Hillshire Brands Delivers Strong Second Quarter

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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