Tyson Foods 2005 Annual Report Download - page 38

>> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TYSON FOODS, INC. 2005 ANNUAL REPORT
Tyson Foods, Inc. >> 36
Goodwill and Other Intangible Assets: Goodwill and indefinite life
intangible assets are initially recorded at fair value and not amor-
tized, but are reviewed for impairment at least annually or more
frequently if impairment indicators arise, as required by 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 1, 2005, and October 2, 2004, the accumu-
lated amortization of goodwill was $286 million.
Amount of goodwill by segment at October 1, 2005, and
October 2, 2004, was as follows:
in millions 2005 2004
Chicken $ 922 $ 933
Beef 1,199 1,235
Pork 321 330
Prepared Foods 60 60
Total $2,502 $2,558
The reduction in the goodwill balance is primarily due to adjustments
of $53 million related to pre-acquisition tax liability accruals that
were no longer necessary due to the closing of an IRS examination
and the evaluation of certain pre-acquisition deferred tax liabilities.
The adjustments include $46 million and $7 million of deferred tax
asset and liability adjustments related to the acquisitions in previ-
ous years of Tyson Fresh Meats, Inc. (TFM; formerly known as IBP, inc.)
and Hudson Foods, Inc., respectively.
At October 1, 2005, the gross carrying value of intangible assets
consisted of $76 million of trademarks, $85 million of patents and
$11 million of supply contracts with accumulated amortization of
$20 million and $10 million for patents and supply contracts,
respectively. At October 2, 2004, the gross carrying value of intan-
gible 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. The reduction in the carrying value of
intangible assets in fiscal 2005 as compared to the prior year
resulted from a $4 million impairment of trademarks. Amortization
expense on combined patents and supply contracts of $3 million
was recognized during fiscal 2005, and $8 million was recognized
during fiscal years 2004 and 2003. Amortization expense on intan-
gible assets is estimated to be $3 million for fiscal years 2006 and
2007, $4 million in fiscal year 2008, $5 million in fiscal year 2009
and $6 million in fiscal year 2010. Patents and supply contracts
are amortized using the straight-line method over their estimated
period of benefit of five to 15 years, beginning with the date the
benefits from intangible items are realized.
In 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 were 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.
Investments: The Company has investments in joint ventures and
other entities. The Company typically 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 underlying share of each entity’s equity is reported in
the Consolidated Balance Sheets in the line item other assets.
At October 1, 2005, the Company had $138 million of marketable
debt securities. Of this amount, $5 million were due in one year or
less and were classified in other current assets in the Consolidated
Balance Sheets, and $133 million were classified in other assets in
the Consolidated Balance Sheets, with maturities ranging from
one to 30 years. 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 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 accretion of discounts to maturity. Such amortiza-
tion is recorded in interest income. The cost of securities sold is
based on the specific identification method. Realized gains and
losses on the sale of debt securities and declines in value judged
to be other than temporary are recorded on a net basis in other
income. Interest and dividends on securities classified as available-
for-sale are recorded in interest income.