Tyson Foods 2015 Annual Report Download - page 43
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Please find page 43 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.OurPreparedFoodsreportingunit,whichisourPreparedFoodsoperatingsegment,hadgoodwillatOctober3,2015,totaling$4,005million.Wegenerally
assumedoperatingmarginsinfutureyearswouldbeinourexpectedrangeof10%to12%,aswebelievethisisconsistentwithmarketparticipantviewsinanexit
transaction.Hadweassumedfutureoperatingmarginsconsistentwiththoserealizedinthecurrentfiscalyear,wewouldhavefailedthefirststepoftheannual
impairmenttest,whichwouldhaverequiredthesecondsteptobeperformedandmayhaveresultedinamaterialgoodwillimpairmentloss.Thecurrentyear
PreparedFoodsreportingunitresultswerenotindicativeoffuturemarketparticipantexpectationsinanexittransactionaswearestillintegratingHillshireBrands
intothereportingunitincludingcapturingthefullbenefitoftheexpectedsynergies.AsweproceedwiththeintegrationofHillshireBrands,werealizedsynergies
of$322millioninfiscal2015andexpecttorealizemorethan$500millioninfiscal2016and$700millioninfiscal2017,ofwhichthemajorityofthesebenefits
willberealizedinthePreparedFoodssegment.Topassthefirststepoftheannualimpairmenttestinfiscal2015,thePreparedFoodsreportingunit’sprojected
operatingmarginshadtoaverage7.7%(breakeven).Weexceededthebreakevenoperatingmarginlevelforthesecondhalfoffiscal2015andexpecttoexceedit
infiscal2016.
Thefairvalueofourindefinitelifeintangibleassetsiscalculatedprincipallyusingrelief-from-royaltyandmulti-periodexcessearningsvaluationapproaches,
whichusessignificantunobservableinputs,orLevel3inputs,asdefinedbythefairvaluehierarchy,andisbelievedtoreflectmarketparticipantviewswhich
wouldexistinanexittransaction.Underthesevaluationapproaches,wearerequiredtomakeestimatesandassumptionsaboutsales,operatingmargins,growth
rates,royaltyratesanddiscountratesbasedonbudgets,businessplans,economicprojections,anticipatedfuturecashflowsandmarketplacedata.
Ourimpairmentanalysiscontainsuncertaintiesduetouncontrollableeventsthatcouldpositivelyornegativelyimpacttheanticipatedfutureeconomicand
operatingconditions.
Effect if Actual Results Differ From Assumptions: Wehavenotmadeanymaterialchangesintheaccountingmethodologyusedtoevaluateimpairmentof
goodwillandintangibleassetsduringthelastthreeyears.
Duringfiscal2015,2014and2013,allofourmaterialreportingunitsthatunderwentaquantitativetestpassedthefirststepofthegoodwillimpairmentanalysis
andtherefore,thesecondstepwasnotnecessary.Infiscal2015,werecordeda$23millionfullimpairmentofanimmaterialreportingunit’sgoodwill.
Someoftheinherentestimatesandassumptionsusedindeterminingfairvalueofthereportingunitsandindefinitelifeintangibleassetsareoutsidethecontrolof
management,includinginterestrates,costofcapital,taxratesandcreditratings.Whilewebelievewehavemadereasonableestimatesandassumptionsto
calculatethefairvalueofthereportingunitsandindefinitelifeintangibles,itispossibleamaterialchangecouldoccur.Ifouractualresultsarenotconsistentwith
ourestimatesandassumptionsusedtocalculatefairvalue,wemayberequiredtoperformthesecondstep,whichcouldresultinadditionalmaterialimpairmentsof
ourgoodwill.
Allofourmaterialreportingunits'estimatedfairvalueexceededtheircarryingvaluebymorethan20%atthedateoftheirmostrecentestimatedfairvalue
determination.Consequently,wedonotcurrentlyconsideranyofourmaterialreportingunitsatsignificantriskoffailingthefirststepoftheannualgoodwill
impairmenttest.
Thediscountrateusedinourannualgoodwillimpairmenttestdecreasedto6.8%infiscal2015from7.9%infiscal2014.Discountratescontinuetobelow
comparedtohistoricallevels.A35%increaseinthediscountratewouldhavecausedourPreparedFoodsreportingunit,with$4,005millionofgoodwillat
October3,2015,tofailthefirststepofthegoodwillimpairmentstepandmayhaveresultedinamaterialimpairmentuponcompletionofthesecondstep.
WedidnothavematerialindefinitelifeintangibleassetspriortotheacquisitionofHillshireBrandsinAugust2014.Ourfiscal2015indefinitelifeintangibleassets
impairmentanalysisdidnotresultinanimpairmentcharge.A3.5%decreaseinthefairvalueofanindefinitelifeintangiblewithacarryingvalueof$301million,
anda16.5%decreaseinthefairvalueofanindefinitelifeintangiblewithacarryingvalueof$2,175million,wouldhavecausedtheircarryingvaluetoexceedfair
value.Allotherindefinitelifeintangibleassets’estimatedfairvalueexceededtheircarryingvaluebymorethan20%.
Thediscountrateusedinourannualindefinitelifeintangibleassetsimpairmenttestwas8.0%infiscal2015.A20%increaseinthediscountratewouldhave
causedthecarryingvalueofthreeintangibleassets,whichhaveacombinedcarryingvalueof$3,008million,toexceedfairvalue.
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