Sara Lee 2009 Annual Report Download - page 18

Financial review
Commodity prices directly impact our business because of their
effect on the cost of raw materials used to make our products and
the cost of inputs to manufacture, package and ship our products.
Many of the commodities we use, including beef, pork, coffee, wheat,
corn, corn syrup, soybean and corn oils, butter, sugar and fuel, have
experienced price volatility due to factors beyond our control. The
company’s objective is to offset commodity price increases with pricing
actions and to offset 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 approxi-
mately 60% of operating segment income were generated outside
of the U.S. As a result, changes in foreign currency exchange rates,
particularly the European euro, can have a significant impact on
the reported results.
The company’s international operations provide a significant
portion of the company's cash flow from operating activities, which
has required and is expected to continue to require the company
to repatriate a greater portion of cash generated outside of the
U.S. The repatriation of these funds has resulted in higher income
tax expense and cash tax payments.
The corporation believes that, based on its current cash balance
and continued access to financing, the recent turmoil and decreased
liquidity in the financial markets will not have a material adverse impact
on our liquidity or cash flow. In light of the current credit market
instability, however, the corporation has taken certain actions to
maintain its liquidity and preserve operating flexibility. Although the
corporation continues to regularly access the commercial paper
market, it has shortened maturities on its commercial paper and
reduced the total amount of its commercial paper that matures
each day in response to reduced market liquidity.
Summary of Results
2009 Compared with 2008 The business highlights for 2009
include the following:
•Net sales decreased by 2.5% to $12.9 billion, reflecting the
negative impact of changes in foreign currency exchange rates and
lower unit volumes partially offset by price increases to offset higher
commodity costs.
•Reported operating income increased by $453 million to $713
million due to a $537 million reduction in impairment charges year
over year. Operating income was negatively impacted by unrealized
mark-to-market losses of $18 million on commodity derivatives as
compared to $22 million of gains in the prior year.
•The $314 million non-cash pretax impairment charge in 2009
was related to goodwill and other long-lived assets associated with
the Spanish bakery businesses and goodwill associated with the
North American foodservice beverage business.
•Operating segment income was favorably impacted by the year-
over-year reduction in impairment charges as well as pricing actions,
cost savings achieved from continuous improvement initiatives
and lower spending on media advertising and promotions (MAP).
These improvements were offset by the negative impact of changes
in foreign currency exchange rates and lower volumes.
•Income from continuing operations and net income were
$364 million, or $0.52 per share on a diluted basis. The year-over-
year improvement reflects the impact of the impairment charges
noted above as well as the positive impact of pricing actions and
cost savings initiatives.
•Cash from operating activities increased by $294 million due
to a significant reduction in cash used to fund working capital
requirements partially offset by a $131 million increase in cash
contributions to pension plans.
•Capital expenditures for property, plant and equipment and
computer software declined $136 million which is partially due to
reduced investment in information systems and manufacturing
capacity in 2009 compared to the prior year.
•The company’s total debt declined by $368 million due to the
repayment of both short term and maturing long-term debt utilizing
cash on hand and cash generated from operating activities.
•The company expended $103 million to repurchase 11.4 million
shares of its common stock under a share repurchase program.
16 Sara Lee Corporation and Subsidiaries