Sara Lee 2010 Annual Report Download - page 58

Notes to financial statements
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations Sara Lee Corporation (the corporation or
Sara Lee) is a U.S.-based multinational corporation. The corpora-
tion’s principal product lines are branded packaged meat products,
fresh and frozen bakery products, and roast and ground coffee. The
relative importance of each operation over the past three years, as
measured by sales and operating segment income, is presented in
Note 19, “Business Segment Information,” of these financial state-
ments. Food and beverage sales are made in both the retail channel,
to supermarkets, warehouse clubs and national chains, and the
foodservice channel.
Basis of Presentation The Consolidated Financial Statements
include the accounts of the corporation and all subsidiaries where
we have a controlling financial interest. The consolidated financial
statements include the accounts of variable interest entities (VIEs)
for which the corporation is deemed the primary beneficiary. The
results of companies acquired or disposed of during the year are
included in the consolidated financial statements from the effective
date of acquisition, or up to the date of disposal. All significant
intercompany balances and transactions have been eliminated
in consolidation.
The corporation’s fiscal year ends on the Saturday closest to
June 30. Fiscal 2010 was a 53-week year. Fiscal years 2009 and
2008 were 52-week years. Unless otherwise stated, references to
years relate to fiscal years.
In 2010, the corporation retrospectively adopted new accounting
guidance related to noncontrolling interests in its consolidated
financial statements. This guidance requires noncontrolling interests,
formerly referred to as minority interest, to be shown as a separate
component of equity and the changes in ownership interest must
be accounted for as equity transactions. It also requires that the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented
on the face of the Consolidated Statements of Income. As a result,
the Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Equity and Consolidated
Statements of Cash Flows present the impact of noncontrolling
interests on equity, net income, comprehensive income and cash
flow. Net income now includes earnings attrib utable to both
Sara Lee and noncontrolling interests.
In the fourth quarter of 2010, the corporation began to reflect
its franchise agreements with independent third party contractors
that distribute North American fresh bakery products as VIE’s with
a noncontrolling interest. The corporation previously had consolidated
the results of these independent operators, but did not reflect the
noncontrolling interest for these entities as these amounts were not
material to the consolidated quarterly and annual financial state-
ments. The consolidated financial statements have been revised,
for all periods presented, to reflect these independent third party
contractors as noncontrolling interests. Additional information on
this can be found under Note 2, Variable Interest Entities.
Discontinued Operations Beginning in 2010, the results of the
Household and Body Care operations are being reported as discon-
tinued operations. The results of the corporation’s Mexican Meats,
business had previously been reported as discontinued operations
in the corporation’s 2009 annual report. The results of operations
of these businesses through the date of sale are presented as
discontinued operations in the Consolidated Statements of Income.
Prior to disposition, the assets and liabilities of discontinued
operations are aggregated and reported on separate lines of the
Consolidated Balance Sheets.
Financial Statement Corrections During the fourth quarter of 2010,
the corporation corrected two errors which reduced net income by
$10 million in 2010. One adjustment related to a true-up of vaca-
tion accruals for certain North American hourly employees, which
reduced net income by $7 million. A second adjustment related to
a change in the accounting related to third party contractors who
distribute North American fresh bakery products, which reduced net
income by $3 million. The impact of correcting these errors in the
quarters of 2010 and full year 2008 and 2009 would have been
insignificant while the impact on years prior to 2008 would have
reduced net income by $7 million. We evaluated these errors in
relation to the current period, which is when they were corrected,
as well as the periods in which they originated. Management
believes these errors are immaterial to both the consolidated
quarterly and annual financial statements.
Note 2 – Summary of Significant Accounting Policies
The Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles in
the U.S. (GAAP).
The preparation of the Consolidated Financial Statements in
conformity with GAAP requires management to make use of estimates
and assumptions that affect the reported amount of assets and
liabilities, revenues and expenses and certain financial statement
disclosures. Significant estimates in these Consolidated Financial
Statements include allowances for doubtful accounts receivable, net
realizable value of inventories, the cost of sales incentives, useful
lives of property and identifiable intangible assets, the evaluation
of the recoverability of property, identifiable intangible assets and
goodwill, self-insurance reserves, income tax and valuation reserves,
the valuation of assets and liabilities acquired in business combina-
tions, assumptions used in the determination of the funded status
and annual expense of pension and postretirement employee benefit
plans, and the volatility, expected lives and forfeiture rates for stock
compensation instruments granted to employees. Actual results
could differ from these estimates.
56 Sara Lee Corporation and Subsidiaries