Sara Lee 2009 Annual Report Download

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Sara Lee now.
2009 Annual Report

Table of contents

  • Page 1
    2009 Annual Report Sara Lee now.

  • Page 2
    Financial highlights Dollars in millions except per share data Years ended June 27, 2009 1 June 28, 2008 1 % Change Results of Operations Continuing operations Net sales Income before income taxes Income (loss) Income (loss) per share of common stock - diluted Income (loss) from discontinued ...

  • Page 3
    ... that are even more relevant in today's challenging economic times. With an emphasis on consumerand customer-driven innovation and a focus on continuous improvement in everything we do, we are delivering improved results now, while creating new paths for even greater success in the future. Sara Lee...

  • Page 4
    ..., customers and operations, we strengthened Sara Lee and further positioned the company for success. In this report, you will see examples of innovations that are helping us gain market share, build brand loyalty and significantly expand our business with leading retail and foodservice customers...

  • Page 5
    ...investing behind a line of premium, freeze-dried instant coffee and have seen our market share increase. Exit non-core businesses Sometimes the best way to improve performance is to bring greater focus and simplicity to the business by pruning our portfolio. In our North American Foodservice segment...

  • Page 6
    ... Belgium in fiscal 2009, lets consumers brew cappuccinos and lattes with fresh milk at the touch of a button. Slam dunkin' Sara Lee Foodservice is successfully partnering with Dunkin' Donuts to be the exclusive provider of Dunkin' Donuts coffee to foodservice customers across the United States. This...

  • Page 7
    ... innovate to drive future growth, carefully listening to our consumers and customers as we create great new coffees to enjoy at home and away from home. We also plan to become a bigger player in instant coffees and coffeebased drinks, and will continue to enter new markets. Sara Lee Corporation 5

  • Page 8
    ... love our Ball Park, Hillshire Farm, Jimmy Dean and Sara Lee brands. With on-trend new products, effective marketing and focused investments, we are further strengthening these brands and our meat business. We will continue to grow in meats through product innovation centered on quality and...

  • Page 9
    ... from Sara Lee deli meats. Protein breakfast, what a D-Light The Jimmy Dean brand has evolved from a breakfast sausage into an innovative protein breakfast platform. The brand now offers busy consumers a broad selection of convenient, hot and hearty breakfast products such as Jimmy Dean Breakfast...

  • Page 10
    ...on the strength of innovative products such as Bimbo white crust bread and tender bakery bread. With new initiatives such as using heart-healthy olive oil in its breads, the Bimbo brand has put its focus squarely on the consumer need for health and wellness focused products. 8 Sara Lee Corporation

  • Page 11
    ... innovative, high-quality products, customer excellence and the power of the Sara Lee brand. Sara Lee is also a leader in foodservice bakery and is the number-one supplier of store-brand refrigerated dough in the United States. Internationally, we are a leading fresh bakery company in Spain, a major...

  • Page 12
    ... to profits. At Sara Lee, we are focused on getting it right. To do that, we have trained thousands of people in continuous improvement skills, dissecting day-to-day business processes and putting them back together in the most efficient way. We have stopped doing things that don't add value to...

  • Page 13
    ... across the entire company to a way of doing business centered on continuously improving. A new kitchen for Sara Lee In the spring of 2009, Sara Lee opened The Kitchens of Sara Lee, its new North American innovation campus. The 120,000-square-foot research and development center of excellence...

  • Page 14
    ...: putting the "pure" in air care Ambi Pur Puresse is a line of air fresheners specially formulated to reduce the risk of skin allergies. In addition to Puresse, the Ambi Pur brand offers international consumers a wide range of other innovative air care products for the living room, bathroom and...

  • Page 15
    ...statements of income 48 Consolidated balance sheets 50 Consolidated statements of common stockholders' equity 51 Consolidated statements of cash flows 52 Notes to financial statements 85 Report of independent registered public accounting firm 86 Management's report 87 Performance graph 88 Directors...

  • Page 16
    ...on sale of discontinued operations Net income (loss) Net income (loss) per share of common stock Basic Diluted Financial Position Total assets Total debt Per Common Share Dividends declared Book value at year-end Market value at year-end Shares used in the determination of net income per share Basic...

  • Page 17
    ...the retail channel to supermarkets, warehouse clubs and national chains. The company also sells a variety of meat, bakery and beverage products to foodservice customers in North America. Internationally, the company sells coffee and tea products in Europe, Brazil, Australia Sara Lee Corporation and...

  • Page 18
    ... any operating costs increases with continuous improvement savings. The company's business results are also heavily influenced by changes in foreign currency exchange rates. For the most recently completed fiscal year, approximately 45% of net sales and approximately 60% of operating segment income...

  • Page 19
    ... of fixed assets, intangible assets, goodwill and investments held by the corporation. More information regarding impairment charges can be found in Note 3 to the Consolidated Financial Statements, "Impairment Charges." The reported results were also impacted by certain discrete tax matters that...

  • Page 20
    ... benefit on non-recurring foreign exchange gains Other tax adjustments, net Impact on income from continuing operations Significant items impacting discontinued operations U.K. Pension plan settlement charge Charge for transformation expenses Gain (loss) on the sale of discontinued operations, net...

  • Page 21
    ... impact of price increases, savings from continuous improvement programs, and a reduction in SG&A costs, due in part to lower MAP spending partially offset by higher commodity costs, and lower unit volumes. Operating income decreased by $302 million, or 53.6%, in 2008. The year-over-year net impact...

  • Page 22
    ... lower unit volumes partially offset by price increases and savings from continuous improvement programs. The gross margin percent declined from 38.3% in 2008 to 37.1% in 2009 due to gross margin percent declines at North American Fresh Bakery, International Beverage and Household and Body Care. The...

  • Page 23
    ... North American Fresh Bakery segment recognized a $31 million charge to establish an estimated partial withdrawal liability as a result of the cessation of contributions to a multi-employer pension plan. Of the total charge, $18 million was recognized in SG&A. During 2009, the International Beverage...

  • Page 24
    ... Consolidated Financial Statements. Additional information regarding income taxes can be found in "Critical Accounting Estimates" within Management's Discussion and Analysis. In millions 2009 2008 2007 Continuing operations Income before income taxes Income tax expense (benefit) Effective tax rates...

  • Page 25
    ... Assets - In 2007, the corporation sold shares of a subsidiary resulting in a $169 million tax benefit. No comparable transaction occurred in 2008. Income (Loss) from Continuing Operations and Diluted Earnings per Share (EPS) from Continuing Operations Income from continuing operations in 2009...

  • Page 26
    ... The increase in net income was due to a $538 million reduction in after tax impairment charges on a year-over-year basis. Diluted EPS was $0.52 in 2009 versus a net loss of $0.11 in 2008. North American Retail sells a variety of packaged meat and frozen bakery products to retail customers in North...

  • Page 27
    ... meats, bacon, cooked hams and frozen pies, cakes, cheesecakes and other desserts. The major brands include Hillshire Farm, Ball Park, Jimmy Dean, Sara Lee and State Fair. North American Fresh Bakery sells a wide variety of fresh bakery products to retail and institutional customers in North...

  • Page 28
    ... 2009 2008 2007 North American Retail North American Fresh Bakery North American Foodservice International Beverage International Bakery International Household and Body Care Impact on the business segments General corporate expenses Impact on income from continuing operations before income taxes...

  • Page 29
    ... by declines in retail deli meat and frozen bakery products driven in part by planned SKU rationalization and other margin improvement initiatives. Unit volume declines were also the result of the continuing planned exit of the commodity meats business. Operating segment income increased by $105...

  • Page 30
    ... pricing actions to cover higher commodity costs and higher unit volumes. Net unit volumes increased 1.1% due to an increase in unit volumes for both branded and non-branded fresh bakery products. Net sales of Sara Lee branded products increased 19% versus the prior year. Operating segment income...

  • Page 31
    ... assets in the foodservice bakery and beverage businesses. The remaining operating segment income decline of $12 million, or 9.2%, was due to higher commodity and overhead costs as well as lower unit volumes, partially offset by pricing actions, and savings from continuous improvement initiatives...

  • Page 32
    ... impact of price increases, higher unit volumes and the benefits of continuous improvement programs, which were partially offset by higher green coffee and packaging costs and an increase in SG&A costs due to higher labor costs to support general growth in the business. 30 Sara Lee Corporation and...

  • Page 33
    ... operations. The remaining operating segment income was unchanged versus the prior year as favorable pricing actions and savings from continuous improvement programs were offset by higher commodity and labor costs and an unfavorable sales mix shift to private label in Spain. Sara Lee Corporation...

  • Page 34
    Financial review International Household and Body Care Dollar Change Percent Change Dollar Change Percent Change In millions 2009 2008 2008 2007 Net sales Increase/(decrease) in net sales from Changes in foreign currency exchange rates Acquisition/dispositions Total Operating segment income ...

  • Page 35
    .... The corporation expects capital expenditures for property and equipment to be approximately $450 to $475 million in 2010, an increase over 2009 due to an increase in projected expenditures related to information technology assets and expanded plant capacity in North American Retail. In 2009, $138...

  • Page 36
    ... be made during 2010. The corporation will continue to look at any future share buybacks opportunistically, balancing our share price with the state of the financial markets and other factors. Other Borrowings The corporation had net repayments of other debt of $102 million during 2009 and $1,456...

  • Page 37
    ... Financial Statements, titled "Defined Benefit Pension Plans," the funded status of the corporation's defined benefit pension plans is defined as the amount the projected benefit obligation exceeds the plan assets. The underfunded status of the plans is $466 million at the end of fiscal 2009...

  • Page 38
    ... spin off of Hanesbrands and the disposition of a number of significant European operations, the corporation has repatriated a portion of earnings annually since 2006 and will likely continue to do so in the future. This policy will increase the corporation's income tax rate and increase cash income...

  • Page 39
    ...losses on these hog transactions. Expected losses from the sale of these hogs are recognized when the loss is probable of occurring. At the end of 2009, based on current market pricing, the corporation deemed that it was not probable that material future near-term losses would occur. The contractual...

  • Page 40
    ... future periods using interest rates in effect at the end of 2009. See Note 12 to the Consolidated Financial Statements for further details on the corporation's long-term debt. Purchase obligations include expenditures to purchase goods and services in the ordinary course of business for production...

  • Page 41
    ...exchange rates for a one-day period. The average value at risk amount represents the simple average of the quarterly amounts for the past year. These amounts are not significant compared with the equity, historical earnings trend or daily change in market capitalization of the corporation. Sara Lee...

  • Page 42
    ...at the end of each accounting period. Inventory Valuation Inventory is carried on the balance sheet at the lower of cost or market. Obsolete, damaged and excess inventories are carried at net realizable value. Historical recovery rates, current market conditions, future marketing and sales plans and...

  • Page 43
    ... goodwill, it is necessary to estimate the fair value of the reporting units. In making this assessment, management relies on a number of factors to discount anticipated future cash flows including operating results, business plans and present value techniques. Rates used to discount cash flows are...

  • Page 44
    ... goodwill balances at the end of 2009 include North American foodservice bakery with $476 million, North American fresh bakery with $287 million, and International Bakery France with $181 million. Although we currently believe the operations can support the value of goodwill reported, these...

  • Page 45
    ... impact on income tax expense, net income and liquidity in future periods: • The spin off of the Hanesbrands business that was completed in 2007 has resulted in, and may continue to result in, an increase in the corporation's effective tax rate in future years as the operations that were spun...

  • Page 46
    ... regarding tax obligations and benefits. Stock Compensation The corporation issues restricted stock units (RSUs) and stock options to employees in exchange for employee services. See Note 8 to the Consolidated Financial Statements regarding stock-based compensation for further information on...

  • Page 47
    ... for the corporation at the beginning of 2010. The adoption of SFAS 160 will have an impact on the presentation of the Consolidated Statements of Income in that net income will be reported with and without noncontrolling interests. Employers' Disclosures about Postretirement Benefit Plan Assets In...

  • Page 48
    ... on Sara Lee's business of its announcement that it is reviewing strategic options for its international household and body care business and any decision made as a result of such review; and (xi) Sara Lee's ability to continue to source production and conduct manufacturing and selling operations in...

  • Page 49
    ...) on sale of discontinued operations, net of tax expense (benefit) of nil, $1, and $(11) Net income (loss) Income (loss) from continuing operations per share of common stock Basic Diluted Net income (loss) per share of common stock Basic Diluted The accompanying Notes to Financial Statements are an...

  • Page 50
    ...balance sheets Dollars in millions except share data June 27, 2009 June 28, 2008 Assets Cash and equivalents Trade accounts receivable, less allowances of $82 in 2009 and $91 in 2008 Inventories Finished goods Work in process Materials and supplies Current deferred income taxes Other current assets...

  • Page 51
    ... liabilities Payroll and employee benefits Advertising and promotion Income taxes payable and current deferred taxes Other Current maturities of long-term debt Liabilities held for sale Total current liabilities Long-term debt Pension obligation Deferred income taxes Other liabilities Minority...

  • Page 52
    ..., net of tax of $49 (168) Dividends (370) Spin off of Hanesbrands Inc. business (29) Stock issuances - restricted stock 29 Stock option and benefit plans 47 Tax benefit related to stock-based compensation 1 Share repurchases and retirement (686) ESOP tax benefit, redemptions and other 27 Balances at...

  • Page 53
    ... income (loss) to net cash from operating activities Depreciation Amortization Impairment charges Net loss (gain) on business dispositions Increase (decrease) in deferred income taxes Pension payments, net of expense Other Change in current assets and liabilities, net of businesses acquired and sold...

  • Page 54
    ... segment income, is presented in Note 22, "Business Segment Information," of these financial statements. Food and beverage sales are made in both the retail channel, to supermarkets, warehouse clubs and national chains, and the foodservice channel. Household and body care products are primarily sold...

  • Page 55
    ...reported on a separate line of the income statement. Prior to disposition, the assets and liabilities of discontinued operations are aggregated and reported on separate lines of the balance sheet. Gains and losses related to the sale of business components that do not meet the discontinued operation...

  • Page 56
    ... for the amount by which the carrying value exceeds the fair value of the asset. In making this assessment, management relies on a number of factors to discount estimated future cash flows including operating results, business plans and present value techniques. Rates used to discount cash flows...

  • Page 57
    ... the fair values of the reporting units. In making this assessment, management relies on a number of factors to discount anticipated future cash flows, including operating results, business plans and present value techniques. In 2009, the fair value of goodwill is estimated based on a discounted...

  • Page 58
    ...end statement of financial position. Beginning in 2009, the corporation measures its plan assets and liabilities as of fiscal year end pursuant to the new GAAP measurement date provisions. Financial Instruments The corporation uses financial instruments, including forward exchange, options, futures...

  • Page 59
    ... review performed in the second quarter of 2009, the Spanish bakery operation was identified as a reporting unit that might become impaired in future periods if forecasted earnings improvements did not occur. The Spanish bakery reporting unit is North American Foodservice and International Bakery...

  • Page 60
    ... assets of this reporting unit were classified as held for sale at the end of 2008. During 2009, the corporation completed the disposition of the DSD business and received $42. 2007 North American Retail Property In 2007, the corporation decided to exit a commodity meats hog slaughtering operation...

  • Page 61
    ... the disposition of the business. The Mexican meats operation had been reported in the North American Retail segment. Businesses Sold in 2007 European Meats In June 2006, the corporation entered into a definitive agreement to sell its European Meats business. The transaction closed in August 2006...

  • Page 62
    ... follows: In millions 2009 2008 2007 North American Retail North American Fresh Bakery North American Foodservice International Beverage International Bakery International Household and Body Care Decrease in business segment income Increase in general corporate expenses Total $÷÷- 6 (1) 58 38 15...

  • Page 63
    ... summarizes the employee terminations by location and business segment. North American Fresh Bakery International Household and Body Care Number of employees North American Retail North American International International Foodservice Beverage Bakery Corporate Total United States Europe Africa...

  • Page 64
    ... the employee terminations by location and business segment. North American Fresh Bakery International Household and Body Care Number of employees North American Retail North American International International Foodservice Beverage Bakery Corporate Total United States Europe Australia 242...

  • Page 65
    ... summarizes the employee terminations by location and business segment. North American Fresh Bakery International Household and Body Care Number of employees North American Retail North American International International Foodservice Beverage Bakery Corporate Total United States Europe South...

  • Page 66
    ... Hedges Liability Comprehensive Adjustment and Other Adjustment Income (Loss) Note 8 - Stock-Based Compensation The corporation has various stock option, employee stock purchase and stock award plans. At June 27, 2009, 99.0 million shares were available for future grant in the form of options...

  • Page 67
    ...stock unit plans that will be recognized over the weighted average period of 1.76 years. Expense Recognized for All Stock-Based Compensation For all share-based payments during 2009, 2008 and 2007, the corporation recognized total compensation expense of $41, $38 and $41 and recognized a tax benefit...

  • Page 68
    ...568 $2,340 2009 2010 2012 2013 2014 2015 2033 $÷÷÷«- 25 1,110 500 12 57 500 2,204 $÷«150 25 1,110 500 11 50 500 2,346 Income (loss) from continuing operations Income (loss) from discontinued operations Gain (loss) on sale of discontinued operations Net income (loss) Average shares outstanding...

  • Page 69
    ... components of the corporation's intangible assets reported in continuing operations and the related amortization expense are as follows: Accumulated Gross Amortization Net Book Value 2009 Intangible assets subject to amortization Trademarks and brand names Customer relationships Computer software...

  • Page 70
    ... associated with each business segment and the changes in those amounts during 2009 and 2008 are as follows: North American Fresh Bakery International Household and Body Care North American Retail North American International International Foodservice Beverage Bakery Total Net book value at June...

  • Page 71
    ...payments passed in the first quarter of each fiscal year and the corporation received the annual payments and recorded income in the contingent sales proceeds line in the Consolidated Statements of Income. The payments received increased diluted earnings per share by $0.21 in 2009, $0.18 in 2008 and...

  • Page 72
    ... products companies. These investigations usually continue for several years and, if violations are found, may result in substantial fines. In connection with these investigations, Sara Lee's Household and Body Care business operating in Europe has received requests for information, made employees...

  • Page 73
    ... a tax dispute in that country. Note 18 - Financial Instruments Background Information The corporation uses derivative financial instruments, including forward exchange, futures, options and swap contracts, to manage its exposures to foreign exchange, commodity prices and interest rate risks. The...

  • Page 74
    ...transaction. Changes in the fair value of derivatives classified as mark-to-market hedges are reported in earnings in either the "Cost of sales" or "Selling, general and administrative expenses" lines of the Consolidated Statements of Income where the change in value of the underlying transaction is...

  • Page 75
    ..., and non-financial assets or liabilities measured at fair value in business acquisitions, until fiscal 2010. The corporation does not believe the implementation of SFAS 157 for our non-financial assets and liabilities will have a material impact on the consolidated financial statements, but we...

  • Page 76
    ... internally developed discounted cash flow model is an example of a level 3 asset or liability. Effective the beginning of fiscal 2009, the corporation implemented SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), which allows companies the option to report...

  • Page 77
    ... for the year ended June 27, 2009 is as follows: Gain or (Loss) Recognized in Income on Derivatives Location Amount Gain or (Loss) Recognized in Income on Hedged Item Location Amount Fair Value Derivatives Interest rate contracts Foreign exchange contracts Total Interest income Selling, general and...

  • Page 78
    ...-income investments that have a AA bond rating to discount the expected future benefit payments to plan participants. Salary increase assumptions are based upon historical experience and anticipated future management actions. In determining the longterm rate of return on plan assets, the corporation...

  • Page 79
    ...Plan Assets, Expected Benefit Payments and Funding The allocation of pension plan assets as of the respective year-end measurement dates is as follows: 2009 2008 Asset category Equity securities Debt securities Real estate Cash and other Total 24% 63 3 10 100% 40% 46 2 12 100% Sara Lee Corporation...

  • Page 80
    ... the corporation has targeted a slightly higher percentage of assets to be invested in equities versus debt securities. Substantially all pension benefit payments are made from assets of the pension plans. Using foreign currency exchange rates as of June 27, 2009 and expected future service, it...

  • Page 81
    ...net periodic benefit cost and plan obligations for the three years ending June 28, 2008 were: 2009 2008 2007 The discount rate is determined by utilizing a yield curve based on high-quality fixed-income investments that have an AA bond rating to discount the expected future benefit payments to plan...

  • Page 82
    ... Foreign exchange End of year Fair value of plan assets Funded status Amounts recognized on the consolidated balance sheets Accrued liabilities Other liabilities Total liability recognized Amounts recognized in accumulated other comprehensive loss Unamortized prior service credit Unamortized net...

  • Page 83
    ...(benefits) were: 2009 Current Deferred Current 2008 Deferred Current 2007 Deferred The deferred tax liabilities (assets) at the respective year-ends were as follows: 2009 2008 Deferred tax (assets) Pension liability Employee benefits Unrealized foreign exchange Nondeductible reserves Net operating...

  • Page 84
    ...products and services from which each reportable segment derives its revenues. • North American Retail sells a variety of packaged meat and frozen bakery products to retail customers in North America and includes the corporation's U.S. Senseo retail coffee business. • North American Fresh Bakery...

  • Page 85
    ... Fresh Bakery North American Foodservice International Beverage International Bakery International Household and Body Care Total operating segment income Amortization of trademarks and other intangibles General corporate expenses - other 3,4,5 General corporate expenses - derivatives Contingent sale...

  • Page 86
    ... Area Information 2008 United States Netherlands Spain Other Total Quarter First Second Third Fourth Continuing operations Net sales $3,054 1,157 200 $3,408 1,292 182 $3,243 1,259 234 $3,507 1,350 (657) Gross profit Income (loss) 1 Income (loss) per common share Basic 1 Diluted 1 Net income...

  • Page 87
    ... financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits...

  • Page 88
    ...and testing of the design and operating effectiveness of its internal control over financial reporting. Management of the corporation reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on the corporation's assessment, management has concluded that, as of...

  • Page 89
    ...including reinvestment of dividends. Fiscal year ending the closest Saturday to June 30 (June 27, 2009 for fiscal 2009). Comparison of Five-Year Cumulative Total Stockholder Return Sara Lee utilizes a weighted composite of the S&P Packaged Foods & Meats and Household Products (Non-Durables) Indices...

  • Page 90
    ... Household and Body Care James W. Nolan, 53 Executive vice president, chief executive officer, North American Fresh Bakery Frank van Oers, 50 Executive vice president, chief executive officer, International Beverage and Bakery B. Thomas Hansson, 49 Senior vice president, strategy and corporate...

  • Page 91
    ... Mile 540 North Michigan Avenue Chicago, IL 60611 Stock Listing Sara Lee Corporation's common stock is listed under the symbol SLE on the New York, Chicago and London stock exchanges. Dividends Sara Lee Corporation's quarterly dividends on common stock are paid on or about the fifth business day of...

  • Page 92
    Sara Lee Corporation 3500 Lacey Road Downers Grove, IL 60515-5424 + 1.800.SARA.LEE + 1.630.598.6000 www.saralee.com