Sara Lee 2009 Annual Report Download - page 59

Note 3 – Impairment Charges
The corporation has recognized impairment charges related to its
operations in 2009, 2008 and 2007 and the significant impairments
are recorded in “Impairment charges” in the Consolidated Statements
of Income. The tax benefit is determined using the statutory tax
rates for the tax jurisdiction in which the impairment occurred. The
impact of these charges is summarized in the following tables:
Pretax
Impairment After Tax
Charge Tax Benefit Charge
2009
North American Foodservice $(107) $««– $(107)
International Bakery (207) 25 (182)
Total impairments 2009 $(314) $25 $(289)
2008
North American Retail $÷(20) $««8 $÷(12)
North American Foodservice (431) 16 (415)
International Bakery (400) – (400)
Total impairments 2008 $(851) $24 $(827)
2007
North American Retail $÷(34) $12 $÷(22)
North American Fresh Bakery (16) 6 (10)
International Beverage (118) 9 (109)
International Household and Body Care (4) – (4)
Total impairments 2007 $(172) $27 $(145)
The corporation tests goodwill and intangible assets not subject
to amortization for impairments in the second quarter of each fiscal
year and whenever a significant event occurs or circumstances change
that would more likely than not reduce the fair value of these intangi-
ble assets. The following is a discussion of each impairment charge.
2009
North American Foodservice Goodwill As a result of the review
performed in the second quarter of 2009, the corporation determined
that the carrying amount of its North American foodservice beverage
reporting unit, which is reported in the North American Foodservice
segment, exceeded its fair value. The foodservice beverage reporting
unit had experienced a significant decline in profitability due to a
highly competitive marketplace and difficult economic conditions.
Based upon our consideration of the results of an appraisal of long-
lived assets and internal estimates of discounted cash flows,
management compared the implied fair value of the goodwill in the
reporting unit with the carrying value and concluded that a $107
impairment charge needed to be recognized. The impairment loss
recognized equaled the entire amount of remaining goodwill in the
North American Foodservice Beverage reporting unit. No tax benefit
was recognized on the charge.
International Bakery Property, Goodwill and Trademarks During
the goodwill review performed in the second quarter of 2009, the
Spanish bakery operation was identified as a reporting unit that
might become impaired in future periods if forecasted earnings
improvements did not occur. The Spanish bakery reporting unit is
part of the International Bakery segment. Weaker than previously
anticipated performance and a decline in forecasted financial
performance in the second half of 2009 compelled management
to re-perform the goodwill impairment test in the fourth quarter.
As a result of the review in the fourth quarter, the corporation con-
cluded that the carrying amount of the Spanish bakery reporting
unit exceeded its fair value. Based upon our consideration of the
results of an appraisal of long-lived assets and internal estimates
of discounted cash flows, management compared the implied fair
value of the goodwill in the reporting unit with the carrying value
and concluded that a $124 goodwill impairment charge needed
to be recognized for which there is no tax benefit. The impairment
loss recognized equaled the entire amount of remaining goodwill in
the Spanish bakery reporting unit. In conjunction with the actions
resulting in the impairment of the Spanish bakery goodwill, the corpo-
ration assessed the realization of the Spanish bakery long-lived
assets. The reduced profitability of the business indicated that the
cash flows of certain long-lived assets, including trademarks and
fixed assets, did not recover the carrying value of these assets. The
corporation considered the results of a third party fair value estimate
of these long-lived assets and recorded an impairment charge of
$83 ($58 after tax) for the difference between fair value and carrying
value. Of this total, $79 related to trademarks and its associated
fair value was estimated using the royalty savings method.
2008
North American Retail Property and Trademarks During the fourth
quarter of 2008, management determined that a North American
retail meats facility would be disposed due to its high cost struc-
ture and reduced demand for the products produced at the facility.
Based on estimates of cash flows to be generated through the date
of disposition, the corporation concluded that it was necessary to
recognize an impairment charge of $20, of which $7 and $13 are
related to property and trademarks, respectively. The after tax
impact of this impairment charge is $12.
North American Foodservice and International Bakery Goodwill In the
second half of 2008, weaker than previously anticipated performance
and a decline in forecasted financial performance compelled manage-
ment to re-perform the goodwill impairment test for two reporting
units in the North American Foodservice and International Bakery
segments. As a part of this review, the corporation concluded that
the carrying amounts of the North American foodservice bakery and
Spanish bakery reporting units exceeded their respective fair values.
Based upon our consideration of the results of a third-party appraisal
of long-lived assets and internal estimates of discounted cash
flows, management compared the implied fair value of the goodwill
in each reporting unit with the carrying value and concluded that a
$782 goodwill impairment charge needed to be recognized in the
fourth quarter of 2008. Of this amount, $382 related to the North
American foodservice bakery reporting unit and $400 related to the
Spanish bakery reporting unit. No tax benefit is recognized
on the goodwill impairments.
Sara Lee Corporation and Subsidiaries 57