Tyson Foods 2005 Annual Report Download - page 31

>> MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)
TYSON FOODS, INC. 2005 ANNUAL REPORT
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Tyson Foods, Inc. >> 29
CAUTIONARY STATEMENTS RELEVANT
TO FORWARD-LOOKING INFORMATION FOR
THE PURPOSE OF “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report and other written reports and oral statements, made
from time to time by the Company and its representatives, contain
forward-looking statements with respect to their current views and
estimates of future economic circumstances, industry conditions,
Company performance and financial results, including, without
limitation, debt-levels, return on invested capital, value-added
product growth, capital expenditures, tax rates, access to foreign
markets and dividend policy. These forward-looking statements are
subject to a number of factors and uncertainties that could cause
the Company’s actual results and experiences to differ materially
from the anticipated results and expectations expressed in such
forward-looking statements. The Company wishes to caution
readers not to place undue reliance on any forward-looking state-
ments, which speak only as of the date made. Tyson undertakes
no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Among the factors that may cause actual results and experiences to
differ from the anticipated results and expectations expressed in
such forward-looking statements are the following: (i) fluctuations
in the cost and availability of raw materials, such as live cattle, live
swine or feed grains; (ii) market conditions for finished products,
including the supply and pricing of alternative proteins, and the
demand for alternative proteins; (iii) risks associated with effec-
tively evaluating derivatives and hedging activities; (iv) access to
foreign markets together with foreign economic conditions,
including currency fluctuations and import/export restrictions;
(v) outbreak of a livestock disease (such as avian influenza (AI) or
bovine spongiform encephalopathy (BSE)) which could have an
effect on livestock owned by the Company, the availability of live-
stock for purchase by the Company, consumer perception of certain
protein products or the Company’s ability to access certain markets;
(vi) successful rationalization of existing facilities, and the operating
efficiencies of the facilities; (vii) changes in the availability and rela-
tive costs of labor and contract growers; (viii) issues related to food
safety, including costs resulting from product recalls, regulatory
compliance and any related claims or litigation; (ix) adverse results
from litigation; (x) risks associated with leverage, including cost
increases due to rising interest rates or changes in debt ratings or
outlook; (xi) changes in regulations and laws (both domestic and
foreign), including changes in accounting standards, environmental
laws and occupational, health and safety laws; (xii) the ability of the
Company to make effective acquisitions and successfully integrate
newly acquired businesses into existing operations; (xiii) effective-
ness of advertising and marketing programs; and (xiv) the effect of,
or changes in, general economic conditions.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS
MARKET RISKS
Market risks relating to the Company’s operations result primarily
from changes in commodity prices, interest rates and foreign
exchange rates, as well as credit risk concentrations. To address
certain of these risks, the Company enters into various derivative
transactions as described below. If a derivative instrument is a
hedge, as defined by SFAS No. 133, as amended, depending on the
nature of the hedge, changes in the fair value of the instrument
will be either offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings, or recog-
nized in other comprehensive income (loss) until the hedged item
is recognized in earnings. The ineffective portion of an instrument’s
change in fair value, as defined by SFAS No. 133, as amended, will be
immediately recognized in earnings as a component of cost of
sales. Additionally, the Company holds certain positions, primarily
in grain and livestock futures, which do not meet the criteria for
SFAS No. 133 hedge accounting. These positions are marked to fair
value and the unrealized gains and losses are reported in earnings
at each reporting date. The changes in market value of derivatives
used in the Company’s risk management activities surrounding inven-
tories on hand or anticipated purchases of inventories are recorded
in cost of sales. The changes in market value of derivatives used in
the Company’s risk management activities surrounding forward
sales contracts are recorded in sales.
The sensitivity analyses presented below are the measures of
potential losses of fair value resulting from hypothetical changes
in market prices related to commodities. Sensitivity analyses do
not consider the actions management may take to mitigate the
Company’s exposure to changes, nor do they consider the effects
that such hypothetical adverse changes may have on overall
economic activity. Actual changes in market prices may differ
from hypothetical changes.