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 October 1, 2016
	in millions, except per share data
	2016			2015			2014
Sales	$	36,881		$	41,373		$	37,580
Cost of Sales	32,184			37,456			34,895
Gross Profit	4,697			3,917			2,685
Selling, General and Administrative	1,864			1,748			1,255
Operating Income	2,833			2,169			1,430
Other (Income) Expense:
Interest income	(6		)	(9		)	(7		)
Interest expense	249			293			132
Other, net	(8		)	(36		)	53
Total Other (Income) Expense	235			248			178
Income before Income Taxes	2,598			1,921			1,252
Income Tax Expense	826			697			396
Net Income	1,772			1,224			856
Less: Net Income (Loss) Attributable to Noncontrolling Interests	4			4			(8		)
Net Income Attributable to Tyson	$	1,768		$	1,220		$	864
Weighted Average Shares Outstanding:
Class A Basic	315			335			284
Class B Basic	70			70			70
Diluted	390			413			364
Net Income Per Share Attributable to Tyson:
Class A Basic	$	4.67		$	3.06		$	2.48
Class B Basic	$	4.24		$	2.79		$	2.26
Diluted	$	4.53		$	2.95		$	2.37
Dividends Declared Per Share:
Class A	$	0.650		$	0.425		$	0.325
Class B	$	0.585		$	0.383		$	0.294

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three years ended October 1, 2016
	in millions
	2016			2015			2014
Net Income	$	1,772		$	1,224		$	856
Other Comprehensive Income (Loss), Net of Taxes:
Derivatives accounted for as cash flow hedges	(1		)	2			1
Investments	—			(1		)	4
Currency translation	4			36			(30		)
Postretirement benefits	42			20			(14		)
Total Other Comprehensive Income (Loss), Net of Taxes	45			57			(39		)
Comprehensive Income	1,817			1,281			817
Less: Comprehensive Income Attributable to Noncontrolling Interests	4			4			(8		)
Comprehensive Income Attributable to Tyson	$	1,813		$	1,277		$	825

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED BALANCE SHEETS



October 1, 2016, and October 3, 2015
in millions, except share and per share data
	2016			2015
Assets
Current Assets:
Cash and cash equivalents	$	349		$	688
Accounts receivable, net	1,542			1,620
Inventories	2,732			2,878
Other current assets	265			195
Total Current Assets	4,888			5,381
Net Property, Plant and Equipment	5,170			5,176
Goodwill	6,669			6,667
Intangible Assets	5,084			5,168
Other Assets	562			577
Total Assets	$	22,373		$	22,969
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt	$	79		$	715
Accounts payable	1,511			1,662
Other current liabilities	1,172			1,158
Total Current Liabilities	2,762			3,535
Long-Term Debt	6,200			5,975
Deferred Income Taxes	2,545			2,449
Other Liabilities	1,242			1,304
Commitments and Contingencies (Note 19)
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares, issued 364 million shares	36			35
Convertible Class B-authorized 900 million shares, issued 70 million shares	7			7
Capital in excess of par value	4,355			4,307
Retained earnings	8,348			6,813
Accumulated other comprehensive loss	(45		)	(90		)
Treasury stock, at cost – 73 million shares at October 1, 2016, and 47 million shares at October 3, 2015	(3,093		)	(1,381		)
Total Tyson Shareholders’ Equity	9,608			9,691
Noncontrolling Interests	16			15
Total Shareholders’ Equity	9,624			9,706
Total Liabilities and Shareholders’ Equity	$	22,373		$	22,969

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY



						Three years ended October 1, 2016
								in millions
	2016					2015					2014
	Shares		Amount			Shares		Amount			Shares		Amount
Class A Common Stock:
Balance at beginning of year	346		$	35		346		$	35		322		$	32
Issuance of Class A common stock	18		1			—		—			24		3
Balance at end of year	364		36			346		35			346		35

Class B Common Stock:
Balance at beginning and end of year	70		7			70		7			70		7

Capital in Excess of Par Value:
Balance at beginning of year			4,307					4,257					2,292
Issuance of Class A common stock			—					—					870
Issuance of tangible equity units			—					—					1,255
Convertible debt settlement			—					—					(248		)
Convertible note hedge settlement			—					—					341
Warrant settlement			—					—					(289		)
Stock-based compensation			48					50					36
Balance at end of year			4,355					4,307					4,257

Retained Earnings:
Balance at beginning of year			6,813					5,748					4,999
Net income attributable to Tyson			1,768					1,220					864
Dividends			(233		)			(155		)			(115		)
Balance at end of year			8,348					6,813					5,748

Accumulated Other Comprehensive Income (Loss), Net of Tax:
Balance at beginning of year			(90		)			(147		)			(108		)
Other Comprehensive Income (Loss)			45					57					(39		)
Balance at end of year			(45		)			(90		)			(147		)

Treasury Stock:
Balance at beginning of year	47		(1,381		)	40		(1,010		)	48		(1,021		)
Purchase of Class A common stock	32		(1,944		)	12		(495		)	8		(295		)
Convertible debt settlement	—		—			—		—			(12	)	248
Convertible note hedge settlement	—		—			—		—			12		(341		)
Warrant settlement	—		—			—		—			(12	)	289
Stock-based compensation	(6	)	232			(5	)	124			(4	)	110
Balance at end of year	73		(3,093		)	47		(1,381		)	40		(1,010		)

Total Shareholders’ Equity Attributable to Tyson			$	9,608				$	9,691				$	8,890

Equity Attributable to Noncontrolling Interests:
Balance at beginning of year			$	15				$	14				$	32
Net income (loss) attributable to noncontrolling interests			4					4					(8		)
Contributions by noncontrolling interest			—					—					—
Distributions to noncontrolling interest			(3		)			(1		)			(11		)
Net foreign currency translation adjustment and other			—					(2		)			1
Total Equity Attributable to Noncontrolling Interests			$	16				$	15				$	14

Total Shareholders’ Equity			$	9,624				$	9,706				$	8,904

See accompanying notes.

TYSON FOODS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three years ended October 1, 2016
	in millions
	2016			2015			2014
Cash Flows From Operating Activities:
Net income	$	1,772		$	1,224		$	856
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	617			609			494
Amortization	88			102			36
Deferred income taxes	84			38			(105		)
Convertible debt discount	—			—			(92		)
Gain on dispositions of businesses	—			(177		)	—
Impairment of assets	45			285			107
Share-based compensation expense	81			69			51
Other, net	(34		)	71			(20		)
(Increase) decrease in accounts receivable	73			66			(93		)
(Increase) decrease in inventories	148			220			(148		)
Increase (decrease) in accounts payable	(130		)	(162		)	202
Increase (decrease) in income taxes payable/receivable	(19		)	177			(133		)
Increase (decrease) in interest payable	(1		)	(23		)	5
Net changes in other operating assets and liabilities	(8		)	71			18
Cash Provided by Operating Activities	2,716			2,570			1,178
Cash Flows From Investing Activities:
Additions to property, plant and equipment	(695		)	(854		)	(632		)
Purchases of marketable securities	(46		)	(38		)	(18		)
Proceeds from sale of marketable securities	37			52			33
Acquisitions, net of cash acquired	—			—			(8,193		)
Proceeds from sale of businesses	—			539			—
Other, net	20			31			10
Cash Used for Investing Activities	(684		)	(270		)	(8,800		)
Cash Flows From Financing Activities:
Payments on debt	(714		)	(1,995		)	(639		)
Proceeds from issuance of long-term debt	1			501			5,576
Borrowings on revolving credit facility	1,065			1,345			—
Payments on revolving credit facility	(765		)	(1,345		)	—
Proceeds from issuance of debt component of tangible equity units	—			—			205
Proceeds from issuance of common stock, net of issuance costs	—			—			873
Net proceeds from issuance of equity component of tangible equity units	—			—			1,255
Purchases of Tyson Class A common stock	(1,944		)	(495		)	(295		)
Dividends	(216		)	(147		)	(104		)
Stock options exercised	128			84			67
Other, net	68			17			(23		)
Cash Provided by (Used for) Financing Activities	(2,377		)	(2,035		)	6,915
Effect of Exchange Rate Change on Cash	6			(15		)	—
Increase (Decrease) in Cash and Cash Equivalents	(339		)	250			(707		)
Cash and Cash Equivalents at Beginning of Year	688			438			1,145
Cash and Cash Equivalents at End of Year	$	349		$	688		$	438

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 food companies with leading brands such as Tyson®, Jimmy Dean®, Hillshire Farm®, Sara Lee®, Ball Park®, Wright®, Aidells® and State Fair®. We are a recognized market leader in chicken, beef and pork as well as prepared foods, including bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, tortillas and desserts.

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 2016 and fiscal 2014 and a 53-week year for fiscal 2015.

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 October 1, 2016, and October 3, 2015, checks outstanding in excess of related book cash balances totaled approximately $261 million and $257 million, respectively.

Accounts Receivable: We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and relationships with and economic status of our customers. At October 1, 2016, and October 3, 2015, our allowance for uncollectible accounts was $33 million and $27 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 2016, 61% of the cost of inventories was determined by the first-in, first-out ("FIFO") method as compared to 63% in fiscal 2015. 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 October 1, 2016, and October 3, 2015:



			in millions
	2016		2015
Processed products	$	1,530	$	1,631
Livestock	772		831
Supplies and other	430		416
Total inventory	$	2,732	$	2,878

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, taxes, depreciation and amortization. We measure impairment as the excess of carrying value 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 Intangible Assets: Definite life intangibles are initially recorded at fair value and amortized over the estimated period of benefit. Brands and trademarks are generally based on the straight-line method over 20 years or less. Customer relationships are generally amortized over seven to 17 years based on the pattern of revenue expected to be generated from the use of the asset. Amortization expense is generally recognized in selling, general, and administrative expense. We review the carrying value of definite life intangibles 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, taxes, depreciation and amortization. We measure impairment as the excess of carrying value over the fair value of the definite life intangible asset. We use various valuation techniques to estimate fair value, with the primary techniques being discounted cash flows, relief-from-royalty and multi-period 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.

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 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.

The discount rate used in our annual goodwill impairment test decreased to 6.2% in fiscal 2016 from 6.8% in fiscal 2015. The discount rate used in our indefinite life intangible test decreased to 7.9% in fiscal 2016 from 8.0% in fiscal 2015.

During fiscal 2016, 2015 and 2014, all of our material reporting units that underwent a quantitative test passed the first step of the goodwill impairment analysis and therefore, the second step was not necessary. In fiscal 2015, we recorded a $23 million full impairment of an immaterial reporting unit’s goodwill.

For our 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 multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy, 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 October 1, 2016, and October 3, 2015, include:



	in millions
	2016		2015
Accrued salaries, wages and benefits	$	563	$	478
Accrued marketing, advertising and promotion expense	212		192
Other	397		488
Total other current liabilities	$	1,172	$	1,158

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.

Derivative 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.

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.

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 returns.

Freight Expense: Freight expense associated with products shipped to customers is recognized in cost of sales.

Marketing and Promotion Costs: We promote our products with marketing, advertising, trade promotions, and consumer incentives, which include, but are not limited to, coupons, discounts, rebates, and volume-based incentives. Marketing 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 marketing and promotional activities are recorded as selling, general and administrative expense.

Advertising Expenses: Advertising expense is charged to operations in the period incurred and is recorded as selling, general and administrative expense. Advertising expense totaled $238 million, $181 million and $112 million in fiscal 2016, 2015 and 2014, respectively.

Research and Development: Research and development costs are expensed as incurred. Research and development costs totaled $96 million, $75 million and $52 million in fiscal 2016, 2015 and 2014, 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 August 2016, the Financial Accounting Standards Board ("FASB") issued guidance which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted and the retrospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In March 2016, the FASB issued guidance which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows and impact on earnings per share. 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 permitted and the application of the guidance requires various transition methods depending on the specific amendment. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued guidance which created new accounting and reporting guidelines for leasing arrangements. The guidance requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. The guidance also requires qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. Early adoption is permitted and the modified retrospective method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In January 2016, the FASB issued guidance that requires most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The guidance also impacts financial liabilities under the fair value option and the presentation and disclosure requirements on the classification and measurement of financial instruments. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. It should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, unless, equity securities do not have readily determinable fair values, in which case, the amendments should be applied prospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In July 2015, the FASB issued guidance which requires management to evaluate inventory at the lower of cost and net realizable value. 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 permitted and the prospective transition method should be applied. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In April 2015, the FASB issued guidance on the recognition of fees paid by a customer for cloud computing arrangements. The guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the software license consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017, and should be applied prospectively or retrospectively, of which we will apply prospectively. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In February 2015, the FASB issued guidance changing the analysis procedures that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance affects the following areas: (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of related parties on the primary beneficiary determination, and (5) certain investment funds. This guidance is effective for annual reporting periods and interim periods within those annual reporting periods, beginning after December 15, 2015, our fiscal 2017. Early adoption is permitted and the retrospective or modified retrospective transition method should be applied. This new guidance is not expected to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued guidance changing the criteria for recognizing revenue. The guidance provides for a single five-step model to be applied to all revenue contracts with customers. The standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. Early adoption is permitted for fiscal years beginning after December 15, 2016, our fiscal 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 2: CHANGES IN ACCOUNTING PRINCIPLES

In November 2015, the FASB issued guidance to simplify the presentation of deferred income taxes. The guidance requires that deferred tax liabilities and assets be classified as non-current in the balance sheet. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016, our fiscal 2018, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. We early adopted this guidance, prospectively, for the year ended October 1, 2016. As a result, prior period balances were not retrospectively adjusted. The adoption did not have a material impact on our consolidated financial statements.

In May 2015, the FASB issued guidance which removes the requirement to categorize all investments within the fair value hierarchy for which fair values are measured using the net asset value (NAV) per share practical expedient. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017. Early adoption is permitted and the retrospective transition method should be applied. We early adopted this guidance, retrospectively, for the year ended October 1, 2016. As a result, investments that are measured using the NAV per share practical expedient have not been categorized in the fair value hierarchy as of October 1, 2016 and October 3, 2015. The adoption did not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability; however, debt issuance costs related to revolving credit facilities will remain in other assets. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017, with early adoption permitted. We early adopted this guidance, retrospectively, for the year ended October 1, 2016. As a result, $29 million and $35 million of deferred issuance costs have been reclassified from Other Assets to Long-Term Debt in our Consolidated Balance Sheets as of October 1, 2016 and October 3, 2015, respectively.

In April 2015, the FASB issued guidance which allows entities with a fiscal year end that does not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015, our fiscal 2017. Early adoption is permitted and the prospective transition method should be applied. We early adopted this guidance, prospectively, for the year ended October 1, 2016. We have elected to measure the fair value of our defined benefit and other postretirement benefit plans as of the close of business on the Friday prior to our year-end. The adoption did not have a material 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 6: Debt and Note 7: Equity). Hillshire Brands' results from operations subsequent to the acquisition closing are included in the Prepared Foods segment.

During fiscal 2015, we recorded measurement period adjustments, which reduced goodwill by $14 million, after obtaining additional information regarding, among other things, asset valuations and liabilities assumed. The amount was not considered material and therefore prior periods were not revised. The purchase price allocation was finalized during the fourth quarter of fiscal 2015.

We completed the allocation of goodwill to our segments in the fourth quarter of fiscal 2015 using the with-and-without approach of the synergy impact to fair value of our reporting units. The allocation of goodwill to our Chicken, Beef, Pork, and Prepared Foods segments was $658 million, $113 million, $106 million and $3,913 million, respectively. The fair value of this goodwill is not deductible for United States income tax purposes.

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.

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)
	2014
Pro forma sales	$	41,311
Pro forma net income from continuing operations attributable to Tyson	1,047
Pro forma net income per diluted share from continuing operations attributable to Tyson	$	2.50

During 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.

Dispositions

In fiscal 2014, we announced our plan to sell our Brazil and Mexico operations, which are included in Other for segment reporting, to JBS SA ("JBS") for $575 million in cash less debt and other adjustments. 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 completed the sale of the Brazil operation in the first quarter of fiscal 2015 and received net proceeds of $148 million including working capital, net debt adjustments and cash transferred. The sale did not result in a significant gain or loss as the carrying value of the Brazil operation approximated the sales proceeds at the time of sale.

We completed the sale of the Mexico operation in the fourth quarter of fiscal 2015 and received net proceeds of approximately $374 million including working capital, net debt adjustments and cash transferred. As a result of the sale, we recorded a pre-tax gain of $161 million, which was reflected in Cost of Sales in our Consolidated Statements of Income. We utilized the net proceeds to retire the 2.75% senior notes due September 2015.

In the fourth quarter of fiscal 2015, to better align our overall production capacity with then-current cattle supplies, we ceased beef operations at our Denison, Iowa plant. As a result, we recorded $12 million in closure and impairment charges during the fourth quarter of fiscal 2015. These charges impacted the Beef segment’s operating income and were reflected in Cost of Sales in our Consolidated Statements of Income.

In the fourth quarter of fiscal 2015, we recorded a $59 million impairment and other related charges associated with a Prepared Foods project designed to optimize the combined Tyson and Hillshire Brands network capacity and to enhance manufacturing efficiencies for the future. These charges were reflected in the Prepared Foods segment’s operating income in the fourth quarter of fiscal 2015, of which $49 million was included in the Consolidated Statements of Income in Cost of Sales and $10 million was included in the Consolidated Statements of Income in Selling, General and Administrative. As a result of this project, we sold our Chicago, Illinois, hospitality plant in June 2016 and closed our Jefferson, Wisconsin, plant in July 2016. The sale of our Chicago, Illinois, plant and closure of our Jefferson, Wisconsin, plant did not have a significant impact on the Company's operating results.

In the third quarter of fiscal 2015, as part of our ongoing efforts to increase efficiencies in our Chicken business, we closed our Buena Vista, Georgia, plant. The closure costs did not have a significant impact on the Company's operating results.

In fiscal 2014, we recorded impairment charges of $52 million related to the closure of three Prepared Foods plants. The Company’s Cherokee, Iowa plant closed in September 2014 and the Buffalo, New York and Santa Teresa, New Mexico plants each closed in January 2015. Additionally, in April 2014, Hillshire Brands announced that it would discontinue all production at its Florence, Alabama plant. The plant closed in December 2014 and the closure costs did not have a significant impact on the Company's financial results.

In fiscal 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.

NOTE 4: PROPERTY, PLANT AND EQUIPMENT

The following table reflects major categories of property, plant and equipment and accumulated depreciation at October 1, 2016, and October 3, 2015:



	in millions
	2016		2015
Land	$	126	$	122
Building and leasehold improvements	3,662		3,581
Machinery and equipment	6,789		6,452
Land improvements and other	300		286
Buildings and equipment under construction	290		375
	11,167		10,816
Less accumulated depreciation	5,997		5,640
Net property, plant and equipment	$	5,170	$	5,176

Approximately $871 million will be required to complete buildings and equipment under construction at October 1, 2016.

NOTE 5: GOODWILL AND INTANGIBLE ASSETS

The following table reflects goodwill activity for fiscal 2016 and 2015:



in millions
	Chicken			Beef			Pork		Prepared Foods		Other(a)			Unallocated			Consolidated
Balance at September 27, 2014
Goodwill	$	907		$	1,123		$	317	$	92	$	57		$	4,804		$	7,300
Accumulated impairment losses	—			(560		)	—		—		(34		)	—			(594		)
	907			563			317		92		23			4,804			6,706
Fiscal 2015 Activity:
Measurement period adjustments	—			—			—		—		—			(14		)	(14		)
Allocation of acquired goodwill	658			113			106		3,913		—			(4,790		)	—
Impairment losses	—			—			—		—		(23		)	—			(23		)
Currency translation and other	(2		)	—			—		—		—			—			(2		)
Balance at October 3, 2015
Goodwill	1,563			1,236			423		4,005		57			—			7,284
Accumulated impairment losses	—			(560		)	—		—		(57		)	—			(617		)
	$	1,563		$	676		$	423	$	4,005	$	—		$	—		$	6,667

Fiscal 2016 Activity:
Currency translation and other	2			—			—		—		—			—			2
Balance at October 1, 2016
Goodwill	1,565			1,236			423		4,005		57			—			7,286
Accumulated impairment losses	—			(560		)	—		—		(57		)	—			(617		)
	$	1,565		$	676		$	423	$	4,005	$	—		$	—		$	6,669

(a) Other included the goodwill from our foreign chicken operation.

On August 28, 2014, we acquired and consolidated Hillshire Brands. The unallocated portion of goodwill at September 27, 2014, is attributable to our acquisition of Hillshire Brands. During fiscal 2015, we recorded measurement period adjustments, which reduced goodwill by $14 million and completed the allocation of goodwill to our segments (see Note 3: Acquisitions and Dispositions).

The following table reflects intangible assets by type at October 1, 2016, and October 3, 2015:



in millions
	2016		2015
Amortizable intangible assets:
Brands and trademarks	$	590	$	594
Customer relationships	564		564
Patents, intellectual property and other	114		115
Land use rights	9		9
Total gross amortizable intangible assets	$	1,277	$	1,282
Less accumulated amortization	271		192
Total net amortizable intangible assets	$	1,006	$	1,090
Brands and trademarks not subject to amortization	4,078		4,078
Total intangible assets	$	5,084	$	5,168

Amortization expense of $80 million, $92 million and $26 million was recognized during fiscal 2016, 2015 and 2014, respectively. We estimate amortization expense on intangible assets for the next five fiscal years subsequent to October 1, 2016, will be: 2017 - $78 million; 2018 - $76 million; 2019 - $72 million; 2020 - $69 million; 2021 - $66 million.

NOTE 6: DEBT

The following table reflects major components of debt as of October 1, 2016, and October 3, 2015:



				in millions
	2016			2015
Revolving credit facility	$	300		$	—
Senior notes:
6.60% Senior notes due April 2016 (2016 Notes)	—			638
7.00% Notes due May 2018	120			120
2.65% Notes due August 2019 (2019 Notes)	1,000			1,000
4.10% Notes due September 2020	284			285
4.50% Senior notes due June 2022 (2022 Notes)	1,000			1,000
3.95% Notes due August 2024 (2024 Notes)	1,250			1,250
7.00% Notes due January 2028	18			18
6.13% Notes due November 2032	163			163
4.88% Notes due August 2034 (2034 Notes)	500			500
5.15% Notes due August 2044 (2044 Notes)	500			500
Discount on senior notes	(8		)	(10		)
Term loans:
Tranche B due April 2019 (1.69% at 10/1/2016)	500			500
Tranche B due August 2019 (2.06% at 10/1/2016)	552			552
Amortizing Notes - Tangible Equity Units (see Note 7: Equity)	71			140
Other	58			69
Unamortized debt issuance costs	(29		)	(35		)
Total debt	6,279			6,690
Less current debt	79			715
Total long-term debt	$	6,200		$	5,975

Annual maturities of debt for the five fiscal years subsequent to October 1, 2016, are: 2017 - $79 million; 2018 - $128 million; 2019 - $2,359 million; 2020 - $285 million; 2021 - $10 million.

Revolving Credit Facility

We have a $1.25 billion revolving credit facility that supports short-term funding needs and letters of credit. The facility will mature and the commitments thereunder will terminate in September 2019. After reducing for the amount borrowed and outstanding letters of credit issued under this facility, the amount available for borrowing at October 1, 2016, was $943 million. At October 1, 2016, we had outstanding letters of credit issued under this facility totaling $7 million, none of which were drawn upon. We had an additional $91 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 leasing obligations and workers’ compensation insurance programs.

If in the future any of our subsidiaries shall guarantee any of our material indebtedness, such subsidiary shall be required to guarantee the indebtedness, obligations and liabilities under this facility.

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

On March 31, 2016, we repaid the entire outstanding $638 million principal balance on the 2016 Notes. Tyson Fresh Meats, Inc. (TFM Parent), our wholly owned subsidiary, fully and unconditionally guaranteed the 2016 Notes, 2019 Notes, 2022 Notes, 2024 Notes, 2034 Notes, 2044 Notes, amortizing notes related to our tangible equity units, our $1.25 billion revolving credit facility and term loans. As a result of the retirement of the 2016 Notes in the second quarter of fiscal 2016, all of TFM Parent's guarantees were released and TFM Parent is no longer required to disclose guarantor financial statements.

Term Loans

On May 5, 2016, we amended our existing $500 million tranche B term loan agreement which extended the maturity of the loan from April 2018 to April 2019.

Debt Covenants

Our revolving credit and term loan facilities contain 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 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 October 1, 2016.

NOTE 7: 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 October 1, 2016, 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, 2.06% of the outstanding shares of Class A stock, giving them, collectively, control of approximately 71.18% 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 $0.60, $0.40, and $0.30 in fiscal 2016, 2015, and 2014, respectively. We paid Class B dividends per share of $0.54, $0.36, and $0.27 in fiscal 2016, 2015, and 2014, respectively. On November 17, 2016, the Board of Directors increased the quarterly dividend previously declared on August 4, 2016, to $0.225 per share on our Class A stock and $0.2025 per share on our Class B stock. The increased quarterly dividend is payable on December 15, 2016, to shareholders of record at the close of business on December 1, 2016.

Share Repurchases

On February 4, 2016, our Board of Directors approved an increase of 50 million shares authorized for repurchase under our share repurchase program. As of October 1, 2016, 40.3 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, markets, industry conditions, liquidity targets, limitations under our debt obligations and regulatory requirements. In addition to the share repurchase program, we purchase shares on the open market to fund certain obligations under our equity compensation plans.

A summary of cumulative share repurchases of our Class A stock for fiscal 2016, 2015 and 2014 is as follows:



								in millions
	October 1, 2016			October 3, 2015			September 27, 2014
	Shares	Dollars		Shares	Dollars		Shares	Dollars
Shares repurchased:
Under share repurchase program	30.8	$	1,868	11.0	$	455	7.1	$	250
To fund certain obligations under equity compensation plans	1.3	76		0.9	40		1.2	45
Total share repurchases	32.1	$	1,944	11.9	$	495	8.3	$	295

Subsequent to October 1, 2016, through November 18, 2016, we repurchased approximately 3.6 million shares of our common stock under our share repurchase program. These shares were repurchased for $255 million.

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 fiscal 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, was recorded in Capital in Excess of Par Value, net of issuance costs. The fair value of the senior amortizing notes, which was $205 million, was recorded in debt. Issuance costs associated with the TEU debt were recorded as deferred debt issuance cost 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 Component			Debt Component			Total
Price per TEU	$	43.17		$	6.83		$	50.00
Gross Proceeds	1,295			205			1,500
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, we will pay equal quarterly cash installments of $0.59 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 constitutes a payment of interest and partial repayment of principal.

During fiscal 2016, holders settled 17.7 million purchase contracts and, in exchange, the Company issued 18.8 million shares of its Class A stock. Upon early settlement of these purchase contracts, the corresponding amortizing notes remain outstanding and beneficially owned by the holders that settled purchase contracts early. As of October 1, 2016, 12.3 million TEU's remained outstanding. The remaining TEUs will continue to be held pursuant to their original terms and conditions, including automatic settlement on July 15, 2017, as described above. As a result of the purchase contracts tendered in fiscal 2016, our remaining obligation is to deliver between a minimum of 13.1 million shares and a maximum of 16.4 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 $46.90 per share, we will deliver 1.0660 shares of Class A stock per purchase contract, or a minimum of 13.1 million Class A shares.


•	If the Applicable Market Value is greater than the reference price of $37.52 but less than the conversion price of $46.90 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 $37.52 per share, we will deliver 1.3326 shares of Class A stock per purchase contract, or a maximum of 16.4 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.

On September 15, 2016, we paid our quarterly dividend to shareholders of record at September 1, 2016, equal to $0.15 per share on our Class A stock. The amount of the distribution exceeded the $0.075 per share dividend threshold amount. Consequently, the settlement rates, reference price and conversion price were adjusted and are reflected above.

The TEUs have a dilutive effect on our earnings per share. The 13.1 million minimum shares to be issued are included in the calculation of Class A Basic weighted average shares. The 3.3 million share difference between the minimum shares and the 16.4 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 8: INCOME TAXES

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



						in millions
	2016			2015		2014
Federal	$	710		$	564	$	325
State	118			89		67
Foreign	(2		)	44		4
	$	826		$	697	$	396

Current	$	742		$	659	$	501
Deferred	84			38		(105		)
	$	826		$	697	$	396

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



	2016		2015		2014
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	2.7		3.1		2.8
Unrecognized tax benefits, net	(1.7	)	(1.8	)	(4.7	)
Domestic production deduction	(2.6	)	(3.7	)	(4.0	)
Foreign rate differences and valuation allowances	—		3.8		2.8
Other	(1.6	)	(0.1	)	(0.3	)
	31.8	%	36.3	%	31.6	%

During fiscal 2016, the domestic production deduction and changes in unrecognized tax benefits decreased tax expense by $68 million and $43 million, respectively, and state tax expense, net of federal tax benefit, was $70 million.

During fiscal 2015, the domestic production deduction and changes in unrecognized tax benefits decreased tax expense by $72 million and $34 million, respectively, and state tax expense, net of federal tax benefit, was $59 million. Additionally, foreign rate differences, mostly driven by the China impairment, unfavorably impacted tax expense by $73 million. The sale of the Mexico and Brazil operations and related repatriation of proceeds did not have a significant impact on the effective income tax rate.

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

Approximately $2,543 million, $1,908 million, and $1,270 million of income from continuing operations before income taxes for fiscal 2016, 2015 and 2014, respectively, were from our operations based in 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 October 1, 2016, and October 3, 2015, are as follows:



									in millions
	2016					2015
	Deferred Tax					Deferred Tax
	Assets			Liabilities		Assets			Liabilities
Property, plant and equipment	$	—		$	857	$	—		$	783
Intangible assets	—			1,979		—			2,000
Accrued expenses	400			—		439			—
Net operating loss and other carryforwards	86			—		97			—
Other	140			259		122			238
	$	626		$	3,095	$	658		$	3,021
Valuation allowance	$	(72	)			$	(68	)
Net deferred tax liability				$	2,541				$	2,431

At October 1, 2016, our gross state tax net operating loss carryforwards approximated $845 million and expire in fiscal years 2017 through 2036. Gross foreign net operating loss carryforwards approximated $35 million and expire in fiscal years 2017 through 2022. We also have tax credit carryforwards of approximately $42 million that expire in fiscal years 2017 through 2031.

We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $219 million and $139 million at October 1, 2016, and October 3, 2015, respectively. The accumulated undistributed earnings at October 1, 2016 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. Due to the uncertainty of the manner in which the undistributed earnings would be brought back to the United States, the tax laws in effect at that time, as well as the availability of the Company to claim foreign tax credits, it is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.

The following table summarizes the activity related to our gross unrecognized tax benefits at October 1, 2016, October 3, 2015, and September 27, 2014:



							in millions
	2016			2015			2014
Balance as of the beginning of the year	$	306		$	272		$	175
Increases related to current year tax positions	35			78			11
Increases related to prior year tax positions	31			11			17
Change related to Hillshire Brands balances	—			—			136
Reductions related to prior year tax positions	(48		)	(18		)	(20		)
Reductions related to settlements	(7		)	—			(1		)
Reductions related to expirations of statutes of limitations	(12		)	(37		)	(46		)
Balance as of the end of the year	$	305		$	306		$	272

The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $205 million and $244 million at October 1, 2016, and October 3, 2015, respectively. We classify interest and penalties on unrecognized tax benefits as income tax expense. At October 1, 2016, and October 3, 2015, before tax benefits, we had $52 million and $46 million, respectively, of accrued interest and penalties on unrecognized tax benefits.

As of October 1, 2016, we are subject to income tax examinations for United States federal income taxes for fiscal years 2013 through 2015. We are also subject to income tax examinations by major state and foreign jurisdictions for fiscal years 2005 through 2015 and 2002 through 2015, respectively. We estimate that during the next twelve months it is reasonably possible that unrecognized tax benefits could decrease by as much as $10 million primarily due to expiration of statutes in various jurisdictions.

NOTE 9: OTHER INCOME AND CHARGES

During fiscal 2016, we recorded $12 million of equity earnings in joint ventures and $4 million in net foreign currency exchange losses, which were recorded in the Consolidated Statements of Income in Other, net.

During fiscal 2015, following the sale of our Mexico and Brazil chicken production operations, we reviewed our strategy and outlook for the remaining international businesses, which operations include our chicken production operations in China. Despite our belief in the potential for this business, our Chinese operations had not achieved profitability. Given the losses that were generated in this business, changes in the strategy and management of the business, and the depressed economic outlook for China at that time, we assessed our Chinese operations for potential impairment in the fourth quarter of fiscal 2015. As a result of this evaluation, during the fourth quarter of fiscal 2015, we recorded a $169 million impairment charge. The impairment was comprised of $126 million of property, plant and equipment, $23 million of goodwill and $20 million of other assets. The China operation is included in Other for segment reporting and the impairment was included in Cost of Sales in the Consolidated Statements of Income.

During fiscal 2015, we recorded $12 million of equity earnings in joint ventures and $21 million of gains on the sale of equity securities, which were recorded in the Consolidated Statements of Income in Other, net.

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.

NOTE 10: 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
	2016		2015		2014
Numerator:
Net income	$	1,772	$	1,224	$	856
Less: Net income (loss) attributable to noncontrolling interests	4		4		(8		)
Net income attributable to Tyson	1,768		1,220		864
Less dividends declared:
Class A	192		129		94
Class B	41		26		21
Undistributed earnings	$	1,535	$	1,065	$	749

Class A undistributed earnings	$	1,279	$	896	$	612
Class B undistributed earnings	256		169		137
Total undistributed earnings	$	1,535	$	1,065	$	749

Denominator:
Denominator for basic earnings per share:
Class A weighted average shares	315		335		284
Class B weighted average shares, and shares under if-converted method for diluted earnings per share	70		70		70
Effect of dilutive securities:
Stock options and restricted stock	5		5		5
Tangible Equity Units	—		3		1
Warrants	—		—		4
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions	390		413		364

Net Income Per Share Attributable to Tyson:
Class A Basic	$	4.67	$	3.06	$	2.48
Class B Basic	$	4.24	$	2.79	$	2.26
Diluted	$	4.53	$	2.95	$	2.37

We had no stock-based compensation shares that were antidilutive for fiscal 2016. We had approximately 5 million and 4 million of our stock-based compensation shares that were antidilutive for fiscal 2015 and fiscal 2014, respectively. 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 11: DERIVATIVE FINANCIAL INSTRUMENTS

Our business operations give rise to certain market risk exposures mostly due to changes in commodity prices, foreign currency exchange rates and interest rates. We manage a portion of these risks through the use of derivative financial instruments to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Our risk management programs are periodically reviewed by our Board of Directors' Audit Committee. These programs 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 October 1, 2016.

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



		in millions, except soy meal tons
	Metric	October 1, 2016		October 3, 2015
Corn	Bushels	50		18
Soy Meal	Tons	389,700		284,900
Live Cattle	Pounds	28		102
Lean Hogs	Pounds	158		166
Foreign Currency	United States dollar	$	38	$	42

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. 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 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 are designated as hedges against changes in the amount of future cash flows related to procurement of certain commodities utilized in our production processes. For the derivative instruments we designate and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses representing hedge ineffectiveness are recognized in earnings in the current period. Ineffectiveness related to our cash flow hedges was not significant during fiscal 2016, 2015 and 2014. As of October 1, 2016, the net amounts expected to be reclassified into earnings within the next 12 months are pretax losses of $3 million. During fiscal 2016, 2015 and 2014, we did not reclassify significant pretax gains/losses into earnings as a result of the discontinuance of cash flow hedges.

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 Derivatives									Consolidated Statements of Income Classification	Gain (Loss) Reclassified from OCI to Earnings
	2016			2015			2014				2016		2015			2014
Cash Flow Hedge – Derivatives designated as hedging instruments:
Commodity contracts	$	(1	)	$	(4	)	$	(7	)	Cost of Sales	$	1	$	(7	)	$	(10	)
Foreign exchange contracts	—			—			(1		)	Other Income/Expense	—		—			—
Total	$	(1	)	$	(4	)	$	(8	)		$	1	$	(7	)	$	(10	)

Fair value hedges

We designate certain derivative 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. 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 Classification	2016			2015			2014
Gain (Loss) on forwards	Cost of Sales	$	89		$	17		$	(154	)
Gain (Loss) on purchase contract	Cost of Sales	(89		)	(17		)	154

Ineffectiveness related to our fair value hedges was not significant during fiscal 2016, 2015 and 2014.

Undesignated positions

In addition to our designated positions, we also hold derivative contracts for which we do not apply hedge accounting. These include certain derivative instruments related to commodities price risk, including grains, livestock, energy and foreign currency risk. We mark these positions to fair value through earnings at each reporting date.

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 Classification	Gain (Loss) Recognized in Earnings
		2016			2015			2014
Derivatives not designated as hedging instruments:
Commodity contracts	Sales	$	(73	)	$	(62	)	$	75
Commodity contracts	Cost of Sales	17			(33		)	(136		)
Foreign exchange contracts	Other Income/Expense	2			(4		)	—
Total		$	(54	)	$	(99	)	$	(61	)

The fair value of all outstanding derivative instruments in the Consolidated Balance Sheets are included in Note 12: Fair Value Measurements.

NOTE 12: FAIR VALUE MEASUREMENTS

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

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

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


•	Quoted prices for similar assets or liabilities in active markets;


•	Quoted prices for identical or similar assets in non-active markets;


•	Inputs other than quoted prices that are observable for the asset or liability; and


•	Inputs derived principally from or corroborated by other observable market data.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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



										in millions
October 1, 2016	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative Financial Instruments:
Designated as hedges	$	—	$	72	$	—	$	(27	)	$	45
Undesignated	—		38		—		(34		)	4
Available for Sale Securities:
Current	—		2		2		—			4
Non-current	—		38		55		—			93
Deferred Compensation Assets	18		236		—		—			254
Total Assets	$	18	$	386	$	57	$	(61	)	$	400

Liabilities:
Derivative Financial Instruments:
Designated as hedges	$	—	$	1	$	—	$	(1	)	$	—
Undesignated	—		68		—		(68		)	—
Total Liabilities	$	—	$	69	$	—	$	(69	)	$	—

October 3, 2015	Level 1		Level 2		Level 3		Netting (a)			Total
Assets:
Derivative Financial Instruments:
Designated as hedges	$	—	$	52	$	—	$	(35	)	$	17
Undesignated	—		9		—		(9		)	—
Available for Sale Securities:
Current	—		1		1		—			2
Non-current	—		33		60		—			93
Deferred Compensation Assets	9		222		—		—			231
Total Assets	$	9	$	317	$	61	$	(44	)	$	343

Liabilities:
Derivative Financial Instruments:
Designated as hedges	$	—	$	2	$	—	$	(2	)	$	—
Undesignated	—		49		—		(47		)	2
Total Liabilities	$	—	$	51	$	—	$	(49	)	$	2


(a)	Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. At October 1, 2016, and October 3, 2015, we had posted with various counterparties $8 million and $5 million, respectively, of cash collateral related to our derivative financial instruments and held no cash collateral.

(a)

Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. At October 1, 2016, and October 3, 2015, we had posted with various counterparties $8 million and $5 million, respectively, of cash collateral related to our derivative financial instruments 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
	October 1, 2016			October 3, 2015
Balance at beginning of year	$	61		$	67
Total realized and unrealized gains (losses):
Included in earnings	—			—
Included in other comprehensive income (loss)	—			—
Purchases	12			20
Issuances	—			—
Settlements	(16		)	(26		)
Balance at end of year	$	57		$	61
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 derivative financial instruments primarily include exchange-traded and over-the-counter contracts which are further described in Note 11: Derivative Financial Instruments. We record our derivative financial instruments at fair value using quoted market prices adjusted for credit and non-performance risk and internal models that use as their basis readily observable market inputs including current and forward market prices. We classify these instruments in Level 2 when quoted market prices can be corroborated utilizing observable current and forward commodity market prices on active exchanges or observable market transactions.

Available for Sale Securities: Our investments in marketable debt securities are classified as available-for-sale and are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. Short-term investments with maturities of less than 12 months are included in Other current assets in the Consolidated 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 31 years. We classify our investments in United States government, United States 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
	October 1, 2016						October 3, 2015
	Amortized Cost Basis		Fair Value		Unrealized Gain/(Loss)		Amortized Cost Basis		Fair Value		Unrealized Gain/(Loss)
Available for Sale Securities:
Debt Securities:
United States Treasury and Agency	$	40	$	40	$	—	$	33	$	34	$	1
Corporate and Asset-Backed	56		57		1		60		61		1

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 no other than temporary impairment in earnings for fiscal 2016 and fiscal 2015. No other than temporary losses were deferred in OCI as of October 1, 2016, and October 3, 2015.

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. We did not have any significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during fiscal 2016.

In fiscal 2015, to better align our overall production capacity with then-current cattle supplies, we ceased beef operations at our Denison, Iowa, plant. As a result, we recorded a $12 million closure and impairment charges during the fourth quarter of fiscal 2015. These charges impacted the Beef segment’s operating income and were reflected in Cost of Sales in our Consolidated Statements of Income. Our valuation of these assets was primarily based on discounted cash flow models which included unobservable Level 3 inputs.

In the fourth quarter of fiscal 2015, we recorded a $59 million impairment and other related charges associated with a Prepared Foods project designed to optimize the combined Tyson and Hillshire Brands network capacity and to enhance manufacturing efficiencies for the future. These charges were reflected in the Prepared Foods segment’s operating income, of which $49 million was included in the Consolidated Statements of Income in Cost of Sales and $10 million was included in the Consolidated Statements of Income in Selling, General and Administrative. Our valuation of these assets was primarily based on discounted cash flow models which included unobservable Level 3 inputs.

Following the sale of our Mexico and Brazil chicken operations in fiscal 2015, we reviewed our long-term business strategy and outlook for the remaining international businesses, which operations include our chicken production operations in China and India. We assessed our Chinese operation for a potential impairment in the fourth quarter of fiscal 2015 and as a result of this evaluation, we recorded a $169 million charge to impair its long-lived assets to their fair value and to fully impair its goodwill. The China operation is included in Other for segment reporting and the impairment was included in Cost of Sales in the Consolidated Statements of Income. This impairment was comprised of $126 million of property, plant and equipment, $23 million of goodwill and $20 million of other assets. We utilized a discounted cash flow analysis which included unobservable Level 3 inputs.

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
	October 1, 2016				October 3, 2015
	Fair Value		Carrying Value		Fair Value		Carrying Value
Total Debt	$	6,698	$	6,279	$	6,900	$	6,690

Concentrations of Credit Risk

Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Our cash equivalents are in high quality securities placed with major banks and financial institutions. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. At October 1, 2016, and October 3, 2015, 18.9% and 20.0%, 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 13: 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 20,726,621 at October 1, 2016.

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 Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (in millions)
Outstanding, October 3, 2015	14,735,065		$	28.30
Exercised	(5,286,342	)	24.13
Forfeited or expired	(126,038	)	42.29
Granted	1,868,971		50.00
Outstanding, October 1, 2016	11,191,656		33.74		7.0	$	458

Exercisable, October 1, 2016	5,334,155		$	23.87	5.7	$	271

We generally grant stock options once a year. The weighted average grant-date fair value of options granted in fiscal 2016, 2015 and 2014 was $11.47, $11.51 and $10.83, 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.



	2016		2015		2014
Expected life (in years)	6.4		6.1		6.0
Risk-free interest rate	1.6	%	1.6	%	1.3	%
Expected volatility	24.8	%	26.7	%	36.0	%
Expected dividend yield	1.2% - 2.6%		1.0	%	1.0	%

We recognized stock-based compensation expense related to stock options, net of income taxes, of $23 million, $27 million and $20 million for fiscal 2016, 2015 and 2014, respectively. The related tax benefit for fiscal 2016, 2015 and 2014 was $15 million, $17 million and $13 million, respectively. We had 3.8 million, 3.8 million and 4.8 million options vest in fiscal 2016, 2015 and 2014, respectively, with a grant date fair value of $38 million, $32 million and $30 million, respectively.

In fiscal 2016, 2015 and 2014, we received cash of $128 million, $84 million and $67 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 2016, 2015 and 2014, was $80 million, $30 million and $33 million, respectively. The total intrinsic value of options exercised in fiscal 2016, 2015 and 2014, was $204 million, $79 million and $87 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 $58 million, $19 million and $24 million related to excess tax deductions during fiscal 2016, 2015 and 2014, respectively.

As of October 1, 2016, we had $29 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 1.1 years.

Restricted Stock

We issue restricted stock at the market value as of the date of grant, with restrictions expiring over periods through fiscal 2019. Unearned compensation is recognized over the vesting period for the particular grant using a straight-line method.



	Number of Shares		Weighted Average Grant- Date Fair Value Per Share		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (in millions)
Nonvested, October 3, 2015	1,107,928		$	36.76
Granted	686,648		50.00
Dividends	15,653		46.79
Vested	(155,600	)	24.48
Forfeited	(51,763	)	45.18
Nonvested, October 1, 2016	1,602,866		$	43.45	1.3	$	120

As of October 1, 2016, we had $33 million of total unrecognized compensation cost related to restricted stock awards that will be recognized over a weighted average period of 1.8 years.

We recognized stock-based compensation expense related to restricted stock, net of income taxes, of $14 million, $9 million and $6 million for fiscal 2016, 2015 and 2014, respectively. The related tax benefit for fiscal 2016, 2015 and 2014 was $9 million, $6 million and $4 million, respectively. We had 0.2 million, 0.5 million and 0.6 million restricted stock awards vest in fiscal 2016, 2015 and 2014, respectively, with a grant date fair value of $4 million, $10 million and $11 million, respectively.

Performance-Based Shares

We award performance-based shares of our Class A stock to certain employees. 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 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 fair value is determined on the grant date and is calculated using the same inputs for expected volatility, expected dividend yield, and risk-free rate as stock options, noted above, with a duration of three years. The total expense recognized over the duration of the award will equal the fair value, 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 Shares		Weighted Average Grant- Date Fair Value Per Share		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (in millions)
Nonvested, October 3, 2015	1,835,100		$	32.03
Granted	1,178,353		54.44
Vested	(803,821	)	21.67
Forfeited	(62,563	)	34.06
Nonvested, October 1, 2016	2,147,069		$	48.15	1.4	$	160

We recognized stock-based compensation expense related to performance shares, net of income taxes, of $11 million, $5 million and $4 million for fiscal 2016, 2015 and 2014, respectively. The related tax benefit for fiscal 2016, 2015 and 2014 was $7 million, $3 million and $2 million, respectively. As of October 1, 2016, we had $30 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 2 years.

NOTE 14: PENSIONS AND OTHER POSTRETIREMENT BENEFITS

At October 1, 2016, 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 $67 million, $62 million and $53 million in fiscal 2016, 2015 and 2014, 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 October 1, 2016, and October 3, 2015:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016			2015			2016			2015			2016			2015
Change in benefit obligation
Benefit obligation at beginning of year	$	1,785		$	1,849		$	201		$	182		$	114		$	163
Service cost	8			10			6			8			1			5
Interest cost	65			78			9			8			3			7
Plan amendments	—			—			—			—			(58		)	(60		)
Plan participants’ contributions	—			—			—			—			1			2
Actuarial (gain)/loss	21			(50		)	16			11			(15		)	9
Benefits paid	(339		)	(102		)	(10		)	(8		)	(10		)	(12		)
Other	14			—			—			—			—			—
Benefit obligation at end of year	1,554			1,785			222			201			36			114
Change in plan assets
Fair value of plan assets at beginning of year	1,576			1,647			—			3			—			—
Actual return on plan assets	135			25			—			—			—			—
Employer contributions	54			6			10			8			9			10
Plan participants’ contributions	—			—			—			—			1			2
Benefits paid	(339		)	(102		)	(10		)	(8		)	(10		)	(12		)
Other	14			—			—			(3		)	—			—
Fair value of plan assets at end of year	1,440			1,576			—			—			—			—
Funded status	$	(114	)	$	(209	)	$	(222	)	$	(201	)	$	(36	)	$	(114	)

Amounts recognized in the Consolidated Balance Sheets consist of:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016			2015			2016			2015			2016			2015
Other current liabilities	$	—		$	—		$	(9	)	$	(9	)	$	(4	)	$	(20	)
Other liabilities	(114		)	(209		)	(213		)	(192		)	(32		)	(94		)
Total liabilities	$	(114	)	$	(209	)	$	(222	)	$	(201	)	$	(36	)	$	(114	)

Amounts recognized in Accumulated Other Comprehensive Income consist of:



									in millions
	Pension Benefits								Other Postretirement
	Qualified				Non-Qualified				Benefits
	2016		2015		2016		2015		2016			2015
Accumulated other comprehensive (income)/loss:
Actuarial loss	$	17	$	57	$	55	$	43	$	—		$	—
Prior service (credit) (a)	—		—		—		—		(98		)	(59		)
Total accumulated other comprehensive (income)/loss:	$	17	$	57	$	55	$	43	$	(98	)	$	(59	)


(a)	The change in prior service credit is primarily attributed to the plan amendments to the other postretirement benefits as noted within the change in benefit obligation with remainder of the change being immaterial.

At October 1, 2016, and October 3, 2015, eight 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
	Qualified				Non-Qualified
	2016		2015		2016		2015
Projected benefit obligation	$	1,550	$	1,781	$	222	$	201
Accumulated benefit obligation	1,550		1,781		207		193
Fair value of plan assets	1,436		1,572		—		—

The accumulated benefit obligation for all qualified pension plans was $1,554 million and $1,785 million at October 1, 2016, and October 3, 2015, respectively.

Net Periodic Benefit Cost (Credit)

Components of net periodic benefit cost (credit) for pension and postretirement benefit plans recognized in the Consolidated Statements of Income are as follows:



																			in millions
	Pension Benefits															Other Postretirement
	Qualified									Non-Qualified						Benefits
	2016			2015			2014			2016		2015		2014		2016			2015			2014
Service cost	$	8		$	10		$	1		$	6	$	8	$	7	$	1		$	5		$	2
Interest cost	65			78			10			9		8		5		3			7			3
Expected return on plan assets	(65		)	(102		)	(13		)	—		—		—		—			—			—
Amortization of prior service cost	—			—			—			—		—		—		(20		)	(1		)	—
Recognized actuarial loss (gain), net	2			2			2			5		4		2		(15		)	9			(8		)
Recognized settlement loss (gain)	(12		)	8			—			—		—		—		—			(2		)	—
Net periodic benefit cost (credit)	$	(2	)	$	(4	)	$	—		$	20	$	20	$	14	$	(31	)	$	18		$	(3	)

As of October 1, 2016, 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 $1 million and $6 million, respectively. As of October 1, 2016, the amount expected to be reclassified into earnings within the next 12 months related to net periodic benefit credit for the other postretirement benefits is $25 million.

Assumptions

Weighted average assumptions are as follows:



	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016		2015		2014		2016		2015		2014		2016		2015		2014
Discount rate to determine net periodic benefit cost	4.47	%	4.32	%	4.37	%	4.41	%	4.36	%	5.01	%	3.54	%	3.97	%	4.41	%
Discount rate to determine benefit obligations	3.72	%	4.47	%	4.32	%	3.77	%	4.41	%	4.36	%	3.09	%	3.54	%	3.97	%
Rate of compensation increase	n/a		0.01	%	0.01	%	2.46	%	2.31	%	2.11	%	n/a		n/a		n/a
Expected return on plan assets	4.15	%	4.61	%	6.37	%	n/a		n/a		n/a		n/a		n/a		n/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 October 1, 2016 and October 3, 2015, all pension and other postretirement benefit plans used the RP-2014 mortality tables.

We have five other postretirement benefit plans which are healthcare and life insurance related. Two of these plans, which benefit obligations totaled $22 million at October 1, 2016, were not impacted by healthcare cost trend rates as one consists of fixed annual payments and one is life insurance related. Two of the healthcare plans, which benefit obligations totaled $2 million at October 1, 2016, were not impacted by healthcare cost trend rates due to plan amendments. The remaining plan, which the benefit obligation totaled $12 million at October 1, 2016, utilized assumed healthcare cost trend rates of 9.0% and 7.6% for retirees who qualify and do not qualify for Medicare, respectively. The healthcare cost trend rate will be grading down to an ultimate rate of 4.5% in 2024/2025.

A one-percentage-point change in assumed health-care cost trend rates would have the following effects:



			in millions
	One Percentage Point Increase		One Percentage Point Decrease
Effect on postretirement benefit obligation	$	1	$	1

Plan Assets

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



	2016		2015		Target Asset Allocation
Cash	0.9	%	0.3	%	—	%
Fixed Income Securities	85.4		85.4		86.0
United States Stock Funds	3.7		3.9		4.0
International Stock Funds	6.2		6.8		6.5
Real Estate	3.8		3.6		3.5
Total	100.0	%	100.0	%	100.0	%

Additionally, one of our foreign subsidiary pension plans had $28 million and $14 million in plan assets held in an insurance trust at October 1, 2016, and October 3, 2015, 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.

Our domestic plan assets consist mainly of common collective trusts which are primarily comprised of fixed income funds, equity securities and other investments. 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. Our domestic plan assets also include mutual funds. We believe there are no significant concentrations of risk within our plan assets as of October 1, 2016.

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 12: Fair Value Measurements.



	in millions
October 1, 2016	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	13	$	—	$	—	$	13
Insurance contract at contract value (a)	—		—		28		28
Total assets in fair value hierarchy	$	13	$	—	$	28	$	41
Investments measured at net asset value:
Common collective trusts (b)							$	1,399
Total plan assets							$	1,440



	in millions
October 3, 2015	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	5	$	—	$	—	$	5
Insurance contract at contract value (a)	—		—		14		14
Total assets in fair value hierarchy	$	5	$	—	$	14	$	19
Investments measured at net asset value:
Common collective trusts (b)							$	1,557
Total plan assets							$	1,576

(a)

We classify 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.


(b)	Funds that are measured at fair value using the net asset value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The amounts presented above are intended to permit reconciliation of the fair value hierarchy to the fair value of total plan assets in order to determine the amounts included in Other Liabilities in the Consolidated Balance Sheets.

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
	Insurance contract		Total
Balance at October 3, 2015	$	14	14
Actual return on plan assets:
Assets still held at reporting date	—		—
Assets sold during the period	—		—
Purchases, sales and settlements, net	14		14
Transfers in and/or out of Level 3	—		—
Balance at October 1, 2016	$	28	$	28

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 2017 are approximately $40 million. For fiscal 2016, 2015 and 2014, we funded $64 million, $14 million and $9 million plans, respectively, to pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:



					in millions
	Pension Benefits				Other Postretirement
	Qualified		Non-Qualified		Benefits
2017	$	86	$	9	$	5
2018	82		9		3
2019	83		9		3
2020	84		10		3
2021	85		11		3
2022-2026	434		62		13

The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in fiscal 2017 or thereafter.

The above benefit payments include anticipated payments for a partial settlement for deferred vested participants within two of our qualified pension plans. Assuming an election rate of 50% and changes to the benefit obligation and accumulated other comprehensive income due to remeasurement, the partial settlement will result in $2 million of expense to be reclassified into earnings. Actual results may differ from estimated amounts.

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 2016.

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 $1 million in fiscal 2016 and 2015. 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 2016 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 fiscal 2016 and fiscal 2015 is for the plan's year beginning January 1, 2016, and 2015, respectively. The zone status is based on information that we have received from the plan and is certified by the plan's actuaries. The zone status is a secondary classification, critical and declining, within the red zone for fiscal 2016. Among other factors, plans in the red zone are generally less than 65 percent funded. Plans that are critical and declining status are projected to have an accumulated funding deficiency. The FIP/RP Status 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 Status		FIP/RP Status	Contributions (in millions)		Surcharge Imposed
Pension Fund Plan Name	EIN/Pension Plan Number	2016	2015	Implemented	2016	2015	2016	Expiration Date of Collective Bargaining Agreement(a)
Bakery and Confectionery Union and Industry International Pension Fund	52-6118572/001	Red	Red	Nov 2012	$1	$1	10%	October 2015

(a) Renewal negotiations are in progress.

NOTE 15: COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive loss are as follows:



				in millions
	2016			2015
Accumulated other comprehensive income (loss), net of taxes:
Unrealized net hedging loss	$	(2	)	$	(1	)
Unrealized net gain on investments	1			1
Currency translation adjustment	(59		)	(63		)
Postretirement benefits reserve adjustments	15			(27		)
Total accumulated other comprehensive loss	$	(45	)	$	(90	)

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



																			in millions
	2016									2015									2014
	Before Tax			Tax			After Tax			Before Tax			Tax			After Tax			Before Tax			Tax			After Tax

Derivatives accounted for as cash flow hedges:
(Gain) loss reclassified to cost of sales	$	(1	)	$	1		$	—		$	7		$	(3	)	$	4		$	10		$	(4	)	$	6
(Gain) loss reclassified to other income/expense	—			—			—			—			—			—			—			—			—
Unrealized gain (loss)	(1		)	—			(1		)	(4		)	2			(2		)	(8		)	3			(5		)

Investments:
(Gain) loss reclassified to other income/expense	—			—			—			(21		)	8			(13		)	8			(2		)	6
Unrealized gain (loss)	(1		)	1			—			21			(9		)	12			(2		)	—			(2		)

Currency translation:
Translation loss reclassified to cost of sales (a)	—			—			—			115			(8		)	107			—			—			—
Translation adjustment	5			(1		)	4			(86		)	15			(71		)	(32		)	2			(30		)

Postretirement benefits	67			(25		)	42			32			(12		)	20			(23		)	9			(14		)
Total other comprehensive income (loss)	$	69		$	(24	)	$	45		$	64		$	(7	)	$	57		$	(47	)	$	8		$	(39	)

(a) Translation loss reclassified to Cost of Sales related to disposition of a foreign operation, which is further described in Note 3: Acquisitions and Dispositions.

NOTE 16: SEGMENT REPORTING

We operate in four reportable segments: Chicken, Beef, Pork and Prepared Foods. We measure segment profit as operating income (loss). Other primarily includes our foreign chicken production operations in China and India and third-party merger and integration costs.

Chicken: Chicken includes our domestic operations related to raising and processing live chickens into, and purchasing raw materials for, fresh, frozen and value-added chicken products, as well as sales from 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. This segment includes brands such as Jimmy Dean®, Hillshire Farm®, Ball Park®, Wright®, State Fair®, Van's®, Sara Lee® and Chef Pierre®, as well as artisanal brands Aidells®, Gallo Salame®, and Golden Island®. Products primarily include pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, flour and corn tortilla products, desserts, appetizers, snacks, 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.

We allocate expenses related to corporate activities to the segments, except for third-party merger and integration costs of $37 million, $47 million and $59 million in fiscal 2016, 2015 and 2014, respectively, which are included in Other. Assets and additions to property, plant and equipment relating to corporate activities remain in Other. In addition, at September 27, 2014, we included $4.8 billion of goodwill associated with our acquisition of Hillshire Brands in Other and we completed the allocation of goodwill to our segments in fiscal 2015. See Note 5: Goodwill and Intangible Assets for further description regarding the allocation of goodwill. The results from Dynamic Fuels are also included in Other in fiscal 2014.

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



	in millions
	Chicken		Beef			Pork		Prepared Foods			Other			Intersegment Sales			Consolidated
Fiscal 2016
Sales	$	10,927	$	14,513		$	4,909	$	7,346		$	380		$	(1,194	)	$	36,881
Operating Income (Loss)	1,305		347			528		734			(81		)				2,833
Total Other (Income) Expense																	235
Income from Continuing Operations before Income Taxes																	2,598
Depreciation and amortization	274		94			33		286			10						697
Total Assets	5,836		2,764			1,039		11,814			920						22,373
Additions to property, plant and equipment	281		99			68		178			69						695
Fiscal 2015
Sales	$	11,390	$	17,236		$	5,262	$	7,822		$	879		$	(1,216	)	$	41,373
Operating Income (Loss)	1,366		(66		)	380		588			(99		)				2,169
Total Other (Income) Expense																	248
Income from Continuing Operations before Income Taxes																	1,921
Depreciation and amortization	272		97			31		280			21						701
Total Assets	5,731		3,009			927		12,006			1,296						22,969
Additions to property, plant and equipment	405		113			50		167			119						854
Fiscal 2014
Sales	$	11,116	$	16,177		$	6,304	$	3,927		$	1,381		$	(1,325	)	$	37,580
Operating Income (Loss)	883		347			455		(60		)	(195		)				1,430
Total Other (Income) Expense																	178
Income from Continuing Operations before Income Taxes																	1,252
Depreciation and amortization	253		91			33		95			48						520
Total Assets	4,807		3,103			965		8,608			6,423						23,906
Additions to property, plant and equipment	307		115			36		77			97						632

The Chicken segment had sales of $27 million, $18 million and $7 million for fiscal 2016, 2015 and 2014, respectively, from transactions with other operating segments. The Pork segment had sales of $840 million, $847 million and $1.0 billion for fiscal 2016, 2015 and 2014, respectively, from transactions with other operating segments. The Beef segment had sales of $327 million, $351 million and $307 million for fiscal 2016, 2015 and 2014, 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 17.5%, 16.8% and 14.6% of consolidated sales in fiscal 2016, 2015 and 2014, respectively. Sales to Wal-Mart Stores, Inc. were included in all the 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 98%, 97% and 96% of sales to external customers for fiscal 2016, 2015 and 2014, respectively, were sourced from the United States. Approximately $17.3 billion and $17.4 billion of long-lived assets were located in the United States at October 1, 2016, and October 3, 2015. Excluding goodwill and intangible assets, long-lived assets located in the United States totaled approximately $5.6 billion at October 1, 2016, and October 3, 2015. Approximately $204 million and $191 million of long-lived assets were located in foreign countries, primarily Brazil, China and India, at October 1, 2016, and October 3, 2015, respectively. Excluding goodwill and intangible assets, long-lived assets in foreign countries totaled approximately $180 million and $165 million at October 1, 2016, and October 3, 2015, respectively.

We sell certain products in foreign markets, primarily Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, South Korea, and Taiwan. Our export sales from the United States totaled $3.5 billion, $4.1 billion and $4.7 billion for fiscal 2016, 2015 and 2014, 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 2016, 2015 and 2014.

NOTE 17: SUPPLEMENTAL CASH FLOWS INFORMATION

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



					in millions
	2016		2015		2014
Interest, net of amounts capitalized	$	242	$	308	$	118
Income taxes, net of refunds	686		437		590

NOTE 18: 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 2016, 2015 and 2014 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. 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 October 1, 2016, the TLP, of which John Tyson and director Barbara Tyson are general partners, owned 70 million shares, or 99.985% of our outstanding Class B stock and, along with the members of the Tyson family, owned 6.0 million shares of Class A stock, giving it control of approximately 71.18% of the total voting power of our outstanding voting stock.

NOTE 19: COMMITMENTS AND CONTINGENCIES

Commitments

We lease equipment, properties and certain farms for which total rentals approximated $172 million, $165 million and $161 million, in fiscal 2016, 2015 and 2014, 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 October 1, 2016, were:



	in millions
2017	$	118
2018	92
2019	66
2020	43
2021	30
2022 and beyond	78
Total	$	427

We guarantee obligations of certain outside third parties, consisting primarily of leases, debt and grower loans, which are substantially collateralized by the underlying assets. Terms of the underlying debt cover periods up to 10 years, and the maximum potential amount of future payments as of October 1, 2016, was $35 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 11 years. The maximum potential amount of the residual value guarantees is $91 million, of which $83 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 October 1, 2016, and October 3, 2015, no material liabilities for guarantees were recorded.

We have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay an amount for livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts of such payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers are obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the agreement. Our maximum obligation associated with these programs is limited to the fair value of each participating livestock supplier’s net tangible assets. The potential maximum obligation as of October 1, 2016, was approximately $380 million. The total receivables under these programs were $2 million at October 1, 2016. There were no receivables under this program and at October 3, 2015. These receivables 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 October 1, 2016, and October 3, 2015.

When constructing new facilities or making major enhancements to existing facilities, we will occasionally enter into incentive agreements with local government agencies in order to reduce certain state and local tax expenditures. Under these agreements, we transfer the related assets to various local government entities and receive Industrial Revenue Bonds. We immediately lease the facilities from the local government entities and have an option to re-purchase the facilities for a nominal amount upon tendering the Industrial Revenue Bonds to the local government entities at various predetermined dates. The Industrial Revenue Bonds and the associated obligations for the leases of the facilities offset, and the underlying assets remain in property, plant and equipment. At October 1, 2016, total amounts under these type of arrangements totaled $502 million.

Additionally, we enter into future purchase commitments for various items, such as grains, livestock contracts and fixed grower fees. At October 1, 2016, these commitments totaled:



	in millions
2017	$	1,817
2018	373
2019	166
2020	112
2021	95
2022 and beyond	106
Total	$	2,669

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.

Below are the details of six lawsuits involving our beef, pork and prepared foods 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.

•

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, which was denied. We filed a petition for a writ of certiorari with the United States Supreme Court, which was granted on June 8, 2015, and oral arguments before the Supreme Court occurred on November 10, 2015. On March 22, 2016, the Supreme Court affirmed the appellate court’s rulings and remanded to the trial court to allocate the lump sum award among the class participants.


•	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.


•	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.


•	Dozier, Southerland, et al. v. The Hillshire Brands Company, E.D. North Carolina, September 2, 2014 - This case involves our Tarboro, North Carolina prepared foods plant. On March 25, 2016, the parties filed a joint motion for settlement totaling $425,000, which includes all of the plaintiffs’ attorneys’ fees and costs.

•

Awad, et al. v. Tyson Foods, Inc. and Tyson Fresh Meats, Inc., M.D. Tennessee, February 12, 2015 - On October 12, 2016, the parties filed a joint motion for approval of a $725,000 settlement, and plaintiffs filed an application for attorneys’ fees and costs. The court granted its preliminary approval of the parties’ joint motion and the application for attorneys’ fees and costs, on October 21, 2016, and dismissed the action with prejudice.

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 alleges, among other things, that the respondents engaged in unfair labor practices in connection with the termination of manufacturing operations in the Philippines by Aris Philippines, Inc., a former subsidiary of The Hillshire Brands Company. In 2006, an labor arbiter ruled against the respondents and awarded the complainants PHP3,453,664,710 (approximately US$71 million) in damages and fees. The respondents appealed the labor arbiter's ruling, and it was subsequently set aside by the NLRC in December 2006. Subsequent to the NLRC’s decision, the parties filed numerous appeals, motions for reconsideration and petitions for review, certain of which remained outstanding for several years. While various of those appeals, motions and/or petitions were pending, The Hillshire Brands Company, on June 23, 2014, without admitting liability, filed a settlement motion requesting that the Supreme Court of the Philippines order dismissal with prejudice of all claims against it and certain other respondents in exchange for payments allocated by the court among the complainants in an amount not to exceed PHP342,287,800 (approximately US$7.1 million). Based in part on its finding that the consideration to be paid to the complainants as part of such settlement was insufficient, the Supreme Court of the Philippines denied the respondents’ settlement motion and all motions for reconsideration thereof. The Supreme Court of the Philippines also set aside as premature the NLRC’s December 2006 ruling. As a result, the cases are now back before the NLRC, which will once again rule on the respondents’ appeals regarding the labor arbiter’s 2006 ruling in favor of the complainants.

In the meantime, the respondents reached a settlement with a group comprising approximately 18% of the class of 5,984 complainants, pursuant to which The Hillshire Brands Company would pay each settling complainant PHP68,000 (approximately US$1,402). The settlement was approved by the NLRC on or around April 8, 2016, and certain motions for reconsideration relating thereto were resolved on June 30, 2016. If there are no further appeals or motions for reconsideration, The Hillshire Brands Company will make the payments associated with the settlement. In the meantime, The Hillshire Brands Company awaits the NLRC’s decision on the pending appeal with respect to all non-settling complainants.

On September 2, 2016, Maplevale Farms, Inc., acting on behalf of itself and a putative class of direct purchasers of poultry products, filed a class action complaint against us and certain of our poultry subsidiaries, as well as several other poultry processing companies, in the Northern District of Illinois. The complaint alleges, among other things, that beginning in January 2008 the defendants conspired and combined to fix, raise, maintain, and stabilize the price of broiler chickens in violation of United States antitrust laws. It is further alleged that the defendants concealed this conduct from the plaintiff and the putative class. The plaintiff and putative class are seeking treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees. Subsequent to the filing of this initial complaint, additional lawsuits making similar claims on behalf of putative classes of direct and indirect purchaser classes were filed in the United States District Court for the Northern District of Illinois. The lawsuits brought on behalf of putative classes of indirect purchasers allege, in addition to violations of federal antitrust laws, causes of action under various state unfair competition laws, consumer protection laws, and unjust enrichment common laws. The court has consolidated, for pretrial purposes, each of the direct purchaser actions into one case and each of the indirect purchaser actions into one case. These two actions are styled In re Broiler Chicken Antitrust Litigation. On October 28, 2016, plaintiffs filed consolidated amended complaints in each of the two new consolidated actions. The allegations in those complaints are substantially similar to the allegations set forth above.

NOTE 20: QUARTERLY FINANCIAL DATA (UNAUDITED)



			in millions, except per share data
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2016
Sales	$	9,152	$	9,170	$	9,403	$	9,156
Gross profit	1,201		1,183		1,224		1,089
Operating income	776		704		767		586
Net income	461		434		485		392
Net income attributable to Tyson	461		432		484		391

Net income per share attributable to Tyson:
Class A Basic	$	1.18	$	1.14	$	1.29	$	1.06
Class B Basic	$	1.09	$	1.02	$	1.17	$	0.96
Diluted	$	1.15	$	1.10	$	1.25	$	1.03
2015
Sales	$	10,817	$	9,979	$	10,071	$	10,506
Gross profit	956		989		986		986
Operating income	509		547		563		550
Net income	310		311		344		259
Net income attributable to Tyson	309		310		343		258

Net income per share attributable to Tyson:
Class A Basic	$	0.77	$	0.78	$	0.86	$	0.65
Class B Basic	$	0.71	$	0.71	$	0.78	$	0.59
Diluted	$	0.74	$	0.75	$	0.83	$	0.63

Second quarter fiscal 2016 net income included a $12 million recognition of previously unrecognized tax benefits.

Third quarter fiscal 2016 net income included a $15 million recognition of previously unrecognized tax benefits and audit settlement.

Fourth quarter fiscal 2016 net income included a $26 million recognition of previously unrecognized tax benefits.

First quarter fiscal 2015 net income included $19 million pretax expense related to merger and integration, $36 million pretax loss due to costs related to a legacy Hillshire Brands plant fire and a $26 million unrecognized tax benefit gain.

Second quarter fiscal 2015 net income included $14 million pretax expense related to merger and integration and $8 million pretax gain due to insurance proceeds (net of costs) related to a legacy Hillshire Brands plant fire.

Third quarter fiscal 2015 net income included $16 million pretax expense related to merger and integration, $11 million pretax gains due to insurance proceeds (net of costs) related to a legacy Hillshire Brands plant fire and $21 million pretax gains on sale of equity securities.

Fourth quarter fiscal 2015 net income included $8 million pretax expense related to merger and integration, $25 million pretax gains due to insurance proceeds related to a legacy Hillshire Brands plant fire, $169 million pretax China impairment charge, $59 million pretax impairment charges related to our Prepared Foods network optimization, $12 million pretax closure and impairment charges related to the Denison plant closure, $161 million pretax gain on the sale of the Mexico operation and $39 million pretax gain related to our accounting cycle resulting in a 53-week year in fiscal 2015.

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 October 1, 2016 and October 3, 2015, and the results of their operations and their cash flows for each of the three years in the period ended October 1, 2016 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)(2) 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 October 1, 2016, based on criteria established in Internal Control - Integrated Framework (2013) 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.

/s/ PricewaterhouseCoopers LLP

Fayetteville, Arkansas

November 21, 2016

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