THE WAY FORWARD - AnnualReports.com · 2011-12-21 · increased shareholder value. We aim to accelerate both top and bottom ... and intent to declare a $3.00 per share special dividend

THE WAY FORWARD2011 Annual Report

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c2 Sara Lee Corporation

Contents1 Great changes are under way at Sara Lee

2 The pure play strategy

4 Financial highlights

5 Letter to stockholders

8 North American meat

11 Key brands drive growth

15 Providing innovative solutions

19 Beliefs beyond the bottom line

23 Sometimes less is more

26 International coffee & tea

29 Brewing strong local brands

33 Leveraging across categories

37 Caring about sustainable origin

41 An entrepreneurial spirit

44 Directors and senior corporate officers

46 Financial section

119 Performance graph

120 Investor information

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Sara Lee Corporation 1

GREAT CHANGES ARE UNDER WAY AT SARA LEE.

Were preparing to launch two pure play companies withtremendous market potential: Meat and Coffee & Tea.

Organizing each company around its own core competency not only

plays to our proven business strengths, but also opens the door to

increased shareholder value. We aim to accelerate both top and bottom

line growth by creating two strong, innovative and nimble companies.

They will be closer to consumers, customers and markets and will

respond to opportunities more quickly than conglomerate competitors.

Were excited about these dynamic changes and look forward to

reporting future successes as two independent, pure play companies.

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2 Sara Lee Corporation

Unlocking shareholder value

March 2009 Announcement of strategic

review of Household and Body Care

February 2010 Announcement of $2.5

$3.0 billion share repurchase program

July 2010 Air Care sale closes

November 2010 Agreement to sell

North American Fresh Bakery; Acquisition

of Caf Damasco in Brazil

December 2010 Body Care sale closes

January 2011 Announcement of

spin-off into two pure play companies

and intent to declare a $3.00 per share

special dividend

April 2011 Shoe Care sale closes

May 2011 Acquisition of Aidells

Sausage Company and announcement of

strategic review of International Bakery

and North American Refrigerated Dough

August 2011 Agreement to sell

North American Refrigerated Dough

THE PURE PLAY STRATEGY

Sara Lee has been on a journey, making

changes to the composition of our portfolio.

Each step is focused on creating and unlock-

ing shareholder value and streamlining our

operations. The spin-off of our International

Coffee & Tea business, creating two inde-

pendent entities, is the next logical step for

our shareholders, customers, consumers

and employees.

Benefits of pure play companies The term

pure play is frequently used to describe an

entity that focuses on one line of business

and whose products are closely related. This

single focus provides various benefits that

often translate into greater shareholder value.

Pure play companies offer the opportunity

to streamline operating structures and

reduce layers. This provides management

closer access to their end markets, which

improves decision making and can ultimately

lead to superior business performance.

Streamlined operations also provide cost

advantages. Pure plays can be unburdened

by the bureaucratic processes that weigh

down large entities and can bloat cost struc-

tures. Improved speed to market is another

advantage, as pure play companies are often

able to rapidly introduce new products and

more quickly react to changes in the market-

place. Due to their focus, pure plays often

find more opportunities for strategic partner-

ships or acquisitions that are not possible for

larger conglomerates. Additionally, pure play

companies are often preferable investment

vehicles because they more easily allow indi-

vidual investors to diversify their portfolio

according to their own preferences. The

combination of these benefits often drives

superior performance for pure play entities.

At Sara Lee, our most important

commitment is to maximize value for our

shareholders. The minimal overlap between

our two remaining businesses, coupled with

the benefits of the pure play structure, were

the key factors that drove the decision to

create two independent, pure play companies

for our shareholders.



International Coffee & Tea

The International Coffee &

Tea company is a leading

global manufacturer and

marketer of high quality

coffee and tea products.

Leveraging more than 250

years of knowledge and

expertise, our leading local

brands provide high-quality,

innovative coffee and tea

products that are beloved

and enjoyed by consumers

in retail and foodservice

markets around the world.

North American Meat

The North American Meat

company is a top branded

meat player in the retail and

foodservice channels. Our

growth brands, Hillshire Farm,

Jimmy Dean, Ball Park and

Sara Lee, hold strong positions

in key categories, such as

deli meat, smoked sausage,

protein breakfast and hot

dogs. We are growing our

core brands through effective

marketing and innovation

centered on premium quality,

convenience and nutrition,

while investing in high-growth

areas, such as super-premium

and natural meats.

THE STRATEGY IS TO DIVIDE SARA LEE

INTO TWO FOCUSED PURE PLAY COMPANIES.

PURE PLAY COMPANIES TEND TO DO WELL

WITH MANAGEMENT SITTING CLOSE TO

MARKET OPPORTUNITIES. EACH COMPANY

WILL HAVE LEADING CONSUMER BRANDS

AND COMPELLING GROWTH PROSPECTS

WITH POTENTIAL TO DELIVER LONG TERM

SHAREHOLDER VALUE.


Reported Fiscal Year Results Adjusted Fiscal Year Results1

In millions except per share data 2011 2010 % Change 2011 2010 % Change

Continuing Operations

Net Sales

North American Retail $2,868 $2,818 1.8 $2,857 $2,766 3.3

North American Foodservice 1,566 1,547 1.2 1,566 1,523 2.8

International Beverage 3,548 3,221 10.2 3,514 3,199 9.9

International Bakery 726 785 (7.5) 726 775 (6.4)

Intersegment (27) (32) (27) (32)

Total net sales $8,681 $8,339 4.1 $8,636 $8,231 4.9

Operating Income

North American Retail $307 $343 (10.6) $317 $335 (5.2)

North American Foodservice 79 60 32.8 102 86 19.1

International Beverage 452 592 (23.6) 489 593 (17.5)

International Bakery (12) (14) 10.9 16 45 (65.0)

Operating segment income $826 $981 (15.8) $924 $1,059 (12.6)

General corporate expenses (188) (259) (104) (198)

Mark-to-market derivative gain/(loss) 11 (13) 11 (13)

Amortization (22) (21) (22) (21)

Contingent sale proceeds 133

Operating income $627 $821 (23.6) $809 $827 (2.0)

Diluted EPS $0.54 $0.84 (35.7) $0.78 $0.67 16.41 Adjusted financials are non-GAAP measures and are reconciled to comparable GAAP measures in the Financial section of this report

beginning on page 46.

F INANCIAL H IGHLIGHTS

Adjusted Net SalesInternational Beverage 41%

North American Retail 33%

North American Foodservice 18%

International Bakery 8%


Adjusted Operating Segment Income

International Beverage 53%

North American Retail 34%

North American Foodservice 11%

International Bakery 2%




DEAR FELLOW STOCKHOLDERS

We are writing the last chapter of a

fundamental transformation of our com-

pany. A decade ago, Sara Lee was a holding

company with numerous unrelated and

decentralized operating units. As the business

environment transformed, Sara Lee evolved

into a streamlined operating company.

Successive management teams pared the

companys portfolio to increase focus and

implemented programs to reach contempo-

rary standards of operational excellence. This

process benefited the divested businesses

as well as those that remain with Sara Lee.

In the last two years, we found new

homes for our Household and Body Care

businesses, reached an agreement to sell

our North American Fresh Bakery business

and are also in the process of divesting the

majority of our International Bakery assets.

We retained two businesses: North American

Meats and International Coffee & Tea. Both

are well positioned to win with great brands,

strong market positions, healthy innovation

pipelines and complete focus on their

respective markets. The final chapter in

the evolution of Sara Lee began in January

with our announcement to separate into two

independent, pure play companies. While

this announcement marks the end of the

journey for one company, it begins two

new stories. We are very excited about

what lies ahead.

Fiscal 2011 was a year of tremendous

progress During Fiscal 2011, we announced

the closings of our air care, body care, shoe

care and cleaning business divestitures, as

well as the completion of our $1.8 billion share

buyback program. Our Household and Body

Care divestitures are now largely complete

and we are pleased that our brands have

found new homes and promising futures with

well respected consumer products companies.

In November, we announced the next major

step in our portfolio transformation with

an agreement to sell our North American

Fresh Bakery division to Grupo Bimbo.

We expect this disposition to close soon.

We also added two new businesses that

will enhance the portfolios of our ongoing

companies. In November, we reached agree-

ment to acquire Caf Damasco, a coffee

business with premium positioning and more

than 50 years of experience operating in

southern Brazil. The acquisition enabled

us to expand our footprint in this important

emerging market and leverage manufactur-

ing synergies. In May, we announced the

acquisition of Aidells Sausage Company.

Aidells is well known for its small batch,

all natural sausages produced with fresh

ingredients. This premium brand provides

us with exposure to new distribution chan-

nels and a method to reach an expanded

customer base. Our meat business will



leverage Aidells entrepreneurial culture and

strong customer relationships. These two

acquisitions have closed and are performing

ahead of expectations.

In conjunction with the announcement

to separate into two independent companies,

we announced that Jan Bennink would join

the company and assume the role of execu-

tive chairman. In this role, Jan oversees all

spin-off activities and prepares both busi-

nesses for successful futures. This includes

ensuring that both companies are led by top

quality management teams and possess

focused portfolios with streamlined opera-

tional structures. Additionally, we announced

a $3.00 special dividend to be paid to our

shareholders. Over a two-year span, we

plan to return more than $3.5 billion to our

shareholders through the already completed

share repurchases and the expected payout

of the special dividend.

Through our actions to unlock and

create shareholder value, we have delivered

total shareholder return of more than 115%

over the past two years. This result came

from a combination of smart strategic deci-

sions and solid operational performance.

During fiscal 2011, we increased adjusted

earnings per share by 16% despite absorb-

ing more than $645 million of commodity

cost inflation. This was achieved through

pricing actions, innovation, cost reduction

programs and share repurchases. By focusing

on the corporate cost structure, we reduced

corporate expenses by nearly $100 million

versus fiscal 2010. This illustrates our com-

mitment to running a lean and efficient

corporate enterprise.

Our core brands continued to generate

growth behind innovation and marketing

investment. The North American business

generated solid performance behind new

product launches, such as Jimmy Dean

Jimmy Ds breakfast solutions, Hillshire Farm

Turkey Smoked Sausages and Jimmy Dean

Hearty Sausage Crumbles, which was voted

the best breakfast product of 2011 in a sur-

vey of more than 60,000 consumers. In the

coffee and tea business, we continued to

benefit from the successful geographical

roll-out of Senseo and LOR EspressO, which

reached $100 million in cumulative sales in

August and is on pace to more than double

sales versus the prior year.

In addition to launching successful

new products, we continued to focus on

operational improvements, evidenced by the

opening of our new meat slicing facility in

Kansas City, Kansas. This state-of-the-art

facility utilizes robotics and supports our

strategy of creating shareholder value by

providing a sustainable competitive advan-

tage in one of our important categories,

sliced lunchmeat. It provides capacity for

long-term growth, enables us to maintain

WE CONTINUE TO DELIVER SOLID RESULTS AS WE

PROGRESS IN THE CREATION OF TWO PURE PLAY

COMPANIES POISED FOR SUCCESS.



the highest quality standards and provides

a significant cost advantage. In addition,

we completed our rollout of SAP in North

America and expect to see efficiencies from

that implementation flowing through in the

upcoming fiscal year.

Fiscal 2012 will be a year of transition

Our activities in fiscal 2012 will be focused

on providing solid foundations for the future

success of the two new companies. We are all

highly energized and prepared for a busy year.

We continue to streamline our operational

structures, improve process efficiencies and

identify additional cost savings opportunities.

We also have a strong pipeline of innovation

and we look forward to launching our many

new products in the marketplace. Some of

these products will debut toward the second

half of the fiscal year, but a greater impact

will be seen in fiscal 2013 and beyond.

Management teams for both companies will

be in place shortly and will present more

detailed plans later in the fiscal year.

In closing, we would like to extend

our thanks and appreciation to our global

employee base for their continued hard

work and dedication. Weve undergone

quite a bit of change over the last few years

and we value their commitment. Wed also

like to thank our Board of Directors for their

counsel and guidance. And, as always, wed

like to thank our shareholders for their

confidence and support.

The entire company is excited about the

future opportunities that the spin-off provides.

We have been successful in unlocking value

and we are confident that the new companies

will have great prospects for creating incre-

mental shareholder value in the future.Jan Bennink Marcel H.M. Smits

Executive chairman Chief executive officer

September 1, 2011


N O R T H A M E R I C A N M E A T


Sara Lee Corporation 11Sara Lee Corporation 11

KEY BRANDS DRIVE GROWTH

Our North American Meat company isbuilding its future from a solid founda-tion of well-known brands, includingJimmy Dean, Hillshire Farm, Ball Parkand Sara Lee. These are names thatcommand national recognition as market leaders and hold the enviablestatus of being the number one rankedbrand in diverse categories, such asprotein breakfast, cocktail and smokedsausages and hot dogs. Over the yearsour key brands have successfullymigrated from staple products to a platform of value-added meals andmeal components. One of our greatestsuccesses is the conversion of theJimmy Dean brand from a commodity roll sausage to a complete breakfast

platform, focused on adding valuethrough convenience and health andwellness. We plan to expand our keybrands even further based on the prin-ciples that have proven successful forJimmy Dean. As consumers becomemore health conscious and aware offood origins, they are more willing to payfor premium propositions. We plan toincrease our presence in the premium,natural and organic segment, and ourrecent acquisition of Aidells is animportant step in that direction. Ourgoal is to become the most insightful,fastest moving consumer goods com-pany in the meat sector with marketleading innovation based on emergingconsumer trends.



PROVIDING INNOVATIVE SOLUTIONS

When consumers crave a convenientand healthy breakfast, a quick and delicious lunch or a fresh off the grilldinner, we are there to satisfy theseneeds both in and out of the home.Consumers enjoy our wide assortmentof meat products through the retail andfoodservice channels. We aim to be theclosest partner to customers in bothchannels, helping guide them throughconstantly evolving market dynamicsand better positioning our partners toachieve their own goals of differentiationand profitability. Our customers turn tous for fresh ideas and innovative solu-tions in product design, packaging andmerchandising. For example, researchidentified the need for a convenient,

no-mess protein product that could beused to personalize a variety of dishes,from omelets to pizzas to pastas. Oursolution, Jimmy Dean Hearty SausageCrumbles, resonated with customersand consumers, quickly becoming thebest breakfast product of 2011. Apartfrom our brands and innovation, wehave well-developed tools that positionus to be the best partner in the meatcategory. Our skill set includes superiorcapabilities in category management,research and development and pricingoptimization. We strive to be the pre-ferred supplier in our categories and we are committed to going the extramile to earn that title.



BELIEFS BEYOND THE BOTTOM L INE

Our North American Meat company willdraw on a consistent, core set of beliefsto ensure that the needs of our variousstakeholders are met. Our beliefs aregrounded in three core facets: outper-forming customer and consumerexpectations, motivating and engagingour workforce and delivering superiorreturns to our shareholders. Customerand consumer preferences are formedbased on the consistent delivery ofexpectations and a track record of creat-ing innovation beyond expectation. Wewill be the company that consistentlyexceeds the expectations of our cus-tomers and consumers. We believe thatsuccess begins with highly energized

and engaged employees that go theextra mile because they believe in thevalue of what they are building together.Weve created a program called Energyin Motion that empowers high-potentialemployees to develop new ways toimprove products and processes. Wereexcited to put their action plans intoplace. As always, we will strive to maxi-mize shareholder value through superiorperformance. All of these facets will be achieved within the context of goodcorporate citizenship. We believe thatexecuting on these core facets will create a solid foundation to become atop-tier value-added protein company.



SOMETIMES LESS IS MORE

Focused pure play companies oftengain efficiencies through simplificationand streamlining. The North AmericanMeat company will be lean and efficientin everything that we do. We are takingthe necessary steps to ensure that our new meat company has the mostappropriate operating structure from itsfirst day as an independent company.We have eliminated layers within theorganization to allow for faster decisionmaking and action taking. We will bemore flexible and better positioned to quickly adapt to changing customerand consumer needs. Our employeesat every level will be empowered to

make decisions and take actions thatquickly impact the bottom-line. Thisleads to an entrepreneurial culturewhere every employee plays a vital role in our quest for superior perform-ance. Being lean also means providingcustomers and consumers with onlythe attributes that they truly value.Processes or features that the cus-tomer does not value, and therefore isunwilling to pay for, will be eliminatedfrom the system as an excess cost.Lean will continue to be a way of life for our company, touching everything we do and driving us to a more effec-tive and efficient structure.


I N T E R N A T I O N A L C O F F E E & T E A



BREWING STRONG LOCAL BRANDS

Our Coffee & Tea company possesses a portfolio of well known and trustedbrands with leading positions in ourcore markets. Our local brands, suchas Douwe Egberts in the Netherlandsand Belgium, LOR in France and Piloin Brazil are consumer favorites basedon a long heritage of high quality, greattasting coffee and tea. Dating back to 1753, Douwe Egberts has earned its place as a deeply embedded andbeloved part of the coffee culture in its home region. Leveraging more than250 years of coffee knowledge andexperience allows our local brands to stand apart from the competition

in terms of quality, loyalty and appeal.Over the last decade, we have comple-mented our local jewels with internationalpropositions, such as Senseo andCafitesse, which have been universallyapplied across geographies. Going for-ward, our local brands will become theprimary carriers of consumer equity aswe strive to enhance their presence,perception and allure to the level thatDouwe Egberts has achieved in theNetherlands. We will increase the levelof consumer marketing and innovationbehind these local brands, enhancingthe coffee experience and driving superior growth.



LEVERAGING ACROSS CATEGORIES

The universe of coffee and tea coversnumerous variations,appearances, tastesand preparation methods. Consumerpreference in coffee spans the gamutfrom strong espressos to sweetenedlattes. Coffee and tea are high interestcategories where consumers havedemonstrated a willingness to pay forenhancements in perceived value. Ourambition is to be at the forefront of theprogression and development of eachcoffee and tea subcategory. We standapart from competitors based on ourdesire to play across the full spectrumof coffee and tea, as we challenge thesupposition that certain subcategories

are destined to decline. In addition to reigniting our core roast and groundofferings, we intend to focus moredeeply on categories that have longbeen underemphasized by the com-pany, including instants and tea.Additionally, we plan to leverage ourpresence and superior technology inthe European foodservice channel totouch consumers with our brands atevery possible consumption occasion.We believe that there are opportunitiesto fulfill consumer aspirations in everysubcategory and we possess thebrands, expertise and innovation tomeet these needs.



CARING ABOUT SUSTAINABLE ORIGIN

Coffee and tea consumers take a particularly strong interest in the originand sourcing of their coffee products.Every bean we procure carries its ownunique back-story and every cup weproduce follows our commitment to fairtrade and sustainable sourcing. We arestrongly committed to being a sociallyresponsible corporate citizen and havinga positive and sustainable impact onour environment and community. Ourenvironmental programs are designedto optimize the use of all resourceswhile creating, packaging and distrib-uting our products in a manner thatlessens their impact on the eco-system.We are the worlds largest purchaser

of UTZ CERTIFIED coffee and the first company to source UTZ CERTIFIED tea. UTZ is a certification program whichshares our commitment to making thecoffee and tea markets more sustain-able. This program has a significantbeneficial impact on helping farmersimprove living conditions. We continueto invest in supporting coffee and teafarmers with training to fulfill the neces-sary requirements for certification. Ourfarming partners are checked regularlyto ensure that they are growing coffeeand tea in a sustainable manner. Ourlong-term vision is to source all of ourcoffee and tea sustainably, and everyyear we move closer to that goal.



AN ENTREPRENEURIAL SPIRIT

We are building an organizational structure that will support our desire to improve the quality and speed ofmarketplace innovation. Our goal is tocreate independent country operationsthat work around a centralized and sup-portive core. We are eliminating excesslayers in our organizational structureand encouraging employees at everylevel to think creatively, find solutionsand openly share ideas with seniormanagement. In order to accelerate ourinnovation efforts, weve launched aprogram called Energy in Motion. Thisprogram takes teams of our highestpotential employees and empowersthem to reignite our innovation pipeline

as we set ourselves up for success as a focused pure play coffee & tea com-pany. This is proving to be a win-win, as the company is benefiting from awealth of new and exciting initiativeswhile employees are more motivatedthan ever. We have embraced theirideas and we are in the process ofbringing the ideas to fruition for fiscal2013. We have adjusted our organi-zation to harness the full innovationpower of our people on an ongoingbasis. As a nimble pure play company,we will bring new ideas to the marketquickly and capitalize on fast movingconsumer trends.



BOARD OF DIRECTORS

Jan Bennink, 54 Executive chairman, Sara Lee Corporation Director since 2011

Christopher B. Begley, 59 Executive chairman,Hospira, Inc.Director since 2006

Crandall C. Bowles, 63 Chairman, Springs Industries, Inc. Director since 2008

Virgis W. Colbert, 71 Retired executive vice president, Miller Brewing Company Director since 2006

James S. Crown, 58 President, Henry Crown and Company Director since 1998

Laurette T. Koellner, 56 Retired president, Boeing International Director since 2003

Cees J.A. van Lede, 68 Retired chairman and chief executive officer, Akzo Nobel N.V.Director since 2002

Dr. John D.G. McAdam, 63 Retired chief executive officer, Imperial Chemical Industries PLCDirector since 2008

Sir Ian Prosser, 68 Retired chairman, InterContinental Hotels Group PLC Director since 2004

Norman R. Sorensen, 66 Chairman,Principal International and President,International Asset Management and Accumulation, Principal Financial Group Director since 2007

Jeffrey W. Ubben, 50 Chief executive officer and Chief investment officer, ValueAct CapitalDirector since 2008

Jonathan P. Ward, 57 Operating partner, Kohlberg & Co. Director since 2005

Jan Bennink, 54Executive chairman

Marcel H.M. Smits, 49 Chief executive officer

Mark A. Garvey, 47 Chief financial officer, Executive vice president

Christopher J. (CJ) Fraleigh, 47 Chief executive officer, North America

Frank van Oers, 52 Chief executive officer, International Beverage and Bakery

SENIOR CORPORATE OFF ICERS

Executive Committee Audit Committee Corporate Governance, Nominating and Policy Committee Compensation and Employee Benefits Committee Finance Committee

Brown symbol indicates committee chair

Stephen J. Cerrone, 52 Executive vice president, Human Resources

B. Thomas Hansson, 51 Senior vice president, Strategy and corporate development

Paulette Dodson, 47Senior vice president,General counsel, andCorporate secretary

As of September 1, 2011

Pictured seated from left to right:Jonathan P. WardCrandall C. BowlesLaurette T. KoellnerJan BenninkChristopher B. BegleyJames S. CrownDr. John D.G. McAdam

Pictured standing from left to right:Norman R. SorensenSir Ian ProsserVirgis W. ColbertJeffrey W. UbbenCees J.A. van Lede

2011SaraLeeAR_Layout 1 9/8/11 3:06 PM Page 44

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eter

min

atio

n of

net

inco

me

per

shar

e

B

asic

(in

mill

ions

)621

688

701

715

741

D

ilute

d (i

n m

illio

ns)

625

691

703

715

743

Oth

er Inf

orm

atio

n

Con

tinu

ing

Ope

rati

ons

Onl

y

Net

cas

h flo

w fro

m o

pera

ting

act

ivit

ies

$2

26

$4

54

$3

21

$1

67

$1

41

Net

cas

h fr

om (

used

in)

inve

stin

g ac

tivi

ties

(317)

(171)

(181)

(180)

329

Net

cas

h fr

om (

used

in)

finan

cing

act

ivit

ies

916

(176)

(299)

(1,3

73)

(319)

Dep

reci

atio

n267

280

274

295

295

Med

ia a

dver

tisi

ng e

xpen

se199

202

152

177

158

Tota

l med

ia a

dver

tisi

ng a

nd p

rom

otio

n ex

pens

e323

340

279

322

306

Cap

ital

exp

endi

ture

s291

307

301

422

504

Com

mon

sto

ckho

lder

s of

rec

ord

260,0

00

64,0

00

67,0

00

70,0

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71,0

00

Num

ber

of e

mpl

oyee

s21,0

00

21,0

00

22,0

00

24,0

00

25,0

00

1 5

3-w

eek

year

.2

As

of t

he la

test

pra

ctic

able

dat

e.

Not

e: T

he a

mou

nts

abov

e in

clud

e th

e im

pact

of c

erta

in s

igni

fican

t ite

ms.

Sig

nific

ant ite

ms

may

incl

ude,

but

are

not

lim

ited

to: e

xit ac

tiviti

es, a

sset

and

bus

ines

s di

spos

ition

s, im

pairm

ent

char

ges,

tra

nsfo

rmat

ion

char

ges,

Pro

ject

Acc

eler

ate

char

ges,

spi

n-of

f re

late

d co

sts,

set

tlem

ent

and

curt

ailm

ent

gain

s or

loss

es a

nd v

ario

us s

igni

fican

t ta

x m

atte

rs. Fu

rthe

r de

tails

of

thes

e ite

ms

are

incl

uded

in t

he F

inan

cial

Rev

iew

. O

pera

ting

inco

me

is r

econ

cile

d be

twee

n th

e in

com

e fr

om e

ach

of t

he c

orpo

ratio

ns

busi

ness

seg

men

ts t

o in

com

e fr

om c

ontin

uing

oper

atio

ns b

efor

e in

com

e ta

xes

in N

ote

19 o

f th

e C

onso

lidat

ed F

inan

cial

Sta

tem

ents

titl

ed, B

usin

ess

Seg

men

t In

form

atio

n.

The

Con

solid

ated

Fin

anci

al S

tate

men

ts a

nd N

otes

and

the

Fin

anci

al R

evie

w s

houl

d be

rea

d in

con

junc

tion

with

the

Fin

anci

al S

umm

ary.

6770

9_30

0 P

g 46

-78

Fin

_u2_

Layo

ut 1

9/7

/11

12:

49 P

M P

age

47

FIN

AN

CIA

L R

EVIE

W

This

Fin

anci

al R

evie

w d

iscu

sses

the

cor

pora

tion

s re

sults

of

oper

atio

ns, f

inan

cial

con

ditio

n an

d liq

uidi

ty, r

isk

man

agem

ent

activ

ities

, and

sig

nific

ant

acco

untin

g po

licie

s an

d cr

itica

l est

imat

es.

This

dis

cuss

ion

shou

ld b

e re

ad in

con

junc

tion

with

the

Con

solid

ated

Fina

ncia

l Sta

tem

ents

and

rel

ated

not

es the

reto

con

tain

ed e

lsew

here

in t

his

annu

al r

epor

t. T

he c

orpo

ratio

ns

fisca

l yea

r en

ds o

n th

eS

atur

day

clos

est

to J

une

30

. Fi

scal

yea

rs 2

01

1 a

nd 2

00

9 w

ere

52-w

eek

year

s, w

hile

fisc

al 2

010 w

as a

53-w

eek

year

. Unl

ess

othe

r-w

ise

stat

ed, r

efer

ence

s to

yea

rs rel

ate

to fi

scal

yea

rs. T

he fo

llow

ing

is a

n ou

tline

of th

e an

alys

is in

clud

ed h

erei

n:

Bus

ines

s O

verv

iew

S

umm

ary

of R

esul

ts

R

evie

w o

f C

onso

lidat

ed R

esul

ts

O

pera

ting

Res

ults

by

Bus

ines

s S

egm

ent

Fina

ncia

l Con

ditio

n

Li

quid

ity

R

isk

Man

agem

ent

Non

-GAA

P Fi

nanc

ial M

easu

res

Crit

ical

Acc

ount

ing

Estim

ates

Issu

ed B

ut N

ot Y

et E

ffec

tive

Acco

untin

g S

tand

ards

Forw

ard-

Look

ing

Info

rmat

ion

Bus

ines

s O

verv

iew

Our

Bus

ines

s S

ara

Lee

is a

glo

bal m

anuf

actu

rer

and

mar

kete

r of

hig

h-qu

ality

, bra

nd n

ame

prod

ucts

for

con

sum

ers

thro

ugho

ut t

hew

orld

focu

sed

prim

arily

in the

mea

ts, b

aker

y an

d be

vera

ge c

ateg

orie

s.O

ur m

ajor

bra

nds

incl

ude

Bal

l Par

k, D

ouw

e Eg

bert

s, H

illsh

ire F

arm

,Ji

mm

y D

ean,

Sen

seo

and

our

nam

esak

e, S

ara

Lee.

In

Nor

th A

mer

ica,

the

com

pany

sel

ls a

var

iety

of pa

ckag

ed m

eat

prod

ucts

tha

t in

clud

e ho

t do

gs, c

orn

dogs

, bre

akfa

st s

ausa

ges,

din

ner

saus

ages

and

del

i mea

ts a

s w

ell a

s a

varie

ty o

f fr

ozen

bak

ed p

rod-

ucts

and

spe

cial

ty it

ems

incl

udin

g ca

kes

and

chee

seca

kes.

The

sepr

oduc

ts a

re s

old

thro

ugh

the

reta

il ch

anne

l to

supe

rmar

kets

, war

e-ho

use

club

s an

d na

tiona

l cha

ins.

The

com

pany

als

o se

lls a

var

iety

of m

eat,

bake

ry a

nd b

ever

age

prod

ucts

to

food

serv

ice

cust

omer

s in

Nor

th A

mer

ica.

Inte

rnat

iona

lly, t

he c

ompa

ny s

ells

cof

fee

and

tea

prod

ucts

in E

urop

e, B

razi

l, Au

stra

lia a

nd A

sia

thro

ugh

the

reta

il an

dfo

odse

rvic

e ch

anne

ls a

s w

ell a

s a

varie

ty o

f ba

kery

and

dou

gh p

rod-

ucts

to

reta

il an

d fo

odse

rvic

e cu

stom

ers

in E

urop

e an

d Au

stra

lia.

The

com

pany

is fo

cuse

d on

bui

ldin

g su

stai

nabl

e, p

rofit

able

gro

wth

over

the

long

ter

m b

y ac

hiev

ing

shar

e le

ader

ship

in it

s co

re c

ate-

gorie

s; in

nova

ting

arou

nd it

s co

re p

rodu

cts

and

prod

uct

cate

gorie

s;

expa

ndin

g in

to h

igh

oppo

rtun

ity g

eogr

aphi

c m

arke

ts a

nd s

trat

egic

join

t ve

ntur

es/p

artn

ersh

ips;

del

iver

ing

supe

rior

qual

ity a

nd v

alue

to

our

cus

tom

ers;

and

driv

ing

oper

atin

g ef

ficie

ncie

s.

In

Jan

uary

2011, t

he c

orpo

ratio

n an

noun

ced

that

its

boar

d of

dire

ctor

s ha

d ag

reed

in p

rinci

ple

to d

ivid

e th

e co

mpa

ny in

to

two

sepa

rate

, pub

licly

tra

ded

com

pani

es, w

hich

is e

xpec

ted

to b

eco

mpl

eted

in t

he firs

t ha

lf of

cal

enda

r 2012. U

nder

the

cur

rent

plan

, the

inte

rnat

iona

l bev

erag

e bu

sine

ss w

ill b

e sp

un o

ff, tax

-free

,in

to a

new

pub

lic c

ompa

ny.

The

rem

aini

ng c

ompa

ny w

ill in

clud

eS

ara

Lee

s N

orth

Am

eric

an R

etai

l and

Nor

th A

mer

ican

Foo

dser

vice

busi

ness

es. Th

e se

para

tion

plan

is s

ubje

ct t

o fin

al a

ppro

val b

y th

e bo

ard

of d

irect

ors,

oth

er c

usto

mar

y ap

prov

als

and

the

rece

ipt

of a

n IR

S t

ax r

ulin

g.

In

Nov

embe

r 2010, t

he c

orpo

ratio

n si

gned

an

agre

emen

t to

se

ll its

Nor

th A

mer

ican

fre

sh b

aker

y bu

sine

ss t

o G

rupo

Bim

bo for

$959 m

illio

n, w

hich

incl

udes

the

ass

umpt

ion

of $

34 m

illio

n of

deb

t.Pe

r th

e ag

reem

ent,

the

purc

hase

pric

e is

sub

ject

to

vario

us a

djus

t-m

ents

, inc

ludi

ng red

uctio

n by

up

to $

140 m

illio

n if

and

to the

ext

ent

that

Gru

po B

imbo

is req

uire

d to

div

est ce

rtai

n am

ount

s of

ass

ets

inco

nnec

tion

with

obt

aini

ng r

egul

ator

y ap

prov

al. Th

e re

gula

tory

rev

iew

proc

ess

is o

ngoi

ng b

ut m

ay r

esul

t in

a p

urch

ase

pric

e re

duct

ion

inex

cess

of $140 m

illio

n. T

he a

gree

men

t w

ill e

nabl

e G

rupo

Bim

bo t

ous

e th

e S

ara

Lee

bran

d in

the

fre

sh b

aker

y ca

tego

ry t

hrou

ghou

t th

ew

orld

, exc

ept

Wes

tern

Eur

ope,

Aus

tral

ia a

nd N

ew Z

eala

nd, w

hile

the

corp

orat

ion

reta

ins

the

bran

d fo

r al

l oth

er c

ateg

orie

s an

d ge

ogra

-ph

ies.

The

sal

e al

so in

clud

es a

sm

all p

ortio

n of

bus

ines

s th

at is

curr

ently

par

t of

the

Nor

th A

mer

ican

Foo

dser

vice

seg

men

t w

hich

is

not

ref

lect

ed a

s di

scon

tinue

d op

erat

ions

as

it do

es n

ot m

eet th

ede

finiti

on o

f a

com

pone

nt p

ursu

ant

to t

he a

ccou

ntin

g ru

les.

The

tran

sact

ion

is a

ntic

ipat

ed t

o cl

ose

in t

he firs

t qu

arte

r of

2012.

In

the

fou

rth

quar

ter

of 2

011, s

teps

wer

e ta

ken

to m

arke

t an

ddi

spos

e of

the

Nor

th A

mer

ican

ref

riger

ated

dou

gh b

usin

ess,

whi

chis

bei

ng r

epor

ted

as a

dis

cont

inue

d op

erat

ion.

On

Augu

st 9

, 2011,

the

com

pany

ann

ounc

ed it

had

sig

ned

an a

gree

men

t to

sel

l thi

sbu

sine

ss fo

r $545 m

illio

n. In

Aug

ust 2011, t

he c

ompa

ny a

lso

mad

eth

e de

cisi

on to

dive

st o

f its

Spa

nish

bak

ery

and

Fren

ch d

ough

bus

i-ne

sses

whi

ch a

re p

art

of t

he In

tern

atio

nal B

aker

y se

gmen

t. T

heAu

stra

lian

froz

en d

esse

rts

busi

ness

, whi

ch is

als

o pa

rt o

f th

eIn

tern

atio

nal B

aker

y se

gmen

t, is

und

er s

trat

egic

rev

iew. T

hese

bus

i-ne

sses

are

cur

rent

ly r

epor

ted

as p

art

of c

ontin

uing

ope

ratio

ns.

As

of th

e en

d of

2011, t

he c

orpo

ratio

n ha

s cl

osed

or

rece

ived

bind

ing

offe

rs for

vir

tual

ly a

ll of

its

hous

ehol

d an

d bo

dy c

are

busi

-ne

sses

b

ody

care

, air

care

, sho

e ca

re a

nd in

sect

icid

es.

6770

9_30

0 P

g 46

-78

Fin

_u2_

Layo

ut 1

9/7

/11

12:

49 P

M P

age

48

48

/49

Sar

a Le

e C

orpo

ratio

n an

d S

ubsi

diar

ies

Th

e co

mpa

nys

inte

rnat

iona

l ope

ratio

ns a

lso

prov

ide

a si

gnifi

cant

port

ion

of t

he c

ompa

nys

cas

h flo

w fro

m o

pera

ting

activ

ities

, whi

chha

s re

quire

d an

d is

exp

ecte

d to

con

tinue

to

requ

ire t

he c

ompa

ny t

ore

patr

iate

a g

reat

er p

ortio

n of

cas

h ge

nera

ted

outs

ide

of t

he U

.S.

The

repa

tria

tion

of t

hese

fun

ds h

as r

esul

ted

in h

ighe

r in

com

e ta

xex

pens

e an

d ca

sh t

ax p

aym

ents

. In

pre

para

tion

for

the

spin

-off, t

he c

orpo

ratio

n ha

s id

entif

ied

cost

red

uctio

n op

port

uniti

es o

f $180 m

illio

n to

$200 m

illio

n, c

om-

pare

d to

fis

cal 2

011, a

chie

vabl

e w

ithin

the

nex

t tw

o ye

ars.

The

seco

st r

educ

tions

res

ult

from

the

dow

nsiz

ing

of c

orpo

rate

res

ourc

es,

the

redu

ctio

n of

ove

rhea

d w

ithin

bot

h th

e N

orth

Am

eric

an m

eat

busi

ness

es a

nd the

inte

rnat

iona

l cof

fee

and

tea

busi

ness

es a

s w

ell

as t

he c

ompl

etio

n of

Pro

ject

Acc

eler

ate

initi

ativ

es. Th

ese

savi

ngs

are

expe

cted

to

mor

e th

an o

ffse

t th

e $50 m

illio

n to

$60 m

illio

n of

stra

nded

cos

ts fro

m b

usin

ess

disp

ositi

ons.

In

2012, t

he c

orpo

ratio

n ex

pect

s ch

arge

s of

app

roxi

mat

ely

$425 m

illio

n re

latin

g to

the

abo

ve c

ost

savi

ngs

initi

ativ

es a

nd o

ther

actio

ns. Th

ese

cost

s ar

e co

mpr

ised

of $300 m

illio

n in

res

truc

turin

gac

tions

and

$125 m

illio

n fo

r tr

ansa

ctio

n-re

late

d co

sts.

Non

-GA

AP

Mea

sure

s M

anag

emen

t m

easu

res

and

repo

rts

Sar

a Le

es

finan

cial

resu

lts in

acc

orda

nce

with

U.S

. gen

eral

ly a

ccep

ted

acco

untin

gpr

inci

ples

(G

AAP

). In

thi

s re

port

, Sar

a Le

e hi

ghlig

hts

cert

ain

item

sth

at h

ave

sign

ifica

ntly

impa

cted

the

cor

pora

tion

s fin

anci

al r

esul

tsan

d us

es s

ever

al n

on-G

AAP

finan

cial

mea

sure

s to

hel

p in

vest

ors

unde

rsta

nd the

fina

ncia

l im

pact

of t

hese

sig

nific

ant ite

ms.

The

non

-G

AAP

finan

cial

mea

sure

s us

ed b

y S

ara

Lee

in t

his

annu

al r

epor

tar

e ad

just

ed n

et s

ales

, adj

uste

d op

erat

ing

segm

ent

inco

me,

and

adju

sted

ope

ratin

g in

com

e, w

hich

exc

lude

fro

m a

fin

anci

al m

easu

reco

mpu

ted

in a

ccor

danc

e w

ith G

AAP

the

impa

ct o

f si

gnifi

cant

item

s,th

e re

ceip

t of

con

tinge

nt s

ale

proc

eeds

, the

impa

ct o

f ac

quis

ition

san

d di

spos

ition

s, the

impa

ct o

f the

53rd

wee

k an

d ch

ange

s in

fore

ign

curr

ency

exc

hang

e ra

tes.

Man

agem

ent be

lieve

s th

at the

se n

on-G

AAP

finan

cial

mea

sure

s re

flect

an

addi

tiona

l way

of vi

ewin

g as

pect

s of

Sar

a Le

es

busi

ness

tha

t, w

hen

view

ed t

oget

her

with

Sar

a Le

es

finan

cial

res

ults

com

pute

d in

acc

orda

nce

with

GAA

P, pr

ovid

e a

mor

eco

mpl

ete

unde

rsta

ndin

g of

fac

tors

and

tre

nds

affe

ctin

g S

ara

Lee

shi

stor

ical

fin

anci

al p

erfo

rman

ce a

nd p

roje

cted

fut

ure

oper

atin

gre

sults

, gre

ater

tra

nspa

renc

y of

und

erly

ing

prof

it tr

ends

and

gre

ater

com

para

bilit

y of

res

ults

acr

oss

perio

ds. Th

ese

non-

GAA

P fin

anci

alm

easu

res

are

not

inte

nded

to

be a

sub

stitu

te for

the

com

para

ble

GAA

P m

easu

res

and

shou

ld b

e re

ad o

nly

in c

onju

nctio

n w

ith o

urco

nsol

idat

ed fi

nanc

ial s

tate

men

ts p

repa

red

in a

ccor

danc

e w

ith G

AAP.

Cha

lleng

es a

nd R

isks

As

an

inte

rnat

iona

l con

sum

er p

rodu

cts

com

pany

, we

face

cer

tain

ris

ks a

nd c

halle

nges

tha

t im

pact

our

bu

sine

ss a

nd fin

anci

al p

erfo

rman

ce. Th

e ris

ks a

nd c

halle

nges

desc

ribed

bel

ow h

ave

impa

cted

our

per

form

ance

and

are

like

ly

to im

pact

our

fut

ure

resu

lts a

s w

ell.

The

food

and

con

sum

er p

rodu

cts

busi

ness

es a

re h

ighl

y co

mpe

titiv

e. In

man

y pr

oduc

t ca

tego

ries,

we

com

pete

not

onl

y w

ithw

idel

y ad

vert

ised

bra

nded

pro

duct

s, b

ut a

lso

with

priv

ate

labe

l pro

d-uc

tsth

at a

re g

ener

ally

sol

d at

low

er p

rices

. As

a r

esul

t, fr

om t

ime

to t

ime,

we

may

nee

d to

red

uce

the

pric

es for

som

e of

our

pro

duct

sto

res

pond

to

com

petit

ive

pres

sure

s. E

cono

mic

unc

erta

inty

may

resu

lt in

incr

ease

d pr

essu

re t

o re

duce

the

pric

es for

som

e of

our

prod

ucts

, lim

it ou

r ab

ility

to

incr

ease

or

mai

ntai

n pr

ices

or

lead

to

a co

ntin

ued

shift

tow

ard

priv

ate

labe

l pro

duct

s. A

ny r

educ

tion

inpr

ices

or

our

inab

ility

to

incr

ease

pric

es w

hen

raw

mat

eria

l cos

tsin

crea

se c

ould

neg

ativ

ely

impa

ct p

rofit

mar

gins

and

the

ove

rall

prof

itabi

lity

of o

ur r

epor

ting

units

, whi

ch c

ould

pot

entia

lly t

rigge

r a

good

will

impa

irmen

t.

C

omm

odity

pric

es d

irect

ly im

pact

our

bus

ines

s be

caus

e of

the

iref

fect

on

the

cost

of ra

w m

ater

ials

use

d to

mak

e ou

r pr

oduc

ts a

ndth

e co

st o

f in

puts

to

man

ufac

ture

, pac

kage

and

shi

p ou

r pr

oduc

ts.

Man

y of

the

com

mod

ities

we

use,

incl

udin

g be

ef, p

ork,

cof

fee,

whe

at,

corn

, cor

n sy

rup,

soy

bean

and

cor

n oi

ls, b

utte

r, su

gar

and

ener

gy,

have

exp

erie

nced

pric

e vo

latil

ity d

ue t

o fa

ctor

s be

yond

our

con

trol

.Th

e co

mpa

nys

obj

ectiv

e is

to

offs

et c

omm

odity

pric

e in

crea

ses

with

pric

ing

actio

ns a

nd t

o of

fset

any

ope

ratin

g co

sts

incr

ease

s w

ithco

ntin

uous

impr

ovem

ent

savi

ngs.

Dur

ing

2011, c

omm

odity

cos

ts,

excl

udin

g m

ark-

to-m

arke

t de

rivat

ive

gain

s/lo

sses

, inc

reas

ed a

ppro

x-im

atel

y $646 m

illio

n ov

er t

he p

rior

year

, inc

ludi

ng $

55 m

illio

n of

curr

ency

mar

k-to

-mar

ket l

osse

s re

late

d to

cof

fee

purc

hase

s re

cogn

ized

by t

he In

tern

atio

nal B

ever

age

segm

ent.

Thi

s in

crea

se in

com

mod

ityco

sts

was

onl

y pa

rtia

lly o

ffse

t by

app

roxi

mat

ely

$4

68

mill

ion

in

pric

ing

actio

ns. T

he c

ompa

ny e

xpec

ts c

omm

odity

cos

ts to

cont

inue

to in

crea

se in

2012.

The

com

pany

s b

usin

ess

resu

lts a

re a

lso

heav

ily in

fluen

ced

bych

ange

s in

for

eign

cur

renc

y ex

chan

ge r

ates

. Fo

r th

e m

ost

rece

ntly

com

plet

ed fi

scal

yea

r, ap

prox

imat

ely

50%

of n

et s

ales

and

ope

ratin

gse

gmen

t in

com

e re

late

d to

con

tinui

ng o

pera

tions

wer

e ge

nera

ted

outs

ide

of the

U.S

. As

a re

sult,

cha

nges

in fo

reig

n cu

rren

cy e

xcha

nge

rate

s, p

artic

ular

ly t

he E

urop

ean

euro

, can

hav

e a

sign

ifica

nt im

pact

on the

rep

orte

d re

sults

. A thr

ee c

ent m

ovem

ent in

the

eur

o ex

chan

gera

te is

exp

ecte

d to

hav

e ap

prox

imat

ely

a on

e ce

nt im

pact

on

the

corp

orat

ion

s di

lute

d ea

rnin

gs p

er s

hare

.

6770

9_30

0 P

g 46

-78

Fin

_u2_

Layo

ut 1

9/7

/11

12:

49 P

M P

age

49

FIN

AN

CIA

L R

EVIE

W

C

ash

from

ope

ratin

g ac

tiviti

es w

as $

447 m

illio

n in

2011, a

decr

ease

of $505 m

illio

n du

e to

the

dec

line

in o

pera

ting

resu

lts,

the

impa

ct o

f bu

sine

ss d

ispo

sitio

ns a

nd in

crea

sed

wor

king

cap

ital

usag

e pa

rtia

lly o

ffse

t by

low

er c

ash

paym

ents

for

pen

sion

s.

U

nder

the

cor

pora

tion

s ca

pita

l pla

n, t

he c

ompa

ny e

xpen

ded

$1.3

bill

ion

to rep

urch

ase

80.2

mill

ion

shar

es o

f its

com

mon

sto

ck.

Sig

nific

ant

Item

s A

ffect

ing

Com

para

bilit

y T

he r

epor

ted

resu

lts for

2011, 2

010 a

nd 2

009 r

efle

ct a

mou

nts

reco

gniz

ed for

res

truc

turin

gac

tions

and

oth

er s

igni

fican

t am

ount

s th

at im

pact

com

para

bilit

y.

S

igni

fican

t ite

ms

are

inco

me

or c

harg

es (a

nd rel

ated

tax

impa

ct)

that

man

agem

ent be

lieve

s ha

ve h

ad o

r ar

e lik

ely

to h

ave

a si

gnifi

cant

impa

ct o

n th

e ea

rnin

gs o

f th

e ap

plic

able

bus

ines

s se

gmen

t or

on

the

tota

l cor

pora

tion

for

the

perio

d in

whi

ch t

he it

em is

rec

ogni

zed,

are

not

indi

cativ

e of

the

com

pany

s c

ore

oper

atin

g re

sults

and

af

fect

the

com

para

bilit

y of

und

erly

ing

resu

lts fr

om p

erio

d to

per

iod.

Sig

nific

ant

item

s m

ay in

clud

e, b

ut a

re n

ot li

mite

d to

: ch

arge

s fo

r ex

it ac

tiviti

es; t

rans

form

atio

n pr

ogra

m a

nd P

roje

ct A

ccel

erat

e co

sts;

spin

-off r

elat

ed c

osts

; im

pairm

ent

char

ges;

pen

sion

par

tial w

ith-

draw

al li

abili

ty c

harg

es; be

nefit

pla

n cu

rtai

lmen

t ga

ins

and

loss

es;

tax

char

ges

on d

eem

ed rep

atria

ted

earn

ings

; tax

cos

ts a

nd b

enef

itsre

sulti

ng f

rom

the

dis

posi

tion

of a

bus

ines

s; im

pact

of

tax

law

chan

ges;

cha

nges

in tax

val

uatio

n al

low

ance

s an

d fa

vora

ble

or u

nfa-

vora

ble

reso

lutio

n of

ope

n ta

x m

atte

rs b

ased

on

the

final

izat

ion

ofta

x au

thor

ity e

xam

inat

ions

or th

e ex

pira

tion

of s

tatu

tes

of li

mita

tions

. Th

e im

pact

of t

he a

bove

item

s on

net

inco

me

and

dilu

ted

earn

ings

per

shar

e is

sum

mar

ized

on

the

follo

win

g pa

ge.

Im

pact

of si

gnifi

cant

item

s on

inco

me

from

con

tinui

ng

oper

atio

ns b

efor

e in

com

e ta

xes:

In m

illio

ns2

01

12010

2009

Pre

tax

Impa

ct

Cos

t of

sal

es$(2

)$

$6

Sel

ling,

gen

eral

and

adm

in e

xpen

ses

(58)

(40)

11

Exit

and

bus

ines

s di

spos

itio

ns(1

05)

(84)

(98)

Impa

irm

ent

char

ges

(21)

(28)

(314)

Deb

t ex

ting

uish

men

t co

sts

(55)

Tota

l$(2

41)

$(1

52)

$(3

95)

Man

agem

ent

also

use

s ce

rtai

n of

the

se n

on-G

AAP

finan

cial

mea

sure

s, in

con

junc

tion

with

the

GAA

P fin

anci

al m

easu

res,

to

unde

rsta

nd, m

anag

e an

d ev

alua

te o

ur b

usin

esse

s, in

pla

nnin

g fo

ran

d fo

reca

stin

g fin

anci

al r

esul

ts for

fut

ure

perio

ds, a

nd a

s on

e fa

c-to

r in

det

erm

inin

g ac

hiev

emen

t of

ince

ntiv

e co

mpe

nsat

ion.

Tw

o of

the

thre

e pe

rfor

man

ce m

easu

res

unde

r S

ara

Lee

s an

nual

ince

ntiv

epl

an a

re n

et s

ales

and

ope

ratin

g in

com

e, w

hich

are

the

rep

orte

dam

ount

s as

adj

uste

d fo

r si

gnifi

cant

item

s an

d po

ssib

ly o

ther

item

s.O

pera

ting

inco

me,

as

adju

sted

for si

gnifi

cant

item

s, a

lso

may

be

used

as a

com

pone

nt o

f Sar

a Le

es

long

-term

ince

ntiv

e pl

ans.

Man

y of

the

sign

ifica

nt it

ems

will

rec

ur in

futu

re p

erio

ds; h

owev

er, t

he a

mou

nt a

ndfr

eque

ncy

of e

ach

sign

ifica

nt it

em v

arie

s fr

om p

erio

d to

per

iod.

See

Non

-GAA

P M

easu

res

Def

initi

ons

in th

e Fi

nanc

ial R

evie

w s

ectio

n of

this

repo

rt fo

r ad

ditio

nal i

nfor

mat

ion

rega

rdin

g th

ese

finan

cial

mea

sure

s.

Sum

mar

y of

Res

ults

The

busi

ness

hig

hlig

hts

for

2011 in

clud

e th

e fo

llow

ing:

Net

sal

es for

the

yea

r w

ere

$8.7

bill

ion,

an

incr

ease

of

$342 m

illio

n, o

r 4.1

% o

ver

the

prio

r ye

ar, a

s pr

icin

g ac

tions

inre

spon

se to

high

er c

omm

odity

cos

ts, t

he im

pact

of r

ecen

t ac

quis

i-tio

ns a

nd c

hang

es in

for

eign

cur

renc

y ex

chan

ge r

ates

offse

t th

ene

gativ

e im

pact

of lo

wer

uni

t vo

lum

es a

nd t

he 5

3rd

wee

k in

the

prio

r ye

ar. Ad

just

ed n

et s

ales

incr

ease

d 4.9

%.

Rep

orte

d op

erat

ing

inco

me

for

the

year

was

$627 m

illio

n, a

decr

ease

of $194 m

illio

n, w

hich

res

ulte

d fr

om t

he c

essa

tion

of c

on-

tinge

nt s

ales

pro

ceed

s, lo

wer

ope

ratin

g re

sults

for

the

Inte

rnat

iona

lB

ever

age

busi

ness

seg

men

t pr

imar

ily d

riven

by

raw

mat

eria

l cos

tsin

crea

ses

and

the

unfa

vora

ble

impa

ct o

f th

e 53rd

wee

k in

the

prio

rye

ar. Ad

just

ed o

pera

ting

inco

me

decr

ease

d $18 m

illio

n, o

r 2.0

%.

Ope

ratin

g se

gmen

t in

com

e w

as n

egat

ivel

y im

pact

ed b

y th

e ye

ar-o

ver-y

ear

incr

ease

in c

omm

odity

cos

ts n

et o

f pr

icin

g ac

tions

and

low

er u

nit

volu

mes

. Th

ese

decl

ines

wer

e pa

rtia

lly o

ffse

t by

cos

tsa

ving

s ac

hiev

ed fro

m P

roje

ct A

ccel

erat

e an

d co

ntin

uous

impr

ove-

men

t in

itiat

ives

and

a 5

% d

eclin

e in

spe

ndin

g on

med

ia a

dver

tisin

gan

d pr

omot

ions

(M

AP).

Net

inco

me

from

con

tinui

ng o

pera

tions

att

ribut

able

to

Sar

a Le

ew

as $

338 m

illio

n, o

r $0.5

4 p

er s

hare

on

a di

lute

d ba

sis,

a d

eclin

eof

$244 m

illio

n. T

he y

ear-o

ver-y

ear

decl

ine

refle

cts

the

low

er r

esul

tsfo

r th

e bu

sine

ss s

egm

ents

, the

ces

satio

n of

con

tinge

nt s

ale

pro-

ceed

s, $

55 m

illio

n of

deb

t ex

tingu

ishm

ent

cost

s an

d an

incr

ease

in

inco

me

tax

expe

nse.

Net

inco

me

attr

ibut

able

to

Sar

a Le

e w

as$1.2

87 b

illio

n or

$2.0

6 p

er s

hare

on

a di

lute

d ba

sis,

whi

ch in

clud

esa

$736 m

illio

n af

ter

tax

gain

on

the

sale

of bu

sine

sses

.

6770

9_30

0 P

g 46

-78

Fin

_u2_

Layo

ut 1

9/7

/11

12:

49 P

M P

age

50

50

/51

Sar

a Le

e C

orpo

ratio

n an

d S

ubsi

diar

ies

Impa

ct o

f Sig

nific

ant

Item

s on

Inc

ome

from

C

onti

nuin

g O

pera

tion

s an

d N

et Inc

ome

Year

end

ed J

uly

2, 2

011

Year

end

ed J

uly

3, 2

010

Year

end

ed J

une

27, 2

009

Pre

tax

Dilu

ted

EPS

Pre

tax

Dilu

ted

EPS

Pre

tax

Dilu

ted

EPS

In m

illio

ns e

xcep

t pe

r sh

are

data

Impa

ctN

et Inc

ome

Impa

ct1

Impa

ctN

et Inc

ome

Impa

ct1

Impa

ctN

et Inc

ome

Impa

ct1

Sig

nific

ant

item

s af

fect

ing

com

para

bilit

y of

inco

me

from

con

tinu

ing

oper

atio

ns

an

d ne

t in

com

e B

usin

ess

outs

ourc

ing

cost

s$(2

0)

$(1

4)

$(0

.02)

$(2

7)

$(1

8)

$(0

.03)

$(2

1)

$(1

4)

$(0

.02)

Sev

eran

ce c

harg

es(1

)(1

)

(46)

(32)

(0.0

5)

(98)

(70)

(0.1

0)

Le

ase

exit

cos

ts

(14)

(8)

(0.0

1)

11

B

usin

ess

disp

osit

ion

cost

s

(20)

(14)

(0.0

2)

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A

ccel

erat

ed d

epre

ciat

ion

(2)

(1)

(1

1)

(7)

(0.0

1)

Tota

l Pro

ject

Acc

eler

ate

char

ges

(23)

(16)

(0.0

2)

(118)

(79)

(0.1

2)

(118)

(87)

(0.1

3)

Oth

er In

tern

atio

nal s

tran

ded

over

head

cha

rges

(66)

(47)

(0.0

7)

C

urta

ilmen

t ga

in

20

13

0.0

212

80.0

1

Im

pair

men

t ch

arge

s(2

1)

(14)

(0.0

2)

(28)

(19)

(0.0

3)

(314)

(289)

(0.4

1)

M

exic

an t

ax in

dem

nific

atio

n ch

arge

(2

6)

(26)

(0.0

4)

B

alan

ce s

heet

cor

rect

ions

11

70.0

1

G

ain

on p

rope

rty

disp

osit

ions

14

10

0.0

1

Spi

n-of

f re

late

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sts

(76)

(55)

(0.0

9)

D

ebt

exti

ngui

shm

ent

cost

s(5

5)

(35)

(0.0

6)

Impa

ct o

f si

gnifi

cant

item

s on

inco

me

from

co

ntin

uing

ope

rati

ons

befo

re in

com

e ta

xes

(241)

(167)

(0.2

7)

(152)

(111)

(0.1

6)

(395)

(351)

(0.5

0)

Sign

ifica

nt t

ax m

atte

rs a

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THE WAY FORWARD - AnnualReports.com · 2011-12-21 · increased shareholder value. We aim to accelerate both top and bottom ... and intent to declare a $3.00 per share special dividend