Tyson Foods
Annual Report 2009

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 3, 2009 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________ Commission File No. 001-14704 TYSON FOODS, INC. (Exact Name of Registrant as specified in its Charter) Delaware (State or other jurisdiction of incorporation or organization) 71-0225165 (I.R.S. Employer Identification No.) 2200 Don Tyson Parkway, Springdale, Arkansas (Address of principal executive offices) 72762-6999 (Zip Code) Registrant's telephone number, including area code: (479) 290-4000 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Class A Common Stock, Par Value $0.10 Name of Each Exchange on Which Registered New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: Not Applicable Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] 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, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes [ ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ] Accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] On March 28, 2009, the aggregate market value of the registrant’s Class A Common Stock, $0.10 par value (Class A stock), and Class B Common Stock, $0.10 par value (Class B stock), held by non-affiliates of the registrant was $2,902,509,297 and $208,165, respectively. Class B stock is not publicly listed for trade on any exchange or market system. However, Class B stock is convertible into Class A stock on a share-for-share basis, so the market value was calculated based on the market price of Class A stock. On October 31, 2009, there were 306,647,117 shares of the registrant's Class A stock and 70,021,155 shares of its Class B stock outstanding. INCORPORATION BY REFERENCE Portions of the registrant's definitive Proxy Statement for the registrant's Annual Meeting of Shareholders to be held February 5, 2010, are incorporated by reference into Part III of this Annual Report on Form 10-K. TABLE OF CONTENTS PART I Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PAGE 3 7 12 12 13 15 16 18 19 36 38 81 81 81 82 82 82 83 83 83 Selected Financial Data PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Item 9A. Controls and Procedures Item 9B. Other Information Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules 2 PART I ITEM 1. BUSINESS GENERAL Founded in 1935, Tyson Foods, Inc. and its subsidiaries (collectively, “Company,” “we,” “us” or “our”) are the world’s largest meat protein company and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost of live cattle and hogs, raw materials and grain; and operating efficiencies of our facilities. We operate a fully vertically integrated poultry production process. Our integrated operations consist of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through our wholly-owned subsidiary, Cobb-Vantress, Inc. (Cobb), we are one of the leading poultry breeding stock suppliers in the world. Investing in breeding stock research and development allows us to breed into our flocks the characteristics found to be most desirable. We also process live fed cattle and hogs and fabricate dressed beef and pork carcasses into primal and sub-primal meat cuts, case ready beef and pork and fully-cooked meats. In addition, we derive value from allied products such as hides and variety meats sold to further processors and others. We produce a wide range of fresh, value-added, frozen and refrigerated food products. Our products are marketed and sold primarily by our sales staff to national and regional grocery retailers, regional grocery wholesalers, meat distributors, warehouse club stores, military commissaries, industrial food processing companies, national and regional chain restaurants or their distributors, international export companies and domestic distributors who serve restaurants, foodservice operations such as plant and school cafeterias, convenience stores, hospitals and other vendors. Additionally, sales to the military and a portion of sales to international markets are made through independent brokers and trading companies. We have been exploring ways to commercialize our supply of poultry litter and animal fats. In June 2007, we announced a 50/50 joint venture with Syntroleum Corporation, called Dynamic Fuels LLC. Dynamic Fuels LLC will produce renewable synthetic fuels targeting the renewable diesel and jet fuel markets. Construction of production facilities is expected to continue through early 2010, with production targeted soon thereafter. FINANCIAL INFORMATION OF SEGMENTS We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The contribution of each segment to net sales and operating income (loss), and the identifiable assets attributable to each segment, are set forth in Note 20, “Segment Reporting” of the Notes to Consolidated Financial Statements. DESCRIPTION OF SEGMENTS Chicken: Chicken operations include breeding and raising chickens, as well as processing live chickens into fresh, frozen and value-added chicken products and logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. It also includes sales from allied products and our chicken breeding stock subsidiary. Beef: Beef operations include processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. This segment also includes sales from allied products such as hides and variety meats, as well as logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. Allied products are marketed to manufacturers of pharmaceuticals and technical products. Pork: Pork operations include processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products. This segment also includes our live swine group, related allied product processing activities and logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other 3 food processors, as well as to international markets. We sell allied products to pharmaceutical and technical products manufacturers, as well as a limited number of live swine to pork processors. Prepared Foods: Prepared Foods operations include manufacturing and marketing frozen and refrigerated food products, as well as logistics operations to move products through the supply chain. Products include pepperoni, bacon, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. RAW MATERIALS AND SOURCES OF SUPPLY Chicken: The primary raw materials used in our chicken operations are corn and soybean meal used as feed and live chickens raised primarily by independent contract growers. Our vertically-integrated chicken process begins with the grandparent breeder flocks and ends with broilers for processing. Breeder flocks (i.e., grandparents) are raised to maturity in grandparent growing and laying farms where fertile eggs are produced. Fertile eggs are incubated at the grandparent hatchery and produce pullets (i.e., parents). Pullets are sent to breeder houses, and the resulting eggs are sent to our hatcheries. Once chicks have hatched, they are sent to broiler farms. There, contract growers care for and raise the chicks according to our standards, with advice from our technical service personnel, until the broilers reach the desired processing weight. Adult chickens are transported to processing plants, and finished products are sent to distribution centers, then delivered to customers. We operate our own feed mills to produce scientifically-formulated feeds. In fiscal 2009, corn and soybean meal were major production costs, representing roughly 45% of our cost of growing a live chicken. In addition to feed ingredients to grow the chickens, we use cooking ingredients, packaging materials and cryogenic agents. We believe our sources of supply for these materials are adequate for our present needs, and we do not anticipate any difficulty in acquiring these materials in the future. While we produce nearly all our inventory of breeder chickens and live broilers, from time-to-time we purchase live, ice-packed or deboned chicken to meet production requirements. Beef: The primary raw materials used in our beef operations are live cattle. We do not have facilities of our own to raise cattle but have cattle buyers located throughout cattle producing areas who visit independent feed yards and buy live cattle on the open spot market. These buyers are trained to select high quality animals, and we continually measure their performance. We also enter into various risk-sharing and procurement arrangements with producers to secure a supply of livestock for our facilities. We believe the sources of supply of live cattle are adequate for our present needs. Pork: The primary raw materials used in our pork operations are live hogs. The majority of our live hog supply is obtained through various procurement relationships with independent producers. We also employ buyers who purchase hogs on a daily basis, generally a few days before the animals are processed. These buyers are trained to select high quality animals, and we continually measure their performance. We believe the sources of supply of live hogs are adequate for our present needs. Additionally, we raise a number of weanling swine to sell to independent finishers and supply a minimal amount of live swine for our own processing needs. Prepared Foods: The primary raw materials used in our prepared foods operations are commodity based raw materials, including chicken, beef, pork, corn, flour and vegetables. Some of these raw materials are provided by the Chicken, Beef and Pork segments, while others may be purchased from numerous suppliers and manufacturers. We believe the sources of supply of raw materials are adequate for our present needs. SEASONAL DEMAND Demand for chicken and beef products generally increases during the spring and summer months and generally decreases during the winter months. Pork and prepared foods products generally experience increased demand during the winter months, primarily due to the holiday season, while demand decreases during the spring and summer months. CUSTOMERS Wal-Mart Stores, Inc. accounted for 13.8% of our fiscal 2009 consolidated sales. Sales to Wal-Mart Stores, Inc. were included in the Chicken, Beef, Pork and Prepared Foods segments. Any extended discontinuance of sales to this customer could, if not replaced, have a material impact on our operations. No other single customer or customer group represents more than 10% of fiscal 2009 consolidated sales. 4 COMPETITION Our food products compete with those of other national and regional food producers and processors and certain prepared food manufacturers. Additionally, our food products compete in markets around the world. We seek to achieve a leading market position for our products via our principal marketing and competitive strategy, which includes: ● ● ● utilizing our national distribution systems and customer support services. identifying target markets for value-added products; concentrating production, sales and marketing efforts to appeal to and enhance demand from those markets; and Past efforts indicate customer demand can be increased and sustained through application of our marketing strategy, as supported by our distribution systems. The principal competitive elements are price, product safety and quality, brand identification, breadth and depth of the product offering, availability of products, customer service and credit terms. INTERNATIONAL We exported to more than 90 countries in fiscal 2009. Major export markets include Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam. We have the following international operations: ● Tyson de Mexico, a Mexican subsidiary, is a vertically-integrated poultry production company; ● Cobb-Vantress, a chicken breeding stock subsidiary, has business interests in Argentina, Brazil, the Dominican Republic, India, Ireland, Italy, Japan, the Netherlands, Peru, the Philippines, Spain, Sri Lanka, the United Kingdom and Venezuela; ● Tyson do Brazil, a Brazilian subsidiary, is a vertically-integrated poultry production company; ● Shandong Tyson Xinchang Foods, joint ventures in China in which we have a majority interest, is a vertically-integrated poultry production company; ● Tyson Dalong, a joint venture in China in which we have a majority interest, is a chicken further processing facility; ● Jiangsu-Tyson, a Chinese poultry breeding company, is building a vertically-integrated poultry operation with production expected to begin in fiscal 2011; ● Godrej Tyson Foods, a joint venture in India in which we have a majority interest, is a poultry processing business; and ● Cactus Argentina, a majority interest in a vertically-integrated beef operation joint venture in Argentina; however, we do not consolidate the entity due to the lack of controlling interest. We continue to explore growth opportunities in foreign countries. Additional information regarding export sales, long-lived assets located in foreign countries and income (loss) from foreign operations is set forth in Note 20, “Segment Reporting” of the Notes to Consolidated Financial Statements. RESEARCH AND DEVELOPMENT We conduct continuous research and development activities to improve product development, to automate manual processes in our processing plants and growout operations, and to improve chicken breeding stock. In 2007, we opened the Discovery Center, which includes 19 research kitchens and a USDA-inspected pilot plant. The Discovery Center brings new market-leading retail and foodservice products to the customer faster and more effectively. ENVIRONMENTAL REGULATION AND FOOD SAFETY Our facilities for processing chicken, beef, pork and prepared foods, milling feed and housing live chickens and swine are subject to a variety of federal, state and local environmental laws and regulations, which include provisions relating to the discharge of materials into the environment and generally provide for protection of the environment. We believe we are in substantial compliance with such applicable laws and regulations and are not aware of any violations of such laws and regulations likely to result in material penalties or material increases in compliance costs. The cost of compliance with such laws and regulations has not had a material adverse effect on our capital expenditures, earnings or competitive position, and except as described below, is not anticipated to have a material adverse effect in the future. Congress and the United States Environmental Protection Agency are considering various options to control greenhouse gas emissions. It is unclear at this time when or if such options will be finalized, or what the final form may be. Due to the uncertainty surrounding this issue, it is premature to speculate on the specific nature of impacts that imposition of greenhouse gas emission controls would have on us, and whether such impacts would have a material adverse effect. 5 We work to ensure our products meet high standards of food safety and quality. In addition to our own internal Food Safety and Quality Assurance oversight and review, our chicken, beef, pork and prepared foods products are subject to inspection prior to distribution, primarily by the United States Department of Agriculture (USDA) and the United States Food and Drug Administration (FDA). We are also participants in the United States Hazard Analysis Critical Control Point (HACCP) program and are subject to the Sanitation Standard Operating Procedures and the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. EMPLOYEES AND LABOR RELATIONS As of October 3, 2009, we employed approximately 117,000 employees. Approximately 100,000 employees were employed in the United States and 17,000 employees were in foreign countries, primarily China, Mexico and Brazil. Approximately 33,000 employees in the United States were subject to collective bargaining agreements with various labor unions, with approximately 6% of those employees included under agreements expiring in fiscal 2010. These agreements expire over periods throughout the next several years. Approximately 7,000 employees in foreign countries were subject to collective bargaining agreements. We believe our overall relations with our workforce are good. MARKETING AND DISTRIBUTION Our principal marketing objective is to be the primary provider of chicken, beef, pork and prepared foods products for our customers and consumers. As such, we utilize our national distribution system and customer support services to achieve the leading market position for our products. On an ongoing basis, we identify distinct markets and business opportunities through continuous consumer and market research. In addition to supporting strong regional brands across multiple protein lines, we build the Tyson brand primarily through well-defined product-specific advertising and public relations efforts focused toward key consumer targets with specific needs. These efforts are designed to present key Tyson products as everyday solutions to relevant consumer problems thereby gaining adoption into regular eating routines. Further, we use a coordinated mix of activities designed to connect with our customers and consumers on both rational and emotional levels. We utilize our national distribution system and customer support services to achieve the leading market position for our products. We have the ability to produce and ship fresh, frozen and refrigerated products worldwide. Domestically, our distribution system extends to a broad network of food distributors and is supported by our owned or leased cold storage warehouses, public cold storage facilities and our transportation system. Our distribution centers accumulate fresh and frozen products so we can fill and consolidate less-than-truckload orders into full truckloads, thereby decreasing shipping costs while increasing customer service. In addition, we provide our customers a wide selection of products that do not require large volume orders. Our distribution system enables us to supply large or small quantities of products to meet customer requirements anywhere in the continental United States. Internationally, we utilize both rail and truck refrigerated transportation to domestic ports, where consolidations take place to transport to foreign destinations. We use ocean and air transportation to meet the delivery needs of our foreign customers. PATENTS AND TRADEMARKS We have filed a number of patents and trademarks relating to our processes and products that either have been approved or are in the process of application. Because we do a significant amount of brand name and product line advertising to promote our products, we consider the protection of our trademarks to be important to our marketing efforts. We also have developed non-public proprietary information regarding our production processes and other product-related matters. We utilize internal procedures and safeguards to protect the confidentiality of such information and, where appropriate, seek patent and/or trademark protection for the technology we utilize. INDUSTRY PRACTICES Our agreements with customers are generally short-term, primarily due to the nature of our products, industry practices and fluctuations in supply, demand and price for such products. In certain instances where we are selling further processed products to large customers, we may enter into written agreements whereby we will act as the exclusive or preferred supplier to the customer, with pricing terms that are either fixed or variable. Due to volatility of the cost of raw materials, fixed price contracts are generally limited to three months in duration. AVAILABILITY OF SEC FILINGS AND CORPORATE GOVERNANCE DOCUMENTS ON INTERNET WEBSITE We maintain an internet website for investors at http://ir.tyson.com. On this website, we make available, free of charge, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to any of those reports, as soon as reasonably practicable after we electronically file such reports with, or furnish to, the Securities and Exchange Commission. Also available on the website for investors are the Corporate Governance Principles, Audit Committee charter, Compensation Committee charter, Governance Committee charter, Nominating Committee charter, Code of Conduct and Whistleblower Policy. Our corporate governance documents are available in print, free of charge to any shareholder who requests them. 6 CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain information in this report constitutes forward-looking statements. Such forward-looking statements include, but are not limited to, current views and estimates of future economic circumstances, industry conditions in domestic and international markets, our performance and financial results, including, without limitation, debt-levels, return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy. These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results and experiences to differ materially from anticipated results and expectations expressed in such forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such forward-looking statements are the following: (i) the effect of, or changes in, general economic conditions; (ii) fluctuations in the cost and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy; (iii) market conditions for finished products, including competition from other global and domestic food processors, supply and pricing of competing products and alternative proteins and demand for alternative proteins; (iv) successful rationalization of existing facilities and operating efficiencies of the facilities; (v) risks associated with our commodity trading risk management activities; (vi) access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and foreign politics; (vii) outbreak of a livestock disease (such as avian influenza (AI) or bovine spongiform encephalopathy (BSE)), which could have an effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein products or our ability to access certain domestic and foreign markets; (viii) changes in availability and relative costs of labor and contract growers and our ability to maintain good relationships with employees, labor unions, contract growers and independent producers providing us livestock; (ix) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (x) changes in consumer preference and diets and our ability to identify and react to consumer trends; (xi) significant marketing plan changes by large customers or loss of one or more large customers; (xii) adverse results from litigation; (xiii) risks associated with leverage, including cost increases due to rising interest rates or changes in debt ratings or outlook; (xiv) compliance with and changes to regulations and laws (both domestic and foreign), including changes in accounting standards, tax laws, environmental laws and occupational, health and safety laws; (xv) our ability to make effective acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations; (xvi) effectiveness of advertising and marketing programs; and (xvii) those factors listed under Item 1A. “Risk Factors.” ITEM 1A. RISK FACTORS These risks, which should be considered carefully with the information provided elsewhere in this report, could materially adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations. Fluctuations in commodity prices and in the availability of raw materials, especially feed grains, live cattle, live swine and other inputs could negatively impact our earnings. Our results of operations and financial condition are dependent upon the cost and supply of raw materials such as feed grains, live cattle, live swine, energy and ingredients, as well as the selling prices for our products, many of which are determined by constantly changing market forces of supply and demand over which we have limited or no control. Corn and soybean meal are major production costs in the poultry industry, representing roughly 45% of our cost of growing a chicken in fiscal 2009. As a result, fluctuations in prices for these feed ingredients, which include competing demand for corn and soybean meal for use in the manufacture of renewable energy, can adversely affect our earnings. Production of feed ingredients is affected by, among other things, weather patterns throughout the world, the global level of supply inventories and demand for grains and other feed ingredients, as well as agricultural and energy policies of domestic and foreign governments. We have cattle under contract at feed yards owned by third parties; however, most of the cattle we process are purchased from independent producers. We have cattle buyers located throughout cattle producing areas who visit feed yards and buy live cattle on the 7 open spot market. We also enter into various risk-sharing and procurement arrangements with producers who help secure a supply of livestock for daily start-up operations at our facilities. The majority of our live swine supply is obtained through various procurement arrangements with independent producers. We also employ buyers who purchase hogs on a daily basis, generally a few days before the animals are required for processing. In addition, we raise live swine and sell feeder pigs to independent producers for feeding to processing weight and have contract growers feed a minimal amount of company-owned live swine for our own processing needs. Any decrease in the supply of cattle or swine on the spot market could increase the price of these raw materials and further increase per head cost of production due to lower capacity utilization, which could adversely affect our financial results. Market demand and the prices we receive for our products may fluctuate due to competition from global and domestic food producers and processors. We face competition from other global and domestic food producers and processors. Some of the factors on which we compete and which may drive demand for our products include: ● price; ● product safety and quality; ● brand identification; ● breadth and depth of the product offering; ● ● ● availability of our products; customer service; and credit terms. Demand for our products also is affected by competitors’ promotional spending, the effectiveness of our advertising and marketing programs and the availability or price of competing proteins. We attempt to obtain prices for our products that reflect, in part, the price we must pay for the raw materials that go into our products. If we are not able to obtain higher prices for our products when the price we pay for raw materials increases, we may be unable to maintain positive margins. Outbreaks of livestock diseases can adversely impact our ability to conduct our operations and demand for our products. Demand for our products can be adversely impacted by outbreaks of livestock diseases, which can have a significant impact on our financial results. Efforts are taken to control disease risks by adherence to good production practices and extensive precautionary measures designed to ensure the health of livestock. However, outbreaks of disease and other events, which may be beyond our control, either in our own livestock or cattle and hogs owned by independent producers who sell livestock to us, could significantly affect demand for our products, consumer perceptions of certain protein products, the availability of livestock for purchase by us and our ability to conduct our operations. Moreover, the outbreak of livestock diseases, particularly in our Chicken segment, could have a significant effect on the livestock we own by requiring us to, among other things, destroy any affected livestock. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our products to or from our suppliers, facilities or customers. This could also result in negative publicity that may have an adverse effect on our ability to market our products successfully and on our financial results. We are subject to risks associated with our international operations, which could negatively affect our sales to customers in foreign countries, as well as our operations and assets in such countries. In fiscal 2009, we exported to more than 90 countries. Major export markets include Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam. Our export sales for fiscal 2009 totaled $2.7 billion. In addition, we had approximately $329 million of long-lived assets located in foreign countries, primarily Brazil, China and Mexico, at the end of fiscal 2009. In fiscal 2009, approximately 3% of the loss from continuing operations before income taxes and minority interest was from foreign operations. 8 As a result, we are subject to various risks and uncertainties relating to international sales and operations, including: ● imposition of tariffs, quotas, trade barriers and other trade protection measures imposed by foreign countries regarding the import of poultry, beef and pork products, in addition to import or export licensing requirements imposed by various foreign countries; ● closing of borders by foreign countries to the import of poultry, beef and pork products due to animal disease or other ● perceived health or safety issues; impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies, particularly the Canadian dollar, the Chinese renminbi, the Mexican peso, the European euro, the British pound sterling, and the Brazilian real; ● political and economic conditions; ● difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex domestic and international laws, treaties and regulations, including, without limitation, the United States' Foreign Corrupt Practices Act and economic and trade sanctions enforced by the United States Department of the Treasury's Office of Foreign Assets Control; ● different regulatory structures and unexpected changes in regulatory environments; ● tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and incremental taxes upon repatriation; ● potentially negative consequences from changes in tax laws; and ● distribution costs, disruptions in shipping or reduced availability of freight transportation. Negative consequences relating to these risks and uncertainties could jeopardize or limit our ability to transact business in one or more of those markets where we operate or in other developing markets and could adversely affect our financial results. We depend on the availability of, and good relations with, our employees. We have approximately 117,000 employees, of whom approximately 40,000 are covered by collective bargaining agreements or are members of labor unions. Our operations depend on the availability and relative costs of labor and maintaining good relations with employees and the labor unions. If we fail to maintain good relations with our employees or with the unions, we may experience labor strikes or work stoppages, which could adversely affect our financial results. We depend on contract growers and independent producers to supply us with livestock. We contract primarily with independent contract growers to raise the live chickens processed in our poultry operations. A majority of our cattle and hogs are purchased from independent producers who sell livestock to us under marketing contracts or on the open market. If we do not attract and maintain contracts with growers or maintain marketing relationships with independent producers, our production operations could be negatively affected. If our products become contaminated, we may be subject to product liability claims and product recalls. Our products may be subject to contamination by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella and generic E. coli. These pathogens are found generally in the environment; therefore, there is a risk they, as a result of food processing, could be present in our products. These pathogens also can be introduced to our products as a result of improper handling at the further processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling procedures once our products have been shipped for distribution. Even an inadvertent shipment of contaminated products may be a violation of law and may lead to increased risk of exposure to product liability claims, product recalls (which may not entirely mitigate the risk of product liability claims), increased scrutiny and penalties, including injunctive relief and plant closings, by federal and state regulatory agencies, and adverse publicity, which could exacerbate the associated negative consumer reaction. Any of these occurrences may have an adverse effect on our financial results. Our operations are subject to general risks of litigation. We are involved on an on-going basis in litigation arising in the ordinary course of business or otherwise. Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor, employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty and adverse litigation trends and outcomes could adversely affect our financial results. 9 Our level of indebtedness and the terms of our indebtedness could negatively impact our business and liquidity position. Our indebtedness, including borrowings under our revolving credit facility, may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures and possible acquisitions, joint ventures or other significant initiatives. Our consolidated indebtedness level could adversely affect our business because: it may limit or impair our ability to obtain financing in the future; ● ● our credit rating could restrict or impede our ability to access capital markets at desired rates and increase our borrowing ● costs; it may reduce our flexibility to respond to changing business and economic conditions or to take advantage of business opportunities that may arise; ● a portion of our cash flow from operations must be dedicated to interest payments on our indebtedness and is not available for other purposes; and it may restrict our ability to pay dividends. ● 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; pay dividends or make other payments in respect of our capital stock; amend material documents; change the nature of our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of 15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio. Our 10.50% Senior notes due March 2014 also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: incur additional debt and issue preferred stock; make certain investments and restricted payments; create liens; create restrictions on distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into transactions with affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain sale/leaseback transactions. An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth. Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the recoverability of goodwill, we make estimates and assumptions about sales, operating margin growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit. Under the income approach, we are required to make various judgmental assumptions about appropriate discount rates. The recent disruptions in global credit and other financial markets and deterioration of economic conditions, could, among other things, cause us to increase the discount rate used in the goodwill valuations. We could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges. In fiscal 2009, we recorded a non-cash partial impairment of $560 million of our beef reporting unit’s goodwill. As of October 3, 2009, we had $1.9 billion of goodwill, which represented approximately 18.1% of total assets. Domestic and international government regulations could impose material costs. Our operations are subject to extensive federal, state and foreign laws and regulations by authorities that oversee food safety standards and processing, packaging, storage, distribution, advertising, labeling and export of our products. Our facilities for processing chicken, beef, pork, prepared foods and milling feed and for housing live chickens and swine are subject to a variety of international, federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials into the environment, and to the health and safety of our employees. Our chicken, beef and pork processing facilities are participants in the HACCP program and are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. In addition, our products are subject to inspection prior to distribution, primarily by the USDA and the FDA. Loss of or failure to obtain necessary 10 permits and registrations could delay or prevent us from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results. Additionally, we are routinely subject to new or modified laws, regulations and accounting standards, such as country of origin labeling (COOL) requirements. If we are found to be out of compliance with applicable laws and regulations in these or other areas, we could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have an adverse effect on our financial results. A material acquisition, joint venture or other significant initiative could affect our operations and financial condition. We have recently completed acquisitions and entered into joint venture agreements and periodically evaluate potential acquisitions, joint ventures and other initiatives (collectively, “transactions”), and we may seek to expand our business through the acquisition of companies, processing plants, technologies, products and services, which could include material transactions. A material transaction may involve a number of risks, including: failure to realize the anticipated benefits of the transaction; ● ● difficulty integrating acquired businesses, technologies, operations and personnel with our existing business; ● diversion of management attention in connection with negotiating transactions and integrating the businesses acquired; ● ● exposure to unforeseen or undisclosed liabilities of acquired companies; and the need to obtain additional debt or equity financing for any transaction. We may not be able to address these risks and successfully develop these acquired companies or businesses into profitable units. If we are unable to do this, such expansion could adversely affect our financial results. Market fluctuations could negatively impact our operating results as we hedge certain transactions. Our business is exposed to fluctuating market conditions. We use derivative financial instruments to reduce our exposure to various market risks including changes in commodity prices, interest rates and foreign exchange rates. We hold certain positions, primarily in grain and livestock futures, that do not qualify as hedges for financial reporting purposes. These positions are marked to fair value, and the unrealized gains and losses are reported in earnings at each reporting date. Therefore, losses on these contracts will adversely affect our reported operating results. While these contracts reduce our exposure to changes in prices for commodity products, the use of such instruments may ultimately limit our ability to benefit from favorable commodity prices. Deterioration of economic conditions could negatively impact our business. Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of governmental initiatives to manage economic conditions. Any such changes could adversely affect the demand for our products, or the cost and availability of our needed raw materials, cooking ingredients and packaging materials, thereby negatively affecting our financial results. The recent disruptions in global credit and other financial markets and deterioration of economic conditions, could, among other things: ● make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future; ● cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any ● amendment of, or waivers under, our credit agreement to the extent we may seek them in the future; impair the financial condition of some of our customers and suppliers thereby increasing customer bad debts or non-performance by suppliers; ● negatively impact global demand for protein products, which could result in a reduction of sales, operating income and cash flows; ● decrease the value of our investments in equity and debt securities, including our marketable debt securities, company-owned life insurance and pension and other postretirement plan assets; ● negatively impact our commodity risk management activities if we are required to record additional losses related to derivative financial instruments; or impair the financial viability of our insurers. ● Changes in consumer preference could negatively impact our business. The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results. 11 The loss of one or more of our largest customers could negatively impact our business. Our business could suffer significant set backs in sales and operating income if our customers’ plans and/or markets should change significantly, or if we lost one or more of our largest customers, including, for example, Wal-Mart Stores, Inc., which accounted for 13.8% of our sales in fiscal 2009. Many of our agreements with our customers are generally short-term, primarily due to the nature of our products, industry practice and the fluctuation in demand and price for our products. The consolidation of customers could negatively impact our business. Our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years, and consolidation is expected to continue throughout the United States and in other major markets. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth could slow or we may need to lower prices or increase promotional spending for our products, any of which would adversely affect our financial results. Extreme factors or forces beyond our control could negatively impact our business. Natural disasters, fire, bioterrorism, pandemic or extreme weather, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of livestock or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors, as well as disruptions in our information systems, could have an adverse effect on our financial results. Our renewable energy ventures and other initiatives might not be as successful as we expect. We have been exploring ways to commercialize animal fats and other by-products from our operations, as well as the poultry litter of our contract growers, to generate energy and other value-added products. For example, in fiscal 2007, we announced the formation of Dynamic Fuels LLC, a joint venture with Syntroleum Corporation. We will continue to explore other ways to commercialize opportunities outside our core business, such as renewable energy and other technologically-advanced platforms. These initiatives might not be as financially successful as we initially announced or would expect due to factors that include, but are not limited to, possible discontinuance of tax credits, competing energy prices, failure to operate at the volumes anticipated, abilities of our joint venture partners and our limited experience in some of these new areas. Members of the Tyson family can exercise significant control. Members of the Tyson family beneficially own, in the aggregate, 99.97% of our outstanding shares of Class B Common Stock, $0.10 par value (Class B stock) and 2.36% of our outstanding shares of Class A Common Stock, $0.10 par value (Class A stock), giving them control of approximately 70% of the total voting power of our outstanding voting stock. In addition, three members of the Tyson family serve on our Board of Directors. As a result, members of the Tyson family have the ability to exert substantial influence or actual control over our management and affairs and over substantially all matters requiring action by our stockholders, including amendments to our restated certificate of incorporation and by-laws, the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of ownership may also delay or prevent a change in control otherwise favored by our other stockholders and could depress our stock price. Additionally, as a result of the Tyson family’s significant ownership of our outstanding voting stock, we have relied on the “controlled company” exemption from certain corporate governance requirements of the New York Stock Exchange. Pursuant to these exemptions, our compensation committee, which is made up of independent directors, does not have sole authority to determine the compensation of our executive officers, including our chief executive officer. ITEM 1B. UNRESOLVED STAFF COMMENTS None ITEM 2. PROPERTIES We have sales offices and production and distribution operations in the following states: Alabama, Arizona, Arkansas, California, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Mississippi, Missouri, Nebraska, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington and Wisconsin. Additionally, we, either directly or through our subsidiaries, have sales offices, facilities or participate in joint venture operations in Argentina, Brazil, Canada, China, the Dominican Republic, Hong Kong, India, Ireland, Italy, Japan, Mexico, the Netherlands, Peru, the Philippines, Russia, South Korea, Spain, Sri Lanka, Taiwan, the United Arab Emirates, the United Kingdom and Venezuela. 12 Chicken Segment: Processing plants Rendering plants Blending mills Feed mills Broiler hatcheries Breeder houses Broiler farm houses Beef Segment Production Facilities Pork Segment Production Facilities Prepared Foods Segment Processing Plants Distribution Centers Cold Storage Facilities Chicken Processing Plants Beef Production Facilities Pork Production Facilities Prepared Foods Processing Plants Owned Number of Facilities Leased 61 14 2 42 62 483 864 12 9 22 10 65 2 - - - 7 747 812 - - 1 2 10 Total 63 14 2 42 69 1,230 1,676 12 9 23 12 75 Capacity(1) Fiscal 2009 per week at Average Capacity Utilization 90% 82% 90% 82% October 3, 2009 48 million head 170,000 head 437,000 head 45 million pounds (1) Capacity based on a five day week for Chicken and Prepared Foods, while Beef and Pork are based on a six day week. Chicken: Chicken processing plants include various phases of slaughtering, dressing, cutting, packaging, deboning and further-processing. We also have 17 pet food operations, which are part of the Chicken processing plants. The blending mills, feed mills and broiler hatcheries have sufficient capacity to meet the needs of the chicken growout operations. Beef: Beef plants include various phases of slaughtering live cattle and fabricating beef products. Some also treat and tan hides. The Beef segment includes three case-ready operations that share facilities with the Pork segment. One of the beef facilities contains a tallow refinery. Carcass facilities reduce live cattle to dressed carcass form. Processing facilities conduct fabricating operations to produce boxed beef and allied products. Pork: Pork plants include various phases of slaughtering live hogs and fabricating pork products and allied products. The Pork segment includes three case-ready operations that share facilities with the Beef segment. Prepared Foods: Prepared Foods plants process fresh and frozen chicken, beef, pork and other raw materials into pizza toppings, branded and processed meats, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, pizza crusts, flour and corn tortilla products and meat dishes. We believe our present facilities are generally adequate and suitable for our current purposes; however, seasonal fluctuations in inventories and production may occur as a reaction to market demands for certain products. We regularly engage in construction and other capital improvement projects intended to expand capacity and improve the efficiency of our processing and support facilities. ITEM 3. LEGAL PROCEEDINGS Refer to the discussion of our certain legal proceedings pending against us under Part II, Item 8, Notes to Consolidated Financial Statements, Note 22: “Contingencies,” which discussion is incorporated herein by reference. Listed below are certain additional legal proceedings for which we are involved. On October 23, 2001, a putative class action lawsuit styled R. Lynn Thompson, et al. vs. Tyson Foods, Inc. was filed in the District Court for Mayes County, Oklahoma by three property owners on behalf of all owners of lakefront property on Grand Lake O’ the Cherokees. Simmons Foods, Inc. and Peterson Farms, Inc. also are defendants. The plaintiffs allege the defendants’ operations diminished the water quality in the lake thereby interfering with the plaintiffs’ use and enjoyment of their properties. The plaintiffs 13 sought injunctive relief and an unspecified amount of compensatory damages, punitive damages, attorneys’ fees and costs. While the District Court certified a class, on October 4, 2005, the Court of Civil Appeals of the State of Oklahoma reversed, holding the plaintiffs’ claims were not suitable for disposition as a class action. This decision was upheld by the Oklahoma Supreme Court and the case was remanded to the District Court with instructions that the matter proceed only on behalf of the three named plaintiffs. Plaintiffs seek injunctive relief, restitution and compensatory and punitive damages in an unspecified amount in excess of $10,000. We and the other defendants have denied liability and asserted various defenses. Defendants have requested a trial date, but the court has not yet scheduled the matter for trial. In 2004, representatives of our subsidiary, Tyson Fresh Meats, Inc. (“TFM”), met with the U.S. Environmental Protection Agency (“USEPA”) staff to discuss alleged wastewater and late report filing violations under the Clean Water Act relating to the 2002 Second and Final Consent Decree that governed compliance requirements for TFM’s Dakota City, Nebraska, facility. TFM vigorously disputed these allegations. The U.S. Department of Justice (“DOJ”), on behalf of USEPA, recently requested that TFM enter into a tolling agreement concerning possible civil penalties and injunctive relief for Clean Water Act violations, which was executed in July 2008, and enter into negotiations with DOJ and USEPA regarding a potential settlement of this matter. Pursuant to negotiations with DOJ and USEPA, a settlement in principal was reached on December 30, 2008, which would require the payment of $2,026,500 in penalties. On August 20, 2009 a Joint Stipulation Motion was filed in the U.S. District Court for the District of Nebraska documenting the settlement agreement. The Court approved the settlement on August 31, 2009. The penalties were paid by TFM on September 15, 2009, and the matter was resolved. On January 9, 2003, we received a notice of liability letter from Union Pacific Railroad Company (“Union Pacific”) relating to our alleged contributions of waste oil to the Double Eagle Refinery Superfund Site in Oklahoma City, Oklahoma. On August 22, 2006, the United States and the State of Oklahoma filed a lawsuit styled United States of America, et al. v. Union Pacific Railroad Co. in the United States District Court for the Western District of Oklahoma seeking more than $22 million (the amount sought has subsequently increased to more than $30 million) to remediate the Double Eagle site. Certain Tyson entities joined a “potentially responsible parties” group on October 31, 2006. A settlement between the “potentially responsible parties” group, the United States, and the State of Oklahoma was reached and the Tyson entities paid $625,586 (for 135,997 alleged gallons of waste oil) into escrow towards the settlement of the matter. In furtherance of finalizing the settlement, on June 20, 2008 the DOJ filed a complaint styled United States of America, et al. v. Albert Investment Co., Inc. et al. against numerous alleged responsible parties, including various Tyson entities (the “Litigation”). A proposed Consent Decree addressing all alleged liability of Tyson for the site was lodged on June 27, 2008. On August 15, 2008, Union Pacific submitted to the United States its Comments and Objections to the proposed Consent Decree. In its Comments and Objections, Union Pacific claimed that the Tyson entities' alleged gallons of waste oil should be 160,819 rather than the 135,997 gallons set forth in the proposed Consent Decree. On October 10, 2008, Union Pacific initiated litigation to challenge the proposed Consent Decree by filing a motion to intervene in the Litigation, which the court denied. Union Pacific appealed this decision to the United States Court of Appeals for the Tenth Circuit. The "potentially responsible parties" group and other parties filed briefs in the Tenth Circuit, and oral arguments occurred on September 21, 2009. If the proposed Consent Decree is entered, the escrowed amount will be paid to the United States and the State of Oklahoma. In November 2006, the Audit Committee of our Board of Directors engaged outside counsel to conduct a review of certain payments that had been made by one of our subsidiaries in Mexico, including payments to individuals employed by Mexican governmental bodies. The payments were discontinued in November 2006. Although the review process is ongoing, we believe the amount of these payments is immaterial, and we do not expect any material impact to our financial statements. We have contacted the Securities and Exchange Commission and the U.S. Department of Justice to inform them of our review and preliminary findings and are cooperating fully with these governmental authorities. Since 2003, nine lawsuits have been brought against Tyson and several other poultry companies by approximately 150 plaintiffs in Washington County, Arkansas Circuit Court (Green v. Tyson Foods, Inc., et al., Bible v. Tyson Foods, Inc., Beal v. Tyson Foods, Inc., et al., McWhorter v. Tyson Foods, Inc., et al., McConnell v. Tyson Foods, Inc., et al., Carroll v. Tyson Foods, Inc., et al., Belew v. Tyson Foods, Inc., et al., Gonzalez v. Tyson Foods, Inc., et al., and Rasco v. Tyson Foods, Inc., et al.) alleging that the land application of poultry litter caused arsenic and pathogenic mold and fungi contamination of the air, soil and water in and around Prairie Grove, Arkansas. In addition to the poultry company defendants, plaintiffs sued Alpharma, the manufacturer of a feed ingredient containing an organic arsenic compound that has been used in the broiler industry. Plaintiffs are seeking recovery for several types of personal injuries, including several forms of cancer. On August 2, 2006, the Court granted summary judgment in favor of Tyson and the other poultry company defendants in the first case to go to trial and denied summary judgment as to Alpharma. The case was tried against Alpharma and the jury returned a verdict in favor of Alpharma. Plaintiffs appealed the summary judgment in favor of the poultry company defendants and the Court stayed the remaining eight lawsuits pending the appeal. On May 8, 2008, the Arkansas Supreme Court reversed the summary judgment in favor of the poultry company defendants. The remanded trial in this case against the poultry company defendants began on April 30, 2009 and on May 14, 2009, the jury returned a verdict in favor of us and the other poultry company defendants. On July 13, 2009, plaintiffs filed a notice of appeal to the Arkansas Supreme Court. 14 Other Matters: We have approximately 117,000 employees and, at any time, have various employment practices matters outstanding. In the aggregate, these matters are significant to the Company, and we devote significant resources to managing employment issues. Additionally, we are subject to other lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. While the ultimate results of these matters cannot be determined, they are not expected to have a material adverse effect on our consolidated results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE COMPANY Our Officers serve one year terms from the date of their election, or until their successors are appointed and qualified. No family relationships exist among these officers. The name, title, age and year of initial election to executive office of our executive officers are listed below: Name Richard A. Greubel, Jr. Craig J. Hart Kenneth J. Kimbro Dennis Leatherby James V. Lochner Donnie Smith David L. Van Bebber Jeffrey D. Webster Title Group Vice President and International President Senior Vice President, Controller and Chief Accounting Officer Senior Vice President, Chief Human Resources Officer Executive Vice President and Chief Financial Officer Chief Operating Officer President and Chief Executive Officer Executive Vice President and General Counsel Group Vice President, Renewable Products Age 47 53 56 49 57 50 53 48 Year Elected 2007 2004 2009 1994 2005 2008 2008 2008 Richard A. Greubel, Jr. was appointed Group Vice President and International President in May 2007, after serving as Group Vice President, International since August 2006, and President and Managing Director for Monsanto’s Brazil business since 2001. Craig J. Hart was appointed Senior Vice President, Controller and Chief Accounting Officer in September 2004 after serving as Vice President of Special Projects since 2001. Mr. Hart was initially employed by IBP in 1978. Kenneth J. Kimbro was appointed Senior Vice President, Chief Human Resources Officer in 2001. Mr. Kimbro was initially employed by IBP in 1995. Dennis Leatherby was appointed Executive Vice President and Chief Financial Officer in June 2008 after serving as Senior Vice President, Finance and Treasurer since 1998. He also served as Interim Chief Financial Officer from July 2004 to June 2006. Mr. Leatherby was initially employed by the Company in 1990. James V. Lochner was appointed Chief Operating Officer on November 19, 2009, after serving as Senior Group Vice President, Fresh Meats and Margin Optimization since May 2006, Senior Group Vice President, Margin Optimization, Purchasing and Logistics since October 2005, Group Vice President, Purchasing, Travel, and Aviation since November 2004 and Group Vice President, Fresh Meats since 2001. Mr. Lochner was initially employed by IBP in 1983. Donnie Smith was appointed President and Chief Executive Officer on November 19, 2009, after serving as Senior Group Vice President, Poultry and Prepared Foods since January 2009, Group Vice President of Consumer Products since January 2008, Group Vice President of Logistics and Operations Services since April 2007, Senior Vice President Information Systems, Purchasing and Distribution since May 2006, Senior Vice President and Chief Information Officer since November 2005, and Senior Vice President, Supply Chain Management since October 2001. Mr. Smith was initially employed by the Company in 1980. David L. Van Bebber was appointed Executive Vice President and General Counsel in May 2008, after serving as Senior Vice President and Deputy General Counsel since September 2004 and Senior Vice President, Legal Services since November 2000. Mr. Van Bebber was initially employed by Lane Processing in 1982. Lane Processing was acquired by the Company in 1986. Jeffrey D. Webster was appointed Group Vice President, Renewable Products in November 2008, after serving as Senior Vice President, Renewable Products since April 2006, Senior Vice President, Strategy and Development since June 2005 and Vice President, Strategy since January 2004. Mr. Webster was initially employed by the Company in 2004. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES We have issued and outstanding two classes of capital stock, Class A stock and Class B stock. Holders of Class B stock may convert such stock into Class A stock on a share-for-share basis. Holders of Class B stock are entitled to 10 votes per share while holders of Class A stock are entitled to one vote per share on matters submitted to shareholders for approval. As of October 31, 2009, there were approximately 34,000 holders of record of our Class A stock and 10 holders of record of our Class B stock, excluding holders in the security position listings held by nominees. DIVIDENDS 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 the cash dividend paid to holders of Class B stock cannot exceed 90% of the cash dividend simultaneously paid to holders of Class A stock. We have paid uninterrupted quarterly dividends on common stock each year since 1977 and expect to continue our cash dividend policy during fiscal 2010. In both fiscal 2009 and 2008, the annual dividend rate for Class A stock was $0.16 per share and the annual dividend rate for Class B stock was $0.144 per share. MARKET INFORMATION The Class A stock is traded on the New York Stock Exchange under the symbol “TSN.” No public trading market currently exists for the Class B stock. The high and low closing sales prices of our Class A stock for each quarter of fiscal 2009 and 2008 are represented in the table below. First Quarter Second Quarter Third Quarter Fourth Quarter $ Fiscal 2009 High 12.87 $ 9.93 13.88 13.23 Low 4.40 $ 7.59 9.33 10.95 Fiscal 2008 High 18.53 $ 16.95 19.44 17.07 Low 14.11 13.26 13.68 12.14 ISSUER PURCHASES OF EQUITY SECURITIES The table below provides information regarding our purchases of Class A stock during the periods indicated. Period June 28 to July 25, 2009 July 26 to Aug. 29, 2009 Aug. 30 to Oct. 3, 2009 Total Total Number of Shares Purchased 207,871 $ 172,107 248,339 (2) 628,317 $ Average Price Paid per Share 12.73 11.42 12.44 12.26 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs - - - - Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) 22,474,439 22,474,439 22,474,439 22,474,439 (1) On February 7, 2003, we announced our board of directors approved a plan to repurchase up to 25 million shares of Class A stock from time to time in open market or privately negotiated transactions. The plan has no fixed or scheduled termination date. (2) We purchased 628,317 shares during the period that were not made pursuant to our previously announced stock repurchase plan, but were purchased to fund certain company obligations under our equity compensation plans. These transactions included 541,476 shares purchased in open market transactions and 86,841 shares withheld to cover required tax withholdings on the vesting of restricted stock. 16 PERFORMANCE GRAPH The following graph shows a five-year comparison of cumulative total returns for our Class A stock, the S&P 500 Index and a group of peer companies described below. Tyson Foods, Inc. S&P 500 Index Peer Group Base Period Years Ending 10/2/04 100 100 100 10/1/05 110.73 112.25 105.63 9/30/06 98.44 124.37 116.75 9/29/07 111.59 144.81 125.17 9/27/08 80.14 112.99 124.24 10/3/09 79.15 105.18 113.10 The total cumulative return on investment (change in the year-end stock price plus reinvested dividends), which is based on the stock price or composite index at the end of fiscal 2004, is presented for each of the periods for the Company, the S&P 500 Index and a peer group. The peer group includes: Campbell Soup Company, ConAgra Foods, Inc., General Mills, Inc., H.J. Heinz Co., Hershey Foods Corp., Hormel Foods Corp., Kellogg Co., McCormick & Co., Pilgrim’s Pride Corporation, Sara Lee Corp. and Smithfield Foods, Inc. The graph compares the performance of the Company with that of the S&P 500 Index and peer group, with the investment weighted on market capitalization. 17 ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR FINANCIAL SUMMARY $ Summary of Operations Sales Goodwill impairment Operating income (loss) Net interest expense Income (loss) from continuing operations Income (loss) from discontinued operation Cumulative effect of change in accounting principle Net income (loss) Diluted earnings (loss) per share: Income (loss) from continuing operations Income (loss) from discontinued operation Cumulative effect of change in accounting principle Net income (loss) Dividends per share: Class A Class B Balance Sheet Data Total assets Total debt Shareholders' equity Other Key Financial Measures Depreciation and amortization Capital expenditures Return on invested capital Effective tax rate Total debt to capitalization Book value per share Closing stock price high Closing stock price low $ $ $ 2009 2008 in millions, except per share and ratio data 2005 2007 2006 $ $ 26,704 560 (215 ) 293 (536 ) (1 ) - (537 ) (1.44 ) - - (1.44 ) 0.160 0.144 $ 26,862 - 331 206 86 - - 86 0.24 - - 0.24 0.160 0.144 $ 25,729 - 613 224 268 - - 268 0.75 - - 0.75 0.160 0.144 24,589 - (50 ) 238 (174 ) (17 ) (5 ) (196 ) (0.51 ) (0.05 ) (0.02 ) (0.58 ) 0.160 0.144 $ 10,595 3,552 4,352 $ 10,850 2,896 5,014 $ 10,227 2,779 4,731 11,121 3,979 4,440 $ 24,801 - 655 227 314 58 - 372 0.88 0.16 - 1.04 0.160 0.144 10,504 2,995 4,671 $ 496 368 (2.7 )% (2.7 )% 44.9 % $ 11.56 13.88 4.40 $ 493 425 4.3% 44.6% 36.6% $ 13.28 19.44 12.14 $ 514 285 7.7 % 34.6 % 37.0 % $ 13.31 24.08 14.20 $ 517 531 (0.6 )% 35.0 % 47.3 % $ 12.51 18.70 12.92 501 571 8.6 % 28.7 % 39.1 % 13.19 19.47 14.12 Notes to Five-Year Financial Summary a. Fiscal 2009 was a 53-week year, while the other years presented were 52-week years. b. Fiscal 2009 included a $560 million non-tax deductible charge related to Beef segment goodwill impairment and a $15 million pretax charge related to closing a prepared foods plant. c. Fiscal 2008 included $76 million of pretax charges related to: restructuring a beef operation; closing a poultry plant; asset impairments for packaging equipment, intangible assets, unimproved real property and software; flood damage; and severance charges. Additionally, fiscal 2008 included an $18 million non-operating gain related to the sale of an investment. d. Fiscal 2007 included tax expense of $17 million related to a fixed asset tax cost correction, primarily related to a fixed asset system conversion in 1999. e. Fiscal 2006 included $63 million of pretax charges primarily related to closing one poultry plant, two beef plants and two prepared foods plants. f. Fiscal 2005 included $33 million of pretax charges related to a legal settlement involving our live swine operations, a non-recurring income tax net benefit of $15 million including benefit from the reversal of certain income tax reserves, partially offset by an income tax charge related to the one-time repatriation of foreign income under the American Jobs Creation Act and $14 million of pretax charges primarily related to closing two poultry plants and one prepared foods plant. Additionally, the effective tax rate was affected by the federal income tax effect of the Medicare Part D subsidy in fiscal 2005 of $55 million because this amount was not subject to federal income tax. g. Return on invested capital is calculated by dividing operating income (loss) by the sum of the average of beginning and ending total debt and shareholders’ equity. h. The 2006 total debt to capitalization ratio is not adjusted for the $750 million short-term investment we had on deposit at September 30, i. 2006. When adjusted for the $750 million short-term investment, the debt to capitalization ratio was 42.1%. In March 2009, we completed the sale of the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside). Lakeside was reported as a discontinued operation for all periods presented. 18 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DESCRIPTION OF THE COMPANY We are the world’s largest meat protein company and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the cost of live cattle and hogs, raw materials and grain; and operating efficiencies of our facilities. OVERVIEW ● Chicken Segment – Fiscal 2009 operating results were negatively impacted in the first half of fiscal 2009 by high grain costs and net losses on our commodity risk management activities related to grain and energy purchases. The second half of fiscal 2009 benefited as we had worked through the majority of our long grain positions, had more stable grain prices and made several operational improvements. Operating margins in the first half of fiscal 2009 were negative 7.2%, while the second half improved to positive 3.5%. ● Beef Segment – Fiscal 2009 operating loss was $346 million, which included a $560 million non-cash goodwill impairment. Excluding the goodwill impairment charge, operating results doubled as compared to fiscal 2008. We sustained our operational improvements made in fiscal 2008 and continue to have strong performance, which shows in our fiscal 2009 operating results. ● Beef Goodwill Impairment – We perform our annual goodwill impairment test on the first day of the fourth quarter. We estimate the fair value of our reporting units using a discounted cash flow analysis. This analysis requires us to make various judgmental estimates and assumptions about sales, operating margins, growth rates and discount factors. The recent disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase in our discount rate. The discount rate used in our annual goodwill impairment test increased to 10.1% in fiscal 2009 from 9.3% in fiscal 2008. There were no significant changes in the other key estimates and assumptions. The increased discount rate resulted in the non-cash partial impairment of our beef reporting unit's goodwill. The impairment has no impact on management’s estimates of the Beef segment’s long-term profitability or value. ● Pork Segment – While our operating income was down as compared to the record year we had in fiscal 2008, we still had solid operating earnings of $160 million, or 4.7%, with strong demand for our products and adequate supplies of hogs. ● Prepared Foods Segment – In fiscal 2009, we had improvements in our sales volumes, which led to operating margins of 4.7%. In addition, we made several operational improvements that allow us to run our plants more efficiently. ● Liquidity – In March 2009, we replaced our then existing $1.0 billion revolving credit facility set to expire in fiscal 2010 with a new $1.0 billion revolving credit facility which expires in March 2012. In addition, we issued $810 million of senior notes. In conjunction with these transactions, we paid down and terminated our accounts receivable securitization agreement. These transactions, as well as a significant decrease in our working capital needs, helped to strengthen our liquidity position. At October 3, 2009, we had nearly $1.2 billion in total cash (including restricted cash), as well as $733 million available for borrowing under our revolving credit facility. ● Acquisitions – ● ● In October 2008, we completed the acquisition of three vertically-integrated poultry companies in southern Brazil. In August 2009, we acquired 60% equity interest in a joint venture with a vertically-integrated poultry operation in eastern China. ● In March 2009, we completed the sale of the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside) to XL Foods Inc., a Canadian-owned beef processing business, and an entity affiliated with XL Foods. We received total consideration of $145 million, which included cash received at closing, collateralized notes receivable and XL Foods Preferred Stock. ● Our accounting cycle resulted in a 53-week year for fiscal 2009 and a 52-week year for both fiscal 2008 and 2007. 19 Net income (loss) Net income (loss) per diluted share $ in millions, except per share data 2007 268 0.75 2009 (537 ) $ (1.44 ) 2008 86 $ 0.24 2009 – Net loss includes the following items: ● $560 million non-cash, non-tax deductible charge related to a goodwill impairment in our Beef segment; and ● $15 million charge related to the closing of our Ponca City, Oklahoma, processed meats plant. 2008 – Net income includes the following items: ● $33 million of charges related to asset impairments, including packaging equipment, intangible assets, unimproved real property and software; ● $17 million charge related to restructuring our Emporia, Kansas, beef operation; ● $13 million charge related to closing our Wilkesboro, North Carolina, Cooked Products poultry plant; ● $13 million of charges related to flood damage at our Jefferson, Wisconsin, plant and severance charges related to the FAST initiative; and ● $18 million non-operating gain related to sale of an investment. 2007 – Net income includes the following item: ● $17 million of tax expense related to a fixed asset tax cost correction, primarily related to a fixed asset system conversion in 1999. FISCAL 2010 OUTLOOK Segments: Chicken – At the end of fiscal 2009, industry pullet placements were down 5-6% as a result of weaker demand. However, we expect demand will improve as we get further into fiscal 2010, and we expect the pricing environment to improve aided by cold storage inventories which are down relative to the levels we have seen over the last several years. We also currently expect to see grain costs down as compared to fiscal 2009. Additionally, we will continue to focus on making operational improvements to help maximize our margins. Beef – While we expect a reduction in cattle supplies of 1-2% in fiscal 2010, we do not expect a significant change in the fundamentals of our Beef business as it relates to fiscal 2009. We expect adequate supplies to operate our plants. We will manage our spreads by maximizing our revenues through product mix, minimizing our operating costs, while keeping our focus on quality and customer service. Pork – We expect to see a gradual decline in hog supplies through the first half of fiscal 2010, which will accelerate into the second half of fiscal 2010, resulting in industry slaughter slightly higher than 2007 (or roughly 4% less than fiscal 2009). However, we still believe we will have adequate supplies in the regions in which we operate. We will manage our spreads by continuing to control our costs and maximizing our revenues. Prepared Foods – Raw material costs will likely increase in fiscal 2010, but we have made some changes in our sales contracts that move us further away from fixed price contracts toward formula pricing, which will better enable us to absorb rising raw material costs. With the changes we have made with our sales contracts and the operational efficiencies we made during fiscal 2009, we expect strong results in fiscal 2010. 20 SUMMARY OF RESULTS – CONTINUING OPERATIONS Sales Sales Change in sales volume Change in average sales price Sales growth (decline) 2009 $ 26,704 $ 4.4 % (4.8 )% (0.6 )% in millions 2007 25,729 2008 26,862 $ (0.7 )% 5.1 % 4.4 % 2009 vs. 2008 – ● Average Sales Price - The decline in sales was largely due to a reduction in average sales prices, which accounted for a decrease of approximately $1.2 billion. While all segments had a reduction in average sales prices, the majority of the decrease was driven by the Beef and Pork segments. ● Sales Volume - Sales were positively impacted by an increase in sales volume, which accounted for an increase of approximately $1.0 billion. This was primarily due to an extra week in fiscal 2009, increased sales volume in our Chicken segment, which was driven by inventory reductions, and sales volume related to recent acquisitions. 2008 vs. 2007 – ● Average Sales Price - The improvement in sales was largely due to improved average sales prices, which accounted for an increase of approximately $1.5 billion. While all segments had improved average sales prices, the majority of the increase was driven by the Chicken and Beef segments. ● Sales Volume - Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of approximately $318 million. This was primarily due to a decrease in Beef volume and the sale of two poultry production facilities in fiscal 2007, partially offset by an increase in Pork volume. Cost of Sales Cost of sales Gross margin Cost of sales as a percentage of sales 2009 $ 25,501 1,203 $ $ $ 95.5 % 2008 25,616 1,246 $ $ 95.4 % in millions 2007 24,300 1,429 94.4 % 2009 vs. 2008 – ● Cost of sales decreased $115 million. Cost per pound contributed to a $1.1 billion decrease, offset partially by an increase in sales volume increasing cost of sales $987 million. ● Increase due to net losses of $257 million in fiscal 2009, as compared to net gains of $206 million in fiscal 2008, from our commodity risk management activities related to grain and energy purchases, which exclude the effect from related physical purchase transactions which impact current and future period operating results. ● Increase due to sales volumes, which included an extra week in fiscal 2009, as well as increased sales volume in our Chicken segment, which was driven by inventory reductions and sales volume related to recent acquisitions. ● Decrease in average domestic live cattle and hog costs of approximately $1.2 billion. 2008 vs. 2007 – ● Cost of sales increased $1.3 billion. Cost per pound contributed to a $1.6 billion increase, offset partially by a decrease in sales volume reducing cost of sales $323 million. ● Increase of over $1.0 billion in costs in the Chicken segment, which included increased input costs of approximately $900 million, including grain costs, other feed ingredient costs and cooking ingredients. Plant costs, including labor and logistics, increased by approximately $200 million. These increases were partially offset by increased net gains of $127 million from our commodity risk management activities related to grain purchases, which exclude the impact from related physical purchase transactions which impact current and future period operating results. ● Increase in average domestic live cattle costs of approximately $271 million. ● Increase in operating costs in the Beef and Pork segments of approximately $180 million. ● Decrease due to sales volume included lower Beef and Chicken sales volume, partially offset by higher Pork sales volume. ● Decrease due to net gains of $173 million from our commodity risk management activities related to forward futures contracts for live cattle and hog purchases as compared to the same period of fiscal 2007. These amounts exclude the impact from related physical purchase transactions, which impact future period operating results. ● Decrease in average live hog costs of approximately $117 million. 21 Selling, General and Administrative Selling, general and administrative As a percentage of sales $ 2009 841 $ 3.1 % 2008 879 $ 3.3 % in millions 2007 814 3.2 % 2009 vs. 2008 – ● Decrease of $33 million related to advertising and sales promotions. ● Decrease of $11 million related to the change in investment returns on company-owned life insurance, which is used to fund non-qualified retirement plans. ● Other reductions include decreases in our payroll-related expenses and professional fees. ● Increase of $20 million due to our newly acquired foreign operations. 2008 vs. 2007 – ● Increase of $29 million related to unfavorable investment returns on company-owned life insurance, which is used to fund non-qualified retirement plans. ● Increase of $16 million related to advertising and sales promotions. ● Increase of $14 million due to a favorable actuarial adjustment related to retiree healthcare plan recorded in fiscal 2007. ● Increase of $9 million due to a gain recorded in fiscal 2007 on the disposition of an aircraft. Goodwill Impairment 2009 560 $ $ in millions 2007 - 2008 - $ 2009 – We perform our annual goodwill impairment test on the first day of the fourth quarter. We estimate the fair value of our reporting units using a discounted cash flow analysis. This analysis requires us to make various judgmental estimates and assumptions about sales, operating margins, growth rates and discount factors. The recent disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase in our discount rate. The discount rate used in our annual goodwill impairment test increased to 10.1% in fiscal 2009 from 9.3% in fiscal 2008. There were no significant changes in the other key estimates and assumptions. The increased discount rate resulted in the non-cash partial impairment of our beef reporting unit's goodwill. The impairment has no impact on managements' estimates of the Beef segment’s long-term profitability or value. Other Charges 2009 17 $ 2008 36 $ in millions 2007 2 $ 2009 – Included $15 million charge related to closing our Ponca City, Oklahoma, processed meats plant. 2008 – ● Included $17 million charge related to restructuring our Emporia, Kansas, beef operation. ● Included $13 million charge related to closing our Wilkesboro, North Carolina, Cooked Products poultry plant. ● Included $6 million of severance charges related to the FAST initiative. Interest Income 2009 17 $ 2008 9 $ in millions 2007 8 $ 2009 – The increase is due to the increase in our cash balance. 22 Interest Expense Cash interest expense Non-cash interest expense Total Interest Expense 2009 273 37 310 $ $ 2008 214 1 215 $ $ in millions 2007 229 3 232 $ $ 2009 vs. 2008 – ● Cash interest expense includes interest expense related to the coupon rates for senior notes, commitment/letter of credit fees incurred on our revolving credit facilities, as well as other miscellaneous recurring cash payments. The increase was due primarily to higher average weekly indebtedness of approximately 13%. We also had an increase in the overall average borrowing rates. ● Non-cash interest expense primarily includes interest related to the amortization of debt issuance costs and discounts/premiums on note issuances. The increase was primarily due to debt issuance costs incurred on the new credit facility in fiscal 2009, the 10.5% Notes due March 2014 (2014 Notes) issued in fiscal 2009 and amendment fees paid in December 2008 on our then existing credit agreements. In addition, we had an increase due to the accretion of the debt discount on the 2014 Notes. Non-cash interest expense also includes an unrealized loss on our interest rate swap and the gain/loss on bond buybacks. 2008 vs. 2007 – The reduction in cash interest expense was due to a lower average borrowing rate, as well as lower average weekly indebtedness of approximately 2%. Other (Income) Expense, net 2009 18 $ 2008 (29 ) $ in millions 2007 (21 ) $ 2009 – Included $24 million in foreign currency exchange loss. 2008 – Included $18 million non-operating gain related to the sale of an investment. 2007 – Included $14 million in foreign currency exchange gain. Effective Tax Rate 2009 (2.7 )% 2008 44.6 % 2007 34.6 % Increased the effective tax rate 2.3% due to general business credits. Increased the effective tax rate 1.8% due to tax planning in foreign jurisdictions. 2009 – ● Reduced the effective tax rate 37.2% due to impairment of goodwill, which is not deductible for income tax purposes. ● Reduced the effective tax rate 3.9% due to increase in foreign valuation allowances. ● ● 2008 – ● ● ● Increased the effective tax rate 5.0% due to increase in state valuation allowances. Increased the effective tax rate 4.4% due to increase in unrecognized tax benefits. Increased the effective tax rate 3.8% due to net negative returns on company-owned life insurance policies, which is not deductible for federal income tax purposes. ● Reduced the effective tax rate 3.8% due to general business credits. 2007 – ● Increased the effective tax rate 4.2% due to a fixed asset tax cost correction, primarily related to a fixed asset system conversion in 1999. Increased the effective tax rate 3.2% due to the federal income tax effect of the reductions in estimated Medicare Part D subsidy in fiscal 2007, which is not deductible for federal income tax purposes. ● ● Reduced the effective tax rate 4.6% due to the reduction of income tax reserves based on favorable settlement of disputed matters. 23 SEGMENT RESULTS We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The following table is a summary of sales and operating income (loss), which is how we measure segment income (loss). Segment results exclude the results of our discontinued operation, Lakeside. Chicken Beef Pork Prepared Foods Other Total 2009 9,660 10,782 3,426 2,836 - 26,704 $ $ $ $ Sales 2008 8,900 11,664 3,587 2,711 - 26,862 $ $ Operating Income (Loss) in millions 2007 8,210 11,540 3,314 2,665 - 25,729 $ $ 2009 (157 ) (346 ) 160 133 (5 ) (215 ) $ $ 2008 (118) $ 106 280 63 - 331 $ 2007 325 51 145 92 - 613 Chicken Segment Results Sales Sales Volume Change Average Sales Price Change Operating Income (Loss) Operating Margin $ $ 2009 9,660 $ 2008 8,900 Change 2009 vs. 2008 760 $ 8.8 % (0.2 )% $ 2007 8,210 in millions Change 2008 vs. 2007 690 (0.4 )% 8.9 % $ (157 ) $ (1.6 )% (118 ) $ (1.3 )% (39 ) $ 325 $ 4.0 % (443 ) 2008 – Operating loss included $26 million of charges related to: plant closings; impairments of unimproved real property and software; and severance. 2007 – Operating income included a $10 million gain on the sale of two poultry plants and related support facilities. 2009 vs. 2008 – ● Sales Volume – The increase in sales volume for fiscal 2009 was due to the extra week in fiscal 2009, as well as inventory reductions and sales volume related to recent acquisitions. ● Average Sales Price – The inventory reductions and recent acquisitions lowered the average sales price, as most of the inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions was on lower priced products. ● Operating Loss – ● Operational Improvements – Operating results were positively impacted by operational improvements, which included: yield, mix and live production performance improvements; additional processing flexibility; and reduced interplant product movement. ● Derivative Activities – Operating results included the following amounts for commodity risk management activities related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions, which impact current and future period operating results. 2009 – Loss 2008 – Income Decline in operating results $(257) million 206 million $(463) million ● SG&A Expenses – We reduced our selling, general and administrative expenses during fiscal 2009 by approximately $37 million. ● Grain Costs – Operating results were positively impacted in fiscal 2009 by a decrease in grain costs of $28 million. 2008 vs. 2007 – ● Sales and Operating Income (Loss) – Sales increased as a result of an increase in average sales prices, partially offset by a decrease in sales volume due to the sale of two poultry plants in fiscal 2007. Operating results were adversely impacted by increased input costs of approximately $900 million, including grain costs, other feed ingredient costs and cooking ingredients. Plant costs, including labor and logistics, increased by approximately $200 million. This was partially offset by increased net gains of $127 million from our commodity trading risk management activities related to grain purchases, which exclude the impact from related physical purchase transactions which impact current and future period operating results. Operating results were also negatively impacted by increased selling, general and administrative expenses of $43 million. 24 Beef Segment Results Sales Sales Volume Change Average Sales Price Change 2009 $ 10,782 2008 $ 11,664 Change 2009 vs. 2008 (882 ) $ $ 0.5 % (8.0 )% 2007 11,540 in millions Change 2008 vs. 2007 124 (4.6)% 5.9% $ Operating Income (Loss) Operating Margin $ (346) $ (3.2)% 106 $ 0.9 % (452 ) $ 51 $ 0.4% 55 2009 – Operating loss included a $560 million non-cash charge related to the partial impairment of goodwill. 2008 – Operating income included $35 million of charges related to: plant restructuring, impairments of packaging equipment and intangible assets, and severance. 2009 vs. 2008 – ● Sales and Operating Income (Loss) – ● While our average sales prices have decreased as compared to fiscal 2008, we have still maintained a margin as the average live costs decreased in line with the drop in our average sales price. ● Derivative Activities – Operating results included the following amounts for commodity risk management activities related to forward futures contracts for live cattle. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results. 2009 – Income 2008 – Income Improvement in operating results $102 million 53 million $49 million 2008 vs. 2007 – ● Sales and Operating Income – Sales and operating income were impacted positively by higher average sales prices and improved operational efficiencies, partially offset by decreased sales volume due primarily to closure of the Emporia, Kansas, slaughter operation. Operating results were also negatively impacted by higher operating costs. Fiscal 2008 operating results include realized and unrealized net gains of $53 million from our commodity risk management activities related to forward futures contracts for live cattle, excluding the related impact from the physical sale and purchase transactions, compared to realized and unrealized net losses of $2 million recorded in fiscal 2007. Operating results were positively impacted by an increase in average sales prices exceeding the increase in average live prices. 25 Pork Segment Results Sales Sales Volume Change Average Sales Price Change Operating Income Operating Margin $ $ 2009 3,426 $ 2008 3,587 $ Change 2009 vs. 2008 (161 ) 1.7 % (6.1 )% $ 2007 3,314 $ 160 $ 4.7% 280 $ 7.8% (120 ) $ 145 $ 4.4 % in millions Change 2008 vs. 2007 273 6.1% 2.1% 135 2008 – Operating income included $5 million of charges related to impairment of packaging equipment and severance. 2009 vs. 2008 – ● Sales and Operating Income – ● Operating results for fiscal 2009 were strong, but down when compared to the record year we had in fiscal 2008. While sales volume was relatively flat versus fiscal 2008, results were negatively impacted by a decrease in our average sales prices, which were only partially offset by the decrease in average live costs. ● Derivative Activities – Operating results included the following amounts for commodity risk management activities related to forward futures contracts for live hogs. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results. 2009 – Income 2008 – Income Decline in operating results $55 million 95 million ($40) million 2008 vs. 2007 – ● Sales and Operating Income – Operating results were impacted positively by lower average live prices and strong export sales, which led to increased sales volume and a record year for operating margins. Fiscal 2008 operating results include realized and unrealized net gains of $95 million from our commodity risk management activities related to forward futures contracts for live hogs, excluding the related impact from the physical sale and purchase transactions, compared to realized and unrealized net gains of $3 million recorded in fiscal 2007. This was partially offset by higher operating costs, as well as lower average sales prices. Prepared Foods Segment Results Sales Sales Volume Change Average Sales Price Change Operating Income Operating Margin $ $ 2009 2,836 $ 2008 2,711 Change 2009 vs. 2008 125 $ 5.2 % (0.6 )% $ 2007 2,665 in millions Change 2008 vs. 2007 46 1.5 % 0.2 % $ 133 $ 4.7% 63 $ 2.3% 70 $ 92 $ 3.5 % (29 ) 2009 – Operating income included a $15 million charge related to closing our Ponca City, Oklahoma, processed meats plant. 2008 – Operating income included $10 million of charges related to flood damage, an intangible asset impairment and severance. 2007 – Operating income included $7 million of charges related to intangible asset impairments. 2009 vs. 2008 – ● Sales and Operating Income – Operating results improved due to an increase in sales volume, as well as a reduction in raw material costs that exceeded the decrease in our average sales prices. In addition, we made several operational improvements in fiscal 2009 that allow us to run our plants more efficiently. We began realizing the majority of these improvements in our operating results during the latter part of fiscal 2009. 2008 vs. 2007 – ● Sales and Operating Income – Operating results were negatively impacted by higher raw material costs, which include wheat, dairy and cooking ingredient costs, partially offset by lower pork costs. Results were positively impacted by an increase in average sales prices. 26 LIQUIDITY AND CAPITAL RESOURCES Our cash needs for working capital, capital expenditures and growth opportunities are expected to be met with current cash on hand, cash flows provided by operating activities, or short-term borrowings. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance through capital market transactions. The amount, nature and timing of any capital market transactions will depend on our operating performance and other circumstances, our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions. Cash Flows from Operating Activities Net income (loss) Non-cash items in net income (loss): Depreciation and amortization Deferred taxes Impairment of goodwill Impairment and write-down of assets Other, net Changes in working capital Net cash provided by operating activities 2009 (537 ) $ 496 (26 ) 560 32 68 432 1,025 $ $ $ in millions 2007 268 2008 86 $ 493 35 - 57 26 (409) 288 $ 514 5 - 14 (15 ) (108 ) 678 Changes in working capital: ● 2009 – Increased primarily due to a reduction in inventory and accounts receivable balances, partially offset by a reduction in accounts payable. The lower inventory balance was primarily due to the reduction of inventory volumes, as well as a decrease in raw material costs. ● 2008 – Decreased primarily due to higher inventory and accounts receivable balances, partially offset by a higher accounts payable balance. Higher inventory balances were driven by an increase in raw material costs and inventory volume. ● 2007 – Decreased primarily due to higher inventory and accounts receivable balances, partially offset by a higher accounts payable balance. Cash Flows from Investing Activities Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale (purchase) of marketable securities, net Proceeds from sale of short-term investment Proceeds from sale of investments Acquisitions, net of cash acquired Proceeds from sale of discontinued operation Change in restricted cash to be used for investing activities Other, net Net cash provided by (used for) investing activities 2009 (368 ) $ 9 19 - 15 (93 ) 75 (43 ) (41 ) (427 ) $ $ $ in millions 2007 (285) 76 16 770 - - - - 2 579 2008 (425) $ 26 (3) - 22 (17) - - (2) (399) $ ● Additions to property, plant and equipment include acquiring new equipment and upgrading our facilities to maintain competitive standing and position us for future opportunities. In fiscal 2009, our capital spending included spending for: improvements made in our prepared foods operations to increase efficiences; Dynamic Fuels LLC’s (Dynamic Fuels) first facility; and foreign operations. In fiscal 2008, our capital spending included equipment updates in our chicken plants, as well as packaging equipment upgrades in our Fresh Meats case-ready facilities. In fiscal 2007, we focused on reducing our capital spending. ● Capital spending for fiscal 2010 is expected to be approximately $600 million, and includes: ● approximately $400 million on current core business capital spending; ● approximately $150 million on foreign operations, which includes post-acquisition capital spending related to our Brazil and China acquisitions; and ● approximately $50 million related to Dynamic Fuels, most of which relates to the completion of Dynamic Fuels’ first facility. Construction of the first facility is expected to continue through early 2010, with production targeted soon thereafter. At October 3, 2009, we had $43 million in restricted cash available for spending on this facility. 27  ● Acquisitions – In October 2008, we acquired three vertically integrated poultry companies in southern Brazil. The aggregate purchase price was $67 million, of which $4 million of mandatory deferred payments remains to be paid through fiscal 2011. In addition, we have $15 million of contingent purchase price based on production volumes anticipated to be paid through fiscal 2011. The joint ventures in China called Shandong Tyson Xinchang Foods received the necessary government approvals during fiscal 2009. The aggregate purchase price for our 60% equity interest was $21 million, which excludes $93 million of cash transferred to the joint venture for future capital needs. ● Proceeds from sale of assets in fiscal 2007 include $40 million received related to the sale of two poultry plants and related support facilities. ● Short-term investment was purchased in fiscal 2006 with proceeds from $1.0 billion of senior notes maturing on April 1, 2016 (2016 Notes). The short-term investment was held in an interest bearing account with a trustee. In fiscal 2007, we used proceeds from sale of the short-term investment to repay our outstanding $750 million 7.25% Notes due October 1, 2006. ● Change in restricted cash – In October 2008, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made available by the federal government to the regions affected by Hurricanes Katrina and Rita in 2005. The cash received from these bonds is restricted and can only be used towards the construction of the Dynamic Fuels’ facility. Cash Flows from Financing Activities Net borrowings (payments) on revolving credit facilities Payments on debt Net proceeds from borrowings Net proceeds from Class A stock offering Convertible note hedge transactions Warrant transactions Purchases of treasury shares Dividends Stock options exercised Change in negative book cash balances Change in restricted cash to be used for financing activities Debt issuance costs Other, net Net cash provided by (used for) financing activities 2009 15 $ (380 ) 852 - - - (19 ) (60 ) 1 (65 ) (140 ) (59 ) 5 150 $ $ $ in millions 2007 53 (1,263 ) - - - - (61 ) (56 ) 74 9 - - (8 ) (1,252 ) 2008 (213) $ (147) 449 274 (94) 44 (30) (56) 9 67 - - 18 321 $ ● Net borrowings (payments) on revolving credit facilities primarily include activity related to the accounts receivable securitization facility. With the entry into the new revolving credit facility and issuance of the 2014 Notes in March 2009, we repaid all outstanding borrowings under our accounts receivable securitization facility and terminated the facility. ● Payments on debt include – ● In fiscal 2009, we bought back $293 million of notes, which included: $161 million 8.25% Notes due October 2011 (2011 Notes); $94 million 7.95% Notes due February 2010 (2010 Notes); and $38 million 2016 Notes. ● In fiscal 2008, we bought back $40 million 2016 Notes and repaid the remaining $25 million outstanding Lakeside term loan. ● In fiscal 2007, we used proceeds from sale of the short-term investment to repay our outstanding $750 million 7.25% Notes due October 1, 2006. In addition, we used cash from operations to reduce the amount outstanding under the Lakeside term loan by $320 million, repay the outstanding $125 million 7.45% Notes due June 1, 2007, and reduce other borrowings. ● Net proceeds from borrowings include – ● In fiscal 2009, we issued $810 million of 2014 Notes. After the original issue discount of $59 million, based on an issue price of 92.756% of face value, we received net proceeds of $751 million. We used the net proceeds towards the repayment of our borrowings under our accounts receivable securitization facility and for other general corporate purposes. ● In fiscal 2009, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made available by the Federal government to the regions affected by Hurricane Katrina and Rita in 2005. These floating rate bonds are due October 1, 2033. ● In fiscal 2008, we issued $458 million 3.25% Convertible Senior Notes due October 15, 2013. Net proceeds were used for the net cost of the related Convertible Note Hedge and Warrant Transactions, toward the repayment of our borrowings under the accounts receivable securitization facility, and for other general corporate purposes. 28  ● In fiscal 2008, we issued 22.4 million shares of Class A stock in a public offering. Net proceeds were used toward repayment of our borrowings under the accounts receivable securitization facility and for other general corporate purposes. ● In conjunction with the entry into our new credit facility and the issuance of the 2014 Notes during fiscal 2009, we paid $48 million for debt issuance costs. ● We have $140 million of 2010 Notes outstanding. We originally placed $234 million of the net proceeds from the 2014 Notes in a blocked cash collateral account to be used for the payment, prepayment, repurchase or defeasance of the 2010 Notes. At October 3, 2009, we had $140 million remaining in the blocked cash collateral account. ● At October 3, 2009, we had $839 million outstanding 2011 Notes. We plan presently to use current cash on hand and cash flows from operations for payment on the 2011 Notes. Liquidity in millions Cash and cash equivalents Revolving credit facility Total liquidity Commitments Expiration Date Facility Amount March 2012 $ 1,000 $ Outstanding Letters of Credit under Revolving Credit Facility (no draw downs) Amount Borrowed $ - $ $ Amount Available 1,004 733 1,737 267 $ ● The revolving credit facility supports our short-term funding needs and letters of credit. Letters of credit are issued primarily in support of workers’ compensation insurance programs, derivative activities and Dynamic Fuels’ Gulf Opportunity Zone tax-exempt bonds. ● We completed the sale of Lakeside in March 2009. Inclusive of the working capital of Lakeside initially retained by us at closing, as well as consideration received from XL Foods, we expect the following future cash flows based on the October 3, 2009, currency exchange rate: approximately $10 million in fiscal 2010; $45 million in notes receivable, plus interest, to be paid by March 2011 by XL Foods; and $24 million of XL Foods preferred stock redeemable through March 2014. The discontinuance of Lakeside’s operation will not have a material effect on our future operating cash flows. ● Our current ratio at October 3, 2009, and September 27, 2008, was 2.20 to 1 and 2.07 to 1, respectively. Deterioration of Credit and Capital Markets Credit market conditions deteriorated rapidly during our fourth quarter of fiscal 2008 and continued into fiscal 2009. Several major banks and financial institutions failed or were forced to seek assistance through distressed sales or emergency government measures. While not all-inclusive, the following summarizes some of the impacts to our business: Credit Facility Cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service and capital expenditures. We also have a revolving credit facility, with a committed capacity of $1.0 billion, to provide additional liquidity for working capital needs, letters of credit, and as a source of financing for growth opportunities. As of October 3, 2009, we had outstanding letters of credit under our revolving credit agreement totaling $267 million, none of which were drawn upon, which left $733 million available for borrowing. Our revolving credit facility is funded by a syndicate of 19 banks, with commitments ranging from $6 million to $115 million per bank. If any of the banks in the syndicate were unable to perform on their commitments to fund the facility, our liquidity could be impaired, which could reduce our ability to fund working capital needs, support letters of credit or finance our growth opportunities. Customers/Suppliers The financial condition of some of our customers and suppliers could also be impaired by current market conditions. Although we have not experienced a material increase in customer bad debts or non-performance by suppliers, current market conditions increase the probability we could experience losses from customer or supplier defaults. Should current credit and capital market conditions result in a prolonged economic downturn in the United States and abroad, demand for protein products could be reduced, which could result in a reduction of sales, operating income and cash flows. In addition, we rely on livestock producers throughout the country to supply our live cattle and hogs. If these producers are adversely impacted by the current economic conditions and go out of business, our livestock supply for processing could be significantly impacted. Additionally, 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 29 agreement. Our maximum obligation associated with these programs is limited to the fair value of each participating livestock supplier’s net tangible assets. Although we believe the aggregate maximum obligation under the program is unlikely to ever be reached, the potential maximum obligation as of October 3, 2009, is approximately $250 million. The total receivables under these programs were $72 million and $7 million at October 3, 2009 and September 27, 2008, respectively. Even though these programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with these programs by obtaining security interests in livestock suppliers' assets. After analyzing residual credit risks and general market conditions, we have recorded an allowance for these programs' estimated uncollectible receivables of $20 million and $2 million at October 3, 2009, and September 27, 2008, respectively. Investments The value of our investments in equity and debt securities, including our marketable debt securities, company-owned life insurance and pension and other postretirement plan assets, has been impacted by the market volatility over the past year. These instruments were recorded at fair value as of October 3, 2009. During fiscal 2009, we had a reduction in fair value resulting in the recognition through earnings of $11 million. We currently oversee two domestic and one foreign subsidiary non-contributory qualified defined benefit pension plans. All three pension plans are frozen to new participants and no additional benefits will accrue for participants. Based on our 2009 actuarial valuation, we anticipate contributions of $2 million to these plans for fiscal 2010. We also have one domestic unfunded defined benefit plan. Based on our 2009 actuarial valuation, we anticipate contributions of $2 million to this plan for fiscal 2010. Financial Instruments As part of our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to reduce our exposure to various market risks related to commodity purchases. Similar to the capital markets, the commodities markets have been volatile over the past year. Grain and some energy prices reached an all-time high during our fourth quarter of fiscal 2008 before falling sharply. While the reduction in grain and energy prices benefit us long-term, we recorded losses related to these financial instruments in fiscal 2009 of $257 million. We have recently implemented policies to reduce our earnings volatility associated with mark-to-market derivative activities, including more use of normal physical purchases and normal physical sales which are not required to be marked to market. Insurance We rely on insurers as a protection against liability claims, property damage and various other risks. Our primary insurers maintain an A.M. Best Financial Strength Rating of A or better. Nevertheless, we continue to monitor this situation as insurers have been and are expected to continue to be impacted by the current capital market environment. Capitalization Senior notes GO Zone tax-exempt bonds Other indebtedness Total Debt Total Equity Debt to Capitalization Ratio $ $ $ $ in millions 2008 2,858 - 38 2,896 $ 2009 3,323 100 129 3,552 4,352 $ 5,014 44.9% 36.6 % ● ● In fiscal 2009, we issued $810 million of 2014 Notes. The 2014 Notes had an original issue discount of $59 million, based on an issue price of 92.756% of face value. We used the net proceeds towards the repayment of our borrowings under our accounts receivable securitization facility and for other general corporate purposes. In addition, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made available by the Federal government to the regions affected by Hurricane Katrina and Rita in 2005. These floating rate bonds are due October 1, 2033. In fiscal 2009, we bought back $293 million of notes, which included: $161 million 2011 Notes; $94 million 2010 Notes; and $38 million 2016 Notes. ● At October 3, 2009, we had a total of approximately $1.2 billion of cash and cash equivalents and restricted cash. 30 Credit Ratings 2016 Notes On September 4, 2008, Standard & Poor’s (S&P) downgraded the credit rating from “BBB-” to “BB.” This downgrade increased the interest rate on the 2016 Notes from 6.85% to 7.35%, effective beginning with the six-month interest payment due October 1, 2008. On November 13, 2008, Moody’s Investors Services, Inc. (Moody’s) downgraded the credit rating from “Ba1” to “Ba3.” This downgrade increased the interest rate on the 2016 Notes from 7.35% to 7.85%, effective beginning with the six-month interest payment due April 1, 2009. S&P currently rates the 2016 Notes “BB.” Moody’s currently rates this debt “Ba3.” A further one-notch downgrade by either ratings agency would increase the interest rates on the 2016 Notes by an additional 0.25%. Revolving Credit Facility S&P’s corporate credit rating for Tyson Foods, Inc. is “BB.” Moody’s corporate credit rating for Tyson Foods, Inc. is “Ba3.” If S&P were to downgrade our corporate credit rating to “B+” or lower or Moody’s were to downgrade our corporate credit rating to “B1” or lower, our letter of credit fees would increase by an additional 0.25%. 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; pay dividends or make other payments in respect to our capital stock; amend material documents; change the nature of our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of 15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio. Our 2014 Notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: incur additional debt and issue preferred stock; make certain investments and restricted payments; create liens; create restrictions on distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into transactions with affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain sale/leaseback transactions. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements material to our financial position or results of operations. The off-balance sheet arrangements we have are guarantees of debt of outside third parties, including a lease and grower loans, and residual value guarantees covering certain operating leases for various types of equipment. See Note 10, “Commitments” of the Notes to Consolidated Financial Statements for further discussion. CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations as of October 3, 2009: Debt and capital lease obligations: Principal payments (1) Interest payments (2) Guarantees (3) Operating lease obligations (4) Purchase obligations (5) Capital expenditures (6) Other long-term liabilities (7) Total contractual commitments in millions Payments Due by Period 2010 2011-2012 2013-2014 2015 and thereafter $ $ 219 $ 289 22 79 423 267 13 1,312 $ 866 $ 444 33 120 55 11 5 1,534 $ 1,280 $ 327 43 55 19 - 5 1,729 $ 1,241 $ 220 16 22 22 - 36 1,557 $ Total 3,606 1,280 114 276 519 278 59 6,132 (1) (2) In the event of a default on payment, acceleration of the principal payments could occur. Interest payments include interest on all outstanding debt. Payments are estimated for variable rate and variable term debt based on effective rates at October 3, 2009, and expected payment dates. (3) Amounts include guarantees of debt of outside third parties, which consist of a lease and grower loans, all of which are substantially collateralized by the underlying assets, as well as residual value guarantees covering certain operating leases for various types of equipment. The amounts included are the maximum potential amount of future payments. 31 (4) Amounts include minimum lease payments under lease agreements. (5) Amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The purchase obligations amount included items, such as future purchase commitments for grains, livestock contracts and fixed grower fees that provide terms that meet the above criteria. We have excluded future purchase commitments for contracts that do not meet these criteria. Purchase orders have not been included in the table, as a purchase order is an authorization to purchase and may not be considered an enforceable and legally binding contract. Contracts for goods or services that contain termination clauses without penalty have also been excluded. (6) Amounts include estimated amounts to complete buildings and equipment under construction as of October 3, 2009. (7) Amounts include items that meet the definition of a purchase obligation and are recorded in the Consolidated Balance Sheets. In addition to the amounts shown above in the table, we have unrecognized tax benefits of $233 million and related interest and penalties of $71 million at October 3, 2009, recorded as liabilities. During fiscal 2010, tax audit resolutions could potentially reduce these amounts by approximately $30 million, either because tax positions are sustained on audit or because we agree to their disallowance. The maximum contractual obligation associated with our cash flow assistance programs at October 3, 2009, based on the estimated fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $250 million, or approximately $178 million remaining maximum commitment after netting the cash flow assistance related receivables. The minority partner in our Shandong Tyson Xinchang Foods joint ventures in China has the right to exercise put options to require us to purchase their entire 40% equity interest at a price equal to the minority partner’s contributed capital plus (minus) its pro-rata share of the joint venture's accumulated and undistributed net earnings (losses). The put options are exercisable for a five-year term commencing the later of (i) April 2011 or (ii) the date upon which a shareholder of the minority partner is no longer general manager of the joint venture operations. At October 3, 2009, the put options, if they had been exercisable, would have resulted in a purchase price of approximately $74 million for the minority partner’s entire equity interest. RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS Refer to the discussion under Part II, Item 8, Notes to Consolidated Financial Statements, Note 1: Business and Summary of Significant Accounting Policies for recently issued accounting pronouncements and Note 2: Change in Accounting Principles for recently adopted accounting pronouncements. 32 CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of certain accounting estimates we consider critical. Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions Our contingent liabilities contain uncertainties because the eventual outcome will result from future events, and determination of current reserves requires estimates and judgments related to future changes in facts and circumstances, differing interpretations of the law and assessments of the amount of damages, and the effectiveness of strategies or other factors beyond our control. Contingent liabilities We are subject to lawsuits, investigations and other claims related to wage and hour/labor, environmental, product, taxing authorities and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves and disclosures required, if any, for these contingencies are made after considerable analysis of each individual issue. We accrue for contingent liabilities when an assessment of the risk of loss is probable and can be reasonably estimated. We disclose contingent liabilities when the risk of loss is reasonably possible or probable. We have not made any material changes in the accounting methodology used to establish our contingent liabilities during the past three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to calculate our contingent liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material. Marketing and advertising costs We incur advertising, retailer incentive and consumer incentive costs to promote products through marketing programs. These programs include cooperative advertising, volume discounts, in-store display incentives, coupons and other programs. Marketing and advertising costs are charged in the period incurred. We accrue costs based on the estimated performance, historical utilization and redemption of each program. Cash consideration given to customers is considered a reduction in the price of our products, thus recorded as a reduction to sales. The remainder of marketing and advertising costs is recorded as a selling, general and administrative expense. Recognition of the costs related to these programs contains uncertainties due to judgment required in estimating the potential performance and redemption of each program. We have not made any material changes in the accounting methodology used to establish our marketing accruals during the past three fiscal years. These estimates are based on many factors, including experience of similar promotional programs. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to calculate our marketing accruals. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material. A 10% change in our marketing accruals at October 3, 2009, would impact pretax earnings by approximately $9 million. 33 Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions Accrued self insurance We are self insured for certain losses related to health and welfare, workers’ compensation, auto liability and general liability claims. Our self-insurance liability contains uncertainties due to assumptions required and judgment used. We have not made any material changes in the accounting methodology used to establish our self-insurance liability during the past three fiscal years. Costs to settle our obligations, including legal and healthcare costs, could increase or decrease causing estimates of our self-insurance liability to change. Incident rates, including frequency and severity, could increase or decrease causing estimates in our self-insurance liability to change. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to calculate our self-insurance liability. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material. We use an independent third-party actuary to assist in determining our self-insurance liability. We and the actuary consider a number of factors when estimating our self-insurance liability, including claims experience, demographic factors, severity factors and other actuarial assumptions. We periodically review our estimates and assumptions with our third-party actuary to assist us in determining the adequacy of our self-insurance liability. Our policy is to maintain an accrual within the central to high point of the actuarial range. A 10% increase in the actuarial range at October 3, 2009, would result in an increase in the amount we recorded for our self-insurance liability of approximately $15 million. A 10% decrease in the actuarial range at October 3, 2009, would result in a reduction in the amount we recorded for our self-insurance liability of approximately $3 million. We have not made any material changes in the accounting methodology used to evaluate the impairment of long-lived assets during the last three fiscal years. We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to calculate impairments of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material. Impairment of long-lived assets Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition. Our impairment analysis contains uncertainties due to judgment in assumptions and estimates surrounding undiscounted future cash flows of the long-lived asset, including forecasting useful lives of assets and selecting the discount rate that reflects the risk inherent in future cash flows to determine fair value. When evaluating long-lived assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. The impairment is the excess of the carrying value over the fair value of the long-lived asset. We recorded impairment charges related to long-lived assets of $25 million, $52 million and $6 million, respectively, in fiscal years 2009, 2008 and 2007. 34 Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions Impairment of goodwill and other intangible assets Goodwill impairment is determined using a two-step process. The first step 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 fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. We estimate the fair value of our reporting units, generally our operating segments, using various valuation techniques, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions about sales, operating margins, growth rates and discount rates. Assumptions about sales, operating margins and growth rates are based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. Assumptions are also made for varying perpetual growth rates for periods beyond the long-term business plan period. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination (i.e., the fair value of the reporting unit is allocated to all the assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit). For other intangible assets, if the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We have elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill and other intangible assets. However, we could be required to evaluate the recoverability of goodwill and other intangible assets prior to the required annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of the business or a sustained decline in market capitalization. While estimating the fair value of our Chicken and Beef reporting units, we assumed operating margins in future years in excess of the annualized margins realized in the most current year. The fair value estimates for these reporting units assume normalized operating margin assumptions and improved operating efficiencies based on long-term expectations and margins historically realized in the beef and chicken industries. We estimate the fair value of our Chicken reporting unit would be in excess of its carrying amount, including goodwill, by sustaining long-term operating margins of approximately 5.0%. After the $560 million non-cash impairment recognized in fiscal 2009, we estimate the fair value of our Beef reporting unit would be in excess of its carrying amount, including goodwill, by sustaining long-term operating margins of approximately 2.0%. Other intangible asset fair values have been calculated for trademarks using a royalty rate method. Assumptions about royalty rates are based on the rates at which similar brands and trademarks are licensed in the marketplace. Our impairment analysis contains uncertainties due to uncontrollable events that could positively or negatively impact the anticipated future economic and operating conditions. 35 We have not made any material changes in the accounting methodology used to evaluate impairment of goodwill and other intangible assets during the last three years. The recent disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase in our discount rate. The discount rate used in our annual goodwill impairment test increased to 10.1% in fiscal 2009 from 9.3% in fiscal 2008. There were no significant changes in the other key estimates and assumptions. As a result of the significantly increased discount rate, we failed the first step of the fiscal 2009 goodwill impairment analysis for our Beef reporting unit and performed the second step. The second step resulted in a $560 million non-cash partial impairment of the Beef reporting unit's goodwill. No other reporting units failed the first step of the annual goodwill impairment analysis in fiscal 2009, 2008 and 2007 and therefore, the second step was not necessary. However, a 10% decline in fair value of our Chicken reporting unit would have caused the carrying value for this reporting unit to be in excess of fair value which would require the second step to be performed. The second step could have resulted in an impairment loss for the Chicken reporting unit's goodwill. After the $560 million non-cash impairment recognized in fiscal 2009, a 17% decline in fair value of our Beef reporting unit would have caused the adjusted carrying value for this reporting unit to be in excess of fair 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, and our credit ratings. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units and other intangible assets, 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, we may be required to perform the second step which could result in additional material impairments of our goodwill. Our fiscal 2009 other intangible asset impairment analysis did not result in a material impairment charge. A hypothetical 10% decrease in the fair value of intangible assets would not result in a material impairment. Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions Income taxes We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we earn income. Federal income tax includes an estimate for taxes on earnings of foreign subsidiaries expected to be remitted to the United States and be taxable, but not for earnings considered indefinitely invested in the foreign subsidiary. Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded when it is likely a tax benefit will not be realized for a deferred tax asset. We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due. Changes in tax laws and rates could We do not believe there is a reasonable affect recorded deferred tax assets and liabilities in the future. Changes in projected future earnings could affect the recorded valuation allowances in the future. Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax regulations across the tax jurisdictions where we operate. Our analysis of unrecognized tax benefits contains uncertainties based on judgment used to apply the more likely than not recognition and measurement thresholds. likelihood there will be a material change in the tax related balances or valuation allowances. However, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which unrecognized tax benefits have been established, or are required to pay amounts in excess of our recorded unrecognized tax benefits, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the period of resolution. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK Market risk relating to our operations results primarily from changes in commodity prices, interest rates and foreign exchange rates, as well as credit risk concentrations. To address certain of these risks, we enter into various derivative transactions as described below. If a derivative instrument is accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument either will be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value is recognized immediately. Additionally, we hold certain positions, primarily in grain and livestock futures that either do not meet the criteria for hedge accounting or are not designated as hedges. With the exception of normal purchases and normal sales that are expected to result in physical delivery, we record these positions at fair value, and the unrealized gains and losses are reported in earnings at each reporting date. Changes in market value of derivatives used in our risk management activities relating to forward sales contracts are recorded in sales. Changes in market value of derivatives used in our risk management activities surrounding inventories on hand or anticipated purchases of inventories are recorded in cost of sales. The sensitivity analyses presented below are the measures of potential losses of fair value resulting from hypothetical changes in market prices related to commodities. Sensitivity analyses do not consider the actions we may take to mitigate our exposure to changes, nor do they consider the effects such hypothetical adverse changes may have on overall economic activity. Actual changes in market prices may differ from hypothetical changes. 36 Commodities Risk: We purchase certain commodities, such as grains and livestock, in the course of normal operations. As part of our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to reduce the effect of changing prices and as a mechanism to procure the underlying commodity. However, as the commodities underlying our derivative financial instruments can experience significant price fluctuations, any requirement to mark-to-market the positions that have not been designated or do not qualify as hedges could result in volatility in our results of operations. Contract terms of a hedge instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts designated and highly effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting. The following table presents a sensitivity analysis resulting from a hypothetical change of 10% in market prices as of October 3, 2009, and September 27, 2008, on the fair value of open positions. The fair value of such positions is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures prices. The market risk exposure analysis includes hedge and non-hedge derivative financial instruments. Effect of 10% change in fair value Livestock: Cattle Hogs Grain $ 2009 in millions 2008 20 $ 12 1 78 31 88 Interest Rate Risk: At October 3, 2009, we had fixed-rate debt of $3.3 billion with a weighted average interest rate of 7.9%. We have exposure to changes in interest rates on this fixed-rate debt. Market risk for fixed-rate debt is estimated as the potential increase in fair value, resulting from a hypothetical 10% decrease in interest rates. A hypothetical 10% decrease in interest rates would have increased the fair value of our fixed-rate debt by approximately $32 million at October 3, 2009, and $45 million at September 27, 2008. The fair values of our debt were estimated based on quoted market prices and/or published interest rates. At October 3, 2009, we had variable rate debt of $218 million with a weighted average interest rate of 4.3%. A hypothetical 10% increase in interest rates effective at October 3, 2009, and September 27, 2008, would have a minimal effect on interest expense. Foreign Currency Risk: We have foreign exchange gain/loss exposure from fluctuations in foreign currency exchange rates primarily as a result of certain receivable and payable balances. The primary currency exchanges we have exposure to are the Canadian dollar, the Chinese renminbi, the Mexican peso, the European euro, the British pound sterling and the Brazilian real. We periodically enter into foreign exchange forward contracts to hedge some portion of our foreign currency exposure. A hypothetical 10% change in foreign exchange rates effective at October 3, 2009, and September 27, 2008, related to the foreign exchange forward contracts would have a $15 million and $11 million, respectively, impact on pretax income. In the future, we may enter into more foreign exchange forward contracts as a result of our international growth strategy. Concentrations of Credit Risk: Our financial instruments exposed to concentrations of credit risk consist primarily of cash equivalents and trade receivables. Our cash equivalents are in high quality securities placed with major banks and financial institutions. Concentrations of credit risk with respect to receivables are limited due to our large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. At October 3, 2009, and September 27, 2008, 13.0% and 12.2%, respectively, of our net accounts receivable balance was due from Wal-Mart Stores, Inc. No other single customer or customer group represents greater than 10% of net accounts receivable. 37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF INCOME Sales Cost of Sales Operating Expenses: Selling, general and administrative Goodwill impairment Other charges Operating Income (Loss) Other (Income) Expense: Interest income Interest expense Other, net Income (Loss) from Continuing Operations before Income Taxes and Minority Interest Income Tax Expense Income (Loss) from Continuing Operations before Minority Interest Minority Interest Income (Loss) from Continuing Operations Loss from Discontinued Operation, Net of Tax $11, $0, $0 Net Income (Loss) Weighted Average Shares Outstanding: Class A Basic Class B Basic Diluted Earnings (Loss) Per Share from Continuing Operations: Class A Basic Class B Basic Diluted Loss Per Share from Discontinued Operation: Class A Basic Class B Basic Diluted Net Earnings (Loss) per Share: Class A Basic Class B Basic Diluted See accompanying notes. Three years ended October 3, 2009 in millions, except per share data $ 2009 26,704 $ 25,501 1,203 2008 26,862 $ 25,616 1,246 2007 25,729 24,300 1,429 841 560 17 (215 ) (17 ) 310 18 311 (526 ) 14 (540 ) (4 ) (536 ) (1 ) (537 ) $ 302 70 372 (1.47 ) $ (1.32 ) $ (1.44 ) $ - $ - $ - $ 879 - 36 331 (9 ) 215 (29 ) 177 154 68 86 - 86 - 86 $ 281 70 356 0.25 $ 0.22 $ 0.24 $ - $ - $ - $ (1.47 ) $ (1.32 ) $ (1.44 ) $ 0.25 $ 0.22 $ 0.24 $ 814 - 2 613 (8 ) 232 (21 ) 203 410 142 268 - 268 - 268 273 75 355 0.79 0.70 0.75 - - - 0.79 0.70 0.75 $ $ $ $ $ $ $ $ $ $ 38 CONSOLIDATED BALANCE SHEETS October 3, 2009, and September 27, 2008 in millions, except share and per share data 2009 2008 Assets Current Assets: Cash and cash equivalents Restricted cash Accounts receivable, net Inventories, net Other current assets Assets of discontinued operation held for sale Total Current Assets Restricted Cash Net Property, Plant and Equipment Goodwill Intangible Assets Other Assets Total Assets Liabilities and Shareholders’ Equity Current Liabilities: Current debt Trade accounts payable Other current liabilities Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Minority Interest Shareholders’ Equity: Common stock ($0.10 par value): Class A-authorized 900 million shares: issued 322 million shares in both 2009 and 2008 Convertible Class B-authorized 900 million shares: issued 70 million shares in both 2009 and 2008 Capital in excess of par value Retained earnings Accumulated other comprehensive income Less treasury stock, at cost- 16 million shares in 2009 and 15 million shares in 2008 Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity See accompanying notes. $ $ $ 1,004 $ 140 1,100 2,009 122 - 4,375 43 3,576 1,917 187 497 10,595 $ 219 $ 1,013 761 1,993 3,333 280 539 98 250 - 1,271 2,538 143 159 4,361 - 3,519 2,511 128 331 10,850 8 1,217 878 2,103 2,888 291 525 29 32 32 7 2,180 2,409 (34 ) 4,594 7 2,161 3,006 41 5,247 242 4,352 10,595 $ 233 5,014 10,850 $ 39 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Three years ended October 3, 2009 in millions October 3, 2009 September 27, 2008 September 29, 2007 Shares Amount Shares Amount Shares Amount Class A Common Stock: Balance at beginning of year Issuance of Class A Common Stock Conversion from Class B shares Balance at end of year Class B Common Stock: Balance at beginning of year Conversion to Class A shares Balance at end of year Capital in Excess of Par Value: Balance at beginning of year Issuance of Class A Common Stock Convertible note hedge transactions Warrant transactions Stock options exercised Restricted shares issued Restricted shares canceled Restricted share amortization Reclassification and other Balance at end of year Retained Earnings: Balance at beginning of year Cumulative effect for adoption of new accounting guidance (1) Net income (loss) Dividends paid Balance at end of year Accumulated Other Comprehensive Income (Loss), Net of Tax: Balance at beginning of year Net hedging (gain) loss recognized in earnings Net hedging unrealized gain (loss) Loss on investments reclassified to other income Unrealized gain (loss) on investments Currency translation adjustment gain reclassified to loss from discontinued operation Currency translation adjustment Net change in postretirement liabilities Net change in pension liability, prior to adoption of new accounting guidance (1) Adjustment to initially apply new accounting guidance (1) Balance at end of year Treasury Stock: Balance at beginning of year Purchase of treasury shares Stock options exercised Restricted shares issued Restricted shares canceled Balance at end of year 322 $ - - 322 32 - - 32 300 $ 22 - 322 30 2 - 32 284 $ - 16 300 70 - 70 7 - 7 70 - 70 7 - 7 86 (16 ) 70 2,161 - - - (5 ) (12 ) 2 19 15 2,180 3,006 - (537 ) (60 ) 2,409 41 36 (30 ) 3 7 (41 ) (40 ) (10 ) - - (34 ) 1,877 272 (58 ) 44 (5 ) (14 ) 2 19 24 2,161 2,993 (17 ) 86 (56 ) 3,006 50 (25 ) 23 - (1 ) - (2 ) (4 ) - - 41 28 - 2 30 9 (2) 7 1,835 - - - 9 (26) 27 24 8 1,877 2,781 - 268 (56) 2,993 17 (20) 20 - - - 24 - 6 3 50 15 2 - (1 ) - 16 (233 ) (19 ) 1 12 (3 ) (242 ) 14 2 - (1 ) - 15 (226 ) (30 ) 11 16 (4 ) (233 ) 15 3 (4 ) (2 ) 2 14 (230) (61) 65 27 (27) (226) Total Shareholders’ Equity $ 4,352 $ 5,014 $ 4,731 Comprehensive Income (Loss): Net income (loss) Other comprehensive income (loss), net of tax Total Comprehensive Income (Loss) See accompanying notes. $ $ (537 ) (75 ) (612 ) $ $ 86 (9 ) 77 $ $ 268 30 298 (1) Cumulative effect for adoption of new accounting guidance relates to: 2008 – uncertainty in income taxes; 2007 – defined benefit and post retirement plans 40 CONSOLIDATED STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities: Net income (loss) Adjustments to reconcile net income (loss) to cash provided by operating activities: Three years ended October 3, 2009 in millions 2009 2008 2007 $ (537 ) $ 86 $ 268 Depreciation Amortization Deferred taxes Impairment of goodwill Impairment and write-down of assets Other, net (Increase) decrease in accounts receivable (Increase) decrease in inventories Increase (decrease) in trade accounts payable Increase (decrease) in income taxes payable/receivable Decrease in interest payable Net change in other current assets and liabilities Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Purchases of marketable securities Proceeds from sale of marketable securities Proceeds from sale of investments Proceeds from sale of short-term investment Change in restricted cash to be used for investing activities Proceeds from sale of discontinued operation Acquisitions, net of cash acquired Other, net Cash Provided by (Used for) Investing Activities Cash Flows From Financing Activities: Net borrowings (payments) on revolving credit facilities Payments of debt Net proceeds from borrowings Net proceeds from Class A stock offering Convertible note hedge transactions Warrant transactions Purchase of treasury shares Dividends Debt issuance costs Change in restricted cash to be used for financing activities Stock options exercised Change in negative book cash balances Other, net Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on Cash Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year See accompanying notes. 445 51 (26 ) 560 32 68 137 493 (148 ) 33 (60 ) (23 ) 1,025 (368 ) 9 (37 ) 56 15 - (43 ) 75 (93 ) (41 ) (427 ) 15 (380 ) 852 - - - (19 ) (60 ) (59 ) (140 ) 1 (65 ) 5 150 6 754 250 1,004 $ 468 25 35 - 57 26 (59 ) (376 ) 98 (22 ) - (50 ) 288 (425 ) 26 (115 ) 112 22 - - - (17 ) (2 ) (399 ) (213 ) (147 ) 449 274 (94 ) 44 (30 ) (56 ) - - 9 67 18 321 (2 ) 208 42 250 $ 482 32 5 - 14 (15 ) (66 ) (166 ) 91 24 (35 ) 44 678 (285 ) 76 (131 ) 147 - 770 - - - 2 579 53 (1,263 ) - - - - (61 ) (56 ) - - 74 9 (8 ) (1,252 ) 9 14 28 42 $ 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business: Tyson Foods, Inc. (collectively, “Company,” “we,” “us” or “our”), founded in 1935 with world headquarters in Springdale, Arkansas, is one of the world’s largest processor and marketer of chicken, beef and pork and the second-largest food production company in the Fortune 500. We produce a wide variety of brand name protein-based and prepared food products marketed in the United States and approximately 90 countries around the world. Consolidation: The consolidated financial statements include the accounts of all wholly-owned subsidiaries, as well as majority-owned subsidiaries for which we have a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. We have an investment in a joint venture, Dynamic Fuels LLC (Dynamic Fuels), in which we have a 50 percent ownership interest. Dynamic Fuels qualifies as a variable interest entity. Effective June 30, 2008, we began consolidating Dynamic Fuels since we are the primary beneficiary. Fiscal Year: We utilize a 52- or 53-week accounting period ending on the Saturday closest to September 30. The Company's accounting cycle resulted in a 53-week year for fiscal year 2009 and a 52-week year for fiscal years 2008 and 2007. Reclassification: Certain reclassifications were made to prior periods to conform to current presentations in the Consolidated Financial Statements. The effect of these reclassifications was not significant to the Consolidated Financial Statements. Discontinued Operation: In June 2008, we executed a letter of intent with XL Foods Inc. (XL Foods) to sell the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside), which were part of our Beef segment. In March 2009, we completed the sale and sold these assets and related inventories. The financial statements report Lakeside as a discontinued operation. See Note 4: Discontinued Operation in the Notes to Consolidated Financial Statements for further information. Cash and Cash Equivalents: Cash equivalents consist of investments in short-term, highly liquid securities having original maturities of three months or less, which are made as part of our cash management activity. The carrying values of these assets approximate their fair market values. We primarily utilize a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts where funds are moved to, and several “zero-balance” disbursement accounts for funding payroll, accounts payable, livestock procurement, grower payments, etc. As a result of our cash management system, checks issued, but not presented to the banks for payment, may result in negative book cash balances. These negative book cash balances are included in trade accounts payable and other current liabilities. At October 3, 2009, and September 27, 2008, checks outstanding in excess of related book cash balances totaled approximately $254 million and $322 million, respectively. Accounts Receivable: We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and relationships with and economic status of our customers. At October 3, 2009, and September 27, 2008, our allowance for uncollectible accounts was $33 million and $12 million, respectively. We generally do not have collateral for our receivables, but we do periodically evaluate the credit worthiness of our customers. Inventories: Processed products, livestock and supplies and other are valued at the lower of cost or market. Cost includes purchased raw materials, live purchase costs, growout costs (primarily feed, contract grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories. Processed products: Weighted-average method – chicken and prepared foods First-in, first-out method – beef and pork Livestock – first-in, first-out method Supplies and other – weighted-average method Total inventory, net in millions 2008 2009 $ $ 629 $ 414 631 335 2,009 $ 920 571 701 346 2,538 42 Property, Plant and Equipment: Property, plant and equipment are stated at cost and primarily depreciated on a straight-line method, using estimated lives for buildings and leasehold improvements of 10 to 33 years, machinery and equipment of three to 12 years and land improvements and other of three to 20 years. Major repairs and maintenance costs that significantly extend the useful life of the related assets are capitalized. Normal repairs and maintenance costs are charged to operations. We review the carrying value of long-lived assets at each balance sheet date if indication of impairment exists. Recoverability is assessed using undiscounted cash flows based on historical results and current projections of earnings before interest and taxes. We measure impairment as the excess of carrying cost over the fair value of an asset. The fair value of an asset is measured using discounted cash flows of future operating results based on a discount rate that corresponds to our cost of capital. Goodwill and Other Intangible Assets: Goodwill and indefinite life intangible assets are initially recorded at fair value and not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is allocated by reporting unit, and we follow a two-step process to evaluate if a potential impairment exists. The first step 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 fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination (i.e., the fair value of the reporting unit is allocated to all the assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit). We have elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill and other indefinite life intangible assets. We have estimated the fair value of our reporting units using a discounted cash flow analysis. This analysis requires us to make various judgmental estimates and assumptions about sales, operating margins, growth rates and discount factors. The recent disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase in our discount rate used in the 2009 annual goodwill impairment analysis. There were no significant changes in the other key assumptions and estimates. As a result of the increased discount rate, we failed the first step of the 2009 goodwill impairment analysis for our Beef reporting unit and performed the second step. The second step resulted in a $560 million non-cash partial impairment of the Beef reporting unit's goodwill. During fiscal 2009, 2008 and 2007, all of our reporting units passed the first step of the goodwill impairment analysis, with the exception of the Beef reporting unit during fiscal 2009. While estimating the fair value of our Beef and Chicken reporting units, we assumed operating margins in future years in excess of the annual margins realized in the most recent year. The fair value estimates for these reporting units assume normalized operating margin assumptions and improved operating efficiencies based on long-term expectations and operating margins historically realized in the beef and chicken industries. 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, and our 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, we may be required to perform the second step in future years, which could result in additional material impairments of our goodwill. For our other indefinite life intangible assets, if the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The fair value of trademarks is determined using a royalty rate method based on expected revenues by trademark. Investments: We have investments in joint ventures and other entities. We use the cost method of accounting where our voting interests are less than 20 percent and the equity method of accounting where our voting interests are in excess of 20 percent, but we do not have a controlling interest or a variable interest in which we are the primary beneficiary. Investments in joint ventures and other entities are reported in the Consolidated Balance Sheets in Other Assets. We have investments in marketable debt securities. As of October 3, 2009, and September 27, 2008, $81 million and $94 million, respectively, were classified in Other Assets in the Consolidated Balance Sheets, with maturities ranging up to 47 years. We have determined all our marketable debt securities are available-for-sale investments. These investments are reported at fair value based on quoted market prices as of the balance sheet date, with unrealized gains and losses, net of tax, recorded in other comprehensive income. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such 43 amortization is recorded in interest income. The cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of debt securities and declines in value judged to be other than temporary are recorded on a net basis in other income. Interest and dividends on securities classified as available-for-sale are recorded in interest income. Accrued Self Insurance: We use a combination of insurance and self-insurance mechanisms in an effort to mitigate the potential liabilities for health and welfare, workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks retained are estimated, in part, by considering claims experience, demographic factors, severity factors and other actuarial assumptions. Capital Stock: We have two classes of capital stock, Class A Common Stock, $0.10 par value (Class A stock) and Class B Common Stock, $0.10 par value (Class B stock). Holders of Class B stock may convert such stock into Class A stock on a share-for-share basis. Holders of Class B stock are entitled to 10 votes per share, while holders of Class A stock are entitled to one vote per share on matters submitted to shareholders for approval. As of October 3, 2009, members of the Tyson family beneficially own, in the aggregate, 99.97% of the outstanding shares of Class B stock and 2.36% of the outstanding shares of Class A stock, giving the Tyson family control of approximately 70% of the total voting power of the outstanding voting 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 the cash dividend paid to holders of Class B stock cannot exceed 90% of the cash dividend simultaneously paid to holders of Class A stock. We pay quarterly cash dividends to Class A and Class B shareholders. We paid Class A dividends per share of $0.16 and Class B dividends per share of $0.144 in each of fiscal years 2009, 2008 and 2007. The Class B stock is considered a participating security requiring the use of the two-class method for the computation of basic earnings per share. The two-class computation method for each period reflects the cash dividends paid for each class of stock, plus the amount of allocated undistributed earnings (losses) computed using the participation percentage, which reflects the dividend rights of each class of stock. Basic earnings per share were computed using the two-class method for all periods presented. The shares of Class B stock are considered to be participating convertible securities since the shares of Class B stock are convertible on a share-for-share basis into shares of Class A stock. Diluted earnings per share were computed assuming the conversion of the Class B shares into Class A shares as of the beginning of each period. Financial Instruments: We purchase certain commodities, such as grains and livestock in the course of normal operations. As part of our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to reduce our exposure to various market risks related to these purchases, as well as to changes in foreign currency exchange rates. Contract terms of a financial instrument qualifying as a hedge instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts designated and highly effective at meeting risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is accounted for as a hedge, changes in the fair value of the instrument will be offset either against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value is immediately recognized in earnings as a component of cost of sales. Instruments we hold as part of our risk management activities that do not meet the criteria for hedge accounting are marked to fair value with unrealized gains or losses reported currently in earnings. Changes in market value of derivatives used in our risk management activities relating to forward sales contracts are recorded in sales. Changes in market value of derivatives used in our risk management activities surrounding inventories on hand or anticipated purchases of inventories or supplies are recorded in cost of sales. We generally do not hedge anticipated transactions beyond 18 months. Revenue Recognition: We recognize revenue when title and risk of loss are transferred to customers, which is generally on delivery based on terms of sale. Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for discounts, trade allowances and product terms. Litigation Reserves: There are a variety of legal proceedings pending or threatened against us. Accruals are recorded when it is probable a liability has been incurred and the amount of the liability can be reasonably estimated based on current law, progress of each case, opinions and views of legal counsel and other advisers, our experience in similar matters and intended response to the litigation. These amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as assessment efforts progress or additional information becomes available. We expense amounts for administering or litigating claims as incurred. Accruals for legal proceedings are included in Other current liabilities in the Consolidated Balance Sheets. Freight Expense: Freight expense associated with products shipped to customers is recognized in cost of sales. Advertising and Promotion Expenses: Advertising and promotion expenses are charged to operations in the period incurred. Customer incentive and trade promotion activities are recorded as a reduction to sales based on amounts estimated as being due to customers, based primarily on historical utilization and redemption rates, while other advertising and promotional activities are recorded as selling, general and administrative expenses. Advertising and promotion expenses for fiscal years 2009, 2008 and 2007 were $491 million, $495 million and $467 million, respectively. 44 Use of Estimates: The consolidated 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 financial statements and accompanying notes. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements: In December 2007, the Financial Accounting Standards Board (FASB) issued guidance to establish accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and may be reported as equity in the consolidated financial statements, rather than in the liability or mezzanine section between liabilities and equity. This guidance also requires consolidated net income be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. This statement is not expected to have a material impact on our consolidated financial statements; however, certain financial statement presentation changes and additional required disclosures will be made. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008; therefore, we will adopt at the beginning of fiscal 2010. In December 2007, the FASB issued guidance establishing principles and requirements for how an acquirer in a business combination: 1) recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; 2) recognizes and measures goodwill acquired in a business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008; therefore, we will adopt this guidance for any business combinations entered into beginning in fiscal 2010. In May 2008, the FASB issued guidance which specifies issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The amount allocated to the equity component represents a discount to the debt, which is amortized into interest expense using the effective interest method over the life of the debt. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. We will adopt the provisions of this guidance beginning in the first quarter of fiscal 2010. The provisions are required to be applied retrospectively to all periods presented. Upon retrospective adoption, our effective interest rate on our 3.25% Convertible Senior Notes due 2013 will be 8.26%, which would result in the recognition of a $92 million discount to these notes with the offsetting after tax amount of $56 million recorded to capital in excess of par value. This discount will be accreted over the five-year term of the convertible notes at the effective interest rate, which will not materially impact fiscal 2008 interest expense, but will result in an estimated $17 million non-cash increase to our reported fiscal year 2009 interest expense. In December 2008, the FASB issued guidance requiring additional disclosures about assets held in an employer’s defined benefit pension or other postretirement plan. This guidance is effective for fiscal years ending after December 15, 2009, with early adoption permitted. We will adopt the disclosure requirements beginning with our fiscal 2010 annual report. In June 2009, the FASB issued guidance removing the concept of a qualifying special-purpose entity (QSPE). This guidance also clarifies the requirements for isolation and limitations on portions of financial assets eligible for sale accounting. This guidance is effective for fiscal years beginning after November 15, 2009. Accordingly, we will adopt this guidance in fiscal year 2011. We are in process of evaluating the potential impacts. In June 2009, the FASB issued guidance requiring an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This guidance requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This guidance is effective for fiscal years beginning after November 15, 2009. Accordingly, we will adopt this guidance in fiscal year 2011. We are in process of evaluating the potential impacts. Subsequent Events: We have evaluated subsequent events through the time of filing on November 23, 2009, which represents the date the Consolidated Financial Statements were issued. NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES In September 2006, the FASB issued guidance for using fair value to measure assets and liabilities. This guidance also requires expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. This guidance applies whenever other standards require (or permit) 45 assets or liabilities to be measured at fair value. At the beginning of fiscal 2009, we partially adopted this standard, as allowed, which delayed the effective date for nonfinancial assets and liabilities. As of the beginning of fiscal 2009, we applied these provisions to our financial instruments and the impact was not material. We will be required to apply fair value measurements to our nonfinancial assets and liabilities at the beginning of fiscal 2010. The adoption did not have a significant impact on our consolidated financial statements. In February 2007, the FASB issued guidance providing companies with an option to report selected financial assets and liabilities, firm commitments, and nonfinancial warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. When adopted at the beginning of fiscal 2009, we did not elect this fair value option and, therefore, there was no impact to our consolidated financial statements. In April 2007, the FASB issued guidance which requires entities that offset the fair value amounts recognized for derivative receivables and payables to also offset the fair value amounts recognized for the right to reclaim cash collateral with the same counterparty under a master netting agreement. We applied the provisions of this guidance to our consolidated financial statements beginning in fiscal 2009. We did not restate prior periods as the impact was not material. In March 2008, the FASB issued guidance for disclosures about derivative instruments and hedging activities. This guidance establishes enhanced disclosure requirements about: 1) how and why an entity uses derivative instruments; 2) how derivative instruments and related hedged items are accounted for; and 3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This guidance was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008; therefore, we adopted in fiscal 2009. See Note 6: Derivative Financial Instruments for required disclosures. In April 2009, the FASB issued guidance regarding the recognition and presentation of other-than-temporary impairments. This standard provides new guidance on the recognition and presentation of an other-than-temporary impairment for debt securities classified as available-for-sale and held-to-maturity and provides certain new disclosure requirements for both debt and equity securities. This standard was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted in fiscal 2009. The adoption did not have a significant impact on our consolidated financial statements. In April 2009, the FASB issued additional guidance for estimating the fair value of assets and liabilities in markets that have experienced a significant reduction in volume and activity in relation to normal activity. This guidance was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted in fiscal 2009. The adoption did not have a significant impact on our consolidated financial statements. In April 2009, the FASB issued guidance to require disclosures about fair value of financial instruments in interim financial statements. This guidance was effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted this guidance during fiscal 2009 and made the required disclosures during our applicable interim reports. In May 2009, the FASB issued guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This standard was effective for interim and annual periods ending after June 15, 2009. We adopted this guidance in fiscal 2009. See “Subsequent Events” in Note 1: Business and Summary of Significant Accounting Policies for required disclosures. NOTE 3: ACQUISITIONS In August 2009, we completed the establishment of related joint ventures in China referred to as Shandong Tyson Xinchang Foods. The aggregate purchase price for our 60% equity interest was $21 million, which excludes $93 million of cash transferred to the joint venture for future capital needs. The preliminary purchase price included $29 million allocated to Intangible Assets and $19 million allocated to Goodwill, as well as the assumption of $76 million of Current and Long-Term Debt. In October 2008, we acquired three vertically integrated poultry companies in southern Brazil: Macedo Agroindustrial, Avicola Itaiopolis and Frangobras. The aggregate purchase price was $67 million, including $4 million of mandatory deferred payments to be made through fiscal 2011. In addition, we have $15 million of contingent purchase price based on production volumes payable through fiscal 2011. The purchase price included $23 million allocated to Goodwill and $19 million allocated to Intangible Assets. 46 NOTE 4: DISCONTINUED OPERATION In June 2008, we executed a letter of intent with XL Foods to sell the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside), which were part of our Beef segment. On March 13, 2009, we completed the sale and sold these assets and related inventories for total consideration of $145 million, based on exchange rates then in effect. This included (a) cash received at closing of $43 million, (b) $78 million of collateralized notes receivable from either XL Foods or an affiliated entity to be collected throughout the two years following closing, and (c) $24 million of XL Foods Preferred Stock to be redeemed over the next five years. We recorded a pretax loss on sale of Lakeside of $10 million in fiscal 2009, which included an allocation of beef reporting unit goodwill of $59 million and cumulative currency translation adjustment gains of $41 million. The following is a summary of Lakeside’s operating results (in millions): Sales Pretax income from discontinued operation Loss on sale of discontinued operation Income tax expense Loss from discontinued operation 2009 461 $ 2008 1,268 $ 2007 1,171 20 $ (10 ) 11 (1 ) $ - $ - - - $ - - - - $ $ $ The carrying amounts of Lakeside’s assets held for sale included the following (in millions): Assets of discontinued operation held for sale: Inventories Net property, plant and equipment Total assets of discontinued operation held for sale NOTE 5: DISPOSITIONS AND OTHER CHARGES September 27, 2008 $ $ 82 77 159 In March 2009, we announced the decision to close our Ponca City, Oklahoma, processed meats plant. The plant ceased operations in August 2009. The closing resulted in the elimination of approximately 600 jobs. During fiscal 2009, we recorded charges of $15 million, which included $14 million for impairment charges and $1 million of employee termination benefits. The charges are reflected in the Prepared Foods segment’s Operating Income and included in the Consolidated Statements of Income in Other Charges. No material adjustments to the accrual are anticipated. In fiscal 2008, we recorded charges of $10 million related to intangible asset impairments. Of this amount, $8 million is reflected in the Beef segment’s Operating Income and $2 million in the Prepared Foods segment’s Operating Income, and both are recorded in the Consolidated Statements of Income in Cost of Sales. We recorded charges of $7 million related to flood damage at our Jefferson, Wisconsin, plant. This amount is reflected in the Prepared Foods segment’s Operating Income and included in the Consolidated Statements of Income in Cost of Sales. We also recorded a charge of $6 million related to the impairment of unimproved real property in Memphis, Tennessee. This amount is reflected in the Chicken segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in Cost of Sales. Additionally, we recorded an $18 million non-operating gain as the result of a private equity firm’s purchase of a technology company in which we held a minority interest. This gain was recorded in Other Income in the Consolidated Statements of Income. In February 2008, we announced discontinuation of an existing product line and closing of one of our three poultry plants in Wilkesboro, North Carolina. The Wilkesboro cooked products plant ceased operations in April 2008. The closure resulted in elimination of approximately 400 jobs. In fiscal 2008, we recorded charges of $13 million for impairment charges. This amount is reflected in the Chicken segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in Other Charges. In January 2008, we announced the decision to restructure operations at our Emporia, Kansas, beef plant. Beef slaughter operations ceased during the second quarter of fiscal 2008. However, the facility is still used to process certain commodity, specialty cuts and ground beef, as well as a cold storage and distribution warehouse. This restructuring resulted in elimination of approximately 1,700 jobs at the Emporia plant. In fiscal 2008, we recorded charges of $10 million for impairment charges and $7 million of other closing costs, consisting of $6 million for employee termination benefits and $1 million in other plant-closing related liabilities. These amounts were reflected in the Beef segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in Other Charges. We have fully paid employee termination benefits and other plant-closing related liabilities. 47 In fiscal 2008, management approved plans for implementation of certain recommendations resulting from the previously announced FAST initiative, which was focused on process improvement and efficiency creation. As a result, in fiscal 2008, we recorded charges of $6 million related to employee termination benefits resulting from termination of approximately 200 employees. Of these charges, $2 million, $2 million, $1 million and $1 million, respectively, were recorded in the Chicken, Beef, Pork and Prepared Foods segments’ Operating Income (Loss) and included in the Consolidated Statements of Income in Other Charges. We have fully paid the employee termination benefits. In May 2007, we announced the completion of the sale of two of our Alabama poultry plants and related support facilities. As part of strategic efforts to reduce the production of commodity chicken, we sold our processing plants in Ashland and Gadsden, which also included a nearby feed mill and two hatcheries. These facilities employed approximately 1,200 employees, of which approximately 800 were hired by the acquiring company, while the remaining employees were offered the opportunity to transfer to our other operations in Alabama. We recorded a gain of $10 million on the sale in fiscal 2007. The gain was recorded in the Chicken segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in Cost of Sales. NOTE 6: 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, primarily futures and options, to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Forward contracts on various commodities, including grains, livestock and energy, are primarily entered into to manage the price risk associated with forecasted purchases of these inputs used in our production processes. Foreign exchange forward contracts are entered into to manage the fluctuations in foreign currency exchange rates, primarily as a result of certain receivable and payable balances. We also periodically utilize interest rate swaps to manage interest rate risk associated with our variable-rate borrowings. Our risk management programs are reviewed by our Board of Directors’ Audit Committee. These programs are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize industry-standard models that take into account the implicit cost of hedging. Risks associated with our market risks and those created by derivative instruments and the fair values are strictly monitored at all times, using value-at-risk and stress tests. Credit risks associated with our derivative contracts are not significant as we minimize counterparty concentrations, utilize margin accounts or letters of credit, and primarily deal with counterparties with solid credit. Additionally, our derivative contracts are mostly short-term in duration and we do not make use of credit-risk-related contingent features. No significant concentrations of credit risk existed at October 3, 2009. We recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets, with the exception of normal purchases and normal sales expected to result in physical delivery. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged (i.e., fair value hedge, cash flow hedge, or hedge of a net investment in a foreign operation). We qualify, or designate, a derivative financial instrument as a hedge when contract terms closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. If a derivative instrument is accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument either will be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value is recognized in earnings immediately. We designate certain forward contracts as follows: ● Cash Flow Hedges – include certain commodity forward contracts of forecasted purchases (i.e., grains) and certain foreign exchange forward contracts. ● Fair Value Hedges – include certain commodity forward contracts of forecasted purchases (i.e., livestock). ● Net Investment Hedges – include certain foreign currency forward contracts of permanently invested capital in certain foreign subsidiaries. Cash flow hedges Derivative instruments, such as futures and options, are designated as hedges against changes in the amount of future cash flows related to procurement of certain commodities utilized in our production processes. We do not purchase forward commodity contracts in excess of our physical consumption requirements and generally do not hedge forecasted transactions beyond 12 months. The objective of these hedges is to reduce the variability of cash flows associated with the forecasted purchase of those commodities. 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 during fiscal 2009, 2008 and 2007. 48 As of October 3, 2009, we had the following aggregated notionals of outstanding forward contracts accounted for as cash flow hedges: Commodity: Corn Soy meal Notional Volume 4 million bushels 16,900 tons The net amount of pretax losses in accumulated OCI as of October 3, 2009, expected to be reclassified into earnings within the next 12 months was $3 million. During fiscal 2009, 2008 and 2007, we did not reclassify any pretax gains/losses into earnings as a result of the discontinuance of cash flow hedges due to the probability the original forecasted transaction would not occur by the end of the originally specified time period or within the additional period of time allowed by generally accepted accounting principles. The following table sets forth the pretax impact of cash flow hedge derivative instruments on the Consolidated Statements of Income (in millions): Gain/(Loss) Consolidated Recognized in OCI Statements of Income Classification on Derivatives 2009 2008 2007 2009 Gain/(Loss) Reclassified from OCI to Earnings 2007 2008 Cash Flow Hedge - Derivatives designated as hedging instruments: Commodity contracts Foreign exchange contracts Total $ $ (61 ) $ 8 (53 ) $ 39 $ (2 ) 37 $ 33 Cost of Sales $ - Other Income/Expense $ 33 (67) $ 6 (61) $ 42 $ - 42 $ 34 - 34 Fair value hedges We designate certain futures contracts as fair value hedges of firm commitments to purchase livestock for slaughter. 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. As of October 3, 2009, we had the following aggregated notionals of outstanding forward contracts entered into to hedge forecasted commodity purchases which are accounted for as a fair value hedge: Commodity: Live Cattle Lean Hogs Notional Volume 133 million pounds 171 million pounds 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 current period. We include the gain or loss on the hedged items (i.e., livestock purchase firm commitments) in the same line item, cost of sales, as the offsetting gain or loss on the related livestock forward position. in millions Consolidated Statements of Income Classification Cost of Sales $ Cost of Sales 2009 2008 152 $ (152 ) 65 $ (65 ) 2007 (13 ) 13 Gain/(loss) on forwards Gain/(loss) on purchase contract Ineffectiveness related to our fair value hedges was not significant during fiscal 2009, 2008 and 2007. Foreign net investment hedges We utilize forward foreign exchange contracts to protect the value of our net investments in certain foreign subsidiaries. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in OCI as part of the cumulative translation adjustment to the extent it is effective, with the related amounts due to or from counterparties included in other liabilities or other assets. We utilize the forward-rate method of assessing hedge effectiveness. Any ineffective portions of net investment hedges are recognized in the Consolidated Statements of Income during the period of change. Ineffectiveness related to our foreign net investment hedges was not significant during fiscal 2009, 2008 and 2007. As of October 3, 2009, we had no forward foreign currency contracts accounted for as foreign net investment hedges. 49 The following table sets forth the pretax impact of these derivative instruments on the Consolidated Statements of Income (in millions): Gain/(Loss) Recognized in OCI on Derivatives 2009 2008 2007 Consolidated Gain/(Loss) Statements of Income Reclassified from OCI to Earnings 2009 2008 2007 Classification Net Investment Hedge - Derivatives designated as hedging instruments: Foreign exchange contracts $(5) $- $- Other Income/Expense $(2) $- $- 1. Amounts reclassified from OCI relate to the sale of our Lakeside discontinued operation; amounts related to hedge ineffectiveness were not significant. Undesignated positions In addition to our designated positions, we also hold forward and option contracts for which we do not apply hedge accounting. These include certain derivative instruments related to commodities price risk, including grains, livestock and energy, foreign currency risk and interest rate risk. We mark these positions to fair value through earnings at each reporting date. We generally do not enter into undesignated positions beyond 18 months. Our undesignated positions primarily include grains, energy, livestock and foreign currency forwards and options. The objective of our undesignated grains, energy and livestock commodity positions is to reduce the variability of cash flows associated with the forecasted purchase of certain grains, energy and livestock inputs to our production processes. We also enter into certain forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs at fixed prices. The fixed price sales contracts lock in the proceeds from a sale in the future and the fixed cattle and hog purchases lock in the cost. However, the cost of the livestock and the related boxed beef and boxed pork market prices at the time of the sale or purchase could vary from this fixed price. As we enter into fixed forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs, we also enter into the appropriate number of livestock futures positions to mitigate a portion of this risk. Changes in market value of the open livestock futures positions are marked to market and reported in earnings at each reporting date, even though the economic impact of our fixed prices being above or below the market price is only realized at the time of sale or purchase. These positions generally do not qualify for hedge treatment due to location basis differences between the commodity exchanges and the actual locations when we purchase the commodities. We have a foreign currency cash flow hedging program to hedge portions of forecasted transactions denominated in foreign currencies, primarily with forward contracts, to protect against the reduction in value of forecasted foreign currency cash flows. Our undesignated foreign currency positions generally would qualify for cash flow hedge accounting. However, to reduce earnings volatility, we normally will not elect hedge accounting treatment when the position provides an offset to the underlying related transaction. The objective of our undesignated interest rate swap is to manage interest rate risk exposure on a floating-rate bond. Our interest rate swap agreement effectively modifies our exposure to interest rate risk by converting a portion of the floating-rate bond to a fixed rate basis for the first five years, thus reducing the impact of the interest-rate changes on future interest expense. This interest rate swap does not qualify for hedge treatment due to differences in the underlying bond and swap contract interest-rate indices. As of October 3, 2009, we had the following aggregate outstanding notionals related to our undesignated positions: Commodity: Corn Soy meal Live Cattle Lean Hogs Natural Gas Foreign Currency Interest Rate Notional Volume 11 million bushels 73,000 tons 82 million pounds 11 million pounds 850 billion British Thermal Units $124 million United States dollars $64 million average monthly notional debt 50 Included in our undesignated positions are certain commodity grain positions (which do not qualify for hedge treatment) we enter into to manage the risk of costs associated with forward sales to certain customers for which sales prices are determined under cost-plus arrangements. These unrealized positions totaled losses of $17 million and $24 million at October 3, 2009, and September 27, 2008, respectively. When these positions are liquidated, we expect any realized gains or losses will be reflected in the prices of the poultry products sold. Since these derivative positions do not qualify for hedge treatment, they initially create volatility in our earnings associated with changes in fair value. However, once the positions are liquidated and included in the sales price to the customer, there is ultimately no earnings impact as any previous fair value gains or losses are included in the prices of the poultry products. The following table sets forth the pretax impact of the undesignated derivative instruments on the Consolidated Statements of Income (in millions): Derivatives not designated as hedging instruments: Commodity contracts Commodity contracts Foreign exchange contracts Interest rate contracts Total Consolidated Statements of Income Classification Gain/(Loss) Recognized in Earnings 2007 2008 2009 Sales $ Cost of Sales Other Income/Expense Interest Expense $ (34 ) $ (151 ) - (4 ) (189 ) $ (12 ) $ 259 1 - 248 $ 14 40 1 - 55 The following table sets forth the fair value of all derivative instruments outstanding in the Consolidated Balance Sheets (in millions): Derivative Assets: Derivatives designated as hedging instruments: Commodity contracts Derivatives not designated as hedging instruments: Commodity contracts Total derivative assets Derivative Liabilities: Derivatives designated as hedging instruments: Commodity contracts Foreign exchange contracts Total derivative liabilities – designated Fair Value Balance Sheet Classification 2009 2008 Other current assets $ 12 $ 29 Other current assets 9 - $ 21 $ 29 Other current liabilities $ Other current liabilities 2 $ - 2 13 1 4 18 34 2 36 7 2 - 9 Derivatives not designated as hedging instruments: Commodity contracts Foreign exchange contracts Interest rate contracts Total derivative liabilities – not designated Other current liabilities Other current liabilities Other current liabilities Total derivative liabilities $ 20 $ 45 1. Beginning in fiscal 2009, our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. See Note 12: Fair Value Measurements for a reconciliation to amounts reported in the Consolidated Balance Sheet. We did not restate fiscal 2008 balances as the impact was not material. 51 NOTE 7: PROPERTY, PLANT AND EQUIPMENT Major categories of property, plant and equipment and accumulated depreciation at October 3, 2009, and September 27, 2008: Land Building and leasehold improvements Machinery and equipment Land improvements and other Buildings and equipment under construction Less accumulated depreciation Net property, plant and equipment $ $ in millions 2008 89 2,440 4,382 210 352 7,473 3,954 3,519 2009 96 $ 2,570 4,640 227 297 7,830 4,254 3,576 $ Approximately $278 million will be required to complete buildings and equipment under construction at October 3, 2009. NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill by segment, net of $286 million of accumulated amortization at October 3, 2009, and September 27, 2008: Chicken Beef Pork Prepared Foods Total Goodwill Other intangible assets by type at October 3, 2009, and September 27, 2008: Gross Carrying Value: Trademarks Patents and intellectual property Land use rights Less Accumulated Amortization Total Intangible Assets $ $ $ $ in millions 2008 945 1,185 317 64 2,511 2009 973 $ 563 317 64 1,917 $ in millions 2008 2009 57 $ 145 23 38 187 $ 62 94 - 28 128 Amortization expense of $10 million, $3 million and $3 million was recognized during fiscal 2009, 2008 and 2007, respectively. We estimate amortization expense on intangible assets for the next five fiscal years subsequent to October 3, 2009 will be: 2010 - $14 million; 2011 - $14 million; 2012 - $13 million; 2013 - $13 million; 2014 - $12 million. Beginning with the date benefits are realized, patents and intellectual property and land use rights are amortized using the straight-line method over their estimated period of benefit of 5-30 years and 10-30 years, respectively. NOTE 9: OTHER CURRENT LIABILITIES Other current liabilities at October 3, 2009, and September 27, 2008, include: Accrued salaries, wages and benefits Self-insurance reserves Other Total other current liabilities $ $ 52 in millions 2008 259 236 383 878 2009 187 $ 230 344 761 $ NOTE 10: COMMITMENTS We lease equipment, properties and certain farms for which total rentals approximated $175 million, $163 million and $133 million, respectively, in fiscal 2009, 2008 and 2007. Most leases have terms up to six years with varying renewal periods. The most significant obligations assumed under the terms of the leases are the upkeep of the facilities and payments of insurance and property taxes. Minimum lease commitments under non-cancelable leases at October 3, 2009, were: 2010 2011 2012 2013 2014 2015 and beyond Total in millions 79 $ 67 53 34 21 22 276 $ We guarantee debt of outside third parties, which consist of a lease and grower loans, all of which are substantially collateralized by the underlying assets. Terms of the underlying debt cover periods up to nine years, and the maximum potential amount of future payments as of October 3, 2009, was $59 million. We also maintain operating leases for various types of equipment, some of which contain residual value guarantees for the market value of the underlying leased assets at the end of the term of the lease. The terms of the lease maturities cover periods up to six years. The maximum potential amount of the residual value guarantees is $55 million, of which $23 million would be recoverable through various recourse provisions and an additional undeterminable recoverable amount based on the fair market value of the underlying leased assets. The likelihood of material payments under these guarantees is not considered probable. At October 3, 2009, and September 27, 2008, no material liabilities for guarantees were recorded. We have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay an amount for livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts of such payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers are obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the agreement. Our maximum obligation associated with these programs is limited to the fair value of each participating livestock supplier’s net tangible assets. The potential maximum obligation as of October 3, 2009, is approximately $250 million. The total receivables under these programs were $72 million and $7 million at October 3, 2009, and September 27, 2008, respectively, and are included, net of allowance for uncollectible amounts, in Other Assets in our Consolidated Balance Sheets. Even though these programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with these programs by obtaining security interests in livestock suppliers' assets. After analyzing residual credit risks and general market conditions, we have recorded an allowance for these programs' estimated uncollectible receivables of $20 million and $2 million at October 3, 2009 and September 27, 2008, respectively. The minority partner in our Shandong Tyson Xinchang Foods joint ventures in China has the right to exercise put options to require us to purchase their entire 40% equity interest at a price equal to the minority partner’s contributed capital plus (minus) its pro-rata share of the joint venture's accumulated and undistributed net earnings (losses). The put options are exercisable for a five-year term commencing the later of (i) April 2011 or (ii) the date upon which a shareholder of the minority partner is no longer general manager of the joint venture operations. At October 3, 2009, the put options, if they had been exercisable, would have resulted in a purchase price of approximately $74 million for the minority partner’s entire equity interest. We do not believe the exercise of the put options would materially impact our results of operations or financial condition. Additionally, we enter into future purchase commitments for various items, such as grains, livestock contracts and fixed grower fees. At October 3, 2009, these commitments totaled: 2010 2011 2012 2013 2014 2015 and beyond Total in millions 423 36 19 11 8 22 519 $ $ 53 NOTE 11: LONG-TERM DEBT The major components of long-term debt are as follows (in millions): Revolving credit facility – expires March 2012 Senior notes: 7.95% Notes due February 2010 (2010 Notes) 8.25% Notes due October 2011 (2011 Notes) 3.25% Convertible senior notes due October 2013 (2013 Notes) 10.50% Senior notes due March 2014 (2014 Notes) 7.85% Senior notes due April 2016 (2016 Notes) 7.00% Notes due May 2018 7.125% Senior notes due February 2026 7.00% Notes due January 2028 GO Zone tax-exempt bonds due October 2033 (0.10% at 10/03/09) Other Total debt Less current debt Total long-term debt 2009 2008 $ - $ - 140 839 458 756 922 172 9 27 100 129 3,552 219 3,333 $ 234 998 458 - 960 172 9 27 - 38 2,896 8 2,888 $ Annual maturities of long-term debt for the five fiscal years subsequent to October 3, 2009, are: 2010-$219 million; 2011-$855 million; 2012-$11 million; 2013-$6 million; 2014-$1.2 billion. Revolving Credit Facility We entered into a new revolving credit facility in March 2009 totaling $1.0 billion that supports short-term funding needs and letters of credit, which replaced our revolving credit facility scheduled to expire in September 2010. Loans made under this facility will mature and the commitments thereunder will terminate in March 2012. However, if our 2011 Notes are not refinanced, purchased or defeased prior to July 3, 2011, the outstanding loans under this facility will mature on and commitments thereunder will terminate on July 3, 2011. We incurred approximately $30 million in transaction fees which will be amortized over the three-year life of this facility. Availability under this facility, up to $1.0 billion, is based on a percentage of certain eligible receivables and eligible inventory and is reduced by certain reserves. After reducing the amount available by outstanding letters of credit issued under this facility, the amount available for borrowing under this facility at October 3, 2009, was $733 million. At October 3, 2009, we had outstanding letters of credit issued under this facility totaling approximately $267 million and an additional $51 million of bilateral letters of credit not issued under this facility, none of which were drawn upon. Our letters of credit are issued primarily in support of workers’ compensation insurance programs, derivative activities and Dynamic Fuels’ GO Zone tax-exempt bonds. This facility is fully and unconditionally guaranteed on a senior secured basis by substantially all of our domestic subsidiaries. The guarantors’ cash, accounts receivable, inventory and proceeds received related to these items secure our obligations under this facility. 2013 Notes In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013, with interest payable semi-annually in arrears on April 15 and October 15. The conversion rate initially is 59.1935 shares of Class A stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $16.89 per share of Class A stock. The 2013 Notes may be converted before the close of business on July 12, 2013, only under the following circumstances: 54 ● during any fiscal quarter after December 27, 2008, if the last reported sale price of our Class A stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is at least 130% of the applicable conversion price on each applicable trading day (which would currently require our shares to trade at or above $21.96); or ● during the five business days after any 10 consecutive trading days (measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A stock and the applicable conversion rate on each such day; or ● upon the occurrence of specified corporate events as defined in the supplemental indenture. On and after July 15, 2013, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we will deliver cash up to the aggregate principal amount of the 2013 Notes to be converted and shares of our Class A stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the 2013 Notes being converted. As of October 3, 2009, none of the conditions permitting conversion of the 2013 Notes had been satisfied. The 2013 Notes were accounted for as a combined instrument. Accordingly, we accounted for the entire agreement as one debt instrument because the conversion feature does not meet the requirements to be accounted for separately as a derivative financial instrument. In connection with the issuance of the 2013 Notes, we entered into separate convertible note hedge transactions with respect to our common stock to minimize the potential economic dilution upon conversion of the 2013 Notes. We also entered into separate warrant transactions. We recorded the purchase of the note hedge transactions as a reduction to capital in excess of par value, net of $36 million pertaining to the related deferred tax asset, and we recorded the proceeds of the warrant transactions as an increase to capital in excess of par value. Subsequent changes in fair value of these instruments are not recognized in the financial statements as long as the instruments continue to meet the criteria for equity classification. We purchased call options in private transactions for $94 million that permit us to acquire up to approximately 27 million shares of our Class A stock at an initial strike price of $16.89 per share, subject to adjustment. The call options allow us to acquire a number of shares of our Class A stock initially equal to the number of shares of Class A stock issuable to the holders of the 2013 Notes upon conversion. These call options will terminate upon the maturity of the 2013 Notes. We sold warrants in private transactions for total proceeds of $44 million. The warrants permit the purchasers to acquire up to approximately 27 million shares of our Class A stock at an initial exercise price of $22.31 per share, subject to adjustment. The warrants are exercisable on various dates from January 2014 through March 2014. The maximum amount of shares that may be issued to satisfy the conversion of the 2013 Notes is limited to 35.9 million shares. However, the convertible note hedge and warrant transactions, in effect, increase the initial conversion price of the 2013 Notes from $16.89 per share to $22.31 per share, thus reducing the potential future economic dilution associated with conversion of the 2013 Notes. If our share price is below $22.31 upon conversion of the 2013 Notes, there is no economic net share impact. Upon conversion, a 10% increase in our share price above the $22.31 conversion price would result in the issuance of 2.5 million incremental shares. The 2013 Notes and the warrants could have a dilutive effect on our earnings per share to the extent the price of our Class A stock during a given measurement period exceeds the respective exercise prices of those instruments. The call options are excluded from the calculation of diluted earnings per share as their impact is anti-dilutive. 2014 Notes In March 2009, we issued $810 million of senior unsecured notes, which will mature in March 2014. The 2014 Notes carry a 10.50% interest rate, with interest payments due semi-annually on March 1 and September 1. After the original issue discount of $59 million, based on an issue price of 92.756% of face value, we received net proceeds of $751 million. In addition, we incurred offering expenses of $18 million. We used the net proceeds towards the repayment of our borrowings under our former accounts receivable securitization facility and for other general corporate purposes. We also placed $234 million of the net proceeds in a blocked cash collateral account which is used for the payment, prepayment, repurchase or defeasance of the 2010 Notes. At October 3, 2009, we had $140 million remaining in the blocked cash collateral account. The remaining proceeds are recorded in Current Assets as Restricted Cash in the Consolidated Condensed Balance Sheets. The 2014 Notes are fully and unconditionally guaranteed by substantially all of our domestic subsidiaries. 55 2016 Notes The 2016 Notes carried an interest rate at issuance of 6.60%, with an interest step up feature dependent on their credit rating. On November 13, 2008, Moody’s Investor Services, Inc. downgraded the credit rating from “Ba1” to “Ba3.” This downgrade increased the interest rate from 7.35% to 7.85%, effective beginning with the six-month interest payment due April 1, 2009. GO Zone Tax-Exempt Bonds In October 2008, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made available by the federal government to the regions affected by Hurricanes Katrina and Rita in 2005. These floating rate bonds are due October 1, 2033. In November 2008, we entered into an interest rate swap related to these bonds to mitigate our interest rate risk on a portion of the bonds for five years. We also issued a letter of credit as a guarantee for the entire bond issuance. The proceeds from the bond issuance can only be used towards the construction of the Dynamic Fuels’ facility. Accordingly, the unused proceeds are recorded as non-current Restricted Cash in the Consolidated Balance Sheets. We expect the majority of the unused proceeds will be used by our second quarter of fiscal 2010. 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; pay dividends or make other payments in respect to our capital stock; amend material documents; change the nature of our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of 15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio. Our 2014 Notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: incur additional debt and issue preferred stock; make certain investments and restricted payments; create liens; create restrictions on distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into transactions with affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain sale/leaseback transactions. Condensed Consolidating Financial Statements Tyson Fresh Meats, Inc. (TFM), our wholly-owned subsidiary, has fully and unconditionally guaranteed the 2016 Notes. TFM and substantially all of our wholly-owned domestic subsidiaries have fully and unconditionally guaranteed the 2014 Notes. The following financial information presents condensed consolidating financial statements, which include Tyson Foods, Inc. (TFI Parent); Tyson Fresh Meats, Inc. (TFM Parent); the other 2014 Notes' guarantor subsidiaries (Guarantors) on a combined basis; the elimination entries necessary to reflect TFM Parent and the Guarantors, which collectively represent the 2014 Notes' total guarantor subsidiaries (2014 Guarantors), on a combined basis; the 2014 Notes' non-guarantor subsidiaries (Non-Guarantors) on a combined basis; the elimination entries necessary to consolidate TFI Parent, the 2014 Guarantors and the Non-Guarantors; and Tyson Foods, Inc. on a consolidated basis, and is provided as an alternative to providing separate financial statements for the guarantor(s). Certain prior period amounts have been recast to conform with current year presentation and to reflect the legal subsidiary ownership structure as of October 3, 2009. 56 Condensed Consolidating Statement of Income for the year ended October 3, 2009 in millions 2014 Guarantors Net Sales Cost of Sales $ Operating Expenses: Selling, general and administrative Goodwill impairment Other charges Operating Income (Loss) Other (Income) Expense: Interest expense, net Other, net Equity in net earnings of subsidiaries Income (Loss) from Continuing Operations before Income Taxes and Minority Interest Income Tax Expense (Benefit) Income (Loss) from Continuing Operations before Minority Interest Minority Interest Income (Loss) from Continuing Operations Income (Loss) from Discontinued Operation $ Net Income (Loss) TFI Parent TFM Parent Guar- antors 11 $ 14,504 $ 12,245 $ 132 13,970 11,526 719 534 (121) Elimin- ations Subtotal (725 ) $ 26,024 $ (725 ) 24,771 1,253 - Non- Guar- antors 709 $ 638 71 Elimin- ations Total (40 ) $ 26,704 (40 ) 25,501 1,203 - 132 - - (253) 187 560 - (213 ) 450 - 17 252 - - - - 637 560 17 39 72 - - (1 ) - - - - 268 11 157 436 13 (3 ) (32 ) (22 ) 20 (6 ) 44 58 - - 13 13 33 (9) 25 49 (8 ) 16 (17 ) (9 ) - - (165 ) (165 ) (689) (131) (191 ) 111 194 34 (13 ) - (10) 145 8 - 165 - (558) - (558) 21 (537) $ (302 ) - (302 ) 5 (297 ) $ 160 - 160 - 160 $ (13 ) - (13 ) - (13 ) $ (155) - (155) 5 (150) $ 8 (4 ) 12 (27 ) (15 ) $ 165 - 165 - 165 $ 841 560 17 (215) 293 18 - 311 (526) 14 (540) (4) (536) (1) (537) Condensed Consolidating Statement of Income for the year ended September 27, 2008 in millions 2014 Guarantors Net Sales Cost of Sales $ Operating Expenses: Selling, general and administrative Other charges Operating Income (Loss) Other (Income) Expense: Interest expense, net Other, net Equity in net earnings of subsidiaries TFI Parent TFM Parent Guar- antors 19 $ 15,638 $ 11,463 $ 74 15,105 10,796 667 533 (55) Elimin- ations Subtotal (811 ) $ 26,290 $ (811 ) 25,090 1,200 - Non- Guar- antors 580 $ 479 101 Elimin- ations Total (27 ) $ 26,862 (27 ) 25,616 1,246 - 83 1 (139) 208 18 307 533 17 117 - - - 741 35 424 55 - 46 - - - 181 (13) (285) (117) 17 (5 ) (27 ) (15 ) 16 (11 ) 5 10 - - 18 18 33 (16) (4) 13 (8 ) - (9 ) (17 ) - - 298 298 Income (Loss) from Continuing Operations before Income Taxes Income Tax Expense (Benefit) Income from Continuing Operations Income from Discontinued Operation Net Income (22) (108) 86 - 86 $ 322 116 206 - 206 $ 107 37 70 - 70 $ (18 ) - (18 ) - (18 ) $ 411 153 258 - 258 $ 63 23 40 - 40 $ (298 ) - (298 ) - (298 ) $ $ 57 879 36 331 206 (29) - 177 154 68 86 - 86 Condensed Consolidating Statement of Income for the year ended September 29, 2007 in millions 2014 Guarantors Net Sales Cost of Sales $ Operating Expenses: Selling, general and administrative Other charges Operating Income Other (Income) Expense: Interest expense, net Other, net Equity in net earnings of subsidiaries TFI Parent TFM Parent Guar- antors 154 $ 15,189 $ 10,793 $ (90) 14,849 10,040 753 340 244 Elimin- ations Subtotal (736 ) $ 25,246 $ (736 ) 24,153 1,093 - Non- Guar- antors 482 $ 390 92 Elimin- ations Total (153 ) $ 25,729 (153 ) 24,300 1,429 - 104 1 139 176 1 163 483 - 270 - - - 659 1 433 51 - 41 - - - 186 (1) (285) (100) 29 (24 ) (94 ) (89 ) 18 (8 ) (9 ) 1 - - 77 77 47 (32) (26) (11) (9 ) 12 (18 ) (15 ) - - 329 329 Income from Continuing Operations before Income Taxes Income Tax Expense (Benefit) Income from Continuing Operations Income from Discontinued Operation Net Income $ 239 (29) 268 - 268 $ 252 53 199 - 199 $ 269 110 159 - 159 $ (77 ) - (77 ) - (77 ) $ 444 163 281 - 281 $ 56 8 48 - 48 $ (329 ) - (329 ) - (329 ) $ 814 2 613 224 (21) - 203 410 142 268 - 268 Condensed Consolidating Balance Sheet as of October 3, 2009 in millions 2014 Guarantors TFI Parent TFM Parent Guar- antors Elimin- ations Subtotal Non- Guar- antors Elimin- ations Total Assets Current Assets: Cash and cash equivalents Restricted cash Accounts receivable, net Inventories, net Other current assets Total Current Assets Restricted cash Net Property, Plant and Equipment Goodwill Intangible Assets Other Assets Investment in Subsidiaries Total Assets Liabilities and Shareholders’ Equity Current Liabilities: Current debt Trade accounts payable Other current liabilities Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Minority Interest Shareholders’ Equity Total Liabilities and Shareholders’ Equity $ - $ - 2 1 198 201 - 40 - - 211 10,038 $ 10,490 $ $ 3 $ 15 2,790 2,808 3,187 - 143 - 4,352 $ 10,490 $ - $ - 418 586 89 1,093 - 883 881 42 120 1,763 4,782 $ 140 $ 375 251 766 15 108 161 - 3,732 4,782 $ - $ 788 $ - 140 (7 ) 3,309 - 1,239 (17 ) 29 (24 ) 5,505 - - - 2,256 - 977 - 59 37 - 674 (1,597 ) 788 $ 140 3,720 1,825 101 6,574 - 3,139 1,858 101 157 840 9,508 $ (1,621 ) $ 12,669 $ - $ 216 $ - - (2,738) 116 - 183 (213) 36 (2,951) 551 - 43 - 397 - 59 - 86 346 (217) 296 (11,174) 1,004 140 1,100 2,009 122 4,375 43 3,576 1,917 187 497 - 1,778 $ (14,342) $ 10,595 - $ - (24 ) (24 ) - - - - - $ 550 296 846 180 182 202 - 140 $ 925 523 1,588 195 290 363 - 8,098 (1,597 ) 10,233 9,508 $ (1,621 ) $ 12,669 $ - $ 76 $ - 73 (2,951) 399 (2,951) 548 (180) 131 (37) 27 - 33 98 - 941 (11,174) 219 1,013 761 1,993 3,333 280 539 98 4,352 1,778 $ (14,342) $ 10,595 58 Condensed Consolidating Balance Sheet as of September 27, 2008 in millions Assets Current Assets: Cash and cash equivalents Accounts receivable, net Inventories, net Other current assets Assets of discontinued operation held $ 2014 Guarantors TFI Parent TFM Parent Guar- antors Elimin- ations Subtotal Non- Guar- antors Elimin- ations Total 140 $ 1 1 123 - $ 122 724 55 35 $ 3,614 1,640 24 - $ - - (12 ) 35 $ 3,736 2,364 67 75 $ 113 173 72 - $ (2,579 ) - (119 ) 250 1,271 2,538 143 for sale Total Current Assets Net Property, Plant and Equipment Goodwill Intangible Assets Other Assets Investment in Subsidiaries Total Assets Liabilities and Shareholders’ Equity Current Liabilities: Current debt Trade accounts payable Other current liabilities Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Minority Interest Shareholders’ Equity Total Liabilities and Shareholders’ Equity - 265 43 - - 132 10,293 $ 10,733 $ - 901 960 1,502 47 91 1,789 5,290 $ - - (12 ) 5,313 - 2,371 - 965 - 64 55 - 654 (1,639 ) - 6,202 3,331 2,467 111 146 804 9,422 $ (1,651 ) $ 13,061 $ - 159 (2,698 ) 592 - 145 - 44 - 17 284 (231 ) 282 (11,379 ) 159 4,361 3,519 2,511 128 331 - 1,364 $ (14,308 ) $ 10,850 $ 8 $ 108 2,804 2,920 2,632 - 167 - 5,014 $ 10,733 $ - $ 486 201 687 249 129 137 - 4,088 5,290 $ - $ - (12 ) (12 ) - - - - - $ 559 282 841 180 190 190 - - $ 1,045 471 1,516 429 319 327 - 8,021 (1,639 ) 10,470 9,422 $ (1,651 ) $ 13,061 $ - $ - $ - 64 (2,698 ) 301 (2,698 ) 365 (180 ) 7 (51 ) 23 - 31 - 29 909 (11,379 ) 8 1,217 878 2,103 2,888 291 525 29 5,014 1,364 $ (14,308 ) $ 10,850 Condensed Consolidating Statement of Cash Flows for the year ended October 3, 2009 in millions 2014 Guarantors Cash Provided by (Used for) Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Change in restricted cash-investing Proceeds from sale of marketable securities, net Proceeds from sale of discontinued operation Acquisitions, net of cash acquired Other, net Cash Used for Investing Activities Cash Flows from Financing Activities: Net change in debt Debt issuance costs Change in restricted cash-financing Purchase of treasury shares Dividends Other, net Net change in intercompany balances Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on Cash Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year TFI Parent (617) $ $ TFM Parent Guar- antors 507 $ 1,034 $ Elimin- ations Subtotal - $ 1,541 $ Non- Guar- antors 126 $ Elimin- ations Total (25 ) $ 1,025 - - (56 ) - (211 ) - - - (267 ) - (101 ) (43 ) - - (13 ) 12 (212 ) - - (140 ) - - (52 ) 123 (69 ) - 753 35 788 $ - - - - - - - - - - - - - - - - - $ - - (13 ) 13 (267 ) (94 ) - (140 ) - - (52 ) (235 ) (521 ) - 753 35 788 $ 19 75 (80 ) 7 (123 ) 36 (1 ) - - (25 ) (7 ) 129 132 6 141 75 216 $ - - - (37) (37) 545 (58) - (19) (60) - 106 514 - (140) 140 - $ $ - - - 1 (55 ) (94 ) - - - - - (358 ) (452 ) - - - - $ 59 - - - - - - - (368 ) (43 ) 19 75 (93 ) (17 ) (427 ) 487 - (59 ) - (140 ) - (19 ) - (60 ) 25 (59 ) - - - 150 25 6 - 754 - - 250 - $ 1,004 Condensed Consolidating Statement of Cash Flows for the year ended September 27, 2008 in millions 2014 Guarantors Cash Provided by (Used for) Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Proceeds from sale of investments Purchases of marketable securities, net Other, net Cash Provided by (Used for) Investing Activities Cash Flows from Financing Activities: Net change in debt Net proceeds from Class A stock offering Convertible note hedge transactions Warrant transactions Purchase of treasury shares Dividends Other, net Net change in intercompany balances Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on Cash Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year TFI Parent (223) $ TFM Parent 276 $ $ Guar- antors 256 $ Elimin- ations Subtotal 532 $ - $ Non- Guar- antors (6 ) $ Elimin- ations (15 ) $ Total 288 (2) 14 (1) 13 24 145 274 (94) 44 (30) (56) 72 (19) 336 - 137 3 140 $ (104 ) 7 - 4 (93 ) (5 ) - - - - - 2 (180 ) (183 ) - - - - $ (302 ) 1 - 15 (286 ) - - - - - - - 62 62 - 32 3 35 $ - - - - - - - - - - - - - - - - - - $ (406 ) 8 - 19 (379 ) (5 ) - - - - - 2 (118 ) (121 ) - 32 3 35 $ (17 ) - (2 ) (25 ) (44 ) (51 ) - - - - (15 ) 20 137 91 (2 ) 39 36 75 $ - - - - - - - - - - 15 - - 15 - - - - $ (425 ) 22 (3 ) 7 (399 ) 89 274 (94 ) 44 (30 ) (56 ) 94 - 321 (2 ) 208 42 250 $ Condensed Consolidating Statement of Cash Flows for the year ended September 29, 2007 in millions 2014 Guarantors TFI Parent 177 $ TFM Parent 283 $ Guar- antors 261 $ Elimin- ations Subtotal 544 $ - $ Non- Guar- antors (18 ) $ Elimin- ations (25 ) $ Total 678 - - - - - - - - - - - - - - - $ (244 ) - (27 ) - - (3 ) (247 ) 16 - (11 ) (15 ) - - (7 ) (279 ) (301 ) - (4 ) 7 3 $ (448 ) - (25 ) 2 508 37 9 17 19 36 $ - - - - - (285 ) 770 16 78 579 - - 25 - - 25 - - - - $ (1,210 ) (61 ) (56 ) 75 - (1,252 ) 9 14 28 42 Cash Provided by (Used for) Operating Activities Cash Flows From Investing Activities: $ Additions to property, plant and equipment Proceeds from sale of short-term investment Proceeds from sale of marketable securities, net Other, net Cash Provided by (Used for) Investing Activities Cash Flows from Financing Activities: Net change in debt Purchase of treasury shares Dividends Other, net Net change in intercompany balances Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on Cash Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year (14 ) 770 (40 ) - (204 ) - - 81 837 - (12 ) (52 ) - 9 (195 ) (747 ) (61 ) (56 ) 80 (229 ) (1,013 ) - 1 2 3 $ (4 ) - - (7 ) (221 ) (232 ) - (1 ) 1 - $ $ (11 ) - - - (58 ) (69 ) - (3 ) 6 3 $ 60 NOTE 12: FAIR VALUE MEASUREMENTS As described in Note 2: Change in Accounting Principles, we adopted fair value measurement accounting guidance at the beginning of the first quarter fiscal 2009. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. This guidance also defines fair value 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 prescribed by this standard 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 table sets forth by level within the fair value hierarchy, our financial assets and liabilities accounted for at fair value on a recurring basis at October 3, 2009, according to the valuation techniques we used to determine their fair values (in millions): Assets: Commodity Derivatives Available for Sale Securities: Debt securities Equity securities Deferred Compensation Assets Total Assets Liabilities: Commodity Derivatives Foreign Exchange Forward Contracts Interest Rate Swap Total Liabilities Level 1 Level 2 Level 3 Netting (a) Total $ - $ 21 $ - $ (17 ) $ 4 - 20 2 22 $ - $ - - - $ 33 - 84 138 $ 15 $ 1 4 20 $ 72 - - 72 $ - $ - - - $ - - - (17 ) $ (11 ) $ - (2 ) (13 ) $ 105 20 86 215 4 1 2 7 $ $ $ (a) Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. At October 3, 2009, we had posted $4 million of cash collateral and held no cash collateral with various counterparties. 61 The following table provides a reconciliation between the beginning and ending balance of debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions): Balance at September 27, 2008 Total realized and unrealized gains (losses): Included in earnings Included in other comprehensive income (loss) Purchases, issuances and settlements, net Balance at October 3, 2009 Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held as of October 3, 2009 Debt Securities 54 $ (4 ) 4 18 72 (4 ) $ $ The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Derivative Assets and Liabilities: Our derivatives, including commodities, foreign exchange forward contracts and interest rate swap, primarily include exchange-traded and over-the-counter contracts which are further described in Note 6: Derivative Financial Instruments. We record our commodity derivatives at fair value using quoted market prices adjusted for credit and non-performance risk and internal models that use as their basis readily observable market inputs including current and forward commodity market prices. Our foreign exchange forward contracts are recorded at fair value based on quoted prices and spot and forward currency prices adjusted for credit and non-performance risk. Our interest rate swap is recorded at fair value based on quoted LIBOR swap rates adjusted for credit and non-performance risk. 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, observable market transactions of spot currency rates and forward currency prices or observable benchmark market rates at commonly quoted intervals. Available for Sale Securities: Our investments in marketable debt securities are classified as available-for-sale and are included in Other Assets in the Consolidated Balance Sheets. These investments, which are generally long-term in nature with maturities ranging up to 47 years, are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. We classify our investments in U.S. government and agency 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 proprietary valuation models, including estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. In October 2008, we received eight million warrants to purchase an equivalent amount of Syntroleum Corporation common stock for one cent each in return for our entering into a letter of credit to guarantee all of the Dynamic Fuels’ Gulf Opportunity Zone tax-exempt bonds (see Note 11: Long-Term Debt) including Syntroleum Corporation’s 50 percent ownership portion. In April 2009, we exercised these warrants for eight million shares of Syntroleum Corporation. We record the shares in Other Assets in the Consolidated Balance Sheets at fair value based on quoted market prices. We classify the shares as Level 1 as the fair value is based on unadjusted quoted prices available in active markets. The following balances are as of October 3, 2009: Available for Sale Securities: Debt Securities: U.S. Treasury and Agency Corporate and Asset-Backed (a) Redeemable Preferred Stock Amortized Cost Basis Fair Value in millions Unrealized Gain (Loss) $ 33 $ 46 24 33 $ 48 24 - 2 - Equity Securities – Common Stock 9 20 11 (a) Amortized cost basis for Corporate and Asset-Backed debt securities have been reduced by accumulated other than temporary impairments of $4 million. 62 Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in other comprehensive income until the security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are temporary in nature. If losses are determined to be other than temporary, the loss would be recognized in earnings if we intend, or more likely than not will be required, to sell the security prior to recovery. For securities in which we have the intent and ability to hold until maturity, losses determined to be other than temporary would remain in other comprehensive income, other than expected credit losses which are recognized in earnings. We consider many factors in determining whether a loss is temporary, including the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. During fiscal 2009, we recognized $4 million of other than temporary impairments in earnings, while no amounts were recognized during fiscal 2008 and 2007. No other than temporary losses have been deferred in other comprehensive income as of October 3, 2009. Deferred Compensation Assets: We maintain two non-qualified deferred compensation plans for certain executives and other highly compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at fair value based on quoted market prices adjusted for credit and non-performance risk and are included in Other Assets in the Consolidated 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 During fiscal 2009, we had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. As indicated in Note 2: Change in Accounting Principles, the effective date was deferred for the aspects of fair value measurements related to nonfinancial assets and liabilities measured at fair value, but recognized or disclosed at fair value on a nonrecurring basis. This deferral applies to such items as nonfinancial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) or nonfinancial long-lived asset groups measured at fair value for an impairment assessment. Other Financial Instruments Fair values for debt are based on quoted market prices or published forward interest rate curves. Fair value and carrying value for our debt were as follows (in millions): Total Debt October 3, 2009 Fair Value 3,724 $ $ September 27, 2008 Carrying Value 2,896 Fair Value 2,659 $ Value 3,552 $ Carrying For all of our other financial instruments, the estimated fair value approximated the carrying value at October 3, 2009, and September 27, 2008. The carrying value of our other financial instrument, not otherwise disclosed herein, included notes receivable, which approximated fair value at October 3, 2009. Notes receivable are recorded in Other Assets in the Consolidated Balance Sheets and totaled $45 million and $0 at October 3, 2009, and September 27, 2008, respectively. The fair values were determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. Concentrations of Credit Risk Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Our cash equivalents are in high quality securities placed with major banks and financial institutions. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. At October 3, 2009, and September 27, 2008, 13.0% and 12.2%, respectively, of our net accounts receivable balance was due from Wal-Mart Stores, Inc. No other single customer or customer group represents greater than 10% of net accounts receivable. 63 NOTE 13: COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive income are as follows: Accumulated other comprehensive income: Currency translation adjustment Unrealized net hedging losses, net of taxes Unrealized net gain (loss) on investments, net of taxes Postretirement benefits reserve adjustments Total accumulated other comprehensive income (loss) The components of other comprehensive income (loss) are as follows: in millions 2008 2009 (21 ) $ (2 ) 9 (20 ) (34 ) $ 60 (8 ) (1 ) (10 ) 41 $ $ in millions Before Tax Income Tax After Tax Fiscal 2009: Currency translation adjustment Currency translation adjustment gain reclassified to loss from $ (43 ) $ 3 $ discontinued operation Unrealized gain on investments Loss on investments reclassified to other income Net change in postretirement liabilities Net hedging unrealized loss Net hedging loss reclassified to earnings Other comprehensive loss – 2009 Fiscal 2008: Currency translation adjustment Net change in postretirement liabilities Investments unrealized loss Net hedging unrealized gain Net hedging gain reclassified to earnings Other comprehensive loss – 2008 Fiscal 2007: Currency translation adjustment Net change in pension liability, prior to adoption of new accounting guidance (1) Net hedging unrealized gain Net hedging gain reclassified to earnings Other comprehensive income – 2007 (41 ) 12 4 (11 ) (53 ) 61 (71 ) $ (2 ) $ (10 ) (1 ) 37 (41 ) (17 ) $ 24 $ 9 33 (33 ) 33 $ - (5 ) (1 ) 1 23 (25 ) (4 ) $ - $ 6 - (14 ) 16 8 $ - $ (3 ) (13 ) 13 (3 ) $ $ $ $ $ $ (40 ) (41 ) 7 3 (10 ) (30 ) 36 (75 ) (2 ) (4 ) (1 ) 23 (25 ) (9 ) 24 6 20 (20 ) 30 (1) We adopted new accounting guidance in fiscal 2007 related to defined benefit and post retirement plans. NOTE 14: STOCK-BASED COMPENSATION We issue shares under our stock-based compensation plans by issuing Class A stock from treasury. The total number of shares available for future grant under the Tyson Foods, Inc. 2000 Stock Incentive Plan (Incentive Plan) was 22,320,132 at October 3, 2009. Stock Options Shareholders approved the Incentive Plan in January 2001. The Incentive Plan is administered by the Compensation Committee of the Board of Directors (Compensation Committee). The Incentive Plan includes provisions for granting incentive stock options for shares of Class A stock at a price not less than the fair market value at the date of grant. Nonqualified stock options may be granted at a price equal to, less than or more than the fair market value of Class A stock on the date the option is granted. Stock options under the Incentive Plan generally become exercisable ratably over two to five years from the date of grant and must be exercised within 10 years from the date of grant. Our policy is to recognize compensation expense on a straight-line basis over the requisite service period for the entire award. 64 Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares Under Aggregate Intrinsic Value (in millions) (in Years) Outstanding, September 27, 2008 Exercised Canceled Granted Outstanding, October 3, 2009 Option 16,906,014 $ (72,590 ) (1,495,506 ) 3,255,926 18,593,844 Per Share 14.38 8.63 14.47 4.90 12.73 Exercisable, October 3, 2009 10,050,940 $ 13.75 6.2 $ 4.5 $ 237 138 We grant stock options once a year. The grant-date fair value of options granted in fiscal 2009, 2008 and 2007 was $1.29, $5.22 and $5.85, respectively. The fair value of each option grant is established on the date of grant using a binomial lattice method for grants awarded after October 1, 2005, and the Black-Scholes option-pricing model for grants awarded before October 1, 2005. The change to the binomial lattice method was made to better reflect the exercise behavior of top management. We use historical volatility for a period of time comparable to the expected life of the option to determine volatility assumptions. Expected life is calculated based on the contractual term of each grant and takes into account the historical exercise and termination behavior of participants. Risk-free interest rates are based on the five-year Treasury bond rate. Assumptions as of the grant date used in the fair value calculation of each year’s grants are outlined in the following table. Expected life Risk-free interest rate Expected volatility Expected dividend yield 2009 2008 5.3 years 5.8 years 2.3 % 34.6 % 3.3 % 3.7 % 30.9 % 1.1 % 2007 5.4 years 4.6 % 33.7 % 1.0 % We recognized stock-based compensation expense related to stock options, net of income taxes, of $9 million, $12 million and $11 million, respectively, during fiscal years 2009, 2008 and 2007, with a $6 million, $7 million and $6 million related tax benefit. We had 2.4 million, 2.5 million and 1.9 million options vest in fiscal years 2009, 2008 and 2007, respectively, with a fair value of $15 million, $15 million and $9 million, respectively. In fiscal years 2009, 2008 and 2007, we received cash of $1 million, $9 million and $59 million, respectively, for the exercise of stock options. Shares are issued from treasury for stock option exercises. The related tax benefit realized from stock options exercised during fiscal years 2009, 2008 and 2007, was $0, $1 million and $12 million, respectively. The total intrinsic value of options exercised in fiscal years 2009, 2008 and 2007, was $0, $3 million and $31 million, respectively. Cash flows resulting from tax deductions in excess of the compensation cost of those options (excess tax deductions) are classified as financing cash flows. We realized $0, $0 and $9 million, respectively, in excess tax deductions during fiscal years 2009, 2008 and 2007, respectively. As of October 3, 2009, we had $29 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 2.7 years. 65 Restricted Stock We issue restricted stock at the market value as of the date of grant, with restrictions expiring over periods through 2013. Unearned compensation is recognized over the vesting period for the particular grant using a straight-line method. Nonvested, September 27, 2008 Granted Dividends Vested Forfeited Nonvested, October 3, 2009 Weighted Average Grant- Date Fair Value Per Share Weighted Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (in millions) 16.16 9.94 9.78 16.64 13.79 15.20 1.8 $ 57 Number of Shares 4,765,724 $ 726,238 78,192 (716,542) (196,702) 4,656,910 $ As of October 3, 2009, we had $25 million of total unrecognized compensation cost related to restricted stock awards that will be recognized over a weighted average period of 1.8 years. We recognized stock-based compensation expense related to restricted stock, net of income taxes, of $10 million, $11 million and $14 million for years 2009, 2008 and 2007, respectively. The related tax benefit for fiscal years 2009, 2008 and 2007 was $7 million, $6 million and $9 million, respectively. We had 0.7 million, 2.0 million and 3.4 million, respectively, restricted stock awards vest in fiscal years 2009, 2008 and 2007, with a grant date fair value of $11 million, $24 million and $37 million. Performance-based Shares In July 2003, our Compensation Committee began authorizing us to award performance-based shares of our Class A stock to certain senior executives. These awards are typically granted on the first business day of our fiscal year. The vesting of the performance-based shares is generally over three years and each award is subject to the attainment of goals determined by the Compensation Committee prior to the date of the award. We review progress toward the attainment of goals each quarter during the vesting period. However, the attainment of goals can be determined only at the end of the vesting period. If the shares vest, the ultimate cost will be equal to the Class A stock price on the date the shares vest multiplied by the number of shares awarded for all performance grants with other than market criteria. For grants with market performance criteria, the ultimate expense will be the fair value of the probable shares to vest regardless if the shares actually vest. Total expense recorded related to performance-based shares was not material for fiscal 2009, 2008 and 2007. NOTE 15: PENSIONS AND OTHER POSTRETIREMENT BENEFITS At October 3, 2009, we had four noncontributory defined benefit pension plans consisting of three funded qualified plans and one unfunded non-qualified plan. All three of our qualified plans are frozen and provide benefits based on a formula using years of service and a specified benefit rate. Effective January 1, 2004, we implemented a non-qualified defined benefit plan for certain contracted officers that uses a formula based on years of service and final average salary. We also have other postretirement benefit plans for which substantially all of our employees may receive benefits if they satisfy applicable eligibility criteria. The postretirement healthcare plans are contributory with participants’ contributions adjusted when deemed necessary. We have defined contribution retirement and incentive benefit programs for various groups of employees. We recognized expenses of $49 million, $48 million and $46 million in fiscal 2009, 2008 and 2007, respectively. We use a fiscal year end measurement date for our defined benefit plans and other postretirement plans. We generally recognize the effect of actuarial gains and losses into earnings immediately for other postretirement plans rather than amortizing the effect over future periods. Other postretirement benefits include postretirement medical costs and life insurance. 66 Benefit obligations and funded status The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at October 3, 2009, and September 27, 2008: Pension Benefits Non-Qualified 2009 2008 in millions Other Postretirement Benefits Change in benefit obligation Benefit obligation at beginning of year $ Service cost Interest cost Plan participants’ contributions Actuarial (gain) loss Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants’ contributions Benefits paid Fair value of plan assets at end of year Qualified 2009 2008 90 $ - 6 - - (7 ) 89 79 (5 ) 1 - (7 ) 68 98 $ - 6 - (6 ) (8 ) 90 97 (11 ) 1 - (8 ) 79 32 $ 4 2 - 2 (2 ) 38 - - 2 - (2 ) - 30 $ 3 2 - (2 ) (1 ) 32 - - 1 - (1 ) - 2009 2008 47 $ - 3 2 1 (7 ) 46 - - 5 2 (7 ) - 49 1 3 2 1 (9 ) 47 - - 7 1 (8 ) - Funded status $ (21 ) $ (11 ) $ (38 ) $ (32 ) $ (46 ) $ (47 ) Amounts recognized in the Consolidated Balance Sheets consist of: Pension Benefits Qualified 2009 2008 Non-Qualified 2009 2008 2009 in millions Other Postretirement Benefits Accrued benefit liability Accumulated other comprehensive (income)/loss: Unrecognized actuarial loss Unrecognized prior service (cost)/credit Net amount recognized $ (21 ) $ (11 ) $ (38 ) $ (32 ) $ (46 ) $ 35 - 14 $ 24 - 13 $ 1 4 (33 ) $ - 4 (28 ) $ - (8 ) (54 ) $ $ 2008 (47 ) - (9 ) (56 ) The increase (decrease) in the pretax minimum liability related to our pension plans included in other comprehensive income (loss) was $12 million, $9 million and $(9) million in fiscal 2009, 2008 and 2007, respectively. At October 3, 2009, and September 27, 2008, all pension plans had an accumulated benefit obligation in excess of plan assets. The accumulated benefit obligation for all qualified pension plans was $89 million and $90 million at October 3, 2009, and September 27, 2008, respectively. Plans with accumulated benefit obligations in excess of plan assets are as follows: in millions Pension Benefits Qualified 2009 Non-Qualified 2009 2008 2008 32 31 - Projected benefit obligation Accumulated benefit obligation Fair value of plan assets $ 89 $ 89 68 90 $ 90 79 38 $ 37 - 67  68 Net Periodic Benefit Cost Components of net periodic benefit cost for pension and postretirement benefit plans recognized in the Consolidated Statements of Income are as follows: in millions Pension Benefits Other Postretirement Qualified Non-Qualified Benefits 2009 2008 2007 2009 2008 2007 2009 2008 2007 Service cost $- $ - $ - $ 4 $ 3 $ 6 $ - $ 1 $ 1 Interest cost 6 6 5 2 2 2 3 3 4 Expected return on plan assets (7 ) (7 ) (7 ) - - - - - - Amortization of prior service cost - - - 1 1 1 - (1) (2) Recognized actuarial loss, net 1 1 1 - - - 1 1 12 Curtailment and settlement gain - - - - - - - - (27) Net periodic benefit cost $- $ - $ (1 ) $ 7 $ 6 $ 9 $ 4 $ 4 $ (12) Assumptions Weighted average assumptions are as follows: Pension Benefits Other Postretirement Qualified Non-Qualified Benefits 2009 2008 2007 2009 2008 2007 2009 2008 2007 Discount rate to determine net periodic benefit cost 6.36 % 6.33 % 5.93 % 6.50 % 6.25 % 6.00 % 6.50 % 6.25 % 6.00 % Discount rate to determine benefit obligations 6.00 % 5.88 % 5.39 % 6.00 % 6.50 % 6.25 % 5.71 % 6.50 % 6.25 % Rate of compensation increase N/A N/A N/A 3.50 % 3.50 % 3.50 % N/A N/A N/A Expected return on plan assets 8.00 % 8.02 % 7.89 % N/A N/A N/A N/A N/A N/A To determine the rate-of-return on assets assumption, we first examined historical rates of return for the various asset classes. We then determined a long-term projected rate-of-return based on expected returns over the next five to 10 years. We have three postretirement health plans. Two of these consist of fixed, annual payments and account for $33 million of the postretirement medical obligation at October 3, 2009. A healthcare cost trend is not required to determine this obligation. The remaining plan accounts for $13 million of the postretirement medical obligation at October 3, 2009. The plan covers retirees who do not yet qualify for Medicare and uses a healthcare cost trend of 9% in the current year, grading down to 6% in fiscal 2012. A one-percentage point change in assumed healthcare cost trend rate would have an immaterial impact on the postretirement benefit obligation and total service and interest cost. Plan Assets The fair value of plan assets for domestic pension benefit plans was $54 million and $64 million as of October 3, 2009, and September 27, 2008, respectively. The following table sets forth the actual and target asset allocation for pension plan assets: Target Asset 2009 2008 Allocation Cash 0.2 % 0.9 % 1.0 % Fixed income securities 19.7 31.1 19.0 US Stock Funds 43.2 44.1 45.0 International Stock Funds 20.2 18.8 20.0 Real Estate 4.7 5.1 5.0 Alternatives 12.0 - 10.0 Total 100.0 % 100.0 % 100.0 % A foreign subsidiary pension plan had $14 million and $15 million in plan assets at October 3, 2009, and September 27, 2008, respectively. All of this plan’s assets are held in annuity contracts consistent with its target asset allocation. The Plan Trustees have established a set of investment objectives related to the assets of the pension plans and regularly monitor the performance of the funds and portfolio managers. Objectives for the pension assets are (1) to provide growth of capital and income, (2) to achieve a target weighted average annual rate of return competitive with other funds with similar investment objectives and (3) to diversify to reduce risk. The investment objectives and target asset allocation were adopted in January 2004 and amended in November 2008. Alternative investments may include, but not limited to, hedge funds, private equity funds and fixed income funds. Contributions Our policy is to fund at least the minimum contribution required to meet applicable federal employee benefit and local tax laws. In our sole discretion, we may from time to time fund additional amounts. Expected contributions to pension plans for fiscal 2010 are approximately $4 million. For fiscal 2009, 2008 and 2007, we funded $2 million, $2 million and $5 million, respectively, to defined benefit plans. Estimated Future Benefit Payments The following benefit payments are expected to be paid: 2010 2011 2012 2013 2014 2015-2019 $ Pension Benefits Qualified Non-Qualified 6 $ 9 8 7 7 31 2 $ 2 2 2 2 17 in millions Other Postretirement Benefits 6 5 5 5 5 20 The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in 2010 or thereafter. NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION The following table summarizes cash payments for interest and income taxes: Interest Income taxes, net of refunds $ 2009 333 $ 35 in millions 2007 262 97 2008 211 $ 51 NOTE 17: TRANSACTIONS WITH RELATED PARTIES We have operating leases for farms, equipment and other facilities with Don Tyson, a director of the Company, John Tyson, Chairman of the Company, certain members of their families and the Randal W. Tyson Testamentary Trust. Total payments of $3 million in fiscal 2009, $3 million in fiscal 2008, and $5 million in fiscal 2007, were paid to entities in which these parties had an ownership interest. In 2008, a lawsuit captioned In re Tyson Foods, Inc. Consolidated Shareholder’s Litigation was settled. Pursuant to the settlement, Don Tyson and the Tyson Limited Partnership paid us $4.5 million. 69 NOTE 18: INCOME TAXES Detail of the provision for income taxes from continuing operations consists of the following: Federal State Foreign Current Deferred 2009 12 $ (2) 4 14 $ 40 $ (26) 14 $ $ $ $ $ 2008 in millions 2007 129 16 (3 ) 142 56 $ 8 4 68 $ 33 $ 35 68 $ 137 5 142 The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows: Federal income tax rate State income taxes, excluding unrecognized tax benefits Extraterritorial income exclusion Unrecognized tax benefits, net Medicare Part D Goodwill impairment General business credits Domestic production deduction Fixed asset tax cost correction Officers life insurance Change in state valuation allowance Change in foreign valuation allowance Tax planning in foreign jurisdictions Other 2009 35.0 % (0.1 ) - (0.3 ) - (37.2 ) 2.3 0.5 - (0.3 ) - (3.9 ) 1.8 (0.5 ) (2.7 )% 2008 35.0 % 2.0 - 4.4 (0.8 ) - (3.8 ) (2.2 ) - 3.8 5.0 - - 1.2 44.6 % 2007 35.0 % 2.3 (1.1 ) (4.6 ) 3.2 - (2.6 ) (1.0 ) 4.2 (1.4 ) - - - 0.6 34.6 % The fiscal 2009 goodwill impairment is non-deductible for income tax purposes and negatively impacted our effective income tax rate by 37.2%. During fiscal 2009, our tax expense was impacted by an increase in foreign valuation allowance which increased tax expense by $21 million, estimated general business credits which decreased tax expense by $12 million, and tax planning in foreign jurisdictions which decreased tax expense by $9 million. During fiscal 2008, an increase in the state valuation allowance increased tax expense by $8 million, while non-deductible activity relating to company-owned life insurance increased tax expense by $6 million. The addition of unrecognized tax benefits in fiscal 2008 caused a net increase to income tax expense of $7 million. Additionally, estimated general business credits decreased fiscal 2008 tax expense by $6 million. During fiscal 2007, we discovered a certain population of our tax cost and accumulated depreciation values were not accurately recorded, primarily related to a property, plant and equipment system conversion in 1999. This system conversion did not impact the recorded book value of the property, plant and equipment. As a result, the net tax basis of property, plant and equipment was overstated, which caused the deferred tax liability in our financial statements to be understated. In fiscal 2007, we increased our deferred tax liabilities $17 million and recognized additional tax expense of $17 million. Additionally, the fiscal 2007 effective tax rate was reduced by 4.6% due to the reduction of income tax reserves management deemed were no longer required. The net reduction to current income tax expense of approximately $20 million related to Internal Revenue Service examinations, appeals and United States Tax Court settlement activity, as well as state income tax examination settlements. Additional related adjustments resulted in a $28 million reduction of goodwill. We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 70 The tax effects of major items recorded as deferred tax assets and liabilities are as follows: Property, plant and equipment Suspended taxes from conversion to accrual method Intangible assets Inventory Accrued expenses Net operating loss and other carryforwards Note hedge transactions Insurance reserves Prepaids Other Valuation allowance Net deferred tax liability 2009 Deferred Tax Assets Liabilities - $ - - 19 151 103 30 22 - 114 439 $ (75) $ 339 $ 91 34 76 - - - - 20 54 614 $ $ 250 $ $ $ in millions 2008 Deferred Tax Assets Liabilities 365 96 30 89 - - - - 23 48 651 - $ - - 13 167 124 36 22 - 58 420 $ (49) $ 280 We record deferred tax amounts in Other Current Assets and in Deferred Income Taxes on the Consolidated Balance Sheets. The deferred tax liability for suspended taxes from conversion to accrual method represents the 1987 change from the cash to accrual method of accounting and will be recognized by 2027. At October 3, 2009, our gross federal tax net operating loss carryforward approximated $45 million. This carryforward expires in fiscal year 2024. Gross state tax net operating loss carryforwards approximated $803 million and expire in fiscal years 2010 through 2028. Gross foreign net operating loss carryforwards approximated $143 million, of which $87 million expire in fiscal years 2011 through 2019, and the remainder has no expiration. We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $220 million and $219 million at October 3, 2009 and September 27, 2008, respectively. These earnings are expected to be indefinitely reinvested outside of the United States. If those earnings were distributed in the form of dividends or otherwise, we would be subject to federal income taxes (subject to an adjustment for foreign tax credits), state income taxes and withholding taxes payable to the various foreign countries. It is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings. The following table summarizes the activity related to our gross unrecognized tax benefits at October 3, 2009, and September 27, 2008. 2009 in millions 2008 210 23 36 (28 ) (14 ) (7 ) 220 220 $ 7 60 (21) (25) (8) 233 $ Balance as of the beginning of the year Increases related to current year tax positions Increases related to prior year tax positions Reductions related to prior year tax positions Reductions related to settlements Reductions related to expirations of statute of limitations Balance as of the end of the year $ $ 71 The amount of unrecognized tax benefits, if recognized, that would affect our effective tax rate was $104 million and $73 million at October 3, 2009 and at September 27, 2008, respectively. We classify interest and penalties on unrecognized tax benefits as income tax expense. At October 3, 2009, and at September 27, 2008, before tax benefits, we had $71 million and $67 million, respectively, of accrued interest and penalties on unrecognized tax benefits. As of October 3, 2009, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 1998 through 2008, excluding 2001 and 2002, and for foreign, state and local income taxes for fiscal years 2001 through 2008. During fiscal 2010, tax audit resolutions could potentially reduce our unrecognized tax benefits by approximately $19 million, either because tax positions are sustained on audit or because we agree to their disallowance. NOTE 19: EARNINGS (LOSS) PER SHARE The earnings and weighted average common shares used in the computation of basic and diluted earnings (loss) per share are as follows: Numerator: Income (loss) from continuing operations Less Dividends: Class A ($0.16/share) Class B ($0.144/share) Undistributed earnings (losses) Class A undistributed earnings (losses) Class B undistributed earnings (losses) Total undistributed earnings (losses) Denominator: Denominator for basic earnings per share: Class A weighted average shares Class B weighted average shares, and shares under if-converted method for diluted earnings per share Effect of dilutive securities: Stock options and restricted stock Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions Earnings (Loss) Per Share from Continuing Operations: Class A Basic Class B Basic Diluted Net income (loss): Class A Basic Class B Basic Diluted in millions, except per share data 2007 2008 2009 $ (536 ) $ 86 $ 268 50 10 (596 ) (493 ) (103 ) (596 ) $ 46 10 30 25 5 30 $ 45 11 212 170 42 212 302 281 273 70 70 - 5 75 7 372 356 355 (1.47 ) $ (1.32 ) $ (1.44 ) $ 0.25 $ 0.22 $ 0.24 $ (1.47 ) $ (1.32 ) $ (1.44 ) $ 0.25 $ 0.22 $ 0.24 $ 0.79 0.70 0.75 0.79 0.70 0.75 $ $ $ $ $ $ $ Approximately 24 million, 10 million and 4 million, respectively, in fiscal years 2009, 2008 and 2007, of our stock-based compensation shares were antidilutive and were not included in the dilutive 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 dividend paid to holders of Class A stock. We allocate undistributed earnings (losses) based upon a 1 to 0.9 ratio per share of Class A stock and Class B stock, respectively. We allocate undistributed earnings (losses) based on this ratio due to historical dividend patterns, voting control of Class B shareholders and contractual limitations of dividends to Class B stock. 72 NOTE 20: SEGMENT REPORTING We operate in four segments: Chicken, Beef, Pork and Prepared Foods. We measure segment profit as operating income (loss). Chicken: Chicken operations include breeding and raising chickens, as well as processing live chickens into fresh, frozen and value-added chicken products and logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. It also includes sales from allied products and our chicken breeding stock subsidiary. Beef: Beef operations include processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. This segment also includes sales from allied products such as hides and variety meats, as well as logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. Allied products are marketed to manufacturers of pharmaceuticals and technical products. Pork: Pork operations include processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products. This segment also includes our live swine group, related allied product processing activities and logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. We sell allied products to pharmaceutical and technical products manufacturers, as well as a limited number of live swine to pork processors. Prepared Foods: Prepared Foods operations include manufacturing and marketing frozen and refrigerated food products and logistics operations to move products through the supply chain. Products include pepperoni, bacon, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. 73 Fiscal year ended October 3, 2009 Sales Operating income (loss) Other expense Loss from continuing operations before income taxes and minority interest Depreciation Total assets Additions to property, plant and equipment Fiscal year ended September 27, 2008 Sales Operating income (loss) Other expense Income from continuing operations before income taxes and minority interest Depreciation (a) Total assets (b) Additions to property, plant and equipment (c) Fiscal year ended September 29, 2007 Sales Operating income Other expense Income from continuing operations before income taxes and minority interest Depreciation (a) Total assets (b) Additions to property, plant and equipment (c) Chicken Beef Pork Prepared Foods Other Consolidated in millions $ 9,660 $ (157 ) 10,782 $ (346 ) 3,426 $ 160 2,836 $ 133 - $ (5 ) 252 4,927 174 103 2,277 39 36 840 18 54 905 58 - 1,646 79 $ 8,900 $ (118 ) 11,664 $ 106 3,587 $ 280 2,711 $ 63 - $ - 244 4,990 258 117 3,169 83 31 898 21 67 971 46 $ 8,210 $ 325 11,540 $ 51 3,314 $ 145 2,665 $ 92 - 663 15 - $ - 260 4,467 164 120 3,207 33 31 814 10 61 961 25 - 614 47 26,704 (215) 311 (526) 445 l0,595 368 26,862 331 177 154 459 10,691 423 25,729 613 203 410 472 10,063 279 a) Excludes depreciation related to discontinued operation of $9 million and $10 million for fiscal years 2008 and 2007, respectively. b) Excludes assets held for sale related to discontinued operation of $159 million and $164 million for fiscal years 2008 and 2007, respectively. c) Excludes additions to property, plant and equipment related to discontinued operation of $2 million and $6 million for fiscal years 2008 and 2007, respectively. We allocate expenses related to corporate activities to the segments, while the related assets and additions to property, plant and equipment remain in Other. The Pork segment had sales of $449 million, $517 million and $515 million for fiscal years 2009, 2008 and 2007, respectively, from transactions with other operating segments. The Beef segment had sales of $155 million, $142 million and $111 million for fiscal years 2009, 2008 and 2007, respectively, from transactions with other operating segments. These sales from intersegment transactions, which are sold at market prices, were excluded from the segment sales in the above table. Our largest customer, Wal-Mart Stores, Inc., accounted for 13.8%, 13.3% and 13.4% of consolidated sales in fiscal years 2009, 2008 and 2007, respectively. Sales to Wal-Mart Stores, Inc. were included in the Chicken, Beef, Pork and Prepared Foods segments. Any extended discontinuance of sales to this customer could, if not replaced, have a material impact on our operations. The majority of our operations are domiciled in the United States. Approximately 97%, 98% and 98% of sales to external customers for fiscal 2009, 2008 and 2007, respectively, were sourced from the United States. Approximately $3.2 billion, $3.4 billion and $3.5 billion, respectively, of property, plant and equipment were located in the United States at October 3, 2009, September 27, 2008, and September 29, 2007. Approximately $329 million, $139 million and $125 million of property, plant and equipment were located in foreign countries, primarily Brazil, China and Mexico, at fiscal years ended 2009, 2008 and 2007, respectively. We sell certain products in foreign markets, primarily Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam. Our export sales totaled $2.7 billion, $3.2 billion and $2.5 billion for fiscal 2009, 2008 and 2007, respectively. Substantially all of our export sales are facilitated through unaffiliated brokers, marketing associations and foreign sales staffs. Foreign sales, which are sales of products produced in a country other than the United States, were less than 10% of consolidated sales for each of fiscal 2009, 2008 and 2007. Approximately 3%, 22% and 10% of income (loss) from continuing operations before income taxes and minority interest for fiscal 2009, 2008 and 2007, respectively, was from foreign operations. 74 NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED) 2009 Sales Gross profit Operating income (loss) Income (loss) from continuing operations Income (loss) from discontinued operation Net income (loss) Earnings (loss) from continuing operations: Class A Basic Class B Basic Diluted Earnings (loss) from discontinued operation: Class A Basic Class B Basic Diluted Net income (loss): Class A Basic Class B Basic Diluted 2008 Sales Gross profit Operating income Income (loss) from continuing operations Income (loss) from discontinued operation Net income (loss) Earnings (loss) from continuing operations: Class A Basic Class B Basic Diluted Earnings (loss) from discontinued operation: Class A Basic Class B Basic Diluted Net income (loss): Class A Basic Class B Basic Diluted First Quarter in millions, except per share data Fourth Third Quarter Quarter Second Quarter 6,521 $ 18 (198 ) (118 ) 6 (112 ) 6,307 $ 253 29 (90 ) (14 ) (104 ) 6,662 $ 470 276 127 7 134 7,214 462 (322 ) (455 ) - (455 ) (0.32 ) $ (0.29 ) $ (0.32 ) $ (0.25 ) $ (0.22 ) $ (0.24 ) $ 0.35 $ 0.31 $ 0.33 $ (1.25 ) (1.12 ) (1.22 ) 0.02 $ 0.02 $ 0.02 $ (0.04 ) $ (0.04 ) $ (0.04 ) $ 0.02 $ 0.02 $ 0.02 $ 0.00 0.00 0.00 (0.30 ) $ (0.27 ) $ (0.30 ) $ 6,476 $ 315 94 41 (7 ) 34 (0.29 ) $ (0.26 ) $ (0.28 ) $ 6,336 $ 315 54 3 (8 ) (5 ) 0.37 $ 0.33 $ 0.35 $ 6,849 $ 259 45 (3 ) 12 9 0.12 $ 0.11 $ 0.12 $ 0.01 $ 0.01 $ 0.01 $ (0.01 ) $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.02 ) $ (0.03 ) $ (0.02 ) $ (0.03 ) $ 0.10 $ 0.09 $ 0.10 $ (0.02 ) $ (0.01 ) $ (0.02 ) $ 0.04 $ 0.03 $ 0.04 $ 0.03 $ 0.02 $ 0.03 $ (1.25 ) (1.12 ) (1.22 ) 7,201 357 138 45 3 48 0.13 0.11 0.12 0.01 0.01 0.01 0.14 0.12 0.13 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 75 The fourth quarter of fiscal 2009 was a 14-week period, while the remaining quarters in the above table were 13-week periods. Second quarter fiscal 2009 operating income included a $15 million charge related to the closing of a prepared foods processed meats plant. Fourth quarter fiscal 2009 operating loss included a $560 million non-cash charge related to the partial impairment of the Beef segment’s goodwill. First quarter fiscal 2008 income from continuing operations before income taxes includes an $18 million non-operating gain related to sale of an investment and a $6 million severance charge related to the FAST initiative. Second quarter fiscal 2008 income from continuing operations before income taxes includes $47 million in charges related to restructuring a beef plant operation, closing a poultry plant, impairment of packaging equipment and software impairments. Third quarter fiscal 2008 loss from continuing operations before income taxes includes $13 million in charges related to flood damage and impairment of unimproved real property. Fourth quarter fiscal 2008 income from continuing operations before income taxes includes a $10 million charge related to intangible asset impairments. NOTE 22: CAPITAL STRUCTURE In September 2008, we issued 22.4 million shares of Class A stock as part of a public offering. The shares were offered at $12.75. Net proceeds, after underwriting discounts and commissions, of approximately $274 million were used toward the repayment of our borrowings under the accounts receivable securitization facility and for other general corporate purposes. An entity controlled by Don Tyson purchased three million shares of Class A stock in this offering. During fiscal 2007, Tyson Limited Partnership converted 15.9 million shares of Class B stock to Class A stock on a one-for-one basis. NOTE 23: CONTINGENCIES Listed below are certain claims made against the Company and our subsidiaries. In our opinion, we have made appropriate and adequate reserves, accruals and disclosures where necessary, and believe the probability of a material loss beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals and reserves are not adequate, an adverse outcome could have a material effect on the consolidated financial condition or results of operations. We believe we have substantial defenses to the claims made and intend to vigorously defend these cases. In 2000, the Wage and Hour Division of the U.S. Department of Labor (DOL) conducted an industry-wide investigation of poultry producers, including us, to ascertain compliance with various wage and hour issues. As part of this investigation, the DOL inspected 14 of our processing facilities. On May 9, 2002, the DOL filed a civil complaint styled Elaine L. Chao (now Hilda L. Solis), Secretary of Labor, United States Department of Labor v. Tyson Foods, Inc. against us in the U.S. District Court for the Northern District of Alabama. The plaintiffs allege in the complaint that we violated the overtime provisions of the federal Fair Labor Standards Act ("FLSA") at our chicken-processing facility in Blountsville, Alabama. Through discovery and trial, the Secretary of Labor sought to require us to compensate all hourly chicken processing workers for pre- and post-shift clothes changing, washing and related activities and for one of two unpaid 30-minute meal periods. The Secretary of Labor sought back wages for all employees at the Blountsville facility for a period of two years prior to the date of the filing of the complaint and an injunction against future violations at that facility and all other chicken processing facilities we operate. The District Court granted the Company’s motion for partial summary judgment in part, ruling that the second meal period is appropriately characterized as non-compensable, and reserved the remaining issues for trial. A jury trial began on February 2, 2009, and concluded with a mistrial on April 13, 2009, when the jury failed to reach a unanimous verdict. A second jury trial was held, beginning on August 25, 2009. The jury reached a verdict on November 4, 2009, and it determined that Blountsville team members performed work for which they were not compensated and awarded $250,000 in damages for a nine-year period. The jury also determined that the Company’s recordkeeping for hours of work did not violate the FLSA. The court has ordered the parties to mediation within the next sixty (60) days, and it has also set a February 15, 2010 trial date for the injunctive phase of trial. Several private lawsuits are pending against us alleging that we failed to compensate poultry plant employees for all hours worked, including overtime compensation, in violation of the FLSA. These lawsuits include DeAsencio v. Tyson Foods, Inc. (DeAsencio), filed on August 22, 2000, in the U.S. District Court for the Eastern District of Pennsylvania. This matter involves similar allegations that employees should be paid for the time it takes to engage in pre- and post-shift activities such as changing into and out of protective and sanitary clothing, obtaining clothing and walking to and from the changing area, work areas and break areas. They seek back wages, liquidated damages, pre- and post-judgment interest, and attorneys’ fees. Plaintiffs appealed a jury verdict and final judgment entered in our favor on June 22, 2006, in the District Court for the Eastern District of Pennsylvania. On September 7, 2007, the U.S. Court of Appeals for the Third Circuit reversed the jury verdict and remanded the case to the District Court for further proceedings. We sought rehearing en banc, which was denied by the Court of Appeals on October 5, 2007. The United States Supreme Court denied our petition for a writ of certiorari on June 9, 2008. The new trial date has not been set. 76 In addition to DeAsencio, several additional private lawsuits were filed against us since the beginning of fiscal 2007 which allege we failed to compensate poultry plant employees for all hours worked, including overtime compensation, in violation of the FLSA. These lawsuits are Sheila Ackles, et al. v. Tyson Foods, Inc. (N. Dist. Alabama, October 23, 2006); McCluster, et al. v. Tyson Foods, Inc. (M. Dist. Georgia, December 11, 2006); Dobbins, et al. v. Tyson Chicken, Inc., et al. (N. Dist. Alabama, December 21, 2006); Buchanan, et al. v. Tyson Chicken, Inc., et al. and Potter, et al. v. Tyson Chicken, Inc., et al. (N. Dist. Alabama, December 22, 2006); Jones, et al. v. Tyson Foods, Inc., et al., Walton, et al. v. Tyson Foods, Inc., et al. and Williams, et al. v. Tyson Foods, Inc., et al. (S. Dist. Mississippi, February 9, 2007); Balch, et al. v. Tyson Foods, Inc. (E. Dist. Oklahoma, March 1, 2007); Adams, et al. v. Tyson Foods, Inc. (W. Dist. Arkansas, March 2, 2007); Atkins, et al. v. Tyson Foods, Inc. (M. Dist. Georgia, March 5, 2007); and Laney, et al. v. Tyson Foods, Inc. and Williams, et al. v. Tyson Foods, Inc. (M. Dist. Georgia, May 23, 2007). Similar to DeAsencio, each of these matters involves allegations employees should be paid for the time it takes to engage in pre- and post-shift activities such as changing into and out of protective and sanitary clothing, obtaining clothing and walking to and from the changing area, work areas and break areas. The plaintiffs in each of these lawsuits seek or have sought to act as class representatives on behalf of all current and former employees who were allegedly not paid for time worked and seek back wages, liquidated damages, pre- and post-judgment interest, and attorneys’ fees. On April 6, 2007, we filed a motion for transfer of the above named actions for coordinated pretrial proceedings before the Judicial Panel on Multidistrict Litigation. The motion for transfer was granted on August 17, 2007. The cases listed above and five other cases subsequently filed involving the same allegations, Armstrong, et al. v. Tyson Foods, Inc. (W. Dist. Tennessee, January 30, 2008); Maldonado, et al. v. Tyson Foods, Inc. (E. Dist. Tennessee, January 31, 2008); White, et al. v. Tyson Foods, Inc. (E. Dist. Texas, February 1, 2008); Meyer, et al. v. Tyson Foods, Inc. (W. Dist. Missouri, February 2, 2008); and Leak, et al. v. Tyson Foods, Inc. (W. Dist. North Carolina, February 6, 2008), were transferred to the U.S. District Court in the Middle District of Georgia, In re: Tyson Foods, Inc., Fair Labor Standards Act Litigation (“MDL Proceedings”). On January 2, 2008, the Judge in the MDL Proceedings issued a Joint Scheduling and Case Management Order. The Order granted Conditional Class Certification and called for notice to be given to potential putative class members via a third party administrator. The potential class members had until April 18, 2008, to “opt–in” to the class. Approximately 13,800 employees and former employees filed their consents to “opt-in” to the class. On October 15, 2008, the Judge in the MDL Proceedings denied the plaintiffs’ motion for equitable tolling, which, if granted, would have extended the time period in which the plaintiffs could have sought damages. However, in addition to the consents already obtained, the Court allowed plaintiffs to obtain corrected and reaffirmed opt-in consents that were previously filed in the matter of M.H. Fox, et al. v. Tyson Foods, Inc. (N. Dist. Alabama, June 22, 1999). The deadline for filing these consents was December 31, 2008, and according to the third party administrator, approximately 4,000 reaffirmed consents were filed, some or all of which may be in addition to the approximately 13,800 consents filed previously. The parties have completed discovery at eight of our facilities and our corporate headquarters in Springdale, Arkansas. Discovery may be conducted at additional facilities in the future. We have filed class decertification motions for the eight facilities involved in discovery. We have also filed Motions for Partial Summary Judgment for these eight facilities, and the parties have completed briefing. The parties have requested oral arguments to further present their respective positions on these issues. If oral argument is granted, we anticipate that it will occur in December 2009. We have pending eleven separate wage and hour actions involving TFM’s plants located in Lexington, Nebraska (Lopez, et al. v. Tyson Foods, Inc., District of Nebraska, June 30, 2006), Garden City and Emporia, Kansas (Garcia, et al. v. Tyson Foods, Inc., Tyson Fresh Meats, Inc., District of Kansas, May 15, 2006), Storm Lake, Iowa (Bouaphakeo (f/k/a Sharp), et al. v. Tyson Foods, Inc., N.D. Iowa, February 6, 2007), Columbus Junction, Iowa (Robinson, et al. v. Tyson Foods, Inc., d/b/a Tyson Fresh Meats, Inc., S.D. Iowa, September 12, 2007) , Joslin, Illinois (Murray, et al. v. Tyson Foods, Inc., C.D. Illinois, January 2, 2008), Dakota City, Nebraska (Gomez, et al. v. Tyson Foods, Inc., District of Nebraska, January 16, 2008), Madison, Nebraska (Acosta, et al. v Tyson Foods, Inc. d.b.a Tyson Fresh Meats, Inc., District of Nebraska, February 29, 2008), Perry and Waterloo, Iowa (Edwards, et al. v. Tyson Foods, Inc. d.b.a Tyson Fresh Meats, Inc., S.D. Iowa, March 20, 2008); Council Bluffs, Iowa (Maxwell (f/k/a Salazar), et al. v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, Inc., S.D. Iowa, April 29, 2008; Logansport, Indiana (Carter, et al. v. Tyson Foods, Inc. and Tyson Fresh Meats, Inc., N.D. Indiana, April 29, 2008); and Goodlettsville, Tennessee (Abadeer v. Tyson Foods, Inc., and Tyson Fresh Meats, Inc., M.D. Tennessee, February 6, 2009). The actions allege we failed to pay employees for all hours worked, including overtime compensation for the time it takes to change into protective work uniforms, safety equipment and other sanitary and protective clothing worn by employees, and for walking to and from the changing area, work areas and break areas in violation of the FLSA and analogous state laws. The plaintiffs seek back wages, liquidated damages, pre- and post-judgment interest, attorneys’ fees and costs. Each case is proceeding in its jurisdiction. On June 19, 2005, the Attorney General and the Secretary of the Environment of the State of Oklahoma filed a complaint in the U.S. District Court for the Northern District of Oklahoma against us, three of our subsidiaries and six other poultry integrators. This complaint was subsequently amended. As amended, the complaint asserts a number of state and federal causes of action including, but not limited to, counts under Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), Resource Conservation and Recovery Act (“RCRA”), and state-law public nuisance theories. The amended complaint asserts that defendants and certain contract growers who are not named in the amended complaint polluted the surface waters, groundwater and associated drinking water supplies of the Illinois River Watershed (“IRW”) through the land application of poultry litter. Oklahoma asserts that this alleged pollution has also caused extensive injury to the environment (including soils and sediments) of the IRW and that the defendants have been unjustly enriched. Oklahoma's claims cover the entire IRW, which encompasses more than one million acres of 77 land and the natural resources (including lakes and waterways) contained therein. Oklahoma seeks wide-ranging relief, including injunctive relief, compensatory damages in excess of $800 million, an unspecified amount in punitive damages and attorneys' fees. We and the other defendants have denied liability, asserted various defenses, and filed a third-party complaint that asserts claims against other persons and entities whose activities may have contributed to the pollution alleged in the amended complaint. The district court has stayed proceedings on the third party complaint pending resolution of Oklahoma's claims against the defendants. On October 31, 2008, the defendants filed a motion to dismiss for failure to join the Cherokee Nation as a required party or, in the alternative, for judgment as a matter of law based on the plaintiffs' lack of standing. This motion was granted in part and denied in part on July 22, 2009. In its ruling, the district court dismissed Oklahoma's claims for monetary damages but denied the motion with respect to the claims for injunctive relief. On September 2, 2009, the Cherokee Nation filed a motion to intervene in the lawsuit. Their motion to intervene was denied on September 15, 2009 and the Cherokee Nation filed a notice of appeal of that ruling on September 17, 2009. A non-jury trial of the case began on September 24, 2009 and is ongoing. In 2008, the following thirteen (13) separate lawsuits were filed, with the various plaintiffs alleging that Tyson falsely advertised chicken products as “raised without antibiotics” in violation of various state consumer protection statutes: (Cutsail v. Tyson, 08CV01643 (D. Md.); Cohen v. Tyson, 4:08CV0366 (E.D. Ark.); Wright v. Tyson, 08CV3022 (D. N.J.); Wilson v. Tyson, 4:08CV0587 (E.D. Ark.); Gupton v. Tyson, 4:08CV0588 (E.D. Ark.); Kranish v. Tyson, 08CV01619 (D. Md.); Latimer v. Tyson, 4:08CV004051 (W.D. Ark.); Zukowosky v. Tyson, 4:08CV0584 (E,D, Ark.); Brickerd v. Tyson, 08CV1796 (D. Md.); Court v. Tyson, 08CV03592 (W.D. Wash.); Epstein v. Tyson, 08CV2800 (N.D. Cal.); Johnson v. Tyson, 08CV291 (D. Idaho); and Mize v. Tyson, 08CV4051 (W.D. Ark.)) Plaintiffs in each of these cases seek to pursue claims on behalf of themselves and proposed classes of other similarly situated consumers. Plaintiffs in each of these cases seek compensatory and punitive damages in an unspecified amount in excess of $5,000,000. Plaintiffs in two of these cases, Cutsail v. Tyson and Cohen v. Tyson, petitioned the Judicial Panel on Multidistrict Litigation to transfer all of these actions to a single court for consolidated or coordinated pretrial proceedings pursuant to 28 U.S.C. 1407. On October 17, 2008, the Judicial Panel granted the multidistrict litigation petitions and transferred the pending cases to the District of Maryland. A trial date has not been set. On December 29, 2008, Plaintiff Gupton filed a voluntary dismissal of all her claims. On December 30, 2008, Plaintiffs Latimer and Mize filed voluntary dismissals of their claims. These three cases were subsequently dismissed. Discovery is ongoing in the case. In September 2009, the National Water Commission (“CONAGUA”), an agency of the Mexican government's Ministry of the Environment and Natural Resources, sent an observation letter to our Mexican subsidiary, Tyson de Mexico (“TdM”), with respect to TdM's water usage at certain water wells that are part of its poultry production operations. This letter was in response to TdM's previous submission to CONAGUA of requested information relating to water usage from these wells from 2004 to 2007. In the observation letter, which contains an initial finding of facts, CONAGUA alleges that TdM may have failed to (i) report accurate water volume usage, (ii) install measuring equipment, (iii) provide evidence of water use exemptions, (iv) pay for applicable usage, and (v) properly measure water volume, all as required under water deeds held by TdM. On October 15, 2009, TdM responded to CONAGUA, denying the allegations as presented. 78 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Tyson Foods, Inc. We have audited the accompanying consolidated balance sheets of Tyson Foods, Inc. as of October 3, 2009 and September 27, 2008, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 3, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tyson Foods, Inc. at October 3, 2009 and September 27, 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 3, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As reflected in the Consolidated Statements of Shareholders’ Equity, the Company adopted Statement of Financial Accounting Standards Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (codified in FASB ASC Topic 740, Income Taxes) in 2008. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tyson Foods, Inc.’s internal control over financial reporting as of October 3, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 23, 2009, expressed an unqualified opinion thereon. Rogers, Arkansas November 23, 2009 /s/ Ernst & Young LLP 79 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Tyson Foods, Inc. We have audited Tyson Foods, Inc.’s internal control over financial reporting as of October 3, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Tyson Foods, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management under the caption “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. In our opinion, Tyson Foods, Inc. maintained, in all material respects, effective internal control over financial reporting as of October 3, 2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Tyson Foods, Inc. as of October 3, 2009 and September 27, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended October 3, 2009, and our report dated November 23, 2009, expressed an unqualified opinion thereon. Rogers, Arkansas November 23, 2009 /s/ Ernst & Young LLP 80 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures An evaluation was performed, under the supervision and with the participation of management, including Leland E. Tollett, the former Interim Chief Executive Officer, and the Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the 1934 Act)). Based on that evaluation, management, including Mr. Smith, our new Chief Executive Officer and our CFO, has concluded that, as of October 3, 2009, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or submit under the 1934 Act has been recorded, processed, summarized and reported in accordance with the rules and forms of the Securities and Exchange Commission. Changes in Internal Control Over Financial Reporting In the quarter ended October 3, 2009, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to management and the board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of October 3, 2009. In making this assessment, we used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this evaluation under the framework in Internal Control – Integrated Framework issued by COSO, Management concluded the Company’s internal control over financial reporting was effective as of October 3, 2009. The Company's independent registered public accounting firm, Ernst & Young LLP, has audited the financial statements included in this Form 10-K and has issued an attestation report on the Company's internal control over financial reporting. The attestation report on the Company’s internal control over financial reporting appears in Part II, Item 8. ITEM 9B. OTHER INFORMATION On November 19, 2009, we announced the appointment of Donnie Smith as President and Chief Executive Officer. In connection with Mr. Smith’s appointment, Leland E. Tollett stepped down as our Interim President and Chief Executive Officer and will continue to provide consulting services. Mr. Smith, age 50, was previously Senior Group Vice President, Poultry and Prepared Foods since January 2009, after serving as Group Vice President of Consumer Products since January 2008, Group Vice President of Logistics and Operations Services since April 2007, Senior Vice President Information Systems, Purchasing and Distribution since May 2006, Senior Vice President and Chief Information Officer since November 2005, and Senior Vice President, Supply Chain Management since October 2001. Mr. Smith has been employed by the Company since 1980. Also on November 19, 2009, we announced the appointment of James V. Lochner as Chief Operating Officer. Mr. Lochner, age 57, was previously Senior Group Vice President, Fresh Meats and Margin Optimization since May 2006, after serving as Senior Group Vice President, Margin Optimization, Purchasing and Logistics since October 2005, Group Vice President, Purchasing, Travel, and Aviation since November 2004 and Group Vice President, Fresh Meats since 2001. Mr. Lochner was initially employed by IBP in 1983. 81 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE See information set forth under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the registrant’s definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held February 5, 2010 (the “Proxy Statement”), which information is incorporated herein by reference. Pursuant to general instruction G(3) of the instructions to Annual Report on Form 10-K, certain information concerning our executive officers is included under the caption “Executive Officers of the Company” in Part I of this Report. We have a code of ethics as defined in Item 406 of Regulation S-K, which code applies to all of our directors and employees, including our principal executive officers, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This code of ethics, titled “Tyson Foods, Inc. Code of Conduct,” is available, free of charge on our website at http://ir.tyson.com. ITEM 11. EXECUTIVE COMPENSATION See the information set forth under the captions “Executive Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement, which information is incorporated herein by reference. However, pursuant to Instructions to Item 407(e)(5) of the Securities and Exchange Commission Regulation S-K, the material appearing under the sub-heading “Compensation Committee Report” shall not be deemed to be “filed” with the Commission, other than as provided in this Item 11. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS See the information included under the captions “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” in the Proxy Statement, which information is incorporated herein by reference. Securities Authorized for Issuance Under Equity Compensation Plans The following information reflects certain information about our equity compensation plans as of October 3, 2009: Equity Compensation Plan Information (a) (b) (c) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 18,408,058 $ - 18,408,058 $ Number of Securities to be issued upon exercise of outstanding options Number of Securities remaining available for future issuance under equity compensation plans (excluding Securities reflected in column (a)) 39,498,102 - 39,498,102 Weighted average exercise price of outstanding options 12.78 - 12.78 This table does not include 185,786 options, with a weighted-average exercise price of $7.96, which were assumed in connection with the acquisition of IBP, inc. in 2001. a) Outstanding options granted by the Company b) Weighted average price of outstanding options c) Shares available for future issuance as of October 3, 2009, under the Stock Incentive Plan (22,320,132), the Employee Stock Purchase Plan (9,386,382) and the Retirement Savings Plan (7,791,588) 82 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE See the information included under the captions “Election of Directors” and “Certain Transactions” in the Proxy Statement, which information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES See the information included under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “All Other Fees” in the Proxy Statement, which information is incorporated herein by reference. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as a part of this report: PART IV Consolidated Statements of Income for the three years ended October 3, 2009 Consolidated Balance Sheets at October 3, 2009, and September 27, 2008 Consolidated Statements of Shareholders’ Equity for the three years ended October 3, 2009 Consolidated Statements of Cash Flows for the three years ended October 3, 2009 Notes to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm Financial Statement Schedule - Schedule II Valuation and Qualifying Accounts for the three years ended October 3, 2009 All other schedules are omitted because they are neither applicable nor required. The exhibits filed with this report are listed in the Exhibit Index at the end of Item 15. 83 EXHIBIT INDEX Exhibit No. 3.1 Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1998, Commission File No. 001-14704, and incorporated herein by reference). 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Fourth Amended and Restated By-laws of the Company (previously filed as Exhibit 3.2 to the Company's Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated herein by reference). Indenture dated June 1, 1995 between the Company and The Chase Manhattan Bank, N.A., as Trustee (the “Company Indenture”) (previously filed as Exhibit 4 to Registration Statement on Form S-3, filed with the Commission on December 18, 1997, Registration No. 333-42525, and incorporated herein by reference). Form of 7.0% Note due January 15, 2028 issued under the Company Indenture (previously filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the period ended December 27, 1997, Commission File No. 001-14704, and incorporated herein by reference). Form of 7.0% Note due May 1, 2018 issued under the Company Indenture (previously filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 1998, Commission File No. 001-14704, and incorporated herein by reference). Supplemental Indenture between the Company and The Chase Manhattan Bank, N.A., as Trustee, dated as of October 2, 2001, supplementing the Company Indenture, together with form of 8.250% Note (previously filed as Exhibit 4.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704, and incorporated herein by reference). Form of 6.60% Senior Notes due April 1, 2016 issued under the Company Indenture (previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 22, 2006, Commission File No. 001-14704, and incorporated herein by reference). Supplemental Indenture among the Company, Tyson Fresh Meats, Inc. and JPMorgan Chase Bank, National Association, dated as of September 18, 2006, supplementing the Company Indenture (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 19, 2006, Commission File No. 001-14704, and incorporated herein by reference). Supplemental Indenture dated as of September 15, 2008, between the Company and The Bank of New York Mellon Trust Company, National Association (as successor to JPMorgan Chase Bank, N.A. (formerly The Chase Manhattan Bank, N.A.)), as Trustee (including the form of 3.25% Convertible Senior Notes due 2013), supplementing the Company Indenture (previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). Indenture, dated January 26, 1996, between IBP, inc. (“IBP”) and The Bank of New York (the “IBP Indenture”) (previously filed as Exhibit 4 to IBP's Registration Statement on Form S-3, filed with the Commission on November 20, 1995, Commission File No. 33-64459, and incorporated herein by reference). Form of Senior Note issued under the IBP Indenture for the issuance of (a) 7.125% Senior Notes due February 1, 2026, and (b) 7.95% Senior Notes due February 1, 2010 (previously filed as Exhibit 4.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704, and incorporated herein by reference). 4.10 First Supplemental Indenture, dated as of September 28, 2001, among the Company, Lasso Acquisition Corporation and The Bank of New York, supplementing the IBP Indenture (previously filed as Exhibit 4.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704, and incorporated herein by reference). 4.11 Indenture, dated March 9, 2009, among the Company, the Subsidiary Guarantors (as defined therein) and The Bank of New York Mellon Trust Company, N.A., as Trustee (previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein by reference). 84 4.12 Form of 10.50% Senior Note due 2014 (previously filed as Exhibit 4.2 and included in Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein by reference). 10.1 Credit Agreement, dated March 9, 2009, among the Company, JPMorgan Chase Bank, N.A., as the Administrative Agent, J.P. Morgan Securities Inc., Banc of America Securities LLC, Barclays Capital, Wachovia Capital Markets, LLC and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Joint Bookrunners and Joint Lead Arrangers, Bank of America, N.A. and Barclays Capital, as Co-Syndication Agents and Wachovia Bank, National Association and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Co Documentation Agents and certain other lenders party thereto (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein by reference). 10.2 Convertible note hedge transaction confirmation, dated as of September 9, 2008, by and between JPMorgan Chase Bank, National Association and the Company (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.3 Warrant transaction confirmation, dated as of September 9, 2008, by and between JPMorgan Chase Bank, National Association and the Company (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.4 Letter Agreement, dated as of September 9, 2008, by and between JPMorgan Chase Bank, National Association and the Company (previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.5 Convertible note hedge transaction confirmation, dated as of September 9, 2008, by and between Merrill Lynch Financial Markets, Inc. and the Company (previously filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.6 Warrant transaction confirmation, dated as of September 9, 2008, by and between Merrill Lynch Financial Markets, Inc. and the Company (previously filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.7 Letter Agreement, dated as September 9, 2008, by and between Merrill Lynch Financial Markets, Inc. and the Company (previously filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.8 Agreement, dated January 16, 2009, between Richard L. Bond and the Company (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended December 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.9 Second Amended and Restated Employment Agreement, dated as of December 19, 2006, by and between Richard L. Bond and the Company (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 22, 2006, Commission File No. 001-14704, and incorporated herein by reference). 10.10 Restricted Stock Unit Agreement, dated as of September 28, 2007, between the Company and Richard L. Bond (previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated herein by reference). 10.11 Executive Employment Agreement, dated June 5, 2009, between the Company and Leland E. Tollett (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K/A filed June 5, 2009, Commission File No. 001-14704, and incorporated herein by reference). 10.12 Senior Executive Employment Agreement dated November 20, 1998 between the Company and Leland E. Tollett (previously filed as Exhibit 10.20 to the Company’s Annual Report on Form 10K for the fiscal year ended October 3, 1998, Commission File No. 001-14704, and incorporated herein by reference). 85 10.13 Amendment to Senior Executive Employment Agreement dated February 4, 2005, by and between the Company and Leland E. Tollett (previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended January 1, 2005, Commission File No. 001-14704, and incorporated herein by reference). 10.14 Employment Agreement between the Company and Craig J. Hart, dated October 5, 2009. 10.15 Senior Advisor Agreement, dated July 30, 2004, by and between Don Tyson and the Company (previously filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 2004, Commission File No. 001-14704, and incorporated herein by reference). 10.16 Executive Employment Agreement between the Company and James V. Lochner, dated October 7, 2005 (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed October 12, 2005, Commission File No. 001-14704, and incorporated herein by reference). 10.17 Employment Agreement between the Company and Donald J. Smith, dated August 10, 2009 (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 14, 2009, Commission File No. 001-14704, and incorporated herein by reference). 10.18 Executive Employment Agreement between the Company and David L. Van Bebber, dated May 21, 2008 (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 28, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.19 Executive Employment Agreement between the Company and Dennis Leatherby, dated June 6, 2008 (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 11, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.20 Executive Employment Agreement between the Company and Richard A. Greubel, Jr, dated May 3, 2007 (previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007, Commission File No. 001-14704, and incorporated herein by reference). 10.21 Executive Employment Agreement between the Company and Jeffrey D. Webster, dated December 1, 2008 (previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 28, 2009, Commission File No. 001-14704, and incorporated herein by reference). 10.22 Employment Agreement between the Company and Kenneth J. Kimbro, dated October 5, 2009. 10.23 Agreement, dated as of September 28, 2007, between the Company and John Tyson (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated herein by reference). 10.24 Indemnity Agreement, dated as of September 28, 2007, between the Company and John Tyson (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated herein by reference). 10.25 Form of Indemnity Agreement between Tyson Foods, Inc. and its directors and certain executive officers (previously filed as Exhibit 10(t) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, Commission File No. 0-3400, and incorporated herein by reference). 10.26 Form of IBP's Indemnification Agreement with officers and directors (previously filed as Exhibit 10.8 to IBP's Registration Statement on Form S-1, dated August 19, 1987, File No. 1-6085 and incorporated hereby by reference). 10.27 Tyson Foods, Inc. Annual Incentive Compensation Plan for Senior Executives adopted February 4, 2005 (previously filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2005, Commission File No. 001-14704, and incorporated herein by reference). 10.28 Tyson Foods, Inc. Restricted Stock Bonus Plan, effective August 21, 1989, as amended and restated on April 15, 1994; and Amendment to Restricted Stock Bonus Plan effective November 18, 1994 (previously filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1994, Commission File No. 0-3400, and incorporated herein by reference). 86 10.29 Amended and Restated Tyson Foods, Inc. Employee Stock Purchase Plan, effective as of October 1, 2008 (previously filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.30 First Amendment to the Tyson Foods, Inc. Employee Stock Purchase Plans effective December 27, 2009. 10.31 Restated Executive Savings Plan of Tyson Foods, Inc. effective January 1, 2009 (previously filed as Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.32 First Amendment to Executive Savings Plan of Tyson Foods, Inc. effective January 1, 2009. 10.33 Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective November 19, 2004, First Amendment to the Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective February 2, 2007, and Second Amendment to the Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective August 13, 2007 (previously filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.34 Third Amendment to the Tyson Foods, Inc. 2000 Stock Incentive Plan effective November 20, 2009. 10.35 IBP 1996 Stock Option Plan (previously filed as Exhibit 10.5.7 to IBP's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, File No. 1-6085 and incorporated herein by reference). 10.36 Amended and Restated Retirement Income Plan of IBP, inc. effective August 1, 2000, and Amendment to Freeze the Retirement Income Plan of IBP, inc. effective December 31, 2002 (previously filed as Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.37 Amended and Restated Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan effective March 1, 2007, First Amendment to the Amended and Restated Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan effective September 24, 2007, and Second Amendment to the Amended and Restated Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan effective January 1, 2008 (previously filed as Exhibit 10.47 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.38 Retirement Savings Plan of Tyson Foods, Inc. effective January 1, 2008 (previously filed as Exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and incorporated herein by reference). 10.39 First Amendment to the Retirement Savings Plan of Tyson Foods, Inc. effective January 1, 2008. 10.40 Form of Restricted Stock Agreement pursuant to which restricted stock awards were granted under the Tyson Foods, Inc. 2000 Stock Incentive Plan prior to July 31, 2009 (previously filed as Exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 2004, Commission File No. 001-14704, and incorporated herein by reference). 10.41 Form of Restricted Stock Agreement pursuant to which restricted stock awards are granted under the Tyson Foods, Inc. 2000 Stock Incentive Plan effective July 31, 2009. 10.42 Form of Stock Option Grant Agreement pursuant to which stock option awards were granted under the Tyson Foods, Inc. 2000 Stock Incentive Plan prior to July 31, 2009 (previously filed as Exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 2004, Commission File No. 001-14704, and incorporated herein by reference). 10.43 Forms of Stock Option Grant Agreements pursuant to which stock option awards are granted under the Tyson Foods, Inc. 2000 Stock Incentive Plan effective July 31, 2009. 10.44 Form of Performance Stock Award Agreement pursuant to which performance stock awards are granted under the Tyson Foods, Inc. 2000 Stock Incentive Plan effective September 29, 2009. 87 12.1 Calculation of Ratio of Earnings to Fixed Charges 14.1 Code of Conduct of the Company (previously filed as Exhibit 14.1 to the Company's Current Report on Form 8-K filed January 18, 2007, Commission File No. 001-14704, and incorporated herein by reference). 16.1 Letter of Ernst & Young LLP dated June 12, 2009 (previously filed as Exhibit 16.1 to the Company's Current Report on Form 8-K filed June 12, 2009, Commission File No. 001-14704, and incorporated herein by reference). 21 23 Subsidiaries of the Company Consent of Ernst & Young LLP 31.1 Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 88 SIGNATURES Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TYSON FOODS, INC. By: /s/ Dennis Leatherby Dennis Leatherby Executive Vice President and Chief Financial Officer November 23, 2009 89 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ Lloyd V. Hackley Lloyd V. Hackley Director /s/ Craig J. Hart Craig J. Hart /s/ Jim Kever Jim Kever /s/ Kevin M. McNamara Kevin M. McNamara /s/ Dennis Leatherby Dennis Leatherby /s/ Brad T. Sauer Brad T. Sauer /s/ Donnie Smith Donnie Smith /s/ Jo Ann R. Smith Jo Ann R. Smith /s/ Robert C. Thurber Robert C. Thurber /s/ Barbara A. Tyson Barbara A. Tyson /s/ Don Tyson Don Tyson /s/ John Tyson John Tyson Senior Vice President, Controller and Chief Accounting Officer Director Director November 23, 2009 November 23, 2009 November 23, 2009 November 23, 2009 Executive Vice President and Chief Financial Officer November 23, 2009 Director November 23, 2009 President and Chief Executive Officer November 23, 2009 Director Director Director Director November 23, 2009 November 23, 2009 November 23, 2009 November 23, 2009 Chairman of the Board of Directors November 23, 2009 /s/ Albert C. Zapanta Albert C. Zapanta Director November 23, 2009 90 FINANCIAL STATEMENT SCHEDULE TYSON FOODS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Three Years Ended October 3, 2009 Allowance for Doubtful Accounts: 2009 2008 2007 Inventory Lower of Cost or Market Allowance: 2009 2008 2007 Additions Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts (Deductions) in millions Balance at End of Period $ $ 12 $ 8 8 13 $ 4 1 22 $ 5 1 57 $ 29 12 - $ - - - $ - - (1 ) $ (1 ) (1 ) (48 ) $ (20 ) (9 ) 33 12 8 22 13 4 91 

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