Sara Lee 2010 Annual Report Download - page 75

seeking to reinstate the original arbitrator’s judgment against the
defendants, including the corporation. The respective motions for
reconsideration have been fully briefed and the parties await the
NLRC’s rulings.
In response to the arbitrator’s original ruling, the Court of
Appeals required the corporation to post a bond of approximately
$25 million. However, the corporation has appealed the decision to
the Supreme Court and, as a result, no bond posting is required
until all allowable appeals have been exhausted. The corporation
continues to believe that the plaintiffs’ claims are without merit;
however, it is reasonably possible that this case will be ruled against
the corporation and have a material adverse impact on the corpo -
ration’s 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 agree-
ment that governs the allocation of tax assets and liabilities between
the parties. HBI has initiated binding arbitration claiming that it is
owed $72 million from the corporation under the tax sharing agree-
ment. The corporation believes HBI’s claims are without merit and
is vigorously contesting the matter. Hearings are scheduled to begin
in August 2010.
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). Participating employers in a MEPP are jointly responsible
for any plan underfunding. MEPP contributions are established by
the applicable collective bargaining agreements; however, the MEPPs
may impose increased contribution rates and surcharges based
on the funded status of the plan and the provisions 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 per-
formance, changes in the participant demographics, financial stability
of contributing employers and changes in actuarial assumptions.
In addition to regular contributions, the corporation could be
obligated to pay additional contributions (known as a complete or
partial withdrawal liability) if a MEPP has unfunded vested benefits.
These withdrawal liabilities, which would be triggered if the corpora-
tion ceases to make contributions to a MEPP with respect to one or
more collective bargaining units, would equal the corporation’s pro-
portionate share of the unfunded vested benefits based on the year
in which the liability is triggered. The corporation believes that certain
of the MEPPs in which it participates have unfunded vested bene-
fits, and some are significantly underfunded. Withdrawal liability
triggers could include the corporation’s decision to close a plant
or the dissolution of a collective bargaining unit. Due to uncertainty
regarding future withdrawal liability triggers, we are unable to deter-
mine 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 condi-
tion, results of operations or liquidity. Disagreements over potential
withdrawal liability may lead to legal disputes. The corporation
currently is involved in litigation with one MEPP and it is probable
that the outcome of this litigation may result in a partial withdrawal
liability of approximately $22 million.
The corporation’s regular scheduled contributions to MEPPs
totaled $50 million in 2010, $49 million in 2009 and $48 million
in 2008. The corporation recognized charges for partial withdrawal
liabilities of approximately $23 million in 2010, $31 million in
2009, and an immaterial amount in 2008.
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 busi-
ness operating in Europe has received requests for information, made
employees available for interviews, and been subjected to unan-
nounced inspections by various competition authorities. Sara Lee
has been imposed fines in two instances (a €3.7 million fine imposed
by the Spanish Competition Authorities in the second quarter of
2010 related to claims that the corporation engaged in inappropriate
activities to indirectly increase prices of its shower gel products,
and a €5.5 million fine imposed by the German cartel authorities in
February 2008), but no formal charges have been brought against
Sara Lee concerning the substantive conduct that is the subject of
these other 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.
Charges for fines that already have been imposed against the
corporation, as noted above, have been reflected in the Consolidated
Statements of Income in the period we were notified of the fine. The
corporation also recognized a charge of €20 million in the fourth
quarter of 2010 which reflects an estimate of additional fines that
are probable of being imposed and brings the total amount accrued
for remaining competition matters to €28 million. Based on currently
available information, it is reasonably possible the corporation may be
subject to additional fines related to several of these investigations.
Except for fines previously assessed or accrued by the corporation,
we are unable to estimate the impact on our financial statements of
additional fines, if any, that may be imposed against the corporation.
Sara Lee Corporation and Subsidiaries 73