Sara Lee 2013 Annual Report Download - page 38

36 The Hillshire Brands Company
NOTES TO FINANCIAL STATEMENTS
Sales are recognized as the net amount to be received after
deducting estimated amounts for sales incentives, trade allowances
and product returns. The company estimates trade allowances and
product returns based on historical results taking into consideration
the customer, transaction and specifics of each arrangement. The
company provides a variety of sales incentives to resellers and con-
sumers of its products, and the policies regarding the recognition
and display of these incentives within the Consolidated Statements
of Income are as follows:
Discounts, Coupons and Rebates The cost of these incentives is
recognized at the later of the date at which the related sale is recog-
nized or the date at which the incentive is offered. The cost of these
incentives is estimated using a number of factors, including historical
utilization and redemption rates. Substantially all cash incentives of
this type are included in the determination of net sales. Incentives
offered in the form of free product are included in the determination
of cost of sales.
Slotting Fees Certain retailers require the payment of slotting fees
in order to obtain space for the company’s products on the retailer’s
store shelves. These amounts are included in the determination of
net sales when a liability to the retailer is created.
Volume-Based Incentives These incentives typically involve rebates
or refunds of a specified amount of cash only if the reseller reaches a
specified level of sales. Under incentive programs of this nature, the
company estimates the incentive and allocates a portion of the incen-
tive to reduce each underlying sales transaction with the customer.
Cooperative Advertising Under these arrangements, the company
agrees to reimburse the reseller for a portion of the costs incurred
by the reseller to advertise and promote certain of the company’s
products. The company recognizes the cost of cooperative advertising
programs in the period in which the advertising and promotional
activity first takes place. The costs of these incentives are generally
included in the determination of net sales.
Fixtures and Racks Store fixtures and racks are given to retailers to
display certain of the company’s products. The costs of these fixtures
and racks are recognized as expense in the period in which they are
delivered to the retailer.
ADVERTISING EXPENSE
Advertising costs, which include the development and production of
advertising materials and the communication of this material through
various forms of media, are expensed in the period the advertising
first takes place. Advertising expense is recognized in the “Selling,
general and administrative expenses” line in the Consolidated
Statements of Income. Total media advertising expense for continu-
ing operations was $113 million in 2013, $86 million in 2012 and
$81 million in 2011.
CASH AND EQUIVALENTS
All highly liquid investments purchased with a maturity of three
months or less at the time of purchase are considered to be cash
equivalents.
ACCOUNTS RECEIVABLE VALUATION
Accounts receivable are stated at their net realizable value. The
allowance for doubtful accounts reflects the company’s best estimate
of probable losses inherent in the receivables portfolio determined
on the basis of historical experience, specific allowances for known
troubled accounts and other currently available information.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are $249 million in 2013, $258 million
in 2012 and $240 million in 2011. These costs are recognized in the
“Selling, general and administrative expenses” line of the Consolidated
Statements of Income.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Rebates,
discounts and other cash consideration received from a vendor
related to inventory purchases are reflected as a reduction in the
cost of the related inventory item, and are therefore, reflected in
cost of sales when the related inventory item is sold.
RECOGNITION AND REPORTING OF
PLANNED BUSINESS DISPOSITIONS
When a decision to dispose of a business component is made, it
is necessary to determine how the results will be presented within
the financial statements and whether the net assets of that business
are recoverable. The following summarizes the significant account-
ing policies and judgments associated with a decision to dispose
of a business.
Discontinued Operations A discontinued operation is a business
component that meets several criteria. First, it must be possible to
clearly distinguish the operations and cash flows of the component
from other portions of the business. Second, the operations need to
have been sold, spun-off or classified as held for sale. Finally, after
the disposal, the cash flows of the component must be eliminated
from continuing operations and the company may not have any
significant continuing involvement in the business. Significant judg-
ments are involved in determining whether a business component
meets the criteria for discontinued operation reporting and the
period in which these criteria are met. The results for a business to
be spun-off do not meet the criteria for discontinued operations
reporting until the completion of the spin-off.
If a business component is reported as a discontinued operation,
the results of operations through the date of sale are presented on
a separate line of the income statement. Interest on corporate level