Tyson Foods 2015 Annual Report Download - page 44
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Please find page 44 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.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marketriskrelatingtoouroperationsresultsprimarilyfromchangesincommodityprices,interestratesandforeignexchangerates,aswellascreditrisk
concentrations.Toaddresscertainoftheserisks,weenterintovariousderivativetransactionsasdescribedbelow.Ifaderivativeinstrumentisaccountedforasa
hedge,dependingonthenatureofthehedge,changesinthefairvalueoftheinstrumenteitherwillbeoffsetagainstthechangeinfairvalueofthehedgedassets,
liabilitiesorfirmcommitmentsthroughearnings,orberecognizedinothercomprehensiveincome(loss)untilthehedgeditemisrecognizedinearnings.The
ineffectiveportionofaninstrument’schangeinfairvalueisrecognizedimmediately.Additionally,weholdcertainpositions,primarilyingrainandlivestock
futuresthateitherdonotmeetthecriteriaforhedgeaccountingorarenotdesignatedashedges.Withtheexceptionofnormalpurchasesandnormalsalesthatare
expectedtoresultinphysicaldelivery,werecordthesepositionsatfairvalue,andtheunrealizedgainsandlossesarereportedinearningsateachreportingdate.
Changesinmarketvalueofderivativesusedinourriskmanagementactivitiesrelatingtoforwardsalescontractsarerecordedinsales.Changesinmarketvalueof
derivativesusedinourriskmanagementactivitiessurroundinginventoriesonhandoranticipatedpurchasesofinventoriesarerecordedincostofsales.
Thesensitivityanalysespresentedbelowarethemeasuresofpotentiallossesoffairvalueresultingfromhypotheticalchangesinmarketpricesrelatedto
commodities.Sensitivityanalysesdonotconsidertheactionswemaytaketomitigateourexposuretochanges,nordotheyconsidertheeffectssuchhypothetical
adversechangesmayhaveonoveralleconomicactivity.Actualchangesinmarketpricesmaydifferfromhypotheticalchanges.
Commodities Risk: Wepurchasecertaincommodities,suchasgrainsandlivestockinthecourseofnormaloperations.Aspartofourcommodityrisk
managementactivities,weusederivativefinancialinstruments,primarilyfuturesandoptions,toreducetheeffectofchangingpricesandasamechanismto
procuretheunderlyingcommodity.However,asthecommoditiesunderlyingourderivativefinancialinstrumentscanexperiencesignificantpricefluctuations,any
requirementtomark-to-marketthepositionsthathavenotbeendesignatedordonotqualifyashedgescouldresultinvolatilityinourresultsofoperations.
Contracttermsofahedgeinstrumentcloselymirrorthoseofthehedgeditemprovidingahighdegreeofriskreductionandcorrelation.Contractsdesignatedand
highlyeffectiveatmeetingthisriskreductionandcorrelationcriteriaarerecordedusinghedgeaccounting.Thefollowingtablepresentsasensitivityanalysis
resultingfromahypotheticalchangeof10%inmarketpricesasofOctober3,2015,andSeptember27,2014,onthefairvalueofopenpositions.Thefairvalueof
suchpositionsisasummationofthefairvaluescalculatedforeachcommoditybyvaluingeachnetpositionatquotedfuturesprices.Themarketriskexposure
analysisincludedhedgeandnon-hedgederivativefinancialinstruments.
Effectof10%changeinfairvalue inmillions
2015
2014
Livestock:
Cattle $ 13
$ 42
Hogs 12
32
Grain 3
10
Interest Rate Risk: AtOctober3,2015,wehadvariableratedebtof$1,057millionwithaweightedaverageinterestrateof1.5%.Ahypothetical10%increase
ininterestrateseffectiveatOctober3,2015,andSeptember27,2014,wouldhaveaminimaleffectoninterestexpense.
Additionally,changesininterestratesimpactthefairvalueofourfixed-ratedebt.AtOctober3,2015,wehadfixed-ratedebtof$5,668millionwithaweighted
averageinterestrateof4.4%.Marketriskforfixed-ratedebtisestimatedasthepotentialincreaseinfairvalue,resultingfromahypothetical10%decreasein
interestrates.Ahypothetical10%decreaseininterestrateswouldhaveincreasedthefairvalueofourfixed-ratedebtbyapproximately$87millionatOctober3,
2015,and$109millionatSeptember27,2014.Thefairvaluesofourdebtwereestimatedbasedonquotedmarketpricesand/orpublishedinterestrates.
Wehaveinterestrateriskassociatedwithourpensionandpost-retirementbenefitobligations.Changesininterestratesimpacttheliabilitiesassociatedwiththese
benefitplansaswellastheamountofincomeorexpenserecognizedfortheseplans.Declinesinthevalueoftheplanassetscoulddiminishthefundedstatusofthe
pensionplansandpotentiallyincreasetherequirementstomakecashcontributionstotheseplans.SeePartII,Item8,NotestoConsolidatedFinancialStatements,
Note15:PensionsandOtherPostretirementBenefitsforadditionalinformation.
Foreign Currency Risk: Wehaveforeignexchangeexposurefromfluctuationsinforeigncurrencyexchangeratesprimarilyasaresultofcertainreceivableand
payablebalances.TheprimarycurrencieswehaveexposuretoaretheBrazilianreal,theBritishpoundsterling,theCanadiandollar,theChineserenminbi,the
Europeaneuro,theJapaneseyenandtheMexicanpeso.Weperiodicallyenterintoforeignexchangeforwardandoptioncontractstohedgesomeportionofour
foreigncurrencyexposure.Ahypothetical10%changeinforeignexchangerateseffectiveatOctober3,2015,andSeptember27,2014,relatedtotheforeign
exchangeforwardandoptioncontractswouldhavea$3millionand$9millionimpact,respectively,onpretaxincome.
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