| Business Combinations and Disposal Group Operation |
ACQUISITIONS AND DISPOSITIONS Acquisitions On August 28, 2014, we acquired all of the outstanding stock of The Hillshire Brands Company ("Hillshire Brands") as part of our strategic expansion initiative. The purchase price was equal to $63.00 per share for Hillshire Brands' outstanding common stock, or $8,081 million. In addition, we paid $163 million in cash for breakage costs incurred by Hillshire Brands related to a previously announced acquisition. We funded the acquisition with existing cash on hand, net proceeds from the issuance of new senior notes, Class A common stock (Class A stock), and tangible equity units as well as borrowings under a new term loan facility (refer to Note 6: Debt and Note 7: Equity). Hillshire Brands' results from operations subsequent to the acquisition closing are included in the Prepared Foods segment. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date. Certain estimated values for the acquisition, including goodwill, intangible assets, plant property and equipment, and deferred taxes, are not yet finalized and the preliminary purchase price allocations are subject to change as we complete our analysis of the fair value at the date of acquisition. The purchase price was allocated based on information available at acquisition date. During the quarter ended December 27, 2014, we recorded measurement period adjustments, which reduced goodwill by $5 million, after obtaining additional information regarding, among other things, asset valuations and liabilities assumed. The amount was not considered material and therefore prior periods have not been revised. | | | | | | | in millions | | Cash and cash equivalents | | $ | 72 |
| Accounts receivable | | 236 |
| Inventories | | 418 |
| Other current assets | | 343 |
| Property, Plant and Equipment | | 1,303 |
| Goodwill | | 4,799 |
| Intangible Assets | | 5,141 |
| Other Assets | | 66 |
| Accounts payable | | (347 | ) | Other current liabilities | | (328 | ) | Long-Term Debt | | (869 | ) | Deferred Income Taxes | | (2,072 | ) | Other Liabilities | | (518 | ) | Net assets acquired | | $ | 8,244 |
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The fair value of identifiable intangible assets is as follows (in millions): | | | | | | | | | | Intangible Asset Category | | Type | | Life in Years | | Fair Value | Brands & trademarks | | Non-amortizable | | Indefinite | | $ | 4,062 |
| Brands & trademarks | | Amortizable | | 20 years | | 532 |
| Customer relationships | | Amortizable | | Weighted average life of 16 years | | 541 |
| Non-compete agreements | | Amortizable | | 1 year | | 6 |
| Total identifiable intangible assets | | | | | | $ | 5,141 |
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As a result of the acquisition, we recognized a total of $4,799 million of goodwill. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above. Goodwill represents the value we expect to achieve through the implementation of operational synergies and growth opportunities primarily in our Prepared Foods segment. The allocation of goodwill to our reporting units is pending finalization of the expected synergies and the impact of the synergies to our reporting units. We do not expect the final fair value of goodwill to be deductible for U.S. income tax purposes. We used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty and excess earnings valuation approaches, each of which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data. The acquisition of Hillshire Brands was accounted for using the acquisition method of accounting, and consequently, the results of operations for Hillshire Brands are reported in our consolidated condensed financial statements from the date of acquisition. The following pro forma information presents the combined results of operations as if the acquisition of Hillshire Brands had occurred at the beginning of fiscal 2013. Hillshire Brands' pre-acquisition results have been added to our historical results. The pro forma results contained in the following table include adjustments for amortization of acquired intangibles, depreciation expense, interest expense related to the financing and related income taxes. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results. The pro forma results for the three months ended December 28, 2013 include a nonrecurring tax benefit of $46 million recognized by Hillshire Brands primarily related to the release of valuation allowances on state deferred tax assets. | | | | | | in millions | | | | | Pro forma sales | | $ | 9,817 |
| Pro forma net income from continuing operations attributable to Tyson | | $ | 338 |
| Pro forma net income per diluted share from continuing operations attributable to Tyson | | $ | 0.81 |
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Additionally, during the second quarter of fiscal 2014 we acquired a value-added food business as part of our strategic expansion initiative, which is included in our Prepared Foods segment. The aggregate purchase price of the acquisition was $56 million, which included $12 million for Property, Plant and Equipment, $27 million allocated to Intangible Assets and $18 million allocated to Goodwill. Dispositions In fiscal 2014, we announced our plan to sell our Brazil and Mexico operations, which are included in our International segment, to JBS SA ("JBS") for a combined $575 million in cash, subject to certain adjustments. As a result, we conducted an impairment test and recorded a $39 million impairment charge in the fourth quarter of fiscal 2014 related to our Brazil operation. We completed the sale of the Brazil operation in the first quarter of fiscal 2015 for proceeds of $130 million with additional proceeds expected in the second quarter of fiscal 2015 related to the working capital and net debt adjustments. The sale did not result in a significant gain or loss as the carrying value of the Brazil operation approximated the sales proceeds at the time of sale. The assets and liabilities associated with Brazil were classified as held for sale on the balance sheet at September 27, 2014. We expect to realize a gain on the sale of our Mexico operation, which is pending the necessary government approvals, and expect it to close in the second quarter of fiscal 2015. The assets and liabilities related to Mexico are classified as held for sale on the balance sheet at December 27, 2014 and September 27, 2014. The following table summarizes the net assets and liabilities held for sale (in millions): | | | | | | | | | | | | | Assets held for sale: | | | | Accounts receivable, net | $ | 23 |
| | $ | 74 |
| Inventories | 77 |
| | 141 |
| Other current assets | 17 |
| | 72 |
| Net property, plant and equipment | 76 |
| | 132 |
| Goodwill | 14 |
| | 16 |
| Other assets | 6 |
| | 11 |
| Total assets held for sale | $ | 213 |
| | $ | 446 |
| Liabilities held for sale: | | | | Current debt | $ | — |
| | $ | 32 |
| Accounts payable | 33 |
| | 61 |
| Other current liabilities | 12 |
| | 27 |
| Long-term debt | — |
| | 9 |
| Deferred income taxes | 8 |
| | 12 |
| Other Liabilities | 1 |
| | — |
| Total liabilities held for sale | $ | 54 |
| | $ | 141 |
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In fiscal 2014, we sold our 50 percent ownership interest of Dynamic Fuels LLC (Dynamic Fuels) for $30 million cash consideration at closing and up to $35 million in future cash payments contingent on Dynamic Fuels' production volumes over a period of up to 11.5 years. Additionally as part of the terms of the sale, we were released from our guarantee of the $100 million Gulf Opportunity Zone tax-exempt bonds, which were issued in October 2008 to fund a portion of the plant construction costs. Dynamic Fuels previously qualified as a variable interest entity which we consolidated, as we were the primary beneficiary. As a result of the sale, we deconsolidated Dynamic Fuels and recorded a gain of approximately $3 million in the third quarter of fiscal 2014. We will recognize the future contingent payments in income as the required volumes are produced. In fiscal 2014, we recorded impairment charges of $52 million related to the planned closure of three Prepared Foods plants. The Company’s Cherokee, Iowa plant closed in September 2014, the Buffalo, New York plant closed in January 2015, and the Santa Teresa, New Mexico plant is expected to close during the first half of calendar 2015. Additionally, in April 2014, Hillshire Brands announced that it would discontinue all production at its Florence, Alabama plant. The plant closed in December 2014 and the closure costs did not have a significant impact on the Company's financial results. |
