Sara Lee 2010 Annual Report Download - page 22

20 Sara Lee Corporation and Subsidiaries
three performance measures under Sara Lee’s annual incentive
plan are net sales and operating income, which are the reported
amounts as adjusted for significant items and possibly other items.
Operating income, as adjusted for significant items, also may be used
as a component of Sara Lee’s long-term incentive plans. Many of
the significant items will recur in future periods; however, the amount
and frequency of each significant item varies from period to period.
See
Non-GAAP Measures Definitions on page 35 of this report for
additional information regarding these financial measures.
Summary of Results
The business highlights for 2010 include the following:
•Net sales for the year were $10.8 billion, virtually unchanged
from the prior year, as the favorable impact of the 53rd week and
changes in foreign currency exchange rates were offset by the
negative impact of business dispositions, lower unit volumes and
lower prices due to competitive pressures and a difficult economic
environment. Adjusted net sales declined 2.8%.
•Reported operating income for the year was $918 million,
an increase of $431 million, which resulted from a $286 million
reduction in impairment charges, improved operating results for
the North American Retail and International Beverage business
segments and the favorable impact of the 53rd week. Adjusted
operating income increased $157 million, or 20.2%.
•Operating segment income was favorably impacted by the
year-over-year reduction in impairment charges as well as lower
commodity costs net of pricing actions and cost savings achieved
from Project Accelerate and continuous improvement initiatives.
These improvements were partially offset by higher spending on
media advertising and promotions (MAP) and the negative impact
of lower unit volumes.
•Income from continuing operations attributable to Sara Lee
was $635 million, or $0.92 per share on a diluted basis, while
net income attributable to Sara Lee was $506 million or $0.73 per
share on a diluted basis. The year-over-year improvement reflects
improved results for the business segments, which includes the
favorable impact of lower impairment charges noted above.
•Cash from operating activities increased by $52 million due to
improved operating results and improved working capital manage-
ment partially offset by higher cash payments for restructuring
actions, taxes and pensions.
•The corporation announced a revised capital plan that will focus
on share repurchases, dividend payouts and pension plan funding
while maintaining a solid investment grade credit profile. The com-
pany expended $500 million to repurchase 36.4 million shares of
its common stock under an accelerated share repurchase program
and voluntarily contributed an additional $200 million into its U.S.
defined benefit pension plans.
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.
As previously noted, the corporation is currently in the process
of divesting the operations that comprise the household and body
care business and more than $100 million of related overhead is
expected to remain after these businesses have been sold. The
corporation estimates that it will recognize charges of approximately
$150 million to $200 million, the majority of which is expected to be
incurred in 2011, to eliminate this stranded overhead and to expand
the business process outsourcing initiative announced in 2009.
Non-GAAP Measures Management measures and reports Sara Lee’s
financial results in accordance with U.S. generally accepted accounting
principles (“GAAP”). In this report, Sara Lee highlights certain items
that have significantly impacted the corporation’s financial results
and uses several non-GAAP financial measures to help investors
understand the financial impact of these significant items. The non-
GAAP financial measures used by Sara Lee in this annual report are
adjusted net sales, adjusted operating segment income, and adjusted
operating income, which exclude from a financial measure computed
in accordance with GAAP the impact of significant items, the receipt
of contingent sale proceeds, the impact of acquisitions and disposi-
tions, the impact of the 53rd week and changes in foreign currency
exchange rates. Management believes that these non-GAAP financial
measures reflect an additional way of viewing aspects of Sara Lee’s
business that, when viewed together with Sara Lee’s financial results
computed in accordance with GAAP, provide a more complete under-
standing of factors and trends affecting Sara Lee’s historical financial
performance and projected future operating results, greater transparency
of underlying profit trends and greater comparability of results across
periods. These non-GAAP financial measures are not intended to be
a substitute for the comparable GAAP measures and should be read
only in conjunction with our consolidated financial statements prepared
in accordance with GAAP.
In addition, investors frequently have requested information
from management regarding significant items and the impact of
the contingent sale proceeds. Management believes, based on
feedback it has received during earnings calls and discussions with
investors, that these non-GAAP measures enhance investors’ ability
to assess Sara Lee’s historical and project future financial perform-
ance. Management also uses certain of these non-GAAP financial
measures, in conjunction with the GAAP financial measures, to
understand, manage and evaluate our businesses, in planning for
and forecasting financial results for future periods, and as one factor
in determining achievement of incentive compensation. Two of the
Financial review