Tyson Foods 2008 Annual Report Download - page 27

25 2008 Annual Report
Management’s Discussion and Analysis (continued)
Description Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Accrued self insurance
We are self insured for certain losses related
to health and welfare, workers’ compensa-
tion, auto liability and general liability claims.
We use an independent third-party actuary
to assist in determining our self-insurance
liability. We and the actuary consider a
number of factors when estimating our
self-insurance liability, including claims
experience, demographic factors, severity
factors and other actuarial assumptions.
We periodically review our estimates and
assumptions with our third-party actuary
to assist us in determining the adequacy of
our self-insurance liability. Our policy is to
maintain an accrual within the central to
high point of the actuarial range.
Our self-insurance liability contains uncer-
tainties due to assumptions required and
judgment used.
Costs to settle our obligations, including
legal and healthcare costs, could increase
or decrease causing estimates of our self-
insurance liability to change.
Incident rates, including frequency and
severity, could increase or decrease causing
estimates in our self-insurance liability
to change.
We have not made any material changes
in the accounting methodology used to
establish our self-insurance liability 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 self-insurance liability. 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% increase in the actuarial range at
September 27, 2008, would not impact the
amount we recorded for our self-insurance
liability. A 10% decrease in the actuarial
range at September 27, 2008, would result
in a gain in the amount we recorded for
our self-insurance liability of approximately
$23 million.
Impairment of long-lived assets
Long-lived assets are evaluated for
impairment whenever events or changes
in circumstances indicate the carrying value
may not be recoverable. Examples include a
signifi cant adverse change in the extent or
manner in which we use a long-lived asset
or a change in its physical condition.
When evaluating long-lived assets for
impairment, we compare the carrying value
of the asset to the asset’s estimated undis-
counted future cash fl ows. An impairment
is indicated if the estimated future cash
fl ows are less than the carrying value of the
asset. The impairment is the excess of the
carrying value over the fair value of the
long-lived asset.
We recorded impairment charges related to
long-lived assets of $52 million, $6 million
and $67 million, respectively, in fi scal years
2008, 2007 and 2006.
Our impairment analysis contains uncertain-
ties due to judgment in assumptions and
estimates surrounding undiscounted future
cash fl ows of the long-lived asset, including
forecasting useful lives of assets and select-
ing the discount rate that refl ects the risk
inherent in future cash fl ows to determine
fair value.
We have not made any material changes
in the accounting methodology used to
evaluate the impairment of long-lived
assets during the last 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
impairments of long-lived assets. However,
if actual results are not consistent with our
estimates and assumptions used to calcu-
late estimated future cash fl ows, we may be
exposed to impairment losses that could
be material.