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TheStreet Open House

Hillshire Brands Delivers Strong Second Quarter

Stocks in this article: HSH

Webcast and Form 10-Q

The Hillshire Brands Company’s review of its results for the second quarter and first half of fiscal 2013 will be broadcast live via the Internet today at 9:30 a.m. CST. The live webcast, together with the slides reviewed during the webcast, can be accessed in the Investor Relations section on www.hillshirebrands.com. For people who are unable to listen to the webcast live, a recording will be available on the website at 2:00 p.m. CST on the day of the webcast until July 31, 2013.

About The Hillshire Brands Company

The Hillshire Brands Company (NYSE: HSH) is a leader in meat-centric food solutions for the retail and foodservice markets. The company generates approximately $4 billion in annual sales and has approximately 9,500 employees. Hillshire Brands’ portfolio includes iconic brands such as Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Sara Lee frozen bakery and Chef Pierre pies, as well as artisanal brands Aidells and Gallo Salame. For more information on the company, please visit www.hillshirebrands.com.

Forward-Looking Statements

This release contains forward-looking statements regarding Hillshire Brands’ business prospects and future financial results and metrics, including statements contained under the heading “CEO Perspective” and “Guidance and Outlook”. Forward-looking statements are typically preceded by terms such as “will,” “anticipates,” “intends,” “expects,” “likely” or “believes” and other similar terms. These forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events and are inherently uncertain.

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

  • Hillshire Brands’ spin-off of its international coffee and tea business in June 2012, including (i) Hillshire Brands’ ability to generate the anticipated benefits from the spin-off; (ii) the transition of leadership to a new senior management team and the departure of key personnel with historical knowledge; and (iii) potential tax liabilities and other indemnification obligations;
  • 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, Hillshire Brands’ ability to increase or maintain product prices in response to cost fluctuations and the impact on profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Hillshire Brands’ products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties about trade and consumer acceptance;
  • Hillshire Brands’ relationship with its customers, such as (i) a significant change in Hillshire Brands’ business with any of its major customers, such as Wal-Mart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment; and
  • Other factors, such as (i) Hillshire Brands’ ability to generate margin improvement through cost reduction and productivity improvement initiatives; (ii) Hillshire Brands’ credit ratings, the impact of Hillshire Brands’ capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Hillshire Brands’ cost to borrow funds and access to capital/debt markets; and (iii) the settlement of a number of ongoing reviews of Hillshire Brands’ income tax filing positions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Hillshire Brands transacts or has transacted business.

1 The term “adjusted diluted EPS” and other financial measures identified as “adjusted” are explained and reconciled to comparable GAAP measures at the end of this release.

   

 

         

Financial Summary - As Adjusted (1)

For the Quarter and Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
 
Quarter ended Six Months ended
 
Dec. 29, Dec. 31,

%

Dec. 29, Dec. 31,

%

2012 2011 Change 2012 2011 Change
Continuing operations:
 
Adjusted net sales:
 
Retail $ 777 $ 761 2.2 % $ 1,496 $ 1,459 2.6 %
Foodservice/Other 283 276 2.8 538 535 0.7
Intersegment   -     (2 )     -     (6 )  
Total adjusted net sales $ 1,060   $ 1,035   2.5 % $ 2,034   $ 1,988   2.3 %
 
 
Adjusted operating income/(loss)
 
Retail $ 112 $ 91 23.2 % $ 196 $ 149 31.8 %
Foodservice/Other   28     27   8.5     53     49   9.6  
Adjusted operating segment income 140 118 19.9 % 249 198 26.4 %
 
General corporate expenses (8 ) (19 ) (20 ) (37 )
Mark-to-market derivatives gains/(losses) (4 ) 3 1 (1 )
Amortization of trademarks & intangibles   (1 )   (1 )     (2 )   (2 )  
Total adjusted operating income $ 127   $ 101   25.8 % $ 228   $ 158   44.2 %
 
 
Adjusted income from continuing operations $ 76   $ 56   33.6 % $ 136   $ 87   54.9 %
 
Adjusted net income $ 79   $ 178   (55.7 )%   $ 141   $ 304   (53.7 )%
Adjusted net Income attributable to Hillshire Brands:
 
Continuing operations $ 76 $ 56 33.6 % $ 136 $ 87 54.9 %
Discontinued operations $ 3 $ 121 (97.7 )% $ 5 $ 214 (97.5 )%
 
 
Adjusted diluted earnings per share:
 
Income from continuing operations $ 0.62   $ 0.48   29.2 % $ 1.10   $ 0.74   48.6 %
 
Net income $ 0.64   $ 1.49   (57.0 )%   $ 1.15   $ 2.54   (54.7 )%
 
Adjusted operating margin:
 
Retail 14.4 % 11.9 % 2.5 % 13.1 % 10.2 % 2.9 %
Foodservice/Other 9.9 9.4 0.5 9.9 9.1 0.8
 
Total Hillshire Brands 12.0 % 9.8 % 2.2 % 11.2 % 8.0 % 3.2 %
 
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release
     

 

       

Financial Summary - As Reported

For the Quarter and Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
 
Quarter ended Six Months ended
 
Dec. 29, Dec. 31,

%

Dec. 29, Dec. 31,

%

2012 2011 Change 2012 2011 Change
Continuing operations:
 
Net sales:
 
Retail $ 777 $ 761 2.2 % $ 1,496 $ 1,459 2.6 %
Foodservice/Other 283 294 (3.7 ) 538 587 (8.3 )
Intersegment   -     (2 )     -     (6 )  
Total net sales $ 1,060   $ 1,053   0.7 % $ 2,034   $ 2,040   (0.3 )%
 
 
Operating income/(loss)
 
Retail $ 112 $ 85 31.5 % $ 198 $ 129 53.6 %
Foodservice/Other   28     29   (4.1 )   53     54   (2.1 )
Operating segment income 140 114 22.5 % 251 183 37.2 %
 
General corporate expenses (36 ) (93 ) (67 ) (133 )
Mark-to-market derivatives gains/(losses) (4 ) 3 1 (1 )
Amortization of trademarks & intangibles   (1 )   (1 )     (2 )   (2 )  
Total operating income $ 99   $ 23   NM   $ 183   $ 47   NM  
 
 
Income from continuing operations $ 58   $ 10   NM   $ 107   $ 15   NM  
 
Net income $ 65   $ 470   (86.1 )% $ 118   $ 252   (53.2 )%
Net income attributable to Hillshire Brands:
 
Continuing operations $ 58 $ 10 NM $ 107 $ 15 NM
Discontinued operations $ 7 $ 459 (98.5 )% $ 11 $ 234 (95.3 )%
 
 
Diluted earnings per share:
 
Income from continuing operations $ 0.47   $ 0.09   NM   $ 0.87   $ 0.13   NM  
 
Net income $ 0.53   $ 3.94   (86.5 )% $ 0.96   $ 2.10   (54.3 )%
 
Operating margin:
 
Retail 14.4 % 11.2 % 3.2 % 13.2 % 8.8 % 4.4 %
Foodservice/Other 9.7 9.8 (0.1 ) 9.8 9.2 0.6
 
Total Hillshire Brands 9.3 % 2.1 % 7.2 % 9.0 % 2.3 % 6.7 %
 
NM = Not meaningful
 

 

Consolidated Statements of Income

For the Quarters and Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
     
 
 
 
Quarter ended Six Months ended
December 29, December 31, December 29, December 31,
2012 2011 2012 2011
Continuing operations
Net sales $ 1,060   $   1,053   $ 2,034   $ 2,040  
Cost of sales 728 755 1,408 1,469
Selling, general and administrative expenses 224 226 437 444
Net charges for exit activities, asset and business dispositions 9 45 6 66
Impairment charges   -       4     -     14  
Operating income 99 23 183 47
Interest expense 11 22 22 45
Interest income   (1 )     (1 )   (3 )   (2 )
Income from continuing operations before income taxes 89 2 164 4
Income tax expense   31       (8 )   57     (11 )
Income from continuing operations   58       10     107     15  
 
Discontinued operations:

Income (loss) from discontinued operations, net of tax expense (benefit) of $(3), $(8), $(2) and $57

7 92 9 (223 )

Gain on sale of discontinued operations, net of tax expense of nil, $168, $1 and $338

  -       368     2     460  
Net income from discontinued operations   7       460     11     237  
 
Net income 65 470 118 252
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations   -       1     -     3  
Net Income attributable to Hillshire Brands $ 65   $   469   $ 118   $ 249  
 
Amounts attributable to Hillshire Brands:
Net income from continuing operations $ 58 $ 10 $ 107 $ 15
Net income from discontinued operations 7 459 11 234
 
Earnings per share of common stock:
Basic
Income from continuing operations $ 0.47 $ 0.09 $ 0.88 $ 0.13
Net income $ 0.53 $ 3.96 $ 0.97 $ 2.11
Average shares outstanding 123 118 122 118
 
Diluted
Income from continuing operations $ 0.47 $ 0.09 $ 0.87 $ 0.13
Net income $ 0.53 $ 3.94 $ 0.96 $ 2.10
Average shares outstanding 123 119 123 119
 
 
Cash dividends declared per share of common stock $ 0.125 $ $ 0.575 $ 0.25 $ 0.575

 

   

Net Sales Bridge

For the Quarter and Six Months ended December 29, 2012 (unaudited)
   
 
 
The following table illustrates the components of the change in net sales versus the prior year
 
 
Second Quarter ended Dec. 29, 2012 Total
Foodservice/ Business
Retail Other Segments
Volume 1.1% 6.6% 2.9%
 
Mix 0.7 (2.9) (0.4)
 
Price 0.0 (1.0) (0.3)
 
Other 0.4 0.1 0.3
     
Adjusted net sales* change 2.2 2.8 2.5
 
Dispositions 0.0 (6.5) (1.8)
     
Total Net Sales Change 2.2% (3.7)% 0.7%
 
 
First Six Months ended Dec. 29, 2012 Total
Foodservice/ Business
Retail Other Segments
Volume 1.7% 6.0% 3.1%
 
Mix 1.0 (4.0) (0.4)
 
Price (0.4) (1.1) (0.6)
 
Other 0.3 (0.2) 0.2
     
Adjusted net sales* change 2.6 0.7 2.3
 
Dispositions 0.0 (9.0) (2.6)
     
Total Net Sales Change 2.6% (8.3)% (0.3)%
 
 
*Adjusted net sales is a non-GAAP measure that excludes the impact of dispositions.

See detailed explanation of this and other non-GAAP measures in this release.

 

   

Condensed Consolidated Balance Sheet Data

At December 29, 2012 and June 30, 2012 (in millions - unaudited)
 
 
 
December 29, June 30,
  2012   2012
 
Assets
Cash and equivalents $ 299 235
Trade accounts receivable, less allowances 229 248
Inventories 292 288
Current deferred income taxes 104 114
Income tax receivable 21 52
Other current assets 46 65
Assets held for sale   39   -
Total current assets 1,030 1,002
Property, net of accumulated depreciation of $1,231 and $1,245, respectively 829 847
Trademarks and other identifiable intangibles 127 132
Goodwill 348 348
Deferred income taxes 26 36
Other noncurrent assets 79 80
Noncurrent assets held for sale   28   5
$ 2,467 $ 2,450
 
Liabilities and Equity
Accounts payable $ 266 $ 359
Other accrued liabilities 403 469
Current maturities of long-term debt 10 5
Liabilities held for sale   27   -
Total current liabilities   706   833
Long-term debt 936 939
Pension obligation 157 166
Other liabilities 300 277
Noncurrent liabilities held for sale 1 -
Equity
Hillshire Brands common stockholders’ equity   367   235
$ 2,467 $ 2,450

 

   

Consolidated Statements of Cash Flows

For the Six Months Ended Dec. 29, 2012 and Dec. 31, 2011 (in millions - unaudited)
 
 
 
Six Months ended
 
Dec. 29, Dec. 31,
2012   2011
Operating activities -
Net income/(loss) $ 118 $ 252
 

Adjustments to reconcile net income to net cash from operating activities:

Depreciation 78 122
Amortization 8 20
Impairment charges - 417
Net (gain) loss on business dispositions (9 ) (802 )
Pension contributions, net of expense (5 ) (127 )
Increase (decrease) in deferred income taxes 18 113
Other (1 ) 37

Changes in current assets and liabilities, net of businesses acquired and sold:

Trade accounts receivable 6 8
Inventories (18 ) (113 )
Other current assets 16 (34 )
Accounts payable (57 ) (10 )
Accrued liabilities (57 ) (2 )
Accrued taxes   32     152  
Net cash from operating activities   129     33  
 
Investing activities -
Purchases of property and equipment (79 ) (128 )
Purchases of software and other intangibles (3 ) (19 )
Acquisitions of businesses - (29 )
Dispositions of businesses and investments 16 1,451
Cash received from derivative transactions 3 25
Sales of assets   1     1  
Net cash received from investing activities   (62 )   1,301  
 
Financing activities -
Issuances of common stock 39 36
Purchases of common stock - -
Borrowings of other debt - 142
Repayments of other debt and derivatives (5 ) (242 )
Net change in financing with less than 90-day maturities - (197 )
Purchase of noncontrolling interest - (10 )
Payments of dividends   (31 )   (135 )
Net cash from ( used in) financing activities   3     (406 )
 
Effect of changes in foreign exchange rates on cash   -     (243 )
 
Increase in cash and equivalents 70 685
Add: Cash balances of discontinued operations at beginning of year - 1,992
Less: Cash balances of discontinued operations at end of period (6 ) (2,610 )
Cash and equivalents at beginning of year   235     74  
 
Cash and equivalents at end of period $ 299   $ 141  
 
Supplemental cash flow data:
 
Cash paid for restructuring actions $ 48 $ 146
Cash contributions to pension plans 3 121
Cash paid for income taxes 6 120

 

           

Operating Results by Business Segment

For the Quarters ended Dec. 29, 2012 and Dec. 31, 2011 (in millions - unaudited)
   
 
 
 
 
 
As As
Reported Dispositions Adjusted (1)
Second Quarter 2013
Net sales:
Retail $ 777 $ - $ 777
Foodservice/Other 283 - 283
Intersegment   -     -   -  
Total net sales $ 1,060   $ - $ 1,060  
 
Second Quarter 2012
Net sales:
Retail $ 761 $ - $ 761
Foodservice/Other 294 18 276
Intersegment   (2 )   -   (2 )
Total net sales $ 1,053   $ 18 $ 1,035  
 
 
 
 
Other
Second Quarter 2013 As Restructuring Accelerated Impairment Significant As
Reported Dispositions Actions Depreciation Charges Items Adjusted (1)
Operating income:
Retail $ 112 $ - $ - $ - $ - $ - $ 112
Foodservice/Other   28     -   -     -     -     -     28  
Total operating segment income   140     -   -     -     -     -     140  
 
General corporate expenses (36 ) - (15 ) (10 ) - (3 ) (8 )
Mark-to-market derivative gains/(losses) (4 ) - - - - - (4 )
Amortization of trademarks/intangibles   (1 )   -   -     -     -     -     (1 )
Operating income $ 99   $ - $ (15 ) $ (10 ) $ -   $ (3 ) $ 127  
 
Operating margin 9.3 % 12.0 %
 
Second Quarter 2012
Operating income:
Retail $ 85 $ - $ - $ (6 ) $ - $ - $ 91
Foodservice/Other   29     3   (1 )   -     -     -     27  
Total operating segment income   114     3   (1 )   (6 )   -     -     118  
 
General corporate expenses (93 ) - (59 ) - (4 ) (11 ) (19 )
Mark-to-market derivative gains/(losses) 3 - - - - - 3
Amortization of trademarks/intangibles   (1 )   -   -     -     -     -     (1 )
Operating income $ 23   $ 3 $ (60 ) $ (6 ) $ (4 ) $ (11 ) $ 101  
 
Operating margin 2.1 % 9.8 %
 
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release

 

           

Operating Results by Business Segment

For the Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions - unaudited)
   
 
 
 
 
 
As As
Reported Dispositions Adjusted (1)
First Six Months 2013
Net sales:
Retail $ 1,496 $ - $ 1,496
Foodservice/Other 538 - 538
Intersegment   -     -   -  
Total net sales $ 2,034   $ - $ 2,034  
 
First Six Months 2012
Net sales:
Retail $ 1,459 $ - $ 1,459
Foodservice/Other 587 52 535
Intersegment   (6 )   -   (6 )
Total net sales $ 2,040   $ 52 $ 1,988  
 
 
 
 
Other
First Six Months 2013 As Restructuring Accelerated Impairment Significant As
Reported Dispositions Actions Depreciation Charges Items Adjusted (1)
Operating income:
Retail $ 198 $ 3 $ - $ (1 ) $ - $ - $ 196
Foodservice/Other   53     2   -     (2 )   -     -     53  
Total operating segment income   251     5   -     (3 )   -     -     249  
 
General corporate expenses (67 ) - (26 ) (18 ) - (3 ) (20 )
Mark-to-market derivative gains/(losses) 1 - - - - - 1
Amortization of trademarks/intangibles   (2 )   -   -     -     -     -     (2 )
Operating income $ 183   $ 5 $ (26 ) $ (21 ) $ -   $ (3 ) $ 228  
 
Operating margin 9.0 % 11.2 %
 
First Six Months 2012
Operating income:
Retail $ 129 $ - $ (8 ) $ (12 ) $ - $ - $ 149
Foodservice/Other   54     7   (2 )   -     -     -     49  
Total operating segment income   183     7   (10 )   (12 )   -     -     198  
 
General corporate expenses (133 ) - (89 ) - (14 ) 7 (37 )
Mark-to-market derivative gains/(losses) (1 ) - - - - - (1 )
Amortization of trademarks/intangibles   (2 )   -   -     -     -     -     (2 )
Operating income $ 47   $ 7 $ (99 ) $ (12 ) $ (14 ) $ 7   $ 158  
 
Operating margin 2.3 % 8.0 %
 
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release

 

           

Significant Items

Quarters ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
Quarter ended Dec. 29, 2012 Quarter ended Dec. 31, 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 $ - $ - $ - $ (2 ) $ (2 ) $ (0.01 )
Lease and contractual obligation exit costs (10 ) (6 ) (0.05 ) (44 ) (28 ) (0.23 )
Consulting/advisory and other costs (5 ) (4 ) (0.03 ) (14 ) (10 ) (0.09 )
Accelerated depreciation   (10 )   (6 )   (0.05 )   (6 )   (3 )   (0.03 )
Total restructuring actions (25 ) (16 ) (0.13 ) (66 ) (43 ) (0.37 )
 

Gain on Hanesbrands Inc. tax settlement

- - - - 5 0.04
Impairment charges - - - (4 ) (3 ) (0.02 )
Litigation accrual - - - (11 ) (7 ) (0.06 )
Pension settlement/withdrawal/other (3 ) (2 ) (0.01 ) - - -
Tax indemnification accrual adjustment   -     -     -     -     2     0.02  
Impact of significant items on income from continuing operations   (28 )   (18 )   (0.15 )   (81 )   (46 )   (0.39 )
 
Discontinued operations:
Restructuring actions:
Severance/ retention costs 1 1 - (21 ) (14 ) (0.12 )
Lease and contractual obligation exit costs - - - (32 ) (24 ) (0.20 )
Consulting/advisory costs (2 ) (2 ) (0.01 ) (30 ) (26 ) (0.20 )
Impairment charges - - - (25 ) (17 ) (0.14 )
Gain on the sale of discontinued operations - - - 536 368 3.09
Thailand flood loss - - - (2 ) (1 ) (0.01 )
Pension curtailment/withdrawal/other 1 1 - (3 ) (2 ) (0.01 )
Tax basis difference adjustment - 4 0.03 - 71 0.59

Tax audit settlement/reserve adjustment

- - - - (1 ) (0.01 )
Tax valuation allowance adjustment - - - - 2 0.01
Tax on unremitted earnings   -     -     -     -     (18 )   (0.15 )
Impact of significant items on income/(loss) from discontinued operations   -     4     0.03     423     338     2.84  
Impact of significant items on net income/(loss) $ (28 ) $ (14 ) $ (0.11 ) $ 342   $ 292   $ 2.45  
 
 
Impact of significant items on income from continuing operations before income taxes
 
Cost of sales $ (1 ) $ (5 )
Selling, general and administrative expenses (18 ) (27 )
Exit and business dispositions (9 ) (45 )
Impairment charges   -     (4 )
Total $ (28 ) $ (81 )
 
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.

 

           

Significant Items

Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
Six Months ended Dec. 29, 2012 Six Months ended Dec. 31, 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 $ - $ - $ - $ (18 ) $ (12 ) $ (0.10 )
Lease and contractual obligation exit costs (13 ) (8 ) (0.07 ) (50 ) (32 ) (0.26 )
Consulting/advisory and other costs (13 ) (9 ) (0.07 ) (31 ) (24 ) (0.21 )
Income from asset dispositions 5 3 0.03 - - -
Accelerated depreciation   (21 )   (13 )   (0.11 )   (12 )   (7 )   (0.06 )
Total restructuring actions (42 ) (27 ) (0.22 ) (111 ) (75 ) (0.63 )
 

Gain on Hanesbrands Inc. tax settlement

- - - 15 15 0.12
Impairment charges - - - (14 ) (9 ) (0.07 )
Pension settlement/withdrawal/other (3 ) (2 ) (0.02 ) - - -
Litigation accrual - - - (11 ) (7 ) (0.06 )
Tax indemnification accrual adjustment   -     -     -     3     4     0.03  
Impact of significant items on income from continuing operations   (45 )   (29 )   (0.23 )   (118 )   (72 )   (0.61 )
 
Discontinued operations:
Restructuring actions:
Severance/ retention costs 1 1 - (34 ) (24 ) (0.20 )
Lease and contractual obligation exit costs - - - (32 ) (24 ) (0.20 )
Consulting/advisory costs (3 ) (2 ) (0.02 ) (54 ) (44 ) (0.36 )
Impairment charges - - - (404 ) (358 ) (3.01 )
Gain on the sale of discontinued operations 3 2

0.02

798 460 3.87
Pension curtailment/withdrawal/other 1 1 - (3 ) (2 ) (0.01 )

Thailand flood loss

- - - (2 ) (1 ) (0.01 )
Tax basis difference adjustment - 4 0.04 - 189 1.59
Tax audit settlement/reserve adjustments - - - - 69 0.58
Tax valuation allowance adjustment - - - - (73 ) (0.62 )
Tax on unremitted earnings   -     -     -     -     (172 )   (1.45 )
Impact of significant items on income from discontinued operations   2     6     0.05     269     20     0.17  
Impact of significant items on net income $ (43 ) $ (23 ) $ (0.19 ) $ 151   $ (52 ) $ (0.44 )
 
 
Impact of significant items on income from continuing operations before income taxes
 
Cost of sales $ (4 ) $ (11 )
Selling, general and administrative expenses (35 ) (27 )
Exit and business dispositions (6 ) (66 )
Impairment charges   -     (14 )
Total $ (45 ) $ (118 )
 
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.

 

           

EPS Reconciliation - Reported to Adjusted

Quarters ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
Quarter ended Dec. 29, 2012 Quarter ended Dec. 31, 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

$ 89 $ (28 ) $ 117 $ 2 $ (81 ) $ 83
 
Income tax expense (benefit)   31     (10 )   41     (8 )   (35 )   27  
 
Income from continuing operations   58     (18 )   76     10     (46 )   56  
Discontinued operations:
 
Income from discontinued operations, net of tax 7 4 3 92 (30 ) 122
Gain on sale of discontinued operations, net of tax -     -     -     368     368     -  
 
Net income from discontinued operations 7     4     3     460     338     122  
 
Net income 65 (14 ) 79 470 292 178
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations -     -     -     1     -     1  
Net income attributable to Hillshire Brands $ 65   $ (14 ) $ 79   $ 469   $ 292   $ 177  
 
Amounts attributable to Hillshire Brands:
Net income from continuing operations $ 58 $ (18 ) $ 76 $ 10 $ (46 ) $ 56
Net income from discontinued operations 7 4 3 459 338 121
 
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.47 $ (0.15 ) $ 0.62 $ 0.09 $ (0.39 ) $ 0.48
Net income $ 0.53 $ (0.11 ) $ 0.64 $ 3.94 $ 2.45 $ 1.49
 
Effective tax rate - continuing operations 34.4 % 34.9 % (420.1 )% 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

Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
Six Months ended Dec. 29, 2012 Six Months ended Dec. 31, 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

$ 164 $ (45 ) $ 209 $ 4 $ (118 ) $ 122
 
Income tax expense (benefit)   57     (16 )   73     (11 )   (46 )   35  
 
Income from continuing operations   107     (29 )   136     15     (72 )   87  
Discontinued operations:
 
Income from discontinued operations, net of tax 9 4 5 (223 ) (440 ) 217
Gain on sale of discontinued operations, net of tax   2     2     -     460     460     -  
 
Net income from discontinued operations   11     6     5     237     20     217  
 
Net income 118 (23 ) 141 252 (52 ) 304
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations   -     -     -     3     -     3  
Net income attributable to Hillshire Brands $ 118   $ (23 ) $ 141   $ 249   $ (52 ) $ 301  
 
Amounts attributable to Hillshire Brands:
Net income from continuing operations $ 107 $ (29 ) $ 136 $ 15 $ (72 ) $ 87
Net income from discontinued operations 11 6 5 234 20 214
 
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.87 $ (0.23 ) $ 1.10 $ 0.13 $ (0.61 ) $ 0.74
Net income $ 0.96 $ (0.19 ) $ 1.15 $ 2.10 $ (0.44 ) $ 2.54
 
Effective tax rate - continuing operations 34.8 % 35.2 % (277.4 )% 28.8 %
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release.

 

       

Operating Income Reconciliation - Reported to Adjusted

Quarters ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 

Quarter ended Dec. 29, 2012

Impact of
As Significant
Reported Items Dispositions   Adjusted (1)
 
Net Sales $ 1,060 $ - $ - $ 1,060
 
Cost of Sales   728   1     -   727
 
Gross Profit   332   (1 )   -   333
 
MAP Expense 42 - - 42
 
SG&A (excluding MAP) 182 18 - 164
 
Net charges for exit activities, asset and business dispositions 9 9 - -
 
Impairment charges - - - -
       
Operating income $ 99 $ (28 ) $ - $ 127
 
 
Quarter ended Dec. 31, 2011
Impact of
As Significant
Reported Items Dispositions   Adjusted (1)
 
Net Sales $ 1,053 $ - $ 18 $ 1,035
 
Cost of Sales   755   5     11   739
 
Gross Profit   298   (5 )   7   296
 
MAP Expense 30 - 1 29
 
SG&A (excluding MAP) 196 27 3

 

166
 
Net charges for exit activities, asset and business dispositions 45 45 - -
 
Impairment charges 4 4 - -
       
Operating income $ 23 $ (81 ) $ 3 $ 101
 
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release.

 

       

Operating Income Reconciliation - Reported to Adjusted

Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
 
 
 
Six Months ended Dec. 29, 2012
Impact of
As Significant
Reported Items Dispositions   Adjusted (1)
 
Net Sales $ 2,034 $ - $ - $ 2,034
 
Cost of Sales   1,408   4     -   1,404
 
Gross Profit   626   (4 )   -   630
 
MAP Expense 88 - - 88
 
SG&A (excluding MAP) 349 35 - 314
 
Net charges for exit activities, asset and business dispositions 6 6 - -
 
Impairment charges - - - -
       
Operating income $ 183 $ (45 ) $ - $ 228
 
 
Six Months ended Dec. 31, 2011
Impact of
As Significant
Reported Items Dispositions   Adjusted (1)
 
Net Sales $ 2,040 $ - $ 52 $ 1,988
 
Cost of Sales   1,469   11     37   1,421
 
Gross Profit   571   (11 )   15   567
 
MAP Expense 77 - 1 76
 
SG&A (excluding MAP) 367 27 7 333
 
Net charges for exit activities, asset and business dispositions 66 66 - -
 
Impairment charges 14 14 - -
       
Operating income $ 47 $ (118 ) $ 7 $ 158
 
(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 Hillshire Brands’ financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). In this release, Hillshire Brands highlights certain items that have significantly impacted the company’s financial results and uses several non-GAAP financial measures to help investors understand the financial impact of these significant items. Other companies may calculate these non-GAAP financial measures differently than Hillshire Brands.

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