Sara Lee 2009 Annual Report Download - page 72

Notes to financial statements
Dollars in millions except per share data
The PBGC’s position, if upheld, will inure to its financial benefit
by allowing the PBGC to avoid assuming a substantial portion of
ABA plan’s underfunding, approximately $60 – $80 of which the
corporation estimates it could be held responsible for approximately
half. The corporation has initiated litigation seeking to overturn the
August 2006 PBGC determination and intends to vigorously defend
the position that it is responsible only for the obligations related to
its current and former employees. The corporation continues to
believe that the PBGC’s August 2006 determination is without merit;
however, it is reasonably possible that a court may rule against the
corporation, which would have a material adverse impact on the
corporation’s financial position, results of operations or cash flows.
Hanesbrands Inc. In September 2006, the corporation spun off
its branded apparel business into an independent publicly-traded
company named Hanesbrands Inc. (“HBI”). In connection with the
spin off, the corporation and HBI entered into a tax sharing agreement
that governs the allocation of tax assets and liabilities between the
parties. HBI has initiated binding arbitration claiming that it is owed
$72 from the corporation under the tax sharing agreement. The cor-
poration believes HBI’s claims are without merit and is vigorously
contesting the matter.
Multi-Employer Pension Plans The corporation participates in various
multi-employer pension plans that provide retirement benefits to
certain employees covered by collective bargaining agreements
(MEPP). MEPPs are managed by trustee boards comprised of partic-
ipating employer and labor union representatives, and participating
employers are jointly responsible for any plan underfunding. The
corporation’s MEPP contributions are established by the applicable
collective bargaining agreements; however, our required contributions
may increase based on the funded status of the plan and the provi-
sions of the Pension Protection Act, which requires substantially
underfunded MEPPs to implement rehabilitation plans to improve
funded status. Factors that could impact funded status of a MEPP
include investment performance, changes in the participant demo-
graphics, financial stability of contributing employers and changes in
actuarial assumptions. In addition to regular scheduled contributions,
the corporation could be obligated to make additional contributions
(known as a complete or partial withdrawal liability) if a MEPP has
unfunded vested benefits. These complete or partial withdrawal
liabilities would be triggered if the corporation ceases to make con-
tributions to that MEPP, either completely or with respect to only one
or more collective bargaining units. The withdrawal liability would
equal the corporation’s proportionate share of the unfunded vested
benefits, based on the year in which the withdrawal liability is trig-
gered. The corporation believes that certain of the MEPPs in which
we participate have unfunded vested benefits. Due to uncertainty
regarding future factors that could trigger withdrawal liability, such
as the corporation’s decision to close a plant or the dissolution of
a collective bargaining unit, we are unable to determine the amount
and timing of the corporation’s future withdrawal liability, if any, or
whether the corporation’s participation in these MEPPs could have
any material adverse impact on its financial condition, results of
operations or liquidity. The corporation’s regular scheduled contribu-
tions to MEPPs totaled $49 in 2009, $48 in 2008 and $47 in 2007.
The corporation has incurred withdrawal liabilities of approximately
$31 in 2009, and immaterial amounts in 2008 and 2007.
Competition Law During the past few years, competition authorities
in various European countries and the European Commission have
initiated investigations into the conduct of consumer products com-
panies. These investigations usually continue for several years and,
if violations are found, may result in substantial fines. In connection
with these investigations, Sara Lee’s Household and Body Care
business operating in Europe has received requests for information,
made employees available for interviews, and been subjected to
unannounced inspections by various competition authorities. To date,
except for the previously disclosed €5.5 fine imposed by the German
cartel authorities in February 2008, no formal charges have been
brought against Sara Lee concerning the substantive conduct that
is the subject of these investigations. Our practice is to comply with
all laws and regulations applicable to our business, including the
antitrust laws, and to cooperate with relevant regulatory authorities.
Based on currently available information, it is reasonably possible
the corporation may be subject to additional fines and, with respect
to two of the investigations, it is likely that we will receive notice of
fines by calendar year end. However, at this time, we are unable to
estimate the impact of these fines, if any, on our consolidated
financial statements.
Purchase Commitments During 2007, the corporation exited a
U.S. meat production plant that included a hog slaughtering opera-
tion. Certain purchase contracts for the purchase of live hogs at
this facility were not exited or transferred after the closure of the
facility. However, the corporation has entered into a hog sales contract
under which these hogs will be sold to another slaughter operator.
A significant portion of these purchase commitments expire by
December 2009 and, using hog pricing at June 27, 2009, the cor-
poration has approximately $61 of commitments remaining under
these contracts.
70 Sara Lee Corporation and Subsidiaries