Tyson Foods 2005 Annual Report Download - page 42

>> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TYSON FOODS, INC. 2005 ANNUAL REPORT
Tyson Foods, Inc. >> 40
ACQUISITION
>> 02
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 previously had 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 agree-
ment. The acquisition 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 exercise the purchase option in Tyson’s supply agreement with
Choctaw and settlement of $85 million owed to Tyson by Choctaw.
In addition, 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 opera-
tions. During fiscal 2004, goodwill was reduced $3 million due to
an adjustment of pre-acquisition liabilities assumed as part of the
Choctaw acquisition.
OTHER CHARGES
>> 03
In the fourth quarter of fiscal 2002, the Company recorded
$26 million of costs related to the restructuring of its live swine
operations that consisted of $21 million of estimated liabilities for
resolution of Company obligations under producer contracts and
$5 million of other related costs associated with this restructuring,
including lagoon and pit closure costs and employee termination
benefits. In the fourth quarter of 2004, the Company recorded an
additional reserve of $6 million related to lagoon and pit closure
costs. These amounts were reflected in the Company’s Pork segment
as a reduction of operating income and included in the Consoli-
dated Statements of Income in other charges. The Company is
accounting for the restructuring of its live swine operations in
accordance with Emerging Issues Task Force No. 94-3, “Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity” and Statement of Financial Accounting
Standards No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” (SFAS No. 144). In July 2005, the Company
announced it agreed to settle a lawsuit which resulted from
the restructuring of its live swine operations. The settlement
resulted in the Company recording an additional $33 million of costs
in the third quarter of fiscal 2005. As of October 1, 2005, $48 million
in payments to former producers and $13 million of other related
costs have been paid. No other material adjustments to the total
accrual are anticipated at this time.
In July 2005, the Company announced its decision to make
improvements to one of its Forest, Mississippi, facilities, which
will include more product lines, enabling the plant to increase
production of processed and marinated chicken. The Company
also will improve the plant’s roofing, flooring and refrigeration
systems. The improvements will be made at the former Choctaw
Maid Farms location, which the Company acquired in the fourth
quarter of fiscal 2003. When complete, the Company will close
the Cleveland Street Forest, Mississippi, poultry operation and
transfer production and employees to the newly upgraded facili-
ties. The Company expects to complete the project by the end
of the second quarter of fiscal 2006. The Cleveland Street Forest
operation currently employs approximately 900 people. As a result
of this decision, the Company recorded total costs of $9 million
for estimated impairment charges in fiscal 2005. This amount was
reflected in the Chicken segment as a reduction of operating
income and included in the Consolidated Statements of Income
in other charges. The Company is accounting for the closing of
the Cleveland Street Forest operation in accordance with SFAS
No. 144 and Statement of Financial Accounting Standards No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities”
(SFAS No. 146). No other material adjustments to the total accrual
are anticipated at this time.
In July 2005, the Company announced its decision to close its
Bentonville, Arkansas, facility. The Bentonville operation employed
approximately 320 people and produced raw and partially fried
breaded chicken tenders, fillets, livers and gizzards. The plant
ceased operations in November 2005. The production from this
facility was transferred to the Company’s Russellville, Arkansas,
poultry plant, where an expansion enabled the facility to absorb
the Bentonville facility’s production. As a result of this decision,
the Company recorded total costs of $1 million for estimated
impairment charges and $1 million for employee termination
benefits in fiscal 2005. These amounts were reflected in the
Chicken segment as a reduction of operating income and
included in the Consolidated Statements of Income in other
charges. The Company is accounting for the closing of the
Bentonville operation in accordance with SFAS No. 144 and
SFAS No. 146. As of October 1, 2005, no employee termination
benefits had been paid. No other material adjustments to the
total accrual are anticipated at this time.