-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ImAbw6gDScVGEutbAXVXA5IA8052KqDtHhqAgL7OHU6KUclXlmPUeL2AXKtjnTch cSCuLN6qOxU2vHN2+2TOkQ== 0000912057-97-031412.txt : 19970924 0000912057-97-031412.hdr.sgml : 19970924 ACCESSION NUMBER: 0000912057-97-031412 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970923 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEE SARA CORP CENTRAL INDEX KEY: 0000023666 STANDARD INDUSTRIAL CLASSIFICATION: FOOD & KINDRED PRODUCTS [2000] IRS NUMBER: 362089049 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03344 FILM NUMBER: 97684062 BUSINESS ADDRESS: STREET 1: THREE FIRST NATIONAL PLZ STREET 2: STE 4600 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3127262600 MAIL ADDRESS: STREET 1: THREE FIRST NATL PLZ STREET 2: SUITE 4600 CITY: CHICAGO STATE: IL ZIP: 60602 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED FOODS CORP DATE OF NAME CHANGE: 19850402 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED GROCERD CORP DATE OF NAME CHANGE: 19731220 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- 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 JUNE 28, 1997 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 1-3344 ---------------- 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 ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------- ----------------------------------- Common Stock, $1.33 1/3 par value The Chicago Stock Exchange The New York Stock Exchange The Pacific Stock Exchange Amsterdam Stock Exchange The Bourse (Paris) Swiss Exchange The Stock Exchange (London) Preferred Stock Purchase Rights The Chicago Stock Exchange The New York Stock Exchange The Pacific Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE -------------- 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. Yes /X/ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of September 2, 1997, 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 $19.9 billion. On September 2, 1997, the registrant had outstanding 480,725,013 shares of common stock of $1.33 1/3 par value, which is the registrant's only class of common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement, dated September 22, 1997, are incorporated by reference into Items 10-12 of Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I Item 1. Business (A) GENERAL DEVELOPMENT OF BUSINESS Sara Lee Corporation ("Sara Lee" or the "Corporation") is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world. It was organized in Baltimore, Maryland in 1939 as the C.D. Kenny Company and adopted its current name in 1985. For the past five years, the main focus of Sara Lee has been to continue to build brand equity and improve returns. Sara Lee currently has 31 "megabrands", defined as a brand with sales of more than $100 million. Sara Lee pursued its strategy of building brand equity and improving returns through the introduction of new products, the expansion of existing products into new markets, and a significant commitment to marketing support in order to build leadership brands. In fiscal 1997, Sara Lee spent $1.9 billion to retain and grow the equity of its brands with customers, and to support its stable of value-added, high-margin products in its four industry segments, Packaged Meats and Bakery, Coffee and Grocery, Household and Body Care and Personal Products. This amount represents an increase of 5% over fiscal 1996. On September 15, 1997, Sara Lee announced that it is considering the adoption of a three-year strategic program to more tightly focus its business activity and make the Corporation more competitive. The key element of the program is a plan to de-verticalize the operations of Sara Lee to the extent practical and possible by divesting operating assets. Sara Lee is targeting to raise $3 billion in cash over the next three years through the divestment of operating assets and further cost reduction programs, including outsourcing. The three-year strategic program will result in a fiscal 1998 after-tax charge, which is currently estimated to be approximately $1.6 billion, related primarily to the sale and write down of assets that Sara Lee has determined it does not need to own in order to fulfill its primary mission of building brands on a global basis. Sara Lee anticipates that the charge will be predominantly non-cash. SARA LEE PACKAGED MEATS AND BAKERY Sara Lee Packaged Meats continued its focus on high-margin, value-added products in fiscal year 1997 with an emphasis on convenient and "better-for-you" products. Several Sara Lee meat brands introduced more easy-to prepare and reduced-fat or fat-free products in fiscal 1997. Reduced-fat products account for an increasing percentage of Sara Lee's retail meat sales. On a worldwide basis, unit volumes were unchanged for the year, reflecting a continuing strategy to exit low-margin categories and the impact of higher commodity costs, although sales and profits increased. In fiscal 1997, Sara Lee pursued its objectives of building brands and increasing business outside the United States through its acquisition of Aoste, a leading processed meats company in France and one of Europe's largest processed meats producers. Aoste manufactures processed meats under the major brand names of AOSTE, JUSTIN BRIDOU and COCHONOU. As a result of the acquisition, Sara Lee is the largest packaged meats company in the world. Sara Lee also focused on integrating its international businesses and brands to take advantage of operating synergies, cost-containment programs and new product opportunities. 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 1997. During the fiscal year, Sara Lee Bakery continued to pursue growth and expansion opportunities in international markets. Currently, more than 25% of total Bakery sales are generated outside the U.S. Sara Lee Bakery also introduced and expanded its distribution of a number of new products, including fresh-baked goods. Fresh-baked offerings are currently available in approximately one-third of U.S. markets. In fiscal 1997, Sara Lee also expanded the number of products with microwaveability, smaller or single-serving sizes and added convenience. Sara Lee Bakery's foodservice unit continued to expand its product offerings, including a selection of ultra-premium pies and cakes. 1 During the year, Sara Lee Bakery completed its acquisition of Finnegans Famous Cakes Ltd., a leading privately owned foodservice company based in England. The Bakery also acquired Grand Metropolitan, Plc's Brossard bakery businesses in France and Italy. In fiscal 1997, worldwide unit volume, excluding acquisitions, declined 5% for the fiscal year, reflecting a weak retail environment for frozen baked goods, although sales and profits rose in international markets. Sara Lee Foodservice's 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. Sara Lee continues to focus on low-cost production, customer service and increasing unit volumes. PYA/Monarch has continued to pursue a strategy of aggressive warehouse expansion to meet sales growth in key markets. PYA also introduced new technologies in the 1997 fiscal year to enhance responsiveness to customers. Foodservice unit volumes increased 4%, excluding acquisitions. SARA LEE COFFEE AND GROCERY During fiscal 1997, the Coffee and Grocery line of business introduced new items to address regional taste preferences, lifestyle trends and worldwide demand for premium and specialty coffees. Sara Lee offered new coffee products in France, Greece, the Netherlands, Spain and Australia. Sara Lee also continued to refine its format for retail coffee outlets in Europe, opening four JACQMOTTE STORE coffee shops in Belgium and four COFFEE TIMES outlets in the Netherlands. During the 1997 fiscal year, instant coffee products were introduced in Russia, where Sara Lee has marketed tea since 1994. New tea products were also launched during the fiscal year. Sara Lee expanded its line of ready-to-drink, cold fruit teas in the Netherlands. Green coffee costs were volatile in fiscal 1997. As green coffee costs began to rise early in the third quarter of fiscal 1997, consumer demand strengthened in anticipation of retail price increases. Unit volumes for roasted coffee rose 3% for the fiscal year, excluding acquisitions. The volatility in green coffee prices as well as the strengthening of the U.S. dollar relative to European currencies affected the coffee and grocery operations. While reported sales fell 2.9%, dollar-denominated profits rose 2.9%. In local currency terms, both revenues and profits grew in the 1997 fiscal year. SARA LEE HOUSEHOLD AND BODY CARE Sara Lee Household and Body Care is comprised of three core categories -- shoe care, body care and insecticides. In fiscal 1997, Household and Body Care continued to grow and posted increased sales and profits on the strength of its shoe care and body care businesses. Sales for insecticides were negatively affected by cool summer conditions in Europe. Product developments in Sara Lee's shoe care business continued in fiscal 1997, with the introduction under the Kiwi brand of a line of "self-shine" sponges with leather-nourishing capabilities. In the body care category, a premium priced range of DUSCHDAS NATURELLE shower gels was introduced in Germany and the range of DUSCHDAS products was extended with a formulation designed for older skin. The BADEDAS ERHOLUNGSTHERAPIE line of relaxing bath and shower products was also expanded. SANEX shower gels and deodorants were relaunched across Europe with a new formula and packaging and the DELIAL line of sun care products was relaunched in Spain. Sara Lee's Direct Selling businesses in Mexico, Indonesia, the Philippines, South Africa, China and Uruguay were bolstered in fiscal 1997 by the acquisition of HomCare Japan, Ltd., and in early fiscal 1998 by the acquisition of the Australian direct selling business Nutri-Metics International, which has operations in 18 countries. The establishment of House of Fuller/Argentina in late fiscal 1997 also increased Sara Lee's presence in South America. The direct selling business offers a channel for marketing Household and Body Care products directly to consumers. A growing selection of apparel products also are marketed. 2 Increasing economic stability in Mexico led to improved performance in sales and operating profit for Sara Lee's House of Fuller direct selling business in fiscal 1997. House of Fuller, with more than 215,000 independent sales representatives, is the number-two direct seller in Mexico. In Asia, House of Sara Lee expanded products offerings for consumers in China, Indonesia and the Philippines. The acquisition of HomCare Japan added 40,000 independent sales representatives to Sara Lee's growing direct selling business in the Asia-Pacific region, while Nutri-Metics added more than 200,000 representatives in 18 countries worldwide. SARA LEE PERSONAL PRODUCTS Sara Lee Intimates increased worldwide unit volumes 1% in fiscal 1997. During fiscal 1997, Sara Lee maintained its number-one position in the intimate apparel markets in the United States, Canada and Mexico. In fiscal 1997, Sara Lee's worldwide Intimate Apparel business emphasized value-added innovations as well as products that provide access to new markets. For example, PLAYTEX introduced a line of plus-sized lingerie -- Body Language -- and updated other product offerings, while BALI introduced three new figure shaping collections. Sara Lee also expanded its product lines geographically, acquiring the French RIEN brand and entering into a co-branding alliance with Amway Japan Ltd., which will result in the exclusive collection of Playtex bras being sold through more than one million Amway Japan distributors. Sara Lee Accessories posted increased sales and unit volumes in fiscal 1997. COACH continues to focus on innovative product initiatives, brand leveraging through licensing agreements and expanded distribution. COACH introduced the ERGO collection in late fiscal 1997 and entered into a licensing agreement with the Movado Group to produce wristwatches. Currently, there are 149 Coach retail stores in the United States and another 125 locations around the world, including a new flagship Coach store in Florence, Italy. Sara Lee recently divested a controlling interest in Aris Isotoner, a manufacturer of gloves and accessories. Sara Lee Knit Products continued to focus on value-added products, cost-effective manufacturing and expanding channels of distribution in fiscal 1997. Worldwide unit volumes for all knit product categories increased 9% during fiscal 1997, excluding acquisitions. In fiscal 1997, Sara Lee continued to hold the number-one market position for U.S. men's and boys' underwear and U.S. women's and girls' panties category. For the fourth consecutive year, the HANES megabrand was the number one apparel label in the mass channel of distribution. In fiscal 1997, Sara Lee added a number of new products to its knit product lines, including HANES' The Michael Jordan Collection of premium underwear, new men's underwear collections under the CHAMPION and SPALDING lines, and new characters to the popular HANES SHOWTOONS underwear. Under the Polo Ralph Lauren label, Sara Lee introduced underwear, loungewear, pajamas and terry robes. Sara Lee also continued to expand the JUST-MY-SIZE label, which offers an extensive line of plus-sized casualwear, sleepwear and sportswear. Sara Lee Hosiery's worldwide legwear business, which includes sheer hosiery, socks, tights and opaques, posted lower sales in 1997, reflecting weak global market trends. To counter declining demand for sheer hosiery worldwide, Sara Lee is strengthening the equity of its principal hosiery brands, improving operating efficiencies and developing high-margin, value-added products that broaden consumer choices in legwear. Worldwide legwear unit volumes fell 2% last year, combining a 4% decline in sheer hosiery sales with a 6% increase in socks. In fiscal 1997, Sara Lee unveiled new hosiery products offering superior fit, durability and figure control. Sara Lee also implemented marketing and advertising programs and initiatives to enhance the prominence of its top brands. Sara Lee continued to support initiatives to enhance brand identity and awareness of new products. Prominent among these initiatives was the Tina Turner HANES hosiery campaign, which included print, billboard and television advertising, as well as sponsorship of a North American concert tour. 3 The DIM brand, marketed worldwide in more than 50 countries, marked its 30th year as France's top name in hosiery with new product introductions, including extensions to its popular VENTRE PLAT line of control-top sheer hosiery. New products offering BODY CONTOURING features, comfort and durability again dominated new product introductions for Sara Lee Hosiery. These products offer specific benefits to consumers while providing higher profit margins. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Sara Lee's businesses are classified into four industry segments: Packaged Meats and Bakery, Coffee and Grocery, Household and Body Care and Personal Products. The financial information about Sara Lee's industry segments can be found on page F-24 of this Report. (C) NARRATIVE DESCRIPTION OF BUSINESS SARA LEE PACKAGED MEATS AND BAKERY Sara Lee Packaged Meats processes and sells pork, poultry and beef products to supermarkets, warehouse clubs, national chains and institutions throughout the United States, Europe and Mexico. Sales are transacted through Sara Lee's own sales force, brokers and institutional buyers. Some of the more prominent brands in the United States within this category include BALL PARK, BEST'S KOSHER, BRYAN, HILLSHIRE FARM, HYGRADE, JIMMY DEAN, KAHN'S, MR. TURKEY, SARA LEE and SINAI 48. Sara Lee's more prominent European brands include STEGEMANN in the Netherlands, ARGAL in Spain and NOBRE in Portugal. Sara Lee has a 49.9% interest in AXA Alimentos, S.A. de C.V., which owns Kir Alimentos S.A. de C.V., a leading processed meats company in Mexico. In fiscal 1997, Sara Lee acquired Aoste, a leading processed meats company in France and one of Europe's largest processed meats producers. Aoste markets processed meats under the brand names of AOSTE, JUSTIN BRIDOU and COCHONOU. Sara Lee is the largest processed meats company in the world. The products offered by this line of business include smoked sausage, bacon, hot dogs, breakfast sausage, breakfast sandwiches, premium deli and luncheon meats, ham, turkey, and packaged lunch combinations. The ingredients -- pork, turkey and beef -- are purchased by Sara Lee from a variety of sources. The prices of these raw materials fluctuate, depending primarily on supply and demand. Meat commodity costs rose in fiscal 1997. Because of the range of sources from which these raw materials are available, Sara Lee believes that it will continue to have access to adequate supplies. The Packaged Meats category is highly competitive, with an emphasis on product quality, price, advertising and promotion, and customer service. Sara Lee's competitors include international, national, regional and local companies. The Packaged Meats category has accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. Sara Lee believes it is one of the three industry leaders in the United States. Most of Sara Lee's Packaged Meats operations are regulated by the U.S. Department of Agriculture, whose focus is the quality, sanitation and safety of meat products, and, to some extent, by state and local government agencies. Sara Lee's Packaged Meats operations in Europe and Mexico are regulated by local authorities. Sara Lee Bakery produces a wide variety of fresh and frozen baked and specialty items. Its core products are pies, cheesecakes, pound cakes and Danish pastries. These products are sold through supermarkets, foodservice distributors, bakery-deli and direct channels throughout the United States, United Kingdom, France, Mexico, Australia and numerous Asia-Pacific countries. Sales are transacted through Sara Lee's sales force and independent wholesalers and distributors. The key ingredients for these products -- butter, milk, sugar, fruits, eggs and flour -- are purchased from suppliers at prices that are subject to such influences as supply and demand, weather, and government price controls. Because of the 4 number of sources from which such raw materials are generally available, Sara Lee believes it will continue to have access to adequate supplies. Competition in this category is keen, with a large number of participants. Sara Lee seeks to maintain and enhance a leading position in the industry through 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. Sara Lee Foodservice's business is conducted principally under the PYA/Monarch name. With the acquisition of Bass & Swaggerty, a Florida based foodservice distributor in fiscal 1997, PYA/Monarch strengthened its position as the leading foodservice distributor in the southeastern United States. PYA/ Monarch is the fourth largest full-line foodservice company in the nation. This business distributes dry, refrigerated and frozen foods, paper supplies and foodservice equipment to institutional and commercial foodservice customers. The institutional foodservice distribution industry is highly competitive, with price and service being the major means by which Sara Lee Foodservice competes. This line of business generates lower margins on sales dollars than Sara Lee's other businesses. The foodservice business accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. SARA LEE COFFEE AND GROCERY Sara Lee believes it is one of the top four coffee roasters in the world, and one of the top three in the European market. It has a significant presence in such countries as the Netherlands, Belgium, France, Denmark, Spain and Australia, and has established positions in Central and Eastern Europe through acquisitions and expanded sales efforts. While DOUWE EGBERTS is its European flagship brand, its other premium European coffee brands include MAISON DU CAFE, MARCILLA and MERRILD. Sara Lee's PICKWICK brand, an important brand in the European tea market, is expanding its current lines in an effort to appeal to younger consumers and has entered the Russian and Eastern European markets. This is a very competitive business with the other participants consisting primarily of other large multi-national companies. Sara Lee seeks to maintain a competitive edge by offering its customers superior quality and value. Sara Lee is also a significant competitor in the out-of-home coffee service business. Its Douwe Egberts Coffee Systems business provides coffee and dispensing equipment in Europe, while its Superior Coffee and Foods business provides similar products and services in the United States. The significant cost item in the production of coffee products is the price of green coffee, which varies depending on such factors as weather (which affects the quality and quantity of available supplies), consumer demand, the political climate in the producing nations, unilateral pricing policies of producing nations, speculation on the commodities market, and the relative valuations and fluctuations of the currencies of producer versus consumer countries. These factors also generally affect Sara Lee's competitors. Uncertainty over the availability of supplies resulted in extreme volatility in the price of green coffee in fiscal 1995, leading to the highest prices in recent years. In fiscal 1996, green coffee prices declined. Green coffee experienced significant cost volatility in fiscal 1997 and green coffee prices rose substantially in the latter half of the fiscal year. Sara Lee anticipates that green coffee prices will continue to be affected due to uncertainty over the availability of future supplies. Sara Lee has, and expects to continue to, offset the negative effect of price increases through careful inventory management, cost cutting, and higher prices for its coffee products. Primarily due to consumers increasing their purchases of coffee in anticipation of retail price increases, unit volume gains were posted for Sara Lee coffee brands in most European markets. 5 The Sara Lee Coffee and Grocery line of business also manufactures rice products under the LASSIE brand in the Netherlands, snack and nut products under the DUYVIS, FELIX and BENENUTS brands in the Netherlands, Belgium and France, and cut and pipe tobacco under the AMPHORA, DRUM and VAN NELLE brands in Europe. The Sara Lee Coffee and Grocery business has accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. SARA LEE HOUSEHOLD AND BODY CARE Sara Lee Household and Body Care is composed of three primary core categories: shoe care -- led by a worldwide line of Kiwi products; body care items -- led by the SANEX brand, but also including DUSCHDAS and BADEDAS and baby care products sold under the ZWITSAL, FISSAN and PRODERM names; and insecticides -- sold internationally under the CATCH, BLOOM, VAPONA and RIDSECT brand names. AMBI-PUR air fresheners, ZENDIUM and PRODENT oral care products, and BIOTEX and NEUTRAL specialty detergents are also important categories for Sara Lee. Body care items and insecticides are marketed principally in Europe as well as into the Asia-Pacific and Latin America markets. These products are sold through a variety of retail channels including supermarkets. These are very competitive businesses. Sara Lee seeks to maintain a competitive advantage by offering its customers superior quality and value. Sara Lee Direct Selling distributes a wide range of products -- cosmetics, fragrances, toiletries, personal products and jewelry -- through a network of independent sales representatives. This method of reaching the consumer has been particularly successful at the House of Fuller business in Mexico, the House of Sara Lee businesses in Indonesia and the Philippines, and the Avroy Shlain business in South Africa. Sara Lee also operates direct selling organizations in China and Uruguay and has acquired direct selling businesses in Japan and Australia. While this segment is very fragmented, Sara Lee believes it has an important position in many product lines in those countries in which it competes. SARA LEE PERSONAL PRODUCTS The Personal Products line of business, which is headquartered in Winston-Salem, North Carolina, includes the Intimates, Accessories, Knit Products and Hosiery business groups. Sara Lee Intimates' business includes bras, panties and shapewear. These are manufactured and distributed under such labels as BALI, HANES HER WAY, PLAYTEX, WONDERBRA and DAISYFRESH in North America, and PLAYTEX and DIM in Europe. Sara Lee holds a leading position in the Mexican bra market through its PLAYTEX and HANES HER WAY brand and continued to build market share in Canada during fiscal 1997 through its PLAYTEX, WONDERBRA, DAISYFRESH and HANES HER WAY brands. Distribution channels for intimate apparel range from department and specialty stores for such premium brands as BALI, and some PLAYTEX products, to warehouse clubs and mass-merchandise outlets for some of the value-priced brands. Sales are effected through Sara Lee's sales force. The intimate apparel market is a competitive one based on consumer brand loyalty. Sara Lee endeavors to maintain its competitive edge through marketing and promotional efforts, and by offering consumers value through a superior combination of quality and price. Sara Lee Accessories' business involves the manufacture and marketing of premium leather products through its Coach division. Coach products are sold through department stores, catalog sales and Sara Lee stores. Coach operates approximately 149 retail stores in the United States and 125 stores located outside the United States. Sara Lee Knit Products' business involves the manufacture and distribution of men's, women's and children's underwear and activewear (T-shirts, fleecewear and other jersey products for casualwear) in North America, South and Central America, Europe and the Asia-Pacific countries. These products are 6 sold through Sara Lee's sales force to department stores, mass merchandisers, discount chains and the screen print trade. Principal brands in this category include CHAMPION, HANES, HANES HER WAY and RINBROS in North America, and ABANDERADO, PRINCESA, CHAMPION, HANES and DIM in Europe. Sara Lee believes that it has the leading market share in both the women's and girls' panties category in the United States, and in the heavily branded category of men's and boys' underwear in the United States, and the leading position in men's and boys' underwear in Mexico. Activewear is marketed under Sara Lee's HANES and CHAMPION lines. In addition to targeting the public activewear market, Champion also manufactures and markets authentic uniforms and practicewear for professional and amateur athletic teams, including such organizations as the National Basketball Association, the National Football League, the Olympics and a number of major university sports teams. The principal raw material in this product category is cotton. Sara Lee currently believes it has access to an adequate supply of cotton from a variety of sources. The knit products business is highly competitive, with products relying on brand recognition, quality, price and loyalty. Sara Lee competes by offering superior value, making use of low-cost sourcing, marketing activities and utilizing its megabranding strategy. The megabrands strategy entails marketing various products through common packaging, promotion and advertising. The Knit Products business has accounted for 10% or more of Sara Lee's consolidated revenues during each of the past three fiscal years. Sara Lee Hosiery is the market leader in hosiery markets in North America, Western Europe, Australia, New Zealand and South Africa. It also continues to establish operations in various Asia-Pacific countries, placing it in a strategic position to capitalize on developing markets in that area. Hosiery products consist of a wide variety of branded, packaged consumer products, including pantyhose, stockings, combination panty and pantyhose garments, tights, knee-highs and socks, many of which are available in both sheer and opaque styles. These products are sold domestically under such brand names as HANES, L'EGGS, DONNA KARAN and DKNY (the last two being licensed), and abroad under such labels as DIM, PRETTY POLLY, ELBEO, NUR DIE, BELLINDA, FILODORO, PHILIPPE MATIGNON and OMERO. Sara Lee is the largest sock manufacturer in the United States. Hosiery products are sold by Sara Lee's sales force in channels ranging from department and specialty stores (for premium brands such as HANES, DONNA KARAN and DKNY in the United States, and DIM abroad), to supermarkets, warehouse clubs, discount chains and convenience stores for brands like L'EGGS and some DIM products aimed at the price-conscious consumer. Hosiery products are also distributed through catalog sales and Sara Lee stores. The hosiery business has accounted for 10% or more of Sara Lee's consolidated revenues during each of the past three fiscal years. The hosiery business is very competitive in both the United States and Europe. In the United States, Sara Lee's major competitors are other hosiery companies, and the primary methods of competition are quality, value, function, and, with respect to L'eggs products, service and distribution. In Europe, where most of Sara Lee's competitors are small companies who compete in the unbranded sector of the market, the primary focus is on quality. Raw materials -- nylon, spandex, and cotton -- for the products in this category are readily available to Sara Lee from a variety of sources. TRADEMARKS Sara Lee is the owner of over 30,000 trademark registrations and applications in over 140 countries. Sara Lee's trademarks are among its most valuable assets as it pursues its strategy of building brands globally. 7 CUSTOMERS None of Sara Lee's business segments or lines of business is dependent upon a single customer or a small number of customers, the loss of which would have a material adverse effect on Sara Lee's consolidated results of operations. Sara Lee considers major mass retailers and supermarket chains in both the United States and Europe to be significant customers across one or more product categories, and it has developed specific approaches to working with individual customers. SEASONALITY Sara Lee's Packaged Meats and Bakery businesses experience some seasonality. Sara Lee Packaged Meats' sales tend to be higher in the fourth fiscal quarter due to increased demand associated with the onset of the outdoor barbecuing season and various holidays. Sara Lee Bakery experiences increased demand for its products during the second quarter, driven principally by holiday buying. Sara Lee Personal Products, particularly Accessories and Knit Products, generally experience increased demand during the second quarter as a result of "back to school" purchases and the holiday season. The European hosiery business is somewhat seasonal in nature, unlike the domestic hosiery business, and tends to experience a reduced demand in the summer months. ENVIRONMENTAL MATTERS Sara Lee is subject to a number of federal, state and local statutes, rules, regulations and ordinances in the United States and other countries relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment ("Environmental Laws"). While Sara Lee expects to make capital and other expenditures in compliance with Environmental Laws, it does not anticipate that such compliance will have a material adverse effect on its consolidated financial position, results of operations or cash flows. Sara Lee has implemented a program to monitor compliance with Environmental Laws and is continually examining its methods of operation and product packaging to reduce its use of natural resources. EMPLOYEES Sara Lee has approximately 141,000 employees worldwide. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Sara Lee's foreign operations are conducted primarily through wholly- or partially-owned subsidiaries incorporated outside the United States. Sara Lee's principal foreign subsidiary is Sara Lee/DE N.V., a Netherlands limited liability company headquartered in Utrecht, the Netherlands ("Sara Lee/DE"). Sara Lee indirectly owns a 100% interest in Sara Lee/DE, 41% in the form of voting shares and 59% in the form of depository receipts issued by the independent Stichting Administratiekantoor Douwe Egberts Sara Lee. Sara Lee/DE has responsibility for managing the Coffee and Grocery and Household and Body Care divisions of Sara Lee. 8 The foreign operations of the Packaged Meats line of business are conducted through Sara Lee Processed Meats (Europe) B.V., the Aoste Group and Imperial Holding N.V., while the foreign operations of Sara Lee Bakery are conducted through Kitchens of Sara Lee U.K. Ltd., Kitchens of Sara Lee (Australia) Pty. Ltd. and Brossard France S.A. The Coffee and Grocery line of business is conducted by a number of subsidiaries, principally European, including Sara Lee/DE, Douwe Egberts Nederland B.V., Douwe Egberts France S.A., Douwe Egberts Espana S.A., Merrild Kaffe A/S, Douwe Egberts N.V., Compack Douwe Egberts Rt., Harris/DE Pty. Ltd., Balirny Douwe Egberts A.S. and Douwe Egberts Coffee Systems Nederland B.V. The Household and Body Care line of business is conducted by subsidiaries in over forty countries, principally Sara Lee/DE, Kiwi Brands Pty. Ltd., Kiwi France S.A., Kortman Intradal B.V., A/S Blumoller, Sara Lee/DE Espana S.A., Sara Lee Household and Personal Care U.K. Ltd., and Sara Lee/DE Italy S.p.A. The Personal Products line of business includes numerous foreign businesses, including Dim S.A., Grupo Sans, a division of Sara Lee/DE Espana S.A., Sara Lee Personal Products, 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-25 of this Report. Item 2. Properties. Sara Lee operates 291 food processing and consumer product manufacturing plants, each containing more than 20,000 square feet in building area, in 27 states and 37 foreign countries. Sara Lee owns 231 and leases 60 of these plants. It also operates 124 warehouses containing more than 20,000 square feet in building area in 18 states and 21 foreign countries. Of these warehouses, 61 are owned and 63 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.
APPROXIMATE BUILDING AREA INDUSTRY SEGMENT AND IN SQUARE DIVISION OR SUBSIDIARY LOCATION FEET - ------------------------------------------------ ------------------------------------------------ ------------- PACKAGED MEATS AND BAKERY Aoste........................................... Aoste, France 743,000 Aoste........................................... Maclas, France 387,000 Aoste........................................... Peyrolles, France 374,000 Aoste........................................... St. Symphorien, France 303,000 Bil Mar Foods................................... Zeeland, Michigan 577,000 Bryan Foods, Inc................................ West Point, Mississippi 769,000 Hillshire Farm & Kahn's......................... Alexandria, Kentucky 325,000 Hillshire Farm & Kahn's......................... Cincinnati, Ohio 563,000 Hillshire Farm & Kahn's......................... New London, Wisconsin 565,000 Kitchens of Sara Lee............................ Bridlington, England 285,000 PYA/Monarch, Inc................................ Charlotte, North Carolina 288,000 PYA/Monarch, Inc................................ Bloomington, Indiana 321,000 PYA/Monarch, Inc................................ Lexington, South Carolina 364,000 PYA/Monarch, Inc................................ Montgomery, Alabama 276,000 Sara Lee Bakery................................. New Hampton, Iowa 294,000 Sara Lee Bakery................................. Tarboro, North Carolina 346,000 Sara Lee Bakery................................. Traverse City, Michigan 295,000 Sara Lee Processed Meats (Europe) B.V........... Rio Maior, Portugal 348,000
9
APPROXIMATE BUILDING AREA INDUSTRY SEGMENT AND IN SQUARE DIVISION OR SUBSIDIARY LOCATION FEET - ------------------------------------------------ ------------------------------------------------ ------------- Sara Lee Processed Meats (Europe) B.V........... Miralcamp, Spain 260,000 COFFEE AND GROCERY Douwe Egberts Van Nelle Tabaksmaatschappij B.V............................................ Rotterdam, the Netherlands 605,000 Koninklijke Douwe Egberts B.V................... Joure, the Netherlands 1,094,000 Koninklijke Douwe Egberts B.V................... Utrecht, the Netherlands 577,000 Koninklijke Douwe Egberts B.V................... Zaandam, the Netherlands 367,000 Van Nelle International B.V..................... Joure, the Netherlands 301,000* HOUSEHOLD AND BODY CARE Kiwi Brands Inc................................. Douglassville, Pennsylvania 290,000 Kiwi Brands Pty. Ltd............................ Clayton, Australia 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 PERSONAL PRODUCTS Canadelle Inc................................... Montreal, Canada 289,000 Champion Products, Inc.......................... Laurel Hill, North Carolina 368,000 Champion Products, Inc.......................... Gaffney, South Carolina 294,000 Champion Products, Inc.......................... Perry, New York 253,000 Champion Products, Inc.......................... Dunn, North Carolina 289,000 Coach Leatherware............................... Jacksonville, Florida 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 321,000 L'eggs Products................................. Rockingham, North Carolina 440,000 Playtex Apparel, Inc............................ Dover, Delaware 424,000 Sara Lee Direct................................. Rural Hall, North Carolina 598,000* Sara Lee Hosiery................................ East Rockingham, North Carolina 330,000* Sara Lee Hosiery................................ Winston-Salem, North Carolina 770,000 Sara Lee Hosiery................................ Darlington, South Carolina 287,000 Sara Lee Knit Products.......................... Eden, North Carolina 418,000 Sara Lee Knit Products.......................... Forest City, North Carolina 340,000 Sara Lee Knit Products.......................... Galax, Virginia 424,000 Sara Lee Knit Products.......................... Martinsville, Virginia 704,000* Sara Lee Knit Products.......................... Mountain City, Tennessee 562,000 Sara Lee Knit Products.......................... Rabun Gap, Georgia 754,000 Sara Lee Knit Products.......................... Rural Hall, North Carolina 931,000 Sara Lee Knit Products.......................... Sanford, North Carolina 275,000 Sara Lee Knit Products.......................... Winston-Salem, North Carolina 568,000 Sara Lee Knit Products.......................... Greenwood, South Carolina 500,000 Sara Lee Knit Products.......................... Winston-Salem, North Carolina 395,000 Sara Lee Sock Company........................... Kernersville, North Carolina 340,000 Vatter GmbH..................................... Rheine, Germany 549,000
- ------------ * These facilities are leased; the remainder are owned by Sara Lee. 10 Item 3. Legal Proceedings. As a result of environmental audits which Sara Lee undertook of its facilities pursuant to a consent agreement entered into between Sara Lee and the U.S. Environmental Protection Agency ("EPA"), Sara Lee advised the EPA that Sara Lee may have violated certain notification and reporting regulations under various federal environmental statutes. In June, 1997, Sara Lee paid the EPA $237,500 in penalties in settlement of these matters. Bil Mar Foods, a subsidiary of Sara Lee Corporation, has entered into a Consent Order with the State of Michigan, Department of Environmental Quality regarding possible violations of certain conditions of Bil Mar's National Pollutant Discharge Elimination System Permit in connection with the operation of Bil Mar's waste water treatment plant. As a result, Bil Mar is now making a number of modifications and enhancements to ensure that its wastewater treatment plant remains in full compliance with all conditions of the Permit and all applicable environmental regulations. As part of the Consent Order, Bil Mar Foods has agreed to pay $300,000 to the state. In addition to the foregoing, Sara Lee is a party to various pending legal proceedings and claims. Although the outcome of such matters cannot be determined with certainty, Sara Lee's General Counsel and management are of the opinion that the final outcomes should not have a material adverse effect on Sara Lee's results of operations, financial position or cash flows. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. 11 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 2, 1997, Sara Lee had approximately 89,000 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-26 of this Report. Item 6. Selected Financial Data. The requisite financial information for Sara Lee for the five fiscal years ended June 28, 1997, 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-26 of this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This discussion and analysis of results of operations, financial condition and risk management 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-4 through F-26 of this Report. RESULTS OF OPERATIONS The net sales and operating income of the Corporation's business segments for the past three years are as follows:
YEAR ENDED ------------------------------- 1997 1996 1995 --------- --------- --------- (IN MILLIONS) NET SALES Packaged Meats and Bakery.................................... $ 7,614 $ 6,530 $ 6,110 Coffee and Grocery........................................... 2,813 2,896 2,777 Household and Body Care...................................... 1,843 1,837 1,691 Personal Products............................................ 7,482 7,370 7,151 Inter-segment sales.......................................... (18) (9) (10) --------- --------- --------- Net sales.................................................... $ 19,734 $ 18,624 $ 17,719 --------- --------- --------- --------- --------- --------- OPERATING INCOME Packaged Meats and Bakery.................................... $ 476 $ 422 $ 383 Coffee and Grocery........................................... 440 428 374 Household and Body Care...................................... 228 214 181 Personal Products............................................ 761 729 658 --------- --------- --------- Operating income............................................. 1,905 1,793 1,596 Interest, net................................................ (159) (173) (185) Unallocated corporate expenses............................... (262) (242) (192) --------- --------- --------- Pretax income................................................ $ 1,484 $ 1,378 $ 1,219 --------- --------- --------- --------- --------- ---------
12 CONSOLIDATED RESULTS -- 1997 COMPARED WITH 1996 Net sales increased 6.0% to $19.7 billion in 1997, from $18.6 billion in 1996. Businesses acquired net of businesses sold subsequent to the start of 1996 increased net sales by approximately 6.0%. The strengthening of the U.S. dollar relative to foreign currencies had the effect of reducing sales by approximately 2.3%. Thus, on a comparable basis, sales increased 2.3%. Unit volume growth in the Corporation's Coffee, Knit Products and Intimate Apparel businesses was primarily responsible for the sales growth. The gross profit margin was 37.8% in 1997, compared with 38.4% in 1996. The reduction in 1997 was primarily attributable to lower margins in the Corporation's Personal Products segment offset in part by improved margins in the Coffee and Grocery, and Household and Body Care segments. Operating income (pretax earnings before interest and corporate expenses) increased 6.2%. Businesses acquired net of businesses sold subsequent to the start of 1996 increased operating income by 2.9%. The strengthening of the U.S. dollar relative to foreign currencies had the effect of reducing operating income by approximately 3.3%. Thus, on a comparable basis, operating income increased 6.6%. Net interest expense was $159 million in 1997, compared with $173 million in 1996. The lower interest expense is attributable to lower average interest rates and average borrowings. Unallocated corporate expenses, which are costs not directly attributable to specific segment operations, increased 8.3% over 1996. This increase is due to higher administrative costs and expenses associated with certain sold companies, offset by positive impacts of hedging foreign currency movements. The effective tax rate was 32.0% in 1997, compared with 33.5% in 1996. The reduction in the tax rate in 1997 was primarily attributable to increased earnings in certain foreign jurisdictions that have lower tax rates than the United States. Net income for 1997 increased 10.1% to $1.0 billion and primary earnings per share increased 10.9% to $2.03. The higher percentage increase in earnings per share compared to net income is primarily attributable to lower preferred dividends. CONSOLIDATED RESULTS -- 1996 COMPARED WITH 1995 Net sales increased 5.1% to $18.6 billion in 1996 from $17.7 billion in 1995. Businesses acquired net of businesses sold subsequent to the start of 1995 increased net sales by approximately 2.0%. Changes in foreign currencies had no material impact on sales; thus, on a comparable basis, sales increased 3.1%. The gross profit margin was 38.4% in 1996, compared with 37.8% in 1995. The increase in 1996 was attributable to improved margins in the Corporation's Personal Products, and Coffee and Grocery operations, offset in part by lower margins in the Packaged Meats and Bakery operations. Operating income increased 12.3% to $1.8 billion in 1996 from $1.6 billion in 1995, with each of the Corporation's business segments reporting increases in excess of 10%. Businesses acquired net of businesses sold subsequent to the start of 1995 increased operating income by 1.9%. Changes in foreign currencies had no material impact on operating income. On a comparable basis, operating income increased 10.5%. Net interest expense was $173 million in 1996, compared with $185 million in 1995. The lower interest expense in 1996 was primarily due to lower average borrowings and lower average interest rates during the year. Unallocated corporate expenses were $242 million in 1996 and $192 million in 1995. Unallocated corporate expenses in 1996 were negatively impacted by the costs of hedging foreign currency movements, expenses associated with minority interests in subsidiaries and higher administrative costs. The effective tax rate was 33.5% in 1996, compared with 34.1% in 1995. The reduction of the tax rate in 1996 was primarily due to increased earnings in certain foreign jurisdictions that have lower tax rates than the United States. 13 RESTRUCTURING In 1994, the Corporation provided for the cost of restructuring its worldwide operations. The planned restructuring activities were substantially completed in 1996. Operating costs were lowered by $210 million in 1997, $169 million in 1996 and $89 million in 1995. The Corporation expects the restructuring plan to generate savings in 1998 of $250 million. Savings from the planned actions are being used for business-building initiatives and profit improvement. OPERATING RESULTS BY BUSINESS SEGMENT -- 1997 COMPARED WITH 1996 Net sales and operating income in the Packaged Meats and Bakery segment increased in 1997 by 16.6% and 12.8%, respectively, largely due to the acquisition of the European processed meats company, Aoste. Excluding the impact of acquisitions and changes in foreign currencies, Packaged Meats and Bakery sales and operating income increased in 1997 by 4.0% and 4.3%, respectively. Unit volumes for worldwide Packaged Meats were flat for the fiscal year, reflecting higher commodity costs that affected retail prices for most products. Worldwide unit volumes for the Bakery business declined 5% for the full year, reflecting a soft U.S. retail environment for frozen baked goods. Foodservice units increased 4% for the full year. All unit volume comparisons exclude acquisitions. Net sales in the Coffee and Grocery segment decreased 2.9%, while operating income increased 2.9%. These results reflect the negative impact of a stronger U.S. dollar relative to European currencies. Excluding the impact of acquisitions and changes in foreign currencies, Coffee and Grocery sales and operating income increased in 1997 by 2.1% and 11.7%, respectively. Operating margins improved as a result of lower coffee costs in the first half of the year, improved operating efficiencies and increased sales of higher margin products. Unit volumes for roasted coffee increased 3%. Net sales in the Household and Body Care segment increased 0.3%, while operating income increased 6.4%. Results benefited from increased profitability within several Household and Body Care categories including shoe care, body care and direct selling. Excluding the impact of acquisitions and changes in foreign currencies, Household and Body Care sales and operating income increased in 1997 by 3.0% and 10.4%, respectively. During 1997, Personal Products sales and operating income increased 1.5% and 4.4%, respectively. The improvement in segment profitability was primarily attributable to incremental savings from the 1994 restructuring and lower LIFO inventory provisions. Unit volumes for Personal Products' major product categories -- sheer hosiery, knit products and intimate apparel -- increased 3% for the year. Excluding the impact of acquisitions and changes in foreign currencies, Personal Products sales and operating income increased 0.9% and 3.8%, respectively. OPERATING RESULTS BY BUSINESS SEGMENT -- 1996 COMPARED WITH 1995 Net sales and operating income in the Packaged Meats and Bakery segment increased in 1996 by 6.9% and 10.2%, respectively, primarily as a result of business acquisitions offset in part by lower gross margins and lower unit sales volumes. Packaged Meats unit volume was down in 1996 due to a deliberate strategy to exit low-margin categories combined with the negative impact on consumer demand of higher commodity prices. Bakery unit volumes declined 1% in 1996 reflecting frozen bakery industry trends. Foodservice units increased 3% for the full year. Excluding the impact of acquisitions and changes in foreign currencies, Packaged Meats and Bakery sales and operating income increased in 1996 by 3.5% and 7.2%, respectively. Net sales in the Coffee and Grocery segment increased 4.3% in 1996, while operating income increased 14.2%. Sales were positively impacted by a 4% increase in roasted coffee unit volumes, the strengthening of foreign currencies relative to the U.S. dollar and acquisitions. Operating income benefited from improved gross margins resulting from lower coffee costs, higher volumes, a focus on value- 14 added product sales and currency movements. Excluding the impact of acquisitions and changes in foreign currencies, Coffee and Grocery sales and operating income increased in 1996 by 0.5% and 9.7%, respectively. Net sales in the Household and Body Care segment increased 8.7%, while operating income increased 18.5% in 1996 as a result of improved gross margins and sales performance offset in part by the weakening of the Mexican peso relative to the U.S. dollar. Sales of this segment's core products, such as shoe care, body care and insecticides, were strong during the year. Excluding the impact of acquisitions and changes in foreign currencies, Household and Body Care sales and operating income increased in 1996 by 3.2% and 15.7%, respectively. During 1996, Personal Products sales and operating income increased 3.1% and 10.8%, respectively, due to improved gross margins resulting from a continued emphasis on sales of high-margin, value-added products in each of the segment's worldwide businesses and the impact of the 1994 restructuring. Worldwide legwear and sheer hosiery each posted volume declines of 9% for the year. These volume declines were offset by management's emphasis on higher-margin new products. Worldwide knit products unit volume was flat for the year, as improved retail activewear volumes were offset by lower screenprint and flat U.S. underwear unit sales. Worldwide intimate apparel unit sales volume was up 3%, driven by strong demand in the Bali and Playtex brands in the United States offset by weakness in Canada and Mexico reflecting difficult market conditions in these countries. Excluding the impact of acquisitions and changes in foreign currencies, Personal Products sales and operating income increased in 1996 by 3.7% and 11.4%, respectively. FINANCIAL POSITION Net cash provided from operating activities was $1.6 billion in 1997, compared with $1.3 billion in 1996 and $1.4 billion in 1995. Higher profitability and lower working capital requirements were primarily responsible for the improved 1997 operating cash flow results. The 1996 results were impacted by increased year-end working capital requirements. Net cash used in investment activities was $1.0 billion in 1997, $693 million in 1996 and $517 million in 1995. Higher capital expenditures and business acquisitions were the primary reasons for the increased cash use in 1997 and 1996. During 1997, the Corporation acquired several companies for an aggregate purchase price of $674 million in cash and $18 million 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. During 1996, the Corporation acquired several companies for an aggregate purchase price of $216 million in cash. The principal acquisition was the European skin care and sweetener businesses of Bayer AG. During 1995, the Corporation acquired several companies for an aggregate purchase price of $168 million in cash. The principal acquisition was the Imperial Meats Group, a European manufacturer and distributor of processed meats. Also during 1995, the Corporation acquired the remaining outstanding shares of Consolidated Foodservice Companies, a domestic foodservice distribution business. Common stock having a value of $55 million was issued in July 1995 as consideration for the Consolidated Foodservice Companies acquisition. Capital expenditures were $547 million in 1997, $542 million in 1996 and $480 million in 1995. A significant portion of these expenditures was for the reduction of manufacturing and distribution costs, and 15 for expansion of capacity to meet internal growth. The Corporation expects 1998 capital expenditures to be in a range of $500 million to $600 million. The 1998 expenditures will be funded by internal sources and available borrowing capacity. The Corporation retains substantial flexibility to adjust its spending levels in order to act upon other opportunities, including business acquisitions and stock repurchases. During 1997, cash of $468 million was used for financing activities. Net cash expended for the purchase of the Corporation's common stock totaled $393 million and was largely offset by additional borrowings of $362 million. Dividend payments totaled $430 million. During 1996, cash of $555 million was used for financing activities, primarily to repay $150 million of debt and to pay dividends of $395 million. As of June 28, 1997, the total-debt-to-total-capital ratio increased to 33.4% from 29.6% at June 29, 1996. The current capital structure is within the Corporation's objective of maintaining a total-debt-to-total-capital ratio of no more than 40% over time and provides sufficient financial flexibility to pursue business opportunities. 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 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. A discussion of the Corporation's accounting policies for financial instruments is included in the Summary of Significant Accounting Policies in the Notes to Financial Statements, and further disclosure relating to financial instruments is included in the Financial Instrument and Risk Management note. FOREIGN EXCHANGE The Corporation primarily uses foreign currency forward contracts to hedge the exposure to the Corporation of adverse changes in foreign exchange rates. The Corporation's exposure to foreign exchange rates primarily exists with the Dutch guilder, French franc, Italian lira, Spanish peseta and German mark 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 the Corporation's exposure to interest rate movements and 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, cotton, coffee, wheat, corn, soybean and corn oils and sugar. The Corporation generally purchases 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. 16 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 These 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. These amounts are not significant compared with the equity, earnings or daily change in market capitalization of the Corporation.
TIME CONFIDENCE VALUE AT RISK AMOUNT AMOUNTS INTERVAL LEVEL - ------------------------------ ---------- ---------- ---------- (DOLLARS IN MILLIONS) Interest rates................ $ 3.2 1 day 95% Foreign exchange.............. 12.7 1 day 95
The foreign exchange value at risk amount is principally driven by the large amount of foreign currency-denominated net assets the corporation has deployed around the world, including manufacturing plants, inventory and short-term net working capital. These assets are translated to U.S. dollars at the current exchange rate. The change in the value of the assets due to changing foreign exchange rates is included as part of translation adjustment in common stockholders' equity, and not part of income. However, the foreign exchange value at risk amount includes the estimate of the loss on these assets. The amounts presented here from the value at risk model also disregard the possibility that interest rates and foreign exchange rates can move in the corporation's favor. The assumption within the value at risk model is that changes in interest rates and foreign exchange rates are adverse. It is highly unlikely that the Corporation would experience continuous daily losses such as these over an extended period of time. Rather, actual experience has demonstrated that gains on certain days are offset by losses on other days. 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 value of commodity derivative instruments, assuming a 10% change in the underlying commodity price, was $5.2 million. This amount is not significant compared with the earnings and equity of the Corporation. FORWARD-LOOKING INFORMATION This risk management discussion and the estimated amounts generated from the value at risk and sensitivity analyses are forward-looking statements of market risk assuming certain adverse market 17 conditions occur. Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets. The analysis methods used by the Corporation to assess and mitigate risk discussed above should not be considered projections of future events or losses. 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.
FIRST AGE AT OCTOBER ELECTED AN NAME 30, 1997 OFFICES AND POSITIONS HELD OFFICER - --------------------------------------------------- --------------- ------------------------------------ ----------- John H. Bryan...................................... 61 Chairman of the Board, Chief 3/28/74 Executive Officer and Director C. Steven McMillan................................. 51 President and Director* 3/31/83 Michael E. Murphy.................................. 61 Vice Chairman, Chief Administrative 6/28/79 Officer and Director Donald J. Franceschini............................. 62 Vice Chairman and Director* 8/27/92 Frank L. Meysman................................... 45 Executive Vice President and 3/31/94 Director* James R. Carlson................................... 55 Senior Vice President** 7/1/93 Gary C. Grom....................................... 51 Senior Vice President -- Human 10/25/90 Resources Janet Langford Kelly............................... 39 Senior Vice President, Secretary and 11/25/95 General Counsel Mark J. McCarville................................. 51 Senior Vice President -- Corporate 6/24/82 Development Judith A. Sprieser................................. 44 Senior Vice President and Chief 11/1/94 Financial Officer
- ------------ * Effective March 27, 1997. Prior thereto, Messrs. McMillan and Franceschini were executive vice presidents of Sara Lee, and Mr. Meysman was a senior vice president. ** Effective January 30, 1997. Prior to that, Mr. Carlson was a vice president. 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 Janet Langford Kelly. Before joining Sara Lee, Ms. Kelly was a partner in the Chicago office of Sidley & Austin. 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. 18 Item 11. Executive Compensation. The information set forth in the Proxy Statement under the captions "Executive Compensation," and "Retirement Plans" is incorporated herein by reference; provided, however, that the Report of the Compensation and Employee Benefits Committee on Executive Compensation and the Performance Graph contained in the Proxy Statement are not incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) No person or "group" (as that term is used in Section 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, except that, as of September 2, 1997, State Street Bank & Trust Company of Boston, as trustee ("Trustee") of the Sara Lee Corporation Employee Stock Ownership Plan ("ESOP"), held in trust 4,267,227 shares (100% of the outstanding shares) of Sara Lee's Employee Stock Ownership Plan Convertible Preferred Stock ("ESOP Stock"), of which 1,525,927 shares (35.76%) were allocated to participant accounts and 2,741,300 shares (64.24%) were unallocated shares. Each ESOP participant is entitled to direct the Trustee how to vote the shares allocated to such participant's account, as well as a proportionate share of unallocated or unvoted shares. The ESOP Stock votes as a class with the Common Stock and each share of ESOP Stock is entitled to 5.133 votes. Each share of ESOP Stock is convertible into four shares of Sara Lee Common Stock. (b) Security ownership by management as contained in the Proxy Statement under the caption "Sara Lee Common Stock and ESOP 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 1997, Sara Lee paid fees for legal services performed by the law firm of Sidley & Austin, to which Newton N. Minow is of counsel, and the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of which Vernon E. Jordan, Jr. is a senior partner. Sara Lee paid fees for banking services to an affiliate of First Chicago NBD Corporation, of which Richard L. Thomas is the Retired Chairman. Each of the above individuals is a director of Sara Lee. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
PAGE --------- (a) 1. FINANCIAL STATEMENTS Report of Independent Public Accountants............................................................ F-1 Consolidated Statements of Income -- Years ended July 1, 1995, June 29, 1996 and June 28, 1997...... F-4 Consolidated Balance Sheets -- July 1, 1995, June 29, 1996 and June 28, 1997........................ F-5 Consolidated Statements of Common Stockholders' Equity -- Balances at July 1, 1995, June 29, 1996 and June 28, 1997................................................................................... F-7 Consolidated Statements of Cash Flows -- Years ended July 1, 1995, June 29, 1996 and June 28, 1997................................................................................................ F-8 Notes to Financial Statements....................................................................... F-9
19
PAGE --------- 2. FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants............................................................ F-27 Schedule II -- Valuation and Qualifying Accounts.................................................... F-28
(b) REPORTS ON FORM 8-K None.
(c) EXHIBITS INCORPORATION BY REFERENCE ------------------------------------------------- (3a) 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. (3b) Bylaws Exhibit 3(b) to Report on Form 10-K for Fiscal Year ended June 29, 1996 (4) Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of Sara Lee and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed, and which authorizes a total amount of securities not in excess of 10% of the total assets of Sara Lee and its subsidiaries on a consolidated basis. (10) 1. 1979 Stock Option Plan, as amended Exhibit 10 (1) to Report on Form 10-K for Fiscal Year ended July 1, 1995 2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K for Fiscal Year ended July 1, 1989 3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10 (3) to Report on Form 10-K for Fiscal amended Year ended July 1, 1995 4. 1989 Incentive Stock Plan, as amended 5. Supplemental Benefit Plan, as amended 6. Accelerated Growth Incentive Plan Fiscal Exhibit 10 (12) to Report on Form 10-K for Fiscal Years 1990-1994 Year ended June 30, 1990 7. 1991 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal (Base Salary) Year ended June 29, 1991 8. 1992 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal (Base Salary) Year ended June 27, 1992 9. FY '93 Non-Qualified Deferred Compensation Exhibit 10 (16) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended June 27, 1992 10. 1993 Non-Qualified Deferred Compensation Plan Exhibit 10 (19) to Report on Form 10-K for Fiscal (Base Salary) Year ended July 3, 1993 11. FY '94 Non-Qualified Deferred Compensation Exhibit 10 (20) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended July 3, 1993
20
EXHIBITS INCORPORATION BY REFERENCE ------------------------------------------------- 12. 1994 Non-Qualified Deferred Compensation Plan Exhibit 10 (14) to Report on Form 10-K for Fiscal (Base Salary) Year ended July 2, 1994 13. FY '95 Non-Qualified Deferred Compensation Exhibit 10 (15) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended July 2, 1994 14. Non-Qualified Deferred Compensation Plan (Annual Bonus) 15. Performance-Based Annual Incentive Plan Appendix A to Proxy Statement dated September 20, 1995 16. 1995 Long-Term Incentive Stock Plan, as amended 17. 1995 Non-Employee Director Stock Plan, as amended 18. Non-Qualified Deferred Compensation Plan for Exhibit 10 (18) to Report on Form 10-K for Fiscal Outside Directors Year ended June 29, 1996 19. FY 1995-97 Long Term Performance Incentive Exhibit 10 (19) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 20. FY 1996-98 Long Term Performance Incentive Exhibit 10 (20) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 21. FY 1997-99 Long Term Performance Incentive Exhibit 10 (21) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 22. Non-Qualified Estate Builder Deferred Exhibit 10 (17) to Report on Form 10-K for Fiscal Compensation Plan Year ended June 29, 1985 23. Severance Policy for Corporate Officers, as amended 24. Employment Agreement, dated January 1, 1996, between Sara Lee Corporation and Frank L. Meysman 25. Employment Agreement, dated January 1, 1996, between Sara Lee/DE N.V. and Frank L. Meysman and attachments (translated from Dutch) 26. Stockholder Rights Agreement Exhibit 4 to Report on Form 10-Q for the quarter ended March 26, 1988 (11) Computation of Net Income per Common Share (12) 1. Computation of Ratio of Earnings to Fixed Charges 2. Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements (21) List of Subsidiaries
21
EXHIBITS INCORPORATION BY REFERENCE ------------------------------------------------- (23) Consent of Arthur Andersen LLP (24) Powers of Attorney (27) Financial Data Schedules
22 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, Sara Lee Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. September 22, 1997 SARA LEE CORPORATION By: /s/ JANET LANGFORD KELLY ----------------------------------------- Janet Langford Kelly SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Sara Lee Corporation and in the capacities indicated on September 22, 1997.
SIGNATURE CAPACITY - ------------------------------ --------------------------- /s/ JOHN H. BRYAN Chairman of the Board, - ------------------------------ Chief Executive Officer John H. Bryan and Director /s/ C. STEVEN MCMILLAN - ------------------------------ President and Director C. Steven McMillan /s/ MICHAEL E. MURPHY Vice Chairman, Chief - ------------------------------ Administrative Officer Michael E. Murphy and Director /s/ DONALD J. FRANCESCHINI - ------------------------------ Vice Chairman and Director Donald J. Franceschini /s/ FRANK L. MEYSMAN - ------------------------------ Executive Vice President Frank L. Meysman and Director /s/ JUDITH A. SPRIESER - ------------------------------ Senior Vice President and Judith A. Sprieser Chief Financial Officer /s/ WAYNE R. SZYPULSKI - ------------------------------ Vice President and Wayne R. Szypulski Controller * - ------------------------------ Director Paul A. Allaire * - ------------------------------ Director Frans H.J.J. Andriessen
23
SIGNATURE CAPACITY - ------------------------------ --------------------------- * - ------------------------------ Director Duane L. Burnham * - ------------------------------ Director Charles W. Coker * - ------------------------------ Director Willie D. Davis * - ------------------------------ Director Allen F. Jacobson * - ------------------------------ Director Vernon E. Jordan, Jr. * - ------------------------------ Director James L. Ketelsen * - ------------------------------ Director Hans B. van Liemt * - ------------------------------ Director Joan D. Manley * - ------------------------------ Director Newton N. Minow * - ------------------------------ Director Sir Arvi H. Parbo A.C. * - ------------------------------ Director Rozanne L. Ridgway * - ------------------------------ Director Richard L. Thomas
*By Janet Langford Kelly as Attorney-in-Fact pursuant to Powers of Attorney executed by the directors listed above, which Powers of Attorney have been filed with the Securities and Exchange Commission. /s/ JANET LANGFORD KELLY -------------------------------------- Janet Langford Kelly AS ATTORNEY-IN-FACT 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders, SARA LEE CORPORATION: We have audited the accompanying consolidated balance sheets of SARA LEE CORPORATION (a Maryland corporation) AND SUBSIDIARIES as of June 28, 1997, June 29, 1996, and July 1, 1995, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the three years in the period ended June 28, 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sara Lee Corporation and Subsidiaries as of June 28, 1997, June 29, 1996, and July 1, 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Chicago, Illinois, July 28, 1997. F-1 SARA LEE CORPORATION AND SUBSIDIARIES FINANCIAL SUMMARY
COMPOUND YEARS ENDED GROWTH RATE ---------------------- ------------------------ JUNE 28, JUNE 29, 5 YEARS 10 YEARS 1997 1996 ----------- ----------- ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS Net sales............................................................. 8.3% 8.0% $ 19,734 $ 18,624 Operating income...................................................... 9.5 11.7 1,905 1,793 Income before income taxes............................................ 4.8 12.7 1,484 1,378 Net income............................................................ 5.8 14.2 1,009 916 Effective tax rate.................................................... -- -- 32.0% 33.5% - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL POSITION Total assets.......................................................... 5.3% 11.9% $ 12,953 $ 12,602 Long-term debt........................................................ -- -- 1,933 1,842 Redeemable preferred stock............................................ -- -- 242 338 Common stockholders' equity........................................... 4.8 11.7 4,280 4,320 Return on average common stockholders' equity......................... -- -- 22.9% 21.5% - ------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE (5) Net income -- primary................................................. 5.7% 13.2% $ 2.03 $ 1.83 Average shares outstanding (in millions).......................... -- -- 485 485 Net income -- fully diluted........................................... 5.6 12.8 1.97 1.78 Average shares outstanding (in millions).......................... -- -- 503 504 Dividends (6)......................................................... 6.1 13.1 .82 .74 Book value at year-end................................................ 4.8 10.8 8.91 8.91 Market value at year-end.............................................. 11.1 13.7 42.06 32.50 - ------------------------------------------------------------------------------------------------------------------------ OTHER INFORMATION Capital expenditures.................................................. 1.5% 6.7% $ 547 $ 542 Depreciation.......................................................... 6.4 11.1 483 454 Amortization of intangibles........................................... 10.7 19.3 197 180 Media advertising expense............................................. 5.0 7.4 414 444 Total advertising and promotion expense............................... 8.4 11.8 1,937 1,838 Common stockholders of record......................................... -- -- 88,800 91,300 Number of employees................................................... -- -- 141,000 135,300 - ------------------------------------------------------------------------------------------------------------------------
(1) In 1994, a restructuring provision reduced operating income and income before income taxes by $732 and net income by $495. In addition, in 1994, the cumulative effect of adopting a mandated change in the method of accounting for income taxes reduced net income by $35. (2) 53-week year. (3) Fiscal 1992 income before income taxes includes a $412 gain on sale of business offset by a $190 restructuring provision. These transactions increased net income by $140. (4) Fiscal 1989 income before income taxes includes an $87 gain on sales of businesses offset by a $55 restructuring provision. These transactions increased net income by $11. (5) Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987. (6) Fiscal 1992 includes a $.12 special dividend. THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL SUMMARY. F-2 SARA LEE CORPORATION AND SUBSIDIARIES FINANCIAL SUMMARY
YEARS ENDED ---------------------------------------------------------------------------------------- JULY 1, JULY 2, JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, JULY 2, JUNE 27, 1995 1994(1) 1993(2) 1992(3) 1991 1990 1989(4) 1988(2) 1987 -------- -------- -------- -------- -------- -------- -------- ------- -------- (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS Net sales................................ $17,719 $ 15,536 $ 14,580 $ 13,243 $ 12,381 $ 11,606 $ 11,718 $10,424 $ 9,155 Operating income......................... 1,596 632 1,307 1,207 1,085 938 847 753 632 Income before income taxes............... 1,219 389 1,082 1,174 830 713 639 513 448 Net income............................... 804 199 704 761 535 470 410 325 267 Effective tax rate....................... 34.1% 39.9% 34.9% 35.2% 35.5% 34.1% 35.8% 36.7 % 40.4% - ----------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Total assets............................. $12,431 $ 11,665 $ 10,862 $ 9,989 $ 8,122 $ 7,636 $ 6,523 $5,012 $ 4,192 Long-term debt........................... 1,817 1,496 1,164 1,389 1,399 1,524 1,488 893 633 Redeemable preferred stock............... 334 331 357 351 344 338 182 225 75 Common stockholders' equity.............. 3,939 3,326 3,551 3,382 2,550 2,292 1,915 1,575 1,416 Return on average common stockholders' equity................................. 21.4% 5.1% 19.6% 24.7% 20.6% 20.9% 22.7% 21.1 % 20.5% - ----------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE (5) Net income -- primary.................... $ 1.62 $ .37 $ 1.40 $ 1.54 $ 1.08 $ .96 $ .88 $ .71 $ .59 Average shares outstanding (in millions).......................... 480 480 485 476 464 460 454 447 447 Net income -- fully diluted.............. 1.57 .36 1.37 1.50 1.05 .93 .87 .71 .59 Average shares outstanding (in millions).......................... 499 498 504 497 485 480 456 447 447 Dividends (6)............................ .67 .63 .56 .61 .46 .41 .35 .29 .24 Book value at year-end................... 8.20 6.92 7.31 7.05 5.48 4.97 4.21 3.56 3.20 Market value at year-end................. 28.50 20.63 24.25 24.81 20.19 14.56 13.47 9.22 11.63 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER INFORMATION Capital expenditures..................... $ 480 $ 628 $ 728 $ 509 $ 522 $ 595 $ 541 $ 449 $ 287 Depreciation............................. 436 414 383 354 302 268 215 198 168 Amortization of intangibles.............. 170 154 139 118 92 83 65 53 34 Media advertising expense................ 422 371 392 325 288 313 303 253 203 Total advertising and promotion expense................................ 1,675 1,498 1,455 1,294 1,067 1,013 925 801 637 Common stockholders of record............ 93,400 95,600 88,100 75,400 69,400 64,800 56,500 52,400 50,000 Number of employees...................... 149,100 145,900 138,000 128,000 113,400 107,800 101,800 85,700 92,400 - -----------------------------------------------------------------------------------------------------------------------------------
(1) In 1994, a restructuring provision reduced operating income and income before income taxes by $732 and net income by $495. In addition, in 1994, the cumulative effect of adopting a mandated change in the method of accounting for income taxes reduced net income by $35. (2) 53-week year. (3) Fiscal 1992 income before income taxes includes a $412 gain on sale of business offset by a $190 restructuring provision. These transactions increased net income by $140. (4) Fiscal 1989 income before income taxes includes an $87 gain on sales of businesses offset by a $55 restructuring provision. These transactions increased net income by $11. (5) Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987. (6) Fiscal 1992 includes a $.12 special dividend. THE NOTES TO FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL SUMMARY. F-3 SARA LEE CORPORATION AND SUBSIDIAIRIES CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS EXCEPT PER SHARE DATA)
YEARS ENDED ------------------------------- JUNE 28, JUNE 29, JULY 1, 1997 1996 1995 --------- --------- --------- NET SALES..................................................................... $ 19,734 $ 18,624 $ 17,719 --------- --------- --------- Cost of sales................................................................. 12,267 11,470 11,023 Selling, general and administrative expenses.................................. 5,824 5,603 5,292 Interest expense.............................................................. 202 228 243 Interest income............................................................... (43) (55) (58) --------- --------- --------- 18,250 17,246 16,500 --------- --------- --------- Income before income taxes.................................................... 1,484 1,378 1,219 Income taxes.................................................................. 475 462 415 --------- --------- --------- NET INCOME.................................................................... 1,009 916 804 Preferred dividends, net of tax............................................... (26) (27) (28) --------- --------- --------- Net income available for common stockholders.................................. $ 983 $ 889 $ 776 --------- --------- --------- --------- --------- --------- NET INCOME PER COMMON SHARE -- PRIMARY........................................ $ 2.03 $ 1.83 $ 1.62 --------- --------- --------- --------- --------- --------- Average shares outstanding.................................................. 485 485 480 --------- --------- --------- --------- --------- --------- NET INCOME PER COMMON SHARE -- FULLY DILUTED.................................. $ 1.97 $ 1.78 $ 1.57 --------- --------- --------- --------- --------- --------- Average shares outstanding.................................................. 503 504 499 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-4 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS EXCEPT PER SHARE DATA)
JUNE 28, JUNE 29, JULY 1, 1997 1996 1995 --------- --------- --------- ASSETS Cash and equivalents......................................................... $ 272 $ 243 $ 202 Trade accounts receivable, less allowances of $205 in 1997, $197 in 1996 and $192 in 1995............................................................... 1,841 1,728 1,653 Inventories Finished goods............................................................. 1,803 1,802 1,782 Work in process............................................................ 497 381 423 Materials and supplies..................................................... 673 624 625 --------- --------- --------- 2,973 2,807 2,830 Other current assets......................................................... 305 303 243 --------- --------- --------- Total current assets......................................................... 5,391 5,081 4,928 --------- --------- --------- Trademarks and other assets.................................................. 536 636 615 Property Land....................................................................... 126 132 136 Buildings and improvements................................................. 2,008 1,924 1,879 Machinery and equipment.................................................... 3,777 3,657 3,462 Construction in progress................................................... 293 263 206 --------- --------- --------- 6,204 5,976 5,683 Accumulated depreciation................................................... 3,125 2,969 2,719 --------- --------- --------- Property, net................................................................ 3,079 3,007 2,964 Intangible assets, net....................................................... 3,947 3,878 3,924 --------- --------- --------- $ 12,953 $ 12,602 $ 12,431 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. F-5 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS EXCEPT PER SHARE DATA)
JUNE 28, JUNE 29, JULY 1, 1997 1996 1995 --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable.................................................................. $ 476 $ 319 $ 559 Accounts payable............................................................... 1,703 1,592 1,436 Accrued liabilities Payroll and employee benefits................................................ 701 702 693 Advertising and promotion.................................................... 337 290 278 Taxes other than payroll and income.......................................... 189 207 218 Income taxes................................................................. 119 101 66 Other........................................................................ 1,236 1,296 1,373 Current maturities of long-term debt........................................... 255 135 221 --------- --------- --------- Total current liabilities...................................................... 5,016 4,642 4,844 --------- --------- --------- Long-term debt................................................................. 1,933 1,842 1,817 Deferred income taxes.......................................................... 416 333 273 Other liabilities.............................................................. 543 604 705 Minority interest in subsidiaries.............................................. 523 523 519 Preferred stock (authorized 13,500,000 shares; no par value) Auction: Issued and outstanding -- 2,000 shares in 1997 and 3,000 shares in 1996 and 1995; redeemable at $100,000 per share............................ 200 300 300 ESOP convertible: Issued and outstanding -- 4,328,597 shares in 1997, 4,468,303 shares in 1996 and 4,570,153 shares in 1995...................... 314 324 331 Unearned deferred compensation............................................... (272) (286) (297) Common stockholders' equity Common stock: (authorized 600,000,000 shares; $1.33 1/3 par value) Issued and outstanding -- 480,277,317 shares in 1997, 485,054,554 shares in 1996 and 480,656,301 shares in 1995................................................. 640 646 640 Capital surplus.............................................................. -- 141 67 Retained earnings............................................................ 4,274 3,783 3,252 Translation adjustments...................................................... (618) (227) 3 Unearned restricted stock issued for future services......................... (16) (23) (23) --------- --------- --------- Total common stockholders' equity.............................................. 4,280 4,320 3,939 --------- --------- --------- $ 12,953 $ 12,602 $ 12,431 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. F-6 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DOLLARS IN MILLIONS EXCEPT SHARE DATA)
UNEARNED COMMON CAPITAL RETAINED TRANSLATION RESTRICTED TOTAL STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK ------ ------ ------- -------- ----------- ---------- BALANCES AT JULY 2, 1994........................................... $3,326 $641 $ 76 $2,799 $(170) $(20) Net income......................................................... 804 -- -- 804 -- -- Cash dividends Common ($.67 per share).......................................... (320) -- -- (320) -- -- Auction preferred ($4,188.00 per share).......................... (13) -- -- (13) -- -- ESOP convertible preferred ($5.4375 per share)................... (25) -- -- (25) -- -- Stock issuances Stock option and benefit plans................................... 57 4 53 -- -- -- Restricted stock, less amortization of $7........................ 7 -- 13 -- -- (6) Reacquired shares.................................................. (93) (5) (88) -- -- -- Translation adjustments............................................ 173 -- -- -- 173 -- ESOP tax benefit................................................... 10 -- -- 10 -- -- Other.............................................................. 13 -- 13 (3) -- 3 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT JULY 1, 1995........................................... 3,939 640 67 3,252 3 (23) Net income......................................................... 916 -- -- 916 -- -- Cash dividends Common ($.74 per share).......................................... (358) -- -- (358) -- -- Auction preferred ($4,219.00 per share).......................... (13) -- -- (13) -- -- ESOP convertible preferred ($5.4375 per share)................... (24) -- -- (24) -- -- Stock issuances Business acquisitions............................................ 55 3 52 -- -- -- Stock option and benefit plans................................... 93 6 87 -- -- -- Restricted stock, less amortization of $13....................... 13 1 17 -- -- (5) Reacquired shares.................................................. (103) (4) (99) -- -- -- Translation adjustments............................................ (230) -- -- -- (230) -- ESOP tax benefit................................................... 10 -- -- 10 -- -- ESOP share redemption.............................................. 7 -- 7 -- -- -- Other.............................................................. 15 -- 10 -- -- 5 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES AT JUNE 29, 1996.......................................... 4,320 646 141 3,783 (227) (23) Net income......................................................... 1,009 -- -- 1,009 -- -- Cash dividends Common ($.82 per share).......................................... (394) -- -- (394) -- -- Auction preferred ($4,000.93 per share).......................... (12) -- -- (12) -- -- ESOP convertible preferred ($5.4375 per share)................... (24) -- -- (24) -- -- Stock issuances Business acquisitions............................................ 18 1 17 -- -- -- Stock option and benefit plans................................... 93 6 87 -- -- -- Restricted stock, less amortization of $19....................... 19 -- 13 -- -- 6 Reacquired shares.................................................. (393) (14) (281) (98) -- -- Translation adjustments............................................ (391) -- -- -- (391) -- ESOP tax benefit................................................... 10 -- -- 10 -- -- ESOP share redemption.............................................. 10 1 9 -- -- -- Other.............................................................. 15 -- 14 -- -- 1 ------ ------ ------- -------- ----- --- BALANCES AT JUNE 28, 1997.......................................... $4,280 $640 $ -- $4,274 $(618) $(16) ------ ------ ------- -------- ----- --- ------ ------ ------- -------- ----- ---
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-7 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)
YEARS ENDED --------------------------------- JUNE 28, JUNE 29, JULY 1, 1997 1996 1995 --------- ----------- --------- OPERATING ACTIVITIES Net income................................................................ $ 1,009 $ 916 $ 804 Adjustments for noncash charges included in net income Depreciation............................................................ 483 454 436 Amortization of intangibles............................................. 197 180 170 Increase in deferred taxes.............................................. 40 31 88 Other noncash credits, net.............................................. (56) (77) (118) Changes in current assets and liabilities, net of businesses acquired and sold (Increase) in trade accounts receivable............................... (66) (138) (38) (Increase) in inventories............................................. (129) (83) (138) Decrease (increase) in other current assets........................... 17 (63) 18 Increase in accounts payable.......................................... 59 95 81 (Decrease) increase in accrued liabilities............................ (2) (11) 70 --------- ----------- --------- Net cash from operating activities...................................... 1,552 1,304 1,373 --------- ----------- --------- INVESTMENT ACTIVITIES Purchases of property and equipment....................................... (547) (542) (480) Acquisitions of businesses................................................ (674) (216) (168) Dispositions of investment and businesses................................. 114 12 12 Sales of property......................................................... 59 49 73 Other..................................................................... 6 4 46 --------- ----------- --------- Net cash used in investment activities.................................. (1,042) (693) (517) --------- ----------- --------- FINANCING ACTIVITIES Issuances of common stock................................................. 93 93 57 Purchases of common stock................................................. (393) (103) (93) Redemption of preferred stock............................................. (100) -- -- Borrowings of long-term debt.............................................. 495 354 573 Repayments of long-term debt.............................................. (252) (369) (289) Short-term borrowings (repayments), net................................... 119 (135) (743) Payments of dividends..................................................... (430) (395) (358) --------- ----------- --------- Net cash used in financing activities................................... (468) (555) (853) --------- ----------- --------- Effect of changes in foreign exchange rates on cash....................... (13) (15) 10 --------- ----------- --------- Increase in cash and equivalents.......................................... 29 41 13 Cash and equivalents at beginning of year................................. 243 202 189 --------- ----------- --------- Cash and equivalents at end of year....................................... $ 272 $ 243 $ 202 --------- ----------- --------- --------- ----------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-8 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATION The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany transactions of consolidated subsidiaries are eliminated. Acquisitions recorded as purchases are included in the income statement from the date of acquisition. FISCAL YEAR The Corporation's fiscal year ends on the Saturday closest to June 30. Unless otherwise stated, references to years relate to 52-week fiscal years. INTANGIBLE ASSETS The excess of cost over the fair market value of tangible net assets and trademarks of acquired businesses is amortized on a straight-line basis over the periods of expected benefit, which range from 10 years to 40 years. Accumulated amortization of intangible assets amounted to $896 at June 28, 1997, $811 at June 29, 1996 and $710 at July 1, 1995. 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 1997, approximately 21% at last-in, first-out [LIFO] and the remainder at first-in, first-out [FIFO]) or market. Inventories recorded at LIFO were approximately $32 at June 28, 1997, $36 at June 29, 1996 and $18 at July 1, 1995, lower than if they had been valued at FIFO. Inventory cost includes material and conversion costs. PROPERTY Property is stated at cost, and depreciation is computed using principally the straight-line method at annual rates of 2% to 20% for buildings and improvements, and 4% to 33% for machinery and equipment. Additions and improvements that substantially extend the useful life of a particular asset and interest costs incurred during the construction period of major properties are capitalized. Repair and maintenance costs are charged to expense. Upon sale, the cost and related accumulated depreciation are removed from the accounts. F-9 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) FOREIGN OPERATIONS Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the balance sheet date. Translation adjustments resulting from fluctuations in the exchange rates are recorded as a separate component of common stockholders' equity. Income and expense items are translated at the average exchange rates during the respective periods. FINANCIAL INSTRUMENTS The Corporation uses financial instruments 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 the Corporation 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 nonpermanent 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 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. F-10 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 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. NET INCOME PER COMMON SHARE Primary net income per common share is based on the average number of common shares outstanding and common share equivalents and net income reduced for preferred dividends, net of the tax benefits related to the ESOP convertible preferred stock dividends. The fully diluted net income per share calculation assumes conversion of the ESOP convertible preferred stock into common stock and further adjusts net income for the additional ESOP compensation expense, net of tax benefits, resulting from the assumed replacement of the ESOP convertible preferred stock dividends with common stock dividends. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which will be effective for the Corporation in the second quarter of 1998. When adopted, SFAS 128 will replace the presentation of primary earnings per share (EPS) with basic EPS. Basic EPS excludes dilution and is computed by dividing net income available for common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted, will also need to be disclosed. The basic and diluted EPS amounts for the past three years were:
1997 1996 1995 ---------- ---------- ---------- Basic EPS..................... $ 2.05 $ 1.85 $ 1.63 Diluted EPS................... 1.97 1.78 1.57
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. F-11 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) ADVERTISING The costs of advertising are generally expensed in the year in which the advertising first takes place. COMMON STOCK Changes in outstanding common shares for the past three years were:
1997 1996 1995 --------- --------- --------- (SHARES IN THOUSANDS) Beginning balances........................................... 485,055 480,656 480,765 Stock issuances: Business acquisitions...................................... 549 2,567 -- Stock option and benefit plans............................. 4,566 4,438 3,158 Restricted stock plans..................................... 88 394 367 Stock purchased/retired...................................... (10,609) (3,375) (3,932) ESOP share redemption........................................ 560 457 60 Other........................................................ 68 (82) 238 --------- --------- --------- Ending balances.............................................. 480,277 485,055 480,656 --------- --------- --------- --------- --------- ---------
PREFERRED STOCK Four series of 500 shares each of nonvoting auction preferred stock are outstanding as of June 28, 1997. At its option, the Corporation redeemed two series of 500 shares each of this preferred stock during 1997. The shares were redeemed at face value, and no gain or loss was recognized. The dividend rate for each of the series of auction preferred stock is established through a Dutch auction conducted by an agent of the Corporation. Auctions are held six out of every seven weeks with the dividend rate for one of the series set at each auction. Since inception, no auction has failed. If an auction does fail, the holders of the preferred stock would continue to hold the shares and receive a dividend rate that is a function of current commercial paper rates. The convertible preferred stock sold to the Corporation's Employee Stock Ownership Plan (ESOP) is redeemable at the option of the Corporation at any time after December 15, 2001. Each share is currently convertible into four shares of the Corporation's common stock and is entitled to 5.133 votes. This stock has a 7.5% annual dividend rate, payable semiannually, and has a liquidation value of $72.50 plus accrued but unpaid dividends. The purchase of the preferred stock by the ESOP was funded with notes guaranteed by the Corporation. The loan is included in long-term debt and is offset in the Corporation's Consolidated Balance Sheets under the caption Unearned Deferred Compensation. Each year, the Corporation makes contributions that, with the dividends on the preferred stock held by the ESOP, will be used to pay loan interest and principal. Shares are allocated to participants based upon the ratio of the current year's debt service to the sum of the total principal and interest payments over the life of the loan. Plan expense is recognized in accordance with methods prescribed by the FASB. ESOP-related expenses amounted to $13 in 1997, $13 in 1996 and $12 in 1995. Payments to the ESOP were $43 in 1997, $41 in 1996 and $38 in 1995. Principal and interest payments by the ESOP amounted to $19 and $24 in 1997, $16 and $25 in 1996 and $12 and $26 in 1995. F-12 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 20% or more of the Corporation's outstanding common stock or the commencement of a tender or exchange offer for at least 25% of the common stock. Upon the occurrence of such an event, each Right, unless redeemed by the board of directors, entitles the holder to receive common stock equal to twice the exercise price of the Right. The exercise price is $140 multiplied by the number of preferred shares held. There are 3,000,000 shares of preferred stock reserved for issuance upon exercise of the Rights. MINORITY INTEREST IN SUBSIDIARIES Minority interest in subsidiaries primarily consists of preferred equity securities issued by subsidiaries of the Corporation. No gain or loss was recognized as a result of the issuance of these securities and the Corporation owned substantially all of the voting equity of the subsidiaries both before and after the transactions. 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. $200 of the minority interest in subsidiaries consists of preferred equity securities issued by a domestic subsidiary of the Corporation. 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. STOCK-BASED COMPENSATION The Corporation has various stock award plans, stock option plans and an employee stock purchase plan. Under the stock award and stock option plans, the Corporation is authorized to grant up to 25 million shares of common stock. Under the employee stock purchase plan, the Corporation is authorized to sell and issue up to 60 million shares of common stock to its full-time employees. The Corporation applies APB 25 and related interpretations in accounting for its stock-based compensation plans. During 1997, the Corporation adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which requires pro forma disclosures regarding the Corporation's plans. STOCK AWARDS Stock awards are restricted as to disposition and subject to forfeiture until certain three-year performance goals are achieved by the employee. All restricted stock awards entitle the participant to full voting rights and dividends that are escrowed until the participant receives the shares. Upon the issuance of restricted shares, unearned compensation is recognized and is amortized over the performance period. 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 has a maximum term of 10 years. These options generally vest ratably over three years. Under the stock option plans, an active employee may receive a replacement stock option equal to F-13 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 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:
1997 1996 ---------- ---------- Expected lives............................................................................ 2.9 years 2.8 years Risk-free interest rate................................................................... 6.1% 5.9% Expected volatility....................................................................... 22.9% 24.3% Dividend yield............................................................................ 2.2% 2.4%
A summary of the status of the Corporation's option plans as of June 28, 1997 and June 29, 1996 and changes during the years ended on those dates is presented below:
1997 1996 ---------------------- ---------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE --------- ----------- --------- ----------- (SHARES IN THOUSANDS) Outstanding at beginning of year......................................... 17,426 $ 25.86 15,947 $ 24.26 Granted................................................................ 8,328 34.31 7,658 29.07 Exercised.............................................................. (5,943) 26.87 (5,733) 25.63 Canceled/expired....................................................... (560) 27.81 (446) 26.57 --------- ----------- --------- ----------- Outstanding at end of year............................................... 19,251 $ 29.14 17,426 $ 25.86 --------- ----------- --------- ----------- --------- ----------- --------- ----------- Options exercisable at year-end.......................................... 9,614 $ 27.37 8,961 $ 24.90 --------- ----------- --------- ----------- --------- ----------- --------- ----------- Options available for future grants...................................... 18,853 24,388 ----- ----- ----- ----- Weighted average fair value of options granted during the year........... $5.75 $4.87 ---- ---- ---- ----
The following table summarizes information about stock options outstanding at June 28, 1997:
OPTIONS OUTSTANDING --------------------------------------- OPTIONS EXERCISABLE WEIGHTED -------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE AT JUNE 28, CONTRACTUAL EXERCISE AT JUNE 28, EXERCISE RANGE OF EXERCISE PRICES 1997 LIFE (YRS.) PRICE 1997 PRICE - ---------------------------------------------------- ----------- ------------- ----------- ------------- ----------- (SHARES IN THOUSANDS) $ 8.30-$27.38....................................... 5,950 5.2 $ 22.99 4,810 $ 22.99 27.39- 32.00....................................... 5,058 6.6 27.96 2,525 28.47 32.01- 42.81....................................... 8,243 7.2 34.31 2,279 35.39 ----------- ----- ----------- ----- ----------- $ 8.30-$42.81....................................... 19,251 6.4 $ 29.14 9,614 $ 27.37 ----------- ----- ----------- ----- ----------- ----------- ----- ----------- ----- -----------
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 1,541,592 and 1,794,552 F-14 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) shares to employees in 1997 and 1996, respectively. Pro forma compensation expense is calculated for the fair value of the employee's purchase rights using the Black-Scholes model. Assumptions include an expected life of 1/4 of a year, weighted average risk-free interest rates of 5.1% and 5.0% in 1997 and 1996, respectively, and other assumptions that 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 Corporation's net income and net income per common share would have been reduced by less than 3% in both 1997 and 1996. 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. ACQUISITIONS AND DIVESTMENTS 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. During 1996, the Corporation acquired several companies for an aggregate purchase price of $216 in cash. The principal acquisition was the European skin care and sweetener businesses of Bayer AG. During 1995, the Corporation acquired several companies for an aggregate purchase price of $168 in cash. The principal acquisition was the Imperial Meats Group, a European manufacturer and distributor of processed meats. Also during 1995, the Corporation acquired the remaining outstanding shares of Consolidated Foodservice Companies, a domestic foodservice distribution business. Common stock having a value of $55 was issued in July 1995 as consideration for the Consolidated Foodservice Companies acquisition. F-15 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (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 Dutch guilder-, French franc- and Swiss franc-denominated investments and French franc-denominated intercompany loans. The weighted average maturities of interest rate and currency swaps as of June 28, 1997 were 2.8 years and 2.0 years, respectively.
WEIGHTED AVERAGE INTEREST RATES(2) NOTIONAL ---------------------- PRINCIPAL(1) RECEIVE PAY ------------- ----------- --- INTEREST RATE SWAPS 1997 Receive variable -- pay fixed............................................ $ 98 4.1% 4.4% Receive fixed -- pay variable............................................ 25 7.1 5.4 1996 Receive fixed -- pay variable............................................ 25 7.1 5.3 1995 Receive variable -- pay fixed............................................ 200 6.1 5.7 Receive fixed -- pay variable............................................ 45 7.6 5.9 CURRENCY SWAPS 1997 Receive fixed -- pay fixed............................................... $ 259 6.4% 4.1% 1996 Receive fixed -- pay fixed............................................... 85 8.0 5.8 1995 Receive variable -- pay fixed............................................ 175 6.4 7.3 Receive fixed -- pay fixed............................................... 194 6.4 6.6 Receive variable -- pay variable......................................... 320 7.9 6.9
- ------------ (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. - ------------ The Corporation has entered into an interest rate collar to hedge fluctuations in Dutch interest rates. The Dutch guilder-denominated collar has a notional principal of $103, a cap of 7.0% and a floor of 3.5%. FORWARD EXCHANGE CONTRACTS The Corporation uses forward exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions, firm third-party product sourcing commitments and other known foreign currency exposures. The table below summarizes by major currency the contractual amounts of the Corporation's forward exchange contracts in U.S. dollars. The bought amounts represent the net U.S. dollar equivalent of commitments to purchase foreign currencies, and the sold amounts represent the net U.S. dollar equivalent of commitments to sell foreign currencies. The foreign currency amounts have been translated into a F-16 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (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.
BOUGHT (SOLD) ------------------------------- FOREIGN CURRENCY 1997 1996 1995 - ---------------------------------------------------------------------------------- --------- --------- --------- French franc...................................................................... $ (44) $ 125 $ (352) Italian lira...................................................................... (402) (287) (254) Spanish peseta.................................................................... (69) (40) (55) Dutch guilder..................................................................... (191) (194) (236) German mark....................................................................... (65) 50 36 Other............................................................................. (183) (263) (314)
At June 28, 1997, the deferred unrealized gains and losses on forward exchange contracts were not material to the financial position of the Corporation. CONCENTRATIONS OF CREDIT RISK A large number of major international financial institutions are counterparties to the Corporation's financial instruments. The Corporation enters into financial instrument agreements only with those counterparties meeting very stringent credit standards, limiting the amount of agreements or contracts it enters into with any one party and, where legally available, executing master netting agreements. These positions are continuously monitored. While the Corporation may be exposed to credit losses in the event of nonperformance by these counterparties, it does not anticipate losses, because of these control procedures. Trade accounts receivable due from highly leveraged customers were $64 at June 28, 1997, $53 at June 29, 1996 and $49 at July 1, 1995. 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 $24 at June 28, 1997, $29 at June 29, 1996 and $31 at July 1, 1995. These guarantees relate primarily to financial arrangements to support various suppliers of the Corporation and are secured by the inventory and fixed assets of suppliers. FAIR VALUES The carrying amounts of cash and equivalents, trade receivables, notes payable, accounts payable and auction preferred stock approximated fair value as of June 28, 1997, June 29, 1996 and July 1, 1995. The fair values of the remaining financial instruments recognized on the Consolidated Balance Sheets of the Corporation at the respective year-end were:
1997 1996 1995 --------- --------- --------- Long-term debt, including current portion...................................... $ 2,258 $ 1,993 $ 2,102 ESOP convertible preferred stock............................................... 751 615 567
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 F-17 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 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, forward exchange contracts and interest rate collar approximate their carrying value in the financial statements as of June 28, 1997, June 29, 1996 and July 1, 1995. The fair value of these instruments was not material to the financial position of the Corporation. LONG-TERM DEBT
INTEREST RATE RANGE MATURITY 1997 1996 1995 ------------------ ----------- --------- --------- --------- U.S. dollar obligations: ESOP debt........................... 5.73-8.18% 2004 $ 276 $ 295 $ 311 Notes and debentures................ 4.75-8.37 1998-2008 1,038 1,330 1,165 Revenue bonds....................... 4.20-5.75 2002-2024 55 46 36 Zero coupon notes................... 10.00-14.25 2014-2015 17 15 14 Various other obligations........... 4 4 7 --------- --------- --------- 1,390 1,690 1,533 --------- --------- --------- Foreign currency obligations: Swiss franc......................... 5.76-5.78 2000 71 -- 111 Dutch guilder....................... 4.17-6.50 1998-2002 355 235 259 French franc........................ 3.46-4.94 1999-2002 305 -- -- Various other obligations........... 67 52 135 --------- --------- --------- 798 287 505 --------- --------- --------- Total long-term debt..................................... 2,188 1,977 2,038 Less current maturities.................................. 255 135 221 --------- --------- --------- $ 1,933 $ 1,842 $ 1,817 --------- --------- --------- --------- --------- ---------
The ESOP debt is guaranteed by the Corporation. The zero coupon notes are net of unamortized discounts of $107 in 1997, $109 in 1996 and $110 in 1995. Principal payments of $19 and $105 are due in 2014 and 2015, respectively. Payments required on long-term debt during the years ending in 1998 through 2002 are $255, $200, $306, $212 and $482, respectively. The Corporation made cash interest payments of $202, $236 and $236 in 1997, 1996 and 1995, respectively. Rental expense under operating leases amounted to approximately $214 in 1997 and $222 in 1996 and 1995. Future minimum annual fixed rentals required during the years ending in 1998 through 2002 under noncancelable operating leases having an original term of more than one year are $127, $105, $91, $77 and $68, respectively. The aggregate obligation subsequent to 2002 is $133. The Corporation is contingently liable for long-term leases on properties operated by others. The minimum annual rentals under these leases average approximately $4 for the years ending in 1998-2002 and $1 in 2003-2007. Amounts thereafter are not material. F-18 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) CREDIT FACILITIES The Corporation has numerous credit facilities available, including revolving credit agreements totaling $1,635 that had an annual fee of 0.05% as of June 28, 1997. These agreements support commercial paper borrowings. Selected data on the Corporation's short-term obligations follow:
1997 1996 1995 ---------- ---------- ---------- Maximum period-end borrowings................... $ 1,735 $ 1,709 $ 2,300 Average borrowings during the year......................... 1,502 1,532 1,969 Weighted average interest rate during the year.............. 4.8% 6.1% 6.6% Weighted average interest rate at year-end.................. 5.7 6.6 6.9
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. RETIREMENT PLANS The Corporation has noncontributory defined benefit plans covering certain of its domestic employees. The benefits under these plans are primarily based on years of service and compensation levels. The plans are funded in conformity with the requirements of applicable government regulations. The plans' assets consist principally of marketable equity securities, corporate and government debt securities and real estate. The Corporation's foreign subsidiaries have plans for employees consistent with local practices. The Corporation also sponsors defined contribution pension plans at several of its subsidiaries. Contributions are determined as a percent of each covered employee's salary. Certain employees are covered by union-sponsored, collectively bargained, multi-employer pension plans. Contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. The annual pension expense for all plans was:
1997 1996 1995 ----- ----- ----- Defined benefit plans......... $ 37 $ 48 $ 43 Defined contribution plans.... 9 9 11 Multi-employer plans.......... 2 3 4 --- --- --- Total pension expense......... $ 48 $ 60 $ 58 --- --- --- --- --- ---
F-19 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) The components of the defined benefit plan expenses were:
1997 1996 1995 --------- --------- --------- Benefits earned by employees......................................................... $ 64 $ 58 $ 60 Interest on projected benefit obligations............................................ 120 120 105 Actual investment return on plan assets.............................................. (214) (312) (47) Net amortization and deferral........................................................ 67 182 (75) --------- --------- --------- Net pension expense.................................................................. $ 37 $ 48 $ 43 --------- --------- --------- --------- --------- ---------
The reduction in the 1997 defined benefit plan expense is primarily attributable to higher asset returns and the strengthening of the U.S. dollar relative to foreign currencies. The status of defined benefit plans at the respective year-end was:
1997 1996 1995 --------- --------- --------- Fair market value of plan assets................................................ $ 1,956 $ 1,854 $ 1,592 --------- --------- --------- Actuarial present value of benefits for services rendered: Accumulated benefits based on salaries to date: Vested...................................................................... 1,558 1,505 1,281 Nonvested................................................................... 64 55 47 Additional benefits based on estimated future salary levels................... 164 154 204 --------- --------- --------- Projected benefit obligations................................................. 1,786 1,714 1,532 --------- --------- --------- Excess of plan assets over projected benefit obligations........................ 170 140 60 Unamortized net transitional asset.............................................. (10) (12) (17) Unrecognized net gain........................................................... (21) (24) (3) Unrecognized prior service cost................................................. 52 66 81 --------- --------- --------- Prepaid pension asset recognized on the Consolidated Balance Sheets............. $ 191 $ 170 $ 121 --------- --------- --------- --------- --------- ---------
Weighted average rates used in determining net pension expense and related obligations for defined benefit plans were:
1997 1996 1995 --------- --------- --------- Discount rate................................................................... 7.2% 7.3% 7.5% Rate of compensation increase................................................... 4.7 4.7 5.2 Long-term rate of return on plan assets......................................... 8.3 8.3 8.3
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:
1997 1996 1995 --------- --------- --------- Benefits earned by employees.................................................... $ 5 $ 5 $ 5 Interest on projected benefit obligations....................................... 12 13 11 Net amortization and deferral................................................... 1 1 -- --------- --------- --------- Net postretirement benefit expense.............................................. $ 18 $ 19 $ 16 --------- --------- --------- --------- --------- ---------
F-20 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) The status of postretirement benefit plans at the respective year-end was:
1997 1996 1995 --------- --------- --------- Actuarial present value of benefits for services rendered: Retirees...................................................................... $ 102 $ 101 $ 90 Fully eligible active participants............................................ 16 16 15 Other active participants..................................................... 60 56 43 --------- --------- --------- Accumulated postretirement benefit obligations.................................. 178 173 148 Fair market value of plan assets................................................ 2 2 2 --------- --------- --------- Accumulated postretirement benefit obligations in excess of plan assets......... 176 171 146 Unrecognized net transitional asset............................................. 3 -- 14 Unrecognized net gain........................................................... 19 17 14 Unrecognized prior service cost................................................. 2 -- (1) --------- --------- --------- Postretirement benefit obligations recognized on the Consolidated Balance Sheets......................................................................... $ 200 $ 188 $ 173 --------- --------- --------- --------- --------- --------- Discount rate................................................................... 7.2% 7.2% 7.7% --------- --------- --------- --------- --------- ---------
The assumed health care cost trend rate was 12% for 1997, decreasing to 7% by the year 2002 and remaining at that level thereafter. These trend rates reflect the Corporation's prior experience and management's expectation that future rates will decline. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of June 28, 1997 by 12% and the postretirement benefit expense for 1997 by 14%. The Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS 106), for retiree benefit plans outside the United States in 1996. Under SFAS 106, the Corporation accrues the estimated cost of retiree health care and life insurance benefits during the employees' active service periods. The Corporation's previous method of accounting for postretirement benefits other than pensions was similar to that required by SFAS 106, and the accumulated benefit obligation for these plans was accrued prior to the required adoption of SFAS 106. The accumulated benefit obligation for retiree benefit plans outside the United States was $22 as of June 28, 1997. F-21 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (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:
1997 1996 1995 ---------------------- ---------------------- ---------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- ----------- --------- ----------- --------- ----------- Income before provision for income taxes: United States...................................... $ 742 50.0% $ 638 46.3% $ 648 53.1% Foreign............................................ 742 50.0 740 53.7 571 46.9 --------- ----- --------- ----- --------- ----- $ 1,484 100.0% $ 1,378 100.0% $ 1,219 100.0% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- Taxes at U.S. statutory rates........................ $ 519 35.0% $ 482 35.0% $ 427 35.0% State taxes, net of federal benefit.................. 13 .9 15 1.1 16 1.3 Difference between U.S. and foreign rates............ (85) (5.7) (68) (5.0) (67) (5.5) Nondeductible amortization........................... 62 4.2 54 3.9 50 4.1 Other, net........................................... (34) (2.4) (21) (1.5) (11) (0.8) --------- ----- --------- ----- --------- ----- Taxes at effective worldwide tax rates............... $ 475 32.0% $ 462 33.5% $ 415 34.1% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Current and deferred tax provisions were:
1997 1996 1995 ------------------------ ------------------------ ------------------------ CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ----------- ----------- ----------- ----------- ----------- ----------- United States........................................ $ 169 $ 12 $ 166 $ 25 $ 154 $ 39 Foreign.............................................. 245 28 237 10 150 47 State................................................ 21 -- 28 (4) 23 2 ----- --- ----- --- ----- ----- $ 435 $ 40 $ 431 $ 31 $ 327 $ 88 ----- --- ----- --- ----- ----- ----- --- ----- --- ----- -----
Following are the components of the deferred tax provisions occurring as a result of transactions being reported in different years for financial and tax reporting:
1997 1996 1995 --------- --------- --------- Depreciation.................................................................... $ (2) $ 22 $ 31 Inventory valuation methods..................................................... 37 (35) (4) Nondeductible reserves.......................................................... 53 77 64 Other, net...................................................................... (48) (33) (3) --------- --------- --------- $ 40 $ 31 $ 88 --------- --------- --------- --------- --------- --------- Cash payments for income taxes.................................................. $ 340 $ 224 $ 279 --------- --------- --------- --------- --------- ---------
F-22 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENT (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) The deferred tax (assets) liabilities at the respective year-end were as follows:
1997 1996 1995 --------- --------- --------- Deferred tax (assets) liabilities: Restructuring reserves................................................... $ -- $ (89) $ (166) Reserves not deductible until paid....................................... (295) (253) (213) Pension, postretirement and other employee benefits...................... (42) (35) (8) Net operating loss and other tax carryforwards........................... (1) (2) (3) Property, plant and equipment............................................ 309 298 265 Other.................................................................... (12) -- 13 --------- --------- --------- Net deferred tax (assets).................................................. $ (41) $ (81) $ (112) --------- --------- --------- --------- --------- ---------
F-23 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) INDUSTRY SEGMENT INFORMATION The Corporation's business segments are described in the Narrative Description of Business on pages 4 through 8.
PACKAGED HOUSEHOLD MEATS COFFEE AND AND BODY PERSONAL INTER- AND BAKERY GROCERY CARE PRODUCTS CORPORATE SEGMENT TOTAL ----------- ----------- ----------- ----------- ----------- ----------- --------- 1997 Sales(1)............................ $ 7,614 $ 2,813 $ 1,843 $ 7,482 $ -- $ (18) $ 19,734 Pretax income....................... 476 440 228 761 (421)(2) -- 1,484 Assets.............................. 2,749 1,921 1,530 6,471 282(3) -- 12,953 Depreciation and amortization....... 167 90 78 326 19 -- 680 Capital expenditures................ 173 83 44 246 1 -- 547 - ----------------------------------------------------------------------------------------------------------------------------- 1996 Sales(1)............................ $ 6,530 $ 2,896 $ 1,837 $ 7,370 $ -- $ (9) $ 18,624 Pretax income....................... 422 428 214 729 (415)(2) -- 1,378 Assets.............................. 2,045 2,033 1,571 6,635 318(3) -- 12,602 Depreciation and amortization....... 135 86 78 312 23 -- 634 Capital expenditures................ 152 78 37 271 4 -- 542 - ----------------------------------------------------------------------------------------------------------------------------- 1995 Sales(1)............................ $ 6,110 $ 2,777 $ 1,691 $ 7,151 $ -- $ (10) $ 17,719 Pretax income....................... 383 374 181 658 (377)(2) -- 1,219 Assets.............................. 2,062 1,986 1,391 6,686 306(3) -- 12,431 Depreciation and amortization....... 129 82 79 294 22 -- 606 Capital expenditures................ 116 66 35 262 1 -- 480 - -----------------------------------------------------------------------------------------------------------------------------
(1) Includes sales between segments. Such sales are at transfer prices that are equivalent to market value. (2) Includes net interest expense of $159 in 1997, $173 in 1996 and $185 in 1995 incurred primarily in the United States to finance and support consolidated operations. (3) Principally cash and equivalents, certain fixed assets and certain other noncurrent assets. - ------------ Industry segment sales and operating income applicable to businesses sold prior to June 28, 1997 were not material. F-24 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) GEOGRAPHIC AREA INFORMATION
ASIA- WESTERN/ PACIFIC/ UNITED CENTRAL LATIN STATES EUROPE AMERICA OTHER CORPORATE INTER-AREA TOTAL --------- ----------- ----------- ----------- ----------- ----------- --------- 1997 Sales(1)................................ $ 11,506 $ 6,611 $ 1,223 $ 411 $ -- $ (17) $ 19,734 Pretax income........................... 1,017 723 128 37 (421)(2) -- 1,484 Assets(3)............................... 5,851 5,346 1,154 320 282(4) -- 12,953 - ------------------------------------------------------------------------------------------------------------------------------- 1996 Sales(1)................................ $ 11,252 $ 5,834 $ 1,141 $ 412 $ -- $ (15) $ 18,624 Pretax income........................... 980 671 116 26 (415)(2) -- 1,378 Assets(3)............................... 5,824 4,945 1,157 358 318(4) -- 12,602 - ------------------------------------------------------------------------------------------------------------------------------- 1995 Sales(1)................................ $ 10,659 $ 5,484 $ 1,160 $ 439 $ -- $ (23) $ 17,719 Pretax income........................... 880 564 101 51 (377)(2) -- 1,219 Assets(3)............................... 5,729 5,038 999 359 306(4) -- 12,431 - -------------------------------------------------------------------------------------------------------------------------------
(1) Includes sales between geographic areas. Such sales are at transfer prices that are equivalent to market value. (2) Includes net interest expense of $159 in 1997, $173 in 1996 and $185 in 1995 incurred primarily in the United States to finance and support consolidated operations. (3) The tangible net assets of foreign operations included in the accompanying Consolidated Balance Sheets were $1,137 at June 28, 1997, $1,123 at June 29, 1996 and $892 at July 1, 1995. (4) Principally cash and equivalents, certain fixed assets and certain other noncurrent assets. - ------------ F-25 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ------------------------------------------ FIRST SECOND THIRD FOURTH --------- --------- --------- --------- 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 Net income............................................................... .41 .64 .41 .57 Cash dividends declared.................................................. .19 .21 .21 .21 Market price -- high..................................................... 35.88 40.50 43.38 43.38 -- low........................................................ 30.00 35.13 36.50 39.13 -- close...................................................... 35.75 38.38 42.25 42.06 - ----------------------------------------------------------------------------------------------------------------------- 1996 Net sales.................................................................. $ 4,656 $ 4,898 $ 4,443 $ 4,627 Gross profit............................................................... 1,725 1,878 1,719 1,832 Net income................................................................. 186 283 188 259 Per common share Net income............................................................... .37 .57 .37 .52 Cash dividends declared.................................................. .17 .19 .19 .19 Market price -- high..................................................... 30.38 33.75 35.50 33.88 -- low........................................................ 26.88 28.88 29.88 30.25 -- close...................................................... 29.75 32.00 32.88 32.50 - ----------------------------------------------------------------------------------------------------------------------- 1995 Net sales.................................................................. $ 4,290 $ 4,648 $ 4,193 $ 4,588 Gross profit............................................................... 1,618 1,764 1,565 1,749 Net income................................................................. 165 252 166 221 Per common share Net income............................................................... .33 .51 .33 .45 Cash dividends declared.................................................. .16 .17 .17 .17 Market price -- high..................................................... 23.38 26.00 27.75 29.00 -- low........................................................ 19.38 22.38 24.25 26.25 -- close...................................................... 22.50 25.25 26.13 28.50 - -----------------------------------------------------------------------------------------------------------------------
F-26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Management of SARA LEE CORPORATION: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Sara Lee Corporation included in this Form 10-K, and have issued our report thereon dated July 28, 1997. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule II is the responsibility of the Corporation's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Chicago, Illinois, July 28, 1997. F-27 SCHEDULE II SARA LEE CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 1, 1995, JUNE 29, 1996 AND JUNE 28, 1997 (IN MILLIONS)
PROVISION CHARGED WRITE-OFFS BALANCE AT TO COSTS (1)/ OTHER BALANCE BEGINNING AND ALLOWANCES ADDITIONS AT END OF YEAR EXPENSES TAKEN (DEDUCTIONS) OF YEAR ---------- --------- ------------- ------------ ------- FOR THE YEAR ENDED JULY 1, 1995: Allowances for bad debts........................................ $109 $ 42 $ (30) $ 6 $127 Other receivable allowances..................................... 55 122 (115) 3 65 ----- --------- ----- ------ ------- Total......................................................... $164 $164 $(145) $ 9 $192 ----- --------- ----- ------ ------- ----- --------- ----- ------ ------- FOR THE YEAR ENDED JUNE 29, 1996: Allowances for bad debts........................................ $127 $ 34 $ (35) $(5) $121 Other receivable allowances..................................... 65 113 (105) 3 76 ----- --------- ----- ------ ------- Total......................................................... $192 $147 $(140) $(2) $197 ----- --------- ----- ------ ------- ----- --------- ----- ------ ------- 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 ----- --------- ----- ------ ------- ----- --------- ----- ------ -------
- ------------ (1) Net of collections on accounts previously written off. F-28 EXHIBIT INDEX
(c) EXHIBITS INCORPORATION BY REFERENCE ------------------------------------------------- (3a) 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. (3b) Bylaws Exhibit 3(b) to Report on Form 10-K for Fiscal Year ended June 29, 1996 (4) Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of Sara Lee and all of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed, and which authorizes a total amount of securities not in excess of 10% of the total assets of Sara Lee and its subsidiaries on a consolidated basis. (10) 1. 1979 Stock Option Plan, as amended Exhibit 10 (1) to Report on Form 10-K for Fiscal Year ended July 1, 1995 2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K for Fiscal Year ended July 1, 1989 3. 1988 Non-Qualified Stock Option Plan, as Exhibit 10 (3) to Report on Form 10-K for Fiscal amended Year ended July 1, 1995 4. 1989 Incentive Stock Plan, as amended 5. Supplemental Benefit Plan, as amended 6. Accelerated Growth Incentive Plan Fiscal Exhibit 10 (12) to Report on Form 10-K for Fiscal Years 1990-1994 Year ended June 30, 1990 7. 1991 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal (Base Salary) Year ended June 29, 1991 8. 1992 Non-Qualified Deferred Compensation Plan Exhibit 10 (15) to Report on Form 10-K for Fiscal (Base Salary) Year ended June 27, 1992 9. FY '93 Non-Qualified Deferred Compensation Exhibit 10 (16) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended June 27, 1992 10. 1993 Non-Qualified Deferred Compensation Plan Exhibit 10 (19) to Report on Form 10-K for Fiscal (Base Salary) Year ended July 3, 1993 11. FY '94 Non-Qualified Deferred Compensation Exhibit 10 (20) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended July 3, 1993 12. 1994 Non-Qualified Deferred Compensation Plan Exhibit 10 (14) to Report on Form 10-K for Fiscal (Base Salary) Year ended July 2, 1994 13. FY '95 Non-Qualified Deferred Compensation Exhibit 10 (15) to Report on Form 10-K for Fiscal Plan (Annual Bonus) Year ended July 2, 1994 14. Non-Qualified Deferred Compensation Plan (Annual Bonus) 15. Performance-Based Annual Incentive Plan Appendix A to Proxy Statement dated September 20, 1995 16. 1995 Long-Term Incentive Stock Plan, as amended 17. 1995 Non-Employee Director Stock Plan, as amended
EXHIBITS INCORPORATION BY REFERENCE ------------------------------------------------- 18. Non-Qualified Deferred Compensation Plan for Exhibit 10 (18) to Report on Form 10-K for Fiscal Outside Directors Year ended June 29, 1996 19. FY 1995-97 Long Term Performance Incentive Exhibit 10 (19) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 20. FY 1996-98 Long Term Performance Incentive Exhibit 10 (20) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 21. FY 1997-99 Long Term Performance Incentive Exhibit 10 (21) to Report on Form 10-K for Fiscal Plan Year ended June 29, 1996 22. Non-Qualified Estate Builder Deferred Exhibit 10 (17) to Report on Form 10-K for Fiscal Compensation Plan Year ended June 29, 1985 23. Severance Policy for Corporate Officers, as amended 24. Employment Agreement, dated January 1, 1996, between Sara Lee Corporation and Frank L. Meysman 25. Employment Agreement, dated January 1, 1996, between Sara Lee/DE N.V. and Frank L. Meysman and attachments (translated from Dutch) 26. Stockholder Rights Agreement Exhibit 4 to Report on Form 10-Q for the quarter ended March 26, 1988 (11) Computation of Net Income per Common Share (12) 1. Computation of Ratio of Earnings to Fixed Charges 2. Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements (21) List of Subsidiaries (23) Consent of Arthur Andersen LLP (24) Powers of Attorney (27) Financial Data Schedules
EX-10.4 2 EXHIBIT 10(4) SARA LEE CORPORATION 1989 INCENTIVE STOCK PLAN ARTICLE I - PURPOSE OF THE PLAN The purpose of the Sara Lee Corporation 1989 Incentive Stock Plan is to promote the long-term growth of Sara Lee Corporation by rewarding key management employees with a proprietary interest in Sara Lee Corporation for outstanding long-term performance and to attract, motivate and retain highly qualified and capable management employees. ARTICLE II - DEFINITIONS Unless the context clearly indicates otherwise, the following terms shall have the following meanings: 2.1 "AWARD" means an award granted to a Participant under the Plan in the form of an Option or Restricted Stock, or any combination of the foregoing. 2.2 "BOARD" means the Board of Directors of Sara Lee Corporation. 2.3 "CORPORATION" means Sara Lee Corporation. 2.4 "DISABILITY" means total disability as defined from time to time under the Sara Lee Corporation Long-Term Disability Plan. 2.5 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2.6 "FAIR MARKET VALUE" means the average between the highest and lowest quoted selling price per Share on the New York Stock Exchange Composite Transactions Tape on the Option Grant Date, provided that if there should be no sale of Shares reported on such date, the Fair Market Value of a Share on such date shall be deemed equal to the average between the highest and lowest sales prices of a Share on such Composite Tape for the last preceding date on which sales of Shares were reported. 2.7 "INCENTIVE STOCK OPTION" means an Option which meets the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, or any successor law. 2.8 "OPTION" means an option awarded under Article VIII to purchase Shares. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. 2.9 "OPTION EXERCISE PERIOD" means the period from the Option Grant Date to the date on which an Option expires. 2.10 "OPTION GRANT DATE" means the date upon which the Committee grants an Option to an Optionee. 2.11 "OPTIONEE" means the employee of the Corporation to whom an Option has been granted. 2.12 "NON-QUALIFIED STOCK OPTION" means an Option which does not meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, or any successor law. 2.13 "PARTICIPANT" means an employee of the Corporation or any Subsidiary to whom an Award has been granted which has not terminated, expired or been fully exercised. 2.14 "PLAN" means the Sara Lee Corporation 1989 Incentive Stock Plan, as may be amended and restated from time to time. 2.15 "RESTRICTED PERIOD" means the period of time, which may be a single period or multiple periods, during which Restricted Stock awarded to a Participant remains subject to the restrictions imposed on such Shares, as determined by the Committee. 2.16 "RESTRICTIONS" means the restrictions and conditions imposed on Restricted Stock awarded to a Participant, as determined by the Committee, which must be satisfied in order for the Restricted Stock to vest, in whole or in part, in the Participant. 2.17 "RESTRICTED STOCK" means an award of Shares on which are imposed Restriction Period(s) and Restrictions which subject them to a "substantial risk of forfeiture" as defined in Section 83 of the Internal Revenue Code of 1986, as amended, or any successor law. 2.18 "RESTRICTED STOCK AGREEMENT" means a written agreement between a Participant and the Corporation evidencing an award of Restricted Stock. 2.19 "RESTRICTED STOCK AWARD DATE" means the date on which the Committee awarded Restricted Shares to the Participant. 2.20 "RETIREMENT" means retirement from active employment with the Corporation or any Subsidiary pursuant to the terms and conditions of the pension or retirement plans of the Corporation applicable to the Participant. 2.21 "SHARES" means shares of the Common Stock, par value $1.33 1/3 per share, of the Corporation. 2.22 "STOCK OPTION AGREEMENT" means a written agreement between a Participant and the Corporation evidencing an award of an Option. 2.23 "SUBSIDIARY" means any domestic or foreign corporation or entity of which the Corporation owns, directly or indirectly, at least 20% of the total combined voting power of such corporation or other entity. In addition, the term "Change of Control" shall have the meaning set forth in Section 10.2. ARTICLE III --- ADMINISTRATION OF THE PLAN 3.1 ADMINISTRATOR OF PLAN. The Plan shall be administered by the Compensation and Employee Benefits Committee of the Board ("Committee") which shall be comprised of directors who are "Non-Employee Directors" as defined in Rule 16b-3 or any successor rule of the Securities and Exchange Commission. 3.2 AUTHORITY OF COMMITTEE. The Committee shall have full power and authority to: (i) designate the Participant to whom Options or Restricted Stock may be awarded from time to time; (ii) determine the type of Award to be granted to each Participant under the Plan and the number of Shares subject thereto; (iii)determine the duration of the Restriction Period and the Restrictions to be imposed with respect to each Award; (iv) interpret and construe the Plan and to adopt such rules and regulations it shall deem necessary and advisable to implement and administer the Plan; (v) approve the form and terms and conditions of the Restricted Stock Agreement or the Stock Option Agreement, as the case may be between the Corporation and the Participant; and (vi) designate persons other than members of the Committee to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, provided that the Committee may not delegate its authority (a) with respect to the granting of awards to persons subject to Sections 16(a) and 16(b) of the Exchange Act or (b) if such delegation would cause the Plan not to comply with the requirements of Rule 16b-3 or any successor rule under the Exchange Act. 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. 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 DELEGATION. The Committee may delegate such non-discretionary administrative duties under the Plan to one or more agents as it shall deem necessary and advisable. 3.5 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 Participant and the Corporation. Any decision made 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 which may be made to a Participant under the Plan may be in the form of a Non-Qualified Stock Option, an Incentive Stock Option or Restricted Stock, or a combination thereof, at the discretion of the Committee. If an Option is designated as an Incentive Stock Option, the terms of such Option shall be in conformance with Section 422 of the Internal Revenue Code of 1986, as amended, or any successor law. ARTICLE V --- ELIGIBILITY The Participants in the Plan shall be the officers and key management employees of the Corporation and its Subsidiaries as designated by the Committee. A Participant who has been granted an Award under the Plan may be granted additional Awards under the Plan under such circumstances and at such times as the Committee may determine. ARTICLE VI --- SHARES SUBJECT TO PLAN Subject to adjustment as provided in Article XIV, the aggregate number of Shares which may be issued and released from Restrictions upon the exercise of Options and the vesting of Restricted Stock, respectively, shall not exceed 11,000,000 Shares, plus any Shares which as of the effective date of the Plan are reserved for issuance under the Corporation's 1979 Stock Option Plan, 1981 Incentive Stock Option Plan, and 1988 Non-Qualified Stock Option Plan and which are not thereafter issued. ARTICLE VII --- TRANSFERABILITY OF AWARDS Awards 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 Award in the manner set forth in the related Award agreement. ARTICLE VIII --- OPTIONS Options granted under the Plan shall be subject to the following terms and conditions: (A) OPTION PRICE. The option price per share under each Option granted by the Committee shall be not less than 100% of the Fair Market Value per share on the Option Grant Date. (B) EXERCISE OF OPTIONS. Each Option shall be exercisable on the dates and for the number of Shares as shall be provided in the Stock Option Agreement, provided that (i) no Option shall be exercisable earlier than six months after the Option Grant Date, (ii) in no event shall the period of time over which the Option may be exercised exceed ten years from the Option Grant Date, (iii) an Option granted to an Optionee who is a resident of the Netherlands and subject to the personal income tax laws of the Netherlands may become exercisable immediately after the Option Grant Date, and (iv) the Committee shall have full authority to grant Options to Executives (as defined in the Supplement described below) who are subject to the personal income tax laws of the United Kingdom and employed by the Corporation or any of its subsidiaries pursuant to the terms and conditions of the Supplement attached hereto which sets forth a plan approved by the United Kingdom's Finance Act 1984. The Supplement may be amended from time to time so that its terms and conditions will comply with the applicable requirements of United Kingdom law. 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 submitting acceptable proof to the Committee of the ownership of Shares which have been owned by the Optionee for at least six months prior to the date of exercise of the Option, or a combination of both, 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 submitting proof of acceptable ownership of Shares shall not exceed the number of Shares covered by the respective Option less the number of Shares for which proof of ownership is submitted. The value of owned Shares for which proof of ownership is submitted in full or partial payment for the Shares purchased upon the 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. In the discretion of the Committee, payment for any Shares subject to an Option may also be made by delivering a properly executed exercise notice to the Corporation, together with a copy of irrevocable instructions to a broker to deliver promptly to the Corporation the amount of sale or loan proceeds to pay the purchase price. To facilitate the foregoing, the Corporation may enter into agreements for coordinated procedures with one or more brokerage firms. (C) REPLACEMENT OPTIONS. The Committee may provide either at the time of grant or subsequently that an Option include the right to acquire a replacement option. An Option which provides for the grant of a replacement option shall entitle the Participant, upon exercise of the Option (in whole or in part) prior to termination of employment of the Participant and satisfaction of the option price in Shares, to receive a replacement option. In addition to any other terms and conditions the Committee deems appropriate, the replacement option shall be subject to the following terms: the number of Shares shall not exceed the number of whole Shares used to satisfy the Option price of the original Option and the number of whole shares, if any, withheld by the Corporation as payment for withholding taxes in accordance with Article XI hereof, the Option Grant Date will be the date of the exercise of the original Option, the option price per share shall be the Fair Market Value on the Option Grant Date, the replacement option shall be exercisable no earlier than six months after the Option Grant Date, the Option term will not extend beyond the term of the original Option, and the replacement option shall be a Non-Qualified Option and shall otherwise meet all conditions of this Article VIII. A replacement option may also be granted with respect to any option granted under the Corporation's 1979 Stock Option Plan, 1981 Incentive Stock Option Plan and 1988 Non-Qualified Stock Option Plan. The Committee may rescind the replacement option at any time prior to the replacement option becoming exercisable without the consent of the Participant. (D) COMPLIANCE WITH RULE 16(B)-3. To the extent that the provisions in subparagraph (b) and (c) above on the number of Shares that can be issued under the Plan do not conform with Rule 16b-3 under the Exchange Act as adopted and interpreted by the Securities and Exchange Commission, the Committee shall make such modification in the determination of share usage and issuance so as to conform the Plan and any Options granted hereunder to the Rule's requirements, provided, however, that any such modification shall not increase the number of Shares beyond the Shares specified in Article VI. (E) TERMINATION OF EMPLOYMENT OF OPTIONEE. The Committee shall have authority to determine the circumstances under which Awards of options will vest upon termination of employment of the optionee for any reason. Such provisions will be contained in the Option Agreement given to each Optionee. ARTICLE IX --- RESTRICTED STOCK 91. TERMS OF RESTRICTED STOCK AWARDS. Subject to and consistent with the provisions of the Plan, with respect to each Award of Restricted Stock to a Participant, the Committee shall determine: (a) the terms and conditions of the Restricted Stock Agreement between the Corporation and the Participant evidencing the Award; (b) the Restriction Period for all or a portion of the Award; (c) the Restrictions applicable to the Award, including, but not limited to, continuous employment with the Corporation or any of its Subsidiaries for a specified term or the attainment of specific corporate, divisional or individual performance standards or goals, which Restriction Period and Restrictions may differ with respect to each Participant; (d) whether the Participant shall receive the dividends and other distributions paid with respect to an award of the Restricted Stock as declared and paid to the holders of the Shares during the Restriction Period or shall be withheld by the Corporation for the account of the Participant until the Restriction Periods have expired or the Restrictions have been satisfied, and whether interest shall be paid on such dividends and other distributions withheld, and if so, the rate of interest to be paid, or whether such dividends may be reinvested in Shares; (e) the percentage of the Award which shall vest in the Participant in the event of death, Disability or Retirement prior to the expiration of the Restriction Period or the satisfaction of the Restrictions applicable to an award of Restricted Stock; or (f) notwithstanding the Restriction Period and the Restrictions imposed on the Restricted Shares, as set forth in a Restricted Stock Agreement, whether to shorten the Restriction Period or waive any Restrictions, if the Committee concludes that it is in the best interests of the Corporation to do so. 9.2 DELIVERY OF SHARES. Upon an Award of Restricted Stock to a Participant, the stock certificate representing the Restricted Stock shall be issued and transferred to and in the name of the Participant, whereupon the Participant shall become a stockholder of the Corporation with respect to such Restricted Stock and shall be entitled to vote the Shares. Such stock certificates shall be held in custody by the Corporation, together with stock powers executed by the Participant in favor of the Corporation, until the Restriction Period expires and the Restrictions imposed on the Restricted Stock are satisfied. 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: (a) any and all outstanding Options shall become immediately exercisable; (b) the Restriction Period and Restrictions imposed on the Restricted Stock shall lapse, and the Restricted Stock shall vest in the Participant to the extent determined by the Committee; and (c) within ten business days after the occurrence of a Change of Control, the certificates representing the Restricted Stock so vested, without any restrictions or legend thereon, shall be delivered to the Participant, and any dividends and distributions paid with respect to the Restricted Stock which were escrowed during the Restriction Period and the earnings thereon shall be paid to the Participant. 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")) (other than 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 shareholders 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 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 or 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 June 29, 1989, 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 --- WITHHOLDING OF TAXES Federal, state or local law may require the withholding of taxes applicable to gains resulting from an Award. The Committee may, in its discretion and subject to such rules as it may adopt, permit the Participant to pay all or a portion of the federal, state or local withholding taxes arising in connection with an Award by electing to (i) have the Corporation withhold Shares, (ii) tender back Shares received in connection with such Award or (iii) deliver other previously owned Shares, under each election such Shares having a Fair Market Value on the date specified in the rules adopted by the Committee equal to the amount to be withheld. ARTICLE XII --- NO RIGHT TO CONTINUED EMPLOYMENT Neither the establishment of the Plan nor the granting of an Award shall confer upon any Participant any right to continue in the employ of the Corporation or any of its Subsidiaries or interfere in any way with the right of the Corporation or any of its Subsidiaries to terminate such employment at any time. No Award shall be deemed to be salary or compensation for the purpose of computing benefits under any employee benefit, pension or retirement plans of the Corporation or any of its Subsidiaries, unless the Committee shall determine otherwise. ARTICLE XIII --- AMENDMENT AND TERMINATION The terms and conditions applicable to any Award may thereafter be amended or modified by mutual agreement between the Corporation and the Participant or such other persons as may then have an interest therein. Also, by mutual agreement between the Corporation and a Participant in the Plan or under any other present or future plan of the Corporation, stock options or other awards may be granted to a Participant in substitution and exchange for, and in cancellation of, any Awards previously granted such Participant under the Plan, or under any other present or future plan of the Corporation. The Board may amend the Plan from time to time or terminate the Plan at any time. However, no action authorized by this Article shall reduce the amount of any existing Award or adversely change the terms and conditions thereof without the Participant's consent. ARTICLE XIV --- ADJUSTMENT PROVISIONS 14.1 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 Award and the option price for each outstanding Option shall be adjusted so that the aggregate consideration payable to the Corporation and the value of each such Award shall not be changed. 14.2 Notwithstanding any other provision of the Plan, and without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance, continuation or assumption of Awards or provide for other equitable adjustments after changes in the Shares resulting from any merger, consolidation, sale of assets, acquisition of property of 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 equitable and appropriate. 14.3 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 Participant to whom an Option has been granted under the Plan 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 might 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, evidence of indebtedness, other property or any combination thereof receivable in respect of one Share of the Corporation upon consummation of an Acquisition. ARTICLE XV --- EFFECTIVE DATE The Plan shall become effective, as amended, on August 29, 1991, subject to the approval of a majority of Shares and other voting shares represented and entitled to vote at the annual meeting of stockholders on October 31, 1991. If such approval is not obtained, the Plan shall remain in effect as approved by the stockholders on October 26, 1989. - -------------------------------------------- Adopted by the Board of Directors on August 29, 1991, amended on January 30, 1997 and amended on June 26, 1997. EX-10.5 3 EXHIBIT 10.5 SARA LEE CORPORATION SUPPLEMENTAL BENEFIT PLAN (As Amended and Restated Effective July 1, 1995) SECTION 1 INTRODUCTION 1.1. PLAN. SARA LEE CORPORATION SUPPLEMENTAL BENEFIT PLAN (the "Plan") is maintained by SARA LEE CORPORATION, a Maryland corporation (the "Corporation") for the benefit of eligible employees of the Corporation and those subsidiaries and affiliates of the Corporation which are designated by the Corporation as participating employers. 1.2. EFFECTIVE DATE AND PLAN YEAR. The Plan was established as of July 1, 1978. The effective date of the amendment and restatement of the Plan as set forth herein is July 1, 1995. The "Plan Year" shall mean the period beginning each July 1, and ending the next following June 30. 1.3. EMPLOYERS. The Corporation and each other SLC Controlled Group Member which has been designated by the Corporation as a participating employer is referred to herein as an "Employer" and may be referred to collectively as the "Employers." An "SLC Controlled Group Member" means the Corporation and any affiliated or related corporation which is a member of a controlled group of corporations (within the meaning of Section 1563(a) of the Internal Revenue Code of 1986, as amended ("Code") determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C)) which includes the Corporation or any trade or business (whether or not incorporated), which is under the common control with the Corporation (within the meaning of Section 414(c) of the Code). 1.4. PURPOSE. The Plan has been established to supplement the retirement benefits provided by the Sara Lee Corporation Employee Stock Ownership Plan (the "ESOP"), the Sara Lee Corporation Consolidated Pension and Retirement Plan (the "Consolidated Plan") and each other defined benefit pension maintained by an Employer which is listed as a Covered Plan in Exhibit A to the Plan that is intended to satisfy the requirements for qualification under Section 401(a) of the Code (such plans are referred to herein collectively as the "Covered Plans" and individually as a "Covered Plan"). 1.5. PLAN SUPPLEMENTS. The provisions of the Plan may be modified by supplements to the Plan. The terms and provisions of each supplement are a part of the Plan and supersede the provisions of the Plan to the extent necessary to eliminate inconsistencies between the Plan and the supplement. SECTION 2 PARTICIPATION AND SUPPLEMENTAL BENEFITS 2.1. ELIGIBILITY. Each employee of an Employer who participates in a Covered Plan will become a Participant in this Plan on the earlier of the following to occur: (a) the date that the benefits the employee would otherwise accrue in the Covered Plan are limited by operation of Code Sections 415 or 401(a)(17), (b) if the employee is a highly-compensated employee for purposes of Code Section 414(r) and participates in the Consolidated Plan, the date that the benefits the employee would otherwise accrue in the Consolidated Plan are limited because the employee's Supplemental Compensation (as defined in subsection 2.2 below) is not considered in determining benefits under the Consolidated Plan. 2.2. SUPPLEMENTAL BENEFITS. At a Participant's retirement or earlier termination of employment with all SLC Controlled Group Members, the Participant shall be entitled to the "Supplemental Benefit" that has accrued for him under the Plan. A Participant's accrued Supplemental Benefit as of any date shall be as follows: (a) ESOP. If the Participant is covered only by the ESOP, the Participant's accrued Supplemental Benefit as of any date shall consist of the aggregate Employer contributions that would have been made to the ESOP on behalf of the Participant for each plan year prior to such date but which were not contributed because of the limitations of Sections 401(a)(17) or 415 of the Code, with such aggregate contributions adjusted upward or downward to reflect the investment experience under the ESOP; provided, that for plan years of the ESOP ending prior to January 1, 1997, the Employer contribution that shall be considered to have been foregone in any plan year of the ESOP shall not, for purposes of this Plan, exceed 1.75 percent of that portion of the Participant's compensation (as determined under the ESOP) for that plan year in excess of the Code Section 401(a)(17) limit for that year. (b) OTHER COVERED PLANS. If the Participant is covered by the Consolidated Plan or another Covered Plan but not the ESOP, his accrued Supplemental Benefit as of any date shall consist of the full amount of retirement benefit produced for him by the pension formula applicable to the Participant under the Covered Plan as of such date (the "Full Benefit") less the maximum amount of retirement benefit that can be provided under the Covered Plan after application of the limitations imposed by Sections 401(a)(17) and 415 of the Code. (c) COMPENSATION ADJUSTMENTS. If the Participant is covered by the Consolidated Plan, in determining the Participant's Full Benefit under subparagraph (b) next above, the Participant's compensation shall include (i) deferred compensation, if any, provided any such amount of deferred compensation shall be considered compensation in the plan year deferred, and (ii) for plan years ending after July 1, 1989 and prior to July 1, 1994, the Participant's Long-Term Bonus Credit. A Participant's "Long-Term Bonus Credit" for a plan year equals the applicable percentage of the Participant's Base Salary listed in the table below, multiplied by the ratio of (A) the Participant's bonus under the company's short-term (annual) bonus plan for that plan year to (B) the maximum bonus that could have been paid to the Participant for that plan year under the short-term (annual) bonus plan reduced, in the case of the Long Term Bonus Credit for the plan year ended June 30, 1990, by the amount of long term bonus paid to the Participant's during that year with respect to the FY 1988 to 1990 long term bonus plan. Applicable Percentage Category of Base Salary Chairman/CEO, President and Vice-Chairman 25% Corporate Executive Vice Presidents 21.67% Corporate Senior Vice Presidents 18.77% Corporate Vice Presidents (Operations) 15% Corporate Vice Presidents (Staff) and Division Presidents 12.5% In addition, for any year a Participant's compensation package is adjusted for the purpose of satisfying the limits imposed under Section 162(m) of the Code, the Participant's compensation considered in determining the Participant's Full Benefit shall be equal to the compensation the Participant would have received had no adjustment in the Participant's compensation package been made. Finally, in determining the Full Benefit under subparagraph 2.2(b) above for any Participant who has less than five full years of compensation considered under the Covered Plan's formula, any bonus or other annual non-periodic compensation payment for a period of less than one year shall be considered to have been earned ratably over a period of one year. (d) COMBINATION OF PLANS. If the Participant is covered by the Consolidated Plan or another Covered Plan and the ESOP, the Participant's accrued Supplemental Benefit as of any date shall consist of the sum of the benefits determined separately under (a) and (b) above. (e) PRIOR SERVICE AND NON-QUALIFIED BENEFITS. In determining a Participant's Full Benefit under subparagraph 2.2(b) above, only service with an Employer while it is an SLC Controlled Group Member shall be considered; provided, however, that service with an Employer prior to the date the Employer first became an SLC Controlled Group Member and service with a predecessor employer shall be considered only if such service formed the basis of a benefit under an unfunded, non-qualified retirement plan maintained by such Employer prior to the date it first became an SLC Controlled Group Member or by such predecessor employer (a "Prior Plan") and the liability for benefits under that Prior Plan were assumed by the Corporation pursuant to the terms of an asset or stock purchase agreement. (f) IMPUTED SERVICE. In determining a Participant's accrued Supplemental Benefit, any period required to be included as service pursuant to an employment, severance or other written agreement with the Corporation shall be considered service with the Corporation under the Plan. That portion of a Participant's accrued Supplemental Benefit which is attributable to his participation in a particular Covered Plan shall become nonforfeitable on the same basis and at the same time as such Participant's accrued benefit under such Covered Plan becomes nonforfeitable. 2.3. PAYMENT OF BENEFITS. A Participant's Supplemental Benefit shall, subject to the further provisions of this Plan, be payable to or on account of the Participant as follows: (a) That portion of the Participant's Supplemental Benefit which is attributable to the Participant's participation in the ESOP shall be paid to the Participant, or in case of his death to his beneficiary or surviving spouse, beginning at the same time, in the same manner, over the same period and subject to the same terms and conditions as the Participant's benefits in the ESOP are paid except as otherwise determined by the Committee (as described in subsection 4.1) after conferring with the person to whom such payments are to be made. (b) That portion of the Participant's Supplemental Benefit which is attributable to the Participant's participation in the Consolidated Plan or any other Covered Plan other than the ESOP shall be payable on a monthly basis to or on account of the Participant beginning at the same time, in the same manner, over the same period and under the same terms and conditions as the Participant's benefits in the Covered Plan are paid; provided that benefits payable to any surviving spouse shall be based upon the difference between (i) the full amount of retirement benefit for the Participant as determined under subparagraph 2.2(b) above multiplied by the percentage of such benefit payable to the surviving spouse, less (ii) the amount of surviving spouse's benefits being provided under the Covered Plan. In no event will any payments be made hereunder to or on account of a surviving spouse after the month in which the spouse's death occurs. Notwithstanding the foregoing if the present value of a Participant's Supplemental Benefit determined under this sub-paragraph 2.3(b) is $10,000 or less, the Committee shall have the discretion to pay the present value of such benefit to the Participant, (or in the event of the Participant's death, to the Participant's surviving spouse) in a lump sum. The present value of that portion of a Participant's Supplemental Benefit under subparagraph 2.2(b) shall be determined by using the interest, mortality and other actuarial assumptions used at the time under the Consolidated Plan for purposes of determining an actuarial equivalent lump sum. 2.4. PAYMENT MODIFICATIONS. Regardless of any other provisions of this Plan, the period during which any monthly installments hereunder are to be paid to a Participant or to his surviving spouse may be modified by the Committee after consulting with the person or persons to whom such monthly installments are to be paid. 2.5. BENEFITS PROVIDED BY EMPLOYERS. Benefits payable under this Plan to a Participant or his spouse shall be paid directly by the Participant's Employer. No Employer shall be required to segregate any assets to be applied for the payment of benefits under this Plan. 2.6. OFFSET FOR BENEFITS PROVIDED BY GRANTOR TRUSTS. Notwithstanding any provision of the Plan to the contrary, the benefits a Participant or his beneficiary is entitled to receive from the Plan will be offset on a dollar for dollar basis by the sum of: (a) the value of assets in the grantor trust established by the Participant pursuant to a Supplemental Compensation Agreement between the Participant and the Corporation which trust is designed to provide benefits in lieu of the benefits provided by this Plan, and (b) an amount equal to the federal, state and local income taxes the Participant would pay if the Participant's benefits under the Plan were paid in a single lump sum. The offset provided in this subsection shall occur on the date the Participant terminates employment for any reason and shall be made on an actuarial equivalent present value basis using the interest, mortality and other actuarial assumptions employed under the Participant's Supplemental Compensation Agreement in determining the actuarial equivalent lump sum value of the Participant's benefits upon termination of the Supplemental Compensation Agreement. If there were withdrawals or distributions from the Participant's grantor trust, for purposes of this offset, the value of assets in the Participant's grantor trust shall be increased by the amounts that would have been available under the Participant's grantor trust had such withdrawals or distributions not been made and such amounts had accumulated under the trust each year at an interest rate equal to one point over the rate at First National Bank of Chicago on the first business day of December of each year, less an amount equal to the sum of federal, state and local income taxes the Participant would have paid that year on said assumed trust income. SECTION 3 OTHER EMPLOYMENT A Participant or his spouse receiving Supplemental Benefits hereunder will continue to be entitled thereto regardless of other employment or self-employment. SECTION 4 GENERAL 4.1. COMMITTEE. This Plan will be administered by the Sara Lee Corporation Employee Benefits Administrative Committee (the "Committee") appointed by the Board of Directors of the Corporation. The Committee has the discretionary authority to determine factual issues and eligibility for Plan coverage and benefits, to interpret the provisions and terms of Plan and to decide claims for benefits under the terms of the Plan. Subject to applicable law, any interpretation of the provisions of the Plan (including any Supplement) and any decision on any matter within the discretion of the Committee made by the Committee in good faith shall be final and binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the Committee shall make such adjustment on account thereof as it considers equitable and practicable. The Committee shall not be liable in any manner for any determination of fact made in good faith. Any claim for benefits under the Plan shall be handled by the Committee pursuant to the claims procedures under the ESOP and Consolidated Plan and such procedures are incorporated herein by this reference. 4.2. BENEFICIARY. Each Participant under this Plan, by writing filed with the Committee, may designate such person or persons as he shall select as his "beneficiary" to receive any Supplemental Benefits which may be payable at his death. In the absence of any such designation, any such benefits shall be paid to the Participant's estate. 4.3. INTERESTS NOT TRANSFERABLE. Except as to any withholding of tax under the laws of the United States or any State, the interest of any Participant, his spouse or minor children under the Plan is not subject to the claims of creditors and may not be voluntarily or involuntarily sold, transferred, assigned, alienated or encumbered. 4.4. FACILITY OF PAYMENT. Any amounts payable hereunder to any person under legal disability or who, in the judgment of the Committee, is unable to properly manage his financial affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the Committee may select. 4.5. GENDER AND NUMBER. Where the context admits, words in the masculine gender shall include the feminine gender, the plural shall include the singular, and the singular shall include the plural. 4.6. CONTROLLING LAW. To the extent not superseded by the laws of the United States, the laws of Illinois shall be controlling in all matters relating to the Plan. 4.7. SUCCESSORS. This Plan is binding on each Employer and will inure to the benefit of any successor of an Employer, whether by way of purchase, merger, consolidation or otherwise. 4.8. CONTINUED EMPLOYMENT. The establishment of this Plan shall not be construed to give any Participant the right to be retained in the Employer's service. SECTION 5 AMENDMENT AND TERMINATION While the Employers expect to continue the Plan indefinitely, the right to amend or terminate the Plan by action of the Board of Directors of the Corporation is hereby reserved, provided that in no event shall any Participant's Supplemental Benefit accrued to the date of such amendment or termination be reduced or modified by such action. IN WITNESS WHEREOF, the undersigned members of the Committee, pursuant to the authority delegated to the Committee by resolutions of the Board dated January 27, 1994, have executed this restatement of the Plan, this 6th day of March, 1997. /s/ Michael E. Murphy _____________________________ /s/ Gary C. Grom _____________________________ As Committee Members EX-10.14 4 EXHIBIT 10(14) SARA LEE CORPORATION FY98 NON-QUALIFIED DEFERRED COMPENSATION PLAN (ANNUAL BONUS) 1. PURPOSE: The purpose of the Sara Lee Corporation FY98 Non-Qualified Deferred Compensation Plan (Annual Bonus) (the "Plan") is to permit a Participant, as defined below, to defer the payment of 25% or more of his/her FY98 annual bonus award earned under the provisions of an annual (short-term) bonus plan of Sara Lee Corporation or any of its subsidiaries incorporated under the laws of any state in the United States (the "Company"). 2. PARTICIPANTS: A Participant shall mean an employee of the Company who is a participant in a short-term (annual) performance incentive plan for fiscal year 1998 ("Participant"). 3. ADMINISTRATION OF THE PLAN: The Plan shall be administered by the Compensation and Employee Benefits Committee of the Board of Directors of Sara Lee Corporation (the "Committee"). The Committee may delegate certain administrative authority to employee(s) of the Company, but shall retain the responsibility for interpretation and modification of the Plan. 4. DEFERRED COMPENSATION: "Deferred Compensation" shall mean the amount of the FY98 annual bonus awarded but deferred in accordance with the terms of Paragraph 5 of the Plan. 5. ELECTION TO DEFER COMPENSATION: A Participant may elect to defer at least 25% of his/her FY98 bonus award earned under an annual (short-term) bonus plan. Such deferral shall be effected by executing a Deferred Compensation Agreement ("Agreement"), in the form set forth in Exhibit A of the Plan, and executing the Agreement ON OR BEFORE JUNE 28, 1997. 6. PAYMENT OF DEFERRED COMPENSATION: A Participant may elect in the Agreement to receive the payment(s) of Deferred Compensation in annual installments commencing in the year specified therein, or in a lump sum in the year specified therein, provided that the payments do not commence or, in the case of a lump sum, are not made during the tax year in which it is earned. 7. IRREVOCABILITY: An election to defer, filed in accordance with paragraph 5 above, is binding and irrevocable and paragraph 3 of the Agreement may not be modified or amended except as specified in paragraphs 10 and 12 below. 8. MAINTENANCE OF DEFERRED COMPENSATION ACCOUNTS: The Company will maintain a separate Deferred Compensation Account ("Account") for each Participant. On June 30 and December 31 of each year and on the date of final payment from the Account, the Company will credit the Account with interest on the outstanding balance (principal and interest to date). The rate of interest for each fiscal year will be set at the beginning of each fiscal year based on the current cost to Sara Lee Corporation of issuing five year maturity debt. The rate will be the average of quotes from two prominent investment banks, but will not be lower than five year maturity debt for a company whose credit rating is comparable to that of Sara Lee Corporation. 9. RETIREMENT: In the event that a Participant retires before all the Deferred Compensation is paid from his/her Account, the Plan shall remain in effect and his/her Account shall continue to be maintained by the Company for the benefit of the Participant and paid in accordance with the Agreement. 10. DEATH OR TOTAL DISABILITY OF PARTICIPANT: Upon the death or total disability of a Participant (total disability as defined in the Sara Lee Corporation Key Executive Disability Income Plan), the payment of the Account balance shall be made as requested by the totally disabled Participant, designated beneficiary (or beneficiaries) or the Executor/Executrix of the Participant's estate. This request must be made in writing to the Corporate Compensation Department within 180 days following the death or total disability of a Participant. If this request is not made within 180 days following the death or total disability of a Participant, the Deferred Compensation will be paid in accordance with the Agreement. 11. TERMINATION OF EMPLOYMENT: The Plan shall remain in effect and the Account shall continue to be maintained by the Company for the benefit of a Participant and paid in accordance with the Agreement in the event that the Participant terminates employment with the Company for any reason before all the Deferred Compensation is paid from his/her Account. 12. FINANCIAL HARDSHIP: Notwithstanding the time and frequency of the date of payment of Deferred Compensation designated in the Agreement or in paragraphs 9, 10 and 11 hereof, the Senior Vice President-Human Resources of Sara Lee Corporation, as the representative for the Committee, may authorize, upon written application to the Corporate Compensation Department by the Participant, his/her designated beneficiary or the Executor/Executrix of the Participant's estate, the acceleration of Deferred Payments (including a lump sum payment) provided that the requesting party can substantiate to the reasonable satisfaction of the Senior Vice President-Human Resources of Sara Lee Corporation that adherence to the designated payment form and/or schedule set forth in the Agreement would result in severe financial hardship to the Participant, his/her designated beneficiary or to his/her estate. A bonafide financial hardship must be the result of an unanticipated event. Such accelerated or lump sum payment shall not exceed the amount required to meet the financial need of the Participant, his/her designated beneficiary or his/her estate. 13. NO RIGHTS OF EMPLOYMENT: Participation in the Plan in no way constitutes a contract or agreement to continued employment of the Participant by the Company for any fixed period of time. 14. STATUS OF OBLIGATION: The balances accumulated in the Accounts under the terms of the Plan shall constitute general contractual obligations of the Company. The Company shall not segregate assets, create any security interest, or encumber its assets in order to provide for the payment(s) of the balance(s) which shall accumulate in the Accounts. Notwithstanding the preceding sentence, the Company may, in its sole discretion, establish an irrevocable grantor trust, the assets of which shall be subject to the claims of the Company's creditors in the event of the Company's bankruptcy or insolvency, and if so established, benefits payable under the Plan shall be paid from such trust to the extent not otherwise paid from the Company's general assets. 15. NON-ASSIGNABILITY: The rights and benefits of a Participant under the Plan are personal and cannot be pledged, transferred or assigned except upon a Participant's death, to a beneficiary (or beneficiaries) designated in the Agreement, or if no beneficiaries are so designated, to the Participant's estate and thereafter as determined by will or the laws of descent and distribution. A Participant may, subsequent to the execution of the Agreement, modify the beneficiary or beneficiaries currently designated. 16. AMENDMENT(S): Any substantive amendment(s) to the Plan shall be approved by the Committee. No amendment(s) shall be made which would adversely affect the tax status of the Deferred Compensation accumulated in the Accounts. 17. EFFECTIVE DATE; TERMINATION: The Plan shall become effective June 29, 1997, subject to approval by the Committee. The Committee may terminate the Plan at any time; however, such termination shall not affect the rights of Participants which were accrued prior to such termination. In the event of a termination, the Committee will comply with a Participant's election regarding the distribution of the Deferred Compensation. 18. PREDECESSOR PLANS: The rights and provisions as described in this document are applicable to this Plan only and shall not apply to any other deferred compensation plan of the Company in which a Participant is a participant. EX-10.16 5 EXHIBIT 10.16 SARA LEE CORPORATION 1995 LONG-TERM INCENTIVE STOCK PLAN ARTICLE I --- Purposes of the Plan The purposes of the Sara Lee Corporation 1995 Long-Term Incentive Stock Plan are to promote the interests of the Corporation and its stockholders by strengthening the Corporation's ability to attract and retain highly competent officers and other key employees, and to provide a means to encourage stock ownership and proprietary interest in the Corporation. The 1995 Long-Term Incentive Stock Plan is intended to provide plan participants with stock-based incentive compensation which is not subject to the deduction limitation rules prescribed under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and should be construed to the extent possible as providing for remuneration which is "performance-based compensation" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. ARTICLE II --- DEFINITIONS Unless the context clearly indicates otherwise, the following terms shall have the following meanings: a. "AWARD" means, individually or in the aggregate, an award granted to a Participant under the Plan in the form of an Option, a Stock Award, or an SAR, or any combination of the foregoing. b. "BOARD" means the Board of Directors of Sara Lee Corporation. c. "COMMITTEE" means the Compensation and Employee Benefits Committee of the Board of Directors, a subcommittee thereof, or such other committee as may be appointed by the Board of Directors. The Committee shall be comprised of three or more non-employee members of the Board of Directors who shall qualify to administer the Plan as "Non-Employee Directors" under Rule 16b-3 of the Exchange Act and as "outside directors" under Section 162(m) of the Code. d. "CORPORATION" means Sara Lee Corporation, or any entity that is directly or indirectly controlled by Sara Lee Corporation. e. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. f. "FAIR MARKET VALUE" means the average between the highest and lowest quoted selling price per Share on the New York Stock Exchange Composite Transactions Tape on the grant date, provided that if there should be no sales of Shares reported on such date, the Fair Market Value of a Share on such date shall be deemed equal to the average between the highest and lowest sales prices of a Share on such Composite Tape for the last preceding date on which sales of Shares were reported. g. "INCENTIVE STOCK OPTION" means a stock option which complies with Section 422 of the Code, or any successor law. h. "NON-QUALIFIED STOCK OPTION" means an Option that does not meet the requirements of Section 422 of the Code, or any successor law. i. "OPTION" means an option awarded under Article VI to purchase Shares. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option, as determined by the Committee in its sole discretion. j. "PARTICIPANT" means any employee of the Corporation, or former employee of the Corporation for the purposes of adjustments to Awards pursuant to Article V (b) of the Plan, designated by the Committee as eligible to receive an Award or Awards under the Plan. k. "PLAN" means this Sara Lee Corporation 1995 Long-Term Incentive Stock Plan, as may be amended and restated from time to time. l. "PRIOR PLAN" means the Sara Lee Corporation 1989 Incentive Stock Plan, as amended and restated from time to time. m. "SAR" means a stock appreciation right. n. "SHARES" means Shares of the Corporation's common stock, par value $1.33 1/3 per share. o. "STOCK AWARD" means an Award made under Article VI in Shares. In addition, the term "Change of Control" shall have the meaning set forth in Article X. ARTICLE III --- EFFECTIVE DATE OF THE PLAN AND DURATION The Plan shall become effective upon its approval by the stockholders of the Corporation. Unless previously terminated by the Board, the Plan shall expire at the close of business on the tenth anniversary of such stockholder approval. ARTICLE IV --- PLAN ADMINISTRATION The Committee shall be responsible for administering the Plan, and shall have full and exclusive power to interpret the Plan and to adopt such rules, regulations and guidelines for carrying out the Plan as it may deem necessary or appropriate, all of which power shall be executed in the best interests of the Corporation and in keeping with the provisions and objectives of the Plan. This power includes, but is not limited to, selecting award recipients, establishing all Award terms and conditions, adopting procedures and regulations governing Awards, and making all other determinations necessary or advisable for the administration of the Plan. In no event, however, shall the Committee have the power to cancel outstanding stock options or SARs for the purpose of replacing or regranting such options or SARs with a purchase price that is less than the purchase price of the original option or SAR. All decisions made by the Committee shall be final and binding on all Participants. ARTICLE V --- AVAILABLE SHARES OF COMMON STOCK a. LIMITATIONS --- Subject to the provisions of Article V (b) of the Plan, the aggregate number of Shares which may be issued to Participants under the Plan shall be: (i) 25,000,000 Shares; plus (ii) any Shares available for grants under the Prior Plan which have not been committed for issuance under awards made under the Prior Plan; plus (iii) any Shares that are represented by Awards or portions of Awards under the Plan or the Prior Plan that are forfeited, expired, canceled, or are settled without the issuance of Shares; plus (iv) any Shares that my be tendered, either actually or by attestation, by a Participant as full or partial payment made to the Corporation in connection with the exercise price of any Option granted under the Plan or the Prior Plan. The aggregate number of Shares that may be represented by Awards made to any individual Participant under the Plan shall not exceed 2,000,000 Shares for any five consecutive fiscal years during which the Plan is in effect, with respect to Awards granted under paragraphs (a)(i) and (ii) of Article VI, except that such amount shall not exceed 4,000,000 Shares for the initial five consecutive fiscal years during which a Participant who is a new employee begins service as Chief Executive Officer, and shall not exceed 150,000 Shares for any three-year performance cycle, with respect to Awards granted under paragraph (a) (iii) of Article VI. The aggregate number of Shares that may be used in settlement of Awards granted pursuant to Article VI(a)(iii) of the Plan shall not exceed 8,500,000 Shares. Any Shares issued under the Plan shall consist of authorized and unissued Shares and no fractional Shares shall be issued under the Plan. Cash may be paid in lieu of any fractional Shares in settlement of Awards under the Plan. b. ADJUSTMENTS --- In the event of any stock dividend, stock split, combination or exchange of equity securities, merger, consolidation, recapitalization, spin-off or other distribution (other than normal cash dividends) of any or all of the assets of the Corporation to stockholders, or any other change affecting Shares or Share price, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made with respect to: (i) the limitations on the numbers of Shares that may be issued and represented by Awards under the Plan as set forth in the Article V (a); (ii) each outstanding Award made under the Plan; and (iii) the exercise price per Share for any outstanding options, SARs or similar Awards under the Plan. ARTICLE VI --- AWARDS a. GENERAL --- The Committee shall determine the type or types of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem. In the sole discretion of the Committee, awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Corporation including a plan of any acquired entity. The types of Awards that may be granted under the Plan are: (i) OPTIONS --- An Option shall represent the right to purchase a specified number of Shares during a specified period as determined by the Committee. The purchase price per Share for each Option shall not be less than 100% of the Fair Market Value on the date or grant. In addition, if an Option is granted retroactively in substitution for an SAR, the designated Fair Market Value in the applicable award agreement may be the Fair Market Value on the date such Shares were awarded. An Option may be in the form of an Incentive Stock Option or a Non-Qualified Stock Option, as determined by the Committee in its sole discretion. The Shares covered by an Option may be purchased, in accordance with the applicable Award agreement, by cash payment or such other method permitted by the Committee, including (i) tendering (either actually or by attestation) Shares valued at the Fair Market Value at the date of exercise; (ii) authorizing a third party to sell the Shares (or a sufficient portion thereof) acquired upon exercise of an Option, and assigning the delivery to the Corporation of a sufficient amount of the sale proceeds to pay for all the Shares acquired through such exercise and any tax withholding obligations resulting from such exercise; or (iii) any combination of the above. The Committee may grant Options that provide for the grant of a replacement Option if the exercise price and the related taxes due are satisfied by tendering (either actually or by attestation) Shares to, or having Shares withheld by, the Corporation. The replacement Option would cover the number of Shares tendered (either actually or by attestation) or withheld, would have an option purchase price per Share set at the Fair Market Value per Share on the date of exercise of the original Option, and would have a term equal to the remaining term of the original Option. (ii) SARS --- An SAR shall represent a right to receive a payment, in cash, Shares or a combination, equal to the excess of the Fair Market Value of a specified number of Shares on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award agreement; except that if an SAR is granted retroactively in substitution for an Option, the designated Fair Market Value in the applicable award agreement may be the Fair Market Value on the date such Option was granted. (iii) STOCK AWARDS --- A Stock Award shall represent an Award made in Shares. All or part of any Stock Award may be subject to conditions and restrictions established by the Committee, and set forth in the Award agreement, which may include, but are not limited to, continuous service with the Corporation, and/or the achievement of performance goals. The performance criteria that may be used by the Committee in granting Stock Awards contingent on performance goals shall consist of total stockholders' return, earnings, earnings per share, revenues, and profitability as measured by return ratios, including but not limited to return on invested capital and return on equity. The Committee may select one criterion or multiple criteria for measuring performance, and the measurement may be based on absolute Corporation or business unit performance, or based on comparative performance with other companies. ARTICLE VII --- DIVIDENDS AND DIVIDEND EQUIVALENTS The Committee may provide that any Awards under the Plan earn dividends or dividend equivalents. Such dividends or dividend equivalents may be paid currently or may be credited to a Participant's Plan account. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional Shares for Share equivalents. ARTICLE VIII --- PAYMENTS AND PAYMENT DEFERRALS Payment of Awards may be in the form of cash, Shares, other Awards or combinations thereof as the Committee shall determine, and with such restrictions as it may impose. The Committee, either at the time of grant or by subsequent amendment, may require or permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and procedures as it may establish under the Plan. It also may provide that deferred settlements include the payment or crediting of interest on the deferral amounts, or the payment or crediting of dividend equivalents where the deferral amounts are denominated in Share equivalents. ARTICLE IX --- TRANSFERABILITY Awards 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 Award in the manner set forth in the related Award agreement. In the event that a Participant terminates employment with the Corporation to assume a position with a governmental, charitable, educational or similar non-profit institution, the Committee may subsequently authorize a third party, including but not limited to a "blind" trust, to act on behalf of and for the benefit of such Participant regarding any outstanding awards held by the Participant subsequent to such termination of employment. If so permitted by the Committee, a Participant may designate a beneficiary or beneficiaries to exercise the rights of the participant and receive any distribution under the Plan upon the death of the Participant. ARTICLE X --- CHANGE OF CONTROL Either in contemplation of or in the event that the Corporation undergoes a Change in Control (as defined below) or is not the surviving corporation in a merger or consolidation with another corporation, the Committee may provide for appropriate adjustments (including acceleration of vesting and settlements of Awards either at the time an Award is granted or at a subsequent date). A "Change of Control" shall occur when: (a) a "Person" (which term, when used in this Article X, shall have the meaning it has when it is used in Section 13(d) of 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 or 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 --- AWARD AGREEMENTS Awards under the Plan shall be evidenced by agreements that set forth the terms, conditions and limitations for each Award. Such terms may include, but are not limited to, the term of the Award, the provisions applicable in the event the Participant's employment terminates, and the Corporation's authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind any Award. The Committee need not require the execution of any such agreement by a Participant, in which case acceptance of the Award by the respective Participant shall constitute agreement by the Participant to the terms of the Award. ARTICLE XII --- PLAN AMENDMENT The Board may amend the Plan at any time as it deems necessary or appropriate to better achieve the purposes of the Plan, provided that no such amendment shall be effective unless approved within 12 months after the date of the adoption of such amendment by such affirmative vote of the stockholders of the Corporation as may be required by Rule 16b-3 under the Exchange Act if such stockholder approval is required for the Plan to continue to comply with the requirements of Rule 16b-3 under the Exchange Act. The Board may suspend the Plan or discontinue the Plan at any time; provided, however, that no such action shall adversely affect any outstanding benefit. ARTICLE XIII --- MISCELLANEOUS PROVISIONS a. EMPLOYMENT RIGHTS --- The Plan does not constitute a contract of employment and participation in the Plan will not give a Participant the right to continue in the employ of the Corporation on a full-time, part-time, or any other basis. Participation in the Plan will not give any Participant any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. b. COMMITTEE'S DECISION FINAL --- Any interpretation of the Plan and any decision on any matter pertaining to the Plan which is made by the Committee in its discretion in good faith shall be binding on all persons. c. GENDER AND NUMBER --- Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the plural form of a word shall include the singular form, and the singular form of a word shall include the plural form. d. GOVERNING LAW --- Except to the extent superseded by the laws of the United States, the laws of the State of Illinois, without regard to its conflict of laws principles, shall govern in all matters relating to the Plan. e. INTERESTS NOT TRANSFERABLE --- The interests of Participants under the Plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Internal Revenue Code or any state's income tax act, or pursuant to an agreement between a Participant and the Corporation or as provided in Article IX, may not be voluntarily sold, transferred, alienated, assigned or encumbered. f. SEVERABILITY --- In the event any provision of the Plan shall be held to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if such illegal or invalid provisions had never been contained in the Plan. g. WITHHOLDING --- The Corporation will withhold from any amounts payable under this Plan all federal, state, foreign, city and local taxes as shall be legally required. h. EFFECT ON OTHER PLANS OR AGREEMENTS --- Payments or benefits provided to a Participant under any stock, deferred compensation, savings, retirement or other employee benefit plan are governed solely by the terms of such plan. i. FOREIGN EMPLOYEES --- Without amending this Plan, the Committee may grant awards to eligible persons who are foreign nationals on such terms and conditions different from those specified in this Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Corporation or its subsidiaries operates or has employees. As adopted on August 31, 1995 and approved by stockholders on October 26, 1995 and amended on January 30, 1997 and amended on June 26, 1997 and amended on August 28, 1997. EX-10.17 6 EXHIBIT 10.17 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 sale 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 granted to a Non-Employee Director. 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 $1.33 1/3 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 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 Article 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 500,000 Shares. 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 first business day of November of each year (or, if later, on the date on which a person is first elected or begins to serve as a Non-Employee director), 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 purchase 5,000 Shares (which number shall be pro-rated if such Non-Employee Director is first elected or begins to serve as a Non-Employee Director on a date other than the date of an annual meeting of stockholders) and each Non-Employee Director who is the chair of a standing committee of the Board shall be granted an Option to purchase 5,500 Shares (of which the number 5,000 shall be pro-rated if such Non-Employee Director is first elected or begins to serve as a Non-Employee Director on a date other than the date of an annual meeting of stockholders, and the number 500 shall be pro-rated if such Non-Employee Director first begins to serve as a chairperson on a date other than the annual meeting of stockholders. 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 EXERCISE OF OPTIONS. Each Option shall be fully exercisable on and after that date which is six months after the Option Grant Date and, subject to Article X, shall not be exercisable prior to such date, PROVIDED, HOWEVER, that an Option granted to an Optionee who is a resident of the Netherlands and subject to the personal income tax laws of the Netherlands may be exercisable immediately after the Option Grant 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 Each Non-Employee Director shall be granted Options or Shares, or a combination thereof, subject to the following terms and conditions: 9.1 GRANT OF OPTIONS OR SHARES. On the first day of November of each year, Options or Shares, or a combination thereof, shall be granted to each Non-Employee Director who, at least ten business days prior thereto, files with the Committee or its designee a written election to receive Options or Shares, or a combination thereof, in lieu of all or a portion of such Non-Employee Director's Annual Retainer. In the event a Non-Employee Director does not file a written election in accordance with the preceding sentence, Options or Shares, or a combination thereof, shall be granted to such Non-Employee Director on the tenth business day (the "Effective Date") after the date such Non-Employee Director files with the Committee or its designee a written election to receive Options or Shares, or a combination thereof, in lieu of all or a portion of such Non-Employee Director's Annual Retainer; provided, however, that such election may apply only to the portion of such Non-Employee Director's Annual Retainer determined by multiplying such Non-Employee Director's Annual Retainer by a fraction, the numerator of which is the number of days from and including the Effective Date to and including the last day of the period for which such Annual Retainer would otherwise be payable, and the denominator of which is 365 or 366, as the case may be. An election pursuant to the first sentence of this Section 9.1 shall be irrevocable on and after the tenth business day prior to the date of grant of the Options or Shares, as the case may be. An election pursuant to the second sentence of this Section 9.1 shall be irrevocable. 9.2 NUMBER AND TERMS OF OPTIONS. The number of Shares subject to an Option granted pursuant to this Article shall be the number of whole Shares equal to (i) the product of four (4) times the portion of the Annual Retainer which the Non-Employee Director has elected pursuant to Section 9.1 shall be payable in Options, divided by (ii) the Fair Market Value per Share on the Option Grant Date. Any fraction of a Share shall be disregarded and the remaining amount of such Annual Retainer shall be paid in cash. 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. Each Option granted pursuant to this Article shall be exercisable in accordance with Section 8.3. 9.3 NUMBER OF SHARES. The Number of Shares granted pursuant to this Article shall be the number of whole Shares equal to (i) the portion of the Annual Retainer which the Non-Employee Director has elected pursuant to Section 9.1 shall be payable in Shares, divided by (ii) the Fair Market Value per Share on the Stock Award Date. Any fraction of a Share shall be disregarded and the remaining amount of such Annual Retainer shall be paid in cash. Upon an Award of Shares to a Non-Employee Director, the stock certificate representing such Shares shall be issued and transferred to the Non-Employee Director, whereupon the Non-Employee Director shall become a stockholder of the Corporation with respect to such Shares and shall be entitled to vote the Shares. 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. 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. ARTILCE 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. 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 The Plan shall be submitted to the stockholders of the Corporation for approval and, if approved by a majority of all the votes cast at the 1995 annual meeting of stockholders, shall become effective as of the date of approval by the Board. If stockholder approval is not obtained at the 1995 annual meeting of stockholders, the Plan shall be nullified. As adopted on March 30, 1995 and approved by the stockholders on October 26, 1995 and amended on January 30, 1997 and amended on June 26, 1997. EX-10.23 7 EXHIBIT 10(23) SARA LEE CORPORATION SEVERANCE POLICY FOR CORPORATE OFFICERS EFFECTIVE FEBRUARY 1, 1994 1. INTRODUCTION. This document sets forth the policy of Sara Lee Corporation ("Corporation") governing severance payments and benefits ("Severance") to be made in the event of the involuntary termination of employment with the Corporation of an officer of the Corporation elected by the Board of Directors and eligible to participate in the Corporation's Long-Term Performance Incentive Plans ("Officer" or "Terminated Officer"). 2. STATEMENT OF GENERAL POLICY. It is the policy of the Corporation that an Officer whose employment with the Corporation has been involuntarily terminated for any reason other than for "Cause" (as defined in Section 3(i) below), death, disability or retirement shall be entitled to specified Severance. This Policy duly recognizes the circumstances of termination, years of service with the Corporation and age on the date of termination as factors to be considered in the determination of the amount of Severance to be paid to a Terminated Officer. The Objectives of this Policy are to: (1) provide a Terminated Officer with reasonable compensation to bridge the Terminated Officer until reemployment or normal retirement, and (2) provide reasonable consideration for the release of the Corporation of all claims against it by a Terminated Officer. This Policy is inapplicable to a Terminated Officer in circumstances where (i) the Officer is relieved of his or her responsibility and is immediately offered new employment with the Corporation or is transferred to a subsidiary or affiliate of the Corporation, with the consent of the Officer, (ii) the Corporation divests itself of a subsidiary, division or operation as a going concern which employed the Officer and the employment of the Officer by such division, subsidiary or operation is continued by the new or acquiring entity either on substantially the same financial terms and conditions as prior to the disposition of such division, subsidiary or operation or on such financial terms and conditions acceptable to the Officer, or (iii) the Terminated Officer voluntarily resigns. 3. CATEGORIES OF TERMINATION OF EMPLOYMENT. The categories of termination, which shall determine the amount of Severance to be paid to a Terminated Officer, are: (i) TERMINATION FOR CAUSE ("Category I Termination"). Termination for Cause is a termination of employment by the Corporation when the Officer has willfully engaged in conduct demonstrably and materially injurious to the Corporation or is convicted of or confesses to a crime involving dishonesty, moral turpitude or other disreputable behavior. (ii) TERMINATION FOR GOOD REASON ("Category II Termination"). Termination for Good Reason is a termination of employment when (a) the Officer is terminated because of unacceptable performance, (b) the Officer's employment is terminated involuntarily due to an organization restructuring which results in the elimination of the Officer's position or function, or (c) the Officer terminates his or her employment at the request of the Corporation. The characterization of an Officer's termination under this Policy shall be made by the Corporation's Senior Vice President-Human Resources. 4. SEVERANCE BENEFITS PAYABLE. CATEGORY I TERMINATION. An Officer terminated under the circumstances of a Category I Termination shall receive no Severance from the Corporation under this Policy. CATEGORY II TERMINATION. An Officer terminated under the circumstances of a Category II Termination shall: (A) receive, for each full year of employment with the Corporation or any subsidiary or affiliate of the Corporation (including the years of employment with a corporation acquired by the Corporation), three (3) months' salary (in effect on the date of termination), if he or she is an Executive Vice President or an officer senior thereto and a Director of the Corporation; two (2) months' salary (in effect on the date of termination), if he or she is a Senior Vice President; or one (1) month's salary (in effect on the date of termination), if he or she is a Vice President, but in no event shall this Salary Portion of Severance be less than twelve (12) months' salary or more than twenty four (24) months' salary; (B) be paid a pro-rata amount (to the effective date of termination of employment) of (i) the annual bonus payable under the Annual Bonus Plan of the Corporation in effect with respect to the fiscal year in which the termination of employment shall occur, assuming a Superior level of performance with respect to the non-discretionary portion of such bonus; and (ii) the long-term bonus payable under the Long-Term Performance Bonus Plan of the Corporation terminating at the end of the fiscal year closest to the date of termination (forfeiting participation in any long-term bonus plans ending thereafter); and (C) at the discretion of the Chief Executive Officer of the Corporation, be paid an additional Salary Portion of Severance up to three (3) additional months' salary if the Officer is age 40 years or older but less than age 50 on the date of termination of employment or up to six (6) additional months' salary if the Officer is age 50 or older on the date of termination of employment. TERMINATION OF BENEFITS. All Severance shall cease on the earliest of (1) the Terminated Officer's 62nd birthday, provided that he or she is eligible to begin to receive pension benefits under the Sara Lee Corporation Consolidated Pension and Retirement Plan or any other qualified retirement plan of the Corporation (a "Retirement Plan") at age 62, (2) the date the Terminated Officer becomes employed by a competitor of the Corporation or any of its subsidiaries or becomes reemployed by the Corporation and (3) the date the Terminated Officer begins to receive benefits from a Retirement Plan. HEALTH COVERAGE. If a Terminated Officer eligible for Severance elects to continue health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the period such coverage will be offered will not be less than the Severance Period (i.e. the period the Terminated Officer is expected to receive the Salary Portion of Severance) and the Corporation will subsidize the premium for such continuation coverage during the Severance Period to the extent that the Terminated Officer would otherwise be required to pay more for such coverage during that period than a similarly situated active employee would be required to pay for comparable coverage. After the end of the Severance Period, the Terminated Officer will be required to pay the full COBRA premium. If the Terminated Officer is eligible for early retirement under the terms of the Sara Lee Corporation Consolidated Pension and Retirement Plan (or would become eligible if the Severance Period is considered as employment) the Terminated Officer may elect to receive retiree health care coverage. PARTICIPATION IN OTHER PLANS. Except as otherwise provided herein, participation in all other plans available to the Executive Benefit Group, including but not limited to, qualified pension plans, stock purchase plans, 401(k) plans and ESOPs, personal accident insurance, travel accident insurance, short and long term disability insurance and accidental death and dismemberment insurance, shall cease on the Officer's date of termination. Non-qualified Supplemental ESOP and pension benefits will be provided to a Terminated Officer eligible for Severance through the Corporation's Supplemental Benefit Plan by treating the Severance Period as a period of employment with the Corporation. The Corporation shall continue to pay premiums during the Severance Period on any policy purchased by such a Terminated Officer under the Executive Life Insurance Program and will continue to pay premiums after the Severance Period pursuant to the Executive Life Insurance Program if the Terminated Officer is eligible for early retirement or becomes eligible for early retirement during the Severance Period. Any stock option awards such Terminated Officer received prior to the date of termination shall continue to vest during the Severance Period pursuant to the terms of the stock option plan. Any stock option awards that vest prior to the end of the Severance Period must be exercised by the Terminated Officer within the applicable periods specified in the option plan. A Terminated Officer who continues to be eligible for Severance shall continue to participate in the Estate Builder Plan at the Target Rate. The Terminated Officer can surrender the Corporation car at termination of employment or purchase the car from the Corporation at the car's then fair market value. Reimbursement of club memberships and expenses incurred after the Terminated Officer terminates employment shall cease on the termination of employment and the Matching Grant Program shall also terminate at termination of employment. 5. MODE OF PAYMENT OF SEVERANCE. The Salary Portion of the Severance shall be paid bi-weekly in accordance with the Corporation's Corporate Office pay schedule, unless the Chief Executive Officer of the Corporation, at his sole discretion, shall elect to pay the Salary Portion in a lump sum payment or a combination of bi-weekly payments and a lump sum payment. The bonus payment segment, if any, of the Severance shall be paid to the Terminated Officer on the same date the active participants under the bonus plans are paid. 6. SEPARATION AGREEMENT. No benefits under this Policy shall be payable to any Terminated Officer until the Terminated Officer and the Corporation have executed a Separation Agreement (in substantially the form approved by the Committee or its Chairman, with such revisions or modifications as shall be deemed necessary or appropriate by the Senior Vice President-Human Resources) and the payment of benefits under this Policy shall be subject to the terms and conditions of such Separation Agreement. 7. DEATH OF TERMINATED OFFICER. In the event that the Terminated Officer shall die prior to the completion of the payments of the Salary Portion and prior to the payment of the bonus payment segment of the Severance, the Terminated Officer's estate or beneficiary, whichever is applicable, shall be paid the remaining payments of the Salary Portion and the unpaid bonus payment. Such payments shall not affect or reduce any other death benefits which the Terminated Officer's estate or beneficiary shall be entitled to receive under other plans of the Corporation. 8. POLICY INTERPRETATIONS AND VARIATIONS. The Compensation and Employee Benefits Committee of the Corporation shall administer this Policy, the Committee or its representative shall decide any issues and disputes arising under this Policy, and the decision of the Committee shall be binding and conclusive on the Terminated Officer and the Corporation. Any variations from the Policy may only be made by the Committee in its sole discretion. EX-10.24 8 EXHIBIT 10(24) Ex. 10(24) EMPLOYMENT AGREEMENT THIS AGREEMENT entered into as of January 1, 1996 by and between Sara Lee Corporation, a Maryland corporation, with its principal place of business at Three First National Plaza, Suite 4600, Chicago, Illinois 60602 U.S.A. 60602 ("Sara Lee"), and F.L.V. Meysman, an individual whose principal residence is at Nachtegaallaan 1, 2243 EL Wassenaar, the Netherlands ("Meysman"). INTRODUCTION A. Meysman is a Senior Vice President of Sara Lee. Meysman also serves as Chairman of the Board of Management of Sara Lee|DE N.V., an indirect, wholly-owned subsidiary of Sara Lee, incorporated in the Netherlands ("Sara Lee|DE") . B. Meysman has agreed to continue to serve Sara Lee and Sara Lee|DE as a Senior Vice President and as Chairman of Sara Lee|DE's Board of Management, respectively, in consideration for certain compensation and benefits. C. Meysman has entered into a written employment agreement with Sara Lee dated November 9, 1994, providing for certain compensation and benefits to Meysman in consideration for his services as Senior Vice President (the "Employment Agreement"). D. Meysman has entered into a written employment agreement with Sara Lee|DE dated as of November 9, 1994, providing for certain compensation and benefits related to his services as Chairman of the Board of Management of Sara Lee| DE (the "Sara Lee|DE Employment Agreement"). E. Meysman and Sara Lee desire to amend and restate the terms of the Employment Agreement. Now therefore, Sara Lee and Meysman hereby agree to amend and restate the Employment Agreement as follows: 1. EMPLOYMENT - DUTIES AND RESPONSIBILITIES Subject to the terms and conditions of this Agreement, Sara Lee agrees to continue to employ Meysman in the capacity of Senior Vice President. In consideration of the compensation and benefits provided for in this Agreement, Meysman agrees to perform such services as may be requested from time to time by Sara Lee. Without limiting the foregoing, Meysman agrees to assist with the ongoing design and development of Sara Lee's corporate and business strategies, acquisition and divestment policies, business planning, human resources policies, (cross divisional) management development programs and corporate communications policies. In addition Meysman agrees to (i) represent Sara Lee externally and enhances investor relations and (ii) contribute to and establish programs and policies to optimize the financial results of the respective divisions and operating companies of Sara Lee. In undertaking the foregoing duties and responsibilities, the parties acknowledge and agree that Meysman requires to be in the U.S.A. for at least twenty days per year. 2. EMPLOYMENT AT WILL The parties acknowledge and agree that Meysman shall hold his office as a Senior Vice President of Sara Lee at the pleasure of the Board of Directors of Sara Lee, and that consequently, Meysman is an "at will" employee and this Agreement and his employment may be terminated by Sara Lee at any time without reason or cause. 3. ANNUAL SALARY In consideration for the services rendered by Meysman to Sara Lee, during the term of this Agreement and commencing as of January 1, 1996 Sara Lee shall pay Meysman an annual gross salary of NLG 178,000. Sara Lee shall evaluate Meysman's performance at least annually and may adjust his annual gross salary as of January 1 of each succeeding year that this Agreement remains in effect. Sara Lee shall pay Meysman's salary, after deducting or withholding all applicable payroll taxes and premiums due in the U.S.A., paid in advance, in four quarterly installments, on or about the last business day of December, March, June and September. At Meysman's request, Sara Lee will arrange for the direct deposit (via wire transfer or other electronic delivery) of Meysman' s quarterly annual salary payments to Meysman's bank or other financial institution. 4. SHORT-TENM (ANNUAL) PERFORMANCE INCENTIVE PLAN During the term of this Agreement, Meysman shall be entitled to participate in the Sara Lee Corporation Short-Term (Annual) Performance Incentive Plan (the "Annual Plan") in accordance with the terms and conditions of the Annual Plan. The Annual Plan currently provides for the opportunity to earn additional compensation payable in cash (the "Annual Bonus"). The potential amount of the Annual Bonus may be related to the performance of operating businesses for which Meysman is responsible, the performance of Sara Lee Corporation in its entirety, and the performance of Meysman in meeting certain individual performance criteria. Under the terms of the Annual Plan Meysman shall be eligible to earn an incentive award, payable in cash, of up to 100% of his annual salary during each fiscal year. The performance standards against which his award will be determined shall be established at the beginning of each fiscal year during the term of this Agreement by the Sara Lee executive to whom Meysman reports and the terms and provisions established for the Annual Plan by Sara Lee's Board of Directors, or a committee thereof. Any award earned by Meysman under the Annual Plan payable in cash shall be paid to Meysman at the same time as awards under the Annual Plan are paid to other Sara Lee executives. 5. FINANCIAL COUNSELING During the term of this Agreement, Sara Lee shall reimburse Meysman for amounts paid by him related to his personal financial counseling in accordance with the terms and conditions of the Sara Lee Corporation Personal Financial Counseling Program. 6. AGREEMENT WITH RESPECT TO CONFIDENTIAL INFORMATION (a) NONDISCLOSURE OF CONFIDENTIAL INFORMATION Meysman agrees, during the term of employment and after employment, to keep confidential all information relating to the business of Sara Lee which he learns or develops or has access to during the term of this employment, excepting only such information as is already known to the public, or becomes known to the public through no fault of Meysman, and not to use (except in the ordinary course of his employment), release, or disclose the same except with the prior written permission of Sara Lee. As used in this Agreement, "confidential information" means any information or compilation of information relating to the business of Sara Lee not publicly known or readily ascertainable by proper means. It includes, but is not limited to, trade secrets, customer lists, price lists, and information relating to products, technology, research, development, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling. (b) SARA LEE PROPERTY Meysman agrees that all Sara Lee property including records, files, memoranda, reports, price lists, customer lists, plans, documents, equipment and the like, relating to the business of Sara Lee, which Meysman shall use or prepare or come into contact with, shall be the exclusive property of Sara Lee. Meysman further agrees that, upon request by Sara Lee, and in any event upon termination of employment, Meysman shall turn over to Sara Lee such property in his possession or under his control. 7. REMEDIES Meysman agrees that this Agreement is intended to protect and preserve legitimate business interests of Sara Lee and that it will be difficult, if not impossible, to compute the amount of loss and damage to Sara Lee if Meysman should breach his covenants under this Agreement. It is further agreed that any breach or threatened breach of this Agreement may render irreparable harm to Sara Lee. Accordingly, in the event of a breach or threatened breach by Meysman, Sara Lee shall have available to it all remedies provided by law or equity, including, but not limited to, preliminary and permanent injunctive relief, without the requirement to deliver or post security, to restrain Meysman from violating this Agreement. Nothing herein shall be construed as prohibiting Sara Lee from pursuing any other remedies available to it. Notwithstanding any legal remedies available to Sara Lee as a result of a breach of this Agreement, in the event of a breach by Meysman, Sara Lee shall be entitled to withhold and avoid payment of any money or other benefits due or to become due under this or any other agreement between Meysman and Sara Lee with the exception of any basic compensation earned prior to termination. 8. TERMINATION AND SEVERANCE In the event this Agreement is terminated by Sara Lee, Meysman shall be eligible for severance benefits subject to the terms and conditions of the Sara Lee Corporation Severance Policy for Corporate officers, as amended from time to time (the "Policy"). The severance benefits, if any, payable under the Policy shall be the sole and exclusive severance benefits payable to Meysman. 9. OTHER TERMS AND CONDITIONS OF EMPLOYMENT This Agreement shall not be deemed to amend or modify the terms and conditions of the Sara Lee|DE Agreement. The Sara Lee|DE Agreement shall remain in full force and effect in accordance with its provisions. 10. GOVERNING CONDITIONS This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Illinois. 11. ENTIRE AGREEMENT/AMENDMENTS This Agreement supersedes all existing agreements between the parties, whether written or oral, including the Employment Agreement with respect to Meysman's employment by Sara Lee. No change, modification or amendment of this Agreement shall be of any effect unless in writing and signed by Meysman and Sara Lee. /s/Frank L. Meysman - --------------------------- Frank L. Meysman SARA LEE CORPORATION /s/Gary C. Grom ------------------------------- By: Gary C. Grom Senior Vice President Human Resources EX-10.25 9 EXHIBIT 10(25) Ex-10(25) Translation of Employment Agreement between Sara Lee|DE and Mr. F. Meysman, duly signed on June 11, 1997 - ---------------------------- EMPLOYMENT AGREEMENT The undersigned: 1. SARA LEE/DE N.V., with its head office established in Joure, and with offices in Utrecht, represented in law for these purposes, in pursuance of the provision of Article 24, paragraph 2 of the Company's articles of association, by H.B. van Liemt, in his capacity as Chairman of the Supervisory Board, hereinafter referred to as "the Company" and 2. Mr. F. Meysman, resident at Nachtegaallaan 1, 2243 EL Wassenaar, the Netherlands, hereinafter referred to as the "Managing Director" TAKING INTO ACCOUNT THE FACT THAT: the Managing Director entered the employment of Douwe Egberts N.V. in Belgium on January 16, 1986 as the Marketing Director of Douwe Egberts Belgium, and entered into the employment of the Company on September 1, 1990, where he has successively held the positions of Senior Vice President Corporate Strategy & Business Development, member of the Coffee & Grocery Board, and the position of Chairman of the Household & Personal Care Board; the Managing Director was appointed as Vice President in 1992, and as Senior Vice President of Sara Lee Corporation ("SLC") on April 6, 1994; the Company's Supervisory Board decided on April 16, 1992, to appoint the Managing Director as a member of the Company's Board of Management; in pursuance of Article 21, paragraph 1 of the Company's Articles of Association, the Company's Supervisory Board decided on April 19, 1994 to appoint the Managing Director as Chairman of the Company's Board of Management; the Managing Director is familiar with the affiliation understandings between SLC and the Company; the Company's Supervisory Board, in accordance with Article 22 of the Company's Articles of Association, has resolved on December 7, 1995, to revise the terms and conditions of employment of the Managing Director, effective as of January 1, 1996; the Managing Director accepts the above referred to revision of the terms and conditions of employment, applicable to him; in consideration of the above referred to revision of the terms and conditions of employment, applicable to the Managing Director, parties hereto have deemed it desirable to amend the employment-agreement, signed as per November 9, 1994, in conformity with the resolution, adopted December 7, 1995, of the Company's Supervisory Board; the parties wish to arrange the unaffected continuation of their working relationship of the Managing Director with the Company, taking into account the provisions of Article 22 of the Articles of Association of the Company, whereby this agreement will replace the employment-agreement, dated November 9, 1994, in its entirety; COME TO THE FOLLOWING AGREEMENT: ARTICLE 1 - DURATION a. This agreement enters into force on January 1, 1996, and replaces all the employment agreements concluded between the Company and the Managing Director before that date, and/or agreements concluded regarding their employment relationship, which hereby lapse. b. Without prejudice to the provisions of Appendices A and B of this agreement, this agreement is concluded for an indeterminate period, and can be terminated by either of the parties by registered letter at the end of a calendar month, taking into account a six-month period of notice, as well as taking into account the provisions relating to the dismissal of members of the Board of Management, laid down in the Articles of Association of the Company. c. This agreement legally ends in any case without any termination being required when a member of the Board of Management reaches the age at which he is obliged to retire in accordance with the Articles of Association of the Company. ARTICLE 2 - TASK/SCOPE OF COMPETENCE a. The Managing Director is obliged to perform his tasks in accordance with the provisions of the law and of the Articles of Association of the Company in this respect. Moreover, the Managing Director is obliged to always observe the "Management Rules" laid down in accordance with Article 20, paragraph 2 of the Articles of Association, if these exist, and for as long as they exist. b. The Managing Director is the Chairman of the Board of Management, and this board is responsible for the management of the Company. As Chairman, the Managing Director is responsible in particular for the following fields: strategy, general operational state of affairs, financial policy, internal and external communication, human resources and legal matters. The Supervisory Board has the right at any time to make additions or amendments to the job description, following consultation with the Board of Management and in consultation with the Managing Director. c. The Managing Director will be required to fulfill managing function(s) for the Company's subsidiary and/or affiliated companies of the Company or being part of the concern of SLC and to perform services for such companies in addition to his function as Chairman of the Board of Management. d. The Managing Director will, apart from his position as Chairman of the Board of management of the Company, continue to render services to SLC based upon his position of Senior Vice President of SLC and his existing employment-agreement with SLC. e. The Managing Director is obliged to observe the Code of Conduct and comparable Codes of SLC, as drawn up at intervals. The Code of Conduct contains provisions, inter alia, relating to restrictions imposed on private investments. ARTICLE 3 - PRIMARY CONDITIONS OF EMPLOYMENT a. SALARY The Managing Director has the right to an annual gross salary of NLG 351,000 as of January 1, 1996. This salary includes all the legally compulsory payments of any nature, including holiday pay and year-end allowance. b. INCENTIVE AWARD The Managing Director is entitled to an annual cash incentive award of maximum 100% of his gross salary, earned during the fiscal year, depending on the incentive award score expressing the performance of the Managing Director for his services in the respective passed fiscal year, rendered to the Company. The incentive award will each year be established, based on the incentive award criteria, which have been laid down in writing on forehand in consultation with the Managing Director by or on behalf of the Company's Supervisory Board and the incentive award score determined after consultation with the Managing Director by the Company's Supervisory Board after the respective fiscal year has ended. The Company's Supervisory Board may establish further specifications regarding the determination of incentive award criteria and -scores. c. PAYMENT Payment of salary will be made on a monthly basis, in arrears by the end of the respective month. Payment of the established incentive award will be made in September of each year. d. REVISION The Managing Director's salary may be revised annually on January 1 on the basis of the Managing Director's performance, assessed by the Company's Supervisory Board, and of the general market developments relating to jobs at a comparable level. The Managing Director will be informed on each salary revision in writing. The first revision has taken place on January 1, 1996, and is included in the annual gross salary, stated in Article 3, paragraph a. of this agreement. e. ILLNESS For the first year of illness 1n which the Health Act is applicable, and the following two years in which the party is unable to work because he is incapacitated, the Company will supplement the payments made in accordance with the Health Act or Disability Act respectively (or a legal regulation which comes to replace or supplement these) to 100% of the salary applicable on the day preceding the first day of illness, revised in the way described in paragraph d. of this article. Payments made on the basis of the above mentioned insurances will, in the case that the Managing Director reaches the age of retirement during the period of illness or disability, be deducted from the pension payments for the period concerned. f. CLAUSE RELATING TO CLAIMS The Company has no obligation to make any payment for disability as referred to in paragraph e. of this article, if and insofar as the Managing Director is able to make a claim for compensation for loss of salary from a third party, in connection with his disability. In that case, the Company will only pay sums equivalent to those referred to in paragraph e. of this article, as an advance on the compensation for damages to be received from the third party, and if the Managing Director cedes his right to the Company to collect compensation for damages up to the sum of the advances paid out by the Company. The Company's obligation to pay the Managing Director the sums collected for the compensation for damages is legally compensated with the advances paid out to him. g. STOCK OPTION PLAN In consideration of your position as member of the Board of Management of the Company and the duties related hereto, the Managing Director shall be entitled to participate in any stock option plan of SLC providing for the granting of options to purchase shares of the Company's securities to a specified period of time at the market value of such shares on the date of grant of the options and in any plans of SLC, which provide for the granting of shares under a restricted stock plan. The number of stock options and/or restricted shares, to which the Managing Director shall be entitled, will be established within a particular plan established by the Board of Directors of SLC or a committee thereof. The Managing Director shall be entitled to participate in the above described benefit plans on the basis of his position as Chairman of the Board of Management of the Company as well as his position as Senior Vice President of SLC in relation to the same employment grade and rank vis a vis comparable management positions within SLC. The Company's Supervisory Board acknowledges the above described entitlement of the Managing Director and gives its consent in regard of the discretionary authority of the Board of Directors of SLC or a committee thereof. ARTICLE 4 - SECONDARY CONDITIONS OF EMPLOYMENT a. HOLIDAY RIGHTS The Managing Director is entitled to thirty days holiday per year. The Managing Director takes his holiday in mutual consultation with the other members of the Board of Management. In case of more lengthy absence, the Managing Director will inform the Chairman of the Company's Supervisory Board thereof. b. PENSION ARRANGEMENTS The pension arrangements laid down in Appendix C. apply to the Managing Director. c. The surviving relatives of the Managing Director have the right to a payment as laid down in Article 7A, 1639.1 of the Civil Code. ARTICLE 5 - TERTIARY CONDITIONS OF EMPLOYMENT a. The Managing Director is, and will continue to be included in the voluntary collective sickness insurance concluded by the Company. The premiums for this are entirely at the Managing Director's expense. 60% of the premium payable by the Managing Director is reimbursed by the Company on the basis of insurance class 2a for the Managing Director and his wife, and class 3 for his children. b. CAR ARRANGEMENT 1. The Managing Director will have a suitable car with chauffeur at his disposal at the Company's expense for business use. 2. Besides the arrangement sub 1., the Managing Director is entitled to car facilities, laid down in the car arrangement applicable to members of the Board of Management of the Company, for business as well as private purposes. c. TELEPHONE EXPENSES The Company will reimburse the Managing Director the total cost of telephone and fax connections and -communications at his home address with deduction of an own contribution according to the arrangement, applicable to members of the Board of Management of the Company. d. EXPENSES WHICH CAN BE DECLARED Expenses incurred by the Managing Director in the context of the performance of his tasks on behalf of the Company, as a member of the Board of Management, such as travelling and accommodation expenses, are reimbursed by the Company on the basis of the submission of statements, to be administered per quarter. The statements must on request be sent to the Chairman of the Supervisory Board of the Company. e. EXPENSES WHICH CANNOT BE DECLARED The Company pays the Managing Director a representation fee for expenses which cannot be declared, which can be changed at any instance by the Company's Supervisory Board. As of January 1, 1996 till the moment this representation fee is changed, this fee amounts to NLG 18,000.-- per year. Payment hereof will be made on a monthly basis. f. INSURANCE FOR LEGAL LIABILITY As Chairman of the Board of Management, and in every capacity in which he acts for or in relation to the Company, the Managing Director is insured for the duration of this agreement and afterwards for his legal liability, in accordance with the policy appended in Appendix D. The costs of the insurance are at the Company's expense. If the Managing Director is pronounced to be legally liable for damages on the basis of his above mentioned liability, and this is not covered by the above mentioned insurance policy, the Company will reimburse the Managing Director for the damages suffered by the Managing Director, unless the legal decision established that the Managing Director was guilty of deliberate action or gross malpractice. The Managing Director is obliged to maintain confidentiality vis-a-vis everyone regarding the provision of this paragraph f. ARTICLE 6 a. If the Managing Director receives any payment or reimbursement for any function which he fulfills in his capacity of a member of the Company's Board of Management, he shall pay it (or have it paid) into the Company's funds. b. For services, rendered by the Managing Director to companies being part of the concern of SLC or the Company, the Managing Director is entitled to receive compensations or benefits, which may be considered privately earned employment income, provided these services are performed with the prior consent in writing of the Company's Supervisory Board and provided these services have a structural basis and require a direct involvement of the Managing Director with the respective companies in view of their business activities. ARTICLE 7 - SUBSIDIARY JOBS Notwithstanding the provision in Article 6, paragraph b. of this agreement, the Managing Director undertakes not to work for any other employer, either directly or indirectly, to refrain from doing business at his own expense, and not to accept any post or take any salaried and/or time consuming unsalaried position without the prior consent in writing of the Company's Supervisory Board for the duration of his employment. The Managing Director declares that on the date of signing of this agreement he is fulfilling the subsidiary jobs, listed in Appendix E. of this agreement, for which the Supervisory Board hereby grants the above mentioned consent. The payments and/or reimbursements in connection with the subsidiary jobs referred to in this article do not have to be deducted from the salary mentioned in Article 3, paragraph a, or from any payment or reimbursement mentioned in this agreement. ARTICLE 8 - NON-COMPETITION a. The Managing Director shall not, either directly or indirectly and either on his own behalf or on behalf of any other, carry on or be engaged in any business whatsoever which competes with the business of the Company and its affiliated companies, nor render services, in whatever form, directly or indirectly in this respect during the continuance of the employment as well as during a period of twenty four months after termination of the employment with the Company. The Chairman of the Supervisory Board may on request waive the non competition obligation regarding a specific activity or engagement of the Managing Director, taking into account the potential damage to the Company and its affiliated companies. Such request of the Managing Director will not be withheld unreasonably. Moreover, the Managing Director agrees not to attempt to entice away from the Company or its affiliated companies any employee thereof during the above mentioned period. b. In the event of a breach of the obligations referred sub a. of this article by the Managing Director, the Company shall be entitled, without any notification being required, a contract penalty in the amount of one time the latest gross annual salary of the Managing Director as well as a contract penalty in the amount of NLG 50,000.-- for each day the violation continues after notification of the detection thereof by the Company, notwithstanding the right of the Company to claim the total damage instead of the contract penalty. ARTICLE 9 - CONFIDENTIALITY a. The Managing Director shall keep confidential all specific information relating to the business of the Company and its affiliated companies. b. The Managing Director agrees, during the term of employment and after the employment has been terminated for whatever cause, not in any way to disclose to anyone any information, knowledge or data relating to the business of the Company and its affiliated companies, which he has obtained by virtue of his employment with the Company and for which the Company has imposed on him an obligation of confidentiality or which he knows or should know that such information has to be considered confidential. c. The Managing Director shall only use the information, knowledge and data, referred to sub b. of this article, within the framework of the exercise of his duties pursuant to his employment with the Company. d. In the event of a breach of the obligations, referred to sub a., b. and c. of this article, the Company shall be entitled to a contract penalty for each case of violation in the amount of one time the latest annual gross salary of the Managing Director, notwithstanding the right of the Company to claim the total damage instead of the contract penalty. ARTICLE 10 - DOCUMENTS The Managing Director is prohibited in any way from having or keeping in his private possession any documents or correspondence or copies thereof which have become available to him in connection with his work, except insofar and for as long as this is necessary for the performance of his tasks for the company. In any case, the Managing Director is obliged, even without any request to do so, to make such documents, correspondence or copies thereof forthwith available to the Company at the end of his employment, or in the event that he becomes inactive for any reason. ARTICLE 11 - DISCHARGE The Company has the right to discharge the Managing Director of his post as a member of the Board of Management of the Company, without terminating the Managing Director's employment, if and insofar as the Company considers that the Managing Director is unable, because of sickness, accident or for other reasons, to adequately fulfill his activities as a member of the Board of Management, and in that case the Company will not be liable for any compensation for damages. The above is without prejudice to the Company's right to terminate the employment subsequently in accordance with the provisions of this agreement. ARTICLE 12 a. Any disputes which may arise from this agreement or from other agreements resulting from this agreement, will be settled in accordance with the regulations of the Dutch Arbitration Institute in Rotterdam. The Court of Arbitration will consist of three arbitrators. The place of arbitration will be located in Utrecht. b. Dutch law applies to this agreement. c. Amendments and additions to this agreement must be made in writing in order to be legally valid. ARTICLE 13 The appendices form an integral part of this agreement. They are: A. Regulations for early retirement B. Regulations for terminating the employment C. Pension arrangement D. Legal liability insurance E. Subsidiary jobs Drawn up in duplicate and signed in Utrecht on June 11, 1997. SARA LEE|DE N.V. F. Meysman H.B. van Liemt APPENDIX A This Appendix is an integral part of the employment agreement dated June 11, 1997 1. For reasons of its own, the Company reserves the right to insist that the Managing Director takes early retirement from his position of Chairman of the Board of Management, before reaching the age of retirement on his 62nd birthday, but after reaching the age of 57.5 years. If the Company's Supervisory Board requests the Managing Director to retire in this way, the Company must take into account a period of notice of at least six months, and the Managing Director will accept this retirement without any reservations, and with his full co-operation at the time requested and indicated by the Company. 2. The Company hereby gives the Managing Director the right to take voluntary retirement at his own request when he reaches the age of 60. In this case, the Managing Director will take into account a period of notice of at least six months. 3. In the case of his retirement as Chairman of the Board of Management as a result of the provisions sub l and sub 2 of this Appendix respectively, the Managing Director shall, during the period starting on the date of the termination of his employment with the company, up to the date of his retirement at the age of 62, be entitled to a treatment in accordance with the voluntary early retirement arrangement, as has been or may be established by the Company's Supervisory Board, applicable to members of the Company's Board of Management. 4. If the Managing Director retires as a Chairman of the Board of Management in accordance with the provisions sub 1 or 2 of this Appendix, in deviation from the conditions which apply for the other employees of the Company, a payment on the basis of 90% of the gross annual salary which he earned during the last year, referred to in Article 3 paragraph a. of this agreement, will apply for the first year, starting on the date of the termination of his employment with the Company, and on the basis of 80% of the annual salary earned in the last year, for the remaining period until he reaches the age of 62, with the understanding that the Company's Supervisory Board may resolve to index this salary on an annual basis. The provisions necessary for this regulation will be made by the Company. The Company is entitled to transfer the rights and duties arising from the regulation laid down in this Appendix A. to a Foundation established for this purpose. 5. Insofar as the Managing Director receives income from work from another source after the entry into force of the above mentioned arrangement, or obtains income from independent enterprises, the additional part will be deducted from the payment owed by the Company, insofar as this gross income, together with the payments in accordance with sub 3 and 4 of Appendix A., amount to more than 100% of the above mentioned gross annual salary earned during the last year of employment. The honoraria paid for performing the tasks of a supervisor are not deemed to form part of the above mentioned income from work or from independent enterprise respectively. In the case of the income referred to here, the Managing Director will always submit a specified statement to the Company. APPENDIX B This Appendix is an integral part of the employment agreement dated June 11, 1997. The following arrangement applies for the Managing Director for the period from his appointment as Chairman of the Board of Management to the time when he reaches the age of 57.5 years. 1. If the Company terminates the employment before the Managing Director reaches the age of 57.5 years without taking into account a period of notice of six months, or, taking into account the period of notice of six months, for reasons which are not urgent reasons, as described in Article 7a: 1639.p of the Civil Code, -if necessary, in the case of a dispute in this respect, as determined by arbitration, as referred to in Article 12 of this agreement,- the Company shall owe the Managing Director a sum equal to: a. either 1. 5 (one and a half) times the last gross annual salary, as described in Article 3, paragraph a. of the employment agreement, in the case of termination without taking into account the period of notice of six months; b. or 1 (one) times the last gross annual salary, as described in Article 3, paragraph a. of the employment agreement, in the case of termination taking into account the period of notice of six months; c. or, respectively a compensation in excess of the compensation sub a. or b., in consideration of the termination of the employment, deemed to be reasonable, taking into account all relevant circumstances within the then prevailing situation. In case it is concluded that such compensation cannot be agreed upon in an amicable manner between the Managing Director and the Company, any party hereto will on basis of arbitration, as referred to in Article 12 of this agreement, initiate the procedure to have such compensation established. The decision of the arbitration-committee will be binding upon the Managing Director as well as the Company. The above compensation sub a., b. or c. respectively will be paid by the Company, after deducting of taxes, premiums etc. due, as per the date of termination of the employment respectively forthwith after receipt of the decision of said arbitration-committee, if such decision is made at a later date. 2. At the end of the employment, a premium-free policy will be granted on the basis, of an actuarial calculation, for the pension rights accrued during the period of employment till the date of termination thereof. 3. Provided a notice in writing has been timely received by the Company, the Managing Director can stay covered by the collective sickness insurance scheme concluded by the Company, though without being able to make a claim on the Company for a contribution to the premiums. 4. All the conditions of employment are automatically terminated at the end of the employment, unless expressly provided otherwise above. 5. At the end of the employment the Managing Director will resign from all positions, in which he has been appointed, in accordance with Article 2 paragraph c. of this agreement, and will sign all the necessary documents and co-operate fully in this respect. Drawn up in duplicate and signed at Utrecht on June 11, 1997. SARA LEE|DE N.V. F. Meysman H.B. van Liemt APPENDIX C This Appendix, containing a -separately to be added- letter, stating retirement benefit entitlements of the Managing Director, is an integral part of the employment agreement dated June 11, 1997. APPENDIX D This Appendix, containing the -separately to be added- insurance policy re legal liability, is an integral part of the employment agreement dated June 11, 1997. APPENDIX E This Appendix is an integral part of the employment agreement dated June 11, 1997. Subsidiary jobs, as referred to in Article 7 of this Agreement, fulfilled by the Director at the time that the Agreement dated June 11, 1997, between the Managing Director and the Company was signed: - - Board member of the Belgian Olympic Committee - - Supervisor of VNU, the Netherlands - - Director of Zeneca, United Kingdom Translation of letter to F. Meysman from H. van Liemt on behalf of the Supervisory Board of Sara Lee|DE - ------------------------------------------------------------------------ Mr. F.L.V. Meysman Nachtegaallaan l 2243 EL WASSENAAR Utrecht, June ll, 1997 Dear Mr. Meysman, With reference to our discussion re the revision of your employment contract, signed June 11, 1997, pursuant to the resolution, dated December 7, 1995, of the Supervisory Board of Sara Lee|DE, I herewith confirm -on behalf of this Supervisory Board- what has been agreed upon between Sara Lee|DE and you. What is stated in this letter by way of addition to your employment contract, will be regarded as being appropriately documented between us. In addition to your employment contract, dated June 11, 1997, the following terms and conditions will be applicable: 1. As basis for the computation of the incentive award, laid down in article 3, paragraph b., the annual gross salary, stated in article 3, paragraph a. and adjusted with salary increases in accordance with article 3, paragraph d., will be increased with the annual gross salaries respectively compensations valid at such moment (per ultimo of the respective fiscal year), which you receive in consideration for your services for Decotrade AG, Switzerland and Douwe Egberts Belgium NV, Belgium, as well as for any other company in which you might have been appointed in any salaried position in conformity with article 2, paragraph c. This, therefore, does not include your annual gross salary you receive on basis of your employment contract with Sara Lee Corporation, USA. 2. Since the Supervisory Board of Sara Lee|DE eatablishes your performance in the passed fiscal respectively calendar year, generally in consultation with representatives of Sara Lee Corporation, the incentive award score and salary increases expressed in the percentages will in principle also be applicable re the computation of your incentive award and the adjustment of your annual gross salary related to your employment with Sara Lee Corporation. 3. In case the Supervisory Board of Sara Lee|DE resolves, in accordance with article 3, paragraph d., to increase your annual gross salary stated in article 3, paragraph a. in relation to your employment with Sara Lee|DE, it will be proposed to the respective competent bodies of the companies, referred to in sub 1. of this letter, to resolve that an increase in the same percentage will be established re the annual gross salaries respectively compensations you receive for the services you perform for these companies. 4. With reference to the retirement benefit arrangement applicable to you, as indicated in article 4, paragraph b., the pensionable salary as per the 1st of January of each year will be -for the computation of the retirement benefits granted to you- increased with the amount equal to the aggregate sum of the annual gross salaries respectively compensations from the companies, indicated in sub 1. of this letter, as well as of the annual gross salary pursuant to your employment with Sara Lee Corporation. 5. With respect to what has been stated in article 3, sub e. re disability, the sum of annual salaries, as indicated in sub 4. of this letter, will -in case you become disabled- represent the determining salary within the framework of arrangements re the establishment of disability allowances applicable to members of the Board of Management. 6. Your latest annual gross salary, as meant in article 4 and 5 of Annex A, as well as in article 1 of Annex B, being part of your employment contract, will be increased to the amount corresponding with the sum of salaries indicated in sub 4. of this letter. Assuming you are in agreement with the phrasing of the above said additional terms and conditions of your employment agreement, I request you to duly sign copy of this letter for agreement. Yours sincerely, H.B. van Liemt Chairman of the Supervisory Board Duly signed for approval: F.L.V. Meysman EX-11 10 EXHIBIT 11 Exhibit 11 SARA LEE CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (in millions except per share data) FOR THE YEAR ENDED JUNE 28, 1997 -------------------------------- PRIMARY FULLY DILUTED ------------- ----------------- EARNINGS: Net income $ 1,009 $ 1,009 Less: Dividends on Preferred Stocks, net of tax benefits (26) (12) Adjustment attributable to conversion of ESOP Convertible Preferred Stock - (6) ----------- --------------- Net Income Available for Common Stockholders $ 983 $ 991 =========== ============== SHARES: Average Shares Outstanding 480 480 Add: Common Stock Equivalents - Stock Options 3 4 ESOP Convertible Preferred Stock - 17 Restricted stock and other 2 2 ----------- --------------- Adjusted Weighted Average Shares Outstanding 485 503 =========== ============== NET INCOME PER COMMON SHARE: $ 2.03 $ 1.97 =========== ============== Exhibit 11 (Continued) SARA LEE CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (in millions except per share data) FOR THE YEAR ENDED JUNE 29, 1996 -------------------------------- PRIMARY FULLY DILUTED ------------- ----------------- EARNINGS: Net income $ 916 $ 916 Less: Dividends on Preferred Stocks, net of tax benefits (27) (12) Adjustment attributable to conversion of ESOP Convertible Preferred Stock - (7) ----------- --------------- Net Income Available for Common Stockholders $ 889 $ 897 =========== ============== SHARES: Average Shares Outstanding 482 482 Add: Common Stock Equivalents - Stock Options 2 3 ESOP Convertible Preferred Stock - 18 Restricted stock and other 1 1 ----------- --------------- Adjusted Weighted Average Shares Outstanding 485 504 =========== ============== NET INCOME PER COMMON SHARE: $ 1.83 $ 1.78 =========== ============== EX-12.1 11 EXHIBIT 12.1 Exhibit 12.1 SARA LEE CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS EXCEPT RATIOS) Year Ended -------------------------------- June 28, June 29, 1997 1996 ------------- ------------- Fixed charges: Interest expense $ 202 $ 228 Interest portion of rental expense 66 68 ------------- ------------- Total fixed charges before capitalized interest 268 296 Capitalized interest 12 10 ------------- ------------- Total fixed charges $ 280 $ 306 ============= ============= Earnings available for fixed charges: Income before income taxes $ 1,484 $ 1,378 Less undistributed income in minority owned companies (7) (5) Add minority interest in majority- owned subsidiaries 30 36 Add amortization of capitalized interest 23 22 Add fixed charges before capitalized interest 268 296 ------------- ------------- Total earnings available for fixed charges $ 1,798 $ 1,727 ============= ============= Ratio of earnings to fixed charges 6.4 5.6 ============= ============= EX-12.2 12 EXHIBIT 12.2 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) Year Ended -------------------------------- June 28, June 29, 1997 1996 ------------- ------------- Fixed charges and preferred stock dividend requirements: Interest expense $ 202 $ 228 Interest portion of rental expense 66 68 ------------- ------------- Total fixed charges before capitalized interest and preferred stock dividend requirements 268 296 Capitalized interest 12 10 Preferred stock dividend requirements (1) 41 43 ------------- ------------- Total fixed charges and preferred stock dividend requirements $ 321 $ 349 ============= ============= Earnings available for fixed charges and preferred stock dividend requirements: Income before income taxes $ 1,484 $ 1,378 Less undistributed income in minority owned companies (7) (5) Add minority interest in majority- owned subsidiaries 30 36 Add amortization of capitalized interest 23 22 Add fixed charges before capitalized interest and preferred stock dividend requirements 268 296 ------------- ------------- Total earnings available for fixed charges and preferred stock dividend requirements $ 1,798 $ 1,727 ============= ============= Ratio of earnings to fixed charges and preferred stock dividend requirements 5.6 4.9 ============= ============= (1) Preferred stock dividends in the computation have been increased to an amount representing the pretax earnings that would have been required to cover such dividends. EX-21 13 EXHIBIT 21 EXHIBIT (21) SUBSIDIARIES OF SARA LEE CORPORATION The following is a list of active subsidiary corporations of the Registrant. Subsidiaries which are inactive, exist solely to protect the business names, but conduct no business, or are insignificant have been omitted; such omitted subsidiaries considered in the aggregate do not constitute a significant subsidiary. DOMESTIC SUBSIDIARIES PLACE OF NAME INCORPORATION APD Chemicals Corporation Delaware Aris (Philippines), Inc. Delaware Arp Corp. Delaware Bali Foundations, Inc. Delaware Bessin Corporation Illinois BG Marketing Corp. Delaware Bil Mar Farms, Inc. Delaware Bil Mar Foods, Inc. Delaware BNH, Inc. Delaware Bryan Foods, Inc. Delaware Canadelle Intimate Fashions, Inc. Nevada Caribetex, Inc. Delaware Champion Products Inc. New York Coach Leatherware International, Inc. Delaware Coach Stores, Inc. Delaware DEA Leasing Corporation Delaware Douwe Egberts/Van Nelle, Inc. Kentucky Epic Company, Inc. Illinois Gordon County Farm Company Delaware Hanes Menswear, Inc. Delaware EXHIBIT (21) Hanes Puerto Rico, Inc. Delaware Hygrade Food Products Corporation New York International Affiliates & Investment Inc. Delaware International Baking Co., Inc. Delaware Interstar, Inc. Florida Jogbra Inc. Delaware Kiwi (Europe) Corporation Delaware Kolker Brothers, Inc. District of Columbia L'eggs Brands, Inc. Delaware Milky Way Products Company Delaware Nihon Sara Lee KK Corporation Delaware Nutri-Metics International (USA) Inc. Delaware Ozark Salad Company, Inc. Delaware Playtex Apparel, Inc. Delaware Playtex Dorado Corporation Delaware Playtex Industries, Inc. Delaware PYA, Inc. Delaware PYA/Monarch, Inc. Delaware Rice Hosiery Corporation North Carolina Sara Lee Champion Europe Inc. Delaware Sara Lee Corporation Asia, Inc. Delaware Sara Lee Foodservice Holdings, Inc. Delaware Sara Lee French Investment Company, Inc. Delaware Sara Lee Global Finance, Inc. Delaware Sara Lee International Corporation Delaware 2 EXHIBIT (21) Sara Lee International Finance Corporation Delaware Sara Lee Investments, Inc. Delaware Sara Lee - Kiwi Holdings, Inc. Delaware Sara Lee Sock Company 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 Sara Lee/DE Asia, Inc. Delaware Saramar Corporation Delaware ScotchMaid, Inc. Delaware Seitz Foods, Inc. Delaware SL Associates Delaware SLC Leasing (Nevada)-II, Inc. Delaware SLC Leasing (Wyoming), Inc. Delaware SLC-MS, L.L.C. Delaware SLE, Inc. Delaware SLI Administrative Services Company, Inc. Delaware SLKP Administrative Services Company, Inc. Delaware SLKP Sales, Inc. Delaware Smoky Hollow Foods, Inc. Delaware Southern Belle, Inc. Delaware Southern Meat Distribution Company Delaware State Fair Foods, Inc. Texas Super Products, Inc. Delaware Sweet Sue Kitchens, Inc. Delaware The Harwood Companies, Inc. Delaware UPCR, Inc. Delaware UPEL, Inc. Delaware 3 EXHIBIT (21) Wolferman's, Inc. Delaware 4 EXHIBIT (21) FOREIGN SUBSIDIARIES ABC Industrie S.A. France Abel Bonnex S.A. France AB Fenom Sweden Agepal SarL Luxemburg Allende Internacional, S.A. de C.V. Mexico Al Ponte Prosciutti srl Italy Aoste Argentina Argentina Aoste Belgique Belgium Aoste Espana Spain Aoste Export SNC France Aoste Holding S.A. France Aoste Management S.A. France Aoste Schinken GmbH Germany Aoste SNC France APD Chemicals Ltd. England A.P. Developments Limited Zambia A/S Blumoller Denmark Ashe Limited England Ashe Pension Trustees Limited England Auragate Pty. Ltd. Australia Balirny Douwe Egberts AS Czech Republic Ballograf Bic Austria Vertriebs Ges. mbh Austria Bal-Mex S.A. de C.V. Mexico Belgian Nurdie Textile Company Germany Beviston Pty. Ltd. Australia 5 EXHIBIT (21) Boers Groothandel B.V. Netherlands Boers Vleeswaren B.V. Netherlands Bravo Greece Brossard France S.A. France Caitlin Financial Corporation N.V. Netherlands Antilles Calixte Cochonou Export SNC France Calixte Producteur SNC France Canadelle Holding Corporation Limited Canada Canadelle Limited Partnership Canada Cartex Manufacturera, S.A. Costa Rica Casual Wear de Mexico, S.A. de C.V. Mexico Caytex, Inc. Cayman Islands Caywear, Inc. Cayman Islands CBI S.A. France CH Property Holdings (NZ) Ltd. New Zealand CH Laboratories (Sales) Ltd. Ireland Champion Products, S.A. de C.V. Mexico Champion UK Ltd. England Charcuteries des Hautes Terres S.A. France Coach Europe Services s.r.l. Italy Coach Firenze s.r.l. Italy Coach (UK) Limited England Cochonou SNC France Coffee Times B.V. Netherlands Coffenco International GmbH Germany Cofico N.V. Netherlands Antilles Comercial Rinbros, S.A. de C.V. Mexico Compack Douwe Egberts Rt Hungary 6 EXHIBIT (21) Confecciones de Monclova, S.A. de C.V. Mexico Confecciones de Monterrey, S.A. de C.V. Mexico Confecciones de Nueva Rosita, S.A. de C.V. Mexico Confecciones de El Pedregal, S.A. de C.V. El Salvador Congelacion y Conservacion de Alimentos, S.A. de C.V. Mexico 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 Cosmetic Manufacturers Ltd. New Zealand Cosmetic Manufacturers Pty. Ltd. Australia Cosmetic Manufacturers (Ireland) Ltd. Ireland Covesa N.V. Belgium Cruz Verde Portugal - Productos de Consumo Lda. Portugal DEA (Bermuda) Ltd. Bermuda Decaf B.V. Netherlands Decaf N.V. Belgium Decem B.V. Netherlands Decotrade A.G. Switzerland DEF Finance S.A. France Defico N.V. Netherlands Antilles De Friesche Erven B.V. Netherlands Del Castillo Transportes Ltda. Uruguay Designer Workwear Pty. Ltd. Australia Detrex B.V. Netherlands Difan S.A.M. Monaco 7 EXHIBIT (21) 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 Rosy Textiles, Incorporated Canada Dim Finance S.A. France Dim S.A. France Dimtex S.A. France Disa SNC France Douwe Egberts Agio GmbH Germany Douwe Egberts Coffee & Tea International B.V. Netherlands Douwe Egberts Coffee Systems France S. A. France Douwe Egberts Coffee Systems International B.V. Netherlands Douwe Egberts Coffee Systems Ltd. Canada Douwe Egberts Coffee Systems Limited England Douwe Egberts Coffee Systems Nederland B.V. Netherlands Douwe Egberts Coffee Systems Operating B. V. Netherlands Douwe Egberts Compack Kft. Hungary Douwe Egberts Espana S.A. Spain Douwe Egberts France S.A. France Douwe Egberts GmbH Germany Douwe Egberts Kaffee Systeme GmbH Germany Douwe Egberts Kaffee Systeme GmbH & Co., K.G. Germany Douwe Egberts Limited Canada Douwe Egberts Nederland B.V. Netherlands 8 EXHIBIT (21) Douwe Egberts N.V. Belgium Douwe Egberts UK Limited England Douwe Egberts Van Nelle Diensten B.V. Netherlands Douwe Egberts Van Nelle Tabaksmaatschappij B.V. Netherlands Douwe Egberts Van Nelle Netherlands Tabaksproduktiemaatschappij B. V. Douwe Egberts Van Nelle Tobacco Belgium N.V. Belgium Douwe Egberts Van Nelle Tobacco International B.V. Netherlands Douwe Egberts (Ireland) Ireland Duyvis B.V. Netherlands Elbeo & Comandita Portugal Elbeo Limited England Elbeo Meias e Confeccoes Lda. Portugal Eri Deutschland GmbH Germany Esa Eppinger GmbH Germany ET.G.Y. SNC France Euragral BV Netherlands Fashion Accessories Philippines, Inc. Philippines Fihomij BV Netherlands Filodoro Calze S.p.A. Italy Finnegan's Famous Cakes Limited England Fontane del Ducca srl Italy Fujian Sara Lee Consumer Products Company Ltd. China Generator AB Sweden Gromtex S.A. Tunisia Hanes Brasil Industria E Comercio Ltda. Brazil Hanes Caribe Ltd. Cayman Islands 9 EXHIBIT (21) Hanes Choloma Ltd. Cayman Islands Hanes de Centroamerica S.A. Guatemala Hanes de El Salvador, S.A. de C.V. El Salvador Hanes de Mexico, S.A. de C.V. Mexico Hanes Dominican Inc. Dominican Republic Hanes France S.A. France Hanes Jamaica Limited Jamaica Hanes Panama, Inc. Panama Hanes Tejidos Costa Rica Ltd. Costa Rica Hanes U.K. Limited England Hanes (Deutschland) GmbH Germany Harris/DE Pty. Ltd. Australia Hesperia de Alimentacion S.A. Spain Hilton Bonds N.Z. (1991) Limited New Zealand Home Safe Products Sdn Bhd Malaysia House of Fuller, S.A. de C.V. Mexico H-Sec S.A. France Imperial Holding N.V. Belgium Imperial Meat Products N.V. Belgium Inco Hellas A.E. Cosmetics and Household Greece Consumer Products Industry Industrias Carnicas Navarras S.A. Spain Industrias de Carnes Nobre S.A. Portugal Industrias Internacionales de San Pedro, S.A. de C.V. Mexico Industrias Mallorca, S.A. de C.V. Mexico Inmobiliaria Meck-Mex, S.A. de C.V. Mexico 10 EXHIBIT (21) Intec B.V. Netherlands Inter Food Service Ltd. England Internacional Manufacturera, S.A. Mexico International Food Service B.V. Netherlands International Underwear Ltd. Morocco INTEX Dessous Gesellschaft mbH Austria INTEX Dessous GmbH Germany INTEX Textil-Vertriebsgesellschaft AG Switzerland Intradal Produktie Belgium N.V. Belgium Iron Bark Industrial Clothing Pty. Ltd. Australia Isabella (Private) Ltd. Germany I. Tas Ezn B.V. Netherlands Jamlee Ltd. Jamaica Jamwear Ltd. Jamaica Jogbra Honduras S.A. Honduras Justin Bridou SNC France Kir Alimentos, S.A. de C.V. Mexico Kitchens of Sara Lee U.K. Limited England Kitchens of Sara Lee (Australia) Pty. Ltd. Australia Kitchens of Sara Lee, SNC France Kiwi Brands Hong Kong Ltd. Hong Kong Kiwi Brands Ltd. Kenya Kiwi Brands Ltd. Malawi Kiwi Brands Ltd. Zambia Kiwi Brands Pty. Ltd. Australia Kiwi Brands (N.Z.) Ltd. New Zealand Kiwi Brands (Private) Limited Zimbabwe Kiwi Brands (Tianjin) Co. Ltd. China 11 EXHIBIT (21) Kiwi Caribbean Limited England Kiwi European Holdings B.V. Netherlands Kiwi France S.A. France Kiwi Holdings Limited England Kiwi International Pte. Ltd. Signapore Kiwi Overseas Investments Limited England Kiwi TTK Limited India Kiwi United Taiwan Company Ltd. China Kiwi (EA) Ltd. England Kiwi (Manufacturing) Sdn Bhd Malaysia Kiwi (Thailand) Limited Thailand Koninklijke Douwe Egberts B.V. Netherlands Kortman Intradal B.V. Netherlands Kortman Nederland B.V. Netherlands KRS S.A. Tunisia Lassie B.V. Netherlands Les Fines Tranches SNC France Les Salaisons Reunies SNC France Lovable Italiana S.p.A. Italy Madero Internacional, S.A. de C.V. Mexico Maglificio Bellia S.p.A. Italy Manufacturera de Cartago, S.A. Costa Rica Manufacturera Cortez, S.A. Honduras Marander Assurantie Compagnie B.V. Netherlands Marcilla Coffee Systems S.A. Spain Marketing-en Verkoopmaatschappij Stegeman B.V. Netherlands Merrild Coffee Systems AB Sweden Merrild Kaffe A/S Denmark 12 EXHIBIT (21) Midi Steak S.A. France Monclova Internacional, S.A. de C.V. Mexico Natrena B.V. Netherlands Nihon Kiwi K.K. Japan Nihon Sara Lee K.K. Japan Notable, S.A. de C.V. Mexico nur die Textilvertrieb Ges.mbH Austria nur die Textilvertrieb Ges.mbH & Co KG Austria Nutri-Metics International (NZ) Ltd. New Zealand Nutri-Metics Worldwide Malaysia Sdn Bhd Malaysia Nutri-Metics International (South Africa) Pty. Ltd. Australia Nutri-Metics International (Guangzhou) Ltd. China Nutri-Metics France S.A. France Nutri-Metics International (France) S.A. France Nutri-Metics Holdings France S.A. France Nutri-Metics International (Netherlands) Pty. Ltd. Australia Nutri-Metics International (Ireland) Ltd. Ireland Nutri-Metics International (Greece) Inc. Greece Nutri-Metics International (UK) Ltd. England Nutri-Metics International (Australia) Ltd. Australia Nutri-Metics International (Thailand) Ltd. Thailand Nutri-Metics International (Hong Kong) Ltd. Hong Kong Nutri-Metics B Sdn Bhd International Brunei Nutri-Metics International (Canada) Inc. Canada N.V. Kortman Intradal S.A. Belgium NV Zwarte Kat/Cle d'Or Belgium Opus Chemical AB Sweden Oxwall Tools B.V. Netherlands Philippe Matignon France S.A. France 13 EXHIBIT (21) Playtex Espana, S.A. Spain Playtex France S.A. France Playtex Investments Europe S.A. France Playtex Limited England Playtex Trading Limited England Plustex B.V. Netherlands Plustex S.A. Belgium Pretty Polly Limited Ireland Pretty Polly Pension Trustees Limited England Pretty Polly Supplementary Trustee Limited England Pretty Polly (Killarney) Limited Ireland Probemex, S.A. de C.V. Mexico Product Suppliers A.G. Switzerland P.T. Kiwi Distribution Company Indonesia P.T. Kiwi Indonesia Indonesia PT Premier Ventures Indonesia PT Prodenta Indonesia Indonesia PT Suria Yozani Indonesia PTX Tunisie S.A. Tunisia PTX (D.R.) Inc. Cayman Islands Rinbros, S.A. de C.V. Mexico Roger de Lyon Charcutier S.A. France Roger de Lyon SNC France Rolland et Norroy S.A. France Roux Soignat S.A. France Sagepar SaRL France Sara Lee Bakery Sdn Bhd Malaysia 14 EXHIBIT (21) Sara Lee Bakery (Australia) Pty. Ltd. Australia Sara Lee Brasil Ltda. Brazil Sara Lee Canada Holdings Limited Canada Sara Lee Champion France S.A. France Sara Lee Charcuterie, S.A. France Sara Lee Chile S.A. Chile Sara Lee Clothing Company Pty. Ltd. Australia Sara Lee de Costa Rica, S.A. Costa Rica Sara Lee Direct Marketing UK Limited England Sara Lee Europe Direct Marketing S.A. France Sara Lee Europe Finance S.A.S. France Sara Lee Food Holdings Pty. Ltd. Australia Sara Lee France Finance S.A.S. France Sara Lee France SNC France Sara Lee Foreign Sales Corporation Barbados Sara Lee French Holdco 1 S.A. France Sara Lee Germany GmbH Germany Sara Lee Holding Corporation Limited Canada Sara Lee Holdings (Australia) Pty. Ltd. Australia Sara Lee Holdings (NZ) Ltd. New Zealand Sara Lee Hosiery Canada Ltd. Canada Sara Lee Hosiery de Mexico, S.A. de C.V. Mexico Sara Lee Household & Personal Care UK Limited England Sara Lee (Hong Kong) Limited Partnership Hong Kong Sara Lee Intimates El Salvador, S.A. de C.V. El Salvador Sara Lee Intimates Villanueva S.A. de C.V. Honduras Sara Lee Knit Products Benelux N.V. Belgium Sara Lee Knit Products Europe, N.V. Belgium Sara Lee Mexicana S.A. de C.V. Mexico Sara Lee of Canada Holdings Limited Partnership Canada 15 EXHIBIT (21) Sara Lee of Canada Investments Company Canada Sara Lee of Canada Limited Canada Sara Lee of Canada Limited Partnership Canada Sara Lee Overseas Finance N.V. Netherlands Antilles Sara Lee Personal Products Hellas, S.A. Greece Sara Lee Personal Products S.A. France Sara Lee Personal Products S.p.A. Italy Sara Lee Personal Products (Australia) Pty. Ltd. Australia Sara Lee Personal Products (Fiji) Ltd. Fiji Sara Lee Phillippines Inc. Philippines Sara Lee Processed Meats (Europe) B.V. Netherlands Sara Lee Trading Ltd. Thailand Sara Lee UK Holdings Plc England Sara Lee (South Africa) (Pty.) Ltd. South Africa Sara Lee (UK Investments) Limited England Sara Lee/DE Espana S.A. Spain Sara Lee/DE Finance B.V. Netherlands Sara Lee/DE Holdings 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 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 (Schweiz) AG Switzerland SBB S.A. France SCI du Mont Pilat France 16 EXHIBIT (21) SDP Rungis S.A. France SERAA SARL France Servicios Administrativos Sara Lee, S.A. de C.V. Mexico Shanghai Vocal Enterprise Limited China Siamcona Ltd. Thailand SLI Compania de Servicio Administrativos S.A. Costa Rica SLKP Compania de Servicio Administrativos S.A. Costa Rica SLPP (Berkeley Vale) Pty. Ltd. Australia SLPP (Coolaroo) Pty. Ltd. Australia SN Degoisey S.A. France Societe Bretonne d'Andouilles et d'Andouillettes S.A. France Societe des Salaisons de Balanod SNC France Spantex, S.A. de C.V. Mexico Spring City de Honduras, S.A. Honduras Stegeman B.V. Netherlands Supportex AB Sweden Swissguard (Pty.) Limited South Africa S3C S.A. France Taesa, S.A. de C.V. Mexico Tana B.V. Netherlands Tana Canada Incorporated Canada Tana France S.A. France Tana Schuhpflege AG Switzerland Tejidos Flex Corporation Panama Telec A.G. Switzerland Temana International Ltd. England Textiles Tropicales, Sociedad Anonima Costa Rica 17 EXHIBIT (21) Tomten A/S Norway Tradi Charcuterie S.A. France Tradi France S.A. France Tradition Lingerie S.A.S. France Tricotbest B.V. Germany Tricotbest Ceska Republica spol. s r.o. Germany Tricotbest GmbH Germany Tricotbest Hungaria Kft. Germany Tricotbest Polska Germany Tricotbest (Russia) Germany Tricotbest Slovensko s.r.o. Germany Tricotbest Ukraina Germany Tuxan Schuhpflegemittel GmbH Austria Underwear Ltd. Malta Uninex S.A. Uruguay Valma B.V. Netherlands Van Nelle Holding (Germany) GmbH Germany Van Nelle Produktie B.V. Netherlands Vatter GmbH (Rheine) Germany Vatter Produktions GmbH Germany Verpakkingsindustrie Boers B.V. Netherlands Vlimense Belegging-Maatschappij BV Netherlands Wijnhandel JanVan Goyen B.V. Netherlands 24762030 Nova Scotia Ltd. Canada 1116-9087 Quebec Inc. Canada 18 EX-23 14 EXHIBIT 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated July 28, 1997 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, 33-23211, 333-17987, 333-18385, 333-21101 and 333-14167. Chicago, Illinois /s/ Arthur Andersen LLP September 22, 1997 -------------------------- Arthur Andersen LLP EX-24 15 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 -------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 -------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 ----------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ Allen F. Jacobson ------------------------- Allen F. Jacobson Dated: 9/17/97 ---------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 ------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 ---------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ Newton N. Minow ------------------------ Newton N. Minow Dated: 9/17/97 ----------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ Sir Arvi H. Parbo A. C. ----------------------------- Sir Arvi H. Parbo A. C. Dated: 9/17/97 ---------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 ---------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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 H. Bryan ------------------------------ John H. Bryan Dated: 9/17/97 ------------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ C. Steven McMillan ------------------------- C. Steven McMillan Dated: 9/17/97 -------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ Michael E. Murphy ------------------------------ Michael E. Murphy Dated: 9/17/97 -------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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/ Donald J. Franceschini ----------------------------------- Donald J. Franceschini Dated: 9/17/97 -------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Janet Langford Kelly 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 June 28, 1997, 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: 9/17/97 -------------- EX-27 16 EXHIBIT 27
5 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. 1,000,000 YEAR JUN-28-1997 JUN-28-1997 247 25 2,046 205 2,973 5,391 6,204 3,125 12,953 5,016 1,933 0 242 640 3,640 12,953 19,734 19,734 12,267 12,267 0 137 159 1,484 475 1,009 0 0 0 1,009 2.03 1.97
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