Sara Lee 2009 Annual Report Download - page 78

Notes to financial statements
Dollars in millions except per share data
Note 19 – Defined Benefit Pension Plans
The corporation sponsors a number of U.S. and foreign pension plans
to provide retirement benefits to certain employees. The benefits
provided under these plans are based primarily on years of service
and compensation levels.
On June 30, 2007, the corporation adopted certain of the
provisions of the new accounting rules related to an employers’
accounting for defined benefit pension and other postretirement
plans. Additionally, in 2009 the corporation adopted the measure-
ment date provisions related to those same rules. See Note 2 –
“Summary of Significant Accounting Policies” for additional
information regarding the impact of the adoption of these
new accounting rules.
Measurement Date and Assumptions A fiscal year end measurement
date is utilized to value plan assets and obligations for all of the
corporation’s defined benefit pension plans. Previously the corpora-
tion had utilized a measurement date of March 31. However, the
new accounting rules related to pensions requires entities to meas-
ure plan assets and benefit obligations as of the date of its fiscal
year-end statement of financial position for fiscal years ending after
December 15, 2008. As such, the company adopted the new meas-
urement date provisions in fiscal 2009. The impact of adopting the
measurement date provision was recorded in 2009 as an adjustment
to beginning of year retained earnings of $(15), net of tax. The
adjustment to retained earnings represents the net periodic benefit
costs for the period from March 28, 2008 to June 28, 2008, the
end of the previous fiscal year, which was determined using the
15-month approach to proportionally allocate the net periodic
benefit cost to this period.
The weighted average actuarial assumptions used in measuring
the net periodic benefit cost and plan obligations of continuing
operations were as follows:
2009 2008 2007
Net periodic benefit cost
Discount rate 6.3% 5.4% 5.1%
Long-term rate of return on plan assets 6.9 6.7 6.8
Rate of compensation increase 3.7 3.8 3.9
Plan obligations
Discount rate 6.5% 6.3% 5.4%
Rate of compensation increase 3.4 3.7 3.8
The discount rate is determined by utilizing a yield curve based
on high-quality fixed-income investments that have a AA bond rating
to discount the expected future benefit payments to plan participants.
Salary increase assumptions are based upon historical experience
and anticipated future management actions. In determining the long-
term rate of return on plan assets, the corporation assumes that
the historical long-term compound growth rates of equity and fixed-
income securities and other plan investments will predict the future
returns of similar investments in the plan portfolio. Investment
management and other fees paid out of plan assets are factored
into the determination of asset return assumptions.
Net Periodic Benefit Cost and Funded Status The components of the
net periodic benefit cost for continuing operations were as follows:
2009 2008 2007
Components of defined benefit
net periodic benefit cost
Service cost $÷«66 $÷«91 $÷«97
Interest cost 257 267 253
Expected return on assets (268) (293) (279)
Amortization of
Prior service cost 888
Net actuarial loss 11 34 62
Net periodic benefit cost $÷«74 $«107 $«141
The corporation also recognized settlement losses of $2 in
2009 and $16 in 2008, $15 of which related to the settlement of
a pension plan in the U.K. and is reported as part of discontinued
operations in 2008. It also recognized settlement, curtailment and
termination losses of $12 in 2007 as a result of the termination
of certain foreign employees due to plant closures and employee
terminations in the U.S.
The amount of prior service cost and net actuarial loss that is
expected to be amortized from accumulated other comprehensive
income and reported as a component of net periodic benefit cost
during 2010 is $7 and $54, respectively.
The net periodic benefit cost of the corporation’s defined benefit
pension plans in 2009 was $33 lower than in 2008. The decline
was primarily due to a $23 reduction in amortization of net actuar-
ial losses due to net actuarial gains in the prior year, which reduced
the amount subject to amortization; and a $25 reduction in service
cost due to headcount reductions versus the prior year.
76 Sara Lee Corporation and Subsidiaries