-----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, K5CGN81bTfQ7wx6GQB7VqaRzkRQ0jxnzDFbNI0l6BrYy1D+aKfA5NR+fF4MMmeaO 30nd12ZCDpxY+jXnyvxd/w== 0001047469-98-035375.txt : 19980925 0001047469-98-035375.hdr.sgml : 19980925 ACCESSION NUMBER: 0001047469-98-035375 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980924 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-K SEC ACT: SEC FILE NUMBER: 001-03344 FILM NUMBER: 98714217 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-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 27, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________ COMMISSION FILE NUMBER 001-03344 ---------------- 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 Exchange Amsterdam Stock Exchange The Bourse (Paris) The Swiss Exchange The Stock Exchange (London) Preferred Stock Purchase Rights The Chicago Stock Exchange The New York Stock Exchange The Pacific Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE -------------- 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. / / As of September 1, 1998, 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 $21.4 billion. On September 1, 1998, the registrant had outstanding 458,598,930 shares of common stock, par value $1.33 1/3 per share, which is the registrant's only class of common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement, dated September 21, 1998, 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. Sara Lee has operations in more than 40 countries and markets branded products in more than 140 countries. It was organized in Baltimore, Maryland in 1939 as the C.D. Kenny Company and adopted its current name in 1985. Sara Lee's mission is to continue to build leadership brands in consumer packaged goods categories. Sara Lee currently has 32 "megabrands", defined as a brand with sales of more than $100 million. While Sara Lee's mission has remained unchanged over the years, in fiscal 1998 Sara Lee embarked on a program designed to reshape the Corporation to enable the Corporation to produce higher returns on a smaller asset base. Sara Lee's decision to undertake the program was prompted by fundamental changes in the economic environment in which it operates. Historically, Sara Lee has manufactured the branded consumer products it markets. The Corporation's strategy was to vertically integrate the manufacturing processes into the business in order to assure a readily available product source that met quality standards. In recent years, alternative sources of competitively priced manufactured products have increased and excess manufacturing capacity has developed in the markets for certain of the Corporation's products. These competitive sources have allowed the Corporation to purchase needed commodities from a number of suppliers at prices which are less than, or equal to, prior manufacturing costs. These forces also create opportunities for Sara Lee to build stockholder value and Sara Lee intends to take advantage of these opportunities by focusing Sara Lee's energies on knowledge-based skills that will characterize successful companies of the future. Sara Lee announced its new strategic direction on September 15, 1997. The program is intended to more tightly focus Sara Lee's business activity and make Sara Lee more competitive. The goal of the program is to create an organization that is less vertically integrated (by divesting, to the extent practical and possible, operating assets), owns fewer fixed assets and uses knowledge-based skills to develop and market products. Sara Lee has coined the term "de-verticalization" to describe this process. Sara Lee has also committed to repurchase $3 billion of the Corporation's common stock by the end of fiscal year 2000. As of August 31, 1998, Sara Lee had completed the repurchase of approximately 29 million shares at a total cost of $1.6 billion. In connection with Sara Lee's adoption of a new strategic focus, Sara Lee also restructured its worldwide operations. The restructuring resulted in an after-tax charge $1.625 billion in the second quarter of fiscal 1998. The planned restructuring activities include the disposition of 116 manufacturing and distribution facilities. The restructuring charge was 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. Of the total after-tax provision, 89% or approximately $1.45 billion is non-cash and 11%, or approximately $176 million, will require cash outflows. The restructuring is discussed in greater detail in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. In fiscal 1998, Sara Lee renamed three lines of business. Sara Lee Foods replaces Packaged Meats and Bakery; Coffee and Tea replaces Coffee and Grocery; and Branded Apparel replaces Personal Products. Household and Body Care remains the same. A fifth line of business, Foodservice, which was previously a part of Packaged Meats and Bakery, has been added. 1 SARA LEE FOODS Sara Lee Packaged Meats had sales of $4.3 billion in fiscal 1998, holding a leading position in the $25 billion U.S. packaged meats industry. Sara Lee Packaged Meats is the world's number one packaged meats company, with brands marketed in the United States, Mexico, Europe (where it is the leading packaged meats company) and Asia. In response to consumer demand for healthful products and on-the-go meal solutions, Sara Lee Packaged Meats continued to focus on convenient and "better-for-you" products, including reduced-fat and low-calorie products during fiscal 1998. This focus, combined with lower commodity prices throughout the year, enabled Sara Lee Packaged Meats to grow sales and profits to record levels, excluding the restructuring charge. Worldwide unit volumes increased 2%, driven primarily by new products and product innovations designed to meet consumer demand for convenience and variety. During fiscal 1998, a number of Sara Lee's packaged meats companies, such as Hillshire Farm, Bil Mar Foods and Bessin Foods introduced new reduced-fat and "better-for-you" products. Nearly one-third of Sara Lee's retail meat sales are generated by reduced-fat and low-calorie products. Sara Lee Packaged Meats also expanded its line of convenient, easy to cook products in fiscal 1998. 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 1998, Sara Lee Bakery had sales of $1.1 billion. Worldwide unit volumes, excluding acquisitions, were comparable to fiscal 1997 levels. Worldwide, the Bakery markets its products through multiple channels of distribution, including retail, bakery-deli and foodservice. During fiscal 1998, Sara Lee Bakery continued to pursue growth and expansion opportunities in international markets. Currently, approximately 40% of total Bakery sales are generated outside the U.S. In fiscal 1998, Sara Lee acquired Grand Metropolitan's frozen and chilled cakes business. This acquisition, combined with Sara Lee's fiscal 1997 acquisition of Finnegan's Famous Cakes, enabled Sara Lee Bakery to increase its product offerings in the United Kingdom under the Sara Lee name. In India, the acquisition of the NUTRINE brand will serve as an introduction into this developing Bakery market. Sara Lee Bakery also introduced and expanded its distribution of a number of new products, including new ambient and chilled products. In response to consumer demand, in fiscal 1998, Sara Lee also expanded the number of products with microwaveability, smaller or single-serving sizes and added convenience. COFFEE AND TEA Sara Lee Coffee and Tea reported sales of $2.8 billion in fiscal 1998, down 0.3% from the prior year. Operating income, excluding the restructuring charge, fell 2.5% to $429 million. These results were impacted by the strength of the U.S. dollar relative to European currencies. Excluding the effects of currency, sales and operating income for Coffee and Tea grew 9%. Sara Lee maintained a leading position in the $15 billion European roasted coffee category in fiscal 1998, on the strength of its well-known coffee brands, including DOUWE EGBERTS, MAISON DU CAFE, MARCILLA and MERRILD. Sara Lee Coffee and Tea also continued to lead in the out-of-home coffee segment in Europe and the United States. The out-of-home business provides coffee, tea, juices and equipment to foodservice customers such as restaurants, schools, businesses, and hospitals in 50 countries. Unit volumes for roasted coffee declined 7% during fiscal 1998, reflecting the impact of higher green coffee costs which resulted in increased consumer prices throughout most of the year. New geographic markets, expanded channels of distribution and innovative product development remain the principal tools of growth for Sara Lee's coffee business. In fiscal 1998, Sara Lee entered the South American market with the acquisition of the Brazilian coffee company Cafe do Ponto, which has the number two position in Brazil. New product development for Sara Lee Coffee and Tea emphasizes regional taste preferences and growing demand for premium, specialty and convenience products. Sara Lee also continued to expand its coffee store concept in fiscal 1998, opening three JACQMOTTE STORE coffee shops in Belgium and the Netherlands. In early fiscal 1999, Sara Lee sold its cut and pipe tobacco business to Imperial Tobacco Group Plc, a major tobacco company based in the United Kingdom. 2 HOUSEHOLD AND BODY CARE Household and Body Care is Sara Lee's most global line of business and includes Sara Lee's leading Household and Body Care products as well as a Direct Selling division. In fiscal 1998, Household and Body Care reported sales of $2.0 billion, up 8.7% from the prior year. Operating income, excluding the restructuring charge, was $252 million, up 10.4% from the prior year. The strength of the U.S. dollar relative to foreign currencies negatively affected reported results for fiscal 1998. Excluding the effect of currency, sales grew 20% and operating income grew 23%. In early fiscal 1999, Sara Lee Household and Body Care announced several de-verticalization transactions. Included were plant and equipment sales and other actions expected to generate cash of $200 million by the end of fiscal 2000. Sara Lee Household and Body Care is comprised of four core categories -- shoe care, body care, insecticides and air fresheners. In fiscal 1998, Household and Body Care continued to grow and posted increased sales and profits on the strength of all four categories. KIWI remained the world's top name in shoe care in fiscal 1998. The brand is marketed in 122 countries. Product developments in Sara Lee's shoe care business continued in fiscal 1998 with the introductions of a Kiwi "low-gloss" shoe shine and several variations of shining and cleaning products. Sara Lee continues to be a leader in Europe with its body care products marketed under the SANEX, DUSCHDAS, BADEDAS, RADOX and DELIAL brands. In the body care category, body care products under the SANEX brand were launched in France, Italy, Indonesia, Denmark, Portugal and the Netherlands and relaunched in South Africa. In fiscal 1998, sales of air fresheners grew significantly and the insecticide business also posted strong results. Sara Lee's Direct Selling division distributes cosmetics, fragrances, jewelry, toiletries and apparel products directly to consumers' doors in 15 countries. Through acquisitions and internal growth, Direct Selling now has more than 750,000 independent sales representatives worldwide. Direct Selling, with businesses in Mexico, Indonesia, the Philippines, South Africa, China and Uruguay, was bolstered in fiscal 1998 by the acquisition of the Australian direct selling business Nutri-Metics International, which has operations in 15 countries. House of Fuller, with more than 235,000 independent sales representatives, is the number-two direct seller in Mexico. In Asia, House of Sara Lee expanded product offerings for consumers in Indonesia and the Philippines. FOODSERVICE Sara Lee's Foodservice business, PYA/Monarch, maintained its position as the leading foodservice distributor in the southeastern United States and the fourth-largest full-line foodservice company in the nation. During fiscal 1998, PYA/Monarch enjoyed strong sales and profit growth. Fiscal 1998 sales were $2.6 billion, up 8.9% from the prior year. Operating income was $90 million, excluding the restructuring charge, up 9.4% from the prior year. Excluding acquisitions, unit volumes increased 7%. PYA/Monarch continues to focus on cost control, geographic expansion and increasing unit volumes. During fiscal 1998, PYA/Monarch continued its strategy of growth through warehouse expansion, enabling it to respond quickly and cost effectively to the demands of large speciality customers, such as restaurant chains. Several centers were expanded in fiscal 1998, including a 123,000 square-foot increase in Charlotte, N.C. In fiscal 1998, PYA/Monarch acquired the Tennessee-based Kesterson Companies, allowing expansion into the important markets of Nashville, Memphis and western Kentucky. BRANDED APPAREL Sara Lee Branded Apparel is comprised of Sara Lee's Intimates, Knit Products, Legwear and Accessories businesses. In fiscal 1998, sales for Branded Apparel declined 2.2% to $7.3 billion. Operating income, excluding the restructuring charge, fell 3.5% to $734 million. Sara Lee Intimates recorded increased sales and operating income in fiscal 1998 through product innovations and design advancements that strengthened its core brands, including BALI, DIM, HANES HER WAY, JUST MY SIZE, PLAYTEX and WONDERBRA. Unit volumes for Sara Lee's intimate apparel business increased 3 7%, excluding acquisitions. In fiscal 1998, Sara Lee maintained its number-one position in the intimate apparel category in North America. It also expanded its presence in key European and Asian markets. During fiscal 1998, Sara Lee's Worldwide Intimates business introduced a number of new products that offer innovations in comfort and design. Playtex introduced the EIGHTEEN HOUR POSTURE BRA and Bali launched the BEYOND SEAMLESS line, featuring a proprietary STRETCH PERFECT fiberfill lining, and a SMOOTH FINISH collection of cotton-lined bras. Wonderbra launched the RIVIERA line of European-inspired bras and Hanes Her Way introduced a collection of performance sports bras under the new HANES SPORT brand. Under the DIM brand in Europe, Sara Lee introduced the PULPY intimate apparel line. In early fiscal 1999, Sara Lee acquired The Strouse, Adler Company, a 137 year old maker of shapewear and specialty bras. Sara Lee Knit Products significantly altered its operating model as part of Sara Lee's overall de-verticalization program in fiscal 1998. The most significant development for Sara Lee Knit Products was the divestment of nine yarn and textile facilities. One additional facility was divested in early fiscal 1999. In connection with the divestment of these facilities, Sara Lee Knit Products entered into a supply agreement with the purchaser of the facilities to provide Sara Lee with yarn and textile products. These actions allow Sara Lee Knit Products to focus more of its resources toward developing and marketing new products and establishing its brands in new categories. This focus is intended to further Sara Lee's strategy of growing its Knit Products megabrands, including its leading HANES, HANES HER WAY, CHAMPION, DIM, JUST MY SIZE, RINBROS, ABANDERADO and PRINCESA brands. In fiscal 1998, Sara Lee's HANES and HANES HER WAY megabrands had sales of $2.2 billion. During the fiscal year, Sara Lee extended the HANES brand to babywear. Sara Lee also continued to expand in the children's and toddlers' category with its KIDSWEAR line. Sara Lee also launched a line of products under the HANES SPORT label in fiscal 1998, as an initiative to attract new consumers. The HANES SPORT line emphasizes fashionable, sports-inspired apparel. Also in fiscal 1998, the HANES and HANES HER WAY megabrand was extended into a new category--loungewear. HANES sleepwear for boys and girls was also launched in fiscal 1998. Despite significant growth in Europe, Sara Lee's Champion business posted lower results in fiscal 1998 due to significant competition in the sports apparel category. Champion is focusing on improving product quality, customer service and distribution, and cost- efficiency. Worldwide unit volumes for Knit Products grew 6% in fiscal 1998. Sara Lee Legwear posted lower sales in fiscal 1998 due to a continuing global decline in the sheer hosiery category. However, operating income and returns improved, due to improvements in productivity and a simplified product mix. Worldwide Legwear unit volumes declined 3%, reflecting a 7% decline in sheer hosiery, partially offset by an 11% increase in socks. Sara Lee continues to be the U.S. leader in the sheer hosiery category with its leading HANES, L'EGGS, DONNA KARAN and DKNY brands. Sara Lee is also the U.S. leader in the socks category. In fiscal 1998, Sara Lee continued to emphasize higher-margin products and additional product offerings for casual wear. Sara Lee's European hosiery business, which includes the BELLINDA, DIM, ELBEO, FILODORO, NUR DIE, PHILIPPE MATIGNON and PRETTY POLLY brands, also continued to emphasize high-margin, value-added products in fiscal 1998. Sara Lee also expanded geographically in fiscal 1998 by introducing FILODORO and PHILIPPE MATIGNON hosiery products in Spain. In Europe, Sara Lee is also growing its hosiery brands through strategic acquisitions. In fiscal 1998 Sara Lee acquired the EDOO brand in Austria. To further growth in Western Europe, Sara Lee also introduced a new retail concept that brings together Sara Lee's hosiery, intimate apparel and knit product brands. The stores market only Sara Lee brands. Six stores are slated to open in fiscal 1999 in Italy and Spain. Sara Lee Accessories consists of Sara Lee's Coach division, which markets fine leathergoods, apparel and related accessories. In fiscal 1998, Coach posted lower sales, principally due to market conditions in Asia. To improve sales and profitability, Coach is focusing on its core branded leathergoods and continuing to respond to rapidly changing fashion trends by developing new products. Product introductions in fiscal 1998 included the COACH NEO COLLECTION, a mixed-materials product featuring a customized lightweight modern fabric trimmed in glove leather, and the TRIBECA SERIES of updated classic handbags and accessories. In a licensing agreement with the Movado Group, Coach launched its first watch collection. Through a 4 partnership with Motorola, a leather phone case for Motorola's StarTAC Wearable Phone Series was introduced. In fiscal 1998, Coach opened five full-price and eight factory stores in the United States, bringing the total number of retail stores to 162. Internationally, Coach operates in more than 150 locations. In fiscal 1998, Coach renovated 15 of its stores in Asia. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Sara Lee's businesses are classified into five industry segments: Sara Lee Foods, Coffee and Tea, Household and Body Care, Foodservice, and Branded Apparel. The financial information about Sara Lee's industry segments can be found on page F-25 of this Report. (C) NARRATIVE DESCRIPTION OF BUSINESS SARA LEE FOODS Sara Lee Packaged Meats processes and sells pork, poultry and beef products to supermarkets, warehouse clubs, national chains and institutions throughout the United States, Europe and Mexico. Sales are transacted through Sara Lee's own sales force, brokers and institutional buyers. Some of the more prominent brands in the United States within this category include BALL PARK, BEST'S KOSHER, BRYAN, HILLSHIRE FARM, HYGRADE, JIMMY DEAN, KAHN'S, MR. TURKEY, SARA LEE and SINAI 48. Sara Lee's more prominent European brands include AOSTE, JUSTIN BRIDOU and COCHONOU in France, STEGEMAN in the Netherlands, ARGAL in Spain and NOBRE in Portugal. Sara Lee has a 49.9% interest in AXA Alimentos, S.A. de C.V. AXA Alimentos owns Kir Alimentos S. de R.L. de C.V., and Zwanenberg de Mexico, S.A. de C.V., which are leading processed meats companies in Mexico. Sara Lee is the largest processed meats company in the world. The products offered by this line of business include smoked sausage, bacon, hot dogs, breakfast sausage, breakfast sandwiches, premium deli and luncheon meats, ham, turkey, and packaged lunch combinations. The ingredients -- pork, turkey and beef -- are purchased by Sara Lee from a variety of sources. The prices of these raw materials fluctuate, depending primarily on supply and demand. Meat commodity costs fell in fiscal 1998. Because of the range of sources from which these raw materials are available, Sara Lee believes that it will continue to have access to adequate supplies. The Packaged Meats business is highly competitive, with an emphasis on product quality, price, advertising and promotion, and customer service. Sara Lee's competitors include international, national, regional and local companies. Sara Lee Packaged Meats has accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. Sara Lee believes it is one of the three industry leaders in the United States. Most of Sara Lee's Packaged Meats operations are regulated by the U.S. Department of Agriculture, whose focus is the quality, sanitation and safety of meat products, and, to some extent, by state and local government agencies. Sara Lee's Packaged Meats operations in Europe and Mexico are regulated by local authorities. Sara Lee Bakery produces a wide variety of fresh and frozen baked and specialty items. Its core products are frozen and fresh pies, cheesecakes, pound cakes and bagels. These products are sold through supermarkets, foodservice distributors, bakery-deli and direct channels throughout the United States, United Kingdom, France, Mexico, Australia and numerous Asia-Pacific countries. Sales are transacted through Sara Lee's sales force and independent wholesalers and distributors. The key ingredients for these products -- butter, milk, sugar, fruits, eggs and flour -- are purchased from suppliers at prices that are subject to such influences as supply and demand, weather, and government price controls. Because of the number of sources from which such raw materials are generally available, Sara Lee believes it will continue to have access to adequate supplies. 5 Competition in this business is keen, with a large number of participants. Sara Lee seeks to maintain and enhance a leading position in the industry through superior quality and value, marketing efforts that are designed to reinforce and build brand recognition, and through superior customer service. In the United States, Sara Lee Bakery products are subject to regulation by the Food and Drug Administration, the federal agency charged with, among other things, enforcing laws pertaining to food processing, content and labeling, and to a lesser extent, by state and local government agencies. COFFEE AND TEA Sara Lee believes it is one of the top four coffee roasters in the world, and one of the top three in the European market. It has a significant presence in such countries as the Netherlands, Belgium, France, Denmark, Spain and Australia, and has established positions in Central and Eastern Europe through acquisitions and expanded sales efforts. While DOUWE EGBERTS is its European flagship brand, its other premium European coffee brands include MAISON DU CAFE, MARCILLA and MERRILD. Sara Lee's PICKWICK brand, 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 fiscal 1998. 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, reduce the negative effect of price increases through careful inventory management, cost cutting, and higher prices for its coffee products. Primarily due to higher retail prices driven by higher green coffee costs, unit volumes declined for Sara Lee coffee brands in fiscal 1998 in most European markets. The Coffee and Tea business also manufactures rice products under the LASSIE brand in the Netherlands and snack and nut products under the DUYVIS, FELIX and BENENUTS brands in the Netherlands, Belgium and France. The Coffee and Tea business has accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. HOUSEHOLD AND BODY CARE Household and Body Care is composed of four primary core categories: shoe care -- led by a worldwide line of Kiwi products; body care items -- led by the SANEX brand, but also including DUSCHDAS and BADEDAS and baby care products sold under the ZWITSAL, FISSAN and PRODERM names; insecticides -- sold internationally under the CATCH, BLOOM, VAPONA and RIDSECT brand names; and air fresheners -- led by the AMBI-PUR brand. ZENDIUM and PRODENT oral care products, and BIOTEX and NEUTRAL specialty detergents are also important categories for Sara Lee. Body care items and insecticides are marketed principally in 6 Europe as well as into the Asia-Pacific and Latin America markets. These products are sold through a variety of retail channels including supermarkets. These are very competitive businesses. Sara Lee seeks to maintain a competitive advantage by offering its customers superior quality and value. Sara Lee Direct Selling distributes a wide range of products -- cosmetics, fragrances, jewelry, toiletries and apparel products -- 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 Japan, Australia, China and Uruguay. While this segment is very fragmented, Sara Lee believes it has an important position in many product lines in those countries in which it competes. FOODSERVICE Sara Lee Foodservice is conducted principally under the PYA/Monarch name. PYA/Monarch is the leading foodservice distributor in the southeastern United States. PYA/Monarch is the fourth largest full-line foodservice company in the 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. Sara Lee Foodservice accounted for 10% or more of Sara Lee's consolidated revenues during the past three fiscal years. BRANDED APPAREL The Branded Apparel line of business includes the Intimates, Knit Products, Legwear and Accessories businesses. Sara Lee Intimates 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 Intimates strengthened its position as the leader in the North American intimates category during the 1998 fiscal year. Sara Lee has the leading dollar share of the $4.1 billion U.S. bra category. 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 1998 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 Knit Products involves the manufacture and distribution of men's, women's and children's underwear and activewear (T-shirts, fleecewear and other jersey products for casualwear) in North America, South and Central America, Europe and the Asia-Pacific countries. These products are sold through Sara Lee's sales force to department stores, mass merchandisers, discount chains and the screen-print trade. Principal brands in this category include CHAMPION, HANES, HANES HER WAY and RINBROS in North America, and ABANDERADO, PRINCESA, CHAMPION, HANES and DIM in Europe. Sara Lee believes that it is the leader in both the women's and girls' panties category in the United States, and in the heavily branded category of men's and boys' underwear in the United States, and has the leading position in men's and boys' underwear in Mexico. 7 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 and a number of major university sports teams. The principal raw material in this product category is cotton. Sara Lee currently believes there is an adequate supply of cotton from a variety of sources. The knit products business is highly competitive, with products relying on brand recognition, quality, price and loyalty. Sara Lee competes by offering superior value, making use of low-cost sourcing, marketing activities and utilizing its megabranding strategy. The megabrands strategy entails marketing various products through common packaging, promotion and advertising. The Knit Products business has accounted for 10% or more of Sara Lee's consolidated revenues during each of the past three fiscal years. Sara Lee Legwear is the leader in the hosiery category in North America, Western Europe, Australia, New Zealand and South Africa. It also continues to establish operations in various Asia-Pacific countries, placing it in a strategic position to capitalize on developing markets in that area. Sara Lee Legwear products consist of a wide variety of branded, packaged consumer products, including pantyhose, stockings, combination panty and pantyhose garments, tights, knee-highs and socks, many of which are available in both sheer and opaque styles. These products are sold in the United States under such brand names as HANES, L'EGGS, DONNA KARAN and DKNY (the last two being licensed), and abroad under such labels as DIM, PRETTY POLLY, ELBEO, NUR DIE, BELLINDA, FILODORO, PHILIPPE MATIGNON and OMERO. Sara Lee is the largest sock manufacturer in the United States. Sara Lee Legwear products are sold by Sara Lee's sales force in channels ranging from department and specialty stores (for premium brands such as HANES, DONNA KARAN and DKNY in the United States, and DIM outside the United States), to supermarkets, warehouse clubs, discount chains and convenience stores for brands like L'EGGS and some DIM products aimed at the price-conscious consumer. Legwear products are also distributed through catalog sales and Sara Lee stores. The legwear business has accounted for 10% or more of Sara Lee's consolidated revenues during each of the past three fiscal years. The legwear business is very competitive in both the United States and Europe and worldwide demand for hosiery products has declined over at least the last three years. In the United States, Sara Lee's major competitors are other hosiery companies, and the primary methods of competition are quality, value, function, and, with respect to L'eggs products, service and distribution. In Europe, where most of Sara Lee's competitors are small companies who compete in the unbranded sector of the market, the primary focus is on quality. Raw materials -- nylon, spandex, and cotton -- for the products in this category are readily available to Sara Lee from a variety of sources. Sara Lee Accessories involves the manufacture and marketing of premium leather products, apparel and related accessories under the COACH brand. Coach products are sold through department stores, catalog sales and Sara Lee stores. Coach operates 162 retail stores in the United States and 150 stores located outside the United States. 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. 8 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, financial position or cash flows. Sara Lee considers major mass retailers and supermarket chains in both the United States and Europe to be significant customers across one or more product categories, and it has developed specific approaches to working with individual customers. SEASONALITY Sara Lee Foods experiences some seasonality. Sara Lee Packaged Meats' sales tend to be higher in the fourth fiscal quarter due to increased demand associated with the onset of the outdoor barbecuing season and various holidays. Sara Lee Bakery experiences increased demand for its products during the second fiscal quarter, driven principally by holiday buying. Sara Lee Branded Apparel, particularly Coach and Knit Products, generally experience increased demand during the second fiscal quarter as a result of "back to school" purchases and the holiday season. The European hosiery business is somewhat seasonal in nature, unlike the United States hosiery business, and tends to experience a reduced demand in the summer months. ENVIRONMENTAL MATTERS Sara Lee is subject to a number of federal, state and local statutes, rules, regulations and ordinances in the United States and other countries relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment ("Environmental Laws"). While Sara Lee expects to make capital and other expenditures in compliance with Environmental Laws, it does not anticipate that such compliance will have a material adverse effect on its consolidated, results of operations, financial position or cash flows. Sara Lee has an ongoing program to monitor compliance with Environmental Laws and is continually examining its methods of operation and product packaging to reduce its use of natural resources. EMPLOYEES Sara Lee has approximately 139,000 employees worldwide. 9 (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Sara Lee's foreign operations are conducted primarily through wholly- or partially-owned subsidiaries incorporated outside the United States. Sara Lee's principal foreign subsidiary is Sara Lee/DE N.V., a Netherlands limited liability company headquartered in Utrecht, the Netherlands ("Sara Lee/DE"). Sara Lee indirectly owns a 100% interest in Sara Lee/DE, 41% in the form of voting shares and 59% in the form of depository receipts issued by the independent Stichting Administratiekantoor Douwe Egberts Sara Lee. Sara Lee/DE has responsibility for managing the Coffee and Tea and Household and Body Care divisions of Sara Lee, as well as Sara Lee's foreign bakery operations. The foreign operations of Sara Lee Foods Packaged Meats line of business are conducted through Sara Lee Processed Meats (Europe) B.V., the Aoste Group and Imperial Meat Products N.V., while the foreign operations of Sara Lee Bakery are conducted through Kitchens of Sara Lee U.K. Ltd., Sara Lee Bakery (Australia) Pty Ltd. and Brossard France S.A. Coffee and Tea is conducted by a number of subsidiaries, principally European, including Sara Lee/ DE, Douwe Egberts Nederland B.V., Douwe Egberts France S.A., Douwe Egberts Espana S.A., Merrild Kaffe A/S, Douwe Egberts N.V., Compack Douwe Egberts Kft., Harris/DE Pty. Ltd., Balirny Douwe Egberts A.S. and Douwe Egberts Coffee Systems Nederland B.V. Household and Body Care is conducted by subsidiaries in over forty countries, principally Sara Lee/ DE, Kiwi Brands Pty. Ltd., Kiwi France S.N.C., Kortman Intradal B.V., A/S Blumoller, Sara Lee/DE Espana S.A., Sara Lee Household and Body Care U.K. Ltd., Sara Lee/DE Italy S.p.A., and Sara Lee/DE Deutschland GmbH and House of Fuller S.A. de C.V. Branded Apparel includes numerous foreign businesses, including Dim S.A., Grupo Sans, a division of Sara Lee/DE Espana S.A., Sara Lee Personal Products, S.p.A., Sara Lee Personal Products (Australia) Pty. Ltd., Pretty Polly, a division of Sara Lee UK Holdings Ltd., Vatter GmbH, the Filodoro Group, Sara Lee Hosiery, S.A. de C.V., Rinbros, S.A. de C.V., and Maglificio Bellia S.p.A. The financial information about foreign and domestic operations can be found on page F-26 of this Report. 10 Item 2. Properties. Sara Lee operates 278 food processing and consumer product manufacturing plants, each containing more than 20,000 square feet in building area, in 25 states and 39 foreign countries. Sara Lee owns 215 and leases 63 of these plants. It also operates 132 warehouses containing more than 20,000 square feet in building area in 19 states and 25 foreign countries. Of these warehouses, 61 are owned and 71 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 DIVISION OR SUBSIDIARY LOCATION SQUARE FEET - ---------------------------------------------------- ------------------------------------------ --------------- SARA LEE FOODS 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 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 Sara Lee Processed Meats (Europe) B.V............... Miralcamp, Spain 260,000 COFFEE AND TEA 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 Bama Polska......................................... Polska, Poland 260,754 Kiwi Brands......................................... 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 FOODSERVICE PYA/Monarch, Inc.................................... Charlotte, North Carolina 415,000 PYA/Monarch, Inc.................................... Bloomington, Indiana 321,000 PYA/Monarch, Inc.................................... Lexington, South Carolina 364,000 PYA/Monarch, Inc.................................... Montgomery, Alabama 276,000
11
APPROXIMATE BUILDING AREA INDUSTRY SEGMENT AND IN DIVISION OR SUBSIDIARY LOCATION SQUARE FEET - ---------------------------------------------------- ------------------------------------------ --------------- BRANDED APPAREL Canadelle Limited Partnership....................... Montreal, Canada 289,000 Champion Products, Inc.............................. Laurel Hill, North Carolina 368,000 Champion Products, Inc.............................. Dunn, North Carolina 289,000 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.............................. Martinsville, Virginia 704,000* Sara Lee Knit Products.............................. Rural Hall, North Carolina 986,000 Sara Lee Knit Products.............................. Winston-Salem, North Carolina 568,000 Sara Lee Knit Products.............................. Winston-Salem, North Carolina 395,000 Sara Lee Sock Company............................... Kernersville, North Carolina 340,000 Vatter GmbH......................................... Rheine, Germany 549,000
- ------------ * These facilities are leased; the remainder are owned by Sara Lee. Item 3. Legal Proceedings. Sara Lee is a party to various pending legal proceedings and claims. Some of the proceedings and claims against Sara Lee are for alleged environmental contamination, and arise under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"). CERCLA imposes liability, regardless of fault, on certain classes of parties that are considered to be responsible for contamination at a site. Although any one party can be held responsible for all the costs of investigation and cleanup, those costs are usually allocated among parties based on a variety of factors, such as the amount of waste each contributed to the site. Although the outcome of the pending legal proceedings, including Superfund claims, cannot be determined with certainty, Sara Lee's General Counsel and management are of the opinion that the final outcomes should not have a material adverse effect on Sara Lee's consolidated results of operations, financial position or cash flows. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. 12 PART II Item 5. Market for Sara Lee's Common Equity and Related Stockholder Matters. Sara Lee's securities are traded on the exchanges listed on the cover page of this Form 10-K Report. As of September 1, 1998, Sara Lee had approximately 84,696 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-28 of this Report. Item 6. Selected Financial Data. Financial information for Sara Lee for the five fiscal years ended June 27, 1998, 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-28 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 5, Narrative Description of Business on pages 5 through 9, and the Consolidated Financial Statements and related Notes to Financial Statements on pages F-4 through F-28 of this Report. RESULTS OF OPERATIONS 1998 RESTRUCTURING In the second quarter of fiscal 1998, the Corporation provided for the cost of restructuring its worldwide operations. The planned restructuring activities include the disposition of 116 manufacturing and distribution facilities -- 86 facilities are owned and 30 are leased. This restructuring provision reduced income before income taxes, net income and basic earnings per share in 1998 by $2,040 million, $1,625 million and $3.46 per share, respectively. The 1998 pretax income of the Corporation's industry segments includes the following restructuring charges: Sara Lee Foods -- $208 million; Coffee and Tea -- $71 million; Household and Body Care -- $185 million; Foodservice -- $2 million; and Branded Apparel -- $1,574 million. Of the total pretax charge for restructuring, $899 million relates to anticipated losses associated with the disposal of manufacturing and distribution facilities. Substantially all of these facilities were acquired through a series of business combinations and capital expenditures made between 1988 and 1994. The gross book value of the manufacturing and distribution assets to be disposed of was $2,312 million. $830 million of the restructuring charge relates to goodwill associated with the disposition of the remaining assets from various business combinations in the period from 1988 through 1992. The gross book value of the goodwill being disposed of was $1,136 million. The remainder of the charge consists of $219 million for pension and social costs associated with the facility disposals; $47 million for anticipated costs to close and dispose of idled facilities; and $45 million for anticipated losses on the disposal of certain equity and cost method investments. Of the total after-tax provision, 89% is non-cash and 11% will require cash outflows. Management's decision to restructure its worldwide manufacturing and distribution operations resulted from a change in the Corporation's strategic direction, which was precipitated by fundamental changes in the economic environment in which it operates. Historically, the Corporation has manufactured the branded consumer products it markets. The Corporation's strategy was to vertically integrate the manufacturing processes into the business in order to assure a readily available product source that met quality standards. Contributing factors to this situation included trade barriers associated with apparel products that limited the utilization of product sourcing options outside the United States. In addition, alternative sources for other products were not generally considered reliable or cost efficient. 13 In recent years, several significant external economic factors have caused the Corporation to modify its strategy. As the global economy has grown and trade barriers have fallen, alternative sources of competitively priced manufactured products have increased. In addition, business entities all over the world have become increasingly specialized and efficient by focusing on core competencies such as manufacturing, distribution and marketing. Since many of the corporation's manufacturing processes do not involve proprietary or sophisticated technology, a number of efficient and reliable third-party suppliers have grown in this economic environment. Secondly, the Corporation has historically operated in a highly decentralized manner. A large number of discrete profit centers have been maintained with each entity having separate manufacturing, distribution and administrative functions for the branded products it markets. The Corporation has numerous business entities in each segment producing comparable and, in some cases, competing products under varying brand names. The elimination of certain of these assets will result in a more efficient combined operation. Finally, excess manufacturing capacity has developed in the markets for certain of the Corporation's products. Lower worldwide demand for products such as sheer hosiery, as well as competitive pressures from other manufacturers, are causal factors. A substantial portion of the total restructuring charge is to eliminate excess manufacturing and distribution capacity and thereby improve the long-term profitability of the Corporation. In the past year, two significant competitors in the branded apparel business have also announced plans to close a substantial portion of their productive capacity for competitive reasons. This, along with the economic factors that resulted in the restructuring plan, have depressed the prices for the manufacturing assets to be disposed. The estimated net realizable values for the assets being disposed are responsible for the $1,729 million loss associated with long-lived assets. The current competitive environment has allowed the Corporation to purchase needed commodities from a number of suppliers at prices which are less than, or equal to, prior manufacturing costs. Such purchases are generally made under short-term contracts that are cancelable without penalty by either party upon less than six months notice. The Corporation anticipates that it will be able to continue sourcing needed commodities in this manner. As of the close of fiscal 1998, facilities representing 49% of the estimated loss have been sold or closed. The Corporation expects to complete the restructuring by the year 2000, and it is anticipated that the remaining costs of the plan will be funded from internal sources and available borrowings. Operating costs in fiscal 1998 were lowered by $61 million, primarily as a result of lower plant overhead and amortization expense. The Corporation expects the restructuring plan to generate increased savings in subsequent years, growing to an annual savings of approximately $200 million in 2001. Savings from the planned actions will be used for both business-building initiatives and profit improvement. The restructuring reserve is analyzed in greater detail in the Restructuring Provision note to the financial statements on page F-19. CONSOLIDATED RESULTS -- 1998 COMPARED WITH 1997 Net sales increased 1.4% to $20.0 billion in 1998, from $19.7 billion in 1997. Businesses acquired net of businesses sold subsequent to the start of 1997 increased net sales by 2.2%. The strengthening of the U.S. dollar relative to foreign currencies had the effect of reducing sales by 4.4%. Thus, on a comparable basis, sales increased 3.6%. Comparable sales growth was approximately 8% in the Foodservice, Coffee and Tea, and Household and Body Care business segments. Comparable sales growth in the Branded Apparel segment was 2.4%, while Sara Lee Foods' sales were essentially the same as the prior year after excluding the impacts of acquisitions, dispositions and foreign currency movements. The gross profit margin was 38.4% in 1998, compared with 37.8% in 1997. Higher gross margins in the Corporation's Sara Lee Foods, Foodservice, Household and Body Care and Branded Apparel segments more than offset gross margin declines in Coffee and Tea. Operating income (pretax earnings before 14 interest and corporate expenses) increased $38 million, or 2.0%, excluding the restructuring charge. Businesses acquired net of businesses sold subsequent to the start of 1997 increased operating income by 1.9%. The strengthening of the U.S. dollar relative to foreign currencies had the effect of reducing operating income by 5.5%. Thus, on a comparable basis, operating income increased 5.6%. The benefits associated with the 1998 restructuring had a significant impact on the improvement in operating income. Net interest expense was $176 million in 1998, compared with $159 million in 1997. The higher interest expense was attributable to higher average total borrowings during the year offset in part by the strengthening of the U.S. dollar relative to foreign currencies. Unallocated corporate expenses, which are costs not directly attributable to specific segment operations, decreased in 1998. The strengthening of the U.S. dollar relative to foreign currencies reduced foreign-denominated minority interest expense and also had a positive impact on the hedging of foreign currency movements. In addition, 1997 corporate unallocated expenses were negatively impacted by expenses associated with certain sold companies. The effective tax rate, excluding the restructuring charge, was 31.0% in 1998 as compared to 32.0% in 1997. The reduction in the tax rate was attributable primarily to increased earnings in certain foreign jurisdictions that had lower tax rates than the United States. Including the 1998 restructuring, the Corporation recognized a pretax loss of $443 million and a tax provision of $80 million. The 20.4% effective tax rate associated with the $2,040 million pretax restructuring charge was attributable primarily to the $830 million nondeductible goodwill component. Excluding the 1998 restructuring charge, net income increased 9.3% to $1,102 million, and basic earnings per share increased 13.2% to $2.32. Basic earnings per share, excluding the restructuring charge, increased at a rate in excess of net income primarily because of fewer shares outstanding during the period and lower preferred dividends. Including the restructuring charge, the corporation recognized a net loss of $523 million or $1.14 per share. For the year ended June 27, 1998, approximately 2% of the Corporation's sales and 1% of the pretax profits, excluding the restructuring charge, were derived from Asia. The recent financial problems in the area have not had a material impact on the consolidated results of the Corporation. 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 growth by approximately 2.3%. Thus, on a comparable basis, sales increased 2.3%. Comparable sales growth by segment was approximately 7% in Foodservice, 3% in Sara Lee Foods and Household and Body Care, 2% in Coffee and Tea, and 1% in Branded Apparel. The gross profit margin was 37.8% in 1997, compared to 38.4% in 1996. The reduction in 1997 was attributable primarily to lower margins in the corporation's Branded Apparel segment, offset in part by improved margins in Coffee and Tea, and Household and Body Care. Operating income 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 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 was attributable to lower average interest rates and average borrowings. Unallocated corporate expenses 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 was attributable primarily to increased earnings in foreign jurisdictions that had lower tax rates than the United States. 15 Net income for 1997 increased 10.1% to $1.0 billion and basic earnings per share increased 10.8% to $2.05. The higher percentage increase in basic earnings per share to net income was attributable primarily to lower preferred dividends. OPERATING RESULTS BY BUSINESS SEGMENT -- 1998 COMPARED WITH 1997 During the fourth quarter of 1998, the Corporation adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131 requires the presentation of descriptive information about reportable segments that is consistent with that made available to the management of the Corporation to assess performance. As a result of this change, the Corporation will report segment performance on an after-tax basis and will separately report information on its Foodservice operations. In determining the net income of each segment, the Corporation's net interest expense is allocated based upon the average invested capital in each business, and effective tax rates are determined for each business segment. Comparative segment information is presented on page F-25. The following comments regarding business segment performance exclude the restructuring charge discussed above. Net sales in the Sara Lee Foods segment increased in 1998 by 1.6%, while operating income increased 11.3%. The improved level of profitability was largely due to lower hog costs; new product activity focusing on higher-margin "better-for-you" and convenience items; and the benefits associated with the restructuring. Excluding the impact of acquisitions and changes in foreign currencies, Sara Lee Foods sales approximated 1997 levels while operating income increased 11.9%. Unit volumes for worldwide Packaged Meats rose 2%, led by gains in key categories such as hot dogs, sausage products, ham, bacon and breakfast sandwiches. Worldwide unit volumes for Sara Lee Bakery were flat for the full year. All unit volume comparisons exclude acquisitions. Interest expense allocated to the Sara Lee Foods segment increased $6 million. This business had a higher share of the invested capital of the Corporation and consolidated net interest increased over 1997 levels. Net income grew to $252 million, an increase of 9.1%. Coffee and Tea sales and operating income declined 0.3% and 2.5%, respectively, in 1998. These results reflect the impact of a stronger U.S. dollar relative to European currencies. Excluding the impact of acquisitions and changes in foreign currencies, Coffee and Tea sales and operating income increased by approximately 8.0%. Unit volumes for retail and out-of-home roasted coffee declined 7%, reflecting higher green coffee costs and increased consumer prices throughout most of the year. Performance was aided by a continued emphasis on operating efficiencies. Interest expense allocated to the Coffee and Tea segment increased $4 million, primarily as a result of this business having a higher share of the invested capital of the Corporation. Net income declined to $285 million, or 2.0%. Net sales in the Household and Body Care segment increased 8.7%, while operating income increased 10.4%. These results were also significantly affected by the impact of the stronger U.S. dollar relative to foreign currencies during the year. Excluding the impact of acquisitions and changes in foreign currencies, Household and Body Care sales and operating income increased by 7.7% and 18.9%, respectively. The Household and Body Care segment has four core categories: shoe care, body care, insecticides and air fresheners. Unit sales for these four product lines, excluding acquisitions, grew 11% for the year. The profit growth is attributable primarily to strong gross margin improvement, significant market share gains and new product introductions. The direct selling component of this segment reported increased sales and profits principally on the contributions of operations in Mexico and the Australian company Nutri-Metics International, acquired in 1998. Interest expense allocated to the Household and Body Care segment increased $7 million. This business had a higher share of the invested capital of the Corporation and consolidated net interest increased over 1997 levels. Net income increased 9.0% to $142 million. Foodservice operations produced sales growth of 8.9% and operating income growth of 9.4%. Excluding acquisitions, sales and operating income grew 7.7% and 9.1%, respectively. Foodservice unit 16 volumes increased 7% for the year, excluding acquisitions. The improved sales and profits were attributable largely to a continued focus on low-cost production and geographic expansion throughout the South, Midwest and Eastern portions of the United States. Interest allocated to this segment increased slightly, and net income grew 8.7% to $52 million. Sales and operating income of the Branded Apparel segment declined 2.2% and 3.5%, respectively. Excluding the impact of acquisitions, dispositions and changes in foreign currencies, sales increased 2.4% while operating income declined 3.5%. The Corporation's worldwide Intimate Apparel business had increased sales and operating income in 1998 as a result of product innovations and design advancements that strengthened its core brands. Unit volumes increased 7%, excluding acquisitions, with growth in both North America and Europe. Worldwide unit volumes for Knit Products grew 6% led by gains in underwear and activewear. Knit Products operating income declined slightly as a result of the impact of the stronger dollar, competitive pricing pressures and lower results by the Champion business. Due to a continuing global decline in the sheer hosiery market, the worldwide Legwear business had lower sales in 1998. However, profits improved as the Corporation streamlined manufacturing, boosted productivity and simplified its product mix. Worldwide Legwear unit volumes declined 3% reflecting a 7% decline in sheer hosiery, partially offset by an 11% increase in socks. The Coach leatherware business had lower sales and operating income in 1998 as a result of difficult market conditions in Asia. Interest allocated to this segment declined slightly as a result of this business having a lower share of the invested capital of the Corporation. The effective tax rate of the Branded Apparel segment declined as a result of increased earnings in foreign jurisdictions that had lower tax rates than the United States and a lower amount of nondeductible goodwill amortization. Net income increased 0.3% to $484 million. OPERATING RESULTS BY BUSINESS SEGMENT -- 1997 COMPARED WITH 1996 Net sales and operating income in the Sara Lee Foods segment increased in 1997 by 21.1% and 12.9%, respectively, largely due to the acquisition of the European processed meats company, Aoste. Excluding the impact of acquisitions and changes in foreign currencies, Sara Lee Foods sales and operating income increased by 2.6%. 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. All unit volume comparisons exclude acquisitions. Interest expense allocated to the Sara Lee Foods segment increased by $3 million, primarily as a result of this business having a higher share of the invested capital of the Corporation. Net income increased 11.5% to $232 million. Net sales in the Coffee and Tea 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 Tea 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%. Interest expense allocated to this business segment declined 8.7% and net income increased 6.2% to $290 million. 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. Net income increased 11.0% as a result of a lower effective tax rate. Foodservice sales and operating income increased 7.8% and 12.1%, respectively. Excluding the impact of acquisitions, sales grew at 6.7% and operating income grew at 12.2%. Foodservice unit volumes increased 4% for the full year, and selling, general and administrative costs declined as a percent of sales. Net income increased 16.1% over the prior year as interest expense and the effective tax rate declined. 17 During 1997, Branded Apparel sales and operating income increased 1.5% and 4.4%, respectively. The improvement in segment profitability was attributable primarily to incremental savings from the 1994 restructuring and lower LIFO inventory provisions. Unit volumes for Branded Apparel's major product categories increased 3% for the year. Excluding the impact of acquisitions and changes in foreign currencies, Branded Apparel sales and operating income increased 0.9% and 3.8%, respectively. During the year, the Branded Apparel segment had a lower share of the invested capital of the Corporation and this, along with lower borrowing costs, reduced the interest allocated to this business by 13.7%. The effective tax rate attributable to the Branded Apparel business declined as a result of increased earnings in foreign jurisdictions that had lower tax rates than the United States. Net income increased 10.7% over the prior year to $483 million. FINANCIAL POSITION Net cash provided from operating activities was $1.9 billion in 1998, $1.6 billion in 1997 and $1.3 billion in 1996. Excluding the 1998 restructuring charge, which was primarily non-cash, net income increased and working capital management improved substantially in fiscal 1998. Higher profitability and lower working capital requirements were also responsible for the improved 1997 operating cash flow results. Net cash used in investment activities was $275 million in 1998, $1.0 billion in 1997 and $693 million in 1996. Cash received for businesses and property sold in 1998 was $418 million in excess of that received in 1997. In addition, cash outflows for business acquisitions and capital expenditures declined $354 million from 1997 levels. The lower level of cash used for investment activities reflects the Corporation's decision to pursue a new strategic direction and the related restructuring plan. During 1998, the Corporation acquired several companies for an aggregate purchase price of $393 million in cash and $10 million of common stock. The principal acquisitions were Nutri-Metics International Holding Pty. Ltd., an Australian manufacturer and direct marketer of skin care products and toiletries; Cafe do Ponto, S.A., a Brazilian manufacturer and retailer of roasted and ground coffee; and Hornimans, a tea and sweetener distributor in Spain. The Corporation also divested the production facilities and related working capital of its yarn and textile manufacturing business. A loss was recognized on the disposition of the manufacturing facilities in connection with the 1998 restructuring, and the related working capital was sold for its net book value. In the fourth quarter of fiscal 1998, the corporation announced plans to sell its international cut tobacco business, Douwe Egberts Van Nelle Tobacco, to Imperial Tobacco Group PLC, a major tobacco company based in the United Kingdom. Cash proceeds of $391 million were received in July 1998. Additional cash payments may be received beginning in fiscal 2004; however, these payments are dependent upon significant contingencies related to the ongoing operation of the sold business. Receipt of these contingent payments is not assured. 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 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. Capital expenditures were $474 million in 1998 as compared to $547 million in 1997 and $542 million in 1996. The Corporation expects 1999 capital expenditures to be in the range of $400 million to $500 million. The 1999 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 share repurchases and business acquisitions. 18 During 1998, cash of $1,650 million was used for financing activities. Cash expended for the purchase of the Corporation's common stock totaled $1,500 million. In addition, the Corporation used $200 million to redeem preferred stock and $447 million to pay dividends. Net borrowings provided $411 million of cash in 1998. During 1997, cash of $468 million was used for financing activities. $393 million was expended for the purchase of the Corporation's common stock and was largely offset by net additional borrowings of $362 million. Dividend payments in 1997 totaled $430 million. For fiscal 1998, operating cash flow was 56.8% of average total debt as compared to 49.3% in 1997. The corporation's stated objective is to maintain a ratio of operating cash flow to average total debt of at least 40% over time. YEAR 2000 COMPLIANCE In January 1996, the Corporation initiated a program to address the Year 2000 issues that affect its operations. Essentially, the Year 2000 problem consists of computer applications using only the last two digits to refer to a year rather than all four digits. As a result, these applications could fail or create erroneous results if they recognize "00" as the year 1900 rather than the year 2000. The aforementioned program is designed to identify and correct these problems. The program has been developed with the help of independent consultants and consists of various steps of evaluation and remediation in the affected areas of the Corporation. These areas include order, production, distribution and financial systems. In addition, all third parties with whom there is systems interaction, including outsourced services, and customers and suppliers, are being surveyed to determine Year 2000 compliance or the need for remediation efforts. As of the end of fiscal 1998, approximately 40% of the Corporation's worldwide systems were Year 2000-compliant with the remaining areas targeted for compliance by the end of fiscal 1999. The total cost of this project is estimated to be $50 million, of which approximately one-half has been expensed. These costs have not had, nor are expected to have, a material effect on the Corporation's financial position, results of operations or cash flows in any of the years in which spending has or will occur. This expectation assumes that the Corporation will not be obligated to incur significant Year 2000 related costs on behalf of its customers or suppliers. In the event that the efforts of this program do not address all potential systems problems, the Corporation is currently developing contingency plans to ensure that it will be able to operate the critical areas of its business. This process includes developing alternative plans to engage in business activities with customers and suppliers should they not be Year 2000-compliant. These plans will continue to be monitored for completion as we approach the year 2000. FORWARD-LOOKING INFORMATION From time to time, in written reports and oral statements, the Corporation discusses its expectations regarding future performance. For example, such "forward-looking statements" are contained in the 1998 Annual Report in the Chairman's Letter to Stockholders (pages 17-18); President's Letter (page 21); Operations Review (pages 22-35); and the Financial Performance and Financial Review, including Management's Discussion and Analysis (pages 36-45). These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ materially from those expressed or implied in the forward-looking statements. Consequently, the Corporation wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could impact the Corporation's ability to achieve its stated goals are the following: (i) the Corporation's ability to realize forecasted savings, as well as improvements in productivity and efficiency, from its restructuring program; (ii) significant competitive activity, including advertising, promotional and price competition, and changes in consumer demand for the Corporation's products; (iii) fluctuations in the cost and availability of various raw materials; (iv) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance; (v) the Corporation's ability to successfully integrate acquisitions into its existing operations 19 and the availability of new acquisitions, joint ventures and alliance opportunities that build stockholder value; and (vi) the Corporation's ability, and our suppliers' and customers' ability, to adequately address the "Year 2000" computer issue. In addition, the Corporation's results may also be affected by general factors, such as economic conditions and political developments in the markets where the Corporation competes, including changes in currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations generally affecting our businesses. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. RISK MANAGEMENT The Corporation is exposed to market risk from changes in interest rates, foreign exchange rates and commodity prices. To modify the risk from these interest rate, foreign currency exchange rate and commodity price fluctuations, the Corporation enters into various hedging transactions that have been authorized pursuant to the corporation's policies and procedures. The Corporation does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. FOREIGN EXCHANGE The Corporation uses primarily foreign currency forward contracts to hedge its exposure from adverse changes in foreign exchange rates. The Corporation's exposure to foreign exchange rates exists primarily with the Dutch guilder, French franc, Italian lira, Spanish peseta and British pound against the U.S. dollar. Hedging is accomplished through the use of financial instruments as the gain or loss on the hedging instrument offsets the gain or loss on an asset, liability or a basis adjustment to a firm commitment. Hedging of anticipated transactions is accomplished with financial instruments as the gain or loss on the hedge occurs on or near the maturity date of the anticipated transactions. INTEREST RATES The Corporation uses interest rate swaps to modify its exposure to interest rate movements and to reduce borrowing costs. The Corporation's net exposure to interest rate risk consists of floating rate instruments that are benchmarked to U.S. and European short-term money market interest rates. Interest rate risk management is accomplished through the use of swaps to create synthetic debt instruments. COMMODITIES The Corporation is a purchaser of certain commodities such as beef, pork, cotton, coffee, wheat, corn, soybean and corn oils, and sugar. The Corporation generally buys these commodities based upon market prices that are established with the vendor as part of the purchase process. The Corporation does not use significant levels of commodity financial instruments to hedge commodity prices due to a high correlation between the commodity cost and the ultimate selling price of the Corporation's products. RISK MANAGEMENT ACTIVITIES The Corporation maintains risk management control systems to monitor the foreign exchange, interest rate and commodity risks, and the Corporation's offsetting hedge positions. The risk management control system uses analytical techniques including market value, sensitivity analysis and value at risk estimations. VALUE AT RISK The value at risk estimations are intended to measure the maximum amount the Corporation could lose from adverse market movements in interest rates and foreign exchange rates, given a specified confidence level, over a given period of time. Loss is defined in the value at risk estimation as fair-market 20 value loss. As a result, foreign exchange gains or losses that are charged directly to translation adjustments in common stockholders' equity are included in this estimate. The value at risk estimation utilizes historical interest rates and foreign exchange rates from the past year to estimate the volatility and correlation of these rates in the future. The model uses the variance-covariance statistical modeling technique and includes all interest-rate sensitive debt and swaps, foreign exchange hedges and their corresponding underlying exposures. The estimated value at risk amounts shown below represent the potential loss the Corporation could incur from adverse changes in either interest rates or foreign exchange rates for a one-day period. The average value at risk represents the simple average of the quarterly amounts for the past year. These amounts are not significant compared with the equity, historical earnings trend or daily change in market capitalization of the Corporation.
TIME CONFIDENCE VALUE AT RISK AMOUNTS AMOUNTS AVERAGE INTERVAL LEVEL - --------------------------------------- ------- ------- -------- ---------- (DOLLARS IN MILLIONS) Interest rates......................... $ 4.8 $ 4.6 1 day 95% Foreign exchange....................... 13.6 13.0 1 day 95
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 $2.9 million. This amount is not significant compared with the earnings and equity of the Corporation. Item 8. Financial Statements and Supplementary Data. The consolidated Financial Statements and related Notes to Financial Statements of Sara Lee identified in the Index to Financial Statements appearing under Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. 21 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.
AGE AT FIRST OCTOBER 29, ELECTED AN NAME 1998 OFFICES AND POSITIONS HELD OFFICER - ----------------------- ----------- ---------------------------------------- ---------- John H. Bryan.......... 62 Chairman of the Board, Chief Executive 3/28/74 Officer and Director C. Steven McMillan..... 52 President, Chief Operating Officer and 3/31/83 Director Frank L. Meysman....... 46 Executive Vice President and Director 3/31/94 James R. Carlson....... 56 Senior Vice President 7/1/93 Gary C. Grom........... 51 Senior Vice President -- Human Resources 10/25/90 Janet Langford Kelly... 40 Senior Vice President, Secretary and 1/26/95 General Counsel Mark J. McCarville..... 52 Senior Vice President -- Corporate 6/24/82 Development Judith A. Sprieser..... 45 Senior Vice President and Chief 11/1/94 Financial Officer Gerald W. Evans........ 39 Vice President 3/26/98
- ------------ 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. The information set forth in the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference. Item 11. Executive Compensation. The information set forth in the Proxy Statement under the captions "Director Compensation" and "Executive Compensation," is incorporated herein by reference; provided, however, that the Report of the Compensation and Employee Benefits Committee on Executive Compensation and the Performance Graph contained in the Proxy Statement are not incorporated by reference. The information set forth in the second paragraph under Item 13 below is also incorporated herein 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. As of September 1, 1998, State Street Bank & Trust Company of Boston, as trustee ("Trustee") of the Sara Lee Corporation Employee Stock Ownership Plan ("ESOP"), held in trust 4,126,299 shares (100% of the outstanding shares) of Sara Lee's Employee Stock Ownership Plan Convertible Preferred Stock ("ESOP Stock"), of which 1,714,146 shares (42%) were allocated to participant accounts and 2,412,153 shares (58%) were unallocated shares. Each ESOP participant is entitled to direct the Trustee how to vote the 22 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 5.132 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 1998, 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. Messrs. Minow and Jordan served as directors of Sara Lee during the 1998 fiscal year. During fiscal 1998, various Sara Lee subsidiaries spent approximately $3.5 million to purchase truck trailers, parts and related services from Great Dane Limited Partnership, a partnership in which James S. Crown and members of his immediate family have an interest. Mr. Crown served as a director of Sara Lee for a portion of the 1998 fiscal year. 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 June 29, 1996, June 28, 1997 and June 27, 1998.................................... F-4 Consolidated Balance Sheets -- June 29, 1996, June 28, 1997 and June 27, 1998...................................................... F-5 Consolidated Statements of Common Stockholders' Equity -- Balances at June 29, 1996, June 28, 1997 and June 27, 1998.................. F-7 Consolidated Statements of Cash Flows -- Years ended June 29, 1996, June 28, 1997 and June 27, 1998.................................... F-8 Notes to Financial Statements...................................... F-9
PAGE ---- 2. FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants........................... F-29 Schedule II -- Valuation and Qualifying Accounts................... F-30
23
3. 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 Exhibit 10(1) to Report on amended Form 10-K for Fiscal Year ended July 1, 1995 2. 1981 Stock Option Plan, as Exhibit 10(11) to Report on amended Form 10-K for Fiscal Year ended July 1, 1989 3. 1988 Non-Qualified Stock Exhibit 10(3) to Report on Option Plan, as amended Form 10-K for Fiscal Year ended July 1, 1995 4. 1989 Incentive Stock Plan, Exhibit 10(4) to Report on as amended Form 10-K for Fiscal Year ended June 28, 1997 5. Supplemental Benefit Plan, Exhibit 10(5) to Report on as amended Form 10-K for Fiscal Year ended June 28, 1997 6. Performance-Based Annual Appendix A to Proxy Statement Incentive Plan dated September 20, 1995 7. 1995 Long-Term Incentive Exhibit 10(16) to Report on Stock Plan, as amended Form 10-K for Fiscal Year ended June 28, 1997 8. 1995 Non-Employee Director Stock Plan, as amended 9. 1998 Long-Term Incentive Appendix A to Proxy Statement Stock Plan dated September 21, 1998 10. Accelerated Growth Exhibit 10(12) to Report on Incentive Plan Fiscal Years Form 10-K for Fiscal Year 1990-1994 ended June 30, 1990 11. 1991 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended June 29, 1991 12. 1992 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended June 27, 1992 13. FY '93 Non-Qualified Exhibit 10(16) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended June 27, 1992 14. 1993 Non-Qualified Exhibit 10(19) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended July 3, 1993
24
EXHIBITS INCORPORATION BY REFERENCE ------------------------------ 15. FY '94 Non-Qualified Exhibit 10(20) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended July 3, 1993 16. 1994 Non-Qualified Exhibit 10(14) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended July 2, 1994 17. FY '95 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended July 2, 1994 18. Non-Qualified Deferred Compensation Plan (Annual Bonus), as amended 19. Non-Qualified Deferred Compensation Plan for Outside Directors, as amended 20. FY 1996-98 Long Term Exhibit 10(20) to Report on Performance Incentive Plan Form 10-K for Fiscal Year ended June 29, 1996 21. FY 1997-99 Long Term Exhibit 10(21) to Report on Performance Incentive Plan Form 10-K for Fiscal Year ended June 29, 1996 22. FY 1998-00 Long Term Performance Incentive Plan 23. Non-Qualified Estate Exhibit 10(17) to Report on Builder Deferred Form 10-K for Fiscal Year Compensation Plan ended June 29, 1985 24. Severance Policy for Exhibit 10(23) to Report on Corporate Officers, as Form 10-K for Fiscal Year amended ended June 28, 1997 25. Employment Agreement, Exhibit 10(24) to Report on dated January 1, 1996, Form 10-K for Fiscal Year between Sara Lee ended June 28, 1997 Corporation and Frank L. Meysman 26. Employment Agreement, Exhibit 10(25) to Report on dated January 1, 1996, Form 10-K for Fiscal Year between Sara Lee/ DE N.V. ended June 28, 1997 and Frank L. Meysman and attachments (translated from Dutch) 27. Restricted Share Unit Agreement dated April 29, 1998 between Sara Lee Corporation and Frank L. Meysman 28. Stockholder Rights Exhibit 4.1 to Report on Form Agreement, dated as of 8-K dated May 15, 1998 March 26, 1998 between Sara Lee Corporation and First Chicago Trust Company of New York, as rights agent (12) 1. Computation of Ratio of Earnings to Fixed Charges
25
EXHIBITS INCORPORATION BY REFERENCE ------------------------------ 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
(b) REPORTS ON FORM 8-K A report on Form 8-K dated May 15, 1998 was filed during the last quarter of the period covered by this report. The report on Form 8-K related to the renewal of the Corporation's Stockholder Rights Plan. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sara Lee Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. September 23, 1998 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 23, 1998.
SIGNATURE CAPACITY - ------------------------------ -------------------------- /s/ JOHN H. BRYAN Chairman of the Board, - ------------------------------ Chief Executive Officer John H. Bryan and Director /s/ C. STEVEN MCMILLAN - ------------------------------ President, Chief Operating C. Steven McMillan Officer and Director /s/ FRANK L. MEYSMAN - ------------------------------ Executive Vice President Frank L. Meysman and Director /s/ JUDITH A. SPRIESER - ------------------------------ 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 * - ------------------------------ Director Duane L. Burnham * - ------------------------------ Director Charles W. Coker * - ------------------------------ Director James S. Crown
27
SIGNATURE CAPACITY - ------------------------------ -------------------------- * - ------------------------------ 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 * - ------------------------------ Director John D. Zeglis
*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. By: /s/ JANET LANGFORD KELLY ----------------------------------------- Janet Langford Kelly AS ATTORNEY-IN-FACT
28 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 27, 1998, June 28, 1997, and June 29, 1996, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the three years in the period ended June 27, 1998. 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 27, 1998, June 28, 1997, and June 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 27, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Chicago, Illinois July 27, 1998 F-1 SARA LEE CORPORATION AND SUBSIDIARIES FINANCIAL SUMMARY
COMPOUND YEARS ENDED GROWTH RATE ---------------------- ------------------------ JUNE 27, JUNE 28, 5 YEARS 10 YEARS 1998(1) 1997 ----------- ----------- ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS Net sales............................................................. 6.5% 6.7% $ 20,011 $ 19,734 Operating (loss) income............................................... NM NM (97) 1,905 (Loss) income before income taxes..................................... NM NM (443) 1,484 Net (loss) income..................................................... NM NM (523) 1,009 Effective tax rate.................................................... -- -- 18.0% 32.0% - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL POSITION Total assets.......................................................... 0.2% 8.2% $ 10,989 $ 12,953 Total debt............................................................ 4.8 11.8 3,077 2,664 Operating cash flow to average total debt (6)......................... -- -- 56.8% 49.3% Return on invested capital (7)........................................ -- -- 17.5% 16.0% - ------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE (8).................................................. Net (loss) income -- basic............................................ NM NM $ (1.14) $ 2.05 Average shares outstanding (in millions).......................... (0.5)% 0.6% 469 480 Net (loss) income -- diluted.......................................... NM NM (1.14) 1.97 Average shares outstanding (in millions).......................... (1.5) 0.5 469 502 Dividends (9)......................................................... 10.0 12.0 .90 .82 Book value at year-end................................................ (11.6) 1.0 3.94 8.91 Market value at year-end.............................................. 18.5 19.9 56.63 42.06 - ------------------------------------------------------------------------------------------------------------------------ OTHER INFORMATION Net cash from operating activities.................................... 17.9% 10.2% $ 1,935 $ 1,552 Depreciation.......................................................... 2.2 8.0 427 483 Amortization of intangibles........................................... 6.4 13.6 191 197 Capital expenditures.................................................. (8.2) 0.6 474 547 Media advertising expense............................................. 0.4 4.7 401 414 Total advertising and promotion expense............................... 6.3 9.4 1,972 1,937 Common stockholders of record......................................... -- -- 85,100 88,800 Number of employees................................................... -- -- 139,100 141,000 - ------------------------------------------------------------------------------------------------------------------------
(1) In 1998, a restructuring provision reduced operating income and income before income taxes by $2,040 and net income by $1,625. (2) 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. (3) 53-week year. (4) 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. (5) 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. (6) Average total debt includes total balance sheet debt, imputed lease liabilities and auction preferred stock. (7) Excludes unusual items. (8) Restated for the 2-for-1 stock splits in fiscal 1993 and 1990. (9) Fiscal 1992 includes a $.12 special dividend. NM = not meaningful 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 -------------------------------------------------------------------------------------- JUNE 29, JULY 1, JULY 2, JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, 1996 1995 1994(2) 1993(3) 1992(4) 1991 1990 1989(5) --------- --------- --------- --------- --------- --------- --------- --------- RESULTS OF OPERATIONS Net sales................................ $ 18,624 $ 17,719 $ 15,536 $ 14,580 $ 13,243 $ 12,381 $ 11,606 $ 11,718 Operating (loss) income.................. 1,793 1,596 632 1,307 1,207 1,085 938 847 (Loss) income before income taxes........ 1,378 1,219 389 1,082 1,174 830 713 639 Net (loss) income........................ 916 804 199 704 761 535 470 410 Effective tax rate....................... 33.5% 34.1% 39.9% 34.9% 35.2% 35.5% 34.1% 35.8% - --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Total assets............................. $ 12,602 $ 12,431 $ 11,665 $ 10,862 $ 9,989 $ 8,122 $ 7,636 $ 6,523 Total debt............................... 2,296 2,597 2,859 2,433 1,780 1,772 1,866 1,799 Operating cash flow to average total debt (6).................................... 41.4% 40.6% 25.8% 31.7% 42.1% 37.3% 25.6% 27.9% Return on invested capital (7)........... 15.0% 14.6% 12.6% 12.7% 13.3% 13.8% 14.3% 15.3% - --------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE (8) Net (loss) income -- basic............... $ 1.85 $ 1.63 $ .37 $ 1.41 $ 1.55 $ 1.08 $ .96 $ .89 Average shares outstanding (in millions).......................... 482 478 477 481 471 461 457 448 Net (loss) income -- diluted............. 1.78 1.57 .36 1.36 1.50 1.05 .94 .88 Average shares outstanding (in millions).......................... 503 498 498 506 496 486 480 454 Dividends (9)............................ .74 .67 .63 .56 .61 .46 .41 .35 Book value at year-end................... 8.91 8.20 6.92 7.31 7.05 5.48 4.97 4.21 Market value at year-end................. 32.50 28.50 20.63 24.25 24.81 20.19 14.56 13.47 - --------------------------------------------------------------------------------------------------------------------------------- OTHER INFORMATION Net cash from operating activities....... $ 1,304 $ 1,373 $ 839 $ 850 $ 976 $ 875 $ 582 $ 493 Depreciation............................. 454 436 414 383 354 302 268 215 Amortization of intangibles.............. 180 170 154 139 118 92 83 65 Capital expenditures..................... 542 480 628 728 509 522 595 541 Media advertising expense................ 444 422 371 392 325 288 313 303 Total advertising and promotion expense................................ 1,838 1,675 1,498 1,455 1,294 1,067 1,013 925 Common stockholders of record............ 91,300 93,400 95,600 88,100 75,400 69,400 64,800 56,500 Number of employees...................... 135,300 149,100 145,900 138,000 128,000 113,400 107,800 101,800 - --------------------------------------------------------------------------------------------------------------------------------- JULY 2, 1988(3) --------- RESULTS OF OPERATIONS Net sales................................ $ 10,424 Operating (loss) income.................. 753 (Loss) income before income taxes........ 513 Net (loss) income........................ 325 Effective tax rate....................... 36.7% - ----------------------------------------- FINANCIAL POSITION Total assets............................. $ 5,012 Total debt............................... 1,013 Operating cash flow to average total debt (6).................................... 60.6% Return on invested capital (7)........... 15.1% - ----------------------------------------- PER COMMON SHARE (8) Net (loss) income -- basic............... $ .72 Average shares outstanding (in millions).......................... 442 Net (loss) income -- diluted............. .71 Average shares outstanding (in millions).......................... 447 Dividends (9)............................ .29 Book value at year-end................... 3.56 Market value at year-end................. 9.22 - ----------------------------------------- OTHER INFORMATION Net cash from operating activities....... $ 732 Depreciation............................. 198 Amortization of intangibles.............. 53 Capital expenditures..................... 449 Media advertising expense................ 253 Total advertising and promotion expense................................ 801 Common stockholders of record............ 52,400 Number of employees...................... 85,700 - -----------------------------------------
(1) In 1998, a restructuring provision reduced operating income and income before income taxes by $2,040 and net income by $1,625. (2) 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. (3) 53-week year. (4) 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. (5) 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. (6) Average total debt includes total balance sheet debt, imputed lease liabilities and auction preferred stock. (7) Excludes unusual items. (8) Restated for the 2-for-1 stock splits in fiscal 1993 and 1990. (9) Fiscal 1992 includes a $.12 special dividend. NM = not meaningful 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 27, JUNE 28, JUNE 29, 1998 1997 1996 --------- --------- --------- NET SALES..................................................................... $ 20,011 $ 19,734 $ 18,624 --------- --------- --------- Cost of sales................................................................. 12,331 12,267 11,470 Selling, general and administrative expenses.................................. 5,907 5,824 5,603 Interest expense.............................................................. 224 202 228 Interest income............................................................... (48) (43) (55) Restructuring charge.......................................................... 2,040 -- -- --------- --------- --------- 20,454 18,250 17,246 --------- --------- --------- (Loss) income before income taxes............................................. (443) 1,484 1,378 Income taxes.................................................................. 80 475 462 --------- --------- --------- NET (LOSS) INCOME............................................................. (523) 1,009 916 Preferred dividends, net of tax............................................... (14) (26) (27) --------- --------- --------- Net (loss) income available for common stockholders........................... $ (537) $ 983 $ 889 --------- --------- --------- --------- --------- --------- NET (LOSS) INCOME PER COMMON SHARE -- BASIC................................... $ (1.14) $ 2.05 $ 1.85 --------- --------- --------- --------- --------- --------- Average shares outstanding.................................................. 469 480 482 --------- --------- --------- --------- --------- --------- NET (LOSS) INCOME PER COMMON SHARE -- DILUTED................................. $ (1.14) $ 1.97 $ 1.78 --------- --------- --------- --------- --------- --------- Average shares outstanding.................................................. 469 502 503 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. F-4 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
JUNE 27, JUNE 28, JUNE 29, 1998 1997 1996 --------- --------- --------- ASSETS Cash and equivalents......................................................... $ 273 $ 272 $ 243 Trade accounts receivable, less allowances of $205 in 1998 and 1997 and $197 in 1996.................................................................... 1,800 1,841 1,728 Inventories Finished goods............................................................. 1,809 1,803 1,802 Work in process............................................................ 443 497 381 Materials and supplies..................................................... 630 673 624 --------- --------- --------- 2,882 2,973 2,807 Other current assets......................................................... 265 305 303 --------- --------- --------- Total current assets......................................................... 5,220 5,391 5,081 --------- --------- --------- Trademarks and other assets.................................................. 501 536 636 Property Land....................................................................... 126 126 132 Buildings and improvements................................................. 1,895 2,008 1,924 Machinery and equipment.................................................... 2,742 3,777 3,657 Construction in progress................................................... 184 293 263 --------- --------- --------- 4,947 6,204 5,976 Accumulated depreciation................................................... 2,857 3,125 2,969 --------- --------- --------- Property, net................................................................ 2,090 3,079 3,007 Intangible assets, net....................................................... 3,178 3,947 3,878 --------- --------- --------- $ 10,989 $ 12,953 $ 12,602 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. F-5 SARA LEE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
JUNE 27, JUNE 28, JUNE 29, 1998 1997 1996 --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable.................................................................. $ 586 $ 476 $ 319 Accounts payable............................................................... 2,003 1,703 1,592 Accrued liabilities Payroll and employee benefits................................................ 684 701 702 Advertising and promotion.................................................... 338 337 290 Taxes other than payroll and income.......................................... 223 189 207 Income taxes................................................................. 159 119 101 Other........................................................................ 1,519 1,236 1,296 Current maturities of long-term debt........................................... 221 255 135 --------- --------- --------- Total current liabilities...................................................... 5,733 5,016 4,642 --------- --------- --------- Long-term debt................................................................. 2,270 1,933 1,842 Deferred income taxes.......................................................... 22 416 333 Other liabilities.............................................................. 538 543 604 Minority interest in subsidiaries.............................................. 560 523 523 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; redeemable at $100,000 per share..................................... -- 200 300 ESOP convertible: Issued and outstanding -- 4,208,297 shares in 1998, 4,328,597 shares in 1997 and 4,468,303 shares in 1996...................... 305 314 324 Unearned deferred compensation............................................... (255) (272) (286) Common stockholders' equity Common stock: (authorized 600,000,000 shares; $1.33 1/3 par value) Issued and outstanding -- 460,664,857 shares in 1998, 480,277,317 shares in 1997 and 485,054,554 shares in 1996................................................. 614 640 646 Capital surplus.............................................................. -- -- 141 Retained earnings............................................................ 2,036 4,274 3,783 Translation adjustments...................................................... (784) (618) (227) Unearned restricted stock issued for future services......................... (50) (16) (23) --------- --------- --------- Total common stockholders' equity.............................................. 1,816 4,280 4,320 --------- --------- --------- $ 10,989 $ 12,953 $ 12,602 --------- --------- --------- --------- --------- ---------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS. 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 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 $19.... 19 -- 13 -- -- 6 Reacquired shares............................... (393) (14) (281) (98) -- -- Translation adjustments......................... (391) -- -- -- (391) -- ESOP tax benefit................................ 10 -- -- 10 -- -- ESOP share redemption........................... 10 1 9 -- -- -- Other........................................... 15 -- 14 -- -- 1 - -------------------------------------------------------------------------------------------------------------------------------- BALANCES AT JUNE 28, 1997....................... 4,280 640 -- 4,274 (618) (16) Net loss........................................ (523) -- -- (523) -- -- Cash dividends Common ($.90 per share)....................... (423) -- -- (423) -- -- Auction preferred ($458.00 per share)......... (1) -- -- (1) -- -- ESOP convertible preferred ($5.4375 per share)...................................... (23) -- -- (23) -- -- Stock issuances Business acquisitions......................... 10 -- 10 -- -- -- Stock option and benefit plans................ 86 8 78 -- -- -- Restricted stock, less amortization of $42.... 34 1 67 -- -- (34) Reacquired shares............................... (1,500) (36) (186) (1,278) -- -- Translation adjustments......................... (166) -- -- -- (166) -- ESOP tax benefit................................ 10 -- -- 10 -- -- ESOP share redemption........................... 9 1 8 -- -- -- Other........................................... 23 -- 23 -- -- -- --------- ----- ----- ----------- ----- --- BALANCES AT JUNE 27, 1998....................... $ 1,816 $ 614 $ -- $ 2,036 $ (784) $ (50) --------- ----- ----- ----------- ----- --- --------- ----- ----- ----------- ----- ---
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 27, JUNE 28, JUNE 29, 1998 1997 1996 --------- ----------- ----------- OPERATING ACTIVITIES Net (loss) income......................................................... $ (523) $ 1,009 $ 916 Adjustments for noncash charges included in net (loss) income Depreciation............................................................ 427 483 454 Amortization of intangibles............................................. 191 197 180 Restructuring charge.................................................... 2,040 -- -- (Decrease) increase in deferred taxes................................... (405) 40 31 Other noncash credits, net.............................................. (5) (56) (77) Changes in current assets and liabilities, net of businesses acquired and sold Decrease (increase) in trade accounts receivable...................... 6 (66) (138) (Increase) in inventories............................................. (27) (129) (83) Decrease (increase) in other current assets........................... 34 17 (63) Increase in accounts payable.......................................... 20 59 95 Increase (decrease) in accrued liabilities............................ 177 (2) (11) --------- ----------- ----------- Net cash from operating activities...................................... 1,935 1,552 1,304 --------- ----------- ----------- INVESTMENT ACTIVITIES Purchases of property and equipment....................................... (474) (547) (542) Acquisitions of businesses................................................ (393) (674) (216) Dispositions of investments and businesses................................ 451 114 12 Sales of property......................................................... 140 59 49 Other..................................................................... 1 6 4 --------- ----------- ----------- Net cash used in investment activities.................................. (275) (1,042) (693) --------- ----------- ----------- FINANCING ACTIVITIES Issuances of common stock................................................. 86 93 93 Purchases of common stock................................................. (1,500) (393) (103) Redemption of preferred stock............................................. (200) (100) -- Borrowings of long-term debt.............................................. 594 495 354 Repayments of long-term debt.............................................. (296) (252) (369) Short-term borrowings (repayments), net................................... 113 119 (135) Payments of dividends..................................................... (447) (430) (395) --------- ----------- ----------- Net cash used in financing activities................................... (1,650) (468) (555) --------- ----------- ----------- Effect of changes in foreign exchange rates on cash....................... (9) (13) (15) --------- ----------- ----------- Increase in cash and equivalents.......................................... 1 29 41 Cash and equivalents at beginning of year................................. 272 243 202 --------- ----------- ----------- Cash and equivalents at end of year....................................... $ 273 $ 272 $ 243 --------- ----------- ----------- --------- ----------- -----------
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 $861 at June 27, 1998, $896 at June 28, 1997 and $811 at June 29, 1996. 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 1998, approximately 19% at last-in, first-out [LIFO] and the remainder at first-in, first-out [FIFO]) or market. Inventories recorded at LIFO were approximately $8 at June 27, 1998, $32 at June 28, 1997 and $36 at June 29, 1996, 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 (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) (Continued) FOREIGN OPERATIONS Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the balance sheet date. Translation adjustments resulting from fluctuations in the exchange rates are recorded as a separate component of common stockholders' equity. Income and expense items are translated at the average exchange rates during the respective periods. FINANCIAL INSTRUMENTS The Corporation uses financial instruments to manage its exposure to movements in interest rates, foreign exchange rates and commodity prices. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk to the Corporation. The Corporation does not use financial instruments for trading purposes, nor is it a party to leveraged derivatives. FINANCING TRANSACTIONS Non-U.S. dollar financing transactions are generally effective as hedges of long-term investments in the corresponding currency. Foreign currency gains or losses on the hedges of long-term investments are recorded in the translation adjustments component of common stockholders' equity with the offset recorded as an adjustment to the non-U.S. dollar financing liability. INTEREST RATE AGREEMENTS Interest rate exchange agreements, defined as swaps, and caps and floors, are effective at creating synthetic instruments and thereby modifying the corporation's interest rate exposures. The Corporation enters into interest rate exchange agreements to create synthetic instruments. Net interest is accrued as either interest receivable or payable with the offset recorded in interest expense. Any premium paid is amortized over the life of the agreement. FORWARD EXCHANGE CONTRACTS The Corporation uses primarily short-term forward exchange contracts for hedging purposes to reduce the effects of adverse foreign exchange rate movements. The contracts that effectively meet the risk reduction and correlation criteria, as measured on a currency-by-currency basis, are accounted for using hedge accounting. Under this method, the change in fair value of forward contracts that hedge firm commitments is deferred and recognized as part of the related foreign currency transactions as they occur. Firm commitments include the purchases of inventory, capitalized assets or expenses of the Corporation. The change in fair value of any forward contract that is not effective as a hedge of the firm commitment is included in selling, general and administrative expenses and other accrued liabilities. Forward contracts that hedge the currency exposure on 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. STOCK-BASED COMPENSATION The Corporation accounts for stock options using Accounting Principles Board Opinion No. 25 (APB 25). INCOME TAXES Income taxes are provided on the income reported in the financial statements, regardless of when such taxes are payable. U.S. income taxes are provided on undistributed earnings of foreign subsidiaries that are intended to be remitted to the Corporation. If the permanently reinvested earnings of foreign subsidiaries were remitted, the U.S. income taxes due under current tax law would not be material. ADVERTISING The costs of advertising are generally expensed in the year in which the advertising first takes place. COMMON STOCK Changes in outstanding common shares for the past three years were:
1998 1997 1996 ------- ------- ------- (SHARES IN THOUSANDS) Beginning balances................................... 480,277 485,055 480,656 Stock issuances: Stock option and benefit plans..................... 6,008 4,566 4,438 Restricted stock plans............................. 833 88 394 Business acquisitions.............................. 176 549 2,567 Stock purchased/retired.............................. (27,174) (10,609) (3,375) ESOP share redemption................................ 462 560 457 Other................................................ 83 68 (82) ------- ------- ------- Ending balances...................................... 460,665 480,277 485,055 ------- ------- ------- ------- ------- -------
F-11 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) PREFERRED STOCK During 1998, the Corporation redeemed the remaining non-voting auction preferred stock. The shares were redeemed at face value, and no gain or loss was recognized. The dividend rate for each of the series of auction preferred stock was established through a Dutch auction conducted by an agent of the Corporation. Auctions were held six out of every seven weeks with the dividend rate for one of the series set at each auction. 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 5.132 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 $16 in 1998 and $13 in 1997 and 1996. Payments to the ESOP were $45 in 1998, $43 in 1997 and $41 in 1996. Principal and interest payments by the ESOP amounted to $23 and $22 in 1998, $19 and $24 in 1997 and $16 and $25 in 1996, respectively. The Corporation has a Preferred Stock Purchase Rights Plan. The Rights are exercisable 10 days after certain events involving the acquisition of 15% or more of the Corporation's outstanding common stock or the commencement of a tender or exchange offer for at least 15% of the common stock. Upon the occurrence of such an event, each Right, unless redeemed by the Board of Directors, entitles the holder to receive, upon exercise and payment of the exercise price, common stock equal to twice the exercise price of the Right. The initial exercise price of a Right is $215, subject to adjustment. There are 6,000,000 shares of preferred stock reserved for issuance upon exercise of the Rights. MINORITY INTEREST IN SUBSIDIARIES Minority interest in subsidiaries consists primarily of preferred equity securities issued by subsidiaries of the Corporation. No gain or loss was recognized as a result of the issuance of these securities, and the Corporation owned substantially all of the voting equity of the subsidiaries both before and after the transactions. Minority interest in subsidiaries includes $295 of preferred equity securities issued by a wholly owned foreign subsidiary of the Corporation. The securities provide a rate of return based upon specified inter-bank borrowing rates. The securities are redeemable in 2004 in exchange for common shares of the issuer, which may then be put to the Corporation for preferred stock. The subsidiary may call the securities at any time. $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. F-12 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) STOCK-BASED COMPENSATION The Corporation has various stock award and 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 (SFAS 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 the Corporation achieves certain financial goals. Performance goals typically extend over three years. 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 generally has a maximum term of 10 years. Options generally vest ratably over three years. During 1998, the Corporation instituted a broad-based stock option incentive program that granted approximately 5 million options to essentially all full-time employees. Under certain stock option plans, an active employee may receive a replacement stock option equal to the number of shares surrendered upon a stock-for-stock exercise. The exercise price of the replacement option is 100% of the market value at the date of exercise of the original option and will remain exercisable for the remaining term of the original option. Replacement stock options generally vest six months from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions:
1998 1997 1996 --------- --------- --------- Expected lives................................. 3.6 years 2.9 years 2.8 years Risk-free interest rate........................ 6.0% 6.1% 5.9% Expected volatility............................ 22.4% 22.9% 24.3% Dividend yield................................. 2.0% 2.2% 2.4%
F-13 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) A summary of the changes in the Corporation's option plans during the years ended June 27, 1998, June 28, 1997 and June 29, 1996 is presented below:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ------ -------- (SHARES IN THOUSANDS) Outstanding at July 1, 1995................................... 15,947 $24.26 Granted..................................................... 7,658 29.07 Exercised................................................... (5,733) 25.63 Canceled/Expired............................................ (446) 26.57 ------ -------- Outstanding at June 29, 1996.................................. 17,426 25.86 Granted..................................................... 8,328 34.31 Exercised................................................... (5,943) 26.87 Canceled/Expired............................................ (560) 27.81 ------ -------- Outstanding at June 28, 1997.................................. 19,251 29.14 Granted..................................................... 21,141 44.60 Exercised................................................... (9,088) 30.35 Canceled/Expired............................................ (755) 37.37 ------ -------- Outstanding at June 27, 1998.................................. 30,549 $39.28 ------ -------- ------ --------
The following table summarizes information about stock options outstanding at June 27, 1998:
OPTIONS OUTSTANDING ----------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------ NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE AT JUNE 27, CONTRACTUAL EXERCISE AT JUNE 27, EXERCISE RANGE OF EXERCISE PRICES 1998 LIFE (YRS.) PRICE 1998 PRICE - ---------------------------------------------------- ----------- --------------- ----------- ----------- ----------- (SHARES IN THOUSANDS) $11.27-$32.06....................................... 9,361 6.2 $ 28.34 5,462 $ 26.65 32.07- 41.06....................................... 16,067 8.6 40.77 2,125 39.25 41.07- 63.19....................................... 5,121 4.9 54.59 3,406 52.30 -- ----------- ----------- ----------- ----------- $11.27-$63.19....................................... 30,549 7.2 $ 39.28 10,993 $ 37.03 -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At June 28, 1997 and June 29, 1996 the number of options exercisable were 9,614 and 8,961, respectively, with weighted average exercise prices of $27.37 and $24.90, respectively. Options available for future grant at the end of 1998, 1997 and 1996 were 14,848, 18,853 and 24,388, respectively. The weighted average fair value of individual options granted during 1998, 1997 and 1996 was $8.55, $5.75 and $4.87, respectively. EMPLOYEE STOCK PURCHASE PLAN (ESPP) The ESPP permits full-time employees to purchase a limited number of shares of the Corporation's common stock at 85% of market value. Under the plan, the Corporation sold 1,151,556, 1,541,592 and 1,794,552 shares to employees in 1998, 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 5.2%, 5.1% and 5.0% F-14 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) in 1998, 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 pro forma net (loss) income and per share net (loss) income for 1998, 1997 and 1996 would have been as follows:
1998 1997 1996 ------ ----- ----- Net (loss) income......................................... $ (599) $ 981 $ 897 Net (loss) income per share -- basic...................... (1.31) 1.99 1.81 Net (loss) income per share -- diluted.................... (1.31) 1.92 1.74
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. EARNINGS PER SHARE At the end of the second quarter of 1998, the Corporation adopted SFAS No. 128, "Earnings Per Share," which requires the reporting of both basic and diluted earnings per share. Net income per share -- basic is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Net income per share -- diluted reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock. Prior periods have been restated to reflect the new standard. The following is a reconciliation of net income to net income per share -- basic and diluted for the years ended June 27, 1998, June 28, 1997 and June 29, 1996:
1998 1997 1996 ------ ------ ----- (SHARES IN MILLIONS) Net (loss) income........................................ $ (523) $1,009 $ 916 Less dividends on preferred stocks, net of tax benefits............................................... (14) (26) (27) ------ ------ ----- (Loss) income applicable to common shareholders -- basic.................................................. (537) 983 889 Adjustment for assumed conversion of ESOP shares......... -- 8 8 ------ ------ ----- (Loss) income applicable to common shareholders -- diluted................................................ $ (537) $ 991 $ 897 ------ ------ ----- ------ ------ ----- Average shares outstanding -- basic...................... 469 480 482 Dilutive effect of stock option and stock award plans.... -- 5 3 Dilutive effect of ESOP plan............................. -- 17 18 ------ ------ ----- Diluted shares outstanding............................... 469 502 503 ------ ------ ----- ------ ------ ----- Net (loss) income per share -- basic..................... $(1.14) $ 2.05 $1.85 ------ ------ ----- ------ ------ ----- Net (loss) income per share -- diluted................... $(1.14) $ 1.97 $1.78 ------ ------ ----- ------ ------ -----
F-15 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT INTEREST RATE AND CURRENCY SWAPS To manage interest rate and foreign exchange risk and to lower its cost of borrowing, the Corporation has entered into interest rate and currency swaps. The currency swaps effectively hedge long-term 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 27, 1998 were 0.9 years and 1.0 years, respectively.
WEIGHTED AVERAGE INTEREST RATES(2) NOTIONAL ------------- PRINCIPAL(1) RECEIVE PAY ------------ ------- --- INTEREST RATE SWAPS 1998 Receive variable -- pay fixed................. $199 4.4% 4.7% 1997 Receive variable -- pay fixed................. 98 4.1 4.4 Receive fixed -- pay variable................. 25 7.1 5.4 1996 Receive fixed -- pay variable................. 25 7.1 5.3 CURRENCY SWAPS 1998 Receive fixed -- pay fixed.................... $259 6.4% 3.9% 1997 Receive fixed -- pay fixed.................... 259 6.4 4.1 1996 Receive fixed -- pay fixed.................... 85 8.0 5.8
- ------------ (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 $99, 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 STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) U.S. dollar equivalent value using the exchange rate at the reporting date. Forward exchange contracts mature at the anticipated cash requirement date of the hedged transaction, generally within one year.
BOUGHT (SOLD) ------------------- FOREIGN CURRENCY 1998 1997 1996 - ------------------------------------------------------------ ----- ----- ----- French franc................................................ $ 121 $ (44) $ 125 Italian lira................................................ (424) (402) (287) Spanish peseta.............................................. (57) (69) (40) Dutch guilder............................................... (659) (191) (194) German mark................................................. (56) (65) 50 Other....................................................... (208) (183) (263)
At June 27, 1998, the deferred unrealized gains and losses on forward exchange contracts were not material to the financial position of the corporation. CONCENTRATIONS OF CREDIT RISK A large number of major international financial institutions are counterparties to the Corporation's financial instruments. The Corporation enters into financial instrument agreements only with those counterparties meeting very stringent credit standards, limiting the amount of agreements or contracts it enters into with any one party and, where legally available, executing master netting agreements. These positions are continuously monitored. While the Corporation may be exposed to credit losses in the event of nonperformance by these counterparties, it does not anticipate material losses, because of these control procedures. Trade accounts receivable due from highly leveraged customers were $72 at June 27, 1998, $64 at June 28, 1997 and $53 at June 29, 1996. 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 $30 at June 27, 1998, $24 at June 28, 1997 and $29 at June 29, 1996. 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 27, 1998, June 28, 1997 and June 29, 1996. The fair values of the remaining financial instruments recognized on the Consolidated Balance Sheets of the corporation at the respective year-end were:
1998 1997 1996 ------ ------ ------ Long-term debt, including current portion............... $2,593 $2,258 $1,993 ESOP convertible preferred stock........................ 972 751 615
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 STATEMENTS (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 27, 1998, June 28, 1997 and June 29, 1996. The fair value of these instruments was not material to the financial position of the Corporation. LONG-TERM DEBT
INTEREST RATE RANGE MATURITY 1998 1997 1996 ------------------ ----------- --------- --------- --------- U.S. dollar obligations: ESOP debt........................... 5.73-8.18% 2004 $ 253 $ 276 $ 295 Notes and debentures................ 4.75-8.37 1999-2008 1,271 1,038 1,330 Revenue bonds....................... 3.55-5.70 2002-2024 60 55 46 Zero coupon notes................... 10.00-14.25 2014-2015 19 17 15 Various other obligations........... 4 4 4 --------- --------- --------- 1,607 1,390 1,690 --------- --------- --------- Foreign currency obligations: Swiss franc......................... 4.01-4.02 2000 83 71 -- Dutch guilder....................... 4.17-4.75 2000-2002 148 355 235 French franc........................ 3.46-5.00 1999-2004 562 305 -- Various other obligations........... 91 67 52 --------- --------- --------- 884 798 287 --------- --------- --------- Total long-term debt............. 2,491 2,188 1,977 Less current maturities....... 221 255 135 --------- --------- --------- $ 2,270 $ 1,933 $ 1,842 --------- --------- --------- --------- --------- ---------
The ESOP debt is guaranteed by the Corporation. The zero coupon notes are net of unamortized discounts of $105 in 1998, $107 in 1997 and $109 in 1996. Principal payments of $19 and $105 are due in 2014 and 2015, respectively. Payments required on long-term debt during the years ending in 1999 through 2003 are $221, $338, $212, $472 and $210, respectively. The Corporation made cash interest payments of $219, $202 and $236 in 1998, 1997 and 1996, respectively. Rental expense under operating leases amounted to approximately $204 in 1998, $214 in 1997 and $222 in 1996. Future minimum annual fixed rentals required during the years ending in 1999 through 2003 under noncancelable operating leases having an original term of more than one year are $130, $107, $92, $81 and $72, respectively. The aggregate obligation subsequent to 2003 is $119. F-18 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 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 1999-2003 and $1 in 2004-2008. Amounts thereafter are not material. CREDIT FACILITIES The Corporation has numerous credit facilities available, including revolving credit agreements totaling $1,620 that had an annual fee of 0.05% as of June 27, 1998. These agreements support commercial paper borrowings. Selected data on the Corporation's short-term obligations follow:
1998 1997 1996 ------ ------ ------ Maximum period-end borrowings........................... $1,895 $1,735 $1,709 Average borrowings during the year...................... 1,482 1,502 1,532 Weighted average interest rate during the year.......... 4.7% 4.8% 6.1% Weighted average interest rate at year-end.............. 5.5 5.7 6.6
CONTINGENCIES The Corporation is a party to several pending legal proceedings and claims, and environmental actions by governmental agencies. Although the outcome of such items cannot be determined with certainty, the Corporation's general counsel and management are of the opinion that the final outcome should not have a material effect on the Corporation's results of operations or financial position. RESTRUCTURING PROVISION The composition of the Corporation's restructuring reserves is as follows:
WRITEDOWN OF RECOGNITION OF LONG-LIVED CURTAILMENT ASSETS TO LOSS AND ORIGINAL NET SPECIAL FOREIGN RESTRUCTURING RESTRUCTURING REALIZABLE TERMINATION CASH EXCHANGE RESERVES AS OF RESERVES VALUE BENEFITS PAYMENTS IMPACTS JUNE 27, 1998 ------------- ------------ --------------- ----------- ------------- --------------- Anticipated losses associated with disposal of long-lived assets....................... $ 1,729 $ (1,729) $ -- $ -- $ -- $ -- Pension and social costs....... 219 -- (39) (20) -- 160 Anticipated expenditures to close and dispose of idled facilities -- includes noncancelable lease obligations.................. 47 -- -- (8) -- 39 Anticipated loss associated with the disposal of equity and cost method investments.................. 45 (45) -- -- -- -- ------ ------------ --- --- --- ----- 2,040 (1,774) (39) (28) -- 199 Foreign exchange impacts....... -- -- -- -- (5) (5) ------ ------------ --- --- --- ----- Total restructuring reserves... $ 2,040 $ (1,774) $ (39) $ (28) $ (5) $ 194 ------ ------------ --- --- --- ----- ------ ------------ --- --- --- -----
F-19 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) In the second quarter of 1998, the Corporation provided for the cost of restructuring its worldwide operations. The planned restructuring activities include the disposition of 116 manufacturing and distribution facilities -- 86 facilities are owned and 30 are leased. This restructuring provision reduced income before income taxes, net income and net income per common share -- basic in 1998 by $2,040, $1,625 and $3.46 per share, respectively. The 1998 pretax income includes charges for restructuring as follows: Branded Apparel -- $1,574; Sara Lee Foods -- $208; Household and Body Care -- $185; Coffee and Tea -- $71; and Foodservice -- $2. Through June 27, 1998, 14 manufacturing and distribution facilities have been sold and 26 additional facilities have been closed. These facilities comprise 49% of the anticipated loss included in the restructuring charge. Operating costs were lowered in 1998 by $61, primarily as a result of lower plant overhead and amortization expense. Restructuring actions are expected to be completed by 2000, and the corporation expects to fund the costs of the plan from internal sources and available borrowing capacity. ACQUISITIONS AND DIVESTMENTS During 1998, the Corporation acquired several companies for an aggregate purchase price of $393 in cash and $10 of common stock. The principal acquisitions were Nutri-Metics International Holding Pty. Ltd., an Australian manufacturer and direct marketer of skin care products and toiletries; Cafe do Ponto, S.A., a Brazilian manufacturer and retailer of roasted and ground coffee; and Hornimans, a tea and sweetener distributor in Spain. The Corporation also divested the production facilities and related working capital of its yarn and textile manufacturing business. A loss was recognized on the disposition of the manufacturing facilities in connection with the 1998 restructuring, and the related working capital was sold for its net book value. In the fourth quarter of fiscal 1998, the Corporation announced plans to sell its international cut tobacco business, Douwe Egberts Van Nelle Tobacco, to Imperial Tobacco Group PLC, a major tobacco company based in the United Kingdom. Cash proceeds of $391 were received in July 1998. Additional cash payments may be received beginning in 2004; however, these payments are dependent upon significant contingencies related to the ongoing operation of the sold business. Receipt of these contingent payments is not assured. 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. In addition, common stock having a value of $55 was issued as consideration for the Consolidated Foodservice Companies acquisition. F-20 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) RETIREMENT PLANS The Corporation has noncontributory defined benefit plans covering certain of its domestic employees. The benefits under these plans are based primarily on years of service and compensation levels. The plans are funded in conformity with the requirements of applicable government regulations. The plans' assets consist principally of marketable equity securities, and corporate and government debt securities. The components of the defined benefit plan expenses were:
1998 1997 1996 ----- ----- ----- Benefits earned by employees................................ $ 63 $ 64 $ 58 Interest on projected benefit obligations................... 124 120 120 Actual investment return on plan assets..................... (444) (214) (312) Net amortization and deferral............................... 292 67 182 ----- ----- ----- Net pension expense......................................... $ 35 $ 37 $ 48 ----- ----- ----- ----- ----- -----
The reduction in the 1997 defined benefit plan expense is attributable primarily to higher asset returns and the strengthening of the U.S. dollar relative to foreign currencies. The funded status of defined benefit plans at the respective year-end was:
1998 1997 1996 ------ ------ ------ Fair market value of plan assets........................ $2,306 $1,956 $1,854 ------ ------ ------ Actuarial present value of benefits for services rendered: Accumulated benefits based on salaries to date: Vested.............................................. 2,051 1,558 1,505 Nonvested........................................... 68 64 55 Additional benefits based on estimated future salary levels.............................................. 178 164 154 ------ ------ ------ Projected benefit obligations......................... 2,297 1,786 1,714 ------ ------ ------ Excess of plan assets over projected benefit obligations........................................... 9 170 140 Unamortized net transitional asset...................... (4) (10) (12) Unrecognized net loss (gain)............................ 85 (21) (24) Unrecognized prior service cost......................... 99 52 66 ------ ------ ------ Prepaid pension asset recognized on the Consolidated Balance Sheets........................................ $ 189 $ 191 $ 170 ------ ------ ------ ------ ------ ------
Net pension expense is determined using assumptions as of the beginning of each year. Funded status is determined using assumptions as of the end of each year. The weighted average assumptions at the respective year-end were:
1998 1997 1996 ---- ---- ---- Discount rate........................................... 6.0% 7.2% 7.3% Rate of compensation increase........................... 4.7 4.7 4.7 Long-term rate of return on plan assets................. 8.1 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 F-21 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 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:
1998 1997 1996 ---- ---- ---- Benefits earned by employees................................. $ 5 $ 5 $ 5 Interest on projected benefit obligations.................... 12 12 13 Net amortization and deferral................................ -- 1 1 ---- ---- ---- Net postretirement benefit expense........................... $17 $18 $19 ---- ---- ---- ---- ---- ----
The status of postretirement benefit plans at the respective year-end was:
1998 1997 1996 ---- ---- ---- Actuarial present value of benefits for services rendered: Retirees................................................... $112 $102 $101 Fully eligible active participants......................... 31 16 16 Other active participants.................................. 61 60 56 ---- ---- ---- Accumulated postretirement benefit obligations............... 204 178 173 Fair market value of plan assets............................. 2 2 2 ---- ---- ---- Accumulated postretirement benefit obligations in excess of plan assets................................................ 202 176 171 Unrecognized net transitional asset.......................... 3 3 -- Unrecognized net (loss) gain................................. (9) 19 17 Unrecognized prior service cost.............................. 2 2 -- ---- ---- ---- Postretirement benefit obligations recognized on the Consolidated Balance Sheets................................ $198 $200 $188 ---- ---- ---- ---- ---- ---- Discount rate................................................ 6.3% 7.2% 7.2% ---- ---- ---- ---- ---- ----
The assumed health care cost trend rate was 12% for 1998, decreasing to 8% 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 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of June 27, 1998 by 13% and the postretirement benefit expense for 1998 by 16%. F-22 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) INCOME TAXES The provisions for income taxes computed by applying the U.S. statutory rate to income before taxes as reconciled to the actual provisions were:
1998 1997 1996 ---------------- --------------- --------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------- ------- ------ ------- ------ ------- (Loss) income before provision for income taxes: United States.............................................................. $(1,091) (246.4)% $ 742 50.0% $ 638 46.3% Foreign.................................................................... 648 146.4 742 50.0 740 53.7 ------- ------- ------ ------- ------ ------- $ (443) (100.0)% $1,484 100.0% $1,378 100.0% ------- ------- ------ ------- ------ ------- ------- ------- ------ ------- ------ ------- Tax (benefit) expense at U.S. statutory rate................................. $ (155) (35.0)% $ 519 35.0% $ 482 35.0% State taxes, net of federal benefit.......................................... 9 2.0 13 .9 15 1.1 Difference between U.S. and foreign rates.................................... (76) (17.1) (85) (5.7) (68) (5.0) Nondeductible amortization................................................... 351 79.3 62 4.2 54 3.9 Other, net................................................................... (49) (11.2) (34) (2.4) (21) (1.5) ------- ------- ------ ------- ------ ------- Taxes at effective worldwide tax rates....................................... $ 80 18.0% $ 475 32.0% $ 462 33.5% ------- ------- ------ ------- ------ ------- ------- ------- ------ ------- ------ -------
Current and deferred tax provisions (benefits) were:
1998 1997 1996 ------------------------ ------------------------ ------------------------ CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ----------- ----------- ----------- ----------- ----------- ----------- United States........................................ $ 142 $ (286) $ 169 $ 12 $ 166 $ 25 Foreign.............................................. 329 (118) 245 28 237 10 State................................................ 14 (1) 21 -- 28 (4) ----- ----- ----- --- ----- --- $ 485 $ (405) $ 435 $ 40 $ 431 $ 31 ----- ----- ----- --- ----- --- ----- ----- ----- --- ----- ---
Following are the components of the deferred tax (benefits) provisions occurring as a result of transactions being reported in different years for financial and tax reporting:
1998 1997 1996 ----- ---- ---- Depreciation................................................. $ (3) $ (2) $ 22 Inventory valuation methods.................................. 6 37 (35) Nondeductible reserves....................................... (405) 53 77 Other, net................................................... (3) (48) (33) ----- ---- ---- $(405) $ 40 $ 31 ----- ---- ---- ----- ---- ---- Cash payments for income taxes............................... $ 288 $340 $224 ----- ---- ---- ----- ---- ----
F-23 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) The deferred tax (assets) liabilities at the respective year-end were as follows:
1998 1997 1996 ----- ----- ----- Deferred tax (assets) liabilities: Restructuring reserves................................... $ (68) $ -- $ (89) Reserves not deductible until paid....................... (287) (295) (253) Pension, postretirement and other employee benefits...... (12) (42) (35) Net operating loss and other tax carryforwards........... (15) (1) (2) Property, plant and equipment............................ (4) 309 298 Other.................................................... (60) (12) -- ----- ----- ----- Net deferred tax (assets).................................. $(446) $ (41) $ (81) ----- ----- ----- ----- ----- -----
F-24 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 5 through 9. During the fourth quarter of 1998, the Corporation adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131 requires the presentation of descriptive information about reportable segments which is consistent with that made available to the management of the Corporation to assess performance. As a result of this change, the Corporation now reports segment performance on an after-tax basis and separately reports information on its Foodservice operations. In determining the net income of each segment of the Corporation, interest expense is allocated based upon the average invested capital in each business, and effective tax rates are determined for each business segment. The Foodservice business was previously included in a reportable segment which included the Corporation's packaged meats and bakery businesses. The packaged meats and bakery businesses are now presented in the Sara Lee Foods segment.
HOUSEHOLD SARA LEE COFFEE AND AND BODY BRANDED INTER- FOODS TEA CARE FOODSERVICE APPAREL CORPORATE SEGMENT ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1998 Sales(1)........................... $ 5,441 $ 2,806 $ 2,003 $ 2,585 $ 7,317 $ -- $ (141) Operating income (loss)(2)......... 230 358 67 88 (840) (170) -- Net interest....................... (30) (16) (31) (7) (92) -- -- Pretax income (loss)............... 200 342 36 81 (932) (170) -- Net income (loss)(3)............... 119 239 (22) 51 (797) (113) -- Assets............................. 2,157 1,434 2,053 519 4,627 199(4) -- Depreciation and amortization...................... 146 87 88 23 251 23 -- Additions to long-lived assets..... 257 187 328 52 169 3 -- - ------------------------------------------------------------------------------------------------------------------------------ 1997 Sales(1)........................... $ 5,357 $ 2,813 $ 1,843 $ 2,372 $ 7,482 $ -- $ (133) Operating income................... 394 440 228 82 761 (262) -- Net interest....................... (24) (12) (24) (5) (94) -- -- Pretax income...................... 370 428 204 77 667 (262) -- Net income......................... 232 290 130 48 483 (174) -- Assets............................. 2,295 1,921 1,530 454 6,471 282(4) -- Depreciation and amortization...................... 150 90 78 17 326 19 -- Additions to long-lived assets..... 674 107 85 45 401 4 -- - ------------------------------------------------------------------------------------------------------------------------------ 1996 Sales(1)........................... $ 4,422 $ 2,896 $ 1,837 $ 2,201 $ 7,370 $ -- $ (102) Operating income................... 349 428 214 73 729 (242) -- Net interest....................... (21) (13) (24) (6) (109) -- -- Pretax income...................... 328 415 190 67 620 (242) -- Net income......................... 207 273 118 41 436 (159) -- Assets............................. 1,629 2,033 1,571 416 6,635 318(4) -- Depreciation and amortization...................... 118 86 78 17 312 23 -- Additions to long-lived assets..... 157 188 141 25 279 13 -- - ------------------------------------------------------------------------------------------------------------------------------ TOTAL --------- 1998 Sales(1)........................... $ 20,011 Operating income (loss)(2)......... (267) Net interest....................... (176) Pretax income (loss)............... (443) Net income (loss)(3)............... (523) Assets............................. 10,989 Depreciation and amortization...................... 618 Additions to long-lived assets..... 996 - ----------------------------------- 1997 Sales(1)........................... $ 19,734 Operating income................... 1,643 Net interest....................... (159) Pretax income...................... 1,484 Net income......................... 1,009 Assets............................. 12,953 Depreciation and amortization...................... 680 Additions to long-lived assets..... 1,316 - ----------------------------------- 1996 Sales(1)........................... $ 18,624 Operating income................... 1,551 Net interest....................... (173) Pretax income...................... 1,378 Net income......................... 916 Assets............................. 12,602 Depreciation and amortization...................... 634 Additions to long-lived assets..... 803 - -----------------------------------
(1) Includes sales between segments. Such sales are at transfer prices that are equivalent to market value. (2) Includes provisions for restructuring reported in the 1998 Consolidated Statement of Income as follows: Sara Lee Foods $208; Coffee and Tea $71; Household and Body Care $185; Foodservice $2; and Branded Apparel $1,574. (3) Includes provisions for restructuring, net of tax, reported in the 1998 Consolidated Statement of Income as follows: Sara Lee Foods $133; Coffee and Tea $46; Household and Body Care $164; Foodservice $1; and Branded Apparel $1,281. (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) GEOGRAPHIC AREA INFORMATION
UNITED STATES FRANCE NETHERLANDS OTHER TOTAL --------- --------- ----------- --------- --------- 1998 Sales...................................................... $ 11,849 $ 1,724 $ 1,311 $ 5,127 $ 20,011 Long-lived assets.......................................... 2,452 500 1,246 1,349 5,547 - -------------------------------------------------------------------------------------------------------------------- 1997 Sales...................................................... $ 11,497 $ 1,764 $ 1,340 $ 5,133 $ 19,734 Long-lived assets.......................................... 4,158 526 1,240 1,439 7,363 - -------------------------------------------------------------------------------------------------------------------- 1996 Sales...................................................... $ 11,244 $ 1,008 $ 1,400 $ 4,972 $ 18,624 Long-lived assets.......................................... 4,191 137 1,370 1,517 7,215 - --------------------------------------------------------------------------------------------------------------------
F-26 SARA LEE CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) NEW ACCOUNTING PRONOUNCEMENTS In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement will be effective for the Corporation in 1999 and will establish accounting standards for costs incurred in the development or implementation of computer software. These new standards will require the capitalization of certain software implementation costs relating to software developed and implemented for the Corporation's use. These costs are currently not capitalized by the Corporation. The effect of this change is not expected to have a significant effect on the Corporation's financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes new accounting and reporting standards for derivative instruments. This statement will become effective for the Corporation in 2000. Currently, the Corporation is assessing the effect this statement will have on the consolidated financial position and results of operations. F-27 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 --------- --------- --------- --------- 1998 Net sales.................................................................. $ 4,893 $ 5,279 $ 4,736 $ 5,103 Gross profit............................................................... 1,819 2,020 1,832 2,009 Net income (loss).......................................................... 225 (1,278) 227 303 Per common share: Net income (loss) -- basic............................................... .46 (2.71) .48 .65 Net income (loss) -- diluted............................................. .44 (2.71) .46 .62 Cash dividends declared.................................................. .21 .23 .23 .23 Market price -- high..................................................... 52.25 57.00 62.31 63.63 -- low........................................................ 39.00 47.50 53.19 56.44 -- close...................................................... 51.31 56.56 61.88 56.63 - ----------------------------------------------------------------------------------------------------------------------- 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 -- basic...................................................... .41 .65 .42 .57 Net income -- diluted.................................................... .40 .62 .40 .55 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 -- basic...................................................... .37 .58 .37 .53 Net income -- diluted.................................................... .36 .55 .36 .51 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 - -----------------------------------------------------------------------------------------------------------------------
F-28 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 27, 1998. 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 27, 1998. F-29 SCHEDULE II SARA LEE CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 29, 1996, JUNE 28, 1997 AND JUNE 27, 1998 (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 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 ----- ----- ----- --- ----- ----- ----- ----- --- ----- FOR THE YEAR ENDED JUNE 27, 1998: Allowances for bad debts............................ $ 132 $ 33 $ (28) $ (1) $ 136 Other receivable allowances......................... 73 86 (83) (7) 69 ----- ----- ----- --- ----- Total............................................. $ 205 $ 119 $ (111) $ (8) $ 205 ----- ----- ----- --- ----- ----- ----- ----- --- -----
- ------------ (1) Net of collections on accounts previously written off. F-30 EXHIBIT INDEX
3. 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 Exhibit 10(1) to Report on amended Form 10-K for Fiscal Year ended July 1, 1995 2. 1981 Stock Option Plan, as Exhibit 10(11) to Report on amended Form 10-K for Fiscal Year ended July 1, 1989 3. 1988 Non-Qualified Stock Exhibit 10(3) to Report on Option Plan, as amended Form 10-K for Fiscal Year ended July 1, 1995 4. 1989 Incentive Stock Plan, Exhibit 10(4) to Report on as amended Form 10-K for Fiscal Year ended June 28, 1997 5. Supplemental Benefit Plan, Exhibit 10(5) to Report on as amended Form 10-K for Fiscal Year ended June 28, 1997 6. Performance-Based Annual Appendix A to Proxy Statement Incentive Plan dated September 20, 1995 7. 1995 Long-Term Incentive Exhibit 10(16) to Report on Stock Plan, as amended Form 10-K for Fiscal Year ended June 28, 1997 8. 1995 Non-Employee Director Stock Plan, as amended 9. 1998 Long-Term Incentive Appendix A to Proxy Statement Stock Plan dated September 21, 1998 10. Accelerated Growth Exhibit 10(12) to Report on Incentive Plan Fiscal Years Form 10-K for Fiscal Year 1990-1994 ended June 30, 1990 11. 1991 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended June 29, 1991 12. 1992 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended June 27, 1992 13. FY '93 Non-Qualified Exhibit 10(16) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended June 27, 1992 14. 1993 Non-Qualified Exhibit 10(19) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended July 3, 1993 15. FY '94 Non-Qualified Exhibit 10(20) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended July 3, 1993 16. 1994 Non-Qualified Exhibit 10(14) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Base Salary) ended July 2, 1994
EXHIBITS INCORPORATION BY REFERENCE ------------------------------ 17. FY '95 Non-Qualified Exhibit 10(15) to Report on Deferred Compensation Plan Form 10-K for Fiscal Year (Annual Bonus) ended July 2, 1994 18. Non-Qualified Deferred Compensation Plan (Annual Bonus) 19. Non-Qualified Deferred Compensation Plan for Outside Directors, as amended 20. FY 1996-98 Long Term Exhibit 10(20) to Report on Performance Incentive Plan Form 10-K for Fiscal Year ended June 29, 1996 21. FY 1997-99 Long Term Exhibit 10(21) to Report on Performance Incentive Plan Form 10-K for Fiscal Year ended June 29, 1996 22. FY 1998-00 Long Term Performance Incentive Plan 23. Non-Qualified Estate Exhibit 10(17) to Report on Builder Deferred Form 10-K for Fiscal Year Compensation Plan ended June 29, 1985 24. Severance Policy for Exhibit 10(23) to Report on Corporate Officers, as Form 10-K for Fiscal Year amended ended June 28, 1997 25. Employment Agreement, Exhibit 10(24) to Report on dated January 1, 1996, Form 10-K for Fiscal Year between Sara Lee ended June 28, 1997 Corporation and Frank L. Meysman 26. Employment Agreement, Exhibit 10(25) to Report on dated January 1, 1996, Form 10-K for Fiscal Year between Sara Lee/ DE N.V. ended June 28, 1997 and Frank L. Meysman and attachments (translated from Dutch) 27. Restricted Share Unit Agreement dated April 29, 1998 between Sara Lee Corporation and Frank L. Meysman 28. Stockholder Rights Exhibit 4.1 to Report on Form Agreement, dated as of 8-K for dated May 15, 1998 March 26, 1998 between Sara Lee Corporation and First Chicago Trust Company of New York, as rights agent (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-10.8 2 EXHIBIT 10.8 SARA LEE CORPORATION AMENDED AND RESTATED 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. Each Option granted under the Plan shall provide for the grant of a replacement Option if (1) the purchase price of the Shares subject to the original Option is satisfied by surrendering (or attesting to the ownership of) Shares in accordance with Section 8.3 and (2) the Fair Market Value per Share on the date of exercise is not less than 125% of the purchase price per Share of the original Option. Each replacement Option shall (i) be an Option to purchase the number of Shares surrendered (either actually or by attestation), plus the number of Shares that the Optionee would have surrendered to pay withholding taxes, calculated as if such Optionee had been obligated to pay such taxes and had surrendered Shares to satisfy such obligation, (ii) be fully exercisable on and after that date which is six months after the Option Grant Date of the replacement Option, (iii) have a purchase price per Share equal to 100% of the Fair Market Value per Share on the Option Grant Date of the replacement Option and (iv) have a term equal to the remaining term of the original Option. Notwithstanding the foregoing, replacement Options may be granted to a Non-Employee Director under this Article IV not more than twice in any calendar year. 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 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 --- 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 cash 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 and amended on April 30, 1998. EX-10.18 3 EXHIBIT 10.18 SARA LEE CORPORATION FY99 NON-QUALIFIED DEFERRED COMPENSATION PLAN (ANNUAL BONUS) 1. PURPOSE: The purpose of the Sara Lee Corporation FY99 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 FY99 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"). 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 and delivering the Agreement ON OR BEFORE JUNE 27, 1998. 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 1999 ("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 FY99 annual bonus awarded but deferred in accordance with the terms of Paragraph 1 of the Plan or re-deferred in accordance with the terms of Paragraph 5 of the Plan. 5. ELECTION TO RE-DEFER COMPENSATION: A Participant may elect to re-defer balances of existing deferred compensation plans. A re-deferral shall be effected by executing and delivering an election form, in the form set forth in Exhibit B of the Plan, no later than six months prior to the original payment date. The election to re-defer may not occur within the same calendar year as the original payment date. 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: Subject to a Participant's right to re-defer balances in accordance with Paragraph 5, an election to defer, delivered in accordance with paragraph 1 above, is binding and irrevocable and Paragraph 3 of the Agreement may not be modified or amended except as specified in Paragraphs 10, 12 and 13 below. 8. MAINTENANCE OF DEFERRED COMPENSATION ACCOUNTS: (a) The Company will maintain a separate Deferred Compensation Account ("Account") for each Participant. (b) The Participant shall elect from the following Account investment alternatives: (i) STOCK EQUIVALENT ACCOUNT. Under this alternative, the value of the Stock Equivalent Account shall be determined as if the Deferred Compensation is invested in Sara Lee common stock equivalents on the credit date. The credit date will be September 1, 1998 ("Credit Date"). If on the Credit Date no shares of Sara Lee common stock are reported on the New York Stock Exchange Composite Transactions Tape, then the next succeeding date on which there is a sale will become the Credit Date. The number of Sara Lee common stock equivalents shall be determined by dividing the portion of the Deferred Compensation to be credited to the Stock Equivalent Account by the average of the high and low quotes on the Credit Date as reported on the New York Stock Exchange Composite Transactions Tape ("Market Value"). Fractional common stock equivalents will be computed to two decimal places. An amount equal to the dividends paid on shares of Sara Lee common stock during the deferral period will be converted into whole or fractional shares of common stock equivalents at the Market Value as of the dividend payment dates and credited to the Stock Equivalent Account. Deferred Compensation to be paid to a Participant from the Stock Equivalent Account on the payment date(s) specified in the Agreement shall be paid only in whole shares of Sara Lee common stock. The number of shares of Sara Lee common stock to be paid on a payment date shall be equal to (a) the number of common stock equivalents accumulated in the Stock Equivalent Account immediately prior to the payment date (b) divided by the total number of remaining payments (including the payment on such payment date), as specified in the Agreement. Any fractional shares remaining in the account at the time the last payment is to be made will be credited to federal taxes paid. Payments will be made only in the form of shares of Sara Lee common stock. DEFERRED COMPENSATION CREDITED TO OR TRANSFERRED TO THE STOCK EQUIVALENT ACCOUNT CANNOT BE SUBSEQUENTLY TRANSFERRED TO THE INTEREST ACCOUNT. (ii) INTEREST ACCOUNT - Under this alternative, the rate of interest payable on the balance of the Interest Account 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. Interest will be credited to the Interest Account on June 30 and December 31 of each year and on the date of the final payment, on the outstanding balance of the Interest Account (which would include all principal and interest accrued to that date), as specified in the Agreement. If installment payments are specified in the Agreement, the amount of Deferred Compensation to be paid to a Participant from the Interest Account shall be equal to the Interest Account 2 balance immediately prior to a payment date divided by the number of remaining payments (including the payment on such payment date). (c) Pursuant to the Agreement, a Participant may elect to apportion Deferred Compensation between the Stock Equivalent Account and the Interest Account. In addition, a Participant may elect to transfer deferred compensation balances from the Interest Account to the Stock Equivalent Account (BUT BALANCES CANNOT BE TRANSFERRED FROM THE STOCK EQUIVALENT ACCOUNT TO THE INTEREST ACCOUNT) by executing and delivering an election in the form of Exhibit C of the Plan. 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, the beneficiary (or beneficiaries) designated in the Agreement 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 a 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. 3 13. EARLY WITHDRAWAL WITH PENALTY: Notwithstanding paragraph 12, in the event that a Participant is unable to establish a bonafide financial hardship and wishes to withdraw an amount from his or her Account without attempting to establish a bonafide financial hardship, the Participant must advise the Senior Vice President - Human Resources in writing. This payment will be paid to the Participant within thirty days of the approval of said notification. A 10% early withdrawal penalty will be withheld from the payment as well as the applicable tax withholding. 14. NO RIGHTS OF EMPLOYMENT: Participation in the Plan in no way constitutes a contract or agreement to continued employment of a Participant by the Company for any fixed period of time. 15. 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. 16. 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. 17. 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. 18. EFFECTIVE DATE; TERMINATION: The Plan shall become effective June 28, 1998. 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. 19. 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. 4 EX-10.19 4 EXHIBIT 10.19 NON-QUALIFIED DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS OF SARA LEE CORPORATION, AS AMENDED SECTION 1. PARTICIPATION. (a) A director of Sara Lee Corporation ("Sara Lee') who is not an employee of Sara Lee may elect to defer compensation earned for services as a director that such director has not elected to receive in a form other than cash ("Annual Cash Retainer") of not less than 25% of the quarterly fees which would otherwise be payable at the end of each three month period ending on September 30, December 31, March 31 and June 30 ("Retainer Payment Quarter") but for this election to participate in this Plan, in accordance with the terms and conditions of this Non-Qualified Deferred Compensation Plan for Outside Directors of Sara Lee Corporation, as amended ("Plan"). (b) The deferred Annual Cash Retainer fees ("Deferred Compensation") shall be paid on such future date or dates and in such manner as a director who shall elect to participate in this Plan ("Participating Director") shall elect in the Deferred Compensation Agreement attached hereto as Exhibit A ("Agreement"); PROVIDED, HOWEVER, that no Deferred Compensation shall be paid in the same calendar year in which any portion of the Annual Cash Retainer representing the Deferred Compensation is earned. Any election to defer all or any portion of the Annual Cash Retainer shall be applicable to all future Annual Cash Retainer fees earned until the election is revoked by the Participating Director pursuant to Section 4 hereof. SECTION 2. ADMINISTRATION. This Plan, which was approved by the Board of Directors of Sara Lee on August 27, 1992, and subsequently amended, shall be administered by a committee comprised of the Chief Financial Officer, Treasurer and Secretary, respectively, of Sara Lee ("Committee"). The Committee may delegate certain administrative authority to other employees of Sara Lee, but shall retain the ultimate responsibility for the interpretation of, and amendments to, the Plan. The members of the Committee shall not be liable for any of their actions or determinations made in good faith with respect to the administration of this Plan. SECTION 3. ESTABLISHMENT AND MAINTENANCE OF DEFERRED COMPENSATION ACCOUNTS. (a) The Corporation shall establish and maintain a separate Deferred Compensation account ("Account") for each Participating Director. The Deferred Compensation shall be credited to the Account as of the following dates: September 30, December 31, March 31 and June 30 ("Credit Dates"). (b) The Participating Director shall elect one of the following Account appreciation alternatives: (i) STOCK EQUIVALENT ACCOUNT. Under this alternative, the value of the stock Equivalent Account shall be determined as if the Deferred Compensation is invested in Sara Lee common stock equivalents on the Credit Dates. The number of Sara Lee common stock equivalents shall be determined by dividing the Deferred Compensation credited to the Account on the Credit Dates by the average of the high and low quotes on the applicable day on the New York Stock Exchange Composite Transactions Tape ("Market Value"). Fractional stock equivalents will be computed to four decimal places. An amount equal to all dividends paid on the shares of Sara Lee common stock will be converted into whole or fractional shares of common stock equivalents at the Market Value as of the dividend payment dates and credited to the Account. The amount of Deferred Compensation to be paid to a Participating Director from the Stock Equivalent Account on the payment date(s) specified in the Agreement shall be equal to (a) the number of share equivalents accumulated in the Account (b) multiplied by the Market Value on the date upon which the Deferred Compensation is scheduled to be paid and then (c) divided by the total number of payments to be made (or remaining to be paid), as specified in the Agreement. (ii) INTEREST ACCOUNT. Under this alternative, the ratio of interest payable on the balance of the Interest Account for each fiscal year will be set at the beginning of each fiscal year based on the current cost to Sara Lee of issuing 5-year maturity debt. Interest will be credited to the Account on June 30 and December 31 of each year and on the date of the final payment on the outstanding balance of the Account (which would include all principal and interest accrued to that date), as specified in the Agreement. If installment payments are specified in the Agreement, the amount of Deferred Compensation to be paid to a Participating Director from the Interest Account shall be paid as follows: (i) the amount of the principal payment of each installment shall be determined by dividing the current principal balance by the number of remaining installment payments and (ii) the amount of the interest payment shall be determined by dividing the current interest balance by the number of remaining installment payments. (c) The Participating Director may elect to apportion Deferred Compensation between a Stock Equivalent Account and an Interest Account, but the balances cannot be transferred between accounts after the apportionment has been made. (d) A Participating Director may elect to re-defer balances of existing Deferred Compensation accounts. A re-deferral shall be effected by executing and delivering an election form at least six months prior to the original payment date and provided further that such re-deferral is not within the same tax year as the original deferral payment date. SECTION 4. REVOCATION OF ELECTION. A Participating Director may elect to revoke the election to defer his or her Annual Cash Retainer by written notice delivered to the Secretary of Sara Lee at least seven (7) business days prior to the beginning of the next immediate Retainer Payment Quarter which begin on each of October 1, January 1, April 1 and July 1 ("Revocation Notice"). The revocation shall become effective at the beginning of the next immediate Retainer Payment Quarter and shall be applicable only to Annual Cash Retainer fees earned after the effective date of the Revocation Notice, and, thereafter, the Participating Director shall not be entitled to defer any future Annual Cash Retainer fees for the remaining portion of the current Plan Year in which the Revocation Notice is delivered. "Plan Year" is defined as a twelve-month period beginning on November 1 and ending on October 31. SECTION 5. PAYMENTS OF DEFERRED COMPENSATION. (a) A Participating Director may elect to receive payments of Deferred Compensation either in a lump sum payment or in annual installments as specified in the Agreement. (b) the Account shall continue to be maintained for the benefit of the participating Director and paid in accordance with the Agreement in the event that the Participating Director's service as a director shall terminate prior to all of the outstanding balance in the Account being paid out. (c) If a Participating Director shall die while an active director of Sara Lee prior to all the payments being made from the Account, the unpaid balance of the Account shall be paid on the 30th day after the Secretary of Sara Lee has been duly notified of his or her death to either of the Participating Director's estate or to his or her designated beneficiary or beneficiaries, as designated in the Agreement, or in the absence of such designation, to his or her personal representative. Such death payment shall be made in a single lump sum, irrespective of the time and manner of payment specified in the Agreement. SECTION 6. FINANCIAL HARDSHIP. Notwithstanding the date(s) of payment of Deferred Compensation specified in the Agreement, upon written application to the Committee by a Participating Director WHO ELECTED THE INTEREST ACCOUNT ALTERNATIVE (as described in Section 3(b)(ii) hereof), the Committee may authorize the acceleration of payments of Deferred Compensation (including a lump sum payment) from the Interest Account ("Hardship Payments"), if the Participating Director substantiates to the reasonable satisfaction of the Committee that adherence to the payment schedule specified in the Agreement will result in severe bona fide financial hardship to the Participating Director. A bona fide financial hardship must be the result of an unanticipated event. The Hardship Payments shall not exceed the amount required to meet the financial need of the Participating Director. SECTION 7. UNFUNDED OBLIGATION OF SARA LEE. The balances accumulated in the Accounts shall constitute general contractual obligations of Sara Lee to the Participating Directors. Sara Lee shall not segregate assets, create any security interest or encumber its assets in order to provide for or fund the payment(s) of the balance(s) accumulated in the Accounts. Notwithstanding the foregoing, Sara Lee may, in its sole discretion, establish an irrevocable grantor trust, the assets of which shall not be subject to the claims of Sara Lee's creditors, to fund its obligations of all or designated Participating Directors under this Plan. If such a trust is established, benefits payable under the Plan shall be paid from the assets of the trust to the extent not otherwise paid from Sara Lee's general assets. SECTION 8. NON-ASSIGNABILITY. The rights and benefits of a Participating Director under the Plan are personal and cannot be pledged, transferred or assigned except by designation of a beneficiary (or beneficiaries), will or the laws of descent and distribution. SECTION 9. AMENDMENTS. Any substantive amendment to the Plan shall be approved by the Committee. No amendment shall be made which would adversely affect the tax status of the Deferred Compensation accumulated in the Accounts. SECTION 10. EFFECTIVE DATE; TERMINATION. This Plan was approved by the Board of Directors on August 27, 1992, became effective on October 1, 1992, was amended on April 10, 1995 and was amended on April 30, 1998. The Board of Directors of Sara Lee may terminate this Plan at any time; PROVIDED THAT, such termination shall not affect the rights of Participating Directors which have accrued under this Plan prior to such termination. In the event of a termination, the payment schedule specified in the Agreement shall continue to be followed. EX-10.22 5 EXHIBIT 10.22 SARA LEE CORPORATION LONG-TERM PERFORMANCE INCENTIVE PLAN FISCAL YEARS 1998 - 2000 PLAN DESCRIPTION HIGHLIGHTS This booklet explains the plan provisions of the Sara Lee Corporation Long-Term Performance Incentive Plan covering fiscal years 1998 through 2000 ("Performance Cycle"). The following pages provide detailed information relating to the grant of restricted performance shares that you have received under the Plan. The key features of this plan are summarized below. In some countries other than the United States, variations in plan design may occur in order to comply with local tax provisions. RESTRICTED PERFORMANCE SHARES - - Shares of Sara Lee stock are issued in your name, and held at Corporate Office. - - You have voting rights on all shares throughout the Performance Cycle. - - The number of shares that will be released to you will depend upon the attainment of pre-established performance goals during the Performance Cycle. - - An opportunity to earn additional shares is possible if performance results exceed the Superior performance level. - - Net after-tax shares which are earned at the end of the Performance Cycle may not be sold by the Participant until the end of FY01. DIVIDENDS - - Dividends are accrued on your behalf through the Performance Cycle. - - Interest on accrued dividends is credited at the same rate as provided for under the SLC non-qualified deferred compensation plans. - - Dividends and interest on shares originally granted are distributed to you to the extent shares are earned at the end of the Performance Cycle. PERFORMANCE MEASURES - - The following corporate performance measures apply to this performance cycle: - SLC Cumulative Basic Earnings Per Share - SLC 3-Year Average Return on Capital 1 PURPOSE Sara Lee Corporation ("SLC") has adopted the Long-Term Performance Incentive Plan (the "LTPIP") for Fiscal Years 1998 - 2000 for eligible A-level executives. The LTPIP exists in order to: - - Focus corporate and operating management's attention on the long-term performance results of Sara Lee Corporation and in particular, the achievement of the company's Project 2000 initiatives; - - Provide incentive compensation opportunities commensurate with the achievement of earnings per share and return on capital targets; and - - Promote cooperation and teamwork among the operating companies and divisions of Sara Lee Corporation; and - - Enhance the competitiveness of the corporation's long-term compensation program to aid in attracting and retaining highly qualified executives. RESTRICTED PERFORMANCE SHARES Under the LTPIP, the awards are authorized by the Sara Lee Corporation 1995 Long-Term Incentive Stock Plan (the "Stock Plan") and will be issued as restricted performance shares of common stock ("shares"). In the case of any discrepancy between the LTPIP and the Stock Plan, the latter plan governs. Dividends which are payable on shares that are granted will be escrowed on behalf of the Participant and credited with interest at the same interest rate paid on balances under SLC's non-qualified deferred compensation plans, subject to the conditions described in the Dividends section which follows. These Shares have special restrictions that are based on both continued service and performance against financial targets that have been established. These restrictions prohibit the transfer of these shares during the Performance Cycle. The financial performance measures and their respective weightings are contained in Appendix I. Any shares not earned by a Participant at the end of the Performance Cycle will be forfeited. A special provision of the grant made on August 28, 1997 ("award date") requires that any shares distributed (net of shares withheld for tax purposes) at the end of Performance Cycle should not be sold by a Participant until the end of FY01. This provision does not apply to any grants made after the award date. SLC may substitute alternative incentives, such as restricted cash units or stock options with special provisions, in the event it determines that tax or legal regulations in some countries outside the United States provide more favorable treatment for these alternatives. 2 DIVIDENDS During the Performance Cycle, dividends payable on shares granted will be escrowed on behalf of each Participant. Interest on the escrowed amounts will be credited at the same time and in the same manner as under SLC's non-qualified deferred compensation plans. Amounts credited to the escrowed dividend account at the end of the Performance Cycle will be distributed in the same proportion as the restrictions on the shares lapse. For example, if 75% of the shares are earned, then 75% of the balance in the escrowed dividend account will be paid as soon as possible after the end of FY00. Any remaining balance in the dividend account will be forfeited. PERFORMANCE STANDARDS Performance under the LTPIP will be measured using the corporate financial measures described below. Both of these financial measures are independent of each other for purposes of measuring results and determining how many, if any, of the shares are earned. - - Cumulative SLC Basic Earnings Per Share - - Three-year average SLC Return on Capital Definitions of these measures are included in Appendix II. Performance levels for SLC Basic EPS and ROC targets have been established and are shown in Appendix I. The performance levels and the percentage of shares that will be distributed are as follows:
--------------------------------------- PERFORMANCE LEVEL % OF SHARES DISTRIBUTED --------------------------------------- THRESHOLD 0% VERY GOOD 50% SUPERIOR 100% OUTSTANDING 125% ---------------------------------------
Interpolations will be used for results that fall between performance levels. For performance above Superior, additional shares will be issued after the end of the Performance Cycle. No dividends will be paid retroactively on any additional shares issued for performance above Superior. No shares will be earned for performance at or below Threshold. 3 AWARD AGREEMENT Each Participant will receive a Restricted Performance Share Award Agreement (Award Agreement) specifying the number of shares which have been granted, and the specific terms and conditions applicable to this grant. This Award Agreement should be retained by the Participant along with his or her other important legal documents. A second copy of the Award Agreement will be kept on file in SLC's Corporate Compensation Department. Additionally, this Award Agreement serves as power of attorney for the Corporation both to facilitate the re-issuance of the shares at the end of the Performance Cycle and in the event that the terms and conditions of the grant are not fulfilled. TAX CONSEQUENCES UNITED STATES Under current United States tax legislation, a Participant receives no taxable income from shares awarded, dividends escrowed or interest credited until the restrictions on the shares lapse (vesting). The date upon which the Committee reviews the performance results for the Performance Cycle and also approves any shares to be distributed to Participants, will serve as the date upon which the taxable event occurs and the market value of the shares are set. When the shares are earned, both the market value of the shares on the date of vesting as well as the dividends and interest distributed are credited as income and subject to applicable federal, state and local withholding. Amounts necessary to settle this tax withholding obligation may be withheld from the cash or shares earned by the Participant at the end of the Performance Cycle. Within thirty days of the award date, as specified in the Agreement, the Participant may elect immediate taxation under Section 83(b) of the Internal Revenue Code for the value of the shares awarded. This election is effected by filing an election form with the Internal Revenue Service within the applicable time frame. A copy of this election must be sent to the SLC Controller, and the applicable withholding taxes on the value of the award must be paid to the appropriate payroll department. If this election is made, the Participant is responsible for all taxes at the time of grant, which will not be refunded if some or all shares are not eventually distributed. Dividends will continue to be escrowed, and will result in no income until distributed. If a Section 83(b) election is made, the basis of the shares for determination of capital gains under current tax law is the Fair Market Value, as defined in the Stock Plan, on the award date. If this election is not made, the basis of the shares will be Fair Market Value on the date the restrictions lapse. COUNTRIES OTHER THAN THE UNITED STATES Tax laws vary significantly from country to country, so advice should be obtained from appropriate counsel concerning the effect of this grant in each country. In most cases, a Participant receives no taxable income from shares awarded, dividends escrowed or interest credited until the restrictions on the shares lapse (vesting). When the shares are earned, both the market value of the shares on the date of vesting as well as the dividends and interest distributed are credited as income. For individuals residing outside the U.S. and not subject to U.S. tax laws, no amounts will be withheld at SLC related to any required tax withholding obligation. These taxes should be withheld at the local entity. 4 The Participant is responsible for compliance with the relevant legal and tax regulations in the appropriate jurisdiction. IMPACT ON OTHER BENEFITS Shares, dividends or interest earned under the LTPIP are not considered compensation for purposes of any retirement plan, severance arrangement or other benefit plans for which the Participant is or may become eligible. ADMINISTRATIVE GUIDELINES The following will serve as guidelines for administering the LTPIP: - - The Committee has final approval of the LTPIP and functions as the Plan Administrator. - - The Committee reserves the right, in its absolute discretion, to REDUCE the POSITIVE effect of any of the Exclusions described in Appendix II on performance (for purposes of measuring results vs. the goals) or on awards earned by reference to that performance by ANY Participant. - - The Committee reserves the right, in its absolute discretion, to make further adjustments in reported performance (for purposes of measuring results vs. the goals) or in awards earned by reference to that performance with respect to any Participant who is not an SLC Executive Officer during FY00. - - The Committee reserves the right to change any of the terms and conditions of the FY98-00 LTPIP award to Executive Officers, including the definitions of Basic EPS and ROC, if deemed necessary on advice of counsel to meet the requirements for a "performance-based exemption" under the final regulations or rulings of IRC Section 162(m). - - The SLC Controller's Department will be responsible for providing financial results under the LTPIP. The awards for all Corporate Officers and certain other key executives will be approved by the Committee. The portion of the shares earned along with the related balance of the escrowed dividend account will be distributed as soon as practicable after the completion of the final accounting for the FY98-00 Performance Cycle and after approval of the recommended share distributions by the Committee. - - Awards may be made to new Participants during the first year of the Performance Cycle. The number of shares awarded may be adjusted to reflect that the executive is not a Participant for the entire Performance Cycle. - - Adjustment awards may be made to Participants who change positions during the first year of the Performance Cycle, if such a change would have resulted in qualifying for an increased level of award. - - The impact of acquisitions and divestitures made during the performance cycle will be included in the performance results. 5 - - In the event of death, total disability or retirement under a retirement plan of SLC prior to the last day of fiscal year 2000, the restrictions may lapse on a pro-rata number of the shares which are EARNED under the provisions described earlier in this plan subject to approval of the Committee. If applicable, the shares and related dividends and interest will be distributed at the normal payout time. - - A Participant who resigns or is terminated during the Performance Cycle generally forfeits the rights to all shares and any dividends or interest which have been accrued. Participants may be eligible for a prorated distribution, subject to Committee approval. Eligibility for a prorated distribution and the number of shares that may be recommended for distribution would be dependent upon the circumstances resulting in the individual's termination; the number of shares distributed to a participant under these circumstances would never exceed the amount distributed in the event of his retirement, death or total disability. Participants must be employed at least one-half, i.e. for 18 months, of any three-year performance cycle. If employment ceases prior to the end of that time, all shares granted under that performance cycle will be forfeited. Following the same procedures applicable to retirement, death or total disability, only periods of active service will be recognized for purposes of computing any distribution. This means that any period of time during which services may be provided to the company but the individual is not then a regular, full-time employee of the company, will be disregarded for purposes of calculating any prorated distribution. - - Should a change in control occur (as defined by the Committee), the Committee will decide what effect, if any, this should have on the awards which are outstanding under this plan. - - Nothing in the LTPIP shall confer on a Participant any right to continue in the employ of SLC or in any way affect SLC's right to terminate the Participant's employment in accordance with applicable laws. - - The Committee may make additional changes which it deems appropriate to the effective administration of the LTPIP, including the establishment of appropriate performance measure weights for newly created executive levels. However, other than as described above, these changes may not reduce the benefits to which Participants are entitled under the LTPIP, nor change the pre-established performance measures and goals which have been approved. APPENDIX I [INTENTIONALLY OMITTED] 6 APPENDIX II DEFINITIONS a) PERFORMANCE CYCLE is the three year period consisting of SLC's fiscal years 1998 through and including 2000. b) THE COMMITTEE means the Compensation and Employee Benefits Committee of the Board of Directors of SLC. c) AWARD AGREEMENT means the document provided to the Participant specifying the number of shares granted and the terms and conditions under which this grant is being made. d) PARTICIPANT means an executive of the SLC who has been determined to be an eligible Participant and who has received an Award Agreement specifying the terms of participation in this Plan. e) EARNINGS PER SHARE ("EPS") means reported basic earnings per share for the fiscal years in the Performance Cycle subject to applicable Adjustments and Exclusions as defined below. f) ADJUSTMENTS means changes to the goal to appropriately reflect the effect of stock splits or combinations, stock dividends and spin-offs or special distributions to stockholders other than normal cash dividends g) EXCLUSIONS means the automatic exclusion of the following from relevant financial data for purposes of measuring performance against the goal: -- extraordinary or unusual charges (accounting definition) -- revisions to the U.S Internal Revenue Code -- changes in generally accepted accounting principles -- gains or losses from discontinued operations (accounting definition) -- changes in definition of basic EPS -- restructuring charges -- any other extraordinary or unusual charges that are quantified and identified separately in the Management Discussion and Analysis section of the Annual Report or in footnotes to the audited financial statements h) EARNINGS BEFORE INTEREST AND AMORTIZATION ("EBIA") means SLC pre-tax income adjusted to add back the following: after-tax interest expense, non-cash amortization including that on goodwill and trademarks, and the change in deferred taxes from the consolidated statement of cash flow; this value is then reduced by the tax provision on the consolidated income statement. i) RETURN ON CAPITAL ("ROC") means the ratio of SLC EBIA to SLC average total capital (on a two point basis) as defined by First Boston; AVERAGE ROC is calculated as the simple average of ROC for each of the three fiscal years in the Performance Cycle, subject to the applicable Adjustments and Exclusions defined above. j) TOTAL DISABILITY is defined in the Key Executive Long-Term Disability Plan of SLC. 7 EX-10.27 6 EXHIBIT 10.27 SARA LEE CORPORATION RESTRICTED SHARE AGREEMENT 1. THIS AGREEMENT made this 29th day of April, 1998 (the "Award Date"), by and between Sara Lee Corporation, a Maryland corporation (the "Corporation") and Frank Meysman (the "Participant") is evidence of an award made under the 1995 Long-Term Incentive Stock Plan (the "Stock Plan") which is incorporated into this Agreement by reference. A copy of the plan has been provided to the Participant. This agreement will form an integral part of the employment-agreement of Frank Meysman with the Corporation, entered into as of January 1, 1996. 2. RESTRICTED SHARE UNIT AWARD. Subject to the continued employment of the Participant with the Corporation until April 29, 2003, the Corporation hereby awards to the Participant as of the Award Date 50,000 restricted share units (the "Share Units"). These Share Units will remain restricted until April 29, 2003. While the restrictions are in effect, the Share Units are not transferable by the Participant by means of sale, assignment, exchange, pledge, or otherwise. 3. SHARE UNITS. This award will be registered in the name of the Participant on the Corporation's books as of the Award Date until the Share Units are vested (i.e., the restrictions lapse). As such time as the Share Units vest, if ever, the Share Units will be converted into shares of common stock of the Corporation (the "Shares") on a one-for-one basis. Until the Share Units vest, the Participant will not be entitled to any rights of a shareholder. 4. DIVIDEND UNITS. Beginning on the Award Date, Dividend Units (in an amount equal to dividends paid on Shares) will be accrued on the books of the Corporation at the same time that actual dividends are paid to owners of Shares. Interest will accrue in arrears and will be credited on the books of the Corporation at the same rate used under the Corporation's deferred compensation plans. Dividend Units and the interest thereon will be paid in cash when the Share Units vest, unless otherwise deferred pursuant to Section 8 of this Agreement. 5. COSTS AND EXPENSES. Any costs and/or expenses for the account of the Participant before April 29, 2003 will be born by the Corporation and will be repaid by the Participant to the Corporation if and when the vesting of the Share Units occurs. If and to the extent the Participant has to pay taxes before vesting of the Share Units, the Corporation will grant an interest free loan to the Participant to be repaid by the Participant to the Corporation if and when the vesting of the Share Units occurs or which loan will be cancelled or waived in case no such vesting will occur. 6. DISTRIBUTION OF THE AWARD. Upon vesting, all Share Units will be converted into Shares with Dividend Units, and interest accrued thereon paid to the Participant in cash as soon as practicable, unless otherwise deferred pursuant to Section 8 of this Agreement. 7. TAXES. Tax withholding is required when the Share Units vest and applies to the Share Units, Dividend Units and accrued interest. The tax liability at the time of vesting will be settled by withholding a number of Shares with a market value not less than the amount of such taxes. A certificate for the net number of Shares will be delivered to the Participant as soon as practicable after vesting occurs. 8. ELECTION TO DEFER DISTRIBUTION. The Participant may elect to defer the distribution of some or all of the Share Units, Dividend Units and interest. Such election must be received in writing by the Corporation's Senior Vice President of Human Resources no later than April 29, 2003. The deferral, if elected, will result in the transfer of the Share Units and corresponding Dividend Units and interest into the Corporation's deferred compensation plan in effect at the time the restrictions lapse on this award. The deferred compensation plan rules will govern the administration of this award beginning on the date the Share Units vest. 9. DEATH OR TOTAL DISABILITY. The restrictions will lapse on a pro-rata number of the Share Units in the event of the Participant's death or total disability before the restrictions on the Share Units have lapsed. If applicable, the Share Units and related Dividend Units and interest will then be released as soon as practicable, subject to Section 7 of this Agreement. 10. OTHER END OF EMPLOYMENT PROVISIONS. In the event the Participant resigns or is terminated for cause before the restrictions on the Share Units have lapsed, the Share Units, Dividend Units and interest accrued thereon will be forfeited. In the case of ordinary termination by the Corporation, including termination by the Corporation or resignation by the Participant for reason of Change or Control the Share Units, Dividend Units and interest accrued thereon will be awarded on a pro rata basis. 11. CHANGE OF CONTROL. Either in contemplation of or in the event that the Corporation undergoes a Change of Control (as defined in the SLC 1995 Long- Term Incentive Stock Plan) or is not the surviving corporation in a merger or consolidation with another corporation, the Compensation and Employee Benefits Committee of the Corporation (the "Committee") may provide for appropriate adjustments taking into account Participant's best interests. 12. INTERPRETATIONS. Any dispute, disagreement or question which arises under, or as a result of, or in any way relates to the interpretation, construction or application of the Stock Plan will be determined and resolved by the Committee. In case of ultimate disagreement, despite best efforts of both parties, arbitration may be initiated by either party. Nothing in the Stock Plan or this Agreement will confer on the Participant any right to continue in the employ of the Corporation or in any way affect the Corporation's right to terminate the Participant's employment without prior notice at any time for any reason. EX-12.1 7 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 27, June 28, 1998(1) 1997 ------------- ------------- Fixed charges: Interest expense $ 224 $ 202 Interest portion of rental expense 64 66 ------------- ------------- Total fixed charges before capitalized interest 288 268 Capitalized interest 10 12 ------------- ------------- Total fixed charges $ 298 $ 280 ============= ============= Earnings available for fixed charges: (Loss) income before income taxes $ (443) $ 1,484 Less undistributed income in minority owned companies (6) (7) Add minority interest in majority- owned subsidiaries 25 30 Add amortization of capitalized interest 25 23 Add fixed charges before capitalized interest 288 268 ------------- ------------- Total (losses) earnings available for fixed charges $ (111) $ 1,798 ============= ============= Ratio of (losses) earnings to fixed charges (0.4) 6.4 ============= =============
- ------------------------- (1) During the second quarter of fiscal 1998, the Corporation recorded a pretax charge of $2,040 million in connection with various restructuring actions. EX-12.2 8 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 27, June 28, 1998(1) 1997 ------------- ------------- Fixed charges and preferred stock dividend requirements: Interest expense $ 224 $ 202 Interest portion of rental expense 64 66 ------------- ------------- Total fixed charges before capitalized interest and preferred stock dividend requirements 288 268 Capitalized interest 10 12 Preferred stock dividend requirements (2) 24 41 ------------- ------------- Total fixed charges and preferred stock dividend requirements $ 322 $ 321 ============= ============= (Losses) Earnings available for fixed charges and preferred stock dividend requirements: (Loss) income before income taxes $ (443) $ 1,484 Less undistributed income in minority owned companies (6) (7) Add minority interest in majority- owned subsidiaries 25 30 Add amortization of capitalized interest 25 23 Add fixed charges before capitalized interest and preferred stock dividend requirements 288 268 ------------- ------------- Total (losses) earnings available for fixed charges and preferred stock dividend requirements $ (111) $ 1,798 ============= ============= Ratio of (losses) earnings to fixed charges and preferred stock dividend requirements (0.3) 5.6 ============= =============
(1) During the second quarter of fiscal 1998, the Corporation recorded a pretax charge of $2,040 million in connection with various restructuring actions. (2) Preferred stock dividends in the computation have been increased to an amount representing the pretax earnings that would have been required to cover such dividends. EX-21 9 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 or exist solely to protect the business names, but conduct no business, have been omitted; such omitted subsidiaries considered in the aggregate do not constitute a significant subsidiary. DOMESTIC SUBSIDIARIES
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 Caribetex, Inc. Delaware Cartex Del, Inc. Delaware Ceibena Del, Inc. Delaware Champion Products Inc. New York Coach Leatherware International, Inc. Delaware Coach Stores, Inc. Delaware Cordova Holdings, L.L.C. Delaware Cortez Del, Inc. Delaware DEA Leasing, L.L.C. Delaware Gordon County Farm Company Delaware Hanes Menswear, Inc. Delaware Hanes Puerto Rico, Inc. Delaware Haw River Realty, Inc. Delaware Hygrade Food Products Corporation Delaware InPro, L.L.C. Delaware International Affiliates & Investment Inc. Delaware International Baking Co., Inc. Delaware Interstar, Inc. Florida Jogbra Inc. Delaware Kesterson Companies, Inc. Tennessee Kesterson Food Company, Inc. Tennessee Kiwi (Europe) Corporation Delaware Kolker Brothers, Inc. District of Columbia L'eggs Brands, Inc. Delaware MAP, L.L.C. Delaware Mid-America Purchasing, L.L.C. Delaware Milky Way Products Company Delaware Nihon Sara Lee KK Corporation Delaware Ozark Salad Company, Inc. Delaware Playtex Apparel, Inc. Delaware Playtex Dorado Corporation Delaware Playtex Industries, Inc. Delaware PYA, Inc. Delaware PYA/Monarch, Inc. Maryland Rice Hosiery Corporation North Carolina Sara Lee Champion Europe Inc. Delaware Sara Lee Corporation Asia, Inc. Delaware Sara Lee Foodservice Holding, L.L.C. Delaware 2 Sara Lee French Funding Company L.L.C. Delaware Sara Lee French Investment Company, Inc. Delaware Sara Lee Global Finance, Inc. Delaware Sara Lee International Corporation Delaware Sara Lee International Finance Corporation Delaware Sara Lee International Funding Companny L.L.C. Delaware Sara Lee Investments, Inc. Delaware Sara Lee - Kiwi Holdings, Inc. Delaware Sara Lee U.K. Depositor L.L.C. Delaware Sara Lee U.K. Holdings, Inc. Delaware Sara Lee U.K. Leasing L.L.C. Delaware Sara Lee/DE Asia, Inc. Delaware Saramar L.L.C. Delaware SCH Enterprises, L.L.C. Delaware Scotch Maid, Inc. Delaware Seitz Foods, Inc. Delaware SLC Leasing (Nevada)-II, Inc. Nevada SLC Leasing (Wyoming), Inc. Wyoming SLE, Inc. Delaware SLI Administrative Services Company, Inc. Delaware SLKP Administrative Services Company, Inc. Delaware SLKP Sales, Inc. Delaware Smoky Hollow Foods, Inc. Delaware Southern Belle, Inc. Delaware Southern Family Foods, L.L.C. Delaware Southern Meat Distribution Company Delaware Specialty Intimates Inc. Delaware State Fair Foods, Inc. Texas 3 Sweet Sue Kitchens, Inc. Alabama The Harwood Companies, Inc. Delaware UPCR, Inc. Delaware UPEL, Inc. Delaware Wolferman's, Inc. Delaware
4 FOREIGN SUBSIDIARIES AB Fenom Sweden ABC Industrie S.A. France Agepal SarL Luxemburg Al Ponte Prosciutti S.r.l. Italy Allende Internacional, S.A. de C.V. Mexico Antinea Lingerie S.A. France Aoste Argentina Argentina Aoste Belgique Belgium Aoste Espana Spain Aoste Export SNC France Aoste Holding SNC France Aoste Management S.A. France Aoste Schinken GmbH Germany Aoste SNC France APD Chemicals Limited England Arosa, S.A. de C.V. Mexico Ashe Limited England Ashe Pension Trustees Limited England A.P. Developments Limited Zambia A/S Blumoller Denmark Bal-Mex S. de R.L. de C.V. Mexico Balirny Douwe Egberts AS Czech Republic Ballograf Bic Austria Vertriebs Ges. mbh Austria Belgian Nurdie Textile Company Belgium Boers Groothandel B.V. Netherlands 5 Boers Meat Products B.V. Netherlands Bravo S.A. 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 Laboratories (Sales) Ltd. Ireland CH Property Holdings (NZ) Ltd. New Zealand Champion France S.A. France Champion Products, S.A. de C.V. Mexico Champion UK Limited England Charcuteries des Hautes Terres S.A. France Coach Europe Services S.r.l. Italy Coach Firenze S.r.l. Italy Coach (U.K) Limited England Cochonou SNC France Codef Financial Services CV Netherlands Coffee Times B.V. Netherlands Coffenco International GmbH Germany Cofico N.V. Netherlands Antilles 6 Confecciones de El Pedregal, S.A. de C.V. El Salvador 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 Confix S.r.l. Italy Congelacion y Conservacion de Alimentos, S. de R.L. 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 De Friesche Erven B.V. Netherlands DEA (Bermuda) Ltd. Bermuda Decaf B.V. Netherlands Decem B.V. Netherlands Decotrade A.G. Switzerland DECS Global Network Mexicana, S.A. de C.V. Mexico DECS International Mexico, S.A. de C.V. Mexico DEF Finance S.A. France Defico N.V. Netherlands Antilles Del Castillo Transportes Ltda. Uruguay Designer Workwear Pty. Ltd. Australia 7 Detrex B.V. Netherlands Difan S.A.M. Monaco Dim-Rosy AB Sweden Dim-Rosy AG Switzerland Dim-Rosy A/S Denmark Dim-Rosy Benelux N.V. Belgium Dim-Rosy Portugal Lda. Portugal Dim-Rosy S.p.A. Italy Dim Finance S.A.S. France Dim Rosy Textiles, Incorporated Canada Dim S.A. France Dimtex S.A. France Disa SNC France 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 Coffee & Tea International B.V. Netherlands 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 Douwe Egberts N.V. Belgium 8 Douwe Egberts UK Limited England Douwe Egberts Van Nelle Diensten B.V. Netherlands Duyvis B.V. Netherlands Elbeo Meias e Confeccoes Lda. Portugal Elbeo & Comandita Portugal Eri Deutschland GmbH Germany Esa Eppinger GmbH Germany ET.G.Y. S.A. France Euragral B.V. Netherlands Fihomij B.V. Netherlands Filodoro Calze S.p.A. Italy Finnegan's Famous Cakes Limited England Fontane del Ducca S.r.l. Italy Fujian Sara Lee Consumer Products Company Ltd. China Gromtex S.A. Tunisia Hanes Brasil Industria E Comercio Ltda. Brazil Hanes Caribe Inc. Cayman Islands Hanes Choloma Ltd. Cayman Islands Hanes de Centroamerica S.A. Guatemala Hanes de El Salvador, S.A. de C.V. El Salvador Hanes Dominican Inc. Cayman Islands Hanes France S.A. France Hanes Italia S.p.A. Italy Hanes Panama, Inc. Panama Hanes Tejidos Costa Rica S.A. Costa Rica Hanes Underwear Jamaica Limited Jamaica 9 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 Imperial Holding N.V. Belgium Imperial Meat Products N.V. Belgium Inco Hellas A.E. Cosmetics and Household Consumer Greece 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 Intec B.V. Netherlands Inter Food Service Ltd. England Internacional Manufacturera, S.A. Mexico International Underwear Ltd. Morocco 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. Sri Lanka I. Tas Ezn B.V. Netherlands Jamlee Limited Jamaica Jamwear Limited Jamaica Jogbra Honduras S.A. Honduras 10 Justin Bridou SNC France Kir Alimentos, S. de R.L. de C.V. Mexico Kitchens of Sara Lee (Australia) Pty. Ltd. Australia Kitchens of Sara Lee (U.K.) Limited England Kiwi Brands Ltd. Kenya Kiwi Brands Ltd. Malawi Kiwi Brands Ltd. Zambia Kiwi Brands Pty. Ltd. Australia Kiwi Brands (Hong Kong) Ltd. Hong Kong Kiwi Brands (N.Z.) Ltd. New Zealand Kiwi Brands (Private) Limited Zimbabwe Kiwi Brands (Tianjin) Co. Ltd. China 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. Taiwan Kiwi (EA) Limited 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 La Confection Sarthoise S.A. France 11 Lassie B.V. Netherlands Les Fines Tranches SNC France Les Salaisons Reunies SNC France Lovable Benelux B.V. Netherlands Lovable Design GmbH Germany Lovable France S.a.r.L. France Lovable Italiana International Limited England Lovable Italiana S.p.A. Italy Madero Internacional, S.A. de C.V. Mexico Maglificio Bellia S.p.A. Italy Manifattura di Sermide S.r.l. Italy Manifattura Filodoro S.r.l. Italy Manufacturera Cortez, S.A. Honduras Manufacturera de Cartago, S.A. Costa Rica 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 Monclova Internacional, S.A. de C.V. Mexico Natrena B.V. Netherlands Navaradour S.A. France 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 France S.A. France 12 Nutri-Metics Holdings France S.A. France Nutri-Metics International (Australia) Pty. Ltd. Australia Nutri-Metics International (Canada) Inc. Canada Nutri-Metics International (France) S.A. France Nutri-Metics International (Greece) A.E. Greece Nutri-Metics International (Guangzhou) Ltd. China Nutri-Metics International (Hong Kong) Ltd. Hong Kong Nutri-Metics International (Ireland) Ltd. Ireland Nutri-Metics International (Netherlands) Pty. Ltd. Australia Nutri-Metics International (NZ) Ltd. New Zealand Nutri-Metics International (South Africa) Pty. Ltd. Australia Nutri-Metics International (Thailand) Ltd. Thailand Nutri-Metics International (UK) Ltd. Australia Nutri-Metics (B) Sdn Bhd International Brunei Nutri-Metics Worldwide Malaysia Sdn Bhd Malaysia N.V. Douwe Egberts Coffee Systems Belgium N.V. Kortman Intradal S.A. Belgium Oegstgeest Capital B.V. Netherlands Opus Chemical AB Sweden Oxwall Tools B.V. Netherlands Pamyc, S.A. de C.V. Mexico Philippe Matignon France S.A. France Playtex Espana, S.A. Spain Playtex France S.A. France Playtex Investments Europe S.A. France Playtex Limited England Plustex B.V. Netherlands Plustex S.A. Belgium 13 Porta Blu S.r.l. Italy Pretty Polly Pension Trustee 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 PTX Tunisie S.A. Tunisia PTX (D.R.) Inc. Cayman Islands P.T. Kiwi Distribution Company Indonesia P.T. Kiwi Indonesia Indonesia P.T. Premier Ventures Indonesia P.T. Prodenta Indonesia Indonesia P.T. Suria Yozani Indonesia Quesos la Caperucita, S.A. de C.V. Mexico Rinbros, S.A. de C.V. Mexico Roger de Lyon Charcutier S.A. France Roger de Lyon SNC France Roux Soignat S.A. France S3C S.A. France Sagepar SaRL France Sara Lee Austria Gesellschaft mbH Germany Sara Lee Bakery Sdn Bhd Malaysia Sara Lee Bakery (Australia) Pty. Ltd. Australia Sara Lee Brasil Ltda. Brazil Sara Lee Canada Holdings Limited Canada Sara Lee Charcuterie, S.A. France Sara Lee Chile S.A. Chile Sara Lee Clothing Company Pty. Ltd. Australia 14 Sara Lee Comercial Limitada Chile Sara Lee Corporation Asia Limited Hong Kong Sara Lee de Costa Rica, S.A. Costa Rica Sara Lee Direct Marketing UK Limited England Sara Lee Europe Direct Marketing S.A. France Sara Lee Finance U.K. England 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 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 Household & Body Care UK Limited England Sara Lee International B.V. Netherlands 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 de Mexico, S.A. de C.V. Mexico Sara Lee Knit Products Europe, N.V. Belgium Sara Lee Mauritius Holding Private Ltd. Singapore Sara Lee Mexicana S.A. de C.V. Mexico Sara Lee Moda Femenina, S.A. de C.V. Mexico Sara Lee of Canada Holdings Limited Canada Sara Lee of Canada Holdings Limited Partnership Canada Sara Lee of Canada Investments Company Canada 15 Sara Lee of Canada Limited Canada Sara Lee of Canada Limited Partnership Canada Sara Lee Personal Products Hellas, S.A. Greece Sara Lee Personal Products Sweden AB Sweden 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 Sock Mexico, S.A. de C.V. Mexico Sara Lee Trading Limited Thailand Sara Lee UK Holdings Plc. England Sara Lee (Hong Kong) Limited Partnership Hong Kong Sara Lee (South Africa) (Pty.) Ltd. South Africa Sara Lee (UK Investments) Limited England Sara Lee/DE Antilles N.V. Netherlands Sara Lee/DE Espana S.A. Spain Sara Lee/DE Finance B.V. Netherlands Sara Lee/DE France SNC France 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 Hungaria Kft. Hungary Sara Lee/DE Italy S.p.A Italy Sara Lee/DE N.V. Netherlands Sara Lee/DE Osterreich GmbH Austria 16 Sara Lee/DE Poland Sp z o o Poland Sara Lee/DE Rt. Hungary Sara Lee/DE (Schweiz) AG Switzerland Saramar Europe B.V. Netherlands SBB S.A. France SDP Rungis S.A. France Servicios Administrativos Sara Lee, S.A. de C.V. Mexico Shanghai Vocal Enterprise Limited China Siamcona Ltd. Thailand SLI Compania de Servicios Administrativos S.A. Costa Rica SLKP Compania de Servicios Administrativos S.A. Costa Rica SLPP (Coolaroo) Pty. Ltd. Australia Societe Bretonne d'Andouilles et d'Andouillettes S.A. France Societe d'Etude et de Realisation Agro-Alimentaire SarL France Societe des Salaisons de Balanod SNC France Spring City de Honduras, S.A. Honduras Stegeman B.V. Netherlands Swissguard (Pty.) Limited South Africa S.N. Degoisey S.A. France Taesa, S. de R.L. de C.V. Mexico Tana B.V. Netherlands Tana Canada Incorporated Canada Tana Schuhpflege AG Switzerland Tejidos Flex Corporation Panama Telec A.G. Switzerland Temana International Limited England Textiles Tropicales, S.A. Costa Rica Tomten A/S Norway 17 Torcitura Filodoro S.r.l. Italy Tradi Charcuterie S.A. France Tradi France S.A. France Tradition Lingerie S.A.S. France Tricotbest B.V. Netherlands Tricotbest Ceska Republica spol. s r.o. Czech Republic Tricotbest GmbH Germany Tricotbest Hungaria Kft. Hungary Tricotbest Polska sp. z.o.o. Poland Tricotbest Slovensko spol. s.r.o. Slovak Republic Tricotbest Ukraine Ukraine Tricotbest (Russia) Russia Tuxan Schuhpflegemittel GmbH Austria Underwear Limited 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 Vatter Slovensko spol. s.r.o. Slovak Republic Verpakkingsindustrie Boers B.V. Netherlands Vlimense Belegging-Maatschappij BV Netherlands Wijnhandel JanVan Goyen B.V. Netherlands Zwanenberg de Mexico, S.A. de C.V. Mexico 2476230 Nova Scotia Ltd. Canada
18 EX-23 10 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNT ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated July 27, 1998 included in this form 10-K, into the Company's previously filed Registration Statement File Nos. 33-35760, 33-57615, 33-60837, 33-60071, 33-64383, 33-63715, 33-63717, 33-59002, 33-49212, 33-33245, 33-33244, 333-17987, 333-21101, 333-14167, 333-18385, and 333-41427. Chicago, Illinois September 24, 1998 /s/ Arthur Andersen LLP --------------------------------- Arthur Andersen LLP EX-24 11 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 27, 1998, 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: 9/16/98 ------------- 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 27, 1998, 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: 9/16/98 ------------- 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 27, 1998, 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: 9/16/98 -------- 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 27, 1998, 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: 9/15/98 ------- 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 27, 1998, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in- fact and agent, or his substitute, may lawfully do or cause to be done by virtue himself. /s/ James S. Crown ------------------ James S. Crown Dated: 9/15/98 -------- 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 27, 1998, 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: 9/16/98 -------- 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 27, 1998, 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: 9/22/98 ------------- 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 27, 1998, 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: 9/15/98 -------- 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 27, 1998, 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: 9/21/98 ------------- 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 27, 1998, 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: 9/22/98 ------------- 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 27, 1998, 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: 9/22/98 ------------- 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 27, 1998, 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: 9/15/98 ------- 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 27, 1998, 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: 9/21/98 ------- 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 27, 1998, 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: 9/16/98 -------- 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 27, 1998, 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: 9/18/98 ------- 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 27, 1998, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in- fact and agent, or his substitute, may lawfully do or cause to be done by virtue himself. /s/ John D. Zeglis ------------------ John D. Zeglis Dated: 9/16/98 -------- EX-27 12 EXHIBIT 27 FDS
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-27-1998 JUN-27-1998 247 26 2,005 205 2,882 5,220 4,947 2,857 10,989 5,733 2,270 0 50 614 1,202 10,989 20,011 20,011 12,331 12,331 2,040 119 176 (443) 80 (523) 0 0 0 (523) (1.14) (1.14)
-----END PRIVACY-ENHANCED MESSAGE-----