Sara Lee 2010 Annual Report Download - page 65

Note 4 – Impairment Charges
The corporation recognized impairment charges in 2010, 2009 and
2008 and the significant impairments are recorded in “Impairment
charges” in the Consolidated Statements of Income. The tax bene-
fit 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
In millions Charge Tax Benefit Charge
2010
North American Foodservice $÷(15) $÷5 $÷(10)
International Bakery (13) 4 (9)
Total impairments – 2010 $÷(28) $÷9 $÷(19)
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)
The corporation currently tests goodwill and intangible assets
not subject to amortization for impairments in the fourth quarter
of its fiscal year and whenever a significant event occurs or circum-
stances change that would more likely than not reduce the fair value
of these intangible assets. Prior to 2010, the impairment tests were
performed in the second quarter. Other long-lived assets are tested
for recoverability whenever events or changes in circumstances indicate
that its carrying value may not be recoverable. The following is a
discussion of each impairment charge:
2010
North American Foodservice Property The corporation recognized a
$15 million impairment charge related to the writedown of manufac-
turing equipment associated with the foodservice bakery operations
of the North American Foodservice segment due to the loss of a
customer contract.
International Bakery Property The corporation recognized a
$13 million impairment charge related to the writedown of bakery
equipment associated with the Spanish bakery operations of the
International Bakery segment.
2009
North American Foodservice Goodwill In 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. Based upon a com-
parison of the implied fair value of the goodwill in the reporting unit
with the carrying value, management concluded that a $107 million
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 In 2009,
the corporation concluded that the carrying amount of the Spanish
bakery reporting unit, which is part of the International Bakery
segment, exceeded its fair value. Based upon a comparison of
the implied fair value of the goodwill in the reporting unit with the
carrying value, management concluded that a $124 million 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.
The corporation also assessed the realization of the Spanish bakery
long-lived 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 million ($58 million after tax) for
the difference between fair value and carrying value. Of this total,
$79 million related to trademarks, the associated fair value of
which was estimated using the royalty savings method.
2008
North American Retail Property and Trademarks In 2008, management
determined that a North American retail meats facility would be
disposed due to its high cost structure 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 a pretax impairment
charge of $20 million, of which $7 million related to property and
$13 million related to trademarks.
North American Foodservice and International Bakery Goodwill
In 2008, the corporation concluded that the carrying amounts
of the North American foodservice bakery and Spanish bakery
reporting units exceeded their respective fair values. Management
compared the implied fair value of the goodwill in each reporting
unit with the carrying value and concluded that a $782 million
goodwill impairment charge needed to be recognized in the fourth
quarter of 2008. Of this amount, $382 million related to the North
American foodservice bakery reporting unit and $400 million related
to the Spanish bakery reporting unit. No tax benefit is recognized
on the goodwill impairments.
Sara Lee Corporation and Subsidiaries 63