Tyson Foods 2005 Annual Report Download - page 37

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Tyson Foods, Inc. >> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TYSON FOODS, INC. 2005 ANNUAL REPORT
BUSINESS AND SUMMARY OF
>> 01 SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Tyson Foods, Inc. (collectively, “the
Company” or “Tyson”), founded in 1935 with world headquarters in
Springdale, Arkansas, is the world’s largest processor and marketer
of chicken, beef and pork and the second largest food company in
the Fortune 500. Tyson produces a wide variety of brand name
protein-based and prepared food products marketed in the United
States and more than 80 countries around the world. Tyson is the
recognized market leader in the retail and foodservice markets it
serves. The Company has approximately 114,000 team members and
more than 300 facilities and offices in 29 states and 19 countries.
Consolidation: The consolidated financial statements include the
accounts of all majority-owned and wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year: The Company utilizes a 52- or 53-week accounting
period that ends on the Saturday closest to September 30. The
Company’s accounting cycle resulted in a 52-week year for fiscal
years 2005 and 2003, and a 53-week year for fiscal year 2004.
Reclassifications: Certain reclassifications related to segment
reporting have been made to prior periods to conform to current
presentations. The effect of these reclassifications is not material
to the Company’s consolidated financial statements.
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 the Company’s cash
management activity. The carrying values of these assets approxi-
mate their fair market values. The Company primarily utilizes a cash
management system with a series of separate accounts consisting
of lockbox accounts for receiving cash, concentration accounts that
funds are moved to, and several “zero-balance” disbursement accounts
for funding of payroll, accounts payable and grower payments. As a
result of the Company’s cash management system, checks issued, but
not presented to the banks for payment, may create negative book
cash balances. Checks outstanding in excess of related book cash
balances totaling approximately $332 million at October 1, 2005,
and $359 million at October 2, 2004, are included in trade accounts
payable and accrued salaries, wages and benefits.
Accounts Receivable: The Company records trade accounts receivable
at net realizable value. This value includes an appropriate allowance
for estimated uncollectible accounts to reflect any loss anticipated
on the trade accounts receivable balances and charged to the pro-
vision for doubtful accounts. The Company calculates this allowance
based on a history of write-offs, level of past due accounts and
relationships with and economic status of the customers.
Inventories: Processed products, livestock (excluding breeders) and
supplies and other are valued at the lower of cost (first-in, first-out)
or market. Livestock includes live cattle, live chicken and live swine.
Cost includes purchased raw materials, live purchase costs, growout
costs (primarily feed, contract grower pay and catch and haul costs),
labor and manufacturing and production overhead, which are
related to the purchase and production of inventories. Live chicken
consists of broilers and breeders. Breeders are stated at cost less
amortization. The costs associated with breeders, including breeder
chicks, feed and medicine, are accumulated up to the production
stage and amortized to broiler inventory over the productive life
of the flock using a standard unit of production.
Total inventory consists of:
in millions 2005 2004
Processed products $1,210 $1,197
Livestock 537 545
Supplies and other 315 321
Total inventory $2,062 $2,063
Depreciation: Depreciation is provided primarily by the straight-
line method using estimated lives for buildings and leasehold
improvements of 10 to 39 years, machinery and equipment of
three to 12 years and other of three to 20 years.
Long-Lived Assets: The Company reviews 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 upon historical results and current projections of earnings
before interest and taxes. The Company measures impairment as
the excess of carrying cost over the fair value of an asset. The fair
value of an asset is measured using discounted cash flows of future
operating results based upon a discount rate that corresponds to
the Company’s cost of capital.