Tyson Foods 2003 Annual Report Download - page 40

38 Tyson Foods, Inc.
notes to consolidated financial statements
TYSON FOODS, INC. 2003 ANNUAL REPORT
Minority Interest: The results of operations of IBP for the
nine weeks ended September 29, 2001, are included
in the Company’s consolidated results of operations.
Minority interest in fiscal 2001 primarily consisted of the
49.9% of IBP that was acquired on September 28, 2001.
Use of Estimates: The consolidated financial statements
are prepared in conformity with accounting principles
generally accepted in the United States, which require
management 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 Standards: In January 2003,
the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, “Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research
Bulletin No. 51” (the Interpretation). The Interpretation
requires the consolidation of variable interest entities in
which an enterprise absorbs a majority of the entity’s
expected losses, receives a majority of the entity’s
expected residual returns, or both, as a result of owner-
ship, contractual or other financial interests in the entity.
Currently, entities are generally consolidated by an enter-
prise that has a controlling financial interest through
ownership of a majority voting interest in the entity. The
Interpretation was originally immediately effective for
variable interest entities created after January 31, 2003,
and effective in the fourth quarter of the Company’s
fiscal 2003 for those created prior to February 1, 2003.
However, in October 2003, the FASB deferred the effec-
tive date for those variable interest entities created prior
to February 1, 2003, until the Company’s first quarter of
fiscal 2004. The Company has substantially completed
the process of evaluating the Interpretation and believes
its adoption will not have a material impact on its finan-
cial position or results of operations.
In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities” (SFAS No. 149). SFAS No. 149 amends SFAS
No. 133 to provide clarification on the financial account-
ing and reporting of derivative instruments and hedging
activities and requires that contracts with similar charac-
teristics be accounted for on a comparable basis. The
standard is effective for contracts entered into or modi-
fied after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The Company’s adoption
of SFAS No. 149 did not have a material impact on its
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, “Accounting
for Certain Instruments with Characteristics of Both
Liabilities and Equity” (SFAS No. 150). SFAS No. 150
establishes how an issuer classifies and measures certain
freestanding financial instruments with characteristics of
liabilities and equity and requires that such instruments
be classified as liabilities. The standard is effective for
financial instruments entered into or modified after May
31, 2003, and is otherwise effective in the fourth quarter
of the Company’s fiscal 2003. The Company’s adoption of
SFAS No. 150 did not have a material impact on its finan-
cial position or results of operations.
note 2:
acquisitions
In September 2003, the Company purchased Choctaw
Maid Farms, Inc. (Choctaw), an integrated poultry
processor. Since 1992, Tyson had been purchasing all of
Choctaw’s production under a “cost plus” supply agree-
ment, which was scheduled to expire in 2007. The
Company had previously negotiated a purchase option
with Choctaw’s owners, which initially became exercis-
able in 2002. The Company decided to exercise its
purchase option rather than continue under the “cost
plus” arrangement of the supply agreement. The acquisi-
tion has been recorded as a purchase in accordance with
SFAS No. 141, “Business Combinations.” Accordingly, the
assets and liabilities have been adjusted for fair values
with the remainder of the purchase price, $18 million,
recorded as goodwill. The purchase price consisted of
$1 million cash to exercise the purchase option in Tyson’s
supply agreement with Choctaw and the settlement of
$85 million owed to Tyson by Choctaw. In addition the
Company assumed approximately $4 million of Choctaw’s
debt to a third party. In June 2003, the Company exercised
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