Tyson Foods 2008 Annual Report Download - page 26

24 Tyson Foods, Inc.
Management’s Discussion and Analysis (continued)
Senior Notes due 2013 will range from 8.0% to 8.50%, which would
result in the recognition of an approximate $90 million to $100 mil-
lion discount to these notes with the offsetting after tax amount
recorded to capital in excess of par value. This discount will be
accreted until the maturity date at the effective interest rate, which
will not materially impact fi scal 2008 interest expense, but will result
in an estimated $15 million to $20 million increase to our fi scal 2009
interest expense.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated fi nancial statements requires us to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
fi nancial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of certain
accounting estimates we consider critical.
Description Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Contingent liabilities
We are subject to lawsuits, investigations
and other claims related to wage and hour/
labor, livestock procurement, securities, envi-
ronmental, product, taxing authorities and
other matters, and are required to assess the
likelihood of any adverse judgments or out-
comes to these matters, as well as potential
ranges of probable losses.
A determination of the amount of reserves
and disclosures required, if any, for these
contingencies are made after considerable
analysis of each individual issue. We accrue
for contingent liabilities when an assessment
of the risk of loss is probable and can be rea-
sonably estimated. We disclose contingent
liabilities when the risk of loss is reasonably
possible or probable.
Our contingent liabilities contain uncertain-
ties because the eventual outcome will
result from future events, and determination
of current reserves requires estimates and
judgments related to future changes in facts
and circumstances, differing interpretations
of the law and assessments of the amount of
damages, and the effectiveness of strategies
or other factors beyond our control.
We have not made any material changes in
the accounting methodology used to estab-
lish our contingent liabilities during the past
three fi scal years.
We do not believe there is a reasonable like-
lihood there will be a material change in the
estimates or assumptions used to calculate
our contingent liabilities. However, if actual
results are not consistent with our estimates
or assumptions, we may be exposed to gains
or losses that could be material.
Marketing and advertising costs
We incur advertising, retailer incentive
and consumer incentive costs to promote
products through marketing programs. These
programs include cooperative advertising,
volume discounts, in-store display incentives,
coupons and other programs.
Marketing and advertising costs are charged
in the period incurred. We accrue costs based
on the estimated performance, historical
utilization and redemption of each program.
Cash consideration given to customers is
considered a reduction in the price of our
products, thus recorded as a reduction to
sales. The remainder of marketing and adver-
tising costs is recorded as a selling, general
and administrative expense.
Recognition of the costs related to these
programs contains uncertainties due to
judgment required in estimating the
potential performance and redemption
of each program.
These estimates are based on many
factors, including experience of similar
promotional programs.
We have not made any material changes in
the accounting methodology used to estab-
lish our marketing accruals during the past
three fi scal years.
We do not believe there is a reasonable like-
lihood there will be a material change in the
estimates or assumptions used to calculate
our marketing accruals. However, if actual
results are not consistent with our estimates
or assumptions, we may be exposed to gains
or losses that could be material.
A 10% change in our marketing accruals at
September 27, 2008, would impact pretax
earnings by approximately $10 million.