Sara Lee 2010 Annual Report Download - page 68

Notes to financial statements
The company also announced a transformation plan in
February 2005 designed to improve performance and better posi-
tion 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 corporation also incurs exit, disposition and restructuring
charges for initiatives outside of the scope of the projects noted
above.
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 2010 2009 2008
Cost of sales
Transformation charges – IT costs $÷÷«– $«÷÷– $÷÷«4
Selling, general and administrative expenses
Transformation charges – IT costs –423
Transformation/Accelerate charges – other 23 17 2
Net charges for (income from)
Exit activities 64 103 40
Asset and business dispositions 20 – (1)
Reduction in income from continuing
operations before income taxes 107 124 68
Income tax benefit (35) (33) (25)
Reduction in income from
continuing operations $÷«72 $÷«91 $«««43
Impact on diluted EPS from
continuing operations $0.10 $0.13 $0.06
The impact of these actions on the corporation’s business segments
and unallocated corporate expenses is summarized as follows:
In millions 2010 2009 2008
North American Retail $÷÷4 $÷««– $14
North American Fresh Bakery –63
North American Foodservice 10 (1) 5
International Beverage 12 53 13
International Bakery 47 38 9
Decrease in business segment income 73 96 44
Increase in general corporate expenses 34 28 24
Total $107 $124 $68
The following discussion provides information concerning the
exit, disposal and transformation/Accelerate activities for each year
where actions were initiated and material reserves exist.
2010 Actions During 2010, the corporation approved certain
actions related to exit, disposal, and Accelerate activities and rec-
ognized charges of $118 million related to these actions. Each of
these activities is to be completed within a 12-month period after
being approved and include the following:
•Recognized a charge to implement a plan to terminate 1,154
employees, related to European beverage, European bakery and
North American foodservice operations, and provide them with
severance benefits in accordance with benefit plans previously com-
municated to the affected employee group or with local employment
laws. Of the 1,154 targeted employees, 635 employees have not
yet been terminated, but are expected to be terminated within
the next 12 months.
•Recognized costs associated with the transition of services
to an outside third party vendor as part of a business process
outsourcing initiative.
66 Sara Lee Corporation and Subsidiaries