TYSON FOODS INC, 10-Q filed on 8/6/2018
Quarterly Report
v3.10.0.1
Document and Entity Information
9 Months Ended
Jun. 30, 2018
shares
Entity Registrant Name TYSON FOODS INC
Entity Central Index Key 0000100493
Current Fiscal Year End Date --09-29
Entity Filer Category Large Accelerated Filer
Document Type 10-Q
Document Period End Date Jun. 30, 2018
Document Fiscal Year Focus 2018
Document Fiscal Period Focus Q3
Amendment Flag false
Class A [Member]  
Entity Common Stock, Shares Outstanding 295,919,925
Class B [Member]  
Entity Common Stock, Shares Outstanding 70,010,355
v3.10.0.1
Consolidated Condensed Statements Of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Jun. 30, 2018
Jul. 01, 2017
Jun. 30, 2018
Jul. 01, 2017
Sales $ 10,051 $ 9,850 $ 30,053 $ 28,115
Cost of Sales 8,745 8,648 26,276 24,383
Gross Profit 1,306 1,202 3,777 3,732
Operating Expenses:        
Selling, General and Administrative 504 505 1,550 1,482
Operating Income 802 697 2,227 2,250
Other (Income) Expense:        
Interest income (2) (2) (6) (5)
Interest expense 89 71 263 185
Other, net (8) 11 (18) 22
Total Other (Income) Expense 79 80 [1] 239 202 [1]
Income before Income Taxes 723 617 1,988 2,048
Income Tax Expense (Benefit) 181 169 (502) 665
Net Income 542 448 2,490 1,383
Less: Net Income Attributable to Noncontrolling Interests 1 1 3 3
Net Income Attributable to Tyson $ 541 $ 447 $ 2,487 $ 1,380
Weighted Average Shares Outstanding:        
Diluted, Shares 369 370 370 371
Net Income Per Share Attributable to Tyson:        
Diluted (USD per share) $ 1.47 $ 1.21 $ 6.72 $ 3.72
Class A [Member]        
Weighted Average Shares Outstanding:        
Basic, Shares 295 296 296 296
Net Income Per Share Attributable to Tyson:        
Basic (USD per share) $ 1.52 $ 1.24 $ 6.94 $ 3.84
Dividends Declared Per Share:        
Dividends Declared (USD per share) $ 0.300 $ 0.225 $ 0.975 $ 0.750
Class B [Member]        
Weighted Average Shares Outstanding:        
Basic, Shares 70 70 70 70
Net Income Per Share Attributable to Tyson:        
Basic (USD per share) $ 1.37 $ 1.12 $ 6.24 $ 3.47
Dividends Declared Per Share:        
Dividends Declared (USD per share) $ 0.270 $ 0.203 $ 0.878 $ 0.675
[1] Total other (income) expense includes $18 million of acquisition bridge financing fees for the three and nine months ended July 1, 2017.
v3.10.0.1
Consolidated Condensed Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Jun. 30, 2018
Jul. 01, 2017
Jun. 30, 2018
Jul. 01, 2017
Statement of Comprehensive Income [Abstract]        
Net Income $ 542 $ 448 $ 2,490 $ 1,383
Other Comprehensive Income (Loss), Net of Taxes:        
Derivatives accounted for as cash flow hedges (9) 0 (7) 0
Investments (1) (1) (1) (1)
Currency translation (25) 3 (19) (2)
Postretirement benefits (3) (3) (7) (4)
Total Other Comprehensive Income (Loss), Net of Taxes (38) (1) (34) (7)
Comprehensive Income 504 447 2,456 1,376
Less: Comprehensive Income Attributable to Noncontrolling Interests 1 1 3 3
Comprehensive Income Attributable to Tyson $ 503 $ 446 $ 2,453 $ 1,373
v3.10.0.1
Consolidated Condensed Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2018
Sep. 30, 2017
Assets    
Cash and cash equivalents $ 170 $ 318
Accounts receivable, net 1,684 1,675
Inventories 3,378 3,239
Other current assets 196 219
Assets held for sale 649 807
Total Current Assets 6,077 6,258
Net Property, Plant and Equipment 5,925 5,568
Goodwill 9,498 9,324
Intangible Assets, net 6,405 6,243
Other Assets 733 673
Total Assets 28,638 28,066
Liabilities and Shareholders' Equity    
Current debt 1,308 906
Accounts payable 1,546 1,698
Other current liabilities 1,251 1,424
Liabilities held for sale 7 4
Total Current Liabilities 4,112 4,032
Long-Term Debt 8,852 9,297
Deferred Income Taxes 2,050 2,979
Other Liabilities 1,187 1,199
Commitments and Contingencies (Note 17)
Shareholders' Equity:    
Capital in excess of par value 4,376 4,378
Retained earnings 11,913 9,776
Accumulated other comprehensive (loss) gain (18) 16
Treasury stock, at cost – 82 million shares at June 30, 2018 and 80 million shares at September 30, 2017 (3,890) (3,674)
Total Tyson Shareholders’ Equity 12,426 10,541
Noncontrolling Interests 11 18
Total Shareholders’ Equity 12,437 10,559
Total Liabilities and Shareholders’ Equity 28,638 28,066
Class A [Member]    
Shareholders' Equity:    
Common stock ($0.10 par value): 38 38
Class B [Member]    
Shareholders' Equity:    
Common stock ($0.10 par value): $ 7 $ 7
v3.10.0.1
Consolidated Condensed Balance Sheets (Parentheticals) - $ / shares
shares in Millions
Jun. 30, 2018
Sep. 30, 2017
Treasury Stock, shares 82 80
Class A [Member]    
Common stock, par value $ 0.10 $ 0.10
Common stock, shares authorized 900 900
Common stock, shares issued 378 378
Class B [Member]    
Common stock, par value $ 0.10 $ 0.10
Common stock, shares authorized 900 900
Common stock, shares issued 70 70
v3.10.0.1
Consolidated Condensed Statements Of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Jun. 30, 2018
Jul. 01, 2017
Cash Flows From Operating Activities:    
Net Income $ 2,490 $ 1,383
Depreciation and amortization 697 543
Deferred income taxes (920) (25)
Other, net 160 106
Net changes in operating assets and liabilities (503) (558)
Cash Provided by Operating Activities 1,924 1,449
Cash Flows From Investing Activities:    
Additions to property, plant and equipment (887) (782)
Purchases of marketable securities (28) (47)
Proceeds from sale of marketable securities 27 45
Acquisitions, net of cash acquired (608) (3,081)
Proceeds from sale of business 125 0
Other, net (52) (2)
Cash Used for Investing Activities (1,423) (3,867)
Cash Flows From Financing Activities:    
Payments on debt (554) (1,557)
Proceeds from issuance of long-term debt 250 4,545
Borrowings on revolving credit facility 1,755 1,750
Payments on revolving credit facility (1,725) (2,050)
Proceeds from issuance of commercial paper 16,549 4,043
Repayments of commercial paper (16,327) (3,353)
Payment of AdvancePierre TRA liability 0 (223)
Purchases of Tyson Class A common stock (367) (768)
Dividends (324) (238)
Stock options exercised 97 128
Other, net (1) 22
Cash (Used for) Provided by Financing Activities (647) 2,299
Effect of Exchange Rate Changes on Cash (2) 1
Decrease in Cash and Cash Equivalents (148) (118)
Cash and Cash Equivalents at Beginning of Year 318 349
Cash and Cash Equivalents at End of Period $ 170 $ 231
v3.10.0.1
Accounting Policies
9 Months Ended
Jun. 30, 2018
Policy Text Block [Abstract]  
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 September 30, 2017. 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 June 30, 2018, and the results of operations for the three and nine months ended June 30, 2018, and July 1, 2017. 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 February 2018, the Financial Accounting Standards Board ("FASB") issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the "Tax Cuts and Jobs Act" (the "Tax Act"). 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 entities will have the choice to apply either in the period of adoption or retrospectively to each period in which the effect of the change in the federal income tax rate in the Tax Act. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In August 2017, the FASB issued guidance that eases certain documentation and assessment requirements of hedge effectiveness and modifies the accounting for components excluded from the assessment. Some of the modifications include the ineffectiveness of derivative gain/loss in highly effective cash flow hedge to be recorded in Other Comprehensive Income, the change in fair value of derivative to be recorded in the same income statement line as the hedged item, and additional disclosures required on the cumulative basis adjustment in fair value hedges and the effect of hedging on financial statement lines for components excluded from the assessment. The amendment also simplifies the application of hedge accounting in certain situations to permit new hedging strategies to be eligible for hedge accounting. 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 transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In May 2017, the FASB issued guidance that clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. 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 prospective transition method should be applied to awards modified on or after the adoption date. We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In March 2017, the FASB issued guidance that shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. 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 transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In March 2017, the FASB issued guidance that will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only the service cost component will be eligible for capitalization when applicable. 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 for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement, and the prospective transition method should be applied, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We plan to adopt this guidance beginning in the first quarter of fiscal 2019. We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In November 2016, the FASB issued guidance that 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 do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In October 2016, the FASB issued guidance that 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 do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In August 2016, the FASB issued guidance that aims to eliminate diversity in practice in 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 do not expect the adoption of this guidance will have a material impact 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 do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued guidance that 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. While we are still evaluating the impact this guidance will have on our consolidated financial statements and related disclosures, we have completed our initial scoping reviews and have made progress in our assessment phase as we continue to identify our leasing processes that will be impacted by the new standard. We have also made progress in developing the policy elections we will make upon adoption and we are implementing software to meet the reporting requirements of this standard. We expect our financial statement disclosures will be expanded to present additional details of our leasing arrangements. Although we expect the impacts to be material, at this time we are unable to reasonably estimate the expected increase in assets and liabilities on our consolidated balance sheets or the impacts to our consolidated financial statements upon adoption.
In January 2016, the FASB issued guidance that requires most equity investments be measured at fair value, with subsequent other 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 do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued guidance that changes 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 plan to adopt this guidance using the modified retrospective transition method beginning in the first quarter of fiscal 2019. We continue to evaluate the impact of the adoption of this guidance, but currently, do not expect the new guidance to materially impact our consolidated financial statements other than additional disclosure requirements.
Changes in Accounting Principles
In March 2018, the FASB issued guidance that clarifies application of Topic 740 in regards to the Tax Act enacted December 22, 2017. The guidance requires provisional amounts to be reported within the reporting period in which the Tax Act was enacted if a reasonable estimate can be determined or within the measurement period not to exceed one year from the enactment date by which accounting is required to be completed in accordance with Topic 740. Any provisional amounts or adjustments to provisional amounts reported in the measurement period should be included in income from continuing operations as an adjustment to tax expense or benefit in the reporting period the amounts are determined. The guidance was effective immediately and we adopted this guidance in the first quarter of fiscal 2018. The impact of adoption had a material impact to our financial statements (see Note 9: Income Taxes).
In March 2016, the FASB issued guidance that 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. We adopted this guidance in the first quarter of fiscal 2018. The guidance requires all income tax effects of share-based payment awards to be recognized in the consolidated statements of income when the awards vest or are settled, which is a change from the current guidance that requires such activity to be recorded in capital in excess of par value within stockholders' equity. We adopted this guidance prospectively which may create volatility in our effective tax rate when adopted depending largely on future events and other factors, which may include our stock price, timing of stock option exercises, and the value realized upon vesting or exercise of shares compared to the grant date fair value of those shares. For the three and nine months ended June 30, 2018, the recorded tax benefit was not material. In addition, when calculating potential common shares used to determine diluted earnings per share this guidance requires that assumed proceeds under the treasury stock method be modified to exclude the amount of excess tax benefits that would have been recognized in additional paid-in capital. These changes were applied on a prospective basis which did not have a material impact to diluted earnings per share for the three and nine months ended June 30, 2018. Under the new guidance, companies can also make an accounting policy election to either estimate forfeitures each period or to account for forfeitures as they occur. We changed our accounting policy to account for forfeitures as they occur using the modified retrospective transition method which did not have a material impact on our consolidated financial statements. The guidance changes the presentation of excess tax benefits from a financing activity to an operating activity in the consolidated statements of cash flows. We applied this change prospectively, and thus, prior periods have not been adjusted. This guidance also requires the presentation related to cash paid to a taxing authority when shares are withheld to satisfy the statutory income tax withholding obligation to a financing activity in the consolidated statements of cash flows. The adoption of this standard did not have a material impact on our consolidated statements of cash flows.
In July 2015, the FASB issued guidance that 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. The prospective transition method was applied. We adopted this guidance in the first quarter of fiscal 2018 and it did not have a material impact on our consolidated financial statements.
v3.10.0.1
Acquisitions and Dispositions
9 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Acquisitions and Dispositions
ACQUISITIONS AND DISPOSITIONS
Acquisitions
On June 4, 2018, we acquired Tecumseh Poultry, LLC, a vertically integrated value-added protein business for $382 million, net of cash acquired, as part of our strategy to grow in the high quality, branded poultry market. Its results, subsequent to the acquisition closing, are included in our Chicken segment. The preliminary purchase price allocation included $13 million of net working capital, including $1 million of cash acquired, $49 million of Property, Plant and Equipment, $227 million of Intangible Assets and $94 million of Goodwill. Intangible Assets included $193 million assigned to brands and trademarks which will be amortized over 20 years. All of the goodwill acquired is deductible for tax purposes. Certain estimated values for the acquisition, including goodwill, intangible assets, and property, plant and equipment, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.
On May 14, 2018, we entered into an agreement to acquire American Proteins, Inc., a poultry rendering and blending operation for approximately $850 million, as part of our strategic expansion and sustainability initiatives. Its results, subsequent to closing, will be included in our Chicken segment. The agreement is subject to customary closing conditions and we expect to close in the fourth quarter of fiscal 2018.
On November 10, 2017, we acquired a value-added protein business for $226 million, net of cash acquired, as part of our strategic expansion initiative. Its results, subsequent to the acquisition closing, are included in our Prepared Foods and Chicken segments. The preliminary purchase price allocation included $21 million of net working capital, including $10 million of cash acquired, $13 million of Property, Plant and Equipment, $90 million of Intangible Assets and $112 million of Goodwill. During the second quarter of fiscal 2018, we recorded measurement period adjustments, which decreased goodwill by $1 million, after obtaining additional information regarding, among other things, asset valuations and liabilities assumed. We completed the allocation of goodwill to our segments in the second quarter of fiscal 2018 using the acquisition method approach. This resulted in $82 million and $29 million of goodwill allocated to our Prepared Foods and Chicken segments, respectively. All of the goodwill acquired is deductible for tax purposes. Certain estimated values for the acquisition, including goodwill, intangible assets, and property, plant and equipment, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.
On June 7, 2017, we acquired all of the outstanding common stock of AdvancePierre Foods Holdings, Inc. ("AdvancePierre") as part of our strategy to sustainably feed the world with the fastest growing portfolio of protein brands. The purchase price was equal to $40.25 per share for AdvancePierre's outstanding common stock, or approximately $3.2 billion. We funded the acquisition with existing cash on hand, net proceeds from the issuance of new senior notes and a new term loan facility, as well as borrowings under our commercial paper program. AdvancePierre's results from operations subsequent to the acquisition closing are included in the Prepared Foods and Chicken segments.
The following table summarizes the purchase price allocation and fair values of the assets acquired and liabilities assumed at the acquisition date of AdvancePierre. During the first quarter of fiscal 2018, we recorded measurement period adjustments which decreased goodwill by $2 million, primarily related to updated information related to income taxes.
 
in millions
 
Cash and cash equivalents
 
$
126

Accounts receivable
 
80

Inventories
 
272

Other current assets
 
5

Property, Plant and Equipment
 
302

Goodwill
 
2,980

Intangible Assets
 
1,515

Current debt
 
(1,148
)
Accounts payable
 
(114
)
Other current liabilities
 
(97
)
Tax receivable agreement ("TRA") due to former shareholders
 
(223
)
Long-Term Debt
 
(33
)
Deferred Income Taxes
 
(455
)
Other Liabilities
 
(3
)
Net assets acquired
 
$
3,207


The fair value of identifiable intangible assets is as follows:
 
 
 
 
 
 
in millions

Intangible Asset Category
 
Type
 
Life in Years
 
Fair Value
Brands & Trademarks
 
Amortizable
 
Weighted Average of 15 years
 
$
390

Customer Relationships
 
Amortizable
 
Weighted Average of 15 years
 
1,125

Total identifiable intangible assets
 
 
 
 
 
$
1,515


As a result of the acquisition, we recognized a total of $2,980 million of goodwill. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above. Goodwill represents the value we expect to achieve through the implementation of operational synergies and growth opportunities. We completed the allocation of goodwill to our segments in the first quarter of fiscal 2018 using the with-and-without approach of the estimated operating results and synergy impact to fair value of our reporting units. This resulted in $2,412 million and $568 million of goodwill allocated to our Prepared Foods and Chicken segments, respectively. Of the goodwill acquired, $163 million related to previous AdvancePierre acquisitions is expected to be deductible for tax purposes.
We used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty, and multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
The acquisition of AdvancePierre was accounted for using the acquisition method of accounting, and consequently, the results of operations for AdvancePierre are reported in our consolidated financial statements from the date of acquisition.
The following unaudited pro forma information presents the combined results of operations as if the acquisition of AdvancePierre had occurred at the beginning of fiscal 2016. AdvancePierre's pre-acquisition results have been added to our historical results. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles, depreciation expense, interest expense related to the financing and related income taxes. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.
These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results.
in millions (unaudited)
Three Months Ended
 
Nine Months Ended
 
July 1, 2017
 
July 1, 2017
Pro forma sales
$
10,117

 
$
29,185

Pro forma net income attributable to Tyson
491

 
1,434

Pro forma net income per diluted share attributable to Tyson
$
1.33

 
$
3.87


Dispositions
On April 24, 2017, we announced our intent to sell three non-protein businesses as part of our strategic focus on protein brands. These businesses, which are all part of our Prepared Foods segment, included Sara Lee® Frozen Bakery, Kettle and Van’s® and produce items such as frozen desserts, waffles, snack bars, and soups, sauces and sides. The sale is also expected to include the Chef Pierre®, Bistro Collection®, Kettle Collection™, and Van’s® brands, a license to use the Sara Lee® brand in various channels, as well as our Tarboro, North Carolina, Fort Worth, Texas, and Traverse City, Michigan, prepared foods facilities. In the first quarter of fiscal 2018, we made the decision to sell our pizza crust business, which is also included in our Prepared Foods segment, as part of our strategic focus on protein brands. We anticipate closing on this sale in the fourth quarter of fiscal 2018.
We completed the sale of our Kettle business on December 30, 2017, and received net proceeds of $125 million including a working capital adjustment. As a result of the sale, we recorded a pretax gain of $22 million, which is reflected in Cost of Sales in our Consolidated Condensed Statement of Income for the nine months ended June 30, 2018. We utilized the net proceeds to pay down term loan debt.
On May 31, 2018, we entered into a definitive agreement to sell our Sara Lee® Frozen Bakery and Van’s® businesses for approximately $615 million, subject to certain adjustments. The sale of these businesses subsequently closed on July 30, 2018. We had no impairment charges for these businesses for the three months ended June 30, 2018, and recorded pretax impairment charges totaling $101 million for the nine months ended June 30, 2018, due to revised estimates of the businesses' fair value based on expected net sales proceeds. The impairment charges were recorded in Cost of Sales in our Consolidated Condensed Statement of Income, and primarily consisted of goodwill previously classified within assets held for sale.
We have reclassified the assets and liabilities related to these businesses, including allocated goodwill, to assets and liabilities held for sale in our Consolidated Condensed Balance Sheets. The amounts of assets and liabilities held for sale will change in future periods due to such items as normal business operations, timing of closing of the sale, as well as final negotiated deal terms.
The Company concluded the businesses were not significant disposal groups and did not represent a strategic shift, and therefore were not classified as discontinued operations for any of the periods presented.
The following table summarizes the net assets and liabilities held for sale:
 
 
in millions

 
June 30, 2018
September 30, 2017
Assets held for sale:
 
 
Accounts receivable, net
$

$
2

Inventories
83

109

Net Property, Plant and Equipment
181

192

Other current assets
1

1

Goodwill
193

312

Intangible Assets, net
191

191

Total assets held for sale
$
649

$
807

Liabilities held for sale:
 
 
Accounts payable
$
1

$
1

Other current liabilities
6

3

Total liabilities held for sale
$
7

$
4

v3.10.0.1
Inventories
9 Months Ended
Jun. 30, 2018
Inventory Disclosure [Abstract]  
Inventories
INVENTORIES
Processed products, livestock and supplies and other are valued at the lower of cost and net realizable value. 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 June 30, 2018, 64% of the cost of inventories was determined by the first-in, first-out ("FIFO") method as compared to 63% at September 30, 2017. 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):
 
June 30, 2018
 
September 30, 2017
Processed products
$
1,950

 
$
1,947

Livestock
966

 
874

Supplies and other
462

 
418

Total inventory
$
3,378

 
$
3,239

v3.10.0.1
Property, Plant And Equipment
9 Months Ended
Jun. 30, 2018
Property, Plant and Equipment, Net [Abstract]  
Property, Plant And Equipment
PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated depreciation are as follows (in millions): 

June 30, 2018
 
September 30, 2017
Land
$
142

 
$
138

Buildings and leasehold improvements
4,026

 
3,878

Machinery and equipment
7,429

 
7,111

Land improvements and other
348

 
323

Buildings and equipment under construction
727

 
492

 
12,672

 
11,942

Less accumulated depreciation
6,747

 
6,374

Net property, plant and equipment
$
5,925

 
$
5,568

v3.10.0.1
Restructuring and Related Charges Restructuring and Related Charges
9 Months Ended
Jun. 30, 2018
Restructuring and Related Activities [Abstract]  
Restructuring and Related Charges
RESTRUCTURING AND RELATED CHARGES
In the fourth quarter of fiscal 2017, our Board of Directors approved a multi-year restructuring program (the “Financial Fitness Program”), which is expected to contribute to the Company’s overall strategy of financial fitness through increased operational effectiveness and overhead reduction. The Company currently anticipates the Financial Fitness Program will result in cumulative pretax charges, once implemented, of approximately $253 million which consist primarily of severance and employee related costs, impairments and accelerated depreciation of technology assets, incremental costs to implement new technology, and contract termination costs. As part of this program, we anticipate eliminating approximately 550 positions across several areas and job levels with most of the eliminated positions originating from the corporate offices in Springdale, Arkansas; Chicago, Illinois; and Cincinnati, Ohio. For the three and nine months ended June 30, 2018, the Company recognized restructuring and related charges of $14 million and $45 million associated with the Financial Fitness Program, respectively.
The following table reflects the pretax impact of restructuring and related charges in our Consolidated Condensed Statements of Income:
in millions
 
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2018
 
June 30, 2018
Cost of Sales
$

 
$

Selling, General and Administrative expenses
14

 
45

Total restructuring and related charges, pretax
$
14

 
$
45


The following table reflects the pretax impact of restructuring and related charges incurred in the three and nine months ended June 30, 2018, the program charges to date and the total estimated program charges, by our reportable segments:
 
in millions

 
Three Months Ended
Nine Months Ended
Financial Fitness Program charges to date
 
 
June 30, 2018
June 30, 2018
June 30, 2018
Total estimated Financial Fitness Program charges

Beef
$
1

$
3

$
11

$
18

Pork

1

4

7

Chicken
7

22

78

102

Prepared Foods
6

19

101

125

Other


1

1

Total restructuring and related charges, pretax
$
14

$
45

$
195

$
253


For the three and nine months ended June 30, 2018, the restructuring and related charges consisted of $0 million and $4 million of severance and employee related costs, respectively, and $14 million and $41 million of technology related costs, respectively. The majority of the remaining estimated charges are related to incremental costs to implement new technology and accelerated depreciation of technology assets.
The following table reflects our liability related to restructuring charges which were recognized in other current liabilities in our Consolidated Condensed Balance Sheets as of June 30, 2018:
in millions

 
 
Liability as of September 30, 2017
Restructuring charges
Payments
Other
Liability as of June 30, 2018
Severance and employee related costs
$
47

$
4

$
32

$

$
19

Contract termination
22


20


2

Total
$
69

$
4

$
52

$

$
21

v3.10.0.1
Other Current Liabilities
9 Months Ended
Jun. 30, 2018
Other Liabilities, Current [Abstract]  
Other Current Liabilities
OTHER CURRENT LIABILITIES
Other current liabilities are as follows (in millions):
 
June 30, 2018
 
September 30, 2017
Accrued salaries, wages and benefits
$
494

 
$
673

Other
757

 
751

Total other current liabilities
$
1,251

 
$
1,424

v3.10.0.1
Debt
9 Months Ended
Jun. 30, 2018
Debt Instruments [Abstract]  
Debt
DEBT
The major components of debt are as follows (in millions):
 
June 30, 2018
 
September 30, 2017
Revolving credit facility
$
30

 
$

Commercial paper
1,000

 
778

Senior notes:
 
 
 
7.00% Notes due May 2018

 
120

Notes due May 2019 (2.77% at 6/30/2018)
300

 
300

2.65% Notes due August 2019
1,000

 
1,000

Notes due June 2020 (2.87% at 6/30/2018)
350

 
350

Notes due August 2020 (2.78% at 6/30/2018)
400

 
400

4.10% Notes due September 2020
281

 
282

2.25% Notes due August 2021
500

 
500

4.50% Senior notes due June 2022
1,000

 
1,000

3.95% Notes due August 2024
1,250

 
1,250

3.55% Notes due June 2027
1,350

 
1,350

7.00% Notes due January 2028
18

 
18

6.13% Notes due November 2032
161

 
162

4.88% Notes due August 2034
500

 
500

5.15% Notes due August 2044
500

 
500

4.55% Notes due June 2047
750

 
750

Discount on senior notes
(13
)
 
(15
)
Term loans:
 
 
 
Tranche B due August 2019

 
427

Tranche B due August 2020 (2.93% at 6/30/2018)
750

 
500

Other
76

 
81

Unamortized debt issuance costs
(43
)
 
(50
)
Total debt
10,160

 
10,203

Less current debt
1,308

 
906

Total long-term debt
$
8,852

 
$
9,297


Revolving Credit Facility
In March 2018, we amended our existing credit facility which, among other things, increased our line of credit from $1.5 billion to $1.75 billion. This facility supports short-term funding needs and serves as a backstop to our commercial paper program and will mature and the commitments thereunder will terminate in March 2023. Amounts available for borrowing under this facility totaled $1.72 billion at June 30, 2018, before deducting amounts to backstop our commercial paper program. At June 30, 2018, we had no outstanding letters of credit issued under this facility. At June 30, 2018, we had $105 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 and workers’ compensation insurance programs and other legal obligations.

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.
Commercial Paper Program
We have a commercial paper program under which we may issue unsecured short-term promissory notes ("commercial paper") up to an aggregate maximum principal amount of $1 billion as of June 30, 2018. As of June 30, 2018, we had $1 billion of commercial paper outstanding at a weighted average interest rate of 2.31% with maturities of less than 50 days.
Term Loan Tranche B due August 2020
On June 8, 2018, we amended our existing term loan agreement which increased the principal amount borrowed from $500 million to $750 million. Proceeds from the borrowings were primarily used to fund an acquisition.
7.00% Notes due May 2018
During the third quarter of fiscal 2018, we extinguished the $120 million outstanding balance of the Senior Notes due May 2018 using cash on hand.
Term Loan Tranche B due August 2019
During the first quarter of fiscal 2018, we extinguished the $427 million outstanding balance of the Term Loan Tranche B due in August 2019 using cash on hand and proceeds received from the sale of a non-protein business.
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 June 30, 2018.
v3.10.0.1
Equity
9 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Equity
EQUITY
Share Repurchases
As of June 30, 2018, 23.7 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 is as follows (in millions):
 
 
Three Months Ended
 
Nine Months Ended
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
 
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Shares repurchased:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under share repurchase program
 
1.8

 
$
120

 
1.3

 
$
80

 
4.1

 
$
300

 
12.5

 
$
797

To fund certain obligations under equity compensation plans
 
0.1

 
10

 
0.2

 
10

 
0.9

 
67

 
0.8

 
51

Total share repurchases
 
1.9

 
$
130

 
1.5

 
$
90

 
5.0

 
$
367

 
13.3

 
$
848

v3.10.0.1
Income Taxes
9 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act includes significant changes to the U.S. tax code that will affect our fiscal year ending September 29, 2018 and future periods. Changes include, but are not limited to, (1) reducing the corporate federal income tax rate from 35% to 21%, (2) bonus depreciation that will allow for full expensing of qualified property in the year placed in service and (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries. Section 15 of the Internal Revenue Code (the "Code") stipulates that our fiscal year ending September 29, 2018, will have a blended corporate tax rate of 24.5%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year. Additionally, the Tax Act includes the repeal of the domestic production activity deduction, a new provision designed to tax global intangible low-taxed income ("GILTI"), a new provision which allows a deduction for foreign-derived intangible income ("FDII"), and a new provision which institutes a base erosion and anti-abuse tax ("BEAT"), beginning with our fiscal year 2019. We are still evaluating these new international provisions; however, we do not expect them to have a material impact to our financial statements.
Changes in the Code from the Tax Act had a material impact on our financial statements in the nine months of fiscal 2018. Under generally accepted accounting principles ("U.S. GAAP"), specifically ASC Topic 740, Income Taxes, the tax effects of changes in U.S. tax laws must be recognized in the period in which the law is enacted, or December 22, 2017, for the Tax Act. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s deferred taxes were re-measured based upon the new tax rates. The change in deferred taxes is recorded as an adjustment to our deferred tax provision.
The staff of the U.S. Securities and Exchange Commission has recognized the complexity of reflecting the impacts of the Tax Act and issued guidance in Staff Accounting Bulletin 118 ("SAB 118"), which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one year period in which to complete the required analyses and accounting (the "measurement period"). SAB 118 describes three scenarios (or "buckets") associated with a company’s status of accounting for income tax reform: (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply ASC 740, based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. The FASB has also issued guidance that essentially adopts the SEC guidance (see Note 1: Accounting Policies).
Our accounting for the Tax Act was incomplete at December 30, 2017 and remains incomplete. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows:
Corporate Tax Rate Reduction: The Tax Act reduced the corporate tax rate from 35% to 21%, effective January 1, 2018. This results in a blended corporate tax rate of 24.5% in fiscal year 2018 and 21% thereafter. We analyzed our domestic deferred tax balances to estimate which of those balances are expected to reverse in fiscal 2018 or thereafter, and we re-measured the deferred taxes at 24.5% or 21% accordingly. In the three months ended December 30, 2017, we recorded a discrete net deferred income tax benefit of $994 million with a corresponding provisional reduction to our net deferred income tax liability. In the three months ended March 31, 2018 and June 30, 2018, we recorded an additional $9 million and $1 million, respectively, discrete deferred income tax benefit with a corresponding provisional reduction to our net deferred income tax liability. Remeasurement is expected to change as we receive additional information about the timing of deferred income tax reversals.
Transition Tax: The Tax Act requires a one-time Deemed Repatriation Transition Tax on previously untaxed net accumulated and current earnings and profits of our foreign subsidiaries. Based on our analysis of our foreign earnings and profits, net of deficits and foreign tax credits, we do not expect any transition tax to be due for the Company.
Our accounting for the following element of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded.
GILTI: The Tax Act creates a new requirement in tax years beginning after December 31, 2017, that certain income (i.e., GILTI) earned by controlled foreign corporations ("CFCs") must be included currently in the gross income of the CFCs’ U.S. shareholder. Because of the complexity of the new GILTI tax rules, we continue to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Since future U.S. inclusions in taxable income related to GILTI depend on not only our current ownership structure and estimated future results of global operations but also our intent and ability to modify such structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimates, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the impacts.
Our effective tax rate was 25.0% and 27.4% for the third quarter of fiscal 2018 and 2017, respectively, and (25.3)% and 32.5% for the nine months of fiscal 2018 and 2017, respectively. The remeasurement of deferred income taxes at newly enacted tax rates resulted in a $1,004 million, or 50.5%, income tax benefit in the nine months of fiscal 2018. The newly enacted tax legislation results in a 24.5% statutory federal income tax rate for fiscal 2018. The effective tax rate for the nine months of fiscal 2018 also includes a 1.3% benefit related to excess tax benefits associated with share based payments to employees. 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 2017 by 2.9%, and the tax benefit recognized on the outside basis difference in an asset held for sale reduced the effective tax rate for the third quarter of fiscal 2017 by 4.2%. Additionally, the effective tax rates for the third quarter and nine months of fiscal 2018 and fiscal 2017 were impacted by such items as the domestic production deduction and state income taxes.
Unrecognized tax benefits were $311 million and $316 million at June 30, 2018, and September 30, 2017, respectively.
We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $16 million primarily due to expiration of statutes of limitations in various jurisdictions.
As of September 30, 2017, we had accumulated undistributed earnings of foreign subsidiaries aggregating approximately $182 million. The Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries after December 31, 2017. As a result, our intention is that excess cash held by our foreign subsidiaries that is not subject to regulatory restrictions is expected to be repatriated net of applicable withholding taxes which are expected to be immaterial. The remainder of accumulated undistributed earnings are expected to be indefinitely reinvested outside of the United States.
v3.10.0.1
Other Income And Charges
9 Months Ended
Jun. 30, 2018
Other Income and Expenses [Abstract]  
Other Income And Charges
OTHER INCOME AND CHARGES
During the third quarter of fiscal 2018, we recorded $5 million of equity earnings in joint ventures and $2 million in net foreign currency exchange gains, which were recorded in the Consolidated Condensed Statements of Income in Other, net.
During the nine months of fiscal 2018, we recognized a one-time cash bonus to our hourly frontline employees of $109 million using incremental cash savings from the Tax Act, which was predominantly recorded in the Consolidated Condensed Statements of Income in Cost of Sales, and $14 million of equity earnings in joint ventures, which was recorded in the Consolidated Condensed Statements of Income in Other, net. We had no net foreign currency exchange gains or losses.
During the second quarter of fiscal 2017, we recorded a $52 million impairment charge related to our San Diego Prepared Foods operation. The impairment was comprised of $43 million of property, plant and equipment, $8 million of definite lived intangible assets and $1 million of other assets. This charge, of which $44 million was included in the Consolidated Condensed Statements of Income in Cost of Sales and $8 million was included in the Consolidated Condensed Statements of Income in Selling, General and Administrative, was triggered by a change in a co-manufacturing contract and ongoing losses.
During the nine months 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 we acquired in fiscal 2014, $18 million of acquisition bridge financing fees related to the AdvancePierre acquisition, $11 million of equity earnings in joint ventures and $1 million in net foreign currency exchange gains, which were recorded in the Consolidated Condensed Statements of Income in Other, net.
v3.10.0.1
Earnings Per Share
9 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]  
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
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Numerator:
 
 
 
 
 
 
 
Net income
$
542

 
$
448

 
$
2,490

 
$
1,383

Less: Net income attributable to noncontrolling interests
1

 
1

 
3

 
3

Net income attributable to Tyson
541

 
447

 
2,487

 
1,380

Less dividends declared:

 

 
 
 
 
Class A
88

 
66

 
289

 
217

Class B
19

 
14

 
61

 
47

Undistributed earnings
$
434

 
$
367

 
$
2,137

 
$
1,116

 


 


 
 
 
 
Class A undistributed earnings
$
358

 
$
302

 
$
1,762

 
$
920

Class B undistributed earnings
76

 
65

 
375

 
196

Total undistributed earnings
$
434

 
$
367

 
$
2,137

 
$
1,116

Denominator:

 

 
 
 
 
Denominator for basic earnings per share:

 

 
 
 
 
Class A weighted average shares
295

 
296

 
296

 
296

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
4

 
4

 
4

 
5

Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions
369


370

 
370

 
371

 
 
 
 
 
 
 
 
Net income per share attributable to Tyson:
 
 
 
 
 
 
 
Class A basic
$
1.52


$
1.24

 
$
6.94

 
$
3.84

Class B basic
$
1.37


$
1.12

 
$
6.24

 
$
3.47

Diluted
$
1.47


$
1.21

 
$
6.72

 
$
3.72


Approximately 1 million of our stock-based compensation shares were antidilutive for the three and nine months ended June 30, 2018 and approximately 1 million for the three and nine months ended July 1, 2017. 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.
v3.10.0.1
Derivative Financial Instruments
9 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
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 June 30, 2018.
We had the following aggregated outstanding notional amounts related to our derivative financial instruments (in millions, except soy meal tons):
 
Metric
 
June 30, 2018
 
September 30, 2017
Commodity:
 
 
 
 
 
Corn
Bushels
 
136

 
55

Soy meal
Tons
 
427,900

 
475,200

Live cattle
Pounds
 
71

 
211

Lean hogs
Pounds
 
90

 
240

Foreign currency
United States dollar
 
$
75

 
$
58

Interest rate swap
Average monthly debt
 
$
400

 
$

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), interest rate swaps, 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 as well as interest rates related to our variable rate debt. 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 June 30, 2018, and July 1, 2017. As of June 30, 2018, we have net pretax losses of $12 million for our commodity contracts, and no pretax gains or losses related to our interest rate swaps, expected to be reclassified into earnings within the next 12 months. During the three and nine months ended June 30, 2018, and July 1, 2017, we did not reclassify significant pretax gains or 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
 
June 30, 2018
 
July 1, 2017
 
 
 
June 30, 2018
 
July 1, 2017
Cash flow hedge – derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
(13
)
 
$
(2
)
 
Cost of sales
 
$

 
$

Interest rate swaps

 

 
Interest expense
 

 

Total
$
(13
)
 
$
(2
)
 
 
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
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
 
June 30, 2018
 
July 1, 2017
 
 
 
June 30, 2018
 
July 1, 2017
Cash flow hedge – derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
(13
)
 
$
(2
)
 
Cost of sales
 
$
(3
)
 
$
(1
)
Interest rate swaps

 

 
Interest expense
 

 

Total
$
(13
)
 
$
(2
)
 
 
 
$
(3
)
 
$
(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.
 
 
 
 
 
 
 
in millions

 
Consolidated Condensed
Statements of Income
Classification
 
Three Months Ended
 
Nine Months Ended
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Gain (Loss) on forwards
Cost of sales
 
$
11

 
$
(32
)
 
$
5

 
$
(16
)
Gain (Loss) on purchase contract
Cost of sales
 
(11
)
 
32

 
(5
)
 
16


Ineffectiveness related to our fair value hedges was not significant for the three and nine months ended June 30, 2018, and July 1, 2017.
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
 
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Sales
 
$
21

 
$
41

 
$

 
$
117

Commodity contracts
Cost of sales
 
(58
)
 
(57
)
 
(12
)
 
(103
)
Foreign exchange contracts
Other income/expense
 
(1
)
 

 
(3
)
 

Total
 
 
$
(38
)
 
$
(16
)
 
$
(15
)
 
$
14


The fair value of all outstanding derivative instruments in the Consolidated Condensed Balance Sheets are included in Note 13: Fair Value Measurements.
v3.10.0.1
Fair Value Measurements
9 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
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): 
June 30, 2018
Level 1
 
Level 2
 
Level 3
 
Netting (a)
 
Total
Other Current Assets:
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Designated as hedges
$

 
$
8

 
$

 
$
2

 
$
10

Undesignated

 
37

 

 
6

 
43

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Current

 
2

 
2

 

 
4

Other Assets:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Non-current

 
43

 
51

 

 
94

Deferred compensation assets
17

 
289

 

 

 
306

Total assets
$
17

 
$
379

 
$
53

 
$
8

 
$
457

Other Current Liabilities:
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Designated as hedges
$

 
$
4

 
$

 
$
(4
)
 
$

Undesignated

 
60

 

 
(59
)
 
1

Total liabilities
$

 
$
64

 
$

 
$
(63
)
 
$
1

September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Netting (a)
 
Total
Other Current Assets:
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Designated as hedges
$

 
$
10

 
$

 
$
(1
)
 
$
9

Undesignated

 
24

 

 
(3
)
 
21

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Current

 
2

 
1

 

 
3

Other Assets:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Non-current

 
45

 
50

 

 
95

Deferred compensation assets
23

 
272

 

 

 
295

Total assets
$
23


$
353

 
$
51

 
$
(4
)
 
$
423

Other Current Liabilities:
 
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Designated as hedges
$

 
$
9

 
$

 
$
(9
)
 
$

Undesignated

 
21

 

 
(17
)
 
4

Total liabilities
$

 
$
30

 
$

 
$
(26
)
 
$
4

(a) Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. Additionally, at June 30, 2018, and September 30, 2017, we had $71 million and $22 million, respectively, of cash collateral posted with various counterparties where master netting arrangements exist and held no cash collateral.
The following table provides a reconciliation between the beginning and ending balance of marketable debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions): 
 
Nine Months Ended
 
June 30, 2018
 
July 1, 2017
Balance at beginning of year
$
51

 
$
57

Total realized and unrealized gains (losses):
 
 
 
Included in earnings

 

Included in other comprehensive income (loss)

 
(1
)
Purchases
14

 
11

Issuances

 

Settlements
(12
)
 
(15
)
Balance at end of period
$
53

 
$
52

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 12: Derivative Financial Instruments. We record our derivative financial instruments at fair value using quoted market prices, adjusted where necessary for credit and non-performance risk and internal models that use readily observable market inputs as their basis, including current and forward market prices and rates. 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 33 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):
 
June 30, 2018
 
September 30, 2017
 
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
$
46

 
$
45

 
$
(1
)
 
$
47

 
$
47

 
$

Corporate and asset-backed
53

 
53

 

 
51

 
51

 


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 will more likely than not 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 June 30, 2018, and July 1, 2017. No other than temporary losses were deferred in OCI as of June 30, 2018, and September 30, 2017.
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.
In the first and second quarter of fiscal 2018, we recorded $26 million and $75 million of impairment charges, respectively, related to the expected sale of non-protein businesses held for sale, due to revised estimates of the businesses' fair value based on current expected net sales proceeds. The impairment charges were recorded in Cost of Sales in our Consolidated Condensed Statement of Income, and primarily consisted of Goodwill previously classified within Assets held for sale. Our valuation included unobservable Level 3 inputs and was based on expected sales proceeds from a competitive bidding process and ongoing discussions with potential buyers.
In the second quarter of fiscal 2017, we recorded a $52 million impairment charge related to our San Diego Prepared Foods operation. The impairment was comprised of $43 million of property, plant and equipment, $8 million of definite lived intangibles assets and $1 million of other assets. This charge, of which $44 million was included in the Consolidated Condensed Statements of Income in Cost of Sales and $8 million was included in the Consolidated Condensed Statements of Income in Selling, General and Administrative, was triggered by a change in a co-manufacturing contract and ongoing losses. Our valuation of these assets was primarily based on discounted cash flows and relief-from-royalty models, which included unobservable Level 3 inputs.
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):
 
June 30, 2018
 
September 30, 2017
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Total debt
$
10,070

 
$
10,160

 
$
10,591

 
$
10,203

v3.10.0.1
Pension and Other Postretirement Benefit Plans
9 Months Ended
Jun. 30, 2018
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Plans
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 June 30, 2018, and July 1, 2017, are as follows (in millions):
 
Pension Plans
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017