Tyson Foods 2011 Annual Report Download - page 33

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33
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial 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
financial 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, environmental,
product, taxing authorities and other
matters, and are required to assess the
likelihood of any adverse judgments or
outcomes 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 reasonably
estimated. We disclose contingent
liabilities when the risk of loss is
reasonably possible or probable.
Our contingent liabilities contain
uncertainties 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 establish our contingent
liabilities during the past three fiscal
years.
We do not believe there is a reasonable
likelihood 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 advertising 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 establish our marketing
accruals during the past three fiscal
years.
We do not believe there is a reasonable
likelihood 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 October 1, 2011, would
impact pretax earnings by
approximately $15 million.