Sara Lee to cut jobs, record charges
January 29, 2007
by Eric Schroeder
CHICAGO — Sara Lee Corp. said it plans to lay off nearly 1,700 employees as part of a reorganization plan to increase business performance. The layoffs will take place as the company closes its pork processing and FlavoTech spice production plants in West Point, Miss., on March 30, the company said.
"Unfortunately, after looking at our business, we determined that these facilities will not allow us to meet our efficiency or long-term profitability expectations," said Ken Brandenburg, vice-president of operations in the company’s food and beverage division.
In a separate announcement, Sara Lee said it will cut 489 jobs and record a $40 million pre-tax charge related to exit and business disposition activities. Of the $40 million total, Sara Lee said $27 million relates to the planned job cuts, $10 million to the net present value of leases exited, and $3 million to the cost of certain asset and business disposition activities.
"All of these actions will result in cash expenditures and are expected to be completed within the next 12 months," Sara Lee said in a Jan. 29 filing with the Securities and Exchange Commission. "The after-tax impact of this charge is $26 million."
In addition to the $40 million charge, Sara Lee said it would recognize a $152 million non-cash charge in the fiscal quarter ended Dec. 30, 2006, related to certain business reviews.
Among its findings, Sara Lee concluded the carrying amount of its Brazilian and Austrian coffee reporting units exceeded their fair values. As a result, the company said it would recognize a $92 million impairment loss.
"The Brazilian coffee operation has experienced a sustained decline in profitability due to a highly competitive market in which the business operates," Sara Lee said. "In management’s judgment, the Brazilian market has experienced a significant amount of price competition as a result of general economic conditions, and consumers have been unwilling to pay the premium prices previously anticipated."
In addition to its Brazilian and Austrian operations, Sara Lee said analysis completed during the second quarter of fiscal 2007 showed the company would need to substantially reduce operations at a facility that is part of the North American Retail Meats segment "in order to improve efficiency and long-term profitability." Sara Lee said it plans to transfer certain activities from the location to more efficient third-party suppliers. Sara Lee said a $34 million impairment charge would be recognized in regards to this asset group.