liabilities

OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):



	July 2, 2016		October 3, 2015
Accrued salaries, wages and benefits	$	490	$	478
Accrued marketing, advertising and promotion expense	202		192
Other	476		488
Total other current liabilities	$	1,168	$	1,158

Debt

DEBT

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



	July 2, 2016			October 3, 2015
Revolving credit facility	$	150		$	—
Senior notes:
6.60% Senior notes due April 2016 (2016 Notes)	—			638
7.00% Notes due May 2018	120			120
2.65% Notes due August 2019 (2019 Notes)	1,000			1,000
4.10% Notes due September 2020	284			285
4.50% Senior notes due June 2022 (2022 Notes)	1,000			1,000
3.95% Notes due August 2024 (2024 Notes)	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 (2034 Notes)	500			500
5.15% Notes due August 2044 (2044 Notes)	500			500
Discount on senior notes	(9		)	(10		)
Term loans:
Tranche B due April 2019 (1.63% at 7/2/2016)	500			500
Tranche B due August 2019 (2.00% at 7/2/2016)	552			552
Amortizing notes - tangible equity units (see Note 7: Equity)	88			140
Other	62			69
Total debt	6,178			6,725
Less current debt	79			715
Total long-term debt	$	6,099		$	6,010

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 July 2, 2016, was $1,093 million. At July 2, 2016, we had outstanding letters of credit issued under this facility totaling $7 million, none of which were drawn upon. We had an additional $91 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.

2016 Notes

On March 31, 2016, we repaid the entire outstanding $638 million principal balance on the 2016 Notes. Tyson Fresh Meats, Inc. (TFM Parent), our wholly owned subsidiary, fully and unconditionally guaranteed the 2016 Notes, 2019 Notes, 2022 Notes, 2024 Notes, 2034 Notes, 2044 Notes, amortizing notes related to our tangible equity units, Tyson's $1.25 billion revolving credit facility and term loans. As a result of the retirement of the 2016 Notes in the second quarter of fiscal 2016, all of TFM Parent's guarantees were released and TFM Parent is no longer required to disclose guarantor financial statements.

Term Loans

On May 5, 2016, we amended our existing $500 million tranche B term loan agreement which extended the maturity of the loan from April 2018 to April 2019.

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 July 2, 2016.

Equity

EQUITY

Share Repurchases

On February 4, 2016, our Board of Directors approved an increase of 50 million shares authorized for repurchase under our share repurchase program. As of July 2, 2016, 49.1 million shares remained available for repurchases 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 is as follows (in millions):



	Three Months Ended						Nine Months Ended
	July 2, 2016			June 27, 2015			July 2, 2016			June 27, 2015
	Shares	Dollars		Shares	Dollars		Shares	Dollars		Shares	Dollars
Shares repurchased:
Under share repurchase program	7.1	$	457	0.9	$	37	22.0	$	1,235	4.2	$	168
To fund certain obligations under equity compensation plans	0.1	10		0.2	10		1.2	58		0.6	29
Total share repurchases	7.2	$	467	1.1	$	47	23.2	$	1,293	4.8	$	197

Subsequent to July 2, 2016, through August 5, 2016, we repurchased $380 million, or approximately 5.4 million shares, of our common stock under our share repurchase program.

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, comprises 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 financing costs in the Consolidated Condensed Balance Sheets in Other Assets and are amortized over the term of the instrument to July 15, 2017.

The aggregate values assigned upon issuance of each component of the TEU's, 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. Unless settled earlier at the holder's or the Company's option, each purchase contract will automatically settle on July 15, 2017, subject to postponement in certain limited circumstances.

During the first nine months of fiscal 2016, holders settled 16.2 million purchase contracts and, in exchange, the Company issued 17.2 million shares of its Class A common 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 July 2, 2016, 13.8 million TEU's 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 described above. As a result of the purchase contracts tendered in the first nine months of fiscal 2016, our remaining obligation is to deliver between a minimum of 14.7 million shares and a maximum of 18.4 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 $46.95 per share, we will deliver 1.0649 shares of Class A stock per purchase contract, or a minimum of 14.7 million Class A shares.


•	If the Applicable Market Value is greater than the reference price of $37.56 but less than the conversion price of $46.95 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 $37.56 per share, we will deliver 1.3313 shares of Class A stock per purchase contract, or a maximum of 18.4 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 June 15, 2016, we paid our quarterly dividend to shareholders of record at June 1, 2016, equal to $0.15 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 14.7 million minimum shares to be issued are included in the calculation of Class A Basic weighted average shares. The 3.7 million share difference between the minimum shares and the 18.4 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 31.8% and 33.6% for the third quarter of fiscal 2016 and 2015, respectively and 33.2% and 32.8% for the first nine months of fiscal 2016 and 2015, respectively. The effective tax rates for the third quarter and first nine months of fiscal 2016 and fiscal 2015 were impacted by such items as the domestic production deduction, state income taxes and losses in foreign jurisdictions for which no benefit is recognized. In addition, changes in tax reserves resulting from the expiration of statutes of limitations and settlements with taxing authorities reduced the effective tax rate for the third quarter of fiscal 2016 by 1.1% and the first nine months of fiscal 2016 and 2015 by 1.4% and 2.3%, respectively.

Unrecognized tax benefits were $301 million and $306 million at July 2, 2016, and October 3, 2015, respectively.

We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $34 million primarily due to expiration of statutes of limitations in various jurisdictions.

Other Income And Charges

OTHER INCOME AND CHARGES

During the first nine months of fiscal 2016, we recorded $8 million of equity earnings in joint ventures and $3 million in net foreign currency exchange losses, which were recorded in the Consolidated Condensed Statements of Income in Other, net.

During the first nine months of fiscal 2015, we recorded $7 million of equity earnings in joint ventures, $1 million in net foreign currency exchange gains and $21 million of gains on the sale of equity securities, 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				Nine Months Ended
	July 2, 2016		June 27, 2015		July 2, 2016		June 27, 2015
Numerator:
Net income	$	485	$	344	$	1,380	$	965
Less: Net income attributable to noncontrolling interests	1		1		3		3
Net income attributable to Tyson	484		343		1,377		962
Less dividends declared:
Class A	45		30		149		99
Class B	9		6		31		20
Undistributed earnings	$	430	$	307	$	1,197	$	843

Class A undistributed earnings	$	358	$	258	$	999	$	709
Class B undistributed earnings	72		49		198		134
Total undistributed earnings	$	430	$	307	$	1,197	$	843
Denominator:
Denominator for basic earnings per share:
Class A weighted average shares	312		335		318		335
Class B weighted average shares, and shares under the if-converted method for diluted earnings per share	70		70		70		70
Effect of dilutive securities:
Stock options, restricted stock and performance units	6		5		6		5
Tangible equity units	—		4		—		4
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions	388		414		394		414

Net income per share attributable to Tyson:
Class A basic	$	1.29	$	0.86	$	3.61	$	2.41
Class B basic	$	1.17	$	0.78	$	3.28	$	2.20
Diluted	$	1.25	$	0.83	$	3.50	$	2.32

We had no stock-based compensation shares that were antidilutive for each of the three and nine months ended July 2, 2016. Approximately 5 million of our stock-based compensation shares were antidilutive for each of the three and nine months ended June 27, 2015. 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 July 2, 2016.

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



	Metric	July 2, 2016		October 3, 2015
Commodity:
Corn	Bushels	109		18
Soy meal	Tons	418,000		284,900
Live cattle	Pounds	43		102
Lean hogs	Pounds	305		166
Foreign currency	United States dollar	$	43	$	42

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 and nine months ended July 2, 2016, and June 27, 2015. As of July 2, 2016, the net amounts expected to be reclassified into earnings within the next 12 months are pretax gains of $1 million. During the three and nine months ended July 2, 2016, and June 27, 2015, 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
	July 2, 2016		June 27, 2015				July 2, 2016			June 27, 2015
Cash flow hedge – derivatives designated as hedging instruments:
Commodity contracts	$	2	$	(1	)	Cost of sales	$	(1	)	$	(1	)
Foreign exchange contracts	—		—			Other income/expense	—			—
Total	$	2	$	(1	)		$	(1	)	$	(1	)

	Gain (Loss) Recognized in OCI On Derivatives					Consolidated Condensed Statements of Income Classification	Gain (Loss) Reclassified from OCI to Earnings
	Nine Months Ended						Nine Months Ended
	July 2, 2016		June 27, 2015				July 2, 2016			June 27, 2015
Cash flow hedge – derivatives designated as hedging instruments:
Commodity contracts	$	—	$	(3	)	Cost of sales	$	(3	)	$	(5	)
Foreign exchange contracts	—		—			Other income/expense	—			—
Total	$	—	$	(3	)		$	(3	)	$	(5	)

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.



											in millions
	Consolidated Condensed Statements of Income Classification	Three Months Ended						Nine Months Ended
	Consolidated Condensed Statements of Income Classification	July 2, 2016			June 27, 2015			July 2, 2016			June 27, 2015
Gain (Loss) on forwards	Cost of sales	$	19		$	9		$	58		$	1
Gain (Loss) on purchase contract	Cost of sales	(19		)	(9		)	(58		)	(1		)

Ineffectiveness related to our fair value hedges was not significant for the three and nine months ended July 2, 2016, and June 27, 2015.

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						Gain (Loss) Recognized in Earnings
		Three Months Ended						Nine Months Ended
		July 2, 2016			June 27, 2015			July 2, 2016			June 27, 2015
Derivatives not designated as hedging instruments:
Commodity contracts	Sales	$	(20	)	$	(2	)	$	(27	)	$	(10	)
Commodity contracts	Cost of sales	44			—			36			(34		)
Foreign exchange contracts	Other income/expense	—			1			1			(3		)
Total		$	24		$	(1	)	$	10		$	(47	)

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):



July 2, 2016	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative financial instruments:
Designated as hedges	$	—	$	25	$	—	$	(3	)	$	22
Undesignated	—		46		—		(28		)	18
Available-for-sale securities:
Current	—		2		2		—			4
Non-current	—		36		57		—			93
Deferred compensation assets	8		234		—		—			242
Total assets	$	8	$	343	$	59	$	(31	)	$	379
Liabilities:
Derivative financial instruments:
Designated as hedges	$	—	$	7	$	—	$	(7	)	$	—
Undesignated	—		52		—		(52		)	—
Total liabilities	$	—	$	59	$	—	$	(59	)	$	—



October 3, 2015	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative financial instruments:
Designated as hedges	$	—	$	52	$	—	$	(35	)	$	17
Undesignated	—		9		—		(9		)	—
Available-for-sale securities:
Current	—		1		1		—			2
Non-current	—		33		60		—			93
Deferred compensation assets	9		222		—		—			231
Total assets	$	9	$	317	$	61	$	(44	)	$	343
Liabilities:
Derivative financial instruments:
Designated as hedges	$	—	$	2	$	—	$	(2	)	$	—
Undesignated	—		49		—		(47		)	2
Total liabilities	$	—	$	51	$	—	$	(49	)	$	2

(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 July 2, 2016, and October 3, 2015, we had posted with various counterparties $28 million and $5 million, respectively, of cash collateral related to our commodity derivatives 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):



	Nine Months Ended
	July 2, 2016			June 27, 2015
Balance at beginning of year	$	61		$	67
Total realized and unrealized gains (losses):
Included in earnings	—			—
Included in other comprehensive income (loss)	—			—
Purchases	12			13
Issuances	—			—
Settlements	(14		)	(19		)
Balance at end of period	$	59		$	61
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:

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):



	July 2, 2016						October 3, 2015
	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	$	38	$	38	$	—	$	33	$	34	$	1
Corporate and asset-backed	58		59		1		60		61		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 and nine months ended July 2, 2016, and June 27, 2015. No other than temporary losses were deferred in OCI as of July 2, 2016, and October 3, 2015.

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 or nine months ended July 2, 2016, and June 27, 2015.

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):



	July 2, 2016				October 3, 2015
	Fair Value		Carrying Value		Fair Value		Carrying Value
Total debt	$	6,560	$	6,178	$	6,900	$	6,725

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 and nine months ended July 2, 2016, and June 27, 2015, are as follows (in millions):



	Pension Plans
	Three Months Ended						Nine Months Ended
	July 2, 2016			June 27, 2015			July 2, 2016			June 27, 2015

Service cost	$	4		$	5		$	11		$	13
Interest cost	18			21			56			63
Expected return on plan assets	(16		)	(25		)	(49		)	(75		)
Amortization of:
Net actuarial loss	2			1			5			4
Settlement (gain) loss (a)	—			—			(12		)	8
Net periodic cost	$	8		$	2		$	11		$	13



	Postretirement Benefit Plans
	Three Months Ended					Nine Months Ended
	July 2, 2016			June 27, 2015		July 2, 2016			June 27, 2015

Service cost	$	—		$	2	$	—		$	4
Interest cost	1			2		3			5
Amortization of:
Net actuarial (gain) loss	(5		)	6		(14		)	6
Prior service credit	(4		)	—		(13		)	—
Net periodic cost (credit)	$	(8	)	$	10	$	(24	)	$	15

(a) We made lump-sum settlement payments using plan assets of $265 million and $18 million for the nine months ended July 2, 2016, and June 27, 2015, respectively, to certain deferred vested participants within our qualified pension plans.

We contributed $1 million and $3 million to our pension plans for the three months ended July 2, 2016, and June 27, 2015, respectively. We contributed $54 million and $12 million to our pension plans for the nine months ended July 2, 2016, and June 27, 2015, respectively. We expect to contribute an additional $9 million during the remainder of fiscal 2016. 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 2016 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																	Nine Months Ended
	July 2, 2016									June 27, 2015								July 2, 2016									June 27, 2015
	Before Tax			Tax			After Tax			Before Tax			Tax		After Tax			Before Tax			Tax			After Tax			Before Tax			Tax			After Tax

Derivatives accounted for as cash flow hedges:
(Gain) loss reclassified to cost of sales	$	1		$	—		$	1		$	1		$	—	$	1		$	3		$	(1	)	$	2		$	5		$	(2	)	$	3
Unrealized gain (loss)	2			(1		)	1			(1		)	1		—			—			—			—			(3		)	1			(2		)

Investments:
(Gain) loss reclassified to other income/expense	—			—			—			(21		)	8		(13		)	—			—			—			(21		)	8			(13		)
Unrealized gain (loss)	(1		)	1			—			1			—		1			(1		)	1			—			20			(8		)	12

Currency translation:
Translation loss reclassified to cost of sales (a)	—			—			—			—			—		—			—			—			—			37			(1		)	36
Translation adjustment	(2		)	—			(2		)	1			1		2			3			—			3			(63		)	10			(53		)

Postretirement benefits	(3		)	1			(2		)	—			—		—			(9		)	4			(5		)	10			(3		)	7
Total other comprehensive income (loss)	$	(3	)	$	1		$	(2	)	$	(19	)	$	10	$	(9	)	$	(4	)	$	4		$	—		$	(15	)	$	5		$	(10	)

(a) Translation loss reclassified to Cost of Sales related to disposition of a foreign operation, which is further described in Note 2: Dispositions.

Segment Reporting

SEGMENT REPORTING

We operate in four reportable segments: Chicken, Beef, Pork, and Prepared Foods. We measure segment profit as operating income (loss).

Following the sale of our Mexico and Brazil chicken production operations in fiscal 2015 (see Note 2: Dispositions), we began reporting our international operation, which was previously reported as the International segment, in Other. Other now includes our foreign chicken production operations in China and India and third-party merger and integration costs. All periods presented have been reclassified to reflect this change. Chicken, Beef, Pork and Prepared Foods results were not impacted by this change.

Chicken: Chicken includes our domestic operations related to raising and processing live chickens into 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® pies, as well as artisanal brands Aidells®, Gallo Salame®, and Golden Island® premium jerky. Products primarily include pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, flour and corn tortilla products, desserts, appetizers, 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 which are included in Other.

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



	Three Months Ended								Nine Months Ended
	July 2, 2016				June 27, 2015				July 2, 2016				June 27, 2015
Sales:
Chicken	$	2,743			$	2,757			$	8,116			$	8,366
Beef	3,783				4,305				11,036				12,826
Pork	1,271				1,207				3,674				3,951
Prepared Foods	1,809				1,810				5,509				5,814
Other	99				244				284				771
Intersegment sales	(302		)		(252		)		(894		)		(861		)
Total sales	$	9,403			$	10,071			$	27,725			$	30,867

Operating income (loss):
Chicken	$	380			$	313			$	1,085			$	996
Beef	91				(7		)		208				(33		)
Pork	122				64				420				285
Prepared Foods	197				207			^(a)	601				438			^(a)
Other	(23		)	^(b)	(14		)	^(b)	(67		)	^(b)	(67		)	^(b)
Total operating income	767				563				2,247				1,619

Total other (income) expense	56				45			^(c)	180				183			^(c)

Income before income taxes	$	711			$	518			$	2,067			$	1,436

(a) Includes merger and integration costs of $1 million and $10 million for the three and nine months ended June 27, 2015, respectively, and $11 million net proceeds and $17 million net costs related to a legacy Hillshire Brands plant fire for the three and nine months ended June 27, 2015, respectively.

(b) Other includes third-party merger and integration costs of $11 million and $15 million for the three months ended July 2, 2016, and June 27, 2015, respectively, and $29 million and $39 million for the nine months ended July 2, 2016, and June 27, 2015, respectively.

(c) Other (income) expense includes a $21 million gain on the sale of equity securities for the three and nine months ended June 27, 2015.

The Chicken segment had sales of $8 million and $6 million in the third quarter of fiscal 2016 and 2015, respectively, and sales of $15 million and $13 million in the first nine months of fiscal 2016 and 2015, respectively, from transactions with other operating segments of the Company. The Beef segment had sales of $90 million and $93 million in the third quarter of fiscal 2016 and 2015, respectively, and sales of $240 million and $248 million in the first nine months of fiscal 2016 and 2015, respectively, from transactions with other operating segments of the Company. The Pork segment had sales of $204 million and $153 million in the third quarter of fiscal 2016 and 2015, respectively, and sales of $639 million and $600 million in the first nine months of fiscal 2016 and 2015, 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 July 2, 2016, was $42 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 12 years. The maximum potential amount of the residual value guarantees is $91 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 July 2, 2016, and October 3, 2015, 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 July 2, 2016, was approximately $380 million. The total receivables under these programs were $2 million at July 2, 2016. There were no receivables under these programs at October 3, 2015. 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 July 2, 2016, and October 3, 2015.

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 July 2, 2016, total amounts under these type of arrangements totaled $528 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 and 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.

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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.


•	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 - This case involves our Goodlettsville, Tennessee case ready beef plant and is in its preliminary stages.

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 by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In 2006, an labor arbiter ruled against the respondents and awarded the complainants PHP3,453,664,710 (approximately US$73 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$7.3 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 are now back before the NLRC, which will once again rule on the respondents’ appeals regarding the labor arbiter’s 2006 ruling in favor of the complainants. In the meantime, the respondents reached a settlement with a group comprising approximately 18% of the class of 5,984 complainants, pursuant to which The Hillshire Brands Company would pay each settling complainant PHP68,000 (approximately US$1,440). The settlement was approved by the NLRC on or around April 8, 2016, and certain motions for reconsideration relating thereto were resolved on June 30, 2016. If there are no further appeals or motions for reconsideration, The Hillshire Brands Company will make the payments associated with the settlement. In the meantime, The Hillshire Brands Company awaits the NLRC’s decision on the pending appeal with respect to all non-settling complainants.

Accounting Policies (Policy)

Basis Of Presentation