Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DESCRIPTION OF THE COMPANY

We are one of the world's largest producers of chicken, beef, pork and prepared foods that include leading brands such as Tyson®, Jimmy Dean®, Hillshire Farm®, Sara Lee® frozen bakery, Ball Park®, Wright®, Aidells® and State Fair®. 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 and availability of live cattle and hogs, raw materials, and feed ingredients; and operating efficiencies of our facilities.

Our operations are conducted in five segments: Chicken, Beef, Pork, Prepared Foods and International. Our International segment became a separate reportable segment in the second quarter of fiscal 2014 as a result of changes to our internal financial reporting to align with previously announced executive leadership changes. The International segment includes our foreign operations primarily related to raising and processing live chickens into fresh, frozen and value-added chicken products in Brazil, China, India and Mexico. All periods presented have been reclassified to reflect this change. Beef, Pork, Prepared Foods and Other results were not impacted by this change.

On August 28, 2014, we acquired and consolidated The Hillshire Brands Company ("Hillshire Brands"), a manufacturer and marketer of branded, convenient foods. Hillshire Brands' one month results from operations for fiscal 2014 are included in the Prepared Foods segment.

OVERVIEW

•

General – Operating income grew 4% in fiscal 2014 over fiscal 2013, which was led by record earnings in our Chicken segment and strong performance in our Beef and Pork segments. Revenues increased 9% to a record $37.6 billion, driven by price and mix improvements. We were able to overcome a $2.3 billion increase in input costs through strong operational execution and margin management. We continued to execute our strategy of accelerating growth in domestic value-added chicken sales, prepared food sales, innovating products, services and customer insights and cultivating our talent development to support Tyson's growth for the future.

•

Market environment – Our Chicken segment delivered record results in fiscal 2014 driven by strong demand and favorable domestic market conditions. Our Beef segment experienced higher fed cattle costs and reduced availability of fed cattle supplies but delivered strong results by maximizing our revenues relative to the rising costs experienced in the live cattle markets. The Pork segment's operating margins remained within its normalized range due to favorable market conditions associated with lower pork supplies. Our Prepared Foods segment was challenged by rapidly increasing raw material prices in addition to costs incurred as we continue to execute our Prepared Foods strategy. Our International segment experienced higher volumes, offset with lower average sales prices due to weak demand of chicken in our foreign operations.

Margins – Our total operating margin was 3.8% in fiscal 2014. Operating margins by segment were as follows:

•	Chicken – 7.9%

•	Beef – 2.1%

•	Pork – 7.2%

•	Prepared Foods – (1.5)%

•	International - (8.8)%

•	Liquidity – During fiscal 2014, we generated $1.2 billion of operating cash flows. We repurchased 7.1 million shares of our Class A common stock for $250 million under our share repurchase program in fiscal 2014. At September 27, 2014, we had $1.6 billion of liquidity, which includes the availability under our credit facility and $438 million of cash and cash equivalents.

•	Our accounting cycle resulted in a 52-week year for fiscal 2014, 2013 and 2012.

	in millions, except per share data
	2014				2013				2012
Net income from continuing operations attributable to Tyson	$	864			$	848			$	621
Net income from continuing operations attributable to Tyson – per diluted share	2.37				2.31				1.68
Net loss from discontinued operation attributable to Tyson	—				(70		)		(38		)
Net loss from discontinued operation attributable to Tyson – per diluted share	—				(0.19		)		(0.10		)
Net income attributable to Tyson	864				778				583
Net income attributable to Tyson - per diluted share	2.37				2.12				1.58

2014 – Net income included the following items (fiscal 2014 per diluted share adjustments utilized a weighted average shares outstanding amount of 356 million):

•	$52 million, or $0.15 per diluted share, related to a gain from previously unrecognized tax benefits.

•	$197 million, or $0.37 per diluted share, related to the Hillshire Brands acquisition, integration and costs associated with our Prepared Foods improvement plan.

•	$42 million, or $0.16 per diluted share, related to an impairment in our Brazil operation and Mexico undistributed earnings tax.

•	$40 million, or $0.07 per diluted share, related to the Hillshire Brands post-closing results, purchase price accounting adjustments and ongoing costs related to a legacy Hillshire Brands plant fire.

•	$27 million, or $0.12 per diluted share, related to the Hillshire Brands acquisition financing incremental interest costs and share dilution.

2013 – Net income included the following item:

•	$19 million, or $0.05 per diluted share, related to recognized currency translation adjustment gain.

2012 – Net income included the following item:

•	$167 million pretax charge, or $0.29 per diluted share, related to the early extinguishment of debt.

SUMMARY OF RESULTS

Sales	in millions
	2014				2013				2012
Sales	$	37,580			$	34,374			$	33,055
Change in sales volume	2.4		%		(0.2		)%
Change in average sales price	6.9		%		4.6		%
Sales growth	9.3		%		4.0		%

2014 vs. 2013 –

•	Sales Volume – Sales were positively impacted by an increase in sales volume, which accounted for an increase of $679 million. All segments, with the exception of the Beef segment, had an increase in sales volume. Prepared Foods contributed to the majority of the increase due to the acquisition and consolidation of Hillshire Brands in our final month of fiscal 2014.

•

Average Sales Price – Sales were positively impacted by higher average sales price, which accounted for an increase of approximately $2.5 billion. Beef, Pork and Prepared Foods experienced increased average sales price, partially offset by decreased pricing in Chicken and International. The increase in average sales price was largely due to continued tight domestic availability of protein, increased pricing associated with rising live and raw material costs, and improved mix. The majority of the increase was driven by the Beef and Pork segments.

2013 vs. 2012 –

•	Sales Volume – Sales were negatively impacted by a slight decrease in sales volume, which accounted for a decrease of $255 million. This was primarily due to decreases in the Beef and Pork segments, partially offset by increases in the Chicken, Prepared Foods and International segments.

•

Average Sales Price – Sales were positively impacted by higher average sales price, which accounted for an increase of approximately $1.6 billion. All segments experienced increased average sales price, largely due to continued tight domestic availability of protein, increased pricing associated with rising live and raw material costs, and improved mix. The majority of the increase was driven by the Chicken and Beef segments.

Cost of Sales	in millions
	2014				2013				2012
Cost of sales	$	34,895			$	32,016			$	30,865
Gross profit	2,685				2,358				2,190
Cost of sales as a percentage of sales	92.9		%		93.1		%		93.4		%

2014 vs. 2013 –

•	Cost of sales increased by approximately $2.9 billion. Higher input costs per pound increased cost of sales $2.3 billion and higher sales volume increased cost of sales $610 million.

•	The $2.3 billion impact of higher input costs was primarily driven by:

•	Increase in live cattle and live hog costs of approximately $1.7 billion and $550 million, respectively.

•	Increase in raw material and other input costs in our Prepared Foods segment of approximately $210 million.

•	Increase due to net losses of $260 million in fiscal 2014, compared to net gains of approximately $5 million in fiscal 2013, from our Beef and Pork segment commodity risk management activities. These amounts exclude the impact from related physical purchase transactions, which mostly offset the losses.

•	Decrease in feed costs of $600 million in our Chicken segment and $42 million in our International segment.

•	The $610 million impact of higher sales volume was driven by increases in all of our segments, with the exception of Beef. Chicken and Prepared Foods contributed to the majority of the increase, with the Prepared Foods increase mainly attributable to the acquisition and consolidation of Hillshire Brands in our final month of fiscal 2014.

2013 vs. 2012 –

•	Cost of sales increased by approximately $1.2 billion due to higher input cost per pound.

•	The $1.2 billion impact of higher input costs was primarily driven by:

•	Increase in feed costs of $406 million in our Chicken segment and $64 million in our International segment.

•	Increase in live cattle and hog costs of approximately $395 million.

•	Increase in raw material and other input costs in our Prepared Foods segment of approximately $110 million.

•	Increase due to net losses of $15 million in fiscal 2013, compared to net gains of approximately $66 million in fiscal 2012, from our Pork segment commodity risk management activities. These amounts exclude the impact from related physical purchase transactions, which impact future period operating results.

Selling, General and Administrative	in millions
	2014				2013				2012
Selling, general and administrative	$	1,255			$	983			$	904
As a percentage of sales	3.3		%		2.9		%		2.7		%

2014 vs. 2013 –

•	Increase of $272 million in selling, general and administrative was primarily driven by:

•	Increase of $71 million related to employee costs including payroll and stock-based and incentive-based compensation, of which $19 million related to employee severance and retention costs associated with the Hillshire Brands acquisition and implementation of our Prepared Foods strategy.

•	Increase of $32 million related to advertising and sales promotions.

•	Increase of $82 million related to professional fees, of which $52 million related to the Hillshire Brands acquisition and integration costs.

•	Increases of $17 million in information technology costs, $7 million in charitable contributions and donations and $5 million in commissions.

•	Increase of $50 million related to the Hillshire Brands selling, general and administrative post-closing expenses in our final month of fiscal 2014.

2013 vs. 2012 –

•	Increase of $79 million in selling, general and administrative was primarily driven by:

•	Increase of $44 million related to employee costs including payroll and stock-based and incentive-based compensation.

•	Increase of $32 million related to advertising and sales promotions.

Interest Income	in millions
	2014				2013				2012
	$	(7	)		$	(7	)		$	(12	)

2014/2013/2012 – Interest income remained relatively flat due to continued low interest rates.

Interest Expense	in millions
	2014				2013				2012
Cash interest expense, net of amounts capitalized	$	124			$	117			$	151
Loss on early extinguishment of debt	—				—				167
Non-cash interest expense	8				28				38
Total Interest Expense	$	132			$	145			$	356

2014/2013/2012 –

•

Cash interest expense primarily included interest expense related to the coupon rates for senior notes and term loans and commitment/letter of credit fees incurred on our revolving credit facilities. The increase in cash interest expense in fiscal 2014 was primarily due to senior notes and term loans issued and debt assumed in connection with our completed acquisition of Hillshire Brands on August 28, 2014, partially offset by lower cash interest expense on our 3.25% Convertible Senior Notes due 2013 (2013 Notes) which matured October 15, 2013. The decrease in cash interest expense in fiscal 2013 is due to lower average coupon rates compared to fiscal 2012. This decrease was driven by the full extinguishment of the 10.50% Senior Notes due 2014 (2014 Notes) in fiscal 2012, partially offset with the 4.5% Senior Notes due 2022 (2022 Notes) issued in fiscal 2012.

•	Loss on early extinguishment of debt included the amount paid exceeding the par value of debt, unamortized discount and unamortized debt issuance costs related to the full extinguishment of the 2014 Notes.

•

Non-cash interest expense primarily included interest related to the amortization of debt issuance costs and discounts/premiums on note issuances. This includes debt issuance costs incurred on our revolving credit facility, the senior notes and term loans issued in connection with our acquisition of Hillshire Brands and the accretion of the debt discount on the 2013 Notes. The decrease in non-cash interest expense in fiscal 2014 is due primarily to lower non-cash interest expense on our 2013 Notes.

Other (Income) Expense, net	in millions
	2014				2013				2012
	$	53			$	(20	)		$	(23	)

2014 – Included $60 million of costs associated with bridge financing facilities for the Hillshire Brands acquisition and $6 million of other than temporary impairment related to an available-for-sale security, partially offset with $14 million of equity earnings in joint ventures and net foreign currency exchange gains.

2013 – Included $19 million related to recognized currency translation adjustment gain.

2012 – Included $16 million of equity earnings in joint ventures and $4 million in net foreign currency exchange gains.

Effective Tax Rate
	2014			2013			2012
	31.6	%		32.6	%		36.4	%

The effective tax rate on continuing operations was impacted by a number of items which result in a difference between our effective tax rate and the U.S. statutory rate of 35%. The table below reflects significant items impacting the rate as indicated.

2014 –

•	Domestic production activity deduction reduced the rate 4.0%.

•	Net decrease in unrecognized tax benefits, mostly related to expiration of statutes of limitations and settlements with taxing authorities, reduced the rate 4.7%.

•	State income taxes increased the rate 2.8%.

•	Foreign rate differences and valuation allowances increased the rate 2.8%.

2013 –

•	Domestic production activity deduction reduced the rate 3.2%.

•	General business credits reduced the rate 1.3%.

•	State income taxes increased the rate 2.4%.

2012 –

•	Domestic production activity deduction reduced the rate 1.8%.

•	General business credits reduced the rate 0.7%.

•	State income taxes increased the rate 1.5%.

•	Foreign rate differences and valuation allowances increased the rate 1.8%.

SEGMENT RESULTS

We operate in five segments: Chicken, Beef, Pork, Prepared Foods and International. The results from Dynamic Fuels are included in Other. We allocate expenses related to corporate activities to the segments, except for acquisition and integration related fees which are included in Other. The following table is a summary of sales and operating income (loss), which is how we measure segment income (loss).

																					in millions
	Sales												Operating Income (Loss)
	2014				2013				2012				2014				2013				2012
Chicken	$	11,116			$	10,988			$	10,270			$	883			$	683			$	554
Beef	16,177				14,400				13,755				347				296				218
Pork	6,304				5,408				5,510				455				332				417
Prepared Foods	3,927				3,322				3,237				(60		)		101				181
International	1,381				1,324				1,104				(121		)		(37		)		(70		)
Other	—				46				167				(74		)		—				(14		)
Intersegment Sales	(1,325		)		(1,114		)		(988		)		—				—				—
Total	$	37,580			$	34,374			$	33,055			$	1,430			$	1,375			$	1,286

Chicken Segment Results																	in millions
	2014				2013				Change 2014 vs. 2013				2012				Change 2013 vs. 2012
Sales	$	11,116			$	10,988			$	128			$	10,270			$	718
Sales Volume Change									2.6		%						0.7		%
Average Sales Price Change									(1.4		)%						6.2		%
Operating Income	$	883			$	683			$	200			$	554			$	129
Operating Margin	7.9		%		6.2		%						5.4		%

2014 vs. 2013 –

•	Sales Volume – Sales volume grew as a result of stronger demand for chicken products and mix of rendered product sales.

•	Average Sales Price – Average sales price decreased as feed ingredient costs declined, partially offset by mix changes.

•	Operating Income – Operating income increased due to higher sales volume and lower feed ingredient costs of $600 million, partially offset by decreased average sales price.

2013 vs. 2012 –

•	Sales Volume – Sales volume grew due to increased production driven by stronger demand for our chicken products.

•	Average Sales Price – The increase in average sales price was primarily due to mix changes and price increases associated with higher input costs. Since many of our sales contracts are formula based or shorter-term in nature, we were able to offset rising input costs through improved pricing and mix.

•	Operating Income – Operating income was positively impacted by increased average sales price, and improved live performance and operational execution. These increases were partially offset by increased feed costs of $406 million.

Beef Segment Results																	in millions
	2014				2013				Change 2014 vs. 2013				2012				Change 2013 vs. 2012
Sales	$	16,177			$	14,400			$	1,777			$	13,755			$	645
Sales Volume Change									(0.4		)%						(1.8		)%
Average Sales Price Change									12.8		%						6.6		%
Operating Income	$	347			$	296			$	51			$	218			$	78
Operating Margin	2.1		%		2.1		%						1.6		%

2014 vs. 2013 –

•	Sales Volume – Sales volume decreased due to a reduction in live cattle processed.

•	Average Sales Price – Average sales price increased due to lower domestic availability of beef products.

•	Operating Income – Operating income increased due to improved operational execution and maximizing our revenues relative to the rising live cattle markets, partially offset by increased operating costs.

•	Derivative Activities – Operating results included net losses of $72 million in fiscal 2014, compared to net gains of $9 million in fiscal 2013 for commodity risk management activities related to futures contracts. These amounts exclude the impact from related physical sale and purchase transactions, which mostly offset the commodity risk management gains and losses.

2013 vs. 2012 –

•	Sales Volume – Sales volume decreased due to less outside trim and tallow purchases, partially offset by increased production volumes.

•	Average Sales Price – Average sales price increased due to lower domestic availability of fed cattle supplies, which drove up livestock costs.

•	Operating Income – Operating income increased due to improved operational execution, less volatile live cattle markets and improved export markets, partially offset by increased operating costs.

Pork Segment Results																	in millions
	2014				2013				Change 2014 vs. 2013				2012				Change 2013 vs. 2012
Sales	$	6,304			$	5,408			$	896			$	5,510			$	(102	)
Sales Volume Change									0.8		%						(3.6		)%
Average Sales Price Change									15.7		%						1.9		%
Operating Income	$	455			$	332			$	123			$	417			$	(85	)
Operating Margin	7.2		%		6.1		%						7.6		%

2014 vs. 2013 –

•	Sales Volume – Sales volume increased due to better domestic demand for our pork products.

•	Average Sales Price – Average sales price increased due to lower total hog supplies, which resulted in higher input costs.

•	Operating Income – Operating income increased as we maximized our revenues relative to live hog markets, partially attributable to operational and mix performance.

•	Derivative Activities – Operating results included net losses of $112 million in fiscal 2014, compared to net losses of $15 million in fiscal 2013 for commodity risk management activities related to futures contracts. These amounts exclude the impact from related physical sale and purchase transactions, which mostly offset the commodity risk management losses.

2013 vs. 2012 –

•	Sales Volume – Sales volume decreased as a result of decreased customer demand and reduced exports.

•	Average Sales Price – Demand for pork products improved, which drove up average sales price and livestock cost despite a slight increase in live hog supplies.

•	Operating Income – While reduced compared to prior year, operating income remained strong in fiscal 2013 despite brief periods of imbalance in industry supply and customer demand. We were able to maintain strong operating margins by maximizing our revenues relative to the live hog markets, partially due to operational and mix performance.

•	Derivative Activities – Operating results included net losses of $15 million in fiscal 2013, compared to net gains of $66 million in fiscal 2012 for commodity risk management activities related to futures contracts. These amounts exclude the impact from related physical sale and purchase transactions, which impact current and future period operating results.

Prepared Foods Segment Results													in millions
	2014				2013				Change 2014 vs. 2013				2012				Change 2013 vs. 2012
Sales	$	3,927			$	3,322			$	605			$	3,237			$	85
Sales Volume Change									10.4		%						1.9		%
Average Sales Price Change									7.1		%						0.7		%
Operating Income	$	(60	)		$	101			$	(161	)		$	181			$	(80	)
Operating Margin	(1.5		)%		3.0		%						5.6		%

2014 vs. 2013 –

•	Sales Volume – Sales volume increased as a result of improved demand for our Prepared Foods products and incremental volumes as a result of the acquisition of Hillshire Brands in our final month of fiscal 2014.

•	Average Sales Price – Average sales price increased due to price increases associated with higher input costs along with better product mix which was positively impacted incrementally by the acquisition of Hillshire Brands in our final month of fiscal 2014.

•

Operating Income – Operating income decreased as a result of higher raw material and other input costs of approximately $210 million. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect. Additionally, operating income was reduced by $113 million due to additional costs associated with the Prepared Foods improvement plan, Hillshire Brands post-closing results, purchase price accounting adjustments and ongoing costs related to a legacy Hillshire Brands plant fire.

2013 vs. 2012 –

•	Sales Volume – Sales volume increased as a result of improved demand for our prepared products and incremental volumes from the purchase of two businesses in fiscal 2013.

•	Average Sales Price – Average sales price increased due to price increases associated with higher input costs.

•

Operating Income – Operating income decreased, despite increases in sales volumes and average sales price, as a result of increased raw material and other input costs of approximately $110 million and additional costs incurred as we invested in our lunchmeat business and growth platforms. Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through pricing. However, there is a lag time for price increases to take effect.

International Segment Results													in millions
	2014				2013				Change 2014 vs. 2013				2012				Change 2013 vs. 2012
Sales	$	1,381			$	1,324			$	57			$	1,104			$	220
Sales Volume Change									12.2		%						11.6		%
Average Sales Price Change									(7.0		)%						7.5		%
Operating Income (Loss)	$	(121	)		$	(37	)		$	(84	)		$	(70	)		$	33
Operating Margin	(8.8		)%		(2.8		)%						(6.3		)%

2014 vs. 2013 –

•	Sales Volume – Sales volume increased as we grew our businesses in Brazil and China.

•	Average Sales Price – Average sales price decreased due to poor export market conditions in Brazil, supply imbalances associated with weak demand in China and a less favorable pricing environment in Mexico.

•	Operating Income – Operating income decreased due to poor operational execution in Brazil, challenging market conditions in Brazil and China and additional costs incurred as we grew our International operation. Additionally, operating income was reduced by $42 million related to an impairment of Brazil assets and other costs related to the pending sale of our Brazil operation.

2013 vs. 2012 –

•	Sales Volume – Sales volume increased as we continued to grow our International operation.

•	Average Sales Price – Average sales price increased due to improved market conditions and more favorable pricing environments in Brazil and Mexico.

•	Operating Loss – Operating income improved due to better performance in Brazil and Mexico, partially offset by increased feed costs of $64 million and supply imbalances associated with weak demand in China as a result of avian influenza.

LIQUIDITY AND CAPITAL RESOURCES

Our cash needs for working capital, capital expenditures, growth opportunities, the repurchases of senior notes, repayment of term loans and share repurchases 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 existing debt 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					in millions
	2014				2013				2012
Net income	$	856			$	778			$	576
Non-cash items in net income:
Depreciation and amortization	530				519				499
Deferred income taxes	(105		)		(12		)		140
Convertible debt discount	(92		)		—				—
Loss on early extinguishment of debt	—				—				167
Impairment of assets	107				74				34
Other, net	31				26				18
Net changes in working capital	(149		)		(71		)		(247		)
Net cash provided by operating activities	$	1,178			$	1,314			$	1,187

•	Operating cash flows associated with the Convertible debt discount relates to the initial debt discount of $92 million on our 2013 Notes, which matured and were retired in fiscal 2014.

•	Operating cash flows associated with Loss on early extinguishment of debt included the amount paid exceeding the par value of debt, unamortized discount and unamortized debt issuance costs related to the full extinguishment of the 2014 Notes issued in 2009.

•	Cash flows associated with changes in working capital:

•	2014 – Decreased primarily due to the increase in inventory and accounts receivable balances and decrease in income taxes payable, partially offset by the increase in accounts payable. The higher inventory, accounts receivable and accounts payable balances are primarily attributable to significant increases in input costs and price increases associated with the increased input costs.

•	2013 – Decreased primarily due to a higher accounts receivable balance, partially offset by increases in accrued salaries, wages and benefits and income tax payable. The higher accounts receivable balance is largely due to significant increases in input costs and price increases associated with the increased input costs.

•	2012 – Decreased due to the increase in inventory and accounts receivable balances, partially offset by the increase in accounts payable. The higher inventory and accounts receivable balances were driven by significant increases in input costs and price increases associated with the increased input costs.

Cash Flows from Investing Activities									in millions
	2014				2013				2012
Additions to property, plant and equipment	$	(632	)		$	(558	)		$	(690	)
Proceeds from sale/(Purchases) of marketable securities, net	15				(18		)		(11		)
Acquisitions, net of cash acquired	(8,193		)		(106		)		—
Other, net	10				39				41
Net cash used for investing activities	$	(8,800	)		$	(643	)		$	(660	)

•	Additions to property, plant and equipment include acquiring new equipment and upgrading our facilities to maintain competitive standing and position us for future opportunities.

•	Capital spending for fiscal 2015 is expected to approximate $900 million and will include spending on our operations for production and labor efficiencies, yield improvements and sales channel flexibility.

•

Acquisitions in fiscal 2014 related to acquiring Hillshire Brands and an additional value-added food business as part of our strategy to accelerate growth in our prepared foods sales. Both of these acquisitions are included in the Prepared Foods segment. For further description regarding these transactions refer to Part II, Item 8, Notes to Consolidated Financial Statements, Note 3: Acquisitions and Dispositions.

Cash Flows from Financing Activities									in millions
	2014				2013				2012
Payments on debt	$	(639	)		$	(91	)		$	(993	)
Proceeds from issuance of long-term debt	5,576				68				1,116
Proceeds from issuance of debt component of tangible equity units	205				—				—
Proceeds from issuance of common stock, net of issuance costs	873				—				—
Net proceeds from issuance of equity component of tangible equity units	1,255				—				—
Purchases of Tyson Class A common stock	(295		)		(614		)		(264		)
Dividends	(104		)		(104		)		(57		)
Stock options exercised	67				123				34
Other, net	(23		)		18				(7		)
Net cash provided by (used for) financing activities	$	6,915			$	(600	)		$	(171	)

•	Payments on debt included –

•

2014 – Our 2013 Notes matured in fiscal 2014 at which time we paid the $458 million principal value with cash on hand and settled the conversion premium by issuing 11.7 million shares of our Class A stock from available treasury shares. The 2013 Notes were initially recorded at a $92 million discount, which equaled the fair value of an equity conversion premium instrument. The portion of the payment of the Notes related to the initial $92 million discount was recorded in cash flows from operating activities. Simultaneous to the settlement of the conversion premium, we received 11.7 million shares of our Class A stock from the call options.

•	2014 – $194 million related to the 5-year tranche A term loan facility and $30 million related to the 3-year tranche term loan facility.

•	2013 – $91 million primarily related to borrowings at our foreign subsidiaries.

•	2012 – $885 million for the extinguishment of the 2014 Notes and $103 million related to borrowings at our foreign subsidiaries.

•	Proceeds from issuance of long-term debt included –

•	2014 – $2,300 million from term loans and $3,243 million from senior unsecured notes after original issue discounts of $7 million. Additionally, total debt related to our foreign subsidiaries was $8 million at September 27, 2014, all of which is classified as long-term in our Consolidated Balance Sheets.

•	2013 – $68 million primarily from our foreign subsidiaries. Total debt related to our foreign subsidiaries was $60 million at September 28, 2013 ($40 million current, $20 million long-term).

•

2012 – We received net proceeds of $995 million from the issuance of the 2022 Notes. We used the net proceeds towards the extinguishment of the 2014 Notes, including the payments of accrued interest and related premiums, and general corporate purposes. Additionally, our foreign subsidiaries received proceeds of $115 million from borrowings. Total debt related to our foreign subsidiaries was $102 million at September 29, 2012 ($62 million current, $40 million long-term).

•	Proceeds from issuance of debt and equity components of tangible equity units –

•

2014 – We issued 30 million, 4.75% tangible equity units (TEUs). Total proceeds, net of underwriting discounts and other expenses, were $1,454 million. Each TEU is comprised of a prepaid stock purchase contract and a senior amortizing note due July 15, 2017. We allocated the proceeds from the issuance of the TEUs to equity and debt based on the relative fair values of the respective components of each TEU. The fair value of the prepaid stock purchase contracts, which was $1,295 million, is recorded in Capital in Excess of Par Value, net of $40 million issuance costs. The fair value of the senior amortizing notes, which was $205 million, is recorded in debt, of which $65 million is current.

•	Proceeds from issuance of common stock, net of issuance costs –

•	2014 – We issued 23.8 million shares of our Class A common stock, for total proceeds, net of underwriting discounts and other offering related fees and expenses, of $873 million.

•	Purchases of Tyson Class A common stock include –

•	$250 million, $550 million and $230 million for shares repurchased pursuant to our share repurchase program in fiscal 2014, 2013 and 2012, respectively.

•	$45 million, $64 million and $34 million for shares repurchased to fund certain obligations under our equity compensation plans in fiscal 2014, 2013 and 2012, respectively.

•	We currently do not plan to repurchase shares other than to fund obligations under equity compensation programs.

Liquidity																in millions
		Commitments Expiration Date		Facility Amount				Outstanding Letters of Credit under Revolving Credit Facility (no draw downs)				Amount Borrowed				Amount Available
Cash and cash equivalents																$	438
Short-term investments																1
Revolving credit facility		September 2019		$	1,250			$	41			$	—			1,209
Total liquidity																$	1,648

•	The revolving credit facility supports our short-term funding needs and letters of credit. The letters of credit issued under this facility are primarily in support of workers’ compensation insurance programs and derivative activities.

•

Our 2013 Notes matured in October 2013. Upon maturity, we paid the $458 million principal value with cash on hand, and settled the conversion premium by issuing 11.7 million shares of our Class A stock from available treasury shares. Simultaneous to the settlement of the conversion premium, we received 11.7 million shares of our Class A stock from call options we entered into concurrently with the 2013 Note issuance.

•	We expect net interest expense will approximate $290 million for fiscal 2015 (53-weeks).

•

At September 27, 2014, approximately $380 million of our cash was held in the international accounts of our foreign subsidiaries. Generally, we do not rely on the foreign cash as a source of funds to support our ongoing domestic liquidity needs. Rather, we manage our worldwide cash requirements by reviewing available funds among our foreign subsidiaries and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations. U.S. income taxes, net of applicable foreign tax credits, have not been provided on undistributed earnings of foreign subsidiaries with the exception of $17 million provided on the undistributed earnings of our Mexico and Brazil operations due to the pending sale of those operations. Except for cash generated from the sale of our Mexico and Brazil operations, our intention is to reinvest the cash held by foreign subsidiaries permanently or to repatriate the cash only when it is tax effective to do so.

•	Our current ratio was 1.64 to 1 and 1.86 to 1 at September 27, 2014, and September 28, 2013, respectively. The decrease in fiscal 2014 is due to the acquisition of Hillshire Brands.

Capital Resources

Credit Facility

Cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service, capital expenditures, dividends and share repurchases. We also have a revolving credit facility, with a committed capacity of $1.25 billion, to provide additional liquidity for working capital needs, letters of credit and a source of financing for growth opportunities. As of September 27, 2014, we had outstanding letters of credit totaling $41 million issued under this facility, none of which were drawn upon, which left $1,209 million available for borrowing. Our revolving credit facility is funded by a syndicate of 42 banks, with commitments ranging from $0.3 million to $85 million per bank. The syndicate includes bank holding companies that are required to be adequately capitalized under federal bank regulatory agency requirements.

Capitalization

To monitor our credit ratings and our capacity for long-term financing, we consider various qualitative and quantitative factors. We monitor the ratio of our net debt to EBITDA as support for our long-term financing decisions. At September 27, 2014, and September 28, 2013, the ratio of our net debt to EBITDA was 4.1x and 0.7x, respectively. Refer to Part II, Item 6, Selected Financial Data, for an explanation and reconciliation to comparable GAAP measures. The increase in this ratio for fiscal 2014 is due to the additional debt incurred related to the Hillshire Brands acquisition. As previously described, we incurred $2,300 million in term loans, $3,243 million in senior unsecured notes and $205 million in the debt component of tangible equity units. Additionally, as part of the transaction we assumed $868 million of senior notes and other debt from Hillshire Brands.

Credit Ratings

2016 Notes

On February 11, 2013, Standard & Poor's Ratings Services (S&P), upgraded the credit rating of the 2016 Notes from "BBB-" to "BBB." This upgrade did not impact the interest rate on the 2016 Notes.

On June 7, 2012, Moody's Investors Service, Inc. (Moody's) upgraded the credit rating of the 2016 Notes from "Ba1" to "Baa3." This upgrade decreased the interest rate on the 2016 Notes from 6.85% to 6.60%, effective beginning with the six-month interest payment due October 1, 2012.

A one-notch downgrade by Moody's would increase the interest rates on the 2016 Notes by 0.25%. A two-notch downgrade from S&P would increase the interest rates on the 2016 Notes by 0.25%.

Revolving Credit Facility

S&P’s corporate credit rating for Tyson Foods, Inc. is "BBB." Moody’s senior, unsecured, subsidiary guaranteed long-term debt rating for Tyson Foods, Inc. is "Baa3." Fitch Ratings' (Fitch), issuer default rating for Tyson Foods, Inc. is "BBB." The below table outlines the fees paid on the unused portion of the facility (Facility Fee Rate) and letter of credit fees (Undrawn Letter of Credit Fee and Borrowing Spread) depending on the rating levels of Tyson Foods, Inc. from S&P, Moody's and Fitch.

Ratings Level (S&P/Moody's/Fitch)	Facility Fee Rate		Undrawn Letter of Credit Fee and Borrowing Spread
A-/A3/A- or above	0.100	%	1.000	%
BBB+/Baa1/BBB+	0.125	%	1.125	%
BBB/Baa2/BBB (current level)	0.150	%	1.250	%
BBB-/Baa3/BBB-	0.200	%	1.500	%
BB+/Ba1/BB+ or lower	0.250	%	1.750	%

In the event the rating levels are split, the applicable fees and spread will be based upon the rating level in effect for two of the rating agencies, or, if all three rating agencies have different rating levels, the applicable fees and spread will be based upon the rating level that is between the rating levels of the other two rating agencies.

Debt Covenants

Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business; engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain minimum interest expense coverage and maximum debt to capitalization ratios.

Our senior notes and term loans also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: create liens; engage in certain sale/leaseback transactions; and engage in certain consolidations, mergers and sales of assets.

We were in compliance with all debt covenants at September 27, 2014.

Pension Plans

As further described in Part II, Item 8, Notes to Consolidated Financial Statements, Note 15: Pension and Other Postretirement Benefits, the funded status of our defined benefit pension plans is defined as the amount the projected benefit obligation exceeds the plan assets. The funded status of the plans is an underfunded position of $381 million at the end of fiscal 2014 as compared to an underfunded position of $86 million at the end of fiscal 2013. The increase in the underfunded position is due to the acquisition of Hillshire Brands.

We expect to contribute approximately $14 million of cash to our pension plans in 2015 as compared to approximately $9 million in 2014 and $8 million in 2013. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements. As a result, the actual funding in 2015 may be different from the estimate.

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 leases and grower loans, and residual value guarantees covering certain operating leases for various types of equipment. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 20: Commitments and Contingencies for further discussion.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations as of September 27, 2014:

																	in millions
	Payments Due by Period
	2015				2016-2017				2018-2019				2020 and thereafter				Total
Debt and capital lease obligations:
Principal payments (1)	$	644			$	1,944			$	1,864			$	3,710			$	8,162
Interest payments (2)	312				488				423				1,540				2,763
Guarantees (3)	33				33				31				27				124
Operating lease obligations (4)	107				136				69				104				416
Purchase obligations (5)	2,625				844				460				249				4,178
Capital expenditures (6)	525				114				11				11				661
Other long-term liabilities (7)	—				—				—				—				481
Total contractual commitments	$	4,246			$	3,559			$	2,858			$	5,641			$	16,785

(1)	In the event of a default on payment, acceleration of the principal payments could occur.

(2)	Interest payments include interest on all outstanding debt. Payments are estimated for variable rate and variable term debt based on effective rates at September 27, 2014, and expected payment dates.

(3)	Amounts include guarantees of debt of outside third parties, which consist of leases 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.

(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. For certain grain purchase commitments with a fixed quantity provision, we have assumed the future obligations under the commitment based on available commodity futures prices as published in observable active markets as of September 27, 2014. We have excluded future purchase commitments for contracts that do not meet these criteria. Purchase orders are not included in the table, as a purchase order is an authorization to purchase and is cancelable. 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 September 27, 2014.

(7)

Other long-term liabilities primarily consist of deferred compensation, deferred income, self-insurance, and asset retirement obligations. We are unable to reliably estimate the amount of these payments beyond fiscal 2015; therefore, we have only included the total liability in the table above. We also have employee benefit obligations consisting of pensions and other postretirement benefits of $532 million that are excluded from the table above. A discussion of the company's pension and postretirement plans, including funding matters, is included in Part II, Item 8, Notes to Consolidated Financial Statements, Note 15: Pensions and Other Postretirement Benefits.

In addition to the amounts shown above in the table, we have unrecognized tax benefits of $206 million and related interest and penalties of $54 million at September 27, 2014, recorded as liabilities.

The maximum contractual obligation associated with our cash flow assistance programs at September 27, 2014, based on the estimated fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $330 million, or approximately $326 million remaining maximum commitment after netting the cash flow assistance related receivables.

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: Changes in Accounting Principles for recently adopted accounting pronouncements.

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
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 is 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.		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.		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. These estimates are based on many factors, including experience of similar promotional programs.		We have not made any material changes in the accounting methodology used to establish our marketing accruals 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 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 September 27, 2014, would impact pretax earnings by approximately $18 million.

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. 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.		Our self-insurance liability contains uncertainties due to assumptions required and judgment used. 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 have not made any material changes in the accounting methodology used to establish our self-insurance liability 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 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. A 10% increase in the actuarial estimate at September 27, 2014, would result in an increase in the amount we recorded for our self-insurance liability of approximately $3 million. A 10% decrease in the actuarial estimate at September 27, 2014, would result in a decrease in the amount we recorded for our self-insurance liability of approximately $23 million.

Description		Judgments and Uncertainties		Effect if Actual Results Differ From Assumptions
Defined benefit pension plans
We sponsor nine defined benefit pension plans that provide retirement benefits to certain employees. We also participate in a multi-employer plan that provides defined benefits to certain employees covered by collective bargaining agreements. Such plans are usually administered by a board of trustees composed of the management of the participating companies and labor representatives. We use independent third-party actuaries to assist us in determining our pension obligations and net periodic benefit cost. We and the actuaries review assumptions that include estimates of the present value of the projected future pension payment to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. We accumulate and amortize the effect of actuarial gains and losses over future periods. Net periodic benefit costs for the defined benefit pension plans were $14 million in 2014. The projected benefit obligation was $2,031 million at the end of fiscal 2014. Unrecognized actuarial losses were $75 million at the end of fiscal 2014. We currently expect net periodic benefit cost for fiscal 2015 to be approximately $8 million. Plan assets are currently comprised of approximately 81% fixed income securities and 12% equity securities. Fixed income securities can include, but are not limited to, direct bond investments and pooled or indirect bond investments. Other investments may include, but are not limited to, international and domestic equities, real estate, commodities and private equity. We expect to contribute approximately $14 million of cash to our pension plans in fiscal 2015. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements.		Our defined benefit pension plans contain uncertainties due to assumptions required and judgments used. The key assumptions used in developing the required estimates include such factors as discount rates, expected returns on plan assets, retirement rates, and mortality. These assumptions can have a material impact upon the funded status and the net periodic benefit cost. The discount rates were determined using a cash flow matching technique whereby the rates of a yield curve, developed from high-quality debt securities, were applied to the benefit obligations to determine the appropriate discount rate. In determining the long-term rate of return on plan assets, we first examined historical rates of return for the various asset classes within the plans. We then determined a long-term projected rate-of-return based on expected returns. Investment, management and other fees paid out of plan assets are factored into the determination of asset return assumptions. Retirement rates are based primarily on actual plan experience, while standard actuarial tables are used to estimate mortality. It is reasonably likely that changes in external factors will result in changes to the assumptions used to measure pension obligations and net periodic benefit cost in future periods. The risks of participating in multiemployer plans are different from single-employer plans. The net pension cost of the multiemployer plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The future cost of these plans is dependent on a number of factors including the funded status of the plans and the ability of the other participating companies to meet ongoing funding obligations.		We have not made any material changes in the accounting methodology used to establish our pension obligations and net periodic benefit cost 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 pension obligations and net periodic benefit cost. However, if actual results are not consistent with our estimates or assumptions, they are accumulated and amortized over future periods and, therefore generally affect the net periodic benefit cost in future periods. A 1% increase in the discount rate at September 27, 2014, would result in an decrease in the projected benefit obligation and net periodic benefit cost of approximately $246 million and $2 million, respectively. A 1% decrease in the discount rate at September 27, 2014, would result in an increase in the projected benefit obligation and decrease in net periodic benefit cost of approximately $283 million and $1 million, respectively. A 1% change in the return on plan assets at September 27, 2014, would impact the net periodic benefit cost by approximately $16 million. The sensitivities reflect the impact of changing one assumption at a time and are specific to based conditions at the end of 2014. Economic factors and conditions often effect multiple assumption simultaneously and that the effect of changes in assumptions are not necessarily linear.

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 taxable upon remittance to the United States, except for earnings considered to be 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 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.		We do not believe there is a reasonable 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 benefit liabilities have been established, or are required to pay amounts in excess of our recorded unrecognized tax benefit liabilities, 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 generally result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would generally be recognized as a reduction in our effective tax rate in the period of resolution.
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. 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. For long-lived assets held for sale, we compare the carrying value of the disposal group to fair value. 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 $107 million, $74 million and $29 million, in fiscal 2014, 2013 and 2012, respectively.		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.		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. Additionally, we continue to evaluate our domestic and international operations and strategies, which may expose us to future impairment losses.

Impairment of goodwill and other indefinite life intangible assets

Description: Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not less than carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. We can elect to forgo the qualitative assessment and perform the quantitative test.

The quantitative goodwill impairment test is performed 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 quantitative 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 determined as the exit price a market participant would pay for the same business).

For other indefinite life intangible assets, a qualitative assessment can also be performed to determine whether the existence of events and circumstances indicates it is more likely than not an intangible asset is impaired. Similar to goodwill, we can also elect to forgo the qualitative test for indefinite life intangible assets and perform the quantitative test. Upon performing the quantitative test, 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 elected to forgo the qualitative assessments on our indefinite life intangible assets for the fiscal 2014 impairment test.

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. However, we could be required to evaluate the recoverability of goodwill and other indefinite life intangible assets prior to the required annual assessment if, among other things, 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.

Judgments and Uncertainties: We estimate the fair value of our reporting units, using various valuation techniques, with the primary technique being a discounted cash flow analysis, which uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. A discounted cash flow analysis requires us to make various judgmental assumptions about sales, operating margins, growth rates and discount rates.

We include assumptions about sales, operating margins and growth rates which consider our budgets, business plans and economic projections, and are believed to reflect market participant views which would exist in an exit transaction. Assumptions are also made for varying perpetual growth rates for periods beyond the long-term business plan period. Generally, we utilize normalized operating margin assumptions based on future expectations and operating margins historically realized in the reporting units' industries.

Other indefinite life 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.

Effect if Actual Results Differ From Assumptions: 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 other than the adoption of the new guidance allowing the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment test.

The discount rate used in our annual goodwill impairment test decreased to an average of 7.9% in fiscal 2014 from 8.4% in fiscal 2013. There were no significant changes in the other key estimates and assumptions.

During fiscal 2014, 2013 and 2012, all of our material reporting units that underwent a quantitative test passed the first step of the goodwill impairment analysis and therefore, the second step was not necessary.

Some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates 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 indefinite life 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.

All of our material reporting units' estimated fair value exceeded their carrying value by more than 20% at the date of their most recent estimated fair value determination. Consequently, we do not currently consider any of our material reporting units at significant risk of failing the first step of the annual goodwill impairment test. At September 27, 2014, $4.8 billion of goodwill associated with our acquisition of Hillshire Brands has not yet been allocated to our reporting units. The allocation of this goodwill to our reporting units is pending finalization of the expected synergies and the impact of the synergies to our reporting units.

Our fiscal 2014 other indefinite life intangible asset impairment analysis did not result in an impairment charge. A hypothetical 20% decrease in the fair value of non-Hillshire Brands intangible assets would not result in a material impairment. We recorded $4.1 billion of indefinite life intangibles (brands and trademarks) associated with our acquisition of Hillshire Brands. Any significant decline in the estimated fair value of the Hillshire Brands indefinite life intangibles could result in a material impairment.