Sara Lee 2009 Annual Report Download - page 26

Financial review
24 Sara Lee Corporation and Subsidiaries
Discontinued Operations The results of the corporation’s European
Meats, Branded Apparel Americas/Asia and Mexican meats busi-
nesses have been classified as discontinued operations. There
were no financial results attributable to discontinued operations
in 2009. The following summarizes the results of the discontinued
operations for 2008 and 2007:
In millions 2008 2007
Income (loss) from discontinued
operations before income taxes $(14) $«82
Income tax benefit (expense) on
income from discontinued operations – (34)
Gain (loss) on disposition
of discontinued operations (23) 5
Income tax (expense) benefit on
disposition of discontinued operations (1) 11
Net income (loss) from
discontinued operations $(38) $«64
Income (loss) from Discontinued Operations before Income Taxes
The decline in income from operations before income taxes from
2007 to 2008 is primarily the result of the timing of the dispositions.
The Mexican meats business was sold in March of 2008, while the
European Meats business and Branded Apparel Americas/Asia
businesses were disposed of in the early part of 2007. The operating
results in 2008 also include a $15 million charge related to the
settlement of a pension plan in the U.K. associated with the European
Branded Apparel business. Further details regarding these charges
can be found in Note 4 to the Consolidated Financial Statements,
“Discontinued Operations.”
Gain (loss) on Sale of Discontinued Operations The corporation
completed the disposition of its Mexican meats business in March
2008 and recognized a pretax and after tax loss of $23 million and
$24 million, respectively. In 2007, the corporation completed the
disposition of the European Meats and Branded Apparel Americas/
Asia businesses and completed certain postclosing adjustments
related to the completed transactions and recognized a pretax and
after tax gain of $5 million and $16 million, respectively. Further
details regarding these transactions are included in Note 4 to the
Consolidated Financial Statements, “Discontinued Operations.”
Consolidated Net Income and Diluted Earnings per Share (EPS)
Net income was $364 million in 2009 as compared to a net loss
of $79 million reported in 2008. 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.
The net loss was $79 million in 2008 as compared to net income
of $504 million reported in 2007. The decrease in net income was
due to the $827 million of after tax impairment charges, which were
$682 million higher than the prior year. Diluted EPS decreased from
$0.68 in 2007 to a loss of $0.11 in 2008.
Operating Results by Business Segment
The corporation’s structure is currently organized around six business
segments, which are described below.
Beginning in fiscal 2009, the corporation implemented certain
changes to its North American organization structure that primarily
involved the transfers of (i) the frozen bakery and beverage (Senseo)
operations from the North American Retail Bakery segment into the
North American Retail Meats segment, and (ii) a small component
of the Foodservice meats operation into the North American Retail
Meats segment. As a result of this reorganization, the three North
American segments have been renamed as follows – North American
Retail (previously named North American Retail Meats), North American
Fresh Bakery (previously North American Retail Bakery) and North
American Foodservice (previously Foodservice). The changes did not
impact the international segments and did not have a material impact
on the segment assets of the North American operations. The corpo-
ration has revised the name of the Household and Body Care segment
to International Household and Body Care. Segment information has
been revised to be consistent with the new basis of presentation.
The corporation uses derivative financial instruments to manage
its exposure to commodity prices. A commodity derivative not declared
a hedge in accordance with the accounting rules is accounted for
under mark-to-market accounting with changes in fair value recorded
in the Consolidated Statements of Income. Prior to 2009, gains and
losses on unrealized commodity derivatives accounted for under
mark-to-market accounting were included in segment operating
income. In 2009, the corporation now includes these unrealized
mark-to-market gains and losses in general corporate expenses
until such time that the exposure being hedged affects the earnings
of the business segment. At that time, the cumulative gain or loss
previously recorded in general corporate expenses for the derivative
instrument will be reclassified into the business segment’s results.
Segment information has been revised to be consistent with the
new basis of presentation.
North American Retail sells a variety of packaged meat and frozen
bakery products to retail customers in North America. It also
includes the
Senseo retail coffee business in the U.S. Products
include hot dogs and corn dogs, breakfast sausages, breakfast
convenience items which include sandwiches and bowls, smoked