Sara Lee 2013 Annual Report Download - page 50

48 The Hillshire Brands Company
NOTES TO FINANCIAL STATEMENTS
In May 2012, the company issued $650 million in senior notes
through a private placement. The offering consisted of $232 million
of 3.60% senior notes due May 15, 2019, $120 million of 3.81% sen-
ior notes due May 15, 2020, $124 million of 4.03% senior notes due
May 15, 2021 and $174 million of 4.20% senior notes due May 15,
2022. The proceeds were used to payoff existing indebtedness and
for general purposes. As part of the spin-off, the company satisfied
its obligations under these notes by effectively transferring the
$650 million of indebtedness as part of the spin-off.
In April 2012, the company completed a tender offer for up to
$470 million of combined aggregate principal amount of three series
of its outstanding debt securities: 6.125% Notes due Nov. 2032, 4.10%
Notes due 2020 and 2.75% Notes due 2015. Upon the expiration
of the tender, the company accepted for purchase $348.4 million
of 6.125% Notes and $121.6 million of the 4.10% Notes and recog-
nized $26 million of charges associated with the early
extinguishment of this debt.
In April 2012, the company redeemed all of its 3.875% Notes
due 2013, of which the aggregate principal amount outstanding was
$500 million. A charge of $13 million was incurred related to the
early extinguishment of this debt.
Payments required on long-term debt during the years ending 2014
through 2018 are $19 million, $93 million, $400 million, nil and nil,
respectively. The company made cash interest payments of $35 mil-
lion, $73 million and $99 million in 2013, 2012 and 2011, respectively.
The company had a $1.2 billion revolving credit facility that
matured on the date on which the spin-off was consummated. It
was replaced by a $750 million revolving credit facility that matures
in June 2017. The credit facility has an annual fee of 0.15% of the
facility size as of June 29, 2013. Pricing under this facility is based
on the company’s current credit rating. As of June 29, 2013, the
company did not have any borrowings outstanding under the credit
facility. This agreement supports commercial paper borrowings and
other financial instruments. The company had $57 million of letters
of credit under this facility outstanding as of June 29, 2013. The
company’s credit facility and debt agreements contain customary
representations, warranties and events of default, as well as, affir-
mative, negative and financial covenants with which the company
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 consolidated 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
June 29, 2013, the company’s interest coverage ratio was 9.0 to 1.0.
The financial covenants also include a requirement to maintain
a leverage ratio of not more than 3.5 to 1.0. The leverage ratio is
based on the ratio of consolidated total indebtedness to an adjusted
consolidated EBITDA. For the 12 months ended June 29, 2013, the
leverage ratio was 2.1 to 1.0.
Selected data on the company’s short-term obligations follow:
In millions 2012 2011
Maximum month-end borrowings $«335 $«503
Average borrowings during the year 97 242
Year-end borrowings – 198
Weighted average interest rate
during the year 0.34% 0.31%
Weighted average interest rate
at year-end –% 0.30%
There were no short-term borrowings during 2013.
NOTE 13 – LEASES
The company 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.
June 29, June 30,
In millions 2013 2012
Gross book value of capital lease assets
included in property $3 $4
Net book value of capital lease assets
included in property – 2
Future minimum payments, by year and in the aggregate, under
capital leases are less than $1 million at June 29, 2013. Future mini-
mum payments, by year end in the aggregate, under noncancelable
operating leases having an original term greater than one year at
June 29, 2013 were as follows:
Operating
In millions Leases
2014 $÷19
2015 15
2016 11
2017 10
2018 9
Thereafter 77
Total minimum lease payments $141
In millions 2013 2012 2011
Depreciation of capital lease assets $÷2 $÷1 $÷1
Rental expense under operating leases 23 22 27