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Sara Lee Reports Third Quarter Earnings

Investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements, and the corporation wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Sara Lee’s actual results to differ from such forward-looking statements are those described under Item 1A, Risk Factors, in Sara Lee’s most recent Annual Report on Form 10-K and other SEC Filings, as well as factors relating to:

  • Sara Lee’s proposed spin-off plans and the special dividend announced on Jan. 28, 2011, such as (i) unanticipated developments that delay or negatively impact the proposed spin-off and capital plans; (ii) Sara Lee’s ability to obtain an IRS tax ruling and any other customary approvals; (iii) Sara Lee’s ability to generate the anticipated efficiencies and savings from the spin-off including a lower effective tax rate for the spin-off company; (iv) the impact of the spin-off on Sara Lee’s relationships with its employees, major customers and vendors and on Sara Lee’s credit ratings and cost of funds; (v) changes in market conditions; (vi) future opportunities that the Board may determine present greater potential value to shareholders than the spin-off and special dividend; (vii) disruption to Sara Lee’s business operations as a result of the spin-off; (viii) future operating or capital needs that require a more significant outlay of cash than currently anticipated; and (ix) the ability of the businesses to operate independently following the completion of the spin-off;
  • Sara Lee’s relationship with its customers, such as (i) a significant change in Sara Lee’s business with any of its major customers, such as Walmart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment;
  • The consumer marketplace, such as (i) intense competition, including advertising, promotional and price competition; (ii) changes in consumer behavior due to economic conditions, such as a shift in consumer demand toward private label; (iii) fluctuations in raw material costs, Sara Lee’s ability to increase or maintain product prices in response to cost fluctuations and the impact on Sara Lee’s profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Sara Lee products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties about trade and consumer acceptance;
  • Sara Lee’s international operations, such as (i) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the euro; (ii) Sara Lee’s generation of a high percentage of its revenues from businesses outside the United States and costs to remit these foreign earnings into the U.S. to fund Sara Lee’s domestic operations, dividends, debt service and corporate costs; (iii) difficulties and costs associated with complying with U.S. laws and regulations, such as Foreign Corrupt Practices Act, applicable to global corporations, and different regulatory structures and unexpected changes in regulatory environments overseas; and (iv) Sara Lee’s ability to continue to source production and conduct operations in various countries due to changing business conditions, political environments, import quotas and the financial condition of suppliers;
  • Previous business decisions, such as (i) Sara Lee’s ability to generate margin improvement through cost reduction and efficiency initiatives; (ii) Sara Lee’s credit ratings, the impact of Sara Lee’s capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Sara Lee’s cost to borrow funds and access to capital/debt markets; (iii) the settlement of a number of ongoing reviews of Sara Lee’s income tax filing positions in various jurisdictions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Sara Lee transacts business; and (iv) changes in the expense for and contingent liabilities relating to multi-employer pension plans in which Sara Lee participates.

In addition, Sara Lee’s results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes and laws and regulations in markets where the corporation competes. Sara Lee undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Financial Summary - As Adjusted

For the Quarters and Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)
     
Quarter ended Nine Months ended
     
Mar. 31, Apr. 2,

%

Mar. 31, Apr. 2,

%

2012 2011 Change 2012 2011 Change
Continuing operations:
 
Adjusted net sales:
 
N.A. Retail $ 675 $ 670 0.8 % $ 2,100 $ 2,106 (0.3 )%
N.A. FS & Specialty Meats 231 225 2.9 798 776 2.9
Coffee & Tea 929 888 4.6 2,823 2,567 10.0
Australian Bakery 30 30 (3.2 ) 103 107 (4.4 )
Intersegment   (4 )   (7 )       (19 )   (20 )  
Total adjusted net sales $ 1,861   $ 1,806   3.0 % $ 5,805   $ 5,536   4.9 %
 
 
Adjusted operating income
 
N.A. Retail $ 78 $ 83 (7.0

)%

 

$ 222 $ 228 (3.1 )%
N.A. FS & Specialty Meats 18 20 (7.4 ) 75 82 (8.3 )
Coffee & Tea 120 131 (8.7 ) 385 374 2.9
Australian Bakery   (2 )   -   NM     3     1   NM  
Adjusted operating segment income 214 234 (8.6 )% 685 685 (0.1 )%
 
General corporate expenses (5 ) (33 ) (36 ) (97 )

Mark-to-market derivatives gains/(losses)

(10 ) 8 (6 ) 18
Amortization of trademarks & intangibles   (4 )   (4 )       (10 )   (10 )  
Total adjusted operating income $ 195   $ 205   (4.7 )% $ 633   $ 596   6.3 %
 
 
Adjusted income from continuing operations $ 121   $ 132   (9.3 )% $ 387   $ 347   11.6 %
 
Adjusted net income $ 123   $ 185   (33.4 )% $ 429   $ 520   (17.6 )%
Adjusted net income attributable to Sara Lee:
 
Continuing operations $ 121 $ 132 (9.3 )% $ 387 $ 347 11.6 %
Discontinued operations $ 2 $ 50 (95.5 )% $ 39 $ 166 (77.1 )%
 
 
Adjusted diluted earnings per share:
 
Income from continuing operations $ 0.20   $ 0.22   (9.1 )% $ 0.65   $ 0.55   18.2 %
 
Net income $ 0.21   $ 0.30   (30.0 )% $ 0.72   $ 0.81   (11.1 )%
 
Adjusted operating margin:
 
N.A. Retail 11.5 % 12.5 % (1.0 )% 10.5 % 10.9 % (0.4 ) %
N.A. FS & Specialty Meats 7.7 8.6 (0.9 ) 9.3 10.5 (1.2 )
Coffee & Tea 12.9 14.7 (1.8 ) 13.6 14.6 (1.0 )
Australian Bakery (6.7 ) (2.1 ) (4.6 ) 3.5 1.0 2.5
 
Total Sara Lee 10.5 % 11.3 % (0.8 )% 10.9 % 10.8 % 0.1 %
 
NM = Not meaningful
 

Financial Summary - As Reported

For the Quarters and Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)
 
  Quarter ended   Nine Months ended
       
Mar. 31, Apr. 2,

%

Mar. 31, Apr. 2,

%

2012   2011 Change 2012 2011 Change
Continuing operations:
 
Net sales:
 
N.A. Retail $ 675 $ 670 0.8 % $ 2,100 $ 2,106 (0.3 )%
N.A. FS & Specialty Meats 260 243 6.9 881 807 9.1
Coffee & Tea 938 925 1.4 2,858 2,552 12.0
Australian Bakery 30 29 1.0 103 100 2.8
Intersegment   (4 )   (7 )     (19 )   (20 )  
Total net sales $ 1,899   $ 1,860   2.0 % $ 5,923   $ 5,545   6.8 %
 
 
Operating income
 
N.A. Retail $ 72 $ 82 (12.6 )% $ 195 $ 226 (14.0 )%
N.A. FS & Specialty Meats 17 21 (16.9 ) 77 82 (5.9 )
Coffee & Tea 106 134 (20.7 ) 360 333 8.2
Australian Bakery   (2 )   -   NM     3     1   NM  
Operating segment income 193 237 (18.4 )% 635 642 (1.1 )%
 
General corporate expenses (113 ) (47 ) (341 ) (124 )

Mark-to-market derivatives gains/(losses)

(10 ) 8 (6 ) 18
Amortization of trademarks & intangibles   (4 )   (4 )     (10 )   (10 )  
Total operating income $ 66   $ 194   (65.9 )% $ 278   $ 526   (47.2 )%
 
 
Income from continuing operations $ 38   $ 124   (70.1 )% $ 37   $ 273   (86.7 )%
 
Net income (loss) $ (2 ) $ 156   NM   $ 252   $ 1,183   (78.7 )%
Net income (loss) attributable to Sara Lee:
 
Continuing operations $ 38 $ 124 (70.1 )% $ 37 $ 273 (86.7 )%
Discontinued operations $ (40 ) $ 29 NM $ 212 $ 903 (76.5 )%
 
 
Diluted earnings per share:
 
Income (loss) from continuing operations $ 0.06   $ 0.20   (70.0 )% $ 0.06   $ 0.43   (86.0 )%
 
Net income $ -   $ 0.25   NM   $ 0.42   $ 1.85   (77.3 )%
 
Operating margin:
 
N.A. Retail 10.6 % 12.2 % (1.6 )% 9.3 % 10.7 % (1.4 )%
N.A. FS & Specialty Meats 6.6 8.5 (1.9 ) 8.7 10.1 (1.4 )
Coffee & Tea 11.3 14.5 (3.2 ) 12.6 13.0 (0.4 )
Australian Bakery (8.2 ) (2.0 ) (6.2 ) 3.0 1.0 2.0
 
Total Sara Lee 3.5

%

 

10.4 % (6.9 )% 4.7 % 9.5 % (4.8 )%
 
NM = Not meaningful
 

Consolidated Statements of Income

For the Quarters and Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)
 
  Quarter ended   Nine Months ended
March 31,   April 2, March 31,   April 2,
2012 2011 2012 2011
Continuing operations
Net sales $ 1,899   $ 1,860   $ 5,923   $ 5,545  
Cost of sales 1,312 1,226 4,024 3,664
Selling, general and administrative expenses 458 436 1,410 1,308
Net charges for exit activities, asset and business dispositions 63 4 179 47
Impairment charges   -     -     32     -  
Operating income 66 194 278 526
Interest expense 29 25 88 87
Interest income (11 ) (9 ) (31 ) (21 )
Debt extinguishment costs   -     -     -     55  
Income from continuing operations before income taxes 48 178 221 405
Income tax expense   10     54     184     132  
Income from continuing operations   38     124     37     273  
 
Discontinued operations:
Income (loss) from discontinued operations,
net of tax (benefit) of $(23), $8, $(155) and $(166) 20 3 (188 ) 302
Gain (loss) on sale of discontinued operations, net of
tax expense of $29, $14, $368 and $576   (60 )   29     403     608  
Net income (loss) from discontinued operations   (40 )   32     215     910  
 
Net income (loss) (2 ) 156 252 1,183
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations   -     3     3     7  
Net income (loss) attributable to Sara Lee $ (2 ) $ 153   $ 249   $ 1,176  
 
Amounts attributable to Sara Lee:
Net income from continuing operations $ 38 $ 124 $ 37 $ 273
Net income (loss) from discontinued operations (40 ) 29 212 903
 
Earnings per share of common stock:
Basic
Income from continuing operations $ 0.06 $ 0.21 $ 0.06 $ 0.43
Net income (loss) $ - $ 0.25 $ 0.42 $ 1.86
Average shares outstanding 593 605 592 632
 
Diluted
Income from continuing operations $ 0.06 $ 0.20 $ 0.06 $ 0.43
Net income (loss) $ - $ 0.25 $ 0.42 $ 1.85
Average shares outstanding 597 609 595 635
 
 
Cash dividends declared per share of common stock $ 0.115 $ 0.115 $ 0.23 $ 0.23
 

Net Sales Bridge

For the Quarters and Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)
 
The following table illustrates the components of the change in net sales versus the prior year for each of the four reported business segments
 
Third Quarter ended March 31, 2012
  Adjusted Total
Unit Net Sales* Acq./ Foreign Net Sales
Volume Mix + Price + Other = Change + Disp. + Exchange = Change
N.A. Retail 0.3 % (0.9 )% 4.0 % (2.6 )% 0.8 % 0.0 % 0.0 % 0.8 %
 
N.A. FS and Specialty Meats (2.5 ) 0.2 4.9 0.3 2.9 4.0 0.0 6.9
 
Coffee & Tea (7.3 ) 6.5 9.1 (3.7 ) 4.6 0.8 (4.0 ) 1.4
 
Australian Bakery (4.3 ) 2.1 (1.6 ) 0.6 (3.2 ) 0.0 4.2 1.0
               
Total Continuing Business (3.9 )% 3.0 % 6.6 % (2.7 )% 3.0 % 0.9 % (1.9 )% 2.0 %
 
 
First Nine Months ended March 31, 2012
 
Adjusted Total
Unit Net Sales* Acq./ Foreign Net Sales
Volume + Mix + Price + Other = Change + Disp. + Exchange = Change
N.A. Retail (4.1 )% 0.4 % 5.1 % (1.7 )% (0.3 )% 0.0 % 0.0 % (0.3 )%
 
N.A. FS and Specialty Meats (1.7 ) 0.0 4.7 (0.1 ) 2.9 6.2 0.0 9.1
 
Coffee & Tea (6.0 ) 5.3 11.6 (0.9 ) 10.0 1.2 0.8 12.0
 
Australian Bakery (7.7 ) 5.3 3.1 (5.1 ) (4.4 ) 0.0 7.2 2.8
               

Total Continuing Business

(4.7 )% 2.6 % 8.0 % (1.0 )% 4.9 % 1.4 % 0.5 % 6.8 %
 
*Adjusted net sales is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/dispositions. See detailed explanation of this and other non-GAAP measures in this release.
 

Condensed Consolidated Balance Sheet Data

As of Mar. 31, 2012 and July 2, 2011 (in millions, except per share data - unaudited)

 
  March 31,   July 2,
2012 2011
 
Assets
Cash and equivalents $ 2,655

$

2,066
Trade accounts receivable, less allowances 734 828
Inventories 907 884
Current deferred income taxes 35 42
Other current assets 324 261
Assets held for sale   5   503
Total current assets 4,660 4,584
Property, net of accumulated depreciation of $2,120 and $2,057, respectively 1,300 1,380
Trademarks and other identifiable intangibles 400 282
Goodwill 599 624
Deferred income taxes 139 260
Pension asset 427 265
Other noncurrent assets 244 236
Noncurrent assets held for sale   5   1,902
$ 7,774 $ 9,533
 
Liabilities and Equity
Notes payable $ 187

$

238
Accounts payable 693 875
Income taxes payable and current deferred taxes 615 468
Other accrued liabilities 1,061 1,576
Current maturities of long-term debt 985 473
Liabilities held for sale   -   492
Total current liabilities   3,541   4,122
Long-term debt 954 1,935
Pension obligation 225 216
Deferred income taxes 211 179
Other liabilities 698 823
Noncurrent liabilities held for sale - 284
Equity
Sara Lee common stockholders’ equity 2,145 1,945
Noncontrolling interest   -   29
Total Equity   2,145   1,974
$ 7,774 $ 9,533
 

Consolidated Statements of Cash Flows

For the Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
  Nine Months ended
 
Mar. 31, Apr. 2,
2012   2011
Operating activities -
Net income $ 252 $ 1,183
 
Adjustments to reconcile net income/(loss) to net cash
from operating activities:
Depreciation 197 225
Amortization 35 62
Impairment charges 418 -
Net (gain) loss on business dispositions (771) (1,184)
Pension contributions, net of expense (197) (76)
Refundable tax on Senseo payments (43) -
Increase in deferred income taxes for unremitted earnings 25 234
Increase (decrease) in deferred income taxes for tax basis differences 122 (227)
Debt extinguishment costs - 55
Other (41) 35
Changes in current assets and liabilities, net of
businesses acquired and sold:
Trade accounts receivable 42 136
Inventories (77) (268)
Other current assets 31 (105)
Accounts payable (70) (10)
Accrued liabilities (133) (83)
Accrued taxes   70   315
Net cash from operating activities   (140)   292
 
Investing activities -
Purchases of property and equipment (193) (238)
Purchases of software and other intangibles (178) (14)
Acquisitions of businesses (29) (32)
Dispositions of businesses and investments 2,035 2,182
Cash received from derivative transactions 49 72
Sales of assets   2   10
Net cash received from investing activities   1,686   1,980
 
Financing activities -
Issuances of common stock 62 20
Purchases of common stock - (1,313)
Borrowings of other debt 173 1,032
Repayments of other debt and derivatives (715) (1,352)
Net change in financing with less than 90-day maturities (109) 483
Purchase of noncontrolling interest (10) -
Payments of dividends   (203)   (217)
Net cash used in financing activities   (802)   (1,347)
 
Effect of changes in foreign exchange rates on cash   (155)   252
 
Increase in cash and equivalents 589 1,177
Add: Cash balances of discontinued operations at beginning of year - -
Less: Cash balances of discontinued operations at end of period - -
Cash and equivalents at beginning of year   2,066   955
 
Cash and equivalents at end of quarter $ 2,655 $ 2,132
 
Supplemental cash flow data:
 
Cash paid for restructuring actions $ 354 $ 82
Cash contributions to pension plans 187 115
Cash paid for income taxes 180 219
 

Operating Results by Business Segment

For the Quarters ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
    Changes in          
Foreign
Currency
As Exchange Acquisitions/ As
Reported Rates Dispositions Adjusted
Third Quarter 2012
Net sales:
N.A. Retail $ 675 $ - $ -

$

675
N.A. FS & Specialty Meats 260 - 29 231
Coffee & Tea 938 - 9 929
Australian Bakery 30 - - 30
Intersegment (4 )   -     -   (4 )
Total net sales $ 1,899   $ -   $ 38

$

1,861  
 
Third Quarter 2011
Net sales:
N.A. Retail $ 670 $ - $ -

$

670
N.A. FS & Specialty Meats 243 - 18 225
Coffee & Tea 925 35 2 888
Australian Bakery 29 (1 ) - 30
Intersegment (7 )   -     -   (7 )
Total net sales $ 1,860   $ 34   $ 20

$

1,806  
 
 
Changes in
Foreign
Currency Other
Third Quarter 2012 As Exchange Acquisitions/ Restructuring Impairment Significant As
Reported Rates Dispositions Actions Charges Items Adjusted
Operating income:
N.A. Retail $ 72 $ - $ - $ (6 ) $ - $ - $ 78
N.A. FS & Specialty Meats 17 - - (1 ) - - 18
Coffee & Tea 106 - - (14 ) - - 120
Australian Bakery   (2 )   -     -   -     -   -   (2 )
Total operating segment income   193     -     -   (21 )   -   -   214  
 
General corporate expenses (113 ) - - (108 ) - - (5 )
Mark-to-market derivative gains/(losses) (10 ) - - - - - (10 )
Amortization of trademarks/intangibles   (4 )   -     -   -     -   -   (4 )
Operating income $ 66   $ -   $ - $ (129 ) $ - $ - $ 195  
 
Operating margin 3.5 % 10.5 %
 
Third Quarter 2011
Operating income:
N.A. Retail $ 82 $ - $ - $ (1 ) $ - $ - $ 83
N.A. FS & Specialty Meats 21 - 2 (1 ) - - 20
Coffee & Tea 134 4 - (1 ) - - 131
Australian Bakery   -     -     -   -     -   -   -  
Total operating segment income   237     4     2   (3 )   -   -   234  
 
General corporate expenses (47 ) - - (14 ) - - (33 )
Mark-to-market derivative gains/(losses) 8 - - - - - 8
Amortization of trademarks/intangibles   (4 )   -     -   -     -   -   (4 )
Operating income $ 194   $ 4   $ 2 $ (17 ) $ - $ - $ 205  
 
Operating margin 10.4 % 11.3 %
 

Operating Results by Business Segment

For the Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
  Changes in          
Foreign
Currency
As Exchange Acquisitions/ As
Reported Rates Dispositions Adjusted
First Nine Months 2012
Net sales:
N.A. Retail $ 2,100 $ - $ -

$

2,100
N.A. FS & Specialty Meats 881 - 83 798
Coffee & Tea 2,858 - 35 2,823
Australian Bakery 103 - - 103
Intersegment (19 )   -     -   (19 )
Total net sales $ 5,923   $ -   $ 118

$

5,805  
 
First Nine Months 2011
Net sales:
N.A. Retail $ 2,106 $ - $ -

$

2,106
N.A. FS & Specialty Meats 807 - 31 776
Coffee & Tea 2,552 (19 ) 4 2,567
Australian Bakery 100 (7 ) - 107
Intersegment (20 )   -     -   (20 )
Total net sales $ 5,545   $ (26 ) $ 35

$

5,536  
 
 
Changes in
Foreign
Currency Other
First Nine Months 2012 As Exchange Acquisitions/ Restructuring Impairment Significant As
Reported Rates Dispositions Actions Charges Items Adjusted
Operating income:
N.A. Retail $ 195 $ - $ - $ (27 ) $ - $ - $ 222
N.A. FS & Specialty Meats 77 - 4 (2 ) - - 75
Coffee & Tea 360 - 2 (27 ) - - 385
Australian Bakery   3     -     -   -     -     -   3  
Total operating segment income   635     -     6   (56 )   -     -   685  
 
General corporate expenses (341 ) - - (278 ) (32 ) 5 (36 )
Mark-to-market derivative gains/(losses) (6 ) - - - - - (6 )
Amortization of trademarks/intangibles   (10 )   -     -   -     -     -   (10 )
Operating income $ 278   $ -   $ 6 $ (334 ) $ (32 ) $ 5 $ 633  
 
Operating margin 4.7 % 10.9 %
 
First Nine Months 2011
Operating income:
N.A. Retail $ 226 $ - $ - $ (2 ) $ - $ - $ 228
N.A. FS & Specialty Meats 82 - 3 (3 ) - - 82
Coffee & Tea 333 (6 ) 1 (36 ) - - 374
Australian Bakery   1     -     -   -     -     -   1  
Total operating segment income   642     (6 )   4   (41 )   -     -   685  
 
General corporate expenses (124 ) - - (27 ) - - (97 )
Mark-to-market derivative gains/(losses) 18 - - - - - 18
Amortization of trademarks/intangibles   (10 )   -     -   -     -     -   (10 )
Operating income $ 526   $ (6 ) $ 4 $ (68 ) $ -   $ - $ 596  
 
Operating margin 9.5 % 10.8 %
 

Significant Items

For the Quarters ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
  Quarter ended Mar. 31, 2012   Quarter ended Apr. 2, 2011
    Diluted     Diluted
Pretax Net EPS Pretax Net EPS

(In millions except per share data)

Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
 
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (12 ) $ (9 ) $ (0.02 ) $ (4 ) $ (2 ) $ -
Lease and contractual obligation exit costs (70 ) (53 ) (0.09 ) - - -
Consulting/advisory costs (30 ) (17 ) (0.03 ) (13 ) (8 ) (0.01 )
Accelerated depreciation   (17 )   (11 )   (0.02 )   -     -     -  
Total restructuring actions (129 ) (90 ) (0.15 ) (17 ) (10 ) (0.02 )
 

Gain on HBI tax settlement

- - - - - -
Impairment charges - - - - - -
Litigation accrual - - - - - -
Thailand flood loss - - - - - -
Tax indemnification accrual adjustment - - - - - -
Debt extinguishment costs   -     -     -     -     -     -  
Impact of significant items on income/(loss) from continuing operations before income taxes   (129 )   (90 )   (0.15 )   (17 )   (10 )   (0.02 )
 
Tax on unremitted earnings - (6 ) (0.01 ) - - -
Tax audit settlement/reserve adjustments - 12 0.02 - 2 -
Tax valuation allowance adjustment   -     1     -     -     -     -  
Impact of significant items on income/(loss) from continuing operations   (129 )   (83 )   (0.14 )   (17 )   (8 )   (0.02 )
 
Discontinued operations:
Restructuring actions:
Severance/ retention costs - - - (17 ) (12 ) (0.02 )
Consulting/advisory costs (2 ) (2 ) - (9 ) (7 ) (0.01 )
Accelerated depreciation - - - (1 ) (1 ) -
Impairment charges - - - - - -

Gain (loss) on the sale of discontinued operations

(31 ) (60 ) (0.10 ) 43 29 0.05
Licensing agreement termination charge - - - (39 ) (27 ) (0.04 )
Pension curtailment/withdrawal - - - (2 ) (2 ) -
Tax basis differences - (3 ) (0.01 ) - - -
Tax audit settlement/reserve adjustments - 22 0.04 - (1 ) -
Tax valuation allowance adjustment - - - - - -
Tax on unremitted earnings   -     1     -     -     -     -  
Impact of significant items on income/(loss) from discontinued operations   (33 )   (42 )   (0.07 )   (25 )   (21 )   (0.03 )
Impact of significant items on net income $ (162 ) $ (125 ) $ (0.21 ) $ (42 ) $ (29 ) $ (0.05 )
 
 

Impact of significant items on income from continuing operations before income taxes

 
Cost of sales $ (6 ) $ -
Selling, general and administrative expenses (60 ) (13 )
Exit and business dispositions   (63 )   (4 )
Total $ (129 ) $ (17 )
 
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
 

Significant Items

For the Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
  Nine Months ended Mar. 31, 2012   Nine Months ended Apr. 2, 2011
    Diluted     Diluted
Pretax Net EPS Pretax Net EPS

(In millions except per share data)

Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
 
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (47 ) $ (33 ) $ (0.05 ) $ (47 ) $ (33 ) $ (0.05 )
Lease and contractual obligation exit costs (157 ) (112 ) (0.19 ) - - -
Consulting/advisory costs (101 ) (74 ) (0.12 ) (19 ) (13 ) (0.02 )
Accelerated depreciation   (29 )   (18 )   (0.03 )   (2 )   (1 )   -  
Total restructuring actions (334 ) (237 ) (0.40 ) (68 ) (47 ) (0.07 )
 

Gain on HBI tax settlement

15 15 0.02 - - -
Impairment charges (32 ) (22 ) (0.04 ) - - -
Litigation accrual (11 ) (7 ) (0.01 ) - - -
Thailand flood loss (2 ) (1 ) - - - -
Tax indemnification accrual adjustment 3 4 0.01 - - -
Debt extinguishment costs   -     -     -     (55 )   (35 )   (0.06 )
Impact of significant items on income/(loss) from continuing operations before income taxes   (361 )   (248 )   (0.42 )   (123 )   (82 )   (0.13 )
 
Tax on unremitted earnings - (111 ) (0.19 ) - - -
Tax audit settlement/reserve adjustments - 81 0.14 - 8 0.01
Tax valuation allowance adjustment   -     (72 )   (0.12 )   -     -     -  
Impact of significant items on income/(loss) from continuing operations   (361 )   (350 )   (0.59 )   (123 )   (74 )   (0.12 )
 
Discontinued operations:
Restructuring actions:
Severance/ retention costs (17 ) (12 ) (0.02 ) (66 ) (47 ) (0.07 )
Consulting/advisory costs (16 ) (13 ) (0.02 ) (12 ) (9 ) (0.02 )
Accelerated depreciation - - - (2 ) (2 ) -
Impairment charges (385 ) (345 ) (0.58 ) - - -
Gain on the sale of discontinued operations 771 403 0.68 1,184 608 0.96
Licensing agreement termination charge - - - (39 ) (27 ) (0.04 )
Pension curtailment/withdrawal (3 ) (2 ) - (3 ) (2 ) -
Tax basis differences - 186 0.31 - 225 0.35
Tax audit settlement/reserve adjustments - 22 0.04 - - -
Tax valuation allowance adjustment - - - - (3 ) -
Tax on unremitted earnings   -     (66 )   (0.11 )   -     (6 )   (0.01 )
Impact of significant items on income/(loss) from discontinued operations   350     173     0.29     1,062     737     1.16  
Impact of significant items on net income $ (11 ) $ (177 ) $ (0.30 ) $ 939   $ 663   $ 1.04  
 
 
Impact of significant items on income from continuing operations before income taxes
 
Cost of sales $ (18 ) $ (2 )
Selling, general and administrative expenses (132 ) (19 )
Exit and business dispositions (179 ) (47 )
Impairment charges (32 ) -
Debt extinguishment costs   -     (55 )
Total $ (361 ) $ (123 )
 
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
 

EPS Reconciliation - Reported to Adjusted

For the Quarters ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

   
Quarter ended March 31, 2012   Quarter ended April 2, 2011
  Impact of     Impact of  
As Significant As Significant
Reported Items Adjusted (1) Reported Items Adjusted (1)
Continuing operations:
 
Income from continuing operations

before income taxes

$ 48 $ (129 ) $ 177 $ 178 $ (17 ) $ 195
 
Income tax expense (benefit) 10     (46 )   56     54     (9 )   63  
 
Income from continuing operations 38     (83 )   121     124     (8 )   132  
Discontinued operations:
 
Income from discontinued operations, net of tax 20 18 2 3 (50 ) 53
Gain (loss) on sale of discontinued operations, net of tax (60 )   (60 )   -     29     29     -  
 
Net income (loss) from discontinued operations (40 )   (42 )   2     32     (21 )   53  
 
Net income (loss) (2 ) (125 ) 123 156 (29 ) 185
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations -     -     -     3     -     3  
Net income (loss) attributable to Sara Lee $ (2 ) $ (125 ) $ 123   $ 153   $ (29 ) $ 182  
 
Amounts attributable to Sara Lee:
Net income from continuing operations $ 38 $ (83 ) $ 121 $ 124 $ (8 ) $ 132
Net income (loss) from discontinued operations (40 ) (42 ) 2 29 (21 ) 50
 
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.06 $ (0.14 ) $ 0.20 $ 0.20 $ (0.02 ) $ 0.22
Net income $ - $ (0.21 ) $ 0.21 $ 0.25 $ (0.05 ) $ 0.30
 
Effective tax rate - continuing operations 21.9 % 32.0 % 30.0 % 31.9 %
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release.
 

EPS Reconciliation - Reported to Adjusted

For the Nine Months ended Mar. 31, 2012 and Apr. 2, 2011 (in millions, except per share data - unaudited)

 
  Nine Months ended March 31, 2012   Nine Months ended April 2, 2011
  Impact of       Impact of  
As Significant As Significant
Reported Items Adjusted (1) Reported Items Adjusted (1)
Continuing operations:
 
Income/(loss) from continuing operations
before income taxes $ 221 $ (361 ) $ 582 $ 405 $ (123 ) $ 528
 
Income tax expense (benefit) 184     (11 )   195     132     (49 )   181  
 
Income/(loss) from continuing operations 37     (350 )   387     273     (74 )   347  
Discontinued operations:
 
Income/(loss) from discontinued operations, net of tax (188 ) (230 ) 42 302 129 173
Gain on sale of discontinued operations, net of tax 403     403     -     608     608     -  
 
Net income from discontinued operations 215     173     42     910     737     173  
 
Net income 252 (177 ) 429 1,183 663 520
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations 3     -     3     7     -     7  
Net income attributable to Sara Lee $ 249   $ (177 ) $ 426   $ 1,176   $ 663   $ 513  
 
Amounts attributable to Sara Lee:
Net income/(loss) from continuing operations $ 37 $ (350 ) $ 387 $ 273 $ (74 ) $ 347
Net income/(loss) from discontinued operations 212 173 39 903 737 166
 
Earnings per share of common stock:
Diluted
Income/(loss) from continuing operations $ 0.06 $ (0.59 ) $ 0.65 $ 0.43 $ (0.12 ) $ 0.55
Net income $ 0.42 $ (0.30 ) $ 0.72 $ 1.85 $ 1.04 $ 0.81
 
Effective tax rate - continuing operations 83.5 % 33.5 % 32.5 % 34.2 %
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release.
 

Explanation of Non-GAAP Financial Measures

Management measures and reports Sara Lee’s financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). In this release, Sara Lee highlights certain items that have significantly impacted the corporation’s financial results and uses several non-GAAP financial measures to help investors understand the financial impact of these significant items.

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