Sara Lee 2008 Annual Report Download - page 56

Notes to financial statements
Dollars in millions except per share data
Branded Apparel Americas/Asia In February 2005, as part of its
transformation plan, the corporation announced its intent to spin off
the corporation’s apparel business in the Americas/Asia. This business
is referred to as Branded Apparel Americas/Asia. In preparation
for the spin off, the corporation incorporated Hanesbrands Inc., a
Maryland corporation to which it transferred the assets and liabilities
that relate to the Branded Apparel Americas/Asia business. On
September 5, 2006, Hanesbrands borrowed $2,600 from a group of
banks. Net of loan origination fees, Hanesbrands received $2,558
of cash proceeds. Using a portion of the proceeds received from the
borrowing, Hanesbrands paid a dividend of $1,950 to the corporation.
Immediately following this dividend payment, Sara Lee distributed
to each stockholder of record one share of Hanesbrands common
stock for every eight shares of Sara Lee common stock held. The
spin off was tax free on a U.S. tax basis to the corporation and
its shareholders.
After the spin off was completed, Hanesbrands paid $450 to the
corporation to settle the note payable it had with Sara Lee Corporation.
In addition, the corporation recognized as expense $23 of investment
banker and other fees as a direct result of this transaction. The after
tax loss recognized on these fees was $17. These amounts are
recognized as part of the net gain on disposal of discontinued
operations in 2007. The corporation has no significant continuing
involvement in this business after the disposal date and does not
expect any material direct cash inflows or outflows with this business.
Subsequent to the spin off date, the corporation has completed
certain postclosing adjustments, tax reporting and other postclosing
reconciliations in various areas, including completing the split of
the corporation’s pension plans and the determination under ERISA
rules of the relevant asset split to each plan. The net assets of the
Hanesbrands business distributed were $29 and this amount is
reflected as a dividend in the corporation’s Consolidated Statements
of Common Stockholders’ Equity.
Philippines Portion of European Branded Apparel Substantially
all of the European Branded Apparel business was sold in February
2006 and is further described below under the heading “Businesses
Sold in 2006”. When this business was sold, certain operations in
the Philippines were awaiting local governmental approval to legally
transfer the assets. Under the terms of the sale agreement, the
buyer of this business assumed financial responsibility for all of the
operations, including the Philippines business, even though legal
transfer of the Philippines assets had not been completed. In
September 2006, upon receiving local government approval, the
corporation completed the legal transfer of the assets and recognized
in 2007 a pretax and after tax gain of $8 and $6, respectively. Under
the terms of the sale agreement of the business, the buyer assumed
financial responsibility for the Philippines business in February 2006
upon the initial closing of the sale transaction. As such, no financial
results for the Philippines business are included in the results of
the corporation after that date.
The corporation has no significant continuing involvement in this
business after the disposal date and does not expect any material
direct cash inflows or outflows with the sold entity.
Other During 2007, the corporation completed certain postclosing
adjustments which included certain working capital adjustments
related to the assets transferred, finalized certain related tax reporting
and completed certain financial and tax reporting adjustments
related to the U.K. Apparel and Direct Selling businesses that were
sold in 2006. As a result of these adjustments, the corporation
recognized a pretax and after tax gain in discontinued operations
of $2 and $10, respectively.
Businesses Sold in 2006
Direct Selling On August 10, 2005, the corporation announced that
it had entered into a definitive agreement to sell this business, and in
December 2005, the corporation completed the sale of substantially
all of the operations to Tupperware Corporation except certain oper-
ations located in the Philippines. After receiving local governmental
approval in June 2006, the corporation completed and recognized
the sale of the Philippines operations. The net pretax and after tax
gain recognized on the sale of the Direct Selling business was $327
and $220, respectively, and the corporation received the following
consideration:
•$420, which consisted of $464 of cash received less $44 of
cash that was included in the net assets transferred to the buyer.
•The liabilities transferred to the buyer included a $33 obligation
to a retained foreign subsidiary of the corporation. Subsequent to
the closing, the buyer remitted cash to the corporation to settle this
obligation. The payment of this obligation is reflected in the investment
activities section of the Consolidated Statements of Cash Flows.
•Subsequent to the closing, the buyer paid $93 to settle
certain Sara Lee tax obligations that were directly related to the
sale transaction.
The sale agreement provided for working capital and other
customary postclosing adjustments relating to the assets transferred.
The final resolution of these items did not have a material impact
on the consolidated financial statements. After the sale, the
corporation has not had any continuing involvement in the business
and has not had any material direct cash inflows or outflows with
the sold entity.
U.S. Retail Coffee In the first quarter of 2006, the corporation
announced that it had entered into an agreement to sell its U.S. Retail
Coffee business, and the transaction closed in the second quarter
of 2006. The corporation received $82 of cash at closing and recog-
nized a pretax and after tax gain of $5 and $3, respectively.
The corporation has no continuing involvement in the business
after the date of sale and does not expect any material direct cash
inflows or outflows with the sold entity.
European Branded Apparel During the third quarter of 2006, the
corporation sold substantially all of the European Branded Apparel
business. Using foreign exchange rates on the date of the transaction,
the corporation received cash proceeds of $117 and recognized a
pretax and after tax gain of $45 and $86, respectively. Although
an impairment charge was recognized in the first quarter of 2006,
54 Sara Lee Corporation and Subsidiaries