Sara Lee 2011 Annual Report Download - page 111

Level 1 assets were valued using market prices based on daily
net asset value (NAV) or prices available through a public stock exchange. Level 2 assets were valued primarily using market prices, derived from either an active market quoted price, which may require adjustments to account for the attributes of the asset, or an inactive market transaction. The corporation did not have any level 3 assets, which would include assets for which values are determined by non- observable inputs. See Note 15 – Financial Instruments for additional information as to the fair value hierarchy.
The percentage allocation of pension plan assets based on fair
value as of the respective year-end measurement dates is as follows:
2011 2010
U.S. Plans Asset category Equity securities 3% 4% Debt securities 89 84 Real estate 22 Cash and other 610 Total 100% 100% International Plans Asset category Equity securities 25% 22% Debt securities 66 69 Real estate 23 Cash and other 76 Total 100% 100%
The overall investment objective is to manage the plan assets
so that they are sufficient to meet the plan’s future obligations while maintaining adequate liquidity to meet current benefit pay- ments and operating expenses. The actual amount for which these obligations will be settled depends on future events and actuarial assumptions. These assumptions include the life expectancy of the plan participants and salary inflation. The resulting estimated future obligations are discounted using an interest rate curve that represents a return that would be required from high quality corpo- rate bonds. The corporation has adopted a liability driven investment (LDI) strategy and it is in various stages of implementation of the strategy in each of its largest pension plans. This strategy consists of investing in a portfolio of assets whose performance is driven by the performance of the associated pension liability. This means that plan assets managed under an LDI strategy may underperform general market returns, but should provide for lower volatility of funded status as its return matches the pension liability movement. Over time, as pension obligations become better funded, the corpora- tion will further de-risk its investments and increase the allocation to fixed income.
The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated ben- efit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels. The accumulated benefit obligations of the corporation’s pension plans as of the measurement dates in 2011 and 2010 were $1,370 million and $1,372 million, respectively, for the U.S. plans and $3,049 mil- lion and $2,875 million, respectively, for the international plans.
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were:
In millions 2011 2010 U.S. Plans Projected benefit obligation $1,113 $1,372 Accumulated benefit obligation 1,113 1,372 Fair value of plan assets 987 1,127 International Plans Projected benefit obligation $÷«294 $1,466 Accumulated benefit obligation 283 1,439 Fair value of plan assets 206 1,268 Plan Assets, Expected Benefit Payments and Funding The fair value of pension plan assets as of July 2, 2011 for the combined U.S. and International plans was determined as follows:
Quoted
Prices in
Active Significant
Market for Other
Identical Observable
Total Fair Assets Inputs
In millions Value (Level 1) (Level 2) Equity securities
Non-U.S. securities – pooled funds $÷«875 $÷«875 $÷÷–
Fixed income securities
Government bonds 804 804 – Corporate bonds 1,000 1,000 – U.S. pooled funds 157 157 – Non-U.S. pooled funds 1,247 665 582
Total fixed income securities 3,208 2,626 582
Real estate 93 93 – Cash and equivalents 121 121 – Derivatives 49 61 (12) Other 175 175 – Total fair value of assets $4,521 $3,951 $570 108/109 Sara Lee Corporation and Subsidiaries