Sara Lee 2013 Annual Report Download - page 9

The Hillshire Brands Company 7
This Financial Review discusses the company’s results of operations,
financial condition and liquidity, risk management activities, and
significant accounting policies and critical estimates. This discussion
should be read in conjunction with the Consolidated Financial
Statements and related notes thereto contained elsewhere in this
annual report. The company’s fiscal year ends on the Saturday closest
to June 30. Fiscal years 2013, 2012 and 2011 were 52-week years.
Unless otherwise stated, references to years relate to fiscal years.
The following is an outline of the analysis included herein:
• Business Overview
• Summary of Results/Outlook
• Review of Consolidated Results
• Operating Results by Business Segment
• Financial Condition
• Liquidity
• Risk Management
• Non-GAAP Financial Measures
• Critical Accounting Estimates
• Issued But Not Yet Effective Accounting Standards
• Forward-Looking Information
BUSINESS OVERVIEW
OUR BUSINESS
Hillshire Brands is a manufacturer and marketer of high-quality,
brand name food products. Sales are principally in the United States,
where it is one of the leaders in meat-centric food solutions for the
retail and foodservice markets. In the retail channel, the company
sells a variety of packaged meat products that include hot dogs, corn
dogs, breakfast sandwiches, sausages and lunchmeats as well as a
variety of frozen baked products and specialty items including cakes
and cheesecakes. These products are sold primarily to supermarkets,
warehouse clubs and national chains. The company also sells a variety
of meat and bakery products to foodservice customers.
The company’s portfolio of brands includes Jimmy Dean,
Ball Park, Hillshire Farm, State Fair, Sara Lee frozen bakery and
Chef Pierre, as well as artisanal brands Aidells and Gallo.
STRATEGY
The company is focused on delivering long-term value creation
through strengthening the core of its business through brand building
and innovation; leveraging its heritage brand equities to extend
into new adjacent categories; fueling growth by driving operating
efficiencies; and evaluating opportunities to acquire on-trend
brands that align with its strategy for value creation.
SPIN-OFF
On June 28, 2012, Sara Lee Corporation successfully completed the
spin-off of its international coffee and tea business (“spin-off”) into
an independent new public company named D.E. MASTER BLENDERS
1753 N.V. (“DEMB”). Immediately after the spin-off, Sara Lee
Corporation changed its name to The Hillshire Brands Company.
SUMMARY OF RESULTS/OUTLOOK
The business highlights for 2013 include the following:
• Net sales for the year were $3.9 billion, a decrease of $38 million,
or 1% versus the prior year. Adjusted net sales, which excludes the
results of businesses that have been exited or disposed of, increased
0.4%. The favorable impact of volume increases were offset by an
unfavorable shift in sales mix and pricing actions in response to
lower commodity costs.
• Reported operating income for the year was $297 million, an
increase of $221 million, which resulted from a decrease in charges
related to significant items. Adjusted operating income was $363 mil-
lion, an increase of $40 million, or 12.5% over the prior year as a
result of lower commodity costs net of pricing actions, lower general
corporate expenses, and higher volumes, partially offset by increased
investments in media, advertising and promotion (“MAP”).
• Operating segment income, which excludes the impact of
significant items and business dispositions, was favorably impacted
by a year-over-year decrease in commodity costs net of pricing actions
and volume increases primarily related to Jimmy Dean products,
partially offset by higher investments in MAP and higher bakery
manufacturing costs.
• Net income from continuing operations attributable to Hillshire
Brands in 2013 was $184 million, or $1.49 per share on a diluted basis,
versus a loss of $20 million, or $0.16 per share on a diluted basis in
2012. The year-over-year improvement was due to a $165 million
decrease in after tax charges related to significant items, which
includes charges for restructuring actions, spin-off related costs and
significant reductions in interest expense. On an as adjusted basis,
net income from continuing operations attributable to Hillshire
Brands in 2013 was $212 million or $1.72 per share on a diluted
basis, versus $173 million, or $1.45 per share of income in 2012.
• Cash from operating activities was $253 million in 2013,
an increase of $4 million due to a decrease in cash payments for
restructuring actions, lower contributions to pension plans, lower
cash payments for taxes and improved operating results on an adjusted
basis which were offset by the impact of the completion of the dis-
position of several discontinued operations as well as an increase in
cash used to fund working capital related to operating activities.
FINANCIAL REVIEW