Sara Lee 2008 Annual Report Download - page 58

Notes to financial statements
Dollars in millions except per share data
The nature of the costs incurred under actions initiated in 2008
and the long-term transformation plan includes the following:
Exit Activities, Asset and Business Disposition Actions
These amounts primarily relate to:
•Employee termination costs
•Lease exit costs
•Gains or losses on the disposition of assets or asset
groupings that do not qualify as discontinued operations
Transformation Costs
These amounts primarily relate to:
•Expenses associated with the installation of new information
systems, including the amortization of capitalized software costs
•Costs to retain and relocate employees, as well as costs
to recruit new employees
•Consulting costs
•Accelerated depreciation and amortization associated with
decisions to dispose of or abandon the use of certain tangible
and intangible assets at dates earlier than previously anticipated,
pursuant to an exit plan. Accelerated depreciation represents the
incremental impact of the revised estimate of remaining deprecia-
tion expense in excess of the original depreciation expense.
Transformation costs do not qualify for treatment as an exit activity
or asset and business disposition under Statement of Financial
Accounting Standards No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities.” However, management believes that the
disclosure of these transformation related charges provides the reader
with greater transparency to the total cost of the transformation plan.
The following is a summary of the (income) expense associated
with new and ongoing actions, which also highlights where the
costs are reflected in the Consolidated Statements of Income
along with the impact on diluted EPS from continuing operations:
In millions 2008 2007 2006
Cost of sales
Accelerated depreciation $«««««1 $«««31 $«««30
Transformation charges 810 5
Selling, general and administrative expenses
Accelerated depreciation –19
Transformation charges 43 109 154
Vacation policy change – – (14)
Net charges for (income from)
Exit activities 39 106 166
Asset and business dispositions (1) (12) (80)
Reduction in income from continuing
operations before income taxes 90 245 270
Income tax benefit (31) (89) (91)
Reduction in income
from continuing operations $«««59 $«156 $«179
Impact on diluted EPS from
continuing operations $0.08 $0.21 $0.23
The impact of these actions on the corporation’s business seg-
ments and unallocated corporate expenses is summarized as follows:
In millions 2008 2007 2006
North American Retail Meats $13 $««78 $««48
North American Retail Bakery 43229
Foodservice 51116
International Beverage 15 21 16
International Bakery 91830
Household and Body Care 71328
Decrease in business segment income 53 173 167
Increase in general corporate expenses 37 72 103
Total $90 $245 $270
The following discussion provides information concerning the exit,
disposal and transformation activities for each year where actions
were initiated.
2008 Actions During 2008, the corporation approved certain actions
related to exit, disposal and transformation activities and recognized
net charges of $90 related to these actions. Each of these activities
are to be completed within a 12-month period after being approved
and include the following:
•Implemented a plan to terminate 603 employees and provide
them with severance benefits in accordance with benefit plans
previously communicated to the affected employee group or with
local employment laws. The specific location of these employees
and the status of the terminations are summarized in a table
contained in this note.
•Incurred costs to exit certain leased space, including the exit
of a North American R&D facility.
•Recognized net gains associated with the disposal of several
asset groupings, the largest of which was a $3 gain related to the
disposition of a Foodservice manufacturing facility. Total proceeds
from these disposals were $9.
•Recognized costs related to the implementation of common
information systems across the organization in order to improve
operational efficiencies. These primarily relate to costs associated
with assessing current systems, the evaluation of system alterna-
tives, and process re-engineering costs, as well as the amortization
of certain capitalized software.
The following table summarizes the net charges taken for the
exit, disposal and transformation activities approved during 2008
and the related status as of June 28, 2008. The accrued amounts
remaining as of the end of 2008 represent those cash expenditures
necessary to satisfy remaining obligations. The majority of the cash
payments to satisfy the accrued costs are expected to be paid in the
next two years. The corporation does not anticipate any additional
material future charges related to the 2008 actions.
56 Sara Lee Corporation and Subsidiaries