o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
(a) | Financial Statements |
• | Audited consolidated financial statements of The Hillshire Brands Company comprised of consolidated balance sheets as of June 29, 2013 and June 30, 2012 and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of equity and consolidated statements of cash flows for the three years in the period ended June 29, 2013, the notes related thereto and the Report of the Independent Registered Public Accounting Firm, attached as Exhibit 99.1 hereto. |
• | Unaudited condensed consolidated financial statements of The Hillshire Brands Company comprised of condensed consolidated balance sheets as of March 29, 2014 and June 29, 2013, the related consolidated statements of income and consolidated statements comprehensive income for the three and nine months ended March 29, 2014 and March 30, 2013, the related consolidated statements of equity for the nine months ended March 29, 2014 and the year ended June 29, 2013, and the related consolidated statements of cash flows for the nine months ended March 29, 2014 and March 30, 2013 and the notes related thereto, attached as Exhibit 99.2 hereto. |
(b) | Pro Forma Financial Information |
• | Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 29, 2014; |
• | Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended September 28, 2013; |
• | Unaudited Pro Forma Condensed Consolidated Statements of Income for the six months ended March 29, 2014; and |
• | Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information. |
Exhibit No. | Description |
23.1 | Consent of PricewaterhouseCoopers LLP |
99.1 | Audited consolidated financial statements of The Hillshire Brands Company as of June 29, 2013 and June 30, 2012 and for each of the three years in the period ended June 29, 2013, the notes related thereto and the Report of the Independent Registered Public Accounting Firm |
99.2 | Unaudited condensed consolidated financial statements of The Hillshire Brands Company for the nine month periods ended March 29, 2014 and March 30, 2013, and the notes related thereto |
99.3 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of The Hillshire Brands Company for the three years ended June 29, 2013 |
99.4 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of The Hillshire Brands Company for the nine months ended March 29, 2014 and March 30, 2013 |
99.5 | Unaudited Pro Forma Condensed Consolidated Financial Information |
By: | /s/ Dennis Leatherby | |
Name: | Dennis Leatherby | |
Title: | Executive Vice President and Chief Financial Officer | |
In millions except per share data Years ended | June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
Continuing Operations | ||||||||||||
Net sales | $ | 3,920 | $ | 3,958 | $ | 3,884 | ||||||
Cost of sales | 2,758 | 2,857 | 2,721 | |||||||||
Selling, general and administrative expenses | 855 | 930 | 883 | |||||||||
Net charges for exit activities, asset and business dispositions | 9 | 81 | 38 | |||||||||
Impairment charges | 1 | 14 | 15 | |||||||||
Operating income | 297 | 76 | 227 | |||||||||
Interest expense | 48 | 77 | 92 | |||||||||
Interest income | (7 | ) | (5 | ) | (5 | ) | ||||||
Debt extinguishment costs | — | 39 | 55 | |||||||||
Income (loss) from continuing operations before income taxes | 256 | (35 | ) | 85 | ||||||||
Income tax expense (benefit) | 72 | (15 | ) | 27 | ||||||||
Income (loss) from continuing operations | 184 | (20 | ) | 58 | ||||||||
Discontinued Operations | ||||||||||||
Income from discontinued operations net of tax expense (benefit) of $(8), $(603) and $82 | 15 | 463 | 483 | |||||||||
Gain on sale of discontinued operations, net of tax expense of $15, $367 and $573 | 53 | 405 | 731 | |||||||||
Net income from discontinued operations | 68 | 868 | 1,214 | |||||||||
Net income | 252 | 848 | 1,272 | |||||||||
Less: Income from noncontrolling interests, net of tax | ||||||||||||
Discontinued operations | — | 3 | 9 | |||||||||
Net income attributable to Hillshire Brands | $ | 252 | $ | 845 | $ | 1,263 | ||||||
Amounts attributable to Hillshire Brands | ||||||||||||
Net income (loss) from continuing operations | $ | 184 | $ | (20 | ) | $ | 58 | |||||
Net income from discontinued operations | 68 | 865 | 1,205 | |||||||||
Net income attributable to Hillshire Brands | $ | 252 | $ | 845 | $ | 1,263 | ||||||
Earnings per share of common stock | ||||||||||||
Basic | ||||||||||||
Income (loss) from continuing operations | $ | 1.50 | $ | (0.16 | ) | $ | 0.47 | |||||
Net income | $ | 2.05 | $ | 7.13 | $ | 10.16 | ||||||
Diluted | ||||||||||||
Income (loss) from continuing operations | $ | 1.49 | $ | (0.16 | ) | $ | 0.46 | |||||
Net income | $ | 2.04 | $ | 7.13 | $ | 10.11 | ||||||
In millions | Years ended | June 29, 2013 | June 30, 2012 | July 2, 2011 | ||||||||||
Net income (loss) | $ | 252 | $ | 848 | $ | 1,272 | ||||||||
Translation adjustments, net of tax of $(6), $(17), $47 respectively | (21 | ) | (23 | ) | 325 | |||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $4, nil, $(5) respectively | (8 | ) | 2 | 7 | ||||||||||
Pension/Postretirement activity, net of tax of $(14), $26, $(125) respectively | 26 | (21 | ) | 317 | ||||||||||
Comprehensive income | 249 | 806 | 1,921 | |||||||||||
Comprehensive income attributable to non-controlling interests | — | 3 | 9 | |||||||||||
Comprehensive income attributable to Hillshire Brands | $ | 249 | $ | 803 | $ | 1,912 | ||||||||
In millions | June 29, 2013 | June 30, 2012 | ||||||
Assets | ||||||||
Cash and equivalents | $ | 400 | $ | 235 | ||||
Trade accounts receivable, less allowances of $2 in 2013 and $11 in 2012 | 219 | 248 | ||||||
Inventories | ||||||||
Finished goods | 207 | 196 | ||||||
Work in process | 15 | 17 | ||||||
Materials and supplies | 91 | 75 | ||||||
313 | 288 | |||||||
Current deferred income taxes | 71 | 114 | ||||||
Income tax receivable | 18 | 52 | ||||||
Other current assets | 85 | 65 | ||||||
Total current assets | 1,106 | 1,002 | ||||||
Property | ||||||||
Land | 25 | 25 | ||||||
Buildings and improvements | 790 | 756 | ||||||
Machinery and equipment | 1,095 | 1,137 | ||||||
Construction in progress | 93 | 174 | ||||||
2,003 | 2,092 | |||||||
Accumulated depreciation | 1,185 | 1,245 | ||||||
Property, net | 818 | 847 | ||||||
Trademarks and other identifiable intangibles, net | 121 | 132 | ||||||
Goodwill | 348 | 348 | ||||||
Deferred income taxes | 20 | 36 | ||||||
Other noncurrent assets | 21 | 80 | ||||||
Noncurrent assets held for disposal | — | 5 | ||||||
$ | 2,434 | $ | 2,450 | |||||
Liabilities and Equity | ||||||||
Accounts payable | $ | 295 | $ | 359 | ||||
Accrued liabilities | ||||||||
Payroll and employee benefits | 110 | 127 | ||||||
Advertising and promotion | 124 | 116 | ||||||
Other accrued liabilities | 123 | 226 | ||||||
Current maturities of long-term debt | 19 | 5 | ||||||
Total current liabilities | 671 | 833 | ||||||
Long-term debt | 932 | 939 | ||||||
Pension obligation | 119 | 166 | ||||||
Other liabilities | 228 | 277 | ||||||
Contingencies and commitments (Note 14) | ||||||||
Equity | ||||||||
Hillshire Brands common stockholders' equity: | ||||||||
Common stock: (authorized 1,200,000,000 shares; $0.01 par value) Issued and outstanding- 123,247,815 shares in 2013 and 120,644,345 shares in 2012 | 1 | 1 | ||||||
Capital surplus | 200 | 144 | ||||||
Retained earnings | 477 | 295 | ||||||
Unearned stock of ESOP | (53 | ) | (61 | ) | ||||
Accumulated other comprehensive (loss) | (141 | ) | (144 | ) | ||||
Total equity | 484 | 235 | ||||||
$ | 2,434 | $ | 2,450 | |||||
Hillshire Brands Common Stockholders' Equity | ||||||||||||||||||||||||||||
In millions | Total | Common Stock | Capital Surplus | Retained Earnings | Unearned Stock | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | |||||||||||||||||||||
BALANCES AT JULY 3, 2010 | $ | 1,459 | $ | 7 | $ | 11 | $ | 2,424 | $ | (97 | ) | $ | (914 | ) | $ | 28 | ||||||||||||
Net income | 1,272 | — | — | 1,263 | — | — | 9 | |||||||||||||||||||||
Translation adjustments, net of tax of $47 | 325 | — | — | — | — | 325 | — | |||||||||||||||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $(5) | 7 | — | — | — | — | 7 | — | |||||||||||||||||||||
Pension/Postretirement activity, net of tax of $(125) | 317 | — | — | — | — | 317 | — | |||||||||||||||||||||
Dividends on common stock | (278 | ) | — | — | (278 | ) | — | — | — | |||||||||||||||||||
Dividends paid on noncontrolling interest/Other | (5 | ) | — | — | — | — | — | (5 | ) | |||||||||||||||||||
Disposition of noncontrolling interest | (3 | ) | — | — | — | — | — | (3 | ) | |||||||||||||||||||
Stock issuances - restricted stock | 34 | — | 25 | 9 | — | — | — | |||||||||||||||||||||
Stock option and benefit plans | 58 | — | 58 | — | — | — | — | |||||||||||||||||||||
Share repurchases and retirement | (1,313 | ) | (1 | ) | (55 | ) | (1,257 | ) | — | — | — | |||||||||||||||||
ESOP tax benefit, redemptions and other | 20 | — | — | — | 20 | — | — | |||||||||||||||||||||
BALANCES AT JULY 2, 2011 | 1,893 | 6 | 39 | 2,161 | (77 | ) | (265 | ) | 29 | |||||||||||||||||||
Net income | 848 | — | — | 845 | — | — | 3 | |||||||||||||||||||||
Translation adjustments, net of tax of $(17) | (23 | ) | — | — | — | — | (23 | ) | — | |||||||||||||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of nil | 2 | — | — | — | — | 2 | — | |||||||||||||||||||||
Pension/Postretirement activity, net of tax of $26 | (21 | ) | — | — | — | — | (21 | ) | — | |||||||||||||||||||
Dividends on common stock | (138 | ) | — | — | (138 | ) | — | — | — | |||||||||||||||||||
Dividends paid on noncontrolling interest/Other | (2 | ) | — | — | — | — | — | (2 | ) | |||||||||||||||||||
Disposition of noncontrolling interest | (29 | ) | — | — | — | — | — | (29 | ) | |||||||||||||||||||
Repurchase of noncontrolling interest | (10 | ) | — | (9 | ) | — | — | — | (1 | ) | ||||||||||||||||||
Spin-off of International Coffee and Tea business | (2,408 | ) | — | (5 | ) | (2,566 | ) | — | 163 | — | ||||||||||||||||||
Stock issuances - restricted stock | 14 | — | 21 | (7 | ) | — | — | — | ||||||||||||||||||||
Stock option and benefit plans | 94 | — | 94 | — | — | — | — | |||||||||||||||||||||
Reverse stock split | — | (5 | ) | 5 | — | — | — | — | ||||||||||||||||||||
ESOP tax benefit, redemptions and other | 15 | — | (1 | ) | — | 16 | — | — | ||||||||||||||||||||
BALANCES AT JUNE 30, 2012 | 235 | 1 | 144 | 295 | (61 | ) | (144 | ) | — | |||||||||||||||||||
Net income | 252 | — | — | 252 | — | — | — | |||||||||||||||||||||
Translation adjustments, net of tax of $(6) | (21 | ) | — | — | — | — | (21 | ) | — | |||||||||||||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $4 | (8 | ) | — | — | — | — | (8 | ) | — | |||||||||||||||||||
Pension/Postretirement activity, net of tax of $(14) | 26 | — | — | — | — | 26 | — | |||||||||||||||||||||
Dividends on common stock | (61 | ) | — | — | (61 | ) | — | — | — | |||||||||||||||||||
Spin-off of International Coffee and Tea | (3 | ) | — | — | (9 | ) | — | 6 | — | |||||||||||||||||||
Stock issuances - restricted stock | 3 | — | 3 | — | — | — | — | |||||||||||||||||||||
Stock option and benefit plans | 52 | — | 52 | — | — | — | — | |||||||||||||||||||||
ESOP tax benefit, redemptions and other | 9 | — | 1 | — | 8 | — | — | |||||||||||||||||||||
BALANCES AT JUNE 29, 2013 | $ | 484 | $ | 1 | $ | 200 | $ | 477 | $ | (53 | ) | $ | (141 | ) | $ | — | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
Operating Activities | ||||||||||||
Net income | $ | 252 | $ | 848 | $ | 1,272 | ||||||
Adjustments to reconcile net income to net cash from operating activities | ||||||||||||
Depreciation | 148 | 266 | 302 | |||||||||
Amortization | 18 | 46 | 84 | |||||||||
Impairment charges | 1 | 428 | 21 | |||||||||
Net (gain) on business dispositions | (75 | ) | (772 | ) | (1,305 | ) | ||||||
Increase (decrease) in deferred income taxes | 44 | (400 | ) | 180 | ||||||||
Pension contributions, net of income/expense | (14 | ) | (226 | ) | (80 | ) | ||||||
Refundable tax on Senseo payments | — | (43 | ) | — | ||||||||
Debt extinguishment costs | — | 39 | 55 | |||||||||
Other | (11 | ) | (70 | ) | (19 | ) | ||||||
Change in current assets and liabilities, net of businesses acquired and sold | ||||||||||||
Trade accounts receivable | 19 | 66 | 116 | |||||||||
Inventories | (38 | ) | 34 | (206 | ) | |||||||
Other current assets | 30 | (30 | ) | (42 | ) | |||||||
Accounts payable | (52 | ) | 29 | 62 | ||||||||
Accrued liabilities | (89 | ) | 94 | (171 | ) | |||||||
Income taxes | 20 | (60 | ) | 178 | ||||||||
Net cash from operating activities | 253 | 249 | 447 | |||||||||
Investing Activities | ||||||||||||
Purchases of property and equipment | (135 | ) | (314 | ) | (337 | ) | ||||||
Purchase of software and other intangibles | (5 | ) | (188 | ) | (18 | ) | ||||||
Acquisitions of businesses and investments | — | (30 | ) | (119 | ) | |||||||
Dispositions of businesses and investments | 96 | 2,033 | 2,305 | |||||||||
Cash balance of International Coffee and Tea business at spin-off | — | (2,061 | ) | — | ||||||||
Deposit on business disposition | — | — | 203 | |||||||||
Cash received from (used in) derivative transactions | — | 31 | 81 | |||||||||
Sales of assets | 3 | 8 | 14 | |||||||||
Net cash from (used in) investing activities | (41 | ) | (521 | ) | 2,129 | |||||||
Financing Activities | ||||||||||||
Issuances of common stock | 47 | 84 | 52 | |||||||||
Purchases of common stock | — | — | (1,313 | ) | ||||||||
Borrowings of other debt | — | 851 | 1,054 | |||||||||
Repayments of other debt and derivatives | (46 | ) | (1,811 | ) | (1,431 | ) | ||||||
Net change in financing with less than 90-day maturities | — | (204 | ) | 172 | ||||||||
Stock compensation income tax benefits | — | 15 | — | |||||||||
Purchase of non-controlling interest | — | (10 | ) | — | ||||||||
Payments of dividends | (46 | ) | (271 | ) | (285 | ) | ||||||
Net cash used in financing activities | (45 | ) | (1,346 | ) | (1,751 | ) | ||||||
Effect of changes in foreign exchange rates on cash | (2 | ) | (213 | ) | 286 | |||||||
Increase (decrease) in cash and equivalents | 165 | (1,831 | ) | 1,111 | ||||||||
Add: Cash balance of discontinued operations at beginning of year | — | 1,992 | 911 | |||||||||
Less: Cash balance of discontinued operations at end of year | — | — | (1,992 | ) | ||||||||
Cash and equivalents at beginning of year | 235 | 74 | 44 | |||||||||
Cash and equivalents at end of year | $ | 400 | $ | 235 | $ | 74 | ||||||
Supplemental Cash Flow Data | ||||||||||||
Cash paid for restructuring charges | $ | 102 | $ | 512 | $ | 177 | ||||||
Cash contributions to pension plans | $ | 8 | $ | 213 | $ | 124 | ||||||
Cash paid for income taxes | $ | 15 | $ | 209 | $ | 325 | ||||||
In millions | Gross | Accumulated Amortization | Net Book Value | |||||||||
2013 | ||||||||||||
Intangible assets subject to amortization | ||||||||||||
Trademarks and brand names | $ | 31 | $ | 4 | $ | 27 | ||||||
Customer relationships | 72 | 46 | 26 | |||||||||
Computer software | 133 | 112 | 21 | |||||||||
Other contractual agreements | 3 | — | 3 | |||||||||
$ | 239 | $ | 162 | 77 | ||||||||
Trademarks and brand names not subject to amortization | 44 | |||||||||||
Net book value of intangible assets | $ | 121 | ||||||||||
2012 | ||||||||||||
Intangible assets subject to amortization | ||||||||||||
Trademarks and brand names | 31 | 2 | 29 | |||||||||
Customer relationships | 72 | 44 | 28 | |||||||||
Computer software | 128 | 100 | 28 | |||||||||
Other contractual agreements | 3 | — | 3 | |||||||||
$ | 234 | $ | 146 | 88 | ||||||||
Trademarks and brand names not subject to amortization | 44 | |||||||||||
Net book value of intangible assets | $ | 132 | ||||||||||
In millions | Retail | Foodservice/ Other | Total | |||||||||
Net Book Value at July 2, 2011 | ||||||||||||
Gross goodwill | $ | 139 | $ | 591 | $ | 730 | ||||||
Accumulated impairment losses | — | (382 | ) | (382 | ) | |||||||
Net goodwill | 139 | 209 | 348 | |||||||||
Net Book Value at June 30, 2012 | ||||||||||||
Gross goodwill | 139 | 591 | 730 | |||||||||
Accumulated impairment losses | — | (382 | ) | (382 | ) | |||||||
Net goodwill | 139 | 209 | 348 | |||||||||
Net Book Value at June 29, 2013 | ||||||||||||
Gross goodwill | 139 | 591 | 730 | |||||||||
Accumulated impairment losses | — | (382 | ) | (382 | ) | |||||||
Net goodwill | $ | 139 | $ | 209 | $ | 348 | ||||||
In millions | Pretax Impairment Charge | |||
2013 | ||||
Retail | $ | 1 | ||
2012 | ||||
General corporate expenses | $ | 14 | ||
2011 | ||||
Foodservice/Other | $ | 15 | ||
In millions | Net Sales | Pretax Income (Loss) | Income (Loss) | |||||||||
2013 | ||||||||||||
North American Fresh Bakery | $ | — | $ | 1 | $ | 1 | ||||||
North American Foodservice Beverage | — | 3 | 2 | |||||||||
International Coffee and Tea | — | — | 6 | |||||||||
European Bakery | — | — | (3 | ) | ||||||||
International Household and Body Care | — | — | 1 | |||||||||
Australian Bakery | 80 | 3 | 8 | |||||||||
Total | $ | 80 | $ | 7 | $ | 15 | ||||||
2012 | ||||||||||||
North American Fresh Bakery | $ | 724 | $ | 29 | $ | 163 | ||||||
North American Refrigerated Dough | 74 | 13 | 9 | |||||||||
North American Foodservice Beverage | 330 | (15 | ) | (9 | ) | |||||||
International Coffee and Tea | 3,728 | 224 | 662 | |||||||||
European Bakery | 262 | (384 | ) | (358 | ) | |||||||
International Household and Body Care | 111 | (5 | ) | (2 | ) | |||||||
Australian Bakery | 136 | (2 | ) | (2 | ) | |||||||
Total | $ | 5,365 | $ | (140 | ) | $ | 463 | |||||
2011 | ||||||||||||
North American Fresh Bakery | $ | 2,037 | $ | 58 | $ | 159 | ||||||
North American Refrigerated Dough | 307 | 42 | 27 | |||||||||
North American Foodservice Beverage | 538 | 5 | 3 | |||||||||
International Coffee and Tea | 3,537 | 399 | 276 | |||||||||
European Bakery | 591 | (9 | ) | (16 | ) | |||||||
International Household and Body Care | 1,078 | 72 | 36 | |||||||||
Australian Bakery | 135 | (2 | ) | (2 | ) | |||||||
Total | $ | 8,223 | $ | 565 | $ | 483 | ||||||
In millions | Pretax Gain (Loss) on Sale | Tax (Expense)/ Benefit | After Tax Gain (Loss) | |||||||||
2013 | ||||||||||||
North American Fresh Bakery | $ | 10 | $ | (4 | ) | $ | 6 | |||||
North American Foodservice Beverage | 2 | 2 | 4 | |||||||||
North American Refrigerated Dough | — | (1 | ) | (1 | ) | |||||||
Non-European Insecticides | — | 2 | 2 | |||||||||
Australian Bakery | 56 | (14 | ) | 42 | ||||||||
Total | $ | 68 | $ | (15 | ) | $ | 53 | |||||
2012 | ||||||||||||
North American Fresh Bakery | $ | 94 | $ | (33 | ) | $ | 61 | |||||
North American Foodservice Beverage | 222 | (76 | ) | 146 | ||||||||
North American Refrigerated Dough | 198 | (156 | ) | 42 | ||||||||
European Bakery | 11 | (45 | ) | (34 | ) | |||||||
Non-European Insecticides | 249 | (59 | ) | 190 | ||||||||
Air Care Products | (10 | ) | (1 | ) | (11 | ) | ||||||
Other Household and Body Care | 8 | 3 | 11 | |||||||||
Total | $ | 772 | $ | (367 | ) | $ | 405 | |||||
2011 | ||||||||||||
Global Body Care and European Detergents | $ | 867 | $ | (379 | ) | $ | 488 | |||||
Air Care Products | 273 | (179 | ) | 94 | ||||||||
Australia/New Zealand Bleach | 48 | (17 | ) | 31 | ||||||||
Shoe Care Products | 115 | 2 | 117 | |||||||||
Other Household and Body Care Businesses | 1 | — | 1 | |||||||||
Total | $ | 1,304 | $ | (573 | ) | $ | 731 | |||||
In millions | 2013 | 2012 | 2011 | |||||||||
Discontinued operations impact on | ||||||||||||
Cash from operating activities | $ | 10 | $ | 122 | $ | 309 | ||||||
Cash from (used in) investing activities | 86 | (368 | ) | 2,291 | ||||||||
Cash used in financing activities | (95 | ) | (1,530 | ) | (1,804 | ) | ||||||
Effect of changes in foreign exchange rates on cash | (1 | ) | (216 | ) | 285 | |||||||
Net cash impact of discontinued operations | $ | — | $ | (1,992 | ) | $ | 1,081 | |||||
Cash balance of discontinued operations | ||||||||||||
At start of period | $ | — | $ | 1,992 | $ | 911 | ||||||
At end of period | — | — | 1,992 | |||||||||
Increase (decrease) in cash of discontinued operations | $ | — | $ | (1,992 | ) | $ | 1,081 | |||||
• | Employee termination costs |
• | Lease and contractual obligation exit costs |
• | Gains or losses on the disposition of assets or asset groupings that do not qualify as discontinued operations |
• | Expenses associated with the installation of information systems |
• | Consulting costs |
• | Costs associated with the renegotiation of contracts for services with outside third-party vendors as part of the spin-off of the international coffee and tea operations |
In millions | 2013 | 2012 | 2011 | |||||||||
Exit and business dispositions | $ | 9 | $ | 81 | $ | 38 | ||||||
Selling, general and administrative expenses | 39 | 115 | 36 | |||||||||
Total | $ | 48 | $ | 196 | $ | 74 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Retail | $ | (1 | ) | $ | 14 | $ | 11 | |||||
Foodservice/Other | (2 | ) | 4 | 3 | ||||||||
(Increase) Decrease in business segment income | (3 | ) | 18 | 14 | ||||||||
Increase in general corporate expenses | 51 | 178 | 60 | |||||||||
Total | $ | 48 | $ | 196 | $ | 74 | ||||||
In Millions | Employee termination and other benefits | IT and other costs | Non-cancellable leases/ contractual obligations | Asset and business disposition actions | Total | |||||||||||||||
Accrued costs as of June 30, 2012 | $ | 42 | $ | 16 | $ | 21 | $ | — | $ | 79 | ||||||||||
Exit, disposal, and other costs (income) recognized during 2013 | 6 | 40 | 12 | (6 | ) | 52 | ||||||||||||||
Cash Payments | (28 | ) | (44 | ) | (27 | ) | — | (99 | ) | |||||||||||
Noncash Charges | (5 | ) | (8 | ) | 17 | — | 4 | |||||||||||||
Charges (income) in discontinued operations | (2 | ) | 2 | — | — | — | ||||||||||||||
Change in estimate | (3 | ) | (1 | ) | — | — | (4 | ) | ||||||||||||
Asset and business disposition action | — | — | — | 6 | 6 | |||||||||||||||
Accrued costs as of June 29, 2013 | $ | 10 | $ | 5 | $ | 23 | $ | — | $ | 38 | ||||||||||
• | Recognized third-party consulting costs related to cost saving and efficiency studies |
• | Recognized severance charges associated with planned employee terminations |
• | Recognized third-party costs associated with the spin-off of international coffee and tea operations |
• | Recognized lease exit costs |
• | Disposed of certain manufacturing facilities related to the Retail and Foodservice/Other segments and recognized a pretax gain of $6 million. |
Shares in thousands | 2013 | 2012 | 2011 | ||||||
Beginning balances | 120,644 | 117,420 | 132,424 | ||||||
Stock issuances | |||||||||
Stock option and benefit plans | 2,436 | 1,104 | 642 | ||||||
Restricted stock plans | 155 | 2,119 | 398 | ||||||
Reacquired shares | — | — | (16,044 | ) | |||||
Other | 13 | 1 | — | ||||||
Ending balances | 123,248 | 120,644 | 117,420 | ||||||
In millions except per share data | 2013 | 2012 | 2011 | |||||||||
Common stock dividends declared | $ | 61 | $ | 137 | $ | 275 | ||||||
Dividends per share amount declared | $ | 0.50 | $ | 1.15 | $ | 2.30 | ||||||
In millions | Cumulative Translation Adjustment | Net Unrealized Gain (Loss) on Qualifying Cash Flow Hedges/ Other | Pension/ Post- retirement Liability Adjustmnt | Accumulated Other Comprehen-sive Income (Loss) | ||||||||||||
Balance at July 3, 2010 | $ | (106 | ) | $ | (1 | ) | $ | (807 | ) | $ | (914 | ) | ||||
Disposition of Household & Body Care businesses | 55 | — | — | 55 | ||||||||||||
Amortization of net actuarial loss and prior service credit | — | — | 16 | 16 | ||||||||||||
Net actuarial gain arising during the period | — | — | 326 | 326 | ||||||||||||
Pension plan curtailment | — | — | 25 | 25 | ||||||||||||
Other comprehensive income (loss) activity | 270 | 7 | (50 | ) | 227 | |||||||||||
Balance at July 2, 2011 | 219 | 6 | (490 | ) | (265 | ) | ||||||||||
Business dispositions | 127 | — | — | 127 | ||||||||||||
Amortization of net actuarial loss and prior service credit | — | — | (1 | ) | (1 | ) | ||||||||||
Net actuarial loss arising during the period | — | — | (70 | ) | (70 | ) | ||||||||||
Pension plan curtailments/ settlements | — | — | 24 | 24 | ||||||||||||
Spin-off of International Coffee and Tea business | (180 | ) | — | 343 | 163 | |||||||||||
Other comprehensive income (loss) activity | (150 | ) | 2 | 26 | (122 | ) | ||||||||||
Balance at June 30, 2012 | 16 | 8 | (168 | ) | (144 | ) | ||||||||||
Business dispositions | (15 | ) | — | — | (15 | ) | ||||||||||
Amortization of net actuarial loss and prior service credit | — | — | (2 | ) | (2 | ) | ||||||||||
Net actuarial gain arising during the period | — | — | 27 | 27 | ||||||||||||
Pension plan curtailments/settlements | — | — | 1 | 1 | ||||||||||||
Spin-off of International Coffee and Tea business | 6 | — | — | 6 | ||||||||||||
Other comprehensive income (loss) activity | (6 | ) | (8 | ) | — | (14 | ) | |||||||||
Balance at June 29, 2013 | $ | 1 | $ | — | $ | (142 | ) | $ | (141 | ) | ||||||
2013 | 2012 | 2011 | |||||||
Weighted average expected lives | 6.0 | 7.0 | 7.2 | ||||||
Weighted average risk-free interest rates | 0.95 | % | 1.37 | % | 2.08 | % | |||
Range of risk-free interest rates | 0.94 - 1.03% | 1.28 - 1.38% | 1.91 - 2.66% | ||||||
Weighted average expected volatility | 29.7 | % | 28.1 | % | 28.0 | % | |||
Range of expected volatility | 29.7 - 30.0% | 28.1 - 28.3% | 27.3 - 30.0% | ||||||
Dividend yield | 2.0 | % | 2.5 | % | 2.9 | % | |||
Shares in thousands | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||
Options outstanding at June 30, 2012 | 6,264 | $ | 23.01 | 3.2 | $ | 38 | ||||||||
Granted | 2,525 | 25.99 | — | — | ||||||||||
Exercised | (2,563 | ) | 19.34 | — | — | |||||||||
Canceled/expired | (371 | ) | 27.16 | — | — | |||||||||
Options outstanding at June 29, 2013 | 5,855 | $ | 25.59 | 6.3 | $ | 44 | ||||||||
Options exercisable at June 29, 2013 | 3,065 | $ | 24.92 | 3.8 | $ | 25 | ||||||||
In millions except per share data | 2013 | 2012 | 2011 | |||||||||
Number of options exercisable at end of fiscal year | 3,065 | 5,704 | 7,784 | |||||||||
Weighted average exercise price of options exercisable at end of fiscal year | $ | 24.92 | $ | 22.65 | $ | 26.38 | ||||||
Weighted average grant date fair value of options granted during the fiscal year | $ | 6.08 | $ | 6.35 | $ | 5.29 | ||||||
Total intrinsic value of options exercised during the fiscal year | $ | 22.9 | $ | 23.5 | $ | 8.0 | ||||||
Fair value of options that vested during the fiscal year | $ | 0.3 | $ | 16.9 | $ | 4.5 | ||||||
2013 | ||
Range of risk-free interest rates | 0.28 - 0.35% | |
Range of expected volatility | 24.0 - 25.0% | |
Range of initial TSR | (7.3) - 13.1% | |
Dividend yield | 2 | % |
Shares in thousands | Shares | Weighted Average Grant Date Fair Value | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||
Nonvested share units at June 30, 2012 | 340 | $ | 26.24 | 0.7 | $ | 10 | ||||||||
Granted | 734 | 25.02 | — | — | ||||||||||
Vested | (158 | ) | 25.66 | — | — | |||||||||
Forfeited | (71 | ) | 26.64 | — | — | |||||||||
Nonvested share units at June 29, 2013 | 845 | $ | 25.26 | 1.6 | $ | 28 | ||||||||
Exercisable share units at June 29, 2013 | 57 | $ | 22.07 | 5.7 | $ | 2 | ||||||||
In millions except per share data | 2013 | 2012 | 2011 | |||||||||
Stock Unit Awards | ||||||||||||
Fair value of share-based units that vested during the fiscal year | $ | 4 | $ | 88 | $ | 42 | ||||||
Weighted average grant date fair value of share based units granted during the fiscal year | $ | 25.02 | $ | 29.09 | $ | 23.40 | ||||||
All Stock-Based Compensation | ||||||||||||
Total compensation expense | $ | 13 | $ | 35 | $ | 41 | ||||||
Tax benefit on compensation expense | $ | 5 | $ | 11 | $ | 15 | ||||||
In millions except earnings per share | 2013 | 2012 | 2011 | |||||||||
Income (loss) from continuing operations attributable to Hillshire Brands | $ | 184 | $ | (20 | ) | $ | 58 | |||||
Net income from discontinued operations attributable to Hillshire Brands | 68 | 865 | 1,205 | |||||||||
Net income attributable to Hillshire Brands | $ | 252 | $ | 845 | $ | 1,263 | ||||||
Average shares outstanding - basic | 123 | 119 | 124 | |||||||||
Dilutive effect of stock compensation | — | — | 1 | |||||||||
Diluted shares outstanding | 123 | 119 | 125 | |||||||||
Income (loss) per common share - Basic | ||||||||||||
Income (loss) from continuing operations | $ | 1.50 | $ | (0.16 | ) | $ | 0.47 | |||||
Income from discontinued operations | 0.55 | 7.29 | 9.69 | |||||||||
Net income | $ | 2.05 | $ | 7.13 | $ | 10.16 | ||||||
Income (loss) per common share - Diluted | ||||||||||||
Income (loss) from continuing operations | $ | 1.49 | $ | (0.16 | ) | $ | 0.46 | |||||
Income from discontinued operations | 0.55 | 7.29 | 9.65 | |||||||||
Net income | $ | 2.04 | $ | 7.13 | $ | 10.11 | ||||||
In millions | Maturity Date | 2013 | 2012 | |||||||
Senior debt | ||||||||||
10% zero coupon notes ($19 million face value) | 2014 | $ | 18 | $ | 16 | |||||
10% - 14.25% zero coupon notes ($105 million face value) | 2015 | 93 | 82 | |||||||
2.75% notes | 2016 | 400 | 400 | |||||||
4.1% notes | 2021 | 278 | 278 | |||||||
6.125% notes | 2033 | 152 | 152 | |||||||
Total senior debt | 941 | 928 | ||||||||
Obligations under capital lease | — | 2 | ||||||||
Other debt | 11 | 15 | ||||||||
Total debt | 952 | 945 | ||||||||
Unamortized discounts | (1 | ) | (1 | ) | ||||||
Total long-term debt | 951 | 944 | ||||||||
Less current portion | (19 | ) | (5 | ) | ||||||
$ | 932 | $ | 939 | |||||||
In millions | 2012 | 2011 | ||||||
Maximum month-end borrowings | $ | 335 | $ | 503 | ||||
Average borrowings during the year | 97 | 242 | ||||||
Year-end borrowings | — | 198 | ||||||
Weighted average interest rate during the year | 0.34 | % | 0.31 | % | ||||
Weighted average interest rate at year-end | — | % | 0.30 | % | ||||
In millions | June 29, 2013 | June 30, 2012 | ||||||
Gross book value of capital lease assets included in property | $ | 3 | $ | 4 | ||||
Net book value of capital lease assets included in property | — | 2 | ||||||
In millions | Operating Leases | ||
2014 | $ | 19 | |
2015 | 15 | ||
2016 | 11 | ||
2017 | 10 | ||
2018 | 9 | ||
Thereafter | 77 | ||
Total minimum lease payments | $ | 141 | |
In millions | 2013 | 2012 | 2011 | |||||||||
Depreciation of capital lease assets | $ | 2 | $ | 1 | $ | 1 | ||||||
Rental expense under operating leases | 23 | 22 | 27 | |||||||||
In millions | June 29, 2013 | June 30, 2012 | Hedge Coverage (Number of Months) | ||||||||
Swap Contracts | |||||||||||
Rec. fixed/pay fixed - cross currency swaps notional1 | $ | — | $ | (40 | ) | — | |||||
Commodity contracts | |||||||||||
Commodity future contracts2 | |||||||||||
Grains and oilseeds | $ | 34 | $ | 56 | 5 | ||||||
Energy | 29 | 27 | 11 | ||||||||
Other commodities | 20 | 25 | 6 | ||||||||
June 29, 2013 | June 30, 2012 | |||||||||||||||
In millions | Fair Value | Carrying Amount | Fair Value | Carrying Amount | ||||||||||||
Long-term debt, including current portion | $ | 981 | $ | 951 | $ | 1,004 | $ | 945 | ||||||||
Assets | Liabilities | |||||||||||||||
Other Current Assets | Accrued Liabilities - Other | |||||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | ||||||||||||
Derivatives Designated as Hedging Instruments: | ||||||||||||||||
Foreign exchange contracts(1) | $ | — | $ | — | $ | — | $ | 40 | ||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||
Foreign exchange contracts(1) | — | 1 | — | — | ||||||||||||
Total derivatives | $ | — | $ | 1 | $ | — | $ | 40 | ||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Commodity Contracts | Total | |||||||||||||||||||||||||||||||
In millions | Year ended | June 29, 2013 | June 30,2012 | June 29, 2013 | June 30,2012 | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||||||||||||||||||
Cash Flow Derivatives | ||||||||||||||||||||||||||||||||||
Amount of gain (loss) recognized in other comprehensive income (OCI)1 | $ | — | $ | (8 | ) | $ | — | $ | — | $ | 6 | $ | 13 | $ | 6 | $ | 5 | |||||||||||||||||
Amount of gain (loss) reclassified from AOCI into earnings1, 2 | — | (3 | ) | — | 2 | 18 | 2 | 18 | 1 | |||||||||||||||||||||||||
Amount of ineffectiveness recognized in earnings3, 4 | — | — | — | (2 | ) | (1 | ) | 2 | (1 | ) | — | |||||||||||||||||||||||
Amount of gain (loss) expected to be reclassified into earnings during the next twelve months | — | — | — | — | (2 | ) | 10 | (2 | ) | 10 | ||||||||||||||||||||||||
Net Investment Derivatives | ||||||||||||||||||||||||||||||||||
Amount of gain (loss) recognized in OCI1 | — | — | — | 604 | — | — | — | 604 | ||||||||||||||||||||||||||
Amount of gain (loss) recognized from OCI into earnings6 | — | — | — | (446 | ) | — | — | — | (446 | ) | ||||||||||||||||||||||||
Amount of gain (loss) recognized from OCI into spin-off dividend7 | — | — | — | 324 | — | — | — | 324 | ||||||||||||||||||||||||||
Fair Value Derivatives | ||||||||||||||||||||||||||||||||||
Amount of derivative gain (loss) recognized in earnings5 | — | 1 | — | — | — | — | — | 1 | ||||||||||||||||||||||||||
Amount of hedged item gain (loss) recognized in earnings5 | — | 4 | — | — | — | — | — | 4 | ||||||||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments | ||||||||||||||||||||||||||||||||||
Amount of gain (loss) recognized in Cost of Sales | — | — | — | — | (2 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||
Amount of gain (loss) recognized in SG&A | — | — | — | (15 | ) | 2 | — | 2 | (15 | ) | ||||||||||||||||||||||||
2013 | 2012 | 2011 | |||||||
Net periodic benefit cost | |||||||||
Discount rate | 4.2 | % | 5.5 | % | 5.4 | % | |||
Long-term rate of return on plan assets | 6.2 | % | 6.5 | % | 7.3 | % | |||
Plan obligations | |||||||||
Discount rate | 4.8 | % | 4.2 | % | 5.5 | % | |||
In millions | 2013 | 2012 | 2011 | |||||||||
Components of defined benefit net periodic benefit cost | ||||||||||||
Service cost | $ | 11 | $ | 9 | $ | 7 | ||||||
Interest cost | 70 | 73 | 73 | |||||||||
Expected return on assets | (92 | ) | (86 | ) | (81 | ) | ||||||
Amortization of : | ||||||||||||
Prior service cost | 1 | 1 | 1 | |||||||||
Net actuarial loss | 4 | 3 | 13 | |||||||||
Settlement loss | 6 | 1 | — | |||||||||
Net periodic benefit cost | $ | — | $ | 1 | $ | 13 | ||||||
In millions | 2013 | 2012 | ||||||
Projected benefit obligation | ||||||||
Beginning of year | $ | 1,680 | $ | 1,377 | ||||
Service cost | 11 | 9 | ||||||
Interest cost | 70 | 73 | ||||||
Plan amendments/other | 1 | 1 | ||||||
Benefits paid | (81 | ) | (73 | ) | ||||
Actuarial (gain) loss | (123 | ) | 294 | |||||
Settlements | 4 | — | ||||||
Foreign exchange | — | (1 | ) | |||||
End of year | $ | 1,562 | $ | 1,680 | ||||
Fair value of plan assets | ||||||||
Beginning of year | $ | 1,515 | $ | 1,259 | ||||
Actual return on plan assets | (3 | ) | 321 | |||||
Employer contributions | 8 | 9 | ||||||
Benefits paid | (81 | ) | (73 | ) | ||||
Foreign exchange | — | (1 | ) | |||||
End of year | 1,439 | 1,515 | ||||||
Funded status | $ | (123 | ) | $ | (165 | ) | ||
Amounts recognized on the consolidated balance sheets | ||||||||
Noncurrent asset | $ | 1 | $ | 5 | ||||
Accrued liabilities | (5 | ) | (4 | ) | ||||
Pension obligation | (119 | ) | (166 | ) | ||||
Net asset (liability) recognized | $ | (123 | ) | $ | (165 | ) | ||
Amounts recognized in accumulated other comprehensive income | ||||||||
Unamortized prior service cost | $ | 7 | $ | 7 | ||||
Unamortized actuarial loss, net | 228 | 263 | ||||||
Total | $ | 235 | $ | 270 | ||||
In millions | 2013 | 2012 | ||||||
Projected benefit obligation | $ | 1,555 | $ | 1,351 | ||||
Accumulated benefit obligation | 1,555 | 1,350 | ||||||
Fair value of plan assets | 1,431 | 1,180 | ||||||
In millions | Total Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | |||||||||
Equity securities | ||||||||||||
U.S. securities - pooled funds | $ | 85 | $ | 85 | $ | — | ||||||
Non-U.S. securities - pooled funds | 102 | 102 | — | |||||||||
Total equity securities | 187 | 187 | — | |||||||||
Fixed income securities | ||||||||||||
Government bonds | 256 | 256 | — | |||||||||
Corporate bonds | 503 | 503 | — | |||||||||
U.S. pooled funds | 122 | 122 | — | |||||||||
Non-U.S. pooled funds | 5 | 5 | — | |||||||||
Bond Fund | 324 | 324 | — | |||||||||
Total fixed income securities | 1,210 | 1,210 | — | |||||||||
Real estate | 23 | 23 | — | |||||||||
Cash and equivalents | 6 | 6 | — | |||||||||
Derivatives | — | — | — | |||||||||
Other | 13 | 13 | — | |||||||||
Total fair value of assets | $ | 1,439 | $ | 1,439 | $ | — | ||||||
In millions | Total Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | |||||||||
Equity securities | ||||||||||||
Non-U.S. securities - pooled funds | $ | 38 | $ | 38 | $ | — | ||||||
Fixed income securities | ||||||||||||
Government bonds | 247 | 247 | — | |||||||||
Corporate bonds | 593 | 593 | — | |||||||||
U.S. pooled funds | 168 | 168 | — | |||||||||
Non-U.S. pooled funds | 6 | 6 | — | |||||||||
Bond fund | 341 | 341 | — | |||||||||
Total fixed income securities | 1,355 | 1,355 | — | |||||||||
Real estate | 21 | 21 | — | |||||||||
Cash and equivalents | 14 | 14 | — | |||||||||
Derivatives | 83 | 74 | 9 | |||||||||
Other | 4 | 4 | — | |||||||||
Total fair value of assets | $ | 1,515 | $ | 1,506 | $ | 9 | ||||||
2013 | 2012 | |||||
Asset category | ||||||
Equity securities | 13 | % | 6 | % | ||
Debt securities | 84 | 91 | ||||
Real estate | 2 | 1 | ||||
Cash and other | 1 | 2 | ||||
Total | 100 | % | 100 | % | ||
PPA Zone Status | FIP/RP Status | Contributions (in millions) | |||||||||||||||||||||||
EIN/Pension Plan Number | 2013 | 2012 | Pending/ Implemented | 2013 | 2012 | 2011 | 2013 Surcharge Imposed | Expiration Date of Collective Bargaining Agreement | |||||||||||||||||
Pension Fund Plan Name | |||||||||||||||||||||||||
Bakery and Confectionary Union & Industry Intl Pension Fund | 52-6118572/001 | Red | Red | Nov 2012 | $ | 1 | $ | 2 | $ | 2 | 10 | % | Oct 2014 | ||||||||||||
All other plans | — | — | 1 | N/A | N/A | ||||||||||||||||||||
2013 | 2012 | 2011 | |||||||
Net periodic benefit cost | |||||||||
Discount rate | 3.9 | % | 5.3 | % | 5.1 | % | |||
Plan obligations | |||||||||
Discount rate | 4.4 | 3.8 | 5.3 | ||||||
Health-care cost trend assumed for the next year | 7.5 | 7.5 | 8.0 | ||||||
Rate to which the cost trend is assumed to decline | 5.0 | 5.0 | 5.0 | ||||||
Year that rate reaches the ultimate trend rate | 2018 | 2017 | 2017 | ||||||
In millions | One Percentage Point Increase | One Percentage Point Decrease | ||||||
Effect on total service and interest components | $ | 1 | $ | (1 | ) | |||
Effect on postretirement benefit obligation | 9 | (8 | ) | |||||
In millions | 2013 | 2012 | 2011 | |||||||||
Components of defined benefit net periodic cost (income) | ||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 2 | ||||||
Interest cost | 4 | 3 | 5 | |||||||||
Net amortization and deferral | (9 | ) | (8 | ) | (9 | ) | ||||||
Net periodic benefit income | $ | (3 | ) | $ | (3 | ) | $ | (2 | ) | |||
In millions | 2013 | 2012 | ||||||
Accumulated postretirement benefit obligation | ||||||||
Beginning of year | $ | 101 | $ | 84 | ||||
Service cost | 3 | 2 | ||||||
Interest cost | 4 | 3 | ||||||
Net benefits paid | (5 | ) | (8 | ) | ||||
Plan participant contributions | 1 | 2 | ||||||
Actuarial (gain) loss | (14 | ) | 18 | |||||
End of year | 90 | 101 | ||||||
Fair value of plan assets | 1 | 1 | ||||||
Funded status | $ | (89 | ) | $ | (100 | ) | ||
Amounts recognized on the consolidated balance sheets | ||||||||
Accrued liabilities | $ | (6 | ) | $ | (6 | ) | ||
Other liabilities | (83 | ) | (94 | ) | ||||
Total liability recognized | $ | (89 | ) | $ | (100 | ) | ||
Amounts recognized in accumulated other comprehensive loss | ||||||||
Unamortized prior service credit | $ | (20 | ) | $ | (29 | ) | ||
Unamortized net actuarial loss | 10 | 25 | ||||||
Unamortized net initial asset | — | (1 | ) | |||||
Total | $ | (10 | ) | $ | (5 | ) | ||
2013 | 2012 | 2011 | |||||||
Income (loss) from continuing operations before income taxes | |||||||||
United States | 99.7 | % | (97.9 | )% | 99.5 | % | |||
Foreign | 0.3 | % | (2.1 | )% | 0.5 | % | |||
Total | 100.0 | % | (100.0 | )% | 100.0 | % | |||
Tax expense (benefit) at U.S. statutory rate | 35.0 | % | (35.0 | )% | 35.0 | % | |||
State income taxes | 2.1 | % | 0.4 | % | 2.6 | % | |||
Finalization of tax reviews and audits and changes in estimate on tax contingencies | (2.1 | ) | (2.3 | ) | 4.0 | ||||
Domestic production deduction | (1.6 | ) | — | (3.8 | ) | ||||
Employee benefit deductions | (1.5 | ) | (8.5 | ) | (4.6 | ) | |||
Non-taxable indemnification agreements | (1.7 | ) | (22 | ) | — | ||||
Non-deductible professional fees | 0.2 | 28.9 | 3.5 | ||||||
Tax provision adjustments | (1.6 | ) | (6.5 | ) | (4.8 | ) | |||
Other, net | (0.7 | ) | 0.8 | (0.1 | ) | ||||
Taxes at effective worldwide tax rates | 28.1 | % | (44.2 | )% | 31.8 | % | |||
In millions | 2013 | 2012 | 2011 | |||||||||||||||||||||
Current | Deferred | Current | Deferred | Current | Deferred | |||||||||||||||||||
U.S. | $ | 27 | $ | 38 | $ | (17 | ) | $ | 2 | $ | (6 | ) | $ | 29 | ||||||||||
Foreign | — | — | — | — | 1 | — | ||||||||||||||||||
State | 3 | 4 | 3 | (3 | ) | 5 | (2 | ) | ||||||||||||||||
$ | 30 | $ | 42 | $ | (14 | ) | $ | (1 | ) | $ | — | $ | 27 | |||||||||||
In millions | 2013 | 2012 | ||||||
Deferred tax (assets) | ||||||||
Pension liability | $ | (52 | ) | $ | (73 | ) | ||
Employee benefits | (90 | ) | (113 | ) | ||||
Nondeductible reserves | (54 | ) | (63 | ) | ||||
Net operating loss and other tax carryforwards | (51 | ) | (49 | ) | ||||
Other | (28 | ) | (16 | ) | ||||
Gross deferred tax (assets) | (275 | ) | (314 | ) | ||||
Less valuation allowances | 58 | 60 | ||||||
Net deferred tax (assets) | (217 | ) | (254 | ) | ||||
Deferred tax liabilities | ||||||||
Property, plant and equipment | 93 | 69 | ||||||
Intangibles | 33 | 35 | ||||||
Deferred tax liabilities | 126 | 104 | ||||||
Total net deferred tax liabilities | $ | (91 | ) | $ | (150 | ) | ||
In millions Year ended | June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
Unrecognized tax benefits | ||||||||||||
Beginning of year balance | $ | 74 | $ | 83 | $ | 88 | ||||||
Increases based on current period tax positions | — | 5 | 8 | |||||||||
Increases based on prior period tax positions | — | 24 | — | |||||||||
Decreases based on prior period tax positions | — | (4 | ) | (5 | ) | |||||||
Decreases related to settlements with tax authorities | — | (33 | ) | (4 | ) | |||||||
Decreases related to a lapse of applicable statute of limitation | (7 | ) | (1 | ) | (4 | ) | ||||||
End of year balance | $ | 67 | $ | 74 | $ | 83 | ||||||
• | Retail sells a variety of packaged meat and frozen bakery products to retail customers in North America. It also includes gourmet artisanal sausage and salami products. |
• | Foodservice/Other sells a variety of meats and bakery products to foodservice customers in North America such as broad-line foodservice distributors, restaurants, hospitals and other large institutions and includes commodity meat products. |
In millions | 2013 | 2012 | 2011 | |||||||||
Sales | ||||||||||||
Retail | $ | 2,894 | $ | 2,884 | $ | 2,760 | ||||||
Foodservice/Other | 1,026 | 1,025 | 1,001 | |||||||||
3,920 | 3,909 | 3,761 | ||||||||||
Impact of businesses exited/disposed | — | 55 | 135 | |||||||||
Intersegment | — | (6 | ) | (12 | ) | |||||||
Total | $ | 3,920 | $ | 3,958 | $ | 3,884 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Income (loss) from Continuing Operations before Income Taxes | ||||||||||||
Retail | $ | 329 | $ | 313 | $ | 314 | ||||||
Foodservice/Other | 75 | 79 | 102 | |||||||||
Total operating segment income | 404 | 392 | 416 | |||||||||
General corporate expenses | (93 | ) | (272 | ) | (159 | ) | ||||||
Mark-to-market derivative gain/(loss) | (1 | ) | (1 | ) | 2 | |||||||
Amortization of intangibles | (4 | ) | (4 | ) | (4 | ) | ||||||
Significant items - business segments | (15 | ) | (47 | ) | (31 | ) | ||||||
Impact of businesses exited/disposed | 6 | 8 | 3 | |||||||||
Total operating income | 297 | 76 | 227 | |||||||||
Net interest expense | (41 | ) | (72 | ) | (87 | ) | ||||||
Debt extinguishment costs | — | (39 | ) | (55 | ) | |||||||
Income (loss) from continuing operations before income taxes | $ | 256 | $ | (35 | ) | $ | 85 | |||||
In millions | 2013 | 2012 | 2011 | |||||||||
Assets | ||||||||||||
Retail | $ | 1,273 | $ | 1,279 | $ | 1,282 | ||||||
Foodservice/Other | 542 | 530 | 530 | |||||||||
1,815 | 1,809 | 1,812 | ||||||||||
Australian Bakery | — | 58 | 66 | |||||||||
Net assets held for sale/disposition | — | 5 | 7,143 | |||||||||
Other1 | 619 | 578 | 461 | |||||||||
Total assets | $ | 2,434 | $ | 2,450 | $ | 9,482 | ||||||
Depreciation | ||||||||||||
Retail | $ | 90 | $ | 101 | $ | 79 | ||||||
Foodservice/Other | 28 | 30 | 26 | |||||||||
118 | 131 | 105 | ||||||||||
Discontinued operations | 2 | 104 | 186 | |||||||||
Other | 28 | 31 | 11 | |||||||||
Total depreciation | $ | 148 | $ | 266 | $ | 302 | ||||||
Additions to Long-Lived Assets | ||||||||||||
Retail | $ | 95 | $ | 128 | $ | 207 | ||||||
Foodservice/Other | 28 | 38 | 28 | |||||||||
123 | 166 | 235 | ||||||||||
Other | 16 | 7 | 2 | |||||||||
Total additions to long-lived assets | $ | 139 | $ | 173 | $ | 237 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Sales | ||||||||||||
Retail | ||||||||||||
Meat | $ | 2,103 | $ | 2,117 | $ | 1,984 | ||||||
Meat-centric | 685 | 647 | 639 | |||||||||
Bakery | 104 | 118 | 135 | |||||||||
Commodities/Other | 2 | 2 | 2 | |||||||||
Total Retail | 2,894 | 2,884 | 2,760 | |||||||||
Foodservice/Other | ||||||||||||
Meat | 507 | 520 | 501 | |||||||||
Meat-centric | 88 | 86 | 81 | |||||||||
Bakery | 343 | 344 | 358 | |||||||||
Commodities/Other | 88 | 75 | 61 | |||||||||
Total Foodservice/Other | 1,026 | 1,025 | 1,001 | |||||||||
Total business segment sales | 3,920 | 3,909 | 3,761 | |||||||||
Impact of businesses exited/disposed | — | 55 | 135 | |||||||||
Intersegment elimination | — | (6 | ) | (12 | ) | |||||||
Total net sales | $ | 3,920 | $ | 3,958 | $ | 3,884 | ||||||
In millions Quarter | First | Second | Third | Fourth | ||||||||||||
2013 | ||||||||||||||||
Continuing operations | ||||||||||||||||
Net sales | $ | 974 | $ | 1,060 | $ | 924 | $ | 962 | ||||||||
Gross profit | 294 | 332 | 272 | 264 | ||||||||||||
Income (loss) | 49 | 58 | 42 | 35 | ||||||||||||
Income (loss) per common share | ||||||||||||||||
Basic | 0.40 | 0.47 | 0.34 | 0.29 | ||||||||||||
Diluted | 0.40 | 0.47 | 0.34 | 0.28 | ||||||||||||
Net income (loss) | 53 | 65 | 93 | 41 | ||||||||||||
Net income (loss) per common share | ||||||||||||||||
Basic | 0.43 | 0.53 | 0.76 | 0.33 | ||||||||||||
Diluted | 0.43 | 0.53 | 0.75 | 0.33 | ||||||||||||
Cash dividends declared | 0.125 | 0.125 | 0.125 | 0.125 | ||||||||||||
Market price | ||||||||||||||||
High | 30.43 | 28.74 | 35.19 | 37.28 | ||||||||||||
Low | 24.31 | 24.96 | 27.30 | 31.75 | ||||||||||||
Close | 26.78 | 27.49 | 35.15 | 33.08 | ||||||||||||
In millions Quarter | First | Second | Third | Fourth | ||||||||||||
2012 | ||||||||||||||||
Continuing operations | ||||||||||||||||
Net sales | $ | 987 | $ | 1,053 | $ | 935 | $ | 983 | ||||||||
Gross profit | 273 | 298 | 260 | 270 | ||||||||||||
Income (loss) | 5 | 10 | 27 | (62 | ) | |||||||||||
Income (loss) per common share | ||||||||||||||||
Basic | 0.04 | 0.09 | 0.23 | (0.52 | ) | |||||||||||
Diluted | 0.04 | 0.09 | 0.23 | (0.52 | ) | |||||||||||
Net income (loss) | (218 | ) | 470 | (3 | ) | 599 | ||||||||||
Net income (loss) per common share | ||||||||||||||||
Basic | (1.86 | ) | 3.96 | (0.02 | ) | 5.02 | ||||||||||
Diluted | (1.85 | ) | 3.94 | (0.02 | ) | 5.02 | ||||||||||
Cash dividends declared | — | 0.58 | 0.58 | — | ||||||||||||
Market price1 | ||||||||||||||||
High | 30.39 | 29.69 | 33.95 | 34.43 | ||||||||||||
Low | 24.54 | 24.12 | 28.67 | 27.56 | ||||||||||||
Close | 25.19 | 29.15 | 33.17 | 28.99 | ||||||||||||
In millions | March 29, 2014 | June 29, 2013 | ||||||
Assets | ||||||||
Cash and equivalents | $ | 219 | $ | 400 | ||||
Short-term investments | 170 | — | ||||||
Trade accounts receivable, less allowances | 205 | 219 | ||||||
Inventories | ||||||||
Finished goods | 198 | 207 | ||||||
Work in process | 16 | 15 | ||||||
Materials and supplies | 86 | 91 | ||||||
300 | 313 | |||||||
Current deferred income taxes | 98 | 71 | ||||||
Income tax receivable | — | 18 | ||||||
Other current assets | 106 | 85 | ||||||
Total current assets | 1,098 | 1,106 | ||||||
Property, net of accumulated depreciation of $1,249 and $1,185, respectively | 814 | 818 | ||||||
Trademarks and other identifiable intangibles, net | 134 | 121 | ||||||
Goodwill | 371 | 348 | ||||||
Deferred income taxes | 64 | 20 | ||||||
Other noncurrent assets | 50 | 21 | ||||||
$ | 2,531 | $ | 2,434 | |||||
Liabilities and Equity | ||||||||
Accounts payable | $ | 306 | $ | 295 | ||||
Accrued liabilities | 323 | 357 | ||||||
Current maturities of long-term debt | 102 | 19 | ||||||
Total current liabilities | 731 | 671 | ||||||
Long-term debt | 840 | 932 | ||||||
Pension obligation | 107 | 119 | ||||||
Other liabilities | 252 | 228 | ||||||
Contingencies and commitments (Note 10) | ||||||||
Equity | ||||||||
Hillshire Brands common stockholders’ equity | 601 | 484 | ||||||
$ | 2,531 | $ | 2,434 | |||||
Quarter Ended | Nine Months Ended | |||||||||||||||
In millions, except per share data | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Continuing Operations | ||||||||||||||||
Net sales | $ | 955 | $ | 924 | $ | 3,021 | $ | 2,958 | ||||||||
Cost of sales | 674 | 652 | 2,150 | 2,060 | ||||||||||||
Selling, general and administrative expenses | 200 | 205 | 609 | 642 | ||||||||||||
Net charges for exit activities, asset and business dispositions | 5 | 1 | 15 | 7 | ||||||||||||
Impairment charges | — | 1 | — | 1 | ||||||||||||
Operating income | 76 | 65 | 247 | 248 | ||||||||||||
Interest expense | 12 | 13 | 37 | 35 | ||||||||||||
Interest income | (2 | ) | (2 | ) | (7 | ) | (5 | ) | ||||||||
Income from continuing operations before income taxes | 66 | 54 | 217 | 218 | ||||||||||||
Income tax expense | 24 | 12 | 32 | 69 | ||||||||||||
Income from continuing operations | 42 | 42 | 185 | 149 | ||||||||||||
Discontinued operations | ||||||||||||||||
Income from discontinued operations, net of tax expense (benefit) of nil, $(5), $1 and $(7) | — | 4 | 1 | 13 | ||||||||||||
Gain on sale of discontinued operations, net of tax expense of nil, $13, nil and $14 | — | 47 | — | 49 | ||||||||||||
Net income from discontinued operations | — | 51 | 1 | 62 | ||||||||||||
Net income | 42 | 93 | 186 | 211 | ||||||||||||
Net income from continuing operations | 42 | 42 | 185 | 149 | ||||||||||||
Net income from discontinued operations | — | 51 | 1 | 62 | ||||||||||||
Net income | $ | 42 | $ | 93 | $ | 186 | $ | 211 | ||||||||
Earnings per share of common stock | ||||||||||||||||
Basic | ||||||||||||||||
Income from continuing operations | $ | 0.35 | $ | 0.34 | $ | 1.50 | $ | 1.22 | ||||||||
Net income | $ | 0.35 | $ | 0.76 | $ | 1.51 | $ | 1.72 | ||||||||
Average shares outstanding | 123 | 123 | 123 | 123 | ||||||||||||
Diluted | ||||||||||||||||
Income from continuing operations | $ | 0.34 | $ | 0.34 | $ | 1.49 | $ | 1.21 | ||||||||
Net income | $ | 0.34 | $ | 0.75 | $ | 1.50 | $ | 1.72 | ||||||||
Average shares outstanding | 124 | 124 | 124 | 123 | ||||||||||||
Cash dividends declared per share of common stock | $ | 0.175 | $ | 0.125 | $ | 0.525 | $ | 0.375 | ||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
In millions | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Net income | $ | 42 | $ | 93 | $ | 186 | $ | 211 | ||||||||
Translation adjustments, net of tax | — | (21 | ) | (1 | ) | (20 | ) | |||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax | 4 | (3 | ) | 3 | (7 | ) | ||||||||||
Pension/Postretirement activity, net of tax | (1 | ) | — | (1 | ) | — | ||||||||||
Comprehensive income | $ | 45 | $ | 69 | $ | 187 | $ | 184 | ||||||||
Hillshire Brands Common Stockholders’ Equity | ||||||||||||||||||||||||
In millions | Total | Common Stock | Capital Surplus | Retained Earnings | Unearned Stock | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||
Balances at June 30, 2012 | $ | 235 | $ | 1 | $ | 144 | $ | 295 | $ | (61 | ) | $ | (144 | ) | ||||||||||
Net income | 252 | — | — | 252 | — | — | ||||||||||||||||||
Translation adjustments, net of tax | (21 | ) | — | — | — | — | (21 | ) | ||||||||||||||||
Net unrealized loss on qualifying cash flow hedges, net of tax | (8 | ) | — | — | — | — | (8 | ) | ||||||||||||||||
Pension/Postretirement activity, net of tax | 26 | — | — | — | — | 26 | ||||||||||||||||||
Dividends on common stock | (61 | ) | — | — | (61 | ) | — | — | ||||||||||||||||
Spin-off of international coffee and tea business | (3 | ) | — | — | (9 | ) | — | 6 | ||||||||||||||||
Stock issuances - | ||||||||||||||||||||||||
Restricted stock | 3 | — | 3 | — | — | — | ||||||||||||||||||
Stock option and benefit plans | 52 | — | 52 | — | — | — | ||||||||||||||||||
ESOP activity and other | 9 | — | 1 | — | 8 | — | ||||||||||||||||||
Balances at June 29, 2013 | 484 | 1 | 200 | 477 | (53 | ) | (141 | ) | ||||||||||||||||
Net income | 186 | — | — | 186 | — | — | ||||||||||||||||||
Translation adjustments, net of tax | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Net unrealized gain on qualifying cash flow hedges, net of tax | 3 | — | — | — | — | 3 | ||||||||||||||||||
Pension/Postretirement activity, net of tax | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Dividends on common stock | (65 | ) | — | — | (65 | ) | — | — | ||||||||||||||||
Spin-off of international coffee and tea business | 5 | — | — | 5 | — | — | ||||||||||||||||||
Stock issuances - | ||||||||||||||||||||||||
Restricted stock | 5 | — | 5 | — | — | — | ||||||||||||||||||
Stock option and benefit plans | 13 | — | 13 | — | — | — | ||||||||||||||||||
Share repurchases and retirements | (30 | ) | — | (30 | ) | — | — | — | ||||||||||||||||
ESOP activity and other | 2 | — | — | — | 2 | — | ||||||||||||||||||
Balances at March 29, 2014 | $ | 601 | $ | 1 | $ | 188 | $ | 603 | $ | (51 | ) | $ | (140 | ) | ||||||||||
Nine Months Ended | ||||||||
In millions | March 29, 2014 | March 30, 2013 | ||||||
OPERATING ACTIVITIES - | ||||||||
Net income | $ | 186 | $ | 211 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation | 97 | 110 | ||||||
Amortization | 17 | 13 | ||||||
Impairment | — | 1 | ||||||
Net gain on business dispositions | — | (69 | ) | |||||
(Decrease) increase in deferred income taxes | (76 | ) | 31 | |||||
Other | 4 | (14 | ) | |||||
Changes in current assets and liabilities, net of businesses acquired and sold: | ||||||||
Trade accounts receivable | 14 | 32 | ||||||
Inventories | 14 | (42 | ) | |||||
Other current assets | (21 | ) | 17 | |||||
Accounts payable | 4 | (72 | ) | |||||
Accrued liabilities | (37 | ) | (76 | ) | ||||
Accrued taxes | 30 | 40 | ||||||
Net cash from operating activities | 232 | 182 | ||||||
INVESTING ACTIVITIES - | ||||||||
Purchases of property and equipment | (97 | ) | (103 | ) | ||||
Purchases of software and other intangibles | (10 | ) | (4 | ) | ||||
Acquisition of businesses | (35 | ) | — | |||||
Dispositions of businesses and investments | — | 96 | ||||||
Cash from derivative transactions | 2 | 3 | ||||||
Cash used to invest in short-term investments | (367 | ) | — | |||||
Cash received from maturing short-term investments | 194 | — | ||||||
Sales of assets | — | 1 | ||||||
Net cash used in investing activities | (313 | ) | (7 | ) | ||||
FINANCING ACTIVITIES - | ||||||||
Issuances of common stock | 8 | 42 | ||||||
Purchases of common stock | (30 | ) | — | |||||
Repayments of other debt and derivatives | (20 | ) | (5 | ) | ||||
Payments of dividends | (58 | ) | (31 | ) | ||||
Net cash (used in) from financing activities | (100 | ) | 6 | |||||
(Decrease) / Increase in cash and equivalents | (181 | ) | 181 | |||||
Cash and equivalents at beginning of year | 400 | 235 | ||||||
Cash and equivalents at end of period | $ | 219 | $ | 416 | ||||
Supplemental Cash Flow Data: | ||||||||
Cash paid for restructuring actions | $ | 55 | $ | 69 | ||||
Cash contributions to pension plans | 6 | 5 | ||||||
Cash paid for income taxes | 79 | 5 | ||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | |||||||||||||
Income from continuing operations | $ | 42 | $ | 42 | $ | 185 | $ | 149 | ||||||||
Income from discontinued operations, net of tax | — | 51 | 1 | 62 | ||||||||||||
Net income | $ | 42 | $ | 93 | $ | 186 | $ | 211 | ||||||||
Average shares outstanding – Basic | 123 | 123 | 123 | 123 | ||||||||||||
Dilutive effect of stock option and award plans | 1 | 1 | 1 | — | ||||||||||||
Diluted shares outstanding | 124 | 124 | 124 | 123 | ||||||||||||
Earnings per common share – Basic | ||||||||||||||||
Income from continuing operations | $ | 0.35 | $ | 0.34 | $ | 1.50 | $ | 1.22 | ||||||||
Income from discontinued operations | — | 0.42 | 0.01 | 0.51 | ||||||||||||
Net income | $ | 0.35 | $ | 0.76 | $ | 1.51 | $ | 1.72 | ||||||||
Earnings per common share – Diluted | ||||||||||||||||
Income from continuing operations | $ | 0.34 | $ | 0.34 | $ | 1.49 | $ | 1.21 | ||||||||
Income from discontinued operations | — | 0.41 | 0.01 | 0.51 | ||||||||||||
Net income | $ | 0.34 | $ | 0.75 | $ | 1.50 | $ | 1.72 | ||||||||
Net Unrealized Gain (Loss) on Qualifying Cash Flow Hedges | Pension/ Postretirement Activity | Translation Adjustments | Total | |||||||||||||||||||
Beginning Balance as of June 29, 2013 | $ | — | $ | (142 | ) | $ | 1 | $ | (141 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications | 1 | — | (1 | ) | — | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income: | ||||||||||||||||||||||
Prior-service benefit | — | (5 | ) | (b) | — | (5 | ) | |||||||||||||||
Net actuarial loss | — | 3 | (b) | — | 3 | |||||||||||||||||
Loss realized from derivatives | 3 | (a) | — | — | 3 | |||||||||||||||||
Tax expense (benefit) | (1 | ) | (c) | 1 | (c) | — | — | |||||||||||||||
Net current-period other comprehensive income (loss) | 3 | (1 | ) | (1 | ) | 1 | ||||||||||||||||
Ending Balance as of March 29, 2014 | $ | 3 | $ | (143 | ) | $ | — | $ | (140 | ) | ||||||||||||
Beginning Balance as of June 30, 2012 | $ | 8 | $ | (168 | ) | $ | 16 | $ | (144 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications | 7 | — | (5 | ) | 2 | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income: | ||||||||||||||||||||||
Prior-service benefit | — | (6 | ) | (b) | — | (6 | ) | |||||||||||||||
Net actuarial loss | — | 4 | (b) | — | 4 | |||||||||||||||||
Gain realized from derivatives | (17 | ) | (a) | — | — | (17 | ) | |||||||||||||||
Translation adjustment | — | — | (15 | ) | (d) | (15 | ) | |||||||||||||||
Tax expense | 3 | (c) | 2 | (c) | — | 5 | ||||||||||||||||
Net current-period other comprehensive loss | (7 | ) | — | (20 | ) | (27 | ) | |||||||||||||||
Spin-off of international coffee and tea business | — | — | 6 | (e) | $ | 6 | ||||||||||||||||
Ending Balance as of March 30, 2013 | $ | 1 | $ | (168 | ) | $ | 2 | $ | (165 | ) | ||||||||||||
• | Retail – sells a variety of packaged meat and frozen bakery products to retail customers in North America. It also includes gourmet artisanal sausage, salami and jerky products. |
• | Foodservice/Other – sells a variety of meats and bakery products to foodservice customers in North America such as broad-line foodservice distributors, restaurants, hospitals and other large institutions and includes commodity meat products. |
Net Sales | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Retail | $ | 713 | $ | 692 | $ | 2,226 | $ | 2,188 | ||||||||
Foodservice/Other | 242 | 232 | 795 | 770 | ||||||||||||
Net sales | $ | 955 | $ | 924 | $ | 3,021 | $ | 2,958 | ||||||||
Income from Continuing Operations Before Income Taxes | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Retail | $ | 92 | $ | 76 | $ | 267 | $ | 272 | ||||||||
Foodservice/Other | 10 | 9 | 66 | 62 | ||||||||||||
Total operating segment income | 102 | 85 | 333 | 334 | ||||||||||||
General corporate expenses | (4 | ) | (12 | ) | (23 | ) | (32 | ) | ||||||||
Net mark-to-market derivative gains | 1 | — | 6 | 1 | ||||||||||||
Amortization of intangibles | (2 | ) | (1 | ) | (4 | ) | (3 | ) | ||||||||
Significant items | (21 | ) | (7 | ) | (65 | ) | (52 | ) | ||||||||
Total operating income | 76 | 65 | 247 | 248 | ||||||||||||
Net interest expense | (10 | ) | (11 | ) | (30 | ) | (30 | ) | ||||||||
Income from continuing operations before income taxes | $ | 66 | $ | 54 | $ | 217 | $ | 218 | ||||||||
Third Quarter 2014 | First Nine Months of 2014 | |||||||||||||||||||||||
(In millions) | Net Sales | Pretax Income | Net Income | Net Sales | Pretax Income | Net Income | ||||||||||||||||||
Australian Bakery | $ | — | $ | — | $ | — | $ | — | $ | 2 | $ | 1 | ||||||||||||
Third Quarter 2013 | First Nine Months of 2013 | |||||||||||||||||||||||
(In millions) | Net Sales | Pretax Loss | Net Income (Loss) | Net Sales | Pretax Income | Net Income (Loss) | ||||||||||||||||||
Australian Bakery | $ | 10 | $ | (1 | ) | $ | (1 | ) | $ | 81 | $ | 4 | $ | 7 | ||||||||||
North American Foodservice Beverage | — | — | — | — | 2 | 1 | ||||||||||||||||||
International Coffee and Tea | — | — | 6 | — | — | 6 | ||||||||||||||||||
Other | — | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Total | $ | 10 | $ | (1 | ) | $ | 4 | $ | 81 | $ | 6 | $ | 13 | |||||||||||
Third Quarter 2013 | First Nine Months of 2013 | |||||||||||||||||||||||
(In millions) | Pretax Gain on Sale | Tax (Expense) Benefit | After Tax Gain | Pretax Gain on Sale | Tax (Expense) Benefit | After Tax Gain | ||||||||||||||||||
North American Fresh Bakery | $ | 4 | $ | (2 | ) | $ | 2 | $ | 5 | $ | (2 | ) | $ | 3 | ||||||||||
North American Foodservice Beverage | — | 3 | 3 | 2 | 2 | 4 | ||||||||||||||||||
Australian Bakery | 56 | (14 | ) | 42 | 56 | (14 | ) | 42 | ||||||||||||||||
Total | $ | 60 | $ | (13 | ) | $ | 47 | $ | 63 | $ | (14 | ) | $ | 49 | ||||||||||
Nine months ended | Nine months ended | |||||||
(In millions) – Increase / (Decrease) | March 29, 2014 | March 30, 2013 | ||||||
Cash flow from operating activities | $ | 1 | $ | 10 | ||||
Cash flow from investing activities | — | 85 | ||||||
Cash flow used in financing activities | (1 | ) | (95 | ) | ||||
Change in net cash of discontinued operations | — | — | ||||||
Cash and equivalents at beginning of year | — | — | ||||||
Cash and equivalents at end of period | $ | — | $ | — | ||||
• | Employee termination costs |
• | Lease and contractual obligation exit costs |
• | Gains or losses on the disposition of assets or asset groupings that do not qualify as discontinued operations |
• | Expenses associated with the installation of information systems related to restructuring activities |
• | Consulting costs related to restructuring activities |
• | Costs associated with the renegotiation of contracts for services with outside third-party vendors as part of the spin-off of the international coffee and tea operations |
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Selling, general and administrative expenses | $ | 11 | $ | 8 | $ | 36 | $ | 23 | ||||||||
Net charges for exit activities, asset and business dispositions | 5 | 1 | 15 | 7 | ||||||||||||
Decrease in income from continuing operations before income taxes | $ | 16 | $ | 9 | 51 | 30 | ||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Retail | $ | 4 | $ | — | $ | 11 | $ | (3 | ) | |||||||
Foodservice/Other | — | (1 | ) | 2 | (3 | ) | ||||||||||
Expense (income) in operating segments | 4 | (1 | ) | 13 | (6 | ) | ||||||||||
General corporate expenses | 12 | 10 | 38 | 36 | ||||||||||||
Total | $ | 16 | $ | 9 | $ | 51 | $ | 30 | ||||||||
(In millions) | Employee termination and other benefits | IT and other costs | Non-cancellable leases/ Contractual obligations | Total | ||||||||||||
Accrued costs as of June 29, 2013 | $ | 10 | $ | 5 | $ | 23 | $ | 38 | ||||||||
Exit, disposal and other costs recognized during 2014 | 15 | 35 | 1 | 51 | ||||||||||||
Cash payments | (8 | ) | (32 | ) | (15 | ) | (55 | ) | ||||||||
Noncash charges | — | (1 | ) | — | (1 | ) | ||||||||||
Accrued costs as of March 29, 2014 | $ | 17 | $ | 7 | $ | 9 | $ | 33 | ||||||||
March 29, 2014 | ||||||||||||
(In millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Market Value | |||||||||
Available-for-sale:(1) | ||||||||||||
Commercial Paper | $ | 128 | $ | — | $ | 128 | ||||||
Corporate Note | 126 | — | 126 | |||||||||
Total | $ | 254 | $ | — | $ | 254 | ||||||
(1) | Categorized as Level 1: Observable input such as quoted prices in active markets for identical assets or liabilities |
Notional Values (In millions) | March 29, 2014 | June 29, 2013 | Hedge Coverage (Number of months) | ||||||||
Commodity Contracts: | |||||||||||
Commodity Future Contracts:(1) | |||||||||||
Grains/Oilseed | $ | 47 | $ | 34 | 14 | ||||||
Energy | $ | 27 | $ | 29 | 20 | ||||||
Other commodities | $ | 9 | $ | 20 | 7 | ||||||
Commodity Options Contracts:(2) | |||||||||||
Grains/Oilseed | $ | 4 | $ | — | 2 | ||||||
March 29, 2014 | June 29, 2013 | |||||||||||||||
(In millions) | Fair Value | Carrying Amount | Fair Value | Carrying Amount | ||||||||||||
Long-term debt, including current portion | $ | 971 | $ | 942 | $ | 981 | $ | 951 | ||||||||
Foreign Exchange Contracts | Commodity Contracts | Total | ||||||||||||||||||||||
Quarter Ended | Quarter Ended | Quarter Ended | ||||||||||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||||||||
Cash Flow Derivatives: | ||||||||||||||||||||||||
Amount of gain (loss) recognized in other comprehensive income (OCI) (a) | $ | — | $ | — | $ | 3 | $ | (1 | ) | $ | 3 | $ | (1 | ) | ||||||||||
Amount of gain (loss) reclassified from AOCI into earnings (a) (b) | — | — | (1 | ) | 6 | (1 | ) | 6 | ||||||||||||||||
Amount of ineffectiveness recognized in earnings (c) (d) | — | — | 1 | (1 | ) | 1 | (1 | ) | ||||||||||||||||
Amount of gain expected to be reclassified into earnings during the next twelve months | — | — | 2 | — | 2 | — | ||||||||||||||||||
Net Investment Derivatives: | ||||||||||||||||||||||||
Amount of loss recognized from OCI into earnings (e) | — | (28 | ) | — | — | — | (28 | ) | ||||||||||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||||||||
Amount of gain recognized in Cost of sales | — | — | 3 | — | 3 | — | ||||||||||||||||||
Amount of loss recognized in SG&A | — | — | (1 | ) | — | (1 | ) | — | ||||||||||||||||
Foreign Exchange Contracts | Commodity Contracts | Total | ||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||||||||
Cash Flow Derivatives: | ||||||||||||||||||||||||
Amount of gain recognized in other comprehensive income (OCI) (a) | $ | — | $ | — | $ | 1 | $ | 7 | $ | 1 | $ | 7 | ||||||||||||
Amount of gain (loss) reclassified from AOCI into earnings (a) (b) | — | — | (3 | ) | 17 | (3 | ) | 17 | ||||||||||||||||
Amount of ineffectiveness recognized in earnings (c) (d) | — | — | 2 | (1 | ) | 2 | (1 | ) | ||||||||||||||||
Amount of gain expected to be reclassified into earnings during the next twelve months | — | — | 2 | — | 2 | — | ||||||||||||||||||
Net Investment Derivatives: | ||||||||||||||||||||||||
Amount of loss recognized from OCI into earnings (e) | — | (28 | ) | — | — | — | (28 | ) | ||||||||||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||||||||
Amount of gain recognized in Cost of sales | — | — | 4 | 3 | 4 | 3 | ||||||||||||||||||
Amount of gain (loss) recognized in SG&A | — | (1 | ) | 1 | — | 1 | (1 | ) | ||||||||||||||||
Pension Plans | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Service cost | $ | 3 | $ | 3 | $ | 7 | $ | 8 | ||||||||
Interest cost | 19 | 17 | 56 | 52 | ||||||||||||
Expected return on plan assets | (24 | ) | (23 | ) | (68 | ) | (69 | ) | ||||||||
Amortization of: | ||||||||||||||||
Net actuarial loss | 1 | 1 | 3 | 4 | ||||||||||||
Prior service cost | 1 | 1 | 1 | 1 | ||||||||||||
Settlement loss | — | — | — | 1 | ||||||||||||
Net periodic benefit | $ | — | $ | (1 | ) | $ | (1 | ) | $ | (3 | ) | |||||
Postretirement Benefit Plans | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 2 | $ | 2 | ||||||||
Interest cost | 1 | 1 | 3 | 3 | ||||||||||||
Expected return on plan assets | — | — | — | — | ||||||||||||
Amortization of: | ||||||||||||||||
Net actuarial loss | — | — | — | — | ||||||||||||
Prior service benefit | (2 | ) | (3 | ) | (6 | ) | (7 | ) | ||||||||
Settlement loss | — | — | — | — | ||||||||||||
Net periodic benefit | $ | — | $ | (1 | ) | $ | (1 | ) | $ | (2 | ) | |||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Continuing operations | ||||||||||||||||
Income before income taxes | $ | 66 | $ | 54 | $ | 217 | $ | 218 | ||||||||
Income tax expense | 24 | 12 | 32 | 69 | ||||||||||||
Effective tax rate | 36.3 | % | 22.3 | % | 14.7 | % | 31.7 | % | ||||||||
• | 45 million of tax benefit from the release of a valuation allowance on state deferred tax assets |
• | $2 million of tax expense related to adjustments of prior year tax provision estimates |
• | $3 million of tax benefit related to adjustments of prior year tax provision estimates |
• | $1 million of tax benefit related to tax law changes |
• | $3 million of tax benefit related to adjustments of prior year tax provision estimates |
• | $1 million of tax benefit related to tax law changes |
• | Business Overview |
• | Summary of Results/Outlook |
• | Review of Consolidated Results |
• | Operating Results by Business Segment |
• | Financial Condition |
• | Liquidity |
• | Risk Management |
• | Non-GAAP Financial Measures |
• | Critical Accounting Estimates |
• | Issued But Not Yet Effective Accounting Standards |
• | Forward-Looking Information |
• | Net sales for the year were $3.9 billion, a decrease of $38 million, or 1% versus the prior year. Adjusted net sales, which excludes the results of businesses that have been exited or disposed of, increased 0.4%. The favorable impact of volume increases were offset by an unfavorable shift in sales mix and pricing actions in response to lower commodity costs. |
• | Reported operating income for the year was $297 million, an increase of $221 million, which resulted from a decrease in charges related to significant items. Adjusted operating income was $363 million, an increase of $40 million, or 12.5% over the prior year as a result of lower commodity costs net of pricing actions, lower general corporate expenses, and higher volumes, partially offset by increased investments in media, advertising and promotion ("MAP"). |
• | Operating segment income, which excludes the impact of significant items and business dispositions, was favorably impacted by a year-over-year decrease in commodity costs net of pricing actions and volume increases primarily related to Jimmy Dean products, partially offset by higher investments in MAP and higher bakery manufacturing costs. |
• | Net income from continuing operations attributable to Hillshire Brands in 2013 was $184 million, or $1.49 per share on a diluted basis, versus a loss of $20 million, or $0.16 per share on a diluted basis in 2012. The year-over-year improvement was due to a $165 million decrease in after tax charges related to significant items, which includes charges for restructuring actions, spin-off related costs and significant reductions in interest expense. On an as adjusted basis, net income from continuing operations attributable to Hillshire Brands in 2013 was $212 million or $1.72 per share on a diluted basis, versus $173 million, or $1.45 per share of income in 2012. |
• | Cash from operating activities was $253 million in 2013, an increase of $4 million due to a decrease in cash payments for restructuring actions, lower contributions to pension plans, lower cash payments for taxes and improved operating results on an adjusted basis which were offset by the impact of the completion of the disposition of several discontinued operations as well as an increase in cash used to fund working capital related to operating activities. |
In millions | 2013 | 2012 | Dollar Change | Percent Change | |||||||||||
Net sales | $ | 3,920 | $ | 3,958 | $ | (38 | ) | (1.0 | )% | ||||||
Less: net sales from | |||||||||||||||
Dispositions | — | 55 | (55 | ) | |||||||||||
Adjusted net sales | $ | 3,920 | $ | 3,903 | $ | 17 | 0.4 | % | |||||||
Operating income | $ | 297 | $ | 76 | $ | 221 | NM | ||||||||
Less: Impact of Significant items on operating income | $ | (72 | ) | $ | (255 | ) | $ | 183 | |||||||
Dispositions | 6 | 8 | (2 | ) | |||||||||||
Adjusted operating income | $ | 363 | $ | 323 | $ | 40 | 12.5 | % | |||||||
In millions | 2012 | 2011 | Dollar Change | Percent Change | |||||||||||
Net sales | $ | 3,958 | $ | 3,884 | $ | 74 | 1.9 | % | |||||||
Less: net sales from | |||||||||||||||
Dispositions | 55 | 135 | (80 | ) | |||||||||||
Adjusted net sales | $ | 3,903 | $ | 3,749 | $ | 154 | 4.1 | % | |||||||
Operating income | $ | 76 | $ | 227 | $ | (151 | ) | (66.5 | )% | ||||||
Less: Impact of Significant items on operating income | $ | (255 | ) | $ | (91 | ) | $ | (164 | ) | ||||||
Dispositions | 8 | 3 | 5 | ||||||||||||
Adjusted operating income | $ | 323 | $ | 315 | $ | 8 | 2.5 | % | |||||||
In millions | 2013 | 2012 | 2011 | |||||||||
SG&A expenses in the business segment results | ||||||||||||
Media advertising and promotion | $ | 174 | $ | 136 | $ | 121 | ||||||
Other | 597 | 594 | 623 | |||||||||
Total business segments | 771 | 730 | 744 | |||||||||
Amortization of identifiable intangibles | 4 | 4 | 4 | |||||||||
General corporate expenses | 81 | 195 | 136 | |||||||||
Mark-to-market derivative (gains)/losses | (1 | ) | 1 | (1 | ) | |||||||
Total SG&A | $ | 855 | $ | 930 | $ | 883 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Restructuring/spin-off costs | $ | 57 | $ | 137 | $ | 36 | ||||||
Gain on HBI tax settlement | — | (15 | ) | — | ||||||||
Litigation accrual | — | 11 | — | |||||||||
Pension settlement | 5 | 1 | — | |||||||||
Foreign tax indemnification charge | (10 | ) | (3 | ) | — | |||||||
Workers' compensation deposit adjustment | (7 | ) | — | — | ||||||||
Other | — | 1 | — | |||||||||
Total | $ | 45 | $ | 132 | $ | 36 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Charges for exit activities | ||||||||||||
Severance | $ | 3 | $ | 27 | $ | 29 | ||||||
Exit of leases and other contractual obligations | 12 | 54 | 9 | |||||||||
Business disposition gains | (6 | ) | — | — | ||||||||
Total | $ | 9 | $ | 81 | $ | 38 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Continuing operations | ||||||||||||
Income (loss) before income taxes | $ | 256 | $ | (35 | ) | $ | 85 | |||||
Income tax expense (benefit) | 72 | (15 | ) | 27 | ||||||||
Effective tax rates | 28.1 | % | (44.2 | )% | 31.8 | % | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Net sales | $ | 80 | $ | 5,365 | $ | 8,223 | ||||||
Income (loss) from discontinued operations before income taxes | $ | 7 | $ | (140 | ) | $ | 565 | |||||
Income tax (expense) benefit on income from discontinued operations | 8 | 603 | (82 | ) | ||||||||
Gain on disposition of discontinued operations before income taxes | 68 | 772 | 1,304 | |||||||||
Income tax expense on disposition of discontinued operations | (15 | ) | (367 | ) | (573 | ) | ||||||
Net income from discontinued operations | $ | 68 | $ | 868 | $ | 1,214 | ||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Sales | ||||||||||||
Retail | $ | 2,894 | $ | 2,884 | $ | 2,760 | ||||||
Foodservice/Other | 1,026 | 1,025 | 1,001 | |||||||||
3,920 | 3,909 | 3,761 | ||||||||||
Impact of businesses exited/disposed | — | 55 | 135 | |||||||||
Intersegment | — | (6 | ) | (12 | ) | |||||||
Total | $ | 3,920 | $ | 3,958 | $ | 3,884 | ||||||
Volume (Excluding Acquisition/Disposition) | Mix | Price | Other | Acquisition | Disposition | Total | |||||||||||||||
2013 versus 2012 | |||||||||||||||||||||
Retail | (0.1 | )% | 0.6 | % | (0.2 | )% | — | % | — | % | — | % | 0.3 | % | |||||||
Foodservice/Other | 4.5 | (3.6 | ) | (0.4 | ) | (0.4 | ) | — | — | 0.1 | |||||||||||
Total business segments | 1.4 | % | (0.7 | )% | (0.3 | )% | — | % | — | % | (1.4 | )% | (1.0 | )% | |||||||
Volume (Excluding Acquisition/Disposition) | Mix | Price | Other | Acquisition | Disposition | Total | |||||||||||||||
2012 versus 2011 | |||||||||||||||||||||
Retail | (3.8 | )% | 0.5 | % | 4.6 | % | (0.6 | )% | 3.8 | % | — | 4.5 | % | ||||||||
Foodservice/Other | (0.1 | ) | (0.5 | ) | 3.2 | (0.2 | ) | — | — | 2.4 | |||||||||||
Total business segments | (2.6 | )% | 0.1 | % | 4.2 | % | (0.4 | )% | 2.8 | % | (2.2 | )% | 1.9 | % | |||||||
In millions | 2013 | 2012 | 2011 | |||||||||
Income from continuing operations before income taxes | ||||||||||||
Retail | $ | 329 | $ | 313 | $ | 314 | ||||||
Foodservice/Other | 75 | 79 | 102 | |||||||||
Total operating segment income | 404 | 392 | 416 | |||||||||
General corporate expenses | (93 | ) | (272 | ) | (159 | ) | ||||||
Mark-to-market derivative gains/(losses) | (1 | ) | (1 | ) | 2 | |||||||
Amortization of intangibles | (4 | ) | (4 | ) | (4 | ) | ||||||
Significant items - business segments | (15 | ) | (47 | ) | (31 | ) | ||||||
Impact of businesses exited/disposed | 6 | 8 | 3 | |||||||||
Total operating income | 297 | 76 | 227 | |||||||||
Interest expense, net | (41 | ) | (72 | ) | (87 | ) | ||||||
Debt extinguishment costs | — | (39 | ) | (55 | ) | |||||||
Income (loss) from continuing operations before income taxes | $ | 256 | $ | (35 | ) | $ | 85 | |||||
In millions | 2013 | 2012 | Dollar Change | Percent Change | 2012 | 2011 | Dollar Change | Percent Change | ||||||||||||||||||||||
Net sales | $ | 2,894 | $ | 2,884 | $ | 10 | 0.3 | % | $ | 2,884 | $ | 2,760 | $ | 124 | 4.5 | % | ||||||||||||||
Operating segment income | $ | 329 | $ | 313 | $ | 16 | 5.5 | % | $ | 313 | $ | 314 | $ | (1 | ) | (0.6 | )% | |||||||||||||
In millions | 2013 | 2012 | Dollar Change | Percent Change | 2012 | 2011 | Dollar Change | Percent Change | ||||||||||||||||||||||
Net sales | $ | 1,026 | $ | 1,025 | $ | 1 | 0.1 | % | $ | 1,025 | $ | 1,001 | $ | 24 | 2.4 | % | ||||||||||||||
Operating segment income | $ | 75 | $ | 79 | $ | (4 | ) | (5.0 | )% | $ | 79 | $ | 102 | $ | (23 | ) | (22.4 | )% | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash from operating activities | ||||||||||||
Continuing operations | $ | 243 | $ | 127 | $ | 138 | ||||||
Discontinued operations | 10 | 122 | 309 | |||||||||
Total | $ | 253 | $ | 249 | $ | 447 | ||||||
2013 | 2012 | 2011 | ||||||||||
Cash from (used in) investing activities | ||||||||||||
Continuing operations | $ | (127 | ) | $ | (153 | ) | $ | (162 | ) | |||
Discontinued operations | 86 | (368 | ) | 2,291 | ||||||||
Total | $ | (41 | ) | $ | (521 | ) | $ | 2,129 | ||||
2013 | 2012 | 2011 | ||||||||||
Cash from (used in) financing activities | ||||||||||||
Continuing operations | $ | 50 | $ | 184 | $ | 53 | ||||||
Discontinued operations | (95 | ) | (1,530 | ) | (1,804 | ) | ||||||
Total | $ | (45 | ) | $ | (1,346 | ) | $ | (1,751 | ) | |||
Senior Unsecured Obligations | Short-term Borrowings | Outlook | ||||
Standard & Poor's | BBB | A-2 | Stable | |||
Moody's | Baa2 | P-2 | Stable | |||
Fitch | BBB | F-2 | Stable | |||
Payments Due by Fiscal Year | ||||||||||||||||||||||||||||
In millions | Total | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | |||||||||||||||||||||
Long-term debt | $ | 951 | $ | 19 | $ | 93 | $ | 400 | $ | — | $ | — | $ | 439 | ||||||||||||||
Interest on debt obligations1 | 310 | 45 | 33 | 24 | 21 | 21 | 166 | |||||||||||||||||||||
Operating lease obligations | 141 | 19 | 15 | 11 | 10 | 9 | 77 | |||||||||||||||||||||
Purchase obligations2 | 1,684 | 622 | 433 | 204 | 175 | 161 | 89 | |||||||||||||||||||||
Other long-term liabilities3 | 39 | 8 | 17 | 4 | 2 | 2 | 6 | |||||||||||||||||||||
Subtotal | 3,125 | 713 | 591 | 643 | 208 | 193 | 777 | |||||||||||||||||||||
Contingent lease obligations4 | 18 | 9 | 8 | 1 | — | — | — | |||||||||||||||||||||
Total5 | $ | 3,143 | $ | 722 | $ | 599 | $ | 644 | $ | 208 | $ | 193 | $ | 777 | ||||||||||||||
1 | Interest obligations on fixed rate debt instruments are calculated for future periods using stated interest rates as per the debt terms. See Note 12 - Debt Instruments for further details on the company's long-term debt. | ||
2 | Purchase obligations include expenditures to purchase goods and services in the ordinary course of business for production and inventory needs (such as raw materials, supplies, packaging, manufacturing arrangements, storage, distribution and union wage agreements); capital expenditures; marketing services; information technology services; and maintenance and other professional services where, as of the end of 2013, the company has agreed upon a fixed or minimum quantity to purchase, a fixed, minimum or variable pricing arrangement and the approximate delivery date. Future cash expenditures will vary from the amounts shown in the table above. The company enters into purchase obligations when terms or conditions are favorable or when a long-term commitment is necessary. Many of these arrangements are cancelable after a notice period without a significant penalty. Additionally, certain costs of the company are not included in the table since at the end of 2013 an obligation did not exist. An example of these includes situations where purchasing decisions for these future periods have not been made at the end of 2013. Ultimately, the company's decisions and cash expenditures to purchase these various items will be based upon the company's sales of products, which are driven by consumer demand. The company's obligations for accounts payable and accrued liabilities recorded on the balance sheet are also excluded from the table. | ||
3 | Represents the projected payment for long-term liabilities recorded on the balance sheet for deferred compensation, restructuring costs, deferred income, sales and other incentives. The company has employee benefit obligations consisting of pensions and other postretirement benefits, including medical; pension and postretirement obligations, including any contingent amounts that may be due related to multi-employer pension plans, have been excluded from the table. A discussion of the company's pension and postretirement plans, including funding matters, is included in Notes 16 - Defined Benefit Pension Plans and 17 - Postretirement Healthcare and Life Insurance Plans. The company's obligations for employee health and property and casualty losses are also excluded from the table. Finally, the amount does not include any reserves for income taxes because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes. See Note 18 - Income Taxes regarding income taxes for further details. | ||
4 | Contingent lease obligations represent leases on property operated by others that only become an obligation of the company in the event that the owners of the businesses are unable to satisfy the lease liability. A significant portion of these amounts relates to leases operated by Coach, Inc. At June 29, 2013, the company has not recognized a contingent lease liability on the Consolidated Balance Sheets. | ||
5 | Contractual commitments and obligations identified under the accounting rules associated with accounting for contingencies are reflected and disclosed on the Consolidated Balance Sheets and in the related notes. Amounts exclude any tax impact. See Note 18 - Income Taxes regarding income taxes for further details. | ||
In millions | 2013 | 2012 | ||||||
Effect of a 10% change in market price | ||||||||
Grains & oilseeds | $ | 3 | $ | 7 | ||||
Energy | 3 | 2 | ||||||
Other commodities | 2 | 2 | ||||||
Year ended June 29, 2013 | Year ended June 30, 2012 | Year ended July 2, 2011 | ||||||||||||||||||||||||||||||||||
In millions except per share data | Pretax Impact | Net Income | Diluted EPS Impact ¹ | Pretax Impact | Net Income | Diluted EPS Impact ¹ | Pretax Impact | Net Income | Diluted EPS Impact ¹ | |||||||||||||||||||||||||||
Significant items affecting comparability of income from continuing operations and net income | ||||||||||||||||||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||
Severance/retention charges | $ | (4 | ) | $ | (2 | ) | $ | (0.02 | ) | $ | (31 | ) | $ | (20 | ) | $ | (0.17 | ) | $ | (40 | ) | $ | (25 | ) | $ | (0.20 | ) | |||||||||
Lease & contractual obligation exit costs | (12 | ) | (8 | ) | (0.06 | ) | (55 | ) | (35 | ) | (0.29 | ) | — | — | — | |||||||||||||||||||||
Consulting, advisory & other costs | (38 | ) | (25 | ) | (0.20 | ) | (110 | ) | (84 | ) | (0.70 | ) | (34 | ) | (27 | ) | (0.22 | ) | ||||||||||||||||||
Income from asset dispositions | 6 | 4 | 0.03 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Accelerated depreciation | (29 | ) | (18 | ) | (0.15 | ) | (46 | ) | (29 | ) | (0.25 | ) | (2 | ) | (1 | ) | (0.01 | ) | ||||||||||||||||||
Total restructuring actions | (77 | ) | (49 | ) | (0.40 | ) | (242 | ) | (168 | ) | (1.40 | ) | (76 | ) | (53 | ) | (0.42 | ) | ||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||
Impairment charges | (1 | ) | (1 | ) | (0.01 | ) | (14 | ) | (9 | ) | (0.07 | ) | (15 | ) | (9 | ) | (0.08 | ) | ||||||||||||||||||
Litigation accrual | — | — | — | (11 | ) | (7 | ) | (0.06 | ) | — | — | — | ||||||||||||||||||||||||
Gain on HBI tax settlement | — | — | — | 15 | 15 | 0.12 | — | — | — | |||||||||||||||||||||||||||
Pension curtailment/withdrawal/other | (5 | ) | (3 | ) | (0.03 | ) | (6 | ) | (4 | ) | (0.03 | ) | — | — | — | |||||||||||||||||||||
Foreign tax indemnification charge | 10 | 10 | 0.08 | 3 | 4 | 0.03 | — | — | — | |||||||||||||||||||||||||||
Workers' compensation deposit adjustment | 7 | 5 | 0.04 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Debt extinguishment costs | — | — | — | (39 | ) | (25 | ) | (0.21 | ) | (55 | ) | (35 | ) | (0.28 | ) | |||||||||||||||||||||
Impact on income from continuing operations before income taxes | (66 | ) | (38 | ) | (0.31 | ) | (294 | ) | (194 | ) | (1.62 | ) | (146 | ) | (97 | ) | (0.78 | ) | ||||||||||||||||||
Significant tax matters | ||||||||||||||||||||||||||||||||||||
Tax audit settlements/reserve adjustments | — | 10 | 0.09 | — | 1 | 0.01 | — | 4 | 0.03 | |||||||||||||||||||||||||||
Impact on income from continuing operations | (66 | ) | (28 | ) | (0.23 | ) | (294 | ) | (193 | ) | (1.61 | ) | (146 | ) | (93 | ) | (0.75 | ) | ||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||||||
Severance/retention charges | — | — | — | (73 | ) | (55 | ) | (0.46 | ) | (136 | ) | (97 | ) | (0.78 | ) | |||||||||||||||||||||
Consulting, advisory & other costs | (3 | ) | (2 | ) | (0.02 | ) | (145 | ) | (105 | ) | (0.87 | ) | (48 | ) | (37 | ) | (0.31 | ) | ||||||||||||||||||
Lease & contractual obligation exit costs | — | — | — | (108 | ) | (79 | ) | (0.66 | ) | — | — | — | ||||||||||||||||||||||||
Accelerated depreciation | — | — | — | — | — | — | (3 | ) | (2 | ) | (0.02 | ) | ||||||||||||||||||||||||
Impairment charges | — | — | — | (414 | ) | (365 | ) | (3.05 | ) | (6 | ) | (5 | ) | (0.04 | ) | |||||||||||||||||||||
Pension curtailment/withdrawal | 1 | 1 | — | (6 | ) | (3 | ) | (0.02 | ) | (1 | ) | (1 | ) | (0.01 | ) | |||||||||||||||||||||
Thailand flood loss | — | — | — | (2 | ) | (1 | ) | (0.01 | ) | — | — | — | ||||||||||||||||||||||||
Indirect tax reserve - Brazil | — | — | — | (1 | ) | (1 | ) | (0.01 | ) | — | — | — | ||||||||||||||||||||||||
Antitrust (provision)/reversal | — | — | — | — | — | — | 27 | 18 | 0.15 | |||||||||||||||||||||||||||
Licensing agreement termination charge | — | — | — | — | — | — | (39 | ) | (27 | ) | (0.21 | ) | ||||||||||||||||||||||||
Gain on sale of discontinued operations | 68 | 53 | 0.43 | 772 | 405 | 3.38 | 1,304 | 731 | 5.85 | |||||||||||||||||||||||||||
Tax basis difference | — | 4 | 0.03 | — | 186 | 1.56 | — | 120 | 0.96 | |||||||||||||||||||||||||||
Tax on unremitted earnings | — | — | — | — | 471 | 3.94 | — | (6 | ) | (0.05 | ) | |||||||||||||||||||||||||
Tax audit settlements/reserve adjustments | — | 1 | 0.01 | — | 80 | 0.67 | — | 23 | 0.18 | |||||||||||||||||||||||||||
Valuation allowance adjustment | — | — | — | — | (66 | ) | (0.55 | ) | — | 2 | 0.02 | |||||||||||||||||||||||||
Impact on discontinued operations | 66 | 57 | 0.46 | 23 | 467 | 3.90 | 1,098 | 719 | 5.76 | |||||||||||||||||||||||||||
Impact of using diluted versus basic shares | — | — | — | — | — | 0.07 | — | — | — | |||||||||||||||||||||||||||
Impact on net income | $ | — | $ | 29 | $ | 0.23 | $ | (271 | ) | $ | 274 | $ | 2.36 | $ | 952 | $ | 626 | $ | 5.01 | |||||||||||||||||
Impact on income from continuing operations before income taxes | ||||||||||||||||||||||||||||||||||||
Cost of sales | $ | (11 | ) | $ | (28 | ) | $ | (2 | ) | |||||||||||||||||||||||||||
Selling, general and administrative expenses | (45 | ) | (132 | ) | (36 | ) | ||||||||||||||||||||||||||||||
Exit and business dispositions | (9 | ) | (81 | ) | (38 | ) | ||||||||||||||||||||||||||||||
Impairment charges | (1 | ) | (14 | ) | (15 | ) | ||||||||||||||||||||||||||||||
Impact on operating income | (66 | ) | (255 | ) | (91 | ) | ||||||||||||||||||||||||||||||
Debt extinguishment costs | — | (39 | ) | (55 | ) | |||||||||||||||||||||||||||||||
Total | $ | (66 | ) | $ | (294 | ) | $ | (146 | ) | |||||||||||||||||||||||||||
Diluted earnings per share - continuing operations | ||||||||||||||||||||||||||||||||||||
As reported | $ | 1.49 | $ | (0.16 | ) | $ | 0.46 | |||||||||||||||||||||||||||||
Less: Impact of significant items | (0.23 | ) | (1.61 | ) | (0.75 | ) | ||||||||||||||||||||||||||||||
Adjusted earnings per share | $ | 1.72 | $ | 1.45 | $ | 1.21 | ||||||||||||||||||||||||||||||
1 | The earnings per share (EPS) impact of individual amounts in the table above are rounded to the nearest $0.01 and may not add to the total. | ||
• | Tax legislation in the jurisdictions in which the company does business may change in future periods. While such changes cannot be predicted, if they occur, the impact on the company's tax assets and obligations will need to be measured and recognized in the financial statements. |
• | The company has ongoing U.S. and state tax audits for various tax periods. The U.S. federal tax years from 2009 onward remain subject to audit. With few exceptions, the company is no longer subject to state and local income tax examinations by tax authorities for years before 2005. The tax reserves for uncertain tax positions recorded in the financial statements reflect the expected finalization of examinations. The company regularly reviews its tax positions based on the individual facts, circumstances, and technical merits of each tax position. If the company determines it is more likely than not that it is entitled to the economic benefits associated with a tax position, it then considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement with a taxing authority, taking into consideration all available facts, circumstances, and information. The company believes that it has sufficient cash resources to fund the settlement of these audits. |
• | Facts and circumstances may change that cause the company to revise the conclusions on its ability to realize certain net operating losses and other deferred tax attributes. The company regularly reviews whether it will realize its deferred tax assets. Its review consists of determining whether sufficient taxable income of the appropriate character exists within the carryback and carryforward period available under respective tax statutes. The company considers all available evidence of recoverability when evaluating its deferred tax assets; however, the company's most sensitive and critical factor in determining recoverability of deferred tax assets is the existence of historical and projected profitability in a particular jurisdiction. As a result, changes in actual and projected results of the company's various legal entities can create variability, as well as changes in the level of the company's gross deferred tax assets, which could result in increases or decreases in the company's deferred tax asset valuation allowance. |
Increase/(Decrease) in | |||||||||||||
Assumption | Change | 2014 Net Periodic Benefit Cost | 2013 Projected Benefit Obligation | ||||||||||
Discount rate | 1 | % | increase | $ | (1 | ) | $ | (187 | ) | ||||
1 | % | decrease | 6 | 213 | |||||||||
Asset return | 1 | % | increase | (14 | ) | — | |||||||
1 | % | decrease | 14 | — | |||||||||
• | 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, Hillshire Brands' ability to increase or maintain product prices in response to cost fluctuations and the impact on profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Hillshire Brands products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties related to execution and trade and consumer acceptance; |
• | Hillshire Brands' relationship with its customers, such as (i) a significant change in Hillshire Brands' business with any of its major customers, such as Wal-Mart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment; |
• | Hillshire Brands' spin-off of its international coffee and tea business in June 2012, including potential tax liabilities and other indemnification obligations; and |
• | Other factors, such as (i) Hillshire Brands' ability to generate margin improvement through cost reduction and productivity improvement initiatives; (ii) Hillshire Brands' credit ratings, the impact of Hillshire Brands' capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Hillshire Brands' cost to borrow funds and access to capital/debt markets; and (iii) the settlement of a number of ongoing reviews of Hillshire Brands' income tax filing positions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Hillshire Brands transacts business. |
• | Business Overview |
• | Summary of Results |
• | Consolidated Results – Third Quarter of 2014 Compared with Third Quarter of 2013 |
• | Consolidated Results – First Nine Months of 2014 Compared with First Nine Months of 2013 |
• | Operating Results by Business Segment |
• | Financial Condition |
• | Liquidity |
• | Non-GAAP Financial Measures Definitions |
• | Significant Accounting Policies and Critical Estimates |
• | Issued but not yet Effective Accounting Standards |
• | Forward-Looking Information |
• | Net sales for the third quarter of 2014 were $955 million, which was $31 million, or 3.4%, higher than the prior year. The increase in sales was driven by favorable mix and pricing actions taken to offset input cost inflation, which were partially offset by a decline in volume. |
• | Reported operating income for the third quarter of 2014 was $76 million, which was $11 million, or 18.3%, higher than the prior year. This was mainly driven by pricing actions to offset input cost inflation and decreased SG&A costs. Adjusted operating income, which increased $25 million, or 34.8%, was driven by decreased SG&A spending partially offset by higher input costs. |
• | Diluted earnings per share from continuing operations for the third quarter was $0.34 in 2013 and 2014. The benefit of higher operating income in 2014 was partially offset by income tax expense versus the prior year. Adjusted EPS increased from $0.35 in 2013 to $0.46 in 2014 due to the increase in operating income. Average diluted shares outstanding remained virtually unchanged on a year-over-year basis at 124 million. |
• | Total cash flow from operating activities improved from a source of cash of $182 million in the first nine months of 2013 to $232 million for the first nine months of 2014. The most significant driver of the change was improved working capital management, specifically in inventory and favorable accrued liabilities changes. |
Quarter Ended | |||||||||||||||
Total Company Performance (In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | |||||||||||
Net sales | $ | 955 | $ | 924 | $ | 31 | 3.4 | % | |||||||
Operating income | $ | 76 | $ | 65 | $ | 11 | 18.3 | % | |||||||
Less: Impact of significant items on operating income | (21 | ) | (7 | ) | (14 | ) | |||||||||
Adjusted operating income | $ | 97 | $ | 72 | $ | 25 | 34.8 | % | |||||||
Third quarter 2014 | Volumes | + | Price/Mix | + | Acquisitions | = | Net Sales Change | |||||||||||
Net sales changes | (3.2 | )% | 6.2 | % | 0.4 | % | 3.4 | % | ||||||||||
Quarter Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | |||||||||||
SG&A expenses in the business segment results: | |||||||||||||||
Media advertising and promotion | $ | 40 | $ | 39 | $ | 1 | 2.2 | % | |||||||
Other | 141 | 148 | (7 | ) | (5.1 | )% | |||||||||
Total business segments | 181 | 187 | (6 | ) | (3.5 | )% | |||||||||
General corporate | 17 | 16 | 1 | 9.7 | % | ||||||||||
Net mark-to-market derivative losses | — | 1 | (1 | ) | NM | ||||||||||
Amortization of identifiable intangibles | 2 | 1 | 1 | 30.2 | % | ||||||||||
Total SG&A Expenses | $ | 200 | $ | 205 | $ | (5 | ) | (2.7 | )% | ||||||
Third Quarter | ||||||||
(In millions) | 2014 | 2013 | ||||||
Continuing operations | ||||||||
Income before income taxes | $ | 66 | $ | 54 | ||||
Income tax expense | 24 | 12 | ||||||
Effective tax rate | 36.3 | % | 22.3 | % | ||||
• | $3 million of tax benefit related to adjustments of prior year tax provision estimates |
• | $1 million of tax benefit related to tax law changes |
Nine Months Ended | |||||||||||||||
Total Company Performance (In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | |||||||||||
Net sales | $ | 3,021 | $ | 2,958 | $ | 63 | 2.1 | % | |||||||
Operating income | $ | 247 | $ | 248 | $ | (1 | ) | (0.5 | )% | ||||||
Less: Impact of significant items on operating income | (65 | ) | (52 | ) | (13 | ) | |||||||||
Adjusted operating income | $ | 312 | $ | 300 | $ | 12 | 3.9 | % | |||||||
First Nine Months of 2014 | Volumes | + | Price/Mix | + | Acquisitions | = | Net Sales Change | |||||||||||
Net sales changes | (2.2 | )% | 4.0 | % | 0.3 | % | 2.1 | % | ||||||||||
Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | |||||||||||
SG&A expenses in the business segment results: | |||||||||||||||
Media advertising and promotion | $ | 113 | $ | 127 | $ | (14 | ) | (10.8 | )% | ||||||
Other | 432 | 441 | (9 | ) | (2.0 | )% | |||||||||
Total business segments | 545 | 568 | (23 | ) | (4.0 | )% | |||||||||
General corporate | 62 | 70 | (8 | ) | (10.3 | )% | |||||||||
Net mark-to-market derivative (gains) losses | (2 | ) | 1 | (3 | ) | NM | |||||||||
Amortization of identifiable intangibles | 4 | 3 | 1 | 22.5 | % | ||||||||||
Total SG&A Expenses | $ | 609 | $ | 642 | $ | (33 | ) | (5.1 | )% | ||||||
Nine Months Ended | ||||||||
(In millions) | 2014 | 2013 | ||||||
Continuing operations | ||||||||
Income before income taxes | $ | 217 | $ | 218 | ||||
Income tax expense | 32 | 69 | ||||||
Effective tax rate | 14.7 | % | 31.7 | % | ||||
• | $45 million of tax benefit from the release of a valuation allowance on state deferred tax assets |
• | $2 million of tax expense related to adjustments of prior year tax provision estimates |
• | $3 million of tax benefit related to adjustments of prior year tax provision estimates |
• | $1 million of tax benefit related to tax law changes |
Net Sales | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Retail | $ | 713 | $ | 692 | $ | 2,226 | $ | 2,188 | ||||||||
Foodservice/Other | 242 | 232 | 795 | 770 | ||||||||||||
Total net sales | $ | 955 | $ | 924 | $ | 3,021 | $ | 2,958 | ||||||||
Income from Continuing Operations Before Income Taxes | ||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | March 29, 2014 | March 30, 2013 | ||||||||||||
Retail | $ | 92 | $ | 76 | $ | 267 | $ | 272 | ||||||||
Foodservice/Other | 10 | 9 | 66 | 62 | ||||||||||||
Total operating segment income | 102 | 85 | 333 | 334 | ||||||||||||
General corporate expense | (4 | ) | (12 | ) | (23 | ) | (32 | ) | ||||||||
Mark-to-market derivative gains | 1 | — | 6 | 1 | ||||||||||||
Amortization of intangibles | (2 | ) | (1 | ) | (4 | ) | (3 | ) | ||||||||
Significant items | (21 | ) | (7 | ) | (65 | ) | (52 | ) | ||||||||
Total operating income | 76 | 65 | 247 | 248 | ||||||||||||
Net interest expense | (10 | ) | (11 | ) | (30 | ) | (30 | ) | ||||||||
Income from continuing operations before income taxes | $ | 66 | $ | 54 | $ | 217 | $ | 218 | ||||||||
Third quarter 2014 | Volumes | + | Price/Mix | + | Acquisitions | = | Net Sales Change | |||||||||||
Net Sales Changes | ||||||||||||||||||
Retail | (2.7 | )% | 5.4 | % | 0.5 | % | 3.2 | % | ||||||||||
Foodservice/Other | (4.1 | )% | 8.1 | % | — | % | 4.0 | % | ||||||||||
Total | (3.2 | )% | 6.2 | % | 0.4 | % | 3.4 | % | ||||||||||
First Nine Months of 2014 | Volumes | + | Price/Mix | + | Acquisitions | = | Net Sales Change | |||||||||||
Net Sales Changes | ||||||||||||||||||
Retail | (1.7 | )% | 3.0 | % | 0.4 | % | 1.7 | % | ||||||||||
Foodservice/Other | (3.3 | )% | 6.5 | % | — | % | 3.2 | % | ||||||||||
Total | (2.2 | )% | 4.0 | % | 0.3 | % | 2.1 | % | ||||||||||
Quarter ended | Nine Months Ended | |||||||||||||||||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | March 29, 2014 | March 30, 2013 | Change | Percent Change | ||||||||||||||||||||||
Net Sales | $ | 713 | $ | 692 | $ | 21 | 3.2 | % | $ | 2,226 | $ | 2,188 | $ | 38 | 1.7 | % | ||||||||||||||
Operating segment income | $ | 92 | $ | 76 | $ | 16 | 19.9 | % | $ | 267 | $ | 272 | $ | (5 | ) | (1.8 | )% | |||||||||||||
Quarter ended | Nine Months Ended | |||||||||||||||||||||||||||||
(In millions) | March 29, 2014 | March 30, 2013 | Change | Percent Change | March 29, 2014 | March 30, 2013 | Change | Percent Change | ||||||||||||||||||||||
Net sales | $ | 242 | $ | 232 | $ | 10 | 4.0 | % | $ | 795 | $ | 770 | $ | 25 | 3.2 | % | ||||||||||||||
Operating segment income | $ | 10 | $ | 9 | $ | 1 | 9.6 | % | $ | 66 | $ | 62 | $ | 4 | 5.6 | % | ||||||||||||||
Nine Months Ended | ||||||||
(In millions) | March 29, 2014 | March 30, 2013 | ||||||
Cash from Operating Activities: | ||||||||
Continuing Operations | $ | 231 | $ | 172 | ||||
Discontinued Operations | 1 | 10 | ||||||
Total | $ | 232 | $ | 182 | ||||
Senior Unsecured Obligations | Short-term Borrowings | Outlook | ||||
Standard & Poor’s | BBB | A-2 | Stable | |||
Moody’s | Baa2 | P-2 | Stable | |||
Fitch Ratings | BBB | F-2 | Stable | |||
(In millions) | Third quarter 2014 | Year ended 2013 | ||||||
Effect of a 10% change in Market Price: | ||||||||
Grains & Oilseeds | $ | 5 | $ | 3 | ||||
Energy | 3 | 3 | ||||||
Other Commodities | 1 | 2 | ||||||
Quarter ended March 29, 2014 | Quarter ended March 30, 2013 | |||||||||||||||||||||||
(In millions, except per share data) | Pretax Impact | Net Income (Loss) (2) | Diluted EPS Impact(1) | Pretax Impact | Net Income (Loss) (2) | Diluted EPS Impact(1) | ||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||
Total restructuring actions excluding accelerated depreciation | $ | (16 | ) | $ | (10 | ) | $ | (0.08 | ) | $ | (9 | ) | $ | (5 | ) | $ | (0.05 | ) | ||||||
Accelerated depreciation | (2 | ) | (1 | ) | (0.01 | ) | (3 | ) | (2 | ) | (0.01 | ) | ||||||||||||
Other significant items(*) | (3 | ) | (4 | ) | (0.02 | ) | 5 | 6 | 0.05 | |||||||||||||||
Impact of significant items on income from continuing operations | (21 | ) | (15 | ) | (0.12 | ) | (7 | ) | (1 | ) | (0.01 | ) | ||||||||||||
Impact of significant items on income from discontinued operations (**) | — | — | — | 59 | 47 | 0.38 | ||||||||||||||||||
Impact of significant items on net income (loss) | $ | (21 | ) | $ | (15 | ) | $ | (0.12 | ) | $ | 52 | $ | 46 | $ | 0.37 | |||||||||
Impact of significant items on income (loss) from continuing operations before income taxes: | ||||||||||||||||||||||||
Cost of sales | $ | (2 | ) | $ | (2 | ) | ||||||||||||||||||
Selling, general and administrative expenses | (14 | ) | (3 | ) | ||||||||||||||||||||
Impairment charges | — | (1 | ) | |||||||||||||||||||||
Exit and business dispositions | (5 | ) | (1 | ) | ||||||||||||||||||||
Total | $ | (21 | ) | $ | (7 | ) | ||||||||||||||||||
Diluted earnings per share – continuing operations: | ||||||||||||||||||||||||
As reported | $ | 0.34 | $ | 0.34 | ||||||||||||||||||||
Less: impact of significant items | (0.12 | ) | (0.01 | ) | ||||||||||||||||||||
Adjusted earnings per share | $ | 0.46 | $ | 0.35 | ||||||||||||||||||||
(1) | EPS amounts are rounded to the nearest $0.01 and may not add to the total. |
(2) | Taxes computed at applicable statutory rates. |
Nine Months Ended March 29, 2014 | Nine Months Ended March 30, 2013 | |||||||||||||||||||||||
(In millions, except per share data) | Pretax Impact | Net Income (Loss) (2) | Diluted EPS Impact(1) | Pretax Impact | Net Income (Loss) (2) | Diluted EPS Impact(1) | ||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||
Total restructuring actions excluding accelerated depreciation | $ | (51 | ) | $ | (32 | ) | $ | (0.25 | ) | $ | (30 | ) | $ | (19 | ) | $ | (0.15 | ) | ||||||
Accelerated depreciation | (12 | ) | (7 | ) | (0.06 | ) | (24 | ) | (15 | ) | (0.12 | ) | ||||||||||||
Other significant items(*) | (2 | ) | 42 | 0.34 | 2 | 4 | 0.03 | |||||||||||||||||
Impact of significant items on income from continuing operations | (65 | ) | 3 | 0.02 | (52 | ) | (30 | ) | (0.25 | ) | ||||||||||||||
Impact of significant items on income from discontinued operations (**) | 2 | 1 | 0.01 | 61 | 53 | 0.43 | ||||||||||||||||||
Impact of significant items on net income (loss) | $ | (63 | ) | $ | 4 | $ | 0.03 | $ | 9 | $ | 23 | $ | 0.19 | |||||||||||
Impact of significant items on income (loss) from continuing operations before income taxes: | ||||||||||||||||||||||||
Cost of sales | $ | (11 | ) | $ | (6 | ) | ||||||||||||||||||
Selling, general and administrative expenses | (39 | ) | (38 | ) | ||||||||||||||||||||
Impairment charges | — | (1 | ) | |||||||||||||||||||||
Exit and business dispositions | (15 | ) | (7 | ) | ||||||||||||||||||||
Total | $ | (65 | ) | $ | (52 | ) | ||||||||||||||||||
Diluted earnings per share – continuing operations: | ||||||||||||||||||||||||
As reported | $ | 1.49 | $ | 1.21 | ||||||||||||||||||||
Less: impact of significant items | 0.02 | (0.25 | ) | |||||||||||||||||||||
Adjusted earnings per share | $ | 1.47 | $ | 1.46 | ||||||||||||||||||||
(1) | EPS amounts are rounded to the nearest $0.01 and may not add to the total. |
(2) | Taxes computed at applicable statutory rates. |
• | 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, Hillshire Brands' ability to increase or maintain product prices in response to cost fluctuations and the impact on profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Hillshire Brands products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties related to execution and trade and consumer acceptance; |
• | Hillshire Brands' relationship with its customers, such as (i) a significant change in Hillshire Brands' business with any of its major customers, such as Wal-Mart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment; |
• | Hillshire Brands' spin-off of its international coffee and tea business in June 2012, including potential tax liabilities and other indemnification obligations; and |
• | Other factors, such as (i) Hillshire Brands' ability to generate margin improvement through cost reduction and productivity improvement initiatives; (ii) Hillshire Brands' credit ratings, the impact of Hillshire Brands' capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Hillshire Brands' cost to borrow funds and access to capital/debt markets; and (iii) the settlement of a number of ongoing reviews of Hillshire Brands' income tax filing positions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Hillshire Brands transacts business. |
• | notes to the unaudited pro forma condensed consolidated financial information; |
• | Tyson’s Current Report on Form 8-K filed on July 2, 2014, including exhibits thereto, which describes the Hillshire acquisition; |
• | audited consolidated financial statements of Tyson as of and for the year ended September 28, 2013, which are included in Tyson’s Current Report on Form 8-K filed with the SEC on July 28, 2014; |
• | audited consolidated financial statements of Hillshire as of and for the year ended June 29, 2013, which are included in Exhibit 99.1 contained herein; |
• | unaudited condensed consolidated financial statements of Tyson as of and for the six months ended March 29, 2014, which are included in Tyson’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, as filed with the SEC; and |
• | unaudited condensed consolidated financial statements of Hillshire as of and for the nine months ended March 29, 2014, which are included in Exhibit 99.2 contained herein. |
Unaudited Pro Forma Condensed Consolidated Balance Sheet | |||||||||||||||
As of March 29, 2014 | |||||||||||||||
(in millions) | |||||||||||||||
Tyson | Hillshire | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Pro Forma | ||||||||||||
Assets | |||||||||||||||
Current Assets | |||||||||||||||
Cash and cash equivalents | $ | 438 | $ | 219 | $ | (314 | ) | (1) | $ | 343 | |||||
Accounts receivable, net | 1,548 | 205 | — | 1,753 | |||||||||||
Inventories | 2,968 | 300 | 45 | (2) | 3,313 | ||||||||||
Other current assets | 230 | 374 | 139 | (3) | 743 | ||||||||||
Total Current Assets | 5,184 | 1,098 | (130 | ) | 6,152 | ||||||||||
Net Property, Plant and Equipment | 4,105 | 814 | 445 | (4) | 5,364 | ||||||||||
Goodwill | 1,925 | 371 | 4,103 | (5) | 6,399 | ||||||||||
Intangible Assets | 156 | 134 | 5,057 | (6) | 5,347 | ||||||||||
Other Assets | 516 | 114 | (19 | ) | (7) | 611 | |||||||||
Total Assets | $ | 11,886 | $ | 2,531 | $ | 9,456 | $ | 23,873 | |||||||
Liabilities and Shareholders' Equity | |||||||||||||||
Current Liabilities | |||||||||||||||
Current debt | $ | 52 | $ | 102 | $ | 262 | (8) | $ | 416 | ||||||
Accounts payable | 1,429 | 306 | — | 1,735 | |||||||||||
Other current liabilities | 1,024 | 323 | (63 | ) | (9) | 1,284 | |||||||||
Total Current Liabilities | 2,505 | 731 | 199 | 3,435 | |||||||||||
Long-Term Debt | 1,888 | 840 | 5,737 | (8) | 8,465 | ||||||||||
Deferred Income Taxes | 444 | — | 2,032 | (10) | 2,476 | ||||||||||
Other Liabilities | 585 | 359 | — | 944 | |||||||||||
Commitments and Contingencies | |||||||||||||||
Shareholders' Equity | |||||||||||||||
Common Stock | |||||||||||||||
Class A | 32 | 1 | 1 | (11) | 34 | ||||||||||
Class B | 7 | — | — | 7 | |||||||||||
Capital in excess of par value | 2,181 | 188 | 1,970 | (11) | 4,339 | ||||||||||
Retained earnings | 5,407 | 603 | (674 | ) | (11) | 5,336 | |||||||||
Accumulated other comprehensive loss | (103 | ) | (140 | ) | 140 | (11) | (103 | ) | |||||||
Unearned stock of ESOP | — | (51 | ) | 51 | (11) | — | |||||||||
Treasury stock, at cost | (1,088 | ) | — | — | (1,088 | ) | |||||||||
Total Registrant Shareholders' Equity | 6,436 | 601 | 1,488 | 8,525 | |||||||||||
Noncontrolling Interests | 28 | — | — | 28 | |||||||||||
Total Shareholders' Equity | 6,464 | 601 | 1,488 | 8,553 | |||||||||||
Total Liabilities and Shareholders' Equity | $ | 11,886 | $ | 2,531 | $ | 9,456 | $ | 23,873 | |||||||
Unaudited Pro Forma Condensed Consolidated Statements of Income | |||||||||||||||
For the Twelve Months Ended | |||||||||||||||
(in millions, except per share data) | |||||||||||||||
Tyson | Hillshire | ||||||||||||||
Historical | Historical | Pro Forma | |||||||||||||
September 28, 2013 | June 29, 2013 | Adjustments | Pro Forma | ||||||||||||
Sales | $ | 34,374 | $ | 3,920 | $ | (63 | ) | (12) | $ | 38,231 | |||||
Cost of Sales | 32,016 | 2,758 | 166 | (13) | 34,940 | ||||||||||
Gross Profit | 2,358 | 1,162 | (229 | ) | 3,291 | ||||||||||
Selling, General and Administrative | 983 | 865 | (200 | ) | (14) | 1,648 | |||||||||
Operating Income | 1,375 | 297 | (29 | ) | 1,643 | ||||||||||
Other (Income) Expense | |||||||||||||||
Interest Income | (7 | ) | (7 | ) | — | (14 | ) | ||||||||
Interest Expense | 145 | 48 | 177 | (15) | 370 | ||||||||||
Other, net | (20 | ) | — | — | (20 | ) | |||||||||
Total Other (Income) Expense | 118 | 41 | 177 | 336 | |||||||||||
Income from Continuing Operations before Income Taxes | 1,257 | 256 | (206 | ) | 1,307 | ||||||||||
Income Tax Expense | 409 | 72 | (78 | ) | (10) | 403 | |||||||||
Income from Continuing Operations | 848 | 184 | (128 | ) | 904 | ||||||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — | — | — | — | |||||||||||
Net Income from Continuing Operations Attributable to Registrant | $ | 848 | $ | 184 | $ | (128 | ) | $ | 904 | ||||||
Weighted Average Shares Outstanding: | |||||||||||||||
Class A Basic | 282 | 56 | (16) | 338 | |||||||||||
Class B Basic | 70 | 70 | |||||||||||||
Diluted | 367 | 62 | (16) | 429 | |||||||||||
Net Income per Share from Continuing Operations | |||||||||||||||
Class A Basic | $ | 2.46 | $ | 2.25 | |||||||||||
Class B Basic | $ | 2.22 | $ | 2.07 | |||||||||||
Diluted | $ | 2.31 | $ | 2.11 | |||||||||||
Unaudited Pro Forma Condensed Consolidated Statements of Income | |||||||||||||||
For the Six Months Ended | |||||||||||||||
(in millions, except per share data) | |||||||||||||||
Tyson | Hillshire | ||||||||||||||
Historical | Historical | Pro Forma | |||||||||||||
March 29, 2014 | March 29, 2014 | Adjustments | Pro Forma | ||||||||||||
Sales | $ | 17,793 | $ | 2,037 | $ | (38 | ) | (12) | $ | 19,792 | |||||
Cost of Sales | 16,457 | 1,431 | 77 | (13) | 17,965 | ||||||||||
Gross Profit | 1,336 | 606 | (115 | ) | 1,827 | ||||||||||
Selling, General and Administrative | 563 | 414 | (99 | ) | (14) | 878 | |||||||||
Operating Income | 773 | 192 | (16 | ) | 949 | ||||||||||
Other (Income) Expense | |||||||||||||||
Interest Income | (5 | ) | (5 | ) | — | (10 | ) | ||||||||
Interest Expense | 53 | 24 | 86 | (15) | 163 | ||||||||||
Other, net | 1 | — | — | 1 | |||||||||||
Total Other (Income) Expense | 49 | 19 | 86 | 154 | |||||||||||
Income from Continuing Operations before Income Taxes | 724 | 173 | (102 | ) | 795 | ||||||||||
Income Tax Expense | 262 | 17 | (39 | ) | (10) | 240 | |||||||||
Income from Continuing Operations | 462 | 156 | (63 | ) | 555 | ||||||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interests | (5 | ) | — | — | (5 | ) | |||||||||
Net Income from Continuing Operations Attributable to Registrant | $ | 467 | $ | 156 | $ | (63 | ) | $ | 560 | ||||||
Weighted Average Shares Outstanding: | |||||||||||||||
Class A Basic | 272 | 56 | (16) | 328 | |||||||||||
Class B Basic | 70 | 70 | |||||||||||||
Diluted | 355 | 62 | (16) | 417 | |||||||||||
Net Income per Share from Continuing Operations | |||||||||||||||
Class A Basic | $ | 1.40 | $ | 1.43 | |||||||||||
Class B Basic | $ | 1.26 | $ | 1.31 | |||||||||||
Diluted | $ | 1.32 | $ | 1.34 | |||||||||||
a) | an assumed $1,306 aggregate principal amount of 3-year floating rate term loans with an amortizing base equal to 2.50% per quarter and with an assumed interest rate of 1.60%; |
b) | an assumed $594 aggregate principal amount of 5-year floating rate term loans with an amortizing base equal to 2.50% per quarter and with an assumed interest rate of 1.75%; |
c) | an assumed $600 aggregate principal amount of 5-year floating rate term loans, with an assumed interest rate of 1.75%; |
d) | an assumed $3,250 aggregate principal amount of 5, 10, and 30-year fixed rate senior notes, with an assumed stated weighted average interest rate of 3.91%; |
e) | an assumed $949 issuance of common stock, at an assumed offering price of $39.54 per share (which was the closing price of Tyson’s common stock on The New York Stock Exchange on July 25, 2014), which would result in the issuance of approximately 24.0 million shares of common stock (assuming no exercise of the underwriters’ option to purchase additional shares of common stock) and an increase in pro forma weighted-average shares outstanding by such amount of shares; |
f) | an assumed $1,500 issuance of tangible equity units, assumed to be comprised of $1,280 of prepaid stock purchase contracts and $220 of senior amortizing notes. The prepaid stock purchase contracts are assumed to have a “reference price” equal to $39.54 per share (which was the closing price of Tyson’s common stock on The New York Stock Exchange on July 25, 2014), such that the maximum number of shares issuable on the July 15, 2017 settlement date (which would be subject to postponement in certain limited circumstances) would be approximately 37.9 million and an increase in pro forma weighted-average shares outstanding by such amount of shares. The senior amortizing notes are assumed to have a stated interest rate of 1.5%. |
• | Each 0.125% increase (decrease) in each of the respective stated interest rates assumed above for the term loans, senior notes, and senior amortizing notes would increase (decrease) pro forma interest expense by approximately $7 for the year ended September 28, 2013 and approximately $3 for the six months ended March 29, 2014, and would decrease (increase) pro forma earnings per share (basic and diluted) by $0.01 per share for the year ended September 28, 2013 and by less than $0.01 per share for the six months ended March 29, 2014 (assuming the principal balances and the pro forma weighted-average shares outstanding do not change from those assumed as described herein); |
• | Each $100 increase (decrease) in the principal amount of the term loans would increase (decrease) pro forma interest expense by approximately $2 for the year ended September 28, 2013 and approximately $1 for the six months ended March 29, 2014 and would decrease (increase) pro forma earnings per share (basic and diluted) by less than $0.01 per share for the year ended September 28, 2013 and the six months ended March 29, 2014 (assuming the stated interest rates on the term loans and the pro forma weighted-average shares outstanding do not change from those assumed as described herein); |
• | Each $100 increase (decrease) in the principal amount of the senior notes would increase (decrease) pro forma interest expense by approximately $4 for the year ended September 28, 2013 and approximately $2 for the six months ended March 29, 2014 and would decrease (increase) pro forma earnings per share (basic and diluted) by approximately $0.01 per share for the year ended September 28, 2013 and by less than $0.01 per share for the six months ended March 29, 2014 (assuming the stated interest rates on the senior notes and the pro forma weighted-average shares outstanding do not change from those assumed as described herein); |
• | Each $100 increase (decrease) in the amount of common stock issued would increase (decrease) pro forma weighted average shares outstanding by approximately 2.5 million shares and would decrease (increase) pro forma earnings per share (basic and diluted) by approximately $0.01 per share for the year ended September 28, 2013 and the six months ended March 29, 2014 (assuming the offering price per share of common stock does not change from that assumed as described herein); |
• | Each $1.00 increase (decrease) in the assumed offering price of the common stock of $39.54 per share (which was the closing price of Tyson’s common stock on The New York Stock Exchange on July 25, 2014), would, in the aggregate, decrease (increase) pro forma weighted-average shares outstanding by approximately 0.6 million shares, and would increase (decrease) pro forma earnings per share (basic and diluted) by less than $0.01 for the year ended September 28, 2013 and the six months ended March 29, 2014, respectively (assuming the aggregate dollar amount of common stock issued does not change from that assumed as described herein); |
• | Each $100 increase (decrease) in the amount of tangible equity units issued would increase (decrease) pro forma interest expense by approximately $0.2 for the year ended September 28, 2013 and approximately $0.1 for the six months ended March 29, 2014, would increase (decrease) pro forma weighted-average shares outstanding by approximately 2.5 million shares, and would decrease (increase) pro forma earnings per share (basic and diluted) by approximately $0.01 per share for the year ended September 28, 2013 and the six months ended March 29, 2014, respectively (assuming the stated interest rate on the senior amortizing notes, the “reference price” for the prepaid stock purchase contracts component of the tangible equity units, and the ratio of the amount of the prepaid stock purchase contracts to the amount of the senior amortizing notes do not change from that assumed as described herein); |
• | Each $1.00 increase (decrease) in the assumed “reference price” of the prepaid stock purchase contracts of $39.54 per share (which was the closing price of Tyson’s common stock on The New York Stock Exchange on July 25, 2014), would, in the aggregate, decrease (increase) pro forma weighted-average shares outstanding by approximately 0.9 million shares, and would increase (decrease) pro forma earnings per share (basic and diluted) by less than $0.01 for the year ended September 30, 2013 and the six months ended March 31, 2014, respectively (assuming the aggregate dollar amounts of the prepaid stock purchase contract components of the tangible equity units to be issued do not change from those assumed as described herein). |
Total consideration (includes closing consideration, $163 breakage costs incurred by Hillshire related to a previously proposed acquisition and $43 change in control related costs) | $ | 8,287 | ||
Historical net book value of Hillshire | $ | 601 | ||
Preliminary valuation adjustment to inventories | 45 | |||
Preliminary valuation adjustment for other assets | 51 | |||
Preliminary valuation adjustment for property, plant and equipment | 445 | |||
Preliminary valuation adjustment to identifiable intangible assets | 5,057 | |||
Preliminary valuation adjustment to debt | (29 | ) | ||
Deferred and current tax impact of preliminary valuation adjustments | (1,983 | ) | ||
Write-off of deferred financing fees of Hillshire's existing debt | (3 | ) | ||
Residual adjustment to goodwill created by the business combination | 4,103 | |||
Total acquisition cost | $ | 8,287 | ||
Sources of cash | ||||
Cash on hand | $ | 314 | ||
Term loans - 3 year (amortizing) | 1,306 | |||
Term loans - 5 year (amortizing) | 594 | |||
Term loans - 5 year | 600 | |||
Senior notes - 5, 10 and 30 year | 3,250 | |||
Common Equity | 949 | |||
Tangible Equity Units (a) | 1,500 | |||
Total sources of cash | $ | 8,513 | ||
Uses of cash | ||||
Fund Hillshire acquisition | $ | 8,081 | ||
Breakage cost | 163 | |||
Change in control cost | 43 | |||
Other estimated transaction fees and expenses | 226 | |||
Total uses of cash | $ | 8,513 | ||
a) | For purposes of the pro forma financial information, the tangible equity units were assumed to consist of $1,280 of prepaid stock purchase contracts accounted for as equity and $220 of senior amortizing notes accounted for as debt. |
1) | After consideration of the expected financing transactions and related fees, Tyson estimates it will use $314 of cash on hand to consummate the Hillshire Acquisition. |
2) | Reflects the adjustment of Hillshire’s inventory to its preliminary estimated fair value. |
3) | Reflects a $51 reclass of Hillshire's equity for an amount owed to Hillshire from its ESOP that will be collected upon the ESOP's dissolution concurrent with the closing of the acquisition. Additionally, reflects the estimated tax benefit effect totaling $151 for certain transaction related fees and costs and a reduction of $63 for a reclass of current deferred tax liability to current deferred tax asset as described in note (9). |
4) | Reflects the adjustment of Hillshire’s property, plant and equipment to its preliminary estimated fair value. |
5) | Represents the incremental goodwill resulting from purchase accounting after estimating the fair value of the identifiable assets acquired and liabilities assumed. See “Hillshire Acquisition Transaction Summary” above. |
6) | For purposes of the preliminary fair value determination discussed in “Hillshire Acquisition Transaction Summary” above, Tyson estimated the fair value of Hillshire’s identifiable intangible assets at $5,191 including approximately $4,652 of brand and trademark related intangibles and approximately $539 of customer relationship intangibles representing an increase to the historical net book value of Hillshire’s intangible assets of $5,057. For purposes of determining incremental pro forma amortization expense to be recorded in the unaudited pro forma condensed consolidated statements of income, $4,363 of the brand names were assumed to have an indefinite life, $289 of the brand names were assumed to have a 20-year life to be amortized on a straight-line basis, and the customer relationship intangible assets were assumed to have a weighted average life of approximately 16 years to be amortized on a declining basis based on economic benefit derived over that period. |
7) | Represents the net impact of reversing $3 of deferred financing fees recorded on Hillshire's historical balance sheet for debt instruments and recording $48 of estimated issuance costs to be incurred on the debt to be issued to finance the transaction. Additionally, $64 of Hillshire's non-current deferred tax asset was reclassified to non-current deferred tax liability. |
8) | Current debt adjustment represents amounts expected to be due in the first year on the amortizing term loans and senior amortizing note component of the tangible equity units. Long-term debt reflects a $29 adjustment of Hillshire’s long-term debt to its preliminary estimated fair value and the estimated incremental new debt Tyson expects to incur to finance the Hillshire acquisition less the current portion. The estimated balance of new Tyson debt consists of the following components: term loans of $2,500 ($190 shown as current debt), senior notes of $3,250 and senior amortizing notes component of tangible equity units of $220 ($72 shown as current debt). See "Hillshire Acquisition Transaction Summary - Financing Assumptions" above for various assumptions made with respect to the estimated balances of the new Tyson debt. |
9) | Reflects a reclassification of Tyson's net current deferred tax liability at March 29, 2014 to net against Hillshire's net current deferred tax asset. |
10) | Income tax expense and deferred income tax impacts in the pro forma condensed consolidated balance sheet and condensed consolidated statements of income as a result of purchase accounting have been estimated at Tyson’s incremental statutory tax rate of 38%. Additionally, Deferred Income Taxes includes a reduction of $63 for a reclass of current deferred tax liability as described in note (7). |
11) | Reflects adjustments to remove Hillshire’s historical equity accounts to record the acquisition (the total of which is equal to its net book value) and reclass $51 related to a receivable from Hillshire's ESOP as described in note (3). Additionally, includes adjustments to reduce retained earnings to reflect the after tax effect of certain acquisition related expenses as described in notes contained herein, to reduce capital in excess of par value for fees related to equity issuance, and to increase common stock and capital in excess of par value for the estimated net proceeds from the issuance of common stock and the prepaid stock purchase contract component of the tangible equity units. See "Hillshire Acquisition Transaction Summary - Financing Assumptions" above for various assumptions made with respect to estimated proceeds from the issuance of common stock and the prepaid stock purchase contract component of the tangible equity units. |
12) | Sales and Cost of Sales were adjusted to eliminate sales of $63 for the year ended September 28, 2013 and $38 for the six months ended March 29, 2014 between Tyson and Hillshire. |
13) | Reflects the elimination of Cost of Sales for intercompany sales as described in note (12) and an adjustment to reclass shipping and handling costs to Cost of Sales from Selling, General and Administrative expense of $249 for the year ended September 28, 2013 and $123 for the six months ended March 29, 2014. The reclass of shipping and handling costs is to conform Hillshire's policy election to record shipping and handling costs in Selling, General and Administrative expense to Tyson's policy to record such costs in Cost of Sales. Additionally, reflects a decrease in depreciation expense of $20 for the year ended September 28, 2013 and $8 for the six months ended March 29, 2014 driven by an extension of the historical useful lives of Hillshire's property, plant and equipment, partially offset by the impact of fair value adjustments to their respective book values. |
14) | Reflects adjustments to reclass shipping and handling costs from Selling, General and Administrative expense to Cost of Sales as described in note (13) and amortization of intangible assets as described in note (6) of $51 for the year ended September 28, 2013 and $25 for the six months ended March 29, 2014. Additionally, reflects a decrease of $2 for the year ended September 28, 2013 and $1 for the six months ended March 29, 2014 for the changes in depreciation expense described in note (13) that are charged to Selling, General and Administrative expense. |
15) | As described in notes herein, Tyson expects to incur new debt to partially finance the Hillshire acquisition. The pro forma adjustments for the year ended September 28, 2013 and the six months ended March 29, 2014, reflect incremental interest expense, including amortization of deferred financing fees using the effective interest method, for new debt expected to be incurred by Tyson. |
16) | As described in notes herein, Tyson intends to issue common stock and tangible equity units to partially finance the Hillshire acquisition. Tyson intends to raise $949 from the issuance of common stock and $1,280 from the issuance of the prepaid stock purchase contract component of the tangible equity units. Based on the closing market price of Tyson common stock on July 25, 2014 of $39.54 per share and the assumed "reference price" and maximum conversion rate for the stock purchase contracts for diluted shares (and the minimum conversion rate for basic shares), Tyson estimated the issuance of common stock and tangible equity units would result in a 56 million share increase to pro forma basic shares outstanding and 62 million share increase to pro forma diluted shares outstanding for both the year ended September 28, 2013 and the six months ended March 29, 2014. See “Hillshire Acquisition Transaction Summary - Financing Assumptions” above for various assumptions made with respect to the estimated proceeds from the issuance of common stock and the prepaid stock purchase contract component of the tangible equity units. |