LEE SARA CORP, 10-K405, 1996-09-25

LEE SARA CORP
10-K405, 1996-09-25
FOOD AND KINDRED PRODUCTS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED JUNE 29, 1996

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM
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COMMISSION FILE NUMBER 1-3344

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SARA LEE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
MARYLAND 36-2089049
(State of Incorporation) (I.R.S. Employer Identification No.)
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602-4260
(Address of principal executive (Zip Code)
offices)
</TABLE>

Registrant's telephone number including area code: (312) 726-2600

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<C> <S>
Common Stock, $1.33 1/3 par value The Chicago Stock Exchange
The New York Stock Exchange
The Pacific Stock Exchange
Amsterdam Stock Exchange
The Bourse (Paris)
Stock Exchange of Basel
Stock Exchange of Geneva
The Stock Exchange (London)
Stock Exchange of Zurich
Preferred Stock Purchase Rights The Chicago Stock Exchange
The New York Stock Exchange
The Pacific Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports 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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

As of September 3, 1996, the aggregate market value of the voting stock
(based upon the closing price per share of Common Stock on the New York Stock
Exchange on such date) held by non-affiliates of the registrant was
$15,312,636,964.

On September 1, 1996, the registrant had outstanding 485,182,003 shares of
common stock of $1.33 1/3 par value, which is the registrant's only class of
common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement, dated September 20, 1996, are
incorporated by reference into Items 10-12 of Part III.

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PART I

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

Sara Lee Corporation ("Sara Lee" or the "Corporation") is a global
manufacturer and marketer of high-quality, brand-name products for consumers
throughout the world. It was incorporated in Baltimore, Maryland in 1939 as the
C.D. Kenney Company and adopted its current name in 1985.

For the past five years, the main focus of Sara Lee has been to continue to
build brand equity and improve returns. These objectives were pursued through
the introduction of new products, the expansion of existing products into new
markets, and a significant commitment to marketing support in order to build
leadership brands. In fiscal 1996, Sara Lee spent $1.8 billion to retain and
grow the equity its brands have with customers, and to support its stable of
value-added, high-margin products in its four industry segments, Packaged Meats
and Bakery, Coffee and Grocery, Household and Body Care and Personal Products.
This amount represents an increase of 9.8% over fiscal 1995.

During fiscal 1996, Sara Lee continued to implement its worldwide
restructuring program, which was announced in the latter part of fiscal 1994. As
of June 29, 1996, Sara Lee had closed 91 manufacturing and distribution
facilities, terminated 9,422 employees and substantially completed the planned
restructuring.

SARA LEE PACKAGED MEATS AND BAKERY

Sara Lee Packaged Meats continued its focus on high-margin, value-added
products in fiscal year 1996. On a worldwide basis, unit volumes decreased 1%,
although sales and profits increased. Sara Lee continued to introduce new food
products during fiscal 1996, with an emphasis on "better-for-you" products and
convenience foods. Several Sara Lee meat brands introduced no-fat or reduced-fat
products in fiscal 1996 as well as an increased selection of convenience
products. Reduced-fat products now account for more than 30% of Sara Lee's
retail meat sales.

In fiscal 1997, Sara Lee pursued its objectives of building brands and
increasing business outside the United States through its acquisition of Aoste,
a leading processed meats company in France and one of Europe's largest
processed meats producers. The company manufactures processed meats under the
major brand names of AOSTE, JUSTIN BRIDOU and COCHONOU. As a result of the
acquisition, Sara Lee is the largest processed meats company in the world.

Sara Lee Bakery maintained its leadership position as the top frozen baked
goods brand in the United States, the United Kingdom and Australia in fiscal
1996. Sara Lee Bakery also introduced and/or expanded its distribution of a
number of new products. In fiscal 1996, worldwide unit volume, excluding
acquisitions, declined 1% for the fiscal year, reflecting weak frozen bakery
industry trends. In fiscal 1996, Sara Lee expanded its fresh-baked line, added
several value-added variations of core frozen products and continued to
test-market a line of single-serve snacks. Sara Lee fresh baked items now
account for 25% of total Bakery revenues in its core markets. The products are
sold in approximately one-third of U.S. markets. In fiscal 1997, the Bakery
launched four new reduced-fat versions of some of its most popular fresh baked
goods: Sara Lee Reduced Fat Original Cheesecake, Apple Pie, Cheese Coffee Cake
and Regular Pound Cake. In addition, Sara Lee Bakery's foodservice unit
introduced a variety of new products, including a line of premium desserts.

Sara Lee Foodservice's business, PYA/Monarch, strengthened its position as
the leading foodservice distributor in the southeastern United States and the
fourth-largest full-line foodservice company in the nation with the acquisition
of Bass & Swaggerty, a Florida-based foodservice distributor in fiscal 1997.
Sara Lee continues to focus on low-cost production, customer service and
increasing unit volumes.

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SARA LEE COFFEE AND GROCERY

During fiscal 1996, the Coffee and Grocery line of business introduced new
items to meet growing consumer demand for premium and specialty products,
including DOUWE EGBERTS ICED COFFEE in the Netherlands and Spain. For the
out-of-the-home market, Coffee and Grocery introduced an advanced version of the
CAFITESSE system of coffee serving. Sara Lee also acquired the sweeteners and
low-calorie food lines of Bayer AG in Germany. The acquisition includes NATREEN
and NATRENA tabletop sweetners. Sara Lee has the largest market share in roasted
coffee products in four European markets and leading positions in a number of
other countries.

Green coffee costs followed a downward trend in fiscal 1996 and consumer
prices, in turn, moderated leading to increased sales volumes.

New tea products were launched during the fiscal year. In the Netherlands,
major product introductions under the PICKWICK brand were PICKWICK TRADITIONS
tea, the traditional black tea blends for restaurants and hotels. PICKWICK Fresh
Tea was also made available in the Netherlands. Despite limited consumer
purchasing power in Russia, PICKWICK sales continue to grow as distribution is
expanded.

SARA LEE HOUSEHOLD AND BODY CARE

Sara Lee Household and Body Care continued to grow and posted increased
sales and profits for fiscal 1996 on the strength of its growing core businesses
in shoe care, body care and insecticides and its direct selling business.
Product developments in Sara Lee's shoe care business continued in fiscal 1996,
with the introduction of shoe accessories, such as inner soles and laces, as
well as cleaning products for nontraditional footwear. The Company's shoe care
business in China increased its sales over the previous year.

Sara Lee is also a market leader in Europe in the body care category, with
bath and shower, baby care and toiletry products marketed under the SANEX,
DUSCHDAS, RADOX, BADEDAS, ZWITSAL, WILLIAMS, BRYLCREEM, FISSAN and PRODERM
brands. In fiscal 1996, Sara Lee also acquired the DELIAL, SATINA and QUENTY
brands from Bayer AG.

Sara Lee's Direct Selling business in its largest market, Mexico, was
negatively affected by economic instability in Mexico. Nevertheless, House of
Fuller increased the number of sales representatives to 200,000 and expanded
product offerings and promotional activities. Sara Lee's direct selling business
expanded into China and Uruguay during fiscal 1996.

SARA LEE PERSONAL PRODUCTS

Sara Lee Intimates grew worldwide unit volumes 3% launching new styles and
brand extensions in its BALI, DIM, HANES HER WAY, JUST MY SIZE, PLAYTEX and
WONDERBRA brands. During fiscal 1996, Sara Lee maintained its number-one
position in the intimate apparel markets in the United States, Canada and
Mexico. In early fiscal 1997, Sara Lee acquired Lovable Italiano in Italy, which
will expand Sara Lee's presence in intimate apparel in Europe, where DIM,
PLAYTEX, WONDERBRA and ROSY are already well-established intimate apparel
brands.

Sara Lee Accessories opened its Pacific Rim COACH flagship store in Waikiki.
Coach also introduced the new BERKELEY line in fiscal 1996 and a limited
introduction of COACH footwear for men and women. During fiscal 1997, COACH
men's apparel will be introduced on a limited basis in COACH stores. Sara Lee
also continued to relaunch Mark Cross, a premium leather goods company.

Sara Lee Knit Products focused on value-added products and cost-effective
manufacturing and sourcing in fiscal 1996. In fiscal 1996, Sara Lee captured the
number-one market position for U.S. men's and boys' underwear. Volume gains in
worldwide activewear and flat or declining volumes for some categories of
underwear resulted in flat volumes on a worldwide basis. In the U.S. women's and
girls' panties category,

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HANES HER WAY and other Sara Lee brands maintained their number-one position.
Sara Lee's strategic focus for the U.S. underwear market is the development of
new, value-added products. This includes an expanded array of boxer-brief styles
and fashion underwear for men and more upscale panty styles for women.

In fiscal 1996, Sara Lee took major steps to broaden its reach beyond the
mass merchandise channel via new licensing agreements. Principal among them was
an agreement for a Polo/Ralph Lauren collection of men's and women's underwear
and loungewear, to be sold in department stores beginning in the second half of
fiscal 1997. Sara Lee's worldwide activewear business posted increased unit
volumes for the 1996 fiscal year.

For all apparel categories, Sara Lee capitalized on its partnership
agreement with the 1996 Olympic Games to strengthen the equity of both the Hanes
and Champion brands.

Sara Lee Hosiery continued to respond to changing market forces in the
hosiery area during fiscal 1996 through the introduction of shaping and toning
products, new colors and textures, increased durability and special occasion
hosiery. The global market for sheer hosiery continued to exhibit weakness, and
unit volumes fell 9%. However, profits for Sara Lee's worldwide sheer hosiery
business increased. In the United States, Sara Lee Hosiery continued to decrease
production capacity and improve inventory flow to maximize efficiencies, returns
and profitability. In Europe, Sara Lee continued to reduce manufacturing
overhead and excess sheer hosiery capacity.

Sara Lee introduced an array of value-added products designed for comfort,
contouring, beauty and durability in fiscal 1996. Hanes' fiscal 1996 launch of
RESILIENCE hosiery was the Corporation's most successful to date. L'eggs hosiery
also introduced the RELIANCE line in fiscal 1996. The licensed DONNA KARAN and
DKNY designer brands have performed well. In Europe, Sara Lee introduced several
new hosiery products including JAMBES FINES ET LEGERES ("slim and fit legs")
under the DIM brand and FILODORO SLIM UP and PHILIPPE MATIGNON ALL DAY-UP
hosiery in Italy.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Sara Lee's businesses are classified into four industry segments: Packaged
Meats and Bakery, Coffee and Grocery, Household and Body Care and Personal
Products. The financial information about Sara Lee's industry segments can be
found on page F-21 of this Report.

SARA LEE PACKAGED MEATS AND BAKERY

Sara Lee Packaged Meats processes and sells pork, poultry and beef products
to supermarkets, warehouse clubs, national chains and institutions throughout
the United States, Europe and Mexico. Sales are transacted through Sara Lee's
own sales force, brokers and institutional buyers. Some of the more prominent
brands in the United States within this category include BALL PARK, BEST'S
KOSHER, BRYAN, HILLSHIRE FARM, HYGRADE, JIMMY DEAN, KAHN'S, MR. TURKEY, SARA LEE
and SINAI 48. Sara Lee's more prominent European brands include STEGEMANN in the
Netherlands, ARGAL in Spain and NOBRE in Portugal. Sara Lee has a 49.9% interest
in AXA Alimentos, S.A. de C.V., which owns Kir Alimentos S.A. de C.V., a leading
processed meats company in Mexico. In fiscal 1997, Sara Lee acquired Aoste, a
leading processed meats company in France and one of Europe's largest processed
meats producers. Aoste markets processed meats under the brand names of AOSTE,
JUSTIN BRIDOU and COCHONOU. The Aoste acquisition will make Sara Lee the largest
processed meats company in the world.

The products offered by this line of business include smoked sausage, bacon,
hot dogs, breakfast sausage, breakfast sandwiches, premium deli and luncheon
meats, ham, turkey, and packaged lunch combinations. The ingredients -- pork,
turkey and beef -- are purchased by Sara Lee from a variety of sources.

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The prices of these raw materials fluctuate, depending primarily on supply and
demand. Meat commodity costs rose in fiscal 1996. Because of the range of
sources from which these raw materials are available, Sara Lee believes that it
will continue to have access to adequate supplies.

The Packaged Meats category is highly competitive, with an emphasis on
product quality, price, advertising and promotion, and customer service. Sara
Lee's competitors include international, national, regional and local companies.
The Packaged Meats category has accounted for 10% or more of Sara Lee's
consolidated revenues during the past three fiscal years. Sara Lee believes it
is one of the three industry leaders in the United States.

Most of Sara Lee's Packaged Meats operations are regulated by the U.S.
Department of Agriculture, whose focus is the quality, sanitation and safety of
meat products, and, to some extent, by state and local government agencies. Sara
Lee's Packaged Meats operations in Europe and Mexico are regulated by local
authorities.

Sara Lee Bakery produces a wide variety of fresh and frozen baked and
specialty items. Its core products are pies, cheesecakes, pound cakes and Danish
pastries. These products are sold through supermarkets, foodservice
distributors, bakery-deli and direct channels throughout the United States,
United Kingdom, France, Mexico, Australia and numerous Asia-Pacific countries.
Sales are transacted through Sara Lee's sales force and independent wholesalers
and distributors. The key ingredients for these products -- butter, milk, sugar,
fruits, eggs and flour -- are purchased from suppliers at prices that are
subject to such influences as supply and demand, weather, and government price
controls. Because of the number of sources from which such raw materials are
generally available, Sara Lee believes it will continue to have access to
adequate supplies.

Competition in this category is keen, with a large number of participants.
Sara Lee seeks to maintain and enhance a leading position in the industry
through marketing efforts that are designed to reinforce and build brand
recognition, and through superior customer service.

In the United States, Sara Lee Bakery products are subject to regulation by
the Food and Drug Administration, the federal agency charged with, among other
things, enforcing laws pertaining to food processing, content and labeling, and
to a lesser extent, by state and local government agencies.

Sara Lee Foodservice's business is conducted principally under the
PYA/Monarch name. With the acquisition of Bass & Swaggerty, a Florida based
foodservice distributor in fiscal 1997, PYA/Monarch strengthened its position as
the leading foodservice distributor in the southeastern United States. PYA/
Monarch is the fourth largest full-line foodservice company in the nation. This
business distributes dry, refrigerated and frozen foods, paper supplies and
foodservice equipment to institutional and commercial foodservice customers.

The institutional foodservice distribution industry is highly competitive,
with price and service being the major means by which Sara Lee Foodservice
competes. This line of business generates lower margins on sales dollars than
Sara Lee's other businesses. The foodservice business acounted for 10% or more
of Sara Lee's consolidated revenues during fiscal years 1995 and 1996.

SARA LEE COFFEE AND GROCERY

Sara Lee believes it is one of the top four coffee roasters in the world,
and one of the top three in the European market. It has a significant presence
in such countries as the Netherlands, Belgium, France, Denmark, Spain and
Australia, and has established positions in Central and Eastern Europe through
acquisitions and expanded sales efforts. While DOUWE EGBERTS is its European
flagship brand, its other premium European coffee brands include MAISON DU CAFE,
MARCILLA and MERRILD. Sara Lee's PICKWICK brand, an important brand in the
European tea market, is expanding its current lines in an effort to appeal to
younger consumers and has entered the Russian and Eastern European markets.

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This is a very competitive business with the other participants consisting
primarily of other large multi-national companies. Sara Lee seeks to maintain a
competitive edge by offering its customers superior quality and value.

Sara Lee is also a significant competitor in the out-of-home coffee service
business. Its Douwe Egberts Coffee Systems business provides coffee and
dispensing equipment in Europe, while its Superior Coffee and Foods business
provides similar products and services in the United States.

The significant cost item in the production of coffee products is the price
of green coffee, which varies depending on such factors as weather (which
affects the quality and quantity of available supplies), consumer demand, the
political climate in the producing nations, unilateral pricing policies of
producing nations, speculation on the commodities market, and the relative
valuations and fluctuations of the currencies of producer versus consumer
countries. These factors also generally affect Sara Lee's competitors.
Uncertainty over the availability of supplies resulted in extreme volatility in
the price of green coffee in fiscal 1995, leading to the highest prices in
recent years. In fiscal 1996, green coffee prices declined. Sara Lee anticipates
that green coffee prices will continue to be affected due to uncertainty over
the availability of future supplies. Sara Lee has and expects to continue to
offset the negative effect of price increases through careful inventory
management, cost cutting, and higher prices for its coffee products. Primarily
due to the effect of lower green coffee costs on consumer buying habits, unit
volume gains were posted for Sara Lee coffee brands in most European markets.

The Sara Lee Coffee and Grocery line of business also manufactures rice
products under the LASSIE brand in the Netherlands, snack and nut products under
the DUYVIS, FELIX and BENENUTS brands in the Netherlands, Belgium and France,
and cut and pipe tobacco under the Amphora, Drum and Van Nelle brands in Europe.

The Sara Lee Coffee and Grocery business has accounted for 10% or more of
Sara Lee's consolidated revenues during the past three fiscal years.

SARA LEE HOUSEHOLD AND BODY CARE

Sara Lee Household and Body Care is composed of three primary core
categories: shoe care -- led by a worldwide line of Kiwi products; body care
items -- led by the SANEX brand, but also including DUSCHDAS and BADEDAS and
baby care products sold under the ZWITSAL, FISSAN and PRODERM names; and
insecticides -- sold internationally under the CATCH, BLOOM, VAPONA and RIDSECT
brand names. AMBI-PUR air fresheners, ZENDIUM and PRODENT oral care products,
and BIOTEX and NEUTRAL specialty detergents are also important categories for
Sara Lee. Body care items and insecticides are marketed principally in Europe as
well as into the Asia-Pacific and Latin America markets. These products are sold
through a variety of retail channels including supermarkets. These are very
competitive businesses. Sara Lee seeks to maintain a competitive advantage by
offering its customers superior quality and value.

Sara Lee Direct Selling distributes a wide range of products -- cosmetics,
fragrances, toiletries, personal products and jewelry -- through a network of
independent sales representatives. This method of reaching the consumer has been
particularly successful at the House of Fuller business in Mexico, the House of
Sara Lee businesses in Indonesia and the Philippines, and the Avroy Shlain
business in South Africa. Sara Lee also operates direct selling organizations in
China and Uruguay. While this segment is very fragmented, Sara Lee believes it
has an important position in many product lines in those countries in which it
competes.

SARA LEE PERSONAL PRODUCTS

The Personal Products line of business, which is headquartered in
Winston-Salem, North Carolina, includes the Intimates, Accessories, Knit
Products and Hosiery business groups.

Sara Lee Intimates' business includes bras, panties and shapewear. These are
manufactured and distributed under such labels as BALI, HANES HER WAY, PLAYTEX,
WONDERBRA and DAISYFRESH in North America,

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and PLAYTEX and DIM in Europe. Sara Lee holds a leading position in the Mexican
bra market through its PLAYTEX and HANES HER WAY brand and continued to build
market share in Canada during fiscal 1996 through its PLAYTEX, WONDERBRA,
DAISYFRESH and HANES HER WAY brands.

Distribution channels for intimate apparel range from department and
specialty stores for such premium brands as BALI, and some PLAYTEX products, to
warehouse clubs and mass-merchandise outlets for some of the value-priced
brands. Sales are effected through Sara Lee's sales force.

The intimate apparel market is a competitive one based on consumer brand
loyalty. Sara Lee endeavors to maintain its competitive edge through marketing
and promotional efforts, and by offering consumers value through a superior
combination of quality and price.

Sara Lee Accessories' business involves the manufacture and marketing of
premium leather products through its Coach division, under the COACH and MARK
CROSS brands, and the manufacture and marketing of men's and women's gloves,
slippers and knitwear through its Aris Isotoner division under the ARIS and
ISOTONER brands. Coach and Mark Cross products are sold through department
stores, catalog sales and Sara Lee stores while Aris Isotoner products are sold
primarily to department stores. Coach now operates approximately 141 stores in
the United States and 147 stores located outside the United States.

Sara Lee Knit Products' business involves the manufacture and distribution
of men's, women's and children's underwear and activewear (T-shirts, fleecewear
and other jersey products for casualwear) in North America, South and Central
America, Europe and the Asia-Pacific countries. These products are sold through
Sara Lee's sales force to department stores, mass merchandisers, discount chains
and the screen print trade. Principal brands in this category include CHAMPION,
HANES, HANES HER WAY and RINBROS in North America, and ABANDERADO, PRINCESA,
CHAMPION, HANES and DIM in Europe. Sara Lee believes that it has the leading
market share in both the women's and girls' panties category in the United
States, and in the heavily branded category of men's and boys' underwear in the
United States, and the leading position in men's and boys' underwear in Mexico.

Activewear is marketed under Sara Lee's HANES and CHAMPION lines. In
addition to targeting the public activewear market, Champion also manufactures
and markets authentic uniforms and practicewear for professional and amateur
athletic teams, including such organizations as the National Basketball
Association, the National Football League, the Olympics and a number of major
university sports teams.

The principal raw material in this product category is cotton. Sara Lee
currently believes it has access to an adequate supply of cotton from a variety
of sources.

The knit products business is highly competitive, with products relying on
brand recognition, quality, price and loyalty. Sara Lee competes by offering
superior value, making use of low-cost sourcing, marketing activities and
utilizing its megabranding strategy. The megabrands strategy entails marketing
various products through common packaging, promotion and advertising. The Knit
Products business has accounted for 10% or more of Sara Lee's consolidated
revenues during each of the past three fiscal years.

Sara Lee Hosiery is the market leader in hosiery markets in North America,
Western Europe, Australia, New Zealand and South Africa. It also continues to
establish operations in various Asia-Pacific countries, placing it in a
strategic position to capitalize on developing markets in that area.

Hosiery products consist of a wide variety of branded, packaged consumer
products, including pantyhose, stockings, combination panty and pantyhose
garments, tights, knee-highs and socks, many of which are available in both
sheer and opaque styles. These products are sold domestically under such brand
names as HANES, L'EGGS, DONNA KARAN and DKNY (the last two being licensed), and
abroad under such labels as DIM, PRETTY POLLY, ELBEO, NUR DIE, BELLINDA,
FILODORO, PHILIPPE MATIGNON and OMERO. Sara Lee is the largest sock manufacturer
in the United States.

Hosiery products are sold by Sara Lee's sales force in channels ranging from
department and specialty stores (for premium brands such as HANES, DONNA KARAN
and DKNY in the United States, and DIM abroad), to supermarkets, warehouse
clubs, discount chains and convenience stores for brands like L'EGGS and some

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DIM products aimed at the price-conscious consumer. Hosiery products are also
distributed through catalog sales and Sara Lee stores. The hosiery business has
accounted for 10% or more of Sara Lee's consolidated revenues during each of the
past three fiscal years.

The hosiery business is very competitive in both the United States and
Europe. In the United States, Sara Lee's major competitors are other hosiery
companies, and the primary methods of competition are quality, value, function,
and, with respect to L'eggs products, service and distribution. In Europe, where
most of Sara Lee's competitors are small companies who compete in the unbranded
sector of the market, the primary focus is on quality.

Raw materials -- nylon, spandex, and cotton -- for the products in this
category are readily available to Sara Lee from a variety of sources.

TRADEMARKS

Sara Lee is the owner of over 30,000 trademark registrations and
applications in over 140 countries. Sara Lee's trademarks are among its most
valuable assets as it pursues its strategy of building brands globally.

CUSTOMERS

None of Sara Lee's business segments or lines of business is dependent upon
a single customer or a small number of customers, the loss of whom would have a
material adverse effect on Sara Lee's consolidated operations. Sara Lee
considers major mass retailers and supermarket chains in both the United States
and Europe to be significant customers across one or more product categories,
and it has developed specific approaches to working with individual customers.

SEASONALITY

Sara Lee's Packaged Meats and Bakery businesses experience some seasonality.
Sara Lee Packaged Meats' sales tend to be higher in the fourth fiscal quarter
due to increased demand associated with the onset of the outdoor barbecuing
season and various holidays. Sara Lee Bakery experiences increased demand for
its products during the second quarter, driven principally by holiday buying.
Sara Lee Personal Products, particulary Accessories and Knit Products, generally
experience increased demand during the second quarter as a result of "back to
school" purchases and the holiday season. The European hosiery business is
somewhat seasonal in nature, unlike the domestic hosiery business, and tends to
experience a reduced demand in the summer months.

ENVIRONMENTAL MATTERS

Sara Lee is subject to a number of federal, state and local statutes, rules,
regulations and ordinances in the United States and other countries relating to
the discharge of materials into the environment, or otherwise relating to the
protection of the environment ("Environmental Laws").

While Sara Lee expects to make capital and other expenditures in compliance
with Environmental Laws, it does not anticipate that such compliance will have a
material adverse effect on its capital expenditures, earnings or competitive
position. Sara Lee has implemented a program to monitor compliance with
Environmental Laws and is continually examining its methods of operation and
product packaging to reduce its use of natural resources.

EMPLOYEES

Sara Lee has approximately 135,300 employees worldwide.

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(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES

Sara Lee's foreign operations are conducted primarily through wholly- or
partially-owned subsidiaries incorporated outside the United States. Sara Lee's
principal foreign subsidiary is Sara Lee/DE N.V., a Netherlands limited
liability company headquartered in Utrecht, the Netherlands ("Sara Lee/DE").
Sara Lee indirectly owns a 100% interest in Sara Lee/DE, 41% in the form of
voting shares and 59% in the form of depository receipts issued by the
independent Stichting Administratiekantoor Douwe Egberts Sara Lee. Sara Lee/DE
has responsibility for managing the Coffee and Grocery and Household and Body
Care divisions of Sara Lee.

The foreign operations of the Packaged Meats line of business are conducted
through Sara Lee Processed Meats (Europe) B.V., while the foreign operations of
Sara Lee Bakery are conducted through Kitchens of Sara Lee U.K. Ltd. and
Kitchens of Sara Lee (Australia) Pty. Ltd.

The Coffee and Grocery line of business is conducted by a number of
subsidiaries, principally European, including Sara Lee/DE, Douwe Egberts
Nederland B.V., Douwe Egberts France S.A., Douwe Egberts Espana S.A., Merrild
Kaffe A/S, Douwe Egberts N.V., Compack Douwe Egberts Rt., Harris/DE Pty. Ltd.,
Balirny Douwe Egberts A.S. and Douwe Egberts Coffee Systems Nederland B.V.

The Household and Body Care line of business is conducted by subsidiaries in
over forty countries, principally Sara Lee/DE, Kiwi Brands Pty. Ltd., Kiwi
France S.A., Kortman Intradal B.V., A/S Blumoller, Sara Lee/DE Espana S.A., Sara
Lee Household and Personal Care U.K. Ltd., and Sara Lee/DE Italy S.p.A.

The Personal Products line of business includes numerous foreign businesses,
including Dim S.A., Grupo Sans, a division of Sara Lee/DE Espana S.A., Sara Lee
Personal Products (Australia) Pty. Ltd., Pretty Polly, a division of Sara Lee UK
Holdings Ltd., Vatter GmbH, the Filodoro Group, Sara Lee Hosiery, S.A. de C.V.,
Rinbros, S.A. de C.V., and a 60% interest in Maglificio Bellia S.p.A.

The financial information about foreign and domestic operations can be found
on page F-22 of this Report.

Item 2. Properties.

Sara Lee operates 283 food processing and consumer product manufacturing
plants, each containing more than 20,000 square feet in building area, in 27
states and 37 foreign countries. Sara Lee owns 220 and leases 63 of these
plants. It also operates 126 warehouses containing more than 20,000 square feet
in building area in 19 states and 22 foreign countries. Of these warehouses, 58
are owned and 68 are leased. The following table identifies the plants and
warehouses presently owned or leased by Sara Lee that contain at least 250,000
square feet in building area.

<TABLE>
<CAPTION>
APPROXIMATE
BUILDING AREA
INDUSTRY SEGMENT AND IN SQUARE
DIVISION OR SUBSIDIARY LOCATION FEET
- ------------------------------------------------ ------------------------------------------------ -------------
<S> <C> <C>
PACKAGED MEATS AND BAKERY
Bil Mar Foods................................... Zeeland, Michigan 577,000
Bryan Foods, Inc................................ West Point, Mississippi 769,000
Hillshire Farm & Kahn's......................... Alexandria, Kentucky 325,000
Hillshire Farm & Kahn's......................... Cincinnati, Ohio 557,000
Hillshire Farm & Kahn's......................... New London, Wisconsin 565,000
Kitchens of Sara Lee............................ Bridlington, United Kingdom 285,000
PYA/Monarch, Inc................................ Charlotte, North Carolina 290,000
PYA/Monarch, Inc................................ Lexington, South Carolina 364,000
PYA/Monarch, Inc................................ Montgomery, Alabama 276,000
Sara Lee Bakery................................. Forest, Mississippi 260,000
Sara Lee Bakery................................. New Hampton, Iowa 294,000
Sara Lee Bakery................................. Tarboro, North Carolina 346,000
Sara Lee Bakery................................. Traverse City, Michigan 295,000
</TABLE>

8
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING AREA
INDUSTRY SEGMENT AND IN SQUARE
DIVISION OR SUBSIDIARY LOCATION FEET
- ------------------------------------------------ ------------------------------------------------ -------------
Sara Lee Processed Meats (Europe) B.V........... Rio Maior, Portugal 348,000
<S> <C> <C>
Sara Lee Processed Meats (Europe) B.V........... Miralcamp, Spain 260,000
COFFEE AND GROCERY
Douwe Egberts Van Nelle Tabaksmaatschappij
B.V............................................ Rotterdam, the Netherlands 605,000
Koninklijke Douwe Egberts B.V................... Joure, the Netherlands 1,094,000
Koninklijke Douwe Egberts B.V................... Utrecht, the Netherlands 577,000
Koninklijke Douwe Egberts B.V................... Zaandam, the Netherlands 367,000
Van Nelle International B.V..................... Joure, the Netherlands 301,000*
HOUSEHOLD AND BODY CARE
Kiwi Brands Inc................................. Douglassville, Pennsylvania 290,000
Kiwi Brands Pty. Ltd............................ Clayton, Australia 271,000
Sara Lee/DE Espana S.A.......................... Santiga, Spain 284,000*
Sara Lee/DE Germany............................. Dusseldorf, Germany 333,000*
Sara Lee Household & Personal Care U.K.
Limited........................................ Slough, England, United Kingdom 318,000
PERSONAL PRODUCTS
Aris Isotoner................................... Edison, New Jersey 297,000*
Canadelle Inc................................... Montreal, Canada 289,000
Champion Products, Inc.......................... Laurel Hill, North Carolina 368,000
Champion Products, Inc.......................... Gaffney, South Carolina 294,000
Champion Products, Inc.......................... Perry, New York 253,000
Champion Products, Inc.......................... Dunn, North Carolina 289,000
Coach Leatherware............................... Jacksonville, Florida 325,000*
Dim, S.A........................................ Autun, France 319,000
Filodoro Calze SpA.............................. Casalmoro, Italy 343,000
Filodoro Calze SpA.............................. Casalmoro, Italy 251,000
L'eggs Products................................. Clarksville, Arkansas 321,000
L'eggs Products................................. Rockingham, North Carolina 440,000
Playtex Apparel, Inc............................ Dover, Delaware 424,000
Sara Lee Direct................................. Rural Hall, North Carolina 598,000*
Sara Lee Hosiery................................ East Rockingham, North Carolina 330,000*
Sara Lee Hosiery................................ Winston-Salem, North Carolina 770,000
Sara Lee Hosiery................................ Darlington, South Carolina 287,000
Sara Lee Knit Products.......................... Eden, North Carolina 418,000
Sara Lee Knit Products.......................... Forest City, North Carolina 340,000
Sara Lee Knit Products.......................... Galax, Virginia 424,000
Sara Lee Knit Products.......................... Martinsville, Virginia 704,000*
Sara Lee Knit Products.......................... Mountain City, Tennessee 562,000
Sara Lee Knit Products.......................... Rabun Gap, Georgia 754,000
Sara Lee Knit Products.......................... Rural Hall, North Carolina 931,000
Sara Lee Knit Products.......................... Sanford, North Carolina 275,000
Sara Lee Knit Products.......................... Winston-Salem, North Carolina 568,000
Sara Lee Knit Products.......................... Greenwood, South Carolina 500,000
Sara Lee Sock Company........................... Kernersville, North Carolina 340,000
Vatter GmbH..................................... Rheine, Germany 482,000
</TABLE>

- ------------

* These facilities are leased; the remainder are owned by Sara Lee.

9
<PAGE>
Item 3. Legal Proceedings.

As a result of environmental audits of its facilities undertaken by Sara Lee
pursuant to a consent agreement entered into between Sara Lee and the U.S.
Environmental Protection Agency ("EPA"), Sara Lee disclosed to the EPA various
alleged violations of certain notification and reporting regulations under
various federal environmental statutes. The EPA initially calculated that the
stipulated penalties for these alleged notification and reporting violations
totalled approximately $2.46 million. Sara Lee is contesting the EPA's
calculation of the amount of the stipulated penalties and is negotiating a
settlement with the EPA with respect to these alleged violations.

In addition to the foregoing, Sara Lee is a party to various pending legal
proceedings and claims. Although the outcome of such matters cannot be
determined with certainty, Sara Lee's General Counsel and management are of the
opinion that the final outcomes should not have a material adverse effect on
Sara Lee's results of operations or financial position.

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable.

EXECUTIVE OFFICERS OF SARA LEE

Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on October 31, 1996 (the "Proxy Statement").

The following is a list of names and ages of all current executive officers
of Sara Lee indicating positions and offices with Sara Lee held by each such
person. All such persons have been elected by, and hold office at the pleasure
of, the Board of Directors. No person other than those listed below has been
chosen to become an executive officer of Sara Lee.

<TABLE>
<CAPTION>
AGE AS OF FIRST
OCTOBER 31, ELECTED AN
NAME 1996 OFFICES AND POSITIONS HELD OFFICER
- --------------------------------------------------- --------------- ------------------------------------ -----------
<S> <C> <C> <C>
John H. Bryan...................................... 60 Chairman of the Board, Chief 3/28/74
Executive Officer and Director
Michael E. Murphy.................................. 60 Vice Chairman, Chief Administrative 6/28/79
Officer and Director
Donald J. Franceschini............................. 61 Executive Vice President and 8/27/92
Director
C. Steven McMillan................................. 50 Executive Vice President and 3/31/83
Director
Gary C. Grom....................................... 50 Senior Vice President -- Human 10/25/90
Resources
Janet Langford Kelly............................... 38 Senior Vice President, Secretary and 11/25/95
General Counsel
Paul J. Lustig..................................... 46 Senior Vice President -- Corporate 7/1/93*
Strategy
Mark J. McCarville................................. 50 Senior Vice President -- Corporate 6/24/82
Development
Frank L. Meysman................................... 44 Senior Vice President 3/31/94
Judith A. Sprieser................................. 43 Senior Vice President and Chief 11/1/94
Financial Officer
</TABLE>

- ------------

* Mr. Lustig assumed the duties of an executive officer (as defined in Rule 3b-7
under the Securities Exchange Act of 1934, as amended) of Sara Lee as of
December 11, 1995.

10
<PAGE>
There are no family relationships between any of the above-named executive
officers and directors.

Each of the executive officers listed above has served Sara Lee or its
subsidiaries in various executive capacities for the past five years except
Donald J. Franceschini and Janet Langford Kelly.

Prior to his election, Mr. Franceschini served in various executive
capacities at Playtex Apparel, Inc. prior to its acquisition by Sara Lee. Before
joining Sara Lee, Ms. Kelly was a partner in the Chicago office of Sidley &
Austin.

11
<PAGE>
PART II

Item 5. Market for Sara Lee's Common Equity and Related Stockholder Matters.

Sara Lee's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of September 1, 1996, Sara Lee had approximately
91,500 holders of record of its Common Stock. Information about the high and low
sales prices for each full quarterly period and the amount of cash dividends
declared on Sara Lee's Common Stock during the past three fiscal years is set
forth on page F-23 of this Report.

Item 6. Selected Financial Data.

The requisite financial information for Sara Lee for the five fiscal years
ending June 29, 1996, is set forth on pages F-2 and F-3 of this Report. Such
information should be read in conjunction with the consolidated Financial
Statements and related Notes to Financial Statements on pages F-4 through F-23
of this Report.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

This discussion and analysis of financial condition and results of
operations should be read in conjunction with the General Development of
Business on pages 1 through 3, Narrative Description of Business on pages 3
through 7, and the consolidated Financial Statements and related Notes to
Financial Statements on pages F-4 through F-23 of this Report.

RESULTS OF OPERATIONS

Net sales increased 5.1% to $18.6 billion in 1996, from $17.7 billion in
1995 and $15.5 billion in 1994. Business acquisitions and improved product mix
were the primary contributing factors in the 1996 increase. The increase in 1995
was due to higher unit volumes and improved product mix, as well as the
strengthening of foreign currencies relative to the U.S. dollar and business
acquisitions. Excluding the effects of foreign currencies and acquisitions and
dispositions, sales dollars increased 3% in 1996 and 6% in 1995.

The gross profit margin was 38.4% in 1996, compared with 37.8% in 1995 and
37.6% in 1994. The increase in 1996 was attributable to improved margins in the
Corporation's Personal Products and Coffee and Grocery operations, offset in
part by lower margins in the Packaged Meats and Bakery operations. Improved
margins in the Corporation's Personal Products and Packaged Meats and Bakery
operations, offset in part by lower Coffee and Grocery margins, generated the
increase in 1995.

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 million, $495 million
and $1.03, respectively. The 1994 operating income (pretax earnings before
interest and corporate expense) included charges for restructuring as follows:
Personal Products-$630 million; Household and Body Care-$55 million; Coffee and
Grocery-$25 million; and Packaged Meats and Bakery-$22 million.

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 restructuring reserve is analyzed in the
Restructuring Provision note to the financial statements on page F-16. Of the
total provision of $732 million, non-cash charges of $304 million related to the
excess of the net book value of plants to be closed and businesses to be sold
over the estimated sales proceeds. The balance of the restructuring provision
primarily represented cash outflows. As of June 29, 1996, the Corporation has
continuing obligations associated with the disposal of closed facilities of $57
million and continuing severance benefits due to individuals impacted by the
restructuring of $38 million. These obligations are classified as current
liabilities.

12
<PAGE>
As a result of the restructuring, operating costs were lowered by $169
million and $89 million in 1996 and 1995, respectively. These savings primarily
resulted from 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 million in 1998. Savings from the
planned actions have been and will be used for both business-building
initiatives and profit improvement.

Operating income increased 12.3% to $1.8 billion in 1996 from $1.6 billion
in 1995, with each of the Corporation's business segments reporting increases in
excess of 10%. Packaged Meats and Bakery operating income increased 10.2%,
primarily as a result of business acquisitions offset in part by lower gross
margins and lower unit sales volumes. Operating income in the Coffee and Grocery
segment increased 14.2% over 1995 as a result of improved gross margins, higher
unit sales volumes, the strengthening of foreign currencies relative to the U.S.
dollar and acquisitions. The 10.8% increase in the income of the Corporation's
Personal Products businesses largely was due to improved gross margins resulting
from a continued emphasis on sales of high-margin, value-added products in each
of the segment's worldwide businesses and the impact of the 1994 restructuring.
The Household and Body Care segment operating income increased 18.5% in 1996 as
a result of improved gross margins and sales, offset in part by the weakening of
the Mexican peso relative to the U.S. dollar. Excluding the effects of
acquisitions and fluctuations in foreign exchange rates, the Corporation's total
operating income increased 10% as compared to 1995.

In 1995, operating income increased 17.0% from the prior year after
excluding the impact of the restructuring from 1994 results. Packaged Meats and
Bakery operating income was 12.6% higher in 1995 as compared to 1994, primarily
as a result of acquisitions, improved gross margins and higher sales volumes in
base businesses. The Coffee and Grocery increase of 25.2% largely resulted from
the strengthening of foreign currencies relative to the U.S. dollar, offset in
part by lower unit sales volumes. The 17.6% increase in 1995 Personal Products
operating income as compared to 1994 was primarily due to improved gross margins
and unit sales volumes as well as the impact of acquisitions and the 1994
restructuring. Household and Body Care operating income increased 8.9% in 1995,
largely as a result of sales increases and the strengthening of foreign
currencies relative to the U.S. dollar. Excluding the effects of acquisitions,
fluctuations in foreign exchange rates and the 1994 restructuring charge, the
Corporation's operating income increased 7% in 1995.

Net interest expense was $173 million in 1996, compared with $185 million in
1995 and $145 million in 1994. The lower interest expense in 1996 was primarily
due to lower average borrowings and lower average interest rates during the
year. The increase in 1995 over 1994 was largely due to higher interest rates.

Unallocated corporate expenses are costs not directly attributable to
specific segment operations and were $242 million in 1996, $192 million in 1995
and $98 million in 1994. Unallocated corporate expenses in both 1996 and 1995
were negatively impacted by the costs of hedging foreign currency movements,
expenses associated with minority interests in subsidiaries and higher
administrative costs.

The effective tax rate was 33.5% in 1996, 34.1% in 1995 and 39.9% in 1994.
Excluding the impact of unusual items in 1994, the effective tax rate was 35.0%.
The reduction of the tax rate in 1996 and 1995 was primarily due to increased
earnings in certain foreign jurisdictions that have lower tax rates than the
United States.

In fiscal 1994, the Corporation adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this
mandated accounting change was a one-time charge of $35 million, or $.07 per
share.

1996 net income increased 14.0% to $916 million, and primary earnings per
share increased 13.0% to $1.83. The lower percentage increase in earnings per
share compared to net income is primarily attributable to higher shares
outstanding. Excluding the effects of the 1994 restructuring charge and the
cumulative effect of the accounting change, 1995 net income increased 10.3% to
$804 million, and earnings per share increased 10.2% to $1.62.

13
<PAGE>
During 1996, the Corporation acquired several companies for an aggregate
purchase price of $216 million 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 and marketer of
processed meat products, for $500 million in cash.

During 1995, the Corporation acquired several companies for an aggregate
purchase price of $168 million 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 (Packaged Meats and Bakery). Common stock having a value
of $55 million 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 million in cash. The principal acquisitions were the
European personal care businesses of SmithKline Beecham (Household and Body
Care), Kiwi Brands (Pty.) Ltd. and subsidiaries (Household and Body Care and
Personal Products), and Maglificio Bellia S.p.A. (Personal Products).

No material divestments were made in the last three years.

During the past three years, the general rate of inflation has averaged 2%.
Additionally, approximately 30% of the Corporation's inventories are valued on
the last-in, first-out basis. As a result, much of the current cost of
production is reflected in operating results and not retained as a component of
inventory.

FINANCIAL POSITION

Net cash provided from operating activities was $1.3 billion in 1996 as
compared to $1.4 billion in 1995 and $839 million in 1994. The 1996 results were
impacted by increased year-end working capital requirements. Average short-term
borrowings used to finance working capital requirements were, however, lower
than in 1995. The favorable 1995 results in comparison to 1994 were due in part
to improved gross margins, operating efficiencies resulting in part from the
1994 restructuring, and improved working capital management.

Net cash used in investment activities was $693 million in 1996, $517
million in 1995 and $937 million in 1994. Higher capital expenditures and
business acquisitions were the primary reasons for the increased 1996 cash use.
Capital expenditures were $542 million in 1996, $480 million in 1995 and $628
million in 1994. A significant portion of these expenditures was for the
reduction of manufacturing and distribution costs, and for expansion of capacity
to meet internal growth. The Corporation expects 1997 capital expenditures to
approximate $550 million. The 1997 expenditures will be funded from internal
sources and available borrowing capacity. The Corporation retains substantial
flexibility to adjust its spending levels in order to act upon other
opportunities, including business acquisitions and stock repurchases.

During 1996, cash of $555 million was used for financing activities,
primarily to repay $150 million of debt and pay dividends of $395 million.
During 1995, cash of $853 million was used for financing activities, principally
to repay $459 million of debt and pay dividends of $358 million. During 1994,
cash of $42 million was used in financing activities. In 1994, a domestic
subsidiary of the Corporation issued $200 million of equity securities, the
proceeds of which were used to purchase shares of the Corporation's common
stock. As of June 29, 1996, the total-debt-to-total-capital ratio decreased to
29.6% from 33.8% at July 1, 1995. The current capital structure is within the
Corporation's objective of maintaining a total-debt-to-total-capital ratio of no
more than 40% over time, and provides sufficient financial flexibility to pursue
business opportunities.

Item 8. Financial Statements and Supplementary Data.

The consolidated Financial Statements and related Notes to Financial
Statements of Sara Lee identified in the Index to Financial Statements appearing
under Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K,
are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not Applicable.

14
<PAGE>
PART III

Item 10. Directors and Executive Officers of Sara Lee.

For information with respect to the executive officers of Sara Lee, see
"Executive Officers of Sara Lee" on pages 10 and 11 of this Report. For
information with respect to the directors of Sara Lee, see "Election of
Directors" on pages 2 through 8 of the Proxy Statement, which is incorporated
herein by reference.

Item 11. Executive Compensation.

The information set forth in the Proxy Statement on pages 12 through 21,
under the caption "Executive Compensation," and on pages 21 and 22, under the
caption "Retirement Plans," is incorporated herein by reference; provided,
however, that the Report of the Compensation and Employee Benefits Committee on
Executive Compensation and the Performance Graph contained therein is
specifically excluded and shall not be deemed so incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

(a) No person or "group" (as that term is used in Section 3(d)(3) of the
Securities Exchange Act of 1934) is known by Sara Lee to beneficially own more
than 5% of any class of Sara Lee's voting securities, except that, as of
September 1, 1996, State Street Bank & Trust Company of Boston, as trustee
("Trustee") of the Sara Lee Corporation Employee Stock Ownership Plan ("ESOP"),
held in trust 4,396,280 shares (100% of the outstanding shares) of Sara Lee's
Employee Stock Ownership Plan Convertible Preferred Stock ("ESOP Stock"), of
which 1,343,615 shares (30.56%) were allocated to participant accounts and
3,052,665 shares (69.44%) were unallocated shares. Each ESOP participant is
entitled to direct the Trustee how to vote the shares allocated to such
participant's account, as well as a proportionate share of unallocated or
unvoted shares. The ESOP Stock votes as a class with the Common Stock and each
share of ESOP Stock is entitled to 5.133 votes. Each share of ESOP Stock is
convertible into four shares of Sara Lee Common Stock.

(b) Security ownership by management as outlined on page 9 of the Proxy
Statement under the caption "Ownership of Common Stock and ESOP Stock by
Directors, Nominees and Executive Officers" is incorporated herein by reference.

(c) There are no arrangements known to Sara Lee the operation of which may
at a subsequent date result in a change in control of Sara Lee.

Item 13. Certain Relationships and Related Transactions.

During fiscal 1996, Sara Lee paid fees for legal services performed by the
law firm of Sidley & Austin, to which Newton N. Minow is of counsel, and the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of which Vernon E. Jordan,
Jr. is a senior partner. Sara Lee paid fees for banking services to an affiliate
of First Chicago NBD Corporation, of which Richard L. Thomas is the Retired
Chairman. Each of the above individuals is a director of Sara Lee.

15
<PAGE>
PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
(a) 1. 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-4

Consolidated Balance Sheets -- July 2, 1994, July 1, 1995 and June 29, 1996......................... F-5

Consolidated Statements of Common Stockholders' Equity -- Balances at July 2, 1994, July 1, 1995 and
June 29, 1996....................................................................................... F-7

Consolidated Statements of Cash Flows -- Years ended July 2, 1994, July 1, 1995 and June 29, 1996... F-8

Notes to Financial Statements....................................................................... F-9

2. FINANCIAL STATEMENT SCHEDULES

Report of Independent Public Accountants............................................................ F-24
Schedule II -- Valuation and Qualifying Accounts.................................................... F-25
</TABLE>

(b) REPORTS ON FORM 8-K

None.

<TABLE>
<CAPTION>
(c) EXHIBITS PAGE/INCORPORATION BY REFERENCE
-------------------------------------------------
<S> <C> <C>
(3a) Articles of Restatement of the Charter as amended Exhibit 4.1 to Registration Statement No.
33-35760 on Form S-8 dated July 6, 1990, and
Exhibit 3(a) to Report on Form 10-K for Fiscal
Year ened July 2,1994.

(3b) By-Laws, as amended

(4) Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its
request, a copy of any instrument which defines the rights of holders of long-term debt of Sara Lee and
all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be
filed, and which authorizes a total amount of securities not in excess of 10% of the total assets of Sara
Lee and its subsidiaries on a consolidated basis.

(10) 1. 1979 Stock Option Plan, as amended Exhibit 10 (1) to Report on Form 10-K for Fiscal
Year ended July 1, 1995

2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K for Fiscal
Year ended July 1, 1989

3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10 (3) to Report on Form 10-K for Fiscal
amended Year ended July 1, 1995

4. 1989 Incentive Stock Plan, as amended Exhibit B to 1991 Proxy Statement dated September
20, 1991

5. Supplemental Benefit Plan, as amended Exhibit 10 (8) to Report on Form 10-K for Fiscal
Year ended June 30, 1990
</TABLE>

16
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE/INCORPORATION BY REFERENCE
-------------------------------------------------
<S> <C> <C>
6. Short-Term (Annual) Incentive Plan Fiscal Exhibit 10 (6) to Report on Form 10-K for Fiscal
Year 1995 Year ended July 1, 1995

7. Accelerated Growth Incentive Plan Fiscal Exhibit 10 (12) to Report on Form 10-K for Fiscal
Years 1990-1994 Year ended June 30, 1990

8. 1991 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal
(Base Salary) Year ended June 29, 1991

9. 1992 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal
(Base Salary) Year ended June 27, 1992

10. FY '93 Non-Qualified Deferred Compensation Exhibit 10 (16) to Report on Form 10-K for Fiscal
Plan (Annual Bonus) Year ended June 27, 1992

11. 1993 Non-Qualified Deferred Compensation Plan Exhibit 10 (19) to Report on Form 10-K for Fiscal
(Base Salary) Year ended July 3, 1993

12. FY '94 Non-Qualified Deferred Compensation Exhibit 10 (20) to Report on Form 10-K for Fiscal
Plan (Annual Bonus) Year ended July 3, 1993

13. 1994 Non-Qualified Deferred Compensation Plan Exhibit 10 (14) to Report on Form 10-K for Fiscal
(Base Salary) Year ended July 2, 1994

14. FY '95 Non-Qualified Deferred Compensation Exhibit 10 (15) to Report on Form 10-K for Fiscal
Plan (Annual Bonus) Year ended July 2, 1994

15. Performance-Based Annual Incentive Plan Appendix A to Proxy Statement dated September 20,
1995

16. 1995 Long-Term Incentive Stock Plan Appendix B to Proxy Statement dated September 20,
1995

17. 1995 Non-Employee Director Stock Plan Appendix C to Proxy Statement dated September 20,
1995
18. Non-Qualified Deferred Compensation Plan for
Outside Directors

19. FY 1995-97 Long Term Performance Incentive
Plan

20. FY 1996-98 Long Term Performance Incentive
Plan

21. FY 1997-99 Long Term Performance Incentive
Plan

22. Non-Qualified Estate Builder Deferred Exhibit 10 (17) to Report on Form 10-K for Fiscal
Compensation Plan Year ended June 29, 1985

23. Severance Policy for Corporate Officers Exhibit 10 (19) to Report on Form 10-K for Fiscal
Year ended July 2, 1994

24. Stockholder Rights Agreement Exhibit 4 to Report on Form 10-Q for the quarter
ended March 26, 1988

25. Employment Agreement, dated November 9, 1994, Exhibit 10 (22) to Report on Form 10-K for Fiscal
between Sara Lee Corporation and Frank L. Year ended July 1, 1995
Meysman
</TABLE>

17
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE/INCORPORATION BY REFERENCE
-------------------------------------------------
<S> <C> <C>
26. Employment Agreement, dated November 9, 1994, Exhibit 10 (23) to Report on Form 10-K for Fiscal
between Sara Lee/ DE N.V. and Frank L. Meysman Year ended July 1, 1995
and attachments (translated from Dutch)

(11) Computation of Net Income per Common Share

(12) 1. Computation of Ratio of Earnings to Fixed
Charges

2. Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend
Requirements

(21) List of Subsidiaries

(23) Consent of Arthur Andersen LLP

(24) Powers of Attorney from those directors whose
names appear on pages 19 and 20 hereof
followed by an asterisk

(27) Financial Data Schedules
</TABLE>

18
<PAGE>
SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Sara Lee Corporation has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

September 24, 1996

SARA LEE CORPORATION

By: /s/ JANET LANGFORD KELLY
--------------------------------------
Janet Langford Kelly
Senior Vice President,
Secretary and General Counsel

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of Sara Lee
Corporation and in the capacities indicated on September 24, 1996.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------------------ ---------------------------------------------------------

<C> <S>
/s/ JOHN H. BRYAN
------------------------------------------- Chairman of the Board, Chief Executive Officer and
John H. Bryan Director

/s/ MICHAEL E. MURPHY
------------------------------------------- Vice Chairman, Chief Administrative Officer and Director
Michael E. Murphy

/s/ DONALD J. FRANCESCHINI
------------------------------------------- Executive Vice President and Director
Donald J. Franceschini

/s/ C. STEVEN MCMILLAN
------------------------------------------- Executive Vice President and Director
C. Steven McMillan

/s/ JUDITH A. SPRIESER
------------------------------------------- Senior Vice President and Chief Financial Officer
Judith A. Sprieser

/s/ WAYNE R. SZYPULSKI
------------------------------------------- Vice President and Controller
Wayne R. Szypulski

*
------------------------------------------- Director
Paul A. Allaire

*
------------------------------------------- Director
Frans H.J.J. Andriessen

*
------------------------------------------- Director
Duane L. Burnham

*
------------------------------------------- Director
Charles W. Coker
</TABLE>

19
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------------------ ---------------------------------------------------------

<C> <S>

*
------------------------------------------- Director
Willie D. Davis

*
------------------------------------------- Director
Allen F. Jacobson

*
------------------------------------------- Director
Vernon E. Jordan, Jr.

*
------------------------------------------- Director
James L. Ketelsen

*
------------------------------------------- Director
Hans B. van Liemt

*
------------------------------------------- Director
Joan D. Manley

*
------------------------------------------- Director
Newton N. Minow

*
------------------------------------------- Director
Sir Arvi H. Parbo A.C.

*
------------------------------------------- Director
Rozanne L. Ridgway

*
------------------------------------------- Director
Richard L. Thomas
</TABLE>

*By Janet Langford Kelly as Attorney-in-Fact pursuant to Powers of Attorney
executed by the directors listed above, which Powers of Attorney have been filed
with the Securities and Exchange Commission.

/s/ JANET LANGFORD KELLY
--------------------------------------
Janet Langford Kelly
AS ATTORNEY-IN-FACT

20
<PAGE>
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.

/s/ Arthur Andersen LLP

Chicago, Illinois,
July 29, 1996.

F-1
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY

<TABLE>
<CAPTION>
COMPOUND YEARS ENDED
GROWTH RATE ----------------------
---------------------- JUNE 29, JULY 1,
5 YEARS 10 YEARS 1996 1995
--------- ----------- ---------- ----------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales............................................................. 8.5% 8.9% $18,624 $17,719
Operating income...................................................... 10.6 13.3 1,793 1,596
Income before income taxes............................................ 10.7 14.5 1,378 1,219
Net income............................................................ 11.4 15.2 916 804
Effective tax rate.................................................... -- -- 33.5% 34.1%
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets.......................................................... 9.2% 13.7% $12,602 $12,431
Long-term debt........................................................ -- -- 1,842 1,817
Redeemable preferred stock............................................ -- -- 338 334
Common stockholders' equity........................................... 11.1 14.1 4,320 3,939
Return on average common stockholders' equity......................... -- -- 21.5% 21.4%
- ----------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (5)
Net income -- primary................................................. 11.1% 13.6% $1.83 $1.62
Average shares outstanding (in millions).......................... -- -- 485 480
Net income -- fully diluted........................................... 11.1 13.5 1.78 1.57
Average shares outstanding (in millions).......................... -- -- 504 499
Dividends (6)......................................................... 10.1 14.3 .74 .67
Book value at year-end................................................ 10.2 12.7 8.91 8.20
Market value at year-end.............................................. 10.0 13.8 32.50 28.50
- ----------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Capital expenditures.................................................. 0.7% 9.3% $542 $480
Depreciation.......................................................... 8.5 12.4 454 436
Amortization of intangibles........................................... 14.4 22.8 180 170
Media advertising expense............................................. 9.0 8.6 444 422
Total advertising and promotion expense............................... 11.5 12.1 1,838 1,675
Common stockholders of record......................................... -- -- 91,300 93,400
Number of employees................................................... -- -- 135,300 149,100
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In 1994, a restructuring provision reduced operating income and income
before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of
accounting for income taxes reduced net income by $35.

(2) 53-week year.

(3) Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.

(4) Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.

(5) Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987.

(6) Fiscal 1992 includes a $.12 special dividend.

THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL SUMMARY.

F-2
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY

<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------------------------
JULY 2, JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, JULY 2, JUNE 27, JUNE 28,
1994(1) 1993(2) 1992(3) 1991 1990 1989(4) 1988(2) 1987 1986
-------- -------- -------- -------- -------- -------- ------- -------- --------
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales................................ $ 15,536 $ 14,580 $ 13,243 $ 12,381 $ 11,606 $ 11,718 $10,424 $ 9,155 $ 7,938
Operating income......................... 632 1,307 1,207 1,085 938 847 753 632 514
Income before income taxes............... 389 1,082 1,174 830 713 639 513 448 356
Net income............................... 199 704 761 535 470 410 325 267 223
Effective tax rate....................... 39.9% 34.9% 35.2% 35.5% 34.1% 35.8% 36.7 % 40.4% 37.2%
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets............................. $ 11,665 $ 10,862 $ 9,989 $ 8,122 $ 7,636 $ 6,523 $5,012 $ 4,192 $ 3,503
Long-term debt........................... 1,496 1,164 1,389 1,399 1,524 1,488 893 633 634
Redeemable preferred stock............... 331 357 351 344 338 182 225 75 75
Common stockholders' equity.............. 3,326 3,551 3,382 2,550 2,292 1,915 1,575 1,416 1,155
Return on average common stockholders'
equity................................. 5.1% 19.6% 24.7% 20.6% 20.9% 22.7% 21.1 % 20.5% 20.4%
- -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (5)
Net income -- primary.................... $ .37 $ 1.40 $ 1.54 $ 1.08 $ .96 $ .88 $ .71 $ .59 $ .51
Average shares outstanding (in
millions)........................... 480 485 476 464 460 454 447 447 433
Net income -- fully diluted.............. .36 1.37 1.50 1.05 .93 .87 .71 .59 .50
Average shares outstanding (in
millions)........................... 498 504 497 485 480 456 447 447 434
Dividends (6)............................ .63 .56 .61 .46 .41 .35 .29 .24 .20
Book value at year-end................... 6.92 7.31 7.05 5.48 4.97 4.21 3.56 3.20 2.70
Market value at year-end................. 20.63 24.25 24.81 20.19 14.56 13.47 9.22 11.63 8.91
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Capital expenditures..................... $ 628 $ 728 $ 509 $ 522 $ 595 $ 541 $ 449 $ 287 $ 222
Depreciation............................. 414 383 354 302 268 215 198 168 142
Amortization of intangibles.............. 154 139 118 92 83 65 53 34 23
Media advertising expense................ 371 392 325 288 313 303 253 203 195
Total advertising and promotion
expense................................ 1,498 1,455 1,294 1,067 1,013 925 801 637 587
Common stockholders of record............ 95,600 88,100 75,400 69,400 64,800 56,500 52,400 50,000 44,900
Number of employees...................... 145,900 138,000 128,000 113,400 107,800 101,800 85,700 92,400 87,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(2) 53-week year.

(3) Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.

(4) Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.

(5) Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987.

(6) Fiscal 1992 includes a $.12 special dividend.

THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL SUMMARY.

F-3
<PAGE>
SARA LEE CORPORATION AND SUBSIDIAIRIES
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
--------- --------- ---------
(IN MILLIONS EXCEPT PER SHARE
DATA)
<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-4
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS EXCEPT
SHARE DATA)
<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-5
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
--------- --------- ---------
(IN MILLIONS EXCEPT SHARE DATA)
<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>

THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
BALANCE SHEETS.

F-6
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNEARNED
COMMON CAPITAL RETAINED TRANSLATION RESTRICTED
TOTAL STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK
------ ------ ------- -------- ----------- ----------
(DOLLARS IN MILLIONS EXCEPT SHARE DATA)
<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-7
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
----------- --------- ---------
(DOLLARS IN MILLIONS)
<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-8
<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.

F-9
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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 offset recorded in interest
expense. The Corporation 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.

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.

F-10
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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:

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
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
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

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

F-11
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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.

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.

F-12
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATES(2)
NOTIONAL ----------------------
PRINCIPAL(1) RECEIVE PAY
------------- ----------- ---
<S> <C> <C> <C>
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
</TABLE>

- ------------

(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.

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.

F-13
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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.

<TABLE>
<CAPTION>
BOUGHT (SOLD)
-------------------------------
FOREIGN CURRENCY 1996 1995 1994
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
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)
</TABLE>

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:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Long-term debt, including current portion...................................... $ 1,993 $ 2,102 $ 1,549
ESOP convertible preferred stock............................................... 615 567 443
</TABLE>

F-14
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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.

LONG-TERM DEBT

<TABLE>
<CAPTION>
INTEREST RATE
RANGE MATURITY 1996 1995 1994
------------------ ----------- --------- --------- ---------
<S> <C> <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.

F-15
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>

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.

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
ORIGINAL TO NET SPECIAL FOREIGN RESTRUCTURING
RESTRUCTURING REALIZABLE TERMINATION CASH EXCHANGE RESERVES 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>

F-16
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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:

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Defined benefit plans........................................................................ $ 48 $ 43 $ 31
Defined contribution plans................................................................... 9 11 11
Multi-employer plans......................................................................... 3 4 4
--- --- ---
Total pension expense........................................................................ $ 60 $ 58 $ 46
--- --- ---
--- --- ---
</TABLE>

The components of the defined benefit plan expenses were:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --- ---
--------- --- ---
</TABLE>

F-17
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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
---- ---- ----
---- ---- ----

F-18
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

The status of postretirement benefit plans at the respective year-end was:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
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%
--------- --------- ---------
--------- --------- ---------
</TABLE>

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%.

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%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>

F-19
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

Current and deferred tax provisions were:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>

The deferred tax (assets) liabilities at the respective year-end were as
follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
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)
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-20
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

INDUSTRY SEGMENT INFORMATION

The Corporation's business segments are described in the Narrative
Description of Business on pages 3 through 7.

<TABLE>
<CAPTION>
PACKAGED COFFEE HOUSEHOLD
MEATS AND AND PERSONAL INTER-
AND BAKERY GROCERY BODY CARE PRODUCTS CORPORATE 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-21
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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.

F-22
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

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-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Management
of SARA LEE CORPORATION:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Sara Lee Corporation included in this
Form 10-K, and have issued our report thereon dated July 29, 1996. Our audit was
made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The supplemental schedule II is the responsibility
of the Corporation's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This supplemental schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

/s/ Arthur Andersen LLP

Chicago, Illinois,
July 29, 1996

F-24
<PAGE>
SCHEDULE II
SARA LEE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 2, 1994, JULY 1, 1995 AND JUNE 29, 1996
(IN MILLIONS)

<TABLE>
<CAPTION>
PROVISION WRITE-OFFS
BALANCE AT CHARGED TO (1)\
BEGINNING OF COSTS AND ALLOWANCES OTHER ADDITIONS BALANCE AT
YEAR EXPENSES TAKEN (DEDUCTIONS) END OF YEAR
------------- ------------- ----------- --------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JULY 2, 1994:
Allowances for bad debts........................... $ 99 $ 30 $ (21) $ 1 $ 109
Other receivable allowances........................ 55 78 (81) 3 55
----- ----- ----- -- -----
Total............................................ $ 154 $ 108 $ (102) $ 4 $ 164
----- ----- ----- -- -----
----- ----- ----- -- -----
FOR THE YEAR ENDED JULY 1, 1995:
Allowances for bad debts........................... $ 109 $ 42 $ (30) $ 6 $ 127
Other receivable allowances........................ 55 122 (115) 3 65
----- ----- ----- -- -----
Total............................................ $ 164 $ 164 $ (145) $ 9 $ 192
----- ----- ----- -- -----
----- ----- ----- -- -----
FOR THE YEAR ENDED JUNE 29, 1996:
Allowances for bad debts........................... $ 127 $ 34 $ (35) $ (5) $ 121
Other receivable allowances........................ 65 113 (105) 3 76
----- ----- ----- -- -----
Total............................................ $ 192 $ 147 $ (140) $ (2) $ 197
----- ----- ----- -- -----
----- ----- ----- -- -----
</TABLE>

- ------------

(1) Net of collections on accounts previously written off.

F-25
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS PAGE/INCORPORATION BY REFERENCE
<S> <C> <C>
(3a) Articles of Restatement of the Charter as amended Exhibit 4.1 to Registration Statement No.
33-35760 on Form S-8 dated July 6, 1990, and
Exhibit 3(a) to Report on Form 10-K for Fiscal
Year ened July 2,1994.

(3b) By-Laws, as amended

(10) 1. 1979 Stock Option Plan, as amended Exhibit 10 (1) to Report on Form 10-K for Fiscal
Year ended July 1, 1995

2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K for Fiscal
Year ended July 1, 1989

3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10 (3) to Report on Form 10-K for Fiscal
amended Year ended July 1, 1995

4. 1989 Incentive Stock Plan, as amended Exhibit B to 1991 Proxy Statement dated September
20, 1991

5. Supplemental Benefit Plan, as amended Exhibit 10 (8) to Report on Form 10-K for Fiscal
Year ended June 30, 1990

6. Short-Term (Annual) Incentive Plan Fiscal Exhibit 10 (6) to Report on Form 10-K for Fiscal
Year 1995 Year ended July 1, 1995