Sara Lee 2013 Annual Report Download - page 12

10 The Hillshire Brands Company
FINANCIAL REVIEW
Total selling, general and administrative (SG&A) expenses
in 2012 increased $47 million, or 5.4% from 2011. Measured as
a percent of sales, SG&A expenses increased from 22.7% in 2011
to 23.5% in 2012. The results reflect the impact of an increase in
charges related to restructuring and spin-off actions and higher MAP
expenses partially offset by the benefits of cost saving initiatives
and lower general corporate expenses, excluding restructuring and
spin-off related charges. SG&A expenses as a percent of sales
decreased in each of the business segments.
Total SG&A expenses reported in 2012 by the business segments
decreased by $14 million, or 1.8%, versus 2011 primarily due to the
benefits of cost saving initiatives partially offset by higher MAP
spending and the impact of inflation on wages and employee benefits.
Unallocated general corporate expenses increased by $59 million
in 2012 from 2011 due to a $148 million increase in restructuring
actions and other significant items partially offset by a reduction in
information technology costs, the impact of headcount reductions
and lower stranded overhead costs related to sold businesses.
As previously noted, reported SG&A reflects amounts recognized
for restructuring actions, spin-off related costs and other significant
amounts. These amounts include the following:
In millions 2013 2012 2011
Restructuring/spin-off costs $«57 $137 $36
Gain on HBI tax settlement – (15) –
Litigation accrual –11 –
Pension settlement 51–
Foreign tax indemnification charge (10) (3) –
Workers’ compensation deposit adjustment (7)––
Other –1–
Total $«45 $132 $36
Additional information regarding the restructuring and
spin-off related costs can be found in Note 6 – Exit, Disposal and
Transformation Activities.
EXIT ACTIVITIES, ASSET AND BUSINESS DISPOSITIONS
Exit activities, asset and business dispositions are as follows:
In millions 2013 2012 2011
Charges for exit activities
Severance $÷3 $27 $29
Exit of leases and other
contractual obligations 12 54 9
Business disposition gains (6)––
Total $÷9 $81 $38
The net charges in 2013 are $72 million lower than 2012 as a result
of lower severance and lease and contractual obligation exit costs.
The 2012 charges were incurred in conjunction with the spin-off.
The net charges in 2012 are $43 million higher than 2011 as a
result of a $45 million increase in lease and contractual obligation
exit costs, which were incurred in conjunction with the spin-off.
IMPAIRMENT CHARGES
In 2013, the company recognized a $1 million impairment charge,
which related to the writedown of machinery and equipment associ-
ated with the Retail segment that was determined to no longer have
any future use by the company. In 2012, the company recognized a
$14 million impairment charge, which related to the writedown of
computer software which was no longer in use. The charge was recog-
nized as part of general corporate expenses. In 2011, the company
recognized a $15 million impairment charge, which related to the
writedown of manufacturing equipment associated with the North
American foodservice bakery reporting unit.
Additional details regarding these impairment charges are
discussed in Note 4 – Impairment Charges.
NET INTEREST EXPENSE
Net interest expense of $41 million in 2013 was $31 million lower
than the prior year. This was due to a decline in interest expense
as a result of the repayment of approximately $2 billion of debt
during 2012 primarily using proceeds from the completed business
dispositions, as well as the transfer of $650 million of debt to DEMB
as part of the spin-off. Net interest expense decreased by $15 mil-
lion in 2012 from 2011 to $72 million due to a decline in interest
expense as a result of the repayment of approximately $970 million
of debt in April 2012 using existing cash on hand. Interest income
remained unchanged.
DEBT EXTINGUISHMENT COSTS
In 2012, the company completed a cash tender offer for $348 million
of its 6.125% Notes due November 2032 and $122 million of its 4.10%
Notes due 2020 and it redeemed all of its 3.875% Notes due 2013,
with an aggregate principal amount of $500 million, and recognized
$39 million of charges associated with the early extinguishment of
this debt. In 2011, the company redeemed its $1.1 billion 6.25%
Notes due September 15, 2011 and recognized a $55 million charge
associated with the early redemption of this debt.