4. Employee Stock Ownership Plan
In 1989, the ESOP Trust borrowed $357.5 million through a 20-year note (the "ESOP Note"). The proceeds from the ESOP Note were used to purchase 6.7 million shares of Series One ESOP Convertible Preference Stock (the "ESOP Preference Stock") from the Company. Since the ESOP Note is guaranteed by the Company, the outstanding balance is reflected as long-term debt and a corresponding guaranteed ESOP obligation is reflected in shareholders’ equity in the accompanying consolidated balance sheets.
Each share of ESOP Preference Stock has a guaranteed minimum liquidation value of $53.45, is convertible into 2.314 shares of common stock and is entitled to receive an annual dividend of $3.90 per share. The ESOP Trust uses the dividends received and contributions from the Company to repay the ESOP Note. As the ESOP Note is repaid, ESOP Preference Stock is allocated to participants based on: (i) the ratio of each year's debt service payment to total current and future debt service payments multiplied by (ii) the number of unallocated shares of ESOP Preference Stock in the plan. As of December 30, 2000, 5.0 million shares of ESOP Preference Stock were outstanding, of which 2.0 million shares were allocated to participants and the remaining 3.0 million shares were held in the ESOP Trust for future allocations.
Annual ESOP expense recognized is equal to (i) the interest incurred on the ESOP Note plus (ii) the higher of (a) the principal repayments or (b) the cost of the shares allocated, less (iii) the dividends paid. Similarly, the guaranteed ESOP obligation is reduced by the higher of (i) the principal payments or (ii) the cost of shares allocated.
Following is a summary of the ESOP activity for the respective years:
The Company sponsors a defined contribution Employee Stock Ownership Plan (the "ESOP") that covers full-time employees with at least one year of service.
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Fiscal Year | |||
In millions | 2000 | 1999 | 1998 |
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ESOP expense recognized | $ 18.8 | $ 16.6 | $ 25.8 |
Dividends paid | 19.5 | 20.1 | 20.5 |
Cash contributions | 18.8 | 16.6 | 25.8 |
Interest payments | 21.9 | 23.1 | 24.9 |
ESOP shares allocated | 0.3 | 0.3 | 0.4 |
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