Sara Lee 2009 Annual Report Download - page 62

Notes to financial statements
Dollars in millions except per share data
Note 5 – Exit, Disposal and Restructuring Activities
As part of its ongoing efforts to improve its operational performance
and reduce cost, the corporation initiated Project Accelerate in 2009,
which is a series of global initiatives designed to drive significant
savings in the next three years. It is anticipated that the overall cost
of the initiatives will include severance costs as well as transition
costs associated with transferring services to an outside third party.
An important component of Project Accelerate involves outsourcing
pieces of the North American and European Finance (transaction
processing) and Global Information Services (applications develop-
ment and maintenance) groups as well as the company’s indirect
procurement activities. In addition to cost savings, this business
process outsourcing will help the corporation drive standardization,
increase efficiency and provide flexibility. The corporation began
implementation of the initiative in North America and Europe in the
second quarter of 2009 and plans to complete global implementa-
tion within three years.
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. The corporation
has recognized certain trailing costs related to these transformation
actions, including the impact of certain activities that were completed
for amounts more favorable than previously estimated.
The nature of the costs incurred under these plans 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/Accelerate costs recognized in Cost of Sales
and Selling, General and Administrative Expenses
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
•Consulting costs
•Costs associated with the transition of services to an outside
third party vendor as part of a business process outsourcing initiative
Transformation/Accelerate costs are recognized in Cost of Sales
or Selling, General and Administrative Expenses in the Consolidated
Statements of Income as they do not qualify for treatment as an exit
activity or asset and business disposition pursuant to the accounting
rules for exit and disposal activities. However, management believes
that the disclosure of these transformation/Accelerate related
charges provides the reader with greater transparency to the total
cost of the initiatives.
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:
In millions 2009 2008 2007
Cost of sales
Transformation charges – IT costs $«÷÷5 $÷÷«8 $÷«10
Selling, general and administrative expenses
Transformation charges – IT costs 21 40 42
Transformation/Accelerate charges – other 18 3 67
Net charges for (income from)
Exit activities 114 39 106
Asset and business dispositions – (1) (12)
Reduction in income from continuing
operations before income taxes 158 89 213
Income tax benefit (43) (31) (77)
Reduction in income from
continuing operations $«115 $«««58 $«136
Impact on diluted EPS from
continuing operations $0.16 $0.08 $0.18
The impact of these actions on the corporation’s business seg-
ments and unallocated corporate expenses is summarized as follows:
In millions 2009 2008 2007
North American Retail $÷÷– $14 $««56
North American Fresh Bakery 6324
North American Foodservice (1) 5 10
International Beverage 58 14 20
International Bakery 38 9 18
International Household and Body Care 15 7 13
Decrease in business segment income 116 52 141
Increase in general corporate expenses 42 37 72
Total $158 $89 $213
The following discussion provides information concerning the
exit, disposal and transformation activities for each year where
actions were initiated.
60 Sara Lee Corporation and Subsidiaries