Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Three years ended September 27, 2014
in millions, except per share data
201420132012
Sales$37,580$34,374$33,055
Cost of Sales34,89532,01630,865
Gross Profit2,6852,3582,190
Selling, General and Administrative1,255983904
Operating Income1,4301,3751,286
Other (Income) Expense:
Interest income(7)(7)(12)
Interest expense132145356
Other, net53(20)(23)
Total Other (Income) Expense178118321
Income from Continuing Operations before Income Taxes1,2521,257965
Income Tax Expense396409351
Income from Continuing Operations856848614
Loss from Discontinued Operation, Net of Tax—(70)(38)
Net Income856778576
Less: Net Loss Attributable to Noncontrolling Interests(8)—(7)
Net Income Attributable to Tyson$864$778$583
Amounts Attributable to Tyson:
Net Income from Continuing Operations864848621
Net Loss from Discontinued Operation—(70)(38)
Net Income Attributable to Tyson$864$778$583
Weighted Average Shares Outstanding:
Class A Basic284282293
Class B Basic707070
Diluted364367370
Net Income Per Share from Continuing Operations Attributable to Tyson:
Class A Basic$2.48$2.46$1.75
Class B Basic$2.26$2.22$1.57
Diluted$2.37$2.31$1.68
Net Loss Per Share from Discontinued Operation Attributable to Tyson:
Class A Basic$—$(0.20)$(0.11)
Class B Basic$—$(0.18)$(0.09)
Diluted$—$(0.19)$(0.10)
Net Income Per Share Attributable to Tyson:
Class A Basic$2.48$2.26$1.64
Class B Basic$2.26$2.04$1.48
Diluted$2.37$2.12$1.58
Dividends Declared Per Share:
Class A$0.325$0.310$0.160
Class B$0.294$0.279$0.144

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three years ended September 27, 2014
in millions
201420132012
Net Income$856$778$576
Other Comprehensive Income (Loss), Net of Taxes:
Derivatives accounted for as cash flow hedges1(14)17
Investments4(3)—
Currency translation(30)(37)3
Postretirement benefits(14)9(4)
Total Other Comprehensive Income (Loss), Net of Taxes(39)(45)16
Comprehensive Income817733592
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests(8)—(7)
Comprehensive Income Attributable to Tyson$825$733$599

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED BALANCE SHEETS

September 27, 2014, and September 28, 2013
in millions, except share and per share data
20142013
Assets
Current Assets:
Cash and cash equivalents$438$1,145
Accounts receivable, net1,6841,497
Inventories3,2742,817
Other current assets379145
Assets held for sale446—
Total Current Assets6,2215,604
Net Property, Plant and Equipment5,1304,053
Goodwill6,7061,902
Intangible Assets5,276138
Other Assets623480
Total Assets$23,956$12,177
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt$643$513
Accounts payable1,8061,359
Other current liabilities1,2071,138
Liabilities held for sale141—
Total Current Liabilities3,7973,010
Long-Term Debt7,5351,895
Deferred Income Taxes2,450479
Other Liabilities1,270560
Commitments and Contingencies (Note 20)
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares, issued 346 million shares in 2014 and 322 million shares in 20133532
Convertible Class B-authorized 900 million shares, issued 70 million shares77
Capital in excess of par value4,2572,292
Retained earnings5,7484,999
Accumulated other comprehensive loss(147)(108)
Treasury stock, at cost – 40 million shares in 2014 and 48 million shares in 2013(1,010)(1,021)
Total Tyson Shareholders’ Equity8,8906,201
Noncontrolling Interests1432
Total Shareholders’ Equity8,9046,233
Total Liabilities and Shareholders’ Equity$23,956$12,177

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three years ended September 27, 2014
in millions
201420132012
SharesAmountSharesAmountSharesAmount
Class A Common Stock:
Balance at beginning of year322$32322$32322$32
Issuance of Class A common stock243————
Balance at end of year346353223232232
Class B Common Stock:
Balance at beginning and end of year707707707
Capital in Excess of Par Value:
Balance at beginning of year2,2922,2782,261
Issuance of Class A common stock870——
Issuance of tangible equity units1,255——
Convertible debt settlement(248)——
Convertible note hedge settlement341——
Warrant settlement(289)——
Stock-based compensation361417
Balance at end of year4,2572,2922,278
Retained Earnings:
Balance at beginning of year4,9994,3273,801
Net income attributable to Tyson864778583
Dividends(115)(106)(57)
Balance at end of year5,7484,9994,327
Accumulated Other Comprehensive Income (Loss), Net of Tax:
Balance at beginning of year(108)(63)(79)
Other Comprehensive Income (Loss)(39)(45)16
Balance at end of year(147)(108)(63)
Treasury Stock:
Balance at beginning of year48(1,021)33(569)22(365)
Purchase of Class A common stock8(295)24(614)14(264)
Convertible debt settlement(12)248————
Convertible note hedge settlement12(341)————
Warrant settlement(12)289————
Stock-based compensation(4)110(9)162(3)60
Balance at end of year40(1,010)48(1,021)33(569)
Total Shareholders’ Equity Attributable to Tyson$8,890$6,201$6,012
Equity Attributable to Noncontrolling Interests:
Balance at beginning of year$32$30$28
Net loss attributable to noncontrolling interests(8)—(7)
Contributions by noncontrolling interest—39
Distributions to noncontrolling interest(11)——
Net foreign currency translation adjustment and other1(1)—
Total Equity Attributable to Noncontrolling Interests$14$32$30
Total Shareholders’ Equity$8,904$6,233$6,042

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three years ended September 27, 2014
in millions
201420132012
Cash Flows From Operating Activities:
Net income$856$778$576
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation494474443
Amortization364556
Deferred income taxes(105)(12)140
Convertible debt discount(92)——
Loss on early extinguishment of debt——167
Impairment of assets1077434
Other, net312618
Increase in accounts receivable(93)(126)(69)
(Increase) decrease in inventories(148)15(259)
Increase (decrease) in accounts payable202(12)106
Increase (decrease) in income taxes payable/receivable(133)808
Increase (decrease) in interest payable5(1)5
Net changes in other working capital18(27)(38)
Cash Provided by Operating Activities1,1781,3141,187
Cash Flows From Investing Activities:
Additions to property, plant and equipment(632)(558)(690)
Purchases of marketable securities(18)(135)(58)
Proceeds from sale of marketable securities3311747
Acquisitions, net of cash acquired(8,193)(106)—
Other, net103941
Cash Used for Investing Activities(8,800)(643)(660)
Cash Flows From Financing Activities:
Payments on debt(639)(91)(993)
Proceeds from issuance of long-term debt5,576681,116
Proceeds from issuance of debt component of tangible equity units205——
Proceeds from issuance of common stock, net of issuance costs873——
Net proceeds from issuance of equity component of tangible equity units1,255——
Purchases of Tyson Class A common stock(295)(614)(264)
Dividends(104)(104)(57)
Stock options exercised6712334
Other, net(23)18(7)
Cash Provided by (Used for) Financing Activities6,915(600)(171)
Effect of Exchange Rate Change on Cash—3(1)
Increase (Decrease) in Cash and Cash Equivalents(707)74355
Cash and Cash Equivalents at Beginning of Year1,1451,071716
Cash and Cash Equivalents at End of Year$438$1,145$1,071

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TYSON FOODS, INC.

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 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®.

Consolidation: The consolidated financial statements include the accounts of all wholly-owned subsidiaries, as well as majority-owned subsidiaries over which we exercise control and, when applicable, entities for which we have a controlling financial interest or variable interest entities for which we are the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 52-week year for fiscal 2014, 2013 and 2012.

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 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 accounts payable and other current liabilities. At September 27, 2014, and September 28, 2013, checks outstanding in excess of related book cash balances totaled approximately $298 million and $246 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 September 27, 2014, and September 28, 2013, our allowance for uncollectible accounts was $34 million and $46 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, grower pay and catch and haul costs), labor and manufacturing and production overhead, which are related to the purchase and production of inventories.

In fiscal 2014, 66% of the cost of inventories was determined by the first-in, first-out ("FIFO") method as compared to 58% in 2013. The remaining cost of inventories for both years is determined by the weighted-average method.

The following table reflects the major components of inventory at September 27, 2014, and September 28, 2013:

in millions
20142013
Processed products$1,794$1,423
Livestock1,0661,002
Supplies and other414392
Total inventory$3,274$2,817

Property, Plant and Equipment: Property, plant and equipment are stated at cost and generally depreciated on a straight-line method over the 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 including market participant assumptions of future operating results and discount rates.

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 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. Additionally, we can elect to forgo the qualitative assessment and perform the quantitative test.

The first step of the quantitative test is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the 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). 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 estimate the fair value of our reporting units using a discounted cash flow analysis, which uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. This analysis requires us to make various judgmental estimates and assumptions about sales, operating margins, growth rates and discount factors and is believed to reflect market participant views which would exist in an exit transaction. Generally, we utilize normalized operating margin assumptions based on future expectations and operating margins historically realized in the reporting units' 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 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 of the quantitative test in future years, which could result in material impairments of our goodwill.

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

For our 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.

The fair value of our indefinite life intangible assets is calculated principally using relief-from-royalty and excess earnings valuation approaches and is believed to reflect market participant views which would exist in an exit transaction. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

Investments: We have investments in joint ventures and other entities. We generally use the cost method of accounting when our voting interests are less than 20 percent. We use the equity method of accounting when our voting interests are in excess of 20 percent and 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 also have investments in marketable debt securities. We have determined all of 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 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.

Other Current Liabilities: Other current liabilities at September 27, 2014 and September 28, 2013, include:

in millions
20142013
Accrued salaries, wages and benefits$490$419
Other717719
Total other current liabilities$1,207$1,138

Defined Benefit Plans: We recognize the funded status of defined pension and postretirement plans in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of the plan assets and the benefit obligation. We measure our plan assets and liabilities at the end of our fiscal year. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation; for any other defined benefit postretirement plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. Any overfunded status is recognized as an asset and any underfunded status is recognized as a liability. Any transitional asset/liability, prior service cost or actuarial gain/loss that has not yet been recognized as a component of net periodic cost is recognized in accumulated other comprehensive income. Accumulated other comprehensive income will be adjusted as these amounts are subsequently recognized as a component of net periodic benefit costs in future periods.

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, while changes 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 2014, 2013 and 2012 were $641 million, $555 million and $496 million, respectively.

Research and Development: Research and development costs are expensed as incurred. Research and development costs totaled $52 million, $50 million and $43 million in fiscal 2014, 2013 and 2012, respectively.

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 May 2014, the Financial Accounting Standards Board (FASB) issued guidance changing the criteria for recognizing revenue. The guidance also modifies the related disclosure requirements, clarifies guidance for multiple-element arrangements and provides guidance for transactions that were not addressed fully in previous guidance. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016, our fiscal 2018. Early adoption is not permitted. The Company is currently evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 2: CHANGES IN ACCOUNTING PRINCIPLES

In December 2011 and February 2013, the FASB issued guidance enhancing disclosures related to offsetting of certain assets and liabilities. This guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. We adopted this guidance in the first quarter of fiscal 2014. The adoption did not have a significant impact on our consolidated financial statements.

In April 2014, the FASB issued guidance changing the criteria for reporting discontinued operations. The guidance also modifies the related disclosure requirements. The guidance is effective on a prospective basis for annual reporting periods beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Early adoption is permitted and we adopted it in the third quarter of fiscal 2014. The adoption did not have a significant impact on our consolidated financial statements.

NOTE 3: ACQUISITIONS AND DISPOSITIONS

Acquisitions

On August 28, 2014, we acquired all of the outstanding stock of The Hillshire Brands Company ("Hillshire Brands") as part of our strategic expansion initiative. The purchase price was equal to $63.00 per share for Hillshire Brands' outstanding common stock, or $8,081 million. In addition, we paid $163 million in cash for breakage costs incurred by Hillshire Brands related to a previously announced acquisition. We funded the acquisition with existing cash on hand, net proceeds from the issuance of new senior notes, Class A common stock (Class A stock), and tangible equity units as well as borrowings under a new term loan facility (refer to Note 7: Debt and Note 8: Equity). Hillshire Brands' results from operations subsequent to the acquisition closing are included in the Prepared Foods segment.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date. Certain estimated values for the acquisition, including goodwill, intangible assets, plant property and equipment, and deferred taxes, are not yet finalized and the preliminary purchase price allocations are subject to change as we complete our analysis of the fair value at the date of acquisition.

in millions
Cash and cash equivalents$72
Accounts receivable236
Inventories421
Other current assets344
Property, Plant and Equipment1,306
Goodwill4,804
Intangible Assets5,141
Other Assets45
Accounts payable(347)
Other current liabilities(324)
Long-Term Debt(868)
Deferred Income Taxes(2,069)
Other Liabilities(517)
Net asset acquired$8,244

The fair value of identifiable intangible assets is as follows:

in millions
Intangible Asset CategoryTypeLife in YearsFair Value
Brands & trademarksNon-amortizableIndefinite$4,062
Brands & trademarksAmortizable20 years532
Customer relationshipsAmortizableWeighted average life of 16 years541
Non-compete agreementsAmortizable1 year6
Total identifiable intangible assets$5,141

As a result of the acquisition, we recognized a total of $4,804 million of goodwill. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above. Goodwill represents the value we expect to achieve through the implementation of operational synergies and growth opportunities primarily in our Prepared Foods segment. We do not expect the final fair value of goodwill to be deductible for U.S. income tax purposes.

We used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty and excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

The acquisition of Hillshire Brands was accounted for using the acquisition method of accounting, and consequently, the results of operations for Hillshire Brands are reported in our consolidated financial statements from the date of acquisition. Hillshire Brands' one month results were insignificant to our Consolidated Statements of Income.

The following unaudited pro forma information presents the combined results of operations as if the acquisition of Hillshire Brands had occurred at the beginning of fiscal 2013. Hillshire Brands' pre-acquisition results have been added to our historical results. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles, depreciation expense, interest expense related to the financing and related income taxes. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.

The 2013 pro forma results include transaction related expenses incurred by Hillshire Brands prior to the acquisition of $168 million, including items such as consultant fees, accelerated stock compensation and other deal costs; transaction related expenses incurred by the Company of $115 million, including fees paid to third parties, financing costs and other deal costs; and $32 million expense related to the fair value inventory adjustment at the date of acquisition.

These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results.

in millions (unaudited)
20142013
Pro forma sales$41,311$38,195
Pro forma net income from continuing operations attributable to Tyson1,047655
Pro forma net income per diluted share from continuing operations attributable to Tyson$2.50$1.52

During the second quarter of fiscal 2014 we acquired a value-added food business as part of our strategic expansion initiative, which is included in our Prepared Foods segment. The aggregate purchase price of the acquisition was $56 million, which included $12 million for Property, Plant and Equipment, $27 million allocated to Intangible Assets and $18 million allocated to Goodwill.

During fiscal 2013, we acquired two value-added food businesses as part of our strategic expansion initiative, which are included in our Prepared Foods segment. The aggregate purchase price of the acquisitions was $106 million, which included $50 million for Property, Plant and Equipment, $41 million allocated to Intangible Assets and $12 million allocated to Goodwill.

Dispositions

On July 28, 2014, we announced our plan to sell our Brazil and Mexico operations, which are included in our International segment, to JBS SA ("JBS") for $575 million in cash. As a result, we conducted an impairment test and recorded a $39 million impairment charge in the fourth quarter of fiscal 2014 related to our Brazil operation. We expect to complete the sale of our Brazil operation in the first quarter of fiscal 2015. We expect to realize a gain on the sale of our Mexico operation, which is pending the necessary government approvals, and expect it to close in the first half of fiscal 2015. We have reclassified the assets and liabilities related to Mexico and Brazil to assets and liabilities held for sale in our 2014 Consolidated Balance Sheet.

The following table summarizes the net assets and liabilities held for sale:

in millions
2014
Assets held for sale:
Accounts receivable, net$74
Inventories141
Other current assets72
Net property, plant and equipment132
Goodwill16
Other assets11
Total assets held for sale$446
Liabilities held for sale:
Current debt$32
Accounts payable61
Other current liabilities27
Long-term debt9
Deferred income taxes12
Total liabilities held for sale$141

In June 2014, we sold our 50 percent ownership interest of Dynamic Fuels LLC (Dynamic Fuels) for $30 million cash consideration at closing and up to $35 million in future cash payments contingent on Dynamic Fuels' production volumes over a period of up to 11.5 years. Additionally as part of the terms of the sale, we were released from our guarantee of the $100 million Gulf Opportunity Zone tax-exempt bonds, which were issued in October 2008 to fund a portion of the plant construction costs. Dynamic Fuels previously qualified as a variable interest entity which we consolidated, as we were the primary beneficiary. As a result of the sale, we deconsolidated Dynamic Fuels and recorded a gain of approximately $3 million, which is reflected in Cost of Sales in our Consolidated Statements of Income. We will recognize the future contingent payments in income as the required volumes are produced. At September 28, 2013, Dynamic Fuels had $166 million of total assets, of which $142 million was net property, plant and equipment, and $113 million of total liabilities, of which $100 million was long-term debt.

In fiscal 2014, we recorded impairment charges of $52 million related to the planned closure of three Prepared Foods plants. The Company’s Cherokee, Iowa plant closed in September 2014, while the Company’s plants in Buffalo, New York and Santa Teresa, New Mexico are expected to cease operations during the first half of calendar 2015. The impairment charges are reflected in the Consolidated Statements of Income in Cost of Sales. Additionally, in April 2014, Hillshire Brands announced that it will discontinue all production at its Florence, Alabama facility by December 30, 2014. The remaining closure costs are not expected to have a significant impact on the Company's financial results.

NOTE 4: DISCONTINUED OPERATION

After conducting an assessment during fiscal 2013 of our long-term business strategy in China, we determined our Weifang operation (Weifang), which was previously part of our Chicken segment, was no longer core to the execution of our strategy given the capital investment it required to execute our future business plan. Consequently, we conducted an impairment test and recorded a $56 million impairment charge in the second quarter of fiscal 2013. We subsequently sold Weifang which resulted in reporting it as a discontinued operation. The sale was completed in July 2013 and did not result in a significant gain or loss as its carrying value approximated the sales proceeds at the time of sale. Weifang's prior periods results, including the impairment charge, have been reclassified and presented as a discontinued operation in our Consolidated Statements of Income. The following is a summary of the discontinued operation's results:

in millions
201420132012
Sales$—$108$223
Pretax loss—(68)(38)
Income tax expense—2—
Loss from discontinued operation, net of tax$—$(70)$(38)

NOTE 5: PROPERTY, PLANT AND EQUIPMENT

The following table reflects major categories of property, plant and equipment and accumulated depreciation at September 27, 2014, and September 28, 2013:

in millions
20142013
Land$126$100
Building and leasehold improvements3,5012,945
Machinery and equipment6,1445,504
Land improvements and other276417
Buildings and equipment under construction334236
10,3819,202
Less accumulated depreciation5,2515,149
Net property, plant and equipment$5,130$4,053

Approximately $661 million will be required to complete buildings and equipment under construction at September 27, 2014.

NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS

The following table reflects goodwill activity for fiscal 2014 and 2013:

in millions
ChickenBeefPorkPrepared FoodsInternationalUnallocatedConsolidated
Balance at September 29, 2012
Goodwill$909$1,123$317$63$68$—$2,480
Accumulated impairment losses—(560)——(29)—(589)
9095633176339—1,891
Fiscal 2013 Activity:
Acquisition———12——12
Impairment losses———————
Currency translation and other(1)—————(1)
Balance at September 28, 2013
Goodwill9081,1233177568—2,491
Accumulated impairment losses—(560)——(29)—(589)
$908$563$317$75$39$—$1,902
Fiscal 2014 Activity:
Acquisition$—$—$—$18$5$4,804$4,827
Reclass to assets held for sale————(16)—(16)
Impairment losses————(5)—(5)
Currency translation and other(1)——(1)——(2)
Balance at September 27, 2014
Goodwill9071,12331792574,8047,300
Accumulated impairment losses—(560)——(34)—(594)
$907$563$317$92$23$4,804$6,706

On August 28, 2014, we acquired and consolidated Hillshire Brands. The unallocated portion of goodwill is attributable to our acquisition of Hillshire Brands. The allocation of goodwill to our reportable segments is pending finalization of the expected synergies and the impact of the synergies to our reporting units.

The following table reflects other intangible assets by type at September 27, 2014, and September 28, 2013:

in millions
20142013
Amortizable intangible assets:
Brands and trademarks$611$69
Customer relationships57012
Patents, intellectual property and other136140
Non-compete agreements6—
Land use rights88
Total gross amortizable intangible assets$1,331$229
Less accumulated amortization133107
Total net amortizable intangible assets$1,198$122
Brands and trademarks not subject to amortization4,07816
Total intangible assets$5,276$138

Beginning with the date benefits are realized, amortizable intangible assets are generally amortized using the straight-line method over their estimated period of benefit of 20 years or less. Amortization expense of $26 million, $17 million and $16 million was recognized during fiscal 2014, 2013 and 2012, respectively. We estimate amortization expense on intangible assets for the next five fiscal years subsequent to September 27, 2014, will be: 2015 - $94 million; 2016 - $85 million; 2017 - $80 million; 2018 - $79 million; 2019 - $75 million.

NOTE 7: DEBT

The following table reflects major components of debt as of September 27, 2014, and September 28, 2013:

in millions
20142013
Revolving credit facility$—$—
Senior notes:
3.25% Convertible senior notes due October 2013 (2013 Notes)—458
2.75% Senior notes due September 2015 (2015 Notes)407—
6.60% Senior notes due April 2016 (2016 Notes)638638
7.00% Notes due May 2018120120
2.65% Notes due August 2019 (2019 Notes)1,000—
4.10% Notes due September 2020 (2020 Notes)287—
4.50% Senior notes due June 2022 (2022 Notes)1,0001,000
3.95% Notes due August 2024 (2024 Notes)1,250—
7.00% Notes due January 20281818
6.13% Notes due November 2032 (2032 Notes)164—
4.88% Notes due August 2034 (2034 Notes)500—
5.15% Notes due August 2044 (2044 Notes)500—
Discount on senior notes(12)(6)
Term loan facility:
3-year tranche1,172—
5-year tranche A353—
5-year tranche B552—
Amortizing Notes - Tangible Equity Units (see Note 8: Equity)205—
GO Zone tax-exempt bonds—100
Other2480
Total debt8,1782,408
Less current debt643513
Total long-term debt$7,535$1,895

Annual maturities of debt for the five fiscal years subsequent to September 27, 2014, are: 2015 - $644 million; 2016 - $885 million; 2017 - $1,059 million; 2018 - $176 million; 2019 - $1,688 million.

Revolving Credit Facility

In September 2014, we amended our existing credit facility which, among other things, increased our line of credit from $1.0 billion to $1.25 billion. The facility supports short-term funding needs and letters of credit and will mature with the commitments thereunder terminating in September 2019. After reducing the amount available by outstanding letters of credit issued under this facility, the amount available for borrowing at September 27, 2014, was $1,209 million. At September 27, 2014, we had outstanding letters of credit issued under this facility totaling $41 million, none of which were drawn upon. We had an additional $105 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon. Our letters of credit are issued primarily in support of workers’ compensation insurance programs and derivative activities.

The revolving credit facility is unsecured and is fully guaranteed by Tyson Fresh Meats, Inc. (TFM Parent), our wholly owned subsidiary, until such date TFM Parent is released from all of its guarantees of other material indebtedness. If in the future any of our other subsidiaries shall guarantee any of our material indebtedness, such subsidiary shall also be required to guarantee the indebtedness, obligations and liabilities under this facility.

2013 Notes

In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013. In connection with the issuance of the 2013 Notes, we entered into separate call option and warrant transactions with respect to our Class A stock to minimize the potential economic dilution upon conversion of the 2013 Notes. The call options contractually expired upon the maturity of the 2013 Notes. The 2013 Notes matured on October 15, 2013 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. Simultaneously with the settlement of the conversion premium, we received 11.7 million shares of our Class A stock from the call options.

The warrants were settled on various dates in fiscal 2014 resulting in the issuance of 11.7 million shares of Class A stock.

2016 Notes

The 2016 Notes carry an interest rate at issuance of 6.60%, with an interest step up feature dependent on their credit rating. On June 7, 2012, Moody's upgraded the credit rating of these 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.

On February 11, 2013, 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.

2019 / 2024 / 2034 / 2044 Notes

In August 2014, we issued senior unsecured notes with an aggregate principal amount of $3,250 million, consisting of $1,000 million due August 2019, $1,250 million due August 2024, $500 million due August 2034, and $500 million due August 2044. The 2019 Notes, 2024 Notes, 2034 Notes, and 2044 Notes carry interest rates of 2.65%, 3.95%, 4.88% and 5.15%, respectively, with interest payments due semi-annually on August 15 and February 15. After the original issue discounts of $7 million, we received net proceeds of $3,243 million. In addition, we incurred offering expenses of $27 million.

2022 Notes

In June 2012, we issued $1.0 billion of senior unsecured notes, which will mature in June 2022. The 2022 Notes carry a 4.50% interest rate, with interest payments due semi-annually on June 15 and December 15. After the original issue discount of $5 million, based on an issue price of 99.458%, we received net proceeds of $995 million. In addition, we incurred offering expenses of $9 million.

Term Loan Facility

In August 2014, we borrowed under our unsecured term loan facility, which provided for total term loans in an aggregate principal amount of $2,300 million, consisting of a $1,202 million 3-year tranche facility, a $546 million 5-year tranche A facility, and a $552 million 5-year tranche B facility. The principal of the 3-year tranche facility and the 5-year tranche A facility each amortize at 2.5% per quarter. In addition, we incurred term loan issuance costs of approximately $11 million.

2015 / 2020 / 2032 Notes

In August 2014 and in connection with our acquisition of Hillshire Brands, we assumed $840 million of Hillshire Brands' debt, which had an estimated fair value of approximately $868 million as of the acquisition date. We recorded the assumed debt at fair value. This fair value adjustment will be amortized as a reduction of interest expense in future periods. The debt assumed is mainly comprised of senior unsecured notes which consist of $400 million due September 2015, $278 million due September 2020, and $152 million due November 2032. The 2015 Notes, 2020 Notes, and the 2032 Notes carry interest rates of 2.75%, 4.10%, and 6.13%, respectively.

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. As further described in Note 3: Acquisitions and Dispositions, we sold our interest in Dynamic Fuels in fiscal 2014, which resulted in the deconsolidation of its assets and liabilities, including these bonds.

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.

NOTE 8: EQUITY

Capital Stock

We have two classes of capital stock, Class A stock, $0.10 par value 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 September 27, 2014, Tyson Limited Partnership (the TLP) owned 99.985% of the outstanding shares of Class B stock and the TLP and members of the Tyson family owned, in the aggregate, 1.78% of the outstanding shares of Class A stock, giving them, collectively, control of approximately 70.14% of the total voting power of the outstanding voting stock.

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.

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 pay quarterly cash dividends to Class A and Class B shareholders. We paid Class A dividends per share of $0.30 and Class B dividends per share of $0.27 in fiscal 2014 and 2013, respectively. Fiscal 2013 included a special dividend of $0.10 per share for Class A stock and $0.09 per share for Class B. We paid Class A dividends per share of $0.16 and Class B dividends per share of $0.144 in fiscal 2012. On November 13, 2014, the Board of Directors increased the quarterly dividend previously declared on July 30, 2014, to $0.10 per share on our Class A stock and $0.09 per share on our Class B stock. The increased quarterly dividend is payable on December 15, 2014, to shareholders of record at the close of business on December 1, 2014.

Share Repurchases

On January 30, 2014, our Board of Directors approved an increase of 25 million shares authorized for repurchase under our share repurchase program. As of September 27, 2014, 32.1 million shares remained available for repurchase. The share repurchase program has no fixed or scheduled termination date and the timing and extent to which we repurchase shares will depend upon, among other things, our working capital needs, market conditions, liquidity targets, our debt obligations and regulatory requirements. In addition to the share repurchase program, we purchase shares on the open market to fund certain obligations under our equity compensation plans.

A summary of cumulative share repurchases of our Class A Stock is as follows:

in millions
September 27, 2014September 28, 2013September 29, 2012
SharesDollarsSharesDollarsSharesDollars
Shares repurchased:
Under share repurchase program7.1$25021.1$55012.5$230
To fund certain obligations under equity compensation plans1.2452.8641.834
Total share repurchases8.3$29523.9$61414.3$264

Share Issuance

In fiscal 2014, we issued 23.8 million shares of our Class A stock, to provide funding for the Hillshire Brands acquisition. Total proceeds, net of underwriting discounts and other offering related fees and expenses were $873 million.

Tangible Equity Units

In July 2014, we completed the public issuance of 30 million, 4.75% tangible equity units (TEUs). Total proceeds, net of underwriting discounts and other expenses, were $1,454 million. Each TEU, which has a stated amount of $50, 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 issuance costs. The fair value of the senior amortizing notes, which was $205 million, is recorded in debt, of which $65 million is current. Issuance costs associated with the TEU debt was recorded as deferred financing costs in the Consolidated Balance Sheets in Other Assets and is amortized over the term of the instrument to July 15, 2017.

The aggregate values assigned upon issuance of each component of the TEU's, based on the relative fair value of the respective components of each TEU, were as follows:

in millions, except price per TEU
Equity ComponentDebt ComponentTotal
Price per TEU$43.17$6.83$50.00
Gross Proceeds1,2952051,500
Issuance cost(40)(6)(46)
Net proceeds$1,255$199$1,454

Each senior amortizing note has an initial principal amount of $6.83 and bears interest at 1.5% per annum. On each January 15, April 15, July 15 and October 15, commencing on October 15, 2014, we will pay equal quarterly cash installments of $0.59 per amortizing note (except for the October 15, 2014 installment payment, which will be $0.46 per amortizing note), which cash payment in the aggregate (principal and interest) is equivalent to 4.75% per year with respect to the $50 stated amount per TEU. Each installment will constitute a payment of interest and partial repayment of principal. Unless settled earlier at the holder's or the Company's option, each purchase contract will automatically settle on July 15, 2017, subject to postponement in certain limited circumstances. We will deliver between a minimum of 31.7 million shares and a maximum of 39.7 million shares of our Class A stock, subject to adjustment, based upon the Applicable Market Value (as defined below) of our Class A stock as described below:

•If the Applicable Market Value is equal to or greater than the conversion price of $47.25 per share, we will deliver 1.0582 shares of Class A stock per purchase contract, or a minimum of 31.7 million Class A shares.
•If the Applicable Market Value is greater than the reference price of $37.80 but less than the conversion price of $47.25 per share, we will deliver a number of shares per purchase contract equal to $50, divided by the Applicable Market Value.
•If the Applicable Market Value is less than or equal to the reference price of $37.80 per share, we will deliver 1.3228 shares of Class A stock per purchase contract, or a maximum of 39.7 million Class A shares.

The "Applicable Market Value" means the average of the closing prices of our Class A stock on each of the 20 consecutive trading days beginning on, and including, the 23rd scheduled trading day immediately preceding July 15, 2017.

The TEUs have a dilutive effect on our earnings per share. The 31.7 million minimum shares to be issued are included in the calculation of Class A Basic weighted average shares. The 8 million share difference between the minimum shares and the 39.7 million maximum shares are potentially dilutive securities, and accordingly, are included in our diluted earnings per share on a pro rata basis to the extent the Applicable Market Value is higher than the reference price but is less than the conversion price.

NOTE 9: INCOME TAXES

Detail of the provision for income taxes from continuing operations consists of the following:

in millions
201420132012
Federal$325$341$310
State673822
Foreign43019
$396$409$351
Current$501$421$211
Deferred(105)(12)140
$396$409$351

The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:

201420132012
Federal income tax rate35.0%35.0%35.0%
State income taxes2.82.41.5
Unrecognized tax benefits, net(4.7)(0.2)0.6
Domestic production deduction(4.0)(3.2)(1.8)
Foreign rate differences and valuation allowances2.80.31.8
Other(0.3)(1.7)(0.7)
31.6%32.6%36.4%

During fiscal 2014, the domestic production deduction and the decrease in unrecognized tax benefits decreased tax expense by $50 million and $58 million, respectively.

During fiscal 2013, the domestic production deduction and estimated general business credits decreased tax expense by $40 million and $17 million, respectively.

During fiscal 2012, foreign valuation allowances increased tax expense by $10 million, and the domestic production deduction decreased tax expense by $17 million.

Approximately $18 million of loss and $53 million and $2 million of income from continuing operations before income taxes for fiscal 2014, 2013 and 2012, respectively, were from operations based in countries other than the United States.

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.

The tax effects of major items recorded as deferred tax assets and liabilities as of September 27, 2014, and September 28, 2013, are as follows:

in millions
20142013
Deferred TaxDeferred Tax
AssetsLiabilitiesAssetsLiabilities
Property, plant and equipment$—$732$—$525
Suspended taxes from conversion to accrual method—66—71
Intangible assets—2,031—29
Inventory241218110
Accrued expenses474—209—
Net operating loss and other carryforwards96—77—
Insurance reserves21—22—
Other80826098
$695$3,032$376$833
Valuation allowance$(51)$(77)
Net deferred tax liability$2,388$534

We record deferred tax amounts in Other current assets, Other Assets, Other current liabilities and Deferred Income Taxes in 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.

The deferred tax liability for intangible assets increased over prior year due to the acquisition of Hillshire Brands.

At September 27, 2014, our gross state tax net operating loss carryforwards approximated $1.3 billion and expire in fiscal years 2015 through 2034. Gross foreign net operating loss carryforwards approximated $146 million, of which $50 million expire in fiscal years 2017 through 2024, and the remainder has no expiration. We also have tax credit carryforwards of approximately $25 million that expire in fiscal years 2015 through 2028.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $403 million and $351 million at September 27, 2014, and September 28, 2013, respectively. During fiscal 2014, the Company changed its permanent reinvestment assertion with respect to $183 million of earnings related to its poultry operations in Mexico and Brazil due to the planned sale of those operations and repatriation of the related proceeds, and as a result we recorded expense, net of foreign tax credits, of $17 million. With respect to the remaining $220 million of undistributed earnings for all other foreign subsidiaries at September 27, 2014, 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 could 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 September 27, 2014, September 28, 2013, and September 29, 2012:

in millions
201420132012
Balance as of the beginning of the year$175$168$174
Increases related to current year tax positions1133
Increases related to prior year tax positions17155
Increases related to Hillshire Brands balances136——
Reductions related to prior year tax positions(20)(6)(10)
Reductions related to settlements(1)(2)(1)
Reductions related to expirations of statute of limitations(46)(3)(3)
Balance as of the end of the year$272$175$168

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $241 million and $149 million at September 27, 2014, and September 28, 2013, respectively. We classify interest and penalties on unrecognized tax benefits as income tax expense. At September 27, 2014, and September 28, 2013, before tax benefits, we had $54 million and $63 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of September 27, 2014, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 2011 through 2013. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2005 through 2013 and 2002 through 2013, respectively. We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $30 million primarily due to expiration of statutes in various jurisdictions.

NOTE 10: OTHER INCOME AND CHARGES

During fiscal 2014, we recorded $11 million of equity earnings in joint ventures, $3 million in net foreign currency exchange gains, $6 million of other than temporary impairment related to an available-for-sale security and $60 million of costs associated with bridge financing facilities for the Hillshire Brands acquisition, which were recorded in the Consolidated Statements of Income in Other, net.

During fiscal 2013, we recorded a $19 million currency translation adjustment gain recognized in conjunction with the receipt of proceeds constituting the final resolution of our investment in Canada, which was recorded in the Consolidated Statements of Income in Other, net.

During fiscal 2012, we recorded $16 million of equity earnings in joint ventures and $4 million in net foreign currency exchange gains, which were recorded in the Consolidated Statements of Income in Other, net.

NOTE 11: EARNINGS PER SHARE

The earnings and weighted average common shares used in the computation of basic and diluted earnings per share are as follows:

in millions, except per share data
201420132012
Numerator:
Income from continuing operations$856$848$614
Less: Net loss attributable to noncontrolling interests(8)—(7)
Net income from continuing operations attributable to Tyson864848621
Less dividends declared:
Class A948747
Class B211910
Undistributed earnings$749$742$564
Class A undistributed earnings$612$606$464
Class B undistributed earnings137136100
Total undistributed earnings$749$742$564
Denominator:
Denominator for basic earnings per share:
Class A weighted average shares284282293
Class B weighted average shares, and shares under if-converted method for diluted earnings per share707070
Effect of dilutive securities:
Stock options and restricted stock554
Tangible Equity Units1——
Convertible 2013 Notes—73
Warrants43—
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions364367370
Net Income Per Share from Continuing Operations Attributable to Tyson:
Class A Basic$2.48$2.46$1.75
Class B Basic$2.26$2.22$1.57
Diluted$2.37$2.31$1.68
Net Income Per Share Attributable to Tyson:
Class A Basic$2.48$2.26$1.64
Class B Basic$2.26$2.04$1.48
Diluted$2.37$2.12$1.58

We had approximately 4 million of our stock-based compensation shares that were antidilutive for fiscal 2014, no stock-based compensation shares that were antidilutive for fiscal 2013 and approximately 4 million of our stock-based compensation shares that were antidilutive for fiscal 2012. These shares 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 dividends paid to holders of Class A stock.

We allocate undistributed earnings based upon a 1 to 0.9 ratio per share to Class A stock and Class B stock, respectively. We allocate undistributed earnings based on this ratio due to historical dividend patterns, voting control of Class B shareholders and contractual limitations of dividends to Class B stock.

NOTE 12: 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. Forwards 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 periodically reviewed by our Board of Directors’ Audit Committee. These programs are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize industry-standard models that take into account the implicit cost of hedging. Risks associated with our market risks and those created by derivative instruments and the fair values are strictly monitored, using Value-at-Risk and stress tests. Credit risks associated with our derivative contracts are not significant as we minimize counterparty concentrations, utilize margin accounts or letters of credit, and deal with credit-worthy counterparties. Additionally, our derivative contracts are mostly short-term in duration and we generally do not make use of credit-risk-related contingent features. No significant concentrations of credit risk existed at September 27, 2014.

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., cash flow hedge or fair value hedge). 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) (OCI) 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 and option contracts of forecasted purchases (i.e., grains) and certain foreign exchange forward contracts.
•Fair Value Hedges – include certain commodity forward contracts of firm commitments (i.e., livestock).

Cash flow hedges

Derivative instruments, 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 and option commodity contracts in excess of our physical consumption requirements and generally do not hedge forecasted transactions beyond 18 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 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 2014, 2013 and 2012.

We had the following aggregated notional values of outstanding forward and option contracts accounted for as cash flow hedges:

in millions, except soy meal tons
MetricSeptember 27, 2014September 28, 2013
Commodity:
CornBushels—5
Soy MealTons2,30096,800
Foreign CurrencyUnited States dollar$1$60

As of September 27, 2014, the net amounts expected to be reclassified into earnings within the next 12 months are pretax losses of $4 million related to grain. During fiscal 2014, 2013 and 2012, we did not reclassify significant 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 in the Consolidated Statements of Income:

in millions
Gain/(Loss) Recognized in OCI on DerivativesConsolidated Statements of Income ClassificationGain/(Loss) Reclassified from OCI to Earnings
201420132012201420132012
Cash Flow Hedge – Derivatives designated as hedging instruments:
Commodity contracts$(7)$(29)$24Cost of Sales$(10)$(5)$(16)
Foreign exchange contracts(1)(2)(8)Other Income/Expense—(4)4
Total$(8)$(31)$16$(10)$(9)$(12)

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. We had the following aggregated notional values of outstanding forward contracts entered into to hedge firm commitments which are accounted for as a fair value hedge:

in millions
MetricSeptember 27, 2014September 28, 2013
Commodity:
Live CattlePounds427209
Lean HogsPounds329384

For these derivative instruments we designate and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the same period. We include the gain or loss on the hedged items (i.e., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the related livestock forward position.

in millions
Consolidated Statements of Income Classification201420132012
Gain/(Loss) on forwardsCost of Sales$(154)$21$47
Gain/(Loss) on purchase contractCost of Sales154(21)(47)

Ineffectiveness related to our fair value hedges was not significant during fiscal 2014, 2013 and 2012.

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, energy and foreign currency 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.

The objective of our undesignated grains, livestock and energy 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 future sale 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 options and futures positions to mitigate a portion of this risk. Changes in market value of the open livestock options and 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 and option 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 that impacts current earnings.

We had the following aggregate outstanding notional values related to our undesignated positions:

in millions, except soy meal tons
MetricSeptember 27, 2014September 28, 2013
Commodity:
CornBushels—69
Soy MealTons195,800204,600
Soy OilPounds311
Live CattlePounds2260
Lean HogsPounds22159
Foreign CurrencyUnited States dollars$108$95

The following table sets forth the pretax impact of the undesignated derivative instruments in the Consolidated Statements of Income:

in millions
Consolidated Statements of Income ClassificationGain/(Loss) Recognized in Earnings
201420132012
Derivatives not designated as hedging instruments:
Commodity contractsSales$75$(10)$(10)
Commodity contractsCost of Sales(136)(24)51
Foreign exchange contractsOther Income/Expense—2—
Total$(61)$(32)$41

The following table sets forth the fair value of all derivative instruments outstanding in the Consolidated Balance Sheets:

in millions
Fair Value
September 27, 2014September 28, 2013
Derivative Assets:
Derivatives designated as hedging instruments:
Commodity contracts$17$4
Foreign exchange contracts—1
Total derivative assets – designated175
Derivatives not designated as hedging instruments:
Commodity contracts4225
Foreign exchange contracts—2
Total derivative assets – not designated4227
Total derivative assets$59$32
Derivative Liabilities:
Derivatives designated as hedging instruments:
Commodity contracts$78$29
Foreign exchange contracts——
Total derivative liabilities – designated7829
Derivatives not designated as hedging instruments:
Commodity contracts8072
Foreign exchange contracts21
Total derivative liabilities – not designated8273
Total derivative liabilities$160$102

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 13: Fair Value Measurements for a reconciliation to amounts reported in the Consolidated Balance Sheets in Other current assets and Other current liabilities.

NOTE 13: FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:

Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets in non-active markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following tables set forth by level within the fair value hierarchy our financial assets and liabilities accounted for at fair value on a recurring basis according to the valuation techniques we used to determine their fair values:

in millions
September 27, 2014Level 1Level 2Level 3Netting (a)Total
Assets:
Commodity Derivatives$—$59$—$(50)$9
Foreign Exchange Forward Contracts—————
Available for Sale Securities:
Current—1——1
Non-current12467—92
Deferred Compensation Assets15218——233
Total Assets$16$302$67$(50)$335
Liabilities:
Commodity Derivatives$—$158$—$(148)$10
Foreign Exchange Forward Contracts—2——2
Total Liabilities$—$160$—$(148)$12
September 28, 2013Level 1Level 2Level 3Netting (a)Total
Assets:
Commodity Derivatives$—$29$—$(21)$8
Foreign Exchange Forward Contracts—3—(1)2
Available for Sale Securities:
Current—1——1
Non-current42465—93
Deferred Compensation Assets23191——214
Total Assets$27$248$65$(22)$318
Liabilities:
Commodity Derivatives$—$101$—$(101)$—
Foreign Exchange Forward Contracts—1——1
Total Liabilities$—$102$—$(101)$1
(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 September 27, 2014, and September 28, 2013, we had posted with various counterparties $98 million and $79 million, respectively, of cash collateral related to our commodity derivatives and held no cash collateral.

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
September 27, 2014September 28, 2013
Balance at beginning of year$65$86
Total realized and unrealized gains (losses):
Included in earnings—1
Included in other comprehensive income (loss)——
Purchases2519
Issuances——
Settlements(23)(41)
Balance at end of year$67$65
Total gains (losses) for the periods included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of year$—$—

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Derivative Assets and Liabilities: Our commodities and foreign exchange forward contracts primarily include exchange-traded and over-the-counter contracts which are further described in Note 12: 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. We classify these instruments in Level 2 when quoted market prices can be corroborated utilizing observable current and forward commodity market prices on active exchanges or observable market transactions of spot currency rates and forward currency prices.

Available for Sale Securities: Our investments in marketable debt securities are classified as available-for-sale and are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. Short-term investments with maturities of less than 12 months are included in Other current assets in the Consolidated Balance Sheets and primarily include certificates of deposit and commercial paper. All other marketable debt securities are included in Other Assets in the Consolidated Balance Sheets and have maturities ranging up to 35 years. We classify our investments in U.S. government, U.S. agency, certificates of deposit and commercial paper debt securities as Level 2 as fair value is generally estimated using discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other readily available relevant economic measures. We classify certain corporate, asset-backed and other debt securities as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated financial statements.

in millions
September 27, 2014September 28, 2013
Amortized Cost BasisFair ValueUnrealized Gain/(Loss)Amortized Cost BasisFair ValueUnrealized Gain/(Loss)
Available for Sale Securities:
Debt Securities:
U.S. Treasury and Agency$25$25$—$25$25$—
Corporate and Asset-Backed6567264651
Equity Securities:
Common Stock and Warrants (a)11—94(5)
(a)At September 27, 2014, the amortized cost basis for Equity Securities had been reduced by accumulated other than temporary impairment of approximately $2 million.

Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in OCI until the security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are temporary in nature. Losses on equity securities are recognized in earnings if the decline in value is judged to be other than temporary. If losses related to our debt securities are determined to be other than temporary, the loss would be recognized in earnings if we intend, or more likely than not will be required, to sell the security prior to recovery. For debt securities in which we have the intent and ability to hold until maturity, losses determined to be other than temporary would remain in OCI, other than expected credit losses which are recognized in earnings. We consider many factors in determining whether a loss is temporary, including the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. We recognized $6 million of other than temporary impairment for the year ended September 27, 2014, which is recorded in the Consolidated Statements of Income in Other, net. No other than temporary losses were deferred in OCI as of September 27, 2014, and September 28, 2013.

Deferred Compensation Assets: We maintain non-qualified deferred compensation plans for certain executives and other highly compensated employees. Investments are generally maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at fair value based on quoted market prices and are included in Other Assets in the Consolidated Balance Sheets. We classify the investments which have observable market prices in active markets in Level 1 as these are generally publicly-traded mutual funds. The remaining deferred compensation assets are classified in Level 2, as fair value can be corroborated based on observable market data. Realized and unrealized gains (losses) on deferred compensation are included in earnings.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

In fiscal 2014, we recorded a $52 million impairment charge related to the closure of three Prepared Foods plants, which is recorded in the Consolidated Statements of Income in Cost of Sales and in the Prepared Foods segment. Our valuation of these assets was primarily based on discounted cash flow models which included unobservable Level 3 inputs.

On July 28, 2014, we announced our plan to sell our Brazil operation. As a result, we recorded a $39 million charge to impair its assets to its fair value of $144 million. The impairment charge was recorded in the Consolidated Statements of Income in Cost of Sales and in the International segment. The fair value used to determine the impairment was based upon the contracted sales price.

Other Financial Instruments

Fair value of our debt is principally estimated using Level 2 inputs based on quoted prices for those or similar instruments. Fair value and carrying value for our debt are as follows:

in millions
September 27, 2014September 28, 2013
Fair ValueCarrying ValueFair ValueCarrying Value
Total Debt$8,347$8,178$2,541$2,408

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 September 27, 2014, and September 28, 2013, 18.6% and 17.5%, respectively, of our net accounts receivable balance was due from Wal-Mart Stores, Inc. No other single customer or customer group represented greater than 10% of net accounts receivable.

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 30,428,186 at September 27, 2014.

Stock Options

Shareholders approved the Incentive Plan in January 2001. The Incentive Plan is administered by the Compensation and Leadership Development 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 value at the date of grant. Nonqualified stock options may be granted at a price equal to or more than the fair value of Class A stock on the date the option is granted. Stock options under the Incentive Plan generally become exercisable ratably over three 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.

Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life (in Years)Aggregate Intrinsic Value (in millions)
Outstanding, September 28, 201313,912,168$16.59
Exercised(4,168,070)16.13
Canceled(270,989)23.79
Granted4,251,30031.82
Outstanding, September 27, 201413,724,409$21.307.0$226
Exercisable, September 27, 20146,866,204$16.355.3$147

We generally grant stock options once a year. The weighted average grant-date fair value of options granted in fiscal 2014, 2013 and 2012 was $10.83, $6.44 and $6.99, respectively. The fair value of each option grant is established on the date of grant using a binomial lattice method. 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.

201420132012
Expected life (in years)6.06.26.7
Risk-free interest rate1.3%0.7%0.9%
Expected volatility36.0%36.8%36.6%
Expected dividend yield1.0%1.0%1.0%

We recognized stock-based compensation expense related to stock options, net of income taxes, of $20 million, $14 million and $15 million for fiscal 2014, 2013 and 2012, respectively. The related tax benefit for fiscal 2014, 2013 and 2012 was $13 million, $9 million and $10 million, respectively. We had 4.8 million, 3.9 million and 3.4 million options vest in fiscal 2014, 2013 and 2012, respectively, with a grant date fair value of $30 million, $22 million and $17 million, respectively.

In fiscal 2014, 2013 and 2012, we received cash of $67 million, $123 million and $34 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 2014, 2013 and 2012, was $33 million, $35 million and $7 million, respectively. The total intrinsic value of options exercised in fiscal 2014, 2013 and 2012, was $87 million, $90 million and $21 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 $24 million, $18 million and $3 million related to excess tax deductions during fiscal 2014, 2013 and 2012, respectively.

As of September 27, 2014, we had $35 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 1.4 years.

Restricted Stock

We issue restricted stock at the market value as of the date of grant, with restrictions expiring over periods through fiscal 2017. Unearned compensation is recognized over the vesting period for the particular grant using a straight-line method.

Number of SharesWeighted Average Grant- Date Fair Value Per ShareWeighted Average Remaining Contractual Life (in Years)Aggregate Intrinsic Value (in millions)
Nonvested, September 28, 20131,138,699$16.86
Granted423,45331.98
Dividends9,22537.14
Vested(584,360)17.66
Forfeited(48,073)20.83
Nonvested, September 27, 2014938,944$23.181.2$35

As of September 27, 2014, we had $10 million of total unrecognized compensation cost related to restricted stock awards that will be recognized over a weighted average period of 1.2 years.

We recognized stock-based compensation expense related to restricted stock, net of income taxes, of $6 million, $5 million and $7 million for fiscal 2014, 2013 and 2012, respectively. The related tax benefit for fiscal 2014, 2013 and 2012 was $4 million, $3 million and $4 million, respectively. We had 0.6 million, 1.4 million and 1.2 million restricted stock awards vest in fiscal 2014, 2013 and 2012, respectively, with a grant date fair value of $11 million, $20 million and $17 million, respectively.

Performance-Based Shares

We award performance-based shares of our Class A stock to certain senior executives. These awards are typically granted once a year. Performance-based shares vest based upon the passage of time and the achievement of performance or market performance criteria, ranging from 0% to 200%, as determined by the Compensation Committee prior to the date of the award. Vesting periods for these awards are generally three years. We review progress toward the attainment of the performance criteria each quarter during the vesting period. When it is probable the minimum performance criteria for an award will be achieved, we begin recognizing the expense equal to the proportionate share of the total fair value of the Class A stock price on the grant date. The total expense recognized over the duration of performance awards will equal the Class A stock price on the date of grant multiplied by the number of shares ultimately awarded based on the level of attainment of the performance criteria. For grants with market performance criteria, the total expense recognized over the duration of the award will equal the fair value as determined on the grant date, regardless if the market performance criteria is met.

The following table summarizes the performance-based shares at the maximum award amounts based upon the respective performance share agreements. Actual shares that will vest depend on the level of attainment of the performance-based criteria.

Number of SharesWeighted Average Grant- Date Fair Value Per ShareWeighted Average Remaining Contractual Life (in Years)
Nonvested, September 28, 20131,001,310$20.99
Granted585,41835.66
Vested(42,282)16.26
Forfeited(140,843)23.68
Nonvested, September 27, 20141,403,603$26.771.5

We recognized stock-based compensation expense related to performance shares, net of income taxes, of $3.8 million, $2.4 million and $0.2 million for fiscal 2014, 2013 and 2012, respectively. The related tax benefit for fiscal 2014, 2013 and 2012 was $2.5 million, $1.5 million and $0.1 million, respectively. As of September 27, 2014, we had $9 million of total unrecognized compensation based upon our progress toward the attainment of criteria related to performance-based share awards that will be recognized over a weighted average period of 1.5 years.

NOTE 15: PENSIONS AND OTHER POSTRETIREMENT BENEFITS

At September 27, 2014, we had nine defined benefit pension plans consisting of six funded qualified plans and three unfunded non-qualified plans. In regards to our qualified plans, five are frozen and noncontributory. The benefits provided under these plans are based on a formula using years of service and either a specified benefit rate or compensation level. The non-qualified defined benefit plans are for certain contracted officers and use 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 programs for various groups of employees. We recognized expenses of $53 million, $50 million and $47 million in fiscal 2014, 2013 and 2012, respectively.

We use a fiscal year end measurement date for our defined benefit plans and other postretirement plans. We 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.

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at September 27, 2014, and September 28, 2013:

in millions
Pension BenefitsOther Postretirement
QualifiedNon-QualifiedBenefits
201420132014201320142013
Change in benefit obligation
Benefit obligation at beginning of year$86$101$85$81$71$64
Service cost1—7522
Interest cost1045332
Plan participants’ contributions————11
Actuarial (gain)/loss(37)(9)15(2)(8)7
Benefits paid(11)(10)(3)(2)(6)(5)
Business acquisition1,800—73—100—
Benefit obligation at end of year1,849861828516371
Change in plan assets
Fair value of plan assets at beginning of year8586————
Actual return on plan assets(36)3————
Employer contributions663254
Plan participants’ contributions————11
Benefits paid(11)(10)(3)(2)(6)(5)
Business acquisition1,603—3———
Fair value of plan assets at end of year1,647853———
Funded status$(202)$(1)$(179)$(85)$(163)$(71)

Amounts recognized in the Consolidated Balance Sheets consist of:

in millions
Pension BenefitsOther Postretirement
QualifiedNon-QualifiedBenefits
201420132014201320142013
Other current liabilities$—$—$(5)$—$(7)$—
Other liabilities(202)(1)(174)(85)(156)(71)
Accumulated other comprehensive (income)/loss:
Actuarial loss39303623——
Prior service cost/(credit)————(2)(3)
Net amount recognized$(163)$29$(143)$(62)$(165)$(74)

At September 27, 2014, seven pension plans had an accumulated benefit obligation in excess of plan assets. At September 28, 2013, three pension plans had an accumulated benefit obligation in excess of plan assets. Plans with accumulated benefit obligations in excess of plan assets are as follows:

in millions
Pension Benefits
QualifiedNon-Qualified
2014201320142013
Projected benefit obligation$1,829$27$182$85
Accumulated benefit obligation1,8292717272
Fair value of plan assets1,627263—

The accumulated benefit obligation for all qualified pension plans was $1,849 million and $86 million at September 27, 2014, and September 28, 2013, respectively.

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 BenefitsOther Postretirement
QualifiedNon-QualifiedBenefits
201420132012201420132012201420132012
Service cost$1$—$—$7$5$5$2$2$1
Interest cost1044533322
Expected return on plan assets(13)(5)(6)——————
Amortization of prior service cost————11—(1)(1)
Recognized actuarial (gain) loss, net243231(8)724
Net periodic benefit cost$—$3$1$14$12$10$(3)$10$26

As of September 27, 2014, the amounts expected to be reclassified into earnings within the next 12 months related to net periodic benefit cost for the qualified and non-qualified pensions are $2 million and $4 million, respectively.

Assumptions

Weighted average assumptions are as follows:

Pension BenefitsOther Postretirement
QualifiedNon-QualifiedBenefits
201420132012201420132012201420132012
Discount rate to determine net periodic benefit cost4.37%4.02%4.53%5.01%4.23%4.75%4.41%3.66%4.09%
Discount rate to determine benefit obligations4.32%4.77%4.02%4.36%5.09%4.23%3.97%4.48%3.66%
Rate of compensation increase0.01%N/AN/A2.11%3.50%3.50%N/AN/AN/A
Expected return on plan assets6.37%5.44%6.37%N/AN/AN/AN/AN/AN/A

To determine the expected return on plan assets assumption, 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.

Our discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. These 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. As of September 27, 2014, all pension and other postretirement benefit plans used the RP-2014 mortality tables. At September 28, 2013, the pension plans used the 2013 IRS mortality tables while the other postretirement benefit plans used either the RP-2000 or the 2013 IRS mortality tables to align with applicable participant data.

We have six other postretirement benefit plans which are healthcare and life insurance related. Two of these plans, which benefit obligations totaled $22 million at September 27, 2014, were not impacted by healthcare cost trend rates as they consist of fixed annual payments. The remaining plans, which benefit obligations were $141 million at September 27, 2014, covering retirees who do not yet qualify for Medicare utilized an assumed healthcare cost trend rate of 7.3% and those covering retirees who do qualify for Medicare utilized an assumed healthcare cost trend of 6.5%. The healthcare cost trend rate will be grading down to an ultimate rate of 5.0% in 2021/2022. A one-percentage-point change in assumed health-care cost trend rates would have the following effects:

in millions
One Percentage Point IncreaseOne Percentage Point Decrease
Effect on postretirement benefit obligation$17$13
Effect on total service and interest components21

Plan Assets

The following table sets forth the actual and target asset allocation for pension plan assets:

20142013Target Asset Allocation
Cash4.9%1.6%0.3%
Fixed Income Securities80.579.184.9
U.S. Stock Funds6.04.35.4
International Stock Funds6.27.36.3
Real Estate2.03.82.0
Other0.43.91.1
Total100.0%100.0%100.0%

Additionally, one of our foreign subsidiary pension plans had $15 million and $14 million in plan assets held in an insurance trust at September 27, 2014, and September 28, 2013, respectively.

The plan trustees have established a set of investment objectives related to the assets of the domestic pension plans and regularly monitor the performance of the funds and portfolio managers. Objectives for the pension assets are (i) to provide growth of capital and income, (ii) to achieve a target weighted average annual rate of return competitive with funds with similar investment objectives and (iii) to diversify to reduce risk. The target asset allocations are based upon the funded status of the plans. As pension obligations become better funded, we will lower risk by increasing the allocation to fixed income.

As noted in the previous table, on an aggregate fair value basis, the plan assets are currently at 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. Derivative instruments may also be used in concert with either fixed income or equity investments to achieve desired exposure or to hedge certain risks. Derivative instruments can include, but are not limited to, futures, options, swaps or swaptions. We believe there are no significant concentrations of risk within our plan assets as of September 27, 2014.

The following tables show the categories of pension plan assets and the level under which fair values were determined in the fair value hierarchy, which is described in Note 13: Fair Value Measurements.

in millions
September 27, 2014Level 1Level 2 (a)Level 3 (b)Total
Cash and cash equivalents$79$—$—$79
Fixed Income Securities:
Bond and fixed income funds—377—377
Corporate bonds—680—680
Government and municipal bonds—253—253
Mortgage backed securities——77
Total fixed income securities—1,31071,317
Equity Securities:
U.S. securities funds—84—84
Non-U.S. securities funds—101—101
Commodity funds—14—14
Global real estate funds—33—33
Total equity securities—232—232
Other—7—7
Insurance Contract at Contract Value——1515
Total plan assets$79$1,549$22$1,650
in millions
September 28, 2013Level 1Level 2 (a)Level 3 (b)Total
Cash and cash equivalents$1$—$—$1
Fixed Income Securities:
Bond and fixed income funds—56—56
Corporate bonds————
Government and municipal bonds————
Mortgage backed securities————
Total fixed income securities—56—56
Equity Securities:
U.S. securities funds—3—3
Non-U.S. securities funds—5—5
Commodity funds————
Global real estate funds—3—3
Total equity securities—11—11
Other——33
Insurance Contract at Contract Value——1414
Total plan assets$1$67$17$85
(a)We classify our investments in U.S. government, U.S. agency, fixed income funds, bond funds, corporate bonds, and other 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. Funds are valued using the net asset value (NAV) provided by the trustee, which is a practical expedient to estimating fair value. The NAV is based on the fair value of the underlying investments within the funds and is determined daily.
(b)We classify certain mortgage-backed, asset-backed and insurance contracts as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. The insurance contracts are valued using the plan’s own assumptions about the assumptions market participants would use in pricing the assets based on the best information available, such as investment manager pricing. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated financial statements.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) is as follows:

in millions
Mortgage backed securitiesOtherInsurance contractTotal
Balance at September 28, 2013$—$3$1417
Actual return on plan assets:
Assets still held at reporting date————
Assets sold during the period————
Purchases, sales and settlements, net——11
Transfers in and/or out of Level 37(3)—4
Balance at September 27, 2014$7$—$15$22

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 2015 are approximately $14 million. For fiscal 2014, 2013 and 2012, we funded $9 million, $8 million and $8 million plans, respectively, to pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:

in millions
Pension BenefitsOther Postretirement
QualifiedNon-QualifiedBenefits
2015$108$8$12
201682912
201785912
201889912
2019921012
2020-20245065464

The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in 2015 or thereafter.

Multi-Employer Plans

Additionally, we 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.

The risks of participating in multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers. If we stop participating in a plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Contributions to the pension funds were not in excess of 5% of the total plan contributions for plan year 2014. There are no contractually required minimum contributions to the plans as of September 27, 2014.

The net pension cost of the plan is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Contributions to the plan were less than $1 million in fiscal 2014. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The future cost of the plan is dependent on a number of factors including the funded status of the plan and the ability of the other participating companies to meet ongoing funding obligations.

Our participation in this multiemployer plan for fiscal 2014 is outlined below. The EIN/Pension Plan Number column provides the Employer Identification Number (EIN) and the three digit plan number. Unless otherwise noted, the most recent Pension Protection Act ("PPA") zone status available in 2014 and 2013 is for the plan's year beginning January 1, 2014 and 2013, respectively. The zone status is based on information that we have received from the plan and is certified by the plan's actuaries. Among other factors, plans in the red zone are generally less than 65 percent funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreements to which the plan is subject. There have been no significant changes that affect the comparability of contributions from year to year.

In addition to regular contributions, we could be obligated to pay additional contributions (known as complete or partial withdrawal liabilities) if it has unfunded vested benefits.

PPA Zone StatusFIP/RP StatusContributions (in millions)Surcharge Imposed
Pension Fund Plan NameEIN/Pension Plan Number20142013Pending/ Implemented20142014Expiration Date of Collective Bargaining Agreement
Bakery and Confectionary Union & Industry International Pension Fund52-6118572/001RedRedNov 2012$110%Oct 2015

NOTE 16: COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive loss are as follows:

in millions
20142013
Accumulated other comprehensive income (loss), net of taxes:
Unrealized net hedging gain (loss)$(3)$(4)
Unrealized net gain (loss) on investments2(2)
Currency translation adjustment(99)(69)
Postretirement benefits reserve adjustments(47)(33)
Total accumulated other comprehensive loss$(147)$(108)

The before and after tax changes in the components of other comprehensive income (loss) are as follows:

in millions
201420132012
Before TaxTaxAfter TaxBefore TaxTaxAfter TaxBefore TaxTaxAfter Tax
Derivatives accounted for as cash flow hedges:
(Gain) loss reclassified to Cost of Sales$10$(4)$6$5$(2)$3$16$(7)$9
(Gain) loss reclassified to Other Income/Expense———4(2)2(4)2(2)
Unrealized gain (loss)(8)3(5)(31)12(19)16(6)10
Investments:
(Gain) loss reclassified to Other Income/Expense8(2)6(1)—(1)———
Unrealized gain (loss)(2)—(2)(4)2(2)———
Currency translation:
Translation gain reclassified to Other Income/Expense———(19)(1)(20)———
Translation adjustment(32)2(30)(20)3(17)213
Postretirement benefits(23)9(14)15(6)9(6)2(4)
Total Other Comprehensive Income (Loss)$(47)$8$(39)$(51)$6$(45)$24$(8)$16

NOTE 17: SEGMENT REPORTING

We operate in five segments: Chicken, Beef, Pork, Prepared Foods and International. We measure segment profit as operating income (loss).

During the second quarter of fiscal 2014, we began reporting our International operation as a separate segment, which was previously included in our Chicken segment. Our International segment became a separate reportable segment as a result of changes to our internal financial reporting to align with previously announced executive leadership changes. All periods presented have been reclassified to reflect this change. Beef, Pork, Prepared Foods and Other results were not impacted by this change.

Chicken: Chicken includes our domestic operations related to raising and processing live chickens into fresh, frozen and value-added chicken products, as well as sales from allied products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes logistics operations to move products through our domestic supply chain and the global operations of our chicken breeding stock subsidiary.

Beef: Beef includes our operations related to processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes sales from allied products such as hides and variety meats, as well as logistics operations to move products through the supply chain.

Pork: Pork includes our operations related to processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets. This segment also includes our live swine group, related allied product processing activities and logistics operations to move products through the supply chain.

Prepared Foods: Prepared Foods includes our operations related to manufacturing and marketing frozen and refrigerated food products and logistics operations to move products through the supply chain. Products primarily include pepperoni, bacon, sausage, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes, breadsticks and processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, healthcare facilities, the military and other food processors, as well as to international export markets.

On August 28, 2014, we completed the acquisition of Hillshire Brands, a manufacturer and marketer of branded, convenient foods which includes brands such as Jimmy Dean®, Ball Park®, Hillshire Farm®, State Fair®, Van's®, Sara Lee® frozen bakery and Chef Pierre® pies as well as artisanal brands Aidells®, Gallo Salame®, and Golden Island® premium jerky. Hillshire Brands' one month results from operations for fiscal 2014 are included in the Prepared Foods segment.

International: International 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. Products are marketed in each respective country to food retailers, foodservice distributors, restaurant operators, hotel chains, noncommercial foodservice establishments and live markets, as well as to other international export markets.

On July 28, 2014, we announced our plan to sell our Brazil and Mexico operations, part of our International segment, to JBS for $575 million in cash. We expect to complete the sale of our Brazil operation in the first quarter of fiscal 2015. The sale of our Mexico operation is pending the necessary government approvals and is expected to close in the first half of fiscal 2015.

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 of $59 million which are included in Other. Assets and additions to property, plant and equipment relating to corporate activities remain in Other. At September 27, 2014, we included $4.8 billion of goodwill associated with our acquisition of Hillshire Brands in Other. The allocation of goodwill to our reportable segments is pending finalization of the expected synergies and the impact of the synergies to our reporting units.

Information on segments and a reconciliation to income from continuing operations before income taxes are follows:

in millions
ChickenBeefPorkPrepared FoodsInternationalOtherIntersegment SalesConsolidated
Fiscal 2014
Sales$11,116$16,177$6,304$3,927$1,381$—$(1,325)$37,580
Operating Income (Loss)883347455(60)(121)(74)1,430
Total Other (Income) Expense178
Income from Continuing Operations before Income Taxes1,252
Depreciation251873278406494
Total Assets4,8073,1039658,6088715,60223,956
Additions to property, plant and equipment30711536774651632
Fiscal 2013
Sales$10,988$14,400$5,408$3,322$1,324$46$(1,114)$34,374
Operating Income (Loss)683296332101(37)—1,375
Total Other (Income) Expense118
Income from Continuing Operations before Income Taxes1,257
Depreciation251873061405474
Total Assets4,9442,7989311,1768761,45212,177
Additions to property, plant and equipment25310522875833558
Fiscal 2012
Sales$10,270$13,755$5,510$3,237$1,104$167$(988)$33,055
Operating Income (Loss)554218417181(70)(14)1,286
Total Other (Income) Expense321
Income from Continuing Operations before Income Taxes965
Depreciation228863054405443
Total Assets4,9342,6348959609681,50511,896
Additions to property, plant and equipment3541003299978690

The Chicken segment had sales of $7 million, $16 million and $6 million for fiscal 2014, 2013 and 2012, respectively, from transactions with other operating segments. The Pork segment had sales of $1.0 billion, $872 million and $771 million for fiscal 2014, 2013 and 2012, respectively, from transactions with other operating segments. The Beef segment had sales of $307 million, $226 million and $211 million for fiscal 2014, 2013 and 2012, respectively, from transactions with other operating segments. The aforementioned sales from intersegment transactions, which were at market prices, were included in the segment sales in the above table.

Our largest customer, Wal-Mart Stores, Inc., accounted for 14.6%, 13.0% and 13.8% of consolidated sales in fiscal 2014, 2013 and 2012, respectively. Sales to Wal-Mart Stores, Inc. were included in the all 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 96%, 96% and 95% of sales to external customers for fiscal 2014, 2013 and 2012, respectively, were sourced from the United States. Approximately $17.4 billion and $6.1 billion of long-lived assets were located in the United States at September 27, 2014, and September 28, 2013, respectively. Approximately $324 million and $485 million of long-lived assets were located in foreign countries, primarily Brazil, China and India, at September 27, 2014, and September 28, 2013, respectively.

We sell certain products in foreign markets, primarily Brazil, Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, South Korea, Taiwan, and Vietnam. Our export sales from the United States totaled $4.7 billion, $4.2 billion and $4.0 billion for fiscal 2014, 2013 and 2012, respectively. Substantially all of our export sales are facilitated through unaffiliated brokers, marketing associations and foreign sales staffs. Sales of products produced in a country other than the United States were less than 10% of consolidated sales for each of fiscal 2014, 2013 and 2012.

NOTE 18: SUPPLEMENTAL CASH FLOWS INFORMATION

The following table summarizes cash payments for interest and income taxes:

in millions
201420132012
Interest, net of amounts capitalized$118$114$274
Income taxes, net of refunds590310187

NOTE 19: TRANSACTIONS WITH RELATED PARTIES

We have operating leases for two wastewater facilities with an entity owned by the Donald J. Tyson Revocable Trust (for which Mr. John Tyson, Chairman of the Company, is a trustee), Berry Street Waste Water Treatment Plant, LP (90% of which is owned by TLP), and the sisters of Mr. Tyson. Total payments of approximately $1 million in each of fiscal 2014, 2013 and 2012 were paid to lease the facilities.

In fiscal 2014, we purchased real estate from JHT, LLC, for $0.5 million to build a new data center. The JHT, LLC (for which Mr. John Tyson is the manager), is owned 50% by the Donald J. Tyson Revocable Trust and 50% by the Randal W. Tyson Testamentary Trust.

As of September 27, 2014, the TLP, of which John Tyson and director Barbara Tyson are general partners, owned 70 million shares, or 99.985% of Class B stock and, along with the members of the Tyson family, owned 5.5 million shares of Class A stock, giving it control of approximately 70.14% of the total voting power of our outstanding voting stock. In fiscal 2013, as part of the Company's previously approved stock repurchase plan, we purchased one million shares of Class A stock from the TLP for $29.85 million or $29.85 per share.

In fiscal 2012, we had an aircraft lease agreement with Tyson Family Aviation, LLC, of which Mr. Don Tyson (formerly our Senior Chairman), Mr. John Tyson and the Randal W. Tyson Testamentary Trust were members. Upon Mr. Don Tyson’s death on January 6, 2011, his membership interest passed to a trust in which Mr. John Tyson is a trustee. During fiscal 2012, Tyson Family Aviation, LLC sold the aircraft to a non-related party and we entered into an aircraft lease agreement with the new owner. Total payments to Tyson Family Aviation, LLC of approximately $0.4 million were paid in fiscal 2012.

NOTE 20: COMMITMENTS AND CONTINGENCIES

Commitments

We lease equipment, properties and certain farms for which total rentals approximated $161 million, $200 million and $193 million, in fiscal 2014, 2013 and 2012, respectively. Most leases have initial terms of up to seven years, some 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 September 27, 2014, were:

in millions
2015$107
201680
201756
201839
201930
2020 and beyond104
Total$416

We guarantee obligations of certain outside third parties, consisting primarily of leases and grower loans which are substantially collateralized by the underlying assets. Terms of the underlying debt cover periods up to 15 years, and the maximum potential amount of future payments as of September 27, 2014, was $70 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 remaining terms of the lease maturities cover periods over the next 13 years. The maximum potential amount of the residual value guarantees is $54 million, of which $48 million could be recoverable through various recourse provisions and an additional undeterminable recoverable amount based on the fair value of the underlying leased assets. The likelihood of material payments under these guarantees is not considered probable. At September 27, 2014, and September 28, 2013, 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 September 27, 2014, was approximately $330 million. The total receivables under these programs were $4 million and $44 million at September 27, 2014, and September 28, 2013, respectively, and are included, net of allowance for uncollectible amounts, in Accounts Receivable 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 had no allowance for these programs' estimated uncollectible receivables at September 27, 2014 and $15 million at September 28, 2013.

Additionally, we enter into future purchase commitments for various items, such as grains, livestock contracts and fixed grower fees. At September 27, 2014, these commitments totaled:

in millions
2015$2,625
2016585
2017259
2018271
2019189
2020 and beyond249
Total$4,178

Contingencies

We are involved in various claims and legal proceedings. We routinely assess the likelihood of adverse judgments or outcomes to those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. We record accruals for such matters to the extent that we conclude a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. Such accruals are reflected in the Company’s consolidated financial statements. In our opinion, we have made appropriate and adequate accruals for these matters 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 are not adequate, an adverse outcome could have a material effect on the consolidated financial condition or results of operations. Listed below are certain claims made against the Company and/or our subsidiaries for which the potential exposure is considered material to the Company’s consolidated financial statements. We believe we have substantial defenses to the claims made and intend to vigorously defend these matters.

There are nine pending lawsuits involving our beef and pork plants, in which certain present and past employees allege that we failed to compensate them for the time it takes to engage in pre- and post-shift activities, such as changing into and out of protective and sanitary clothing and walking to and from the changing area, work areas and break areas in violation of the Fair Labor Standards Act and various 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.

•Garcia, et al. v. Tyson Foods, Inc., Tyson Fresh Meats, Inc., D. Kansas, May 15, 2006 - After a trial involving our Garden City, Kansas beef plant, a jury verdict in favor of the plaintiffs was entered on March 17, 2011. Exclusive of pre- and post-judgment interest, attorneys’ fees and costs, the jury found violations of federal and state laws for pre- and post-shift work activities and awarded damages in the amount of $503,011. Plaintiffs’ counsel filed an application for attorneys’ fees and expenses which we contested. On December 7, 2012, the court granted plaintiffs' counsel's application and awarded a total of $3,609,723. We appealed the jury’s verdict and trial court’s award to the Tenth Circuit Court of Appeals. The appellate court affirmed the jury verdict and judgment and subsequently denied our petition for rehearing.
•Bouaphakeo (f/k/a Sharp), et al. v. Tyson Foods, Inc., N.D. Iowa, February 6, 2007 - A jury trial was held involving our Storm Lake, Iowa pork plant which resulted in a jury verdict in favor of the plaintiffs for violations of federal and state laws for pre- and post-shift work activities. The trial court also awarded the plaintiffs liquidated damages, resulting in total damages awarded in the amount of $5,784,758. The plaintiffs' counsel has also filed an application for attorneys' fees and expenses in the amount of $2,692,145. We appealed the jury's verdict and trial court's award to the Eighth Circuit Court of Appeals. The appellate court affirmed the jury verdict and judgment on August 25, 2014, and we filed a petition for rehearing on September 22, 2014.
•Guyton (f/k/a Robinson), et al. v. Tyson Foods, Inc., d.b.a Tyson Fresh Meats, Inc., S.D. Iowa, September 12, 2007 - A jury trial was held involving our Columbus Junction, Iowa pork plant, which resulted in a jury verdict in favor of Tyson on April 25, 2012. The plaintiffs have appealed to the Eighth Circuit Court of Appeals. Oral arguments were held on February 11, 2014. The appellate court affirmed the jury verdict and judgment on August 25, 2014.
•Acosta, et al. v Tyson Foods, Inc. d.b.a Tyson Fresh Meats, Inc., D. Nebraska, February 29, 2008 - A bench trial was held involving our Madison, Nebraska pork plant, in January 2013. In May 2013 the trial court awarded the plaintiffs $5,733,943 for unpaid overtime wages. Subsequently, the court ordered the class of plaintiffs expanded, and the plaintiffs submitted an updated calculation of $6,258,330 for unpaid overtime wages as reflected by payroll data through May 2013. On January 30, 2014, the trial court entered judgment in favor of the plaintiffs in the amount of $18,774,989, which represents a tripling of the plaintiffs’ alleged damages. The court denied our post-trial motions, and we appealed to the Eighth Circuit Court of Appeals.
•Gomez, et al. v. Tyson Foods, Inc., D. Nebraska, January 16, 2008 - A jury trial involving our Dakota City, Nebraska beef plant, was held, and the jury found in favor of the plaintiffs on April 3, 2013. On October 2, 2013, the trial court denied the parties’ post-trial motions and entered judgment awarding unpaid overtime wages, liquidated damages, and penalties totaling $4,960,787. We appealed the jury’s verdict and trial court’s award to the Eighth Circuit Court of Appeals.
•Edwards, et al. v. Tyson Foods, Inc. d.b.a Tyson Fresh Meats, Inc., S.D. Iowa, March 20, 2008 - The trial court in this case, which involves our Perry and Waterloo, Iowa pork plants, decertified the state law class and granted other pre-trial motions that resulted in judgment in our favor with respect to the plaintiffs’ claims. The plaintiffs have filed a motion to modify this judgment.
•Abadeer v. Tyson Foods, Inc., and Tyson Fresh Meats, Inc., M.D. Tennessee, February 6, 2009 - The trial court in the Abadeer case, which involves our Goodlettsville, Tennessee case-ready beef and pork plant, granted the plaintiffs’ motion for summary judgment in part, finding that certain pre- and post-shift activities were compensable and our non-payment for those activities was willful and not in good faith. The parties subsequently agreed to settle all claims for $7,750,000. The parties' joint motion for approval of settlement was granted.
•Abdiaziz, et al. v. Tyson Foods, Inc., Tyson Fresh Meats, Inc., D. Kansas, September 30, 2011 - this case involves our Emporia, Kansas beef plant, and was bifurcated from the case involving our Garden City, Kansas beef plant. It is stayed pending the resolution of that matter.
•Murray, et al. v. Tyson Foods, Inc., C.D. Illinois, January 2, 2008; and DeVoss v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, C.D. Illinois, March 2, 2011 - these cases involve our Joslin, Illinois beef plant and are in their preliminary stages.

Our subsidiary, The Hillshire Brands Company (formerly named Sara Lee Corporation), is a party to a consolidation of cases filed by individual complainants with the Republic of the Philippines, Department of Labor and Employment and the National Labor Relations Commission (NLRC) from 1998 through July 1999. The complaint is filed against Aris Philippines, Inc., Sara Lee Corporation, Sara Lee Philippines, Inc., Fashion Accessories Philippines, Inc., and Attorney Cesar C. Cruz (collectively, the “respondents”). The complaint primarily alleges unfair labor practices due to the termination of manufacturing operations in the Philippines by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In 2006, the arbitrator ruled against the respondents and awarded the complainants PHP3,453,664,710 (approximately US$76 million) in damages and fees. The respondents appealed this ruling and it was subsequently set aside by the NLRC in December 2006. However, in a decision dated June 4, 2014, the Supreme Court of the Philippines set aside the NLRC’s December 2006 ruling as premature. The parties have filed numerous appeals, motions for reconsideration and petitions for review in these cases as to the merits of complainants’ claims and the appropriate amount of an appeal bond to be posted by the respondents. Certain of these appeals and motions remain pending before the NLRC and Supreme Court of the Philippines. On June 23, 2014, without admitting liability, The Hillshire Brands Company filed a motion requesting that the Supreme Court of the Philippines order dismissal with prejudice of all claims against it and its predecessors-in-interest in exchange for payments allocated by the court among the complainants in an amount not to exceed PHP342,287,800 (approximately US$7 million).

NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED)

in millions, except per share data
First QuarterSecond QuarterThird QuarterFourth Quarter
2014
Sales$8,761$9,032$9,682$10,105
Gross profit685651637712
Operating income412361351306
Net income252210258136
Amounts attributable to Tyson:
Net income from continuing operations254213260137
Net income attributable to Tyson254213260137
Net income per share from continuing operations attributable to Tyson:
Class A Basic (a)$0.76$0.64$0.75$0.37
Class B Basic$0.68$0.58$0.68$0.32
Diluted (a)$0.72$0.60$0.73$0.35
Net income per share attributable to Tyson:
Class A Basic (a)$0.76$0.64$0.75$0.37
Class B Basic$0.68$0.58$0.68$0.32
Diluted (a)$0.72$0.60$0.73$0.35
2013
Sales$8,366$8,383$8,731$8,894
Gross profit539468682669
Operating income304236419416
Net income168106245259
Amounts attributable to Tyson:
Net income from continuing operations177157253261
Net loss from discontinued operation(4)(62)(4)—
Net income attributable to Tyson17395249261
Net income per share from continuing operations attributable to Tyson:
Class A Basic$0.51$0.45$0.73$0.77
Class B Basic$0.46$0.40$0.66$0.70
Diluted$0.49$0.43$0.69$0.70
Net loss per share from discontinued operation attributable to Tyson:
Class A Basic$(0.01)$(0.18)$(0.01)$—
Class B Basic$(0.01)$(0.15)$(0.02)$—
Diluted$(0.01)$(0.17)$(0.01)$—
Net income per share attributable to Tyson:
Class A Basic$0.50$0.27$0.72$0.77
Class B Basic$0.45$0.25$0.64$0.70
Diluted$0.48$0.26$0.68$0.70

(a) The sum of the quarterly earnings per share amounts will not equal the total for the year due to the effects of rounding and dilution impact as a result of issuing Class A shares and tangible equity units in the fourth quarter of fiscal 2014.

Third quarter fiscal 2014 net income included a $29 million pretax expense related to the Hillshire Brands acquisition fees paid to third parties, a $49 million pretax expense related to the closure of three Prepared Foods facilities and a $40 million unrecognized tax benefit gain.

Fourth quarter fiscal 2014 net income included a $42 million pretax impairment and other costs related to the sale of our Brazil operation and Mexico's undistributed earnings tax, $119 million pretax expense related to the Hillshire Brands acquisition, integration and costs associated with our Prepared Foods improvement plan, $40 million pretax expense 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 pretax expense related to the Hillshire Brands acquisition financing incremental interest cost and a $12 million unrecognized tax benefit gain.

Second quarter fiscal 2013 net income included a $19 million currency translation adjustment gain recognized in conjunction with the receipt of proceeds constituting the final resolution of our investment in Canada and included a $56 million non-cash charge, reported as a discontinued operation, related to the impairment of Weifang.

NOTE 22: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

TFM Parent, our wholly-owned subsidiary, has fully and unconditionally guaranteed the 2016 Notes. Additionally, TFM Parent has fully and unconditionally guaranteed the 2022 Notes until such date TFM Parent has been released of its guarantee of both (i) Tyson's $1.25 billion revolving credit facility and (ii) the 2016 Notes, at which time TFM Parent's guarantee of the 2019, 2022, 2024, 2034 and 2044 Notes is permanently released. The following financial information presents condensed consolidating financial statements, which include Tyson Foods, Inc. (TFI Parent); TFM Parent; the Non-Guarantor Subsidiaries (Non-Guarantors) on a combined basis; the elimination entries necessary to consolidate TFI Parent, TFM Parent 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.

Condensed Consolidating Statement of Income and Comprehensive Income for the year ended September 27, 2014in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Sales$579$21,924$16,926$(1,849)$37,580
Cost of Sales7420,97115,689(1,839)34,895
Gross Profit5059531,237(10)2,685
Selling, General and Administrative141240884(10)1,255
Operating Income364713353—1,430
Other (Income) Expense:
Interest expense, net634913—125
Other, net67(1)(13)—53
Equity in net earnings of subsidiaries(731)(43)—774—
Total Other (Income) Expense(601)5—774178
Income from Continuing Operations before Income Taxes965708353(774)1,252
Income Tax Expense10122768—396
Income from Continuing Operations864481285(774)856
Loss from Discontinued Operation, Net of Tax—————
Net Income864481285(774)856
Less: Net Loss Attributable to Noncontrolling Interests——(8)—(8)
Net Income Attributable to Tyson$864$481$293$(774)$864
Comprehensive Income (Loss)$817$449$243$(692)$817
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest——(8)—(8)
Comprehensive Income (Loss) Attributable to Tyson$817$449$251$(692)$825
Condensed Consolidating Statement of Income and Comprehensive Income for the year ended September 28, 2013in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Sales$431$19,243$16,120$(1,420)$34,374
Cost of Sales4018,46414,932(1,420)32,016
Gross Profit3917791,188—2,358
Selling, General and Administrative68201714—983
Operating Income323578474—1,375
Other (Income) Expense:
Interest expense, net366240—138
Other, net4(1)(23)—(20)
Equity in net earnings of subsidiaries(582)(40)—622—
Total Other (Income) Expense(542)2117622118
Income from Continuing Operations before Income Taxes865557457(622)1,257
Income Tax Expense87172150—409
Income from Continuing Operations778385307(622)848
Loss from Discontinued Operation, Net of Tax——(70)—(70)
Net Income778385237(622)778
Less: Net Loss Attributable to Noncontrolling Interests—————
Net Income Attributable to Tyson$778$385$237$(622)$778
Comprehensive Income (Loss)$733$380$212$(592)$733
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests—————
Comprehensive Income (Loss) Attributable to Tyson$733$380$212$(592)$733
Condensed Consolidating Statement of Income and Comprehensive Income for the year ended September 29, 2012in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Sales$352$18,832$15,152$(1,281)$33,055
Cost of Sales(4)18,08814,061(1,280)30,865
Gross Profit3567441,091(1)2,190
Selling, General and Administrative59205641(1)904
Operating Income297539450—1,286
Other (Income) Expense:
Interest expense, net49143152—344
Other, net1—(24)—(23)
Equity in net earnings of subsidiaries(427)(43)—470—
Total Other (Income) Expense(377)100128470321
Income from Continuing Operations before Income Taxes674439322(470)965
Income Tax Expense91130130—351
Income from Continuing Operations583309192(470)614
Loss from Discontinued Operation, Net of Tax——(38)—(38)
Net Income583309154(470)576
Less: Net Loss Attributable to Noncontrolling Interests——(7)—(7)
Net Income Attributable to Tyson$583$309$161$(470)$583
Comprehensive Income (Loss)$599$324$166$(497)$592
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests——(7)—(7)
Comprehensive Income (Loss) Attributable to Tyson$599$324$173$(497)$599
Condensed Consolidating Balance Sheet as of September 27, 2014in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Assets
Current Assets:
Cash and cash equivalents$—$41$397$—$438
Accounts receivable, net36651,016—1,684
Inventories—1,2722,002—3,274
Other current assets4278379(120)379
Assets held for sale3—443—446
Total Current Assets482,0564,237(120)6,221
Net Property, Plant and Equipment309324,168—5,130
Goodwill—8815,825—6,706
Intangible Assets—155,261—5,276
Other Assets204148326(55)623
Investment in Subsidiaries20,8452,049—(22,894)—
Total Assets$21,127$6,081$19,817$(23,069)$23,956
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt$240$—$403$—$643
Accounts payable357551,016—1,806
Other current liabilities4,718235921(4,667)1,207
Liabilities held for sale——141—141
Total Current Liabilities4,9939902,481(4,667)3,797
Long-Term Debt7,0562532(55)7,535
Deferred Income Taxes21962,333—2,450
Other Liabilities167125978—1,270
Total Tyson Shareholders’ Equity8,8904,86813,479(18,347)8,890
Noncontrolling Interests——14—14
Total Shareholders’ Equity8,8904,86813,493(18,347)8,904
Total Liabilities and Shareholders’ Equity$21,127$6,081$19,817$(23,069)$23,956
Condensed Consolidating Balance Sheet as of September 28, 2013in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Assets
Current Assets:
Cash and cash equivalents$—$21$1,124$—$1,145
Accounts receivable, net—571926—1,497
Inventories—1,0391,778—2,817
Other current assets35188117(411)145
Total Current Assets3511,7193,945(411)5,604
Net Property, Plant and Equipment328913,130—4,053
Goodwill—8811,021—1,902
Intangible Assets—21117—138
Other Assets895162244(821)480
Investment in Subsidiaries11,9752,035—(14,010)—
Total Assets$13,253$5,709$8,457$(15,242)$12,177
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt$457$132$251$(327)$513
Accounts payable27575757—1,359
Other current liabilities4,625200901(4,588)1,138
Total Current Liabilities5,1099071,909(4,915)3,010
Long-Term Debt1,770679241(795)1,895
Deferred Income Taxes2493362—479
Other Liabilities149155282(26)560
Total Tyson Shareholders’ Equity6,2013,8755,631(9,506)6,201
Noncontrolling Interests——32—32
Total Shareholders’ Equity6,2013,8755,663(9,506)6,233
Total Liabilities and Shareholders’ Equity$13,253$5,709$8,457$(15,242)$12,177
Condensed Consolidating Statement of Cash Flows for the year ended September 27, 2014in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Cash Provided by (Used for) Operating Activities$132$431$660$(45)$1,178
Cash Flows from Investing Activities:
Additions to property, plant and equipment(1)(147)(484)—(632)
(Purchases of)/Proceeds from marketable securities, net——15—15
Proceeds from notes receivable—————
Acquisitions, net of cash acquired(8,193)———(8,193)
Other, net523—10
Cash Provided by (Used for) Investing Activities(8,189)(145)(466)—(8,800)
Cash Flows from Financing Activities:
Net change in debt5,154—(12)—5,142
Proceeds from issuance of common stock, net of issuance costs873———873
Proceeds from issuance of equity component of tangible equity units1,255———1,255
Purchases of Tyson Class A common stock(295)———(295)
Dividends(104)—(45)45(104)
Stock options exercised67———67
Other, net(22)—(1)—(23)
Net change in intercompany balances1,129(266)(863)——
Cash Provided by (Used for) Financing Activities8,057(266)(921)456,915
Effect of Exchange Rate Change on Cash—————
Increase (Decrease) in Cash and Cash Equivalents—20(727)—(707)
Cash and Cash Equivalents at Beginning of Year—211,124—1,145
Cash and Cash Equivalents at End of Period$—$41$397$—$438
Condensed Consolidating Statement of Cash Flows for the year ended September 28, 2013in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Cash Provided by (Used for) Operating Activities$294$337$696$(13)$1,314
Cash Flows from Investing Activities:
Additions to property, plant and equipment(4)(113)(441)—(558)
(Purchases of)/Proceeds from marketable securities, net—(13)(5)—(18)
Proceeds from notes receivable—————
Acquisitions, net of cash acquired——(106)—(106)
Other, net—336—39
Cash Provided by (Used for) Investing Activities(4)(123)(516)—(643)
Cash Flows from Financing Activities:
Net change in debt5—(28)—(23)
Proceeds from issuance of common stock, net of issuance costs—————
Proceeds from issuance of equity component of tangible equity units—————
Purchases of Tyson Class A common stock(614)———(614)
Dividends(104)—(13)13(104)
Stock options exercised123———123
Other, net18———18
Net change in intercompany balances281(202)(79)——
Cash Provided by (Used for) Financing Activities(291)(202)(120)13(600)
Effect of Exchange Rate Change on Cash——3—3
Increase (Decrease) in Cash and Cash Equivalents(1)1263—74
Cash and Cash Equivalents at Beginning of Year191,061—1,071
Cash and Cash Equivalents at End of Period$—$21$1,124$—$1,145
Condensed Consolidating Statement of Cash Flows for the year ended September 29, 2012in millions
TFI ParentTFM ParentNon- GuarantorsEliminationsTotal
Cash Provided by (Used for) Operating Activities$312$438$447$(10)$1,187
Cash Flows from Investing Activities:
Additions to property, plant and equipment(1)(104)(585)—(690)
(Purchases of)/Proceeds from marketable securities, net—(7)(4)—(11)
Proceeds from notes receivable—————
Acquisitions, net of cash acquired—————
Other, net1535—41
Cash Provided by (Used for) Investing Activities—(106)(554)—(660)
Cash Flows from Financing Activities:
Net change in debt107—16—123
Proceeds from issuance of common stock, net of issuance costs—————
Proceeds from issuance of equity component of tangible equity units—————
Purchases of Tyson Class A common stock(264)———(264)
Dividends(57)—(10)10(57)
Stock options exercised34———34
Other, net(8)—1—(7)
Net change in intercompany balances(124)(324)448——
Cash Provided by (Used for) Financing Activities(312)(324)45510(171)
Effect of Exchange Rate Change on Cash——(1)—(1)
Increase (Decrease) in Cash and Cash Equivalents—8347—355
Cash and Cash Equivalents at Beginning of Year11714—716
Cash and Cash Equivalents at End of Period$1$9$1,061$—$1,071

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Tyson Foods, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Tyson Foods, Inc. and its subsidiaries at September 27, 2014 and September 28, 2013, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) 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 that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded The Hillshire Brands Company from its assessment of internal control over financial reporting as of September 27, 2014 because it was acquired by the Company in a purchase business combination during August 2014. We have also excluded The Hillshire Brands Company from our audit of internal control over financial reporting. The Hillshire Brands Company is a wholly-owned subsidiary whose total assets and total revenues represent 10% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 27, 2014.

/s/ PricewaterhouseCoopers LLP

Fayetteville, AR

November 17, 2014

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