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Hillshire Brands Co 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
HSH-10Q-3.31.2013

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.2054
 
 
 FORM 10-Q
 
   
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3344
 
 
 
The Hillshire Brands Company
(Exact name of registrant as specified in its charter)
 
 
Maryland
 
36-2089049
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
400 South Jefferson Street, Chicago, Illinois
 
60607
(Address of principal executive offices)
 
(Zip Code)
(312) 614-6000
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer, large accelerated filer, smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
On March 30, 2013, the Registrant had 123,073,293 outstanding shares of common stock, par value $.01 per share.


1


The Hillshire Brands Company
INDEX
 
PART I -
 
ITEM 1 –
FINANCIAL STATEMENTS (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2 –
 
 
 
ITEM 4 –
 
 
 
PART II –
 
 
 
 
 
ITEM 1A –
 
 
 
ITEM 2(c) –
 
 
 
ITEM 6 –
 
 



2




THE HILLSHIRE BRANDS COMPANY
Condensed Consolidated Balance Sheets at March 30, 2013 and June 30, 2012
(Unaudited)
 
In millions
March 30, 2013
 
June 30, 2012
Assets
 
 
 
Cash and equivalents
$
416

 
$
235

Trade accounts receivable, less allowances
206

 
248

Inventories
 
 
 
Finished goods
199

 
196

Work in process
14

 
17

Materials and supplies
103

 
75

 
316

 
288

Current deferred income taxes
105

 
114

Income tax receivable
9

 
52

Other current assets
47

 
65

Total current assets
1,099

 
1,002

Property, net of accumulated depreciation of $1,176 and $1,245, respectively
824

 
847

Trademarks and other identifiable intangibles, net
124

 
132

Goodwill
348

 
348

Deferred income taxes
14

 
36

Other noncurrent assets
77

 
80

Noncurrent assets held for sale

 
5

 
$
2,486

 
$
2,450

Liabilities and Equity
 
 
 
Accounts payable
$
275

 
$
359

Accrued liabilities
416

 
469

Current maturities of long-term debt
19

 
5

Total current liabilities
710

 
833

Long-term debt
930

 
939

Pension obligation
151

 
166

Other liabilities
273

 
277

Contingencies and commitments (Note 10)

 

Equity
 
 
 
Hillshire Brands common stockholders’ equity
422

 
235

 
$
2,486

 
$
2,450

See accompanying Notes to Consolidated Financial Statements.



3





THE HILLSHIRE BRANDS COMPANY
Consolidated Statements of Income
For the Quarter and Nine Months ended March 30, 2013 and March 31, 2012
(Unaudited)
 
 
Quarter ended
 
Nine Months ended
 
March 30, 2013
 
March 31, 2012
 
March 30, 2013
 
March 31, 2012
In millions, except per share data
 
 
(As Restated)
 
 
 
(As Restated)
Continuing Operations
 
 
 
 
 
 
 
Net sales
$
924

 
$
935

 
$
2,958

 
$
2,975

Cost of sales
652

 
675

 
2,060

 
2,144

Selling, general and administrative expenses
205

 
202

 
642

 
646

Net charges for exit activities, asset and business dispositions
1

 
4

 
7

 
70

Impairment charges
1

 

 
1

 
14

Operating income
65

 
54

 
248

 
101

Interest expense
13

 
22

 
35

 
67

Interest income
(2
)
 
(2
)
 
(5
)
 
(4
)
Income from continuing operations before income taxes
54

 
34

 
218

 
38

Income tax expense (benefit)
12

 
7

 
69

 
(4
)
Income from continuing operations
42

 
27

 
149

 
42

Discontinued operations
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax expense (benefit) of $(5), $(29), $(7) and $28
4

 
28

 
13

 
(195
)
Gain (loss) on sale of discontinued operations, net of tax expense of $13, $29, $14 and $367
47

 
(58
)
 
49

 
402

Net income (loss) from discontinued operations
51

 
(30
)
 
62

 
207

Net income (loss)
93

 
(3
)
 
211

 
249

Less: Income from noncontrolling interests, net of tax
 
 
 
 
 
 
 
Discontinued operations

 

 

 
3

Net income (loss) attributable to Hillshire Brands
$
93

 
$
(3
)
 
$
211

 
$
246

Amounts attributable to Hillshire Brands:
 
 
 
 
 
 
 
Net income from continuing operations
42

 
27

 
149

 
42

Net income (loss) from discontinued operations
51

 
(30
)
 
62

 
204

Net income (loss) attributable to Hillshire Brands
$
93

 
$
(3
)
 
$
211

 
$
246

Earnings per share of common stock
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income from continuing operations
$0.34
 
$0.23
 
$1.22
 
$0.36
Net income (loss)
$0.76
 
$(0.02)
 
$1.72
 
$2.08
Average shares outstanding
123

 
119

 
123

 
118

Diluted
 
 
 
 
 
 
 
Income from continuing operations
$0.34
 
$0.23
 
$1.21
 
$0.36
Net income (loss)
$0.75
 
$(0.02)
 
$1.72
 
$2.07
Average shares outstanding
124

 
119

 
123

 
119

Cash dividends declared per share of common stock
$0.125
 
$0.575
 
$0.375
 
$1.150
See accompanying Notes to Consolidated Financial Statements.

4


THE HILLSHIRE BRANDS COMPANY
Condensed Consolidated Statements of Comprehensive Income
For the Quarter and Nine Months ended March 30, 2013 and March 31, 2012
(Unaudited)
 
 
Quarter ended
 
Nine Months ended
In millions
March 30, 2013
 
March 31, 2012
 
March 30, 2013
 
March 31, 2012
 
 
 
(As Restated)
 
 
 
(As Restated)
Net income (loss)
$
93

 
$
(3
)
 
$
211

 
$
249

Translation adjustments, net of tax
(21
)
 
192

 
(20
)
 
75

Net unrealized gain (loss) on qualifying cash flow hedges, net of tax
(3
)
 
(2
)
 
(7
)
 
(12
)
Pension/Postretirement activity, net of tax

 
(8
)
 

 
(10
)
Comprehensive income
69

 
179

 
184

 
302

Comprehensive income attributable to non-controlling interests

 

 

 
3

Comprehensive income attributable to Hillshire Brands
$
69

 
$
179

 
$
184

 
$
299

See accompanying Notes to Consolidated Financial Statements.



5


THE HILLSHIRE BRANDS COMPANY
Condensed Consolidated Statements of Equity
For the period July 2, 2011 to March 30, 2013

(Unaudited)
 
 
 
 
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 2, 2011 (As restated)
$
1,893

 
$
6

 
$
39

 
$
2,161

 
$
(77
)
 
$
(265
)
 
$
29

Net income
848

 

 

 
845

 

 

 
3

Translation adjustments, net of tax
(23
)
 

 

 

 

 
(23
)
 

Net unrealized gain (loss) on qualifying cash flow hedges, net of tax
2

 

 

 

 

 
2

 

Pension/Postretirement activity, net of tax
(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 activity and other
15

 

 
(1
)
 

 
16

 

 

Balances at June 30, 2012
235

 
1

 
144

 
295

 
(61
)
 
(144
)
 

Net income
211

 

 

 
211

 

 

 

Translation adjustments, net of tax
(20
)
 

 

 

 

 
(20
)
 

Net unrealized gain (loss) on qualifying cash flow hedges, net of tax
(7
)
 

 

 

 

 
(7
)
 

Dividends on common stock
(46
)
 

 

 
(46
)
 

 

 

Spin-off of international coffee and tea business
(3
)
 

 

 
(9
)
 

 
6

 

Stock issuances -
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock
2

 

 
2

 

 

 

 

Stock option and benefit plans
46

 

 
46

 

 

 

 

ESOP activity and other
4

 

 
1

 
1

 
2

 

 

Balances at March 30, 2013
$
422

 
$
1

 
$
193

 
$
452

 
$
(59
)
 
$
(165
)
 
$

See accompanying Notes to Consolidated Financial Statements.



6


THE HILLSHIRE BRANDS COMPANY
Consolidated Statements of Cash Flows
For the Nine Months ended March 30, 2013 and March 31, 2012
(Unaudited) 
 
Nine Months ended
 
 
 
March 31, 2012
In millions
March 30, 2013
 
(As Restated)
OPERATING ACTIVITIES -
 
 
 
Net income
$
211

 
$
249

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation
110

 
197

Amortization
13

 
35

Impairment charges
1

 
418

Net (gain) loss on business dispositions
(69
)
 
(769
)
Pension contributions, net of expense
(9
)
 
(196
)
Refundable tax on Senseo payments


 
(43
)
Increase in deferred income taxes
31

 
147

Other
(5
)
 
(41
)
Changes in current assets and liabilities, net of businesses acquired and sold
 
 
 
Trade accounts receivable
32

 
43

Inventories
(42
)
 
(76
)
Other current assets
17

 
34

Accounts payable
(72
)
 
(70
)
Accrued liabilities
(76
)
 
(132
)
Accrued taxes
40

 
64

Net cash received from (used in) operating activities
182

 
(140
)
INVESTING ACTIVITIES -
 
 
 
Purchases of property and equipment
(103
)
 
(193
)
Purchases of software and other intangibles
(4
)
 
(178
)
Acquisition of businesses

 
(29
)
Dispositions of businesses and investments
96

 
2,035

Cash received from derivative transactions
3

 
49

Sales of assets
1

 
2

Net cash received from (used in) investing activities
(7
)
 
1,686

FINANCING ACTIVITIES -
 
 
 
Issuances of common stock
42

 
62

Borrowings of other debt

 
173

Repayments of other debt and derivatives
(5
)
 
(715
)
Net change in financing with less than 90-day maturities

 
(109
)
Purchase of noncontrolling interest

 
(10
)
Payments of dividends
(31
)
 
(203
)
Net cash received from (used in) financing activities
6

 
(802
)
Effect of changes in foreign exchange rates on cash

 
(155
)
Increase in cash and equivalents
181

 
589

Add: Cash balances of discontinued operations at beginning of year

 
1,992

Less: Cash balances of discontinued operations at end of period

 
(2,555
)
Cash and equivalents at beginning of year
235

 
74

Cash and equivalents at end of period
$
416

 
$
100

Supplemental Cash Flow Data:
 
 
 
Cash paid for restructuring actions
$
69

 
$
354

Cash contributions to pension plans
5

 
187

Cash paid for income taxes
5

 
180

See accompanying Notes to Consolidated Financial Statements.

7


THE HILLSHIRE BRANDS COMPANY
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The Hillshire Brands Company is a manufacturer and marketer of high-quality, brand name food products and a leader in meat-centric food solutions for the retail and foodservice markets. References to “we,” “our,” “us,” “Hillshire Brands” and “the company” refer to The Hillshire Brands Company and its consolidated subsidiaries as a whole, unless the context otherwise requires. The company’s reportable segments are Retail and Foodservice/Other.
The consolidated financial statements for the quarter and nine months ended March 30, 2013 and March 31, 2012 have not been audited by an independent registered public accounting firm, but in the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The results of operations for the nine months ended March 30, 2013 are not necessarily indicative of the operating results to be expected for the full fiscal year.
The interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Although management believes the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of the consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from these estimates. These unaudited interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Form 10-K for the year ended June 30, 2012 and other financial information filed with the Securities and Exchange Commission.
The company’s fiscal year ends on the Saturday closest to June 30. Fiscal 2013 ends on June 29, 2013. The third quarter and first nine months of fiscal 2013 ended on March 30, 2013, and the third quarter and first nine months of fiscal 2012 ended on March 31, 2012. Each of the quarters was a thirteen-week period, and each of the nine month periods was a thirty-nine week period. Fiscal 2013 and fiscal 2012 are both 52-week years. Unless otherwise stated, references to years relate to fiscal years.
The condensed consolidated balance sheet as of June 30, 2012 has been derived from the company’s audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2012. The balance sheet information for the Australian bakery business met the criteria to be classified as held for sale in the second quarter of 2013 and as a result, these balances were reported in the asset and liabilities held for sale lines of the condensed consolidated balance sheet beginning in the second quarter of 2013 up until the sale was completed on February 4, 2013. The fresh bakery, refrigerated dough and foodservice beverage businesses in North America as well as the international coffee and tea, household and body care, European bakery and Australian bakery businesses are presented as discontinued operations in the company’s condensed consolidated income statements. See Note 5 – “Discontinued Operations” for additional information regarding these discontinued operations. Unless stated otherwise, any reference to income statement items in these financial statements refers to results from continuing operations.
Financial Statement Corrections - current year — During the third quarter of 2013, the company corrected certain balance sheet accounts as well as SG&A and income tax expense in the income statement related to continuing operations for errors that included the understatement of an asset for deposits held as collateral by insurance companies and the understatement of non-current deferred tax assets related to an employee benefit plan. It also corrected certain errors related to the tax provisions associated with the operating results for discontinued operations and the gain/loss on sale of discontinued operations. For the third quarter and first nine months of 2013, the correction of these errors increased Income for continuing operations by $9.5 million pretax ($8.3 million after tax) and Net income by $11.0 million. The company evaluated these errors in relation to the period in which they were corrected and the periods in which they originated and concluded that these errors did not materially misstate the third quarter 2013 financial statements or any previously issued financial statements. The company also does not believe that these errors will materially misstate the full year 2013 results.
Financial Statement Corrections - prior year As disclosed in Note 1, Nature of Operations and Basis of Presentation, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, Hillshire Brands restated its previously issued financial statements for fiscal years 2010 and 2011, and the unaudited financial data for the first three quarters of fiscal 2011 and 2012 to recognize the correction of the following accounting errors.

8


On August 1, 2012, D.E Master Blenders 1753 N.V. (DEMB) announced that it had discovered accounting irregularities involving previously issued financial results for its Brazilian operations, which would require the restatement of their previously issued financial statements for the periods from fiscal 2009 to 2012. The financial results of the Brazilian operations are reported as part of discontinued operations in the Hillshire Brands financial statements as a result of the spin-off of the international coffee and tea operations. Hillshire Brands reflected the correction of the accounting irregularities by first restating the “as reported” historical financial results of the Brazilian operations and then recognizing the restated results as part of discontinued operations along with the other businesses that comprised the international coffee and tea business. As such, the adjustments to net sales noted in the following tables represent corrections associated with the accounting irregularities in Brazil and do not relate to any businesses included in continuing operations. The accounting irregularities identified in the Brazil operations included the overstatement of accounts receivable due to the failure to write-off uncollectible customer discounts, improper recognition of sales revenues prior to shipments to customers, the understatement of accruals for various litigation issues, and the failure to write-off obsolete inventory and other inventory valuation issues. These accounting irregularities resulted from an ineffective control environment maintained by management in Brazil, including intentional overrides of internal controls, and extensive cross-functional collusion by company personnel and third parties in Brazil. These actions were designed to meet earnings targets in Brazil.
As a result of these error corrections, income from discontinued operations was reduced by $10 million in the first nine months of 2012. The cumulative impact of the error corrections prior to fiscal 2012 reduced stockholders’ equity at July 2, 2011 by $70 million.
In addition to the error corrections noted above, Hillshire Brands has also corrected several errors related to continuing and discontinued operations and has restated its previously issued financial statements for 2010 and 2011 and the unaudited financial data for the first three quarters of 2011 and 2012 for these items. These errors had been previously identified and corrected in fiscal years subsequent to their origination. The company originally recorded the error corrections in the periods in which they were discovered. Management continues to believe that these errors did not materially misstate the financial results of the periods in which the errors originated or the periods in which the errors were corrected but management has decided to record these adjustments in the periods in which they originated in conjunction with the financial statement corrections noted above. As a result of these error corrections, Income from continuing operations was increased by $8 million and Income from discontinued operations was reduced by $1 million for the first nine months of 2012. The cumulative impact of the error corrections prior to fiscal 2012 reduced stockholders’ equity at July 2, 2011 by $11 million.

9


Income Statement Impact
The impact of these error corrections on the income statement for the third quarter and first nine months of 2012 is summarized in the following table:
 
(in millions)
Quarter ended March 31, 2012
 
Nine months ended March 31, 2012
(Unaudited)
As Reported 1
 
Adjustment
 
Disc.Ops.
 
As Restated
 
As Reported 1
 
Adjustment
 
Disc.Ops.
 
As Restated
Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
1,899

 
$
(5
)
 
$
(959
)
 
$
935

 
$
5,923

 
$
(3
)
 
$
(2,945
)
 
$
2,975

Cost of sales
1,312

 
(3
)
 
(634
)
 
675

 
4,024

 

 
(1,880
)
 
2,144

Selling, general and administrative expenses
458

 
3

 
(259
)
 
202

 
1,410

 

 
(764
)
 
646

Net charges for exit activities, asset and business dispositions
63

 
7

 
(66
)
 
4

 
179

 
2

 
(111
)
 
70

Impairment charges

 

 

 

 
32

 

 
(18
)
 
14

Operating income
66

 
(12
)
 

 
54

 
278

 
(5
)
 
(172
)
 
101

Interest expense
29

 

 
(7
)
 
22

 
88

 

 
(21
)
 
67

Interest income
(11
)
 

 
9

 
(2
)
 
(31
)
 

 
27

 
(4
)
Income from continuing operations before tax
48

 
(12
)
 
(2
)
 
34

 
221

 
(5
)
 
(178
)
 
38

Income tax expense (benefit)
10

 
(9
)
 
6

 
7

 
184

 
(3
)
 
(185
)
 
(4
)
Income (loss) from Continuing Operations
38

 
(3
)
 
(8
)
 
27

 
37

 
(2
)
 
7

 
42

Income (loss) from disc. operations, net of tax
20

 

 
8

 
28

 
(188
)
 

 
(7
)
 
(195
)
Gain (loss) on sale of disc. operations, net of tax
(60
)
 
2

 

 
(58
)
 
403

 
(1
)
 

 
402

Net income (loss) from discontinued operations
(40
)
 
2

 
8

 
(30
)
 
215

 
(1
)
 
(7
)
 
207

Net income (loss)
(2
)
 
(1
)
 

 
(3
)
 
252

 
(3
)
 

 
249

Net income from non-controlling interest

 

 

 

 
3

 

 

 
3

Net income (loss) attributable to Hillshire Brands
$
(2
)
 
$
(1
)
 
$

 
$
(3
)
 
$
249

 
$
(3
)
 
$

 
$
246

Earnings per share—Basic
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.31

 
$
(0.03
)
 
$
(0.06
)
 
$
0.23

 
$
0.31

 
$
(0.01
)
 
$
0.07

 
$
0.36

Net income (loss)
(0.02
)
 
(0.01
)
 
0.00

 
(0.02
)
 
2.10

 
(0.02)

 
0.00

 
2.08

Earnings per share—Diluted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
0.31

 
(0.03)

 
(0.06)

 
0.23

 
0.31

 
(0.01)

 
0.07

 
0.36

Net income (loss)
(0.02)

 
(0.01)

 
0.00

 
(0.02
)
 
2.09

 
(0.02)

 
0.00

 
2.07

 
1 
Amounts as reported in the company's financial statements in its Quarterly Report on Form 10-Q for the period ended March 31, 2012


10


Comprehensive Income Impact
The following tables summarize the comprehensive income (loss) previously reported in the company’s filings and the restated amounts.
 
(in millions)
(Unaudited)
Quarter ended March 31, 2012
As
Reported 1
 
As
Restated
Comprehensive income (loss)
 
 
 
Net Income (loss)
$
(2
)
 
$
(3
)
Translation adjustments, net of tax
193

 
192

Net unrealized gain (loss) on qualifying cash flow hedges, net of tax
(2
)
 
(2
)
Pension/Postretirement activity, net of tax
(8
)
 
(8
)
Comprehensive income
$
181

 
$
179

 
(in millions)
(Unaudited)
Nine months ended March 31, 2012
As
Reported 1
 
As
Restated
Comprehensive Income
 
 
 
Net Income
$
252

 
$
249

Translation adjustments, net of tax
65

 
75

Net unrealized gain (loss) on qualifying cash flow hedges, net of tax
(12
)
 
(12
)
Pension/Postretirement activity, net of tax
(10
)
 
(10
)
Comprehensive income
$
295

 
$
302

 
1 
Amounts as reported in the company's financial statements in its Quarterly Report on Form 10-Q for the period ended March 31, 2012
Consolidated Statement of Cash Flow Impact
The restatement did not change the total cash flows from operating, investing or financing activities for any of the quarters or full years impacted by the restatements. However, certain amounts within Cash from Operating Activities were impacted by the non-cash adjustments to correct the errors. The following table shows the impact of the restatements on the previously reported cash flow items within Cash from Operating Activities for the first nine months of 2012.
 
(in millions)
(Unaudited)
Nine months ended March 31, 2012
As
Reported1
 
As
Restated
Net Income
$
252

 
$
249

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Net (gain) loss on business dispositions
(771
)
 
(769
)
Changes in current assets and liabilities, net of businesses acquired and sold
 
 
 
Trade accounts receivable
42

 
43

Inventories
(77
)
 
(76
)
Other current assets
31

 
34

Accrued liabilities
(133
)
 
(132
)
Accrued taxes
70

 
64

Net cash from (used in) operating activities
$
(140
)
 
$
(140
)
 
1 
Amounts as reported in the company's financial statements in its Quarterly Report on Form 10-Q for the period ended March 31, 2012

11


2. Net Income (Loss) Per Share
The computation of earnings (loss) per share (EPS) only includes results attributable to Hillshire Brands and does not include earnings related to non-controlling interests. Net income per share – basic is computed by dividing net income attributable to Hillshire Brands by the weighted average number of shares of common stock outstanding for the period. Net income per share – diluted reflects the potential dilution that could occur if options or fixed awards issued under stock-based compensation awards were converted into common stock. For the quarter and nine months ended March 30, 2013, options to purchase 3.3 million shares of the company’s common stock had exercise prices that were greater than the average market price of those shares during the respective reporting periods. For the quarter and nine months ended March 31, 2012, options to purchase 0.4 million and 0.7 million shares, respectively, of the company’s common stock had exercise prices that were greater than the average market price of those shares during the respective reporting periods.

The average shares outstanding increased in the third quarter and first nine months of 2013 as compared to the third quarter and first nine months of 2012 as a result of the impact of stock issuances related to the exercise of stock options and the accelerated vesting of restricted stock units (RSUs).
As of March 30, 2013, the company was authorized to repurchase approximately $1.2 billion of common stock under one of its existing share repurchase programs, plus 2.7 million shares of common stock that remain authorized for repurchase under the company’s other share repurchase program.
The following is a reconciliation of net income (loss) to net income (loss) per share – basic and diluted – for the third quarter and first nine months of 2013 and 2012 (per share amounts are rounded and may not add to total):
Computation of Net Income per Common Share
(In millions, except per share data)
 
 
Quarter ended
 
Nine Months ended
 
March 30, 2013
 
March 31, 2012
 
March 30, 2013
 
March 31, 2012
Amounts attributable to Hillshire Brands
 
 
 
 
 
 
 
Income from continuing operations
$
42

 
$
27

 
$
149

 
$
42

Income (loss) from discontinued operations, net of tax
51

 
(30
)
 
62

 
204

Net income (loss)
$
93

 
$
(3
)
 
$
211

 
$
246

Average shares outstanding – Basic
123

 
119

 
123

 
118

Dilutive effect of stock option and award plans
1

 

 

 
1

Diluted shares outstanding
124

 
119

 
123

 
119

Earnings per common share—Basic
 
 
 
 
 
 
 
Income from continuing operations
$
0.34

 
$
0.23

 
$
1.22

 
$
0.36

Income (loss) from discontinued operations
0.42

 
(0.26
)
 
0.51

 
1.72

Net income (loss)
$
0.76

 
$
(0.02
)
 
$
1.72

 
$
2.08

Earnings per common share – Diluted
 
 
 
 
 
 
 
Income from continuing operations
$
0.34

 
$
0.23

 
$
1.21

 
$
0.36

Income (loss) from discontinued operations
0.41

 
(0.25
)
 
0.51

 
1.71

Net income (loss)
$
0.75

 
$
(0.02
)
 
$
1.72

 
$
2.07

3. Segment Information
The following is a general description of the company’s two business segments:
Retail – sells a variety of packaged meat and frozen bakery products to retail customers in North America.
Foodservice/Other – sells a variety of meat and bakery products to foodservice customers in North America. It also includes results for the commodity pork and turkey businesses as well as the former Senseo coffee business in the United States that was exited in March 2012 and the former live hog business that was exited in September 2011.





12


The following is a summary of net sales and operating income by business segment:
 
 
Net Sales
(In millions)
Third Quarter 2013
 
Third Quarter 2012
 
Nine Months 2013
 
Nine Months 2012
Retail
$
692

 
$
691

 
$
2,188

 
$
2,150

Foodservice/Other
232

 
244

 
770

 
831

Total business segments
924

 
935

 
2,958

 
2,981

Intersegment sales

 

 

 
(6
)
Net sales
$
924

 
$
935

 
$
2,958

 
$
2,975

 
 
 
 
 
 
 
 
 
Income Before Income Taxes
(In millions)
Third Quarter 2013
 
Third Quarter 2012
 
Nine Months 2013
 
Nine Months 2012
Retail
$
74

 
$
73

 
$
272

 
$
202

Foodservice/Other
8

 
16

 
61

 
70

Total operating segment income
82

 
89

 
333

 
272

General corporate expenses
(16
)
 
(35
)
 
(83
)
 
(168
)
Mark-to-market derivative gains/(losses)

 
1

 
1

 

Amortization of intangibles
(1
)
 
(1
)
 
(3
)
 
(3
)
Operating income
65

 
54

 
248

 
101

Net interest expense
(11
)
 
(20
)
 
(30
)
 
(63
)
Income before income taxes
$
54

 
$
34

 
$
218

 
$
38

4. Impairment and Other Charges
The company recognized impairment charges of $1 million ($1 million after tax) in the third quarter of 2013, all of which related to machinery and equipment within the Retail segment that was determined to no longer have any future use by the company.
The company recognized impairment charges of $14 million ($9 million after tax) in the first nine months of 2012, all of which related to the writedown of capitalized computer software that was determined to no longer have any future use by the company. These charges were recognized as part of general corporate expenses. The significant impairments are reported on the “Impairment Charges” line of the Consolidated Statement of Income. The related tax benefit is determined using the statutory tax rates for the tax jurisdiction in which the impairment occurred.
5. Discontinued Operations
The results of the fresh bakery, refrigerated dough and foodservice beverage operations in North America and the international coffee and tea, household and body care, European bakery and Australian bakery businesses are classified as discontinued operations and are presented as discontinued operations in the condensed consolidated statements of income for all periods presented. The assets and liabilities for these businesses met 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 prior to disposition. The assets and liabilities associated with the Australia Bakery business were being classified as held for sale beginning with the balance sheet at December 29, 2012 up until the sale was completed.
On December 19, 2012, the company signed an agreement to sell its Australian bakery business to McCain Foods Limited. The results of this business were previously reported as the Australian Bakery business segment. Also included in the transaction were the license rights to certain intellectual property used by the Australia bakery business in the Asia-Pacific region. The transaction closed on February 4, 2013 and the total consideration received was AUD $82 million (approximately $85 million U.S. dollars). The company recognized a pretax gain on the sale of $56 million ($42 million after tax), which included $15 million related to the cumulative translation adjustment associated with this business.

The disposition of each of the businesses noted above, with the exception of the Australian bakery business, was completed prior to the end of fiscal 2012, and, as such, there are no operating results related to these discontinued operations in 2013. The income reported by the North American foodservice beverage operation in 2013 relates to the finalization of certain restructuring and other accruals. See Note 5, Discontinued Operations in the company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 for additional information regarding these discontinued operations.


13


The following is a summary of the operating results of the company’s discontinued operations for the third quarter and first nine months of 2013 and 2012: 
 
Third quarter 2013
 
First Nine Months of 2013
(in millions)
Net
Sales
 
Pretax
Income
(Loss)
 
Net
Income
(Loss)
 
Net
Sales
 
Pretax
Income
(Loss)
 
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 2012
 
First Nine Months of 2012
As Restated
(in millions)
Net
Sales
 
Pretax
Income
(Loss)
 
Net
Income
(Loss)
 
Net
Sales
 
Pretax
Income
(Loss)
 
Net
Income
(Loss)
North American Fresh Bakery
$

 
$

 
$
19

 
$
724

 
$
29

 
$
163

North American Refrigerated Dough

 

 

 
74

 
13

 
9

North American Foodservice Beverage
23

 
(1
)
 
(1
)
 
325

 
(6
)
 
(4
)
International Coffee and Tea
932

 
4

 
(54
)
 
2,854

 
173

 
(12
)
European Bakery
2

 
1

 
1

 
265

 
(384
)
 
(359
)
Australian Bakery
30

 
(2
)
 
62

 
103

 
3

 
5

International Household and Body Care
6

 
(3
)
 
1

 
115

 
5

 
3

Total
$
993

 
$
(1
)
 
$
28

 
$
4,460

 
$
(167
)
 
$
(195
)
In the third quarter and first nine months of 2013, the company recognized $5 million of net tax benefit adjustments related to prior year tax provision estimates associated with certain businesses that had been disposed of in the prior year. In the first nine months of 2012, the results of discontinued operations include a $379 million pretax impairment charge related to the European bakery operations and a $186 million tax benefit related to tax basis differences associated with the North American fresh bakery and European bakery assets. It also includes $185 million of tax expense associated with the international coffee and tea business, which includes $78 million of discrete tax items. The discrete tax items relate primarily to the following: $72 million of tax expense to establish a valuation allowance on net operating losses in France; $78 million of tax expense to establish a deferred tax liability related to earnings that are no longer permanently reinvested in Spain; a tax benefit of $86 million primarily related to a decrease in the amount of unrecognized tax positions in Spain; and $20 million of tax expense associated with deferred taxes on unremitted foreign earnings. The tax rate was also impacted by the expected repatriation of a portion of fiscal 2012 earnings. In the third quarter ended March 31, 2012, net income for the Australian bakery business includes a tax benefit of approximately $63 million related to the application of intraperiod tax allocation rules that require the Australian bakery business to absorb the impact of any change in the amount of taxes allocated to continuing operations before the discontinuance of the Australian bakery business and the taxes allocated to continuing operations after the discontinuance of the Australian bakery business.

The following is a summary of the gain on sale of the company’s discontinued operations for the third quarter and first nine months of 2013 and 2012: 
 
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 Foodsrv. Beverage

 
3

 
3

 
2

 
2

 
4

Australian Bakery
56

 
(14
)
 
42

 
56

 
(14
)
 
42

Total
$
60

 
$
(13
)
 
$
47

 
$
63

 
$
(14
)
 
$
49

The gain on sale of discontinued operations reported in fiscal 2013 represents the impact of a final purchase price adjustment related to the North American fresh bakery disposition, gains related to the disposition of two manufacturing facilities related to the North American foodservice beverage operations, the gain on sale of the Australian bakery business as well as tax adjustments of prior year provision estimates related to business dispositions.

14


 
 
Third quarter 2012
 
First Nine Months of 2012
(In millions) as restated
Pretax Gain
(Loss)on Sale
 
Tax
(Expense)
Benefit
 
After Tax
Gain (Loss)
 
Pretax Gain
(Loss) on Sale
 
Tax
(Expense)
Benefit
 
After Tax
Gain (Loss)
North American Fresh Bakery
$
(10
)
 
$
4

 
$
(6
)
 
$
95

 
$
(33
)
 
$
62

North American Foodsrv. Beverage

 

 

 
222

 
(77
)
 
145

North American Refrigerated Dough

 

 

 
198

 
(158
)
 
40

European Bakery
(10
)
 
(40
)
 
(50
)
 
5

 
(45
)
 
(40
)
Non-European insecticides
(1
)
 

 
(1
)
 
251

 
(55
)
 
196

Air Care Products
(10
)
 
(1
)
 
(11
)
 
(10
)
 
(1
)
 
(11
)
Other Household and Body Care
2

 
8

 
10

 
8

 
2

 
10

Total
$
(29
)
 
$
(29
)
 
$
(58
)
 
$
769

 
$
(367
)
 
$
402

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 and the $45 million of tax expense recognized on the sale of the European bakery businesses was impacted by $140 million of cumulative translation adjustments that had no tax basis.
The assets held for sale of $5 million as of June 30, 2012 represented property, plant and equipment. There were no assets or liabilities held for sale as of March 30, 2013.
The cash flows related to the discontinued operations are summarized in the table below:
 
 
Nine Months ended
 
Nine Months ended
(In millions) – Increase / (Decrease)
March 30, 2013
 
March 31, 2012
Cash flow from (used in) operating activities
$
10