Sara Lee 2010 Annual Report Download - page 30

Financial review
28 Sara Lee Corporation and Subsidiaries
Income (Loss) from Discontinued Operations before Income Taxes
Net sales for discontinued operations were $2.1 billion in 2010,
compared to $2.0 billion in the prior year, a 6.3% increase. The
sales growth was primarily driven by strength in the insecticides,
shoe care and body care core categories, as well as the additional
53rd week and favorable foreign currency exchange rates. On a
constant currency basis and excluding the impact of the 53rd week,
net sales increased 2.4%. Pretax income in 2010 was $254 million,
an increase of $9 million or 3.0% compared to 2009. The increase
was driven by higher net sales, positive manufacturing results and
favorable foreign currency exchange rates, which were partially offset
by higher significant charges, MAP spending and other SG&A costs.
Pretax income in 2010 was also benefited by $33 million due to the
cessation of depreciation and amortization in accordance with the
accounting rules for assets held for sale. Discontinued operations
reported a loss of $199 million in fiscal 2010, due to $453 million
of income tax expense. The increase in tax expense was related
to the deemed repatriation of overseas earnings, attributable to
the existing overseas cash and book value of the International
Household and Body Care businesses.
Net sales for discontinued operations were $2.0 billion in fiscal
2009, compared to $2.5 billion in the prior year, a 20.0% decrease.
The sales decline was primarily driven by the unfavorable impacts
of foreign currency exchange rates and the impact of the divestiture
of the Mexican meats business in fiscal 2008. On a constant currency
basis and excluding the impact of divestitures, net sales decreased
$40 million or 2.0%. Pretax income in 2009 was $245 million, a
decrease of $72 million or 22.4% compared to fiscal 2008. The
decrease was driven by lower unit volumes and higher raw material
and manufacturing costs, which were partially offset by lower MAP
expenses and savings from continuous improvement programs.
Discontinued operations reported net income of $155 million in
fiscal 2009 as compared to $236 million in 2008. The decrease
was primarily related to the decline in pretax income noted above.
The operating results of discontinued operations in 2008
include a $15 million charge related to the settlement of a pension
plan in the U.K. associated with the European Branded Apparel busi-
ness. Further details regarding this charge can be found in Note 5 to
the Consolidated Financial Statements, “Discontinued Operations.”
Gain (Loss) on Sale of Discontinued Operations In 2010, the
corporation completed the disposition of its insecticide business in
India, which had been part of the household and body care business,
and recognized a pretax gain of $150 million and an after tax gain
of $78 million. In 2008, the corporation completed the disposition
of its Mexican meats business and recognized a pretax loss of
$23 million and after tax loss of $24 million. Further details regard-
ing 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 $527 million in 2010, an increase of $147 million
over the prior year. The increase in net income was due to a $417 mil-
lion increase in income from continuing operations as a result of a
reduction in after tax impairment charges on a year-over-year basis
partially offset by a $270 million reduction in income from discontin-
ued operations due to the tax provision related to the repatriation of
foreign earnings. Net income was $380 million in 2009 as compared
to a net loss of $64 million 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.
The net income (loss) attributable to Sara Lee was income of
$506 million in 2010 and $364 million in 2009 and a net loss of
$79 million in 2008.
Diluted EPS were $0.73 in 2010 as compared to $0.52 in 2009.
Diluted EPS was a net loss of $0.11 in 2008. The diluted EPS in
each succeeding year was favorably impacted by lower average
shares outstanding due to an ongoing share repurchase program.
Operating Results by Business Segment
The corporation’s structure is currently organized around five business
segments, which are described below.
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 and dinner
sausages, premium deli and luncheon 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 America
including bread, buns, bagels, rolls, muffins, specialty bread and
cakes. The major brands include
Sara Lee, Earth Grains, Colonial,
Rainbo, Holsum, IronKids, Mother’s, Sunbeam, Sun-Maid, San Luis
Sourdough
and Heiner’s , some of which are used under licensing
arrangements.
North American Foodservice sells a variety of meat, bakery and
beverage products to foodservice customers in North America
including hot dogs and corn dogs, breakfast sausages and sand-
wiches, smoked and dinner sausages, premium deli and luncheon
meats, bacon, cooked and dry hams, beef, turkey, bread, pastry,
bagels, rolls, muffins, frozen pies, cakes, cheesecakes, roast &
ground and liquid coffee, cappuccinos, lattes and hot and iced teas.
The segment also sells refrigerated dough products to certain
customers. Sales are made in the foodservice channel to distributors,
restaurants, hospitals and other large institutions and in the retail
channel, sales are made to supermarkets and national chains.