Sara Lee 2011 Annual Report Download - page 57

54/55 Sara Lee Corporation and Subsidiaries
Net Interest Expense Net interest expense decreased by $30 million in 2011 to $85 million. The decrease in net interest expense was a result of a $21 million decline in interest expense due to the result of refinancing approximately $800 million of debt at lower interest rates earlier in the fiscal year and a $9 million increase in interest income resulting from an increase in the amount of investments result- ing from the receipt of divestiture proceeds. Net interest expense decreased by $5 million in 2010 to $115 million. The decrease in net interest expense was a result of a $23 million decline in interest expense due to lower interest rates and average debt levels partially offset by a $18 million decrease in interest income resulting from a lower rate of return earned on investments. Income Tax Expense The effective tax rate on continuing operations in 2011, 2010 and 2009 was impacted by a number of significant items that are shown in the reconciliation of the corporation’s effec- tive tax rate to the U.S. statutory rate in Note 18 to the Consolidated Financial Statements. Additional information regarding income taxes can be found in “Critical Accounting Estimates” within Management’s Discussion and Analysis. In millions 2011 2010 2009 Continuing operations
Income before income taxes $487 $706 $298 Income tax expense 149 124 114 Effective tax rates 30.7% 17.6% 38.4%
2011 vs. 2010
In 2011, the corporation recognized tax expense
on continuing operations of $149 million, or an effective tax rate of 30.7%, compared to tax expense of $124 million, or an effective tax rate of 17.6%, in 2010. The significant components impacting the change in the corporation’s 2011 effective tax rate are as follows: • Remittance of Foreign Earnings – The 2011 effective tax rate was 16 percentage points lower than 2010 primarily due to a tax charge in 2010 of $145 million related to 2010 foreign earnings that are no longer indefinitely reinvested. Of this total, $121 million was a charge in connection with the corporation’s decision to no longer reinvest overseas earnings primarily attributable to existing overseas cash and the book value of the household and body care businesses. The corporation expects to incur charges in future fiscal years from the remittance of foreign earnings. See the discussion of
Repatriation
of Foreign Earnings and Income Taxes
in the Liquidity section of
Management’s Discussion and Analysis for more information.
The corporation has recognized approximately $262 million
of total charges related to Project Accelerate through the end of 2011, which represents virtually all of the charges expected to be recognized under this program. For 2011, the savings resulting from Project Accelerate and other restructuring actions were approximately $232 million, of which approximately $87 million is incremental to the prior year. Impairment Charges In 2011, the corporation recognized a $21 million impairment charge, $15 million of which related to the writedown of manufacturing equipment associated with the North American foodservice bakery reporting unit and $6 million related to the writedown of manufacturing equipment associated with the International Beverage segment.
In 2010, the corporation recognized a $28 million impairment
charge, $15 million of which related to the writedown of manufac- turing equipment associated with the North American foodservice bakery reporting unit and $13 million of which related to the write- down of bakery equipment associated with the Spanish bakery reporting unit.
During 2009, the corporation recognized a $314 million non-cash
charge primarily for the impairment of goodwill and other long-lived assets associated with the Spanish bakery operations and goodwill associated with the North American foodservice beverage opera- tions as both operations were not expected to generate sufficient profitability to support the remaining goodwill balances.
Additional details regarding these impairment charges are
discussed in Note 4 to the Consolidated Financial Statements, “Impairment Charges.” Receipt of Contingent Sale Proceeds Under the terms of the sale agreement for its cut tobacco business sold in 1999, the corporation was to receive annual cash payments of 95 million euros through July 2009, contingent on tobacco continuing to be a legal product in the Netherlands, Germany and Belgium. As tobacco continued to be a legal product in the required countries through the final payment date, the U.S. dollar amounts received in 2010 and 2009 were $133 million and $150 million, respectively. These amounts were recognized in the corporation’s earnings when received and the payments increased diluted earnings per share from continuing operations in 2010 and 2009 by $0.19 and $0.21, respectively.