Sara Lee 2010 Annual Report Download - page 45

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ance-covariance statistical modeling technique and includes all
interest rate-sensitive debt and swaps, foreign exchange hedges
and their corresponding underlying exposures. Foreign exchange
value at risk includes the net assets invested in foreign locations.
The estimated value at risk amounts shown below represent the
potential loss the corporation could incur from adverse changes
in either interest rates or foreign currency exchange rates for a
one-day period. The average value at risk amount represents the
simple average of the quarterly amounts for the past year. These
amounts are not significant compared with the equity, historical
earnings trend or daily change in market capitalization of
the corporation.
Time Confidence
In millions Amounts Average Interval Level
Value at risk amounts
2010
Interest rates $11 $12 1 day 95%
Foreign exchange 21 23 1 day 95%
2009
Interest rates $26 $29 1 day 95%
Foreign exchange 29 43 1 day 95%
Interest rate value at risk decreased from 2009 due to the
general decrease in short-term rate volatilities as the financial
markets have stabilized over the course of 2010. Interest rate value
at risk has become more weighted to short-term rates as a signifi-
cant portion of the corporation’s long-term debt is due within two
years. Foreign exchange value at risk amounts are down primarily
due to decreased levels of volatilities in exchange rates between
the U.S. dollar and the euro, the Brazilian real and British
pound sterling.
Sensitivity Analysis
For commodity derivative instruments held,
the corporation utilizes a sensitivity analysis technique to evaluate
the effect that changes in the market value of commodities will
have on the corporation’s commodity derivative instruments. This
analysis includes the commodity derivative instruments and, thereby,
does not consider the underlying exposure. At the end of 2010 and
2009, the potential change in fair value of commodity derivative
instruments, assuming a 10% change in the underlying commodity
price, was $2 million and $13 million, respectively. This amount is not
significant compared with the earnings and equity of the corporation.
Non-GAAP Financial Measures Definitions
The following is an explanation of the non-GAAP financial measures
presented in this annual report. “Adjusted net sales” excludes from
net sales the impact of businesses acquired or divested after the
start of the fiscal period and excludes the impact of an additional
week in those fiscal years with 53 weeks versus 52 weeks. It also
adjusts the previous year’s sales for the impact of any changes in
foreign currency exchange rates. “Adjusted operating segment
income” for a specified business segment or discontinued operation
excludes from operating segment income the impact of significant
items recognized by that portion of the business during the fiscal
period and businesses acquired or divested after the start of the
fiscal period. It also adjusts for the impact of an additional week
in those fiscal years that include a 53rd week. It also adjusts the
previous year’s operating segment income for the impact of any
changes in foreign currency exchange rates. “Adjusted operating
income” excludes from operating income the impact of significant
items recognized during the fiscal period, contingent sale proceeds,
if any, and businesses acquired or divested after the start of the
fiscal period. It also adjusts for the impact of an additional week
in those fiscal years that include a 53rd week. It also adjusts the
previous year’s operating segment income for the impact of any
changes in foreign currency exchange rates.
Critical Accounting Estimates
The corporation’s summary of significant accounting policies is
discussed in Note 2 to the Consolidated Financial Statements.
The application of certain of these policies requires significant
judgments or a complex estimation process that can affect the
results of operations and financial position of the corporation, as
well as the related footnote disclosures. The corporation bases its
estimates on historical experience and other assumptions that it
believes are most likely to occur. If actual amounts are ultimately
different from previous estimates, the revisions are included in the
corporation’s results of operations for the period in which the actual
amounts become known, and, if material, are disclosed in the finan-
cial statements. The disclosures below also note situations in
which it is reasonably likely that future financial results could be
impacted by changes in these estimates and assumptions. The
term “reasonably likely” refers to an occurrence that is more than
remote but less than probable in the judgment of management.
Sara Lee Corporation and Subsidiaries 43