Sara Lee 2008 Annual Report Download - page 57

the working capital of the business declined through the date of
sale and a gain was recognized. The tax benefit recognized on the
transaction resulted from a capital loss that the corporation was able
to carry back against a capital gain recognized in a prior transaction.
The definitive sale agreement provided for the sale of certain opera-
tions in the Philippines which were sold in 2007 and discussed above
under the heading “Businesses Sold in 2007”.
Under the terms of the transaction, the corporation can receive
additional cash proceeds if the buyer receives cash distributions as a
result of certain events such as the sale of the business, the payment
of dividends or redemption of capital or loans. Distributions of available
cash from the sold business will be made in the following order:
•The buyer will first receive any amounts owed as a result
of working capital and other purchase price adjustments.
•After the purchase price adjustments are satisfied, the corporation
will receive 49% of the next 200 million euros of cash distributions.
•If additional cash is distributed, the corporation may receive
between 15% and 25% of these amounts.
If any amounts are received, they will be recognized in income
when the cash is received. 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.
Under the terms of the sale agreement, the corporation retained
certain of the pension obligations of this business. As a result of an
agreement reached with the trustees of a retained plan at the time
of sale, it was agreed that annuities would be purchased to settle
the related obligations. In 2008 the corporation recognized a $15
non-cash charge related to the final settlement of this pension obli-
gation which was recorded in discontinued operations.
European Nuts and Snacks During the second quarter of 2006,
the corporation entered into a definitive agreement to sell its
European Nuts and Snacks business for 130 million euros and the
corporation closed this transaction in June 2006. The Nuts and
Snacks business in the Netherlands is separately reported and its
operations and cash flows are identifiable. As a result, this component
of the business is reported as a discontinued operation. The Nuts
and Snacks operations in France and Belgium are integrated into the
corporation’s other operations in these countries and share common
distribution, sales and administrative functions. Since the operations
and cash flows of these businesses could not be clearly distinguished
from the retained businesses, the operating results of the businesses
continue to be included in continuing operations. As a result of this
business being reported in both discontinued and continuing opera-
tions, the gain on the sale of business is also reported in discontinued
and continuing operations. The sale of the Nuts and Snacks business
in the Netherlands generated a pretax and after tax gain of $66 and
$70, respectively, and is reported in discontinued operations. An
additional pretax and after tax gain of $41 and $27, respectively,
related to the French and Belgian operations is recognized in
continuing operations.
The sale agreement provided for working capital and other
customary postclosing adjustments relating to the assets transferred.
The corporation has not had any significant continuing involvement
in this business after it was sold and does not expect to have any
material direct cash inflows or outflows with the sold entity.
U.K. Apparel The U.K. Apparel business was sold in June 2006 in
two transactions, with one buyer purchasing certain manufacturing
operations in Sri Lanka and a separate buyer purchasing the
Courtaulds operations centered in the U.K. The corporation recognized
a pretax and after tax gain of $22 from selling the U.K. Apparel
operations which was primarily related to the sale of the Sri Lankan
operations. The gain on these sales was not subject to tax.
The sale agreement provided for working capital and other
customary postclosing adjustments relating to the assets transferred.
Under the terms of the sale agreement, the corporation retained
certain pension obligations associated with the U.K. Apparel business
that was sold. The corporation has not had any significant continuing
involvement in this business after it was sold and does not expect to
have any material direct cash inflows or outflows with the sold entity.
U.S. Meat Snacks In March 2006, the corporation entered into a
definitive agreement to sell its U.S. Meat Snacks business for $9.
In June 2006, the corporation closed this transaction and recognized
a pretax gain of $1 that was primarily offset by taxes. 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.
Discontinued Operations Cash Flows The corporation’s discontinued
operations impacted the cash flows of the corporation as summarized
in the table below.
2008 2007 2006
Discontinued operations impact on
Cash from operating activities $10 $«88 $«860
Cash from investing activities (8) (47) (339)
Cash from financing activities (5) (56) (550)
Net cash impact of discontinued operations $«(3) $(15) $««(29)
Cash balance of discontinued operations
At start of period $««3 $«18 $«««47
At end of period –318
Decrease in cash of discontinued operations $«(3) $(15) $««(29)
Note 5 – Exit, Disposal and Transformation Activities
The company announced a transformation plan in February 2005
designed to improve performance and better position the company
for long-term growth. The plan involved significant changes in the
company’s organizational structure, portfolio changes involving the
disposition of a significant portion of the corporation’s business,
and a number of actions to improve operational efficiency. As part
of its ongoing efforts to improve its operational performance, the
corporation initiated additional actions in 2008 and recognized
certain trailing costs related to transformation actions initiated in
earlier years, including the impact of certain activities that were
completed for amounts more favorable than previously estimated.
Sara Lee Corporation and Subsidiaries 55