<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1997
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-3344
----------------------------------------------------
Sara Lee Corporation
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-2089049
---------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three First National Plaza, Suite 4600, Chicago, Illinois 60602-4260
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(312) 726-2600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------------- -----------
On December 27, 1997, the Registrant had 473,169,571 outstanding shares of
common stock $1.33 1/3 par value, which is the Registrant's only class of common
stock.
The document contains 48 pages.
Page 1
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
INDEX
-----
PART I -
FINANCIAL STATEMENTS -
Preface 3
Condensed Consolidated Balance Sheets -
At December 27, 1997 and June 28, 1997 4
Consolidated Statements of Income -
For the thirteen and twenty-six weeks ended
December 27, 1997 and December 28, 1996 5
Consolidated Statements of Common Stockholders' Equity -
For the period June 29, 1996 to December 27, 1997 6
Consolidated Statements of Cash Flows -
For the twenty-six weeks ended December 27, 1997
and December 28, 1996 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 9
PART II -
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE 16
EXHIBIT 10.1 - Retirement Agreement, dated November 17, 1997,
between Sara Lee Corporation and Donald J.
Franceschini 17
EXHIBIT 10.2 - Consulting Agreement, dated November 17, 1997,
between Sara Lee Corporation and Donald J.
Franceschini 27
EXHIBIT 10.3 - FY 1998-2000 Long-Term Performance Incentive Plan 33
EXHIBIT 10.4 - First Amendment of Supplemental Benefit Plan 41
EXHIBIT 11 - Computation of Net Income Per Common Share 44
EXHIBIT 12.1 - Computation of Ratio of Earnings to Fixed Charges 46
EXHIBIT 12.2 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements 47
EXHIBIT 27 - Financial Data Schedule 48
Page 2
<PAGE>
PART I
SARA LEE CORPORATION AND SUBSIDIARIES
-------------------------------------
PREFACE
The consolidated financial statements for the thirteen and twenty-six weeks
ended December 27, 1997 and December 28, 1996 and the balance sheet as of
December 27, 1997 included herein have not been examined by independent
public accountants, but, in the opinion of Sara Lee Corporation
("Corporation"), all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at December
27, 1997 and the results of operations and the cash flows for the periods
presented herein have been made. The results of operations for the thirteen
and twenty-six weeks ended December 27, 1997 are not necessarily indicative
of the operating results for the full fiscal year.
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Although the Corporation believes that the disclosures made are
adequate to make the information presented not misleading, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such regulations.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Corporation's
Form 10-K for the year ended June 28, 1997.
Page 3
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 27, 1997 AND JUNE 28, 1997
(IN MILLIONS)
Dec. 27, June 28,
1997 1997
---------- ----------
ASSETS
Cash and equivalents $ 237 $ 272
Trade accounts receivable, less allowances 1,925 1,841
Inventories:
Finished goods 1,830 1,803
Work in process 438 497
Materials and supplies 573 673
--------- ---------
2,841 2,973
Other current assets 300 305
--------- ---------
Total current assets 5,303 5,391
Trademarks and other assets 520 536
Property, net 2,151 3,079
Intangible assets 3,179 3,947
--------- ---------
$ 11,153 $ 12,953
--------- ---------
--------- ---------
LIABILITIES AND EQUITY
Notes payable $ 801 $ 476
Accounts payable 1,610 1,703
Accrued liabilities 2,893 2,582
Current maturities of long-term debt 340 255
--------- ---------
Total current liabilities 5,644 5,016
Long-term debt 2,020 1,933
Deferred income taxes 41 416
Other liabilities 507 543
Minority interest in subsidiaries 524 523
Auction preferred stock -- 200
ESOP convertible preferred stock 309 314
Unearned deferred compensation (265) (272)
Common stockholders' equity 2,373 4,280
--------- ---------
$ 11,153 $ 12,953
--------- ---------
--------- ---------
See accompanying Notes to Consolidated Financial Statements.
Page 4
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------- ------------------------
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 5,279 $ 5,269 $ 10,172 $ 10,155
----------- ---------- ----------- ----------
Cost of sales 3,259 3,249 6,333 6,326
Selling, general and administrative expenses 1,474 1,509 2,928 2,972
Interest expense 61 54 109 108
Interest income (17) (10) (26) (21)
Restructuring charge 2,040 -- 2,040 --
----------- ---------- ----------- ----------
6,817 4,802 11,384 9,385
----------- ---------- ----------- ----------
Income (loss) before income taxes (1,538) 467 (1,212) 770
Income tax (expense) benefit 260 (150) 159 (247)
----------- ---------- ----------- ----------
Net income (loss) (1,278) 317 (1,053) 523
Preferred dividend requirements - net of tax 4 6 8 13
----------- ---------- ----------- ----------
Net income (loss) applicable to common
stockholders $ (1,282) $ 311 $ (1,061) $ 510
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net income (loss) per common share - basic $ (2.71) $ 0.65 $ (2.24) $ 1.06
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Average shares outstanding 473 480 475 481
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net income (loss) per common share - diluted $ (2.71) $ 0.62 $ (2.24) $ 1.02
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Average shares outstanding 473 503 475 504
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Cash dividends per common share $ 0.23 $ 0.21 $ 0.44 $ 0.40
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 29, 1996 TO DECEMBER 27, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
COMMON CAPITAL RETAINED TRANSLATION RESTRICTED
TOTAL STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK
-------- -------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 29, 1996 $ 4,320 $ 646 $ 141 $ 3,783 $ (227) $ (23)
Net income 523 -- -- 523 -- --
Cash dividends -
Common ($.40 per share) (193) -- -- (193) -- --
Auction preferred
($1,991.67 per share) (6) -- -- (6) -- --
ESOP convertible preferred
($2.72 per share) (12) -- -- (12) -- --
Stock issuances -
Business acquisition 18 1 17 -- -- --
Stock option and benefit plans 42 3 39 -- -- --
Restricted stock, less
amortization of $12 12 -- 9 -- -- 3
Reacquired shares (258) (9) (214) (35) -- --
Translation adjustments (56) -- -- -- (56) --
ESOP tax benefit 5 -- -- 5 -- --
ESOP share redemption 6 -- 6 -- -- --
Other 3 -- 2 -- -- 1
-------- ------ ------ ------- ------- ------
Balances at December 28, 1996 4,404 641 -- 4,065 (283) (19)
Net income 486 -- -- 486 -- --
Cash dividends -
Common ($.42 per share) (201) -- -- (201) -- --
Auction preferred
($2,009.26 per share) (6) -- -- (6) -- --
ESOP convertible preferred
($2.72 per share) (12) -- -- (12) -- --
Stock issuances -
Stock option and benefit plans 51 3 48 -- -- --
Restricted stock, less
amortization of $7 7 -- 4 -- -- 3
Reacquired shares (135) (5) (67) (63) -- --
Translation adjustments (335) -- -- -- (335) --
ESOP tax benefit 5 -- -- 5 -- --
ESOP share redemption 4 1 3 -- -- --
Other 12 -- 12 -- -- --
-------- ------ ------ ------- ------- ------
Balances at June 28, 1997 4,280 640 -- 4,274 (618) (16)
Net loss (1,053) -- -- (1,053) -- --
Cash dividends -
Common ($.44 per share) (209) -- -- (209) -- --
Auction preferred ($458.00 per
share) (1) -- -- (1) -- --
ESOP convertible preferred
($2.72 per share) (12) -- -- (12) -- --
Stock issuances -
Stock option and benefit plans 40 4 36 -- -- --
Restricted stock, less
amortization of $22 23 1 81 -- -- (59)
Reacquired shares (567) (15) (116) (436) -- --
Translation adjustments (133) -- -- -- (133) --
ESOP tax benefit 5 -- -- 5 -- --
ESOP share redemption 5 -- 5 -- -- --
Other (5) 1 (6) -- -- --
-------- ------ ------ ------- ------- ------
Balances at December 27, 1997 $ 2,373 $ 631 $ -- $ 2,568 $ (751) $ (75)
-------- ------ ------ ------- ------- ------
-------- ------ ------ ------- ------- ------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 6
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------
Dec. 27, Dec. 28,
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES -
Net income (loss) $(1,053) $ 523
Adjustments for non-cash charges included in net income (loss):
Depreciation 214 246
Amortization of intangibles 95 95
(Decrease) increase in deferred income taxes (375) 6
Restructuring charge 2,040 -
Other (11) (6)
Changes in current assets and liabilities, excluding
businesses acquired and sold (468) (381)
------- -------
Net cash from operating activities 442 483
------- -------
INVESTING ACTIVITIES -
Purchases of property and equipment (204) (233)
Acquisitions of businesses and investments (285) (540)
Dispositions of businesses and investments 439 114
Sales of assets 26 32
Other 1 10
------- -------
Net cash used in investing activities (23) (617)
------- -------
FINANCING ACTIVITIES -
Issuances of common stock 40 42
Purchases of common stock (567) (258)
Redemption of preferred stock (200) --
Borrowings of long-term debt 294 155
Repayments of long-term debt (123) (146)
Short-term borrowings, net 330 588
Payments of dividends (222) (211)
------- -------
Net cash (used in) from financing activities (448) 170
------- -------
Effect of changes in foreign exchange rates on cash (6) (3)
------- -------
(Decrease)increase in cash and equivalents (35) 33
Cash and equivalents at beginning of year 272 243
------- -------
Cash and equivalents at end of quarter $ 237 $ 276
------- -------
------- -------
COMPONENTS OF THE CHANGES IN CURRENT ASSETS
AND LIABILITIES:
(Increase) in trade accounts receivable $ (106) $ (115)
Decrease in inventories 21 180
Decrease in other current assets 2 45
(Decrease) in accounts payable (376) (452)
(Decrease) in accrued liabilities (9) (39)
------- -------
Changes in current assets and liabilities $ (468) $ (381)
------- -------
------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 7
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128) became effective for the Corporation in the quarter ended
December 27, 1997. The adoption of SFAS 128 has resulted in the
replacement of the presentation of primary Earnings Per Share (EPS)
with a presentation of basic EPS. The presentation of fully diluted
EPS has been replaced with the presentation of diluted EPS.
Basic EPS excludes dilution and is computed by dividing income
applicable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Corporation. Diluted EPS is computed similarly to the
fully diluted EPS measurement previously disclosed by the Corporation.
A reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation is presented in Exhibit 11 of this document.
All prior period EPS presentations have been restated to comply with
SFAS 128.
2. In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) was issued. This
Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial
statements. SFAS 130 divides comprehensive income into net income and
other comprehensive income. The measurement and presentation of net
income will not change. Other comprehensive income will present
certain changes in the equity of the Corporation which are currently
recognized and separately presented in the Consolidated Statements of
Common Stockholders' Equity. The most significant of these items is
the change in the Translation Adjustments account.
The Corporation will be required to adopt SFAS 130 beginning in fiscal
1999.
3. In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131) was issued. This statement establishes new standards for
the way companies report information about operating segments and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for the Corporation beginning in
fiscal 1999; however, early adoption is permitted. The Corporation
currently discloses segment information in interim financial reports and
is currently evaluating the other reporting requirements of the
statement.
Page 8
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following is a discussion of the results of operations for the second
quarter and first six months of fiscal 1998 compared to comparable periods of
fiscal 1997 and a discussion of the changes in financial condition during the
first six months of fiscal 1998.
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER FISCAL 1998 TO SECOND QUARTER FISCAL 1997
Operating results by business segment in the second quarter of fiscal 1998 as
compared to the second quarter of fiscal 1997 were as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------------
(in millions)
Sales Operating Income
------------------ ------------------
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Packaged Meats and Bakery $2,062 $2,036 $ (46) $ 149
Coffee and Grocery 764 731 44 123
Household and Body Care 509 440 (120) 54
Personal Products 1,952 2,067 (1,344) 236
------- ------- ------- ------
Total sales and operating income (loss) 5,287 5,274 (1,466) 562
Intersegment sales (8) (5) -- --
Interest, net -- -- (44) (44)
Unallocated corporate expense -- -- (28) (51)
------- ------- ------- ------
Net sales and income (loss)
before income taxes $5,279 $5,269 $(1,538) $467
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
Consolidated net sales increased 0.2% in the second quarter of fiscal 1998.
Businesses acquired net of businesses sold subsequent to the start of the
second quarter of last fiscal year increased net sales by approximately 0.3
percentage points. The strengthening of the U.S. dollar relative to foreign
currencies had the effect of reducing sales by approximately 5.4 percentage
points. Thus, on a comparable basis, sales increased 5.3%.
In the second quarter of fiscal 1998, the Corporation provided for the cost
of restructuring its worldwide operations. The planned restructuring
activities include the disposition of 116 manufacturing and distribution
facilities - 86 facilities are owned and 30 are leased. This restructuring
provision reduced income before income taxes, net income and basic earnings
per share in the second quarter of fiscal 1998 by $2,040 million, $1,625
million and $3.44 per share, respectively. The fiscal 1998 operating income
includes charges for restructuring as follows: Personal Products -$1,574
million; Packaged Meats and Bakery - $210 million; Household and Body Care -
$185 million; and Coffee and Grocery - $71 million.
Page 9
<PAGE>
Of the total pretax charge for restructuring, $899 million relates to
anticipated losses associated with the disposal of land, buildings and
improvements, and machinery and equipment; $830 million relates to the
impairment of intangible assets directly related to the facilities and
businesses being disposed; $219 million relates to recognition of pension and
social costs associated with the plant disposals; $47 million relates to
anticipated expenditures to close and dispose of idled facilities; and $45
million relates to anticipated losses on the disposal of certain equity and
cost method investments. During the second quarter of fiscal 1998, the 11
most significant facilities contemplated in the restructuring plan were sold
for a realized loss of $344 million. The 4,480 individuals at these
locations became employees of the company purchasing this business. A
reconciliation of the restructuring reserves through December 27, 1997 is
presented on page 14 of this document.
Quarterly operating costs in fiscal 1998 will be reduced by $27 million
primarily as a result of lower plant overhead and goodwill amortization
related to the restructuring charge. The Corporation expects the
restructuring to generate increasing savings in subsequent periods, growing
to an annual savings of approximately $200 million in the year 2001. Savings
from the planned actions will be used both for business building and profit
improvement initiatives.
Restructuring actions are expected to be completed by 2000, and the
Corporation expects to fund the costs of the plan from internal sources and
available borrowing capacity. Of the $1,625 million charge, 11% is cash
related and 89% is non-cash.
Operating income, excluding the restructuring charge, increased $12 million
or 2.2% in the quarter. The strengthening of the U.S. dollar relative to
other currencies reduced operating income by approximately 6.7 percentage
points. Excluding the impact of business acquisitions, dispositions and
changes in foreign currency exchange rates, operating income increased 8%.
Net interest expense of $44 million was equivalent to that recognized in the
same quarter last year. The decrease in unallocated corporate expense was
due to improved results from hedging foreign currency movements and the
effect of the strengthening of the U.S. dollar on foreign currency
denominated minority interest expense. Excluding the restructuring
charge, income before income taxes increased 7.6%.
The loss before income taxes recognized in the second quarter of fiscal 1998
was $1,538 million. The effective tax rate on this loss was 16.9% largely as
a result of the write-off of non-deductible intangible assets. Excluding the
restructuring charge, the effective tax rate decreased from 32.0% to 31.0% of
pretax income. This decrease is largely due to lower foreign taxes.
Excluding the restructuring charge, net income increased 9.1% while basic
earnings per share increased 12.3%. Earnings per share increased at a rate
in excess of net income because of lower preferred dividends and fewer shares
outstanding during the period. Including the restructuring charge, the
Corporation recognized a net loss of $1,278 million or $2.71 per share.
The following comments regarding business segment performance exclude the
impact of the restructuring charge noted above.
Net sales and operating income in the Packaged Meats and Bakery segment
increased 1.3% and 10.9%, respectively. Excluding the impact of acquisitions
and changes in foreign currency exchange rates, sales and operating income
for this segment increased approximately 1% and 12%, respectively. Base
business growth and improved gross margins aided the improvements in
profitability in U.S. Meats and North American Bakery operations. Excluding
acquisitions, unit volumes for worldwide Packaged Meats were flat, Bakery
volumes fell 8% and Foodservice units rose 7% during the quarter.
Page 10
<PAGE>
Coffee and Grocery sales increased 4.5% in the quarter while operating income
declined 6.4%. A stronger U.S. dollar relative to other currencies negatively
impacted the translated results for sales and operating income by approximately
13 percentage points. Excluding the impact of acquisitions and changes in
foreign currency exchange rates, Coffee and Grocery sales and operating income
increased 17% and 8%, respectively. Unit volumes for roasted coffee were down 2%
for the quarter due to higher coffee prices.
Net sales and operating income in the Household and Body Care segment increased
15.7% and 19.7%, respectively. Results benefited from acquisitions and base
business gains in several Household and Body Care product categories, with
particular strength in key European markets. The Direct Selling division of this
segment was also favorably affected by the recent acquisitions of Nutri-Metics
and HomCare Japan. Excluding the effects of acquisitions and the impact of
changes in foreign currency exchange rates, sales and operating income increased
12% and 24%, respectively.
Personal Products sales and operating income declined 5.6% and 2.7%,
respectively. The stronger U.S. dollar negatively impacted sales and
operating income of this segment by approximately 3.0 percentage points.
Excluding acquisitions, dispositions and the impact of changes in foreign
currency exchange rates, sales and operating income increased 4% and 2%,
respectively. Profit improvements in worldwide Knit Products were offset by a
decline in profitability for sheer hosiery and accessories. Worldwide Knit
Products and Intimate Apparel unit volume increased 11% while worldwide
Legwear unit volumes declined 4%.
COMPARISON OF FIRST SIX MONTHS OF FISCAL 1998 TO FIRST SIX MONTHS OF FISCAL 1997
Operating results by business segment for the first six months of fiscal 1998 as
compared to the first six months of fiscal 1997 were as follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
---------------------------------------
(in millions)
Sales Operating Income
------------------ ------------------
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Packaged Meats and Bakery $ 4,023 $ 3,924 $ 51 $ 243
Coffee and Grocery 1,398 1,405 149 240
Household and Body Care 962 871 (79) 94
Personal Products 3,802 3,965 (1,194) 388
------- ------- ------- ------
Total sales and operating income (loss) 10,185 10,165 (1,073) 965
Intersegment sales (13) (10) -- --
Interest, net -- -- (83) (87)
Unallocated corporate expense -- -- (56) (108)
------- ------- ------- ------
Net sales and income (loss)
before income taxes $10,172 $10,155 $(1,212) $ 770
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
Page 11
<PAGE>
Consolidated net sales increased 0.2% for the first six months of fiscal
1998. Businesses acquired net of businesses sold subsequent to the start of
fiscal 1997 increased net sales by approximately 1.4 percentage points. The
strengthening of the U.S. dollar relative to foreign currencies had the
effect of reducing sales by approximately 5.5 percentage points. Thus, on a
comparable basis, sales increased 4.3%.
As noted previously, the Corporation provided for the cost of restructuring its
worldwide operations in the second quarter of fiscal 1998. This restructuring
provision reduced income before taxes, net income and basic earnings per share
for the six months ended December 27, 1997, by $2,040 million, $1,625 million
and $3.43 per share, respectively.
Operating income, excluding the restructuring charge, increased $2 million or
0.3% for the first six months of fiscal 1998. The strengthening of the U.S.
dollar relative to other currencies reduced operating income by approximately
7.2 percentage points. Excluding the impact of business acquisitions,
dispositions and changes in foreign currency exchange rates, operating income
increased 4%. Net interest expense decreased by $4 million due in part to the
effect of the strengthening of the U.S. dollar on foreign currency
denominated interest expense. The decrease in unallocated corporate expense
was due to improved results from hedging foreign currency movements and the
effect of the strengthening of the U.S. dollar on foreign currency
denominated minority interest expense. Excluding the restructuring charge,
income before income taxes increased 7.6%.
The loss before income taxes recognized in the first six months of fiscal
1998 was $1,212 million. The effective tax rate on this loss was 13.1%
largely as a result of the write-off of non-deductible intangible assets.
Excluding the restructuring charge, the effective tax rate decreased from
32.0% to 31.0% of pretax income. This decrease is largely due to lower
foreign taxes. Excluding the restructuring charge, net income increased 9.2%
while basic earnings per share increased 12.3%. Earnings per share,
excluding the restructuring charge, increased at a rate in excess of net
income because of lower preferred dividends and fewer shares outstanding
during the period. Including the restructuring charge, the Corporation
recognized a net loss of $1,053 million or $2.24 per share.
The following comments regarding business segment performance exclude the impact
of the restructuring charge noted above.
Net sales and operating income in the Packaged Meats and Bakery segment
increased 2.5% and 7.6%, respectively. Excluding the impact of acquisitions
and changes in foreign currency exchange rates, sales and operating income
for this segment increased approximately 2% and 10%, respectively. Base
business growth and improved gross margins aided the improvements in
profitability in U.S. Meats and North American Bakery operations. Excluding
acquisitions, unit volumes for worldwide Packaged Meats were flat, Bakery
volumes fell 1% and Foodservice units rose 6%.
Coffee and Grocery sales and operating income declined 0.5% and 7.8%,
respectively. A stronger U.S. dollar relative to other currencies negatively
impacted the translated results for sales and operating income by approximately
14 percentage points. Excluding the impact of acquisitions and changes in
foreign currency exchange rates, Coffee and Grocery sales and operating income
increased 13% and 7%, respectively. Unit volumes for roasted coffee were down 6%
for the first six months of fiscal 1998 due to higher coffee prices.
Page 12
<PAGE>
Net sales and operating income in the Household and Body Care segment increased
10.5% and 11.9%, respectively. Results benefited from acquisitions and base
business gains in several Household and Body Care product categories, with
particular strength in key European markets. The Direct Selling division of this
segment was also favorably affected by the recent acquisitions of Nutri-Metics
and HomCare Japan. Excluding the effects of acquisitions and the impact of
changes in foreign currency exchange rates, sales and operating income increased
10% and 13%, respectively.
Personal Products sales and operating income declined 4.1% and 2.2%,
respectively. The stronger U.S. dollar negatively impacted sales and operating
income of this segment by approximately 4 percentage points. Excluding
acquisitions, dispositions and the impact of changes in foreign currency
exchange rates, sales increased 2% while operating income declined 3%.
Profit improvements in worldwide Knit Products, Intimate Apparel and socks were
offset by weakness in sheer hosiery and accessories. Unit volumes for
worldwide Knit Products and Intimate Apparel increased 9% and 7%, respectively,
while worldwide Legwear unit volumes declined 2%.
FINANCIAL CONDITION
During the first six months of fiscal 1998, net cash from operating activities
was $442 million as compared to $483 million in the comparable period of fiscal
1997. Higher working capital requirements were largely responsible for the
decline in operating cash flow.
Net cash expended for investing activities was $23 million in the first six
months of fiscal 1998 as compared to $617 million in the previous year. The
decrease in net expenditures is primarily due to the cash received upon the
disposition of businesses and lower expenditures for acquisitions of businesses
and investments in fiscal 1998.
During the first six months of fiscal 1998, cash and equivalents decreased by
$35 million to $237 million while borrowings produced a cash inflow of $501
million. During fiscal 1998, the Corporation redeemed $200 million of auction
preferred stock at book value. In addition, 11.1 million shares of the
Corporation's outstanding common stock were repurchased for $567 million.
Page 13
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF RESTRUCTURING RESERVES
AS OF DECEMBER 27, 1997
(in millions)
<TABLE>
<CAPTION>
WRITEDOWN
OF PROPERTY RECOGNITION OF
AND INVESTMENTS CURTAILMENT RESTRUCTURING
ORIGINAL TO NET LOSS AND SPECIAL FOREIGN RESERVES
RESTRUCTURING REALIZABLE TERMINATION CASH EXCHANGE AS OF
RESERVES VALUE BENEFITS PAYMENTS IMPACTS DECEMBER 27, 1997
------------- --------------- ---------------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Anticipated losses associated with
disposal of land, buildings and
improvements, and machinery and
equipment $ 899 $ (899) $ -- $ -- $ -- $ --
Impairment of intangible assets 830 (830) -- -- -- --
Pension and social costs 219 -- (39) -- -- 180
Anticipated expenditures to close and
dispose of idled facilities - includes
non-cancelable lease obligations 47 -- -- (3) -- 44
Anticipated loss associated with the disposal
of equity and cost method investments 45 (45) -- -- -- --
-------- --------- -------- ------- ------- -------
2,040 (1,774) (39) (3) -- 224
Foreign exchange impacts -- -- -- -- (4) (4)
-------- --------- -------- ------- ------- -------
Total restructuring reserves $ 2,040 $ (1,774) $ (39) $ (3) $ (4) $ 220
-------- --------- -------- ------- ------- -------
-------- --------- -------- ------- ------- -------
</TABLE>
Page 14
<PAGE>
PART II
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
PAGE NUMBER OR
EXHIBIT INCORPORATED HEREIN
NUMBER DESCRIPTION BY REFERENCE TO
------- -------------------------------- -------------------
10.1 Retirement Agreement, dated
November 17, 1997, between
Sara Lee Corporation and Donald J.
Franceschini 17
10.2 Consulting Agreement, dated
November 17, 1997, between
Sara Lee Corporation and Donald J.
Franceschini 27
10.3 FY 1998-2000 Long-Term Performance
Incentive Plan 33
10.4 First Amendment of Supplemental
Benefit Plan 41
11 Computation of Net Income Per
Common Share 44
12.1 Computation of Ratio of Earnings to
Fixed Charges 46
12.2 Computation of Ratio of Earnings to
Fixed Charges and Preferred Stock
Dividend Requirements 47
27 Financial Data Schedule 48
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the quarter
for which this report is filed.
Page 15
<PAGE>
S I G N A T U R E
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SARA LEE CORPORATION
--------------------
(Registrant)
By: /s/ Wayne R. Szypulski
--------------------------
Wayne R. Szypulski
Vice President and Controller
DATE: February 10, 1998
Page 16
<PAGE>
Exhibit 10.1
RETIREMENT AGREEMENT
Sara Lee Corporation (the "Company") and Donald J. Franceschini (the
"Executive") enter into this Retirement Agreement (the "Agreement") which was
received by the Executive on the 13th day of November, 1997, signed by the
Executive on the 17th day of November, 1997, and is effective on the 4th day of
December, 1997 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, Executive is employed by the Company as a Vice-Chairman and
serves on its Board of Directors;
WHEREAS, Executive has decided to retire from his employment with the
Company on December 31, 1997 (the "Retirement Date") and resign from the
Company's Board of Directors and as an officer of the Company on December 4,
1997;
WHEREAS, Executive and the Company have negotiated and reached an
agreement with respect to all rights, duties and obligations arising between
them, including, but in no way limited to, any rights, duties and obligations
that have arisen or might arise out of, or are in any way related to,
Executive's employment with the Company, the conclusion of that employment.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained in this Agreement, the parties agree as follows:
1. CONTINUED EMPLOYMENT. Until his retirement at the close of business
on the Retirement Date, and subject to the provisions of this Agreement,
Executive shall continue to receive the same compensation and benefits he
presently receives. Subsequent to the Retirement Date, Executive has agreed to
provide consulting services to the Company pursuant to a Consulting Agreement
between Executive and the Company dated November 17, 1997 (the "Consulting
Agreement").
2. RETIREMENT DATE. Executive agrees to resign from the Board of
Directors and as an officer of the Company on December 4, 1997. Executive
further agrees to retire from his employment and all appointments he holds with
the Company and its affiliates effective at the close of business on the
Retirement Date.
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<PAGE>
3. SHORT-TERM BONUS. Executive shall receive for the Company's 1998
fiscal year a bonus in an amount not to exceed $250,000 under the Short-Term
(Annual) Bonus Plan of the Company (the "Bonus Plan") less applicable
withholding and other customary payroll deductions; and for the Company's 1999
fiscal year, 33.3% of his otherwise payable bonus under the Bonus Plan, less
applicable withholdings and other customary payroll deductions. The actual
amount of the bonuses shall be determined in accordance with the performance
objectives contained in the Bonus Plan. The bonuses payments provided for in
this Paragraph 3 shall be in lieu of, not in addition to, all bonuses payable
to Executive and shall be paid to Executive on the same date on which active
participants under the Bonus Plan are paid bonuses for the applicable bonus
periods.
4. RECEIPT OF BENEFITS UPON DEATH. In the event of Executive's death
during the period commencing on the Retirement Date and ending on October 31,
2000 (the "Post-Retirement Period"), the Short-Term Bonuses referred to in
Paragraph 3, and any awards under the LTPIP and the AGIP referred to in
Subparagraphs 7(b) and 7(c), to the extent unpaid, shall be payable to
Executive's designated beneficiary or, if none, to his estate and, except to
the extent benefits contemplated herein are provided by their terms to
Executive's heirs and beneficiaries, the Company shall have no further
obligations to Executive's beneficiaries under this Agreement.
5. RECEIPT OF OTHER COMPENSATION. Executive acknowledges and agrees
that, other than as specifically set forth in this Agreement and for his
services under the Consulting Agreement, he is not and will not be due any
compensation, including, but not limited to, compensation for unpaid salary
(except for amounts unpaid and owing for Executive's employment with the
Company and its affiliates prior to the Retirement Date), unpaid bonus,
severance and accrued or unused vacation time or vacation pay from the Company
or any of its affiliates, and as of and after the Retirement Date, except as
provided herein, he will not be eligible to participate in any of the benefit
plans of the Company or any of its affiliates, including, without limitation,
the Company's Consolidated Pension and Retirement Plan, Employee Stock
Ownership Plan ("ESOP"), 401(k) Supplemental Savings Plan, stock purchase plan,
travel accident insurance, personal accident insurance, accidental death and
dismemberment insurance and short-term and long-term disability insurance.
Executive will be entitled to receive benefits which are vested and accrued
prior to the Retirement Date pursuant to the employee benefit plans of the
Company. The Company shall promptly reimburse Executive for business expenses
incurred in the ordinary course of Executive's employment on or before the
Retirement Date, but not previously reimbursed, provided the Company's policies
of documentation and approval are satisfied.
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<PAGE>
6. NON-QUALIFIED SUPPLEMENTAL ESOP AND RETIREMENT PLAN BENEFITS.
Executive shall continue to accrue credited service and benefits as if he had
remained employed by the Company through the Post-Retirement Period with
respect to the non-qualified supplemental ESOP, and pension benefits under the
Sara Lee Corporation Supplemental Benefit Plan (based solely on (i) the
payments paid to Executive under the Consulting Agreement and (ii) the Short-
Term (Annual) Bonus payments pursuant to Paragraph 3 hereunder and all such
payments shall be used to determine accrued benefits during the Post-Retirement
Period). Distributions from the Company's retirement plans and ESOP shall be
made in accordance with the terms and conditions of such plans, as such plans
are in effect from time to time.
7. STOCK OPTIONS, LTPIP AND AGIP.
(a) Executive shall not be granted any and shall not be entitled to
receive any new stock options after the Retirement Date. Except with respect
to Executive's option to purchase 225,000 shares of the Company's common stock
(at an exercise price of $41.06 per share) granted to Executive on August 28,
1997 (the "Project 2000 Stock Option"), Executive's existing stock options will
continue to vest in accordance with their vesting schedules. With respect to
the Project 2000 Stock Option, 100,000 of the option shares shall be eligible
for vesting in accordance with the terms and conditions of the Project 2000
Stock Option. The remaining Project 2000 Stock Options (125,000 shares) and
the Project 2000 award of 20,000 shares of restricted common stock are canceled
and are of no further force or effect. As of October 31, 1998, Executive shall
be treated as a retired participant under the Company's stock option plans.
From and after November 1, 1998, Executive shall not be eligible to be issued
replacement stock options upon exercise of any options held by him.
(b) Subject to the determination of the Compensation and Employee
Benefits Committee of the Company's Board of Directors (the "Committee"),
Executive shall be entitled to awards or PRO RATA awards under the Company's
Long-Term Performance Incentive Plan ("LTPIP") as follows: Executive shall
receive (i) for the 96-98 LTPIP, an award of up to 15,000 shares with the
actual award based upon Executive's performance measures (with no reduction
for Executive's retirement prior to the end of the Company's 1998 fiscal
year) as established by the Committee (ii) for the 97-99 LTPIP, up to 5,056
shares with the actual award calculated in accordance with the corporate
performance measures established by the Committee for the 97-99 LTPIP; and
(iii) for the 98-00 LTPIP, up to 4,444 shares with the actual award
calculated in accordance with the corporate performance measures established
by the Committee for the 98-00 LTPIP. The Company shall recommend to the
Committee that Executive receive such awards under the LTPIP. Executive
shall not be entitled to any other award under the LTPIP other than those set
forth herein.
Page 19
<PAGE>
(c) Executive has been granted 36,800 restricted shares of the Company's
common stock under the Accelerated Growth Incentive Plan ("AGIP"). Executive
shall be eligible for consideration of a distribution of 32,648 shares in 1999
pursuant to the provisions of the AGIP. Any distributions of shares made in
1999 shall be made at the sole discretion of the Committee in accordance with
the terms of AGIP related to retired participants as amended from time to time.
The Company shall recommend to the Committee that Executive receive a
distribution of 32,648 shares under AGIP.
8. HEALTH INSURANCE CONTINUATION, UNIVERSAL LIFE. After the Retirement
Date Executive will be entitled to participate in the Company's group health
insurance benefit plan for retirees. The Company further agrees to provide
Universal Life insurance benefits equal to three times Executives current base
salary until October 31, 1998. As of November 1, 1998, the Company shall
provide Universal Life insurance benefits equal to one times Executive's
current base salary.
9. AUTOMOBILE. Executive may continue to use the automobile provided to
him by the Company during the Post-Retirement Period in accordance with the
terms of the Company's leased executive automobile policy until the earlier of
the end of the Post-Retirement Period or the expiration of the automobile's
current lease term. Executive shall have the option to purchase the automobile
at any time pursuant to the terms of the Company's executive automobile policy.
10. RELOCATION EXPENSES. Executive shall be entitled to receive
reimbursement for all reasonable expenses incurred by Executive in relocating
(out of state) his principal residence in Chicago, Illinois upon the Company's
receipt of appropriate documentation of such expenses. The Company also will
reimburse Executive for up to, but no more than, $150,000 of the net loss, if
any, to Executive from the sale of Executive's principal residence in Chicago,
with such loss measured by the amount by which the cost basis of the residence
at the time of sale exceeds the sale price.
11. OTHER BENEFITS. Executive will be entitled to the following benefits
throughout the Post-Retirement Period (a) luncheon club dues (b) fulfillment
of any matching grant obligations under the Company's Matching Grants Program,
(c) the Personal Financial Counseling Program for Senior Corporation Officers
and (d) any other benefits customarily provided to retired employee directors.
12. NON-SOLICITATION AND NON-COMPETITION. In consideration for receiving
the payments called for hereunder, Executive agrees that during the Post-
Retirement Period Executive:
Page 20
<PAGE>
(a) will not, without the prior written consent of Company, alone, or in
association with others, solicit on behalf of Executive, or any other person,
firm, corporation or entity, any employee of the Company, or any of its
operating divisions, subsidiaries or affiliates, for employment with a
Competing Business (as defined below). For purposes of this Agreement and to
avoid any ambiguity, Company and Executive agree that it will be presumed that
Executive solicited an employee of the Company if such employee commences work
with a Competing Business within one (1) year after Executive becomes employed
by an investor of or affiliated with such Competing Business; and
(b) will not, without the prior written consent of Company, directly or
indirectly counsel or advise (with or without pay) or be employed by, or
otherwise engage or participate in any Competing Business; and
(c) For purposes of this Agreement a "Competing Business" means Best
Form, Fila, Fruit of the Loom, Golden Lady, Jockey, Kayser Roth, Levi Strauss,
Maidenform, Nike, Reebok, Russell Corporation, Starter Corporation, Triumph,
Tultex Corporation, VF Corporation, Wacoal and Warnaco Group, Inc. or any of
their respective parents, subsidiaries, affiliates, successors or assigns.
13. CONFIDENTIALITY. At all times hereafter, Executive will maintain the
confidentiality of all information in whatever form concerning the Company or
any of its affiliates relating to its or their businesses, customers, finances,
strategic or other plans, marketing, employees, trade practices, trade secrets,
know-how or other matters which are not generally known outside the Company,
and Executive will not, directly or indirectly, make any disclosure thereof to
anyone, or make any use thereof, on his own behalf or on behalf of any third
party, unless specifically requested by or agreed to in writing by an executive
officer of the Company.
14. TERMINATION OF PAYMENTS.
(a) In the event of a breach of Paragraph 12 or 13 hereof by Executive,
the Company shall have the right to immediately discontinue any remaining
payments and other obligations of the Company to Executive during the remaining
Post-Retirement Period (except for the payment of vested and accrued pension
benefits under applicable Company employee benefit plans and any payments due
Executive under any deferred compensation plan of the Company) and the Post-
Retirement Period shall thereupon cease.
(b) If the Company pursues a claim for actual damages for a breach of
Paragraphs 12 or 13 by Executive, any award will first be offset by any monies
remaining owed to the Executive under this Agreement.
Page 21
<PAGE>
15. RELEASE.
(a) Executive on behalf of himself, his heirs, executors, administrators
and assigns, do hereby knowingly and voluntarily release, acquit and forever
discharge the Company and any affiliates, successors, assigns and past, present
and future directors, officers, employees, trustees and shareholders from and
against any and all charges, complaints, claims, cross-claims, third-party
claims, counterclaims, contribution claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses of any nature whatsoever, known or
unknown, suspected or unsuspected, foreseen or unforeseen, matured or
unmatured, which, at any time up to and including the date thereof, exists,
have existed, or may arise from any matter whatsoever occurring, including, but
not limited to, any claims arising out of or in any way related to Executive's
employment with or service to the Company or its affiliates and the conclusion
thereof, which Executive, or any of his heirs, executors, administrators and
assigns and affiliates and agents ever had, now has or at any time hereafter
may have, own or hold against the Company or any affiliates, legal
representatives, successors and assigns, past, present and future directors,
officers, employees, trustees and shareholders. Executive acknowledges that in
exchange for this release, the Company is providing Executive with a total
consideration, financial or otherwise, which exceeds what Executive would have
been given without the release. To the maximum extent permitted by law,
Executive agrees that he will not commence any action or proceeding of any
nature whatsoever, and that he will not seek or be entitled to any award of
equitable or monetary relief in any action or proceeding brought on his behalf,
that arises out of the matters released by Executive under this Agreement.
(B) EXECUTIVE SPECIFICALLY WAIVES AND RELEASES THE COMPANY FROM ALL
CLAIMS EXECUTIVE MAY HAVE AS OF THE DATE EXECUTIVE SIGNS THIS AGREEMENT
REGARDING CLAIMS OR RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, AS AMENDED, 29 U.S.C. Section 621 ("ADEA"). EXECUTIVE FURTHER
AGREES (A) THAT EXECUTIVE'S WAIVER OF RIGHTS UNDER THIS RELEASE IS KNOWING AND
VOLUNTARY AND IN COMPLIANCE WITH THE OLDER WORKER'S BENEFIT PROTECTION ACT OF
1990; (B) THAT EXECUTIVE UNDERSTANDS THE TERMS OF THIS RELEASE; (C) THAT THE
PAYMENTS AND OTHER BENEFITS CALLED FOR IN THIS AGREEMENT WOULD NOT BE PROVIDED
TO ANY EXECUTIVE TERMINATING HIS OR HER EMPLOYMENT WITH THE COMPANY WHO DID NOT
SIGN A RELEASE SIMILAR TO THIS RELEASE, THAT SUCH PAYMENTS AND BENEFITS WOULD
NOT HAVE BEEN PROVIDED HAD EXECUTIVE NOT SIGNED THIS RELEASE, AND THAT SUCH
PAYMENTS AND BENEFITS ARE IN EXCHANGE FOR THE SIGNING OF THIS RELEASE; (D) THAT
EXECUTIVE HAS BEEN ADVISED IN WRITING BY THE COMPANY TO CONSULT WITH AN
ATTORNEY PRIOR TO EXECUTING THIS
Page 22
<PAGE>
RELEASE; (E) THAT THE COMPANY HAS GIVEN EXECUTIVE A PERIOD OF AT LEAST
TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE; (F) THAT
EXECUTIVE REALIZED THAT FOLLOWING EXECUTIVE'S EXECUTION OF THIS RELEASE,
EXECUTIVE HAS SEVEN (7) DAYS IN WHICH TO REVOKE THIS RELEASE BY WRITTEN
NOTICE TO THE UNDERSIGNED, AND (G) THAT THIS ENTIRE AGREEMENT SHALL BE VOID
AND OF NO FORCE AND EFFECT IF EXECUTIVE CHOOSES TO SO REVOKE, AND IF
EXECUTIVE CHOOSES NOT TO SO REVOKE, THAT HIS AGREEMENT AND RELEASE THEN
BECOME EFFECTIVE AND ENFORCEABLE.
(c) To the maximum extent permitted by law, Executive agrees that he will
not commence any action or proceeding of any nature whatsoever, and that he
will not seek or be entitled to any award of equitable or monetary relief in
any action or proceeding brought on his behalf, that arises out of the matters
released by Executive under this Agreement.
16. DISPUTE RESOLUTION.
(a) In the event of any dispute under this Agreement between the parties
(other than pursuant to Paragraph 19 below), the party who has the claim under
this Agreement shall give the other party reasonable notice and, except in an
emergency situation, a reasonable opportunity to cure. The party who has the
claim agrees to promptly submit such dispute to binding arbitration. The
arbitration hearing shall be completed within ninety (90) days of the first to
occur of the notice referred to above or submission to arbitration if no such
notice is given.
(b) Such arbitration shall be conducted in accordance with this Agreement
and, where not inconsistent, the appropriate commercial arbitration rules of
the American Arbitration Association (the "AAA"), and shall be held in Chicago,
Illinois, at such location within Chicago as shall be determined by the AAA.
Each side shall name one arbitrator. The two arbitrators shall select a third
arbitrator either by mutual agreement or from a list submitted by the AAA in
accordance with AAA rules. The arbitrators shall permit reasonable discovery
in accordance with the Federal Rules of Civil Procedure and the Local Rules of
the U.S. District Court for the Northern District of Illinois. The arbitrators
shall make written findings of fact and conclusions of law reflecting the
appropriate substantive law. The decision of the arbitrators shall be rendered
within 30 days of the close of the arbitration hearing and shall be final and
binding. The parties shall pay their own expenses of arbitration and legal
fees, and the expenses of the arbitrators and the AAA shall be equally shared;
provided, however, that if, in the opinion of the arbitrators, any claim under
this Agreement or any defense in objection thereto was unreasonable, the
arbitrator may assess, as part of their award, all or any part of the
arbitration expenses (including reasonable attorneys' fees of the other party
Page 23
<PAGE>
and arbitrators' fees under the standards and law applicable under Rules 11 and
37 of the Federal Rules of Civil Procedure) against the party raising such
unreasonable claim, defense or objection.
(c) In any arbitration proceeding pursuant to this Paragraph 16, this
Agreement shall be governed as to all matters, including validity, construction
and performance, by the laws of the State of Illinois, except as superseded by
the laws of the United States.
(d) The parties agree that any attempt to avoid arbitration by
instituting procedures in any other forum except as provided in Paragraph 19
will constitute a material breach of this Agreement and will cause irreparable
harm to the other party, including but not limited to disrupting business and
incurring legal expenses, thereby requiring an immediate judicial order to
return the cause to arbitration and terminate any other proceedings. Judicial
orders to enforce the arbitration provisions of this Agreement and otherwise in
aid of arbitration may be entered by the federal and state courts located in
Cook County, Illinois, at any time prior to or after a final decision by the
arbitrators, and the parties hereby submit to personal jurisdiction in the
State of Illinois and to venue in such courts.
17. EXECUTIVE'S UNDERSTANDING. Executive acknowledges by signing this
Agreement that Executive has read and understands this document, that Executive
has conferred with or had opportunity to confer with Executive's attorney
regarding the terms and meaning of this Agreement, that Executive has had
sufficient time to consider the terms provided for in this Agreement, that no
representatives or inducements have been made to Executive except as set forth
in this Agreement, and that Executive has signed the same KNOWINGLY AND
VOLUNTARILY.
18. NON-RELIANCE. Executive represents to the Company and the Company
represents to Executive that in executing this Agreement they do not rely and
have not relied upon any representation or statement not set forth herein made
by the other or by any of the other's agents, representatives or attorneys with
regard to the subject matter, basis or effect of this Agreement or otherwise.
19. BREACH OF AGREEMENT. Executive and the Company acknowledge and
agree that the Company will or would suffer irreparable injury in the event of
a breach or violation or threatened breach or violation of the provisions set
forth in Paragraphs 12 or 13 and agree that in event of actual or threatened
breach or violation of such provisions the Company shall be awarded injunctive
relief in the federal or state courts located in Cook County, Illinois to
prohibit any such violation or breach or threatened violation or breach,
without necessity of posting any bond or security and without first complying
with the provisions of Paragraph 16, and such right to injunctive relief shall
be in addition to any other right available under this Agreement.
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<PAGE>
20. SEVERABILITY OF PROVISIONS. In the event that any one or more of
the provisions of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this Agreement are held to be
excessively broad as to duration, scope, activity or subject, such provisions
will be construed by limiting and reducing them so as to be enforceable to the
maximum extent compatible with applicable law.
21. NOTICE. Any notice to be given hereunder shall be in writing and
shall be deemed given when mailed by certified mail, return receipt requested,
addressed as follows:
To Executive at:
1430 North Lake Shore Drive
Apartment 16
Chicago, Illinois 60610
with a copy to:
Richard L. Menson
Gardner, Carton & Douglas
321 N. Clark Street, Suite 3300
Chicago, IL 60610
To the Company at:
Sara Lee Corporation
Three First National Plaza
Chicago, Illinois 60602-4260
Attention: General Counsel
22. INDEMNIFICATION OF EXECUTIVE. Notwithstanding any provisions of any
Company policy and in addition to any Company policy, the Company shall
indemnify Executive to the extent that he is made a party or threatened to be
made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of any act or omission by Executive
in the course of the performance of his duties as a director, officer or
employee of the Company, to the maximum extent permitted by the Maryland
General Corporation Law as now or hereinafter in effect and, without requiring
a preliminary determination of the ultimate entitlement to indemnification,
shall pay or reimburse reasonable expenses in advance of final disposition of a
proceeding. Nothing herein shall be construed to entitle Executive to
Page 25
<PAGE>
indemnification or payment or reimbursement of expenses for any action by the
Company to enforce the terms of this Agreement, except as provided in Section
16(b) above.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
DONALD J. FRANCESCHINI SARA LEE CORPORATION
/s/ Donald J. Franceschini By: /s/ Gary C. Grom
- --------------------------- -------------------------
Donald J. Franceschini
Name: Gary C. Grom
Title: SVP Human Resources
Page 26
<PAGE>
Exhibit 10.2
CONSULTING AGREEMENT
Sara Lee Corporation (the "Company") and Donald J. Franceschini (the
"Consultant") enter into this Consulting Agreement (the "Agreement") which
was executed on the 17th day of November, 1997, and is effective as of the
first day of January, 1998 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, Consultant is employed by the Company as a Vice-Chairman and
serves on its Board of Directors;
WHEREAS, Consultant has decided to resign from the Company's Board of
Directors and as an officer of the Company on December 4, 1997 and retire as
an employee of the Company on December 31, 1997 (the "Retirement Date");
WHEREAS, the Company desires to retain Consultant to provide consulting
services to the Company following his retirement.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained in this Agreement, the parties agree as follows:
1. CONSULTING SERVICES. Consultant agrees to make available to the
Company Consultant's services, experience and knowledge with respect to
manufacturing, sourcing, distributing, marketing and selling intimate apparel
during the term of this Agreement. Without limiting the foregoing,
Consultant agrees to (a) undertake an analysis of the Company's worldwide
intimate apparel business and develop strategies and recommendations for
divesting and outsourcing the manufacturing, sourcing and distribution of
intimate apparel in furtherance of the Company's recently announced Project
2000 strategic restructuring; (b) undertake a benchmarking analysis of the
Company's sourcing capabilities throughout the Company's worldwide intimate
apparel business and develop strategies and recommendations for improving and
rationalizing the Company's sourcing capabilities; and (c) undertake a
feasibility analysis regarding the development, either singularly or jointly
with a strategic partner or partners, of a mass market private label intimate
apparel business. Consultant may from time to time be required to attend
Company meetings at the request of the Chairman and Chief Executive Officer
or President of the Company at such time or times as are mutually agreed
upon. The Company shall make available to the Consultant at his request such
information in the possession of the Company as well as access to Company
employees reasonably necessary for the Consultant to perform his services
hereunder. Nothing contained in this Agreement shall be deemed to create an
employment relationship between the Company and
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<PAGE>
Consultant. In providing such consulting services, Consultant shall be an
independent contractor and shall not have the authority to bind the Company
with respect to any matter.
2. CONSULTING TERM AND FEE.
(a) The Company agrees to retain Consultant as a consultant pursuant to
the terms of this Agreement for a period commencing on January 2, 1998 through
and including October 31, 2000 (the "Consulting Period").
(b) As consideration for Consultant's consulting services, the Company
hereby agrees to pay Consultant the gross annual amount of Six Hundred Thousand
dollars ($600,000.00) payable in equal monthly installments of $50,000
commencing on December 31, 1997 and ending on October 31, 2000. In addition,
the Consultant shall receive a one-time payment in the amount of $470,000 which
shall be paid to Consultant on August 31, 1998.
(c) The Company shall reimburse Consultant for all out-of-pocket expenses
reasonably and necessarily incurred by Consultant in the performance of his
consulting services, provided that such expenses are incurred at the request of
the Company and provided further that Consultant submits appropriate
documentation of such expenses to the Company.
(d) Notwithstanding Consultant's death or disability during the
Consulting Period, the benefits under this Agreement shall be payable to
Consultant's designated beneficiary or, if none, to his estate in the same
manner as otherwise payable hereunder and the Company shall have no further
obligations to Consultant's beneficiaries under this Agreement.
(e) As an independent contractor, Consultant shall assume full and
exclusive liability for any and all taxes that may be imposed by any federal,
state, or local taxing authority with respect to the payments to Consultant
under this Agreement. The Company shall issue to Consultant a Form 1099 or
other appropriate document reflecting the payments to Consultant.
3. NON-SOLICITATION AND NON-COMPETITION. In consideration for receiving
the payments called for hereunder, Consultant agrees that during the Consulting
Period Consultant:
(a) will not, without the prior written consent of Company, alone, or
in association with others, solicit on behalf of Consultant, or any other
person, firm, corporation or entity, any employee of the Company, or any of
its operating divisions, subsidiaries or affiliates, for employment with a
Competing Business (as defined below). For purposes of this Agreement and to
avoid any ambiguity, Company and Consultant agree that it will be presumed
that Consultant solicited an employee of the Company if such employee
commences work with a Competing Business within one (1)
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<PAGE>
year after Consultant becomes employed by, an investor of, or affiliated with
such Competing Business; and
(b) will not, without the prior written consent of Company, directly or
indirectly counsel or advise (with or without pay) or be employed by, or
otherwise engage or participate in any Competing Business; and
(c) For purposes of this Agreement a "Competing Business" means Best
Form, Fila, Fruit of the Loom, Golden Lady, Jockey, Kayser Roth, Levi Strauss,
Maidenform, Nike, Reebok, Russell Corporation, Starter Corporation, Triumph,
Tultex Corporation, VF Corporation, Wacoal and Warnaco Group, Inc. or any of
their respective parents, subsidiaries, affiliates, successors or assigns.
4. CONFIDENTIALITY. At all times hereafter, Consultant will maintain
the confidentiality of all information in whatever form concerning the Company
or any of its affiliates relating to its or their businesses, customers,
finances, strategic or other plans, marketing, employees, trade practices,
trade secrets, know-how or other matters which are not generally known outside
the Company and Consultant will not, directly or indirectly, make any
disclosure thereof to anyone, or make any use thereof, on his own behalf or on
behalf of any third party, unless specifically requested by or agreed to in
writing by an executive officer of the Company.
5. TERMINATION OF CONSULTING FEES.
(a) In the event of a breach of Paragraph 3 or 4 hereof by Consultant,
the Company shall have the right to immediately discontinue any remaining
payments and other obligations of the Company under this Agreement to
Consultant during the remaining Consulting Period and the Consulting Period
shall thereupon cease.
(b) If the Company pursues a claim for actual damages for a breach of
Paragraph 3 or 4 by Consultant, any award will first be offset by any monies
remaining owed to the Consultant under this Agreement.
6. DISPUTE RESOLUTION.
(a) In the event of any dispute under this Agreement between the parties
(other than pursuant to Paragraph 8 below), the party who has the claim under
this Agreement shall give the other party reasonable notice and, except in an
emergency situation, a reasonable opportunity to cure. The party who has the
claim agrees to promptly submit such dispute to binding arbitration. The
arbitration hearing shall be completed within ninety (90) days of the first to
occur of the notice referred to above or submission to arbitration if no such
notice is given.
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<PAGE>
(b) Such arbitration shall be conducted in accordance with this Agreement
and, where not inconsistent, the appropriate commercial arbitration rules of
the American Arbitration Association (the "AAA"), and shall be held in Chicago,
Illinois, at such location within Chicago as shall be determined by the AAA.
Each side shall name one arbitrator. The two arbitrators shall select a third
arbitrator either by mutual agreement or from a list submitted by the AAA in
accordance with AAA rules. The arbitrators shall permit reasonable discovery
in accordance with the Federal Rules of Civil Procedure and the Local Rules of
the U.S. District Court for the Northern District of Illinois. The arbitrators
shall make written findings of fact and conclusions of law reflecting the
appropriate substantive law. The decision of the arbitrators shall be rendered
within 30 days of the close of the arbitration hearing and shall be final and
binding. The parties shall pay their own expenses of arbitration and legal
fees, and the expenses of the arbitrators and the AAA shall be equally shared;
provided, however, that if, in the opinion of the arbitrators, any claim under
this Agreement or any defense in objection thereto was unreasonable, the
arbitrator may assess, as part of their award, all or any part of the
arbitration expenses (including reasonable attorneys' fees of the other party
and arbitrators' fees under the standards and law applicable under Rules 11 and
37 of the Federal Rules of Civil Procedure) against the party raising such
unreasonable claim, defense or objection.
(c) In any arbitration proceeding pursuant to this Paragraph 6, this
Agreement shall be governed as to all matters, including validity, construction
and performance, by the laws of the State of Illinois, except as superseded by
the laws of the United States.
(d) The parties agree that any attempt to avoid arbitration by
instituting procedures in any other forum except as provided in Paragraph 8
will constitute a material breach of this Agreement and will cause irreparable
harm to the other party, including but not limited to disrupting business and
incurring legal expenses, thereby requiring an immediate judicial order to
return the cause to arbitration and terminate any other proceedings. Judicial
orders to enforce the arbitration provisions of this Agreement and otherwise in
aid of arbitration may be entered by the federal and state courts located in
Cook County, Illinois, at any time prior to or after a final decision by the
arbitrators, and the parties hereby submit to personal jurisdiction in the
State of Illinois and to venue in such courts.
7. NON-RELIANCE. Consultant represents to the Company and the Company
represents to Consultant that in executing this Agreement they do not rely and
have not relied upon any representation or statement not set forth herein made
by the other or by any of the other's agents, representatives or attorneys with
regard to the subject matter, basis or effect of this Agreement or otherwise.
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8. BREACH OF AGREEMENT. Consultant and the Company acknowledge and
agree that the Company will or would suffer irreparable injury in the event of
a breach or violation or threatened breach or violation of the provisions set
forth in Paragraphs 3 or 4 and agree that in event of actual or threatened
breach or violation of such provisions the Company shall be awarded injunctive
relief in the federal or state courts located in Cook County, Illinois to
prohibit any such violation or breach or threatened violation or breach,
without necessity of posting any bond or security and without first complying
with the provisions of Paragraph 6, and such right to injunctive relief shall
be in addition to any other right available under this Agreement.
9. SEVERABILITY OF PROVISIONS. In the event that any one or more of
the provisions of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this Agreement are held to be
excessively broad as to duration, scope, activity or subject, such provisions
will be construed by limiting and reducing them so as to be enforceable to the
maximum extent compatible with applicable law.
10. NOTICE. Any notice to be given hereunder shall be in writing and
shall be deemed given when mailed by certified mail, return receipt requested,
addressed as follows:
To Consultant at:
1430 North Lake Shore Drive
Apartment 16
Chicago, Illinois 60610
with a copy to:
Richard L. Menson
Gardner, Carton & Douglas
321 N. Clark Street, Suite 3300
Chicago, IL 60610
To the Company at:
Sara Lee Corporation
Three First National Plaza
Chicago, Illinois 60602-4260
Attention: General Counsel
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SARA LEE CORPORATION
/s/ Donald J. Franceschini By: /s/ Gary C. Grom
- -------------------------- --------------------------
Donald J. Franceschini
Name: Gary C. Grom
Title: SVP Human Resources
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<PAGE>
Exhibit 10.3
SARA LEE CORPORATION
LONG-TERM PERFORMANCE INCENTIVE PLAN
FISCAL YEARS 1998 - 2000
PLAN DESCRIPTION
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HIGHLIGHTS
This booklet explains the plan provisions of the Sara Lee Corporation Long-Term
Performance Incentive Plan covering fiscal years 1998 through 2000 ("Performance
Cycle"). The following pages provide detailed information relating to the grant
of restricted performance shares that you have received under the Plan.
The key features of this plan are summarized below. In some countries other
than the United States, variations in plan design may occur in order to comply
with local tax provisions.
RESTRICTED PERFORMANCE SHARES
- - Shares of Sara Lee stock are issued in your name, and held at Corporate
Office.
- - You have voting rights on all shares throughout the Performance Cycle.
- - The number of shares that will be released to you will depend upon the
attainment of pre-established performance goals during the Performance
Cycle.
- - An opportunity to earn additional shares is possible if performance results
exceed the Superior performance level.
- - Net after-tax shares which are earned at the end of the Performance Cycle
may not be sold by the Participant until the end of FY01.
DIVIDENDS
- - Dividends are accrued on your behalf through the Performance Cycle.
- - Interest on accrued dividends is credited at the same rate as provided for
under the SLC non-qualified deferred compensation plans.
- - Dividends and interest on shares originally granted are distributed to you
to the extent shares are earned at the end of the Performance Cycle.
PERFORMANCE MEASURES
- - The following corporate performance measures apply to this performance
cycle:
-- SLC Cumulative Basic Earnings Per Share
-- SLC 3-Year Average Return on Capital
PURPOSE
Sara Lee Corporation ("SLC") has adopted the Long-Term Performance Incentive
Plan (the "LTPIP") for Fiscal Years 1998 - 2000 for eligible A-level
executives. The LTPIP exists in order to:
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- - Focus corporate and operating management's attention on the long-term
performance results of Sara Lee Corporation and in particular, the
achievement of the company's Project 2000 initiatives;
- - Provide incentive compensation opportunities commensurate with the
achievement of earnings per share and return on capital targets; and
- - Promote cooperation and teamwork among the operating companies and
divisions of Sara Lee Corporation; and
- - Enhance the competitiveness of the corporation's long-term compensation
program to aid in attracting and retaining highly qualified executives.
RESTRICTED PERFORMANCE SHARES
Under the LTPIP, the awards are authorized by the Sara Lee Corporation 1995
Long-Term Incentive Stock Plan (the "Stock Plan") and will be issued as
restricted performance shares of common stock ("shares"). In the case of any
discrepancy between the LTPIP and the Stock Plan, the latter plan governs.
Dividends which are payable on shares that are granted will be escrowed on
behalf of the Participant and credited with interest at the same interest rate
paid on balances under SLC's non-qualified deferred compensation plans, subject
to the conditions described in the Dividends section which follows.
These Shares have special restrictions that are based on both continued
service and performance against financial targets that have been established.
These restrictions prohibit the transfer of these shares during the
Performance Cycle. The financial performance measures and their respective
weightings are contained in Appendix I [intentionally omitted]. Any shares
not earned by a Participant at the end of the Performance Cycle will be
forfeited.
A special provision of the grant made on August 28, 1997 ("award date") requires
that any shares distributed (net of shares withheld for tax purposes) at the end
of Performance Cycle should not be sold by a Participant until the end of FY01.
This provision does not apply to any grants made after the award date.
SLC may substitute alternative incentives, such as restricted cash units or
stock options with special provisions, in the event it determines that tax or
legal regulations in some countries outside the United States provide more
favorable treatment for these alternatives.
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DIVIDENDS
During the Performance Cycle, dividends payable on shares granted will be
escrowed on behalf of each Participant. Interest on the escrowed amounts will
be credited at the same time and in the same manner as under SLC's non-qualified
deferred compensation plans.
Amounts credited to the escrowed dividend account at the end of the Performance
Cycle will be distributed in the same proportion as the restrictions on the
shares lapse. For example, if 75% of the shares are earned, then 75% of the
balance in the escrowed dividend account will be paid as soon as possible after
the end of FY00. Any remaining balance in the dividend account will be
forfeited.
PERFORMANCE STANDARDS
Performance under the LTPIP will be measured using the corporate financial
measures described below. Both of these financial measures are independent of
each other for purposes of measuring results and determining how many, if any,
of the shares are earned.
- - Cumulative SLC Basic Earnings Per Share
- - Three-year average SLC Return on Capital
Definitions of these measures are included in Appendix II.
Performance levels for SLC Basic EPS and ROC targets have been established and
are shown in Appendix I.
The performance levels and the percentage of shares that will be distributed are
as follows:
PERFORMANCE LEVEL % OF SHARES DISTRIBUTED
----------------- -----------------------
THRESHOLD 0%
VERY GOOD 50%
SUPERIOR 100%
OUTSTANDING 125%
Interpolations will be used for results that fall between performance levels.
For performance above Superior, additional shares will be issued after the end
of the Performance Cycle. No dividends will be paid retroactively on any
additional shares issued for performance above Superior. No shares will be
earned for performance at or below Threshold.
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AWARD AGREEMENT
Each Participant will receive a Restricted Performance Share Award Agreement
(Award Agreement) specifying the number of shares which have been granted, and
the specific terms and conditions applicable to this grant. This Award
Agreement should be retained by the Participant along with his or her other
important legal documents. A second copy of the Award Agreement will be kept on
file in SLC's Corporate Compensation Department. Additionally, this Award
Agreement serves as power of attorney for the Corporation both to facilitate the
re-issuance of the shares at the end of the Performance Cycle and in the event
that the terms and conditions of the grant are not fulfilled.
TAX CONSEQUENCES
UNITED STATES
Under current United States tax legislation, a Participant receives no taxable
income from shares awarded, dividends escrowed or interest credited until the
restrictions on the shares lapse (vesting). The date upon which the Committee
reviews the performance results for the Performance Cycle and also approves any
shares to be distributed to Participants, will serve as the date upon which the
taxable event occurs and the market value of the shares are set. When the
shares are earned, both the market value of the shares on the date of vesting as
well as the dividends and interest distributed are credited as income and
subject to applicable federal, state and local withholding. Amounts necessary
to settle this tax withholding obligation may be withheld from the cash or
shares earned by the Participant at the end of the Performance Cycle.
Within thirty days of the award date, as specified in the Agreement, the
Participant may elect immediate taxation under Section 83(b) of the Internal
Revenue Code for the value of the shares awarded. This election is effected by
filing an election form with the Internal Revenue Service within the applicable
time frame. A copy of this election must be sent to the SLC Controller, and the
applicable withholding taxes on the value of the award must be paid to the
appropriate payroll department. If this election is made, the Participant is
responsible for all taxes at the time of grant, which will not be refunded if
some or all shares are not eventually distributed. Dividends will continue to
be escrowed, and will result in no income until distributed.
If a Section 83(b) election is made, the basis of the shares for determination
of capital gains under current tax law is the Fair Market Value, as defined in
the Stock Plan, on the award date. If this election is not made, the basis of
the shares will be Fair Market Value on the date the restrictions lapse.
COUNTRIES OTHER THAN THE UNITED STATES
Tax laws vary significantly from country to country, so advice should be
obtained from appropriate counsel concerning the effect of this grant in each
country. In most cases,
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<PAGE>
a Participant receives no taxable income from shares awarded, dividends
escrowed or interest credited until the restrictions on the shares lapse
(vesting). When the shares are earned, both the market value of the shares
on the date of vesting as well as the dividends and interest distributed are
credited as income. For individuals residing outside the U.S. and not
subject to U.S. tax laws, no amounts will be withheld at SLC related to any
required tax withholding obligation. These taxes should be withheld at the
local entity. The Participant is responsible for compliance with the
relevant legal and tax regulations in the appropriate jurisdiction.
IMPACT ON OTHER BENEFITS
Shares, dividends or interest earned under the LTPIP are not considered
compensation for purposes of any retirement plan, severance arrangement or other
benefit plans for which the Participant is or may become eligible.
ADMINISTRATIVE GUIDELINES
The following will serve as guidelines for administering the LTPIP:
- - The Committee has final approval of the LTPIP and functions as the Plan
Administrator.
- - The Committee reserves the right, in its absolute discretion, to REDUCE the
POSITIVE effect of any of the Exclusions described in Appendix II on
performance (for purposes of measuring results vs. the goals) or on awards
earned by reference to that performance by ANY Participant.
- - The Committee reserves the right, in its absolute discretion, to make
further adjustments in reported performance (for purposes of measuring
results vs. the goals) or in awards earned by reference to that performance
with respect to any Participant who is not an SLC Executive Officer during
FY00.
- - The Committee reserves the right to change any of the terms and
conditions of the FY98-00 LTPIP award to Executive Officers,
including the definitions of Basic EPS and ROC, if deemed necessary on
advice of counsel to meet the requirements for a "performance-based
exemption" under the final regulations or rulings of IRC Section 162(m).
- - The SLC Controller's Department will be responsible for providing financial
results under the LTPIP. The awards for all Corporate Officers and certain
other key executives will be approved by the Committee. The portion of the
shares earned along with the related balance of the escrowed dividend
account will be distributed
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as soon as practicable after the completion of the final accounting for
the FY98-00 Performance Cycle and after approval of the recommended share
distributions by the Committee.
- - Awards may be made to new Participants during the first year of the
Performance Cycle. The number of shares awarded may be adjusted to reflect
that the executive is not a Participant for the entire Performance Cycle.
- - Adjustment awards may be made to Participants who change positions during
the first year of the Performance Cycle, if such a change would have
resulted in qualifying for an increased level of award.
- - The impact of acquisitions and divestitures made during the performance
cycle will be included in the performance results.
- - In the event of death, total disability or retirement under a retirement
plan of SLC prior to the last day of fiscal year 2000, the restrictions may
lapse on a pro-rata number of the shares which are EARNED under the
provisions described earlier in this plan subject to approval of the
Committee. If applicable, the shares and related dividends and interest
will be distributed at the normal payout time.
- - A Participant who resigns or is terminated during the Performance Cycle
generally forfeits the rights to all shares and any dividends or interest
which have been accrued. Participants may be eligible for a prorated
distribution, subject to Committee approval. Eligibility for a prorated
distribution and the number of shares that may be recommended for
distribution would be dependent upon the circumstances resulting in the
individual's termination; the number of shares distributed to a participant
under these circumstances would never exceed the amount distributed in the
event of his retirement, death or total disability. Participants must be
employed at least one-half, i.e. for 18 months, of any three-year
performance cycle. If employment ceases prior to the end of that time, all
shares granted under that performance cycle will be forfeited. Following
the same procedures applicable to retirement, death or total disability,
only periods of active service will be recognized for purposes of computing
any distribution. This means that any period of time during which services
may be provided to the company but the individual is not then a regular,
full-time employee of the company, will be disregarded for purposes of
calculating any prorated distribution.
- - Should a change in control occur (as defined by the Committee), the
Committee will decide what effect, if any, this should have on the awards
which are outstanding under this plan.
- - Nothing in the LTPIP shall confer on a Participant any right to continue in
the employ of SLC or in any way affect SLC's right to terminate the
Participant's employment in accordance with applicable laws.
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- - The Committee may make additional changes which it deems appropriate to the
effective administration of the LTPIP, including the establishment of
appropriate performance measure weights for newly created executive levels.
However, other than as described above, these changes may not reduce the
benefits to which Participants are entitled under the LTPIP, nor change the
pre-established performance measures and goals which have been approved.
APPENDIX I
[Intentionally omitted]
APPENDIX II
DEFINITIONS
a) PERFORMANCE CYCLE is the three year period consisting of SLC's fiscal years
1998 through and including 2000.
b) THE COMMITTEE means the Compensation and Employee Benefits Committee of the
Board of Directors of SLC.
c) AWARD AGREEMENT means the document provided to the Participant specifying
the number of shares granted and the terms and conditions under which this
grant is being made.
d) PARTICIPANT means an executive of the SLC who has been determined to be an
eligible Participant and who has received an Award Agreement specifying the
terms of participation in this Plan.
e) EARNINGS PER SHARE ("EPS") means reported basic earnings per share for the
fiscal years in the Performance Cycle subject to applicable Adjustments and
Exclusions as defined below.
f) ADJUSTMENTS means changes to the goal to appropriately reflect the effect
of stock splits or combinations, stock dividends and spin-offs or special
distributions to stockholders other than normal cash dividends
g) EXCLUSIONS means the automatic exclusion of the following from relevant
financial data for purposes of measuring performance against the goal:
-- extraordinary or unusual charges (accounting definition)
-- revisions to the U.S Internal Revenue Code
-- changes in generally accepted accounting principles
-- gains or losses from discontinued operations (accounting definition)
-- changes in definition of basic EPS
-- restructuring charges
-- any other extraordinary or unusual charges that are quantified and
identified separately in the Management Discussion and Analysis
section of the Annual Report or in footnotes to the audited
financial statements
h) EARNINGS BEFORE INTEREST AND AMORTIZATION ("EBIA") means SLC pre-tax income
adjusted to add back the following: after-tax interest expense, non-cash
amortization including that on goodwill and trademarks, and the change in
deferred taxes from the consolidated statement of cash flow; this value is
then reduced by the tax provision on the consolidated income statement.
i) RETURN ON CAPITAL ("ROC") means the ratio of SLC EBIA to SLC average total
capital (on a two point basis) as defined by First Boston; AVERAGE ROC is
calculated as the simple average of ROC for each of the three fiscal years
in the Performance Cycle, subject to the applicable Adjustments and
Exclusions defined above.
j) TOTAL DISABILITY is defined in the Key Executive Long-Term Disability Plan
of SLC.
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Exhibit 10.4
FIRST AMENDMENT
OF
SARA LEE CORPORATION SUPPLEMENTAL BENEFIT PLAN
(As Amended and Restated Effective July 1, 1995)
WHEREAS, Sara Lee Corporation (the "Company") maintains the Sara Lee
Corporation Supplemental Benefit Plan (As Amended and Restated Effective July 1,
1995) (the "Plan"); and
WHEREAS, amendment of the Plan now is considered desirable;
NOW, THEREFORE, by virtue of the power granted to the Company by Section 5
of the Plan, and in exercise of the authority delegated to the Sara Lee
Corporation Employee Benefits Administrative Committee, the Plan is hereby
amended in the following particulars:
1. Effective December 31, 1997, by substituting the word "earliest" for
the word "earlier" in the first sentence of subsection 2.1 of the Plan, by
substituting a comma for the period and adding the word "or" at the end of
subparagraph 2.1(b) of the Plan, and by adding the following new subparagraph
2.1(c) to the Plan, immediately after subparagraph 2.1(b) thereof:
"(c) effective December 31, 1997, if the employee
participates in the ESOP, the date the Employer
contributions that would have been made to the ESOP on
behalf of the employee for the plan year are limited because
the employee's Supplemental Compensation is not considered
in determining benefits under the ESOP."
2. Effective December 31, 1997, by substituting the following for
subparagraph 2.2(a) of the Plan:
"(a) ESOP. If the Participant is covered only by the ESOP,
the Participant's accrued Supplemental Benefit as of any
date shall consist of the aggregate Employer contributions
that would have been made to the ESOP on behalf of the
Participant for each plan year of the ESOP prior to such
date but which were not contributed because of the
limitations of Sections 401(a)(17) or 415 of the Code, or
because the ESOP did not include the Participant's
Supplemental Compensation (as defined in subsection 2.2
below) in the Participant's compensation for ESOP purposes,
with such aggregate contributions
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adjusted upward or downward to reflect the investment experience
under the ESOP; provided, that for plan years of the ESOP ending
prior to January 1,1997, the Employer contribution that shall be
considered to have been foregone in any plan year of the
ESOP shall not, for purposes of this Plan, exceed 1.75
percent of that portion of the Participant's compensation
(as determined under the ESOP) for that plan year in excess
of the Code Section 401(a)(17) limit for that year."
3. Effective as of July 1, 1995, by substituting the following for the
first sentence of subparagraph 2.2(c) of the Plan:
"If the Participant is covered by the Consolidated Plan, in determining
the Participant's Full benefit under subparagraph (b) next above, the
Participant's compensation shall include (i) deferred compensation, if
any, provided any such amount of deferred compensation shall be
considered compensation in the plan year deferred, and (ii) for plan
years ending after July 1, 1989 and prior to July 1, 1994, the
Participant's Long-Term Bonus Credit (compensation described in clauses
(i) and (ii) above together are referred to as `Supplemental
Compensation' for purposes of subparagraph 2.1(b))."
4. Effective December 31, 1997, by inserting the following two new
sentences as the first and second sentences of subparagraph 2.2(c) of the Plan:
"Effective January 1, 1998, if the Participant is covered by the ESOP,
in determining under subparagraph (a) above the Employer contributions
that would have been made to the ESOP on behalf of the Participant for a
plan year of the ESOP, the Participant's compensation shall include
deferred compensation, if any, provided any such amount of deferred
compensation shall be considered compensation in the plan year deferred
(such deferred compensation herein is referred to as `Supplemental
Compensation' for purposes of subparagraph 2.1(c)). Effective December
31, 1997, if the Participant is covered by the ESOP, in determining
under subparagraph (a) above the Employer contributions that would have
been made to the ESOP on behalf of the Participant for the plan year of
the ESOP ending December 31, 1997, the Participant's compensation shall
include amounts deferred at any time prior to January 1, 1998, not yet
paid to the Participant, and not otherwise taken into account under this
subparagraph (such deferred compensation is included in the definition
of `Supplemental Compensation' for purposes of subparagraph 2.1(c))."
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IN WITNESS WHEREOF, the Company has caused these presents to be executed by
a duly authorized member of the Administrative Committee this 6th day of
January, 1998.
SARA LEE CORPORATION
By /s/ Gary C. Grom
---------------------------------
Administrative Committee Member
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SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE EXHIBIT 11
(in millions except per share data)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 27, 1997
----------------------------------------------------
BASIC DILUTED
------------------------ -------------------------
Thirteen Twenty-Six Thirteen Twenty-Six
Weeks Weeks Weeks Weeks
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
EARNINGS:
Net loss $ (1,278) $ (1,053) $ (1,278) $ (1,053)
Less: Dividends on Preferred Stocks,
net of tax benefits (4) (8) (4) (8)
--------- --------- -------- ---------
Net Loss Applicable to Common
Stockholders $ (1,282) $ (1,061) $ (1,282) $ (1,061)
--------- --------- -------- ---------
--------- --------- -------- ---------
SHARES:
Weighted Average Shares Outstanding 473 475 473 475
--------- --------- -------- ---------
--------- --------- -------- ---------
NET LOSS PER COMMON SHARE $ (2.71) $ (2.24) $ (2.71) $ (2.24)
--------- --------- -------- ---------
--------- --------- -------- ---------
</TABLE>
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SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE EXHIBIT 11
(in millions except per share data) (Continued)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 28, 1996
-----------------------------------------------
BASIC DILUTED
---------------------- ----------------------
Thirteen Twenty-Six Thirteen Twenty-Six
Weeks Weeks Weeks Weeks
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
EARNINGS:
Net income $ 317 $ 523 $ 317 $ 523
Less: Dividends on Preferred Stocks,
net of tax benefits (6) (13) (3) (6)
Adjustment attributable to conversion of
ESOP Convertible Preferred Stock -- -- (1) (3)
------- ------- ------- -------
Net Income Available for Common Stockholders $ 311 $ 510 $ 313 $ 514
------- ------- ------- -------
------- ------- ------- -------
SHARES:
Weighted Average Shares Outstanding 480 481 480 481
Add: Common Stock Equivalents -
Stock options -- -- 3 3
ESOP Convertible Preferred Stock -- -- 18 18
Restricted stock and other -- -- 2 2
------- ------- ------- -------
Adjusted Weighted Average Shares Outstanding 480 481 503 504
------- ------- ------- -------
------- ------- ------- -------
NET INCOME PER COMMON SHARE $ 0.65 $ 1.06 $ 0.62 $ 1.02
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
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EXHIBIT 12.1
SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS EXCEPT RATIOS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------
Dec. 27, Dec. 28,
1997 (1) 1996
---------- ----------
<S> <C> <C>
Fixed charges:
Interest expense $ 109 $ 108
Interest portion of rental expense 33 33
---------- ----------
Total fixed charges before capitalized interest 142 141
Capitalized interest 9 5
---------- ----------
Total fixed charges $ 151 $ 146
---------- ----------
---------- ----------
Earnings available for fixed charges:
Income(loss) before income taxes $ (1,212) $ 770
Less undistributed income in minority-owned companies (2) (4)
Add minority interest in majority-owned subsidiaries 15 15
Add amortization of capitalized interest 10 12
Add fixed charges before capitalized interest 142 141
---------- ----------
Total earnings(losses) available for fixed charges $ (1,047) $ 934
---------- ----------
---------- ----------
Ratio of earnings (losses) to fixed charges (6.9) 6.4
---------- ----------
---------- ----------
</TABLE>
(1) During the second quarter of fiscal 1998, the Corporation recorded a pretax
charge of $2.0 billion in connection with various restructuring actions.
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Exhibit 12.2
SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN MILLIONS EXCEPT RATIOS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------
Dec. 27, Dec. 28,
1997 (1) 1996
---------- ----------
<S> <C> <C>
Fixed charges and preferred stock dividend requirements:
Interest expense $ 109 $ 108
Interest portion of rental expense 33 33
---------- ----------
Total fixed charges before capitalized interest
and preferred stock dividend requirements 142 141
Capitalized interest 9 5
Preferred stock dividend requirements (2) 13 21
---------- ----------
Total fixed charges and preferred stock
dividend requirements $ 164 $ 167
---------- ----------
---------- ----------
Earnings available for fixed charges and preferred
stock dividend requirements:
Income(loss) before income taxes $ (1,212) $ 770
Less undistributed income in minority-owned companies (2) (4)
Add minority interest in majority-owned subsidiaries 15 15
Add amortization of capitalized interest 10 12
Add fixed charges before capitalized interest and
preferred stock dividend requirements 142 141
---------- ----------
Total earnings(losses) available for fixed charges
and preferred stock dividend requirements $ (1,047) $ 934
---------- ----------
---------- ----------
Ratio of earnings(losses) to fixed charges and preferred
stock dividend requirements (6.4) 5.6
---------- ----------
---------- ----------
</TABLE>
(1) During the second quarter of fiscal 1998, the Corporation recorded a pretax
charge of $2.0 billion in connection with various restructuring actions.
(2) Preferred stock dividends in the computation have been increased to an
amount representing the pretax earnings that would have been required to
cover such dividends.
Page 47
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> DEC-27-1997
<CASH> 220
<SECURITIES> 17
<RECEIVABLES> 2,085
<ALLOWANCES> 160
<INVENTORY> 2,841
<CURRENT-ASSETS> 5,303
<PP&E> 5,253
<DEPRECIATION> 3,102
<TOTAL-ASSETS> 11,153
<CURRENT-LIABILITIES> 5,644
<BONDS> 2,020
0
44
<COMMON> 631
<OTHER-SE> 1,742
<TOTAL-LIABILITY-AND-EQUITY> 11,153
<SALES> 10,172
<TOTAL-REVENUES> 10,172
<CGS> 6,333
<TOTAL-COSTS> 6,333
<OTHER-EXPENSES> 2,040
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> (1,212)
<INCOME-TAX> 159
<INCOME-CONTINUING> (1,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,053)
<EPS-PRIMARY> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
