Sara Lee Corporation is a manufacturer and marketer of high-quality, brand-name products such as Ambi Pur, Ball Park, Oouwe Egberts, Hillshire Farm, jimmy Dean, Kiwi, Sanex, Senseo, and its namesake, Sara Lee. In February 2005, Sara Lee announced a business transformation plan. Significant organizational changes have been implemented, including the disposition of a significant portion of the corporation's business, as well as actions to improve operational efficiency. Selected information from Sara Lee's 2007 Annual Report is given on pages 105-106.
Required
1. Sara Lee's income statements should be reformatted before beginning an analysis. Explain what format Sara Lee has used and why the income statements should be reconfigured.
2. Redo the income statements for Sara Lee and prepare common-size income statements for all three years presented. Explain your reasoning for how revenues and expenses were reclassified.
3. Analyze the profitability of Sara Lee using the common-size income statements you prepared, as well as any other calculations you deem necessary. Be sure to include an explanation of the effective tax rate and any nonrecurring or non-operating items.

The accompanying Notes to Financial Statements are an integral part of thesestatements.

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Consolidated statements of income Dollars in millions, except per share data Years Ended June 30, 2007 July 1, 2006 July 2, 2005 Continuing operations Net Sales Cost of sales Selling, general, and administrative $12,278 7,552 4,023 $11460 7,025 $11,346 6,795 3,848 3,679 expenses Net charges for exit activities, asset and business dispositions Impairment charges Contingent sale proceeds Interest expense Interest income 95 172 (120) 265 (128) 86 193 (114) 305 (75) 11,268 43 (117) 285 (85) 10,600 11,859 Income from continuing operations before income taxes Income tax (benefit) expense Income from continuing operations 192 161 31 746 131 615 119 426 Discontinued operations Net income from discontinued operations, 62 123 net of tax expense of $30, $19, and $139 Gain on sale of discontinued operations, 104 net of tax (benefit) expense of S11), 65, and $0 Net Income (Loss) Net income from continuing operations 16 401 $504 $ 555 $ 719 per share of common stock Basic Diluted $ 0.58 0.57 $ 0.04 0.04 $ 0.78 0.77 Net income per share of common stock Basic Diluted 0.68 $0.68 $ 0.72 0.72 $ 0.91 $0.90