Tyson Foods 2008 Annual Report Download - page 40

38 Tyson Foods, Inc.
Notes to Consolidated Financial Statements (continued)
associated with the retirement of a tangible long-lived asset that
resulted from the acquisition, construction, development and/or
the normal operation of a long-lived asset. The associated asset costs
are capitalized as part of the carrying amount of the long-lived asset.
FIN 47 clarifi es the term “conditional asset retirement obligation” as
used in SFAS No. 143, which refers to a legal obligation to perform
an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be
within the control of the entity. FIN 47 requires an entity to recog-
nize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be estimated reason-
ably. Uncertainty about the timing and/or method of settlement of
a conditional asset retirement obligation should be factored into
the measurement of the liability when suffi cient information exists.
SFAS No. 143 acknowledges in some cases, suffi cient information
may not be available to reasonably estimate the fair value of an asset
retirement obligation (ARO). We adopted FIN 47 in the fourth quarter
of fi scal 2006. In connection with the adoption, an ARO liability of
$12 million, a related ARO asset of $3 million and a cumulative adjust-
ment due to change in accounting principle, net of tax of $5 million
were recorded. The ARO liability is included in Other Liabilities and
the ARO asset is included in Property, Plant and Equipment on the
Consolidated Balance Sheets. The principal conditional asset retire-
ment obligations relate to the potential future closure, sale or other
disposal of certain production facilities. In connection with any such
activity, we are legally obligated under various federal, state and local
laws to properly retire the related wastewater treatment facility.
NOTE 3: DISCONTINUED OPERATION
On June 25, 2008, we executed a letter of intent with XL Foods Inc.
to sell the beef processing, cattle feed yard and fertilizer assets of
Lakeside for $104 million. Lakeside was part of our Beef segment.
XL Foods will pay an additional amount for cattle inventory, fertilizer
inventory and packaging assets, estimated to approximate $82 mil-
lion. This transaction is denominated in Canadian Dollars, thus
conversion at the closing date to US Dollars could result in amounts
in US Dollars different than noted. We will retain certain working
capital items, including fi nished product inventory, accounts receiv-
able and accounts payable, of the Lakeside operation as of the
closing date, which totaled $89 million at September 27, 2008.
Once the transaction is complete, we expect retained working
capital, including inventory, at Lakeside will be liquidated and
settled over a two-month period.
Approximately $60 million of Beef segment goodwill relates to
Lakeside. In addition, at September 27, 2008, we had $60 million of
currency translation adjustment gain in accumulated comprehensive
income related to the Lakeside Canadian dollar translation. Subse-
quent to September 27, 2008, the Canadian dollar weakened versus
the US dollar, which may result in a decrease in the currency trans-
lation adjustment gain.
The transaction remains subject to government approvals and execu-
tion of a defi nitive agreement between Tyson and XL Foods. Subject
to receipt of such approvals, we anticipate being ready to complete
the sale by the end of the fi rst quarter fi scal 2009 and are reporting
the Lakeside results as a discontinued operation.
The following is a summary of Lakeside’s operating results (in millions):
2008 2007 2006
Sales $1,268 $1,171 $970
Pretax loss – – 25
The carrying amounts of Lakeside’s assets held for sale include the
following (in millions):
2008 2007
Assets of discontinued operation held for sale:
Inventories $ 82 $ 79
Net property, plant and equipment 77 85
Total assets of discontinued operation held for sale $159 $164
NOTE 4: DISPOSITIONS AND OTHER CHARGES
In fi scal 2008, we recorded charges of $10 million related to intan-
gible asset impairments. Of this amount, $8 million is refl ected in
the Beef segment’s Operating Income and $2 million in the Prepared
Foods segment’s Operating Income, and both are recorded in the
Consolidated Statements of Operations in Cost of Sales. We recorded
estimated charges of $7 million related to fl ood damage at our
Jefferson, Wisconsin, plant. This amount is refl ected in the Prepared
Foods segment’s Operating Income and included in the Consolidated
Statements of Operations in Cost of Sales. We also recorded a charge
of $6 million related to the impairment of unimproved real property
in Memphis, Tennessee. This amount is refl ected in the Chicken seg-
ment’s Operating Income (Loss) and included in the Consolidated
Statements of Operations in Cost of Sales. Additionally, we recorded
an $18 million non-operating gain as the result of a private equity
fi rm’s purchase of a technology company in which we held a minority
interest. This gain was recorded in Other Income in the Consolidated
Statements of Operations.
In February 2008, we announced discontinuation of an existing prod-
uct line and closing of one of our three poultry plants in Wilkesboro,
North Carolina. The Wilkesboro Cooked Products plant ceased oper-
ations during the second quarter of fi scal 2008. The closure resulted
in elimination of approximately 400 jobs. In fi scal 2008, we recorded
charges of $13 million for estimated impairment charges. This amount
is refl ected in the Chicken segment’s Operating Income (Loss) and
included in the Consolidated Statements of Operations in Other
Charges. No material adjustments to the accrual are anticipated.