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.

North American Operations:

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. The sale also includes a small portion of business that is part of the North American Foodservice and Specialty Meats segment which is not reflected as discontinued operations as it does not meet the definition of a component pursuant to the accounting rules. On October 21, 2011, the company announced an agreement with Grupo Bimbo and the Department of Justice that allowed the parties to complete the sale. It included certain remedies requiring Grupo Bimbo to divest certain brands, assets and perpetual rights in various regions, which resulted in a reduction of the purchase price to $709 million. The transaction closed on November 4, 2011 and Sara Lee received $717 million, which included working capital and other purchase price adjustments. The company entered into a customary transition services agreement with the purchaser of this business to provide for the orderly separation of the business and transition of various administrative functions and processes. The services agreement is for a period of one year but may be extended up to an additional two years.

The buyer of the North American Fresh Bakery business assumed all the pension and postretirement medical liabilities associated with these businesses, including any multi-employer pension liabilities. An actuarial analysis under ERISA guidelines is being performed to determine the final plan assets that should be transferred to support the pension liabilities assumed by the buyer. The actuarial analysis, which is expected to be completed during the third quarter of 2012, may result in an adjustment to the funded status of the pension plans transferred to the buyer, which would result in an adjustment to the purchase price but not impact the gain on sale. The transfer of the benefit plan liabilities to the buyer resulted in the recognition of a $34 million settlement loss related to the defined benefit pension plans and a $71 million settlement gain and a $44 million curtailment gain related to the postretirement benefit plans. These amounts, which are subject to change based on the final actuarial analysis, have been included in the gain on disposition of this business.

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 (Smuckers) for $350 million and the transaction closed on December 31, 2011 resulting in a pretax gain of $222 million. The company received $376 million of proceeds, which included a working capital adjustment, shortly after the end of the quarter. As a result, the company established a receivable for the proceeds which is reported in the current asset section of the Condensed Consolidated Balance Sheet at December 31, 2011. The company entered into a customary transition services agreement with Smuckers to provide for the orderly separation of the business and the transition of various administrative functions and processes. 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. The company performed an updated impairment analysis for the remaining assets for sale in North American Foodservice beverage and recognized a pretax impairment charge of $6 million in the second quarter to 2012 which has been recognized in the operating results for discontinued operations. The company has also recognized exit related costs for this business which is included in the operating results for discontinued operations. Once the transition services agreement with Smuckers is complete and any residual assets of the North American Foodservice Beverage component are sold, additional exit related costs are expected to be recognized.

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. Although the transaction closed in the first quarter of 2012, the company did not receive the $552 million of proceeds, which included working capital adjustments, until the second quarter of 2012. 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.

International Operations:

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 a first quarter 2012 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. In the second quarter of 2012, the impairment was increased by $8 million resulting in a total impairment charge of $379 million in 2012. A tax benefit of $38 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 and closed the transaction in the second quarter, recognizing a pretax gain of $15 million. In the second quarter of 2012, the corporation announced that it was considering a binding offer for the sale of the French refrigerated dough business for €115 million. The disposition of this business closed in the third quarter of 2012.

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. Due to competition concerns raised by the European Commission, the two parties abandoned the transaction as originally agreed but were able to complete the sale of the insecticides businesses outside the European Union (Malaysia, Singapore, Kenya and Russia) as well as a limited number of businesses inside the European Union in 2012. The company also divested the remaining insecticides businesses inside the European Union to another buyer and transferred the net proceeds received from the divestiture of those businesses to SC Johnson. The company recognized a pretax gain of $256 million on the dispositions. The company will no longer recognize any revenues related to the insecticides business after the end of the second quarter of 2012.

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 six months of 2012, the company closed on the sale of its shoe care business in Malaysia and China and received $54 million of proceeds, which included working capital adjustments.

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. The transaction closed subsequent to the end of the second quarter and as such, the final gain on the sale of this facility will be recognized in the third quarter of 2012.

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


	Second Quarter 2012								Second Quarter 2011
(In millions)	Net Sales		Pretax Income (Loss)			Net Income (Loss)			Net Sales		Pretax Income (Loss)			Net Income (Loss)
North American Fresh Bakery	$	195	$	8		$	74		$	487	$	2		$	229
North American Foodservice Beverage		165		(5	)		(6	)		146		6			4
North American Refrigerated Dough		—		—			—			95		19			12
European Bakery		115		(11	)		(4	)		150		6			3
International Household and Body Care		40		3			1			365		23			7

Total	$	515	$	(5	)	$	65		$	1,243	$	56		$	255


	First Six Months 2012								First Six Months 2011
(In millions)	Net Sales		Pretax Income (Loss)			Net Income (Loss)			Net Sales		Pretax Income (Loss)			Net Income (Loss)
North American Fresh Bakery	$	724	$	29		$	144		$	1,004	$	(1	)	$	227
North American Foodservice Beverage		302		(5	)		(3	)		257		5			3
North American Refrigerated Dough		74		13			9			166		28			18
European Bakery		263		(385	)		(360	)		300		12			8
International Household and Body Care		109		8			2			772		81			43

Total	$	1,472	$	(340	)	$	(208	)	$	2,499	$	125		$	299

In the first six months of 2012, the results of the discontinued operations includes a $189 million tax benefit ($71 million for the quarter) related to tax basis differences associated with the North American Fresh Bakery assets.

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


	Second Quarter 2012								First Six Months 2012
(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	$	105	$	(37	)	$	68		$	105	$	(37	)	$	68
North American Foodsrv. Beverage		222		(77	)		145			222		(77	)		145
North American Refrigerated Dough		—		—			—			198		(158	)		40
European Bakery		15		(5	)		10			15		(5	)		10
Non-European insecticides		196		(44	)		152			256		(56	)		200
Other Household and Body Care		2		(6	)		(4	)		6		(6	)		—

Total	$	540	$	(169	)	$	371		$	802	$	(339	)	$	463


	Second Quarter 2011								First Six Months 2011
(In millions)	Pretax Gain on Sale		Tax (Expense) Benefit			After Tax Gain			Pretax Gain on Sale		Tax (Expense) Benefit			After Tax Gain
Air Care Products	$	15	$	(13	)	$	2		$	270	$	(179	)	$	91
Body Care and European Detergents		870		(383	)		487			870		(383	)		487
Other Household and Body Care		1		—			1			1		—			1

Total	$	886	$	(396	)		490		$	1,141	$	(562	)	$	579

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 December 31, 2011 and July 2, 2011:


(In millions)	Dec. 31, 2011		July 2, 2011
Trade accounts receivable	$	36	$	273
Inventories		36		176
Other current assets		6		54

Total current assets held for sale		78		503

Property		54		825
Trademarks and other intangibles		—		303
Goodwill		—		800
Other assets		23		(26	)

Assets held for sale	$	155	$	2,405

Accounts payable	$	22	$	213
Accrued expenses and other current liabilities		48		263
Current maturities of long-term debt		—		16

Total current liabilities held for sale		70		492
Long-term debt		—		80
Other liabilities		3		204

Liabilities held for sale	$	73	$	776

Noncontrolling interest	$	—	$	29

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


(In millions) – Increase / (Decrease)	Six Months ended Dec. 31, 2011			Six Months ended Jan. 1, 2011
Cash flow from operating activities	$	(46	)	$	199
Cash flow from (used in) investing activities		1,424			1,940
Cash flow from (used in) financing activities		(1,378	)		(2,139	)

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 2012 primarily represents the cash proceeds received on the sale of the North American fresh bakery and refrigerated dough businesses. 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.