Sara Lee 2013 Annual Report Download - page 39

The Hillshire Brands Company 37
debt is not allocated to discontinued operations. Any gain or loss
recognized upon the disposition of a discontinued operation is also
reported on a separate line of the income statement. Prior to dispo-
sition, the assets and liabilities of discontinued operations are
aggregated and reported on separate lines of the balance sheet.
Gains and losses related to the sale of business components that
do not meet the discontinued operation criteria are reported in
continuing operations and separately disclosed, if significant.
Businesses Held for Sale In order for a business to be classified
as held for sale, several criteria must be achieved. These criteria
include, among others, an active program to market the business
and locate a buyer, as well as the probable disposition of the business
within one year. Upon being classified as held for sale, the recoverabil-
ity of the carrying value of a business must be assessed. Evaluating
the recoverability of the assets of a business classified as held for
sale follows a defined order in which property and intangible assets
subject to amortization are considered only after the recoverability
of goodwill, intangible assets not subject to amortization and other
assets are assessed. After the valuation process is completed, the
held for sale business is reported at the lower of its carrying value or
fair value less cost to sell and no additional depreciation expense is
recognized related to property. The carrying value of a held for sale
business includes the portion of the cumulative translation adjust-
ment related to the operation. Once a business is classified as held
for sale, all of its historical balance sheet information is included in
assets and liabilities held for sale in the balance sheet.
Businesses Held for Use If a decision to dispose of a business is
made and the held for sale criteria are not met, the business is con-
sidered held for use and its assets are evaluated for recoverability
in the following order: assets other than goodwill; property and
intangibles subject to amortization; and finally, goodwill. In evaluat-
ing the recoverability of property and intangible assets subject to
amortization, in a held for use business, the carrying value of the
business is first compared to the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
operation. If the carrying value exceeds the undiscounted expected
cash flows, then an impairment is recognized if the carrying value
of the business exceeds its fair value.
There are inherent judgments and estimates used in determining
future cash flows and it is possible that additional impairment charges
may occur in future periods. In addition, the sale of a business can
result in the recognition of a gain or loss that differs from that
anticipated prior to the closing date.
PROPERTY
Property is stated at historical cost and depreciation is computed
using the straight-line method over the lives of the assets. Machinery
and equipment are depreciated over periods ranging from 3 to 25
years and buildings and building improvements over periods of up
to 40 years. Additions and improvements that substantially extend
the useful life of a particular asset and interest costs incurred during
the construction period of major properties are capitalized. Leasehold
improvements are capitalized and amortized over the shorter of the
remaining lease term or remaining economic useful life. Repairs and
maintenance costs are charged to expense. Upon the sale or disposi-
tion of property, the cost and related accumulated depreciation are
removed from the accounts. Capitalized interest was $2 million in
2013, $5 million in 2012 and $10 million in 2011.
Property is tested for recoverability whenever events or
changes in circumstances indicate that its carrying value may not
be recoverable. Such events include significant adverse changes in
the business climate, current period operating or cash flow losses,
forecasted continuing losses or a current expectation that an asset
group will be disposed of before the end of its useful life or spun-off.
Recoverability of property is evaluated by a comparison of the carry-
ing amount of an asset or asset group to future net undiscounted cash
flows expected to be generated by the asset or asset group. If the
carrying amount exceeds the estimated future undiscounted cash
flows then an asset is not recoverable. The impairment loss recognized
is the amount by which the carrying amount of the asset exceeds the
estimated fair value using discounted estimated future cash flows.
Assets that are to be disposed of by sale are recognized in the
financial statements at the lower of carrying amount or fair value,
less cost to sell, and are not depreciated after being classified as held
for sale. In order for an asset to be classified as held for sale, the asset
must be actively marketed, be available for immediate sale and meet
certain other specified criteria.
TRADEMARKS AND OTHER
IDENTIFIABLE INTANGIBLE ASSETS
The primary identifiable intangible assets of the company are
trademarks and customer relationships acquired in business combi-
nations and computer software. The company capitalizes direct costs
of materials and services used in the development and purchase of
internal-use software. Identifiable intangibles with finite lives are
amortized and those with indefinite lives are not amortized. The
estimated useful life of a finite-lived identifiable intangible asset is
based upon a number of factors, including the effects of demand,
competition, expected changes in distribution channels and the level
of maintenance expenditures required to obtain future cash flows.
Identifiable intangible assets that are subject to amortization
are evaluated for impairment using a process similar to that used
in evaluating the recoverability of property, plant and equipment.
Identifiable intangible assets not subject to amortization are assessed
for impairment at least annually and as triggering events may occur.
The impairment test for identifiable intangible assets not subject to
amortization consists of a comparison of the fair value of the intangi-
ble asset with its carrying amount. An impairment loss is recognized
for the amount by which the carrying value exceeds the fair value of
the asset. In making this assessment, management relies on a number
of factors to discount estimated future cash flows including operating
results, business plans and present value techniques. Rates used to