Discontinued Operations

3 Months Ended

Oct. 01, 2011

Discontinued Operations [Abstract]

Discontinued Operations

4. Discontinued Operations

The businesses that formerly comprised the North American Fresh Bakery and the International Household and Body Care segments; as well as the refrigerated dough and foodservice beverage operations in North America, which were previously reported as part of the North American Foodservice segment; and the European bakery operations, which were previously reported as part of the International Bakery segment are classified as discontinued operations and are presented in a separate line in the Consolidated Statements of Income for all periods presented. The assets and liabilities for the businesses to be sold meet the accounting criteria to be classified as held for sale and have been aggregated and reported on a separate line of the Condensed Consolidated Balance Sheet for all periods presented.

The company entered into an agreement to sell all of its non-Indian insecticides business for €154 million to SC Johnson and received a deposit of €152 million in December 2010 on the sale of these businesses. The deposit was recognized as unrestricted cash, with an offsetting liability to the buyer until the deal closes. Due to competition concerns raised by the European Commission, the parties abandoned the transaction as originally agreed. Sara Lee and SC Johnson are allowed to complete the sale of the insecticides businesses outside the European Union (Malaysia, Singapore, Kenya and Russia) as well as a limited amount of businesses inside the European Union. In July 2011, Sara Lee closed on the sale of the non-European insecticides businesses and in October 2011, subsequent to the end of the quarter, it closed on the sale of certain European insecticides businesses to SC Johnson. The company has also entered into an agreement to divest the remaining insecticides businesses inside the European Union to another buyer and will transfer the net proceeds received from the divestiture of those European businesses to SC Johnson when the deal closes. It expects to complete the sale of these businesses by the end of the second quarter of 2012.

On November 9, 2010, the corporation signed an agreement to sell its North American fresh bakery business to Grupo Bimbo for $959 million, which included the assumption of $34 million of debt. On October 21, 2011, the company announced that it had reached an agreement with Grupo Bimbo and the Department of Justice that will allow the parties to complete the sale. The agreement includes certain remedies requiring Grupo Bimbo to divest certain brands, assets and perpetual rights in various regions. As a result of these remedies, the parties have agreed to reduce the purchase price from $959 million to $709 million, which includes the assumption of debt. This transaction closed on November 5, 2011.

In the fourth quarter of 2011, steps were taken to market and dispose of the North American refrigerated dough business. On August 9, 2011, the company announced it had entered into an agreement to sell its North American refrigerated dough business to Ralcorp for $545 million. The transaction closed on October 1, 2011 but the proceeds, which included working capital adjustments, of $552 million were not received until subsequent to quarter end. The company established a receivable for the proceeds which is reported in the current asset section of the Condensed Consolidated Balance Sheet at October 1, 2011. The corporation entered into a customary transitional services agreement with the purchaser of this business to provide for the orderly separation of the business and the orderly transition of various functions and processes.

In May 2011, the company completed the sale of the majority of its shoe care businesses. Certain other shoe care businesses were to be sold on a delayed basis. In the first quarter of 2012, the company closed on the sale of its Malaysian shoe care business and received $2 million of proceeds. The company anticipates receiving approximately $70 million to $80 million more in future proceeds on delayed sales and working capital adjustment from the buyer.

In July 2010, the company sold a majority of its air care products business. When this business was sold, certain operations were retained in Spain, until production related to non-air care businesses ceases at the facility. Sara Lee will continue to manufacture air care products for the buyer for approximately 2 additional months during the second quarter of 2012, at which point the production facility will be sold to the buyer and the final gain on the sale will be recognized.

In the third quarter of 2011, management indicated that its International Bakery operations were under strategic review. The asset disposal groups comprising the International Bakery operations were tested for impairment under the held and used model in 2011 and it was determined no impairment was necessary. During the first quarter of 2012, management decided to divest the Spanish bakery and French refrigerated dough businesses, collectively referred to as European bakery, requiring that these businesses be tested for impairment under the available for sale model. Based on an estimate of the anticipated proceeds for these businesses, the corporation recognized a pretax impairment charge of $371 million for the Spanish bakery and French refrigerated dough businesses. A tax benefit of $35 million was recognized on these impairment charges. On October 10, 2011, the company announced that it had signed an agreement to sell the Spanish bakery business to Grupo Bimbo for €115 million. In the second quarter of 2012, the corporation announced that it is considering a binding offer for the sale of the French refrigerated dough business for €115 million.

In the first quarter of 2012, steps were taken to market and dispose of the North American foodservice beverage business. As such, the results of this component are classified as discontinued operations in the Condensed Consolidated Income Statement and the net assets are reported as available for sale on the consolidated balance sheet for all periods presented. On October 24, 2011, the company announced that it had entered into an agreement to sell the majority of its North American foodservice beverage operations to the J.M. Smucker Company for $350 million. The transaction is expected to close in the second quarter of 2012. Sara Lee also entered into a 10 year partnership to collaborate on liquid coffee innovation that will pay Sara Lee approximately $50 million plus growth-related royalties over the 10 year period. While this arrangement will provide a continuation of cash flows subsequent to the divestiture, it does not represent significant continuing cash flows or significant continuing involvement that would preclude classification of the North American foodservice beverage component as a discontinued operation. Sara Lee plans to sell or close the remaining assets of the North American foodservice beverage business.

The following is a summary of the operating results of the corporation's discontinued operations:

	First Quarter 2012								First Quarter 2011
(In millions)	Net Sales		Pretax Income (Loss)			Net Income (Loss)			Net Sales		Pretax Income (Loss)			Net Income (Loss)
International Household and Body Care	$	69	$	4		$	—		$	408	$	58		$	37
North American Fresh Bakery		528		21			70			516		(3	)		(2	)
North American Refrigerated Dough		74		13			9			71		9			6
North American Foodservice Beverage		137		—			3			111		(1	)		(1	)
European Bakery		149		(373	)		(355	)		150		6			4
Total	$	957	$	(335	)	$	(273	)	$	1,256	$	69		$	44

The following is a summary of the gain on sale of the corporation's discontinued operations:

(in millions)	Pretax Gain  on Sale		Tax (Charge)			After Tax Gain
Quarter ended:
Oct. 1, 2011:
North American Refrigerated Dough	$	198	$	(158	)	$	40
Non-European insecticides		60		(12	)		48
Asian Shoe Care		4		—			4
	$	262	$	(170	)	$	92
Oct 2, 2010:
Air Care Products	$	255	$	(166	)	$	89

In 2012, the $158 million tax expense recognized on the sale of the North American refrigerated dough business was impacted by $254 million of goodwill that had no tax basis. The tax expense recognized in 2011 on the sale of Air Care Products includes a $77 million charge related to the anticipated repatriation of the cash proceeds received on the disposition of this business.

The following is a summary of the net assets held for sale as of October 1, 2011 and July 2, 2011:

(In millions)	October 1, 2011		July 2, 2011
Trade accounts receivable	$	295	$	325
Inventories		167		176
Other current assets		49		54
Total current assets held for sale		511		555
Property		622		825
Trademarks and other intangibles		258		303
Goodwill		342		800
Other assets		7		(22	)
Assets held for sale	$	1,740	$	2,461
Accounts payable	$	259	$	262
Accrued expenses and other current liabilities		258		273
Current maturities of long-term debt		16		16
Total current liabilities held for sale		533		551
Long-term debt		77		80
Other liabilities		217		220
Liabilities held for sale	$	827	$	851
Noncontrolling interest	$	29	$	29

The corporation's fresh bakery business enters into franchise agreements with independent third party contractors ("Independent Operators") representing distribution rights to sell and distribute fresh bakery products via direct-store-delivery to retail outlets in defined sales territories. The corporation does not hold equity interests in any of the Independent Operator entities. Independent Operators generally finance the purchase of distribution rights through note agreements with a financial institution, which, in the aggregate, are partially guaranteed by Sara Lee. In addition, the corporation maintains explicit and implicit commitments to maintain the function of routes to ensure product delivery to customers. The corporation determined that all Independent Operators are variable interest entities of which it is the primary beneficiary, primarily as a result of Sara Lee's debt guarantee and other route maintenance obligations.

As a result of consolidating these Independent Operator variable interest entities, the corporation reflected the following in its balance sheets:

(in millions)	October 1, 2011		July 2, 2011
Inventories – Finished goods	$	2	$	2
Property – Machinery and equipment		16		18
Total assets	$	18	$	20
Current portion of long-term debt	$	13	$	13
Long-term debt excluding current portion		46		49
Total liabilities	$	59	$	62
Noncontrolling interests	$	29	$	28

Lease obligations presented within long-term debt captions on the balance sheet are secured by the vehicles subject to lease and do not represent additional claims on the corporation's general assets. The corporation's maximum exposure for loss associated with the Independent Operator entities is limited to the long-term debt of the Independent Operators as of October 1, 2011, which is approximately $50 million.

The discontinued operations cash flows are summarized in the table below:

(In millions) – Increase / (Decrease)	Quarter ended Oct. 1, 2011			Quarter ended Oct. 2, 2010
Cash flow from operating activities	$	14		$	133
Cash flow from (used in) investing activities		(34	)		336
Cash flow from (used in) financing activities		20			(469	)
Increase (decrease) in net cash of discontinued operations		—			—
Cash and cash equivalents at beginning of year		—			—
Cash and cash equivalents at end of period	$	—		$	—

The net cash received from investing activities in 2011 primarily represents the cash proceeds received on the sale of the air care business. The cash used in financing activities in 2011 primarily represents the net transfers of cash with the corporate office. The net assets of the discontinued operations assumes that the cash of those businesses has been retained as a corporate asset.