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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 001-03344
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SARA LEE CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 36-2089049
(State of incorporation) (I.R.S. Employer Identification
No.)
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602-4260
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number including area code: (312) 726-2600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value per The Chicago Stock Exchange
share The New York Stock Exchange
The Pacific Exchange
Amsterdam Stock Exchange
The Bourse (Paris)
The Swiss Exchange
The Stock Exchange (London)
Preferred Stock Purchase Rights The Chicago Stock Exchange
The New York Stock Exchange
The Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all required
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of September 1, 1999, the aggregate market value of the voting and
non-voting common equity (based upon the closing price per share of Common Stock
on the New York Stock Exchange on such date) held by non-affiliates of the
registrant was approximately $19.8 billion.
On September 1, 1999, the registrant had outstanding 883,697,353 shares of
common stock, par value $.01 per share, which is the registrant's only class of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement, dated September 20, 1999, are
incorporated by reference into Items 10-12 of Part III.
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS
Sara Lee Corporation ("Sara Lee" or the "corporation") is a global
manufacturer and marketer of high-quality, brand-name products for consumers
throughout the world. Sara Lee has operations in more than 40 countries and
markets branded products in more than 140 countries. It was organized in
Baltimore, Maryland in 1939 as the C.D. Kenny Company and adopted its current
name in 1985.
Sara Lee's mission is to continue to build leadership brands in consumer
packaged goods categories. Sara Lee currently has 27 "megabrands", defined as a
brand with sales of more than $100 million. While Sara Lee's mission has
remained unchanged over the years, in September, 1997, the corporation announced
a restructuring program to reduce its ownership of low-return assets and focus
resources on top-line growth. Internally, this program is called "Project 2000."
This restructuring program was prompted by fundamental changes in the global
economic environment. Historically, the corporation relied on vertical
integration in various manufacturing processes to assure a readily available
product source that met quality standards. The emergence of alternative sources
of competitively priced manufacturing products, particularly in the apparel
industry, has allowed the corporation to purchase manufactured goods from a
number of suppliers and thereby lessen the corporation's reliance on its own
manufacturing facilities. By the end of fiscal 1999, Sara Lee had sold or closed
more than 100 facilities and entered into 30 outsourcing agreements. Sara Lee
has also divested a number of non-core businesses, including our international
tobacco operations.
Sara Lee also committed in September, 1997, to repurchase $3 billion of the
corporation's common stock by the end of fiscal 2000. As of September 1, 1999,
Sara Lee had completed the repurchase of approximately $2.7 billion of common
stock.
In fiscal 1999, Sara Lee experienced the unusual confluence of deflationary
prices in all of its key commodities: hog costs hit 30-year lows; coffee costs
fell more than 20% over the last four quarters; and cotton costs declined 5%
over the prior year. These lower commodity costs allowed the corporation to
expand its gross margins and invest increased funds behind marketing and new
product development.
SARA LEE FOODS
Sara Lee Foods is comprised of Sara Lee Packaged Meats and Sara Lee Bakery.
In fiscal 1999, Sara Lee Foods reported sales of $5.2 billion, down 3.5% from
the prior year. Net income, excluding unusual items, rose 5.2% to $266 million.
SARA LEE PACKAGED MEATS had sales of $4.1 billion in fiscal 1999, holding a
leading position in the $28 billion U.S. packaged meats industry. Sara Lee
Packaged Meats is the world's number one packaged meats company, with brands
marketed in the United States, Mexico, Europe (where it is the leading processed
meats company) and Asia. In fiscal 1999, Sara Lee Packaged Meats was adversely
affected by a voluntary recall of certain brands of hot dogs and other packaged
meat products. Since the recall, the corporation has committed more than $100
million for state-of-the-art food safety programs. The corporation has also
established standards and protocols for production and testing that exceed
federal and industry guidelines, enhanced employee training and implemented new
product labeling. The corporation also appointed a respected food scientist,
formerly with the U.S. Department of Agriculture, as Sara Lee's new vice
president of food safety and technology. In addition, in response to consumer
demand for healthful products and on-the-go meal solutions, Sara Lee Packaged
Meats continues to focus on convenient and "better-for-you" products. Lower
commodity prices throughout the year and the voluntary product recall negatively
affected Sara Lee Packaged Meats sales. Worldwide unit volumes decreased 1%,
excluding acquisitions.
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SARA LEE BAKERY maintained its leadership position as the top frozen-baked
goods brand in the United States, the United Kingdom and Australia. In fiscal
1999, Sara Lee Bakery's sales of $1.1 billion were up 4% from the prior year.
Worldwide unit volumes, excluding acquisitions, were comparable to fiscal 1998
levels. Worldwide, Sara Lee Bakery markets its products through multiple
channels of distribution, including retail, bakery-deli and foodservice.
Consolidation in the retail sector, intense competition in the frozen baked and
fresh baked categories, and consumer demand for variety, innovation and
convenience were the greatest influences on Sara Lee Bakery in fiscal 1999. The
Bakery responded to these market forces by introducing new products and
expanding into new channels of distribution such as club and convenience stores.
In response to consumer demands for convenience and taste, the Sara Lee Bakery
also focused on positioning the brand as indulgent, individually portioned and
immediately consumable and introduced a number of new dessert products,
including single-serving and "no-thaw products." Currently, approximately 40% of
total Bakery sales are generated outside the U.S.
COFFEE AND TEA
Sara Lee Coffee and Tea reported sales of $2.6 billion in fiscal 1999, down
6.4% from the prior year. Net income fell 2.0% to $279 million, excluding
unusual items. Reported sales were impacted by significantly lower commodity
coffee costs in 1999, which resulted in lower consumer prices, and the sale of
the international tobacco operations in July, 1998. Excluding acquisitions, unit
volumes for roasted and coffee concentrate increased 6%, primarily from lower
retail prices which were driven by lower green coffee costs.
Sara Lee maintained a leading position in the $15 billion European roasted
coffee category in fiscal 1999, on the strength of its well-known coffee brands,
including DOUWE EGBERTS, MAISON DU CAFE, MARCILLA and MERRILD. Sara Lee Coffee
and Tea also continued to hold leading positions in the out-of-home coffee
segment in Europe and the United States. The out-of-home business provides
coffee, tea, juices and equipment to foodservice customers such as restaurants,
schools, businesses, and hospitals in more than 60 countries. Sara Lee's
out-of-home business is expected to double in size as a result of acquisitions
made or initiated during the year. The acquisitions include Continental Coffee
and Wechsler Coffee and the planned merger with Chock full o'Nuts, which the
corporation anticipates will close in October, 1999. These acquisitions will
create a $1 billion enterprise in U.S. foodservice coffee. Sara Lee continues to
hold leading positions in several segments in the $6 billion European tea
segment with its PICKWICK, HORNIMANS and SUENOS DE ORO brands.
New geographic markets, expanded channels of distribution and innovative
product development remain the principal tools of growth for Sara Lee's coffee
business. In fiscal 1999, Sara Lee attained the number one positions in retail
roasted coffee in Spain for the first time. In fiscal 1999, Sara Lee also
expanded its presence in the South American market with the acquisition of the
Brazilian coffee brand SELETO, which complements the fiscal 1998 acquisition of
CAFE DO PONTO. New product development for Sara Lee Coffee and Tea emphasizes
regional taste preferences and growing demand for premium, specialty and
convenience products. In fiscal 1999, Sara Lee sold its cut and pipe tobacco
business to Imperial Tobacco Group Plc, a major tobacco company based in the
United Kingdom.
HOUSEHOLD AND BODY CARE
Household and Body Care is Sara Lee's most global line of business and
includes Sara Lee's leading household and body care products as well as its
Direct Selling division. In fiscal 1999, Household and Body Care reported sales
of $2.1 billion, up 4.6% from the prior year. Net income was $160 million, up
12.7% from the prior year, excluding unusual items. The strength of the U.S.
dollar relative to foreign currencies continued to negatively affect reported
results. Excluding the effects of changes in foreign currencies, acquisitions
and dispositions, sales grew 7.8%.
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SARA LEE HOUSEHOLD AND BODY CARE is comprised of four core categories --
shoe care, body care, insecticides and air fresheners. In fiscal 1999, Household
and Body Care achieved share gains on the strength of all four categories. KIWI
remained the world's top brand in shoe care in fiscal 1999. The brand is
marketed in more than 125 countries. Product developments in Sara Lee's shoe
care business continued in fiscal 1999 with the relaunch of the KIWI brand in
several markets. Sara Lee continues to be a leader in Europe with its body care
products marketed under the SANEX, DUSCHDAS, BADEDAS, RADOX and DELIAL brands.
In fiscal 1999, Sara Lee acquired a leading bath and shower brand in France,
MONSAVON. In fiscal 1999, sales of air fresheners grew significantly and the
insecticide business also posted strong results.
SARA LEE'S DIRECT SELLING division distributes cosmetics, fragrances,
jewelry, toiletries, apparel products and nutritional supplements directly to
consumers in 15 countries. During the 1999 fiscal year, Sara Lee continued to
build its presence in its three core markets of Mexico, Australia and Japan. In
fiscal 1999, the organization's sales force totaled more than 630,000. In Asia,
House of Sara Lee expanded product offerings for consumers in Malaysia,
Indonesia and the Philippines, despite continued economic turmoil in Asia.
FOODSERVICE
Sara Lee's Foodservice business, PYA/Monarch, maintained its position as the
leading foodservice distributor in the southeastern United States and the
fourth-largest full-line foodservice company in the nation. During fiscal 1999,
PYA/Monarch enjoyed strong sales and profit growth. Fiscal 1999 sales were $2.7
billion, up 6.1% from the prior year. Net income was $59 million, up 12.3% from
the prior year, excluding unusual items. Excluding acquisitions, unit volumes
increased 4%. During fiscal 1999, PYA/ Monarch continued to focus on cost
control and geographic expansion. PYA/Monarch continued its strategy of growth
through warehouse expansion, enabling it to respond quickly and cost effectively
to the demands of large specialty customers, such as restaurant chains. In
fiscal 1999, a 123,000 square-foot warehouse expansion in Montgomery, Alabama
was completed. In early fiscal 2000, PYA/Monarch acquired the Tennessee-based D.
Canale foodservice company, allowing expansion into western Tennessee and in
contiguous geographic markets.
BRANDED APPAREL
Sara Lee Branded Apparel is comprised of Sara Lee's Intimates and
Accessories, Knit Products and Legwear businesses. In fiscal 1999, Branded
Apparel reported sales of $7.4 billion, up 1.7% from the prior year. Net income
rose 7.0% to $518 million, excluding unusual items.
SARA LEE INTIMATES recorded increased sales in fiscal 1999 through product
innovations and design advancements that strengthened its core brands, including
BALI, DIM, HANES HER WAY, HANES SPORT, JUST MY SIZE, LOVABLE, PLAYTEX and
WONDERBRA. Unit volumes for Sara Lee's intimate apparel business increased 13%,
excluding acquisitions. In fiscal 1999, Sara Lee maintained its number-one
position in the intimate apparel category in North America. During fiscal 1999,
Sara Lee's Worldwide Intimates business introduced a number of new products that
offer innovations in comfort and design. Playtex introduced major new products
under its EIGHTEEN HOUR and CROSS YOUR HEART lines. Bali launched new plus-sized
products and WONDERBRA also developed a number of new products. New styles of
performance and fashion intimate apparel were also introduced under the HANES
SPORT brand. Bali expanded its offering of products using seamless knitting
technology. The ultra-comfortable BARELYTHERE seamless panty line was expanded
with the LACE MIRAGE collection in fiscal 1999. Numerous new BARELYTHERE
seamless products, including bras, will be introduced in fiscal 2000.
SARA LEE ACCESSORIES consists of Sara Lee's Coach division, which markets
fine leathergoods, apparel and related accessories. Sales were slightly lower
than the prior year due principally to unit volume declines. Coach posted
improved profitability by lowering its cost base and strengthening its core
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leathergoods business, as well as responding to changing fashion trends during
the year. Product introductions in fiscal 1999 included a line of premium
leather furniture through a licensing agreement with Baker Furniture Company. It
also introduced the BLEECKER collection of handbags and accessories. Through its
licensing agreement with the Movado Group, Coach continued to expand its
collection of Coach watches. In fiscal 1999, Coach opened four full-price and
two factory stores in the United States, bringing the total number of retail
stores to 165. Internationally, Coach operates in more than 150 locations.
SARA LEE KNIT PRODUCTS recorded higher sales in fiscal 1999. Worldwide unit
volumes improved 6%, excluding acquisitions. Sara Lee's worldwide Knit Products
business market products under such brands as HANES, HANES HER WAY, HANES SPORT,
JUST MY SIZE, CHAMPION, DIM, RINBROS, ABANDERADO and PRINCESA. Sara Lee Knit
Products has significantly altered its operating model as part of Sara Lee's
Project 2000 program. As part of the program, several yarn and textile
facilities were divested over fiscal 1998 and 1999. These actions allowed Sara
Lee Knit Products to focus more of its resources toward developing and marketing
new products, establishing its brands in new categories and focusing on
cost-efficient production and sourcing. This focus is intended to further Sara
Lee's strategy of growing its Knit Products megabrands. In fiscal 1999, Sara
Lee's HANES and HANES HER WAY megabrands had sales of $2.4 billion. During
fiscal 1999, Sara Lee Knit Products updated styles, packaging and merchandising
programs for its core products. The CHAMPION brand was refocused during the year
on high-quality, performance athletic apparel in fleece, jersey and mesh and has
exited non-core categories. Sara Lee's Champion business posted lower results in
fiscal 1999 due to significant competition in the sports apparel category.
SARA LEE LEGWEAR posted lower sales in fiscal 1999 due to a continuing
global decline in the sheer hosiery category. However, profits increased, due to
improvements in productivity and an increased emphasis on higher margin
products. Worldwide Legwear unit volumes declined 1%, with a 10% increase in
socks offset by a 4% decline in sheer hosiery.
Sara Lee continues to be the U.S. leader in the sheer hosiery category with
its leading HANES, L'EGGS, DONNA KARAN and DKNY brands. Sara Lee is also the
U.S. leader in the socks category. In fiscal 1999, Sara Lee continued to
emphasize higher-margin products and additional product offerings for casual
wear. Sara Lee's European hosiery business, which includes the BELLINDA, DIM,
ELBEO, FILODORO, NUR DIE, PHILIPPE MATIGNON and PRETTY POLLY brands, also
continued to emphasize high-margin, value-added products in fiscal 1999.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Sara Lee's businesses are classified into five industry segments: Sara Lee
Foods, Coffee and Tea, Household and Body Care, Foodservice, and Branded
Apparel. The financial information about Sara Lee's industry segments can be
found on page F-28 of this Report.
(c) NARRATIVE DESCRIPTION OF BUSINESS
SARA LEE FOODS
SARA LEE PACKAGED MEATS processes and sells pork, poultry and beef products
to supermarkets, warehouse clubs, national chains and institutions throughout
the United States, Europe and Mexico. Sales are transacted through Sara Lee's
own sales force, brokers and institutional buyers. Some of the more prominent
brands in the United States within this category include BALL PARK, BEST'S
KOSHER, BRYAN, HILLSHIRE FARM, HYGRADE, JIMMY DEAN, KAHN'S, MR. TURKEY, SARA LEE
and SINAI 48. Sara Lee's more prominent European brands include AOSTE, JUSTIN
BRIDOU and COCHONOU in France, STEGEMAN in the Netherlands, ARGAL in Spain and
NOBRE in Portugal. Sara Lee has a 49.9% interest in AXA Alimentos, S.A. de C.V.
AXA Alimentos owns Kir Alimentos S. de R.L. de C.V. and Zwanenberg de Mexico,
S.A. de C.V., which are leading processed meats companies in Mexico. Sara Lee is
the largest processed meats company in the world.
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The products offered by this line of business include smoked sausage, bacon,
hot dogs, breakfast sausage, breakfast sandwiches, premium deli and luncheon
meats, ham, turkey, and packaged lunch combinations. The ingredients -- pork,
turkey and beef -- are purchased by Sara Lee from a variety of sources. The
prices of these raw materials fluctuate, depending primarily on supply and
demand. Meat commodity costs fell substantially in fiscal 1999. Because of the
range of sources from which these raw materials are available, Sara Lee believes
that it will continue to have access to adequate supplies.
The Packaged Meats business is highly competitive, with an emphasis on
product quality, price, advertising and promotion, and customer service. Sara
Lee's competitors include international, national, regional and local companies.
Sara Lee Packaged Meats has accounted for 10% or more of Sara Lee's consolidated
revenues during the past three fiscal years. Sara Lee believes it is one of the
three industry leaders in the United States.
Most of Sara Lee's Packaged Meats operations are regulated by the U.S.
Department of Agriculture, whose focus is the quality, sanitation and safety of
meat products, and, to some extent, by state and local government agencies. Sara
Lee's Packaged Meats operations in Europe and Mexico are regulated by local
authorities.
SARA LEE BAKERY produces a wide variety of fresh and frozen baked and
specialty items. Its core products are frozen and fresh pies, cheesecakes, pound
cakes and speciality breads and bagels. These products are sold through
supermarkets, foodservice distributors, bakery-deli and direct channels
throughout the United States, United Kingdom, France, Mexico, Australia and
numerous Asia-Pacific countries. Sales are transacted through Sara Lee's sales
force and independent wholesalers and distributors. The key ingredients for
these products -- butter, milk, sugar, fruits, eggs and flour -- are purchased
from suppliers at prices that are subject to such influences as supply and
demand, weather, and government price controls. Because of the number of sources
from which such raw materials are generally available, Sara Lee believes it will
continue to have access to adequate supplies.
Competition in this business is keen, with a large number of participants.
Sara Lee seeks to maintain and enhance a leading position in the industry
through superior quality and value, marketing efforts that are designed to
reinforce and build brand recognition, and through superior customer service.
In the United States, Sara Lee Bakery products are subject to regulation by
the Food and Drug Administration, the federal agency charged with, among other
things, enforcing laws pertaining to food processing, content and labeling, and
to a lesser extent, by state and local government agencies.
COFFEE AND TEA
Sara Lee believes it is one of the top four coffee roasters in the world,
and one of the top three in the European market. It has a significant presence
in such countries as the Netherlands, Belgium, France, Denmark, Spain and
Australia, and has established positions in Central and Eastern Europe through
acquisitions and expanded sales efforts. While DOUWE EGBERTS is its European
flagship brand, its other premium European coffee brands include MAISON DU CAFE,
MARCILLA and MERRILD. Sara Lee's PICKWICK brand is an important brand in the
European tea market. Other tea brands include HORNIMANS and SUENOS DE ORO in
Spain and the PARADISE ice tea brand in the United States foodservice market.
This is a very competitive business with the other participants consisting
primarily of other large multi-national companies. Sara Lee seeks to maintain a
competitive advantage by offering its customers superior quality and value.
Sara Lee is also a significant competitor in the out-of-home coffee service
business. Its Douwe Egberts Coffee Systems business provides coffee and
dispensing equipment in Europe, while its Superior Coffee and Foods business
provides similar products and services in the United States.
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The significant cost item in the production of coffee products is the price
of green coffee, which varies depending on such factors as weather (which
affects the quality and quantity of available supplies), consumer demand, the
political climate in the producing nations, unilateral pricing policies of
producing nations, speculation on the commodities market, and the relative
valuations and fluctuations of the currencies of producer versus consumer
countries. These factors also generally affect Sara Lee's competitors.
Uncertainty over the availability of supplies resulted in extreme volatility in
the price of green coffee in fiscal 1995, leading to the highest prices in
recent years. In fiscal 1996, green coffee prices declined. Green coffee
experienced significant cost volatility in fiscal 1997. In fiscal 1998, green
coffee prices rose substantially and in fiscal 1999, green coffee prices
declined. Sara Lee anticipates that green coffee prices will continue to be
affected due to uncertainty over the availability of future supplies. Sara Lee
mitigates the effect of fluctuating green coffee prices through careful
inventory management and hedging strategies.
The Coffee and Tea business also manufactures rice products under the LASSIE
brand in the Netherlands and snack and nut products under the DUYVIS, FELIX and
BENENUTS brands in the Netherlands, Belgium and France.
The Coffee and Tea business has accounted for 10% or more of Sara Lee's
consolidated revenues during the past three fiscal years.
HOUSEHOLD AND BODY CARE
HOUSEHOLD AND BODY CARE is composed of four primary core categories: shoe
care -- led by a worldwide line of Kiwi products; body care items -- led by the
SANEX brand, but also including DUSCHDAS, BADEDAS and MONSAVON and baby care
products sold under the ZWITSAL, FISSAN and PRODERM names; insecticides -- sold
internationally under the CATCH, BLOOM, VAPONA and RIDSECT brand names; and air
fresheners -- led by the AMBI-PUR brand. ZENDIUM and PRODENT oral care products,
and BIOTEX and NEUTRAL specialty detergents are also important categories for
Sara Lee. Body care items and insecticides are marketed principally in Europe as
well as into the Asia-Pacific and Latin America markets. These products are sold
through a variety of retail channels including supermarkets. These are very
competitive businesses. Sara Lee seeks to maintain a competitive advantage by
offering its customers superior quality and value.
SARA LEE DIRECT SELLING distributes a wide range of products -- cosmetics,
fragrances, jewelry, toiletries, apparel and nutritional supplements -- through
a network of independent sales representatives. Sara Lee Direct Selling includes
the Nutri-Metics business in Australia, the House of Fuller business in Mexico,
the House of Sara Lee businesses in Indonesia and the Philippines, and the Avroy
Shlain business in South Africa. Sara Lee also operates direct selling
organizations in Japan, China and Uruguay. While this segment is very
fragmented, Sara Lee believes it has an important position in many product lines
in those countries in which it competes.
FOODSERVICE
Sara Lee Foodservice is conducted principally under the PYA/Monarch name.
PYA/Monarch is the leading foodservice distributor in the southeastern United
States. PYA/Monarch is the fourth largest full-line foodservice company in the
United States. This business distributes dry, refrigerated and frozen foods,
paper supplies and foodservice equipment to institutional and commercial
foodservice customers.
The institutional foodservice distribution industry is highly competitive,
with price and service being the major means by which Sara Lee Foodservice
competes. This line of business generates lower margins on sales dollars than
Sara Lee's other businesses. Sara Lee Foodservice accounted for 10% or more of
Sara Lee's consolidated revenues during the past three fiscal years.
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BRANDED APPAREL
The Branded Apparel line of business includes the Intimates and Accessories,
Knit Products and Legwear businesses.
SARA LEE INTIMATES includes bras, panties and shapewear. These are
distributed under such labels as BALI, HANES HER WAY, PLAYTEX, WONDERBRA and
DAISYFRESH in North America, and PLAYTEX and DIM in Europe. Sara Lee Intimates
is the leader in the North American intimates category.
Distribution channels for intimate apparel range from department and
specialty stores for such premium brands as BALI, and some PLAYTEX products, to
warehouse clubs and mass-merchandise outlets for some of the value-priced
brands. Sales are effected through Sara Lee's sales force.
The intimate apparel market is very competitive. Sara Lee endeavors to
maintain its competitive advantage through new product development, marketing
and promotional efforts, and by offering consumers value through a superior
combination of quality and price.
SARA LEE ACCESSORIES involves the manufacture and marketing of premium
leather products, apparel and related accessories under the COACH brand. Coach
products are sold through department stores, catalog sales and Sara Lee stores.
Coach operates 165 retail stores in the United States and more than 150 stores
located outside the United States.
SARA LEE KNIT PRODUCTS involves the sourcing, manufacturing and distribution
of men's, women's and children's underwear and activewear (T-shirts, fleecewear
and other jersey products for casualwear) in North America, South and Central
America, Europe and the Asia-Pacific countries. These products are sold through
Sara Lee's sales force to department stores, mass merchandisers, discount chains
and the screen-print trade. Principal brands in the underwear category include
CHAMPION, HANES, HANES HER WAY and RINBROS in North America, and ABANDERADO,
PRINCESA, CHAMPION, HANES and DIM in Europe. Sara Lee believes that it is the
leader in both the women's and girls' panties category in the United States, and
in the heavily branded category of men's and boys' underwear in the United
States, and has the leading position in men's and boys' underwear in Mexico.
Activewear is marketed under Sara Lee's HANES and CHAMPION lines. In
addition to targeting the public activewear market, Champion also markets
authentic uniforms and practicewear for professional and amateur athletic teams,
including such organizations as the National Basketball Association, the
National Football League and a number of major university sports teams.
The principal raw material in this product category is cotton. Sara Lee
currently believes there is an adequate supply of cotton from a variety of
sources. There are also numerous manufacturing sources for these products.
The knit products business is highly competitive, with products relying on
brand recognition, quality, price and loyalty. Sara Lee competes by offering
superior value, making use of low-cost sourcing, marketing activities and
utilizing its megabranding strategy. The megabrands strategy entails marketing
various products through common packaging, promotion and advertising. The Knit
Products business has accounted for 10% or more of Sara Lee's consolidated
revenues during each of the past three fiscal years.
SARA LEE LEGWEAR is the leader in the hosiery category in North America,
Western Europe, Australia, New Zealand and South Africa. It also continues to
establish operations in various Asia-Pacific countries, placing it in a
strategic position to capitalize on developing markets in that area.
Sara Lee Legwear products consist of a wide variety of branded, packaged
consumer products, including pantyhose, stockings, combination panty and
pantyhose garments, tights, knee-highs and socks, many of which are available in
both sheer and opaque styles. These products are sold in the United States under
such brand names as HANES, L'EGGS, DONNA KARAN and DKNY (the last two being
licensed), and abroad under such labels as DIM, PRETTY POLLY, ELBEO, NUR DIE,
BELLINDA, FILODORO and PHILIPPE MATIGNON.
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Sara Lee Legwear products are sold by Sara Lee's sales force in channels
ranging from department and specialty stores (for premium brands such as HANES,
DONNA KARAN and DKNY in the United States, and DIM outside the United States),
to supermarkets, warehouse clubs, discount chains and convenience stores for
brands like L'EGGS and some DIM products aimed at the price-conscious consumer.
Legwear products are also distributed through catalog sales and Sara Lee stores.
The legwear business has accounted for 10% or more of Sara Lee's consolidated
revenues during each of the past three fiscal years.
The legwear business is very competitive in both the United States and
Europe and worldwide demand for hosiery products has declined over the last
three years. In the United States, Sara Lee's major competitors are other
hosiery companies, and the primary methods of competition are quality, value,
function, and, with respect to L'EGGS products, service and distribution. In
Europe, where most of Sara Lee's competitors are small companies who compete in
the unbranded sector of the market, the primary focus is on quality.
Raw materials -- nylon, spandex, and cotton -- and manufacturing sources for
the products in this category are readily available to Sara Lee.
TRADEMARKS
Sara Lee is the owner of over 30,000 trademark registrations and
applications in over 140 countries. Sara Lee's trademarks are among its most
valuable assets as it pursues its strategy of building brands globally.
CUSTOMERS
None of Sara Lee's business segments or lines of business depends on a
single customer or a small number of customers, the loss of which would have a
material adverse effect on Sara Lee's consolidated results of operations,
financial position or cash flows. Sara Lee considers major mass retailers and
supermarket chains in both the United States and Europe to be significant
customers across one or more product categories, and it has developed specific
approaches to working with individual customers.
SEASONALITY
Sara Lee Foods experiences some seasonality. Sara Lee Packaged Meats' sales
tend to be higher in the fourth fiscal quarter due to increased demand
associated with the onset of the outdoor barbecuing season and various holidays.
Sara Lee Bakery experiences increased demand for its products during the second
fiscal quarter, driven principally by holiday buying. Sara Lee Branded Apparel,
particularly Coach and Knit Products, generally experience increased demand
during the second fiscal quarter as a result of "back to school" purchases and
the holiday season. The European hosiery business is somewhat seasonal in
nature, unlike the United States hosiery business, and tends to experience a
reduced demand in the summer months.
ENVIRONMENTAL MATTERS
Sara Lee is subject to a number of federal, state and local statutes, rules,
regulations and ordinances in the United States and other countries relating to
the discharge of materials into the environment, or otherwise relating to the
protection of the environment ("Environmental Laws").
While Sara Lee expects to make capital and other expenditures in compliance
with Environmental Laws, it does not anticipate that such compliance will have a
material adverse effect on its consolidated results of operations, financial
position or cash flows. Sara Lee has an ongoing program to monitor compliance
with Environmental Laws and is continually examining its methods of operation
and product packaging to reduce its use of natural resources.
EMPLOYEES
Sara Lee has approximately 138,000 employees worldwide.
8
<PAGE>
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Sara Lee's foreign operations are conducted primarily through wholly or
partially owned subsidiaries incorporated outside the United States. Sara Lee's
principal foreign subsidiary is Sara Lee/DE N.V., a Netherlands limited
liability company headquartered in Utrecht, the Netherlands ("Sara Lee/DE").
Sara Lee indirectly owns a 100% interest in Sara Lee/DE, 41% in the form of
voting shares and 59% in the form of depository receipts issued by the
independent Stichting Administratiekantoor Douwe Egberts Sara Lee. Sara Lee/DE
has responsibility for managing the Coffee and Tea and Household and Body Care
divisions of Sara Lee, as well as Sara Lee's foreign bakery operations.
The foreign operations of Sara Lee Foods Packaged Meats line of business are
conducted through Sara Lee Meats Europe B.V., the Aoste Group and Imperial Meat
Products N.V., while the foreign operations of Sara Lee Bakery are conducted
through Kitchens of Sara Lee U.K. Ltd., Sara Lee Bakery (Australia) Pty Ltd. and
Brossard France S.A.
Coffee and Tea is conducted by a number of subsidiaries, principally
European, including Sara Lee/ DE, Douwe Egberts Nederland B.V., Douwe Egberts
France S.A., Douwe Egberts Espana S.A., Merrild Kaffe A/S, Douwe Egberts N.V.,
Compack Douwe Egberts Kft., Harris/DE Pty. Ltd., Balirny Douwe Egberts A.S. and
Douwe Egberts Coffee Systems Nederland B.V.
Household and Body Care is conducted by subsidiaries in over forty
countries, principally Sara Lee/ DE, Kiwi Brands Pty. Ltd., Kiwi France S.N.C.,
Kortman Intradal B.V., A/S Blumoller, Sara Lee/DE Espana S.A., Sara Lee
Household and Body Care U.K. Ltd., Sara Lee/DE Italy S.p.A., and Sara Lee/DE
Deutschland GmbH and House of Fuller S.A. de C.V.
Branded Apparel includes numerous foreign businesses, including Dim S.A.,
Grupo Sans, a division of Sara Lee/DE Espana S.A., Sara Lee Personal Products,
S.p.A., Sara Lee Personal Products (Australia) Pty. Ltd., Pretty Polly, a
division of Sara Lee UK Holdings Ltd., Vatter GmbH, the Filodoro Group, Sara Lee
Hosiery, S.A. de C.V., Rinbros, S.A. de C.V., and Maglificio Bellia S.p.A.
The financial information about foreign and domestic operations can be found
on page F-29 of this Report.
9
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ITEM 2. PROPERTIES.
Sara Lee operates 277 food processing and consumer product manufacturing
plants, each containing more than 20,000 square feet in building area, in 27
states and 39 foreign countries. Sara Lee owns 206 and leases 71 of these
plants. It also operates 138 warehouses containing more than 20,000 square feet
in building area in 20 states and 28 foreign countries. Of these warehouses, 62
are owned and 76 are leased. The following table identifies the plants and
warehouses presently owned or leased by Sara Lee that contain at least 250,000
square feet in building area.
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING AREA
IN
INDUSTRY SEGMENT AND DIVISION OR SUBSIDIARY LOCATION SQUARE FEET
- ---------------------------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
SARA LEE FOODS
Aoste........................................................... Aoste, France 746,000
Aoste........................................................... Maclas, France 387,000
Aoste........................................................... Peyrolles, France 374,000
Aoste........................................................... St. Symphorien, France 303,000
Sara Lee Refrigerated Foods..................................... Zeeland, Michigan 577,000
Bryan Foods, Inc................................................ West Point, Mississippi 800,000
Hillshire Farm & Kahn's......................................... Alexandria, Kentucky 325,000
Hillshire Farm & Kahn's......................................... Cincinnati, Ohio 563,000
Hillshire Farm & Kahn's......................................... New London, Wisconsin 565,000
Kitchens of Sara Lee............................................ Bridlington, England 285,000
Sara Lee Bakery................................................. New Hampton, Iowa 294,000
Sara Lee Bakery................................................. Tarboro, North Carolina 346,000
Sara Lee Bakery................................................. Traverse City, Michigan 295,000
Kitchens of Sara Lee U.K. Ltd................................... East Yorkshire, United Kingdom 318,000
Sara Lee Meats Europe B.V....................................... Rio Maior, Portugal 348,000
Sara Lee Meats Europe B.V....................................... Miralcamp, Spain 260,000
COFFEE AND TEA
Continental Coffee.............................................. Houston, Texas 331,000
Koninklijke Douwe Egberts B.V................................... Joure, the Netherlands 1,094,000
Koninklijke Douwe Egberts B.V................................... Utrecht, the Netherlands 577,000
Koninklijke Douwe Egberts B.V................................... Zaandam, the Netherlands 367,000
HOUSEHOLD AND BODY CARE
Bama Polska..................................................... Polska, Poland 261,000
Kiwi Brands Pty. Ltd............................................ Clayton, Australia 313,000
Sara Lee/DE Espana S.A.......................................... Santiga, Spain 284,000*
Sara Lee/DE Germany............................................. Dusseldorf, Germany 333,000*
Sara Lee Household & Body Care U.K. Limited..................... Slough, England 318,000
FOODSERVICE
PYA/Monarch, Inc................................................ Charlotte, North Carolina 415,000
PYA/Monarch, Inc................................................ Bloomington, Indiana 321,000
PYA/Monarch, Inc................................................ Lexington, South Carolina 364,000
PYA/Monarch, Inc................................................ Montgomery, Alabama 374,000
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING AREA
IN
INDUSTRY SEGMENT AND DIVISION OR SUBSIDIARY LOCATION SQUARE FEET
- ---------------------------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
BRANDED APPAREL
Canadelle Limited Partnership................................... Montreal, Canada 289,000
Champion Products, Inc.......................................... Laurel Hill, North Carolina 368,000
Champion Products, Inc.......................................... Dunn, North Carolina 289,000
Champion Products, Inc.......................................... Chihuahua, Mexico 429,000
Coach Leatherware............................................... Jacksonville, Florida 357,000*
Dim, S.A........................................................ Autun, France 328,000
Filodoro Calze SpA.............................................. Casalmoro, Italy 343,000
Filodoro Calze SpA.............................................. Casalmoro, Italy 251,000
L'eggs Products................................................. Clarksville, Arkansas 337,000
L'eggs Products................................................. Rockingham, North Carolina 440,000
Playtex Apparel, Inc............................................ Dover, Delaware 418,000
Sara Lee Direct................................................. Rural Hall, North Carolina 699,000*
Sara Lee Hosiery................................................ East Rockingham, North Carolina 330,000*
Sara Lee Hosiery................................................ Winston-Salem, North Carolina 770,000
Sara Lee Hosiery................................................ Darlington, South Carolina 287,000
Sara Lee Knit Products.......................................... Jacksonville, Florida 1,592,000*
Sara Lee Knit Products.......................................... Martinsville, Virginia 704,000*
Sara Lee Knit Products.......................................... Rural Hall, North Carolina 986,000
Sara Lee Knit Products.......................................... Winston-Salem, North Carolina 568,000
Sara Lee Knit Products.......................................... Winston-Salem, North Carolina 395,000
Sara Lee Sock Company........................................... Kernersville, North Carolina 340,000
Vatter GmbH..................................................... Rheine, Germany 549,000
Vatter GmbH..................................................... Dolni Redice, Czech Republic 475,000*
</TABLE>
- ------------
* These facilities are leased; the remainder are owned by Sara Lee.
ITEM 3. LEGAL PROCEEDINGS.
On December 22, 1998, Sara Lee announced the recall of specific production
lots of packaged meat products produced at the corporation's Zeeland, Michigan
facility between July 1, 1998 and the date of the recall. This action was taken
as a result of concerns that the specified products may contain listeria
bacteria that can pose a health hazard. The Center for Disease Control and
Prevention ("CDC") has conducted an investigation into these concerns. On May
27, 1999 the CDC issued a public report linking the consumption of packaged meat
products from the Zeeland, Michigan facility, which allegedly contained
listeria, to 21 fatalities (15 adult deaths and 6 miscarriages) and
approximately 100 illnesses in total. Sara Lee is cooperating with pending
government investigations into the matters alleged by the CDC. Ten lawsuits,
including individual and class actions, have been filed against the corporation
involving nine deaths, and additional claims are expected. Although the outcome
of the pending litigation cannot be determined with certainty, Sara Lee believes
that the pending litigation and expected claims should not have a material
adverse effect on the corporation's consolidated results of operations,
financial position or cash flows.
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<PAGE>
Sara Lee is a party to various pending legal proceedings and claims. Some of
the proceedings and claims against Sara Lee are for alleged environmental
contamination, and arise under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund"). CERCLA imposes
liability, regardless of fault, on certain classes of parties that are
considered to be responsible for contamination at a site. Although any one party
can be held responsible for all the costs of investigation and cleanup, those
costs are usually allocated among parties based on a variety of factors, such as
the amount of waste each contributed to the site. Although the outcome of the
pending legal proceedings, including Superfund claims, cannot be determined with
certainty, Sara Lee believes that the final outcomes should not have a material
adverse effect on the corporation's consolidated results of operations,
financial position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR SARA LEE'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Sara Lee's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of September 1, 1999, Sara Lee had approximately
83,200 holders of record of its common stock. Information about the high and low
sales prices for each full quarterly period and the amount of cash dividends
declared on Sara Lee's common stock during the past three fiscal years is set
forth on page F-30 of this Report.
ITEM 6. SELECTED FINANCIAL DATA.
Financial information for Sara Lee for the five fiscal years ended July 3,
1999, is set forth on pages F-2 and F-3 of this Report. Such information should
be read in conjunction with the Consolidated Financial Statements and related
Notes to Financial Statements on pages F-4 through F-30 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis of the corporation's results of operations,
financial position and risk management activities should be read in conjunction
with the General Development of Business on pages 1 through 4, Narrative
Description of Business on pages 4 through 8 and the Consolidated Financial
Statements and related Notes to Financial Statements on pages F-2 through F-30
of this Report. The corporation's fiscal year ends on the Saturday closest to
June 30. Fiscal 1999 was a 53-week year and fiscal 1998 and 1997 were 52-week
years. Unless otherwise stated, references to years relate to fiscal years.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS -- 1999 COMPARED WITH 1998 Net sales in 1999 were
essentially unchanged from the prior year at $20.0 billion. The effect on
reported sales of businesses acquired net of businesses sold subsequent to the
start of 1998 was less than 0.1%. The overall strengthening of the U.S. dollar
relative to foreign currencies during the year had the effect of reducing
reported sales by approximately 0.6%. While most European currencies
strengthened versus the U.S. dollar in the year, declines in the currencies of
Mexico, Australia, South Africa and Canada, as well as certain Asian currencies,
offset the overall strength of currencies in Europe. On a comparable basis,
excluding the impact of acquisitions, dispositions and foreign currency changes,
sales increased 0.6% over the prior year. Comparable sales growth in Branded
Apparel, Foodservice, and Household and Body Care contributed to this increase;
Sara Lee Foods, and Coffee and Tea reported sales declines on a comparable
basis.
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<PAGE>
The gross profit margin was 39.0% in 1999 compared with 38.4% in 1998,
reflecting improved gross margins in the Sara Lee Foods, Coffee and Tea,
Household and Body Care, and Foodservice segments. Branded Apparel gross profit
margins were down slightly from the prior year. The impact of lower commodity
costs, as well as manufacturing efficiencies associated with ongoing
restructuring and corporate-wide cost containment programs, improved gross
margins.
Selling, general and administrative expenses increased 2.5% over the prior
year. This increase was due to a 2% increase in total advertising and promotion
expenditures, as well as the impact of inflation on personnel and
distribution-related costs. Partially offsetting these increases were benefits
associated with ongoing restructuring and corporate-wide cost containment
programs.
On December 22, 1998, the corporation announced that it was recalling
specific production lots of hot dogs and other packaged meat products that could
contain listeria bacteria. The estimated cost of this action was recognized in
the second quarter of 1999 and reduced 1999 income before income taxes, net
income and diluted earnings per share by $76 million, $50 million and $.05 per
share, respectively. The recall charge recognized the costs associated with the
return and destruction of affected products sold through retail grocery stores
and selected foodservice channels in the United States, the destruction of
affected inventory in the corporation's Zeeland, Michigan, facility and
liabilities incurred as a result of these actions.
In the first quarter of 1999, as part of its ongoing restructuring program,
the corporation disposed of certain assets of the Coffee and Tea segment related
primarily to its international tobacco operations. The corporation received cash
proceeds of $386 million in connection with the sale and recognized a pretax
gain of $137 million, which increased 1999 net income by $97 million or $.10 per
common share on a diluted basis.
In the second quarter of 1998, the corporation provided for the cost of
restructuring its worldwide operations. The restructuring provision reduced 1998
income before income taxes by $2,040 million and net income by $1,625 million,
or $1.68 per common share on a diluted basis. The 1998 restructuring charge is
discussed elsewhere in this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Operating income (pretax income before interest and corporate expenses),
excluding the 1999 product recall charge and gain on sale of the corporation's
tobacco operations and the 1998 restructuring charge, increased $5 million or
0.2% in 1999. Businesses sold net of businesses acquired subsequent to the start
of 1998 decreased operating income by 1.5%. The overall strengthening of the
U.S. dollar relative to foreign currencies had the effect of reducing operating
income by 0.8%. Thus, excluding the impact of business acquisitions,
dispositions and changes in foreign currency exchange rates, operating income
increased 2.5%, reflecting improvements on a comparable basis in all business
segments except Coffee and Tea, which declined 0.9%.
Net interest expense decreased to $141 million in 1999 compared with $176
million in 1998. The lower level of net interest expense was due to strong
operating cash flows in the fourth quarter of 1998 and for 1999, as well as
proceeds received from the sale of businesses and assets. Unallocated corporate
expenses, which are costs not directly attributable to specific business segment
operations, increased to $197 million principally as a result of increased
corporate office administration costs and higher minority interest expense.
The following comparisons exclude the 1999 product recall charge and tobacco
sale gain, and the 1998 restructuring charge. Income before income taxes
increased 0.8% to $1.6 billion during 1999. The effective tax rate decreased
from 31.0% to 29.0% of pretax income resulting primarily from increased earnings
in certain foreign jurisdictions that had lower tax rates. Net income increased
3.7% to $1.1 billion, while diluted earnings per share increased 9.0% to $1.21
per share. Earnings per share increased at a rate in excess of net income
because of fewer average shares outstanding during the year. Preferred dividends
also
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<PAGE>
declined during the year as a result of the redemption of the remaining auction
preferred shares during the first quarter of 1998. Including the product recall
charge and tobacco sale gain, net income and diluted earnings per share were
$1.2 billion and $1.26 per share, respectively.
1998 RESTRUCTURING In the second quarter of 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 of which are owned and 30 of which are leased. The
restructuring provision reduced income before income taxes, net income and
earnings per share on a diluted basis in 1998 by $2,040 million, $1,625 million
and $1.68 per share, respectively. Business segment operating results in 1998
include charges for restructuring on a pretax and after-tax basis as follows (in
millions): Sara Lee Foods -- $208 and $133; Coffee and Tea -- $71 and $46;
Household and Body Care -- $185 and $164; Foodservice -- $2 and $1; and Branded
Apparel -- $1,574 and $1,281.
Of the total pretax charge for restructuring, $899 million relates to
anticipated losses associated with the disposal of manufacturing and
distribution facilities and $830 million relates to goodwill associated with the
disposition of remaining assets from various prior business combinations. The
remainder of the charge consists of $219 million for pension and social costs
associated with the facility disposals; $47 million for anticipated costs to
close and dispose of idled facilities; and $45 million for anticipated losses on
the disposal of certain equity and cost method investments. Of the total
after-tax charge of $1,625 million, 89% is non-cash and 11% requires cash
outflows.
Through July 3, 1999, 41 manufacturing and distribution facilities have been
sold and 60 additional facilities have been closed. The corporation expects to
complete the restructuring by the year 2000, and it is anticipated that the
remaining costs of the plan will be funded from internal sources and available
borrowings. Operating costs were lowered by $150 million in 1999 and $61 million
in 1998, primarily as a result of lower plant overhead, long-lived asset
amortization expense and manufacturing efficiencies resulting from the
restructuring actions. The corporation expects the restructuring plan to
generate increased savings in subsequent years, growing to an annual savings of
approximately $200 million in 2001. Savings from the planned actions will be
used for both business-building initiatives and profit improvement. The
restructuring reserve is analyzed in greater detail in the Restructuring
Provision note to the Consolidated Financial Statements on page F-22 of this
report.
CONSOLIDATED RESULTS -- 1998 COMPARED WITH 1997 Net sales increased 1.4% to
$20.0 billion in 1998, from $19.7 billion in 1997. Businesses acquired net of
businesses sold subsequent to the start of 1997 increased net sales by 2.2%. The
overall strengthening of the U.S. dollar relative to foreign currencies had the
effect of reducing reported sales by 4.4%. Thus, on a comparable basis,
excluding the impact of acquisitions, dispositions and foreign currency
movements, sales increased 3.6%. Comparable sales growth was approximately 8% in
the Foodservice, Coffee and Tea, and Household and Body Care business segments,
2.4% in the Branded Apparel segment, and sales in Sara Lee Foods were
essentially the same as in the prior year.
The gross profit margin was 38.4% in 1998, compared with 37.8% in 1997.
Higher gross margins in the corporation's Sara Lee Foods, Foodservice, Household
and Body Care, and Branded Apparel segments more than offset gross margin
declines in Coffee and Tea. Operating income (pretax earnings before interest
and corporate expenses) increased $38 million, or 2.0%, excluding the 1998
restructuring charge. Businesses acquired net of businesses sold subsequent to
the start of 1997 increased operating income by 1.9%. The strengthening of the
U.S. dollar relative to foreign currencies had the effect of reducing operating
income by 5.5%. Thus, on a comparable basis, operating income increased 5.6%.
The benefits associated with the 1998 restructuring had a significant impact on
the improvement in operating income.
Net interest expense was $176 million in 1998, compared with $159 million in
1997. The higher interest expense was attributable to higher average total
borrowings during the year offset in part by the strengthening of the U.S.
dollar relative to foreign currencies. Unallocated corporate expenses decreased
$92 million in 1998. The strengthening of the U.S. dollar relative to foreign
currencies reduced foreign-
14
<PAGE>
denominated minority interest expense and also had a positive impact on the
hedging of foreign currency movements. In addition, 1997 corporate unallocated
expenses were negatively impacted by expenses associated with certain sold
companies.
The effective tax rate, excluding the restructuring charge, was 31.0% in
1998 as compared to 32.0% in 1997. The reduction in the tax rate was
attributable primarily to increased earnings in certain foreign jurisdictions
that had lower tax rates than the United States. Including the 1998
restructuring, the corporation recognized a pretax loss of $443 million and a
tax provision of $80 million. The 20.4% effective tax rate associated with the
$2,040 million pretax restructuring charge was attributable primarily to the
$830 million nondeductible goodwill component.
Excluding the 1998 restructuring charge, net income increased 9.3% to $1,102
million, and diluted earnings per share increased 12.1% to $1.11. Diluted
earnings per share, excluding the restructuring charge, increased at a rate in
excess of net income primarily because of fewer shares outstanding during the
period and lower preferred dividends. Including the restructuring charge, the
corporation reported a net loss of $523 million or $0.57 per diluted share.
For the year ended June 27, 1998, approximately 2% of the corporation's
sales and 1% of pretax profits, excluding the restructuring charge, were derived
from Asia. The financial problems in this geographic area have not had a
material impact on the consolidated results of the corporation.
OPERATING RESULTS BY BUSINESS SEGMENT -- 1999 COMPARED WITH 1998 The
following discussion comparing 1999 business segment performance with 1998
excludes the 1999 product recall charge and gain on sale of the international
tobacco operations, and the 1998 restructuring charge noted previously.
Net sales in the Sara Lee Foods segment declined in 1999 by 3.5% as lower
processed meat commodity costs resulted in lower prices to customers. Sales were
also negatively affected by the business disruption resulting from the recall of
packaged meat products produced at the Bil Mar Foods plant in Zeeland, Michigan,
and the temporary closure of that plant. Excluding the impact of the business
disruption related to the product recall and temporary plant closure, the impact
of acquisitions, dispositions and changes in foreign currencies, segment sales
increased by 0.2%. Excluding acquisitions, Packaged Meats unit volumes were down
1%, but gained 4% excluding Bil Mar, with particular strength in the fresh
sausage, smoked sausage and breakfast sausage product lines. Worldwide unit
sales for Sara Lee Bakery, excluding acquisitions, were flat, as gains in the
growing bakery-deli and fresh baked segments were offset by declines at retail.
Including acquisitions, Packaged Meats unit volumes were flat and Bakery volumes
increased 3%.
Operating income for Sara Lee Foods increased 1.2%. Excluding the impact of
the business disruption related to the product recall and temporary plant
closure, the impact of acquisitions, dispositions and changes in foreign
currencies, segment operating income increased 17.8%. Operating results
benefited from improved gross margins related to lower commodity costs, an
improved sales mix and benefits associated with the restructuring program. Net
interest expense allocated to the segment declined $7 million and pretax income
increased 3.1%. The effective tax rate of the segment declined to 37.0% and net
income grew 5.2%, to $266 million.
Net sales in the Coffee and Tea segment declined 6.4%. Excluding the results
of the international tobacco operations disposed of earlier this year and
acquisitions made subsequent to the start of 1998, sales decreased 1.8%. The
strengthening of most European currencies versus the U.S. dollar increased
reported sales by 0.3%. Thus, on a comparable basis, sales decreased 2.1%. Net
sales were negatively impacted by significantly lower commodity coffee costs in
1999, which resulted in decreased consumer prices during much of the year.
Excluding acquisitions, unit volumes for roasted coffee and coffee concentrates,
the segment's primary business, increased 6% as consumers reacted favorably to
product introductions and lower coffee prices. Unit volumes grew 20% including
sales contributed from recently acquired businesses.
15
<PAGE>
Operating income for the Coffee and Tea segment declined 6.3% reflecting the
impact of the divestment of the international tobacco operations in the first
quarter of 1999. Changes in foreign currency exchange rates had the effect of
improving operating income of the segment by 1.0%. Excluding the impact of
acquisitions, dispositions and changes in foreign currencies, operating income
declined 0.9%. Segment net income was down 2.0%, as the decline in operating
income was offset in part by significant reductions in the net interest expense
allocation and the improvement in the segment's effective tax rate from 31.1% in
1998 to 28.5% in 1999.
Net sales and operating income in the Household and Body Care segment
increased 4.6% and 7.9%, respectively. The weakening of foreign currencies
relative to the U.S. dollar, particularly in Mexico, South Africa, Australia,
and certain Asian countries, reduced reported sales and operating income by 3.6%
and 5.6%, respectively. Excluding the impact of acquisitions, dispositions and
changes in foreign currencies, Household and Body Care sales and operating
income increased 7.8% and 13.6%, respectively. Excluding acquisitions, unit
volumes for this segment's four core categories -- shoe care, body care,
insecticides and air fresheners -- grew 10%. Unit volumes for these four
categories grew 13% including acquisitions.
Pretax income of the segment increased 10.8% to $244 million, primarily as a
result of the operating income improvements noted above. Net income increased
12.7%, to $160 million, as the effective tax rate of the segment declined
approximately 1.1 percentage points to 34.5%.
Net sales in the Foodservice segment increased 6.1% including the impact of
acquisitions and 4.4% excluding acquisitions. Excluding acquisitions, unit
volumes grew 4% in 1999, but including recently completed acquisitions, unit
volumes grew 6%. Operating income increased 10.7%, to $100 million. These
results benefited from an improved customer mix and a continued strategic
emphasis on cost containment. Pretax income grew 10.8% and net income grew
12.3%, as the effective tax rate of the segment declined to 36.5% from 37.4%.
Branded Apparel net sales improved 1.7%, while operating income declined
0.5%. Excluding the impact of acquisitions, dispositions and changes in foreign
currencies, sales increased 1.7% and operating income increased 0.3%. Unit
volumes for worldwide Legwear declined 1%, combining a 10% increase in sock unit
sales with a 4% decline in sheer hosiery volumes, which reflects the continuing
decline in the global sheer hosiery market. Worldwide Knit Products unit sales
improved 6%, including unit gains of 6% in the underwear and 4% in the
activewear categories. Unit volume declines at the corporation's Champion
division were due primarily to continuing difficult market conditions. The
Champion results reduced the overall unit sales gain in the activewear category,
and contributed to the segment's operating income decline. Intimate Apparel unit
sales increased 13%, with strength in both the United States and Europe. The
Coach leatherware business had slightly lower sales in 1999, due principally to
unit volume declines, but reported improvements in operating income from the
prior year. Branded Apparel operating income was favorably impacted by the
restructuring program initiated in 1998.
Pretax income in the Branded Apparel segment increased 2.7% as the
corporation's ongoing restructuring efforts resulted in a reduction of the total
invested capital and net interest expense allocated to this business segment.
The effective tax rate of the Branded Apparel segment declined from 24.6% to
21.4% in the year. The lower tax rate is primarily the result of increased
earnings in certain foreign jurisdictions that had lower tax rates. Segment net
income increased 7.0% as a result of the lower effective tax rate and net
interest expense allocation.
OPERATING RESULTS BY BUSINESS SEGMENT -- 1998 COMPARED WITH 1997 The
following discussion comparing 1998 business segment performance with 1997
excludes the 1998 restructuring charge described previously.
Net sales in the Sara Lee Foods segment increased in 1998 by 1.6%, while
operating income increased 11.3%. The improved level of profitability was due
largely to lower commodity hog costs, new product activity focusing on
higher-margin "better-for-you" and convenience items, and the benefits
associated
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<PAGE>
with the 1998 restructuring. Excluding the impact of acquisitions and changes in
foreign currencies, Sara Lee Foods segment sales approximated 1997 levels, while
operating income increased 11.9%. Unit volumes for worldwide Packaged Meats
increased 2%, led by gains in key categories such as hot dogs, sausage products,
ham, bacon and breakfast sandwiches. Worldwide unit volumes for Sara Lee Bakery
were flat for the year. Unit volume comparisons exclude acquisitions unless
otherwise indicated. Interest expense allocated to the Sara Lee Foods segment
increased $6 million. This business had a higher share of the invested capital
of the corporation and consolidated net interest increased over 1997 levels. Net
income improved to $252 million, an increase of 9.1%.
Coffee and Tea sales and operating income declined 0.3% and 2.5%,
respectively, in 1998. These results reflect the impact of a stronger U.S.
dollar relative to European currencies. Excluding the impact of acquisitions and
changes in foreign currencies, Coffee and Tea sales and operating income
increased by approximately 8.0%. Unit volumes for retail and out-of-home roasted
coffee declined 7%, reflecting higher green coffee costs and increased consumer
prices during much of the year. Performance was aided by a continued emphasis on
operating efficiencies. Interest expense allocated to the Coffee and Tea segment
increased $4 million, primarily as a result of this business segment having a
higher share of the invested capital of the corporation than in the prior year.
Net income declined 2.0% to $285 million.
Net sales in the Household and Body Care segment increased 8.7% and
operating income increased 10.4%. These results also reflect the impact of the
stronger U.S. dollar relative to foreign currencies during the year. Excluding
the impact of acquisitions and changes in foreign currencies, Household and Body
Care sales and operating income increased by 7.7% and 18.9%, respectively. The
Household and Body Care segment has four core categories -- shoe care, body
care, insecticides and air fresheners. Unit sales for these four product lines,
excluding acquisitions, grew 11% during the year. The profit growth is
attributable primarily to strong gross margin improvements, significant market
share gains and new product introductions. The direct selling component of this
segment reported increased sales and profits principally resulting from the
contributions of operations in Mexico and the Australian company, Nutri-Metics
International, acquired in 1998. Interest expense allocated to the Household and
Body Care segment increased $7 million. This business had a higher share of the
invested capital of the corporation and consolidated net interest increased over
1997 levels. Net income increased 9.0% to $142 million.
Foodservice operations reported sales growth of 8.9% and operating income
growth of 9.4%. Excluding acquisitions, sales and operating income increased
7.7% and 9.1%, respectively. Foodservice unit volumes increased 7% for the year,
excluding acquisitions. The improved sales and profits were largely attributable
to a continued focus on low-cost production and geographic expansion throughout
the South, Midwest and Eastern portions of the United States. Interest allocated
to this segment increased slightly, and net income grew 8.7% to $52 million.
Sales and operating income of the Branded Apparel segment declined 2.2% and
3.5%, respectively. Excluding the impact of acquisitions, dispositions and
changes in foreign currencies, sales increased 2.4% while operating income
declined 3.5%. The corporation's worldwide Intimate Apparel business had
increased sales and operating income in 1998, principally as a result of product
innovations and design advancements that strengthened its core brands. Unit
volumes increased 7%, excluding acquisitions, with growth in both North America
and Europe. Worldwide unit volumes for Knit Products grew 6% led by gains in
underwear and activewear. Knit Products operating income declined slightly as a
result of the impact of the stronger U.S. dollar, competitive pricing pressures
and lower results by the Champion business. Due to a continuing global decline
in the sheer hosiery market, the worldwide Legwear business had lower sales in
1998. However, profits improved as the corporation streamlined manufacturing,
boosted productivity and simplified its product mix. Worldwide Legwear unit
volumes declined 3%, reflecting a 7% decline in sheer hosiery, partially offset
by an 11% increase in socks. The Coach leatherware business had lower sales and
operating income in 1998 as a result of difficult market conditions in Asia.
Interest allocated to this segment declined slightly as a result of this
business having a lower share of the invested capital of the corporation. The
effective tax rate of the Branded Apparel segment declined as a result of
17
<PAGE>
increased earnings in foreign jurisdictions that had lower tax rates than the
United States and a lower amount of nondeductible goodwill amortization. Net
income increased 0.3% to $484 million.
FINANCIAL POSITION
Net cash provided from operating activities was $1.6 billion in 1999, $1.9
billion in 1998, and $1.6 billion in 1997. The strong operating cash flows in
1999 are primarily due to improved earnings and effective inventory management.
Excluding the 1998 restructuring charge, which was primarily a non-cash charge,
net income increased and working capital management improved substantially in
1998 compared with the prior year.
As of July 3, 1999 and June 27, 1998, the corporation's current liabilities
exceeded current assets by $966 million and $513 million, respectively. These
working capital deficits are in part the result of the corporation's continued
emphasis on asset management, resulting in lower levels of current assets at
July 3, 1999 and June 27, 1998. In addition, during 1999 the corporation
increased its total outstanding borrowings under various revolving credit
facilities and issued significantly less long-term debt to finance working
capital requirements and support its financing and investing activities,
resulting in an overall increase in outstanding current liabilities as of July
3, 1999. Subsequent to year-end, the corporation refinanced approximately $350
million of its outstanding notes payable through the issuance of long-term debt.
The corporation has numerous credit facilities available, including revolving
credit agreements totaling $1.6 billion as of July 3, 1999, which management
considers sufficient to satisfy its working capital requirements.
Net cash used in investment activities was $192 million in 1999, $275
million in 1998, and $1.0 billion in 1997. The corporation received $570 million
of cash from the sale of assets and businesses in 1999, relating primarily to
the sale of the international tobacco business during the first quarter, which
resulted in $386 million of cash proceeds, and sales of assets as part of the
ongoing program to reduce the level of assets deployed in the business. Cash
expenditures for purchases of businesses and capital expenditures declined $98
million from the prior year. Cash received for businesses and property sold in
1998 was $418 million in excess of that received in 1997. Cash outflows for
business acquisitions and capital expenditures declined $354 million in 1998
from 1997 levels. The lower level of cash used for investment activities
reflects the corporation's decision to pursue the new strategic direction
announced in 1998 as part of its global restructuring plan.
During 1999, the corporation acquired several companies for an aggregate
purchase price of $234 million in cash and $9 million in common stock. The
principal acquisitions were Continental Coffee, a domestic manufacturer,
marketer, and distributor of roasted and ground coffee, and Monsavon, a European
marketer and distributor of personal body care products.
In June 1999, the corporation entered into an agreement to acquire Chock
full o'Nuts Corporation (CFON), a roaster, packer and marketer of coffee in the
United States. Under the terms of the agreement, the corporation will issue Sara
Lee common shares with a value that equals $11 for each outstanding common share
of CFON, provided that the average trading price of Sara Lee's common stock
during the 20 consecutive trading days following the date CFON mails its proxy
statement to its stockholders is between $21 and $26 per share. The parties have
certain rights if the average trading price of the corporation's common stock
falls below $21 or exceeds $26 per share during this period. At July 29, 1999,
CFON had approximately 21 million common and equivalent shares outstanding. The
merger is subject to the approval by the CFON stockholders and it is anticipated
that the CFON stockholders will vote on the merger in late September 1999.
During 1998, the corporation acquired several companies for an aggregate
purchase price of $393 million in cash and $10 million of common stock. The
corporation also divested the production facilities and related working capital
of its yarn and textile manufacturing business. A loss was recognized on the
disposition of the manufacturing facilities in connection with the 1998
restructuring, and the related working capital was sold for its net book value.
18
<PAGE>
In 1998, the corporation announced plans to repurchase $3 billion of its
common stock over a three-year period. A total of $1.3 billion of Sara Lee
Corporation common stock was repurchased in 1999 and $1.5 billion was
repurchased in 1998. During 1999, $187 million of net cash was received from
long and short-term borrowings, while in the 1998 and 1997 comparable periods,
net cash of $411 million and $362 million, respectively, was received. In
addition, $200 million was used to redeem the remaining outstanding auction
preferred shares in 1998, while $100 million was used in 1997. Cash dividends
increased to $464 million in 1999, compared to $447 million in 1998 and $430
million in 1997.
YEAR 2000 COMPLIANCE
In January 1996, the corporation initiated a program to address the Year
2000 information technology issues that could potentially affect its operations.
Essentially, the Year 2000 issue consists of programmed code within computer
applications, including devices with imbedded technology, using only the last
two digits to refer to a year rather than all four of the year's digits. As a
result, these applications could fail or create erroneous results to the extent
that "00" is not recognized as the year 2000. The corporation's Year 2000
program is designed to identify and correct these problems.
The program has been developed with the help of independent consultants and
consists of various steps to identify and evaluate Year 2000 issues and
remediate systems that are not Year 2000 compliant. The corporation's program to
identify and evaluate Year 2000 readiness includes inventorying and testing
systems that are commonly thought of as IT systems, such as computer systems and
networks, as well as systems that are not commonly thought of as IT systems,
such as automated production systems. Both IT and non-IT systems may contain
imbedded technology or "chips," which complicates the corporation's Year 2000
identification, evaluation, remediation and testing efforts. The corporation has
completed its inventory of IT and non-IT systems and has identified systems with
Year 2000 exposures. The corporation has also conducted systems reviews to
determine the need for remediation efforts and is currently involved in testing
and verifying compliance. In addition, third parties with whom there are systems
interactions, including outsourced services, are being surveyed to determine
Year 2000 compliance or the need for remediation efforts.
Similarly, the corporation has contacted and will continue to contact its
significant suppliers, customers and service providers to determine the extent
to which such entities are vulnerable to Year 2000 issues and whether the
products and services purchased by or from such entities are Year 2000 compliant
or are expected to be affected by Year 2000 issues. The corporation has also
begun to assess systemic Year 2000 risks in the various countries in which it
operates. Progress against these plans is monitored and reported to management
on a regular basis.
As of the end of fiscal 1999, the corporation had verified that
approximately 97% of its worldwide systems were Year 2000 compliant, including
substantially all mission critical systems that affect core business operations.
The corporation anticipates that the remaining systems not tested or verified as
of July 3, 1999 will be Year 2000 compliant prior to the end of the calendar
year. In addition, the corporation has developed or is developing specific
contingency plans to address unexpected issues or circumstances beyond its
control related to these remaining systems. The estimated cost of the
corporation's Year 2000 program is expected to be approximately $50 million in
total, a substantial portion of which has been incurred as of the end of 1999.
These costs have not had and are not expected to have a material effect on the
corporation's financial position, results of operations or cash flows in any of
the years in which spending has occurred or remaining spending is expected to
occur. This expectation assumes that the corporation will not be obligated to
incur significant Year 2000-related costs on behalf of its customers or
suppliers.
In the event that the corporation's Year 2000 program does not properly
identify, assess or remediate Year 2000 problems, there can be no assurance that
the Year 2000 issue will not materially adversely impact the corporation's
results of operations or its relationships with customers, suppliers or others.
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<PAGE>
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the corporation or its
results of operations. Due to the general uncertainty inherent in the Year 2000
issue, including uncertainty regarding the Year 2000 readiness of customers,
suppliers, governmental agencies and others, the corporation has not developed a
comprehensive analysis of the most likely adverse Year 2000 scenario. However,
the corporation is currently developing contingency plans to ensure that Year
2000 issues will not create significant operational problems for the
corporation. This process includes, among others, developing emergency backup
procedures in case of systems failures, identifying alternative suppliers, and
developing alternative plans to engage in business activities with customers and
suppliers that are not experiencing Year 2000 issues. These plans will continue
to be monitored as the year 2000 approaches.
The costs of the corporation's Year 2000 Program and the dates on which the
corporation believes it will complete various stages of the program are based
upon management's best estimates, which are derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to: the
availability and cost of personnel trained in Year 2000 issues; the ability to
identify, assess, remediate and test all relevant systems, including those using
imbedded technology; the variability of definitions of "Year 2000 compliant";
and similar uncertainties.
EURO
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies (legacy
currencies) and one new common currency -- the euro. The euro then began trading
on currency exchanges and began to be used in certain business transactions. The
transition period for the introduction of the euro occurs through June 2002.
Beginning January 2002, new euro-denominated bills and coins will be issued.
Simultaneously, legacy currencies will begin to be withdrawn from circulation
with the completion of the withdrawal scheduled no later than June 30, 2002.
Because of the significant concentration of sales and operating profits
generated in the European Union, the corporation has established plans to
identify and address risks arising from the conversion to the new currency.
These risks include, but are not limited to, converting information technology
systems to handle the new currency, evaluating the competitive impact of one
common currency due to, among other things, increased cross-border price
transparency, evaluating the corporation's exposure to currency exchange risks
during and following the transition period to the euro and determining the
impact on the corporation's processes for preparing and maintaining accounting
and taxation records.
The cost of the corporation's program to address the euro conversion is not
expected to be material. However, while the corporation believes it is taking
appropriate steps to mitigate risks associated with the euro conversion,
uncertainties exist concerning the effects the euro currency may have on the
corporation's customers, suppliers and marketplaces in which the corporation
operates. In addition, substantial uncertainty exists with respect to the impact
of the conversion to the euro on the economies of the member states of the
European Union. Accordingly, there can be no assurance that the conversion and
transition to the euro will not materially adversely impact the corporation's
results of operations or its relationships with customers, suppliers or others.
Additionally, there can be no assurance that the euro conversion issues of other
entities will not have a material adverse impact on the corporation's results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires the capitalization of certain costs relating to software developed and
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implemented for the corporation's internal use. The corporation adopted this
statement in 1999. Prior to adoption, the corporation expensed as incurred the
costs of software developed or obtained for internal use. The adoption of this
statement in 1999 did not have a material effect on the corporation's financial
position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This statement becomes effective for the corporation in
2000. The SOP requires that costs of start-up activities, including costs
incurred related to opening a new facility, introducing a new product,
commencing a new operation or other similar activities be expensed as incurred.
The corporation has historically utilized accounting methods which are
consistent with SOP 98-5.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes new accounting
and reporting standards for derivative instruments. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
postponed the required adoption date of SFAS No. 133. As a result, the
corporation is not required to adopt SFAS No. 133 until 2001. The corporation is
assessing the effect this statement will have on its consolidated financial
position and results of operations.
FORWARD-LOOKING INFORMATION
From time to time, in oral statements and written reports, the corporation
discusses its expectations regarding future performance by making certain
"forward-looking statements." For example, such "forward-looking statements" are
contained in Item 1 ("Business"), Item 3 ("Legal Proceedings") and Item 7
("Management's Discussion and Analysis of Financial Condition and Results of
Operations") of this report. These forward-looking statements are based on
currently available competitive, financial and economic data and management's
views and assumptions regarding future events. Such forward-looking statements
are inherently uncertain, and actual results may differ materially from those
expressed or implied herein. Consequently, the corporation wishes to caution
readers not to place undue reliance on any forward-looking statements. Among the
factors that could impact the corporation's ability to achieve its stated goals
are the following: (i) the effect on future revenues and expenses of the
corporation's December 1998 voluntary recall of certain packaged meat products
and the governmental investigations and litigation arising therefrom; (ii) the
corporation's ability to realize forecasted savings, as well as improvements in
productivity and efficiency, from its restructuring and other programs; (iii)
significant competitive activity, including advertising, promotional and price
competition, and changes in consumer demand for the corporation's products; (iv)
fluctuations in the cost and availability of various raw materials; (v) inherent
risks in the marketplace associated with new product introductions, including
uncertainties about trade and consumer acceptance; (vi) the corporation's
ability to successfully integrate acquisitions into its existing operations and
the availability of new acquisitions, joint ventures and alliance opportunities
that build stockholder value; and (vii) the corporation's ability, and its
suppliers' and customers' ability, to adequately address the "Year 2000"
computer issue. In addition, the corporation's results may also be affected by
general factors, such as economic conditions, political developments, currency
exchange rates, including the impact of the conversion to the euro currency,
interest and inflation rates, accounting standards, taxes, and laws and
regulations affecting the corporation in markets where it competes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
RISK MANAGEMENT
The corporation is exposed to market risk from changes in interest rates,
foreign exchange rates and commodity prices. To modify the risk from these
interest rate, foreign currency exchange rate and
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commodity price fluctuations, the corporation enters into various hedging
transactions that have been authorized pursuant to the corporation's policies
and procedures. The corporation does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
FOREIGN EXCHANGE The corporation uses primarily foreign currency forward
contracts to hedge its exposure from adverse changes in foreign exchange rates.
The corporation's exposure to foreign exchange rates exists primarily with the
European euro, Mexican peso, Canadian dollar and British pound against the U.S.
dollar. Hedging is accomplished through the use of financial instruments as the
gain or loss on the hedging instrument offsets the gain or loss on an asset,
liability or a basis adjustment to a firm commitment. Hedging of anticipated
transactions is accomplished with financial instruments as the gain or loss on
the hedge occurs on or near the maturity date of the anticipated transactions.
INTEREST RATES The corporation uses interest rate swaps to modify its
exposure to interest rate movements and to reduce borrowing costs. The
corporation's net exposure to interest rate risk consists of floating rate
instruments that are benchmarked to U.S. and European short-term money market
interest rates. Interest rate risk management is accomplished through the use of
swaps to create synthetic debt instruments.
COMMODITIES The corporation is a purchaser of certain commodities such as
beef, pork, coffee, wheat, corn, butter, soybean and corn oils, and sugar. The
corporation generally buys these commodities based upon market prices that are
established with the vendor as part of the purchase process. The corporation
does not use significant levels of commodity financial instruments to hedge
commodity prices due to a high correlation between the commodity cost and the
ultimate selling price of the corporation's products.
RISK MANAGEMENT ACTIVITIES The corporation maintains risk management
control systems to monitor the foreign exchange, interest rate and commodity
risks, and the corporation's offsetting hedge positions. The risk management
control system uses analytical techniques including market value, sensitivity
analysis and value at risk estimations.
VALUE AT RISK The value at risk estimations are intended to measure the
maximum amount the corporation could lose from adverse market movements in
interest rates and foreign exchange rates, given a specified confidence level,
over a given period of time. Loss is defined in the value at risk estimation as
fair-market value loss. As a result, foreign exchange gains or losses that are
charged directly to translation adjustments in common stockholders' equity are
included in this estimate. The value at risk estimation utilizes historical
interest rates and foreign exchange rates from the past year to estimate the
volatility and correlation of these rates in the future. The model uses the
variance-covariance statistical modeling technique and includes all
interest-rate sensitive debt and swaps, foreign exchange hedges and their
corresponding underlying exposures. The estimated value at risk amounts shown
below represent the potential loss the corporation could incur from adverse
changes in either interest rates or foreign exchange rates for a one-day period.
The average value at risk represents the simple average of the quarterly amounts
for the past year. These amounts are not significant compared with the equity,
historical earnings trend or daily change in market capitalization of the
corporation.
<TABLE>
<CAPTION>
TIME CONFIDENCE
AMOUNTS AVERAGE INTERVAL LEVEL
----------- ----------- --------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
VALUE AT RISK AMOUNTS
Interest rates..................................... $ 6.2 $ 6.0 1 day 95%
Foreign exchange................................... 9.3 11.6 1 day 95
</TABLE>
SENSITIVITY ANALYSIS For commodity derivative instruments held, the
corporation utilizes a sensitivity analysis technique to evaluate the effect
that changes in the market value of commodities will have on the corporation's
commodity derivative instruments. This analysis includes the commodity
derivative instruments and, thereby, does not consider the underlying exposure.
At year-end, the potential change in fair
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value of commodity derivative instruments, assuming a 10% change in the
underlying commodity price, was $6.2 million. This amount is not significant
compared with the earnings and equity of the corporation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements and related Notes to Financial
Statements of Sara Lee identified in the Index to Financial Statements appearing
under Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K,
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF SARA LEE.
The following is a list of all current executive officers of Sara Lee
Corporation.
<TABLE>
<CAPTION>
AGE AT FIRST
OCTOBER 28, ELECTED AN
NAME 1999 OFFICES AND POSITIONS HELD OFFICER
- ----------------------- ----------- ---------------------------------------- ----------
<S> <C> <C> <C>
John H. Bryan.......... 63 Chairman of the Board, Chief Executive 3/28/74
Officer and Director
C. Steven McMillan..... 53 President, Chief Operating Officer and 3/31/83
Director
Judith A. Sprieser..... 46 Executive Vice President, Chief 11/1/94
Financial Officer and Director
Frank L. Meysman....... 47 Executive Vice President and Director 6/26/92
James R. Carlson....... 57 Senior Vice President 1/29/88
Gary C. Grom........... 52 Senior Vice President -- Human Resources 10/25/90
Paul J. Lustig......... 49 Senior Vice President 7/1/93
Roderick A. Palmore.... 47 Senior Vice President, General Counsel 3/28/96
and Secretary
Mark J. McCarville..... 53 Senior Vice President -- Corporate 6/24/82
Development
</TABLE>
- ------------
There are no family relationships between any of the above-named executive
officers.
Each of the executive officers listed above has served Sara Lee or its
subsidiaries in various executive capacities for the past five years except
Roderick A. Palmore. Before joining Sara Lee in 1996, Mr. Palmore was a partner
in the Chicago office of the law firm of Sonnenschein, Nath & Rosenthal.
For information with respect to the directors of Sara Lee, see "Election of
Directors" contained in the Proxy Statement, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth in the Proxy Statement under the captions
"Director Compensation" and "Executive Compensation" is incorporated herein by
reference; provided, however, that the Report of the Compensation and Employee
Benefits Committee on Executive Compensation and the Performance Graph contained
in the Proxy Statement are not incorporated by reference.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) No person or "group" (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) is known by Sara Lee to beneficially own more
than 5% of any class of Sara Lee's voting securities. As of September 1, 1999,
State Street Bank & Trust Company of Boston, as trustee ("Trustee") of the Sara
Lee Corporation Employee Stock Ownership Plan ("ESOP"), held in trust 3,563,449
shares (100% of the outstanding shares) of Sara Lee's Employee Stock Ownership
Plan Convertible Preferred Stock ("ESOP Stock"), of which 1,522,715 shares (43%)
were allocated to participant accounts and 2,040,735 shares (57%) were
unallocated shares. Each ESOP participant is entitled to direct the Trustee how
to vote the shares allocated to such participant's account, as well as a
proportionate share of unallocated or unvoted shares. The ESOP Stock votes as a
class with the common stock and each share of ESOP Stock is entitled to 10.264
votes. Each share of ESOP Stock is convertible into eight shares of Sara Lee
common stock.
(b) Security ownership by management as contained in the Proxy Statement
under the caption "Sara Lee Stock Ownership by Directors and Executive Officers"
is incorporated herein by reference.
(c) There are no arrangements known to Sara Lee the operation of which may
at a subsequent date result in a change in control of Sara Lee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1999, Sara Lee paid fees for legal services performed by the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of which Vernon E.
Jordan, Jr. is a senior partner. Mr. Jordan served as a director of Sara Lee
during the 1999 fiscal year. The information set forth in the Proxy Statement
under the caption "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a) 1. FINANCIAL STATEMENTS
Report of Independent Public Accountants............................ F-1
Consolidated Statements of Income -- Years ended June 28, 1997, June
27, 1998 and July 3, 1999.......................................... F-4
Consolidated Balance Sheets -- June 28, 1997, June 27, 1998 and July
3, 1999............................................................ F-5
Consolidated Statements of Common Stockholders' Equity -- For the
period June 29, 1996 to July 3, 1999............................... F-7
Consolidated Statements of Cash Flows -- Years ended June 28, 1997,
June 27, 1998 and July 3, 1999..................................... F-8
Notes to Financial Statements....................................... F-9
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants........................... F-31
Schedule II -- Valuation and Qualifying Accounts................... F-32
</TABLE>
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<PAGE>
3. EXHIBITS
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
--------------------------------------------------
<S> <C> <C>
(3a) 1. Charter Exhibit 4.1 to Registration Statement No. 33-35760
on Form S-8 dated July 6, 1990, Exhibit 4.2 to
Registration Statement No. 33-37575 on Form S-8
dated November 1, 1990 and Exhibit 3(a) to Report
on Form 10-K for Fiscal Year ended July 2, 1994.
2. Articles of Amendment to Charter
3. Articles Supplementary
(3b) Bylaws Exhibit 3(b) to Report on Form 10-K for Fiscal
Year ended June 29, 1996
(4) Stockholder Rights Agreement, dated as of March Exhibit 4.1 to Report on Form 8-K dated May 15,
26, 1998 between Sara Lee Corporation and First 1998
Chicago Trust Company of New York, as rights
agent.
Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy
of any instrument which defines the rights of holders of long-term debt of Sara Lee and all of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be filed, and which authorizes a total amount of
securities not in excess of 10% of the total assets of Sara Lee and its subsidiaries on a consolidated basis.
(10) *1. 1979 Stock Option Plan, as amended Exhibit 10(1) to Report on Form 10-K for Fiscal
Year ended July 1, 1995
*2. 1981 Stock Option Plan, as amended Exhibit 10(11) to Report on Form 10-K for Fiscal
Year ended July 1, 1989
*3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10(3) to Report on Form 10-K for Fiscal
amended Year ended July 1, 1995
*4. 1989 Incentive Stock Plan, as amended Exhibit 10(4) to Report on Form 10-K for Fiscal
Year ended June 28, 1997
*5. Supplemental Benefit Plan, as amended Exhibit 10(5) to Report on Form 10-K for Fiscal
Year ended June 28, 1997
*6. Performance-Based Annual Incentive Plan Exhibit A to Proxy Statement dated September 20,
1995
*7. 1995 Long-Term Incentive Stock Plan, as Exhibit 10(16) to Report on Form 10-K for Fiscal
amended Year ended June 28, 1997
*8. 1995 Non-Employee Director Stock Plan, as
amended
*9. 1998 Long-Term Incentive Stock Plan Exhibit A to Proxy Statement dated September 21,
1998
*10. 1999 Non-Employee Director Stock Plan Exhibit A to Proxy Statement dated September 20,
1999
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
--------------------------------------------------
<S> <C> <C>
*11. Non-Qualified Deferred Compensation Plan for Exhibit 10(19) to Report on Form 10-K for Fiscal
Outside Directors, as amended Year ended June 27, 1999
*12. Executive Deferred Compensation Plan
*13. FY 1997-99 Long Term Performance Incentive Exhibit 10(21) to Report on Form 10-K for Fiscal
Plan Year ended June 29, 1996
*14. FY 1998-00 Long Term Performance Incentive Exhibit 10(22) to Report on Form 10-K for Fiscal
Plan Year ended June 27, 1998
*15. FY 1999-01 Long Term Performance Incentive
Plan
*16. Non-Qualified Estate Builder Deferred Exhibit 10(17) to Report on Form 10-K for Fiscal
Compensation Plan Year ended June 29, 1985
*17. Severance Policy for Corporate Officers, as Exhibit 10(23) to Report on Form 10-K for Fiscal
amended Year ended June 28, 1997
*18. Employment Agreement, dated January 1, 1996, Exhibit 10(24) to Report on Form 10-K for Fiscal
between Sara Lee Corporation and Frank L. Year ended June 28, 1997
Meysman
*19. Employment Agreement, dated January 1, 1996, Exhibit 10(25) to Report on Form 10-K for Fiscal
between Sara Lee/DE N.V. and Frank L. Meysman Year ended June 28, 1997
and attachments (translated from Dutch)
*20. Restricted Share Unit Agreement dated April Exhibit 10(27) to Report on Form 10-K for Fiscal
29, 1998 between Sara Lee Corporation and Year ended June 27, 1998
Frank L. Meysman
(12) 1. Computation of Ratio of Earnings to Fixed
Charges
2. Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend
Requirements
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney
(27) Financial Data Schedules
</TABLE>
(b) REPORTS ON FORM 8-K None.
- ------------
*Management compensatory plan or arrangement required to be filed as an exhibit
to this Form 10-K.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Sara Lee Corporation has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
September 28, 1999
<TABLE>
<S> <C> <C>
SARA LEE CORPORATION
By: /s/ RODERICK A. PALMORE
-----------------------------------------
Roderick A. Palmore
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Sara Lee
Corporation and in the capacities indicated on September 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------ --------------------------
<C> <S>
/s/ JOHN H. BRYAN Chairman of the Board,
- ------------------------------ Chief Executive Officer
John H. Bryan and Director
/s/ C. STEVEN MCMILLAN
- ------------------------------ President, Chief Operating
C. Steven McMillan Officer and Director
/s/ FRANK L. MEYSMAN
- ------------------------------ Executive Vice President
Frank L. Meysman and Director
/s/ JUDITH A. SPRIESER Executive Vice President,
- ------------------------------ Chief Financial Officer
Judith A. Sprieser and Director
/s/ WAYNE R. SZYPULSKI
- ------------------------------ Vice President and
Wayne R. Szypulski Controller
*
- ------------------------------ Director
Paul A. Allaire
- ------------------------------ Director
Frans H.J.J. Andriessen
*
- ------------------------------ Director
Duane L. Burnham
*
- ------------------------------ Director
Charles W. Coker
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
James S. Crown
*
- ------------------------------ Director
Willie D. Davis
*
- ------------------------------ Director
Vernon E. Jordan, Jr.
*
- ------------------------------ Director
James L. Ketelsen
*
- ------------------------------ Director
Hans B. van Liemt
*
- ------------------------------ Director
Joan D. Manley
*
- ------------------------------ Director
Rozanne L. Ridgway
*
- ------------------------------ Director
Richard L. Thomas
*
- ------------------------------ Director
John D. Zeglis
</TABLE>
- ------------
* By Roderick A. Palmore as Attorney-in-Fact pursuant to Powers of Attorney
executed by the directors listed above, which Powers of Attorney have been
filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
By: /s/ RODERICK A. PALMORE
-----------------------------------------
Roderick A. Palmore
AS ATTORNEY-IN-FACT
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
SARA LEE CORPORATION:
We have audited the accompanying consolidated balance sheets of SARA LEE
CORPORATION (a Maryland corporation) AND SUBSIDIARIES as of July 3, 1999, June
27, 1998 and June 28, 1997 and the related consolidated statements of income,
common stockholders' equity, and cash flows for each of the three years in the
period ended July 3, 1999. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sara Lee
Corporation and Subsidiaries as of July 3, 1999, June 27, 1998 and June 28,
1997, and the results of their operations and their cash flows for each of the
three years in the period ended July 3, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
August 2, 1999
F-1
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPOUND YEARS ENDED
GROWTH RATE ----------------------
------------------------ JULY 3, JUNE 27,
5 YEARS 10 YEARS 1999(1)(4) 1998(2)
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales.............................................................. 5.2% 5.5% $ 20,012 $ 20,011
Operating income (loss)................................................ 26.0 9.0 2,009 (97)
Income (loss) before income taxes...................................... 33.9 10.1 1,671 (443)
Net income (loss)...................................................... 43.1 11.2 1,191 (523)
Effective tax rate..................................................... -- -- 28.7% 18.0%
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets........................................................... (2.0)% 4.9% $ 10,521 $ 10,989
Total debt............................................................. 3.5 6.6 3,395 3,077
Operating cash flow to average total debt(7)........................... -- -- 43.4% 56.8%
Return on invested capital(8).......................................... -- -- 21.3% 17.5%
- -------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE(9)
Net income (loss) -- basic............................................. 48.7% 11.5% $ 1.31 (.57)
Average shares outstanding (in millions)............................. (1.1) 0.1 903 939
Net income (loss) -- diluted........................................... 47.6 11.1 1.26 (.57)
Average shares outstanding (in millions)............................. (1.1) 0.4 944 939
Dividends(10).......................................................... 9.4 11.0 .49 .45
Book value at year-end................................................. (16.2) (3.8) 1.43 1.97
Market value at year-end............................................... 16.9 12.8 22.50 28.31
- -------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Cash flow
-- Net cash from operating activities.............................. 13.8% 12.5% $ 1,603 $ 1,935
-- Net cash used in investment activities.......................... 27.2 16.2 (192) (275)
-- Net cash (used in) from financing activities.................... NM NM (1,395) (1,650)
Depreciation........................................................... (2.4) 5.5 367 427
Amortization of intangibles
-- Goodwill........................................................ 6.6 11.9 147 149
-- Trademarks and other............................................ (3.9) 8.2 39 42
-- Goodwill, net of tax............................................ 5.1 11.0 135 143
Capital expenditures................................................... (3.2) (0.1) 535 474
Media advertising expense.............................................. 2.2 3.2 414 401
Total advertising and promotion expense................................ 6.1 8.1 2,012 1,972
Common stockholders of record.......................................... -- -- 83,300 85,100
Number of employees.................................................... -- -- 138,200 139,100
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1999, the gain on the sale of the tobacco business of $137 net of the
product recall charge of $76 increased income before income taxes by $61 and
net income by $47.
(2) In 1998, a restructuring provision reduced operating income and income
before income taxes by $2,040 and net income by $1,625.
(3) In 1994, a restructuring provision reduced operating income and income
before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of
accounting for income taxes reduced net income by $35.
(4) 53-week year.
(5) Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.
(6) Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.
(7) Average total debt includes total balance sheet debt, imputed lease
liabilities and auction preferred stock.
(8) Excludes unusual items.
(9) Restated for the 2-for-1 stock splits in fiscal 1999, 1993 and 1990.
(10) Fiscal 1992 includes a $.06 special dividend.
NM = not meaningful
THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL SUMMARY.
F-2
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------------------------
JUNE 28, JUNE 29, JULY 1, JULY 2, JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1,
1997 1996 1995 1994(3) 1993(4) 1992(5) 1991 1990 1989(6)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales............................... $ 19,734 $ 18,624 $ 17,719 $ 15,536 $ 14,580 $ 13,243 $ 12,381 $ 11,606 $ 11,718
Operating income (loss)................. 1,905 1,793 1,596 632 1,307 1,207 1,085 938 847
Income (loss) before income taxes....... 1,484 1,378 1,219 389 1,082 1,174 830 713 639
Net income (loss)....................... 1,009 916 804 199 704 761 535 470 410
Effective tax rate...................... 32.0% 33.5% 34.1% 39.9% 34.9% 35.2% 35.5% 34.1% 35.8%
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets............................ $ 12,953 $ 12,602 $ 12,431 $ 11,665 $ 10,862 $ 9,989 $ 8,122 $ 7,636 $ 6,523
Total debt.............................. 2,664 2,296 2,597 2,859 2,433 1,780 1,772 1,866 1,799
Operating cash flow to average total
debt(7)............................... 49.3% 41.4% 40.6% 25.8% 31.7% 42.1% 37.3% 25.6% 27.9%
Return on invested capital(8)........... 16.0% 15.0% 14.6% 12.6% 12.7% 13.3% 13.8% 14.3% 15.3%
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE(9)
Net income (loss) -- basic.............. $ 1.02 $ .92 $ .81 $ .18 $ .71 $ .78 $ .54 $ .48 $ .44
Average shares outstanding (in
millions)........................... 959 963 955 955 963 941 921 914 897
Net income (loss) -- diluted............ .99 .89 .79 .18 .68 .75 .53 .47 .44
Average shares outstanding (in
millions)........................... 1,004 1,007 996 997 1,011 992 971 959 907
Dividends(10)........................... .41 .37 .34 .31 .28 .31 .23 .20 .17
Book value at year-end.................. 4.46 4.45 4.10 3.46 3.66 3.53 2.74 2.49 2.11
Market value at year-end................ 21.03 16.25 14.25 10.31 12.13 12.41 10.09 7.28 6.74
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Cash flow
-- Net cash from operating
activities........................ $ 1,552 $ 1,304 $ 1,373 $ 839 $ 850 $ 976 $ 875 $ 582 $ 493
-- Net cash used in investment
activities........................ (1,042) (693) (517) (937) (967) (381) (652) (674) (1,120)
-- Net cash (used in) from financing
activities...................... (468) (555) (853) (42) 248 (532) (269) 133 573
Depreciation............................ 483 454 436 414 383 354 302 268 215
Amortization of intangibles
-- Goodwill......................... 159 133 123 106 103 91 73 65 48
-- Trademarks and other............. 38 47 47 48 36 27 19 18 17
-- Goodwill, net of tax............. 153 130 122 106 103 91 73 65 48
Capital expenditures.................... 547 542 480 628 728 509 522 595 541
Media advertising expense............... 414 444 422 371 392 325 288 313 303
Total advertising and promotion
expense............................... 1,937 1,838 1,675 1,498 1,455 1,294 1,067 1,013 925
Common stockholders of record........... 88,800 91,300 93,400 95,600 88,100 75,400 69,400 64,800 56,500
Number of employees..................... 141,000 135,300 149,100 145,900 138,000 128,000 113,400 107,800 101,800
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1999, the gain on the sale of the tobacco business of $137 net of the
product recall charge of $76 increased income before income taxes by $61 and
net income by $47.
(2) In 1998, a restructuring provision reduced operating income and income
before income taxes by $2,040 and net income by $1,625.
(3) In 1994, a restructuring provision reduced operating income and income
before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of
accounting for income taxes reduced net income by $35.
(4) 53-week year.
(5) Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.
(6) Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.
(7) Average total debt includes total balance sheet debt, imputed lease
liabilities and auction preferred stock.
(8) Excludes unusual items.
(9) Restated for the 2-for-1 stock splits in fiscal 1999, 1993 and 1990.
(10) Fiscal 1992 includes a $.06 special dividend.
NM = not meaningful
THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL SUMMARY.
F-3
<PAGE>
SARA LEE CORPORATION AND SUBSIDIAIRIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
JULY 3, JUNE 27, JUNE 28,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES..................................................................... $ 20,012 $ 20,011 $ 19,734
--------- --------- ---------
Cost of sales................................................................. 12,208 12,331 12,267
Selling, general and administrative expenses.................................. 6,053 5,907 5,824
Interest expense.............................................................. 237 224 202
Interest income............................................................... (96) (48) (43)
Unusual items
Product recall.............................................................. 76 -- --
Gain on sale of business.................................................... (137) -- --
Restructuring charge........................................................ -- 2,040 --
--------- --------- ---------
18,341 20,454 18,250
--------- --------- ---------
Income (loss) before income taxes............................................. 1,671 (443) 1,484
Income taxes.................................................................. 480 80 475
--------- --------- ---------
NET INCOME (LOSS)............................................................. 1,191 (523) 1,009
Preferred dividends, net of tax............................................... (12) (14) (26)
--------- --------- ---------
Net income (loss) available for common stockholders........................... $ 1,179 $ (537) $ 983
--------- --------- ---------
--------- --------- ---------
NET INCOME (LOSS) PER COMMON SHARE -- BASIC................................... $ 1.31 $ (.57) $ 1.02
--------- --------- ---------
--------- --------- ---------
Average shares outstanding.................................................. 903 939 959
--------- --------- ---------
--------- --------- ---------
NET INCOME (LOSS) PER COMMON SHARE -- DILUTED................................. $ 1.26 $ (.57) $ .99
--------- --------- ---------
--------- --------- ---------
Average shares outstanding.................................................. 944 939 1,004
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-4
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 3, JUNE 27, JUNE 28,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and equivalents......................................................... $ 279 $ 273 $ 272
Trade accounts receivable, less allowances of $201 in 1999, and $205 in 1998
and 1997................................................................... 1,744 1,800 1,841
Inventories
Finished goods............................................................. 1,710 1,809 1,803
Work in process............................................................ 470 443 497
Materials and supplies..................................................... 463 630 673
--------- --------- ---------
2,643 2,882 2,973
Other current assets......................................................... 321 265 305
--------- --------- ---------
Total current assets......................................................... 4,987 5,220 5,391
--------- --------- ---------
Trademarks and other assets.................................................. 533 501 536
Property
Land....................................................................... 103 126 126
Buildings and improvements................................................. 1,762 1,895 2,008
Machinery and equipment.................................................... 2,845 2,742 3,777
Construction in progress................................................... 261 184 293
--------- --------- ---------
4,971 4,947 6,204
Accumulated depreciation................................................... 2,802 2,857 3,125
--------- --------- ---------
Property, net................................................................ 2,169 2,090 3,079
Intangible assets, net....................................................... 2,832 3,178 3,947
--------- --------- ---------
$ 10,521 $ 10,989 $ 12,953
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
BALANCE SHEETS.
F-5
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 3, JUNE 27, JUNE 28,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.................................................................. $ 1,167 $ 586 $ 476
Accounts payable............................................................... 1,782 2,003 1,703
Accrued liabilities
Payroll and employee benefits................................................ 811 684 701
Advertising and promotion.................................................... 388 338 337
Taxes other than payroll and income.......................................... 91 223 189
Income taxes................................................................. 45 159 119
Other........................................................................ 1,333 1,519 1,236
Current maturities of long-term debt........................................... 336 221 255
--------- --------- ---------
Total current liabilities...................................................... 5,953 5,733 5,016
--------- --------- ---------
Long-term debt................................................................. 1,892 2,270 1,933
Deferred income taxes.......................................................... 62 22 416
Other liabilities.............................................................. 702 538 543
Minority interest in subsidiaries.............................................. 613 560 523
Preferred stock (authorized 13,500,000 shares; no par value)
Auction: Issued and outstanding -- 2,000 shares in 1997, redeemable at
$100,000 per share......................................................... -- -- 200
ESOP convertible: Issued and outstanding -- 3,654,073 shares in 1999,
4,208,297 shares in 1998 and 4,328,597 shares in 1997...................... 265 305 314
Unearned deferred compensation............................................... (232) (255) (272)
Common stockholders' equity
Common stock: (authorized 1,200,000,000 shares; $.01 par value) Issued and
outstanding -- 883,782,525 shares in 1999, 460,664,857 shares in 1998 and
480,277,317 shares in 1997................................................. 9 614 640
Capital surplus.............................................................. 106 -- --
Retained earnings............................................................ 2,162 2,036 4,274
Accumulated other comprehensive loss......................................... (1,006) (784) (618)
Unearned restricted stock issued for future services......................... (5) (50) (16)
--------- --------- ---------
Total common stockholders' equity.............................................. 1,266 1,816 4,280
--------- --------- ---------
$ 10,521 $ 10,989 $ 12,953
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-6
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
UNEARNED OTHER
COMMON CAPITAL RETAINED RESTRICTED COMPREHENSIVE COMPREHENSIVE
TOTAL STOCK SURPLUS EARNINGS STOCK INCOME (LOSS) INCOME (LOSS)
-------- -------- -------- -------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 29, 1996............. $ 4,320 $ 646 $ 141 $ 3,783 $ (23) $ (227)
Net income............................ 1,009 -- -- 1,009 -- -- $ 1,009
Translation adjustments, net of tax of
$(108).............................. (391) -- -- -- -- (391) (391)
------
Comprehensive income.................. $ 618
------
------
Cash dividends........................ (430) -- -- (430) -- --
Stock issuances
Business acquisitions............... 18 1 17 -- -- --
Stock option and benefit plans...... 93 6 87 -- -- --
Restricted stock, less amortization
of $19............................ 19 -- 13 -- 6 --
Tax benefit related to incentive stock
options............................. 12 -- 12 -- -- --
Reacquired shares..................... (393) (14) (281) (98) -- --
ESOP tax benefit...................... 10 -- -- 10 -- --
ESOP share redemption................. 10 1 9 -- -- --
Other................................. 3 -- 2 -- 1 --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 28, 1997............. 4,280 640 -- 4,274 (16) (618)
Net loss.............................. (523) -- -- (523) -- -- $ (523)
Translation adjustments, net of tax of
$19................................. (166) -- -- -- -- (166) (166)
------
Comprehensive loss.................... $ (689)
------
------
Cash dividends........................ (447) -- -- (447) -- --
Stock issuances
Business acquisitions............... 10 -- 10 -- -- --
Stock option and benefit plans...... 86 8 78 -- -- --
Restricted stock, less amortization
of $42............................ 34 1 67 -- (34) --
Tax benefit related to incentive stock
options............................. 20 -- 20 -- -- --
Reacquired shares..................... (1,500) (36) (186) (1,278) -- --
ESOP tax benefit...................... 10 -- -- 10 -- --
ESOP share redemption................. 9 1 8 -- -- --
Other................................. 3 -- 3 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT JUNE 27, 1998............. 1,816 614 -- 2,036 (50) (784)
Net income............................ 1,191 -- -- 1,191 -- -- $ 1,191
Translation adjustments, net of tax of
$(51)............................... (161) -- -- -- -- (161) (161)
Unrealized gains on securities........ 1 -- -- -- -- 1 1
Minimum pension liability, net of tax
of $32.............................. (62) -- -- -- -- (62) (62)
------
Comprehensive income.................. $ 969
------
------
Cash dividends........................ (464) -- -- (464) -- --
Stock issuances (cancelations)
Business acquisitions............... 9 -- 9 -- -- --
Stock option and benefit plans...... 111 4 107 -- -- --
Restricted stock, less amortization
of $28............................ (15) -- (60) -- 45 --
Tax benefit related to incentive stock
options............................. 66 -- 66 -- -- --
Reacquired shares..................... (1,279) (13) (1,266) -- -- --
Two-for-one stock split............... -- 609 -- (609) -- --
Par value change...................... -- (1,208) 1,208 -- -- --
ESOP tax benefit...................... 8 -- -- 8 -- --
ESOP share redemption................. 40 3 37 -- -- --
Other................................. 5 -- 5 -- -- --
-------- -------- -------- -------- --- -------
BALANCES AT JULY 3, 1999.............. $ 1,266 $ 9 $ 106 $ 2,162 $ (5) $ (1,006)
-------- -------- -------- -------- --- -------
-------- -------- -------- -------- --- -------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-7
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 3, JUNE 27, JUNE 28,
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................... $ 1,191 $ (523) $ 1,009
Adjustments for noncash charges included in net income (loss)
Depreciation............................................................ 367 427 483
Amortization of intangibles............................................. 186 191 197
Product recall charge................................................... 76 -- --
Gain on sale of business................................................ (137) -- --
Restructuring charge.................................................... -- 2,040 --
Increase (decrease) in deferred taxes................................... 34 (405) 40
Other noncash credits, net.............................................. (35) (5) (56)
Changes in current assets and liabilities, net of businesses acquired
and sold
(Increase) decrease in trade accounts receivable...................... (31) 6 (66)
Decrease (increase) in inventories.................................... 108 (27) (129)
(Increase) decrease in other current assets........................... (62) 34 17
(Decrease) increase in accounts payable............................... (62) 20 59
(Decrease) increase in accrued liabilities............................ (32) 177 (2)
--------- ----------- -----------
Net cash from operating activities...................................... 1,603 1,935 1,552
--------- ----------- -----------
INVESTMENT ACTIVITIES
Purchases of property and equipment....................................... (535) (474) (547)
Acquisitions of businesses................................................ (234) (393) (674)
Dispositions of investments and businesses................................ 412 451 114
Sales of property......................................................... 158 140 59
Other..................................................................... 7 1 6
--------- ----------- -----------
Net cash used in investment activities.................................. (192) (275) (1,042)
--------- ----------- -----------
FINANCING ACTIVITIES
Issuances of common stock................................................. 111 86 93
Purchases of common stock................................................. (1,279) (1,500) (393)
Redemption of preferred stock............................................. -- (200) (100)
Issuance of equity securities by subsidiary............................... 50 -- --
Borrowings of long-term debt.............................................. 20 594 495
Repayments of long-term debt.............................................. (284) (296) (252)
Short-term borrowings, net................................................ 451 113 119
Payments of dividends..................................................... (464) (447) (430)
--------- ----------- -----------
Net cash used in financing activities................................... (1,395) (1,650) (468)
--------- ----------- -----------
Effect of changes in foreign exchange rates on cash....................... (10) (9) (13)
--------- ----------- -----------
Increase in cash and equivalents.......................................... 6 1 29
Cash and equivalents at beginning of year................................. 273 272 243
--------- ----------- -----------
Cash and equivalents at end of year....................................... $ 279 $ 273 $ 272
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
F-8
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities; the
disclosure of contingent assets and liabilities at the date of the financial
statements; and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONSOLIDATION
The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany transactions of consolidated
subsidiaries are eliminated. Acquisitions recorded as purchases are included in
the income statement from the date of acquisition.
FISCAL YEAR
The corporation's fiscal year ends on the Saturday closest to June 30.
Fiscal year 1999 is a 53-week year, while fiscal 1998 and 1997 were 52-week
years. Unless otherwise stated, references to years relate to fiscal years.
INTANGIBLE ASSETS
The excess of cost over the fair market value of tangible net assets and
trademarks of acquired businesses is amortized on a straight-line basis over the
periods of expected benefit, which range from 10 years to 40 years. Accumulated
amortization of intangible assets amounted to $919 at July 3, 1999, $861 at June
27, 1998 and $896 at June 28, 1997.
Subsequent to its acquisition, the corporation continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be recoverable. When factors
indicate that an intangible asset should be evaluated for possible impairment,
the corporation uses an estimate of the related business' undiscounted future
cash flows over the remaining life of the asset in measuring whether the
intangible asset is recoverable.
INVENTORY VALUATION
Inventories are valued at the lower of cost (in 1999, approximately 19% at
last-in, first-out [LIFO] and the remainder at first-in, first-out [FIFO]) or
market. Inventories recorded at LIFO were approximately $9 at July 3, 1999, $8
at June 27, 1998 and $32 at June 28, 1997, lower than if they had been valued at
FIFO. Inventory cost includes material and conversion costs.
PROPERTY
Property is stated at cost, and depreciation is computed using principally
the straight-line method at annual rates of 2% to 20% for buildings and
improvements, and 4% to 33% for machinery and equipment. Additions and
improvements that substantially extend the useful life of a particular asset and
interest costs incurred during the construction period of major properties are
capitalized. Repair and maintenance costs
F-9
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
are charged to expense. Upon sale, the cost and related accumulated depreciation
are removed from the accounts.
FOREIGN OPERATIONS
Foreign currency-denominated assets and liabilities are translated into U.S.
dollars at the exchange rates existing at the balance sheet date. Translation
adjustments resulting from fluctuations in the exchange rates are recorded as a
separate component of common stockholders' equity. Income and expense items are
translated at the average exchange rates during the respective periods.
FINANCIAL INSTRUMENTS
The corporation uses financial instruments to manage its exposure to
movements in interest rates, foreign exchange rates and commodity prices. The
use of these financial instruments modifies the exposure of these risks with the
intent to reduce the risk to the corporation. The corporation does not use
financial instruments for trading purposes, nor is it a party to leveraged
derivatives.
FINANCING TRANSACTIONS
Non-U.S. dollar financing transactions are generally effective as hedges of
long-term investments in the corresponding currency. Foreign currency gains or
losses on the hedges of long-term investments are recorded in the translation
adjustments component of common stockholders' equity with the offset recorded as
an adjustment to the non-U.S. dollar financing liability.
INTEREST RATE AGREEMENTS
Interest rate exchange agreements, defined as swaps, and caps and floors,
are effective at creating synthetic instruments and thereby modifying the
corporation's interest rate exposures. The corporation enters into interest rate
exchange agreements to create synthetic instruments. Net interest is accrued as
either interest receivable or payable with the offset recorded in interest
expense. Any premium paid is amortized over the life of the agreement.
FORWARD EXCHANGE CONTRACTS
The corporation uses primarily short-term forward exchange contracts for
hedging purposes to reduce the effects of adverse foreign exchange rate
movements. The contracts that effectively meet the risk reduction and
correlation criteria, as measured on a currency-by-currency basis, are accounted
for using hedge accounting. Under this method, the change in fair value of
forward contracts that hedge firm commitments is deferred and recognized as part
of the related foreign currency transactions as they occur. Firm commitments
include the purchases of inventory, capitalized assets or expenses of the
corporation. The change in fair value of any forward contract that is not
effective as a hedge of the firm commitment is included in selling, general and
administrative expenses and other accrued liabilities.
Forward contracts that hedge the currency exposure on non-permanent
intercompany loans are also accounted for using hedge accounting if the contract
meets the risk reduction and correlation criteria, as measured on a
currency-by-currency basis. Under hedge accounting, these contracts are valued
at current spot rates on a monthly basis, and the change in value is recognized
currently and included, along with any amortization of forward points over the
life of the contract, in selling, general and administrative expenses. Any
foreign exchange gain or loss on the underlying intercompany loan is also
included in selling, general
F-10
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
and administrative expenses. Changes in the value of forward contracts related
to anticipated purchases and sales are marked to market through selling, general
and administrative expenses on a monthly basis.
If, subsequent to entering into a hedge transaction with forward contracts,
the underlying transaction is no longer likely to occur, the hedge position is
removed and any gain or loss is included in selling, general and administrative
expenses.
COMMODITIES
The corporation uses commodity futures and purchased options for hedging
purposes to reduce the effect of changing commodity prices. The contracts that
effectively meet the risk reduction and correlation criteria, as measured on a
commodity-by-commodity basis, are recorded using hedge accounting. Effectiveness
is measured based upon high correlation between commodity gains and losses on
the futures contract and those on the firm commitment. Under hedge accounting,
the gain or loss on the hedge is deferred and recorded as a component of the
underlying inventory purchase. Gains and losses on hedges that are terminated
prior to the execution of the inventory purchase are recorded in inventory until
the inventory is sold.
STOCK-BASED COMPENSATION
The corporation accounts for stock options using Accounting Principles Board
Opinion No. 25 (APB 25).
INCOME TAXES
Income taxes are provided on the income reported in the financial
statements, regardless of when such taxes are payable. U.S. income taxes are
provided on undistributed earnings of foreign subsidiaries that are intended to
be remitted to the corporation. If the permanently reinvested earnings of
foreign subsidiaries were remitted, the U.S. income taxes due under current tax
law would not be material.
ADVERTISING
The costs of advertising are generally expensed in the year in which the
advertising first takes place.
F-11
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
COMMON STOCK
Changes in outstanding common shares for the past three years were:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Beginning balances........................................... 460,665 480,277 485,055
Stock issuances (cancelations):
Stock option and benefit plans............................. 6,431 6,008 4,566
Business acquisitions...................................... 257 176 549
Restricted stock plans..................................... (2,431) 833 88
Two-for-one stock split...................................... 456,628 -- --
Stock purchased.............................................. (40,582) (27,174) (10,609)
ESOP share redemption........................................ 2,694 462 560
Other........................................................ 121 83 68
--------- --------- ---------
Ending balances.............................................. 883,783 460,665 480,277
--------- --------- ---------
--------- --------- ---------
</TABLE>
Effective December 1, 1998, the corporation declared a two-for-one stock
split in the form of a 100% stock dividend. Common stock dividends and per share
amounts declared were $444 and $.49 in 1999, $423 and $.45 in 1998, and $394 and
$.41 in 1997, respectively.
In October 1998, the stockholders of the corporation approved an amendment
to the corporation's charter to reduce the par value of each share of common
stock from $1.33 to $.01.
STOCK-BASED COMPENSATION
The corporation has various stock option, employee stock purchase and stock
award plans.
STOCK OPTIONS
The exercise price of each stock option equals 100% of the market price of
the corporation's stock on the date of grant and generally has a maximum term of
10 years. Options generally vest ratably over three years. During 1998, the
corporation instituted a broad-based stock option incentive program that granted
approximately 10 million options to essentially all full-time employees.
Under certain stock option plans, an active employee may receive a
replacement stock option equal to the number of shares surrendered upon a
stock-for-stock exercise. The exercise price of the replacement option is 100%
of the market value at the date of exercise of the original option and will
remain exercisable for the remaining term of the original option. Replacement
stock options generally vest six months from the grant date.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Expected lives................................. 3.2 years 3.6 years 2.9 years
Risk-free interest rate........................ 5.1% 6.0% 6.1%
Expected volatility............................ 25.0% 22.4% 22.9%
Dividend yield................................. 1.9% 2.0% 2.2%
</TABLE>
F-12
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
A summary of the changes in the corporation's option plans during the years
ended July 3, 1999, June 27, 1998 and June 28, 1997 is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
(SHARES IN
THOUSANDS)
<S> <C> <C>
Outstanding at June 29, 1996.................................. 34,852 $12.93
Granted..................................................... 16,657 17.15
Exercised................................................... (11,887) 13.43
Canceled/Expired............................................ (1,120) 13.90
--------- --------
Outstanding at June 28, 1997.................................. 38,502 14.57
Granted..................................................... 42,282 22.30
Exercised................................................... (18,176) 15.17
Canceled/Expired............................................ (1,510) 18.68
--------- --------
Outstanding at June 27, 1998.................................. 61,098 19.64
Granted..................................................... 17,172 25.56
Exercised................................................... (13,085) 17.63
Canceled/Expired............................................ (2,982) 21.71
--------- --------
Outstanding at July 3, 1999................................... 62,203 $21.52
--------- --------
--------- --------
</TABLE>
The following table summarizes information about stock options outstanding
at July 3, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT JULY 3, CONTRACTUAL EXERCISE AT JULY 3, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE (YRS.) PRICE 1999 PRICE
- ------------------------------------------------------------ ----------- -------------- -------- ----------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 6.47-$20.44............................................... 12,660 5.2 $14.76 9,958 $14.38
20.45- 21.97............................................... 25,853 7.6 20.54 9,159 20.56
21.98- 31.60............................................... 23,690 6.8 26.21 12,166 28.03
----------- -------------- -------- ----------- --------
$ 6.47-$31.60............................................... 62,203 6.8 $21.52 31,283 $21.50
----------- -------------- -------- ----------- --------
----------- -------------- -------- ----------- --------
</TABLE>
At June 27, 1998 and June 28, 1997, the number of options exercisable were
21,985 and 19,227, respectively, with weighted average exercise prices of $18.52
and $13.69, respectively. Options available for future grant at the end of 1999,
1998 and 1997 were 49,937, 29,695 and 37,707, respectively. The weighted average
fair value of individual options granted during 1999, 1998 and 1997 was $4.68,
$4.28 and $2.88, respectively.
EMPLOYEE STOCK PURCHASE PLAN (ESPP)
The ESPP permits full-time employees to purchase a limited number of shares
of the corporation's common stock at 85% of market value. Under the plan, the
corporation sold 2,275,606, 2,303,112 and 3,083,184 shares to employees in 1999,
1998 and 1997, respectively. Pro forma compensation expense is calculated for
the fair value of the employees' purchase rights using the Black-Scholes model.
Assumptions include an expected life of 1/4 of a year and weighted average
risk-free interest rates of 4.6%, 5.2% and
F-13
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
5.1% in 1999, 1998 and 1997, respectively. Other underlying assumptions are
consistent with those used for the corporation's stock option plans described
above.
Under APB 25, no compensation cost is recognized for stock options and
replacement stock options under the various stock-based compensation plans and
shares purchased under the ESPP. Had compensation cost for the corporation's
grants for stock-based compensation been determined consistent with SFAS 123,
the pro forma net income (loss) and per share net income (loss) for 1999, 1998
and 1997 would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)....................................................................... $ 1,118 $ (599) $ 981
Net income (loss) per share -- basic.................................................... 1.23 (.65) 1.00
Net income (loss) per share -- diluted.................................................. 1.19 (.65) .96
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1996,
and additional awards in future years are anticipated.
STOCK AWARDS
Stock awards are restricted and subject to forfeiture until the corporation
achieves certain financial goals. Performance goals typically extend over three
years. All restricted stock awards entitle the participant to dividends that are
escrowed until the participant receives the shares. The fair value of stock
awards is accrued over the performance goal period.
PREFERRED STOCK
The convertible preferred stock sold to the corporation's Employee Stock
Ownership Plan (ESOP) is redeemable at the option of the corporation at any time
after December 15, 2001. Each share is currently convertible into eight shares
of the corporation's common stock and is entitled to 10.264 votes. This stock
has a 7.5% annual dividend rate, payable semiannually, and has a liquidation
value of $72.50 plus accrued but unpaid dividends. ESOP dividends and per share
amounts declared were $20 and $5.4375 per share in 1999, $23 and $5.4375 per
share in 1998, and $24 and $5.4375 per share in 1997, respectively. The purchase
of the preferred stock by the ESOP was funded with notes guaranteed by the
corporation. The loan is included in long-term debt and is offset in the
corporation's Consolidated Balance Sheets under the caption Unearned Deferred
Compensation. Each year, the corporation makes contributions that, with the
dividends on the preferred stock held by the ESOP, will be used to pay loan
interest and principal. Shares are allocated to participants based upon the
ratio of the current year's debt service to the sum of the total principal and
interest payments over the life of the loan. Plan expense is recognized in
accordance with methods prescribed by the FASB.
During 1999, the ESOP extended its debt service through a loan program from
the corporation. As a result of this program, the allocation of preferred shares
and the related recognition of compensation expense has been extended up to
2030. The ESOP loan reflected in long-term debt was not affected by this action.
ESOP-related expenses amounted to less than $1 in 1999, $16 in 1998 and $13
in 1997. Payments to the ESOP were $45 in 1999, $45 in 1998 and $43 in 1997.
Principal and interest payments by the ESOP amounted to $27 and $18 in 1999, $23
and $22 in 1998, and $19 and $24 in 1997, respectively.
F-14
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The corporation has a Preferred Stock Purchase Rights Plan. The Rights are
exercisable 10 days after certain events involving the acquisition of 15% or
more of the corporation's outstanding common stock or the commencement of a
tender or exchange offer for at least 15% of the common stock. Upon the
occurrence of such an event, each Right, unless redeemed by the Board of
Directors, entitles the holder to receive, upon exercise and payment of the
exercise price, common stock with a value equal to twice the exercise price of
the Right. The initial exercise price of a Right is $215, subject to adjustment.
There are 6,000,000 shares of preferred stock reserved for issuance upon
exercise of the Rights.
During 1998, the corporation redeemed the remaining non-voting auction
preferred stock. The shares were redeemed at face value, and no gain or loss was
recognized. Auction preferred stock dividends and per share amounts declared
were $1 and $458.00 per share in 1998 and $12 and $4,000.93 per share in 1997,
respectively.
The dividend rate for each of the series of auction preferred stock was
established through a Dutch auction conducted by an agent of the corporation.
Auctions were held six out of every seven weeks with the dividend rate for one
of the series set at each auction.
MINORITY INTEREST IN SUBSIDIARIES
Minority interest in subsidiaries consists primarily of preferred equity
securities issued by subsidiaries of the corporation. No gain or loss was
recognized as a result of the issuance of these securities, and the corporation
owned substantially all of the voting equity of the subsidiaries both before and
after the transactions.
Minority interest in subsidiaries includes $295 of preferred equity
securities issued by a wholly owned foreign subsidiary of the corporation. The
securities provide a rate of return based upon specified inter-bank borrowing
rates. The securities are redeemable in 2004 in exchange for common shares of
the issuer, which may then be put to the corporation for preferred stock. The
subsidiary may call the securities at any time.
Minority interest in subsidiaries also includes preferred equity securities
issued by a domestic subsidiary of the corporation. The amount of these
securities was $250 for 1999 and $200 for 1998 and 1997. The securities provide
the holder a rate of return based upon a specified inter-bank borrowing rate,
are redeemable in 2005 and may be called at any time by the subsidiary. The
subsidiary has the option of redeeming the securities with either cash, debt or
equity of the corporation.
EARNINGS PER SHARE
Net income per share -- basic is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Net income per share -- diluted reflects the potential dilution
that could occur if options or other contracts to issue common stock were
exercised or converted into common stock. Effective December 1, 1998, the
corporation declared a two-for-one stock split in the form of a 100% stock
dividend. Prior periods have been restated to reflect this split.
F-15
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The following is a reconciliation of net income to net income per share --
basic and diluted for the years ended July 3, 1999, June 27, 1998 and June 28,
1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ---------
(SHARES IN MILLIONS)
<S> <C> <C> <C>
Net income (loss)........................................ $1,191 $ (523) $ 1,009
Less dividends on preferred stocks, net of tax
benefits............................................... (12) (14) (26)
------- ------- ---------
Income (loss) applicable to common stockholders --
basic.................................................. 1,179 (537) 983
Adjustment for assumed conversion of ESOP shares......... 8 -- 8
------- ------- ---------
Income (loss) applicable to common stockholders --
diluted................................................ $1,187 $ (537) $ 991
------- ------- ---------
------- ------- ---------
Average shares outstanding -- basic...................... 903 939 959
Dilutive effect of stock option and stock award plans.... 12 -- 10
Dilutive effect of ESOP plan............................. 29 -- 35
------- ------- ---------
Diluted shares outstanding............................... 944 939 1,004
------- ------- ---------
------- ------- ---------
Net income (loss) per share -- basic..................... $ 1.31 $ (.57) $ 1.02
------- ------- ---------
------- ------- ---------
Net income (loss) per share -- diluted................... $ 1.26 $ (.57) $ .99
------- ------- ---------
------- ------- ---------
</TABLE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
INTEREST RATE
RANGE MATURITY 1999 1998 1997
------------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. dollar
obligations: ESOP debt........................... 5.73-8.18% 2004 $ 197 $ 253 $ 276
Notes and debentures................ 5.25-8.37 2000-2008 1,206 1,271 1,038
Revenue bonds....................... 2.60-5.20 2002-2024 60 60 55
Zero coupon notes................... 10.00-14.25 2014-2015 22 19 17
Various other obligations........... 13 4 4
--------- --------- ---------
1,498 1,607 1,390
--------- --------- ---------
Foreign currency
obligations: Swiss franc......................... 4.01-4.02 2000 81 83 71
European euro....................... 4.17-5.00 2000-2004 574 710 660
Various other obligations........... 75 91 67
--------- --------- ---------
730 884 798
--------- --------- ---------
Total long-term debt................ 2,228 2,491 2,188
Less current maturities............. 336 221 255
--------- --------- ---------
$ 1,892 $ 2,270 $ 1,933
--------- --------- ---------
--------- --------- ---------
</TABLE>
The ESOP debt is guaranteed by the corporation.
The zero coupon notes are net of unamortized discounts of $102 in 1999, $105
in 1998 and $107 in 1997. Principal payments of $19 and $105 are due in 2014 and
2015, respectively.
Payments required on long-term debt during the years ending in 2000 through
2004 are $336, $220, $460, $213 and $400, respectively.
F-16
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The corporation made cash interest payments of $242, $219 and $202 in 1999,
1998 and 1997, respectively.
Rental expense under operating leases amounted to approximately $208 in
1999, $204 in 1998 and $214 in 1997. Future minimum annual fixed rentals
required during the years ending in 2000 through 2004 under noncancelable
operating leases having an original term of more than one year are $142, $120,
$106, $95 and $79, respectively. The aggregate obligation subsequent to 2004 is
$102.
The corporation is contingently liable for long-term leases on properties
operated by others. The minimum annual rentals under these leases average
approximately $4 for the years ending in 2000-2004 and $1 in 2005-2009. Amounts
thereafter are not material.
CREDIT FACILITIES
The corporation has numerous credit facilities available, including
revolving credit agreements totaling $1,620 that had a weighted average annual
fee of 0.05% as of July 3, 1999. These agreements support commercial paper
borrowings. Selected data on the corporation's short-term obligations follow:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Maximum period-end borrowings........................................................ $ 1,844 $ 1,895 $ 1,735
Average borrowings during the year................................................... 1,473 1,482 1,502
Weighted average interest rate during the year....................................... 4.3% 4.7% 4.8%
Weighted average interest rate at year-end........................................... 4.8% 5.5% 5.7%
</TABLE>
CONTINGENCIES
The corporation is a party to several pending legal proceedings and claims,
and environmental actions by governmental agencies. Although the outcome of such
items cannot be determined with certainty, the corporation's general counsel and
management are of the opinion that the final outcome should not have a material
effect on the corporation's results of operations or financial position.
F-17
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
INTEREST RATE AND CURRENCY SWAPS
To manage interest rate and foreign exchange risk and to lower its cost of
borrowing, the corporation has entered into interest rate and currency swaps.
The currency swaps effectively hedge long-term European euro- and Swiss
franc-denominated investments and European euro-denominated intercompany loans.
The weighted average maturities of interest rate and currency swaps as of July
3, 1999 were 1.8 years and .1 years, respectively.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATES(2)
NOTIONAL ----------------------
PRINCIPAL(1) RECEIVE PAY
------------- ----------- ---
<S> <C> <C> <C>
INTEREST RATE SWAPS
1999 Receive variable -- pay fixed............................................. $ 516 4.0% 4.5%
1998 Receive variable -- pay fixed............................................. 199 4.4 4.7
1997 Receive variable -- pay fixed............................................. 98 4.1 4.4
Receive fixed -- pay variable.............................................. 25 7.1 5.4
CURRENCY SWAPS
1999 Receive fixed -- pay fixed $ 360 6.1% 3.4%
1998 Receive fixed -- pay fixed 259 6.4 3.9
1997 Receive fixed -- pay fixed 259 6.4 4.1
</TABLE>
- ------------
(1) The notional principal is the amount used for the calculation of interest
payments that are exchanged over the life of the swap transaction and is
equal to the amount of foreign currency or dollar principal exchanged at
maturity.
(2) The weighted average interest rates are as of the respective balance sheet
dates.
FORWARD EXCHANGE CONTRACTS
The corporation uses forward exchange contracts to reduce the effect of
fluctuating foreign currencies on short-term foreign currency-denominated
intercompany transactions, firm third-party product sourcing commitments and
other known foreign currency exposures.
The following table summarizes by major currency the contractual amounts of
the corporation's forward exchange contracts in U.S. dollars. The bought amounts
represent the net U.S. dollar equivalent of commitments to purchase foreign
currencies, and the sold amounts represent the net U.S. dollar equivalent of
commitments to sell foreign currencies. The foreign currency amounts have been
translated into a
F-18
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
U.S. dollar equivalent value using the exchange rate at the reporting date.
Forward exchange contracts mature at the anticipated cash requirement date of
the hedged transaction, generally within one year.
<TABLE>
<CAPTION>
BOUGHT (SOLD)
---------------------------------
FOREIGN CURRENCY 1999(1) 1998 1997
- ------------------------------------------------------------------------------------------ ----------- --------- ---------
<S> <C> <C> <C>
European euro............................................................................. $ (665) $ -- $ --
French franc.............................................................................. -- 121 (44)
Italian lira.............................................................................. -- (424) (402)
Spanish peseta............................................................................ -- (57) (69)
Dutch guilder............................................................................. -- (659) (191)
German mark............................................................................... -- (56) (65)
Other..................................................................................... (451) (208) (183)
</TABLE>
- ------------
(1) Forward contracts denominated in European legacy currencies have been
translated into European euros.
At July 3, 1999, the deferred unrealized gains and losses on forward
exchange contracts were not material to the financial position of the
corporation.
CONCENTRATIONS OF CREDIT RISK
A large number of major international financial institutions are
counterparties to the corporation's financial instruments. The corporation
enters into financial instrument agreements only with those counterparties
meeting very stringent credit standards, limiting the amount of agreements or
contracts it enters into with any one party and, where legally available,
executing master netting agreements. These positions are continuously monitored.
While the corporation may be exposed to credit losses in the event of
nonperformance by these counterparties, it does not anticipate material losses,
because of these control procedures.
Trade accounts receivable due from highly leveraged customers were $58 at
July 3, 1999, $72 at June 27, 1998 and $64 at June 28, 1997. The financial
position of these businesses has been considered in determining allowances for
doubtful accounts.
GUARANTEES
The corporation had third-party guarantees outstanding, aggregating
approximately $17 at July 3, 1999, $30 at June 27, 1998 and $24 at June 28,
1997. These guarantees relate primarily to financial arrangements to support
various suppliers of the corporation and are secured by the inventory and fixed
assets of suppliers.
FAIR VALUES
The carrying amounts of cash and equivalents, trade receivables, notes
payable, accounts payable and auction preferred stock approximated fair value as
of July 3, 1999, June 27, 1998 and June 28, 1997. The
F-19
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
fair values of the remaining financial instruments recognized on the
Consolidated Balance Sheets of the corporation at the respective year-ends were:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Long-term debt, including current portion............................................ $ 2,315 $ 2,593 $ 2,258
ESOP convertible preferred stock..................................................... 694 972 751
</TABLE>
The fair value of the corporation's long-term debt, including the current
portion, is estimated using discounted cash flows based on the corporation's
current incremental borrowing rates for similar types of borrowing arrangements.
The fair value of the ESOP preferred stock is based upon the contracted
conversion into the corporation's common stock.
The fair value of the corporation's interest rate swaps, currency swaps and
forward exchange contracts approximate their carrying value in the financial
statements as of July 3, 1999, June 27, 1998 and June 28, 1997. The fair value
of these instruments was not material to the financial position of the
corporation.
UNUSUAL ITEMS
On December 22, 1998, the corporation announced that it was recalling
specific production lots of hot dogs and other packaged meat products that could
contain listeria bacteria. The estimated cost of this action was recognized in
the second quarter of 1999 and reduced 1999 income before income taxes, net
income and net income per common share -- diluted by $76, $50 and $.05 per
share, respectively. The recall charge recognized the estimated costs associated
with the return and destruction of affected products sold through retail grocery
stores and selected food service channels in the United States, the destruction
of affected inventory in the corporation's Zeeland, Michigan facility, and
liabilities incurred as a result of these actions. Substantially all of the
product and inventory subject to the recall was destroyed. The actual costs of
the inventory destroyed and related disposition costs were consistent with prior
estimates.
In the first quarter of 1999, as part of its ongoing restructuring program,
the corporation disposed of certain assets related primarily to its
international tobacco operations. The corporation received cash proceeds of $386
in connection with the sale. The gain on the sale of this business increased
income before income taxes, net income and net income per share -- diluted by
$137, $97 and $.10 per share, respectively. Additional cash may be received
between 2004 and 2010; however, the realization of these amounts is dependent
upon the outcome of significant contingencies related to the ongoing operation
of the sold business. Receipt of these contingent payments is not assured. No
portion of these contingent payments has been recognized in the earnings of the
corporation.
In the second quarter of 1998, the corporation provided for the cost of
restructuring its worldwide operations. The restructuring provision reduced
income before income taxes, net income and net income per common share --
diluted by $2,040, $1,625 and $1.68 per share, respectively. See Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Restructuring Provision note for additional information regarding the
restructuring.
F-20
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
ACQUISITIONS AND DIVESTMENTS
During 1999, the corporation acquired several companies for an aggregate
purchase price of $234 in cash and $9 of common stock. The principal
acquisitions were Continental Coffee, a domestic manufacturer, marketer and
distributor of roasted and ground coffee; and Monsavon, a European marketer and
distributor of personal body care products. The corporation also disposed of
certain assets of its international cut tobacco operations, Douwe Egberts Van
Nelle Tobacco, for $386 in cash.
In June 1999, the corporation entered into a merger agreement to acquire
Chock full o'Nuts Corporation (CFON), a roaster, packer and marketer of coffee
in the United States. Under the terms of the agreement, the corporation will
issue common shares with a value that equals $11 for each outstanding common
share of CFON, provided that the average trading price of Sara Lee's common
stock during the 20 consecutive trading days following the date CFON mails its
proxy statement to its shareholders is between $21 and $26 per share. The
parties have certain rights if the average trading price of the corporation's
common stock falls below $21 or exceeds $26 per share during this period. At
July 29, 1999, CFON had approximately 21 million common shares and equivalents
outstanding. The merger is subject to approval by the CFON shareholders, and it
is anticipated that the CFON shareholders will vote on the merger in late
September 1999.
During 1998, the corporation acquired several companies for an aggregate
purchase price of $393 in cash and $10 of common stock. The principal
acquisitions were Nutri-Metics International Holding Pty. Ltd., an Australian
manufacturer and direct marketer of skin care products and toiletries; Cafe do
Ponto, S.A., a Brazilian manufacturer and retailer of roasted and ground coffee;
and Hornimans, a tea and sweetener distributor in Spain. The corporation also
divested the production facilities and related working capital of its yarn and
textile manufacturing business. A loss was recognized on the disposition of the
manufacturing facilities in connection with the 1998 restructuring, and the
related working capital was sold for its net book value.
During 1997, the corporation acquired several companies for an aggregate
purchase price of $674 in cash and $18 of common stock. The principal
acquisitions were Aoste, a European manufacturer of processed meat products;
Lovable Italiana S.p.A., an Italian intimate apparel company; and Brossard
France S.A., a French manufacturer and marketer of bakery products. The
corporation also divested a minority ownership position in JP Foodservice, a
domestic distributor of food products, and a controlling interest in Aris
Isotoner, a manufacturer of gloves and accessories. No material gain or loss was
recognized on these divestments.
F-21
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
RESTRUCTURING PROVISION
The composition of the corporation's restructuring reserves is as follows:
<TABLE>
<CAPTION>
WRITEDOWN OF RECOGNITION OF
LONG-LIVED CURTAILMENT
ASSETS TO LOSS AND
ORIGINAL NET SPECIAL FOREIGN RESTRUCTURING
RESTRUCTURING REALIZABLE TERMINATION CASH EXCHANGE RESERVES AS OF
RESERVES VALUE BENEFITS PAYMENTS IMPACTS JULY 3, 1999
------------- ------------ --------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Anticipated losses associated
with disposal of long-lived
assets....................... $ 1,729 $ (1,729) $ -- $ -- $ -- $ --
Pension and social costs....... 219 -- (39) (107) -- 73
Anticipated expenditures to
close and dispose of idled
facilities -- includes
noncancelable lease
obligations.................. 47 -- -- (31) -- 16
Anticipated loss associated
with the disposal of equity
and cost method
investments.................. 45 (45) -- -- -- --
------ ------------ --- ----- --- ---
2,040 (1,774) (39) (138) -- 89
Foreign exchange impacts....... -- -- -- -- (8) (8)
------ ------------ --- ----- --- ---
Total restructuring reserves... $ 2,040 $ (1,774) $ (39) $ (138) $ (8) $ 81
------ ------------ --- ----- --- ---
------ ------------ --- ----- --- ---
</TABLE>
In the second quarter of 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 net income per common share --
diluted in 1998 by $2,040, $1,625 and $1.68 per share, respectively. The 1998
pretax income includes charges for restructuring as follows: Branded Apparel --
$1,574; Sara Lee Foods -- $208; Household and Body Care -- $185; Coffee and Tea
- -- $71; and Foodservice -- $2.
Through July 3, 1999, 41 manufacturing and distribution facilities have been
sold and 60 additional facilities have been closed.
Operating costs were lowered in 1999 by $150, primarily as a result of lower
plant overhead and amortization expense. 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.
F-22
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
RETIREMENT PLANS
The corporation has noncontributory defined benefit plans covering certain
of its domestic employees. The benefits under these plans are based primarily on
years of service and compensation levels. The plans are funded in conformity
with the requirements of applicable government regulations. The plans' assets
consist principally of marketable equity securities, and corporate and
government debt securities.
The corporation's foreign subsidiaries have plans for employees consistent
with local practices.
The components of the defined benefit plan expenses were:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Components of defined benefit net periodic benefit cost:
Service cost.............................................. $ 87 $ 63 $ 64
Interest cost............................................. 139 124 120
Expected return on assets................................. (193) (156) (148)
Amortization of:
Net initial asset....................................... (4) (4) (5)
Prior service cost...................................... 7 6 4
Net actuarial loss...................................... 8 2 2
----- ----- -----
Net periodic pension cost................................... $ 44 $ 35 $ 37
----- ----- -----
----- ----- -----
</TABLE>
F-23
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The funded status of defined benefit plans at the respective year-ends was:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Projected benefit obligation:
Beginning of year..................................... $2,297 $1,786 $1,714
Service cost.......................................... 87 63 64
Interest cost......................................... 139 124 120
Plan amendments....................................... 15 45 5
Acquisitions/dispositions............................. (43) (35) 3
Benefits paid......................................... (99) (95) (93)
Participant contributions............................. 1 1 1
Actuarial (gain) loss................................. (17) 440 51
Foreign exchange...................................... (54) (32) (79)
------ ------ ------
End of year........................................... $2,326 $2,297 $1,786
------ ------ ------
Fair value of plan assets:
Beginning of year..................................... $2,306 $1,956 $1,854
Actual return on plan assets.......................... 96 464 214
Employer contributions................................ 22 47 72
Participant contributions............................. 1 1 1
Benefits paid......................................... (99) (95) (93)
Acquisitions/dispositions............................. (31) (25) --
Foreign exchange...................................... (57) (42) (92)
------ ------ ------
End of year........................................... $2,238 $2,306 $1,956
------ ------ ------
Funded status........................................... $ (88) $ 9 $ 170
Unrecognized:
Prior service cost.................................... 77 99 52
Net actuarial loss (gain)............................. 173 85 (21)
Net initial asset..................................... (1) (4) (10)
------ ------ ------
Prepaid benefit cost recognized......................... $ 161 $ 189 $ 191
------ ------ ------
Amounts recognized on the Consolidated Balance Sheets:
Other noncurrent assets............................... $ 199 $ 189 $ 191
Noncurrent benefit liability.......................... (132) -- --
Accumulated other comprehensive income................ 94 -- --
------ ------ ------
Prepaid benefit cost recognized......................... $ 161 $ 189 $ 191
------ ------ ------
------ ------ ------
</TABLE>
Net pension expense is determined using assumptions as of the beginning of
each year. Funded status is determined using assumptions as of the end of each
year. The weighted average assumptions at the respective year-ends were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................... 5.9% 6.0% 7.2%
Rate of compensation increase........................... 4.7 4.7 4.7
Long-term rate of return on plan assets................. 8.4 8.1 8.3
</TABLE>
F-24
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The corporation provides health care and life insurance benefits to certain
retired employees, their covered dependents and beneficiaries. Generally,
employees who have attained age 55 and who have rendered 10 years of service are
eligible for these postretirement benefits. Certain retirees are required to
contribute to plans in order to maintain coverage. The components of the expense
for these plans were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of defined benefit net periodic benefit cost:
Service cost............................................... $ 6 $ 5 $ 5
Interest cost.............................................. 13 12 12
Net amortization and deferral.............................. 2 -- 1
---- ---- ----
Net periodic benefit cost.................................... $21 $17 $18
---- ---- ----
---- ---- ----
</TABLE>
The funded status of postretirement benefit plans at the respective
year-ends was:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Beginning of year................................................. $ 204 $ 178 $ 173
Service cost...................................................... 6 5 5
Interest cost..................................................... 13 12 12
Net benefit paid.................................................. (12) (13) (12)
Acquisitions/dispositions......................................... -- (6) --
Actuarial (gain) loss............................................. (13) 29 3
Foreign exchange.................................................. (2) (1) (3)
--------- --------- ---------
End of year....................................................... $ 196 $ 204 $ 178
--------- --------- ---------
Fair value of plan assets........................................... $ 2 $ 2 $ 2
--------- --------- ---------
Funded status....................................................... $ (194) $ (202) $ (176)
Unrecognized:
Prior service cost................................................ (2) (2) (2)
Net actuarial (gain) loss......................................... (7) 9 (19)
Net initial asset................................................. (4) (3) (3)
--------- --------- ---------
Net accrued benefit liability recognized on the Consolidated Balance
Sheets............................................................ $ (207) $ (198) $ (200)
--------- --------- ---------
--------- --------- ---------
Weighted average discount rate...................................... 6.3% 6.3% 7.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumed health care cost trend rate is 10% for 1999, decreasing to 7% by
the year 2002 and remaining at that level thereafter. These trend rates reflect
the corporation's prior experience and management's expectation that future
rates will decline. Assumed health care cost trend rates impact the amounts
reported for health care plans. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT POINT
INCREASE DECREASE
--------------- -------------
<S> <C> <C>
Effect on total service and interest components................... $ 2 $ (2)
Effect on postretirement benefit obligation....................... 17 (14)
</TABLE>
F-25
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
INCOME TAXES
The provisions for income taxes computed by applying the U.S. statutory rate
to income before taxes as reconciled to the actual provisions were:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before provision for income taxes:
United States....................................................... $ 780 46.7% $(1,091) (246.4)% $ 742 50.0%
Foreign............................................................. 891 53.3 648 146.4 742 50.0
------- ------- ------- ---------- ------ --------
$ 1,671 100.0% $ (443) (100.0)% $1,484 100.0%
------- ------- ------- ---------- ------ --------
------- ------- ------- ---------- ------ --------
Tax expense (benefit) at U.S. statutory rate.......................... $ 585 35.0% $ (155) (35.0)% $ 519 35.0%
State taxes, net of federal benefit................................... 16 1.0 9 2.0 13 .9
Difference between U.S. and foreign rates............................. (106) (6.3) (76) (17.1) (85) (5.7)
Nondeductible amortization............................................ 49 2.9 351 79.3 62 4.2
Other, net............................................................ (64) (3.9) (49) (11.2) (34) (2.4)
------- ------- ------- ---------- ------ --------
Taxes at effective worldwide tax rates................................ $ 480 28.7% $ 80 18.0% $ 475 32.0%
------- ------- ------- ---------- ------ --------
------- ------- ------- ---------- ------ --------
</TABLE>
Current and deferred tax provisions (benefits) were:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States........................................ $ 147 $ 51 $ 142 $ (286) $ 169 $ 12
Foreign.............................................. 237 20 329 (118) 245 28
State................................................ 62 (37) 14 (1) 21 --
----- ----- ----- ----- ----- ---
$ 446 $ 34 $ 485 $ (405) $ 435 $ 40
----- ----- ----- ----- ----- ---
----- ----- ----- ----- ----- ---
</TABLE>
Following are the components of the deferred tax (benefits) provisions
occurring as a result of transactions being reported in different years for
financial and tax reporting:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Depreciation................................................. $ (72) $ (3) $ (2)
Inventory valuation methods.................................. (27) 6 37
Nondeductible reserves....................................... 105 (405) 53
Other, net................................................... 28 (3) (48)
----- ------ -----
$ 34 $ (405) $ 40
----- ------ -----
----- ------ -----
Cash payments for income taxes............................... $ 321 $ 288 $ 340
----- ------ -----
----- ------ -----
</TABLE>
F-26
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The deferred tax (assets) liabilities at the respective year-ends were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Deferred tax (assets) liabilities:
Restructuring reserves................................... $ (33) $ (68) $ --
Reserves not deductible until paid....................... (421) (364) (373)
Pension, postretirement and other employee benefits...... (90) (12) (42)
Net operating loss and other tax carryforwards........... (18) (15) (1)
Property, plant and equipment............................ (41) (51) 262
Other.................................................... (11) (138) (89)
----- ----- -----
Net deferred tax (assets).................................. $(614) $(648) $(243)
----- ----- -----
----- ----- -----
</TABLE>
F-27
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
BUSINESS SEGMENT INFORMATION
The corporation's business segments are described in the Narrative
Description of Business on pages 4 through 8. In determining the net income of
each segment of the corporation, interest expense is allocated based upon the
average invested capital in each business, and effective tax rates are
determined for each business segment.
<TABLE>
<CAPTION>
HOUSEHOLD
AND
SARA LEE COFFEE BODY BRANDED INTER-
FOODS AND TEA CARE FOODSERVICE APPAREL CORPORATE SEGMENT TOTAL
--------- --------- ------- ------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999(1)
Sales(2).......................... $5,249 $2,627 $2,095 $2,742 $7,440 $ -- $(141) $ 20,012
Operating income.................. 368(3) 539(4) 271 100 731 (197) -- 1,812
Net interest...................... (23) (12) (27) (7) (72) -- -- (141)
Pretax income..................... 345 527 244 93 659 (197) -- 1,671
Net income........................ 216(3) 376(4) 160 59 518 (138) -- 1,191
Assets............................ 2,173 1,187 1,839 491 4,642 189(7) -- 10,521
Depreciation and amortization..... 135 97 82 21 212 6 -- 553
Additions to long-lived assets.... 193 171 129 19 231 2 -- 745
- ----------------------------------------------------------------------------------------------------------------------------
1998
Sales(2).......................... $5,441 $2,806 $2,003 $2,585 $7,317 $ -- $(141) $ 20,011
Operating income (loss)(5)........ 230 358 67 88 (840) (170) -- (267)
Net interest...................... (30) (16) (31) (7) (92) -- -- (176)
Pretax income (loss).............. 200 342 36 81 (932) (170) -- (443)
Net income (loss)(6).............. 119 239 (22) 51 (797) (113) -- (523)
Assets............................ 2,157 1,434 2,053 519 4,627 199(7) -- 10,989
Depreciation and amortization..... 146 87 88 23 251 23 -- 618
Additions to long-lived assets.... 257 187 328 52 169 3 -- 996
- ----------------------------------------------------------------------------------------------------------------------------
1997
Sales(2).......................... $5,357 $2,813 $1,843 $2,372 $7,482 $ -- $(133) $ 19,734
Operating income.................. 394 440 228 82 761 (262) -- 1,643
Net interest...................... (24) (12) (24) (5) (94) -- -- (159)
Pretax income..................... 370 428 204 77 667 (262) -- 1,484
Net income........................ 232 290 130 48 483 (174) -- 1,009
Assets............................ 2,295 1,921 1,530 454 6,471 282(7) -- 12,953
Depreciation and amortization..... 150 90 78 17 326 19 -- 680
Additions to long-lived assets.... 674 107 85 45 401 4 -- 1,316
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 53-week year.
(2) Includes sales between segments. Such sales are at transfer prices that are
equivalent to market value.
(3) Includes the product recall charge which reduced operating income and net
income by $76 and $50, respectively.
(4) Includes the gain on sale of the tobacco operations which increased
operating income and net income by $137 and $97, respectively.
(5) Includes provisions for restructuring reported in the 1998 Consolidated
Statement of Income as follows: Sara Lee Foods $208; Coffee and Tea $71;
Household and Body Care $185; Foodservice $2; and Branded Apparel $1,574.
(6) Includes provisions for restructuring, net of tax, reported in the 1998
Consolidated Statement of Income as follows: Sara Lee Foods $133; Coffee and
Tea $46; Household and Body Care $164; Foodservice $1; and Branded Apparel
$1,281.
(7) Principally cash and equivalents, certain fixed assets and certain other
noncurrent assets.
F-28
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
UNITED
STATES FRANCE NETHERLANDS OTHER TOTAL
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
1999
Sales...................................................... $ 12,155 $ 1,681 $ 1,069 $ 5,107 $ 20,012
Long-lived assets.......................................... 2,506 515 1,043 1,215 5,279
- --------------------------------------------------------------------------------------------------------------------
1998
Sales...................................................... $ 11,849 $ 1,724 $ 1,311 $ 5,127 $ 20,011
Long-lived assets.......................................... 2,452 500 1,246 1,349 5,547
- --------------------------------------------------------------------------------------------------------------------
1997
Sales...................................................... $ 11,497 $ 1,764 $ 1,340 $ 5,133 $ 19,734
Long-lived assets.......................................... 4,158 526 1,240 1,439 7,363
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- ------ ------
<S> <C> <C> <C> <C>
1999
Net sales....................................................................... $ 4,860 $ 5,286 $4,664 $5,202
Gross profit.................................................................... 1,840 2,111 1,846 2,007
Net income...................................................................... 338(2) 322(3) 245 286
Per common share(1):
Net income -- basic........................................................... .37(2) .35(3) .27 .32
Net income -- diluted......................................................... .35(2) .34(3) .26 .31
Cash dividends declared....................................................... .115 .125 .125 .125
Market price -- high.......................................................... 29.59 30.81 29.88 26.31
-- low............................................................. 22.16 26.13 23.50 21.50
-- close........................................................... 27.25 29.50 26.13 22.50
- ----------------------------------------------------------------------------------------------------------------------------
1998
Net sales....................................................................... $ 4,893 $ 5,279 $4,736 $5,103
Gross profit.................................................................... 1,819 2,020 1,832 2,009
Net income (loss)............................................................... 225 (1,278)(4) 227 303
Per common share(1):
Net income (loss) -- basic.................................................... .23 (1.36)(4) .24 .33
Net income (loss) -- diluted.................................................. .22 (1.36)(4) .23 .31
Cash dividends declared....................................................... .105 .115 .115 .115
Market price -- high.......................................................... 26.13 28.50 31.16 31.81
-- low............................................................. 19.50 23.75 26.59 28.22
-- close........................................................... 25.66 28.28 30.94 28.31
- ----------------------------------------------------------------------------------------------------------------------------
1997
Net sales....................................................................... $ 4,886 $ 5,269 $4,649 $4,930
Gross profit.................................................................... 1,809 2,020 1,757 1,881
Net income...................................................................... 206 317 206 280
Per common share(1):
Net income -- basic........................................................... .21 .32 .21 .29
Net income -- diluted......................................................... .20 .31 .20 .28
Cash dividends declared....................................................... .095 .105 .105 .105
Market price -- high.......................................................... 17.94 20.25 21.69 21.69
-- low............................................................. 15.00 17.56 18.25 19.56
-- close........................................................... 17.88 19.19 21.13 21.03
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated for the 2-for-1 stock split in 1999.
(2) Includes gain on sale of business of $97, or $.11 per share -- basic, $.10
per share -- diluted.
(3) Includes product recall charge of $50, or $.06 per share -- basic, $.05 per
share -- diluted.
(4) Includes provision for restructuring of $1,625, or $1.72 per share -- basic,
$1.70 per share -- diluted.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Management
of SARA LEE CORPORATION:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Sara Lee Corporation and Subsidiaries
included in this Form 10-K, and have issued our report thereon dated August 2,
1999. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II included on F-32 of this Form 10-K is
the responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Chicago, Illinois
August 2, 1999
F-31
<PAGE>
SCHEDULE II
SARA LEE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 28, 1997, JUNE 27, 1998 AND JULY 3, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
PROVISION
CHARGED WRITE-OFFS
BALANCE AT TO COSTS (1)/ OTHER BALANCE
BEGINNING AND ALLOWANCES ADDITIONS AT END
OF YEAR EXPENSES TAKEN (DEDUCTIONS) OF YEAR
------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 28, 1997:
Allowances for bad debts............................ $ 121 $ 29 $ (28) $ 10 $ 132
Other receivable allowances......................... 76 108 (111) -- 73
----- ----- ----- --- -----
Total............................................. $ 197 $ 137 $ (139) $ 10 $ 205
----- ----- ----- --- -----
----- ----- ----- --- -----
FOR THE YEAR ENDED JUNE 27, 1998:
Allowances for bad debts............................ $ 132 $ 33 $ (28) $ (1) $ 136
Other receivable allowances......................... 73 86 (83) (7) 69
----- ----- ----- --- -----
Total............................................. $ 205 $ 119 $ (111) $ (8) $ 205
----- ----- ----- --- -----
----- ----- ----- --- -----
FOR THE YEAR ENDED JULY 3, 1999:
Allowances for bad debts............................ $ 136 $ 38 $ (41) $ (5) $ 128
Other receivable allowances(2)...................... 69 131 (123) (4) 73
----- ----- ----- --- -----
Total............................................. $ 205 $ 169 $ (164) $ (9) $ 201
----- ----- ----- --- -----
----- ----- ----- --- -----
</TABLE>
- ------------
(1) Net of collections on accounts previously written off.
(2) Includes a $37 million provision and subsequent write-off of receivables
associated with the return and destruction of meat products subject to a
product recall.
F-32
<PAGE>
EXHIBIT INDEX
3. EXHIBITS
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
--------------------------------------------------
<S> <C> <C>
(3a) 1. Charter Exhibit 4.1 to Registration Statement No. 33-35760
on Form S-8 dated July 6, 1990, Exhibit 4.2 to
Registration Statement No. 33-37575 on Form S-8
dated November 1, 1990 and Exhibit 3(a) to Report
on Form 10-K for Fiscal Year ended July 2, 1994.
2. Articles of Amendment to Charter
3. Articles Supplementary
(3b) Bylaws Exhibit 3(b) to Report on Form 10-K for Fiscal
Year ended June 29, 1996
(4) Stockholder Rights Agreement, dated as of March Exhibit 4.1 to Report on Form 8-K dated May 15,
26, 1998 between Sara Lee Corporation and First 1998
Chicago Trust Company of New York, as rights
agent.
Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its request, a
copy of any instrument which defines the rights of holders of long-term debt of Sara Lee and all of its
subsidiaries for which consolidated or unconsolidated financial statements are required to be filed, and which
authorizes a total amount of securities not in excess of 10% of the total assets of Sara Lee and its subsidiaries
on a consolidated basis.
(10) *1. 1979 Stock Option Plan, as amended Exhibit 10(1) to Report on Form 10-K for Fiscal
Year ended July 1, 1995
*2. 1981 Stock Option Plan, as amended Exhibit 10(11) to Report on Form 10-K for Fiscal
Year ended July 1, 1989
*3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10(3) to Report on Form 10-K for Fiscal
amended Year ended July 1, 1995
*4. 1989 Incentive Stock Plan, as amended Exhibit 10(4) to Report on Form 10-K for Fiscal
Year ended June 28, 1997
*5. Supplemental Benefit Plan, as amended Exhibit 10(5) to Report on Form 10-K for Fiscal
Year ended June 28, 1997
*6. Performance-Based Annual Incentive Plan Exhibit A to Proxy Statement dated September 20,
1995
*7. 1995 Long-Term Incentive Stock Plan, as Exhibit 10(16) to Report on Form 10-K for Fiscal
amended Year ended June 28, 1997
*8. 1995 Non-Employee Director Stock Plan, as
amended
*9. 1998 Long-Term Incentive Stock Plan Exhibit A to Proxy Statement dated September 21,
1998
*10. 1999 Non-Employee Director Stock Plan Exhibit A to Proxy Statement dated September 20,
1999
*11. Non-Qualified Deferred Compensation Plan for Exhibit 10(19) to Report on Form 10-K for Fiscal
Outside Directors, as amended Year ended June 27, 1999
*12. Executive Deferred Compensation Plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
--------------------------------------------------
<S> <C> <C>
*13. FY 1997-99 Long Term Performance Incentive Exhibit 10(21) to Report on Form 10-K for Fiscal
Plan Year ended June 29, 1996
*14. FY 1998-00 Long Term Performance Incentive Exhibit 10(22) to Report on Form 10-K for Fiscal
Plan Year ended June 27, 1998
*15. FY 1999-01 Long Term Performance Incentive
Plan
*16. Non-Qualified Estate Builder Deferred Exhibit 10(17) to Report on Form 10-K for Fiscal
Compensation Plan Year ended June 29, 1985
*17. Severance Policy for Corporate Officers, as Exhibit 10(23) to Report on Form 10-K for Fiscal
amended Year ended June 28, 1997
*18. Employment Agreement, dated January 1, 1996, Exhibit 10(24) to Report on Form 10-K for Fiscal
between Sara Lee Corporation and Frank L. Year ended June 28, 1997
Meysman
*19. Employment Agreement, dated January 1, 1996, Exhibit 10(25) to Report on Form 10-K for Fiscal
between Sara Lee/DE N.V. and Frank L. Meysman Year ended June 28, 1997
and attachments (translated from Dutch)
*20. Restricted Share Unit Agreement dated April Exhibit 10(27) to Report on Form 10-K for Fiscal
29, 1998 between Sara Lee Corporation and Year ended June 27, 1998
Frank L. Meysman
(12) 1. Computation of Ratio of Earnings to Fixed
Charges
2. Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend
Requirements
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney
(27) Financial Data Schedules
</TABLE>
(b) REPORTS ON FORM 8-K None.
- ------------
*Management compensatory plan or arrangement required to be filed as an exhibit
to this Form 10-K.
<PAGE>
SARA LEE CORPORATION
ARTICLES OF AMENDMENT
THIS IS TO CERTIFY THAT:
FIRST: The charter of Sara Lee Corporation, a Maryland corporation (the
"Corporation"), is hereby amended by (a) deleting the first two paragraphs
of existing Article FIFTH in their entirety and substituting in lieu thereof
the following new paragraphs:
"The total number of shares of all classes which the Corporation has
authority to issue is One Billion Two Hundred Thirteen Million Five
Hundred Thousand (1,213,500,000), consisting of the following number of
shares of the following classes:
(a) THE COMMON STOCK. One Billion Two Hundred Million (1,200,000,000)
shares of Common Stock of the par value of $.01 per share, having an
aggregate par value of $12,000,000, and"
and (b) changing any reference to the par value of Common Stock to $.01 par
value per share.
SECOND: The amendments to the charter of the Corporation as set forth
above have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
THIRD: The total number of shares of stock which the Corporation had
authority to issue immediately prior to these Articles of Amendment being
accepted for record was 613,500,000, consisting of 600,000,000 shares of
Common Stock, $1.33-1/3 par value per share, and 12,000,000 shares of
Preferred Stock, without par value, and 1,500,000 shares of Convertible
Adjustable Preferred Stock, without par value. The total aggregate par value
of all shares of all classes of stock with par value was $800,000,000.
FOURTH: The total number of shares of stock which the Corporation has
authority to issue, pursuant to the charter of the Corporation as hereby
amended, is 1,213,500,000, consisting of 1,200,000,000 shares of Common Stock,
$.01 par value per share, 12,000,000 shares of Preferred Stock, without par
value, and 1,500,000 shares of Convertible Adjustable Preferred Stock, without
par value. The total aggregate par value of all shares of all classes of
stock with par value is $12,000,000.
<PAGE>
FIFTH: The information required by subsection (b)(2)(i) of Section 2-607
of the Maryland General Corporation Law was not changed by the amendments set
forth herein.
The undersigned Senior Vice President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned Senior Vice
President acknowledges that to the best of her knowledge, information and
belief, these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its Senior Vice
President and attested to by its Assistant Secretary on this 19th day of
November, 1998.
ATTEST: SARA LEE CORPORATION
/s/ R. Henry Kleeman By: /s/ Janet Langford Kelly
- -------------------------------- ---------------------------
R. Henry Kleeman Janet Langford Kelly
Assistant Secretary Senior Vice President
-2-
<PAGE>
SARA LEE CORPORATION
ARTICLES SUPPLEMENTARY
Sara Lee Corporation, a Maryland corporation (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Under a power contained in Article SIXTH of the charter of the
Corporation (the "Charter"), the Board of Directors of the Corporation (the
"Board of Directors"), by resolutions duly adopted at a meeting duly called,
held on March 26, 1998, changed the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of
shares of Series A Junior Participating Preferred Stock as set forth in the
Charter under the heading "1988 Articles Supplementary" as follows:
In the second sentence of Section 2(A), the reference to
"April 28, 1988" is changed to "March 26, 1998".
SECOND: Under a power contained in Article SIXTH of the Charter, the
Board of Directors, by resolutions duly adopted at a meeting duly called,
held on March 26, 1998, reclassified and designated 3,000,000 shares (the
"Shares") of Preferred Stock (as described in the Charter) as 3,000,000
additional shares of Series A Junior Participating Preferred Stock, with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption of shares of Series A Junior Participating
Preferred Stock as set forth in the Charter under the heading "1988 Articles
Supplementary" so that the total number of shares of Series A Junior
Participating Preferred Stock after such classification is 6,000,000.
THIRD: The Series A Junior Participating Preferred Stock and the Shares
have been reclassified and designated by the Board of Directors under the
authority contained in the Charter.
FOURTH: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FIFTH: The undersigned Senior Vice President of the Corporation
acknowledges these Articles Supplementary to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under
oath, the undersigned Senior Vice President acknowledges that to the best of
her knowledge, information and belief, these matters and facts are true in all
[STAMP]
<PAGE>
material respects and that this statement is made under the penalties for
perjury.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
Senior Vice President and attested to by its Assistant Secretary on this
7 day of January, 1999.
ATTEST: SARA LEE CORPORATION
/s/ R. Henry Kleeman By: /s/ Janet Langford Kelly (SEAL)
- -------------------- -------------------------
R. Henry Kleeman Janet Langford Kelly
Assistant Secretary Senior Vice President
3
<PAGE>
Exhibit 10(8)
SARA LEE CORPORATION
1995 NON-EMPLOYEE DIRECTOR STOCK PLAN
ARTICLE I -- PURPOSE OF THE PLAN
The purpose of the Sara Lee Corporation 1995 Non-Employee Director Stock
Plan is to promote the long-term growth of Sara Lee Corporation by increasing
the proprietary interest of Non-Employee Directors in Sara Lee Corporation
and to attract and retain highly qualified and capable Non-Employee Directors.
ARTICLE II -- DEFINITIONS
Unless the context clearly indicates otherwise, the following terms
shall have the following meanings:
2.1 "ANNUAL RETAINER" means the annual cash retainer fee payable by the
Corporation to a Non-Employee Director for services as a director of the
Corporation, as such amount may be changed from time to time.
2.2 "AWARD" means an award granted to a Non-Employee Director under the
Plan in the form of Options or Shares, or any combination thereof.
2.3 "BOARD" means the Board of Directors of Sara Lee Corporation.
2.4 "CORPORATION" means Sara Lee Corporation.
2.5 "FAIR MARKET VALUE" means, with respect to any date, the average
between the highest and lowest sale prices per Share on the New York Stock
Exchange Composite Transactions Tape on such date, provided that if there
shall be no sales of Shares reported on such date, the Fair Market Value of a
Share on such date shall be deemed to be equal to the average between the
highest and lowest sale prices per Share on such Composite Tape for the last
preceding date on which sales of Shares were reported.
2.6 "Option" means an option to purchase Shares awarded under Article
VIII or IX which does not meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, or any successor law.
2.7 "OPTION GRANT DATE" means the date upon which an Option is granted
to a Non-Employee Director.
1
<PAGE>
2.8 "OPTIONEE" means a Non-Employee Director of the Corporation to whom
an Option has been granted or, in the event of such Non-Employee Director's
death prior to the expiration of an Option, such Non-Employee Director's
executor, administrator, beneficiary or similar person, or, in the event of a
transfer permitted by Article VII hereof, such permitted transferee.
2.9 "NON-EMPLOYEE DIRECTOR" means a director of the Corporation who is
not an employee of the Corporation or any subsidiary of the Corporation.
2.10 "PLAN" means the Sara Lee Corporation 1995 Non-Employee Director
Stock Plan, as amended and restated from time to time.
2.11 "STOCK AWARD DATE" means the date on which Shares are awarded to a
Non-Employee Director.
2.12 "SHARES" means Shares of the Common Stock, par value $.01 per
share, of the Corporation.
2.13 "STOCK OPTION AGREEMENT" means a written agreement between a
Non-Employee Director and the Corporation evidencing an Option.
ARTICLE III -- ADMINISTRATION OF THE PLAN
3.1 ADMINISTRATOR OF THE PLAN. The plan shall be administered by the
Compensation and Employee Benefits Committee of the Board ("Committee").
3.2 AUTHORITY OF COMMITTEE. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and
administer the Plan and (ii) designate persons other than members of the
Committee to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be
made in accordance with the Committee's best business judgment as to the best
interests of the Corporation and its stockholders and in accordance with the
purposes of the Plan. The Committee may delegate administrative duties under
the Plan to one or more agents as it shall deem necessary or advisable.
3.3 DETERMINATIONS OF COMMITTEE. A majority of the Committee shall
constitute a quorum at any meeting of the Committee, and all determinations
of the Committee shall be made by a majority of its members. Any
determination of the Committee under the Plan may be made without notice or a
meeting of the Committee by a written consent signed by all members of the
Committee.
3.4 EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee or
the Board shall be personally liable for any action or determination made in
good faith with respect to the Plan or any Award or to any settlement of any
dispute between a
<PAGE>
Non-Employee Director and the Corporation. Any decision or action taken by
the Committee or the Board with respect to an Award or the administration or
interpretation of the Plan shall be conclusive and binding upon all persons.
ARTICLE IV -- AWARDS UNDER THE PLAN
Awards in the form of Options shall be granted to Non-Employee Directors
in accordance with Article VIII. Awards in the form of Options or Shares, or
a combination thereof, may be granted to Non-Employee Directors in accordance
with Article IX. Each Option granted under the Plan shall be evidenced by a
Stock Option Agreement.
ARTICLE V -- ELIGIBILITY
Non-Employee Directors of the Corporation shall be eligible to
participate in the Plan in accordance with Articles VIII and IX.
ARTICLE VI -- SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Article XII, the aggregate number
of Shares which may be issued upon the award of Shares and the exercise of
Options shall not exceed 1,000,000 Shares (which number reflects the
adjustment made for the 2-for-1 stock split in the form of a 100% stock
dividend, effective on December 1, 1998). To the extent that Shares subject
to an outstanding Option are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such Option or by
reason of the delivery of Shares (either actually or by attestation) to pay
all or a portion of the exercise price of such Option, then such Shares shall
again be available under the Plan.
ARTICLE VII -- TRANSFERABILITY OF OPTIONS
Options granted under the Plan shall not be transferable or assignable
other than by will or the laws of descent and distribution, except that the
Committee may provide for the transferability of any particular Option in the
manner set forth in the related Stock Option Agreement.
ARTICLE VIII -- NON-ELECTIVE OPTIONS
Each Non-Employee Director shall be granted Options, subject to the
following terms and conditions:
8.1 TIME OF GRANT. On the date of the last regularly scheduled meeting
of the Board held in August 1999, each person who is a Non-Employee Director
and who is not the chair of a standing committee of the Board shall be
granted an Option to
<PAGE>
purchase 10,000 Shares and each Non-Employee Director who is the chair of a
standing committee of the Board shall be granted an Option to purchase 11,000
Shares.
8.2 PURCHASE PRICE. The purchase price per Share under each Option
granted pursuant to this Article shall be 100% of the Fair Market Value per
Share on the Option Grant Date.
8.3 VESTING AND EXERCISE OF OPTIONS. Subject to Article X, each Option
granted to a Non-Employee Director on the date of the last regularly
scheduled meeting of the Board held in August 1999 shall be fully vested on
November 1, 1999; PROVIDED, HOWEVER, that in the event such Non-Employee
Director is not a Director of the Corporation on November 1, 1999, the Option
shall be forfeited. Each Option shall be fully exercisable on and after the
date which is six months after the Option Grant Date and, subject to Article
X, shall not be exercisable prior to such date. In no event shall the period
of time over which the Option may be exercised exceed ten years from the
Option Grant Date. An Option, or portion thereof, may be exercised in whole
or in part only with respect to whole Shares.
Shares shall be issued to the Optionee pursuant to the exercise of an
Option only upon receipt by the Corporation from the Optionee of payment in
full either in cash or by surrendering (or attesting to the ownership of)
Shares together with proof acceptable to the Committee that such Shares have
been owned by the Optionee for at least six months prior to the date of
exercise of the Option, or a combination of cash and Shares, in an amount or
having a combined value equal to the aggregate purchase price for the Shares
subject to the Option or portion thereof being exercised. The Shares issued
to an Optionee for the portion of any Option exercised by attesting to the
ownership of Shares shall not exceed the number of Shares issuable as a
result of such exercise (determined as though payment in full therefor were
being made in cash) less the number of Shares for which attestation of
ownership is submitted. The value of owned Shares submitted (directly or by
attestation) in full or partial payment for the Shares purchased upon
exercise of an Option shall be equal to the aggregate Fair Market Value of
such owned Shares on the date of the exercise of such Option.
ARTICLE IX -- ELECTIVE OPTIONS AND SHARES
[Removed by amendment adopted on August 26, 1999]
ARTICLE X -- CHANGE OF CONTROL
10.1 EFFECT OF CHANGE OF CONTROL. Upon the occurrence of an event of
"Change of Control", as defined below, any and all outstanding Options shall
become immediately exercisable.
<PAGE>
10.2 DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall
occur when:
(a) a "Person" (which term, when used in this Section 10.2, shall have
the meaning it has when it is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but shall not include
the Corporation, any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, or any corporation owned, directly
or indirectly, by the stockholders of the Corporation in substantially the
same proportions as their ownership of Voting Stock (as defined below) of the
Corporation) is or becomes, without the prior consent of a majority of the
Continuing Directors of the Corporation (as defined below), the Beneficial
Owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of Voting Stock (as defined below) representing twenty percent
or more of the combined voting power of the Corporation's then outstanding
securities; or
(b) the stockholders of the Corporation approve a definitive agreement
or plan to merge or consolidate the Corporation with or into another
corporation (other than a merger or consolidation which would result in the
Voting Stock (as defined below) of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
fifty percent of the combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately after such
merger of consolidation), or to sell, or otherwise dispose of, all or
substantially all of the Corporation's property and assets, or to liquidate
the Corporation; or
(c) the individuals who are Continuing Directors of the Corporation (as
defined below) cease for any reason to constitute at least a majority of the
Board of the Corporation.
The term "Continuing Director" means (i) any member of the Board who is
a member of the Board on March 30, 1995 or (ii) any person who subsequently
becomes a member of the Board whose nomination for election or election to
the Board is recommended or approved by a majority of the Continuing
Directors. The term "Voting Stock" means all capital stock of the
Corporation which by its terms may be voted on all matters submitted to
stockholders of the Corporation generally.
ARTICLE XI -- AMENDMENT AND TERMINATION
The Board may amend the Plan from time to time or terminate the Plan at
any time; PROVIDED, HOWEVER, that no action authorized by this Article shall
adversely change the terms and conditions of an outstanding Option without
the Optionee's consent.
<PAGE>
ARTICLE XII -- ADJUSTMENT PROVISIONS
12.1 If the Corporation shall at any time change the number of issued
Shares without new consideration to the Corporation (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of shares,
liquidation, combination or other change in corporate structure affecting the
Shares) or make a distribution of cash or property which has a substantial
impact on the value of issued Shares, the total number of Shares reserved for
issuance under the Plan shall be appropriately adjusted and the number of
Shares covered by each outstanding Option and the purchase price per Share
under each outstanding Option and the number of shares underlying Options to
be issued annually pursuant to Section 8.1 shall be adjusted so that the
aggregate consideration payable to the Corporation and the value of each such
Option shall not be changed.
12.2 Notwithstanding any other provision of the Plan, and without
affecting the number of Shares reserved or available hereunder, the Committee
shall authorize the issuance, continuation or assumption of outstanding
Options or provide for other equitable adjustments after changes in the
Shares resulting from any merger, consolidation, sale of assets, acquisition
of property or stock, recapitalization, reorganization or similar occurrence
in which the Corporation is the continuing or surviving corporation, upon
such terms and conditions as it may deem necessary to preserve Optionees'
rights under the Plan.
12.3 In the case of any sale of assets, merger, consolidation or
combination of the Corporation with or into another corporation other than a
transaction in which the Corporation is the continuing or surviving
corporation and which does not result in the outstanding Shares being
converted into or exchanged for different securities, cash or other property,
or any combination thereof (an "Acquisition"), any Optionee who holds an
outstanding Option shall have the right (subject to the provisions of the
Plan and any limitation applicable to the Option) thereafter and during the
term of the Option, to receive upon exercise thereof the Acquisition
Consideration (as defined below) receivable upon the Acquisition by a holder
of the number of Shares which would have been obtained upon exercise of the
Option or portion thereof, as the case may be, immediately prior to the
Acquisition. The term "Acquisition Consideration" shall mean the kind and
amount of Shares of the surviving or new corporation, cash, securities,
evident of indebtedness, other property or any combination thereof receivable
in respect of one Share of the Corporation upon consummation of an
Acquisition.
ARTICLE XIII -- EFFECTIVE DATE AND TERMINATION
The Plan was submitted to the stockholders of the Corporation for
approval and approved by a majority of all the votes cast at the 1995 annual
meeting of stockholders. The Plan became effective as of March 30, 1995, the
original date of approval by the Board.
<PAGE>
As adopted on March 30, 1995, approved by the stockholders on October
26, 1995, amended on January 30, 1997, amended on June 26, 1997 and amended
on August 26, 1999. The number of Shares available under the Plan under
Article VI and the number of Shares underlying Options to be issued pursuant
to Section 8.1 have been adjusted to reflect the 2-for-1 stock split in the
form of a 100% stock dividend, effective on December 1, 1998.
No further Awards shall be made under the Plan after the last
regularly scheduled meeting of the Board held in August 1999.
<PAGE>
SARA LEE CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
SECTION 1
INTRODUCTION
1.1 THE PLAN AND ITS EFFECTIVE DATE. The Sara Lee Corporation
Executive Deferred Compensation Plan ("Plan") is established as of August 26,
1998 (the "Effective Date").
1.2 PURPOSE. Prior to the Effective Date, Sara Lee Corporation (the
"Company") maintained a number of non-qualified, unfunded plans of deferred
compensation for select groups of management and highly compensated employees
of the Company and participating subsidiaries of the Company (individually a
"Prior Plan" and collectively, the "Prior Plans"). The Plan is established
by the Company to consolidate all Prior Plans into a uniform and
comprehensive plan of deferred compensation for Eligible Employees.
Accordingly, the provisions of the Plan amend and supercede the provisions of
all Prior Plans with respect to compensation deferred under those Prior Plans
prior to the Effective Date; provided, that any elections and beneficiary
designations made under the Prior Plans shall remain in effect under the
Plan. The Plan is intended to be a top-hat plan described in Section 201(2)
of the Employee Retirement Income Security Act of 1974 ("ERISA").
1.3 ADMINISTRATION. The Plan shall be administered by the Compensation
and Employee Benefits Committee of the Board of Directors of the Company (the
"Committee"). The Committee shall have the powers set forth in the Plan and
the power to interpret its provisions. Any decisions of the Committee shall
be final and binding on all persons with regard to the Plan. The Committee
may delegate its authority hereunder to the Senior Vice President, Human
Resources of the Company or to such other officers of the Company as it may
deem appropriate.
1.4 PLAN YEAR. The Plan shall be administered on the basis of the
calendar year (the "Plan Year").
SECTION 2
PARTICIPATION AND DEFERRAL ELECTIONS
2.1 ELIGIBILITY AND PARTICIPATION. Subject to the conditions and
limitations of the Plan, all "A", "B" and "C" level executives of the Company
or an Employer (as defined in Section 7) on a U.S. payroll and such other
executives of the Company or an Employer who are identified as eligible by
the Committee shall be eligible to participate in the Plan ("Eligible
Employees"). Any Eligible Employee who makes a Deferral Election as
described in Section 2.2 below shall become a participant in the Plan
("Participant") and shall remain a Participant until the entire balance of
his Deferral Account (defined in Section 4.1 below) is distributed to him.
Notwithstanding the foregoing, any individual who was a participant in a
Prior Plan as of the Effective Date shall be considered a Participant in the
Plan as of the Effective Date.
2.2 RULES FOR DEFERRAL ELECTIONS. Any Eligible Employee may make
irrevocable elections to defer receipt of his Incentive Payments, Annual
Bonus, and/or Annual Base Salary (as these terms are defined in Section 2.3)
(each such election shall be referred to as a "Deferral
-1-
<PAGE>
Election" and the amount deferred pursuant to such an election the
"Deferral") for a Plan Year in accordance with the rules set forth below.
(a) An Eligible Employee shall be eligible to make a
Deferral Election only if he is an active, regular,
full-time employee on the date such election is made.
(b) For each Plan Year,an Eligible Employee may make no
more than one Deferral Election for each of the
Eligible Employee's Incentive Payments and Annual
Bonus and such number of Deferral Elections with
respect to the Eligible Employee's Annual Base Salary
as the Committee may prescribe.
(c) All Deferral Elections must be made in writing on such
forms as the Committee may prescribe and must be
received by the Committee no later than the date
specified by the Committee. In no event will the date
specified by the Committee with respect to an Incentive
Payment or an Annual Bonus be later than the end of the
Plan Year preceding the Plan Year in which the
Incentive Payment or Annual Bonus is anticipated to be
paid. Any Deferral Election with respect to an Eligible
Employee's Annual Base Salary shall only apply to that
portion of the Eligible Employee's Base Salary remaining
to be paid for service during the Plan Year after the
date the Deferral Election is made.
(d) As part of each Deferral Election, the Eligible Employee
must specify the date on which the Deferral will be paid
(a "Distribution Date"). The Distribution Dates
specified in an Eligible Employee's Deferral Elections
may, but need not necessarily, be the same for all
Deferrals. Except as provided in subsection (f) below,
each Distribution Date is irrevocable and shall apply
only to that portion of the Participant's Deferral
Account which is attributable to the Deferral.
(e) The Distribution Date selected by an Eligible Employee
shall not be earlier than the January 1 immediately
following the first anniversary of the date on which the
Deferral Election is made.
(f) A Participant may make an irrevocable election to extend a
Distribution Date (a "Re-Deferral Election"); provided,
that no Re-Deferral Election shall be effective unless
(i) the Committee receives the election prior to the
December 1 of the Plan Year preceding the Plan Year
in which the Distribution Date to be changed occurs,
and (ii) the new Distribution Date is not earlier than
the January 1 immediately following the first
anniversary of the date the Re-Deferral Election is
made. All Re-Deferral Elections must be made in
writing on such forms and pursuant to such rules as the
Committee may prescribe.
(g) As part of each Deferral Election, an Eligible Employee
must elect the form in which the Deferral will be paid
beginning on the selected
-2-
<PAGE>
Distribution Date. The Deferral may be paid in a single
lump sum or in substantially equal annual installments
over a period not exceeding ten years as provided under
Section 5.1. Except as provided in Section 5.1, an
Eligible Employee's election as to the time and method
of payment shall be irrevocable. If the Participant
elects an installment method of payment the
Distribution Date must be January 1.
(h) As part of each Deferral Election, an Eligible Employee
must elect the investment alternatives that shall apply
to the Deferral in accordance with Section 4.2.
(i) A Deferral Election shall be irrevocable; provided,
that if the Committee determines that a Participant has
an Unforeseeable Financial Emergency (as defined in
Section 5.7), then the Participant's Deferral Elections
then in effect shall be revoked with respect to all
amounts not previously deferred.
2.3 AMOUNTS DEFERRED. An Eligible Employee may make a Deferral Election
to defer receipt of the following amounts:
(a) All or any portion not less than 25 percent of the
Eligible Employee's payments due under a long-term
performance incentive plan of the Company or an
Employer (an "Incentive Payment").
(b) All or any portion not less than 25 percent of the
Eligible Employee's annual bonus for a year due under
an annual bonus plan or any other short-term incentive
plan of the Company or an Employer (an "Annual Bonus").
(c) All or any portion of the Eligible Employee's Annual
Base Salary. "Annual Base Salary" shall mean the
regular rate of compensation to be paid to the
Eligible Employee for services rendered during the Plan
Year excluding severance or termination payments,
commissions, foreign service payments, payments for
consulting services and such other unusual or
extraordinary payments as the Committee may determine.
(d) Such other bonuses and incentive payments under any
plan or arrangement established by the Company or an
Employer as the Committee may designate as compensation
eligible for deferral under this Plan in such increments
and subject to such limitations and restrictions as the
Committee may establish.
SECTION 4
DEFERRAL ACCOUNTS
4.1 DEFERRAL ACCOUNTS. All amounts deferred pursuant to a Participant's
Deferral Elections under the Plan shall be allocated to a bookkeeping account
in the name of the Participant
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"(Deferral Account") and the Committee shall maintain a separate
subaccount under a Participant's Deferral Account for each Deferral.
Deferrals shall be credited to the Deferral Account as of the Deferral
Crediting Date coinciding with or next following the date on which, in the
absence of a Deferral Election, the Participant would otherwise have received
the Deferral. A "Deferral Crediting Date" shall mean the business day
coinciding with or next following the 15th day of each calendar month and the
business day coinciding with or next following the last day of each calendar
month.
4.2 INVESTMENT ALTERNATIVES. A Participant must make an investment
election at the time of each Deferral Election. The investment election must
be made in writing on such forms and pursuant to such rules as the Committee may
prescribe, subject to paragraph 4.3, and shall designate the portion of the
Deferral which is to be treated as invested in each investment alternative.
The two investment alternatives shall be as follows:
(a) STOCK EQUIVALENT ACCOUNT. Under the Stock
Equivalent Account, the value of the Participant's
Deferral shall be determined as if the Deferral were
invested in Sara Lee common stock equivalents as of
the Deferral Crediting Date. The number of Sara Lee
common stock equivalents to be credited to the
Participant's Deferral Account and appropriate
subaccounts on each Deferral Crediting Date shall be
determined by dividing the Deferral to be "invested"
on that date by the average of the high and low
quotes of Sara Lee common stock on the applicable
day on the New York Stock Exchange Composite
Transaction Tape ("Market Value"). Fractional stock
equivalents will be computed to two decimal places.
An amount equal to the number of common stock
equivalents multiplied by the dividend paid on Sara
Lee common stock on each dividend payment date shall
be credited to the Participant's Deferral Account
and appropriate subaccount as of the Deferral
Crediting Date coincident with or next following the
dividend payment date and "invested" in additional
common stock equivalents as though such dividend
credits were a Deferral. The number of shares of Sara
Lee common stock to be paid to a Participant on a
Distribution Date shall be equal to the number of
common stock equivalents accumulated in the Stock
Equivalent Account on the Distribution Date divided by
the total of the payments to be made. All payments
from the Stock Equivalent Account shall be made in
whole shares of Sara Lee common stock with fractional
shares credited to federal income taxes withheld.
(b) INTEREST ACCOUNT. Under the Interest Account,
interest will be credited to the Participant's
Deferral Account as of the business day coinciding
with or next following each June 30 and December 31
(a "Valuation Date") and on the date the final payment
of a Deferral is to be made based on the balance in the
Participant's Deferral Account deemed invested in the
Interest Account on the Valuation Date or such final
payment date. The rate of interest to be credited for
a Plan
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Year will be set at the beginning of each Plan Year
based on the current cost to the Company of issuing
five-year maturity debt. If installment payments
are elected, the amount to be paid to the
Participant on a Distribution Date shall be
determined as follows: the amount of the principal
payment of each installment shall be determined by
dividing the current principal balance by the number
of remaining installment payments and the amount of
the interest payment shall be determined by dividing
the current interest balance by the number of
remaining installment payments. All payments from
the Interest Account shall be made in cash.
4.3 INVESTMENT ELECTIONS AND CHANGES. A Participant's investment
elections shall be subject to the following rules:
(a) Except as provided in subsection (b) below with
respect to Incentive Payments that would have been
paid in the form of Sara Lee common stock, if the
Participant fails to make an investment election
with respect to a Deferral, the Deferral shall be
deemed to be invested in the Interest Account.
(b) Any Deferral attributable to an Incentive Payment in
the form of Sara Lee common stock, restricted or
otherwise, shall automatically be deemed to be
invested in the Stock Equivalent Account.
(c) All investments in the Stock Equivalent Account
shall be irrevocable.
(d) A Participant may elect to transfer amounts invested
in the Interest Account to the Stock Equivalent
Account as of any Valuation Date by filing an
investment change election with the Committee prior
to the Valuation Date the change is to become
effective. The amount elected to be transferred to
the Stock Equivalent Account shall be treated as
invested in Sara Lee common stock equivalents as of
the Valuation Date and the number of Sara Lee common
stock equivalents to be credited to the
Participant's Deferral Account and appropriate
subaccounts as of the Valuation Date shall be
determined by dividing the amount to be transferred
by the Market Value on such Valuation Date.
(e) Until invested as of the Deferral Crediting Date in
either the Interest Account or Stock Equivalent
Account, a Participant's Deferral shall be credited
with interest in such amount as the Committee may
determine.
4.4 VESTING. A Participant shall be fully vested at all times in the
balance of his Deferral Account.
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SECTION 5
PAYMENT OF BENEFITS
5.1 TIME AND METHOD OF PAYMENT. Payment of a Participant's Deferral shall
be made in a single lump sum or shall commence in installments as elected by
the Participant in the Deferral Election. A Participant may make a one-time
election after the original Deferral Election to change the method of payment
elected by the Participant; provided, that such election shall not be
effective unless the election to change the method of payment is received by
the Committee prior to the December 1 of the Plan Year preceding the Plan
Year in which the Distribution Date specified in the original Deferral
Election occurs. If a Participant's Deferral Account is payable in a single
lump sum, the payment shall be made as soon as practicable following the
Distribution Date but not later than 30 days following the Distribution Date.
If a Participant's Deferral is payable in installment payments, then the
Participant's Deferral shall be paid in substantially equal annual installments
over the period as elected by the Participant in the Deferral Election
commencing as soon as practicable following the Distribution Date but not later
than 30 days following the Distribution Date.
5.2 PAYMENT UPON TOTAL DISABILITY. In the event a Participant becomes
totally disabled before all amounts credited to his Deferral Account have
been paid, payment of the Participant's Deferral Account shall be made or
shall commence in the form of payment elected by the disabled Participant;
provided, that the disabled Participant requests payment in writing within
180 days of becoming disabled. If such a request is not made, the disabled
Participant's Deferrals will be paid pursuant to the Deferral Elections and
the normal provisions of the Plan. A Participant will be considered to be
totally disabled for purposes of the Plan if the Participant is determined to
be totally disabled under the Company's disability plan applicable to the
Participant.
5.3 PAYMENT UPON RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT. A
Participant's Deferral Account shall continue to be maintained for the
benefit of the Participant and Deferrals shall be paid in accordance with the
Participant's Deferral Elections in the event the Participant retires or
otherwise terminates employment with the Company for any reason before the
entire balance in the Participant's Deferral Account has been paid.
5.4 PAYMENT UPON DEATH OF A PARTICIPANT. In the event a Participant dies
before all amounts credited to his Deferral Account have been paid, payment
of the Participant's Deferral Account shall be made or shall commence in the
form of payment elected by the Participant's Beneficiary or the
Executor/Executrix of the Participant's estate; provided, that the request is
made in writing within 180 days of the Participant's death. If such a
request is not made, the deceased Participant's Deferrals will be paid
pursuant to the Deferral Elections and the normal provisions of the Plan.
5.5 BENEFICIARY. A Participant's Beneficiary shall mean the individual(s)
or entity designated by the Participant to receive the balance of the
Participant's Deferral Account in the event of the Participant's death prior
to the payment of his entire Deferral Account. To be effective, any
Beneficiary designation shall be filed in writing with the Committee. A
Participant may revoke an existing Beneficiary designation by filing another
written Beneficiary designation with the Committee. The latest Beneficiary
designation received by the Committee shall be controlling. If no
Beneficiary is named by a Participant or if he survives all of his named
Beneficiaries, the Deferral Account shall be paid in the following order of
precedence:
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(1) the Participant's spouse;
(2) the Participant's children (including adopted children), per
stirpes; or
(3) the Participant's estate.
5.6 FORM OF PAYMENT. The payment of that portion of a Deferral deemed
to be invested in the Interest Account shall be made in cash. The distribution
of that portion of a Deferral deemed to be invested in the Stock Equivalent
Account shall be distributed in whole shares of Sara Lee common stock with
fractional shares credited to federal income taxes withheld.
5.7 UNFORESEEABLE FINANCIAL EMERGENCY. If the Committee or its designee
determines that a Participant has incurred an Unforeseeable Financial
Emergency (as defined below), the Participant may withdraw in cash and/or
stock the portion of the balance of his Deferral Account needed to satisfy
the Unforeseeable Financial Emergency, to the extent that the Unforeseeable
Financial Emergency may not be relieved through reimbursement or compensation
by insurance or otherwise or by liquidation of the Participant's assets, to
the extent the liquidation of such assets would not itself cause severe
financial hardship. An "Unforeseeable Financial Emergency" is a severe
financial hardship to the Participant resulting from (i) a sudden and
unexpected illness or accident of the Participant or of a dependent of the
Participant; (ii) loss of the Participant's property due to casualty; or
(iii) such other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant as
determined by the Committee. A withdrawal on account of an Unforeseeable
Financial Emergency shall be paid as soon as possible following the
date on which the withdrawal is approved.
5.8 EARLY WITHDRAWAL WITH PENALTY. Notwithstanding the other provisions
of the Plan to the contrary, a Participant may request a withdrawal from his
Deferral Account by filing a request with the Committee or its designee in
writing. Payment will be made to the Participant within 30 days of the
approval of such a request. Any withdrawal under this provision will be
charged with a 10 percent early withdrawal penalty which will be withheld
from the amount withdrawn and forfeited as provided in Section 6.5.
5.9 WITHHOLDING OF TAXES. The Company shall withhold any applicable
Federal, state or local income tax from payments due under the Plan. The
Company shall also withhold Social Security taxes, including the Medicare
portion of such taxes, and any other employment taxes as necessary to comply
with applicable laws.
5.10 SMALL AMOUNTS. For any Participant who first becomes a Participant
in the Plan on or after the Effective Date and was not a participant in a Prior
Plan, notwithstanding any election by the Participant regarding the timing
and manner of payment of his Deferrals, in the event of a Participant's
retirement or other termination of employment, the Employer may elect to pay
the Participant a lump sum distribution of the entire value of the
Participant's Deferral Account; provided, that the value is less than ten
thousand dollars ($10,000) determined as of the Valuation Date coinciding
with or immediately following the Participant's termination of employment.
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<PAGE>
SECTION 6
MISCELLANEOUS
6.1 FUNDING. Benefits payable under the Plan to any Participant shall be
paid directly by the Participant's Employer (including the Company if the
Participant is employed by the Company). The Company and the Employers shall
not be required to fund, or otherwise segregate assets to be used for payment
of benefits under the Plan. Notwithstanding the foregoing, the Company and
the Employers, in the discretion of the Committee, may maintain one or more
grantor trusts ("Trust") to hold assets to be used for payment of benefits
under the Plan. The assets of the Trust with respect to benefits payable to
the employees of each Employer shall remain the assets of such Employer
subject to the claims of its general creditors. Any payments by a Trust of
benefits provided to a Participant under the Plan shall be considered payment
by the Company or the Employer and shall discharge the Company or the
Employer of any further liability under the Plan for such payments.
6.2 ACCOUNT STATEMENTS. As soon as practical after the end of each
calendar year (or after such additional date or dates as the Committee, in its
discretion, may designate), each Participant shall be provided with a
statement of the balance of his Deferral Account hereunder as of the last day
of such calendar year (or as of such other dates as the Committee, in its
discretion, may designate).
6.3 EMPLOYMENT RIGHTS. Establishment of the Plan shall not be construed
to give any Eligible Employee the right to be retained in the Company's service
or to any benefits not specifically provided by the Plan.
6.4 INTERESTS NOT TRANSFERABLE. Except as to withholding of any tax under
the laws of the United States or any state or locality and the provisions of
Section 5.9, no benefit payable at any time under the Plan shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment,
or other legal process, or encumbrance of any kind. Any attempt to alienate,
sell, transfer, assign, pledge or otherwise encumber any such benefits,
whether currently or thereafter payable, shall be void. No person shall, in
any manner, be liable for or subject to the debts or liabilities of any
person entitled to such benefits. If any person shall attempt to, or shall
alienate, sell, transfer, assign, pledge or otherwise encumber his benefits
under the Plan, or if by any reason of his bankruptcy or other event
happening at any time, such benefits would devolve upon any other person or
would not be enjoyed by the person entitled thereto under the Plan, then the
Committee, in its discretion, may terminate the interest in any such benefits
of the person entitled thereto under the Plan and hold or apply them for or to
the benefit of such person entitled thereto under the Plan or his spouse,
children or other dependents, or any of them, in such manner as the Committee
may deem proper.
6.5 FORFEITURES AND UNCLAIMED AMOUNTS. Unclaimed amounts shall consist
of the amounts of the Deferral Account of a Participant that are not distributed
because of the Committee's inability, after a reasonable search, to locate a
Participant or his Beneficiary, as applicable, within a period of two (2)
years after the Distribution Date upon which the payment of any benefits
becomes due and the amount by which a Participant's Account is reduced under
Section 5.8. Unclaimed amounts shall be forfeited at the end of such
two-year period. These forfeitures will reduce the
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<PAGE>
obligations of the Company under the Plan and the Participant or Beneficiary,
as applicable, shall have no further right to his Deferral Account.
6.6 CONTROLLING LAW. The law of Illinois, except its law with respect to
choice of law, shall be controlling in all matters relating to the Plan to
the extent not preempted by ERISA.
6.7 GENDER AND NUMBER. Words in the masculine gender shall include the
feminine, and the plural shall include the singular and the singular shall
include the plural.
6.8 ACTION BY THE COMPANY. Except as otherwise specifically provided
herein, any action required of or permitted by the Company under the Plan
shall be by resolution of the Board of Directors of the Company or by action
of any member of the Committee or person(s) authorized by resolution of the
Board of Directors of the Company.
SECTION 7
EMPLOYER PARTICIPATION
Any subsidiary of the Company incorporated under the laws of any state in
the United States (an "Employer") may, with the approval of the Committee and
under such terms and conditions as the Committee may prescribe, adopt the
corresponding portions of the Plan. The Committee may amend the Plan as
necessary or desirable to reflect the adoption of the Plan by an Employer;
provided, however, that an adopting Employer shall not have the authority to
amend or terminate the Plan under Section 8.
SECTION 8
AMENDMENT AND TERMINATION
The Company intends the Plan to be permanent, but reserves the right at any
time by action of its Board of Directors to modify, amend or terminate the
Plan; provided, however, that any amendment or termination of the Plan shall
not reduce or eliminate any Deferral Account accrued through the date of such
amendment or termination. The Committee shall have the same authority to
adopt amendments to the Plan as the Board of Directors of the Company in the
following circumstances:
(a) to adopt amendments to the Plan which the Committee
determines are necessary or desirable for the Plan
to comply with or to obtain benefits or advantages
under the provisions of applicable law, regulations
or rulings or requirements of the Internal Revenue
Service or other governmental or administrative
agency or changes in such law, regulations, rulings
or requirements; and
(b) to adopt any other procedural or cosmetic amendment
that the Committee determines to be necessary or
desirable that does not materially change benefits
to Participants or their Beneficiaries or
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materially increase the Company's or adopting
Employers' obligations under the Plan.
The Committee shall provide notice of amendments adopted by the Committee to
the Board of Directors of the Company on a timely basis.
Executed in multiple originals this 4th day of December, 1998
SARA LEE CORPORATION
By: /s/ Gary C. Grom
-------------------------------------------
Gary C. Grom
Title: Senior Vice President, Human Resources
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APPENDIX A
TO
SARA LEE CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
GLOSSARY OF TERMS
As used herein, the term:
(1) "Annual Base Salary" means the regular rate of compensation to be
paid to the Eligible Employee for services rendered during the Plan Year
excluding severance or termination payments, commissions, foreign service
payments, payments for consulting services and such other unusual or
extraordinary payments as the Committee may determine.
(2) "Annual Bonus" means an Eligible Employee's annual bonus for a year
due under an annual bonus plan or any other short-term incentive plan of the
Company or an Employer.
(3) "Beneficiary" means the individual(s) or entity designated by a
Participant to receive the balance of the Participant's Deferral Account in
the event of the Participant's death prior to the payment of the
Participant's entire Deferral Account.
(4) "Code" means the Internal Revenue Code of 1986, as amended.
(5) "Committee" means the Compensation and Employee Benefits Committee
of the Board of Directors of the Company.
(6) "Company" means Sara Lee Corporation.
(7) "Deferral" means the amount deferred pursuant to a Deferral
Election.
(8) "Deferral Account" means the bookkeeping account established in the
name of the Participant to hold all amounts deferred pursuant to a
Participant's Deferral Elections under the Plan.
(9) "Deferral Crediting Date" means the business day coinciding with or
next following the 15th day of each calendar month and the business day
coinciding with or next following the last day of each calendar month.
(10) "Deferral Election" means a participant's irrevocable election to
defer receipt of an Incentive Payment, an Annual Bonus, and/or Annual Base
Salary for a Plan Year.
(11) "Distribution Date" means the date on which an Eligible Employee
elects to have a Deferral paid pursuant to a Deferral Election.
(12) "Effective Date" means the effective date of the Plan, August 26,
1998.
(13) "Eligible Employee" means each "A", "B" and "C" level executive of
the Company or an Employer on a U.S. payroll and each other executive of the
Company or an Employer who is identified as eligible by the Committee.
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(14) "Employer" means any subsidiary of the Company incorporated under
the laws of any state in the United States.
(15) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(16) "Incentive Payment" means any payment due under a long-term
performance incentive plan of the Company or an Employer.
(17) "Interest Account" means the investment alternative under which
interest is credited to a Participant's Deferral Account each Plan Year.
(18) "Market Value" of Sara Lee common stock means the average of the
high and low quotes for Sara Lee common stock on the applicable day on the
New York Stock Exchange Composite Transaction Tape.
(19) "Participant" means any Eligible Employee who makes a Deferral
Election or has an Account under the Plan.
(20) "Plan" means the Sara Lee Corporation Executive Deferred
Compensation Plan.
(21) "Plan Year" means the calendar year.
(22) "Prior Plan" means any non-qualified, unfunded plan of deferred
compensation maintained by the Company for a select group of management and
highly compensated employees of the Company and participating subsidiaries of
the Company prior to the Effective Date.
(23) "Re-Deferral Election" means a Participant's irrevocable election
to extend a Distribution Date.
(24) "Stock Equivalent Account" means the investment alternative under
which a Participant's Deferral Account is treated as if it is invested in
Sara Lee common stock equivalents.
(25) "Trust" means the grantor trust or trusts, if any, that the
Company or an Employer may maintain to hold assets to be used for payment of
benefits under the Plan.
(26) "Unforeseeable Financial Emergency" means a severe financial
hardship to the Participant resulting from (i) a sudden and unexpected
illness or accident of the Participant or of a dependent of the Participant;
(ii) loss of the Participant's property due to casualty; or (iii) such other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant as determined by the Committee.
(27) "Valuation Date" means the business day coinciding with or next
following each June 30 and December 31.
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[LOGO]
LONG-TERM PERFORMANCE INCENTIVE PLAN
FISCAL YEARS 1999 - 2001
PLAN DESCRIPTION
THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION INTENDED FOR USE ONLY WITHIN
SARA LEE CORPORATION. THE REPRODUCTION OR DISTRIBUTION OF THIS DOCUMENT,
EITHER ELECTRONICALLY OR IN HARDCOPY, WITHOUT THE PRIOR APPROVAL OF THE SARA
LEE CORPORATION CORPORATE COMPENSATION DEPARTMENT IS STRICTLY PROHIBITED.
<PAGE>
HIGHLIGHTS
This booklet explains the plan provisions of the Sara Lee Corporation
Long-Term Performance Incentive Plan covering fiscal years 1999 through 2001
("Performance Cycle"). The following pages provide detailed information
relating to the grant of restricted stock units 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 laws and tax provisions.
RESTRICTED STOCK UNITS
- - Restricted stock units (RSUs) are granted at the
beginning of the Performance Cycle. At the end of the
Performance Cycle, based upon the actual performance
results, the appropriate number RSUs are converted to
shares of Sara Lee stock, on a one-for-one basis, and
issued in your name.
- - The number of shares, if any, that will be released to
you is dependent upon the extent to which the
pre-established performance goals are achieved during the
Performance Cycle.
- - An opportunity to earn additional shares is possible if
performance results exceed the Superior performance level.
- - You do not have voting rights on RSUs during the
Performance Cycle.
DIVIDEND EQUIVALENTS
- - Dividend equivalents are accrued on your behalf through
the Performance Cycle.
- - Interest on accrued dividend equivalents is credited at
the same rate as provided for under the Sara Lee
Corporation Executive Deferred Compensation Plan.
- - Accrued dividend equivalents and interest are distributed
to you to the extent that shares are earned at the end of
the Performance Cycle. No dividend equivalents or
interest are paid in arrears on shares earned in excess
of the Superior performance level.
PERFORMANCE MEASURES
- - The following Sara Lee Corporation performance measures
apply to this performance cycle:
--) 3-Year Cumulative Diluted Earnings Per Share
--) 3-Year Average Return on Invested Capital
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PURPOSE
Sara Lee Corporation ("SLC") has adopted the Long-Term Performance Incentive
Plan ("LTPIP") for Fiscal Years 1999 - 2001 for eligible executives. The
LTPIP exists in order to:
- - Focus corporate and operating management's attention on
the long-term performance results of Sara Lee Corporation
- - Provide incentive compensation opportunities commensurate
with the achievement of earnings per share and return on
invested capital targets
- - Promote teamwork among the operating companies and
divisions of Sara Lee Corporation
- - Enhance the competitiveness of the SLC's long-term
compensation program and aid in attracting and retaining
highly qualified and motivated executives.
RESTRICTED STOCK UNITS
LTPIP awards are authorized under the Sara Lee Corporation 1995 Long-Term
Incentive Stock Plan ("Stock Plan"). LTPIP awards are initially granted as
restricted stock units (RSUs) at the beginning of the Performance Cycle.
Dividend equivalents that are payable on RSUs during the Performance Cycle
are escrowed on your behalf and credited with interest at the same rate paid
under SLC's Executive Deferred Compensation Plan.
RSUs have special restrictions that are based upon both your continued
service and SLC's performance against the financial goals that have been
established. These restrictions prohibit the transfer of the RSUs during the
Performance Cycle. The financial goals and their respective weightings are
shown in Appendix I. Any shares not earned at the end of the Performance
Cycle are forfeited.
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.
2
<PAGE>
DIVIDEND EQUIVALENTS
During the Performance Cycle, dividend equivalents that are payable on the
RSUs will be escrowed on your behalf. Interest on the escrowed amounts will
be credited at the same time and in the same manner as under SLC's Executive
Deferred Compensation Plan. No dividend equivalents or interest are paid in
arrears on any additional shares issued for performance above the Superior
performance level.
Amounts credited to the escrowed dividend equivalent account at the end of
the Performance Cycle are distributed in the same proportion as the
restrictions on the RSUs lapse. For example, if 75% of the RSUs are earned,
then 75% of the balance in the escrowed dividend equivalent account will be
paid as soon as possible after the end of FY01. Any remaining balance in the
dividend equivalent account will be forfeited.
PERFORMANCE STANDARDS
Performance under the LTPIP is measured using the corporate financial
measures described below. Both of these financial measures are independent
of one another for purposes of measuring results and determining how many, if
any, of the RSUs are earned.
- - Cumulative Diluted Earnings Per Share (Diluted EPS)
- - Three-year average SLC Return on Invested Capital (ROIC)
Definitions of these measures are included in Appendix II.
The performance levels for Diluted EPS and ROIC targets are shown in
Appendix I.
The performance levels and the percentage of RSUs that will be distributed
are as follows:
<TABLE>
<CAPTION>
PERFORMANCE LEVEL % OF SHARES DISTRIBUTED
<S> <C>
THRESHOLD 0%
VERY GOOD 50%
SUPERIOR 100%
OUTSTANDING 125%
</TABLE>
Interpolations are used for results that fall between performance levels.
For performance above Superior, additional shares are issued after the end of
the Performance Cycle. No dividend equivalents or interest are paid in
arrears on any additional shares issued for performance above the Superior
performance level. No shares are earned for performance results at or below
the Threshold performance level.
3
<PAGE>
AWARD GRANT NOTICE
Each Participant will receive a Restricted Stock Unit Grant Notice (Grant
Notice) specifying the number of RSUs that have been granted, and the
specific terms and conditions applicable to the grant. The Grant Notice
should be retained by the Participant along with his or her other important
legal documents. A second copy of the Grant Notice will be kept on file in
SLC's Corporate Compensation Department.
TAX CONSEQUENCES
UNITED STATES
Under current United States tax legislation, a Participant receives no
taxable income from RSUs awarded, dividend equivalents escrowed or interest
credited until the restrictions on the RSUs lapse ("Vest"). The date
("Vesting Date") when the Committee reviews the performance results for the
Performance Cycle and approves any shares to be distributed to Participants
serves as the date when the taxable event will occur. The market value of
SLC common stock on the Vesting Date will determine the amount of taxable
income. When the number of shares actually earned has been determined, the
market value of the shares on the Vesting Date as well as the proportionate
dividend equivalents and interest thereon are credited as income to the
Participant. This amount is then subject to applicable federal, state and
local withholding. Amounts necessary to settle the tax-withholding
obligation will be withheld from the cash or shares otherwise to be
distributed to the Participant.
COUNTRIES OTHER THAN THE UNITED STATES
Tax laws vary significantly from country to country, so advice should be
obtained from appropriate counsel concerning the tax consequences of this
grant in your country. In most cases, Participants receive no taxable income
from RSUs when initially awarded, on escrowed dividend equivalents or
interest credited until the Vesting Date. When the shares are earned, both
the market value of the shares on the Vesting Date as well as the dividends
and interest distributed are typically credited as income. For those
individuals residing outside the U.S. and not subject to U.S. tax laws, no
tax withholding will be made by SLC in Chicago. Any required withholding tax
should be withheld at the local operating unit level. Each Participant is
responsible for compliance with the relevant legal and tax regulations in his
or her tax jurisdiction.
IMPACT ON OTHER BENEFITS
Any shares, dividend equivalents or interest ultimately earned under the
LTPIP are not considered compensation for purposes of any retirement plan,
severance arrangement or other benefit plans in which you may participate in
now or become eligible to participate in at a later date.
4
<PAGE>
ADMINISTRATIVE GUIDELINES
The following guidelines apply to the FY99-01 LTPIP. Additional
Administrative Guidelines may be adopted, as needed, during the Performance
Cycle for the efficient administration of the Plan.
- - The Committee is responsible for administering the Plan
and has full power and authority to interpret the Plan
and to adopt rules, regulations and guidelines for
carrying out the Plan, as it deems necessary.
- - The Committee functions as the Plan Administrator and its
decisions are binding on all persons.
- - 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 FY01.
- - The Committee reserves the right to change any of the
terms and conditions of the FY99-01 LTPIP award to
Executive Officers, including the definitions of Diluted
EPS and ROIC, if deemed necessary on advice of counsel to
meet the requirements for a "performance-based exemption"
under the regulations or rulings of Section 162(m) of the
Internal Revenue Code.
- - The Committee may make additional changes that it deems
appropriate for 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 that have
been approved.
- - The Committee may, as it deems appropriate, delegate some
or all of its power to the Chairman and Chief Executive
Officer or other executive officer of the Corporation.
However, the Committee may not delegate its power
concerning the grant, timing, pricing or amount of an
award to any person who is a corporate officer or Key
Executive.
- - The SLC Controller's Department will be responsible for
providing financial results under the LTPIP. The
Committee will approve the awards and distributions for
all Corporate Officers and Key Executives. The portion
of the shares earned along with the related balance of
the escrowed dividend equivalents account will be
distributed as soon as practicable after the completion
of the final accounting for the FY99-01 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 RSUs
awarded may be adjusted to reflect that the executive is
not a Participant for the entire Performance Cycle.
5
<PAGE>
- - 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. The impact of any MAJOR acquisitions made
during the Performance Cycle will be excluded from the
performance results for the fiscal year in which the
acquisition occurred.
- - In the event of death, total disability or retirement
under a retirement plan of SLC prior to the last day of
fiscal year 2001, the restrictions MAY lapse on a
pro-rata number of the RSUs which are EARNED under the
provisions described in this plan, subject to approval of
the Committee. If applicable, the shares and related
dividend equivalents 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
RSUs and any accrued dividend equivalents and interest.
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 or her
retirement, death or total disability. In order to be
considered for any prorated distribution, a Participant
must be actively employed at least through one-half, i.e.
18 months, of the Performance Cycle. If employment
ceases before the end of that time, all RSUs granted
under that Performance Cycle would 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
prorated 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 in the Stock
Plan), the Committee will decide what effect, if any,
this should have on the awards which are outstanding
under this Plan.
- - If any statement in this Plan Description or any oral
representation differs from the Stock Plan, the Stock
Plan document prevails.
- - Any stock dividend, stock split, combination or exchange
of securities, merger, consolidation, recapitalization,
spin-off or other distribution of any or all of the
assets of the Company will be handled as provided for in
the Stock 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.
6
<PAGE>
APPENDIX I
[INTENTIONALLY OMITTED]
<PAGE>
APPENDIX II
DEFINITIONS FY 1999-01 LTPIP
a) 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
b) THE COMMITTEE means the Compensation and Employee Benefits
Committee of the Sara Lee Corporation Board of Directors.
c) AWARD DATE means the date upon which the Committee approved the
awards under this Plan. In this case the Award Date was August 27,1998,
unless an alternate date was required for tax and/or legal reasons in
locations outside the United States.
d) COMPANY OR CORPORATION means Sara Lee Corporation or any entity
that is directly or indirectly controlled by Sara Lee Corporation, and
its subsidiaries.
e) DIVIDEND EQUIVALENTS has the same meaning as in the Stock Plan.
f) 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.
g) EARNINGS PER SHARE ("EPS") means reported diluted earnings per
share for the fiscal years in the Performance Cycle subject to
applicable Adjustments and Exclusions as defined in this section.
h) 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 diluted EPS
- restructuring charges
- any other extraordinary or unusual charges that are
quantified and identified separately on the face of the Income
Statement.
- the first year impact of any major corporate acquisitions
a) GRANT NOTICE means the document provided to each Participant
evidencing the number of restricted stock units awarded and the basic
terms and conditions of the award.
b) KEY EXECUTIVE means an employee whose salary, when expressed in
U.S. dollars, is above the midpoint of salary grade 39
c) PARTICIPANT means an executive of the company who has been
determined to be an eligible Participant and who has received a Grant
Notice specifying the basic terms of participation in this Plan.
d) PERFORMANCE CYCLE is the three-year period consisting of SLC's
fiscal years 1999 through and including 2001.
e) RESTRICTED STOCK UNITS has the same meaning as "performance units"
as that term is used in the Stock Plan.
f) RETURN ON INVESTED CAPITAL ("ROIC") means the ratio of SLC EBIA to
SLC average total capital (on a two point basis) as defined by First
Boston; AVERAGE ROIC is calculated as the simple average of ROIC for
each of the three fiscal years in the Performance Cycle, subject to the
applicable Adjustments and Exclusions defined above.
g) STOCK PLAN means the Sara Lee Corporation 1995 Long-Term Incentive
Stock Plan or its successor plan or plans.
h) TOTAL DISABILITY is defined in the Key Executive Long-Term
Disability Plan of SLC.
i) VESTING means the determination made at the end of the Performance
Cycle as to how many, if any, of the RSUs are actually earned by a
Participant based upon actual performance results.
j) VESTING DATE means the date on which the Committee approves the
distribution of shares at the end of the Performance Cycle.
7
<PAGE>
EXHIBIT 12.1
SARA LEE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS EXCEPT RATIOS)
<TABLE>
<CAPTION>
JULY 3, JULY 27,
1999(1) 1998(2)
--------- ---------
<S> <C> <C>
Fixed charges:
Interest expense....................................................................... $ 237 $ 224
Interest portion of rental expense..................................................... 66 64
--------- ---------
Total fixed charges before capitalized interest...................................... 303 288
Capitalized interest................................................................... 3 10
--------- ---------
Total fixed charges.................................................................. $ 306 $ 298
--------- ---------
--------- ---------
Earnings available for fixed charges:
Income (loss) before income taxes...................................................... $ 1,671 $ (443)
Less undistributed income in minority owned companies.................................. (6) (6)
Add minority interest in majority-owned subsidiaries................................... 31 25
Add amortization of capitalized interest............................................... 23 25
Add fixed charges before capitalized interest.......................................... 303 288
--------- ---------
Total earnings (losses) available for fixed charges.................................. $ 2,022 $ (111)
--------- ---------
--------- ---------
Ratio of earnings (losses) to fixed charges.............................................. 6.6 (0.4)
--------- ---------
--------- ---------
</TABLE>
- ------------
(1) During the second quarter of fiscal 1999, the corporation recorded a pretax
charge of $76 million in connection with the recall of certain of its meat
products.
During the first quarter of fiscal 1999, the corporation recorded a pretax
gain of $137 million in connection with the sale of its tobacco business.
(2) During the second quarter of fiscal 1998, the corporation recorded a pretax
charge of $2,040 million in connection with various restructuring actions.
<PAGE>
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>
JULY 3, JULY 27,
1999(1) 1998(2)
----------- -----------
<S> <C> <C>
Fixed charges and preferred stock dividend requirements:
Interest expense............................................................................ $ 237 $ 224
Interest portion of rental expense.......................................................... 66 64
----------- -----------
Total fixed charges before capitalized interest and preferred stock dividend requirements... 303 288
Capitalized interest........................................................................ 3 10
Preferred stock dividend requirements(3).................................................... 20 24
----------- -----------
Total fixed charges and preferred stock stock dividend requirements....................... $ 326 $ 322
----------- -----------
----------- -----------
Earnings available for fixed charges and preferred stock
stock dividend requirements:
Income (loss) before income taxes........................................................... $ 1,671 $ (443)
Less undistributed income in minority owned companies....................................... (6) (6)
Add minority interest in majority-owned subsidiaries........................................ 31 25
Add amortization of capitalized interest.................................................... 23 25
Add fixed charges before capitalized interest and
preferred stock dividend requirements..................................................... 303 288
----------- -----------
Total earnings (losses) available for fixed charges and
preferred stock dividend requirements................................................... $ 2,022 $ (111)
----------- -----------
----------- -----------
Ratio of earnings (losses) to fixed charges and preferred stock
dividend requirements....................................................................... 6.2 (0.3)
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) During the second quarter of fiscal 1999, the corporation recorded a pretax
charge of $76 million in connection with the recall of certain of its meat
products.
During the first quarter of fiscal 1999, the corporation recorded a pretax
gain of $137 million in connection with the sale of its tobacco business.
(2) During the second quarter of fiscal 1998, the corporation recorded a pretax
charge of $2,040 million in connection with various restructuring actions.
(3) 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>
EXHIBIT (21)
SUBSIDIARIES
OF
SARA LEE CORPORATION
The following is a list of active subsidiary corporations of the Registrant.
Subsidiaries which are inactive or exist solely to protect the business
names, but conduct no business, have been omitted; such omitted subsidiaries
considered in the aggregate do not constitute a significant subsidiary.
DOMESTIC SUBSIDIARIES
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
ARP Corp. Delaware
Bali Foundations, Inc. Delaware
Best Kosher Foods Corporation Illinois
BG Marketing Corp. Delaware
Bil Mar Farms, Inc. Delaware
Bil Mar Foods, Inc. Delaware
BNH, Inc. Delaware
Bryan Foods, Inc. Delaware
Caribesock, Inc. Delaware
Caribetex, Inc. Delaware
Cartex Del, Inc. Delaware
Ceibena Del, Inc. Delaware
Champion Products Export Co. Delaware
Champion Products Inc. New York
Coach Leatherware International, Inc. Delaware
Coach Stores Puerto Rico, Inc. Delaware
Continental Coffee Products Company Delaware
Cortez Del, Inc. Delaware
Crocker & Sprague, Inc. Delaware
D. Canale Food Services, Inc. Tennessee
DEA Leasing, L.L.C. Delaware
DJW Incorporated Kentucky
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
GSC Manufacturing, L.L.C. Delaware
Hanes Dominican Del, Inc. Delaware
Hanes Menswear, Inc. Delaware
Hanes Puerto Rico, Inc. Delaware
Haw River Realty, Inc. Delaware
International Affiliates & Investment Inc. Delaware
International Baking Co., Inc. Delaware
Interstar, Inc. Florida
J.E. Morgan Knitting Mills, Inc. Pennsylvania
Kesterson Companies, Inc. Tennessee
Kesterson Food Company, Inc. Tennessee
Kolker Brothers, Inc. District of Columbia
L'eggs Brands, Inc. Delaware
MAP, L.L.C. Delaware
Milky Way Products Company Delaware
Multifoods, Inc. New York
Nihon Sara Lee KK Corporation Delaware
Nutri-metics International, L.L.C. Delaware
Ozark Salad Company, Inc. Delaware
PAI Subsidiary, Inc. Delaware
Playtex Apparel, Inc. Delaware
Playtex Dorado Corporation Delaware
Playtex Industries, Inc. Delaware
Playtex Marketing Corporation Delaware
PYA, Inc. Delaware
PYA/Monarch, Inc. Maryland
Quinn Coffee Company Montana
Rice Hosiery Corporation North Carolina
Richheimer Food Company Illinois
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
R. Salad Realty Co., Inc. New York
Sara Lee Business Services Corporation Maryland
Sara Lee Champion Europe Inc. Delaware
Sara Lee Corporation Asia, Inc. Delaware
Sara Lee Equity, L.L.C. Delaware
Sara Lee Foodservice Holding, L.L.C. Delaware
Sara Lee French Funding Company L.L.C. Delaware
Sara Lee French Investment Company, Inc. Delaware
Sara Lee Global Finance, Inc. Delaware
Sara Lee International Corporation Delaware
Sara Lee International Finance Corporation Delaware
Sara Lee International Funding Company L.L.C. Delaware
Sara Lee Investments, Inc. Delaware
Sara Lee - Kiwi Holdings, Inc. Delaware
Sara Lee U.K. Depositor L.L.C. Delaware
Sara Lee U.K. Holdings, Inc. Delaware
Sara Lee U.K. Leasing L.L.C. Delaware
Saramar L.L.C. Delaware
SCH Enterprises, L.L.C. Delaware
Seamless Textiles, Inc. Delaware
Seitz Foods, Inc. Delaware
SLC Leasing (Nevada)-II, Inc. Nevada
SLC Leasing (Wyoming), Inc. Wyoming
SLE, Inc. Delaware
SLI Administrative Services Company, Inc. Delaware
SLKP Administrative Services Company, Inc. Delaware
SLKP Sales, Inc. Delaware
Smoky Hollow Foods, Inc. Delaware
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Southern Belle, Inc. Delaware
Southern Family Foods, L.L.C. Delaware
Southern Meat Distribution Company Delaware
Specialty Intimates Inc. Delaware
State Fair Foods, Inc. Texas
Sweet Sue Kitchens, Inc. Alabama
Synergy Enterprises, Inc. Tennessee
The Harwood Companies, Inc. Delaware
UPCR, Inc. Delaware
UPEL, Inc. Delaware
US Hold Co. Delaware
Wechsler Coffee Corporation New York
</TABLE>
4
<PAGE>
FOREIGN SUBSIDIARIES
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
AB Fenom Sweden
ABC Industrie S.A. France
ACP B.V. Netherlands
Agepal S.A.R.L. Luxemburg
Al Ponte Prosciutti S.R.L. Italy
Allende Internacional, S. de R.L. de C.V. Mexico
Antinea Lingerie S.A. France
Aoste Argentina Argentina
Aoste Belgique B.V. Belgium
Aoste Espana S.A. Spain
Aoste Holding S.N.C. France
Aoste Management S.A. France
Aoste Schinken GmbH Germany
A.P. Developments Limited Zambia
Arosa, S.A. de C.V. Mexico
A/S Blumoller Denmark
Ashe Consumer Products Limited United Kingdom
Ashe Limited England
Asia Foods II Limited Mauritius
A.P. Developments Limited Zambia
A/S Blumoller Denmark
Avroy Shlain Cosmetics (Pty) Ltd. South Africa
Axa Alimentos, S. de R.L. de C.V. Mexico
Bal-Mex S. de R.L. de C.V. Mexico
Bali Dominicana Inc.(Hanes Panama, Inc.) - Branch Dominican Republic
Balirny Douwe Egberts AS Czech Republic
Ballograf Bic Austria Vertriebs Ges. mbh Austria
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Bama Polska Poland
Baro Bestuursmaatschappij B.V. Netherlands
Beleggingsmaatschappij Argona B.V. Netherlands
Belgian Nurdie Textile Company Belgium
Bellinda GmbH Textilvertrieb Germany
Berkshire International (S.A.) (Pty.) Ltd. South Africa
Berkshire International (Zimbabwe) (Pvt.) Ltd. Zimbabwe
Betke Hollandsche Export Maatschappij B.V. Netherlands
Bima Cosmetics (Pty.) Ltd. South Africa
Biotex B.V. Netherlands
Bi Belgium B.V.B.A. Belgium
Bi Textil s.r.o. Czech Republic
Bi Vertriebs GmbH Germany
Boers Groothandel B.V. Netherlands
Boers Meat Products B.V. Netherlands
Boers Vleeswaren B.V. Netherlands
Bravo S.A. Greece
Brossard France S.A. France
Buttress B.V. Netherlands
Cafe Do Ponto Do Brasil S.A. Brazil
Cafes a la Crema J. Marcilla y Cafe Soley S.L. Spain
Caitlin Financial Corporation N.V. Netherlands Antilles
Calzificio Lusso S.p.A. Italy
Canadelle Limited Partnership Canada
Cartex Manufacturera, S.A. Costa Rica
Casual Wear de Mexico, S.A. de C.V. Mexico
Cavite Horizons Holdings, Inc. Philippines
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Caytex, Inc. Cayman Islands
Caywear, Inc. Cayman Islands
CBI S.A. France
CH Laboratories (Sales) Ltd. Ireland
CH Laboratories Pty. Ltd. Australia
CH Property Holdings (NZ) Ltd. New Zealand
Chalet Foods Pty. Ltd. Australia
Champion Athletics, Ltd. Hong Kong
Champion France S.A. France
Champion GmbH Germany
Champion Products, S. de R.L. de C.V. Mexico
Champion UK Limited England
Charcuterie des Hautes Terres S.A. France
Charter de Mexico, S.A. de C.V. Mexico
Coabem Brazil
Coach Europe Services S.r.l. Italy
Coach Firenze S.r.l. Italy
Coach (U.K) Limited England
CODEF Financial Services CV Netherlands
Coffee Times B.V. Netherlands
Coffenco International GmbH Germany
Cofico N.V. Netherlands Antilles
Compack Douwe Egberts Rt. Hungary
Compania Aricar S.R.L. Argentina
Confecciones de El Pedregal Inc. El Salvador
Confecciones de Monclova, S. de R.L. de C.V. Mexico
Confecciones de Monterrey, S. de R.L. de C.V. Mexico
Confecciones de Nueva Rosita, S. de R. L. de C.V. Mexico
Confecciones Sarthoise S.A. France
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Confix S.r.l. Italy
Congelacion y Conservacion de Alimentos, Mexico
S. de R.L. de C.V.
Conoplex Insurance Company Bermuda
Contex, S.A. de C.V. El Salvador
Control International Investments (ConSecFin) BV Netherlands
Corporacion Champion de El Salvador, S.A. de C.V. El Salvador
Corporacion H.M., S.A. de C.V. Mexico
Cortez, S.A. Honduras
Cosmetic Manufacturers Ltd. New Zealand
Cosmetic Manufacturers Pty. Ltd. Australia
Cosmetic Manufacturers (Ireland) Ltd. Ireland
Cosmetic Manufacturers (NZ) Ltd. New Zealand
Covesa N.V. Belgium
Cruz Verde Portugal - Productos de Consumo Lda. Portugal
C.T. Compagerie SARL France
C.T. Diffusion S.N.C. France
DEA (Bermuda) Ltd. Bermuda
Decaf B.V. Netherlands
Decafkampon, B.V. Netherlands
DE Coffee Care B.V. Netherlands
Decoma Operating B.V. Netherlands
Decotrade A.G. Switzerland
DECS Global Network Mexicana, S.A. de C.V. Mexico
DECS International Mexico, S.A. de C.V. Mexico
DE Espana S.A. Spain
Defacto B.V. Netherlands
Defacto Deutschland GmbH Germany
DEF Finance S.A. France
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
DEF Holding S.A. France
Defico N.V. Netherlands Antilles
Defin C.V. Netherlands
Del Castillo Transportes Ltda. Uruguay
Delta Socks Ltd. Israel
Delta Sporting Ltd. Israel
Delta Textile (France) S.A.R.L. France
Delta Textile (London) Ltd. United Kingdom
Delta Textile GmbH Germany
Delta Textile Management AG Switzerland
Delta Textile Marketing Ltd. Israel
Delta Textiles Spain Spain
Delta-Galil Luxembourg Luxembourg
Delta-Galil Proprieties (1981) Ltd Israel
DE (Portugal) Produtos Almentares Lda Portugal
DE Rusbrands Russia
Designer Workwear Pty. Ltd. Australia
DE Van Nelle Operating B.V. Netherlands
Difan S.A.M. Monaco
Dim-Rosy AB Sweden
Dim-Rosy AG Switzerland
Dim-Rosy A/S Denmark
Dim-Rosy Benelux N.V. Belgium
Dim-Rosy Portugal Lda. Portugal
Dim-Rosy S.p.A. Italy
Dim Finance S.A.S. France
Dim Rosy Textiles Incorporated Canada
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Dim S.A. France
Dimtex S.A. France
DISA S.N.C. (DISA) France
Douwe Egberts Clearing A.G. Switzerland
Douwe Egberts Coffee Systems France S. A. France
Douwe Egberts Coffee Systems International Netherlands
Douwe Egberts Coffee Systems Limited Canada
Douwe Egberts Coffee Systems Limited United Kingdom
Douwe Egberts Coffee Systems Nederland B.V. Netherlands
Douwe Egberts Coffee Systems Operating B. V. Netherlands
Douwe Egberts Coffee & Tea International B.V. Netherlands
Douwe Egberts Coffee Treatment & Supply Netherlands
International B.V.
Douwe Egberts Diensten B.V. Netherlands
Douwe Egberts Espana S.A. Spain
Douwe Egberts France S.A. France
Douwe Egberts GmbH Germany
Douwe Egberts Holdings B.V. Netherlands
Douwe Egberts Hungary Trading Hungary
(Douwe Egberts Compack Kft)
Douwe Egberts Kaffee Systeme GmbH Germany
Douwe Egberts Kaffee Systeme GmbH & Co., K.G. Germany
Douwe Egberts Kaffee System Vertrieb GmbH Austria
Douwe Egberts Limited Canada
Douwe Egberts Limited (New Zealand) New Zealand
Douwe Egberts Nederland B.V. Netherlands
Douwe Egberts N.V. Netherlands
Douwe Egberts Pty. Limited Australia
Douwe Egberts Rho B.V. Netherlands
Douwe Egberts Sigma B.V. Netherlands
Douwe Egberts Tau B.V. Netherlands
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Douwe Egberts UK Limited England
Douwe Egberts Van Nelle Coffee Systems Netherlands
Nederland B.V.
Douwe Egberts Van Nelle Participations B.V. Netherlands
Droste Administratie Maatschappij B.V. Netherlands
Droste Inkoop Maatschappij B.V. Netherlands
Duyvis B.V. Netherlands
Duyvis Production B.V. Netherlands
Elbeo & Comandita Portugal
Elbeo Vertriebs Germany
Elbeo-Meias e Confecgoes, Lda Portugal
Eri Feine Schuhpflege Vertriebs GmbH Germany
Et G.Y. S.A. France
Euragral B.V. Netherlands
Fairwind GmbH Germany
Fashion Accessory (Philippines) Inc. Philippines
Fihomij B.V. Netherlands
Filodoro Calze S.p.A. Italy
Findeggo B.V. Netherlands
Finnegan's Famous Cakes Limited England
Fontane del Ducca S.r.l. Italy
Forsell Consumer AE Industrial and Commercial S.A. Greece
Fuller do Brazil Lar e Beleza Ltda. Brazil
G-SEC GIE France
Gabriel & Co. Pty. Ltd. Australia
GIE Alpina S.A. France
Godrej Sara Lee Limited India
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Gow Investments Pty Ltd. Australia
Gromtex S.A. Tunisia
Group Imperial France SARL (France) France
Grupo Alimentario Argel S.A. Spain
Hanes Brasil Industria E Comercio Ltda. Brazil
Hanes Caribe Inc. Cayman Islands
Hanes Choloma, Ltd. Cayman Islands
Hanes de Centroamerica S.A. Guatemala
Hanes de El Salvador, S.A. de C.V. El Salvador
Hanes Dominican Inc. Cayman Islands
Hanes France S.A. France
Hanes Italia S.p.A. Italy
Hanes Panama, Inc. Panama
Hanes Printables Jamaica Ltd. Jamaica
Hanes Tejidos Costa Rica S.A. Costa Rica
Hanes Underwear Jamaica Jamaica
Hanes U.K. Limited United Kingdom
Hanes (Deutschland) GmbH Germany
Harris/DE Pty Ltd Australia
Hesperia de Alimentacion S.A. Spain
Hesperia Noroeste, S.A. Spain
Hilton Bonds N.Z. (1991) Limited New Zealand
Holding SL/DE Coffee & Tea Brazil Ltda. Brazil
Homcare Japan Div Nihon Kiwi KK Japan
HomeSafe Products (M) Sdn Bhd Malaysia
House of Fuller, S.A. de C.V. Mexico
Imperial Coordination Center N.V. (Belgium) Belgium
Imperial Holding N.V. Belgium
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Imperial Meat Products B.V. Netherlands
Imperial Meat Products N.V. Belgium
Inco Hellas AE Greece
Industrias Carnicas Navarras S.A. Spain
Industrias de Carnes Nobre S.A. Portugal
Industrias Internacionales de San Pedro, Mexico
S. de R.L. de C.V.
Industrias Mallorca S.A. de C.V. Mexico
Industria Textilera del Este, ITE, S.A. Costa Rica
Industria Textileras de Este, S.A. Costa Rica
Inmobiliaria Meck-Mex, S.A. de C.V. Mexico
Intec B.V. Netherlands
Inter Food Service Ltd. England
Internacional Manufacturera S.A. de C.V. Mexico
International Underwear Ltd. Morocco
INTEX Dessous GmbH (Austria) Austria
INTEX Dessous GmbH (Germany) Germany
INTEX Textil-Vertriebsgesellschaft AG Switzerland
Intradal Produktie Belgium N.V. Belgium
Ironbark Industrial Clothing Pty. Ltd. Australia
Isabella (Private) Ltd. Sri Lanka
Italfil S.A. Spain
IVA Doo Croatia
Jacqmotte B.V. Netherlands
Jamlee Limited Jamaica
Jamwear Limited Jamaica
J.E. Morgan de Honduras, S.A. Honduras
Jogbra Honduras S.A. Honduras
Justin Bridou SNC France
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Kaffehuset Friele A/S Norway
Kitchens of Sara Lee (Australia) Pty. Ltd. Australia
Kitchens of Sara Lee UK Ltd. England
Kiwi Brands Ltd. Kenya
Kiwi Brands Ltd. Malawi
Kiwi Brands Ltd. Zambia
Kiwi Brands (N.Z.) Ltd. New Zealand
Kiwi Brands (Private) Limited Zimbabwe
Kiwi Brands (Tianjin) Co. Ltd. China
Kiwi Brands (Uganda) Limited Uganda
Kiwi European Holdings B.V. Netherlands
Kiwi Holdings Limited England
Kiwi International Pte. Ltd. Singapore
Kiwi United Taiwan Company Ltd. Taiwan
Kiwi (EA) Limited England
Kiwi (Manufacturing) Sdn Bhd Malaysia
Kiwi (Nigeria ) Limited Nigeria
Kiwi (Overseas) Pty. Ltd. Australia
Kiwi (PI) Pty. Ltd. Australia
Kiwi (Queensland) Ltd Australia
Kiwi (Thailand) Limited Thailand
Kiwi Brands (Hong Kong) Ltd Hong Kong
Kiwi Brands (NZ) Ltd. New Zealand
Kiwi Brands (Private) Limited Zimbabwe
Kiwi Brands Ltd. Kenya
Kiwi Brands Ltd. (Malawi) Malawi
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Kiwi Brands Ltd. (Zambia) Zambia
Kiwi Brands Pty Ltd. Australia
Kiwi Brands Tianjin Co. ltd. China
Kiwi Caribbean Ltd. United Kingdom
Kiwi European Holdings B.V. Netherlands
Kiwi Health Products Pty. Ltd. Australia
Kiwi Holding SA France
Kiwi Holdings Ltd. United Kingdom
Kjopmanskredit A/S Norway
Koninklijke Douwe Egberts B.V. Netherlands
Kortman Intradal B.V. Netherlands
Kortman Nederland B.V. Netherlands
KOSL et Cie SNC France
KRS S.A. Tunisia
La Confection Sarthoise S.A. France
Lassie B.V. Netherlands
Laurentis Beheer B.V. Netherlands
Les Fines Tranches SNC France
Les Salaisons Reunies SNC France
Liabel S.p.A. Italy
Lovable Benelux B.V. Belgium
Lovable Design GmbH Germany
Lovable France SARL Italy
Lovable Italiana International Limited England
Lovable Italiana S.p.A. Italy
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Lovable Ltd. United Kingdom
Madero Internacional, S. de R.L. de C.V. Mexico
Maktonderzoekbureau Haped B.V. Netherlands
Manifattura Filodoro S.r.l. Italy
Manufacturera Ciebena, S.A. Honduras
Manufacturera de Cartago, S.A. Costa Rica
Manufacturera de Cartago, S.A. - Branch Costa Rica
Manufacturera Cortez, S.A. Honduras
Marander Assurantie Compagnie B.V. Netherlands
Marcel Marie S.A. France
Marcilla Coffee Systems S.A. Spain
Marketing-en Verkoopmaatschappij Stegeman B.V. Netherlands
Merrild Coffee Systems AB Sweden
Monclova Internacional, S. de R.L. de C.V. Mexico
Natrena B.V. Netherlands
New Way Packaged Products Ltd. England
Nicholabs (Pty.) Ltd. South Africa
Nicholas Laboratories (E.A.) Limited Kenya
Nihon Kiwi Kabushiki Kaisha Japan
Notable Industrias Colon S.A. de C.V. Mexico
Nur Die Textilvertrieb GmbH Germany
nur die Textilvertrieb Ges.mbH & Co. KG Austria
Nutri-Metics France SNC France
Nutri-Metics Holdings France SNC France
Nutri-Metics International (Australia) Pty. Ltd. Australia
Nutri-Metics International (Australia) Australia
Pty. Ltd. Trading
Nutri-Metics International (Brunei) Sdn Bhd Brunei
Nutri-Metics International (Canada) Inc. Canada
Nutri-Metics International Commercial Greece
Import-Export S.A.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Nutri-Metics International (Espana) S.A. Spain
Nutri-Metics International (France) SNC France
Nutri-Metics International (Greece) Inc. Greece
Nutri-Metics International (Guangzhou) Ltd. China
Nutri-Metics International (Hong Kong) Ltd. Hong Kong
Nutri-Metics International (Ireland) Ltd. Ireland
Nutri-Metics International (Mexico) SA de CV Mexico
Nutri-Metics International (Netherlands) Pty. Ltd. Australia
Nutri-Metics International (NZ) Ltd. New Zealand
Nutri-Metics International (Portugal) Lda. Portugal
Nutri-Metics International (Singapore) Pte Ltd. Singapore
Nutri-Metics International (South Africa) Pty. Ltd. South Africa
Nutri-Metics International (Thailand) Ltd. Thailand
Nutri-Metics International (UK) Ltd. United Kingdom
Nutri-Metics (Brunei) Sdn Bhd International Brunei
Nutri-Metics Worldwide Malaysia Sdn Bhd Malaysia
N.V. Douwe Egberts Coffee Systems Belgium
N.V. Jacqmotte S.A. Belgium
N.V. Kortman Intradal S.A. Belgium
Opus Chemical AB Sweden
Orion Gloves Ltd. Hong Kong
PAMYC S.A. de C.V. Mexico
Pervez Industrial Corporation Limited Pakistan
Philippe Matignon S.A. France
Pierre Yves Fshion Belgium
Pladus B.V. Netherlands
Playtex Dominicana SA Dominican Republic
Playtex France S.A. France
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Playtex Investments Europe S.A. France
Playtex Limited United Kingdom
Playtex Pty. Ltd. Australia
Plustex B.V. Netherlands
Plustex S.A. Belgium
Pontual Brazil
Pretty Polly (Killarney) Limited Ireland
Probemex, S.A. de C.V. Mexico
Products Suppliers A.G. Switzerland
P.T. Bina Impian Makmur Indonesia
PT Kiwi Distribution Company Indonesia
P. T. Kiiwi Brands Indonesia Indonesia
P.T. Kiwi Indonesia Indonesia
P.T. Premier Ventures Indonesia Indonesia
P.T. Prodenta Indonesia, Tbk Indonesia
P.T. Sara Lee Bakery Indonesia Indonesia
P.T. Sara Lee Bakery Niaga Indonesia Indonesia
P.T. Sara Lee Indonesia Indonesia
P.T. Sara Lee Bakeri Niaga Indonesia Indonesia
P.T. Suria Yozani Indonesia
PTX Tunisia S.A. Tunisia
PTX Tunsie Tunisia
Quesos la Caperucita, S.A. de C.V. Mexico
Rinbros S.A. de C.V. Mexico
Roger de Lyon Charcutier S.A. France
Roger de Lyon SNC France
Roux Soignat S.A. France
S3C S.A. France
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Sagepar SaRL France
Santora (Austria) GmbH Austria
Sara Lee Austria Gesellschaft mbH Germany
Sara Lee Bakery Sdn Bhd Malaysia
Sara Lee Apparel (Australasia) Pty Ltd. France
Sara Lee Argentina S.A. Argentina
Sara Lee Austria Gesellschaft mbH Austria
Sara Lee Bakeries UK Limited England
Sara Lee Bakery Italy Srl Italy
Sara Lee Bakery (Australia) Pty. Ltd. Australia
Sara Lee Bakery India Ltd. India
Sara Lee Bakery India Private Limited India
Sara Lee Bakery Malaysia Sdn Bhd Malaysia
Sara Lee Bakery Thailand Limited Thailand
Sara Lee Branded Apparel Espana, S.L. Spain
Sara Lee Branded Apparel Hellas S.A. Greece
Sara Lee Branded Apparel Italia S.p.A. Italy
Sara Lee Branded Apparel S.A. France
Sara Lee Branded Apparel Sweden AB Sweden
Sara Lee Brasil Ltda Brazil
Sara Lee Canada Holdings Limited Canada
Sara Lee Charcuterie, S.A. France
Sara Lee Chile S.A. Chile
Sara Lee Clothing Company Pty. Ltd. Australia
Sara Lee Comercial Limitada Chile
Sara Lee Corporation Asia Limited Hong Kong
Sara Lee de Costa Rica, S.A. Costa Rica
Sara Lee Direct Marketing S.A. France
Sara Lee Direct Marketing UK Ltd United Kingdom
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Sara Lee Finance U.K. England
Sara Lee Food Holdings Pty. Ltd. Australia
Sara Lee France Finance S.A. France
Sara Lee France SNC France
Sara Lee French Holidng Company S.A. France
Sara Lee Foreign Sales Corporation Barbados
Sara Lee Holding Corporation Limited Canada
Sara Lee Holdings (Australia) Pty. Ltd. Australia
Sara Lee Holdings (NZ) Ltd. New Zealand
Sara Lee Hong Kong Limited Hong Kong
Sara Lee Household & Body Care Ltd. United Kingdom
Sara Lee Household & Body Care (Australia) Pty Ltd. Australia
Sara Lee Household & Body Care France S.N.C. France
Sara Lee Household & Body Care Italy S.p.A. Italy
Sara Lee Household & Body Care Malawi Limited Malawi
Sara Lee Household & Body Care Osterreich GmbH Austria
Sara Lee Household & Body Care Research B.V. Netherlands
Sara Lee Household & Body Care UK Limited England
Sara lee Household & Body Care Zambia Limited Zambia
Sara Lee Household & Personal Care Products S.A. Greece
Sara Lee Hungary Kave es Tea Kft. Hungary
Sara Lee International B.V. Netherlands
Sara Lee Intimates de Villanueva S.A. - Honduras
Partnership
Sara Lee Intimates El Salvador, S.A. de C.V. El Salvador
Sara Lee Intimates El Salvado - Partnership El Salvador
Sara Lee Intimates Villanueva S.A. de C.V. Honduras
Sara Lee Japan Ltd. Japan
Sara Lee Kave es Tea Rt. Hungary
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Sara Lee Knit Products Benelux N.V. Belgium
Sara Lee Knit Products Mexico SA de CV Mexico
Sara Lee Knit Products de Mexico, Mexico
S. de R.L. de C.V.
Sara Lee Knit Products Europe N.V. Belgium
Sara Lee Malaysia Sdn Bhd Malaysia
Sara Lee Maquiladora Holdings, S. de R.L. de C.V. Mexico
Sara Lee Mexicana Holdings, S. de R.L. de C.V. Mexico
Sara Lee Meats Europe B.V. Netherlands
Sara Lee Mexicana Holdings S de RI de CV Mexico
Sara Lee Mexicana S.A. de C.V. Mexico
Sara Lee Moda Femenina, S.A. de C.V. Mexico
Sara Lee of Canada Holdings Limited Canada
Sara Lee of Canada Holdings Limited Partnership Canada
Sara Lee of Canada Investments Company Canada
Sara Lee of Canada Limited Canada
Sara Lee of Canada Ltd. Canada
Sara Lee of Canada Limited Partnership Canada
Sara Lee Coffee & Tea (Australia) Pty Ltd. Australia
Sara Lee Overseas Finance N.V. Netherland Antilles
Sara Lee Argentina S.A. Argentina
Sara Lee Personal Products Colombia, S.A. Colombia
Sara Lee Personal Products Espana S.L. Spain
Sara Lee Personal Products Fiji Ltd. Fiji
Sara Lee Personal Products Hellas, S.A. Greece
Sara Lee Personal Products Pty. Ltd. Australia
Sara Lee Personal Products Venezuela Venezuela
Sara Lee Philippines Inc. Philippines
Sara Lee Singapore Pte. Ltd. Singapore
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Sara Lee Sock Mexico, S.A. de C.V. Mexico
Sara Lee Sourcing Asia, Ltd. Hong Kong
Sara Lee Taiwan Co., Ltd. Taiwan
Sara Lee Trading Limited Thailand
Sara Lee TTK Limited India
Sara Lee UK Holdings PLC England
Sara Lee (Hong Kong) Limited Partnership Hong Kong
Sara Lee (South Africa) (Pty.) Ltd. South Africa
Sara Lee (UK Investments) Limited United Kingdom
Sara Lee/DE Antilles N.V. Netherlands
Sara Lee/DE Beheersmaatschappij B.V. Netherlands
Sara Lee/DE (Deutschland) GmbH Germany
Sara Lee/DE Finance C.V. Netherlands
Sara Lee/DE Financieringsmaatschappij B.V. Netherlands
Sara Lee/DE France France
Sara Lee/DE France SNC France
Sara Lee/DE Holding GmbH Germany
Sara Lee/DE Holdings (South Africa) (Pty) Limited South Africa
Sara Lee/DE Household & Body Care Research B.V. Netherlands
Sara Lee/DE Investments, BV Netherlands
Sara Lee/DE Italy S.p.A Italy
Sara Lee/DE N.V. Netherlands
Sara Lee/DE Osterreich GmbH Austria
Sara Lee/DE Poland Sp z o o Poland
Sara Lee/DE Services B.V. Netherlands
Sara Lee/DE (Schweiz) AG Switzerland
Sara Lee/DE Switzerland Switzerland
Sara Lee/DE Vermogensverwaltung GmbH Germany
Sara Lee/DE Verwaltungs GmbH Germany
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Saramar Europe B.V. Netherlands
Saramode S.p.A. Italy
SBB S.A. France
SCI NOMACO France
SDP Rungis S.A. France
SERRA Sarl France
Sertil Pty. Ltd. Australia
Servicios Administrativos Sara Lee, S.A. de C.V. Mexico
Siamcona Ltd. Thailand
Siamcona (Thailand) Ltd. Thailand
SLI Compania de Servicios Administrativos S.A. Costa Rica
SLKP Benelux N.V. Belgium
SLKP Benelux N.V. - Hanes Belgium
SLKP Compania de Servicios Costa Rica
SLKP Compania de Servicios Administrativos S.A. Costa Rica
SLKP Europe N.V. Belgium
SLKP Europe N.V. - Hanes Belgium
SLPP (Brunswick) Pty. Ltd. Australia
SLPP (Coolaroo) Pty. Ltd. Australia
SLPP Hellas Greece
Societe Bretone D'Andouilles et Andouillettes France
Societe de Boyauderies de Belley S.A. France
S.N. Degoisey S.A. France
S.N. Fibers Ltd. Israel
Spring City de Honduras, S.A. Honduras
Stegeman Argal GmbH Germany
Stegeman B.V. Netherlands
Strozzi Vermogensverwaltung GmbH Germany
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
Swiss Coffee Care B.V. Netherlands
Swiss Garde (Proprietary) Limited South Africa
Swissguard (Pty.) Limited South Africa
Taesa, S. de R.L. de C.V. Mexico
Tana Canada Incorporated Canada
Tana Scandinavia A/S Denmark
Tana Schuhpflege AG Switzerland
Tejidos Flex Corporation Panama
Telec A.G. Switzerland
Telec S.A. Switzerland
Temana International Limited United Kingdom
Textile Tropicales Costa Rica Costa Rica
Textiles Tropicales, S.A. Costa Rica
Textrade Israel
The Kiwi Polish Company Pty. Ltd. Australia
The Sara Lee Bakery (Australia) Pty. Ltd. Australia
Tomten A/S Norway
Tradi Charcuterie S.A. France
Tradi France S.A. France
Tricotbest B.V. Netherlands
Tricotbest CSFR Czech Republic
Tricotbest Ceska Republica spol. SRO Czech Republic
Tricotbest GmbH Germany
Tricotbest Hungaria Kft. Hungary
Tricotbest Polska sp. z.o.o. Poland
Tricotbest Russia Russia
Tricotbest Slovensko s.r.o. Slovak Republic
Tricotbest Ukraina Ukraine
Tuxan Schuhpflegemittel GmbH Austria
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
- ---- ----------------------
<S> <C>
U.F.I.M.A. S.A. France
Underwear Ltd. Malta
Uninex S.A. Uruguay
Van Nelle Holding (Germany) GmbH Germany
Vatter GmbH Germany
Vatter GmbH Rheine Germany
Vatter Produktions GmbH Germany
Vatter Services s.r.o. Czech Republic
Vatter Slovensko spol. s.r.o. Slovak Republic
Vermere France
Verpakkingsindustrie Boers B.V. Netherlands
Vleeswarenverwerkingsindustrie Boers N.V. Netherlands
Vlijmense Belegging-Maatschappij BV Netherlands
Wilco Conserven B.V. Netherlands
2476230 Nova Scotia Ltd. Canada
</TABLE>
<PAGE>
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated August 2, 1999 included in this form 10-K, into the
Company's previously filed Registration Statement (File Nos. 33-35760,
33-57615. 33-60837, 33-60071, 33-64383, 33-63715, 33-63717, 33-59002,
33-49212, 33-33245, 33-33244, 333-17987, 333-18385, 333-41427, 333-71839, and
333-71797).
/s/ Arthur Andersen LLP
-----------------------------
Arthur Andersen LLP
Chicago, Illinois
September 27, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Paul A. Allaire
--------------------------------
Paul A. Allaire
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for her and in her
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or her substitute, may lawfully do
or cause to be done by virtue herself.
/s/ Rozanne L. Ridgway
--------------------------------
Rozanne L. Ridgway
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Duane L. Burnham
--------------------------------
Duane L. Burnham
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Frans H.J.J. Andriessen
--------------------------------
Frans H.J.J. Andriessen
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Charles W. Coker
--------------------------------
Charles W. Coker
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ James S. Crown
--------------------------------
James S. Crown
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Willie D. Davis
--------------------------------
Willie D. Davis
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Vernon E. Jordan, Jr.
--------------------------------
Vernon E. Jordan, Jr.
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ James L. Ketelsen
--------------------------------
James L. Ketelsen
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Hans B. van Liemt
--------------------------------
Hans B. van Liemt
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears
below constitutes and appoints Roderick A. Palmore and R. Henry Kleeman, each
of them, her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to act for her and in her name, place and
stead, in any and all capabilities to sign the Annual Report on Form 10-K of
Sara Lee Corporation for the fiscal year ending July 3, 1999, and any and all
amendments thereto and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or her substitute, may lawfully do
or cause to be done by virtue herself.
/s/ Joan D. Manley
-----------------------------
Joan D. Manley
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Richard L. Thomas
--------------------------------
Richard L. Thomas
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ John D. Zeglis
--------------------------------
John D. Zeglis
Dated: September 17, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Roderick A. Palmore and R. Henry
Kleeman, each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to act for him and in his
name, place and stead, in any and all capabilities to sign the Annual Report
on Form 10-K of Sara Lee Corporation for the fiscal year ending July 3, 1999,
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue himself.
/s/ Frank L. Meysman
--------------------------------
Frank L. Meysman
Dated: September 17, 1999
<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>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-END> JUL-03-1999
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<SECURITIES> 25
<RECEIVABLES> 1,945
<ALLOWANCES> 201
<INVENTORY> 2,643
<CURRENT-ASSETS> 4,987
<PP&E> 4,971
<DEPRECIATION> 2,802
<TOTAL-ASSETS> 10,521
<CURRENT-LIABILITIES> 5,953
<BONDS> 1,892
0
33
<COMMON> 9
<OTHER-SE> 1,257
<TOTAL-LIABILITY-AND-EQUITY> 10,521
<SALES> 20,012
<TOTAL-REVENUES> 20,012
<CGS> 12,208
<TOTAL-COSTS> 12,208
<OTHER-EXPENSES> 76
<LOSS-PROVISION> 169
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> 1,671
<INCOME-TAX> 480
<INCOME-CONTINUING> 1,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,191
<EPS-BASIC> 1.31
<EPS-DILUTED> 1.26
</TABLE>
