Tyson Foods 2015 Annual Report Download - page 42
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Please find page 42 of the 2015 Tyson Foods annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Impairment of goodwill and indefinite life intangible assets
Description: Goodwillisevaluatedforimpairmentbyfirstperformingaqualitativeassessmenttodeterminewhetheraquantitativegoodwilltestisnecessary.Ifit
isdetermined,basedonqualitativefactors,thefairvalueofthereportingunitmaybemorelikelythannotlessthancarryingamountorifsignificantchangesto
macro-economicfactorsrelatedtothereportingunithaveoccurredthatcouldmateriallyimpactfairvalue,aquantitativegoodwillimpairmenttestwouldbe
required.Wecanelecttoforgothequalitativeassessmentandperformthequantitativetest.
Thequantitativegoodwillimpairmenttestisperformedusingatwo-stepprocess.Thefirststepistoidentifyifapotentialimpairmentexistsbycomparingthefair
valueofareportingunitwithitscarryingamount,includinggoodwill.Ifthefairvalueofareportingunitexceedsitscarryingamount,goodwillofthereporting
unitisnotconsideredtohaveapotentialimpairmentandthesecondstepofthequantitativeimpairmenttestisnotnecessary.However,ifthecarryingamountofa
reportingunitexceedsitsfairvalue,thesecondstepisperformedtodetermineifgoodwillisimpairedandtomeasuretheamountofimpairmentlosstorecognize,
ifany.
Thesecondstepcomparestheimpliedfairvalueofgoodwillwiththecarryingamountofgoodwill.Iftheimpliedfairvalueofgoodwillexceedsthecarrying
amount,thengoodwillisnotconsideredimpaired.However,ifthecarryingamountofgoodwillexceedstheimpliedfairvalue,animpairmentlossisrecognizedin
anamountequaltothatexcess.
Theimpliedfairvalueofgoodwillisdeterminedinthesamemannerastheamountofgoodwillrecognizedinabusinesscombination(i.e.,thefairvalueofthe
reportingunitisallocatedtoalltheassetsandliabilities,includinganyunrecognizedintangibleassets,asifthereportingunithadbeenacquiredinabusiness
combinationandthefairvalueofthereportingunitwasdeterminedastheexitpriceamarketparticipantwouldpayforthesamebusiness).
Forindefinitelifeintangibleassets,aqualitativeassessmentcanalsobeperformedtodeterminewhethertheexistenceofeventsandcircumstancesindicatesitis
morelikelythannotanintangibleassetisimpaired.Similartogoodwill,wecanalsoelecttoforgothequalitativetestforindefinitelifeintangibleassetsand
performthequantitativetest.Uponperformingthequantitativetest,ifthecarryingvalueoftheintangibleassetexceedsitsfairvalue,animpairmentlossis
recognizedinanamountequaltothatexcess.Weelectedtoforgothequalitativeassessmentsonourindefinitelifeintangibleassetsforthefiscal2015impairment
test.
Wehaveelectedtomakethefirstdayofthefourthquartertheannualimpairmentassessmentdateforgoodwillandindefinitelifeintangibleassets.However,we
couldberequiredtoevaluatetherecoverabilityofgoodwillandindefinitelifeintangibleassetspriortotherequiredannualassessmentif,amongotherthings,we
experiencedisruptionstothebusiness,unexpectedsignificantdeclinesinoperatingresults,divestitureofasignificantcomponentofthebusinessorasustained
declineinmarketcapitalization.
Judgments and Uncertainties: Weestimatethefairvalueofourreportingunits,usingvariousvaluationtechniques,withtheprimarytechniquebeinga
discountedcashflowanalysis,whichusessignificantunobservableinputs,orLevel3inputs,asdefinedbythefairvaluehierarchy.Adiscountedcashflow
analysisrequiresustomakevariousjudgmentalassumptionsaboutsales,operatingmargins,growthratesanddiscountrates.
Weincludeassumptionsaboutsales,operatingmarginsandgrowthrateswhichconsiderourbudgets,businessplansandeconomicprojections,andarebelievedto
reflectmarketparticipantviewswhichwouldexistinanexittransaction.Assumptionsarealsomadeforvaryingperpetualgrowthratesforperiodsbeyondthe
long-termbusinessplanperiod.Generally,weutilizenormalizedoperatingmarginassumptionsbasedonfutureexpectationsandoperatingmarginshistorically
realizedinthereportingunits'industries.Forthefiscal2015impairmenttestofmaterialreportingunits,ourBeefandPreparedFoodsreportingunitsutilized
operatingmarginsinfutureyearsinexcessoftheoperatingmarginrealizedinthemostrecentyear.
OurBeefreportingunit,whichisourBeefoperatingsegment,hadgoodwillatOctober3,2015,totaling$676million.Wegenerallyassumedoperatingmarginsin
futureyearswouldbeinournormalizedrangeof1.5%to3%,aswebelievethisisconsistentwithmarketparticipantviewsinanexittransaction.Hadweassumed
futureoperatingmarginsconsistentwiththoserealizedinthecurrentfiscalyear,wewouldhavefailedthefirststepoftheannualimpairmenttest,whichwould
haverequiredthesecondsteptobeperformedandmayhaveresultedinamaterialgoodwillimpairmentloss.ThecurrentyearBeefreportingunitresultswerenot
indicativeoffuturemarketparticipantexpectationsinanexittransaction,primarilyduetounusualitemsinfiscal2015includingunfavorablemarketconditions
associatedwithatemporarydeclineinsupplywhichdroveuplivecattleprices,exportmarketdisruptions,andlossesfrommark-to-marketopenderivative
positionsandlower-of-cost-or-marketinventoryadjustmentsduetoalargeandrapiddeclineinlivecattlefuturesinSeptemberoffiscal2015.Topassthefirststep
oftheannualimpairmenttestinfiscal2015,theBeefreportingunit’sprojectedoperatingmarginshadtoaverage1.2%(breakeven).Although,theBeefreporting
unit’sactualperformanceinfiscal2015wasbelowthisamount,ithasperformedabovethe1.2%breakevenoperatingmarginlevelineachoftheprevioussix
yearsandisexpectedtoperformatorabovethislevelinfiscal2016.ValuingtheBeefreportingunitutilizingprojectedoperatingmarginsaveraginglessthan
1.2%(breakeven),ora62%increaseinthediscountrateusedinfiscal2015,wouldhavecausedthecarryingvalueoftheBeefreportingunittobeinexcessoffair
value,whichwouldhaverequiredthesecondsteptobeperformed.
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