Sara Lee 2010 Annual Report Download - page 32

Financial review
30 Sara Lee Corporation and Subsidiaries
The corporation uses derivative financial instruments to manage
its exposure to commodity prices. A commodity derivative not declared
a hedge in accordance with the accounting rules is accounted for
under mark-to-market accounting with changes in fair value recorded
in the Consolidated Statements of Income. The corporation includes
these unrealized mark-to-market gains and losses in general corpo-
rate expenses until such time that the exposure being hedged affects
the earnings of the business segment. At that time, the cumulative
gain or loss previously recorded in general corporate expenses for
the derivative instrument will be reclassified into the business
segment’s results.
The change in unit volumes for each business segment excludes
the impact of acquisitions and dispositions, and the impact of the
53rd week.
The amortization of intangibles in the table relates to trademarks
and customer relationships. It does not include software amortization,
a portion of which is recognized in the earnings of the segments
and a portion is recognized as part of general corporate expenses.
Total general corporate expenses, which are not allocated to
the individual business segments, were $266 million in 2010, an
increase of $31 million over the prior year. The unrealized mark-
to-market losses incurred on commodity derivative contracts were
virtually unchanged year-over-year. Other general corporate expenses
increased $32 million versus the prior year due primarily to a
$26 million tax indemnification charge as well as an $10 million
increase in restructuring related charges, in the current year, and
the negative impact of $22 million of gains in the prior year, which
were partially offset by lower fringe benefit costs and the impact
of headcount reductions.
Total general corporate expenses were $235 million in 2009,
an increase of $13 million over the prior year. This increase was
driven by the $40 million year-over-year change in unrealized mark-
to-market gains/(losses) incurred on commodity derivative contracts
primarily related to energy. Other general corporate expenses
decreased $27 million versus the prior year due to lower pension
costs and favorable foreign currency transactions partially offset
by increased professional fees for consulting and special project
work. General corporate expenses were also favorably impacted
by approximately $22 million related to certain items – primarily
a non-income related foreign tax refund and a reduction in
contingent lease accruals.
The adjustment for noncontrolling interest represents an offset
to the noncontrolling interest expense that is included in the operat-
ing segment income of the North American Fresh Bakery business
segment. As a result of the adjustment, the amount reported for
operating income includes amounts attributable to both Sara Lee
and noncontrolling interests. See Note 1 to the Financial Statements,
“Nature of Operations and Basis of Presentation,” for additional
information regarding noncontrolling interest.
The impact of the costs related to exit activities and asset and
business dispositions, transformation and Project Accelerate costs,
impairment charges and other significant items on the corporation’s
business segments and general corporate expenses are summa-
rized as follows:
Summary of Significant Items by Business Segment
In millions 2010 2009 2008
North American Retail $÷«(3) $÷÷– $÷34
North American Fresh Bakery 22 37 3
North American Foodservice 26 106 436
International Beverage 12 27 14
International Bakery 60 245 409
Impact on the business segments 117 415 896
General corporate expenses 56 17 24
Impact on income from continuing
operations before income taxes $173 $432 $920
The most significant charges in the above table relate to
impairment charges. In 2009, impairment charges of $107 million
and $207 million were recognized in North American Foodservice
and International Bakery, respectively. In 2008, impairment charges
of $431 million and $400 million were recognized in North American
Foodservice and International Bakery, respectively. Additional infor-
mation regarding the amount and nature of the above charges is
provided in the individual business segment discussions that follow.