Sara Lee 2008 Annual Report Download - page 33

Guarantees The corporation is a party to a variety of agreements
under which it may be obligated to indemnify a third party with respect
to certain matters. Typically, these obligations arise as a result of
contracts entered into by the corporation under which the corpora-
tion agrees to indemnify a third party against losses arising from
a breach of representations and covenants related to such matters
as title to assets sold, the collectibility of receivables, specified
environmental matters, lease obligations assumed and certain tax
matters including a manufacturing facility pledged as collateral for
a Brazilian tax dispute. In each of these circumstances, payment
by the corporation is conditioned on the other party making a claim
pursuant to the procedures specified in the contract. These proce-
dures allow the corporation to challenge the other party’s claims.
In addition, the corporation’s obligations under these agreements
may be limited in terms of time and/or amount, and in some cases
the corporation may have recourse against third parties for certain
payments made by the corporation. It is not possible to predict the
maximum potential amount of future payments under certain of
these agreements, due to the conditional nature of the corpora-
tion’s obligations and the unique facts and circumstances involved
in each particular agreement. Historically, payments made by the
corporation under these agreements have not had a material effect
on the corporation’s business, financial condition or results of oper-
ations. The corporation believes that if it were to incur a loss in any
of these matters, such loss would not have a material effect on the
corporation’s business, financial condition or results of operations.
The material guarantees, within the scope of FASB Interpretation
No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others” (FIN 45), for which the maximum potential amount of future
payments can be determined, include the corporation’s contingent
liability on leases on property operated by others that is described
above, and the corporation’s guarantees of certain third-party debt.
These debt guarantees require the corporation to make payments
under specific debt arrangements in the event that the third parties
default on their debt obligations. The maximum potential amount
of future payments that the corporation could be required to make
in the event that these third parties default on their debt obliga-
tions is $32 million. At the present time, the corporation does not
believe it is probable that any of these third parties will default on
the amount subject to guarantee.
Sara Lee Corporation and Subsidiaries 31
Payments Due by Fiscal Year
In millions Total 2009 2010 2011 2012 2013 Thereafter
Long-term debt $2,908 $÷«568 $÷÷«52 $÷20 $1,128 $÷«517 $÷«623
Interest on debt obligations11,164 147 131 130 78 59 619
Operating lease obligations 406 116 76 53 33 26 102
Purchase obligations23,237 1,765 775 348 185 138 26
Other long-term liabilities31,086 239 112 93 83 390 169
Subtotal 8,801 2,835 1,146 644 1,507 1,130 1,539
Contingent lease obligations4172 29 27 23 18 14 61
Total5$8,973 $2,864 $1,173 $667 $1,525 $1,144 $1,600
1Interest obligations on floating rate debt instruments are calculated for future periods using interest rates in effect at the end of 2008. See Note 12 to the Consolidated Financial
Statements for further details on the corporation’s long-term debt.
2Purchase obligations include expenditures to purchase goods and services in the ordinary course of business for production and inventory needs (such as raw materials, supplies,
packaging, manufacturing arrangements, storage, distribution and union wage agreements); capital expenditures; marketing services; information technology services; and maintenance
and other professional services where, as of the end of 2008, the corporation has agreed upon a fixed or minimum quantity to purchase, a fixed, minimum or variable pricing arrangement
and the approximate delivery date. Future cash expenditures will vary from the amounts shown in the table above. The corporation enters into purchase obligations when terms or
conditions are favorable or when a long-term commitment is necessary. Many of these arrangements are cancelable after a notice period without a significant penalty. Additionally,
certain costs of the corporation are not included in the table since at the end of 2008 an obligation did not exist. An example of these includes situations where purchasing decisions
for these future periods have not been made at the end of 2008. Ultimately, the corporation’s decisions and cash expenditures to purchase these various items will be based upon
the corporation’s sales of products, which are driven by consumer demand. The corporation’s obligations for accounts payable and accrued liabilities recorded on the balance sheet
are also excluded from the table.
3Represents the projected 2009 pension contribution of $196 million and the projected payment for long-term liabilities recorded on the balance sheet for deferred compensation,
restructuring costs, deferred income, sales and other incentives. The 2009 projected pension contribution of $196 million and subsequent years through 2015 include an annual
pension contribution of 32 million British pounds related to the terms of an agreement to fully fund certain U.K. pension obligations. The corporation has employee benefit obligations
consisting of pensions and other postretirement benefits including medical; other than the projected 2009 pension contribution of $196 million and the U.K. funding amounts, noted
previously, pension and postretirement obligations, including any contingent amounts that may be due related to multi-employer pension plans, have been excluded from the table.
A discussion of the corporation’s pension and postretirement plans, including funding matters, is included in Notes 19 and 20 to the Consolidated Financial Statements. The corporation’s
obligations for employee health and property and casualty losses are also excluded from the table. Finally, the amount does not include any reserves for income taxes under FIN 48
because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes (balance was $617 million at June 28, 2008).
4Contingent lease obligations represent leases on property operated by others that only become an obligation of the corporation in the event that the owners of the businesses are
unable to satisfy the lease liability. A significant portion of these amounts relates to leases operated by Coach, Inc. At June 28, 2008, the corporation has not recognized a contingent
lease liability on the Consolidated Balance Sheets.
5Contractual commitments and obligations identified under SFAS No. 5 are reflected and disclosed on the Consolidated Balance Sheets and in the related notes. Amounts exclude
any payments related to deferred tax balances including any tax related to future repatriation of foreign earnings. See Note 21 to the corporation’s Consolidated Financial Statements
regarding income taxes for further details.
The corporation has no material unconditional purchase obligations
as defined by SFAS No. 47, “Disclosure of Long-Term Purchase
Obligations.” The following table aggregates information on the
corporation’s contractual obligations and commitments: