Sara Lee 2011 Annual Report Download - page 69

66/67 Sara Lee Corporation and Subsidiaries
The corporation expects to contribute approximately $200 million
of cash to its pension plans in 2012 as compared to approximately $124 million in 2011 and $273 million in 2010. The contribution amounts are for pension plans of continuing operations and pen- sion plans where the corporation has agreed to retain the pension liability after certain business dispositions were completed. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which the company operates, the timing of cash tax benefits for amounts funded and arrangements made with the trustees of certain foreign plans. As a result, the actual funding in 2012 may be materially different from the estimate.
During 2006, the corporation entered into an agreement with
the plan trustee to fully fund certain U.K. pension obligations by calendar 2015. The anticipated 2012 contributions reflect the amounts agreed upon with the trustees of these U.K. plans. Under the terms of this agreement, the corporation will make annual pen- sion contributions of 32 million British pounds to the U.K. plans through calendar 2015. Subsequent to 2015, the corporation has agreed to keep the U.K. plans fully funded in accordance with local funding standards. If at any time prior to January 1, 2016, Sara Lee Corporation ceases having a credit rating equal to or greater than all three of the following ratings, the annual pension funding of these U.K. plans will increase by 20%: Standard & Poor’s minimum credit rating of “BBB-,” Moody’s Investors Service minimum credit rating of “Baa3” and FitchRatings minimum credit rating of “BBB -.” The cor- poration’s credit ratings are currently above these levels and are discussed below in this Liquidity section.
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 contribu- tion 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 performance, changes in the partici- pant demographics, financial stability of contributing employers and changes in actuarial assumptions.
Debt The corporation’s total long-term debt decreased $220 million in 2011, to $2,409 million at July 2, 2011. In 2011, the corporation redeemed all of its 6.25% Notes due September 2011, of which $1.11 billion aggregate principal amount was outstanding. The com- pany issued $400 million 2.75% Notes due in September 2015 and $400 million 4.1% Notes due September 2020, the proceeds of which were used to fund a portion of the redemption of the 6.25% Notes. The remaining long-term debt of $2,409 million is due to be repaid as follows: $473 million in 2012, $521 million in 2013, $20 million in 2014, $77 million in 2015, $405 million in 2016 and $913 million thereafter. Debt obligations due to mature in the next year are expected to be satisfied with cash on hand, cash from operating activities or with additional borrowings.
From time to time, the corporation opportunistically may
repurchase or retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the corporation’s liquidity requirements, contractual restrictions and other factors. The amounts involved could be material.
Including the impact of swaps, which are effective hedges and
convert the economic characteristics of the debt, the corporation’s long-term debt and notes payable consist of 68.3% fixed-rate debt as of July 2, 2011, as compared with 68.6% as of July 3, 2010. The slight decrease in fixed-rate debt at the end of 2011 versus the end of 2010 is due to the repayment of long-term fixed rate debt that matured or was redeemed during the period. The corporation monitors the interest rate environments in the geographic regions in which it operates and modifies the components of its debt portfolio as necessary to manage interest rate and foreign currency risks. Pension Plans As shown in Note 16 to the Consolidated Financial Statements, titled “Defined Benefit Pension Plans,” the funded status of the corporation’s defined benefit pension plans is defined as the amount the projected benefit obligation exceeds the plan assets. The funded status of the plans for total continuing opera- tions is an overfunded position of $38 million at the end of fiscal 2011 as compared to an underfunded position of $448 million at the end of fiscal 2010.