Tyson Foods 2006 Annual Report Download - page 29

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 on a discount rate that corresponds to the
Company’s cost of capital.
• Goodwill and Other Intangible Assets: Goodwill and indefinite
life intangible assets are initially recorded at fair value and not
amortized, but are reviewed for impairment at least annually or
more frequently if impairment indicators arise. 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 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. At September 30, 2006, and October 1, 2005,
the accumulated amortization of goodwill was $286 million.
Amount of goodwill by segment at September 30, 2006, and
October 1, 2005, is as follows:
in millions 2006 2005
Chicken $920 $ 922
Beef 1,204 1,199
Pork 322 321
Prepared Foods 66 60
Total $2,512 $2,502
The increase in the goodwill balance primarily is due to deferred tax
asset and liability adjustments of $12 million related to the acquisi-
tions in previous years of Tyson Fresh Meats, Inc. (TFM: formerly
known as IBP, inc.) and the assets of Millard Processing Services.
At September 30, 2006, the gross carrying value of intangible
assets consisted of $73 million of trademarks, $85 million of
patents and $11 million of supply contracts with accumulated
amortization of $22 million and $11 million for patents and supply
contracts, 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. The reduction in the
carrying value of intangible assets in fiscal 2006 compared to
the prior year resulted from a $3 million impairment of trademarks.
The impairment was recorded in Cost of Sales in the Consolidated
Statements of Operations and included in the Prepared Foods
segment. Amortization expense on combined patents and supply
contracts of $3 million was recognized during fiscal 2006 and fiscal
2005, and $8 million was recognized during fiscal 2004. Amortiza-
tion expense on intangible assets is estimated to be $2 million for
year 2007, $3 million in years 2008 and 2009,$4 million in year 2010
and $5 million in year 2011. Patents and supply contracts are amor-
tized 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.
• 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 Other Assets.
The Company has investments in marketable debt securities. As
of September 30, 2006, and October 1, 2005, $0 and $5 million,
respectively, were due in one year or less and were classified in
Other Current Assets in the Consolidated Balance Sheets, and
$115 million and $133 million, respectively, were classified in Other
Assets in the Consolidated Balance Sheets, with maturities ranging
from one to 30 years. The Company has determined all its market-
able debt securities are available-for-sale investments. Theseinvest-
ments 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 amortization 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.
In the second quarter of fiscal 2006, the Company issued $1.0 billion
of new 6.60% senior unsecured notes, which will mature on April 1,
2016. In fiscal 2007, the Company used $750 million of the proceeds
for the repayment of its outstanding $750 million 7.25% Notes, which
were due October 1, 2006, and the remaining proceeds were used for
general corporate purposes. The Company’sshort-term investment
at September 30, 2006, includes $750 million of proceeds from the
new issuance and earnings of $20 million on the investment. These
funds were on deposit in an interest bearing account with a trustee.
Ty s on Foods, Inc. 2006 Annual Report27
Notes to Consolidated Financial Statements continued