Tyson Foods 2008 Annual Report Download - page 56

54 Tyson Foods, Inc.
Notes to Consolidated Financial Statements (continued)
An increase in the state valuation allowance increased the fi scal 2008
tax expense by $8 million, while non-deductible activity relating to
company-owned life insurance increased the fi scal 2008 tax expense
by $6 million. The addition of FIN 48 unrecognized tax benefi ts in
fi scal 2008 caused a net increase to income tax expense of approxi-
mately $7 million. Additionally, estimated general business credits
decreased fi scal 2008 tax expense by $6 million.
During fi scal 2007, we discovered a certain population of our tax cost
and accumulated depreciation values were not accurately recorded,
primarily related to a property, plant and equipment system conver-
sion in 1999. This system conversion did not impact the recorded
book value of the property, plant and equipment. As a result, the net
tax basis of property, plant and equipment was overstated, which
caused the deferred tax liability in our fi nancial statements to be
understated. In fi scal 2007, we increased our deferred tax liabilities
$17 million and recognized additional tax expense of $17 million.
The fi scal 2007 effective tax rate was reduced by 4.6% due to the
reduction of income tax reserves management deemed were no
longer required. The net reduction to current income tax expense
of approximately $20 million related to Internal Revenue Service
examinations, appeals and United States Tax Court settlement activ-
ity, as well as state income tax examination settlements. Additional
related adjustments resulted in a $28 million reduction of goodwill.
During fi scal 2006, we completed a review of our tax account bal-
ances, and as a result, reduced our income tax benefi t by $15 million.
This included $12 million related to additional tax reserves for our
foreign operations and $3 million related to a cumulative adjustment
to our recorded tax balances attributable to book to tax differences
associated with property, plant and equipment (including synthetic
leases) and certain acquired deferred tax liabilities. Additional adjust-
ments resulted in an increase to goodwill of $12 million, deferred tax
liabilities of $3 million and a reduction of property, plant and equip-
ment of $9 million.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the fi nancial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The tax effects of major items recorded as deferred tax assets and
liabilities are:
2008 2007
Deferred Tax Deferred Tax
in millions Assets Liabilities Assets Liabilities
Property, plant and equipment $ – $365 $ – $399
Suspended taxes from
conversion to
accrual method – 96 – 104
Intangible assets – 30 7 32
Inventory 13 89 13 74
Accrued expenses 167 – 165 –
Net operating loss and
other carryforwards 124 – 133 –
Note hedge transactions 36 – – –
Insurance reserves 22 – 22 –
Prepaids – 23 – 40
Other 58 48 53 71
$420 $651 $393 $720
Valuation allowance $ (49) $ (55)
Net deferred tax liability $280 $382
Net deferred tax liabilities are included in Other Current Assets,
Other Current Liabilities and Deferred Income Taxes on the Consoli-
dated Balance Sheets.
The deferred tax liability for suspended taxes from conversion to
accrual method represents the 1987 change from the cash to accrual
method of accounting and will be recognized by 2027.
We have accumulated undistributed earnings of foreign subsidi-
aries aggregating approximately $219 million and $215 million at
September 27, 2008 and September 29, 2007, respectively. These
earnings are expected to be indefi nitely reinvested outside of the
United States. If those earnings were distributed in the form of
dividends or otherwise, we would be subject to federal income taxes
(subject to an adjustment for foreign tax credits), state income
taxes and withholding taxes payable to the various foreign countries.
It is not currently practicable to estimate the tax liability that might
be payable on the repatriation of these foreign earnings.