UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2022

or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to            

001-14704

(Commission File Number)

______________________________________________

TYSON FOODS, INC.

(Exact name of registrant as specified in its charter)

______________________________________________

	Delaware			71-0225165
	(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
	2200 West Don Tyson Parkway,
	Springdale,	Arkansas		72762-6999
	(Address of Principal Executive Offices)			(Zip Code)
		(479)	290-4000
(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol	Name of Each Exchange on Which Registered
Class A Common Stock	Par Value	$0.10	TSN	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of December 31, 2022.

Class	Outstanding Shares
Class A Common Stock, $0.10 Par Value (Class A stock)	285,615,602
Class B Common Stock, $0.10 Par Value (Class B stock)	70,010,355

Class B stock is not listed for trading on any exchange or market system. However, Class B stock is convertible into Class A stock on a share-for-share basis.

TABLE OF CONTENTS

		PAGE
Item 1.	Financial Statements
	Consolidated Condensed Statements of Income for the Three Months Ended December 31, 2022 and January 1, 2022	1
	Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended December 31, 2022 and January 1, 2022	2
	Consolidated Condensed Balance Sheets as of December 31, 2022, and October 1, 2022	3
	Consolidated Condensed Statements of Shareholders’ Equity for the Three Months Ended December 31, 2022 and January 1, 2022	4
	Consolidated Condensed Statements of Cash Flows for the Three Months Ended December 31, 2022 and January 1, 2022	5
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	36

Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		40

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

	Three Months Ended
	December 31, 2022		January 1, 2022
Sales	$	13,260	$	12,933
Cost of Sales	12,292		10,918
Gross Profit	968		2,015
Selling, General and Administrative	501		560
Operating Income	467		1,455
Other (Income) Expense:
Interest income	(9)		(3)
Interest expense	84		100
Other, net	(42)		(52)
Total Other (Income) Expense	33		45
Income before Income Taxes	434		1,410
Income Tax Expense	114		284
Net Income	320		1,126
Less: Net Income Attributable to Noncontrolling Interests	4		5
Net Income Attributable to Tyson	$	316	$	1,121
Weighted Average Shares Outstanding:
Class A Basic	286		292
Class B Basic	70		70
Diluted	358		365
Net Income Per Share Attributable to Tyson:
Class A Basic	$	0.91	$	3.16
Class B Basic	$	0.81	$	2.84
Diluted	$	0.88	$	3.07

See accompanying Notes to Consolidated Condensed Financial Statements.

1

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended
	December 31, 2022		January 1, 2022
Net Income	$	320	$	1,126
Other Comprehensive Income (Loss), Net of Taxes:
Derivatives accounted for as cash flow hedges	1		—
Investments	—		(1)
Currency translation	81		(1)
Postretirement benefits	—		2
Total Other Comprehensive Income (Loss), Net of Taxes	82		—
Comprehensive Income	402		1,126
Less: Comprehensive Income Attributable to Noncontrolling Interests	4		5
Comprehensive Income Attributable to Tyson	$	398	$	1,121

See accompanying Notes to Consolidated Condensed Financial Statements.

2

TYSON FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions, except share and per share data)

(Unaudited)

	December 31, 2022		October 1, 2022
Assets
Current Assets:
Cash and cash equivalents	$	654	$	1,031
Accounts receivable, net	2,295		2,577
Inventories	5,596		5,514
Other current assets	408		508
Total Current Assets	8,953		9,630
Net Property, Plant and Equipment	9,120		8,685
Goodwill	10,550		10,513
Intangible Assets, net	6,213		6,252
Other Assets	1,842		1,741
Total Assets	$	36,678	$	36,821
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt	$	490	$	459
Accounts payable	2,530		2,483
Other current liabilities	2,094		2,371
Total Current Liabilities	5,114		5,313
Long-Term Debt	7,859		7,862
Deferred Income Taxes	2,473		2,458
Other Liabilities	1,445		1,377
Commitments and Contingencies (Note 15)
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares, issued 378 million shares	38		38
Convertible Class B-authorized 900 million shares, issued 70 million shares	7		7
Capital in excess of par value	4,524		4,553
Retained earnings	20,225		20,084
Accumulated other comprehensive gain (loss)	(215)		(297)
Treasury stock, at cost – 92 million shares at December 31, 2022 and 88 million shares at October 1, 2022	(4,944)		(4,683)
Total Tyson Shareholders’ Equity	19,635		19,702
Noncontrolling Interests	152		109
Total Shareholders’ Equity	19,787		19,811
Total Liabilities and Shareholders’ Equity	$	36,678	$	36,821

See accompanying Notes to Consolidated Condensed Financial Statements.

3

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In millions)

(Unaudited)

	Three Months Ended
	December 31, 2022			January 1, 2022
	Shares	Amount		Shares	Amount
Class A Common Stock:
Balance at beginning and end of period	378	$	38	378	$	38
Class B Common Stock:
Balance at beginning and end of period	70	7		70	7
Capital in Excess of Par Value:
Balance at beginning of period		4,553			4,486
Stock-based compensation and Other		(29)			(15)
Balance at end of period		4,524			4,471
Retained Earnings:
Balance at beginning of period		20,084			17,502
Net income attributable to Tyson		316			1,121
Dividends		(175)			(170)
Balance at end of period		20,225			18,453
Accumulated Other Comprehensive Income (Loss), Net of Tax:
Balance at beginning of period		(297)			(172)
Other comprehensive income		82			—
Balance at end of period		(215)			(172)
Treasury Stock:
Balance at beginning of period	88	(4,683)		83	(4,138)
Purchase of Class A common stock	5	(313)		4	(348)
Stock-based compensation	(1)	52		(2)	92
Balance at end of period	92	(4,944)		85	(4,394)
Total Shareholders’ Equity Attributable to Tyson		$	19,635		$	18,403
Equity Attributable to Noncontrolling Interests:
Balance at beginning of period		$	109		$	131
Net income attributable to noncontrolling interests		4			5
Business combinations		28			—
Currency translation and other		11			3
Total Equity Attributable to Noncontrolling Interests		$	152		$	139
Total Shareholders’ Equity		$	19,787		$	18,542

See accompanying Notes to Consolidated Condensed Financial Statements.

4

TYSON FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Three Months Ended
	December 31, 2022		January 1, 2022
Cash Flows From Operating Activities:
Net income	$	320	$	1,126
Depreciation and amortization	303		300
Deferred income taxes	8		77
Other, net	68		11
Net changes in operating assets and liabilities	63		(82)
Cash Provided by Operating Activities	762		1,432
Cash Flows From Investing Activities:
Additions to property, plant and equipment	(589)		(408)
Purchases of marketable securities	(7)		(7)
Proceeds from sale of marketable securities	7		7
Acquisition, net of cash acquired	(39)		—
Acquisition of equity investments	(36)		(45)
Other, net	(5)		(6)
Cash Used for Investing Activities	(669)		(459)
Cash Flows From Financing Activities:
Proceeds from issuance of debt	54		26
Payments on debt	(58)		(43)
Purchases of Tyson Class A common stock	(313)		(348)
Dividends	(169)		(164)
Stock options exercised	4		46
Other, net	—		(1)
Cash Used for Financing Activities	(482)		(484)
Effect of Exchange Rate Changes on Cash	12		2
(Decrease) Increase in Cash and Cash Equivalents and Restricted Cash	(377)		491
Cash and Cash Equivalents and Restricted Cash at Beginning of Year	1,031		2,637
Cash and Cash Equivalents and Restricted Cash at End of Period	654		3,128
Less: Restricted Cash at End of Period	—		172
Cash and Cash Equivalents at End of Period	$	654	$	2,956

See accompanying Notes to Consolidated Condensed Financial Statements.

5

TYSON FOODS, INC.

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 December 31, 2022 and the results of operations for the three months ended December 31, 2022 and January 1, 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 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. Based on the interim assessment, we determined no impairment was necessary as the fair value of the reporting units exceeded their carrying value.

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.

6

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 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 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 December 31, 2022 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 December 31, 2022, 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.

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

	December 31, 2022		October 1, 2022
Processed products	$	3,160	$	3,188
Livestock	1,535		1,454
Supplies and other	901		872
Total inventory	$	5,596	$	5,514

NOTE 4: PROPERTY, PLANT AND EQUIPMENT

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

	December 31, 2022		October 1, 2022
Land	$	218	$	214
Buildings and leasehold improvements	5,830		5,742
Machinery and equipment	10,036		9,960
Land improvements and other	526		516
Buildings and equipment under construction	1,934		1,461
	18,544		17,893
Less accumulated depreciation	9,424		9,208
Net Property, Plant and Equipment	$	9,120	$	8,685

7

NOTE 5: OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):

	December 31, 2022		October 1, 2022
Accrued salaries, wages and benefits	$	665	$	995
Taxes payable	302		277
Accrued current legal contingencies	194		215
Other	933		884
Total other current liabilities	$	2,094	$	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 plans to bring 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 commencing 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	$	23	$	8	$	7	$	51	$	12	$	101
Relocation and related costs	35		15		1		57		1		109
Accelerated depreciation	6		2		—		12		—		20
Contract and lease terminations	—		—		—		31		—		31
Professional and other fees	4		1		—		7		1		13
Total 2022 Program	$	68	$	26	$	8	$	158	$	14	$	274

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 $56 million and $218 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 $256 million of charges that have resulted or will result in cash outflows and $18 million in non-cash charges.

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

	Beef		Pork		Chicken		Prepared Foods		International/Other		Total
Severance costs	$	2	$	1	$	—	$	4	$	5	$	12
Relocation and related costs	1		1		1		1		—		4
Accelerated depreciation	2		—		—		4		—		6
Contract and lease terminations	—		—		—		(2)		—		(2)
Professional and other fees	—		—		—		1		—		1
Total	$	5	$	2	$	1	$	8	$	5	$	21

For the first quarter of fiscal 2023, we recorded restructuring and related charges associated with the 2022 Program of $8 million and $13 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the above results are $17 million of charges that have resulted or will result in cash outflows and $4 million in non-cash charges.

8

The following table reflects the pretax 2022 Program charges to date by reportable segment (in millions):

	Beef		Pork		Chicken		Prepared Foods		International/Other		Total
Severance costs	$	18	$	6	$	6	$	40	$	8	$	78
Relocation and related costs	1		1		1		1		—		4
Accelerated depreciation	2		—		—		4		—		6
Contract and lease terminations	—		—		—		(2)		—		(2)
Professional and other fees	—		—		—		1		—		1
Total	$	21	$	7	$	7	$	44	$	8	$	87

As of the first quarter of fiscal 2023, we recorded restructuring and related charges to date associated with the 2022 Program of $26 million and $61 million in Cost of Sales and Selling, General and Administrative, respectively, in our Consolidated Condensed Statements of Income. Included in the above results are $83 million of charges to date that have resulted or will result in cash outflows and $4 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 December 31, 2022 (in millions):

	Balance at October 1, 2022		Restructuring Expense		Payments		Changes in Estimates		Balance at December 31, 2022
Severance costs	$	66	$	12	$	5	$	—	$	73
Relocation and related costs	—		4		2		—		2
Professional and other fees	—		1		1		—		—
Total	$	66	$	17	$	8	$	—	$	75

As the Company continues to evaluate its business strategies and long-term growth targets, additional restructuring activities may occur.

NOTE 7: DEBT

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

	December 31, 2022		October 1, 2022
Revolving credit facility	$	—	$	—
Commercial paper	—		—
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)
Other	203		175
Unamortized debt issuance costs	(42)		(43)
Total debt	8,349		8,321
Less current debt	490		459
Total long-term debt	$	7,859	$	7,862

9

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 December 31, 2022, amounts available for borrowing under this facility totaled $2.25 billion and we had no borrowings and no outstanding letters of credit issued under this facility. At December 31, 2022 we had $103 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 December 31, 2022, we had no commercial paper outstanding. Our ability to access commercial paper in the future may be limited or its costs increased.

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 December 31, 2022.

NOTE 8: EQUITY

Share Repurchases

As of December 31, 2022, 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):

	Three Months Ended
	December 31, 2022			January 1, 2022
	Shares	Dollars		Shares	Dollars
Shares repurchased:
Under share repurchase program	4.7	$	300	3.6	$	300
To fund certain obligations under equity compensation plans	0.2	13		0.6	48
Total share repurchases	4.9	$	313	4.2	$	348

NOTE 9: INCOME TAXES

Our effective tax rate was 26.1% and 20.2% for the first quarter of fiscal 2023 and 2022, respectively. The effective tax rate for the first quarter of fiscal 2023 was higher than the federal statutory tax rate primarily due to state taxes. The effective tax rate for the first quarter of fiscal 2022 includes the impact of state taxes, offset by 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, and various other tax benefits.

Unrecognized tax benefits were $154 million and $152 million at December 31, 2022 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 $411 million (8.3 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.

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NOTE 10: EARNINGS PER SHARE

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

	Three Months Ended
	December 31, 2022		January 1, 2022
Numerator:
Net income	$	320	$	1,126
Less: Net income attributable to noncontrolling interests	4		5
Net income attributable to Tyson	316		1,121
Less dividends declared:
Class A	143		140
Class B	32		30
Undistributed earnings	$	141	$	951
Class A undistributed earnings	$	116	$	782
Class B undistributed earnings	25		169
Total undistributed earnings	$	141	$	951
Denominator:
Denominator for basic earnings per share:
Class A weighted average shares	286		292
Class B weighted average shares, and shares under the if-converted method for diluted earnings per share	70		70
Effect of dilutive securities:
Stock options, restricted stock and performance units	2		3
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions	358		365
Net income per share attributable to Tyson:
Class A basic	$	0.91	$	3.16
Class B basic	$	0.81	$	2.84
Diluted	$	0.88	$	3.07
Dividends Declared Per Share:
Class A	$	0.500	$	0.475
Class B	$	0.450	$	0.428

Approximately 4 million and 2 million of our stock-based compensation shares were antidilutive for the three months ended December 31, 2022 and January 1, 2022, respectively. 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 1.0 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 December 31, 2022.

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

in millions, except soybean meal tons	Metric	December 31, 2022		October 1, 2022
Commodity:
Corn	Bushels	61		44
Soybean Meal	Tons	574,600		532,700
Live Cattle	Pounds	143		280
Lean Hogs	Pounds	338		339
Foreign Currency	United States dollar	$	164	$	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 months ended December 31, 2022, and January 1, 2022. As of December 31, 2022, 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 three months ended December 31, 2022 and January 1, 2022, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges. For the three months ended December 31, 2022 and January 1, 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 months ended December 31, 2022, and January 1, 2022. The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of December 31, 2022 and October 1, 2022 (in millions):

Consolidated Condensed Balance Sheets Classification	December 31, 2022		October 1, 2022
Inventory	$	7	$	(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
	December 31, 2022		January 1, 2022
Cost of Sales	$	12,292	$	10,918
Interest Expense	84		100
Other, net	(42)		(52)

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

Consolidated Condensed Statements of Income Classification		Three Months Ended
		December 31, 2022		January 1, 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)	(3)		(3)
	Gain (Loss) on derivatives not designated as hedging instruments:
	Commodity contracts	15		81
Total		$	12	$	78
Interest Expense	Gain (Loss) on cash flow hedges reclassified from OCI to Earnings:
	Interest rate contracts	$	(1)	$	—
Other, net