Tyson Foods 2004 Annual Report Download - page 39

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In December 2003, the FASB revised Statement of Financial Accounting
Standards No. 132, “Employers’ Disclosures about Pensions and Other
Postretirement Benefits” (SFAS No. 132). The revision of SFAS No. 132
requires expanded disclosures for defined benefit plans. The standard’s
revisions are effective for fiscal years ending after December 15, 2003,
and for interim periods beginning after December 15, 2003. See
Note 15 to the Consolidated Financial Statements for pensions and
other postretirement benefits disclosures.
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed. The Act allows
a possible subsidy to retirement health plan sponsors to help offset
the costs of participant prescription drug benefits. In March 2004, the
FASB issued Staff Position No. 106-2, “Accounting and Disclosure
Requirements Related to the Act” (the Position). The Position is effec-
tive for interim or annual periods beginning after June 15, 2004. The
Position allows plan sponsors to recognize or defer recognizing
the effects of the Act in its financial statements. Specific accounting
guidance for this federal subsidy is pending and, when issued, could
require the Company to change previously reported information.
The Company’s accumulated postretirement benefit obligation and
net periodic pension cost do not reflect the effects of the Act.
The Company has elected to defer accounting for the Act and has
estimated any future effect on its consolidated financial statements
will not be material.
In January 2003, the 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 (VIE) 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 ownership, contractual or other financial interests in
the entity. Previously, entities were generally consolidated by an
enterprise that had a controlling financial interest through ownership
of a majority voting interest in the entity. In December 2003, the FASB
issued a revision of the Interpretation (the Revised Interpretation 46).
Revised Interpretation 46 codifies both the proposed modifications
and other decisions previously issued through certain FASB Staff
Positions and supersedes the original Interpretation to include:
(1) deferring the effective date of the Interpretation’s provisions for
certain variable interests, (2) providing additional scope exceptions
for certain other variable interests, (3) clarifying the impact of
troubled debt restructurings on the requirement to reconsider
(a) whether an entity is a VIE or (b) which party is the primary
beneficiary of a VIE, and (4) revising Appendix B of the original
Interpretation to provide additional guidance on what constitutes
a variable interest. Under the new guidance, application of the Revised
Interpretation 46 is required in financial statements of public entities
that have interests in structures that are commonly referred to as
special-purpose entities for periods ending after December 15, 2003,
and for all other types of variable interest entities is required in
financial statements for periods ending after March 15, 2004. The
Company’s adoption of Revised Interpretation 46 did not have a
material impact on its consolidated financial statements.
NOTE TWO : 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 agreement, which was scheduled to expire in 2007. The
Company had previously negotiated a purchase option with Choctaw’s
owners, which initially became exercisable 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 was recorded as a purchase in accordance with Statement of
Financial Accounting Standards No. 141, “Business Combinations.”
Accordingly, the assets and liabilities were 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 exer-
cise the purchase option in Tyson’s supply agreement with Choctaw
and settlement of $85 million owed to Tyson by Choctaw. In addi-
tion the Company assumed approximately $4 million of Choctaw’s
debt to a third party. In June 2003, the Company exercised a
$74 million purchase option to acquire assets leased from a third
party, which the Company had subleased to Choctaw. Pro forma
operating results reflecting the acquisition of Choctaw would
not be materially different from the Company’s actual results of
operations. During 2004, goodwill was reduced $3 million due to
an adjustment of pre-acquisition liabilities assumed as part of the
Choctaw acquisition.
In May 2002, the Company acquired the assets of Millard Processing
Services, a bacon processing operation, for approximately $73 million
in cash. The acquisition was accounted for as a purchase and goodwill
of approximately $14 million was recorded.