Sara Lee 2011 Annual Report Download - page 91

Variable Interest Entities The corporation consolidates variable interest entities (“VIEs”) of which it is the primary beneficiary. Legal entities with which the corporation becomes involved are assessed to determine whether such entities are VIEs and, if so, whether or not the corporation is the primary beneficiary. In general, the corpora- tion determines whether it is the primary beneficiary of a VIE through a qualitative analysis of risk, which identifies which variable interest holder absorbs the majority of the financial risk or rewards and vari- ability of the VIE. In performing this analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, terms of VIE contracts, identification of other variable interest holders, our explicit arrangements and our implicit variable interests. Note 3 – Intangible Assets and Goodwill The primary components of the corporation’s intangible assets reported in continuing operations and the related amortization expense are as follows:
Accumulated Net Book
In millions Gross Amortization Value 2011 Intangible assets subject to amortization Trademarks $231 $104 $127 Customer relationships 142 106 36 Computer software 411 313 98 Other contractual agreements 1055 $794 $528 $266 Trademarks and brand names
not subject to amortization 56
Net book value of intangible assets $322 2010 Intangible assets subject to amortization Trademarks $160 $÷81 $÷79 Customer relationships 100 87 13 Computer software 352 258 94 Other contractual agreements 541 $617 $430 187 Trademarks and brand names
not subject to amortization 54
Net book value of intangible assets $241
Financial Instruments The corporation uses financial instruments, including forward exchange, options, futures and swap contracts, to manage its exposures to movements in interest rates, foreign exchange rates and commodity prices. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk or cost to the corporation. The corporation does not use derivatives for trading purposes and is not a party to lever- aged derivatives.
The corporation uses either hedge accounting or mark-to-market
accounting for its derivative instruments. Under hedge accounting, the corporation formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions. The corporation also for- mally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the corporation discontinues hedge accounting and any deferred gains or losses are recorded in the “Selling, general and administrative expenses” line in the Consolidated Statements of Income. Derivatives are recorded in the Consolidated Balance Sheets at fair value in other assets and other liabilities. For more information about accounting for derivatives see Note 15, “Financial Instruments.” Self-Insurance Reserves The corporation purchases third-party insurance for workers’ compensation, automobile and product and general liability claims that exceed a certain level. The corporation is responsible for the payment of claims under these insured limits. The undiscounted obligation associated with these claims is accrued based on estimates obtained from consulting actuaries. Historical loss development factors are utilized to project the future develop- ment of incurred losses, and these amounts are adjusted based upon actual claim experience and settlements. Accrued reserves, excluding any amounts covered by insurance, were $86 million as of July 2, 2011 and $76 million as of July 3, 2010. Business Acquisitions With respect to business acquisitions, the corporation is required to recognize and measure the identifiable assets acquired, liabilities assumed, contractual contingencies, contingent consideration and any noncontrolling interest in an acquired business at fair value on the acquisition date. In addition, the accounting guidance also requires expensing acquisition costs when incurred, restructuring costs in periods subsequent to the acquisition date, and any adjustments to deferred tax asset valua- tion allowances and acquired uncertain tax positions after the measurement period to be reflected in income tax expense. 88/89 Sara Lee Corporation and Subsidiaries