Tyson Foods 2012 Annual Report Download - page 34

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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
planning opportunities available to us in
various jurisdictions in which we earn
income.
Federal income tax includes an estimate
for taxes on earnings of foreign
subsidiaries expected to be remitted to the
United States and be taxable, but not for
earnings considered indefinitely invested
in the foreign subsidiary.
Deferred income taxes are recognized for
the future tax effects of temporary
differences between financial 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 benefit will not be realized
for a deferred tax asset.
We record unrecognized tax benefit
liabilities for known or anticipated tax
issues based on our analysis of whether,
and the extent to which, additional taxes
will be due.
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 benefits
contains uncertainties based on judgment
used to apply the more likely than not
recognition and measurement thresholds.
We do not believe there is a reasonable
likelihood 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 unrecognized tax benefit liabilities
have been established, or are required to
pay amounts in excess of our recorded
unrecognized tax benefit liabilities, our
effective tax rate in a given financial
statement period could be materially
affected. An unfavorable tax settlement
would require use of our cash and
generally result in an increase in our
effective tax rate in the period of
resolution. A favorable tax settlement
would generally be recognized as a
reduction in our effective tax rate in the
period of resolution.
Impairment of goodwill and other intangible assets
Description: Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative
goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than
not less than carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that could
materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, we can elect to forgo the
qualitative assessment and perform the quantitative test.
The quantitative goodwill impairment test is performed using a two-step process. The first step is to identify if a potential impairment
exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the
quantitative impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second
step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any.
The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of
goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds
the implied fair value, an impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination
(i.e., the fair value of the reporting unit is allocated to all the assets and liabilities, including any unrecognized intangible assets, as if
the reporting unit had been acquired in a business combination and the fair value of the reporting unit was determined as the exit price
a market participant would pay for the same business).
For other indefinite life intangible assets, a qualitative assessment can also be performed to determine whether the existence of events
and circumstances indicates it is more likely than not an intangible asset is impaired. Similar to goodwill, we can also elect to forgo
the qualitative test for indefinite life intangible assets and perform the quantitative test. Upon performing the quantitative test, if the
carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We
elected to forgo the qualitative assessments on our indefinite life intangible assets for the fiscal 2012 impairment test.
We have elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill and other indefinite
life intangible assets. However, we could be required to evaluate the recoverability of goodwill and other indefinite life intangible
assets prior to the required annual assessment if, among other things, we experience disruptions to the business, unexpected significant
declines in operating results, divestiture of a significant component of the business or a sustained decline in market capitalization.