<PAGE>
UNITED STATES
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) September 4, 1996
SARA LEE CORPORATION
------------------------------------------------
(Exact name of registrant as specified in charter)
MARYLAND 1-3344 36-2089049
--------------------------- --------------- ---------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
Suite 4600, Three First National Plaza, Chicago, Illinois 60602-4260
---------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/726-2600
-------------
This document has 19 pages.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Statements of Income -- Years ended
July 2, 1994, July 1, 1995 and June 29, 1996 F-2
Consolidated Balance Sheets -- July 2, 1994,
July 1, 1995 and June 29, 1996 F-3
Consolidated Statements of Common Stockholders' Equity --
Balances at July 2, 1994, July 1, 1995 and June 29, 1996 F-5
Consolidated Statements of Cash Flows -- Years ended
July 2, 1994, July 1, 1995 and June 29, 1996 F-6
Notes to Financial Statements F-7
(c) Exhibits
(23) Consent of Arthur Andersen LLP
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SARA LEE CORPORATION
--------------------
(Registrant)
September 4, 1996 By: /s/ Wayne R. Szypulski
---------------------------
Wayne R. Szypulski
Vice President - Controller
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS,
SARA LEE CORPORATION:
We have audited the accompanying consolidated balance sheets of SARA LEE
CORPORATION (a Maryland corporation) AND SUBSIDIARIES as of June 29, 1996, July
1, 1995, and July 2, 1994, and the related consolidated statements of income,
common stockholders' equity, and cash flows for each of the three years in the
period ended June 29, 1996. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sara Lee
Corporation and Subsidiaries as of June 29, 1996, July 1, 1995, and July 2,
1994, and the results of their operations and their cash flows for each of the
three years in the period ended June 29, 1996, in conformity with generally
accepted accounting principles.
As explained in the Notes to Financial Statements, the Corporation adopted
the requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective July 4, 1993.
Arthur Andersen LLP
Chicago, Illinois,
July 29, 1996.
F-1
<PAGE>
SARA LEE CORPORATION AND SUBSIDIAIRIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Years ended
---------------------------------------------
(in millions except per share data) June 29, 1996 July 1, 1995 July 2, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . . . . . . $18,624 $17,719 $15,536
---------------------------------------------
Cost of sales. . . . . . . . . . . . . . . . . . . . . 11,470 11,023 9,700
Selling, general and administrative expenses . . . . . 5,603 5,292 4,570
Interest expense . . . . . . . . . . . . . . . . . . . 228 243 188
Interest income. . . . . . . . . . . . . . . . . . . . (55) (58) (43)
Restructuring provision. . . . . . . . . . . . . . . . -- -- 732
---------------------------------------------
17,246 16,500 15,147
---------------------------------------------
Income before income taxes . . . . . . . . . . . . . . 1,378 1,219 389
Income taxes . . . . . . . . . . . . . . . . . . . . . 462 415 155
---------------------------------------------
NET INCOME BEFORE ACCOUNTING CHANGE. . . . . . . . . . 916 804 234
Cumulative effect of accounting change . . . . . . . . -- -- (35)
---------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . 916 804 199
Preferred dividends, net of tax. . . . . . . . . . . . (27) (28) (24)
---------------------------------------------
Net income available for common stockholders . . . . . $ 889 $ 776 $ 175
---------------------------------------------
---------------------------------------------
NET INCOME PER COMMON SHARE-PRIMARY
Before cumulative effect of accounting change. . . . $ 1.83 $ 1.62 $ .44
Cumulative effect of accounting change . . . . . . . -- -- (.07)
---------------------------------------------
$ 1.83 $ 1.62 $ .37
---------------------------------------------
---------------------------------------------
Average shares outstanding . . . . . . . . . . . . . 485 480 480
---------------------------------------------
---------------------------------------------
NET INCOME PER COMMON SHARE-FULLY DILUTED
Before cumulative effect of accounting change. . . . $ 1.78 $ 1.57 $ .43
Cumulative effect of accounting change . . . . . . . -- -- (.07)
---------------------------------------------
$ 1.78 $ 1.57 $ .36
---------------------------------------------
---------------------------------------------
Average shares outstanding . . . . . . . . . . . . . 504 499 498
---------------------------------------------
---------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-2
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(dollars in millions except share data) June 29, 1996 July 1, 1995 July 2, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 243 $ 202 $ 189
Trade accounts receivable, less allowances of $197 in 1996,
$192 in 1995 and $164 in 1994. . . . . . . . . . . . . . . . . . . 1,728 1,653 1,472
Inventories
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 1,802 1,782 1,603
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . 381 423 361
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . 624 625 603
-------------------------------------------
2,807 2,830 2,567
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 303 243 241
-------------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 5,081 4,928 4,469
-------------------------------------------
Trademarks and other assets. . . . . . . . . . . . . . . . . . . . . 636 615 634
Property
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 136 131
Buildings and improvements . . . . . . . . . . . . . . . . . . . . 1,924 1,879 1,746
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . 3,657 3,462 3,077
Construction in progress . . . . . . . . . . . . . . . . . . . . . 263 206 283
-------------------------------------------
5,976 5,683 5,237
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 2,969 2,719 2,337
-------------------------------------------
Property, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,007 2,964 2,900
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . 3,878 3,924 3,662
-------------------------------------------
$12,602 $12,431 $11,665
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
balance sheets.
F-3
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
June 29, 1996 July 1, 1995 July 2, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 319 $ 559 $ 1,281
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592 1,436 1,253
Accrued liabilities
Payroll and employee benefits. . . . . . . . . . . . . . . . . . . 702 693 668
Advertising and promotion. . . . . . . . . . . . . . . . . . . . . 290 278 313
Taxes other than payroll and income. . . . . . . . . . . . . . . . 207 218 206
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 66 13
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296 1,373 1,103
Current maturities of long-term debt . . . . . . . . . . . . . . . . 135 221 82
-------------------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 4,642 4,844 4,919
-------------------------------------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 1,817 1,496
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 333 273 290
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 604 705 783
Minority interest in subsidiaries. . . . . . . . . . . . . . . . . . 523 519 520
Preferred stock (authorized 13,500,000 shares; no par value)
Auction: Issued and outstanding-3,000 shares; redeemable at
$100,000 per share. . . . . . . . . . . . . . . . . . . . . . . 300 300 300
ESOP convertible: Issued and outstanding-4,468,303 shares in
1996, 4,570,153 shares in 1995 and 4,678,857 shares in 1994 . . . 324 331 339
Unearned deferred compensation. . . . . . . . . . . . . . . . . . (286) (297) (308)
Common stockholders' equity
Common stock: (authorized 600,000,000 shares; $1.33 1/3 par value)
Issued and outstanding-485,054,554 shares in 1996,
480,656,301 shares in 1995 and 480,765,240 shares in 1994. . . . 646 640 641
Capital surplus. . . . . . . . . . . . . . . . . . . . . . . . . . 141 67 76
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 3,783 3,252 2,799
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . (227) 3 (170)
Unearned restricted stock issued for future services . . . . . . . (23) (23) (20)
-------------------------------------------
Total common stockholders' equity. . . . . . . . . . . . . . . . . . 4,320 3,939 3,326
-------------------------------------------
$12,602 $12,431 $11,665
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Unearned
Common Capital Retained Translation Restricted
(dollars in millions except share data) Total Stock Surplus Earnings Adjustments Stock
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 3, 1993 . . . . . . . . . . . . . . $3,551 $647 $ 66 $3,056 $(194) $(24)
Net income . . . . . . . . . . . . . . . . . . . . . 199 -- -- 199 -- --
Cash dividends
Common ($.625 per share) . . . . . . . . . . . . . (298) -- -- (298) -- --
Auction preferred ($2,732.33 per share). . . . . . (8) -- -- (8) -- --
ESOP convertible preferred ($5.4375 per share) . . (26) -- -- (26) -- --
Stock issuances
Stock option and benefit plans . . . . . . . . . . 69 6 63 -- -- --
Restricted stock, less amortization of $4. . . . . 4 -- 2 -- -- 2
Reacquired shares. . . . . . . . . . . . . . . . . . (224) (12) (82) (130) -- --
Translation adjustments. . . . . . . . . . . . . . . 24 -- -- -- 24 --
ESOP tax benefit . . . . . . . . . . . . . . . . . . 10 -- -- 10 -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . 25 -- 27 (4) -- 2
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT JULY 2, 1994 . . . . . . . . . . . . . . 3,326 641 76 2,799 (170) (20)
Net income . . . . . . . . . . . . . . . . . . . . . 804 -- -- 804 -- --
Cash dividends
Common ($.67 per share). . . . . . . . . . . . . . (320) -- -- (320) -- --
Auction preferred ($4,188.00 per share). . . . . . (13) -- -- (13) -- --
ESOP convertible preferred ($5.4375 per share) . . (25) -- -- (25) -- --
Stock issuances
Stock option and benefit plans . . . . . . . . . . 57 4 53 -- -- --
Restricted stock, less amortization of $7. . . . . 7 -- 13 -- -- (6)
Reacquired shares. . . . . . . . . . . . . . . . . . (93) (5) (88) -- -- --
Translation adjustments. . . . . . . . . . . . . . . 173 -- -- -- 173 --
ESOP tax benefit . . . . . . . . . . . . . . . . . . 10 -- -- 10 -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . 13 -- 13 (3) -- 3
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT JULY 1, 1995 . . . . . . . . . . . . . . 3,939 640 67 3,252 3 (23)
Net income . . . . . . . . . . . . . . . . . . . . . 916 -- -- 916 -- --
Cash dividends
Common ($.74 per share). . . . . . . . . . . . . . (358) -- -- (358) -- --
Auction preferred ($4,219.00 per share). . . . . . (13) -- -- (13) -- --
ESOP convertible preferred ($5.4375 per share) . . (24) -- -- (24) -- --
Stock issuances
Business acquisitions. . . . . . . . . . . . . . . 55 3 52 -- -- --
Stock option and benefit plans . . . . . . . . . . 93 6 87 -- -- --
Restricted stock, less amortization of $13 . . . . 13 1 17 -- -- (5)
Reacquired shares. . . . . . . . . . . . . . . . . . (103) (4) (99) -- -- --
Translation adjustments. . . . . . . . . . . . . . . (230) -- -- -- (230) --
ESOP tax benefit . . . . . . . . . . . . . . . . . . 10 -- -- 10 -- --
ESOP share redemption. . . . . . . . . . . . . . . . 7 -- 7 -- -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . 15 -- 10 -- -- 5
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 29, 1996. . . . . . . . . . . . . . $4,320 $646 $141 $3,783 $(227) $(23)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-5
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended
----------------------------------------------
(dollars in millions) June 29, 1996 July 1, 1995 July 2, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $916 $804 $199
Adjustments for noncash charges included in net income
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 436 414
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . 180 170 154
Restructuring provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 732
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . -- -- 35
Increase (decrease) in deferred taxes. . . . . . . . . . . . . . . . . . . . . . 31 88 (222)
Other noncash credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) (118) (109)
Changes in current assets and liabilities, net of businesses acquired and sold
(Increase) in trade accounts receivable . . . . . . . . . . . . . . . . . . . (138) (38) (162)
(Increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (83) (138) (224)
(Increase) decrease in other current assets . . . . . . . . . . . . . . . . . (63) 18 (29)
Increase in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . 95 81 20
(Decrease) increase in accrued liabilities. . . . . . . . . . . . . . . . . . (11) 70 31
----------------------------------------
Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . 1,304 1,373 839
----------------------------------------
INVESTMENT ACTIVITIES
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . (542) (480) (628)
Acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216) (168) (412)
Dispositions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12 --
Sales of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 73 49
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 46 54
----------------------------------------
Net cash used in investment activities . . . . . . . . . . . . . . . . . . . . . (693) (517) (937)
----------------------------------------
FINANCING ACTIVITIES
Issuances of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 57 69
Purchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103) (93) (224)
Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (30)
Issuance of equity securities by subsidiary. . . . . . . . . . . . . . . . . . . . -- -- 200
Borrowings of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 573 385
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (369) (289) (438)
Short-term (repayments) borrowings, net. . . . . . . . . . . . . . . . . . . . . . (135) (743) 328
Payments of dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (395) (358) (332)
----------------------------------------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . (555) (853) (42)
----------------------------------------
Effect of changes in foreign exchange rates on cash. . . . . . . . . . . . . . . . (15) 10 4
----------------------------------------
Increase (decrease) in cash and equivalents. . . . . . . . . . . . . . . . . . . . 41 13 (136)
Cash and equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . 202 189 325
----------------------------------------
Cash and equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . $243 $202 $189
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-6
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CONSOLIDATION The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany transactions of consolidated
subsidiaries are eliminated. Acquisitions recorded as purchases are included in
the income statement from the date of acquisition.
FISCAL YEAR The corporation's fiscal year ends on the Saturday closest to June
30. Unless otherwise stated, references to years relate to 52-week fiscal years.
INTANGIBLE ASSETS The excess of cost over the fair market value of tangible net
assets and trademarks of acquired businesses is amortized on a straight-line
basis over the periods of expected benefit, which range from 10 years to 40
years. Accumulated amortization of intangible assets amounted to $811 at June
29, 1996, $710 at July 1, 1995 and $572 at July 2, 1994.
Subsequent to its acquisition, the corporation continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be recoverable. When factors
indicate that an intangible asset should be evaluated for possible impairment,
the corporation uses an estimate of the related business' undiscounted future
cash flows over the remaining life of the asset in measuring whether the
intangible asset is recoverable.
INVENTORY VALUATION Inventories are valued at the lower of cost (in 1996,
approximately 30% at last-in, first-out [LIFO] and the remainder at first-in,
first-out [FIFO]) or market. Inventories recorded at LIFO were approximately $36
at June 29, 1996, $18 at July 1, 1995 and $24 at July 2, 1994, lower than if
they had been valued at FIFO. Inventory cost includes material and conversion
costs.
PROPERTY Property is stated at cost, and depreciation is computed using
principally the straight-line method at annual rates of 2% to 20% for buildings
and improvements, and 4% to 33% for machinery and equipment. Additions and
improvements that substantially extend the useful life of a particular asset and
interest costs incurred during the construction period of major properties are
capitalized. Repair and maintenance costs are charged to expense. Upon sale, the
cost and related accumulated depreciation are removed from the accounts.
FOREIGN OPERATIONS Foreign currency-denominated assets and liabilities are
translated into U.S. dollars at the exchange rates existing at the balance sheet
date. Translation adjustments resulting from fluctuations in the exchange rates
are recorded as a separate component of common stockholders' equity. Income and
expense items are translated at the average exchange rates during the respective
periods.
FINANCIAL INSTRUMENTS The corporation uses financial instruments in its
management of foreign currency and interest rate exposures. Financial
instruments are not held or issued for trading purposes. Non-U.S. dollar
financing transactions generally are effective as hedges of long-term
investments or intercompany loans in the corresponding currency. Foreign
currency gains and losses on the hedges of long-term investments are recorded as
foreign currency translation adjustments included in stockholders' equity. Gains
and losses related to hedges of intercompany loans offset the gains and losses
on intercompany loans and are recorded in net income. Interest rate exchange
agreements are effective at modifying the corporation's interest rate exposures.
Net interest is accrued as either interest receivable or payable with the off-
set recorded in interest expense. The company also uses short-term forward
exchange contracts for hedging purposes. Realized and unrealized gains and
losses on these instruments are deferred and recorded in the carrying amount of
the related hedged asset, liability or firm commitment.
NET INCOME PER COMMON SHARE Primary net income per common share is based on the
average number of common shares outstanding and common share equivalents and net
income reduced for preferred dividends, net of the tax benefits related to the
ESOP convertible preferred stock dividends. The fully diluted net income per
share calculation assumes conversion of the ESOP convertible preferred stock
into common stock and further adjusts net income for the additional ESOP
compensation expense, net of tax benefits, resulting from the assumed
replacement of the ESOP convertible preferred stock dividends with common stock
dividends.
F-7
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." The corporation will continue to measure
compensation cost using the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25.
INCOME TAXES Income taxes are provided on the income reported in the financial
statements, regardless of when such taxes are payable. U.S. income taxes are
provided on undistributed earnings of foreign subsidiaries that are intended to
be remitted to the corporation. If the permanently reinvested earnings of
foreign subsidiaries were remitted, the U.S. income taxes due under current tax
law would not be material.
ADVERTISING The costs of advertising are generally expensed in the year in
which the advertising first takes place.
COMMON STOCK
Under the corporation's stock option plans, executive employees may be granted
options to purchase common stock at the market value on the date of grant. Under
the corporation's nonqualified stock option plans, an active employee will
receive a replacement stock option equal to the number of shares surrendered
upon a stock-for-stock exercise. The exercise price of the replacement option
will be 100% of the market value at the date of exercise of the original option
and will remain exercisable for the remaining term of the original option.
At June 29, 1996, 24,388,491 common shares were available for granting;
options had been granted on 17,426,115 shares at prices ranging from $8.30 to
$35.31 per share. During 1996, options on 7,658,091 shares were granted at
prices ranging from $27.44 to $35.31; options for 5,733,231 shares were
exercised at prices ranging from $8.30 to $31.94; and options for 445,889 shares
expired or were canceled. Options exercisable at year-end were: 1996--8,961,360;
1995--10,111,475; and 1994--9,548,858.
Employees may purchase up to twenty-five thousand dollars market value of
common stock annually at 85% of the market value. At June 29, 1996, 8,278,065
shares of common stock were available for issuance under this stock purchase
plan.
The corporation has restricted stock plans that provide for awards of
common stock to executive employees, subject to forfeiture if employment
terminates prior to the end of prescribed periods. The market value of shares
awarded under the plans is recorded as unearned compensation. The unearned
amounts are amortized to compensation expense over the periods the restrictions
lapse.
Changes in outstanding common shares for the past three years were:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Beginning balances . . . . . . . . 480,656,301 480,765,240 485,378,368
Stock issuances
Business acquisitions. . . . . . 2,566,912 -- --
Stock option and
benefit plans. . . . . . . . . 4,437,444 3,157,809 4,413,148
Restricted stock plans . . . . . 394,300 367,650 87,000
Stock purchased/retired. . . . . . (3,375,000) (3,932,400) (9,098,100)
ESOP share redemption. . . . . . . 456,414 60,030 59,101
Other. . . . . . . . . . . . . . . (81,817) 237,972 (74,277)
------------------------------------------
Ending balances. . . . . . . . . . 485,054,554 480,656,301 480,765,240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREFERRED STOCK
Six series of 500 shares each of nonvoting auction preferred stock are
outstanding. Dividends are cumulative and are determined every 49 days through
specific auction procedures.
The convertible preferred stock sold to the corporation's Employee Stock
Ownership Plan (ESOP) is redeemable at the option of the corporation at any time
after December 15, 2001. Each share is currently convertible into four shares of
the corporation's common stock and is entitled to 5.133 votes. This stock has a
7.5% annual dividend rate, payable semiannually, and has a liquidation value of
$72.50 plus accrued but unpaid dividends. The purchase of the preferred stock by
the ESOP was funded with notes guaranteed by the corporation. The loan is
included in long-term debt and is offset in the corporation's Consolidated
Balance Sheets under the caption Unearned Deferred Compensation. Each year, the
corporation makes contributions that, with the dividends on the preferred stock
held by the ESOP, will be used to pay loan interest and principal. Shares are
allocated to participants based upon the ratio of the current year's debt
service to the sum of the total principal and interest payments over the life of
the loan. Plan expense is recognized in accordance with methods prescribed by
the FASB.
ESOP-related expenses amounted to $13 in 1996, $12 in 1995 and $11 in 1994.
Payments to the ESOP were $41 in 1996, and $38 in 1995 and 1994. Principal and
interest payments by the ESOP amounted to $16 and $25 in 1996, $12 and $26 in
1995, and $11 and $27 in 1994.
F-8
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
The corporation has a Preferred Stock Purchase Rights Plan. The Rights are
exercisable 10 days after certain events involving the acquisition of 20% or
more of the corporation's outstanding common stock or the commencement of a
tender or exchange offer for at least 25% of the common stock. Upon the
occurrence of such an event, each Right, unless redeemed by the board of
directors, entitles the holder to receive common stock equal to twice the
exercise price of the Right. The exercise price is $140 multiplied by the number
of preferred shares held. There are 3,000,000 shares of preferred stock reserved
for issuance upon exercise of the Rights.
The corporation redeemed for cash its cumulative convertible adjustable
preferred stock on July 26, 1993 for $30.
MINORITY INTEREST IN SUBSIDIARIES
Minority interest in subsidiaries primarily consists of preferred equity
securities issued by subsidiaries of the corporation. No gain or loss was
recognized as a result of the issuance of these securities and the corporation
owned substantially all of the voting equity of the subsidiaries both before and
after the transactions.
In 1994, a domestic subsidiary of the corporation issued $200 of preferred
equity securities. The securities provide the holder a rate of return based upon
a specified inter-bank borrowing rate, are redeemable in 1998 and may be called
at any time by the subsidiary. The subsidiary has the option of redeeming the
securities with either cash, debt or equity of the corporation. The subsidiary
used the cash proceeds received to purchase the common stock of the corporation
on the open market.
Minority interest in subsidiaries also includes $295 of preferred equity
securities issued by a wholly owned foreign subsidiary of the corporation. The
securities provide a rate of return based upon specified inter-bank borrowing
rates. The securities are redeemable in 1997 in exchange for common shares of
the issuer, which may then be put to the corporation for preferred stock. The
subsidiary may call the securities at any time.
ACQUISITIONS AND DIVESTMENTS
During 1996, the corporation acquired several companies for an aggregate
purchase price of $216 in cash. The principal acquisition was the European skin
care and sweetener businesses of Bayer AG. Subsequent to the close of 1996, the
corporation acquired Aoste, a European manufacturer of processed meat products,
for $500 in cash.
During 1995, the corporation acquired several companies for an aggregate
purchase price of $168 in cash. The principal acquisition was the Imperial Meats
Group, a European manufacturer and distributor of processed meats. Also during
1995, the corporation acquired the remaining outstanding shares of Consolidated
Foodservice Companies, a domestic foodservice distribution business. Common
stock having a value of $55 was issued in July 1995 as consideration for
the Consolidated Foodservice Companies acquisition.
During 1994, the corporation acquired several companies for an aggregate
purchase price of $412 in cash. The principal acquisitions were the European
personal care businesses of SmithKline Beecham; Kiwi Brands (Pty.) Ltd. and
subsidiaries, a group of South African companies that manufacture and market
personal care products and hosiery; and Maglificio Bellia S.p.A., a manufacturer
and marketer of intimate apparel in Italy.
No material divestments were made during the last three years.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
INTEREST RATE AND CURRENCY SWAPS To manage interest rate and foreign exchange
risk and to lower its cost of borrowing, the corporation has entered into
interest rate and currency swaps. The currency swaps effectively hedge long-term
Dutch guilder- and Swiss franc-denominated investments and French franc-
denominated intercompany loans. The weighted average maturities of interest rate
and currency swaps as of June 29, 1996 were 11.2 years and 3.4 years,
respectively.
- --------------------------------------------------------------------------------
Weighted Average
Interest Rates(2)
----------------
Notional
Principal(1) Receive Pay
- --------------------------------------------------------------------------------
INTEREST RATE SWAPS
1996 Receive fixed-pay variable. . . . . . . $ 25 7.1% 5.3%
1995 Receive variable-pay fixed. . . . . . . 200 6.1 5.7
Receive fixed-pay variable . . . . . . . . 45 7.6 5.9
1994 Receive variable-pay fixed. . . . . . . 150 4.3 8.8
CURRENCY SWAPS
1996 Receive fixed-pay fixed . . . . . . . . $ 85 8.0% 5.8%
1995 Receive variable-pay fixed. . . . . . . 175 6.4 7.3
Receive fixed-pay fixed. . . . . . . . . 194 6.4 6.6
Receive variable-pay variable. . . . . . 320 7.9 6.9
1994 Receive variable-pay fixed. . . . . . . 175 4.1 7.3
Receive fixed-pay fixed. . . . . . . . . 90 5.1 7.3
Receive variable-pay variable. . . . . . 281 6.6 6.2
----------------------------
----------------------------
(1) The notional principal is the amount used for the calculation of interest
payments which are exchanged over the life of the swap transaction and is equal
to the amount of foreign currency or dollar principal exchanged at maturity.
(2) The weighted average interest rates are as of the respective balance sheet
dates.
F-9
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
The corporation has entered into an interest rate collar to hedge
fluctuations in Dutch interest rates. The Dutch guilder-denominated collar has a
notional principal of $117, a cap of 7.0% and a floor of 3.5%.
FORWARD EXCHANGE CONTRACTS The corporation uses forward exchange contracts to
reduce the effect of fluctuating foreign currencies on short-term foreign
currency-denominated intercompany transactions, firm third-party product
sourcing commitments and other known foreign currency exposures.
The table below summarizes by major currency the contractual amounts of the
corporation's forward exchange contracts in U.S. dollars. The bought amounts
represent the net U.S. dollar equivalent of commitments to purchase foreign
currencies, and the sold amounts represent the net U.S. dollar equivalent of
commitments to sell foreign currencies. The foreign currency amounts have been
translated into a U.S. dollar equivalent value using the exchange rate at the
reporting date. Forward exchange contracts mature at the anticipated cash
requirement date of the hedged transaction, generally within one year.
- --------------------------------------------------------------------------------
Bought (Sold)
- --------------------------------------------------------------------------------
Foreign Currency 1996 1995 1994
- --------------------------------------------------------------------------------
French franc . . . . . . . . . . . . . . . . $ 125 $(352) $(242)
Italian lira . . . . . . . . . . . . . . . . (287) (254) (151)
Belgian franc. . . . . . . . . . . . . . . . (74) (230) (52)
Dutch guilder. . . . . . . . . . . . . . . . (194) (236) 73
German mark. . . . . . . . . . . . . . . . . 50 36 (174)
Other. . . . . . . . . . . . . . . . . . . . (229) (139) (223)
- --------------------------------------------------------------------------------
At June 29, 1996, the deferred unrealized gains and losses on forward
exchange contracts were not material to the financial position of the
corporation.
CONCENTRATIONS OF CREDIT RISK A large number of major international financial
institutions are counterparties to the corporation's financial instruments. The
corporation enters into financial instrument agreements only with those
counterparties meeting very stringent credit standards, limiting the amount of
agreements or contracts it enters into with any one party and, where legally
available, executing master netting agreements. These positions are continuously
monitored. While the corporation may be exposed to credit losses in the event of
nonperformance by these counterparties, it does not anticipate losses, because
of these control procedures.
Trade accounts receivable due from highly leveraged customers were $53 at
June 29, 1996, $49 at July 1, 1995 and $52 at July 2, 1994. The financial
position of these businesses has been considered in determining allowances for
doubtful accounts.
GUARANTEES The corporation had third-party guarantees outstanding, aggregating
approximately $29 at June 29, 1996, $31 at July 1, 1995 and $28 at July 2, 1994.
These guarantees relate primarily to financial arrangements to support
various suppliers of the corporation, and are secured by the inventory and fixed
assets of suppliers.
FAIR VALUES The carrying amounts of cash and equivalents, trade receivables,
notes payable, accounts payable, and auction preferred stock approximated fair
value as of June 29, 1996, July 1, 1995 and July 2, 1994. The fair values of the
remaining financial instruments recognized on the Consolidated Balance Sheets of
the corporation at the respective year-end were:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Long-term debt, including
current portion. . . . . . . . . . . . . . $1,993 $2,102 $1,549
ESOP convertible
preferred stock. . . . . . . . . . . . . . 615 567 443
- --------------------------------------------------------------------------------
The fair value of the corporation's long-term debt, including the current
portion, is estimated using discounted cash flows based on the corporation's
current incremental borrowing rates for similar types of borrowing
arrangements. The fair value of the ESOP preferred shares is based upon the
contracted conversion into the corporation's common stock.
The fair value of the corporation's interest rate swaps, currency swaps,
forward exchange contracts and interest rate collar approximate their carrying
value in the financial statements as of June 29, 1996, July 1, 1995 and July 2,
1994. The fair value of these instruments was not material to the financial
position of the corporation.
F-10
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
LONG-TERM DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Interest Rate Range Maturity 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. dollar obligations:
ESOP debt. . . . . . . . . . . . . . . . . 8.176% 2004 $ 295 $ 311 $ 323
Notes and debentures . . . . . . . . . . . 4.65-8.75 1997-2016 1,330 1,165 876
Revenue bonds. . . . . . . . . . . . . . . 3.40-5.60 2002-2024 46 36 23
Zero coupon notes. . . . . . . . . . . . . 10.00-14.25 2014-2015 15 14 12
Various other obligations. . . . . . . . . 4 7 8
--------------------------
1,690 1,533 1,242
--------------------------
Foreign currency obligations:
Swiss franc. . . . . . . . . . . . . . . . -- 111 96
Dutch guilder. . . . . . . . . . . . . . . 6.00-6.50 1998 235 259 123
Various other obligations. . . . . . . . . 52 135 117
--------------------------
287 505 336
--------------------------
Total long-term debt . . . . . . . . . . . . 1,977 2,038 1,578
Less current maturities. . . . . . . . . . . 135 221 82
--------------------------
$1,842 $1,817 $1,496
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The ESOP debt is guaranteed by the corporation.
The zero coupon notes are net of unamortized discounts of $109 in 1996,
$110 in 1995 and $112 in 1994. Principal payments of $19 and $105 are due in
2014 and 2015, respectively.
Payments required on long-term debt during the years ending in 1997 through
2001 are $135, $285, $209, $232 and $273, respectively.
The corporation made cash interest payments of $236, $236 and $203 in 1996,
1995 and 1994, respectively.
Rental expense under operating leases amounted to approximately $222 in
1996 and 1995 and $207 in 1994. Future minimum annual fixed rentals required
during the years ending in 1997 through 2001 under noncancelable operating
leases having an original term of more than one year are $119, $97, $81, $69 and
$62, respectively. The aggregate obligation subsequent to 2001 is $133.
The corporation is contingently liable for long-term leases on properties
operated by others. The minimum annual rentals under these leases average
approximately $5 for the years ending in 1997-2001 and $2 in 2002-2006. Amounts
thereafter are not material.
CREDIT FACILITIES
The corporation has numerous credit facilities available, including revolving
credit agreements totaling $1,635 that had an annual fee of 0.06% as of June 29,
1996. These agreements support commercial paper borrowings. Selected data on the
corporation's short-term obligations follow:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Maximum period-end borrowings. . . . . . . . . . $1,709 $2,300 $1,998
Average borrowings during the year . . . . . . . 1,532 1,969 1,833
Weighted average interest rate during the year . 6.1% 6.6% 4.2%
Weighted average interest rate at year-end . . . 6.6 6.9 5.0
- --------------------------------------------------------------------------------
CONTINGENCIES
The corporation is a party to several pending legal proceedings and claims, and
environmental actions by governmental agencies. Although the outcome of such
items cannot be determined with certainty, the corporation's general counsel and
management are of the opinion that the final outcome should not have a material
effect on the corporation's results of operations or financial position.
F-11
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
RESTRUCTURING PROVISION
The composition of the corporation's restructuring reserves is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Writedown of Recognition of
Property and Curtailment
Investments Loss and Restructuring
Original to Net Special Foreign Reserves
Restructuring Realizable Termination Cash Exchange as of
Reserve Value Benefits Payments Impacts June 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Anticipated losses associated with disposal of land,
buildings and improvements, and machinery
and equipment . . . . . . . . . . . . . . . $289 $(289) $ -- $ -- $ -- $ --
Anticipated expenditures to close and dispose of
idle facilities-includes $33 of noncancelable
lease obligations . . . . . . . . . . . . . 112 -- -- (55) -- 57
Anticipated severance benefits . . . . . . . . . 239 -- -- (201) -- 38
Pension benefits associated with severed
employee group. . . . . . . . . . . . . . . 33 -- (33) -- -- --
Losses associated with the disposal of
certain businesses. . . . . . . . . . . . . 59 (15) -- (44) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
732 (304) (33) (300) -- 95
Foreign exchange impacts . . . . . . . . . . . . -- -- -- -- 13 13
- ------------------------------------------------------------------------------------------------------------------------------------
Total restructuring reserves . . . . . . . . . . $732 $(304) $(33) $(300) $13 $108
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1994, the corporation provided for the cost of
restructuring its worldwide operations, which reduced 1994 income before income
taxes, net income and net income per common share by $732, $495 and $1.03,
respectively. The planned restructuring activities included the closure of 94
manufacturing and distribution facilities and the severance of 9,900 employees.
As of June 29, 1996, the corporation had closed 91 manufacturing and
distribution facilities, terminated 9,422 employees and substantially completed
the planned restructuring actions. The remaining restructuring reserves are
anticipated to be utilized for the payment of obligations relating to closed
facilities and continuing severance benefits due to individuals impacted by the
restructuring. These reserves are classified as current liabilities.
Operating costs were lowered in 1996 and 1995 by $169 and $89,
respectively, primarily as a result of lower plant overhead and labor costs. The
corporation expects the restructuring plan to generate increasing savings in
subsequent years, growing to an annual savings of approximately $250 in 1998.
Savings from the planned actions will be used both for business-building
initiatives and profit improvement.
RETIREMENT PLANS
The corporation has noncontributory defined benefit plans covering certain of
its domestic employees. The benefits under these plans are primarily based on
years of service and compensation levels. The plans are funded in conformity
with the requirements of applicable government regulations. The plans' assets
consist principally of marketable equity securities, corporate and government
debt securities and real estate.
The corporation's foreign subsidiaries have plans for employees consistent
with local practices.
The corporation also sponsors defined contribution pension plans at several
of its subsidiaries. Contributions are determined as a percent of each covered
employee's salary.
Certain employees are covered by union-sponsored, collectively bargained,
multi-employer pension plans. Contributions are determined in accordance with
the provisions of negotiated labor contracts and generally are based on the
number of hours worked.
The annual pension expense for all plans was:
1996 1995 1994
- --------------------------------------------------------------------------------
Defined benefit plans. . . . . . . . . . $48 $43 $31
Defined contribution plans . . . . . . . 9 11 11
Multi-employer plans . . . . . . . . . . 3 4 4
-----------------------------------
Total pension expense. . . . . . . . . . $60 $58 $46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
The components of the defined benefit plan expenses were:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Benefits earned by employees. . . . . $ 58 $ 60 $ 52
Interest on projected benefit
obligations . . . . . . . . . . . . 120 105 92
Actual investment return on plan
assets. . . . . . . . . . . . . . . (312) (47) (99)
Net amortization and deferral . . . . 182 (75) (14)
-----------------------------------------
Net pension expense . . . . . . . . . $ 48 $ 43 $ 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The increase in the 1995 defined benefit plan expense is primarily
attributable to lower asset returns, the strengthening of foreign currencies
relative to the U.S. dollar, and benefit increases in certain foreign plans.
The status of defined benefit plans at the respective year-end was:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Fair market value of plan assets. . . $1,854 $1,592 $1,420
-----------------------------------------
Actuarial present value of benefits
for services rendered:
Accumulated benefits based
on salaries to date:
Vested . . . . . . . . . . . 1,505 1,281 1,144
Nonvested. . . . . . . . . . 55 47 38
Additional benefits based on
estimated future salary
levels . . . . . . . . . . . 154 204 217
----------------------------------------
Projected benefit obligations . . 1,714 1,532 1,399
----------------------------------------
Excess of plan assets over
projected benefit obligations . . 140 60 21
Unamortized net transitional asset. . (12) (17) (26)
Unrecognized net gain . . . . . . . . (24) (3) (8)
Unrecognized prior service cost . . . 66 81 88
----------------------------------------
Prepaid pension asset recognized
on the Consolidated
Balance Sheets. . . . . . . . . . $ 170 $ 121 $ 75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Weighted average rates used in determining net pension expense and related
obligations for defined benefit plans were:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate . . . . . . . . . . . . . 7.3% 7.5% 7.5%
Rate of compensation increase . . . . . 4.7 5.2 5.2
Long-term rate of return on plan
assets. . . . . . . . . . . . . . . . 8.3 8.3 8.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions"
(SFAS 106), for its domestic retiree benefit plans in 1994 and for retiree
benefit plans outside the United States in 1996. Under SFAS 106, the corporation
accrues the estimated cost of retiree health care and life insurance benefits
during the employees' active service periods. The corporation's previous method
of accounting for postretirement benefits other than pensions was similar to
that required by SFAS 106, and the accumulated benefit obligation for these
plans was accrued prior to the required adoption of SFAS 106. The accumulated
benefit obligation for retiree benefit plans outside the United States was $24
as of June 29, 1996.
The corporation provides health care and life insurance benefits to certain
retired employees, their covered dependents and beneficiaries. Generally,
employees who have attained age 55 and who have rendered 10 years of service are
eligible for these postretirement benefits. Certain retirees are required to
contribute to plans in order to maintain coverage. The components of the expense
for these plans were:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Benefits earned by employees . . . . . . . $ 5 $ 5 $ 4
Interest on projected benefit
obligations . . . . . . . . . . . . . . 13 11 11
Net amortization and deferral. . . . . . . 1 -- --
----------------------------------
Net postretirement benefit expense . . . . $ 19 $ 16 $ 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The status of postretirement benefit plans at the respective year-end was:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefits
for services rendered:
Retirees . . . . . . . . . . . . . . . $101 $ 90 $ 87
Fully eligible active participants . . 16 15 19
Other active participants. . . . . . . 56 43 48
----------------------------------
Accumulated postretirement benefit
obligations. . . . . . . . . . . . . . 173 148 154
Fair market value of plan assets . . . . . 2 2 2
----------------------------------
Accumulated postretirement benefit
obligations in excess of plan assets . 171 146 152
Unrecognized net transitional asset. . . . -- 14 15
Unrecognized net gain (loss) . . . . . . . 17 14 (4)
Unrecognized prior service cost. . . . . . -- (1) (1)
----------------------------------
Postretirement benefit obligations
recognized on Consolidated Balance
Sheets . . . . . . . . . . . . . . . $188 $173 $162
----------------------------------
Discount rate . . . . . . . . . . . . . . 7.2% 7.7% 7.7%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The assumed health care cost trend rate was 13% for 1996, decreasing to 7%
by the year 2002 and remaining at that level thereafter. These trend rates
reflect the corporation's prior experience and management's expectation that
future rates will decline. Increasing the assumed health care cost trend rates
by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 29, 1996 by 10% and the
postretirement benefit expense for 1996 by 12%.
F-13
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
INCOME TAXES Effective July 4, 1993, the corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). The cumulative effect as of July 4, 1993 of adopting SFAS 109 was a
one-time charge of $35, or $.07 per share, primarily due to adjusting
deferred taxes from historical to current rates. Financial statements for
years prior to 1994 have not been restated to reflect the adoption of this
standard.
The provisions for income taxes computed by applying the U.S. statutory
rate to income before taxes as reconciled to the actual provisions were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before provision for income taxes
United States. . . . . . . . . . . . . . $638 46.3% $648 53.1% $218 56.0%
Foreign. . . . . . . . . . . . . . . . . 740 53.7 571 46.9 171 44.0
---------------------------------------------------------
$1,378 100.0% $1,219 100.0% $389 100.0%
---------------------------------------------------------
---------------------------------------------------------
Taxes at U.S. statutory rates . . . . . . $482 35.0% $427 35.0% $136 35.0%
State taxes, net of federal benefit . . . 15 1.1 16 1.3 24 6.2
Difference between U.S. and
foreign rates. . . . . . . . . . . . . (68) (5.0) (67) (5.5) (34) (8.8)
Nondeductible amortization. . . . . . . . 54 3.9 50 4.1 46 11.7
Other, net. . . . . . . . . . . . . . . . (21) (1.5) (11) (0.8) (17) (4.2)
---------------------------------------------------------
Taxes at effective worldwide tax rates $462 33.5% $415 34.1% $155 39.9%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Current and deferred tax provisions were:
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
----------------------------------------------------------
United States. . . . . . . . . . . . . $166 $25 $154 $39 $200 $ (144)
Foreign. . . . . . . . . . . . . . . . 237 10 150 47 143 (61)
State. . . . . . . . . . . . . . . . . 28 (4) 23 2 34 (17)
----------------------------------------------------------
$431 $31 $327 $88 $377 $ (222)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
Following are the components of the deferred tax provisions occurring as a
result of transactions being reported in different years for financial and tax
reporting:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Depreciation . . . . . . . . . . . . . $22 $31 $22
Inventory valuation methods. . . . . . (35) (4) 2
Restructuring reserves . . . . . . . . 77 64 (230)
Other, net . . . . . . . . . . . . . . (33) (3) (16)
-------------------------
$31 $88 $(222)
=========================
Cash payments for income taxes . . . . $224 $279 $295
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The deferred tax (assets) liabilities at the respective year-end were as
follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Deferred tax (assets):
Restructuring reserves . . . . . . . $ (89) $(166) $(230)
Reserves not deductible until paid . (253) (213) (243)
Pension, postretirement and
other employee benefits. . . . . . (35) (8) (4)
Net operating loss and
other tax carryforwards. . . . . . (2) (3) (15)
Deferred tax liabilities:
Property, plant and equipment. . . . 298 265 230
Other. . . . . . . . . . . . . . . . -- 13 62
--------------------------
Net deferred tax (assets). . . . . . . $ (81) $(112) $(200)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-14
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Packaged Meats Coffee and Household and Personal
and Bakery Grocery Body Care Products Corporate Inter-segment Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Sales(1) . . . . . . . . . . . . . . . . . . $6,530 $2,896 $1,837 $7,370 $ -- $ (9) $18,624
Pretax income. . . . . . . . . . . . . . . . 422 428 214 729 (415)(2) -- 1,378
Assets . . . . . . . . . . . . . . . . . . . 2,045 2,033 1,571 6,635 318 (3) -- 12,602
Depreciation and amortization. . . . . . . . 135 86 78 312 23 -- 634
Capital expenditures . . . . . . . . . . . . 152 78 37 271 4 -- 542
- --------------------------------------------------------------------------------------------------------------------------------
1995
Sales(1) . . . . . . . . . . . . . . . . . . $6,110 $2,777 $1,691 $7,151 $ -- $ (10) $17,719
Pretax income. . . . . . . . . . . . . . . . 383 374 181 658 (377)(2) -- 1,219
Assets . . . . . . . . . . . . . . . . . . . 2,062 1,986 1,391 6,686 306 (3) -- 12,431
Depreciation and amortization. . . . . . . . 129 82 79 294 22 -- 606
Capital expenditures . . . . . . . . . . . . 116 66 35 262 1 -- 480
- --------------------------------------------------------------------------------------------------------------------------------
1994
Sales(1) . . . . . . . . . . . . . . . . . . $5,472 $2,090 $1,530 $6,449 $ -- $ (5) $15,536
Pretax income (loss)(4). . . . . . . . . . . 318 274 111 (71) (243)(2) -- 389
Assets . . . . . . . . . . . . . . . . . . . 1,662 1,776 1,335 6,535 357 (3) -- 11,665
Depreciation and amortization. . . . . . . . 108 74 71 289 26 -- 568
Capital expenditures . . . . . . . . . . . . 108 69 41 408 2 -- 628
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes sales between segments. Such sales are at transfer prices that are
equivalent to market value.
(2) Includes net interest expense of $173 in 1996, $185 in 1995 and $145 in 1994
incurred primarily in the United States to finance and support consolidated
operations.
(3) Principally cash and equivalents, certain fixed assets and certain other
noncurrent assets.
(4) Includes provisions for restructuring reported in the 1994 Consolidated
Statement of Income, as follows: Packaged Meats and Bakery $22; Coffee and
Grocery $25; Household and Body Care $55; and Personal Products $630.
Industry segment sales and operating income applicable to businesses sold
prior to June 29, 1996 were not material.
F-15
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
Asia-
Western/ Pacific/
Central Latin
United States Europe America Other Corporate Inter-area Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Sales (1) . . . . . . . . . $11,252 $5,834 $1,141 $412 $ -- $(15) $18,624
Pretax income . . . . . . . 980 671 116 26 (415)(2) -- 1,378
Assets (3). . . . . . . . . 5,824 4,945 1,157 358 318 (4) -- 12,602
- ----------------------------------------------------------------------------------------------------------------------------
1995
Sales (1) . . . . . . . . . $10,659 $5,484 $1,160 $439 $ -- $(23) $17,719
Pretax income . . . . . . . 880 564 101 51 (377)(2) -- 1,219
Assets (3). . . . . . . . . 5,729 5,038 999 359 306 (4) -- 12,431
- ----------------------------------------------------------------------------------------------------------------------------
1994
Sales (1) . . . . . . . . . $ 9,782 $4,433 $1,006 $348 $ -- $(33) $15,536
Pretax income (5) . . . . . 330 193 65 44 (243)(2) -- 389
Assets (3). . . . . . . . . 5,558 4,459 984 307 357 (4) -- 11,665
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes sales between geographic areas. Such sales are at transfer
prices that are equivalent to market value.
(2) Includes net interest expense of $173 in 1996, $185 in 1995 and $145 in
1994 incurred primarily in the United States to finance and support
consolidated operations.
(3) The tangible net assets of foreign operations included in the
accompanying Consolidated Balance Sheets were $1,123 at June 29, 1996,
$892 at July 1, 1995 and $594 at July 2, 1994.
(4) Principally cash and equivalents, certain fixed assets and certain other
noncurrent assets.
(5) Includes provisions for restructuring reported in the 1994 Consolidated
Statement of Income, as follows: United States $483; Western/Central
Europe $200; Asia-Pacific/Latin America $42; and Other $7.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Quarter
--------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net sales . . . . . . . . . . . . . . . $4,656 $4,898 $4,443 $4,627
Gross profit. . . . . . . . . . . . . . 1,725 1,878 1,719 1,832
Net income. . . . . . . . . . . . . . . 186 283 188 259
Per common share -- Net income . . . . .37 .57 .37 .52
Cash dividends declared . .17 .19 .19 .19
Market price -- high. 30.38 33.75 35.50 33.88
-- low . 26.88 28.88 29.88 30.25
- ----------------------------------------------------------------------------------
1995
Net sales . . . . . . . . . . . . . . . $4,290 $4,648 $4,193 $4,588
Gross profit. . . . . . . . . . . . . . 1,618 1,764 1,565 1,749
Net income. . . . . . . . . . . . . . . 165 252 166 221
Per common share -- Net income . . . . .33 .51 .33 .45
Cash dividends declared . .16 .17 .17 .17
Market price -- high. 23.38 26.00 27.75 29.00
-- low . 19.38 22.38 24.25 26.25
- ----------------------------------------------------------------------------------
1994
Net sales . . . . . . . . . . . . . . . $3,796 $4,010 $3,664 $4,066
Gross profit. . . . . . . . . . . . . . 1,412 1,533 1,388 1,503
Net income (loss) . . . . . . . . . . . 120(1) 236 152 (309)(2)
Per common share -- Net income (loss) . .24(1) .48 .30 (.65)(2)
Cash dividends declared . .145 .16 .16 .16
Market price -- high . 26.63 28.25 26.00 23.75
-- low. . 21.00 23.38 21.00 20.13
- ----------------------------------------------------------------------------------
</TABLE>
(1) Includes cumulative effect of accounting change of $35, or $.07 per share.
(2) Includes provision for restructuring of $495, or $1.03 per share.
F-16
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K, into the Company's previously filed
Registration Statement File Nos. 33-35760, 33-57615, 33-60837, 33-60071,
33-64383, 33-63715, 33-63717, 33-59002, 33-49212, 33-33245 and 33-33244.
Chicago, Illinois
September 4, 1996
