Sara Lee 2010 Annual Report Download - page 74

Notes to financial statements
The corporation has a $1.85 billion five-year revolving credit
facility expiring in December 2011 that had an annual fee of 0.08%
as of July 3, 2010. Pricing under this facility is based on the corpo-
ration’s current credit rating. As of July 3, 2010, the corporation did
not have any borrowings outstanding under the credit facility. This
agreement supports commercial paper borrowings and other financial
instruments. The corporation had $150 million of letters of credit
outstanding as of July 3, 2010. The corporation’s credit facility and
debt agreements contain customary representations, warranties
and events of default, as well as, affirmative, negative and financial
covenants with which the corporation is in compliance. One financial
covenant includes a requirement to maintain an interest coverage
ratio of not less than 2.0 to 1.0. The interest coverage ratio is based
on the ratio of EBIT to consolidated net interest expense with con-
solidated EBIT equal to net income plus interest expense, income
tax expense, and extraordinary or non-recurring non-cash charges
and gains. For the 12 months ended July 3, 2010, the corporation’s
interest coverage ratio was 7.8 to 1.0.
Selected data on the corporation’s short-term obligations follow:
In millions 2010 2009 2008
Maximum month-end borrowings $132 $461 $280
Average borrowings during the year 69 289 54
Year-end borrowings 47 20 274
Weighted average interest rate
during the year 2.67% 3.60% 3.46%
Weighted average interest rate
at year-end 2.69 6.68 2.91
Note 13 – Leases
The corporation leases certain facilities, equipment and vehicles
under agreements that are classified as either operating or capital
leases. The building leases have original terms that range from 10
to 15 years, while the equipment and vehicle leases have terms of
generally less than seven years.
July 3, June 27,
In millions 2010 2009
Gross book value of capital lease assets
included in property $66 $72
Net book value of capital lease assets
included in property 38 44
72 Sara Lee Corporation and Subsidiaries
Future minimum payments, by year and in the aggregate, under
capital leases and noncancelable operating leases having an original
term greater than one year at July 3, 2010 were as follows:
Capital Operating
In millions Leases Leases
2011 $13 $÷80
2012 13 57
2013 742
2014 428
2015 221
Thereafter 369
Total minimum lease payments 42 $297
Amounts representing interest (7)
Present value of net minimum payments 35
Current portion 10
Noncurrent portion $25
In millions 2010 2009 2008
Depreciation of capital lease assets $÷÷8 $÷10 $÷11
Rental expense under operating leases 123 125 128
Note 14 – Contingencies and Commitments
Contingent Liabilities The corporation is a party to various pending
legal proceedings, claims and environmental actions by government
agencies. The corporation records a provision with respect to a
claim, suit, investigation or proceeding when it is probable that a
liability has been incurred and the amount of the loss can reason-
ably be estimated. Any provisions are reviewed at least quarterly
and are adjusted to reflect the impact and status of settlements,
rulings, advice of counsel and other information pertinent to the
particular matter.
Aris This is a consolidation of cases filed by individual complainants
with the Republic of the Philippines, Department of Labor and
Employment and the National Labor Relations Commission (NLRC)
from 1998 through July 1999. The complaint alleges unfair labor
practices due to the termination of manufacturing operations in
the Philippines by Aris Philippines, Inc. (Aris), a former subsidiary
of the corporation. The complaint names the corporation as a party
defendant. In 2006, the arbitrator ruled against the corporation and
awarded the plaintiffs $60 million in damages and fees, and the
corporation appealed this ruling. In December 2006, the NLRC set
aside the arbitrator’s ruling, and remanded the case to the arbitra-
tor for further proceedings. The complainants and the corporation
have filed motions for reconsideration – the corporation seeking a
final judgment and outright dismissal of the case, and complainants