TIDMSRL
Sara Lee Corp. (NYSE: SLE) today reported earnings for the
second quarter and first half of fiscal 2012 and updated the
progress of the spin-off of the company's international Coffee
& Tea business.
Second Quarter Highlights (continuing operations):
-- Adjusted1 and reported net sales increased 6%
Coffee & Tea: adjusted net sales up 12%; reported net sales
up 11%
Meat2: adjusted net sales up 1%; reported net sales up
2%
-- Adjusted operating income increased 18%; reported operating income
declined 42%
Coffee & Tea: adjusted operating segment income up 2%;
reported
operating segment income up 29%
Meat: adjusted operating segment income down 2%; reported
operating segment income down 7%
-- Adjusted EPS increased six cents to $0.27; reported EPS decreased nine
cents to $0.05
-- Reiterating guidance despite negative impact from currency
Key Financial Data, Continuing Operations
Second Quarter ($ millions, except per share) First Half
2012 2011 % Change Continuing Operations 2012 2011 % Change
2,044 1,932 5.8 Adjusted Net Sales 3,944 3,730 5.8
2,081 1,958 6.3 Reported Net Sales 4,024 3,685 9.2
256 216 18.4 Adjusted Operating Income 438 391 12.0
101 175 (42.4) Reported Operating Income 212 332 (36.3)
$0.27 $0.21 28.6 Adjusted EPS $0.45 $0.33 36.4
$0.05 $0.14 (64.3) Reported Diluted EPS $0.00 $0.23 NM
1 The term "adjusted net sales" and other "adjusted" financial
measures are explained and reconciled to comparable GAAP measures
at the end of this release.
2 Meat is the summation of the N.A. Retail and N.A. Foodservice
& Specialty Meats segments
Perspectives from Executive Chairman & Chief Executive
Officer
"We continue to see solid progress in our businesses as we head
into the second half of our fiscal year", said Executive Chairman
Jan Bennink. "We remain on track to complete the spin-off during
the fourth quarter of the fiscal year. We have closed all announced
business divestitures and have supplemented our core businesses
with acquisitions that will strengthen our long-term growth
profile. Each business now has the CEO and CFO in place and they
are assessing further changes to strengthen the organization.
Finally, as we announced last week, we now have full control over
the Senseo trademark and look forward to a continued partnership
with Philips to leverage Senseo's strong brand equity into new
products and geographic market expansion."
Chief Executive Officer Marcel Smits added, "The meat business
showed a marked improvement in volume and mix trends in the quarter
in response to course corrections. We made brisk improvement on the
meat categories in the retail and foodservice businesses, while the
bakery categories lagged. Coffee and Tea continued its upward trend
and, importantly, operations in the key Western European countries
continue to perform well. We are confident that we now have the
market fundamentals in line to deliver on our guidance for the full
year."
Fiscal 2012 Guidance
The company reiterates guidance despite a negative impact from
currency
-- Adjusted EPS: $0.89-$0.95
-- Net sales: $7.9 - $8.15 billion
-- Adjusted operating income (including acquisitions): $875-$930 million
-- Net interest expense: $80 million
-- Tax rate: 33.4%
-- Year-end cash: $300 million
-- Year-end debt updated from $2.1 billion to $2.4 billion
-- Average Dollar/Euro exchange rate updated from $1.39 to $1.35
Coffee & Tea
Second Quarter ($ millions) First Half
2012 2011 % Change Continuing Operations 2012 2011 % Change
988 886 11.6 Adjusted Net Sales 1,894 1,679 12.9
998 899 11.0 Reported Net Sales 1,920 1,627 18.0
63 53 19.5 MAP 104 84 24.1
144 142 1.8 Adjusted Op. Seg. Inc. 265 243 9.1
140 109 28.7 Reported Op. Seg. Inc. 254 199 27.7
In the second quarter, Coffee and Tea continued its strong
performance. Adjusted net sales grew 12%, driven by pricing and
strong mix. This positive performance was partially offset by
volume declines which can be attributed largely to the complete
shutdown of our Thai business during massive flooding and the
deliberate withdrawal from private label business in France.
Adjusted operating margin increased for the second consecutive
quarter, to 14.6%, despite a 20% increase in MAP spending. Pricing
has now fully covered raw material increases for the first time
since the beginning of the spike in raw material prices.
The business is performing particularly well in our key Western
European countries: the Netherlands, France and Spain. Market
shares showed compelling trends in all three countries, with France
and Spain reaching record levels. The Netherlands is showing
significant progress as it has started to reverse the downward
trend of the past few years. The growth of capsules has contributed
to success in these three countries, combined with strengthened
category management and stronger focus on the base business.
The strong growth in retail sales was partially offset by a more
moderate growth in the out-of-home segment, which grew by 2%.
The company is implementing a new innovation strategy to address
unmet consumer needs through preference mapping. Within the Senseo
line, the company has launched richer variants for those who like
espresso-type products. For those who prefer a larger and milder
"long" coffee, "Lungo" variants have been introduced to the L'OR
range and have met great success in the countries in which it has
been launched (France, the Netherlands and Belgium). To capitalize
on the consumer interest in optimal freshness, we have also
launched a complete range of "bean" products in the
Netherlands.
In the first six months, adjusted net sales increased 13%, MAP
spend was up 24% and adjusted operating segment income increased by
9%. For the remainder of the fiscal year, we expect the pricing
effect to wind down and volume/mix to pick up, combined with some
tailwinds from commodity costs. Energy in Motion innovations will
start rolling out as of April, followed by major re-launches in the
summer.
Meat
Total Meats Business - North American Retail and North American Foodservice & Specialty Meats
Second Quarter ($ millions) First Half
2012 2011 % Change Continuing Operations 2012 2011 % Change
1,028 1,018 0.9 Adjusted Net Sales 1,992 1,987 0.2
1,055 1,031 2.3 Reported Net Sales 2,046 2,000 2.3
30 34 (12.0) MAP 77 73 6.3
118 121 (2.5) Adjusted Op. Seg. Inc. 201 207 (3.1)
114 122 (6.7) Reported Op. Seg. Inc. 183 205 (11.0)
The Meats business showed encouraging progress in the second
quarter as selective pricing actions were effective in reversing
volume loss trends in key categories. After a volume decline of
5.7% in the first quarter, the second quarter showed a decline of
3.5%, with trends improving as the quarter progressed. Volume and
share improvement in the company's core meat categories was diluted
by weak performance in bakery categories. A portion of the volume
decline can be attributed to short-term disruption related to the
transition of accounts to a third party broker. The long-term
benefit of this strategic move is expected to greatly outweigh the
near-term volume impact. Mix declined 0.4% in the first quarter but
increased 1.0% in the second quarter.
North American Retail
Second Quarter ($ millions) First Half
2012 2011 % Change Continuing Operations 2012 2011 % Change
741 741 (0.1) Adjusted Net Sales 1,425 1,436 (0.8)
741 741 (0.1) Reported Net Sales 1,425 1,436 (0.8)
26 32 (19.8) MAP 67 69 (2.4)
88 84 4.8 Adjusted Op. Seg. Inc. 144 145 (0.8)
81 84 (3.5) Reported Op. Seg. Inc. 123 144 (14.8)
In the second quarter, adjusted and reported net sales were flat
versus the prior year period, as volume declines of 4.9% were
offset by a positive mix effect of 1.5% as well as pricing. The
North American Retail segment implemented selective strategic
pricing actions in the second quarter in order to address
competitive price gaps in certain categories. As a result, the
company saw volume and share trends improve in core categories. The
overall result was a quarter-over-quarter volume/mix improvement of
390 basis points (from -7.3% in the first quarter to -3.4% in the
second quarter). Adjusted operating segment income increased 5% as
a result of lower SG&A, operations productivity and lower MAP
spend. Commodity price increases were not fully recovered in the
quarter.
Market share trends showed meaningful improvements in each of
the segment's core categories. The best performance in the quarter
came from the Jimmy Dean business which continues to deliver
positive trends on volume, revenue and operating profit, driven by
innovation. Meanwhile, extensive resources are being put behind
plans to improve the innovation and positioning of the Hillshire
Farm brand. The bakery business underperformed during the holiday
season in a very competitive market, impacting quarterly results
and diluting the impact of positive trends in meat.
In the first six months, adjusted and reported net sales
declined 1% to $1,425 million. Pricing and sales mix virtually
offset volume declines, the exit of the final hog resale contract
and slotting fees on new items. Adjusted operating segment income
declined 1% as the impact of volume declines more than offset lower
SG&A and operations productivity.
In the second half of the year, the company will continue to
balance pricing and MAP spend while remaining focused on
innovation.
North American Foodservice & Specialty Meats
Second Quarter ($ millions) First Half
2012 2011 % Change Continuing Operations 2012 2011 % Change
287 277 3.6 Adjusted Net Sales 567 551 2.8
314 290 8.3 Reported Net Sales 621 564 10.1
4 2 NM MAP 10 4 NM
30 37 (19.0) Adjusted Op. Seg. Inc. 57 62 (8.5)
33 38 (13.6) Reported Op. Seg. Inc. 60 61 (2.2)
In the second quarter, adjusted net sales grew 4% to $287
million, as positive pricing more than offset unit volume declines.
The segment showed mixed results as strong sales and
mid-single-digit volume growth in meats were offset by
mid-single-digit volume declines in bakery, resulting from market
declines in out-of-home desserts as well as reductions in military
sales. The specialty meats business performed well, driven by the
strong performance of Aidells, which continues to grow volume,
revenue and operating profit. Adjusted operating segment income
declined 19%, with prices increases lagging commodity cost
increases.
In the first six months, adjusted net sales increased 3% to $567
million, driven by higher prices. Adjusted operating segment income
declined 9% as volume declines and commodity increases more than
offset higher prices and lower SG&A costs.
Additional Information
Corporate Expenses
Second Quarter ($ millions, excluding significant items) First Half
2012 2011 2012 2011
(21) (41) General corporate expenses (31) (64)
15 (2) Commodity MTM gains/(losses) 4 10
(3) (3) Amortization of trademarks and intangibles (6) (6)
(9) (46) Total corporate expenses (33) (60)
The company continues to make progress in reducing general
corporate expenses while preparing for the spin-off. Excluding
significant items, general corporate expenses were $21 million for
the quarter, a decline of $20 million from the prior year. The
reduction was primarily due to lower corporate headcount costs and
pension expenses. We now expect full year general corporate
expenses (including amortization) to be $85-$95 million.
Australian Bakery
The Australian Bakery business has been taken off strategic
review and will remain with the North American Meat business
post-spin.
Commodity Costs (including Currency Mark-to-Market)
For the second quarter, the company's total commodity costs
increased by $169 million, partially offset by $151 million in
higher prices. For the first half, the company's total commodity
costs increased by $323 million, partially offset by $311 million
in higher prices. The $323 million increase in FY12 commodity costs
includes a $37 million favorable variance in currency
mark-to-market adjustments, comprised of a $21 million first-half
gain in FY12 versus a $16 million first-half loss in FY11. This
year-over-year benefit is included in the Coffee and Tea
results.
Cash from Operations
Net cash from operating activities for the second quarter was
$253 million versus $205 million in the prior year. For the first
half, net cash from operating activities was $33 million compared
to $233 million in the prior year. The decrease was primarily due
to a significant decline in the cash generated by discontinued
operations as divestitures were completed, a one-time EUR60 million
payment to the Netherlands pension plan in the first quarter and
higher cash payments for significant items.
Significant Items
For the quarter, significant items, excluding impairment charges
and gains or losses on the sale of businesses, were $170 million,
primarily resulting from the renegotiation of global IT contracts
and spin-related advisory fees. For the full year, we now expect
total significant items, excluding impairment charges and gains or
losses on the sale of businesses, to be $525-$550 million. Included
in this amount is approximately EUR50 million related to the
previously announced termination of an existing agreement with
Royal Philips Electronics.
Timing of Payment of the $3.00 Special Dividend
The company expects to declare and pay the $3.00 special
dividend in the fourth quarter of fiscal 2012.
Diluted Earnings Per Share
Second Quarter
Continuing Operations Total Company
2012 2011 2012 2011
Diluted EPS as reported $ 0.05 $ 0.14 $ 0.79 $ 1.30
Less:
Gain on sale of - - 0.62 0.77
discontinued
operations
Tax related items (0.04 ) - 0.09 0.35
Other significant items (0.18 ) (0.07 ) (0.22 ) (0.11 )
Adjusted EPS* $ 0.27 $ 0.21 $ 0.30 $ 0.31
* Amounts are rounded
and may
not add to the total.
First Half
Continuing Operations Total Company
2012 2011 2012 2011
Diluted EPS as reported $ 0.00 $ 0.23 $ 0.42 $ 1.58
Less:
Gain on sale of - - 0.78 0.89
discontinued
operations
Tax related items (0.18 ) 0.01 0.03 0.35
Other significant items (0.27 ) (0.11 ) (0.89 ) (0.16 )
Adjusted EPS* $ 0.45 $ 0.33 $ 0.51 $ 0.51
* Amounts are rounded
and may
not add to the total.
Webcast and Form 10-K
Sara Lee Corporation's review of its results for the second
quarter will be broadcast live via the Internet today at 10:00 a.m.
CST. The live webcast can be accessed in the Investor Relations
section on www.saralee.com and is anticipated to conclude by 11:00
a.m. CST. For people who are unable to listen to the webcast live,
a recording will be available on the website at 7:00 p.m. on the
day of the webcast until August 3, 2012. Sara Lee has also provided
slides containing additional information that will be reviewed
during its second quarter webcast. The slides can be accessed in
the Investor Relations section on www.saralee.com under Investor
News and Events.
Amounts included in the release are preliminary, pending Sara
Lee Corporation's filing of its Form 10-Q with the Securities and
Exchange Commission on or before February 9, 2012. The Form 10-Q
will be available in the Investor Relations section (Financial/SEC
Information page) on www.saralee.com.
About Sara Lee Corporation
Sara Lee Corp. (NYSE: SLE) and it's leading portfolio of food
and beverage brands, including Ball Park, Douwe Egberts, Hillshire
Farm, Jimmy Dean, Pickwick Teas, Sara Lee and Senseo, generate
nearly $8 billion in annual net sales from continuing operations
and employ approximately 20,000 people worldwide. In January 2011,
Sara Lee Corp. announced that it will divide the company into two
pure-play publicly-traded companies, one focused on the
international coffee and tea market and the other on North American
meats. For more information on the company, please visit
www.saralee.com.
Forward-Looking Statements
This release contains forward-looking statements regarding Sara
Lee's business prospects and future financial results and metrics,
including statements contained under the heading "Fiscal 2012
Guidance." In addition, from time to time, in oral statements and
written reports, the corporation discusses its expectations
regarding the corporation's future performance by making
forward-looking statements preceded by terms such as "anticipates,"
"we are confident," "expects," "likely" or "believes." These
forward-looking statements are based on currently available
competitive, financial and economic data and management's views and
assumptions regarding future events and are inherently
uncertain.
Investors must recognize that actual results may differ from
those expressed or implied in the forward-looking statements, and
the corporation wishes to caution readers not to place undue
reliance on any forward-looking statements. Among the factors that
could cause Sara Lee's actual results to differ from such
forward-looking statements are those described under Item 1A, Risk
Factors, in Sara Lee's most recent Annual Report on Form 10-K and
other SEC Filings, as well as factors relating to:
-- Sara Lee's proposed spin-off plans and the special dividend announced
on Jan. 28, 2011, such as (i) unanticipated developments that
delay or
negatively impact the proposed spin-off and capital plans; (ii)
Sara
Lee's ability to obtain an IRS tax ruling and any other
customary
approvals; (iii) Sara Lee's ability to generate the
anticipated
efficiencies and savings from the spin-off including a lower
effective
tax rate for the spin-off company; (iv) the impact of the
spin-off on
Sara Lee's relationships with its employees, major customers
and
vendors and on Sara Lee's credit ratings and cost of funds;
(v)
changes in market conditions; (vi) future opportunities that the
Board
may determine present greater potential value to shareholders
than the
spin-off and special dividend; (vii) disruption to Sara Lee's
business
operations as a result of the spin-off; (viii) future operating
or
capital needs that require a more significant outlay of cash
than
currently anticipated; and (ix) the ability of the businesses
to
operate independently following the completion of the
spin-off;
-- Sara Lee's relationship with its customers, such as (i) a significant
change in Sara Lee's business with any of its major customers,
such as
Walmart, its largest customer; and (ii) credit and other
business
risks associated with customers operating in a highly
competitive
retail environment;
-- The consumer marketplace, such as (i) intense competition, including
advertising, promotional and price competition; (ii) changes
in
consumer behavior due to economic conditions, such as a shift
in
consumer demand toward private label; (iii) fluctuations in
raw
material costs, Sara Lee's ability to increase or maintain
product
prices in response to cost fluctuations and the impact on Sara
Lee's
profitability; (iv) the impact of various food safety issues
and
regulations on sales and profitability of Sara Lee products; and
(v)
inherent risks in the marketplace associated with product
innovations,
including uncertainties about trade and consumer acceptance;
-- Sara Lee's international operations, such as (i) impacts on reported
earnings from fluctuations in foreign currency exchange
rates,
particularly the euro; (ii) Sara Lee's generation of a high
percentage
of its revenues from businesses outside the United States and
costs to
remit these foreign earnings into the U.S. to fund Sara Lee's
domestic
operations, dividends, debt service and corporate costs;
(iii)
difficulties and costs associated with complying with U.S. laws
and
regulations, such as Foreign Corrupt Practices Act, applicable
to
global corporations, and different regulatory structures and
unexpected changes in regulatory environments overseas; and (iv)
Sara
Lee's ability to continue to source production and conduct
operations
in various countries due to changing business conditions,
political
environments, import quotas and the financial condition of
suppliers;
-- Previous business decisions, such as (i) Sara Lee's ability to
generate margin improvement through cost reduction and
efficiency
initiatives; (ii) Sara Lee's credit ratings, the impact of Sara
Lee's
capital plans on such credit ratings and the impact these
ratings and
changes in these ratings may have on Sara Lee's cost to borrow
funds
and access to capital/debt markets; (iii) the settlement of a
number
of ongoing reviews of Sara Lee's income tax filing positions
in
various jurisdictions and inherent uncertainties related to
the
interpretation of tax regulations in the jurisdictions in which
Sara
Lee transacts business; and (iv) changes in the expense for
and
contingent liabilities relating to multi-employer pension plans
in
which Sara Lee participates.
In addition, Sara Lee's results may also be affected by general
factors, such as economic conditions, political developments,
interest and inflation rates, accounting standards, taxes and laws
and regulations in markets where the corporation competes. Sara Lee
undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Financial
Summary
-
As Adjusted
For
the
Quarter
and Six
Months
ended
Dec.
31,
2011 and
Jan.
1, 2011
(in
millions,
except
per share
data
-
unaudited)
Quarter ended Six Months ended
Dec. 31, Jan. 1, % Dec. 31, Jan. 1, %
2011 2011 Change 2011 2011 Change
Continuing
operations:
Adjusted
net
sales:
N.A. $ 741 $ 741 (0.1 )% $ 1,425 $ 1,436 (0.8 )%
Retail
N.A. 287 277 3.6 567 551 2.8
FS
&
Specialty
Meats
Coffee 988 886 11.6 1,894 1,679 12.9
& Tea
Australian 35 35 0.2 73 77 (4.9 )
Bakery
Intersegment (7 ) (7 ) (15 ) (13 )
Total $ 2,044 $ 1,932 5.8 % $ 3,944 $ 3,730 5.8 %
adjusted
net sales
Adjusted
operating
income
N.A. $ 88 $ 84 4.8 % $ 144 $ 145 (0.8 )%
Retail
N.A. 30 37 (19.0 ) 57 62 (8.5 )
FS
&
Specialty
Meats
Coffee 144 142 1.8 265 243 9.1
& Tea
Australian 3 (1 ) NM 5 1 NM
Bakery
Adjusted 265 262 1.4 % 471 451 4.3 %
operating
segment
income
General (21 ) (41 ) (31 ) (64 )
corporate
expenses
Mark-to 15 (2 ) 4 10
market
derivatives
gains/(losses)
Amortization (3 ) (3 ) (6 ) (6 )
of
trademarks
&
intangibles
Total $ 256 $ 216 18.4 % $ 438 $ 391 12.0 %
adjusted
operating
income
Adjusted $ 158 $ 134 18.4 % $ 266 $ 215 24.5 %
income
from
continuing
operations
Adjusted $ 177 $ 198 (11.1 )% $ 306 $ 335 (9.0 )%
net
income
Adjusted
net
Income
attributable
to Sara
Lee:
Continuing $ 158 $ 134 18.4 % $ 266 $ 215 24.5 %
operations
Discontinued $ 18 $ 62 (71.7 )% $ 37 $ 116 (69.4 )%
operations
Adjusted
diluted
earnings
per
share:
Income $ 0.27 $ 0.21 28.6 % $ 0.45 $ 0.33 36.4 %
from
continuing
operations
Net $ 0.30 $ 0.31 (3.2 )% $ 0.51 $ 0.51 0.0 %
income
Adjusted
operating
margin:
N.A. 11.9 % 11.4 % 0.5 % 10.1 % 10.1 % 0.0 %
Retail
N.A. 10.4 13.3 (2.9 ) 10.0 11.2 (1.2 )
FS
&
Specialty
Meats
Coffee 14.6 16.0 (1.4 ) 14.0 14.5 (0.5 )
& Tea
Australian 9.0 (2.6 ) 11.6 7.5 2.2 5.3
Bakery
Total 12.5 % 11.2 % 1.3 % 11.1 % 10.5 % 0.6 %
Sara
Lee
NM
=
Not
meaningful
Financial
Summary
-
As
Reported
For
the
Quarter
and Six
Months
ended
Dec.
31,
2011 and
Jan.
1, 2011
(in
millions,
except
per share
data
-
unaudited)
Quarter ended Six Months ended
Dec. 31, Jan. 1, % Dec. 31, Jan. 1, %
2011 2011 Change 2011 2011 Change
Continuing
operations:
Net
sales:
N.A. $ 741 $ 741 (0.1 )% $ 1,425 $ 1,436 (0.8 )%
Retail
N.A. 314 290 8.3 621 564 10.1
FS
&
Specialty
Meats
Coffee 998 899 11.0 1,920 1,627 18.0
& Tea
Australian 35 35 1.7 73 71 3.6
Bakery
Intersegment (7 ) (7 ) (15 ) (13 )
Total net $ 2,081 $ 1,958 6.3 % $ 4,024 $ 3,685 9.2 %
sales
Operating
income
N.A. $ 81 $ 84 (3.5 )% $ 123 $ 144 (14.8 )%
Retail
N.A. 33 38 (13.6 ) 60 61 (2.2 )
FS
&
Specialty
Meats
Coffee 140 109 28.7 254 199 27.7
& Tea
Australian 3 (1 ) NM 5 1 NM
Bakery
Operating 257 230 11.7 % 442 405 8.9 %
segment
income
General (168 ) (50 ) (228 ) (77 )
corporate
expenses
Mark-to 15 (2 ) 4 10
market
derivatives
gains/(losses)
Amortization (3 ) (3 ) (6 ) (6 )
of
trademarks
&
intangibles
Total $ 101 $ 175 (42.4 )% $ 212 $ 332 (36.3 )%
operating
income
Income $ 33 $ 88 (63.0 )% $ (1 ) $ 149 NM
(loss)
from
continuing
operations
Net $ 469 $ 833 (43.8 )% $ 254 $ 1,027 (75.3 )%
income
Net
income
(loss)
attributable
to Sara
Lee:
Continuing $ 33 $ 88 (63.0 )% $ (1 ) $ 149 NM
operations
Discontinued $ 435 $ 743 (41.4 )% $ 252 $ 874 (71.2 )%
operations
Diluted
earnings
per
share:
Income $ 0.05 $ 0.14 (64.3 )% $ - $ 0.23 NM
(loss)
from
continuing
operations
Net $ 0.79 $ 1.30 (39.2 )% $ 0.42 $ 1.58 (73.4 )%
income
Operating
margin:
N.A. 11.0 % 11.4 % (0.4 )% 8.6 % 10.1 % (1.5 )%
Retail
N.A. 10.3 13.0 (2.7 ) 9.6 10.8 (1.2 )
FS
&
Specialty
Meats
Coffee 14.1 12.1 2.0 13.2 12.2 1.0
& Tea
Australian 8.8 (2.0 ) 10.8 7.5 2.2 5.3
Bakery
Total 4.9 % 9.0 % (4.1 )% 5.3 % 9.0 % (3.7 )%
Sara
Lee
NM
=
Not
meaningful
Consolidated Statements
of Income
For the Quarters and Six Months ended Dec. 31, 2011 and Jan.
1, 2011 (in millions, except per share data - unaudited)
Quarter ended Six Months ended
December 31, January 1, December 31, January 1,
2011 2011 2011 2011
Continuing operations
Net sales $ 2,081 $ 1,958 $ 4,024 $ 3,685
Cost of sales 1,385 1,281 2,712 2,438
Selling, general and administrative expenses 497 463 952 872
Net charges for exit activities, asset and business dispositions 84 39 116 43
Impairment charges 14 - 32 -
Operating income 101 175 212 332
Interest expense 29 28 59 62
Interest income (11 ) (7 ) (20 ) (12 )
Debt extinguishment costs - 25 - 55
Income from continuing operations before income taxes 83 129 173 227
Income tax expense 50 41 174 78
Income/(loss) from continuing operations 33 88 (1 ) 149
Discontinued operations:
Income (loss) from discontinued operations,
net of tax (benefit) of $(70), $(199), $(132) and $(174) 65 255 (208 ) 299
Gain on sale of discontinued operations, net of
tax expense of $169, $396, $339 and $562 371 490 463 579
Net income from discontinued operations 436 745 255 878
Net income 469 833 254 1,027
Less: Income from noncontrolling interests, net of tax
Discontinued operations 1 2 3 4
Net income attributable to Sara Lee $ 468 $ 831 $ 251 $ 1,023
Amounts attributable to Sara Lee:
Net income/(loss) from continuing operations $ 33 $ 88 $ (1 ) $ 149
Net income from discontinued operations 435 743 252 874
Earnings per share of common stock:
Basic
Income from continuing operations $ 0.06 $ 0.14 $ - $ 0.23
Net income $ 0.79 $ 1.30 $ 0.42 $ 1.58
Average shares outstanding 592 638 592 646
Diluted
Income from continuing operations $ 0.05 $ 0.14 $ - $ 0.23
Net income $ 0.79 $ 1.30 $ 0.42 $ 1.58
Average shares outstanding 595 642 592 649
Cash dividends declared per share of common stock $ 0.115 $ 0.115 $ 0.115 $ 0.115
Net Sales Bridge
For the Quarter and Six Months ended Dec. 31, 2011 (unaudited)
The following table illustrates the components of the change in net sales versus the prior year for each of the four reported business segments
Second Quarter ended December 31, 2011
Adjusted Total
Unit Net Sales* Acq./ Foreign Net Sales
Volume Mix + Price + Other = Change + Disp. + Exchange = Change
N.A. Retail (4.9 )% 1.5 % 4.4 % (1.1 )% (0.1 )% 0.0 % 0.0 % (0.1 )%
N.A. FS and Specialty Meats (0.4 ) 0.1 3.5 0.4 3.6 4.7 0.0 8.3
Coffee & Tea (6.5 ) 5.1 11.8 1.2 11.6 0.9 (1.5 ) 11.0
Australian Bakery (5.0 ) (0.4 ) 5.3 0.3 0.2 0.0 1.5 1.7
Total Continuing Business (4.9 )% 2.9 % 7.7 % 0.1 % 5.8 % 1.1 % (0.6 )% 6.3 %
First Six Months ended December 31, 2011
Adjusted Total
Unit Net Sales* Acq./ Foreign Net Sales
Volume + Mix + Price + Other = Change + Disp. + Exchange = Change
N.A. Retail (6.0 )% 0.8 % 5.3 % (0.9 )% (0.8 )% 0.0 % 0.0 % (0.8 )%
N.A. FS and Specialty Meats (1.4 ) (0.1 ) 4.4 (0.1 ) 2.8 7.2 0.1 10.1
Coffee & Tea (5.1 ) 4.5 12.7 0.8 12.9 1.4 3.7 18.0
Australian Bakery (9.0 ) (1.2 ) 5.0 0.3 (4.9 ) 0.0 8.5 3.6
Total Continuing Business (4.9 )% 2.2 % 8.5 % 0.0 % 5.8 % 1.7 % 1.7 % 9.2 %
*Adjusted net sales is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/dispositions. See detailed explanation of this and other non-GAAP measures in this release.
Condensed Consolidated
Balance Sheet Data
At Dec. 31, 2011 and July 2, 2011
(in millions - unaudited)
December 31, July 2,
2011 2011
Assets
Cash $ 2,751 2,066
and equivalents
Trade accounts receivable, 760 828
less allowances
Inventories 917 884
Current deferred 26 42
income taxes
Other current 349 261
assets
Receivable for proceeds 376 -
on disposition
Assets held 78 503
for sale
Total current 5,257 4,584
assets
Property, net of accumulated depreciation 1,291 1,380
of $2,036 and $2,057, respectively
Trademarks and other identifiable 247 282
intangibles
Goodwill 592 624
Deferred income 145 260
taxes
Pension 354 265
asset
Other noncurrent 223 236
assets
Noncurrent assets 77 1,902
held for sale
$ 8,186 $ 9,533
Liabilities
and Equity
Notes $ 122 238
payable
Accounts 728 875
payable
Income taxes payable and 594 468
current deferred taxes
Other accrued 1,176 1,576
liabilities
Current maturities 390 473
of long-term debt
Liabilities held 70 492
for sale
Total current 3,080 4,122
liabilities
Long-term 1,935 1,935
debt
Pension 240 216
obligation
Deferred income 212 179
taxes
Other 712 823
liabilities
Noncurrent liabilities 3 284
held for sale
Equity
Sara Lee common stockholders' 2,004 1,945
equity
Noncontrolling - 29
interest
Total 2,004 1,974
Equity
$ 8,186 $ 9,533
Consolidated Statements of Cash Flows
For the Six Months Ended Dec. 21, 2011 and
Jan. 1, 2011 (in millions - unaudited)
Six Months ended
Dec. 31, Jan. 1,
2011 2011
Operating activities -
Net income $ 254 $ 1,027
Adjustments to reconcile net
income/(loss) to net cash
from operating activities:
Depreciation 122 155
Amortization 20 42
Impairment charges 417 -
Net (gain) loss on business dispositions (802 ) (1,141 )
Pension contributions, net of expense (127 ) (6 )
Increase in deferred income taxes 33 227
for unremitted earnings
Increase (decrease) in deferred income 80 (227 )
taxes for tax basis differences
Debt extinguishment costs - 55
Other 45 (19 )
Changes in current assets
and liabilities, net of
businesses acquired and sold:
Trade accounts receivable (60 ) 8
Inventories (115 ) (115 )
Other current assets 35 (60 )
Accounts payable (10 ) 16
Accrued liabilities (7 ) (12 )
Accrued taxes 148 283
Net cash from operating activities 33 233
Investing activities -
Purchases of property and equipment (128 ) (151 )
Purchases of software and other intangibles (19 ) (11 )
Acquisitions of businesses (29 ) (31 )
Dispositions of businesses and investments 1,451 1,988
Cash received from derivative transactions 25 36
Sales of assets 1 9
Net cash received from investing activities 1,301 1,840
Financing activities -
Issuances of common stock 36 2
Purchases of common stock - (645 )
Borrowings of other debt 142 935
Repayments of other debt and derivatives (242 ) (1,278 )
Net change in financing with (197 ) 216
less than 90-day maturities
Purchase of noncontrolling interest (10 ) -
Payments of dividends (135 ) (217 )
Net cash used in financing activities (406 ) (987 )
Effect of changes in foreign (243 ) 110
exchange rates on cash
Increase in cash and equivalents 685 1,196
Add: Cash balances of discontinued - -
operations at beginning of year
Less: Cash balances of discontinued - -
operations at end of period
Cash and equivalents at beginning of year 2,066 955
Cash and equivalents at end of quarter $ 2,751 $ 2,151
Supplemental cash flow data:
Cash paid for restructuring actions $ 146 $ 51
Cash contributions to pension plans 121 34
Cash paid for income taxes 120 183
Operating Results by
Business Segment
For the Quarters ended Dec. 31, 2011 and
Jan. 1, 2011 (in millions - unaudited)
Changes in
Foreign
Currency
As Exchange Acquisitions/ As
Reported Rates Dispositions Adjusted
Second Quarter 2012
Net sales:
N.A. Retail $ 741 $ - $ - 741
N.A. FS & Specialty Meats 314 - 27 287
Coffee & Tea 998 - 10 988
Australian Bakery 35 - - 35
Intersegment (7 ) - - (7 )
Total net sales $ 2,081 $ - $ 37 2,044
Second Quarter 2011
Net sales:
N.A. Retail $ 741 $ - $ - 741
N.A. FS & Specialty Meats 290 - 13 277
Coffee & Tea 899 12 1 886
Australian Bakery 35 - - 35
Intersegment (7 ) - - (7 )
Total net sales $ 1,958 $ 12 $ 14 1,932
Changes in
Foreign
Currency Other
Second Quarter 2012 As Exchange Acquisitions/ Restructuring Impairment Significant As
Reported Rates Dispositions Actions Charges Items Adjusted
Operating income:
N.A. Retail $ 81 $ - $ - $ (7 ) $ - $ - $ 88
N.A. FS & Specialty Meats 33 - 3 - - - 30
Coffee & Tea 140 - - (4 ) - - 144
Australian Bakery 3 - - - - - 3
Total operating segment income 257 - 3 (11 ) - - 265
General corporate expenses (168 ) - - (120 ) (14 ) (13 ) (21 )
Mark-to-market derivative 15 - - - - - 15
gains/(losses)
Amortization (3 ) - - - - - (3 )
of trademarks/intangibles
Operating income $ 101 $ - $ 3 $ (131 ) $ (14 ) $ (13 ) $ 256
Operating margin 4.9 % 12.5 %
Second Quarter 2011
Operating income:
N.A. Retail $ 84 $ - $ - $ - $ - $ - $ 84
N.A. FS & Specialty Meats 38 - 1 - - - 37
Coffee & Tea 109 (1 ) 1 (33 ) - - 142
Australian Bakery (1 ) - - - - - (1 )
Total operating segment income 230 (1 ) 2 (33 ) - - 262
General corporate expenses (50 ) 1 - (10 ) - - (41 )
Mark-to-market derivative (2 ) - - - - - (2 )
gains/(losses)
Amortization (3 ) - - - - - (3 )
of trademarks/intangibles
Operating income $ 175 $ - $ 2 $ (43 ) $ - $ - $ 216
Operating margin 9.0 % 11.2 %
Operating Results by
Business Segment
For the Six Months ended Dec. 31, 2011 and
Jan. 1, 2011 (in millions - unaudited)
Changes in
Foreign
Currency
As Exchange Acquisitions/ As
Reported Rates Dispositions Adjusted
First Six Months 2012
Net sales:
N.A. Retail $ 1,425 $ - $ - 1,425
N.A. FS & Specialty Meats 621 - 54 567
Coffee & Tea 1,920 - 26 1,894
Australian Bakery 73 - - 73
Intersegment (15 ) - - (15 )
Total net sales $ 4,024 $ - $ 80 3,944
First Six Months 2011
Net sales:
N.A. Retail $ 1,436 $ - $ - 1,436
N.A. FS & Specialty Meats 564 - 13 551
Coffee & Tea 1,627 (54 ) 2 1,679
Australian Bakery 71 (6 ) - 77
Intersegment (13 ) - - (13 )
Total net sales $ 3,685 $ (60 ) $ 15 3,730
Changes in
Foreign
Currency Other
First Six Months 2012 As Exchange Acquisitions/ Restructuring Impairment Significant As
Reported Rates Dispositions Actions Charges Items Adjusted
Operating income:
N.A. Retail $ 123 $ - $ - $ (21 ) $ - $ - $ 144
N.A. FS & Specialty Meats 60 - 4 (1 ) - - 57
Coffee & Tea 254 - 2 (13 ) - - 265
Australian Bakery 5 - - - - - 5
Total operating segment income 442 - 6 (35 ) - - 471
General corporate expenses (228 ) - - (170 ) (32 ) 5 (31 )
Mark-to-market derivative 4 - - - - - 4
gains/(losses)
Amortization (6 ) - - - - - (6 )
of trademarks/intangibles
Operating income $ 212 $ - $ 6 $ (205 ) $ (32 ) $ 5 $ 438
Operating margin 5.3 % 11.1 %
First Six Months 2011
Operating income:
N.A. Retail $ 144 $ - $ - $ (1 ) $ - $ - $ 145
N.A. FS & Specialty Meats 61 - 1 (2 ) - - 62
Coffee & Tea 199 (10 ) 1 (35 ) - - 243
Australian Bakery 1 - - - - - 1
Total operating segment income 405 (10 ) 2 (38 ) - - 451
General corporate expenses (77 ) - - (13 ) - - (64 )
Mark-to-market derivative 10 - - - - - 10
gains/(losses)
Amortization (6 ) - - - - - (6 )
of trademarks/intangibles
Operating income $ 332 $ (10 ) $ 2 $ (51 ) $ - $ - $ 391
Operating margin 9.0 % 10.5 %
Significant
Items
Quarters ended Dec. 31, 2011 and Jan. 1, 2011 (in
millions, except per share data - unaudited)
Quarter ended Dec. 31, 2011 Quarter ended Jan. 1, 2011
Diluted Diluted
Pretax Net EPS Pretax Net EPS
(In millions except per share data) Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (7 ) $ (5 ) $ (0.01 ) $ (39 ) $ (29 ) $ (0.04 )
Lease and contractual obligation exit costs (81 ) (55 ) (0.09 ) - - -
Consulting/advisory costs (37 ) (30 ) (0.05 ) (4 ) (3 ) -
Accelerated depreciation (6 ) (3 ) (0.01 ) - - -
Total restructuring actions (131 ) (93 ) (0.16 ) (43 ) (32 ) (0.05 )
Gain on HBI tax settlement - 5 0.01 - - -
Impairment charges (14 ) (11 ) (0.02 ) - - -
Litigation accrual (11 ) (7 ) (0.01 ) - - -
Thailand flood loss (2 ) (1 ) - - - -
Tax indemnification accrual adjustment - 2 - - - -
Debt extinguishment costs - - - (25 ) (16 ) (0.02 )
Impact of significant items on income/(loss) from continuing operations before income taxes (158 ) (105 ) (0.18 ) (68 ) (48 ) (0.07 )
Tax on unremitted earnings - (21 ) (0.04 ) - - -
Tax audit settlement/reserve adjustments - (1 ) - - 2 -
Tax valuation allowance adjustment - 2 - - - -
Impact of significant items on income/(loss) from continuing operations (158 ) (125 ) (0.22 ) (68 ) (46 ) (0.07 )
Discontinued operations:
Restructuring actions:
Severance/ retention costs (16 ) (11 ) (0.02 ) (39 ) (28 ) (0.04 )
Consulting/advisory costs (7 ) (6 ) (0.01 ) - - -
Accelerated depreciation - - - (1 ) (1 ) -
Impairment charges (14 ) (9 ) (0.02 ) - - -
Gain on the sale of discontinued operations 540 371 0.62 886 490 0.77
Pension curtailment/withdrawal (3 ) (2 ) - (1 ) - -
Tax basis differences - 71 0.12 - 223 0.35
Tax audit settlement/reserve adjustments - - - - 1 -
Tax valuation allowance adjustment - - - - (3 ) -
Tax on unremitted earnings - 3 0.01 - (1 ) -
Impact of significant items on income/(loss) from discontinued operations 500 417 0.70 845 681 1.06
Impact of significant items on net income $ 342 $ 292 $ 0.49 $ 777 $ 635 $ 0.99
Impact of significant items on income from continuing operations before income taxes
Cost of sales $ (6 ) $ -
Selling, general and administrative expenses (54 ) (4 )
Exit and business dispositions (84 ) (39 )
Impairment charges (14 ) -
Debt extinguishment costs - (25 )
Total $ (158 ) $ (68 )
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
Significant
Items
Six Months ended Dec. 31, 2011 and Jan. 1, 2011 (in
millions, except per share data - unaudited)
Six Months ended Dec. 31, 2011 Six Months ended Jan. 1, 2011
Diluted Diluted
Pretax Net EPS Pretax Net EPS
(In millions except per share data) Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (35 ) $ (24 ) $ (0.04 ) $ (43 ) $ (31 ) $ (0.05 )
Lease and contractual obligation exit costs (87 ) (59 ) (0.10 ) - - -
Consulting/advisory costs (71 ) (57 ) (0.10 ) (6 ) (5 ) (0.01 )
Accelerated depreciation (12 ) (7 ) (0.01 ) (2 ) (1 ) -
Total restructuring actions (205 ) (147 ) (0.25 ) (51 ) (37 ) (0.06 )
Gain on HBI tax settlement 15 15 0.02 - - -
Impairment charges (32 ) (22 ) (0.04 ) - - -
Litigation accrual (11 ) (7 ) (0.01 ) - - -
Thailand flood loss (2 ) (1 ) - - - -
Tax indemnification accrual adjustment 3 4 0.01 - - -
Debt extinguishment costs - - - (55 ) (35 ) (0.05 )
Impact of significant items on income/(loss) from continuing operations before income taxes (232 ) (158 ) (0.27 ) (106 ) (72 ) (0.11 )
Tax on unremitted earnings - (105 ) (0.18 ) - - -
Tax audit settlement/reserve adjustments - 69 0.12 - 6 0.01
Tax valuation allowance adjustment - (73 ) (0.12 ) - - -
Impact of significant items on income/(loss) from continuing operations (232 ) (267 ) (0.45 ) (106 ) (66 ) (0.10 )
Discontinued operations:
Restructuring actions:
Severance/ retention costs (17 ) (12 ) (0.02 ) (49 ) (35 ) (0.05 )
Consulting/advisory costs (14 ) (11 ) (0.02 ) (3 ) (2 ) -
Accelerated depreciation - - - (1 ) (1 ) -
Impairment charges (385 ) (345 ) (0.58 ) - - -
Gain on the sale of discontinued operations 802 463 0.78 1,141 579 0.89
Pension curtailment/withdrawal (3 ) (2 ) - (1 ) - -
Tax basis differences - 189 0.32 - 225 0.35
Tax audit settlement/reserve adjustments - - - - 1 -
Tax valuation allowance adjustment - - - - (3 ) -
Tax on unremitted earnings - (67 ) (0.11 ) - (6 ) (0.01 )
Impact of significant items on income/(loss) from discontinued operations 383 215 0.36 1,087 758 1.17
Impact of significant items on net income $ 151 $ (52 ) $ (0.09 ) $ 981 $ 692 $ 1.07
Impact of significant items on income from continuing operations before income taxes
Cost of sales $ (12 ) $ (2 )
Selling, general and administrative expenses (72 ) (6 )
Exit and business dispositions (116 ) (43 )
Impairment charges (32 ) -
Debt extinguishment costs - (55 )
Total $ (232 ) $ (106 )
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
EPS Reconciliation - Reported to Adjusted
Quarters ended Dec. 31, 2011 and Jan. 1, 2011 (in
millions, except per share data - unaudited)
Quarter ended December 31, 2011 Quarter ended January 1, 2011
Impact of Impact of
As Significant As Significant
Reported Items Adjusted (1) Reported Items Adjusted (1)
Continuing operations:
Income from continuing operations
before income taxes $ 83 $ (158 ) $ 241 $ 129 $ (68 ) $ 197
Income tax expense (benefit) 50 (33 ) 83 41 (22 ) 63
Income from continuing operations 33 (125 ) 158 88 (46 ) 134
Discontinued operations:
Income from discontinued operations, net of tax 65 46 19 255 191 64
Gain on sale of discontinued 371 371 - 490 490 -
operations, net of tax
Net income from discontinued operations 436 417 19 745 681 64
Net income 469 292 177 833 635 198
Less: Income from noncontrolling
interests, net of tax
Discontinued operations 1 - 1 2 - 2
Net income attributable to Sara Lee $ 468 $ 292 $ 176 $ 831 $ 635 $ 196
Amounts attributable to Sara Lee:
Net income from continuing operations $ 33 $ (125 ) $ 158 $ 88 $ (46 ) $ 134
Net income from discontinued operations 435 417 18 743 681 62
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.05 $ (0.22 ) $ 0.27 $ 0.14 $ (0.07 ) $ 0.21
Net income $ 0.79 $ 0.49 $ 0.30 $ 1.30 $ 0.99 $ 0.31
Effective tax rate - continuing operations 60.5 % 34.3 % 31.6 % 32.0 %
(1) Represents a non-GAAP financial measure. See detailed explanation
of these and other non-GAAP measures at end of this release.
EPS Reconciliation - Reported to Adjusted
Six Months ended Dec. 31, 2011 and Jan. 1, 2011 (in
millions, except per share data - unaudited)
Six Months ended December 31, 2011 Six Months ended January 1, 2011
Impact of Impact of
As Significant As Significant
Reported Items Adjusted (1) Reported Items Adjusted (1)
Continuing operations:
Income/(loss) from continuing operations
before income taxes $ 173 $ (232 ) $ 405 $ 227 $ (106 ) $ 333
Income tax expense (benefit) 174 35 139 78 (40 ) 118
Income/(loss) from continuing operations (1 ) (267 ) 266 149 (66 ) 215
Discontinued operations:
Income/(loss) from discontinued (208 ) (248 ) 40 299 179 120
operations, net of tax
Gain on sale of discontinued 463 463 - 579 579 -
operations, net of tax
Net income from discontinued operations 255 215 40 878 758 120
Net income 254 (52 ) 306 1,027 692 335
Less: Income from noncontrolling
interests, net of tax
Discontinued operations 3 - 3 4 - 4
Net income attributable to Sara Lee $ 251 $ (52 ) $ 303 $ 1,023 $ 692 $ 331
Amounts attributable to Sara Lee:
Net income/(loss) from continuing operations $ (1 ) $ (267 ) $ 266 $ 149 $ (66 ) $ 215
Net income/(loss) from discontinued operations 252 215 37 874 758 116
Earnings per share of common stock:
Diluted
Income/(loss) from continuing operations $ - $ (0.45 ) $ 0.45 $ 0.23 $ (0.10 ) $ 0.33
Net income $ 0.42 $ (0.09 ) $ 0.51 $ 1.58 $ 1.07 $ 0.51
Effective tax rate - continuing operations 100.5 % 34.1 % 34.4 % 35.5 %
(1) Represents a non-GAAP financial measure. See detailed explanation
of these and other non-GAAP measures at end of this release.
Explanation of Non-GAAP Financial Measures
Management measures and reports Sara Lee's financial results in
accordance with U.S. generally accepted accounting principles
("GAAP"). In this release, Sara Lee highlights certain items that
have significantly impacted the corporation's financial results and
uses several non-GAAP financial measures to help investors
understand the financial impact of these significant items.
"Significant items" are income or charges (and related tax
impact) that management believes have had or are likely to have a
significant impact on the earnings of the applicable business
segment or on the total corporation for the period in which the
item is recognized, are not indicative of the company's core
operating results and affect the comparability of underlying
results from period to period. Significant items may include, but
are not limited to: charges for exit activities; consulting and
advisory costs, transformation program and Project Accelerate
costs; impairment charges; pension partial withdrawal liability
charges; debt extinguishment costs; spin-off related costs; tax
charge on deemed repatriated earnings; tax costs and benefits
resulting from the disposition of a business; impact of tax law
changes; gains on the sale of discontinued operations; changes in
tax valuation allowances and favorable or unfavorable resolution of
open tax matters based on the finalization of tax authority
examinations or the expiration of statutes of limitations.
Management highlights significant items to provide greater
transparency into the underlying sales or profit trends of Sara Lee
or the applicable business segment or discontinued operations and
to enable more meaningful comparability between financial results
from period to period. Additionally, Sara Lee believes that
investors desire to understand the impact of these factors to
better project and assess the longer term trends and future
financial performance of the corporation.
This release contains certain non-GAAP financial measures that
exclude from a financial measure computed in accordance with GAAP
the impact of the significant items and the impact of acquisitions
and dispositions, and changes in foreign currency exchange rates.
Management believes that these non-GAAP financial measures reflect
an additional way of viewing aspects of Sara Lee's business that,
when viewed together with Sara Lee's financial results computed in
accordance with GAAP, provide a more complete understanding of
factors and trends affecting Sara Lee's historical financial
performance and projected future operating results, greater
transparency of underlying profit trends and greater comparability
of results across periods. These non-GAAP financial measures are
not intended to be a substitute for the comparable GAAP measures
and should be read only in conjunction with our consolidated
financial statements prepared in accordance with GAAP.
In addition, investors frequently have requested information
from management regarding the impact of significant items.
Management believes, based on feedback it has received during
earnings calls and discussions with investors, that these non-GAAP
measures enhance investors' ability to assess Sara Lee's historical
and project future financial performance. Management also uses
certain of these non-GAAP financial measures, in conjunction with
the GAAP financial measures, to understand, manage and evaluate our
businesses, in planning for and forecasting financial results for
future periods, and as one factor in determining achievement of
incentive compensation. Two of the three performance measures under
Sara Lee's annual incentive plan are net sales and operating
income, which are the reported amounts as adjusted for significant
items and possibly other items. Operating income, as adjusted for
significant items, also may be used as a component of Sara Lee's
long-term incentive plans. Many of the significant items will recur
in future periods; however, the amount and frequency of each
significant item varies from period to period.
Management also has received inquiries from investors seeking to
better understand and project the corporation's tax rate, which can
be complex given the multiple foreign jurisdictions in which Sara
Lee operates and the numerous tax rules with which it must comply.
The information contained in the tables "Reconciliation of as
Reported to Adjusted" for each fiscal period includes certain
non-GAAP financial measures, and is intended to help investors
better understand Sara Lee's effective tax rate.
The following is an explanation of the non-GAAP financial
measures presented in this release.
In the "EPS Reconciliation of as Reported to Adjusted" tables
each item in the "Adjusted" column of that table equals the
indicated financial measure computed in accordance with GAAP less
the impact of significant items recognized in the fiscal period
presented.
"Adjusted EPS" excludes from diluted EPS, as reported, for total
Sara Lee, for continuing operations or for discontinued operations,
as indicated, the per share impact of significant items recognized
in the fiscal period presented.
"Adjusted net sales" for continuing operations or discontinued
operations, as indicated, excludes from applicable net sales the
impact of businesses acquired or divested after the start of the
fiscal period and also presents fiscal 2011 results at fiscal 2012
currency exchange rates.
"Adjusted operating income" for continuing operations or
discontinued operations, as indicated, excludes from applicable
operating income the impact of significant items and businesses
acquired or divested after the start of the fiscal period, and also
presents fiscal 2011 results at fiscal 2012 currency exchange
rates.
"Adjusted operating margin" for continuing operations, a
specified business segment or discontinued operations, as
indicated, is a non-GAAP financial measure that equals adjusted
operating income for the applicable portion of the business divided
by adjusted net sales of the corporation (in the case of computing
adjusted operating margin for continuing operations) or adjusted
operating segment income for a business segment or discontinued
operations divided by adjusted net sales for that business segment
or discontinued operation (in the case of computing adjusted
operating margin for a specific business segment or discontinued
operations).
"Adjusted operating segment income" for continuing operations, a
specified business segment or discontinued operations, as
indicated, excludes from the applicable operating segment income
measure the impact of significant items recognized by that portion
of the business during the fiscal period presented and the results
of businesses acquired or divested after the start of the fiscal
period presented, and also presents fiscal 2011 results at fiscal
2012 currency exchange rates.
"Adjusted operating income (including acquisitions)" for
continuing operations excludes from operating income from
continuing operations the impact of significant items recognized
during the fiscal period presented; this measure does not exclude
the results of businesses acquired or divested after the start of
the fiscal period presented and does not present fiscal 2011
results at fiscal 2012 currency exchange rates.
Sara Lee Corp.
Media: Jon Harris, +1.630.598.8661
Analysts: Melissa Napier, +1.630.598.8739
Robin Jansen, +31.30.292.7455
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