Tyson Foods 2004 Annual Report Download - page 36

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Goodwill and indefinite life
intangible assets are recorded at fair value and not amortized, but
are reviewed for impairment at least annually or more frequently
if impairment indicators arise, as required by the Statement of
Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142). In the Company’s assessment of
goodwill, management makes assumptions by segment regarding
estimated future cash flows and other factors to determine the
fair value of the respective assets. The fair value of the Company’s
trademarks is determined using a royalty rate method based on
expected revenues by trademark. Goodwill has been allocated to
and tested for impairment by reporting unit based on fair value
of identifiable assets. This goodwill is not deductible for income
tax purposes. At October 2, 2004, and September 27, 2003, the
accumulated amortization of goodwill was $286 million.
Amount of goodwill by segment at October 2, 2004, and
September 27, 2003, was as follows:
in millions 2004 2003
Chicken $933 $ 936
Beef 1,235 1,306
Pork 330 350
Prepared Foods 60 60
Total $2,558 $2,652
The change in the goodwill balance is due primarily to a $91 million
adjustment of pre-acquisition tax liabilities assumed as part of the
Tyson Fresh Meats, Inc. (TFM; formerly known as IBP, inc.) acquisition.
The Company received formal approval during fiscal 2004 from
The Joint Committee on Taxation of the U.S. Congress for issues
relating to certain pre-acquisition years. As a result of this approval,
the accrual of $91 million of pre-acquisition tax liability was no
longer needed.
In the fourth quarter of fiscal 2004, the Company recorded charges
of approximately $25 million related to the impairment of various
intangible assets, of which $22 million was recorded in the Prepared
Foods segment and $3 million was recorded in the Beef segment.
The impairment charges apply primarily to trademarks acquired in the
acquisition of TFM in 2001. These impairment charges are included
in other charges on the Company’s Consolidated Statements of
Income and resulted primarily from lower product sales under some
of the Company’s regional trademarks as products are increasingly
being sold under the Tyson trademark.
At October 2, 2004, the gross carrying value of intangible assets
consisted of $80 million of trademarks, $85 million of patents
and $11 million of supply contracts with accumulated amortization
of $19 million and $8 million for patents and supply contracts,
respectively. At September 27, 2003, the gross carrying value of
intangible assets consisted of $100 million of trademarks, $87 million
of patents and $13 million of supply contracts with accumulated
amortization of $12 million and $6 million for patents and supply
contracts, respectively. The reductions in the carrying value of
intangible assets in fiscal 2004 as compared to the prior year resulted
from the impairments recorded in fiscal 2004, as trademarks, patents
and supply contracts were impaired $20 million, $3 million and
$2 million, respectively. Amortization expense on combined patents
and supply contracts of $8 million was recognized during 2004 and
2003 and $9 million was recognized in 2002. Amortization expense
on intangible assets is estimated to be $7 million for 2005, 2006,
and $6 million for 2007, 2008 and 2009. Patents and supply contracts
are amortized using the straight-line method over their estimated
period of benefit of 15 years and five years, respectively.
The Company has investments in joint ventures and
other entities. The Company uses the cost method of accounting
where its voting interests are less than 20 percent, and the equity
method of accounting where its voting interests are in excess of
20 percent but not greater than 50 percent. The Company’s under-
lying share of each entity’s equity is reported in the Consolidated
Balance Sheets in the line item other assets.
During fiscal 2004, the Company purchased $99 million of marketable
debt securities. Of this amount, $63 million are due in one year or
less and are classified in other current assets in the Consolidated
Balance Sheets, and $36 million are due in two years and are classi-
fied in other assets in the Consolidated Balance Sheets. The Company
has applied Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”
(SFAS No. 115), and has determined that all of its 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 accre-
tion of discounts to maturity. Such amortization will be recorded in
interest income. The cost of securities sold is based on the specific