<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-3344
---------------------------------------------------------
Sara Lee Corporation
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-2089049
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
Three First National Plaza, Suite 4600, Chicago, Illinois 60602-4260
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(312) 726-2600
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-------- -------
On September 28, 1996, the Registrant had 483,832,418 outstanding shares
of common stock $1.33 1/3 par value, which is the Registrant's only class of
common stock.
The document contains 16 pages.
Page 1
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SARA LEE CORPORATION AND SUBSIDIARIES
INDEX
-----
PART I -
FINANCIAL STATEMENTS -
Preface 3
Condensed Consolidated Balance Sheets -
At September 28, 1996 and June 29, 1996 4
Consolidated Statements of Income -
For the thirteen weeks ended September 28, 1996
and September 30, 1995 5
Consolidated Statements of Common Stockholders' Equity -
For the period July 1, 1995 to September 28, 1996 6
Consolidated Statements of Cash Flows -
For the thirteen weeks ended September 28, 1996
and September 30, 1995 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 8
PART II -
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 10
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 12
EXHIBIT 11 - Computation of Net Income Per Common Share 13
EXHIBIT 12.1 - Computation of Ratio of Earnings to Fixed Charges 14
EXHIBIT 12.2 - Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements 15
EXHIBIT 27 - Financial Data Schedule 16
Page 2
<PAGE>
PART I
SARA LEE CORPORATION AND SUBSIDIARIES
-------------------------------------
PREFACE
The consolidated financial statements for the thirteen weeks ended September
28, 1996 and September 30, 1995 and the balance sheet as of September 28,
1996 included herein have not been examined by independent public
accountants, but, in the opinion of Sara Lee Corporation ("Corporation"), all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at September 28, 1996 and the results
of operations and the cash flows for the periods presented herein have been
made. The results of operations for the thirteen weeks ended September 28,
1996 are not necessarily indicative of the operating results for the full
fiscal year.
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Although the Corporation believes that the disclosures made are
adequate to make the information presented not misleading, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such regulations.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Corporation's
Form 10-K for the year ended June 29, 1996.
Page 3
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SARA LEE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 28, 1996 AND JUNE 29, 1996
(IN MILLIONS)
Sept. 28, June 29,
1996 1996
--------- --------
ASSETS
Cash and equivalents $ 240 $ 243
Trade accounts receivable, less allowances 2,079 1,728
Inventories:
Finished goods 1,824 1,802
Work in process 475 381
Materials and supplies 648 624
--------- ---------
2,947 2,807
Other current assets 315 303
--------- ---------
Total current assets 5,581 5,081
Trademarks and other assets 607 636
Property, net 3,129 3,007
Intangible assets 4,194 3,878
--------- ---------
$ 13,511 $ 12,602
--------- ---------
--------- ---------
LIABILITIES AND EQUITY
Notes payable $ 1,242 $ 319
Accounts payable 1,390 1,592
Accrued liabilities 2,654 2,596
Current maturities of long-term debt 143 135
--------- ---------
Total current liabilities 5,429 4,642
Long-term debt 1,922 1,842
Deferred income taxes 338 333
Other liabilities 600 604
Minority interest in subsidiaries 529 523
Auction preferred stock 300 300
ESOP convertible preferred stock 319 324
Unearned deferred compensation (286) (286)
Common stockholders' equity 4,360 4,320
--------- ---------
$ 13,511 $ 12,602
--------- ---------
--------- ---------
Page 4
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
THIRTEEN WEEKS ENDED
-----------------------
Sept. 28, Sept. 30,
1996 1995
---------- ----------
Net sales $ 4,886 $ 4,656
---------- ----------
Cost of sales 3,077 2,931
Selling, general and administrative expenses 1,463 1,396
Interest expense 54 59
Interest income (11) (12)
---------- ----------
4,583 4,374
---------- ----------
Income before income taxes 303 282
Income taxes 97 96
---------- ----------
Net income 206 186
Preferred dividend requirements, net of tax 7 7
---------- ----------
Net income available for common stockholders $ 199 $ 179
---------- ----------
---------- ----------
Net income per common share - primary $ 0.41 $ 0.37
---------- ----------
---------- ----------
Average shares outstanding 486 483
---------- ----------
---------- ----------
Net income per common share - fully diluted $ 0.40 $ 0.36
---------- ----------
---------- ----------
Average shares outstanding 505 502
---------- ----------
---------- ----------
Cash dividends per common share $ 0.19 $ 0.17
---------- ----------
---------- ----------
Page 5
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 1, 1995 TO SEPTEMBER 28, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
COMMON CAPITAL RETAINED TRANSLATION RESTRICTED
TOTAL STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK
------ ------ ------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1995 $3,939 $640 $ 67 $3,252 $ 3 $(23)
Net income 186 -- -- 186 -- --
Cash dividends -
Common ($.17 per share) (82) -- -- (82) -- --
Auction preferred ($1,091.33 per share) (3) -- -- (3) -- --
ESOP convertible preferred ($1.359 per share) (6) -- -- (6) -- --
Stock issuances -
Business acquisition 55 3 52 -- -- --
Stock option and benefit plans 19 1 18 -- -- --
Restricted stock, less amortization of $3 3 1 14 -- -- (12)
Reacquired shares (28) (1) (27) -- -- --
Translation adjustments (52) -- -- -- (52) --
ESOP tax benefit 2 -- -- 2 -- --
ESOP share redemption 4 -- 4 -- -- --
Other 9 1 8 -- -- --
------ ------ ------- -------- ----- ---
Balances at September 30, 1995 4,046 645 136 3,349 (49) (35)
Net income 730 -- -- 730 -- --
Cash dividends -
Common ($.57 per share) (276) -- -- (276) -- --
Auction preferred ($3,127.67 per share) (10) -- -- (10) -- --
ESOP convertible preferred ($4.0785 per share) (18) -- -- (18) -- --
Stock issuances -
Stock option and benefit plans 74 5 69 -- -- --
Restricted stock, less amortization of $10 10 -- 3 -- -- 7
Reacquired shares (75) (3) (72) -- -- --
Translation adjustments (178) -- -- -- (178) --
ESOP tax benefit 8 -- -- 8 -- --
ESOP share redemption 3 -- 3 -- -- --
Other 6 (1) 2 -- -- 5
------ ------ ------- -------- ----- ---
Balances at June 29, 1996 4,320 646 141 3,783 (227) (23)
Net income 206 -- -- 206 -- --
Cash dividends -
Common ($.19 per share) (92) -- -- (92) -- --
Auction preferred ($997.00 per share) (3) -- -- (3) -- --
ESOP convertible preferred ($1.359 per share) (6) -- -- (6) -- --
Stock issuances -
Business acquisition 13 1 12 -- -- --
Stock option and benefit plans 18 1 17 -- -- --
Restricted stock, less amortization of $6 6 -- 7 -- -- (1)
Reacquired shares (95) (4) (91) -- -- --
Translation adjustments (16) -- -- -- (16) --
ESOP tax benefit 2 -- -- 2 -- --
ESOP share redemption 6 1 5 -- -- --
Other 1 -- -- -- -- 1
------ ------ ------- -------- ----- ---
Balances at September 28, 1996 $4,360 $645 $ 91 $3,890 $(243) $(23)
------ ------ ------- -------- ----- ---
------ ------ ------- -------- ----- ---
</TABLE>
Page 6
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(IN MILLIONS)
THIRTEEN WEEKS ENDED
--------------------
Sept. 28, Sept. 30,
1996 1995
--------- ---------
OPERATING ACTIVITIES -
Net income $ 206 $ 186
Adjustments for non-cash charges included in net income:
Depreciation 121 116
Amortization of intangibles 48 43
Increase in deferred income taxes 5 2
Other (5) 3
Changes in current assets and liabilities, excluding
businesses acquired and sold (556) (574)
------ ------
Net cash used in operating activities (181) (224)
------ ------
INVESTING ACTIVITIES -
Purchases of property and equipment (107) (83)
Acquisitions of businesses (520) (23)
Sales of property 19 12
Other 1 17
------ ------
Net cash used in investing activities (607) (77)
------ ------
FINANCING ACTIVITIES -
Issuances of common stock 18 19
Purchases of common stock (95) (28)
Borrowings of long-term debt 78 84
Repayments of long-term debt (28) (140)
Short-term borrowings, net 913 483
Payments of dividends (101) (91)
------ ------
Net cash from financing activities 785 327
------ ------
Effect of changes in foreign exchange rates on cash -- (6)
------ ------
(Decrease) increase in cash and equivalents (3) 20
Cash and equivalents at beginning of year 243 202
------ ------
Cash and equivalents at end of quarter $ 240 $ 222
------ ------
------ ------
COMPONENTS OF THE CHANGES IN CURRENT ASSETS
AND LIABILITIES:
(Increase) in trade accounts receivable $ (218) $ (249)
Decrease (increase) in inventories 5 (141)
Decrease (increase) in other current assets 10 (10)
(Decrease) in accounts payable (336) (179)
(Decrease) increase in accrued liabilities (17) 5
------ ------
Changes in current assets and liabilities $ (556) $ (574)
------ ------
------ ------
Page 7
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following is a discussion of the results of operations for the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996 and the
changes in financial condition during the first three months of fiscal 1997.
RESULTS OF OPERATIONS
Current quarter net sales of $4.89 billion were $230 million or 4.9% above the
$4.66 billion reported in the first quarter last year. Businesses acquired
net of businesses sold subsequent to the start of the first quarter of last
year increased sales by approximately 5.1 percentage points. The strengthening
of the U.S. dollar relative to foreign currencies had the effect of reducing
sales in fiscal 1997 by approximately 1.3 percentage points. Thus, on a
comparable basis, sales increased approximately 1.1%. Aoste, a European
manufacturer of processed meat products, was the principle acquisition in the
current quarter.
Cost of sales increased by $146 million or 5.0% and the gross profit margin
of 37.0% was slightly lower than the 37.1% in the first quarter of last year.
Lower gross profit margins in the Corporation's Packaged Meats and Bakery and
Personal Products operations were offset in part by improved Coffee and
Grocery and Household and Body Care margins.
Selling, general and administrative expenses of $1.46 billion were $67 million
or 4.8% higher than the first quarter of last year. The increase was
primarily due to acquisitions and higher advertising and promotion expense
offset in part by the strengthening of the U.S. dollar relative to foreign
currencies. Net interest expense declined from $47 million last year to $43
million in the current year primarily as a result of lower borrowing costs.
The effective tax rate decreased from 34.0% to 32.0% of income before income
taxes. This decrease was largely due to the impact of lower foreign taxes.
Net income increased 10.9% to $206 million. Net income per share increased
10.8% to $.41 per share from the $.37 reported last year.
Page 8
<PAGE>
FINANCIAL CONDITION
During the first quarter of fiscal 1997, cash and equivalents remained
essentially the same while borrowings increased by $1.0 billion. The
increase in borrowings is primarily attributable to business acquisitions and
seasonal working capital requirements. The Corporation also repurchased 2.9
million shares of its common stock in the first quarter of 1997.
On October 31, 1996, the Corporation's board of directors authorized the
repurchase of up to 20 million shares of the Corporation's outstanding common
stock. This amount is in addition to 12 million shares which remain from
previous repurchase authorizations. It is anticipated that future share
repurchases will be funded from internal sources of cash.
RESTRUCTURING
As of September 28, 1996, the Corporation had completed the plant closure and
employee severance actions defined in the fiscal 1994 restructuring plan.
The Consolidated Balance Sheet at the end of the first quarter includes $54
million of continuing lease and other obligations relating to closed
facilities. These amounts are classified as current liabilities.
Actions taken as part of the restructuring plan lowered operating costs by
$50 million in the first quarter of 1997; however, a significant portion of
this benefit has been used for business building and profit improvement
initiatives. The Corporation expects the restructuring plan to generate
increasing savings, growing to an annual savings of approximately $250
million in 1998. Savings from the planned actions will be used for business
building initiatives and profit improvements.
Page 9
<PAGE>
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Registrant's 1996 Annual Meeting of Stockholders was held on October 31,
1996, in Chicago, Illinois ("Annual Meeting").
(b) Not applicable.
(c) (i) A total of 423,592,948 votes (83.4% of all votes entitled to vote
at the Annual Meeting) were represented by proxy or ballot at the Annual
Meeting. The stockholders of the Registrant were requested to elect 18
directors as nominated by management. All nominees were elected as
indicated by the following voting tabulation:
NAME FOR WITHHELD
---- --- --------
Paul A. Allaire 418,419,653 5,173,295
Frans H.J.J. Andriessen 418,407,513 5,185,435
John H. Bryan 418,296,872 5,296,076
Duane L. Burnham 418,482,213 5,110,735
Charles W. Coker 418,435,476 5,157,472
Willie D. Davis 418,328,546 5,264,402
Donald J. Franceschini 418,334,165 5,258,783
Allen F. Jacobson 418,196,064 5,396,884
Vernon E. Jordan, Jr. 417,995,678 5,597,270
James L. Ketelsen 418,402,034 5,190,914
Hans B. van Liemt 418,451,057 5,141,891
Joan D. Manley 418,379,937 5,213,011
C. Steven McMillan 418,201,665 5,391,283
Newton N. Minow 418,250,461 5,342,487
Michael E. Murphy 418,419,592 5,173,356
Sir Arvi H. Parbo A.C. 418,303,517 5,289,431
Rozanne L. Ridgway 418,278,109 5,314,839
Richard L. Thomas 418,393,146 5,199,802
(ii) The stockholders were requested to ratify the appointment of
Arthur Andersen LLP as the independent public accountants of the
Corporation for its fiscal year 1997. The appointment of Arthur
Andersen LLP was ratified by the stockholders, as
421,140,430 votes were cast for the proposal, 1,247,490
votes were cast against the proposal, and 1,205,028 votes
abstained.
(d) Not applicable.
Page 10
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
PAGE NUMBER OR
EXHIBIT INCORPORATED HEREIN
NUMBER DESCRIPTION BY REFERENCE TO
------- ----------- -------------------
11 Computation of Net Income
Per Common Share 13
12.1 Computation of Ratio of
Earnings to Fixed Charges 14
12.2 Computation of Ratio of
Earnings to Fixed Charges
and Preferred Stock Dividend
Requirements 15
27 Financial Data Schedule 16
(b) Reports on Form 8-K
A Form 8-K was filed by the Corporation on September 4, 1996. It
reported the consolidated balance sheets of Sara Lee 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.
Page 11
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SARA LEE CORPORATION
(Registrant)
By: /s/ Wayne R. Szypulski
--------------------------------
Wayne R. Szypulski
Vice President and Controller
DATE: November 11, 1996
Page 12
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirteen Weeks Ended
September 28, 1996 September 30, 1995
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
EARNINGS:
Net income $ 206 $ 206 $ 186 $ 186
Less: Dividends on preferred stocks,
net of tax benefits (7) (3) (7) (3)
Adjustment attributable to conversion of
ESOP convertible preferred stock -- (2) -- (2)
------- ------- ------- -------
Net income available for common stockholders $ 199 $ 201 $ 179 $ 181
------- ------- ------- -------
------- ------- ------- -------
SHARES:
Average shares outstanding 482 482 480 480
Add: Common stock equivalents -
Stock options 2 3 2 2
ESOP convertible preferred stock -- 18 -- 18
Restricted stock and other 2 2 1 2
------- ------- ------- -------
Adjusted weighted average shares outstanding 486 505 483 502
------- ------- ------- -------
------- ------- ------- -------
Net income per common share: $ 0.41 $ 0.40 $ 0.37 $ 0.36
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Page 13
<PAGE>
EXHIBIT 12.1
SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS EXCEPT RATIOS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------
SEPT. 28, SEPT. 30,
1996 1995
--------- ---------
<S> <C> <C>
Fixed charges:
Interest expense..................................... $ 54 $ 59
Interest portion of rental expense................... 17 21
--------- ---------
Total fixed charges before capitalized interest...... 71 80
Capitalized interest................................. 2 3
--------- ---------
Total fixed charges............................. $ 73 $ 83
--------- ---------
--------- ---------
Earnings available for fixed charges:
Income before income taxes........................... $303 $282
Less undistributed income in minority owned
companies........................................... (2) (2)
Add minority interest in majority-owned
subsidiaries........................................ 8 10
Add amortization of capitalized interest............. 6 5
Add fixed charges before capitalized interest........ 71 80
--------- ---------
Total earnings available for fixed charges......... $386 $375
--------- ---------
--------- ---------
Ratio of earnings to fixed charges..................... 5.3 4.5
--------- ---------
--------- ---------
</TABLE>
Page 14
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.2
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN MILLIONS EXCEPT RATIOS)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
Sept. 28, Sept. 30,
1996 1995
--------- ---------
<S> <C> <C>
Fixed charges and preferred stock dividend requirements:
Interest expense $ 54 $ 59
Interest portion of rental expense 17 21
--------- ---------
Total fixed charges before capitalized interest
and preferred stock dividend requirements 71 80
Capitalized interest 2 3
Preferred stock dividend requirements (1) 10 11
--------- ---------
Total fixed charges and preferred stock
dividend requirements $ 83 $ 94
--------- ---------
--------- ---------
Earnings available for fixed charges and preferred
stock dividend requirements:
Income before income taxes $ 303 $ 282
Less undistributed income in minority owned companies (2) (2)
Add minority interest in majority-owned subsidiaries 8 10
Add amortization of capitalized interest 6 5
Add fixed charges before capitalized interest and
preferred stock dividend requirements 71 80
--------- ---------
Total earnings available for fixed charges and
preferred stock dividend requirements $ 386 $ 375
--------- ---------
--------- ---------
Ratio of earnings to fixed charges and preferred stock
dividend requirements 4.7 4.0
--------- ---------
--------- ---------
</TABLE>
(1) Preferred stock dividends in the computation have been increased to an
amount representing the pretax earnings that would have been required
to cover such dividends.
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> SEP-28-1996
<CASH> 228
<SECURITIES> 12
<RECEIVABLES> 2,306
<ALLOWANCES> 227
<INVENTORY> 2,947
<CURRENT-ASSETS> 5,581
<PP&E> 6,203
<DEPRECIATION> 3,074
<TOTAL-ASSETS> 13,511
<CURRENT-LIABILITIES> 5,429
<BONDS> 1,922
0
333
<COMMON> 645
<OTHER-SE> 3,715
<TOTAL-LIABILITY-AND-EQUITY> 13,511
<SALES> 4,886
<TOTAL-REVENUES> 4,886
<CGS> 3,077
<TOTAL-COSTS> 3,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 58
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 303
<INCOME-TAX> 97
<INCOME-CONTINUING> 206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
