Tyson Foods 2006 Annual Report Download - page 38

an undeterminable recoverable amount based on the fair market
value of the underlying leased assets. The likelihood of material
payments under these guarantees is not considered probable.
At September 30, 2006, and October 1, 2005, no liabilities for
guarantees were recorded.
Additionally, the Company enters into future purchase commit-
ments for various items such as grains, livestock and natural gas
contracts. At September 30, 2006, these commitments totaled
$339 million, composed of $319 million for fiscal 2007, $6 million
for fiscal 2008, $5 million for fiscal 2009, $5 million for fiscal 2010,
$2 million for fiscal 2011 and $2 million for later years.
NOTE 9LONG-TERM DEBT
The Company has an unsecured revolving credit facility totaling
$1.0 billion that supports the Company’s short-term funding needs
and letters of credit. The facility expires in September 2010. This
agreement was amended on July 27, 2006, which reduced the
availability of the unsecured revolving credit facility. See below
for further description. At September 30, 2006, the Company had
outstanding letters of credit totaling approximately $203 million
issued primarily in support of workers’ compensation insurance pro-
grams and derivative activities. There were no draw downs under
these letters of credit at September 30, 2006. At September 30,
2006, and October 1, 2005, there were no amounts drawn under
the revolving credit facility. The amended agreement allows for
maximum availability under the revolving credit facility of 50%
of inventory, reduced by letters of credit issued and amounts
outstanding under its term loan. The amount available as of
September 30, 2006, was $481 million.
The Company has a receivables purchase agreement with three
co-purchasers to sell up to $750 million of trade receivables. These
agreements were restructured and extended in the fourth quarter of
fiscal 2006 and now consist of $375 million expiring in August 2007
and $375 million expiring in August 2009. The receivables purchase
agreement has been accounted for as a borrowing and has an inter-
est rate based on commercial paper issued by the co-purchasers.
Under this agreement, substantially all of the Company’s accounts
receivable are sold to a special purpose entity, Tyson Receivables
Corporation (TRC), which is a wholly-owned consolidated subsidiary
of the Company. TRC has separate creditors who are entitled to be
satisfied out of all of the assets of TRC prior to any value becoming
available to the Company as TRC’s equity holder. At September 30,
2006, there was $79.5 million outstanding under the receivables pur-
chase agreement expiring in August 2007 and $79.5 million under the
agreement expiring in August 2009, while at October 1, 2005, there
were no amounts drawn under the receivables purchase agreement.
In the second quarter of fiscal 2006, the Company issued
$1.0 billion of new senior unsecured notes, which will mature
on April 1, 2016 (2016 Notes). The 2016 Notes carried an initial
6.60% interest rate, with interest payments due semi-annually on
April 1 and October 1. In fiscal 2007, the Company used $750 million
of the proceeds for the repayment of its outstanding $750 million
7.25% Notes due October 1, 2006. The remaining proceeds were
used for general corporate purposes. The Company’s short-term
investment at September 30, 2006, included $750 million of pro-
ceeds from this new issuance and earnings of $20 million on the
investment. The $750 million was deposited in an interest bearing
account with a trustee, and is classified as Short-term investment
on the September 30, 2006, Consolidated Balance Sheets.
On July 24, 2006, Moody’s Investors Services, Inc. (Moody’s) down-
graded the Company’s credit rating applicable to its 2016 Notes
from “Baa3” to “Ba1.” This downgrade increased the interest rate
on the 2016 Notes from 6.60% to 6.85%, effective on the first day
of the interest period during which the rating change required an
adjustment to the interest rate (i.e., the issuance of the 2016 Notes).
This downgrade will increase annual interest expense and related
fees by approximately $5 million, including $2.5 million related to
the 2016 Notes.
On July 31, 2006, Standard & Poor’s (S&P) also downgraded the
Company’scredit rating applicable to the 2016 Notes from “BBB”
to “BBB–.” This downgrade did not result in an increase in the
interest rate on the 2016 Notes, nor did it result in an increase
in interest expense or related fees for other debt.
36 Ty s on Foods, Inc. 2006 Annual Report
Notes to Consolidated Financial Statements continued