Tyson Foods 2008 Annual Report Download - page 29

27 2008 Annual Report
Management’s Discussion and Analysis (continued)
Description Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Income taxes
We estimate total income tax expense
based on statutory tax rates and tax plan-
ning opportunities available to us in various
jurisdictions in which we earn income.
Federal income taxes include an estimate
for taxes on earnings of foreign subsidiar-
ies expected to be remitted to the United
States and be taxable, but not for earnings
considered indefi nitely invested in the for-
eign subsidiary.
Deferred income taxes are recognized for
the future tax effects of temporary differ-
ences between fi nancial and income tax
reporting using tax rates in effect for the
years in which the differences are expected
to reverse.
Valuation allowances are recorded when it is
likely a tax benefi t will not be realized for a
deferred tax asset.
We record unrecognized tax benefi t liabili-
ties for known or anticipated tax issues
based on our analysis of whether, and the
extent to which, additional taxes will be due.
This analysis is performed in accordance
with the requirements of FIN 48, which we
adopted at the beginning of fi scal year 2008.
Changes in tax laws and rates could affect
recorded deferred tax assets and liabilities
in the future.
Changes in projected future earnings could
affect the recorded valuation allowances in
the future.
Our calculations related to income taxes
contain uncertainties due to judgment used
to calculate tax liabilities in the application
of complex tax regulations across the tax
jurisdictions where we operate.
Our analysis of unrecognized tax benefi ts
contain uncertainties based on judgment
used to apply the more likely than not
recognition and measurement thresholds
of FIN 48.
We do not believe there is a reasonable like-
lihood there will be a material change in the
tax related balances or valuation allowances.
However, due to the complexity of some of
these uncertainties, the ultimate resolution
may result in a payment that is materially
different from the current estimate of the
tax liabilities.
To the extent we prevail in matters for which
FIN 48 liabilities have been established, or
are required to pay amounts in excess of our
recorded FIN 48 liabilities, our effective tax
rate in a given fi nancial statement period
could be materially affected. An unfavorable
tax settlement would require use of our cash
and result in an increase in our effective tax
rate in the period of resolution. A favor-
able tax settlement would be recognized as
a reduction in our effective tax rate in the
period of resolution.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
MARKET RISK
Market risk relating to our operations results primarily from changes
in commodity prices, interest rates and foreign exchange rates, as
well as credit risk concentrations. To address certain of these risks,
we enter into various derivative transactions as described below. If
a derivative instrument is accounted for as a hedge, as defi ned by
Statement of Financial Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (SFAS No. 133),
as amended, depending on the nature of the hedge, changes in the
fair value of the instrument either will be offset against the change
in fair value of the hedged assets, liabilities or fi rm commitments
through earnings, or be recognized in other comprehensive income
(loss) until the hedged item is recognized in earnings. The ineffective
portion of an instrument’s change in fair value, as defi ned by SFAS
No. 133, is recognized immediately. Additionally, we hold certain
positions, primarily in grain and livestock futures that either do
not meet the criteria for hedge accounting or are not designated as
hedges. These positions are marked to market, and the unrealized
gains and losses are reported in earnings at each reporting date.