NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: 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 (the “SEC”). Although we believe the disclosures contained herein are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022. 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 April 1, 2023 and the results of operations for the three and six months ended April 1, 2023 and April 2, 2022. Results of operations and cash flows for the periods presented are not necessarily indicative of results to be expected for the full year.
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.
Goodwill
Goodwill is initially recorded at fair value and not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not less than the carrying amount, or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. During fiscal 2022, we determined that all of our material reporting units’ estimated fair value exceeded their carrying value by more than 20%, other than one of our Chicken segment reporting units and two of our International reporting units with goodwill totaling $0.6 billion and $0.2 billion, respectively, at October 1, 2022. Conditions existed as of the end our first quarter that required an interim assessment of goodwill for two of our International reporting units which had goodwill totaling $0.2 billion at December 31, 2022; we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value. Our qualitative assessment for the second quarter did not indicate that it was more likely than not the fair value of any of our reporting units may be impaired, and as such, no quantitative goodwill test was deemed necessary.
Some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, market EBITDA comparables and credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in additional material impairments of our goodwill.
Use of Estimates
The consolidated condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes. Actual results could differ from those estimates. During the first quarter of fiscal 2023, we revised estimates and recorded adjustments of approximately $30 million primarily to reduce certain employee compensation accruals recorded as of October 1, 2022.
Recently Issued Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (the "FASB") issued guidance that requires additional disclosures for supplier finance programs to allow users to better understand the nature, activity and potential magnitude of the programs. The guidance, except for a requirement for rollforward information, is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2022, our fiscal 2024. Disclosure of rollforward information is effective for fiscal years beginning after December 15, 2023, our fiscal 2025. Early adoption is permitted and the retrospective transition method should be applied for all amendments except rollforward information, which should be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020 and was set to end on December 31, 2022, was extended by new guidance issued by the FASB on December 21, 2022 to apply through December 31, 2024. The temporary accounting relief provided in the optional guidance has not impacted our consolidated financial statements. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2024.
NOTE 2: ACQUISITIONS AND DISPOSITIONS
In the second quarter of fiscal 2023, the Company announced it had reached a definitive agreement to acquire Williams Sausage Company, which we anticipate upon closing will be included in the Prepared Foods segment. The transaction, which is expected to close in the back half of fiscal 2023, is subject to certain customary closing conditions. There can be no assurance that the acquisition will close at such time.
In the first quarter of fiscal 2023, we completed the acquisition of a 60% equity stake in Supreme Foods Processing Company ("SFPC"), a producer and distributor of value-added and cooked chicken and beef products, and a 15% equity stake in Agricultural Development Company ("ADC"), a fully integrated poultry company, for a total purchase price of approximately $75 million, net of cash acquired. Both SFPC and ADC were subsidiaries of Tanmiah Food Company. The results of SFPC, subsequent to the acquisition closing, are included in International/Other for segment presentation. SFPC's results from the date of acquisition through April 1, 2023 were insignificant to our Consolidated Condensed Statements of Income. We are accounting for the investment in ADC under the equity method.
NOTE 3: INVENTORIES
Processed products, livestock and supplies and other are valued at the lower of cost or net realizable value. Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, livestock grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories. At April 1, 2023, the cost of inventories was determined by either the first-in, first-out method or the weighted-average method, which is consistent with the methods used at October 1, 2022. Inventories are presented net of lower of cost or net realizable value adjustments of $145 million and $60 million at April 1, 2023 and October 1, 2022, respectively.
The following table reflects the major components of inventory (in millions):
| | | | | | | | | | | |
| April 1, 2023 | | October 1, 2022 |
Processed products | $ | 3,024 | | | $ | 3,188 | |
Livestock | 1,546 | | | 1,454 | |
Supplies and other | 934 | | | 872 | |
Total inventory | $ | 5,504 | | | $ | 5,514 | |
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated depreciation are as follows (in millions):
| | | | | | | | | | | |
| April 1, 2023 | | October 1, 2022 |
Land | $ | 218 | | | $ | 214 | |
Buildings and leasehold improvements | 5,961 | | | 5,742 | |
Machinery and equipment | 10,186 | | | 9,960 | |
Land improvements and other | 529 | | | 516 | |
Buildings and equipment under construction | 2,069 | | | 1,461 | |
| 18,963 | | | 17,893 | |
Less accumulated depreciation | 9,612 | | | 9,208 | |
Net Property, Plant and Equipment | $ | 9,351 | | | $ | 8,685 | |
NOTE 5: OTHER CURRENT LIABILITIES
Other current liabilities are as follows (in millions):
| | | | | | | | | | | |
| April 1, 2023 | | October 1, 2022 |
Accrued salaries, wages and benefits | $ | 680 | | | $ | 995 | |
| | | |
| | | |
| | | |
Taxes payable | 146 | | | 277 | |
Accrued current legal contingencies | 194 | | | 215 | |
Other | 874 | | | 884 | |
Total other current liabilities | $ | 1,894 | | | $ | 2,371 | |
NOTE 6: RESTRUCTURING AND RELATED CHARGES
2022 Program
In the fourth quarter of fiscal 2022, the Company approved a restructuring program (the “2022 Program”), which is expected to improve business performance, increase collaboration, enhance team member agility, enable faster decision-making and reduce redundancies. In conjunction with the 2022 Program, the Company is bringing together all its corporate team members from the Chicago, Downers Grove and Dakota Dunes area corporate locations to its world headquarters in Springdale, Arkansas, through a phased relocation which commenced in early calendar year 2023. We anticipate the 2022 Program and associated expenses will be substantially complete in our fiscal 2025. The following table reflects the total pretax anticipated expenses associated with the 2022 Program (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 20 | | $ | 7 | | $ | 5 | | $ | 48 | | $ | 10 | | $ | 90 | | |
Relocation and related costs | 38 | | 15 | | 2 | | 61 | | 1 | | 117 | | |
Accelerated depreciation | 6 | | 2 | | — | | 12 | | — | | 20 | | |
Contract and lease terminations | — | | — | | — | | 31 | | — | | 31 | | |
Professional and other fees | 3 | | — | | 1 | | 7 | | 2 | | 13 | | |
Total 2022 Program | $ | 67 | | $ | 24 | | $ | 8 | | $ | 159 | | $ | 13 | | $ | 271 | | |
Restructuring costs include severance expenses, and related charges include costs directly associated with the 2022 Program such as relocation, contract and lease terminations, professional fees and accelerated depreciation resulting from the closure of facilities. We anticipate that $48 million and $223 million of the total pretax anticipated expense will be recorded in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the table above are $241 million of charges that have resulted or will result in cash outflows and $30 million in non-cash charges.
The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the second quarter of fiscal 2023 by reportable segment (in millions):
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| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | — | | $ | — | | $ | (1) | | $ | 2 | | $ | 1 | | $ | 2 | | |
Relocation and related costs | 6 | | 1 | | 1 | | 5 | | — | | 13 | | |
Accelerated depreciation | 1 | | 1 | | — | | 2 | | — | | 4 | | |
Contract and lease terminations | — | | — | | — | | — | | — | | — | | |
Professional and other fees | 1 | | — | | — | | 2 | | — | | 3 | | |
Total | $ | 8 | | $ | 2 | | $ | — | | $ | 11 | | $ | 1 | | $ | 22 | | |
For the second quarter of fiscal 2023, we recorded restructuring and related charges of $26 million in Selling, General and Administrative and a reduction of $4 million in Cost of Sales in our Consolidated Condensed Statements of Income. Included in the above results are $18 million of charges that have resulted or will result in cash outflows and $4 million in non-cash charges.
The following table reflects the pretax impact of the 2022 Program’s restructuring and related charges during the first six months of fiscal 2023 by reportable segment (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 2 | | $ | 1 | | $ | (1) | | $ | 6 | | $ | 6 | | $ | 14 | | |
Relocation and related costs | 7 | | 2 | | 2 | | 6 | | — | | 17 | | |
Accelerated depreciation | 3 | | 1 | | — | | 6 | | — | | 10 | | |
Contract and lease terminations | — | | — | | — | | (2) | | — | | (2) | | |
Professional and other fees | 1 | | — | | — | | 3 | | — | | 4 | | |
Total | $ | 13 | | $ | 4 | | $ | 1 | | $ | 19 | | $ | 6 | | $ | 43 | | |
For the first six months of fiscal 2023, we recorded restructuring and related charges of $4 million and $39 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the above results are $35 million of charges that have resulted or will result in cash outflows and $8 million in non-cash charges.
The following table reflects the pretax 2022 Program charges to date by reportable segment (in millions):
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| | |
| Beef | Pork | Chicken | Prepared Foods | International/Other | Total | |
Severance costs | $ | 18 | | $ | 6 | | $ | 5 | | $ | 42 | | $ | 9 | | $ | 80 | | |
Relocation and related costs | 7 | | 2 | | 2 | | 6 | | — | | 17 | | |
Accelerated depreciation | 3 | | 1 | | — | | 6 | | — | | 10 | | |
Contract and lease terminations | — | | — | | — | | (2) | | — | | (2) | | |
Professional and other fees | 1 | | — | | — | | 3 | | — | | 4 | | |
Total | $ | 29 | | $ | 9 | | $ | 7 | | $ | 55 | | $ | 9 | | $ | 109 | | |
As of the second quarter of fiscal 2023, we recorded restructuring and related charges to date of $22 million and $87 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the above results are $101 million of charges to date that have resulted or will result in cash outflows and $8 million in non-cash charges to date.
The following table reflects our liability related to the 2022 Program, which was recognized in other current liabilities in our Consolidated Condensed Balance sheet as of April 1, 2023 (in millions):
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| |
| Balance at October 1, 2022 | Restructuring Expense | Payments | Changes in Estimates | Balance at April 1, 2023 | |
Severance costs | $ | 66 | | $ | 18 | | $ | 7 | | $ | (4) | | $ | 73 | | |
Relocation and related costs | — | | 17 | | 13 | | — | | 4 | | |
Professional and other fees | — | | 4 | | 1 | | — | | 3 | | |
Total | $ | 66 | | $ | 39 | | $ | 21 | | $ | (4) | | $ | 80 | | |
As the Company continues to evaluate its business strategies and long-term growth targets, additional restructuring activities may occur.
Plant Closures
In the second quarter of fiscal 2023, in order to further optimize our network to reach full capacity in our facilities, management approved and communicated the planned closure of two of the Company's Chicken facilities in Glen Allen, Virginia and Van Buren, Arkansas. As a result, we recorded $92 million in closure charges, primarily related to grower contract terminations, accelerated depreciation, and severance, retention and related costs. The facilities are expected to cease operations in the third quarter of fiscal 2023. The charges are reflected in the Consolidated Condensed Statements of Income in Cost of Sales.
NOTE 7: DEBT
The major components of debt are as follows (in millions):
| | | | | | | | | | | |
| April 1, 2023 | | October 1, 2022 |
Revolving credit facility | $ | — | | | $ | — | |
Commercial paper | 593 | | | — | |
Senior notes: | | | |
| | | |
| | | |
3.90% Senior notes due September 2023 | 400 | | | 400 | |
3.95% Notes due August 2024 | 1,250 | | | 1,250 | |
4.00% Notes due March 2026 (“2026 Notes”) | 800 | | | 800 | |
3.55% Notes due June 2027 | 1,350 | | | 1,350 | |
7.00% Notes due January 2028 | 18 | | | 18 | |
4.35% Notes due March 2029 (“2029 Notes”) | 1,000 | | | 1,000 | |
6.13% Notes due November 2032 | 158 | | | 160 | |
4.88% Notes due August 2034 | 500 | | | 500 | |
5.15% Notes due August 2044 | 500 | | | 500 | |
4.55% Notes due June 2047 | 750 | | | 750 | |
5.10% Notes due September 2048 (“2048 Notes”) | 1,500 | | | 1,500 | |
Discount on senior notes | (38) | | | (39) | |
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| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other | 189 | | | 175 | |
Unamortized debt issuance costs | (40) | | | (43) | |
Total debt | 8,930 | | | 8,321 | |
Less current debt | 1,065 | | | 459 | |
Total long-term debt | $ | 7,865 | | | $ | 7,862 | |
Revolving Credit Facility and Letters of Credit
We have a $2.25 billion revolving credit facility that supports short-term funding needs and serves as a backstop to our commercial paper program. The facility will mature and the commitments thereunder will terminate in September 2026 with options for two one-year extensions. At April 1, 2023, amounts available for borrowing under this facility totaled $2.25 billion before deducting amounts to backstop our commercial paper program. At April 1, 2023 we had no outstanding borrowings and no outstanding letters of credit issued under this facility. At April 1, 2023 we had $102 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon. Our letters of credit are issued primarily in support of workers’ compensation insurance programs and other legal obligations. In the future, if 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. In November 2022, we entered into an amendment to change the reference rate from the London interbank offered rate (commonly referred to as LIBOR) to a rate based on the secured overnight financing rate (commonly referred to as SOFR).
Commercial Paper Program
We have a commercial paper program under which we may issue unsecured short-term promissory notes up to an aggregate maximum principal amount of $1.5 billion. As of April 1, 2023, we had $593 million of commercial paper outstanding at a weighted average interest rate of 5.41% with maturities of less than 25 days. Our ability to access commercial paper in the future may be limited or its costs increased.
Term Loan Facilities
On May 3, 2023, we executed two new term loan facilities totaling $1.75 billion to refinance our short-term promissory notes ("commercial paper program") and for general corporate purposes. The first term loan facility totaling $1.0 billion matures three years following the date of the initial borrowing. The second term loan facility totaling $750 million matures five years from May 3, 2023, the date of closing. Both term loans may be prepaid under certain conditions. Additionally, the term loan facilities contain covenants that are similar to those contained in the revolving credit facility.
Debt Covenants
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to: 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 a minimum interest expense coverage ratio.
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 April 1, 2023.
NOTE 8: EQUITY
Share Repurchases
As of April 1, 2023, 7.3 million shares remained available for repurchase under the Company's share repurchase program. The program has no fixed or scheduled termination date and the timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, markets, industry conditions, liquidity targets, limitations under our debt obligations and regulatory requirements. 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):
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| | Three Months Ended | | Six Months Ended |
| | April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 |
| | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars |
Shares repurchased: | | | | | | | | | | | | | | | | |
Under share repurchase program | | — | | | $ | — | | | 1.5 | | | $ | 132 | | | 4.7 | | | $ | 300 | | | 5.1 | | | $ | 432 | |
To fund certain obligations under equity compensation plans | | 0.3 | | | 19 | | | 0.5 | | | 43 | | | 0.5 | | | 32 | | | 1.1 | | | 91 | |
Total share repurchases | | 0.3 | | | $ | 19 | | | 2.0 | | | $ | 175 | | | 5.2 | | | $ | 332 | | | 6.2 | | | $ | 523 | |
NOTE 9: INCOME TAXES
Our effective tax rate was 29.4% on pretax loss for the second quarter of fiscal 2023, 23.4% on pretax income for the second quarter of fiscal 2022, and 24.7% and 21.6% on pretax income for the first six months of fiscal 2023 and 2022, respectively. In all periods presented, the effective tax rates were increased due to state taxes and include the impact of various tax benefits; however, tax benefits increase the effective tax rate in a period of pretax loss and decrease the effective tax rate in a period of pretax income. Additionally, the effective tax rate for the first six months of fiscal 2022 includes a $36 million benefit from the remeasurement of deferred income taxes, primarily due to legislation decreasing state tax rates enacted in the first quarter of fiscal 2022.
Unrecognized tax benefits were $157 million and $152 million at April 1, 2023 and October 1, 2022, respectively.
In December 2021, we received an assessment from the Mexican tax authorities related to the 2015 sale of our direct and indirect equity interests in subsidiaries which held our Mexico operations. The assessment totals approximately $470 million (8.5 billion Mexican pesos), which includes tax, inflation adjustment, interest and penalties. We believe the assertions made in the assessment letter have no merit and will defend our positions through the Mexican administrative appeal process and litigation, if necessary. Based on our analysis of this assessment in accordance with FASB guidance related to unrecognized tax benefits, we have not recorded a liability related to the issue.
NOTE 10: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 |
Numerator: | | | | | | | |
Net income (loss) | $ | (91) | | | $ | 833 | | | $ | 229 | | | $ | 1,959 | |
Less: Net income attributable to noncontrolling interests | 6 | | | 4 | | | 10 | | | 9 | |
Net income (loss) attributable to Tyson | (97) | | | 829 | | | 219 | | | 1,950 | |
Less dividends declared: | | | | | | | |
Class A | 136 | | | 134 | | | 279 | | | 274 | |
Class B | 30 | | | 29 | | | 62 | | | 59 | |
Undistributed earnings (losses) | $ | (263) | | | $ | 666 | | | $ | (122) | | | $ | 1,617 | |
| | | | | | | |
Class A undistributed earnings (losses) | $ | (216) | | | $ | 547 | | | $ | (100) | | | $ | 1,329 | |
Class B undistributed earnings (losses) | (47) | | | 119 | | | (22) | | | 288 | |
Total undistributed earnings (losses) | $ | (263) | | | $ | 666 | | | $ | (122) | | | $ | 1,617 | |
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic earnings per share: | | | | | | | |
Class A weighted average shares | 284 | | | 291 | | | 285 | | | 291 | |
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 | — | | | 3 | | | 1 | | | 3 | |
| | | | | | | |
Denominator for diluted earnings (loss) per share – adjusted weighted average shares and assumed conversions | 354 | | | 364 | | | 356 | | | 364 | |
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Net income (loss) per share attributable to Tyson: | | | | | | | |
Class A basic | $ | (0.28) | | | $ | 2.34 | | | $ | 0.63 | | | $ | 5.50 | |
Class B basic | $ | (0.25) | | | $ | 2.11 | | | $ | 0.56 | | | $ | 4.95 | |
Diluted | $ | (0.28) | | | $ | 2.28 | | | $ | 0.61 | | | $ | 5.35 | |
Dividends Declared Per Share: | | | | | | | |
Class A | $ | 0.480 | | | $ | 0.460 | | | $ | 0.980 | | | $ | 0.935 | |
Class B | $ | 0.432 | | | $ | 0.414 | | | $ | 0.882 | | | $ | 0.842 | |
Approximately 10 million and 5 million of our stock-based compensation shares were antidilutive for the three and six months ended April 1, 2023, respectively. Approximately 2 million of our stock-based compensation shares were antidilutive for the three and six months ended April 2, 2022. 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 (losses) based upon a 1.0 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.
NOTE 11: 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 and risks are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize various industry-standard models that take into account the implicit cost of hedging. Credit risks associated with our derivative contracts are not significant as we minimize counterparty exposure by dealing with credit-worthy counterparties and utilizing exchange traded instruments, margin accounts or letters of credit. Additionally, our derivative contracts are mostly short-term in duration and we generally do not make use of credit-risk-related contingent features. No significant concentrations of credit risk existed at April 1, 2023.
We had the following net aggregated outstanding notional amounts related to our derivative financial instruments:
| | | | | | | | | | | | | | | | | |
in millions, except soybean meal tons | Metric | | April 1, 2023 | | October 1, 2022 |
Commodity: | | | | | |
Corn | Bushels | | 91 | | | 44 | |
Soybean Meal | Tons | | 619,900 | | | 532,700 | |
Live Cattle | Pounds | | 366 | | | 280 | |
Lean Hogs | Pounds | | 232 | | | 339 | |
Foreign Currency | United States dollar | | $ | 141 | | | $ | 249 | |
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 (e.g., 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 (e.g., grains), interest rate swaps and locks and certain foreign exchange forward contracts
•Fair Value Hedges – include certain commodity forward contracts of firm commitments (e.g., 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 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 six months ended April 1, 2023, and April 2, 2022. As of April 1, 2023, we had $13 million of realized losses related to treasury rate locks in connection with the issuance of the 2026, 2029 and 2048 Notes, which will be reclassified to earnings over the lives of these notes. During the six months ended April 1, 2023 and April 2, 2022, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges. For the six months ended April 1, 2023 and April 2, 2022, we had no gains or losses recognized in OCI on derivatives designated as cash flow hedges.
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 (e.g., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the related livestock forward position. Ineffectiveness related to fair value hedges was not significant for the three and six months ended April 1, 2023, and April 2, 2022. The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of April 1, 2023 and October 1, 2022 (in millions):
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
Consolidated Condensed Balance Sheets Classification | April 1, 2023 | | October 1, 2022 | | | | |
Inventory | | $ | 1 | | | $ | (12) | | | | | |
| | | | | | | | |
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.
Reclassification to Earnings
The following table sets forth the total amounts of each income and expense line item presented in the Consolidated Condensed Statements of Income in which the effects of hedges are recorded (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
Consolidated Condensed Statements of Income Classification | Three Months Ended | | Six Months Ended |
April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 |
Cost of Sales | $ | 12,606 | | | $ | 11,382 | | | $ | 24,898 | | | $ | 22,300 | |
Interest Expense | 89 | | | 97 | | | 173 | | | 197 | |
Other, net | (1) | | | (25) | | | (43) | | | (77) | |
The following table sets forth the pretax impact of the cash flow, fair value and undesignated derivative instruments in the Consolidated Condensed Statements of Income (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Consolidated Condensed Statements of Income Classification | Three Months Ended | | Six Months Ended |
April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 |
Cost of Sales | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | | | | | | |
| Commodity contracts | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Gain (Loss) on fair value hedges: | | | | | | | |
| Commodity contracts (a) | 2 | | | (13) | | | (1) | | | (16) | |
| | | | | | | | |
| Gain (Loss) on derivatives not designated as hedging instruments: | | | | | | | |
| Commodity contracts | (23) | | | 99 | | | (8) | | | 180 | |
Total | | $ | (21) | | | $ | 86 | | | $ | (9) | | | $ | 164 | |
| | | | | | | | |
Interest Expense | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: | | | | | | | |
| Interest rate contracts | $ | — | | | $ | (1) | | | $ | (1) | | | $ | (1) | |
| | | | | | | | |
| | | | | | | | |
Other, net | Gain (Loss) on derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange contracts | $ | 5 | | | $ | 4 | | | $ | 10 | | | $ | 4 | |
| | | | | | | | |
(a) Amounts represent gains/(losses) on commodity contracts designated as fair value hedges of firm commitments that were realized during the period presented, which were offset by a corresponding gain/(loss) on the underlying hedged inventory. Gains or losses related to changes in the fair value of unrealized commodity contracts, along with the offsetting gain or loss on the hedged inventory, are also marked-to-market through earnings with no impact on a net basis.
The fair value of all outstanding derivative instruments in the Consolidated Condensed Balance Sheets are included in Note 12: Fair Value Measurements.
NOTE 12: 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
April 1, 2023 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total |
Other Current Assets: | | | | | | | | | |
Derivative financial instruments: | | | | | | | | | |
Designated as hedges | $ | — | | | $ | 14 | | | $ | — | | | $ | (6) | | | $ | 8 | |
Undesignated | — | | | 106 | | | — | | | (49) | | | 57 | |
Available-for-sale securities (current) | — | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | |
Other Assets: | | | | | | | | | |
Available-for-sale securities (non-current) | — | | | 64 | | | 33 | | | — | | | 97 | |
Deferred compensation assets | 24 | | | 378 | | | — | | | — | | | 402 | |
Total assets | $ | 24 | | | $ | 569 | | | $ | 33 | | | $ | (55) | | | $ | 571 | |
Other Current Liabilities: | | | | | | | | | |
Derivative financial instruments: | | | | | | | | | |
Designated as hedges | $ | — | | | $ | 11 | | | $ | — | | | $ | (11) | | | $ | — | |
Undesignated | — | | | 105 | | | — | | | (89) | | | 16 | |
| | | | | | | | | |
Total liabilities | $ | — | | | $ | 116 | | | $ | — | | | $ | (100) | | | $ | 16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
October 1, 2022 | Level 1 | | Level 2 | | Level 3 | | Netting (a) | | Total |
Other Current Assets: | | | | | | | | | |
Derivative financial instruments: | | | | | | | | | |
Designated as hedges | $ | — | | | $ | 14 | | | $ | — | | | $ | (6) | | | $ | 8 | |
Undesignated | — | | | 154 | | | — | | | (58) | | | 96 | |
Available-for-sale securities (current) | — | | | 1 | | | — | | | — | | | 1 | |
| | | | | | | | | |
Other Assets: | | | | | | | | | |
Available-for-sale securities (non-current) | — | | | 65 | | | 35 | | | — | | | 100 | |
Deferred compensation assets | 38 | | | 327 | | | — | | | — | | | 365 | |
Total assets | $ | 38 | | | $ | 561 | | | $ | 35 | | | $ | (64) | | | $ | 570 | |
Other Current Liabilities: | | | | | | | | | |
Derivative financial instruments: | | | | | | | | | |
Designated as hedges | $ | — | | | $ | 2 | | | $ | — | | | $ | (2) | | | $ | — | |
Undesignated | — | | | 106 | | | — | | | (72) | | | 34 | |
| | | | | | | | | |
Total liabilities | $ | — | | | $ | 108 | | | $ | — | | | $ | (74) | | | $ | 34 | |
(a) Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. Additionally, at April 1, 2023, and October 1, 2022, we had $45 million and $10 million, respectively, of net cash collateral with various counterparties where master netting arrangements exist and held no cash collateral.
The following table provides a reconciliation between the beginning and ending balance of marketable debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions):
| | | | | | | | | | | |
| Six Months Ended |
| April 1, 2023 | | April 2, 2022 |
Balance at beginning of year | $ | 35 | | | $ | 48 | |
Total realized and unrealized gains (losses): | | | |
| | | |
Included in other comprehensive income (loss) | 1 | | | (2) | |
Purchases | 5 | | | 4 | |
Issuances | — | | | — | |
Settlements | (8) | | | (4) | |
Balance at end of period | $ | 33 | | | $ | 46 | |
Total gains (losses) for the six month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period | $ | — | | | $ | — | |
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 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. All other marketable debt securities are included in Other Assets in the Consolidated Condensed Balance Sheets and have maturities ranging up to 47 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):
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| April 1, 2023 | | October 1, 2022 |
| 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 | $ | 75 | | | $ | 71 | | | $ | (4) | | | $ | 71 | | | $ | 66 | | | $ | (5) | |
| | | | | | | | | | | |
Corporate and asset-backed | 34 | | | 33 | | | (1) | | | 37 | | | 35 | | | (2) | |
| | | | | | | | | | | |
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 due to credit or non-credit factors. Losses on debt securities where we have the intent, or will more than likely be required, to sell the security prior to recovery, would be recorded as a direct write-off of amortized cost basis through earnings. Losses on debt securities where we do not have the intent, or would not more than likely be required to sell the security prior to recovery, would be further evaluated to determine whether the loss is credit or non-credit related. Credit-related losses would be recorded through an allowance for credit losses through earnings and non-credit related losses through OCI.
We consider many factors in determining whether a loss is credit-related, including the financial condition and near-term prospects of the issuer, borrower repayment characteristics for asset-backed securities, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. We recognized no direct write-offs or allowances for credit losses in earnings for the three and six months ended April 1, 2023, and April 2, 2022.
Deferred Compensation Assets
We maintain non-qualified deferred compensation plans for certain executives and other highly compensated team members. Investments are generally 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 and, with respect to our equity investments without readily determinable fair values, recorded by applying the measurement alternative for which such investments are recorded at cost and adjusted for an observable price change in an orderly transaction for an identical or similar investment of the same issuer.
We did not have any significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the six months ended April 1, 2023. In the six months ended April 2, 2022, we recognized gains of $37 million in Other, net in the Consolidated Condensed Statements of Income, based upon observable price changes. Equity investments without readily determinable fair values are measured using Level 3 inputs and are included in Other Assets in the Consolidated Condensed Balance Sheets.
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):
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| April 1, 2023 | | October 1, 2022 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Total debt | $ | 8,518 | | | $ | 8,930 | | | $ | 7,762 | | | $ | 8,321 | |
NOTE 13: 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 | | Six Months Ended |
| April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 |
| 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 interest expense | $ | — | | $ | — | | $ | — | | | $ | 1 | | $ | — | | $ | 1 | | | $ | 1 | | $ | — | | $ | 1 | | | $ | 1 | | $ | — | | $ | 1 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Unrealized gain (loss) | 2 | | — | | 2 | | | (4) | | 1 | | (3) | | | 2 | | — | | 2 | | | (5) | | 1 | | (4) | |
| | | | | | | | | | | | | | | |
Currency translation: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Translation adjustment | 18 | | — | | 18 | | | 28 | | — | | 28 | | | 99 | | — | | 99 | | | 27 | | — | | 27 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Postretirement benefits: | | | | | | | | | | | | | | | |
Unrealized gain (loss) | 1 | | — | | 1 | | | 3 | | (1) | | 2 | | | 1 | | — | | 1 | | | 5 | | (1) | | 4 | |
| | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | $ | 21 | | $ | — | | $ | 21 | | | $ | 28 | | $ | — | | $ | 28 | | | $ | 103 | | $ | — | | $ | 103 | | | $ | 28 | | $ | — | | $ | 28 | |
NOTE 14: SEGMENT REPORTING
We operate in four reportable segments: Beef, Pork, Chicken, and Prepared Foods. We measure segment profit as operating income (loss). International/Other primarily includes our foreign operations in Australia, China, Malaysia, Mexico, the Netherlands, South Korea and Thailand, third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC.
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 specialty 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 specialty product processing activities and logistics operations to move products through the supply chain.
Chicken
Chicken includes our domestic operations related to raising and processing live chickens into, and purchasing raw materials for fresh, frozen and value-added chicken products, as well as sales from specialty products. Our value-added chicken products primarily include breaded chicken strips, nuggets, patties and other ready-to-fix or fully cooked chicken parts. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, 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.
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®, as well as artisanal brands Aidells® and Gallo Salame®. Products primarily include ready-to-eat sandwiches, sandwich components such as flame-grilled hamburgers and Philly steaks, pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, flour and corn tortilla products, appetizers, snacks, prepared meals, ethnic foods, 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, convenience stores, healthcare facilities, the military and other food processors, as well as to international export markets.
We allocate expenses related to corporate activities to the segments, except for third-party merger and integration costs and corporate overhead related to Tyson New Ventures, LLC, which are included in International/Other. Intersegment transactions, which were at market prices, are included in the segment sales in the table below.
Information on segments and a reconciliation to income before income taxes are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 | |
Sales: | | | | | | | | |
Beef | $ | 4,617 | | | $ | 5,034 | | | $ | 9,340 | | | $ | 10,036 | | |
Pork | 1,421 | | | 1,565 | | | 2,950 | | | 3,191 | | |
Chicken | 4,430 | | | 4,086 | | | 8,693 | | | 7,976 | | |
Prepared Foods | 2,422 | | | 2,393 | | | 4,960 | | | 4,726 | | |
International/Other | 634 | | | 565 | | | 1,246 | | | 1,115 | | |
Intersegment | (391) | | | (526) | | | (796) | | | (994) | | |
Total Sales | $ | 13,133 | | | $ | 13,117 | | | $ | 26,393 | | | $ | 26,050 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| April 1, 2023 | | April 2, 2022 | | April 1, 2023 | | April 2, 2022 | |
Operating Income (Loss): | | | | | | | | |
Beef(a) | $ | — | | | $ | 638 | | | $ | 166 | | | $ | 1,594 | | |
Pork | (33) | | | 59 | | | (54) | | | 223 | | |
Chicken(b) | (258) | | | 198 | | | (189) | | | 338 | | |
Prepared Foods | 241 | | | 263 | | | 499 | | | 449 | | |
International/Other | 1 | | | (2) | | | (4) | | | 7 | | |
Total Operating Income (Loss) | (49) | | | 1,156 | | | 418 | | | 2,611 | | |
| | | | | | | | |
Total Other (Income) Expense | 81 | | | 69 | | | 114 | | | 114 | | |
| | | | | | | | |
Income (Loss) before Income Taxes | $ | (130) | | | $ | 1,087 | | | $ | 304 | | | $ | 2,497 | | |
(a) Beef segment results for the six months ended April 1, 2023 included $42 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales.
(b) Chicken segment results for the six months ended April 1, 2023 included $7 million of costs related to a fire at one of our production facilities, net of insurance proceeds, recognized in Cost of Sales. Chicken segment results for the three months ended April 1, 2023 included $92 million of costs related to plant closures, recognized in Cost of Sales. Additionally, Chicken segment results for the three months ended April 2, 2022 included $5 million of costs related to a fire at one of our production facilities, net of insurance proceeds. Chicken segments results for the six months ended April 2, 2022 included $18 million of insurance proceeds, net of costs incurred, recognized in Cost of Sales.
The following tables further disaggregate our sales to customers by major distribution channels (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 1, 2023 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 2,134 | | | $ | 1,191 | | | $ | 610 | | | $ | 560 | | | $ | 122 | | | $ | 4,617 | |
Pork | 416 | | | 114 | | | 300 | | | 339 | | | 252 | | | 1,421 | |
Chicken | 1,964 | | | 1,660 | | | 248 | | | 541 | | | 17 | | | 4,430 | |
Prepared Foods | 1,433 | | | 898 | | | 51 | | | 40 | | | — | | | 2,422 | |
International/Other | — | | | — | | | 634 | | | — | | | — | | | 634 | |
Intersegment | — | | | — | | | — | | | — | | | (391) | | | (391) | |
Total | $ | 5,947 | | | $ | 3,863 | | | $ | 1,843 | | | $ | 1,480 | | | $ | — | | | $ | 13,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended April 2, 2022 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 2,213 | | | $ | 1,264 | | | $ | 808 | | | $ | 603 | | | $ | 146 | | | $ | 5,034 | |
Pork | 430 | | | 122 | | | 267 | | | 401 | | | 345 | | | 1,565 | |
Chicken | 1,699 | | | 1,590 | | | 277 | | | 485 | | | 35 | | | 4,086 | |
Prepared Foods | 1,410 | | | 897 | | | 44 | | | 42 | | | — | | | 2,393 | |
International/Other | — | | | — | | | 565 | | | — | | | — | | | 565 | |
Intersegment | — | | | — | | | — | | | — | | | (526) | | | (526) | |
Total | $ | 5,752 | | | $ | 3,873 | | | $ | 1,961 | | | $ | 1,531 | | | $ | — | | | $ | 13,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 1, 2023 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 4,268 | | | $ | 2,320 | | | $ | 1,307 | | | $ | 1,207 | | | $ | 238 | | | $ | 9,340 | |
Pork | 874 | | | 231 | | | 632 | | | 689 | | | 524 | | | 2,950 | |
Chicken | 3,845 | | | 3,266 | | | 494 | | | 1,054 | | | 34 | | | 8,693 | |
Prepared Foods | 2,938 | | | 1,836 | | | 107 | | | 79 | | | — | | | 4,960 | |
International/Other | — | | | — | | | 1,246 | | | — | | | — | | | 1,246 | |
Intersegment | — | | | — | | | — | | | — | | | (796) | | | (796) | |
Total | $ | 11,925 | | | $ | 7,653 | | | $ | 3,786 | | | $ | 3,029 | | | $ | — | | | $ | 26,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended April 2, 2022 |
| Retail(a) | | Foodservice(b) | | International(c) | | Industrial and Other(d) | | Intersegment | | Total |
Beef | $ | 4,431 | | | $ | 2,500 | | | $ | 1,664 | | | $ | 1,165 | | | $ | 276 | | | $ | 10,036 | |
Pork | 908 | | | 258 | | | 571 | | | 799 | | | 655 | | | 3,191 | |
Chicken | 3,332 | | | 3,150 | | | 498 | | | 933 | | | 63 | | | 7,976 | |
Prepared Foods | 2,735 | | | 1,826 | | | 90 | | | 75 | | | — | | | 4,726 | |
International/Other | — | | | — | | | 1,115 | | | — | | | — | | | 1,115 | |
Intersegment | — | | | — | | | — | | | — | | | (994) | | | (994) | |
Total | $ | 11,406 | | | $ | 7,734 | | | $ | 3,938 | | | $ | 2,972 | | | $ | — | | | $ | 26,050 | |
(a) Includes sales to consumer products and food retailers, such as grocery retailers, warehouse club stores and internet-based retailers.
(b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military.
(c) Includes sales to international markets for internationally produced products or export sales of domestically produced products.
(d) Includes sales to industrial food processing companies that further process our product to sell to end consumers and any remaining sales not included in the Retail, Foodservice or International categories.
NOTE 15: COMMITMENTS AND CONTINGENCIES
Commitments
We guarantee obligations of certain outside third parties, consisting primarily of grower loans, which are substantially collateralized by the underlying assets. The remaining terms of the underlying obligations cover periods up to 8 years, and the maximum potential amount of future payments as of April 1, 2023, was not significant. The likelihood of material payments under these guarantees is not considered probable. At April 1, 2023 and October 1, 2022, no significant liabilities for guarantees were recorded.
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 April 1, 2023 was approximately $295 million. The total receivables under these programs were $11 million and $6 million at April 1, 2023 and October 1, 2022, respectively. These receivables are included, net of allowance for uncollectible amounts, in Accounts Receivable in our Consolidated Condensed Balance Sheets. Even though these programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with these programs by obtaining security interests in livestock suppliers’ assets. After analyzing residual credit risks and general market conditions, we had a $3 million allowance for these programs’ estimated uncollectible receivables at April 1, 2023, and no allowance at October 1, 2022.
When constructing new facilities or making major enhancements to existing facilities, we will occasionally enter into incentive agreements with local government agencies in order to reduce certain state and local tax expenditures. These funds are generally considered restricted cash, which is reported in the Consolidated Condensed Balance Sheets in Other Assets. We had no deposits at April 1, 2023 and October 1, 2022. Additionally, under certain 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 April 1, 2023, the total amount under these types of arrangements totaled $797 million.
Contingencies
In the normal course of business, we are involved in various claims, lawsuits, investigations and legal proceedings, including those specifically identified below. Each quarter, we determine whether to accrue for loss contingencies based on our assessment of whether the potential loss is probable, reasonably possible or remote and to the extent a loss is probable, whether it is reasonably estimable. We record accruals in the Company’s Consolidated Financial Statements for matters that we conclude are probable and the financial impact is reasonably estimable. Regardless of the manner of resolution, frequently the most significant changes in the status of a matter may occur over a short time period, often following a lengthy period of little substantive activity. While these accruals reflect the Company’s best estimate of the probable loss for those matters as of the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those matters. Listed below are certain claims made against the Company for which the magnitude of the potential exposure could be material to the Company’s Consolidated Financial Statements. There were no significant changes to the loss contingency accruals described below reflected in the Company’s Consolidated Condensed Statements of Income for the three and six months ended April 1, 2023.
Broiler Antitrust Civil Litigation
Beginning in September 2016, a series of purported federal class action lawsuits styled In re Broiler Chicken Antitrust Litigation (the “Broiler Antitrust Civil Litigation”) were filed in the United States District Court for the Northern District of Illinois against us and certain of our poultry subsidiaries, as well as several other poultry processing companies. The operative complaints, which have been amended throughout the litigation, contain allegations that, among other things, assert that beginning in January 2008, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of broiler chickens in violation of United States antitrust laws. The plaintiffs also allege that defendants “manipulated and artificially inflated a widely used Broiler price index, the Georgia Dock.” The plaintiffs further allege that the defendants concealed this conduct from the plaintiffs and the members of the putative classes. The plaintiffs seek treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative classes. In addition, the complaints on behalf of the putative classes of indirect purchasers include causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future.
Settlements
On January 19, 2021, we announced that we had reached agreements to settle certain class claims related to the Broiler Antitrust Civil Litigation. Settlement terms were reached with the putative Direct Purchaser Plaintiff Class, the putative Commercial and Institutional Indirect Purchaser Plaintiff Class and the putative End-User Plaintiff Class (collectively, the “Classes”). Under the terms of the settlements, we agreed to pay the Classes an aggregate amount of $221.5 million in settlement of all outstanding claims brought by the Classes. On February 23, 2021, March 22, 2021 and October 15, 2021, the Court granted preliminary approval of the settlements with the putative Direct Purchaser Plaintiff Class, the putative End-User Plaintiff Class and the putative Commercial and Institutional Indirect Purchaser Plaintiff Class, respectively. On June 29, 2021, December 20, 2021 and April 18, 2022, the Court granted final approval to the settlements with the Direct Purchaser Plaintiff Class, the End-User Plaintiff Class and the Commercial and Institutional Indirect Purchaser Plaintiff Class, respectively. The foregoing settlements do not settle claims made by plaintiffs who opt out of the Classes in the Broiler Antitrust Civil Litigation.
We are currently pursuing settlement discussions with the remaining opt-out plaintiffs with respect to the remaining claims. While we do not admit any liability as part of the settlements, we believe that the settlements were in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation. During the first six months of fiscal 2023 and the full fiscal 2022, the Company reduced its total recorded legal contingency accrual by $11 million and $179 million, respectively, for amounts it had paid in connection with settlements related to this matter. Accordingly, at April 1, 2023 and October 1, 2022, the legal contingency accrual for claims related to this matter was $111 million and $122 million, respectively.
Government Investigations
U.S. Department of Justice (“DOJ”) Antitrust Division. On June 21, 2019, the DOJ filed a motion to intervene and sought a limited stay of discovery in the Broiler Antitrust Civil Litigation, which the court granted in part. Subsequently, we received a grand jury subpoena from the DOJ seeking additional documents and information related to the chicken industry. On June 2, 2020, a grand jury for the District of Colorado returned an indictment charging four individual executives employed by two other poultry processing companies with conspiracy to engage in bid-rigging in violation of federal antitrust laws. On June 10, 2020, we announced that we uncovered information in connection with the grand jury subpoena that we had previously self-reported to the DOJ and have been cooperating with the DOJ as part of our application for leniency under the DOJ’s Corporate Leniency Program. Subsequently, the DOJ has announced indictments against additional individuals, as well as other poultry processing companies, alleging a conspiracy to fix prices and rig bids for broiler chicken products from at least 2012 until at least early 2019. In August 2021, the Company was granted conditional leniency by the DOJ for the matters we self-reported, which means that provided the Company continues to cooperate with the DOJ, neither the Company nor any of our cooperating employees will face prosecution or criminal fines or penalties. We continue to cooperate with the DOJ in connection with the ongoing federal antitrust investigation.
State Matters. The Offices of the Attorney General in New Mexico, Alaska and Washington have filed complaints against us and certain of our poultry subsidiaries, as well as several other poultry processing companies and Agri Stats, Inc., an information services provider (“Agri Stats”). The complaints are based on allegations similar to those asserted in the Broiler Antitrust Civil Litigation and allege violations of state antitrust, unfair trade practice, and unjust enrichment laws. In October 2022, we reached an agreement to settle all claims with the Washington Attorney General for $10.5 million for which the Company recorded an accrual in its Consolidated Financial Statements as of October 1, 2022, and on October 24, 2022, the Court entered the related consent decree resolving all claims in this matter between us and the Washington Attorney General. The Company paid the settlement during the first quarter of fiscal 2023. While we do not admit any liability as part of the settlement, we believe that the settlement was in the best interests of the Company and its shareholders to avoid the uncertainty, risk, expense and distraction of protracted litigation. The other claims with the Offices of Attorney General in New Mexico and Alaska remain outstanding. In addition, we are cooperating with various state governmental agencies and officials, including the Offices of the Attorney General for Florida and Louisiana, investigating or otherwise seeking information, testimony and/or documents, regarding the conduct alleged in the Broiler Antitrust Civil Litigation and related matters. The Company has not recorded any liability in connection with these matters as it does not believe a loss is probable or reasonably estimable at this time in respect of the claims by the New Mexico and Alaska Attorneys General and the investigations by the Florida and Louisiana Attorneys General.
Broiler Chicken Grower Litigation
On January 27, 2017 and March 26, 2017, putative class action complaints were filed against us and certain of our poultry subsidiaries, as well as several other vertically integrated poultry processing companies, in the United States District Court for the Eastern District of Oklahoma styled In re Broiler Chicken Grower Litigation. The plaintiffs allege, among other things, that the defendants colluded not to compete for broiler raising services “with the purpose and effect of fixing, maintaining, and/or stabilizing grower compensation below competitive levels.” The plaintiffs also allege that the defendants “agreed to share detailed data on [g]rower compensation with one another, with the purpose and effect of artificially depressing [g]rower compensation below competitive levels.” The plaintiffs contend these alleged acts constitute violations of the Sherman Antitrust Act and Section 202 of the Grain Inspection, Packers and Stockyards Act of 1921. The plaintiffs are seeking treble damages, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative class. Additional named plaintiffs filed similar class action complaints in federal district courts in North Carolina, Colorado, Kansas and California. All actions were subsequently consolidated in the Eastern District of Oklahoma. In June 2021, we reached an agreement to settle with the putative class of broiler chicken farmers all claims raised in this consolidated action on terms not material to the Company for which the Company recorded an accrual in its Consolidated Financial Statements as of October 2, 2021. The Court granted preliminary approval of the settlement on August 23, 2021 and final approval on February 18, 2022, and the Company paid the settlement during fiscal 2022.
In October 2022, the DOJ’s Antitrust Division opened a civil investigation into grower contracts and performance-based compensation. We continue to cooperate with the investigation.
Pork Antitrust Litigation
Beginning June 18, 2018, a series of putative class action complaints were filed against us and certain of our pork subsidiaries, as well as several other pork processing companies, in the United States District Court for the District of Minnesota styled In re Pork Antitrust Litigation (the “Pork Antitrust Civil Litigation”). The plaintiffs allege, among other things, that beginning in January 2009, the defendants conspired and combined to fix, raise, maintain, and stabilize the price of pork and pork products in violation of federal antitrust laws. The complaints on behalf of the putative classes of indirect purchasers also include causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. The plaintiffs seek treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative classes. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable because the Company believes that it has valid and meritorious defenses against the allegations.
The Offices of the Attorney General in New Mexico and Alaska have filed complaints against us and certain of our pork subsidiaries, as well as several other pork processing companies and Agri Stats. The complaints are based on allegations similar to those asserted in the Pork Antitrust Civil Litigation and allege violations of state antitrust, unfair trade practice, and unjust enrichment laws based on allegations of conspiracies to exchange information and manipulate the supply of pork. The Company has not recorded any liability for the foregoing matters as it does not believe a loss is probable or reasonably estimable at this time because the proceedings are in preliminary stages.
Beef Antitrust Litigation
On April 23, 2019, a putative class action complaint was filed against us and our beef and pork subsidiary, Tyson Fresh Meats, Inc. (“Tyson Fresh Meats”), as well as other beef packer defendants, in the United States District Court for the Northern District of Illinois. The plaintiffs allege that the defendants engaged in a conspiracy from January 2015 to the present to reduce fed cattle prices in violation of federal antitrust laws, the Grain Inspection, Packers and Stockyards Act of 1921, and the Commodities Exchange Act by periodically reducing their slaughter volumes so as to reduce demand for fed cattle, curtailing their purchases and slaughters of cash-purchased cattle during those same periods, coordinating their procurement practices for fed cattle settled on a cash basis, importing foreign cattle at a loss so as to reduce domestic demand, and closing and idling plants. In addition, the plaintiffs also allege the defendants colluded to manipulate live cattle futures and options traded on the Chicago Mercantile Exchange. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. Other similar lawsuits were filed by cattle ranchers in other district courts which were then transferred to the United States District Court for the District of Minnesota and consolidated and styled as In Re Cattle Antitrust Litigation. On February 18, 2021, we moved to dismiss the amended complaints, and on September 14, 2021, the court granted the motion with respect to certain state law claims but denied the motion with respect to the plaintiffs’ federal antitrust claims. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On April 26, 2019, a putative class of indirect purchasers filed a class action complaint against us, other beef packers, and Agri Stats in the United States District Court for the District of Minnesota. The plaintiffs allege that the packer defendants conspired to reduce slaughter capacity by closing or idling plants, limiting their purchases of cash cattle, coordinating their procurement of cash cattle, and reducing their slaughter numbers so as to reduce beef output, all in order to artificially raise prices of beef. The plaintiffs seek, among other things, damages under state antitrust and consumer protection statutes and the common law of approximately 30 states, as well as injunctive relief. The indirect consumer purchaser litigation is styled Peterson v. JBS USA Food Company Holdings, et al. Additional complaints have been filed on behalf of a putative class of direct purchasers of beef containing allegations of violations of Section 1 of the Sherman Act based on an alleged conspiracy to artificially fix, raise, and stabilize the wholesale price for beef, as well as on behalf of a putative class of commercial and institutional indirect purchasers of beef containing allegations of violations of Section 1 of the Sherman Act, various state antitrust laws and unjust enrichment based on an alleged conspiracy to artificially inflate the price for beef. On February 18, 2021, we moved to dismiss the plaintiffs’ amended complaints, and on September 14, 2021, the court granted the motion with respect to certain state law claims but denied the motion with respect to the plaintiffs’ federal antitrust claims. Since the original filing, certain putative class members have opted out of the matter and are proceeding with individual direct actions making similar claims, and others may do so in the future. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On February 18, 2022, a putative class action was commenced against us, Tyson Fresh Meats, and other beef packer defendants in the Supreme Court of British Columbia styled Bui v. Cargill, Incorporated et al. The plaintiff alleges that the defendants conspired to fix, maintain, increase, or control the price of beef, as well as to fix, maintain, control, prevent, or lessen the production or supply of beef by agreeing to reduce the number of cattle slaughtered, reduce slaughter capacity, refrain from increasing slaughter and beef processing capacity, limit purchases of cattle on the cash market, and coordinate purchases of and bids for cattle to lower the supply of fed cattle. The plaintiff advances causes of action under the Competition Act, civil conspiracy, unjust enrichment, and the Civil Code of Québec. The plaintiff seeks to certify a class comprised of all persons or entities in Canada who directly or indirectly purchased beef in Canada, either for resale or for their own consumption between January 1, 2015, and the present and seeks declarations regarding the alleged conspiracy, general damages, aggravated, exemplary, and punitive damages, injunctive relief, costs, and interest. On March 24, 2022, a putative class action was commenced against the same defendants in the Superior Court of Québec styled De Bellefeuille v. Cargill, Incorporated et al. The plaintiff is making substantially the same allegations as those made in the British Columbia action. On behalf of the putative class of persons who purchased beef in Québec since January 1, 2015, the plaintiff is seeking compensatory damages, costs of investigation and interest. The Company has not recorded any liability for the foregoing matters as it does not believe a loss is probable or reasonably estimable at this time because the proceedings are in preliminary stages.
On October 31, 2022, a class action complaint was filed on behalf of putative classes of indirect cattle producers against us, Tyson Fresh Meats, and other beef packer defendants in the United States District Court for the District of Kansas. The plaintiffs allege that the defendants engaged in a conspiracy in violation of Section 1 of the Sherman Act, the Packers and Stockyards Act of 1921 and various state unfair competition and consumer protection laws from January 2015 to the present to reduce the price of cows, cattle, calves, steers or heifers by periodically reducing their slaughter volumes so as to reduce demand for fed cattle, curtailing their purchases and slaughters of cash-purchased cattle during those same periods, coordinating their procurement practices for fed cattle settled on a cash basis, importing foreign cattle at a loss so as to reduce domestic demand, and closing and idling plants. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest under state antitrust and consumer protection statutes and the common law of approximately 33 states, as well as declaratory and injunctive relief. The indirect producer litigation is styled Sprecht et. al. v. Tyson, Inc., et al. In November 2022, the case was transferred and consolidated with In re Cattle and Beef Antitrust Litigation, MDL No. 3031. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the classes have not yet been defined or certified by the court.
On May 22, 2020, December 23, 2020 and October 29, 2021, we received civil investigative demands (“CIDs”) from the DOJ’s Civil Antitrust Division. The CIDs request information related to the fed cattle and beef packing markets. We have been cooperating with the DOJ with respect to the CIDs. The Offices of the Attorney General for multiple states are participating in the investigation and coordinating with the DOJ.
We received a subpoena dated April 21, 2022 from the New York Attorney General’s Bureau of Consumer Frauds & Protection seeking information regarding our sales, prices and production costs of beef, pork and chicken products. After we had made an initial production of information, we were unable to agree with the New York Attorney General's office on the appropriate scope of the subpoena and, as of August 3, 2022, the parties are litigating the issue before a New York state court.
Wage Rate Litigation
On August 30, 2019, a putative class of non-supervisory production and maintenance employees at chicken processing plants in the continental United States filed class action complaints against us and certain of our subsidiaries, as well as several other poultry processing companies, in the United States District Court for the District of Maryland. The plaintiffs allege that the defendants directly and through a wage survey and benchmarking service exchanged information regarding labor rates in an effort to depress and fix the rates of wages for non-supervisory production and maintenance workers in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. Additional lawsuits making similar allegations were consolidated including an amended consolidated complaint containing additional allegations concerning turkey processing plants naming additional defendants. We moved to dismiss the amended consolidated complaint. On September 16, 2020, the court dismissed claims against us and certain other defendants without prejudice because the complaint improperly grouped together corporate subsidiaries. The court otherwise denied the defendants’ motions to dismiss and sustained claims based on alleged conspiracies to fix wages and exchange information against five other defendants. The plaintiffs filed a second amended consolidated complaint on November 2, 2020. We moved to dismiss the complaint on December 18, 2020 based on a lack of standing to assert claims on behalf of the purported class. The court denied the motion to dismiss on March 10, 2021. On February 16, 2022, the plaintiffs filed a third amended consolidated complaint naming additional poultry processors as defendants and expanding the scope of the claims to include employees at hatcheries and feed mills. We moved to dismiss the claims related to hatchery and feed mill employees. The court denied the motion to dismiss on July 19, 2022. In the third quarter of fiscal 2021, the Company recorded an accrual for the estimated probable losses that it expects to incur for this matter in the Company’s Consolidated Condensed Financial Statements. There was no change to the accrual in fiscal 2022 or the first six months of fiscal 2023.
The DOJ’s Antitrust Division has opened a civil investigation into human resources at several poultry companies. We are cooperating with the investigation.
On November 11, 2022, a putative class of employees at beef-processing and pork-processing plants in the continental United States filed a class action complaint against us and certain of our subsidiaries, as well as several other beef-processing and pork-processing companies, in the United States District Court for the District of Colorado. The plaintiffs allege that the defendants directly and through a wage survey and benchmarking service exchanged information regarding labor rates in an effort to depress and fix the rates of wages for employees in violation of federal antitrust laws. The plaintiffs seek, among other things, treble monetary damages, punitive damages, restitution, and pre- and post-judgment interest, as well as declaratory and injunctive relief. The Company has not recorded any liability for this matter as it does not believe a loss is probable or reasonably estimable at this time because the Company believes that it has valid and meritorious defenses against the allegations and because the case remains at the pleading stage and the classes have not yet been defined or certified by the court.
Other Matters
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 was filed against Aris Philippines, Inc., Sara Lee Corporation, Sara Lee Philippines, Inc., Fashion Accessories Philippines, Inc., and Attorney Cesar C. Cruz (collectively, the “respondents”). The complaint alleges, among other things, that the respondents engaged in unfair labor practices in connection with the termination of manufacturing operations in the Philippines in 1995 by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In late 2004, a labor arbiter ruled against the respondents and awarded the complainants approximately $64 million in damages and fees. From 2004 through 2014, the parties filed numerous appeals, motions for reconsideration and petitions for review, certain of which remained outstanding for several years. On December 15, 2016, we learned that the NLRC rendered its decision on November 29, 2016, regarding the respondents’ appeals from the labor arbiter’s 2004 ruling in favor of the complainants. The NLRC increased the award for 4,922 of the total 5,984 complainants to approximately $273 million. However, the NLRC approved a prior settlement reached with the group comprising approximately 18% of the class of 5,984 complainants, pursuant to which The Hillshire Brands Company agreed to pay each settling complainant approximately $1,250. The parties filed numerous appeals, motions for reconsideration and petitions for review related to the NLRC award and settlement payment. The Court of Appeals subsequently vacated the NLRC’s award on April 12, 2018. Complainants have filed motions for reconsideration with the Court of Appeals which were denied. Claimants have since filed petitions for writ of certiorari with the Supreme Court of the Philippines, which has accepted. The Company continues to maintain an accrual for estimated probable losses for this matter in the Company’s Consolidated Financial Statements.
Various claims have been asserted against the Company, its subsidiaries, and its officers and agents by, and on behalf of, team members who claim to have contracted COVID-19 in our facilities. The Company has not recorded any liability for these matters as it does not believe a loss is probable or reasonably estimable at this time because it believes the allegations in the claims are without merit.