10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 28, 2008

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.)
3500 Lacey Road Downers Grove, Illinois	60515-5424
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (630) 598-6000

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.01 par value per share	The Chicago Stock Exchange The New York Stock Exchange The Stock Exchange (London)

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

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    x	Accelerated filer    ¨
Non-accelerated filer    ¨	Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

On August 2, 2008, the registrant had outstanding 706,384,225 shares of common stock, par value $.01 per share, which is the registrant’s only class of common stock.

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on December 28, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $11.4 billion (based upon the closing price per share of the registrant’s common stock on the New York Stock Exchange on that date).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Annual Report to Stockholders for the fiscal year ended June 28, 2008 are incorporated by reference into Parts I, II and IV of this Form 10-K, and are filed as Exhibit 13. Portions of the registrant’s Proxy Statement for its 2008 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

Table of Contents

		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	15
Part II
Item 5.	Market for Sara Lee’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 8.	Financial Statements and Supplementary Data	17
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	17
Item 9A.	Controls and Procedures	17
Item 9B.	Other Information	17
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	18
Item 11.	Executive Compensation	18
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
Item 13.	Certain Relationships and Related Transactions, and Director Independence	18
Item 14.	Principal Accounting Fees and Services	18
Part IV
Item 15.	Exhibits and Financial Statement Schedules	19

PART I

Item 1. Business

Sara Lee Corporation (“Sara Lee,” “we,” “our” or the “Company”) is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world focused primarily on the meats, baking, beverage and household products categories. The Company was organized in Baltimore, Maryland in 1939 as the C.D. Kenny Company and adopted its current name in 1985. Sara Lee’s principal executive offices are located in Downers Grove, Illinois.

Sara Lee’s operations are organized around six business segments—North American Retail Meats, North American Retail Bakery, Foodservice, International Beverage, International Bakery, and Household and Body Care. Results of operations for all periods are presented based upon this reporting structure.

North American Retail Meats

North American Retail Meats sells a variety of packaged meat products to retail customers in North America. Products include hot dogs and corn dogs, breakfast sausages and sandwiches, smoked and dinner sausages, premium deli and luncheon meats, bacon, and cooked hams. Our significant brands include Hillshire Farm, Ball Park, Jimmy Dean, Sara Lee, Bryan, State Fair and Kahn’s.

Following the March 2008 sale of our Mexican joint venture, substantially all of the sales of the North American Retail Meats business are generated in the U.S. Sales are made in the retail channel to supermarkets, warehouse clubs and national chains and generally are transacted through Sara Lee’s own sales force and outside brokers.

The primary raw materials for the segment’s products include pork, turkey, beef and chicken, which are purchased almost entirely from independent farmers and vendors. Sara Lee does not rely on any one vendor or small group of vendors for these raw materials, and prices fluctuate based on supply and demand in the marketplace.

The meats business is highly competitive, with an emphasis on product quality, innovation and price. New product innovations are a key component to success. The North American Retail Meats segment competes with other international, national, regional and local companies in each of the product groups.

North American Retail Meats’ business accounted for 18.3%, 19.6% and 20.2% of Sara Lee’s consolidated sales during fiscal years 2008, 2007 and 2006 respectively.

North American Retail Bakery

North American Retail Bakery sells a wide variety of fresh and frozen baked products and specialty items to retail customers in North America. Products include bread, buns, bagels, rolls, muffins, specialty bread, frozen pies, cakes, cheesecakes and other desserts. Significant brands include Sara Lee, Earth Grains, Colonial, Rainbo, Holsum, IronKids, Mother’s, Sunbeam, Sun-Maid, Healthy Choice and Heiner’s. Certain brands are used under licensing arrangements; however sales of products sold under licensing arrangements represent less than 10% of total North American Retail Bakery sales. The North American Retail Bakery segment also includes the results of the corporation’s Senseo retail coffee business in the U.S.

Substantially all of the North American Retail Bakery’s sales are generated in the U.S. and are made in the retail channel to supermarkets, mass merchandisers and warehouse clubs, and to restaurants, schools and other institutional outlets. Sales are made through Sara Lee’s sales force, independent operators and independent wholesalers. The North American Retail Bakery segment offers delivery directly to retail customer stores and warehouses through its direct store delivery system, which maintains approximately 4,600 delivery routes.

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North American Retail Bakery’s primary raw materials include wheat flour, sugar, corn syrup, butter, fruit, eggs and cooking oils, which are purchased from independent suppliers. Sara Lee does not rely on any one vendor or small group of vendors for these raw materials, and prices fluctuate based upon supply and demand in the marketplace, weather and government price supports.

The bakery business is highly competitive, with an emphasis on product quality and freshness, service, innovation and value. The North American Retail Bakery segment competes with other international, national, regional and local companies in each of the product groups.

North American Retail Bakery’s business accounted for 16.5%, 16.6% and 16.7% of Sara Lee’s consolidated sales during fiscal years 2008, 2007 and 2006, respectively.

Foodservice

Foodservice sells a variety of meat, bakery and beverage products to foodservice customers in North America. Products include hot dogs and corn dogs, breakfast sausages and sandwiches, smoked and dinner sausages, premium deli and luncheon meats, bacon, meat snacks, cooked and dry hams, bread, buns, bagels, rolls, muffins, specialty bread, refrigerated dough, frozen pies, cakes, cheesecakes, roast, ground and liquid coffee, cappuccinos, lattes, teas, and a variety of sauces, dressings and condiments.

During fiscal 2008, virtually all of the segment’s sales were generated in the U.S. Sales are made in the foodservice channel to distributors, restaurants, hospitals and other large institutions. The Foodservice segment also offers direct delivery of beverage products to restaurants and warehouses through its direct delivery system. Unit volumes in the Foodservice segment are generally a function of consumer eating patterns outside of the home.

The primary raw materials for Foodservice’s products include pork, turkey, beef, chicken, wheat flour, sugar, corn syrup, butter, fruit, eggs, cooking oils and green coffee beans, which are purchased from independent vendors and farmers. The Foodservice segment does not rely on any one vendor or small group of vendors for these raw materials, and prices fluctuate based upon supply and demand in the marketplace, weather and government price supports.

The Foodservice segment competes with other international, national, regional and local companies in each of its product categories.

Foodservice’s business accounted for 16.8%, 18.3% and 19.5% of Sara Lee’s consolidated sales during fiscal years 2008, 2007 and 2006, respectively.

International Beverage

International Beverage sells coffee and tea products in major markets around the world, including Europe, Australia and Brazil. In Europe, some of the more prominent brands are Douwe Egberts, Senseo, Maison du Café, Marcilla, Merrild and Pickwick. In South America, significant brands include Café do Ponto, Café Caboclo, União and Café Pilão.

In fiscal 2008, 81% of the segment’s sales were generated in Western and Central Europe, 13% in Brazil and 4% in Australia. Sales are made in both the retail channel to supermarkets, warehouse clubs and national chains, and in the foodservice channel to distributors. The International Beverage segment also offers direct delivery to restaurants and warehouses through its direct delivery system.

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The beverage business is highly competitive, with an emphasis on quality and value, and the International Beverage segment competes with other international, national and regional companies. Consumer preferences as to the blend or flavor and convenience of purchases continue to change, with differing preferences around the world.

The most significant cost item in the production of coffee products is the price of green coffee beans, which are purchased from farmers and coffee bean vendors in various countries around the world. The price of green coffee fluctuates based upon supply and demand, weather, the political climate in the producing nations, unilateral pricing policies of various nations and speculation in the commodities markets.

Sara Lee’s International Beverage business accounted for 24.1%, 21.8% and 20.7% of Sara Lee’s consolidated revenues during fiscal years 2008, 2007 and 2006 respectively.

International Bakery

International Bakery sells a variety of bakery and dough products to retail and foodservice customers in Europe and Australia. Products include a variety of bread, buns, rolls, specialty bread, refrigerated dough and frozen desserts. The major brands under which International Bakery sells its products include Bimbo, CroustiPate, Ortiz, BonGateaux and Sara Lee.

During fiscal 2008, 87% of the segment’s sales were generated in Western Europe, while the remaining sales were generated in Australia. Sales are made in the retail channel to supermarkets, warehouse clubs and national chains, and in the foodservice channel to distributors and institutions. Sales generally are made through Sara Lee’s sales force and independent wholesalers. The International Bakery segment offers delivery directly to retail customer stores and warehouses through its direct store delivery system.

International Bakery’s primary raw materials include wheat flour, sugar, corn syrup, butter, fruit, eggs, milk and cooking oils, which are purchased from independent suppliers. The International Bakery segment does not rely on any one vendor or small group of vendors for these raw materials, and prices fluctuate based upon supply and demand in the marketplace, weather and government price supports.

The bakery business is highly competitive, with an emphasis on product quality, innovation and value. New product innovations drive growth in this segment. The International Bakery segment competes with other international, national, regional and local companies in each of the product groups.

The International Bakery’s business accounted for 7.0%, 6.7% and 6.6% of Sara Lee’s consolidated revenues during fiscal years 2008, 2007 and 2006, respectively.

Household and Body Care

Household and Body Care sells products in four primary categories: body care, air care, shoe care and insecticides. Body care consists of soaps, shampoos, bath and shower products, deodorants, shaving creams and toothpastes, which are sold primarily in Europe under brands such as Sanex, Duschdas, Radox, Monsavon and Zendium. Air care provides air fresheners under the Ambi Pur brand in Europe, Australia, Africa and certain Asian countries. Shoe care includes polishes, cleaners and wax sold primarily under the Kiwi brand in many countries around the world. Insecticides are sold primarily in Europe and Asia under brands such as Vapona, Catch, GoodKnight, Bloom and Ridsect.

In fiscal 2008, 70% of the segment’s sales were generated in Western and Central Europe, 21% in the Asia Pacific region and 4% in the U.S. The remaining portion of the segment’s sales was generated primarily in Africa.

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The Household and Body Care business is highly competitive, with an emphasis on innovation, quality and value. Sara Lee competes with other international, national and regional companies.

Sara Lee’s Household and Body Care segment accounted for 17.3%, 17.0% and 16.3% of Sara Lee’s consolidated revenues during fiscal years 2008, 2007 and 2006, respectively.

Customers

Sara Lee considers major mass retailers and supermarket chains in both the United States and Europe to be significant customers across one or more business segments. During fiscal 2008, Wal-Mart Stores Inc. was Sara Lee’s largest customer. Net sales to Wal-Mart Stores Inc. were $1.3 billion, or approximately 10% of Sara Lee’s fiscal 2008 net sales. Of this amount, $773 million of net sales were made by the North American Retail Meat business and $345 million of net sales were made by the North American Retail Bakery business. Although no other single customer accounts for 10% or more of Sara Lee’s consolidated revenues, the loss of one of our major mass retailer or supermarket chain customers could have a material adverse effect on one or more of our business segments.

Trademarks

Sara Lee is the owner of approximately 28,000 active trademark registrations and applications in countries around the world and believes that, as it continues to build brands globally, its trademarks are among its most valuable assets. Although the laws vary by jurisdiction, trademarks generally are valid as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic. Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. Sara Lee believes that its core brands are covered by trademark registrations in most countries of the world in which Sara Lee does business, and Sara Lee has an active program designed to ensure that its marks and other intellectual property rights are registered, renewed, protected and maintained. Some of Sara Lee’s products are sold under brands that have been licensed from third parties. Sara Lee also owns a number of valuable patents; however, it does not regard any segment of its business as being dependent upon any single patent or group of related patents. In addition, Sara Lee owns numerous copyrights, both registered and unregistered, and proprietary trade secrets, technology, know-how processes and other intellectual property rights that are not registered.

Seasonality

Generally, seasonal changes in demand for certain Sara Lee products are offset by Sara Lee’s diverse product offerings. Seasonality in the North American Retail Meats segment is balanced by the diverse offering of products that tends to offset seasonal changes in demand. For example, sales of hot dogs and lunchmeat increase during the summer months, and ham and breakfast sausage sales increase during the winter holiday periods. Seasonality in the North American Retail Bakery and International Bakery segments also is balanced by the diverse offering of products that tends to offset the seasonal changes in demand. For example, sales of buns increase in the warm summer months, and sales of specialty cakes and pies increase for the winter holiday season. Seasonality in the Foodservice segment is balanced by a diverse offering of products to meet the consumer’s seasonal eating patterns. Sales of beverage products are higher in the second quarter due to higher consumer consumption in the winter months. The Household and Body Care segment experiences higher sales in the second half of the fiscal year, as sales of both body care products and insecticides increase in anticipation of the warmer summer months.

In total during fiscal 2008, 23.1% of Sara Lee’s consolidated net sales from continuing operations were recognized in the first quarter, 25.8% in the second quarter, 24.6% in the third quarter and 26.5% in the fourth quarter.

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Regulations

Sara Lee’s North American Retail Meats, North American Retail Bakery and Foodservice operations, food products and packaging materials are subject to regulations administered by the U.S. Department of Agriculture and the Food and Drug Administration. Among other things, these agencies enforce statutory prohibitions against misbranded and adulterated foods; establish safety standards for food processing; establish standards for ingredients and manufacturing procedures for certain foods; establish standards for identifying certain foods; determine the safety of food additives; and establish labeling standards and nutrition labeling requirements for food products. In addition, various states regulate these businesses by enforcing federal and state standards of identity for selected food products, grading food products, inspecting plants and imposing their own labeling requirements on food products.

Sara Lee buys livestock, meat and poultry products and processed food ingredients from numerous sources based on factors such as price, quality and availability. Many of these products and processed food ingredients are subject to governmental agricultural programs. These programs have substantial effects on prices and supplies and are subject to U.S. Congressional and administrative review.

The food industry is highly regulated on a worldwide basis, and Sara Lee’s food operations outside of the U.S. are subject to local and national regulations that are similar in nature to those applicable to our U.S. businesses. In some cases, Sara Lee’s food products are subject to international regulatory provisions, such as those of the European Union relating to labeling, packaging, food content, pricing, marketing and advertising and other areas.

Sara Lee’s operations, like those of similar businesses, also are subject to various federal, state, and local environmental laws and regulations including the Clean Water Act, Clean Air Act, Solid Waste Disposal Act (as amended by the Resource Conservation and Recovery Act), Comprehensive Environmental Response, Compensation and Liability Act, Emergency Planning Community Right-to-Know Act, Safe Drinking Water Act, Toxic Substances Control Act, and the Federal Insecticide, Fungicide, and Rodenticide Act, and related state and local laws and regulations (collectively “Environmental Laws”). These Environmental Laws require permits for the discharge of pollutants into the air or water; impose limitations on the discharge of pollutants into the air or water; require the installation of pollution control equipment; establish standards for the treatment, storage, transportation, and disposal of solid and hazardous wastes; impose obligations to investigate and remediate contamination in certain circumstances; govern underground storage tanks; require reporting of certain information to the public; and impose other requirements intended to protect public health and the environment.

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.

Employees

At the end of fiscal year 2008, Sara Lee employed approximately 44,000 employees worldwide.

Executive Officers of Sara Lee

Set forth below is certain information with respect to the current executive officers of Sara Lee. There are no family relationships between any of the executive officers listed below.

Brenda C. Barnes, Age 54. Chairman and Chief Executive Officer of Sara Lee Corporation since October 2005, President and Chief Executive Officer from February 2005 to October 2005, and President and Chief Operating Officer from July 2004 to February 2005. She has served as a director of Sara Lee since July 2004.

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Ms. Barnes served as the Interim President of Starwood Hotels and Resorts (hotel chain) from November 1999 to March 2000, and President and Chief Executive Officer of PepsiCola North America (soft drink manufacturer) from 1996 until 1998. Prior to that, she held various positions with several divisions of PepsiCo, Inc. from 1976 to 1996. Ms. Barnes also served as an adjunct professor at the Kellogg Graduate School of Business and at North Central College in 2002. She is a member of the Steering Committee of the Kellogg Center for Executive Women.

Stephen J. Cerrone, Age 49. Executive Vice President, Human Resources of Sara Lee Corporation since January 2007. Prior to joining Sara Lee, Mr. Cerrone served as Executive Vice President, Human Resources of JPMorganChase Corporation (financial services) from 2004 to 2007, and Executive Vice President, Human Resources of BankOne Corporation from 2003 until it merged with JPMorganChase in 2004. Prior to that, he was employed by Burger King Corporation (restaurant chain) from 1989 to 2004, most recently serving as its Executive Vice President, Worldwide Human Resources from 1999 to 2003, and as Vice President, Human Resources, Burger King Europe/Middle East/Africa from 1997 to 1999.

Margaret M. Foran, Age 53. Executive Vice President, General Counsel and Corporate Secretary since June 30, 2008. Before joining Sara Lee, Ms. Foran served as Senior Vice President, Associate General Counsel and Corporate Secretary of Pfizer, Inc. (global pharmaceutical company), where she was employed since July 1997. Prior to that, she served as Associate General Counsel and Assistant Secretary of ITT Corp. (engineering and manufacturing company) and before that as a Vice President, Assistant General Counsel, and Assistant Secretary for J. P. Morgan & Co., Inc. (global financial services), as well as Secretary of Morgan Guaranty Trust Company of New York.

Christopher J. (CJ) Fraleigh, Age 45. Executive Vice President of Sara Lee Corporation since January 2007 and Chief Operating Officer, Sara Lee North America since November 2007. Mr. Fraleigh served as Chief Executive Officer of Sara Lee Food & Beverage from January 2005 to November 2007, and as Senior Vice President of Sara Lee from January 2005 to January 2007. Prior to joining Sara Lee, Mr. Fraleigh was employed by General Motors Corporation (automobile manufacturer) as general manager of its GMC-Buick-Pontiac division during 2004 and as Executive Director of Advertising and Corporate Marketing from 2001 to 2004. Mr. Fraleigh also served as Vice President, Colas for PepsiCo, Inc. from 1999 to 2001.

B. Thomas Hansson, Age 48. Senior Vice President, Strategy and Corporate Development of Sara Lee Corporation since January 2007. Prior to joining Sara Lee, Mr. Hansson was employed by Booz Allen Hamilton (consulting firm) from 1987 to January 2007. Mr. Hansson was elected a partner of Booz Allen Hamilton in 1995 and he was based in London from 1987 to 1997 and in Los Angeles from 1997 until he joined Sara Lee.

Vincent H.A.M. Janssen, Age 55. Executive Vice President of Sara Lee Corporation since August 2007 and Chief Executive Officer, Household and Body Care since 2003. Mr. Janssen joined Sara Lee in 1992 as Director of Marketing and Sales for Douwe Egberts, the Netherlands. Since that time, he has held positions of increasing responsibility, including president of Douwe Egberts, the Netherlands, and Regional Vice President of Coffee and Tea with responsibility for all coffee and tea activities in the Netherlands, the U.K., Australia and Poland as well as the worldwide out-of-home coffee systems business. He was promoted to Senior Vice President of Sara Lee in January 2004.

L.M. (Theo) de Kool, Age 55. Executive Vice President and Chief Financial and Administrative Officer of Sara Lee since February 2005; Executive Vice President and Chief Financial Officer of Sara Lee from January 2002 to February 2005. Mr. de Kool began his career with Sara Lee in 1990, serving as Vice President of Finance for the Household and Personal Care division of Sara Lee/DE N.V., a Dutch subsidiary of Sara Lee, from 1990 to 1993. From 1993 to 1995, he served as Chief Financial Officer of the Blokker retail chain. Mr. de Kool rejoined Sara Lee/DE in 1995 as its Chief Financial Officer and as a member of its Board of Management. Mr. de Kool was named a Vice President of Sara Lee in 1996 and a Senior Vice President of Sara Lee in 2001. Mr. de Kool also serves as a member of the Supervisory Board of Royal Wessanen nv, a multinational food corporation based in the Netherlands.

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James W. Nolan, Age 52. Executive Vice President of Sara Lee Corporation since January 2007 and Chief Executive Officer of Sara Lee Fresh Bakery since November 2007. Mr. Nolan joined Sara Lee in February 2005 as a Senior Vice President and Chief Executive Officer of Sara Lee Foodservice. Prior to joining Sara Lee, Mr. Nolan served as Executive Vice President, U.S. Operations of PepsiAmericas, Inc. (beverage manufacturer), from 2002 to February 2005, and as PepsiAmericas’ Senior Vice President—West Group from 2001 to 2002. Mr. Nolan was employed by PepsiCo, Inc. (food and beverage manufacturer) and served as Senior Vice President, Sales and Market Development from 1998 to 2001 and as Chief Customer Officer/Senior Vice President National Sales from 1994 to 1998.

Frank van Oers, Age 49. Executive Vice President of Sara Lee Corporation and Chief Executive Officer, International Beverage and Bakery since August 2007. Mr. van Oers served as Chief Executive Officer of Sara Lee International’s Coffee & Tea division from July 2006 to August 2007 and was appointed a Senior Vice President of Sara Lee Corporation in August 2006. From April 2005 through July 2006, Mr. van Oers served as Chief Financial Officer of Sara Lee International and, from September 2003 to April 2005, he served as Regional Vice President and President of Douwe Egberts Coffee Systems International. Mr. van Oers joined Sara Lee in 1996 and has served in various positions of increasing responsibility, including as President of Douwe Egberts Coffee Systems Netherlands B.V. from 2000 to 2003, General Manager of Operations for Douwe Egberts Netherlands from 1999 to 2000, and Vice President of Finance, Administration and Information Technology of Douwe Egberts Netherlands from 1996 to 1999. Before joining Sara Lee, Mr. van Oers held various positions with Chicopee B.V., a subsidiary of Johnson & Johnson, and was an auditor with Coopers & Lybrand and Deloitte Haskins & Sells.

Information Available on Sara Lee’s Web Site

This Annual Report on Form 10-K and Sara Lee’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports, and other documents filed with or furnished to the Securities and Exchange Commission (“SEC”) are available on Sara Lee’s Web site (www.saralee.com, under “Investor Relations—Financial/SEC Information”) as soon as reasonably practicable after such documents are electronically filed with or furnished to the SEC. These documents also are made available to read and copy at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the Public Reference Room by contacting the SEC at 1-800-SEC-0330. Reports filed with the SEC are also made available on its website at www.sec.gov.

The following documents also are available on Sara Lee’s Web site, www.saralee.com, under the captions indicated:

• current versions of Sara Lee’s corporate charter and bylaws, under “About Sara Lee-Corporate Governance”

• Corporate Governance Guidelines, under “Investor Relations-Corporate Governance”

• Global Business Standards, Sara Lee’s corporate code of business conduct and ethics, and any amendments to or waivers of such code, if applicable, under “About Sara Lee-Global Business Practices”

• current charters for the Audit, Compensation and Employee Benefits, and Corporate Governance, Nominating and Policy Committees of Sara Lee’s Board of Directors, under “About Sara Lee-Board of Directors-Committee Charters”

• procedures for communicating with Sara Lee’s Board of Directors, or the chair of any committee of the Board, under “About Sara Lee-Board of Directors-Contact Board of Directors”

A copy of Sara Lee’s Corporate Governance Guidelines, Global Business Standards or the charter of Sara Lee’s Audit, Compensation and Employee Benefits, or Corporate Governance, Nominating and Policy Committees will be sent to any stockholder without charge upon written request addressed to Sara Lee Corporation, Attn: Investor Relations Department, at 3500 Lacey Road, Downers Grove, Illinois, 60515-5424 or by calling (630) 598-8100.

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Throughout this Annual Report on Form 10-K and as permitted by the SEC, Sara Lee “incorporates by reference” certain information from parts of other documents filed or to be filed with the SEC, including Sara Lee’s 2008 Annual Report to Stockholders and Sara Lee’s Proxy Statement. Readers of this Annual Report on Form 10-K are encouraged to read the information referenced in such other documents. Portions of Sara Lee’s 2008 Annual Report to Stockholders are filed as Exhibit 13 to this Form 10-K, and full copies of Sara Lee’s 2008 Annual Report to Stockholders and Proxy Statement will be available, on or about September 16, 2008, on Sara Lee’s Web site, www.saralee.com, under “Investor Relations—Financial/SEC Information.”

Financial Information About Industry Segments

For financial reporting purposes, Sara Lee’s businesses are divided into six business segments: North American Retail Meats, North American Retail Bakery, Foodservice, International Beverage, International Bakery, and Household and Body Care. Financial information about Sara Lee’s business segments is incorporated herein by reference to Note 22, “Business Segment Information,” to the Consolidated Financial Statements contained in Sara Lee’s 2008 Annual Report to Stockholders.

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 International, B.V., a Netherlands limited liability company headquartered in Utrecht, the Netherlands (“Sara Lee International”). Sara Lee International has responsibility for managing the International Beverage, International Bakery and worldwide Household and Body Care divisions of Sara Lee. Household and Body Care’s operations are conducted by subsidiaries in over forty countries. The financial information about Sara Lee’s foreign and domestic operations in Note 23, “Geographic Area Information,” to the Consolidated Financial Statements contained in the Company’s 2008 Annual Report to Stockholders is incorporated herein by reference. Financial information about the impact on Sara Lee of foreign exchange rates appearing under the heading “Financial Review” of the Company’s 2008 Annual Report to Stockholders is incorporated herein by reference.

Item 1A. Risk Factors

This Annual Report on Form 10-K, including the information incorporated herein by reference, contains certain forward-looking statements including the anticipated costs and benefits of restructuring actions, Sara Lee’s access to credit markets and the corporation’s credit ratings, the funding of pension plans, potential payments under guarantees and amounts due under future contractual obligations and commitments. In addition, from time to time, in oral statements and written reports, the corporation discusses its expectations regarding the corporation’s future performance by making forward-looking statements preceded by terms such as “expects,” “projects,” “anticipates” or “believes.” These forward-looking statements are based on currently available competitive, financial and economic data, as well as management’s views and assumptions regarding future events, and are inherently uncertain. Readers should recognize that actual results may differ from those expressed or implied in the forward-looking statements. The risk factors described below could have a material impact on Sara Lee’s business.

Our profitability may suffer as a result of competition in our markets.

The branded food industry is intensely competitive. To maintain and increase our market positions, we may need to increase expenditures on media, advertising and promotions, and introduce new products and line extensions. Due to inherent risks in the marketplace associated with advertising and new product introductions, including uncertainties about trade and consumer acceptance, increased expenditures may not prove successful in maintaining or increasing our market share and could result in lower sales and profits.

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Our consumer products also are subject to significant price competition. From time to time, we may need to reduce the prices for some of our products to respond to competitive and customer pressures and to maintain market share. Such pressures also may restrict our ability to increase prices in response to raw material and other cost increases. Any reduction in prices as a result of competitive pressures, or any failure to increase prices when raw material costs increase, would harm profit margins and, if our sales volumes fail to grow sufficiently to offset any reduction in margins, our results of operations will suffer.

Commodity price increases would increase operating costs and may reduce profits.

Our businesses use many different types of commodities and inputs, including beef, pork, coffee, wheat, corn, corn syrup, soybean and corn oils, butter, sugar and fuel. The prices of commodities we use are subject to volatility due to factors beyond our control, such as commodity market fluctuations, the availability of supply, weather, currency fluctuations, trade agreements among producing and consuming nations, consumer demand and changes in governmental agricultural programs. In fiscal 2008 and 2007, we experienced significant increases in the prices of our commodities and other inputs, and we expect the prices of these commodities and other inputs to continue to rise in fiscal 2009. Commodity price increases directly impact our business by increasing the costs of raw materials used to make our products and the costs of inputs to manufacture, package and ship our products. We use commodity financial instruments to hedge some commodity prices, but not at significant levels and not for long durations of time. Over time, if commodity costs continue to increase, our operating costs will increase despite our commodity hedging program. Additionally, if we are not able to increase our product prices to sufficiently offset increased raw material costs, as a result of consumer sensitivity to pricing or otherwise, or if unit volume sales are significantly reduced due to price increases, it could have a material negative impact on our profitability.

We must leverage our brand value propositions to remain competitive and maintain profitability during economic downturns.

In many product categories, we compete not only with other widely advertised branded products, but also with private label or generic products that generally are sold at lower prices. Consumers’ willingness to purchase our products will depend upon our ability to maintain consumer perception that our products are of a higher quality and provide greater value than less expensive alternatives. If the difference in quality between our brands and private label products narrows, or if there is a perception of such a narrowing, consumers may choose not to buy our products at prices that are profitable for us. Furthermore, in periods of economic uncertainty, consumers tend to purchase more private label or other economy brands, or to forego certain purchases altogether. To the extent this occurs, we could experience a reduction in the sales volume of our higher margin products, or a shift in our product mix to lower margin offerings.

If our food products become adulterated or misbranded, we might need to recall those items and may experience product liability claims if consumers are injured.

Most of our products are sold for human consumption or personal use, which involves a number of legal risks. We may need to recall some of our products if they become adulterated or misbranded. A widespread product recall could result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products, which could have a material adverse effect on our business results and the value of our brands. We also may be subject to liability if our products or operations violate applicable laws or regulations, or in the event our products cause injury, illness or death. In addition, we could be the target of claims that our advertising is false or deceptive under U.S. federal and state laws as well as foreign laws, including consumer protection statutes of some states. Even if a product liability or consumer fraud claim is unsuccessful or is without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image.

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Our financial results are subject to currency fluctuations as a result of our significant international operations.

Almost half of our annual net sales are generated outside the United States. Our consolidated financial statements are prepared in U.S. dollars, while our international businesses report transactions in their respective local currencies. We translate results of transactions denominated in local currencies into U.S. dollars using market conversion rates applicable to the period in which the transaction is reported. As a result, changes in exchange rates during a period can unpredictably and adversely affect our consolidated operating results and our asset and liability balances. Sara Lee is particularly affected by fluctuations in the value of the U.S. dollar and the Euro and, to a lesser extent, the Brazilian real, British pound and Australian dollar.

Our pension costs could substantially increase as a result of volatility in the equity markets or interest rates, and could be adversely impacted by other pension arrangements.

As of the latest measurement date in March 2008, the projected benefit obligation of Sara Lee’s defined benefit pension plans was $4.74 billion and total assets in such plans were $4.42 billion. The difference between plan obligations and assets, or the funded status of the plans, is a significant factor in determining the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Changes in interest rates and the market value of plan assets can impact the funded status of these plans and cause volatility in the net periodic benefit cost and future funding requirements of these plans. In addition, in April 2006 we signed an agreement with the trustees of the Sara Lee U.K. Pension Plan in which we agreed to fully fund certain U.K. pension obligations by 2015. Under this agreement, Sara Lee will make annual contributions to the Plan of 32 million British pounds through 2015; however, the annual payments may be increased 20% if Sara Lee ceases to maintain specified credit ratings. After 2015, Sara Lee has agreed to keep the U.K. plan fully funded in accordance with local funding standards. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which the company operates, the tax deductibility of amounts funded and arrangements made with the trustees of certain foreign plans. A significant increase in our pension funding requirements could have a negative impact on our results of operations.

Sara Lee also is a participating employer in various multi-employer pension plans (“MEPP”). MEPPs are a type of pension plan that provides benefits to employees of multiple employers, and all participating employers are jointly responsible for maintaining the plan’s funding requirements. As a result of our participation in these types of plans, we could experience greater volatility in our overall pension funding obligations because our obligations may be impacted by the financial stability of, and potentially other activities taken by, other participating employers.

If we pursue strategic acquisitions or divestitures, we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.

From time to time, we evaluate potential acquisitions or divestitures that would further our strategic objectives. With respect to acquisitions, we may not be able to identify suitable candidates, consummate a transaction on terms that are favorable to us, or achieve expected returns and other benefits as a result of integration challenges, such as those relating to personnel and technology. With respect to proposed divestitures of assets or businesses, we may encounter difficulty in finding acquirors or alternative exit strategies on terms that are favorable to us, which could delay the accomplishment of our strategic objectives, or our divesture activities may require us to recognize impairment charges. Our acquisition or divestiture activities also may present financial and operational risks, including diversion of management attention from existing core businesses, integrating or separating personnel and financial and other systems, and adverse effects on existing business relationships with suppliers and customers.

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Changes in our relationships with our major customers, or in the trade terms required by such customers, may reduce sales and profits.

Because of the competitive environment facing retailers, many of our customers have increasingly sought to improve their profitability through pricing concessions and increased promotional programs, more favorable trade terms and increased emphasis on private label products. This trend has become more pronounced with increasing retailer consolidation and the rise in hard discounters in Europe. To the extent we provide concessions or better trade terms, our margins would be reduced. Further, if we are unable to continue to offer terms that are acceptable to our significant customers, such as Wal-Mart Stores Inc., our largest customer, or our customers determine that less inventory is necessary to service consumers, these customers could reduce purchases of our products and increase purchases of products from our competitors, which would harm our sales and profitability.

New or more stringent governmental regulations could adversely affect our business.

Food production and marketing are highly regulated by a variety of federal, state, local and foreign agencies. Changes in laws or regulations that impose additional regulatory requirements on us, such as recent requirements regarding the labeling of trans-fat content, could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected. In addition, food safety practices and procedures in the meat processing industry recently have been subject to more intense scrutiny and oversight and future outbreaks of diseases among cattle, poultry or pigs could lead to further governmental regulation. Increased governmental regulation resulting in changes in industry practices could increase our costs and reduce our margins.

Changes in our credit ratings may have a negative impact on our financing costs in future periods.

We have several credit facilities in place and management believes that these facilities are sufficient to fund our operating requirements. One of the significant factors that determine the pricing under these credit facilities is Sara Lee’s credit rating, and negative changes in our credit ratings could increase our borrowing costs. In addition, our current short-term credit rating allows us to participate in a commercial paper market that has a large number of potential investors and a high degree of liquidity. A downgrade in our credit ratings, particularly our short-term credit rating, would likely reduce the amount of commercial paper we could issue, increase our commercial paper borrowing costs, or both.

The global nature of our business and the resolution of tax disputes creates volatility in our effective tax rate.

As a global business, Sara Lee’s tax rate from period to period can be affected by many factors, including changes in tax legislation, our global mix of earnings, the tax characteristics of our income, the timing and recognition of goodwill impairments, acquisitions and dispositions, and the portion of the income of foreign subsidiaries that we expect to remit to the U.S. As a result of the geographic mix of our business, we are required to remit a significant portion of the earnings of our foreign operations to the U.S. each year. This has resulted in higher levels of tax expense and cash taxes paid.

In addition, significant judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish accruals for certain tax contingencies when, despite the belief that our tax return positions are fully supported, we believe that certain positions will be challenged and that our positions may not be fully sustained. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. Our effective tax rate includes the impact of tax contingency accruals and changes to the accruals, including related interest and penalties, as considered appropriate by management. When particular matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.

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Our information technology resources must achieve targeted cost reductions and realize anticipated benefits from the conversion to a common IT system or our results of operations and financial condition could be adversely affected.

Our future success and profitability depends in part on our ability to be efficient in the manufacture and distribution of our products and in processing transactions with our customers and vendors. To improve operational efficiency, we have launched an ongoing continuous improvement initiative and invested significant resources in a common information technology system across the organization. Our failure to generate significant cost savings and margin improvement from these initiatives could adversely affect our profitability and weaken our competitive position. Additionally, if the transition to our common information technology system is disruptive to our business or if the system does not perform as we anticipate, we could experience transaction errors, processing inefficiencies, and the loss of sales and customers, which could cause our business and results of operations to suffer.

We are subject to risks associated with our international operations, which could negatively affect our sales to customers in foreign countries as well as our operations and assets in such countries.

In fiscal 2008, we generated approximately 48% of our sales and 69% of our operating segment income outside of the United States. In addition, approximately 56% of our total assets are located outside of the United States and we use non-U.S. third-party suppliers for inventory and distribution services. As a result, Sara Lee is subject to numerous risks and uncertainties relating to international sales and operations, including:

• difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex laws, treaties and regulations;

• different regulatory structures and unexpected changes in regulatory environments, including potentially negative consequences from changes in tax laws;

• earnings that may be subject to withholding requirements and incremental taxes upon repatriation;

• the imposition of tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements;

• increased costs, disruptions in shipping or reduced availability of freight transportation; and

• political and economic instability, including the possibility of civil unrest, and the nationalization of properties by foreign governments.

The occurrence of any of these events in the markets where Sara Lee operates or in other developing markets could jeopardize or limit Sara Lee’s ability to transact business in those markets and could adversely affect our revenues and operating results.

Failure to maximize or to successfully assert our intellectual property rights could impact our competitiveness.

We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. We cannot be sure that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect our own, or, where appropriate, license intellectual property rights necessary to support new product introductions. We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future. In addition, even if such rights are obtained in the United States, the laws of some of the other countries in which our products are or may be sold do not protect our intellectual property rights to the same extent as the laws of the United States. Our failure to perfect or successfully assert our intellectual property rights could make us less competitive and could have an adverse effect on our business, operating results and financial condition.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Sara Lee’s corporate and North American headquarters are located in approximately 554,000 square feet of leased facilities in and around Chicago, Illinois. In addition, Sara Lee operates more than 270 food processing and consumer product manufacturing plants, warehouses and distribution facilities that each contains more than 20,000 square feet in building area. Sara Lee or its subsidiaries own most of these facilities, and the majority of the leased facilities are subject to lease terms of less than 10 years. Management believes that Sara Lee’s facilities are maintained in good condition and are generally suitable and of sufficient capacity to support Sara Lee’s current business operations and that the loss of any single facility would not have a material adverse effect on the operations or financial results of Sara Lee or any of its lines of business.

The following table identifies the locations of Sara Lee facilities (owned or leased) containing more than 20,000 square feet in building area by business segment.

North American Retail Meats
United States facilities (14 states)	approximately 5.1 million square feet
North American Retail Bakery
United States facilities (30 states)	approximately 7.2 million square feet
Foodservice
United States facilities (17 states)	approximately 3.2 million square feet
International Bakery
International facilities	approximately 1.9 million square feet

Australia	Portugal
France	Spain

International Beverage
International facilities	approximately 4.0 million square feet

Australia	Denmark	Hungary
Belgium	France	The Netherlands
Brazil	Germany	Poland
Czech Republic	Greece	Spain
		Thailand

Household and Body Care
United States facilities (1 state)	approximately 23 thousand square feet
International facilities	approximately 3.9 million square feet

China	Kenya	South Africa
Denmark	Malaysia	Spain
India	The Netherlands	Thailand
Indonesia	Philippines	United Kingdom
Italy	Poland	Zambia
		Zimbabwe

Item 3. Legal Proceedings

As described in Sara Lee’s annual report on Form 10-K for the fiscal year ended July 1, 2006, John Gallo, a purported Sara Lee stockholder, filed a putative class action lawsuit in the United States District Court for the Northern District of Illinois, Eastern Division, on May 13, 2003. Subsequently, seven other putative class action lawsuits were filed in the United States District Court for the Northern District of Illinois, Eastern Division. The complaints name Sara Lee, C. Steven McMillan, former Chairman, President and Chief Executive Officer of Sara Lee, and Lambertus M. de Kool, Executive Vice President and Chief Financial and Administrative Officer of

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Sara Lee, as defendants. Each of the foregoing actions were consolidated in a single proceeding captioned In re Sara Lee Securities Litigation on July 18, 2003. Judge Charles R. Norgle appointed co-lead plaintiffs and class counsel, who filed their consolidated amended complaint on January 20, 2004. The complaint alleges a class period from August 1, 2002 to April 24, 2003, and asserts that the defendants misstated or omitted material adverse facts regarding Sara Lee’s business, operations, management, and financial statements, and the value of Sara Lee’s common stock, which allegedly enabled Sara Lee to complete securities offerings, enabled the individual defendants to increase their bonus compensation, and caused the class to purchase the stock at artificially inflated prices. The plaintiffs seek relief under Sections 10(b) and 20(a) of the United States Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

On October 19, 2005, defendants filed a motion for judgment on the pleadings based on the plaintiffs’ failure to adequately plead loss causation. The motion was fully briefed at the end of November 2005. On July 10, 2006, the motion was granted and the case was dismissed. The Court found that plaintiffs failed to allege and prove that defendants’ misrepresentations and other fraudulent conduct proximately caused plaintiffs’ economic losses. On July 24, 2006, plaintiffs moved for relief from final judgment and for leave to amend the consolidated amended complaint under Federal Rules 15(a), 59(e), and 60(b). Sara Lee believes that the allegations stated in the proposed amended consolidated amended complaint remain without merit. Briefing on plaintiffs’ motion was completed on October 13, 2006, and the Company is awaiting the Court’s ruling. The Company intends to continue to defend the action vigorously.

As described in Sara Lee’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007, two purported Sara Lee stockholders filed separate individual and derivative actions on June 26, 2003 and July 11, 2003, respectively, in the Circuit Court of Cook County, Illinois against Sara Lee, its Board of Directors and certain of its officers for purported breaches of fiduciary duty relating to the allegations that the defendants misstated or omitted material adverse facts regarding Sara Lee’s business, operations, management, and financial statements, and the value of Sara Lee’s common stock. One complaint also contained a count against C. Steven McMillan, former Chairman, President and Chief Executive Officer of Sara Lee, and another former executive officer of Sara Lee, for breach of fiduciary duty related to their alleged insider trading. The now consolidated action was amended on November 13, 2006 to add three new causes of action for alleged abuse of control, waste of corporate assets and unjust enrichment. The amended complaint seeks damages in an unspecified amount, and attorneys’ fees and expenses, punitive damages and interest.

On December 13, 2006, defendants moved to dismiss the amended complaint on the ground that plaintiffs failed to make a pre-suit demand upon the company’s Board of Directors. On May 10, 2007, the Court granted the defendants’ motion to dismiss; however, instead of an outright dismissal, the Court stayed entry of its order to allow plaintiffs the opportunity to make a demand on the company’s current Board of Directors. On November 15, 2007, the current Board of Directors received the plaintiffs’ demand. The demand letter attached the November 13, 2006 amended complaint but substituted a new plaintiff. In December 2007, the Board of Directors formed a special committee of disinterested directors to investigate plaintiff’s demand. A status hearing on the case is set for November 5, 2008. The company believes that plaintiff’s allegations are without merit and intends to continue to defend this action vigorously.

In addition, Sara Lee is a participating employer in the American Bakers Association Retirement Plan (the “ABA Plan”). In 1979, the Pension Benefit Guaranty Corporation (the “PBGC”) determined that the ABA Plan was an aggregate of single-employer pension plans, rather than a multiple-employer pension plan for purposes of Title IV of ERISA. Under the express terms of the ABA Plan’s governing documents, Sara Lee’s contributions can only be used to pay for benefits of its own employee-participants. In May 2006, the Company filed suit against the ABA Plan and its Trustees in the United States District Court for the District of Columbia, alleging that the ABA Plan’s terms had been violated by allowing other participating employers to maintain negative trust balances (thus using Sara Lee’s and other participating employer’s assets to pay the benefits of other employer’s employee-participants). The suit is styled: Sara Lee Corporation, et al. v. ABA Plan, et al.; Case No. 06-CV-0819-HHK. Sara Lee is one of the primary employer-participants in the ABA Plan. Currently, it is

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our belief that other employer participants have an underfunding liability to the ABA Plan of approximately $80 million. It is uncertain whether such employer participants with negative balances will be able to fund their liabilities.

On August 8, 2006, the PBGC published its determination on the status of the ABA Plan, and rescinded its 1979 determination, in which it found the ABA Plan to be an aggregate of single-employer plans. Sara Lee amended its initial complaint to add a cause of action against the PBGC challenging the legality of the PBGC’s 2006 determination. The PBGC’s position, if upheld, will inure to its financial benefit by allowing the PBGC to avoid assuming a substantial portion of the ABA Plan’s underfunding. Such underfunding under the PBGC’s 2006 determination may now be shared by remaining ABA Plan employer-participants with positive balances, which includes Sara Lee.

The PBGC moved for summary judgment on Sara Lee’s claim. Argument on the PBGC’s motion has been heard and we await a decision by the District of Columbia Court. Until a ruling is issued, no discovery or other briefing is likely to occur. Sara Lee believes that the PBGC’s 2006 determination is without merit and will continue to vigorously defend the position that Sara Lee is responsible only for the obligations related to its current and former employees who participate in the ABA Plan.

During the past two years, competition authorities in various European countries and the European Commission have initiated investigations of potential competition law violations by consumer products companies. In connection with these investigations, Sara Lee’s Household and Body Care business operating in Europe has received requests for information and has had documents reviewed by competition authorities. Our policy is to comply with all laws and regulations applicable to our business, including all antitrust and competition laws, and no formal claim of any substantive competition law violation has been made against Sara Lee in connection with any of these pending investigations. Based on currently available information, we do not believe that any of these matters will have a material impact on our financial condition or results of operations.

Sara Lee is a party to various other pending legal proceedings and claims. Some of the proceedings and claims against Sara Lee are for alleged environmental contamination and arise under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”). CERCLA imposes liability, regardless of fault, on certain classes of parties that are considered to be responsible for contamination at a site. Although any one party can be held responsible for all the costs of investigation and cleanup, those costs are usually allocated among parties based on a variety of factors, such as the amount of waste each contributed to the site.

Although the outcome of the pending legal proceedings, including Superfund claims, cannot be determined with certainty, Sara Lee believes that the final outcomes should not have a material adverse effect on Sara Lee’s consolidated results of operations, financial position or cash flows.

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

None.

15

PART II

Item 5. Market for Sara Lee’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Sara Lee’s common stock is traded on the exchanges listed on the cover page of this Annual Report on Form 10-K. The principal market in the United States for the common stock is the New York Stock Exchange (“NYSE”). As of August 4, 2008, Sara Lee had approximately 69,538 holders of record of its common stock. Information regarding market prices on the NYSE and cash dividends paid on Sara Lee’s common stock during the past two fiscal years in Note 24, “Quarterly Financial Data (Unaudited),” to the Consolidated Financial Statements contained in Sara Lee’s 2008 Annual Report to Stockholders is incorporated herein by reference.

For information regarding securities authorized for issuance under Sara Lee’s equity compensation plans, see the information set forth in the Proxy Statement under the heading “Equity Compensation Plan Information Table.”

Issuer Purchases of Equity Securities

The following table outlines Sara Lee’s purchases of shares of its common stock during the fourth quarter of fiscal 2008.

Period	(a) Total Number  of Shares Purchased	(b) Average Price  Paid per Share	(c) Total Number of Shares Purchased as  Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
March 30, 2008 to May 3, 2008	0	—	0	24,848,780
May 4, 2008 to May 31, 2008	0	—	0	24,848,780
June 1, 2008 to June 28, 2008	0	—	0	24,848,780
Total	0	—	0	24,848,780

(1) Sara Lee has a continuing stock repurchase program under which it may repurchase shares of common stock in either open market or private transactions. On August 4, 2005, Sara Lee announced that its Board of Directors had increased the number of shares authorized under this program by an additional 100 million shares. At June 28, 2008, 24.8 million shares remain authorized for repurchase under this program. There is no expiration date for the program.

Item 6. Selected Financial Data

Financial information for Sara Lee for the five fiscal years ended June 28, 2008 that appears under the heading “Financial Summary” in Sara Lee’s 2008 Annual Report to Stockholders is incorporated herein by reference. Such information should be read in conjunction with the Consolidated Financial Statements and related Notes to Financial Statements, and the “Financial Review,” contained in Sara Lee’s 2008 Annual Report to Stockholders.

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

The information appearing under the heading “Financial Review” in Sara Lee’s 2008 Annual Report to Stockholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information in the subsection entitled “Risk Management” under the heading “Financial Review” in Sara Lee’s 2008 Annual Report to Stockholders is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements and related Notes to Financial Statements of Sara Lee contained in Sara Lee’s 2008 Annual Report to Stockholders and the Report of Independent Registered Public Accounting Firm are incorporated herein by reference.

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

None.

Item 9A. Controls and Procedures

(a) Disclosure Controls

Sara Lee’s Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, evaluated the effectiveness of Sara Lee’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”) and, based upon such evaluation, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.

(b) Internal Control over Financial Reporting

Management’s report on Sara Lee’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), and the related Report of Independent Registered Public Accounting Firm, are contained in Sara Lee’s 2008 Annual Report to Stockholders under the headings “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm,” respectively, and are incorporated herein by reference.

(c) Changes in Internal Control over Financial Reporting

During the fiscal quarter ended June 28, 2008, the following changes occurred in Sara Lee’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, Sara Lee’s internal control over financial reporting.

During the fourth quarter of fiscal 2008, Sara Lee completed its review of the design of its control procedures with respect to accounting for income taxes. As a result of this review, we have implemented and documented new control procedures, across its worldwide operations, to more clearly define responsibility for the accounting and reporting of income taxes and to ensure procedures are in place for the timely reconciliation of all tax related accounts.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers, and Corporate Governance

The following information is incorporated herein by reference to Sara Lee’s Proxy Statement under the headings indicated: information with respect to Sara Lee’s directors, under the heading “Election of Directors;” information regarding Sara Lee’s audit committee and its designation of an audit committee financial expert, under the heading “Meetings and Committees of the Board—Audit Committee;” and information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, under “Section 16(a) Beneficial Ownership Reporting Compliance.” Information with respect to Sara Lee’s executive officers is contained at the end of Part I of this Annual Report under the caption “Executive Officers of Sara Lee.”

Code of Ethics

Sara Lee’s Global Business Standards, its written corporate code of business conduct and ethics, embodies Sara Lee’s long-standing history of requiring adherence to high standards of ethical conduct and business practices. The Global Business Standards are available on Sara Lee’s Web site at www.saralee.com under “About Sara Lee-Global Business Practices.” All of Sara Lee’s officers, directors and employees, including its Chief Executive Officer, Chief Financial Officer and principal accounting officer, are required to comply with the Global Business Standards. If the Global Business Standards are amended, or if Sara Lee grants a waiver from a provision of the Global Business Standards to a Sara Lee executive officer or director, Sara Lee promptly will post such information on its Web site in accordance with SEC rules.

Item 11. Executive Compensation

The information set forth in the Proxy Statement under the headings “Director Compensation” and “Executive Compensation” is incorporated herein by reference; provided, however, that the Report of the Compensation and Employee Benefits Committee will not be deemed to be filed with the SEC.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information set forth in the Proxy Statement under the following headings is incorporated herein by reference: “Sara Lee Stock Ownership by Certain Beneficial Owners,” “Sara Lee Stock Ownership by Directors and Executive Officers” and “Equity Compensation Plan Information Table.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information set forth in the Proxy Statement under the headings “Corporate Governance–Director Independence” and “Corporate Governance–Review of Transactions with Related Persons” is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information set forth in the Proxy Statement under the headings “Audit Fees” and “Audit Committee Pre-Approval Policies and Procedures” is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

The following Consolidated Financial Statements and related Notes, together with the Reports of Independent Registered Public Accounting Firm with respect thereto, which are contained in Sara Lee’s 2008 Annual Report to Stockholders are incorporated herein:

(a) 1. Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income—Years ended July 1, 2006, June 30, 2007 and June 28, 2008

Consolidated Balance Sheets—June 30, 2007 and June 28, 2008

Consolidated Statements of Common Stockholders’ Equity—For the period July 5, 2005 to June 28, 2008

Consolidated Statements of Cash Flows—Years ended July 1, 2006, June 30, 2007 and June 28, 2008

Notes to Financial Statements

    2. Financial Statement Schedules

The following Financial Statement Schedule, together with the Report of Independent Registered Public Accounting Firm with respect thereto, appears elsewhere in this Report and is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

Schedule II—Valuation and Qualifying Accounts

    3. Exhibits

A list of exhibits to this Report is set forth in the Exhibit Index appearing elsewhere in this Report and is incorporated herein by reference.

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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.

August 27, 2008

SARA LEE CORPORATION
By:	/s/    L.M. (THEO) DE KOOL
	L.M. (Theo) de Kool
	Executive Vice President, Chief Financial and Administrative Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Sara Lee Corporation and in the capacities indicated on August 27, 2008.

Signature	Title
/s/    BRENDA C. BARNES         Brenda C. Barnes	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
/s/    L.M. (THEO) DE KOOL         L.M. (Theo) de Kool	Executive Vice President and Chief Financial and Administrative Officer (Principal Financial and Accounting Officer)
/s/    CHRISTOPHER B. BEGLEY         Christopher B. Begley	Director
/s/    VIRGIS W. COLBERT         Virgis W. Colbert	Director
/s/    JAMES S. CROWN         James S. Crown	Director
/s/    LAURETTE T. KOELLNER         Laurette T. Koellner	Director
/s/    CORNELIS J.A. VAN LEDE         Cornelis J.A. van Lede	Director
/s/    SIR IAN M.G. PROSSER         Sir Ian M.G. Prosser	Director
/s/    ROZANNE L. RIDGWAY         Rozanne L. Ridgway	Director
/s/    NORMAN R. SORENSEN         Norman R. Sorensen	Director
/s/    JONATHAN P. WARD         Jonathan P. Ward	Director

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EXHIBIT INDEX

3. Exhibits

		Incorporation by Reference
(3a)	1. Articles of Restatement of Charter dated August 28, 2003	Exhibit 3(a) to Report on Form 10-K for Fiscal Year ended June 28, 2003.
(3b)	2. Amended Bylaws, dated March 27, 2008	Exhibit 3.1 to Report on Form 10-Q for Fiscal Quarter ended March 29, 2008
(4)	1. Form of 6 1/4% Notes due 2011	Exhibit 4.2 to Current Report on Form 8-K dated September 24, 2001

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. Supplemental Benefit Plan, as amended	Exhibit 10.5 to Report on Form 10-K for Fiscal Year ended June 28, 1997
	*2. Performance-Based Incentive Plan	Exhibit A to Proxy Statement dated September 14, 2007
	*3. 1995 Long-Term Incentive Stock Plan, as amended	Exhibit 10.16 to Report on Form 10-K for Fiscal Year ended June 28, 1997
	*5. 1998 Long-Term Incentive Stock Plan	Exhibit A to Proxy Statement dated September 21, 1998
	*6. 2002 Long-Term Incentive Stock Plan	Exhibit A to Proxy Statement dated September 25, 2002
	*7. Executive Deferred Compensation Plan	Exhibit 10.12 to Report on Form 10-K for Fiscal Year ended July 3, 1999
	*8. Second Amendment to Executive Deferred Compensation Plan	Exhibit 10.13 to Report on Form 10-K for Fiscal Year ended July 1, 2000
	*9. Severance Plans For Corporate Officers, as amended	Exhibit 10.11 to Report on Form 10-K for Fiscal Year ended July 1, 2006
	*10. Employee Option & Share Plan For Employees in the Netherlands	Exhibit 10.24 to Report on Form 10-K for Fiscal Year ended June 29, 2002
	*11. U.K. Savings Incentive Plan	Exhibit 10.18 to Report on Form 10-K for Fiscal Year ended June 28, 2003
	*12. Share 2000 Global Stock Plan	Exhibit 10.27 to Report on Form 10-K for Fiscal Year ended June 29, 2002
	*13. Termination Agreement dated June 15, 2007 between Adriaan Nühn and Sara Lee Corporation and Sara Lee International B.V.	Exhibit 10.15 to Report on Form 10-K for Fiscal Year ended June 30, 2007
	*14. Form of 1998 Long-Term Incentive Stock Plan Stock Option Grant Notice and Agreement	Exhibit 10.1 to Report on Form 10-Q for Fiscal Quarter ended January 1, 2005
	*15. Sara Lee Corporation 1999 Non-Employee Director Stock Plan, as Amended and Restated

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	*16. Form of 1998 Long-Term Incentive Stock Plan Stock Option Grant Notice and Agreement	Exhibit 10.36 to Report on Form 10-K for Fiscal Year ended July 2, 2005
	*17. Long-Term Restricted Stock Unit Grant program for Fiscal Years 2007-2009	Exhibit 10.31 to Report on Form 10-K for Fiscal Year ended July 1, 2006
	*18. Form of Restricted Stock Unit Grant Notice & Agreement for FY 07-09 LTRSU	Exhibit 10.32 to Report on Form 10-K for Fiscal Year ended July 1, 2006
	*19. FY2007 Form of Stock Option Grant Notice and Agreement	Exhibit 10.33 to Report on Form 10-K for Fiscal Year ended July 1, 2006
(12)	Computation of Ratio of Earnings to Fixed Charges
(13)	Portions of Sara Lee’s 2008 Annual Report to Stockholders (only those portions that are expressly incorporated by reference in this Annual Report on Form 10-K)
(21)	List of Subsidiaries
(23)	Consent of PricewaterhouseCoopers LLP
(31)	1. Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
	2. Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
(32)	1. Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
	2. Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

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Report of Independent Registered Public Accounting Firm on

Financial Statement Schedule

To the Board of Directors and Stockholders of

Sara Lee Corporation

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated August 25, 2008 appearing in the 2008 Annual Report to Stockholders of Sara Lee Corporation (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

August 25, 2008

Schedule II

Sara Lee Corporation and Subsidiaries

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended July 1, 2006, June 30, 2007 and June 28, 2008

(in millions)	Balance at Beginning of Year		Provision Charged to Costs and Expenses			Write-offs(1) /Allowances Taken			Other(2) Additions (Deductions)			Balance at End of Year
For the Year Ended July 1, 2006
Allowances for bad debts	$	32	$	4		$	(10	)	$	1		$	27
Other receivable allowances		43		43			(46	)		(6	)		34
Deferred tax asset valuation allowances		320		(36	)		—			(40	)		244
Total	$	395	$	11		$	(56	)	$	(45	)	$	305
For the Year Ended June 30, 2007
Allowances for bad debts	$	27	$	—		$	(3	)	$	5		$	29
Other receivable allowances		34		27			(24	)		16			53
Deferred tax asset valuation allowances		244		26			—			104			374
Total	$	305	$	53		$	(27	)	$	125		$	456
For the Year Ended June 28, 2008
Allowances for bad debts	$	29	$	4		$	(5	)	$	4		$	32
Other receivable allowances		53		33			(31	)		4			59
Deferred tax asset valuation allowances		374		(19	)		—			(72	)		283
Total	$	456	$	18		$	(36	)	$	(64	)	$	374

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

(2) For the deferred tax valuation rollforward, the Other Additions (Deductions) column consists principally of adjustments related to discontinued operations, adjustments that were recorded in other comprehensive income, the adoption of FIN 48 in 2008, revisions to gross up deferred tax assets and related valuation allowance, and foreign exchange.

EX-10.15

Exhibit 10.15

SARA LEE CORPORATION

1999 NON-EMPLOYEE DIRECTOR STOCK PLAN

ARTICLE I - PURPOSE OF THE PLAN

The purpose of the Sara Lee Corporation 1999 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. Notwithstanding any provision of the Plan to the contrary, amounts deferred under the Plan after December 31, 2004 (including Awards of Restricted Stock Units) are subject to the provisions of Section 409A of the Internal Revenue Code (the “Code”) and at all times the Plan as applied to those amounts shall be interpreted and administered so that it is consistent with such Code section.

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 Restricted Stock Units or Shares.

2.3 “Board” means the Board of Directors of Sara Lee Corporation.

2.4 “Committee Retainer” means the annual retainer fee payable by the Corporation to a Non-Employee Director for services as a member and/or as a chair of a Board committee, as such amounts may be changed from time to time. Fifty percent (50%) of the Committee Retainer shall be payable in the form of cash (the “Committee Cash Retainer”) which is subject to the election provided in Article IX and fifty percent (50%) of the Committee Retainer shall be payable as Committee RSUs as provided in Section 8.1(c).

2.5 “Corporation” means Sara Lee Corporation.

2.6 “Deferral Account” means a bookkeeping account in the name of a Non-Employee Director who elects to defer, pursuant to the Grandfathered Deferral Program or the Deferral Program, all or a portion of an Annual Retainer, Committee Cash Retainer or an Award.

2.7 “Deferred Compensation Rate” means, with respect to any date, the rate of interest payable as of such date on Interest Accounts under subparagraph A-4(b) of the Grandfathered Deferral Program or subparagraph B-4(b) of the Deferral Program.

2.8 “Deferral Program” means the terms and conditions (which are described in Supplement B hereto) pursuant to which Non-Employee Directors may after December 31, 2004 defer the payment of Annual Retainers, Committee Cash Retainers and vested Awards.

2.9 “Fair Market Value” means the closing selling price per Share on the New York Stock Exchange Composite Transactions Tape on the determination date, provided that if there are no sales of Shares reported on such date, the Fair Market Value of a Share on such date shall be deemed equal to the closing selling price of a Share on such Composite Tape for the last preceding date on which sales of Shares were reported.

2.10 “Grandfathered Deferral Program” means the terms and conditions that apply to amounts deferred under the Plan prior to January 1, 2005 as described in Supplement A hereto.

2.11 “Non-Employee Director” means a director of the Corporation who is not an employee of the Corporation or any subsidiary of the Corporation.

2.12 “Plan” means this Sara Lee Corporation 1999 Non-Employee Director Stock Plan (As Amended through June 30, 2005), and as further amended and restated from time to time.

2.13 “Restricted Stock Unit” means a restricted stock unit granted to a Non-Employee Director pursuant to Article VIII hereof.

2.14 “Restricted Stock Unit Grant Notice” means a written notice provided to a Non-Employee Director evidencing a grant of Restricted Stock Units and setting forth the basic terms and conditions of the award.

2.15 “Stock Award Date” means the date on which Shares are awarded to a Non-Employee Director pursuant to Article IX hereof.

2.16 “Shares” means shares of the Common Stock, par value $.01 per share, of the Corporation.

2.17 “Settlement Date” means the date that is six (6) months after the Non-Employee Director ceases to be a director of the Corporation.

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 applicable law and 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.

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ARTICLE IV - AWARDS UNDER THE PLAN

Awards in the form of Restricted Stock Units shall be granted to Non-Employee Directors in accordance with Article VIII. Awards in the form of Shares may be granted to Non-Employee Directors in accordance with Article IX. Grants of Restricted Stock Units that are made under the Plan shall be evidenced by a Restricted Stock Unit Grant Notice.

ARTICLE V - ELIGIBILITY

Non-Employee Directors of the Corporation shall be eligible to participate in the Plan in accordance with Articles VIII and IX.

ARTICLE VI - SHARES SUBJECT TO THE PLAN

Subject to adjustment as provided in Article XII, the aggregate number of Shares that may be issued under the Plan is seven hundred thousand (700,000) Shares, plus one million one hundred fifty thousand (1,150,000) Shares that are subject to outstanding Awards under the Plan on June 27, 2002. To the extent that Shares subject to an outstanding Award are not issued by reason of the expiration, termination, cancellation or forfeiture of such Award, or by reason of the tendering or withholding of Shares to satisfy all or a portion of the tax withholding obligations relating to an Award, then such Shares shall again be available under the Plan.

ARTICLE VII - TRANSFERABILITY OF RESTRICTED STOCK UNITS

Restricted Stock Units granted under the Plan shall not be transferable or assignable other than by will or the laws of descent and distribution.

ARTICLE VIII - RESTRICTED STOCK UNIT AWARDS

Each Non-Employee Director shall be granted Restricted Stock Units, subject to Article VI and to the following terms and conditions:

8.1 Grant of Restricted Stock Units. (a) On July 2, 2007 each person who is a Non-Employee Director on that date shall be granted a whole number of Restricted Stock Units determined by dividing $37,500 by the Fair Market Value of a Share on that date. Thereafter, on the first business day of each calendar year (the “Annual Grant Date”), beginning with calendar year 2008, each person who is a Non-Employee Director on such Annual Grant Date shall be granted a whole number of Restricted Stock Units determined by dividing $120,000 by the Fair Market Value of a Share on the Annual Grant Date.

(b) A Non-Employee Director who is first elected or begins to serve as a Non-Employee Director between Annual Grant Dates (other than a Non-Employee Director who is first elected or begins to serve between July 1, 2007 and January 1, 2008) shall be granted, on the date that such person is first elected or begins to serve as a Non-Employee Director, a number of Restricted Stock Units determined by (i) dividing $120,000 by the Fair Market Value of a Share on the date of grant (ii) multiplying the quotient by a fraction the numerator of which is the number of whole or partial months between the date of grant and the next Annual Grant Date and the denominator of which is 12 and (iii) rounding the result up the nearest whole number of Shares. A Non-Employee Director who is first elected or begins to serve as a Non-Employee Director between July 1, 2007 and January 1, 2008 shall be granted, on the

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date that such person is first elected or begins to serve as a Non-Employee Director, a number of Restricted Stock Units determined by (iv) dividing $37,500 by the Fair Market Value of a Share on the date of grant (v) multiplying the quotient by a fraction the numerator of which is the number of whole or partial months between the date of grant and January 1, 2008 and the denominator of which is six and (vi) rounding the result up the nearest whole number of Shares

(c) On July 2, 2007 in addition to the Restricted Stock Units granted under Section 8.3(a) above, each Non-Employee Director who chairs or serves on a Board committee for which a Committee Retainer is payable shall be granted a whole number of Restricted Stock Units determined by dividing an amount equal to 25% of the Non-Employee Director’s Committee Retainer by the Fair Market Value of a Share on July 2, 2007. On each Annual Grant Date occurring after July 2, 2007, in addition to the Restricted Stock Units granted under Section 8.1(a) above, each Non-Employee Director who chairs or serves on a Board committee for which a Committee Retainer is payable shall be granted a whole number of Restricted Stock Units determined by dividing an amount equal to 50% of the Non-Employee Director’s Committee Retainer by the Fair Market Value of a Share on the Annual Grant Date (such Restricted Stock Units, the “Committee RSUs”).

(d) If the amount of a Non-Employee Director’s Committee Retainer increases between Annual Grant Dates (for this purpose July 2, 2007 shall be considered an Annual Grant Date), the Non-Employee Director shall be granted, on the date that such person’s Committee Retainer increases, a number of Restricted Stock Units determined by (i) multiplying the amount by which the Committee Retainer increases by 50%, (ii) dividing the product by the Fair Market Value of a Share on the date of grant, (iii) multiplying the quotient by a fraction the numerator of which is the number of whole or partial months between the date of grant and the next Annual Grant Date and the denominator of which is 12 (six in the case of any increase that occurs between July 1, 2007 and January 1, 2008) and (iv) rounding the result up the nearest whole number of Shares.

(e) If the amount of a Non-Employee Director’s Committee Retainer decreases between Annual Grant Dates (other than pursuant to 8.2(f) below) (for this purpose July 2, 2007 shall be considered an Annual Grant Date), the Non-Employee Director shall forfeit, on the date that such person’s Committee Retainer decreases, a number of Restricted Stock Units determined by (i) multiplying the number of Committee RSUs that were granted to such Non-Employee Director on the immediately preceding Annual Grant Date by a fraction the numerator of which is the number of whole or partial months between the date that such person’s Committee Retainer decreases and the next Annual Grant Date and the denominator of which is 12 (six in the case of any increase that occurs between July 1, 2007 and January 1, 2008) and (ii) rounding the result up the nearest whole number of Shares.

(f) If any Non-Employee Director ceases to be a Director of the Corporation between Annual Grant Dates (for this purpose July 2, 2007 shall be considered an Annual Grant Date) other than by reason of death or disability, such Non-Employee Director shall forfeit a number of the Restricted Stock Units and Committee RSUs, if any, granted to the Non-Employee Director on or after the immediately preceding Annual Grant Date determined by multiplying the total number of Restricted Stock Units and Committee RSUs granted to the Non-Employee Director under Sections 8.1(a), (b), (c) and/or (d) on such immediately preceding Annual Grant Date or subsequent grant date by a ratio the number of which is the number of months from the immediately preceding Annual Grant Date or subsequent grant date through the end of the month in which the Non-Employee Director ceases to be a Director and the denominator of which is 12 (six in the case of a Non-Employee Director who ceases to be a Director between July 1, 2007 and January 1, 2008).

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(g) In determining the number of Restricted Stock Units under this Section 8.1, all calculations shall be rounded up to the nearest whole number of Shares.

8.2 Vesting. (a) Except as provided in Section 8.2(b), 8.3, 8.5 and 9.3 and Article 10, Restricted Stock Units granted on or after July 1, 2005 shall vest in full on the date immediately preceding the one-year anniversary of the date on which such Restricted Stock Units were awarded and Restricted Stock Units granted on or after January 1, 2008 shall vest in full on the one year anniversary of the date on which such Restricted Stock Units were awarded.

(b) Notwithstanding Section 8.2(a), if a Non-Employee Director ceases to be a director of the Corporation (i) due to death or disability, all Restricted Stock Units held by such Non-Employee Director shall vest in full on the date on which such Non-Employee Director ceases to be a director of the Corporation, or (ii) for any other reason, then all Restricted Stock Units held by such Non-Employee Director, after applying the forfeiture provisions of Section 8.1(f), shall vest in full on the date on which such Non-Employee Director ceases to be a director of the Corporation.

8.3 Payment of Restricted Stock Units. Restricted Stock Units granted on or after July 1, 2005 shall be paid on the Non-Employee Director’s Settlement Date. With respect to Awards granted under the Plan prior to July 1, 2005, a Non-Employee Director can elect to defer payment of all or any portion of such Awards provided such elections are in writing, on such forms as the Committee may prescribe, and in accordance with the terms and conditions of the Plan at the time of the deferral. The payment of any Awards deferred under the Plan prior to January 1, 2005 shall be governed by the provisions of Supplement A. The payment of any Awards deferred under the Plan after January 1, 2005 shall be governed by the provisions of Supplement B.

8.4 Dividend Equivalents. Restricted Stock Units shall accrue dividend equivalents at the same rate and at the same times as cash dividends are paid on Shares. Such dividend equivalents shall be retained by the Corporation on behalf of the Non-Employee Director and shall be paid in cash pursuant to Section 8.6 hereof, together with interest from the date of accrual to the date of payment at the Deferred Compensation Rate; provided that no interest shall be paid on any dividend equivalents accrued on Restricted Stock Units awarded after January 1, 2005.

8.5 Forfeiture. If a Non-Employee Director is determined, by a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (excluding the Non-Employee Director whose conduct is in question), to have (i) acted in a manner detrimental to the Corporation’s best interests, or (ii) failed to act and such failure to act was detrimental to the Corporation’s best interests, each Restricted Stock Unit held by such Non-Employee Director shall, as of the date of the adoption of such resolution, be forfeited and all rights of the Non-Employee Director to or with respect to such Restricted Stock Unit shall terminate. No action or failure to act shall be deemed by the Board to be detrimental to the Corporation’s best interests unless such action was taken in bad faith or without reasonable belief that such action was in the best interests of the Company.

8.6 Settlement. Subject to Section 8.3 and Supplements A and B with respect to deferred Awards, as soon as practical after a Non-Employee Director’s Settlement Date the Corporation shall (i) issue to such Non-Employee Director one Share for each Restricted Stock Unit awarded to the Non-Employee Director and (ii) pay to such Non-Employee Director a cash amount equal to the amount of all dividend equivalents accrued with respect to such Restricted Stock Unit, together with interest, if any, accrued thereon pursuant to Section 8.4 hereof. Upon the satisfaction of the Corporation’s obligations under the first sentence of this Section 8.6, such Restricted Stock Unit shall be cancelled, such cancellation to be effective as of the Settlement Date.

8.7 No Stockholder Rights. Restricted Stock Units shall not confer upon the holder thereof any rights as a stockholder of the Company.

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ARTICLE IX - ELECTION TO RECEIVE SHARES OR RESTRICTED STOCK UNITS

Each Non-Employee Director may elect to receive Shares or Restricted Stock Units in lieu of all or a portion of such Non-Employee Director’s Annual Retainer or Committee Cash Retainer, subject to Article VI and the following terms and conditions:

9.1 Grant of Shares. On the Annual Grant Date (including for this purpose, July 2, 2007), Shares shall be granted to each Non-Employee Director who, prior to such Annual Grant Date, files with the Committee or its designee a written election to receive Shares in lieu of all or a portion of such Non-Employee Director’s Annual Retainer or Committee Cash Retainer for the one-year period (six-month period in the case of July 1, 2007) beginning on the Annual Grant Date next following the date of the written election. An election pursuant to the first sentence of this Section 9.1 shall be irrevocable on and after the Annual Grant Date. In addition, Shares shall be granted to any Non-Employee Director who no later than the thirtieth day after the date on which such Non-Employee Director is first elected or begins to serve as a Non-Employee Director, files with the Committee or its designee a written election to receive Shares in lieu of all or a portion of the Annual Retainer, if any, that such Non-Employee Director is entitled to receive upon election as a Non-Employee Director as well as all or any portion of the Committee Cash Retainer to be paid during the year. Shares shall be granted to the Non-Employee Director after the date the Committee or its designee receives notice of such an election. An election pursuant to the third sentence of this Section 9.1 shall be irrevocable.

9.2 Number of Shares. The number of Shares granted pursuant to this Article shall be the number of Shares equal to (i) the portion of the Annual Retainer or Committee Cash Retainer which the Non-Employee Director has elected pursuant to Section 9.1 to be payable in Shares, divided by (ii) the Fair Market Value per Share on the Stock Award Date (iii) with the product rounded up to the nearest whole number of Shares. As soon as practical following an award of Shares to a Non-Employee Director, the stock certificate representing such Shares shall be issued and delivered 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.

9.3 Deferral of Annual Retainer or Committee Cash Retainer. A Non-Employee Director may elect to defer payment of all or any portion of such Non-Employee Director’s Annual Retainer or Committee Cash Retainer provided that no election shall be allowed for the Annual Retainer or Committee Cash Retainer with respect to the Corporation’s fiscal year beginning on July 3, 2005. All deferrals must be in writing, on such forms as the Committee may prescribe, and must be made in accordance with the terms and conditions of the Plan including the terms and conditions of Supplements A and B as applicable.

9.4 Conversion of Annual Retainer or Committee Cash Retainer to Restricted Stock Units. A Non-Employee Director may elect to convert all or any portion of an Annual Retainer or Committee Cash Retainer into Restricted Stock Units equal in number to (i) the portion of the Annual Retainer or Committee Cash Retainer which the Non-Employee Director has elected to convert pursuant to this Section 9.4 divided by (ii) the Fair Market Value per Share on the Stock Award Date (iii) with the product rounded up to the nearest whole number of Shares. A Non-Employee Director’s election to convert all or any portion of an Annual Retainer or Committee Cash Retainer into Restricted Stock Units shall be in writing, on such forms and at such times as the Committee may prescribe provided that any election must be made not later than the December 31 of the calendar year preceding the calendar year in which the Annual Retainer or Committee Cash Retainer would otherwise be paid and in the case of a Non- Employee Director who is first elected or

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begins to serve as a Non-Employee Director, the election must be made prior to the thirtieth day following the date the Non-Employee Director is first elected or begins to serve as a Non-Employee Director. Restricted Stock Units resulting from the conversion of an Annual Retainer or Committee Cash Retainer shall be subject to the adjustments applicable to Restricted Stock Units awarded under Section 8.1(a) above, shall not be subject to the vesting requirements of Section 8.2. and shall be distributed on the Non-Employee Director’s Settlement Date as provided in Section 8.3.

ARTICLE X - CHANGE OF CONTROL

10.1 Effect of Change of Control. Upon the occurrence of a “Change of Control” event, as defined below, any and all outstanding Restricted Stock Units shall become immediately vested and payable (including all awards subject to Section 8.3 above that vested on or after January 1, 2005 and all Restricted Stock Units subject to Section 9.4 above that were converted from an Annual Retainer or Committee Cash Retainer) and any and all stock certificates representing Shares awarded to a Non-Employee Director pursuant to Section 9.1 promptly shall be transferred to such Non-Employee Director.

10.2 Definition of Change of Control. A “Change of Control” shall occur:

(a) upon the acquisition by an individual, entity or group, including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934 (the “Exchange Act”) (a “Person”), during any 12-month period of beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 35% or more of the combined voting power of the then outstanding capital stock of the Corporation that by its terms may be voted on all matters submitted to stockholders of the Corporation generally (such capital stock, “Voting Stock”); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities unless such outstanding convertible or exchangeable securities were acquired directly from the Corporation), (ii) any acquisition by the Corporation, (iii) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Corporation, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (b) of this Section 10.2 shall be satisfied; and provided further that, for purposes of clause (ii) of this subsection (a), if any Person (other than the Corporation or any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation) shall become the beneficial owner of 50% or more of the Voting Stock by reason of an acquisition by the Corporation and such Person was the beneficial owner of less than 35% of the Voting Stock prior to such acquisition such additional beneficial ownership shall constitute a Change of Control; or

(b) upon the consummation of a reorganization, merger or consolidation of the Corporation, or a sale or other disposition of all or substantially all of the Corporation’s property and assets (meaning property and assets of the Corporation having a total gross fair market value equal to or greater than 40 percent of the total gross fair market value of all of the property and assets of the Corporation); excluding, however, (A) any such reorganization, merger, consolidation, sale or other disposition with respect to which, immediately after consummation of such transaction, (i) all or substantially all of the beneficial owners of the Voting Stock of the Corporation outstanding immediately prior to such transaction continue to beneficially own, directly or indirectly (either by remaining outstanding or by being converted into voting securities of the entity resulting from such transaction), more than 50% of the combined voting power of the voting securities of the entity resulting from such transaction (including, without limitation, the Corporation or an

7

entity which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s property or assets, directly or indirectly) (the “Resulting Entity”) outstanding immediately after such transaction, in substantially the same proportions relative to each other as their ownership immediately prior to such transaction, and (ii) no Person (other than any Person that beneficially owned, immediately prior to such reorganization, merger, consolidation, sale or other disposition, directly or indirectly, Voting Stock representing 35% or more of the combined voting power of the Corporation’s then outstanding securities) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding securities of the Resulting Entity, and (iii) at least a majority of the members of the board of directors of the entity resulting from such transaction were Continuing Directors of the Corporation at the time of the execution of the initial agreement or action of the Board authorizing such reorganization, merger, consolidation, sale or other disposition and (B) any transfer of all or substantially all of the Corporation’s property and assets to any person, group or entity that is considered to be controlled by the stockholders of the Corporation immediately after the transfer for purposes of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (the “Code”), or

(c) upon the consummation of a plan of complete liquidation or dissolution of the Corporation; or

(d) when those individuals who, immediately after the 2002 annual meeting of stockholders of the Corporation, constitute the Board (the “Continuing Directors”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Corporation subsequent to the 2002 annual meeting of stockholders of the Corporation whose election, or nomination for election by the Corporation’s stockholders, was approved by the vote of at least a majority of the Continuing Directors then comprising the Board (or by the nominating committee of the Board, if such committee is comprised of Continuing Directors and has such authority) shall be deemed to have been a Continuing Director; and provided further, that no individual shall be deemed to be a Continuing Director if such individual initially was elected as a director of the Corporation as a result of (A) an actual or threatened solicitation by a Person (other than the Board) made for the purpose of opposing a solicitation by the Board with respect to the election or removal of directors, or (B) any other actual or threatened solicitation of proxies or consents by or on behalf of any Person (other than the Board).

For purposes of this Section 10.2, persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time or as a result of the same public offering. However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similarly business transaction with the Corporation. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar transaction, such stockholder is considered to be acting as a group with other stockholders in a corporation only with respect to the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. Further, stock ownership shall be determined in accordance with Section 318(a) of the Code and the regulations thereunder.

ARTICLE XI - AMENDMENT AND TERMINATION

The Board may amend the Plan from time to time or terminate the Plan at any time and may unilaterally modify the terms and conditions of an outstanding Award or an election under the Grandfathered Deferral Program or the Deferral Program as necessary, including revoking an election entirely, to reflect changes in applicable law.

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ARTICLE XII - ADJUSTMENT PROVISIONS

In the event of any change in the capital structure of the Corporation (including but not limited to a stock split, reverse stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination or exchange of securities, , spin-off, split-off, liquidation or other distribution of any or all of the assets of the Corporation to stockholders, other than normal cash dividends) or any change in any rights attendant to any class of authorized securities of the Corporation (an “Adjustment Event”) , the Committee shall make proportionate adjustments with respect to the number and class of securities available under the Plan, the number and class of securities subject to each outstanding Restricted Stock Unit and Committee RSU Award, and the number and class of securities representing a Share equivalent in the Share Equivalent Account under the Deferral Program to reflect such Adjustment Event and to maintain each outstanding Award’s or Share Equivalent Account interest’s intrinsic and fair value; provided, that the Committee shall retain discretion with respect to how any such proportionate adjustment shall be made. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

ARTICLE XIII - FOREIGN DIRECTORS

Without amending the Plan, Awards granted to Non-Employee Directors who are foreign nationals may have such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Corporation or its subsidiaries operate or have Non-Employee Directors.

ARTICLE XIV - EFFECTIVE DATE AND TERM OF PLAN

The Plan shall be submitted to the stockholders of the Corporation for approval and, if approved by a majority of all the votes cast at the 2002 annual meeting of stockholders, shall become effective as of June 27, 2002, the date of approval by the Board (the “Effective Date”). If stockholder approval is not obtained at the 2002 annual meeting of stockholders, the Plan, in the form approved by stockholders at the 1999 annual meeting of stockholders, shall continue in full force and effect and all grants of Restricted Stock Units and Shares hereunder shall be null and void. The Plan shall terminate on June 30, 2012, unless terminated earlier by the Board.

As amended and restated by the Board on June 30, 2005 and amended on January 25, 2007, April 26, 2007 and October 25, 2007.

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SUPPLEMENT A

GRANDFATHERED DEFERRAL PROGRAM

A-1 Purpose. The purpose of this Supplement A to the Sara Lee Corporation 1999 Non-Employee Director Stock Plan is to provide Non-Employee Directors with the opportunity to defer the payment of their Annual Retainer, Committee Cash Retainer and/or Awards under the Plan. The terms of this Supplement A replace the Non-Qualified Deferred Compensation Plan for Outside Directors of Sara Lee Corporation which was approved by the Board on August 27, 1992 and subsequently amended (the “Former Plan”) and apply to Annual Retainers and vested Awards that were deferred prior to January 1, 2005. The deferral program under this Supplement A (the “Grandfathered Deferral Program”) shall be administered on the basis of the calendar year (the “Program Year”).

A-2 Rules for Deferral Elections. All Non-Employee Directors who made deferrals hereunder prior to January 1, 2005 and any individual who was a participant in the Former Plan as of June 27, 2002 shall be considered a participant in the Grandfathered Deferral Program. Prior to January 1, 2005 any Eligible Director could make irrevocable elections to defer receipt of all or any portion not less than 25 percent of his Annual Retainer and/or Committee Cash Retainer or all or any portion not less than 25 percent of any Award (each such election is referred to herein as a “Deferral Election” and the amount deferred pursuant to such an election the “Deferral”) for a Program Year in accordance with the rules set forth below.

(a) A Non-Employee Director shall be eligible to make a Deferral Election only if he is an active member of the Board, or has been elected to the Board the date such election is made.

(b) For a Program Year, a Non-Employee Director may make no more than one Deferral Election for each Award and such number of Deferral Elections with respect to the Non-Employee Director’s Annual Retainer and/or Committee Cash Retainer as the Committee may prescribe.

(c) All Deferral Elections must be made in writing on such forms as the Committee may prescribe and must be received by the Committee no later than the date specified by the Committee. In no event will the date specified by the Committee with respect to an Award be later than the end of the Program Year preceding the Program Year in which the Award vests. Any Deferral Election with respect to a Non-Employee Director’s Annual Retainer or Committee Cash Retainer shall only apply to that portion of the Non-Employee Director’s Annual Retainer or Committee Cash Retainer remaining to be paid for services to be rendered after the date the Deferral Election is made.

(d) As part of each Deferral Election, the Non-Employee Director must specify the date on which the Deferral will be paid (a “Distribution Date”). The Distribution Dates specified in a Non-Employee Director’s Deferral Elections may, but need not necessarily, be the same for all Deferrals. Except as provided in subsection (f) below, each Distribution Date is irrevocable and shall apply only to that portion of the Non-Employee Director’s Deferral Account which is attributable to the Deferral.

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(e) The Distribution Date selected by a Non-Employee Director shall not be earlier than the January 1 immediately following the first anniversary of the date on which the Deferral Election is made.

(f) A Non-Employee Director may make an irrevocable election to extend a Distribution Date (a “Re-Deferral Election”); provided, that no Re-Deferral Election shall be effective unless (i) the Committee receives the election prior to the December 1 of the Program Year preceding the Program Year in which the Distribution Date to be changed occurs, and (ii) the new Distribution Date is not earlier than the January 1 immediately following the first anniversary of the date the Re-Deferral Election is made. All Re-Deferral Elections must be made in writing on such forms and pursuant to such rules as the Committee may prescribe.

(g) As part of each Deferral Election, a Non-Employee Director must elect the form in which the Deferral will be paid beginning on the selected Distribution Date. The Deferral may be paid in a single lump sum or in substantially equal annual installments over a period not exceeding ten years as provided under paragraph A-6. Except as provided in paragraph A-6, a Non-Employee Director’s election as to the form of payment shall be irrevocable. If the Non-Employee Director elects an installment method of payment the Distribution Date must be January 1.

(h) As part of each Deferral Election, a Non-Employee Director must elect the investment alternatives that shall apply to the Deferral in accordance with paragraphs A-4 and A-5.

(i) A Deferral Election shall be irrevocable; provided that if the Committee determines that a Non-Employee Director has an Unforeseeable Financial Emergency (as defined in paragraph A-10), then the Non-Employee Director’s Deferral Elections then in effect shall be revoked with respect to all amounts not previously deferred.

A-3 Deferral Accounts. All amounts deferred pursuant to a Non-Employee Director’s Deferral Elections under the Grandfathered Deferral Program shall be allocated to a bookkeeping account in the name of the Non-Employee Director (a “Deferral Account”) and the Committee shall maintain a separate subaccount under a Non-Employee Director’s Deferral Account for each Deferral. Deferrals shall be credited to the Deferral Account as of the Deferral Crediting Date coinciding with or next following the date on which, in the absence of a Deferral Election, the Non-Employee Director would otherwise have received the Deferral. A “Deferral Crediting Date” shall mean the business day coinciding with or next following the 15th day of each calendar month and the business day coinciding with or next following the last day of each calendar month. A Non-Employee Director shall be fully vested at all times in the balance of his Deferral Account.

A-4 Investment Alternatives. A Non-Employee Director must make an investment election at the time of each Deferral Election. The investment election must be made in writing on such forms and pursuant to such rules as the Committee may prescribe, subject to paragraph A-5, and shall designate the portion of the Deferral which is to be treated as invested in each investment alternative. The two investment alternatives shall be as follows:

(a) Share Equivalent Account. Under the Share Equivalent Account, the value of the Non-Employee Director’s Deferral shall be determined as if the Deferral were invested in Shares as of the Deferral Crediting Date. If payment of Shares or Restricted Stock Units is deferred, the number of Share equivalents to be credited to the Non-Employee Director’s Deferral

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Account and appropriate subaccounts on each Deferral Crediting Date shall equal the number of Shares or Restricted Stock Units deferred. If payment of cash is deferred, the number of Share equivalents to be credited to the Non-Employee Director’s Deferral Account and appropriate subaccounts on each Deferral Crediting Date shall be determined by dividing the Deferral to be “invested” on that date by the Fair Market Value of a Share on that date. Fractional Share equivalents will be computed to two decimal places. An amount equal to the number of Share equivalents multiplied by the dividend paid on a Share on each dividend payment date shall be credited to the Non-Employee Director’s Deferral Account and appropriate subaccount as of the Deferral Crediting Date coincident with or next following the dividend payment date and “invested” in additional Share equivalents as though such dividend credits were a Deferral. The number of Shares to be paid to a Non-Employee Director on a Distribution Date shall be equal to the number of Share equivalents accumulated in the Share Equivalent Account on the Distribution Date divided by the total of the payments to be made. All payments from the Share Equivalent Account shall be made in whole Shares with fractional Shares distributed in cash.

(b) Interest Account. Under the Interest Account, interest will be credited to the Non-Employee Director’s Deferral Account as of the business day coinciding with or next following each June 30 and December 31 (a “Valuation Date”) and on the date the final payment of a Deferral is to be made based on the balance in the Non-Employee Director’s Deferral Account deemed invested in the Interest Account on the Valuation Date or such final payment date. The rate of interest to be credited for a Plan Year will be set at the beginning of each Program Year and will equal the cost to the Corporation of issuing five-year maturity debt or, in the event such cost is determined not to satisfy the independence criteria under Section 409A of the Code and the guidance issued thereunder, such other independently established interest rate that the Corporation elects to use that satisfies such independence criteria. If installment payments are elected, the amount to be paid to the Non-Employee Director on a Distribution Date shall be determined as follows: the amount of the principal payment of each installment shall be determined by dividing the current principal balance by the number of remaining installment payments and the amount of the interest payment shall be determined by dividing the current interest balance by the number of remaining installment payments. All payments from the Interest Account shall be made in cash.

A-5 Investment Elections and Changes. A Non-Employee Director’s investment elections shall be subject to the following rules:

(a) With respect to Annual Retainer or Committee Retainer payments that would have been paid in the form of cash, if the Non-Employee Director fails to make an investment election with respect to a Deferral, the Deferral shall be deemed to be invested in the Interest Account.

(b) Any Deferral attributable to an Award or an Annual Retainer payable in the form of Shares, restricted or otherwise, shall automatically be deemed to be invested in the Share Equivalent Account.

(c) All investments in the Share Equivalent Account shall be irrevocable.

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(d) A Non-Employee Director may elect to transfer amounts invested in the Interest Account to the Share Equivalent Account as of any Valuation Date by filing an investment change election with the Committee prior to the Valuation Date the change is to become effective. The amount elected to be transferred to the Share Equivalent Account shall be treated as invested in Share equivalents as of the Valuation Date and the number of Share equivalents to be credited to the Non-Employee Director’s Deferral Account and appropriate subaccounts as of the Valuation Date shall be determined by dividing the amount to be transferred by the Fair Market Value on such Valuation Date.

(e) Until invested as of the Deferral Crediting Date in either the Interest Account or Share Equivalent Account, a Non-Employee Director’s Deferral shall be credited with interest in such amount as the Committee may determine.

A-6 Time and Method of Payment. Payment of a Non-Employee Director’s Deferral shall be made in a single lump sum or shall commence in installments as elected by the Non-Employee Director in the Deferral Election. A Non-Employee Director may make a one-time election after the original Deferral Election to change the method of payment elected by the Non-Employee Director; provided, that such election shall not be effective unless the election to change the method of payment is received by the Committee prior to the December 1 of the Program Year preceding the Program Year in which the Distribution Date specified in the original Deferral Election occurs. If a Non-Employee Director’s Deferral Account is payable in a single lump sum, the payment shall be made as soon as practicable following the Distribution Date but not later than 30 days following the Distribution Date. If a Non-Employee Director’s Deferral Account is payable in installment payments, then the Non-Employee Director’s Deferral Account shall be paid in substantially equal annual installments over the period as elected by the Non-Employee Director in the Deferral Election commencing as soon as practicable following the Distribution Date but not later than 30 days following the Distribution Date.

A-7 Payment Upon Death of a Non-Employee Director. In the event a Non-Employee Director dies before all amounts credited to his Deferral Account have been paid, payment of the Non-Employee Director’s Deferral Account shall be made or shall commence in the form of payment elected by the Non-Employee Director’s Beneficiary (as defined in paragraph A-8) or the Executor/Executrix of the Non-Employee Director’s estate; provided, that the request is made in writing within 180 days of the Non-Employee Director’s death. If such a request is not made, the deceased Non-Employee Director’s Deferrals will be paid pursuant to the Deferral Elections and the normal provisions of this Supplement A.

A-8 Beneficiary. A Non-Employee Director’s Beneficiary shall mean the individual(s) or entity designated by the Non-Employee Director to receive the balance of the Non-Employee Director’s Deferral Account in the event of the Non-Employee Director’s death prior to the payment of his entire Deferral Account. To be effective, any Beneficiary designation shall be filed in writing with the Committee. A Non-Employee Director may revoke an existing Beneficiary designation by filing another written Beneficiary designation with the Committee. The latest Beneficiary designation received by the Committee shall be controlling. If no Beneficiary is named by a Non-Employee Director or if he survives all of his named Beneficiaries, the Deferral Account shall be paid in the following order of precedence:

(1) the Non-Employee Director’s spouse;

(2) the Non-Employee Director’s children (including adopted children), per stirpes; or

(3) the Non-Employee Director’s estate.

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A-9 Form of Payment. The payment of that portion of a Deferral Account deemed to be invested in the Interest Account shall be made in cash. The distribution of that portion of a Deferral Account deemed to be invested in the Share Equivalent Account shall be distributed in whole Shares with fractional shares distributed in cash.

A-10 Unforeseeable Financial Emergency. If the Committee or its designee determines that a Non-Employee Director has incurred an Unforeseeable Financial Emergency (as defined below), the Non-Employee Director may withdraw in cash and/or Shares the portion of the balance of his Deferral Account needed to satisfy the Unforeseeable Financial Emergency, to the extent that the Unforeseeable Financial Emergency may not be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Non-Employee Director’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. An “Unforeseeable Financial Emergency” is a severe financial hardship to the Non-Employee Director resulting from (i) a sudden and unexpected illness or accident of the Non-Employee Director or of a dependent of the Non-Employee Director; (ii) loss of the Non-Employee Director’s property due to casualty; or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Non-Employee Director as determined by the Committee. A withdrawal on account of an Unforeseeable Financial Emergency shall be paid as soon as possible following the date on which the withdrawal is approved.

A-11 Funding. Benefits payable under the Grandfathered Deferral Program to any Non-Employee Director shall be paid directly by the Corporation. The Corporation shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Grandfathered Deferral Program. Notwithstanding the foregoing, the Corporation, in the discretion of the Committee, may maintain one or more grantor trusts (“Trust”) to hold assets to be used for payment of benefits under the Grandfathered Deferral Program. The assets of the Trust shall remain the assets of the Corporation subject to the claims of its general creditors. Any payments by a Trust of benefits provided to a Non-Employee Director under the Grandfathered Deferral Program shall be considered payment by the Corporation and shall discharge the Corporation of any further liability under the Grandfathered Deferral Program for such payments.

A-12 Interests Not Transferable. No benefit payable at any time under the Grandfathered Deferral Program shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits, whether currently or thereafter payable, shall be void. No person shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under the Grandfathered Deferral Program, or if by any reason of his bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Grandfathered Deferral Program, then the Committee, in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Grandfathered Deferral Program and hold or apply them for or to the benefit of such person entitled thereto under the Grandfathered Deferral Program or his spouse, children or other dependents, or any of them, in such manner as the Committee may deem proper.

A-13 Forfeitures and Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the Deferral Account of a Non-Employee Director that are not distributed because of the Committee’s inability, after a reasonable search, to locate a Non-Employee Director or his Beneficiary, as applicable, within a period of two (2) years after the Distribution Date upon which the payment of any benefits becomes due. Unclaimed amounts shall be forfeited at the end of such two-year period. These forfeitures will reduce the obligations of the Corporation under the Grandfathered Deferral Program and the Non-Employee Director or Beneficiary, as applicable, shall have no further right to his Deferral Account.

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SUPPLEMENT B

DEFERRAL PROGRAM

B-1 Purpose. The purpose of this Supplement B to the Sara Lee Corporation 1999 Non-Employee Director Stock Plan is to provide Non-Employee Directors with the opportunity to defer the payment of (i) Awards granted prior to July 1, 2005 that vest on or after January 1, 2005 and (ii) Annual Retainers and/or Committee Cash Retainer payable on and after January 1, 2006 in compliance with the provisions of Section 409A of the Internal Revenue Code. The deferral program under this Supplement B (the “Deferral Program”) shall be administered on the basis of the calendar year (the “Program Year”).

B-2 Rules for Deferral and Re-Deferral Elections. All Non-Employee Directors shall be eligible to participate in the Deferral Program on the later of the day they are first elected or begin service as a Non-Employee Director or the date on which Deferral Program materials and election forms are mailed to them. Any Eligible Director may make irrevocable elections to defer receipt of all or any portion not less than 25 percent of his Annual Retainer and/or Committee Cash Retainer (each such election shall be referred to as a “Deferral Election”) and all or any portion not less than 25 percent of any Award granted under the Plan prior to July 1, 2005 that has not vested (an “Award Deferral Election”) (any amounts deferred pursuant to such elections is referred to as a “Deferral”) for a Program Year in accordance with the rules set forth below.

(a) A Non-Employee Director shall be eligible to make a Deferral or Award Deferral Election only if he is an active member of the Board, or has been elected to the Board on the date such election is made.

(b) For a Program Year, a Non-Employee Director may make no more than one Deferral Election with respect to the Non-Employee Director’s Annual Retainer and/or Committee Cash Retainer.

(c) All Deferral and Award Deferral Elections must be made in writing on such forms as the Committee may prescribe and must be received by the Committee no later than the date specified by the Committee. In no event will the date specified by the Committee with respect to a Deferral Election be later than the end of the Program Year preceding the Program Year in which the period of service for which the Annual Retainer or Committee Cash Retainer payment relates and in no event will the date specified by the Committee with respect to an Award Deferral be later than the end of the second Program Year preceding the Program Year in which the Award vests. In the case of the first year in which the Non-Employee Director becomes eligible to participate, such election must be made prior to the thirtieth day following the date the Non-Employee Director becomes eligible to participate and if made after the date the Non-Employee Director is first elected to or begins service on the Board such election may be made with respect to not more that 90% of the Annual Retainer, Committee Cash Retainer and any Award for the Non-Employee Director’s first year of service.

(d) As part of each Deferral and Award Deferral Election, the Non-Employee Director must specify the date on which the Deferral will be paid or commence (a “Distribution Date”). The Distribution Dates specified in a Non-Employee Director’s Deferral Elections may, but need not necessarily, be the same for all Deferrals. Except as provided in subsection (f) below, each Distribution Date is irrevocable and shall apply only to that portion of the Non-Employee Director’s Deferral Account which is attributable to the Deferral.

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(e) The Distribution Date selected by a Non-Employee Director as part of a Deferral Election shall not be earlier than the January 1 immediately following the first anniversary of the date on which the Deferral Election is made. The Distribution Date selected by a Non-Employee Director as part of an Award Deferral Election shall not be earlier than the first anniversary of the date the Award would otherwise have vested.

(f) A Non-Employee Director may make an irrevocable election to extend a Distribution Date (a “Re-Deferral Election”); provided, that no Re-Deferral Election shall be effective unless (i) the Committee receives the election not later than 12 months prior to the Distribution Date to be changed, and (ii) the new Distribution Date is not earlier than the fifth anniversary of the prior Distribution Date. All Re-Deferral Elections must be made in writing on such forms and pursuant to such rules as the Committee may prescribe.

(g) As part of each Deferral and Award Deferral Election, a Non-Employee Director must elect the form in which the Deferral will be paid beginning on the selected Distribution Date. The Deferral may be paid in a single lump sum or in substantially equal annual installments over a period not exceeding ten years as provided under paragraph B-6. Except as provided in paragraph B-6, a Non-Employee Director’s election as to the form of payment shall be irrevocable. If the Non-Employee Director elects an installment method of payment the Distribution Date must be in January. If a Non-Employee Director fails to elect a method of payment, such payment shall be payable in a single lump sum.

(h) As part of each Deferral and Award Deferral Election, a Non-Employee Director must elect the investment alternatives that shall apply to the Deferral in accordance with paragraphs B-4 and B-5.

(i) Deferral and Award Deferral Elections shall be irrevocable; provided that if the Committee determines that a Non-Employee Director has an Unforeseeable Financial Emergency (as defined in paragraph B-10), then the Non-Employee Director’s Deferral Elections then in effect shall be revoked with respect to all amounts not previously deferred.

B-3 Deferral Accounts. All amounts deferred pursuant to a Non-Employee Director’s Deferral and Award Deferral Elections under the Deferral Program shall be allocated to a bookkeeping account in the name of the Non-Employee Director (a “Deferral Account”) and the Committee shall maintain a separate subaccount under a Non-Employee Director’s Deferral Account for each Deferral. Deferrals shall be credited to the Deferral Account as of the Deferral Crediting Date coinciding with or next following the date on which, in the absence of a Deferral Election, the Non-Employee Director would otherwise have received the Deferral. A “Deferral Crediting Date” shall mean the business day coinciding with or next following the 15th day of each calendar month and the business day coinciding with or next following the last day of each calendar month. A Non-Employee Director shall be fully vested at all times in the balance of his Deferral Account.

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B-4 Investment Alternatives. A Non-Employee Director must make an investment election at the time of each Deferral and Award Deferral Election. The investment election must be made in writing on such forms and pursuant to such rules as the Committee may prescribe, subject to paragraph B-5, and shall designate the portion of the Deferral which is to be treated as invested in each investment alternative. The two investment alternatives shall be as follows:

(a) Share Equivalent Account. Under the Share Equivalent Account, the value of the Non-Employee Director’s Deferral shall be determined as if the Deferral were invested in Shares as of the Deferral Crediting Date. If payment of Shares or Restricted Stock Units is deferred, the number of Share equivalents to be credited to the Non-Employee Director’s Deferral Account and appropriate subaccounts on each Deferral Crediting Date shall equal the number of Shares or Restricted Stock Units deferred. If payment of cash is deferred, the number of Share equivalents to be credited to the Non-Employee Director’s Deferral Account and appropriate subaccounts on each Deferral Crediting Date shall be determined by dividing the Deferral to be “invested” on that date by the Fair Market Value of a Share on that date. Fractional Share equivalents will be computed to two decimal places. An amount equal to the number of Share equivalents multiplied by the dividend paid on a Share on each dividend payment date shall be credited to the Non-Employee Director’s Deferral Account and appropriate subaccount as of the Deferral Crediting Date coincident with or next following the dividend payment date and “invested” in additional Share equivalents as though such dividend credits were a Deferral. The number of Shares to be paid to a Non-Employee Director on a Distribution Date shall be equal to the number of Share equivalents accumulated in the Share Equivalent Account on the Distribution Date divided by the total of the payments to be made. All payments from the Share Equivalent Account shall be made in whole Shares with fractional Shares distributed in cash.

(b) Interest Account. Under the Interest Account, interest will be credited to the Non-Employee Director’s Deferral Account as of the business day coinciding with or next following each June 30 and December 31 (a “Valuation Date”) and on the date the final payment of a Deferral is to be made based on the balance in the Non-Employee Director’s Deferral Account deemed invested in the Interest Account on the Valuation Date or such final payment date. The rate of interest to be credited for a Program Year will be set at the beginning of each Program Year and will equal the cost to the Corporation of issuing five-year maturity debt or, in the event such cost is determined not to satisfy the independence criteria under Section 409A of the Code and the guidance issued thereunder, such other independently established interest rate that the Corporation elects to use that satisfies such independence criteria. If installment payments are elected, the amount to be paid to the Non-Employee Director on a Distribution Date shall be determined as follows: the amount of the principal payment of each installment shall be determined by dividing the current principal balance by the number of remaining installment payments and the amount of the interest payment shall be determined by dividing the current interest balance by the number of remaining installment payments. All payments from the Interest Account shall be made in cash.

B-5 Investment Elections and Changes. A Non-Employee Director’s investment elections shall be subject to the following rules:

(a) With respect to Annual Retainer or Committee Retainer payments that would have been paid in the form of cash, if the Non-Employee Director fails to make an investment election with respect to a Deferral, the Deferral shall be deemed to be invested in the Interest Account.

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(b) Any Deferral attributable to an Award Deferral, restricted or otherwise, shall automatically be deemed to be invested in the Share Equivalent Account.

(c) All investments in the Share Equivalent Account shall be irrevocable.

(d) A Non-Employee Director may elect to transfer amounts invested in the Interest Account to the Share Equivalent Account as of any Valuation Date by filing an investment change election with the Committee prior to the Valuation Date the change is to become effective. The amount elected to be transferred to the Share Equivalent Account shall be treated as invested in Share equivalents as of the Valuation Date and the number of Share equivalents to be credited to the Non-Employee Director’s Deferral Account and appropriate subaccounts as of the Valuation Date shall be determined by dividing the amount to be transferred by the Fair Market Value on such Valuation Date.

(e) Until invested as of the Deferral Crediting Date in either the Interest Account or Share Equivalent Account, a Non-Employee Director’s Deferral shall be credited with interest in such amount as the Committee may determine.

B-6 Time and Method of Payment. Payment of a Non-Employee Director’s Deferral shall be made in a single lump sum or shall commence in installments as elected by the Non-Employee Director in the Deferral Election. A Non-Employee Director may make a one-time election after the original Deferral Election to change the method of payment elected by the Non-Employee Director; provided, that such election shall not be effective unless the election to change the method of payment is received by the Committee not later that 12 months prior to the Distribution Date specified in the original Deferral Election. If a Non-Employee Director has elected installment payments as the method of payment, he may not elect a single lump sum or installments over a shorter period. In addition, a Non-Employee Director may make a one-time election to change the method of payment of an Award; provided that such election shall not be effective unless the election to change the method of payment is received by the Committee not later than 12 months prior to the date the Award is to be distributed. If a Non-Employee Director has elected a single lump sum and later elects installment payments, such election shall constitute a Re-Deferral and will require a new Distribution Date that is not earlier than the fifth anniversary of the previous Distribution Date. If a Non-Employee Director’s Deferral Account is payable in a single lump sum, the payment shall be made as soon as practicable following the Distribution Date but not later than 30 days following the Distribution Date. If a Non-Employee Director’s Deferral Account is payable in installment payments, then the Non-Employee Director’s Deferral Account shall be paid in substantially equal annual installments over the period as elected by the Non-Employee Director in the Deferral Election commencing as soon as practicable following the Distribution Date but not later than 30 days following the Distribution Date.

B-7 Payment Upon Death of a Non-Employee Director. In the event a Non-Employee Director dies before all amounts credited to his Deferral Account have been paid, payment of the Non-Employee Director’s Deferral Account shall be made in a single sum payment as soon as practicable thereafter.

B-8 Beneficiary. A Non-Employee Director’s Beneficiary shall mean the individual(s) or entity designated by the Non-Employee Director to receive the balance of the Non-Employee Director’s Deferral Account in the event of the Non-Employee Director’s death prior to the payment of his entire Deferral Account. To be effective, any Beneficiary designation shall be filed in

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writing with the Committee. A Non-Employee Director may revoke an existing Beneficiary designation by filing another written Beneficiary designation with the Committee. The latest Beneficiary designation received by the Committee shall be controlling. If no Beneficiary is named by a Non-Employee Director or if he survives all of his named Beneficiaries, the Deferral Account shall be paid in the following order of precedence:

(1) the Non-Employee Director’s spouse;

(2) the Non-Employee Director’s children (including adopted children), per stirpes; or

(3) the Non-Employee Director’s estate.

B-9 Form of Payment. The payment of that portion of a Deferral Account deemed to be invested in the Interest Account shall be made in cash. The distribution of that portion of a Deferral Account deemed to be invested in the Share Equivalent Account shall be distributed in whole Shares with fractional shares distributed in cash.

B-10 Unforeseeable Financial Emergency. If the Committee or its designee determines that a Non-Employee Director has incurred an Unforeseeable Financial Emergency (as defined below), the Non-Employee Director may withdraw in cash and/or Shares the portion of the balance of his Deferral Account needed to satisfy the Unforeseeable Financial Emergency, to the extent that the Unforeseeable Financial Emergency may not be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Non-Employee Director’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. An “Unforeseeable Financial Emergency” is a severe financial hardship to the Non-Employee Director resulting from (i) a sudden and unexpected illness or accident of the Non-Employee Director or of a dependent of the Non-Employee Director; (ii) loss of the Non-Employee Director’s property due to casualty; or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Non-Employee Director as determined by the Committee. A withdrawal on account of an Unforeseeable Financial Emergency shall be paid as soon as possible following the date on which the withdrawal is approved.

B-11 Funding. Benefits payable under the Deferral Program to any Non-Employee Director shall be paid directly by the Corporation. The Corporation shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under the Deferral Program. Notwithstanding the foregoing, the Corporation, in the discretion of the Committee, may maintain one or more grantor trusts (“Trust”) to hold assets to be used for payment of benefits under the Deferral Program. The assets of the Trust shall remain the assets of the Corporation subject to the claims of its general creditors. Any payments by a Trust of benefits provided to a Non-Employee Director under the Deferral Program shall be considered payment by the Corporation and shall discharge the Corporation of any further liability under the Deferral Program for such payments.

B-12 Interests Not Transferable. No benefit payable at any time under the Deferral Program shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits, whether currently or thereafter payable, shall be void. No person shall, in any manner, be liable for or subject to the debts or liabilities of any person entitled to such benefits. If any person shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under the Deferral Program, or if by any reason of his bankruptcy or other event happening at any time, such benefits would devolve upon any other person or would not be enjoyed by the person entitled thereto under the Deferral Program, then the Committee, in its discretion, may terminate the interest in any such benefits of the person entitled thereto under the Deferral Program and hold or apply them for or to the benefit of such person entitled thereto under the Deferral Program or his spouse, children or other dependents, or any of them, in such manner as the Committee may deem proper.

B-5

B-13 Forfeitures and Unclaimed Amounts. Unclaimed amounts shall consist of the amounts of the Deferral Account of a Non-Employee Director that are not distributed because of the Committee’s inability, after a reasonable search, to locate a Non-Employee Director or his Beneficiary, as applicable, within a period of two (2) years after the Distribution Date upon which the payment of any benefits becomes due. Unclaimed amounts shall be forfeited at the end of such two-year period. These forfeitures will reduce the obligations of the Corporation under the Deferral Program and the Non-Employee Director or Beneficiary, as applicable, shall have no further right to his Deferral Account.

B-6

EX-12

EXHIBIT 12

SARA LEE CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(In millions except ratios)

	Year Ended
	June 28, 2008(1)			June 30, 2007(2)
Fixed charges:
Interest expense	$	187		$	261
Interest portion of rental expense		49			44
Total fixed charges before capitalized interest and preference security dividends of consolidated subsidiaries		236			305
Preference security dividends of consolidated subsidiaries		0			0
Capitalized interest		18			20
Total fixed charges	$	254		$	325
Earnings available for fixed charges:
Income before income taxes continuing operations	$	160		$	429
Less undistributed income in minority owned companies		(1	)		(1	)
Add minority interest in majority-owned subsidiaries		10			8
Add amortization of capitalized interest		12			11
Add fixed charges before capitalized interest and preference security dividends of consolidated subsidiaries		236			305
Total earnings available for fixed charges	$	417		$	752
Ratio of earnings to fixed charges		1.6			2.3

(1) During fiscal 2008, the corporation recorded a pretax charge of $38 million in connection with certain restructuring activities. Also during fiscal 2008, the corporation recognized an impairment charge of $ 851 million and $130 million of contingent sales proceeds from the disposal of its European tobacco business in 1999.

(2) During fiscal 2007, the corporation recorded a pretax charge of $94 million in connection with certain restructuring activities. Also during fiscal 2007, the corporation recognized an impairment charge of $172 million and $120 million of contingent sales proceeds from the disposal of its European tobacco business in 1999.

EX-13

Exhibit 13

Financial summary

Dollars in millions except per share data	Years ended	June 28, 2008 1		June 30, 2007 2		July 1, 2006 3		July 2, 2005 4		July 3, 2004 5,6
Results of Operations
Continuing operations
Net sales		$13,212		$11,983		$11,175		$11,115		$11,029
Operating income7		260		562		416		943		1,015
Income before income taxes		160		429		189		746		824
Income (loss)		(41	)	440		31		616		553
Effective tax rate		125.6	%	(2.6	)%	83.6	%	17.5	%	32.8	%
Income (loss) per share of common stock
Basic		$    (0.06	)	$    0.59		$    0.04		$    0.78		$    0.70
Diluted		(0.06	)	0.59		0.04		0.77		0.69
Income (loss) from discontinued operations		(14	)	48		123		103		719
Gain (loss) on sale of discontinued operations		(24	)	16		401		–		–
Net income (loss)		(79	)	504		555		719		1,272
Net income (loss) per share of common stock
Basic		(0.11	)	0.68		0.72		0.91		1.61
Diluted		(0.11	)	0.68		0.72		0.90		1.59
Financial Position
Total assets		$10,830		$11,755		$14,660		$14,540		$15,044
Total debt		3,188		4,220		5,914		4,613		5,253
Per Common Share
Dividends declared8		$    0.42		$    0.50		$    0.59		$    0.79		$    0.78
Book value at year-end8		3.98		3.51		3.22		3.28		3.34
Market value at year-end		12.18		17.40		16.02		19.65		23.17
Shares used in the determination of net income per share
Basic (in millions)		715		741		766		789		788
Diluted (in millions)		715		743		768		796		798
Other Information – Continuing Operations Only9
Net cash flow from operating activities		$     596		$     404		$     405		$     521		$  1,188
Net cash from (used in) investing activities		(188	)	615		704		(123	)	(113	)
Net cash from (used in) financing activities		(1,806	)	(857	)	509		(491	)	(1,443	)
Depreciation		398		395		389		375		375
Media advertising expense		325		313		298		333		293
Total advertising and promotion expense		594		566		531		546		518
Capital expenditures		509		598		438		395		383
Common stockholders of record		70,000		76,000		82,000		87,000		91,000
Number of employees		44,000		46,000		50,000		50,000		58,000

The amounts above include the impact of certain significant items. Significant items include exit activities, asset and business dispositions including the spin off of the Hanesbrands business in 2007, impairment charges, transformation charges, accelerated depreciation and amortization, hurricane losses, settlement and curtailment gains or losses, a change in the vacation policy and various significant tax matters. Further details of these items are included in the Financial Review on page 4.

1 In 2008, the impact of significant items decreased income from continuing operations before income taxes and income from continuing operations by $941 and $765, respectively.

2 In 2007, the impact of significant items decreased income from continuing operations before income taxes and income from continuing operations by $417 and $90, respectively.

3 In 2006, the impact of significant items decreased income from continuing operations before income taxes and income from continuing operations by $468 and $220, respectively.

4 In 2005, the impact of significant items decreased income from continuing operations before income taxes by $54 and increased income from continuing operations by $169.

5 53-week year.

6 In 2004, the impact of significant items, excluding the impact of the 53rd week, decreased income from continuing operations before income taxes and income from continuing operations by $11 and $5, respectively.

7 Operating income is reconciled between the income from each of the corporation’s business segments to income from continuing operations before income taxes in Note 22 of the Consolidated Financial Statements titled, “Business Segment Information.”

⁸ Certain prior year amounts have been restated to correct a misstatement in dividends and common stockholders’ equity. See Note 1 of the Consolidated Financial Statements for additional information.

9 Financial amounts only include results for businesses reported in continuing operations.

The Consolidated Financial Statements and Notes and the Financial Review should be read in conjunction with the Financial Summary.

10    Sara Lee Corporation and Subsidiaries

Financial review

This Financial Review discusses the corporation’s results of operations, financial condition and liquidity, risk management activities, and significant accounting policies and critical estimates. This discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto contained elsewhere in this annual report. The corporation’s fiscal year ends on the Saturday closest to June 30. Fiscal years 2008, 2007 and 2006 were 52-week years. Unless otherwise stated, references to years relate to fiscal years. The following is an outline of the analysis included herein:

•    Business Overview

•    Summary of Results

•    Review of Consolidated Results

•    Operating Results by Business Segment

•    Financial Condition

•    Liquidity

•    Risk Management

•    Significant Accounting Policies and Critical Estimates

•    Issued But Not Yet Effective Accounting Standards

•    Forward-Looking Information

Business Overview

Our Business  Sara Lee is a global manufacturer and marketer of high-quality, brand name products for consumers throughout the world focused primarily in the meats, bakery, beverage, and household products categories. Our major brands include Ambi Pur, Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Senseo and our namesake, Sara Lee.

In North America, the North American Retail Meats segment sells a variety of packaged meat products that include hot dogs, corn dogs, breakfast sausages, dinner sausages and deli meats, while the North American Retail Bakery segment sells a variety of fresh and frozen baked products and specialty items that include bread, buns, bagels, cakes and cheesecakes. These products are sold through the retail channel to supermarkets, warehouse clubs and national chains. The Foodservice segment sells a variety of meat, bakery and beverage products to foodservice customers in North America. Internationally, the International Beverage segment sells coffee and tea products in Europe, Brazil, Australia and Asia through both the retail and foodservice channels, while the International Bakery segment sells a variety of bakery and dough products to retail and foodservice customers in Europe and Australia. The Household and Body Care segment sells body care, air care, shoe care and insecticides to retail customers primarily in Western and Central Europe and the Asia Pacific region.

The company is focused on building sustainable, profitable growth over the long term by achieving share leadership in its core categories; innovating around its core products and product categories; expanding into high opportunity geographic markets and strategic joint ventures/partnerships; delivering superior quality and value to our customers; and driving operating efficiencies.

Challenges and Risks  As an international consumer products company, we face certain risks and challenges that impact our business and financial performance. The risks and challenges described below have impacted our performance and are likely to impact our future results as well.

The food and consumer products businesses are highly competitive. In many product categories, we compete not only with widely advertised branded products, but also with private label products that are generally sold at lower prices. The consumers’ willingness to purchase our products depends upon our ability to offer brand value propositions – selling products that consumers perceive as higher value at economical prices.

Commodity prices directly impact our business because of their effect on the cost of raw materials used to make our products and the cost of inputs to manufacture, package and ship our products. Many of the commodities we use, including beef, pork, coffee, wheat, corn, corn syrup, soybean and corn oils, butter, sugar and fuel, have experienced price volatility due to factors beyond our control. The company’s objective is to offset commodity price increases with pricing actions and to offset any operating costs increases with continuous improvement savings.

We also face significant price competition. From time to time, we may need to reduce the prices for some of our products to respond to competitive pressures. Such pressures also may restrict our ability to increase prices in response to raw material and other cost increases. Any reduction in prices as a result of competitive pressures, or our failure to increase prices when raw material costs increase, negatively impacts our profit margins.

To maintain and increase our existing market share in this highly competitive environment, we need to regularly spend on advertising and promotions and introduce new products. Due to inherent risks and uncertainty in the marketplace associated with the success of advertising and new product introductions, including uncertainties about trade and consumer acceptance, these expenditures may not result in increased sales and as a result could lower our profits.

The company’s business results are also heavily influenced by changes in foreign currency exchange rates. For the most recently completed fiscal year, approximately 50% of net sales and the majority of operating segment income were generated outside of the U.S. As a result, changes in foreign currency exchange rates, particularly the European euro, can have a significant impact on the reported results.

The company’s international operations provide a significant portion of the company’s cash flow from operating activities, which has required and is expected to continue to require the company to repatriate a greater portion of cash generated outside of the U.S. The repatriation of these funds has resulted in higher income tax expense and cash tax payments.

Sara Lee Corporation and Subsidiaries    11

Financial review

Summary of Results

2008 Compared with 2007 The business highlights for 2008 include the following:

•    Net sales increased by 10.3% to $13.2 billion, reflecting the positive impact of changes in foreign currency exchange rates, price increases to offset higher commodity costs, higher unit volumes and an improved sales mix.

•    Reported operating income declined by $302 million to $260 million. The current year results were negatively impacted by $851 million of impairment charges.

•    The $851 million non-cash pretax impairment charge in 2008 was related to the goodwill associated with the North American foodservice bakery and Spanish bakery businesses and the write-downs of certain other assets in the North American operations.

•    Operating segment income increased at each of the business segments, with the exception of Foodservice and International Bakery, driven by favorable changes in foreign currency exchange rates, pricing actions, improved volumes and sales mix, and cost savings achieved from continuous improvement initiatives.

•    The results for continuing operations were a loss of $41 million, or $0.06 per share on a diluted basis, reflecting the impact of the impairment charges noted above.

•    Cash from operating activities increased by $114 million due to improved earnings, excluding non-cash impairment and other charges, partially offset by an increase in cash used to fund working capital requirements.

•    Capital expenditures for property, plant and equipment and computer software declined $116 million due in part to reduced spending on information technology systems.

•    The company’s total debt declined by $1,032 million as cash on hand was used to repay maturing long-term debt.

•    The company expended $315 million to repurchase 20 million shares of its common stock under a share repurchase program.

Significant Items Affecting Comparability  The reported results for 2008, 2007 and 2006 reflect amounts recognized for actions associated with the corporation’s ongoing business transformation program, which was announced in February 2005 and other significant amounts that impact comparability. The nature of these items includes the following:

Exit Activities, Asset and Business Dispositions  These costs are reported on a separate line of the Consolidated Statements of Income. Exit activities primarily relate to charges taken to recognize severance actions approved by the corporation’s management and the exit of leased facilities or other contractual arrangements. Asset and business disposition activities include costs associated with separating businesses targeted for sale and preparing financial

statements for these businesses, as well as gains and losses associated with the disposition of asset groups that do not qualify for discontinued operations reporting. More information on these costs can be found in Note 5 to the Consolidated Financial Statements, “Exit, Disposal and Transformation Activities.”

Business Transformation Costs  In February 2005, the corporation announced a transformation plan designed to improve performance and better position the corporation for long-term growth. The plan involved significant changes in the organization structure, portfolio changes including the disposition of a significant portion of the corporation’s businesses and initiatives to improve operational efficiency.

The costs related to the transformation include costs to retain and relocate existing employees, recruit new employees, third-party consulting costs associated with transformation efforts, and amortization costs for new enterprise-wide software. In addition, these costs include incremental depreciation associated with decisions to close facilities at dates sooner than originally anticipated, pursuant to an exit plan. These costs are recognized in Cost of Sales or Selling, General and Administrative Expenses in the Consolidated Statements of Income as they do not qualify for treatment as an exit activity or asset and business disposition under Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” However, management believes that the disclosure of these transformation related charges provides the reader greater transparency to the total cost of the transformation plan. More information on these costs can be found in Note 5 to the Consolidated Financial Statements, “Exit, Disposal and Transformation Activities.”

The savings resulting from these transformation actions were $218 million in 2008, $160 million in 2007 and $62 million in 2006. The incremental benefits resulting from the ongoing exit and business transformation activities are a significant factor in the operating performance of the continuing businesses. The corporation anticipates annual savings in 2009 for these actions to be approximately $220 million.

Impairment Charges  These costs are included on a separate line of the Consolidated Statements of Income and represent charges for the impairment of fixed assets, intangible assets, goodwill and investments held by the corporation. More information regarding impairment charges can be found in Note 3 to the Consolidated Financial Statements, “Impairment Charges.”

The reported results were also impacted by certain discrete tax matters that affect comparability. They include contingent tax obligation adjustments, tax on repatriation of prior years’ earnings, valuation allowance adjustments and various other tax matters.

The impact of the above items on net income and diluted earnings per share is summarized on the following page.

12    Sara Lee Corporation and Subsidiaries

Impact of Significant Items on Income from

Continuing Operations and Net Income

	Year ended June 28, 2008						Year ended June 30, 2007						Year ended July 1, 2006
In millions except per share data	Pretax Impact		Net Income		Diluted EPS Impact	1	Pretax Impact		Net Income		Diluted EPS Impact	1	Pretax Impact		Net Income		Diluted EPS Impact	1
Significant items affecting comparability of income from continuing operations and net income
(Charges for) income from exit activities	$   (39	)	$   (25	)	$(0.03	)	$(106	)	$(69	)	$(0.09	)	$(166	)	$(111	)	$(0.14	)
Income from (charges for) asset and business disposition activities	1		–		–		12		10		0.01		80		52		0.07
Subtotal	(38	)	(25	)	(0.03	)	(94	)	(59	)	(0.08	)	(86	)	(59	)	(0.08	)
(Charges) income in cost of sales
Transformation charges – IT costs	(8	)	(5	)	(0.01	)	(10	)	(6	)	(0.01	)	(5	)	(3	)	–
Accelerated depreciation	(1	)	(1	)	–		(31	)	(19	)	(0.03	)	(29	)	(19	)	(0.02	)
Hurricane losses	–		–		–		–		–		–		(2	)	(1	)	–
(Charges) income in SG&A expenses
Transformation charges – IT costs	(40	)	(26	)	(0.04	)	(42	)	(27	)	(0.04	)	(32	)	(21	)	(0.03	)
Other transformation costs	(3	)	(2	)	–		(67	)	(44	)	(0.06	)	(122	)	(80	)	(0.10	)
Accelerated depreciation	–		–		–		(1	)	(1	)	–		(10	)	(6	)	(0.01	)
Change in vacation policy	–		–		–		–		–		–		14		9		0.01
Hurricane losses	–		–		–		–		–		–		(3	)	(2	)	–
Impairment charges	(851	)	(827	)	(1.16	)	(172	)	(145	)	(0.19	)	(193	)	(120	)	(0.16	)
Impact of significant items on income from continuing operations before income taxes	(941	)	(886	)	(1.24	)	(417	)	(301	)	(0.41	)	(468	)	(302	)	(0.39	)
Significant tax matters affecting comparability
Deferred tax valuation allowance adjustment	–		19		0.03		–		(27	)	(0.04	)	–		36		0.05
Tax benefit on disposition of a business	–		–		–		–		169		0.23		–		–		–
Contingent tax obligation adjustment	–		103		0.14		–		67		0.09		–		332		0.43
Tax on repatriation of prior years’ earnings	–		–		–		–		–		–		–		(291)		(0.38)
Other tax adjustments, net	–		(1	)	–		–		2		–		–		5		0.01
Impact on income from continuing operations	(941	)	(765	)	(1.07	)	(417	)	(90	)	(0.13	)	(468	)	(220	)	(0.29	)
Significant items impacting discontinued operations
U.K. Pension plan settlement charge	(15	)	(15	)	(0.02	)	–		–		–		–		–		–
Impairment charges	–		–		–		–		–		–		(394	)	(338	)	(0.43	)
Charge for transformation expenses	(1	)	(1	)	–		(1	)	(1	)	–		(13	)	(8	)	(0.01	)
European Meats curtailment gain	–		–		–		–		–		–		11		8		0.01
Contingent tax adjustments	–		–		–		–		–		–		–		(24	)	(0.03	)
Tax benefit from Direct Selling	–		–		–		–		–		–		–		50		0.07
Gain (loss) on the sale of discontinued operations, net	(23	)	(24	)	(0.03	)	5		16		0.02		466		401		0.52
Impact of significant items on net income	$(980	)	$(805	)	$(1.12	)	$(413	)	$(75	)	$(0.10	)	$(398	)	$(131	)	$(0.17	)

1 The earnings per share (EPS) impact of individual amounts in the table above are rounded to the nearest $0.01 and may not add to the total.

Sara Lee Corporation and Subsidiaries    13

Financial review

Review of Consolidated Results

The following tables summarize net sales and operating income for 2008 versus 2007 and 2007 versus 2006 and certain items that affected the comparability of these amounts:

2008 versus 2007

In millions	2008		2007		Dollar Change		Percent Change
Net sales	$13,212		$11,983		$1,229		10.3	%
Increase/(decrease) in net sales from
Changes in currency rates	$         –		$   (650	)	$   650
Acquisitions/dispositions	2		2		–
Total	$         2		$   (648	)	$   650
Operating income	$     260		$    562		$  (302	)	(53.6	)%
Increase/(decrease) in operating income from
Contingent sale proceeds	$     130		$    120		$     10
Changes in currency rates	–		(81	)	81
Exit activities, asset and business dispositions	(38	)	(94	)	56
Transformation charges	(51	)	(119	)	68
Accelerated depreciation	(1	)	(32	)	31
Impairment charges	(851	)	(172	)	(679	)
Acquisitions/dispositions	(1	)	–		(1	)
Total	$   (812	)	$   (378	)	$   (434	)
2007 versus 2006
In millions	2007		2006		Dollar Change		Percent Change
Net sales	$11,983		$11,175		$   808		7.2	%
Increase/(decrease) in net sales from
Changes in currency rates	$         –		$    (316	)	$   316
Acquisitions/dispositions	116		54		62
Total	$     116		$    (262	)	$   378
Operating income	$     562		$     416		$   146		34.8	%
Increase/(decrease) in operating income from
Contingent sale proceeds	$     120		$     114		$       6
Changes in currency rates	–		(39	)	39
Exit activities, asset and business dispositions	(94	)	(86	)	(8	)
Transformation charges	(119	)	(159	)	40
Accelerated depreciation	(32	)	(39	)	7
Impairment charges	(172	)	(193	)	21
Hurricane losses	–		(5	)	5
Change in vacation policy	–		14		(14	)
Acquisitions/dispositions	6		8		(2	)
Total	$   (291	)	$   (385	)	$     94

Net Sales  Net sales were $13,212 million in 2008, an increase of $1,229 million, or 10.3%, over 2007. Changes in foreign currency exchange rates, particularly the European euro, Brazilian real and Australian dollar, increased reported net sales by $650 million, or 5.7%. The remaining increase in net sales of $579 million, or 4.6% was driven by price increases to offset higher commodity costs, an increase in unit volumes, and an improved sales mix.

Net sales in 2007 increased $808 million, or 7.2%, over 2006, due to changes in foreign currency exchange rates, price increases to cover higher commodity costs, the impact of acquisitions net of dispositions, and an improved sales mix.

The following table summarizes the components of the change in sales on a percentage basis versus the prior year:

Net Sales Bridge – Components of Change versus Prior Year

	Volume		Price/Mix/ Other		Acquisitions/ Dispositions		Foreign Exchange		Total
2008 versus       2007	1.2	%	3.4	%	–	%	5.7	%	10.3	%
2007 versus 2006	0.7	%	3.1	%	0.5	%	2.9	%	7.2	%

Operating Income

Operating income represents income before income taxes and net interest expense.

Operating income decreased by $302 million, or 53.6%, in 2008. The year-over-year net impact of the changes in currency rates, transformation charges, impairment charges and the other factors identified in the preceding table reduced operating income by $434 million. The remaining increase in operating income of $132 million, or 13.9%, was due to an improved gross margin and a reduction in SG&A costs after considering the impact of changes in foreign currency exchange rates.

Operating income in 2007 increased $146 million, or 34.8%. The year-over-year change in amounts related to contingent sales proceeds, foreign currency exchange rates, transformation and impairment charges and the other factors summarized in the preceding table increased operating income by $94 million. The remaining increase in operating income of $52 million, or 6.4%, was due to an improved gross margin, partially offset by higher SG&A expenses.

The changes in the individual components of operating income are discussed in more detail below.

14    Sara Lee Corporation and Subsidiaries

Gross Margin The gross margin, which represents net sales less cost of sales, increased by $445 million in 2008, driven by the favorable impact of changes in currency exchange rates, price increases to offset higher commodity costs, higher unit volumes, and savings from continuous improvement programs, partially offset by higher commodity costs and higher labor costs due to inflationary pressures.

The gross margin percent declined from 38.5% in 2007 to 38.3% in 2008. The gross margin percent declined in each business segment with the exception of North American Retail Meats. The gross margin percent was negatively impacted by higher commodity costs and inflation, which was partially offset by price increases.

The gross margin in 2007 increased by $295 million due to the favorable impact of changes in currency exchange rates, sales price increases, savings from continuous improvement programs and an improved product mix partially offset by higher commodity and energy costs.

The gross margin percent declined from 38.6% in 2006 to 38.5% in 2007. The gross margin percent declined in each business segment except North American Retail Bakery, primarily due to the impact of higher commodity and energy costs and competitive market conditions.

Selling, General and Administrative Expenses

In millions	2008		2007		2006
SG&A expenses in the business segment results
Media advertising and promotion	$	594	$	567	$	531
Other		3,124		2,922		2,829
Total business segments		3,718		3,489		3,360
Amortization of identifiable intangibles		67		64		58
General corporate expenses		254		352		319
Total	$	4,039	$	3,905	$	3,737

Total selling, general and administrative (SG&A) expenses in 2008 increased $134 million, or 3.4%. Changes in foreign currency exchange rates, primarily in the European euro, increased SG&A expenses by $213 million, or 5.3%. The remaining decrease in SG&A expenses was $79 million, or 1.9%. Measured as a percent of sales, SG&A expenses decreased from 32.6% in 2007 to 30.6% in 2008. SG&A expenses as a percent of sales declined in each of the business segments. The results reflect the favorable impact of savings from continuous improvement initiatives, a $67 million reduction in transformation related costs and lower general corporate expenses.

Total selling, general and administrative expenses in 2007 increased $168 million, or 4.5%. Changes in foreign currency exchange rates, primarily in the European euro, increased SG&A expenses by $120 million, or 3.3%. The remaining increase in SG&A expenses was $48 million, or 1.2%. Measured as a percent of sales, SG&A expenses decreased from 33.4% in 2006 to 32.6% in 2007. SG&A expenses as a percent of sales declined in each of the business segments with the exception of North American Retail Meats and International Beverage.

Total SG&A expenses reported in 2008 by the business segments increased by $229 million, or 6.6%, over 2007 primarily due to the impact of changes in foreign currency exchange rates, higher distribution costs driven by higher fuel costs, and the impact of inflation on wages and employee benefit costs, partially offset by the benefits of cost savings initiatives and lower costs associated with the corporation’s transformation program.

Amortization of intangibles increased by $3 million in 2008 versus 2007. General corporate expenses, which are not allocated to the individual business segments, decreased by $98 million, due to a reduction in business transformation costs, lower pension and other benefit plan costs, and the non-recurrence of costs related to corporate hedging programs.

Total SG&A expenses reported in 2007 by the business segments increased by $129 million, or 3.8%, over 2006, primarily due to the impact of changes in foreign currency exchange rates, higher media advertising and promotion expenditures and higher distribution and selling costs partially offset by the benefits of cost savings initiatives and lower costs associated with the corporation’s transformation program.

Amortization of intangibles increased by $6 million in 2007. General corporate expenses increased by $33 million, or 10.3%, primarily due to unfavorable foreign currency results, partially offset by lower transformation expenses and a decrease in corporate office and administrative expenses.

As previously noted, reported SG&A reflects amounts recognized for actions associated with the corporation’s ongoing business transformation program and other significant amounts. These amounts include the following:

In millions	2008	2007	2006
Transformation costs – IT	$40	$  42	$  32
Transformation costs – other	3	67	122
Accelerated depreciation	–	1	10
Hurricane losses	–	–	3
Change in vacation policy	–	–	(14	)
Total	$43	$110	$153

Sara Lee Corporation and Subsidiaries    15

Financial review

Transformation costs, including accelerated depreciation, in 2008 were down $67 million from 2007 due to a reduction in costs associated with the corporation’s decision to centralize the management of its North American and European operations, which resulted in costs being incurred in 2007 for employee relocation, recruitment and retention bonuses in order to maintain business continuity. These cost reductions were partially offset by $15 million of computer software amortization expense related to systems that were put into use in 2008.

The reduction in costs from 2006 to 2007 was driven primarily by lower employee costs related to relocation, recruitment and retention bonuses resulting from the centralization of the North American and European operations.

Exit Activities, Asset and Business Dispositions  Exit activities, asset and business dispositions are as follows:

In millions	2008		2007		2006
Charges for (income from) exit activities
Severance	$  31		$93		$159
Exit of leased and owned facilities	5		13		14
Other	3		–		(7	)
Asset and business dispositions	(1	)	(12	)	(80	)
	$  38		$94		$  86

The net charges recognized in 2008 are $56 million lower than the prior year primarily due to a $62 million reduction in employee termination costs as well as lower charges related to the exit of certain non-cancelable lease and other contractual obligations, partially offset by an $11 million reduction in income related to asset and business dispositions. Costs in 2007 were higher than in 2006 because the corporation had implemented extensive restructuring plans to terminate employees in all our North American segments and the International Beverage segment. In 2007, the corporation also recognized costs to exit leased space in connection with the relocation of the corporation’s headquarters to Downers Grove, Illinois. The decline in income from asset and business dispositions from 2006 to 2007 is due to a nonrecurring gain of $119 million in 2006 related to the sale of working capital of a European rice product line, certain European skin care and sunscreen assets, certain assets related to the French and Belgian nuts and snacks business and certain other asset dispositions, which was partially offset by a $39 million charge to prepare businesses for disposition.

Impairment Charges  During 2008, the corporation recognized an $851 million non-cash charge primarily for the impairment of goodwill associated with the North American foodservice bakery and Spanish bakery operations and writedowns of certain other assets in North America. Both operations are not expected to generate sufficient profitability to support the goodwill balances. In 2007 and 2006, impairment charges of $172 million and $193 million, respectively, were recognized and represent charges for the impairment of goodwill, intangible assets, fixed assets, and investments held by the corporation. These charges impacted each of the corporation’s business segments. Additional details regarding these impairment charges are discussed in Note 3 to the Consolidated Financial Statements, titled “Impairment Charges.”

Receipt of Contingent Sale Proceeds  Under the terms of the sale agreement for its cut tobacco business, the corporation will receive annual cash payments of 95 million euros through July 2009, contingent on tobacco continuing to be a legal product in the Netherlands, Germany and Belgium. The U.S. dollar amounts received in 2008, 2007 and 2006 upon the expiration of the contingency were $130 million, $120 million and $114 million, respectively, based upon respective foreign currency exchange rates on the date of receipt. These amounts were recognized in the corporation’s earnings when received and the payments increased diluted earnings per share from continuing operations in 2008, 2007 and 2006 by $0.18, $0.16 and $0.15, respectively.

Net Interest Expense  Net interest expense decreased by $33 million in 2008 to $100 million. The decrease was a result of a $74 million decline in interest expense due to lower average debt levels, which more than offset a $41 million reduction in interest income resulting from a decline in cash and cash equivalents, a portion of which was used to repay debt. Net interest expense in 2007 was $94 million lower than 2006 due to lower debt levels and higher interest income partially offset by higher average interest rates.

Income Tax Expense  The effective tax rate on continuing operations in 2008, 2007 and 2006 was impacted by a number of significant items that are shown in the reconciliation of the corporation’s effective tax rate to the U.S. statutory rate in Note 21 to the Consolidated Financial Statements. Additional information regarding income taxes can be found in “Significant Accounting Policies and Critical Estimates” within Management’s Discussion and Analysis.

	2008			2007			2006
Continuing operations
Income before income taxes	$	160		$	429		$	189
Income tax expense (benefit)		201			(11	)		158
Effective tax rates		125.6	%		(2.6	)%		83.6	%

16    Sara Lee Corporation and Subsidiaries

In 2008, the corporation recognized tax expense on continuing operations of $201 million, or an effective tax rate of 125.6%. The significant components impacting the corporation’s effective tax rate are as follows:

•    Goodwill Impairment – The corporation’s tax rate increased by 173.5% as a result of recognizing $790 million of non-deductible goodwill impairments during the year.

•    Remittance of Foreign Earnings – The corporation incurred a tax charge of $118 million related to the repatriation of earnings from certain foreign subsidiaries. This charge increased the effective rate by 74.0%.

•    Finalization of Tax Reviews and Audits – A $96 million benefit resulted from the completion of tax audits and the expiration of statutes of limitations in France, Morocco, the Netherlands, the Philippines and various state and local jurisdictions. Of this amount, $40 million related to the completion of tax audits and $56 million related to the expiration of statutes of limitations.

•    Receipt of Contingent Sales Proceeds – The corporation recognized a tax benefit of $46 million related to its receipt of non-taxable contingent sales proceeds pursuant to the sale terms of its European cut tobacco business in 1999. The corporation will continue to recognize a tax rate reduction related to contingent sales proceeds received during the agreement term, which is effective through July 2009.

•    Valuation Allowance – A $19 million benefit relates to the net reversal of valuation allowances, primarily on German deferred tax assets. The corporation determined that a valuation allowance was no longer necessary due to the recent projected profitability of the German operations. This benefit was partially offset by the establishment of valuation allowances for certain state deferred tax assets in which the corporation does not anticipate future realization.

•    Foreign Earnings – The corporation’s global mix of earnings, the tax characteristics of the corporation’s income, and the benefit from certain foreign jurisdictions that have lower tax rates also reduced the corporation’s tax expense during 2008.

In 2007, the corporation recognized a tax benefit on continuing operations of $11 million, or a negative effective tax rate of (2.6)%. The significant components impacting the corporation’s effective tax rate are as follows:

•    Remittance of Foreign Earnings – In 2007, the corporation incurred a tax charge of $194 million related to the repatriation of earnings from certain foreign subsidiaries.

•    Sale of Capital Assets – The corporation sold the shares of a subsidiary in the first quarter of 2007, which resulted in a $169 million tax benefit.

•    Finalization of Tax Reviews and Audits – During 2007, the corporation recorded net adjustments to reduce its tax contingency reserves related to uncertain tax positions by approximately $110 million. The adjustments resulted in a tax benefit for the corporation. Approximately $80 million of the reserve reduction related to the finalization of federal, state and foreign examinations, including the federal income tax examinations covering the corporation’s tax years 2003 and 2004. The remaining $30 million of reserve reductions related to the lapsing of the statute of limitations in two foreign jurisdictions.

•    Receipt of Contingent Sales Proceeds – The corporation recognized a tax benefit of $42 million related to its receipt of non-taxable contingent sales proceeds pursuant to the sale terms of its European cut tobacco business in 1999. The corporation will continue to recognize a tax rate reduction related to contingent sales proceeds received during the agreement term, which is effective through July 2009.

•    Goodwill Impairment – In 2007, the corporation’s tax rate increased by 7.8% as a result of recognizing $95 million of non-deductible goodwill impairments.

•    Valuation Allowance – After considering the lower profit expectations of a Brazilian coffee operation, the corporation concluded that it was necessary to increase the valuation allowances on certain deferred tax asset balances related to Brazilian net operating loss carryforwards, as the corporation does not believe that it will be able to utilize these tax benefits. This adjustment resulted in a $27 million tax charge for 2007.

•    Foreign Earnings – The corporation’s global mix of earnings, the tax characteristics of the corporation’s income, and the benefit from certain foreign jurisdictions having lower tax rates also reduced the corporation’s tax expense during 2007.

In 2006, the corporation recognized tax expense of $158 million, or an effective tax rate of 83.6%, as the corporation recognized a $529 million tax charge to repatriate to the U.S. approximately $1.7 billion of cash related to current and prior year earnings of certain foreign subsidiaries previously deemed to be permanently invested. Of the $529 million charge, $291 million relates to earnings of prior years. This charge was partially offset by a $332 million credit related to the favorable outcome of certain foreign tax audits and reviews that were completed during 2006 and a $36 million benefit due to a change in a valuation allowance.

Sara Lee Corporation and Subsidiaries    17

Financial review

Income (Loss) from Continuing Operations and Diluted Earnings per Share (EPS) from Continuing Operations  The loss from continuing operations in 2008 was $41 million, which was $481 million lower than the prior year. Income from continuing operations in 2007 was $440 million, which was $409 million higher than 2006.

Diluted EPS from continuing operations was a loss of $0.06 in 2008 versus income of $0.59 in 2007 and $0.04 in 2006. The diluted EPS from continuing operations in each succeeding year was favorably impacted by lower average shares outstanding as the corporation has been repurchasing shares of its common stock as part of an ongoing share repurchase program. The corporation repurchased 20 million shares, 42 million shares and 30 million shares of common stock during 2008, 2007 and 2006, respectively.

Discontinued Operations  The results of the corporation’s Direct Selling, U.S. Retail Coffee, European Branded Apparel, European Nuts and Snacks, U.K. Apparel, U.S. Meat Snacks, European Meats, Branded Apparel Americas/Asia and Mexican meats businesses have been classified as discontinued operations. The following summarizes the results of the discontinued operations for 2008, 2007 and 2006:

In millions	2008			2007			2006
Income (loss) from discontinued operations before income taxes	$	(14	)	$	82		$	144
Income tax benefit (expense) on income from discontinued operations		–			(34	)		(21	)
Gain (loss) on disposition of discontinued operations		(23	)		5			466
Income tax (expense) benefit on disposition of discontinued operations		(1	)		11			(65	)
Net income (loss) from discontinued operations	$	(38	)	$	64		$	524

Income from Discontinued Operations before Income Taxes

The decline in income from operations before income taxes in each succeeding year is primarily the result of the timing of the dispositions. The Mexican meats business was sold in March of 2008, while the European Meats business and Branded Apparel Americas/Asia businesses were disposed of in the early part of 2007. The remaining businesses being reported as discontinued operations were disposed of in 2006. The operating results in 2008 also include a $15 million charge related to the settlement of a pension plan in the U.K. associated with the European Branded Apparel business. During 2006,

the corporation recognized pretax impairment charges of $394 million related to the discontinued operations. Further details regarding these charges can be found in Note 4 to the Consolidated Financial Statements, “Discontinued Operations.”

Gain on Sale of Discontinued Operations  The corporation completed the disposition of its Mexican meats business in March 2008 and recognized a pretax and after tax loss of $23 million and $24 million, respectively. In 2007, the corporation completed the disposition of the European Meats and Branded Apparel Americas/ Asia businesses and completed certain postclosing adjustments related to the completed transactions and recognized a pretax and after tax gain of $5 million and $16 million, respectively. The corporation completed the sales of the remaining businesses reported as discontinued operations during 2006 and recognized a pretax and after tax gain of $466 million and $401 million, respectively. Further details regarding these transactions are included in Note 4 to the Consolidated Financial Statements, “Discontinued Operations.”

Consolidated Net Income and Diluted Earnings per Share (EPS)

The net loss was $79 million in 2008 as compared to net income of $504 million reported in 2007. The decrease in net income was due to the $827 million of after tax impairment charges, which were $682 million higher than the prior year. Diluted EPS decreased from $0.68 in 2007 to a loss of $0.11 in 2008.

Net income of $504 million in 2007 was $51 million, or 9.4%, lower than reported in 2006. The decline in net income was primarily due to the $460 million decline in results related to the discontinued operations partially offset by the $409 million increase in income from continuing operations. Diluted EPS decreased from $0.72 in 2006 to $0.68 in 2007, a decline of 5.6%.

Operating Results by Business Segment

The corporation’s structure is currently organized around six business segments, which are described below.

North American Retail Meats sells a variety of packaged meat products to retail customers in North America. Products include hot dogs and corn dogs, breakfast sausages and sandwiches, smoked and dinner sausages, premium deli and luncheon meats, bacon and cooked hams. The major brands include Hillshire Farm, Ball Park, Jimmy Dean, Sara Lee, Bryan, State Fair and Kahn’s.

18    Sara Lee Corporation and Subsidiaries

North American Retail Bakery sells a wide variety of bakery products to retail customers in North America including fresh and frozen baked products and specialty items, including bread, buns, bagels, rolls, muffins, specialty bread, frozen pies, cakes, cheesecakes and other desserts. This segment includes the results of the corporation’s Senseo retail coffee business in the U.S. The major brands include Sara Lee, Earth Grains, Colonial, Rainbo, Holsum, IronKids, Mother’s, Sunbeam, Sun-Maid, Healthy Choice and Heiner’s, certain of which are used under licensing arrangements.

Foodservice sells a variety of meat, bakery and beverage products to foodservice customers in North America including hot dogs and corn dogs, breakfast sausages and sandwiches, smoked and dinner sausages, premium deli and luncheon meats, bacon, cooked and dry hams, beef, turkey, bread, pastry, bagels, rolls, muffins, refrigerated dough, frozen pies, cakes, cheesecakes, roast, ground and liquid coffee, cappuccinos, lattes, teas and a variety of sauces, dressings and condiments. Sales are made in the foodservice channel to distributors, restaurants, hospitals and other large institutions. The Foodservice segment also offers direct delivery of beverage products to restaurants and warehouses through its direct delivery system.

International Beverage sells coffee and tea products in certain markets around the world, including Europe, Australia and Brazil. Sales are made in both the retail channel to supermarkets, warehouse clubs and national chains, and in the foodservice channel to distributors. The segment also offers direct delivery to restaurants and warehouses through its direct delivery system. In Europe, some of the more prominent brands are Douwe Egberts, Senseo, Maison du Café, Marcilla, Merrild and Pickwick, while in South America, significant brands include Café do Ponto, Café Caboclo, União and Café Pilão.

International Bakery sells a variety of bakery and dough products to retail and foodservice customers in Europe and Australia. Products include a variety of bread, buns, rolls, specialty bread, refrigerated dough and frozen desserts. Sales are made in the retail channel to supermarkets, warehouse clubs and national chains and in the foodservice channel to distributors and other institutions. The major brands under which International Bakery sells its products include Bimbo, CroustiPate, Ortiz, BonGateaux and Sara Lee.

Household and Body Care sells products in four primary categories: body care, air care, shoe care and insecticides. Body care consists of soaps, shampoos, bath and shower products, deodorants, shaving creams and toothpastes, which are sold primarily in Europe under brands such as Sanex, Duschdas, Radox, Monsavon and Zendium. Air care provides air fresheners under the Ambi Pur brand in Europe, Africa, Australia and certain Asian countries. Shoe care includes polishes, cleaners and wax primarily under the Kiwi brand in many countries around the world. Insecticides are sold primarily in Europe and Asia under brands such as Vapona, Catch, GoodKnight, Bloom and Ridsect.

The following is a summary of results by business segment:

In millions	2008			2007			2006
Net Sales
North American Retail Meats	$	2,424		$	2,355		$	2,259
North American Retail Bakery		2,183			1,998			1,871
Foodservice		2,221			2,197			2,179
International Beverage		3,215			2,617			2,320
International Bakery		929			799			742
Household and Body Care		2,291			2,042			1,827
Total business segments		13,263			12,008			11,198
Intersegment sales		(51	)		(25	)		(23	)
Net sales	$	13,212		$	11,983		$	11,175

The following tables summarize the components of the percentage change in net sales as compared to the prior year.

Net Sales Bridge – Components of Change 2008 versus 2007

	Volume		Price/ Mix/ Other		Acquisi- tions/ Disposi- tions		Currency		Total
North American Retail Meats	2.1	%	0.9	%	–	%	–	%	3.0	%
North American Retail Bakery	1.3		7.9		–		–		9.2
Foodservice	(3.1	)	4.0		–		0.2		1.1
International Beverage	1.5		7.1		–		14.3		22.9
International Bakery	0.3		2.7		–		13.1		16.1
Household and Body Care	4.6		(2.4	)	0.1		9.9		12.2
Total business segments	1.2	%	3.4	%	–	%	5.7	%	10.3	%

Sara Lee Corporation and Subsidiaries    19

Financial review

Net Sales Bridge – Components of Change 2007 versus 2006

	Volume		Price/ Mix/ Other		Acquisi- tions/ Disposi- tions		Currency		Total
North American Retail Meats	3.6	%	0.6	%	–	%	–	%	4.2	%
North American Retail Bakery	(3.9	)	5.0		5.7		–		6.8
Foodservice	(1.8	)	2.6		–		–		0.8
International Beverage	1.6		6.1		(2.5	)	7.6		12.8
International Bakery	1.9		(1.1	)	–		7.0		7.8
Household and Body Care	5.6		(0.1	)	0.4		5.9		11.8
Total business segments	0.7	%	3.1	%	0.5	%	2.9	%	7.2	%

Operating segment income and total income from continuing operations for 2008, 2007 and 2006 are as follows:

In millions	2008		2007		2006
Income from Continuing Operations before Income Taxes
North American Retail Meats	$  175		$    94		$  136
North American Retail Bakery	55		(2	)	(197	)
Foodservice	(295	)	139		116
International Beverage	547		317		388
International Bakery	(346	)	38		20
Household and Body Care	315		272		216
Total operating segment income	451		858		679
Amortization of intangibles	(67	)	(64	)	(58	)
General corporate expenses	(254	)	(352	)	(319	)
Contingent sale proceeds	130		120		114
Total operating income	260		562		416
Interest expense, net	(100	)	(133	)	(227	)
Income from continuing operations before income taxes	$  160		$  429		$  189

A discussion of each business segment’s sales and operating segment income is presented on the following pages.

The change in unit volumes for each business segment excludes the impact of acquisitions and dispositions, if any.

The amortization of intangibles in the preceding table relates to trademarks and customer relationships. Software amortization is recognized in the earnings of the segments.

General corporate expenses decreased in 2008 by $98 million due to lower transformation related costs, a reduction in pension and other benefit plan expenses and the non-recurrence of costs associated with the corporation’s hedging program. General corporate expenses increased by $33 million in 2007 as compared to 2006 primarily due to costs associated with the corporation’s hedging program in 2007 partially offset by lower costs associated with the transformation and lower corporate office and administrative expenses as compared to the prior year.

The impact of the costs related to exit activities and asset and business dispositions, transformation costs and impairment charges on the corporation’s business segments and general corporate expenses are summarized as follows:

In millions	2008	2007	2006
North American Retail Meats	$  33	$112	$  48
North American Retail Bakery	4	48	208
Foodservice	436	11	21
International Beverage	15	139	16
International Bakery	409	18	44
Household and Body Care	7	17	28
Impact on the business segments	904	345	365
General corporate expenses	37	72	103
Impact on income from continuing operations before income taxes	$941	$417	$468

The most significant charges in the above table relate to impairment charges. In 2008, impairment charges of $431 million and $400 million were recognized in Foodservice and International Bakery, respectively. In 2007, an impairment charge of $118 million was recognized in International Beverage, while in 2006 an impairment charge of $179 million was recognized in North American Retail Bakery. Additional information regarding the amount and nature of the above charges is provided in the individual business segment discussions that follow.

20    Sara Lee Corporation and Subsidiaries

North American Retail Meats

In millions	2008		2007		Dollar Change	Percent Change		2007		2006		Dollar Change		Percent Change
Net sales	$2,424		$2,355		$69	3.0	%	$2,355		$2,259		$  96		4.2	%
Operating segment income	$   175		$     94		$81	87.2	%	$     94		$   136		$(42	)	(31.6	)%
Increase/(decrease) in operating segment income from
Exit activities, asset and business dispositions	$   (13	)	$   (34	)	$21			$   (34	)	$   (15	)	$(19	)
Transformation charges	–		(17	)	17			(17	)	(21	)	4
Impairment charge	(20	)	(34	)	14			(34	)	–		(34	)
Vacation accrual	–		–		–			–		3		(3	)
Accelerated depreciation	–		(27	)	27			(27	)	(15	)	(12	)
Total	$   (33	)	$ (112	)	$79			$ (112	)	$   (48	)	$(64	)
Gross margin %	28.5	%	27.8	%		0.7	%	27.8	%	28.2	%			(0.4	)%

2008 versus 2007 Net sales in 2008 increased by $69 million, or 3.0%, due to a 6.5% increase in the net sales of retail meats, which resulted from higher volumes and positive pricing actions to offset the higher commodity and other raw material costs. The strong improvement in retail meats sales was partially offset by a 32.6% decline in the net sales of non-retail commodity meats, due to an unfavorable shift in sales mix. Unit volumes in the North American Retail Meats segment increased 2.1% with an 8.7% increase in non-retail commodity unit volumes and a 0.6% increase in unit volumes for retail products. In 2007, the corporation completed the shutdown of its pork slaughtering and meat production facility that supplied products to both the retail and commodity categories. Exiting this facility had a negative impact on volumes in the retail products category in 2008 as some processed products from the slaughter operation were sold in the retail products category in prior years. Excluding the impact of the exit of these product categories, unit volumes in the retail products category were up 3.7%. The increased unit volumes in this retail category were driven by growth in hot dogs, cooked breakfast sausages, and sliced luncheon meats. For non-retail commodities, exiting the production facility had the impact of increasing unit volumes as whole hogs are now being sold to another meat processor, resulting in an increase in non-retail commodity unit volumes for the year, but lower overall non-retail commodity meat revenues due to the low sales price per unit for hogs.

Operating segment income increased by $81 million, or 87.2%, in 2008. The net impact of the change in exit activities, asset and business dispositions, transformation charges, impairment charges and accelerated depreciation increased operating segment income by $79 million, or 86.4%. The remaining operating segment income increase of $2 million, or 0.8%, was the result of the volume improvements in certain product categories, an improved product mix, savings from continuous improvement programs and pricing actions partially offset by higher commodity, labor, fuel and other manufacturing costs.

2007 versus 2006 Net sales in 2007 increased by $96 million, or 4.2% over 2006. The increase in net sales was due to higher retail unit volumes and a favorable product mix. Unit volumes increased 3.6% as compared to 2006, driven by a 4.0% increase in retail unit volumes due to higher volumes for breakfast sandwiches, lunch combos, ultra thin slice meats, hot dogs and smoked sausages and a 1.9% increase in commodity meats. The favorable mix was due to a shift to higher value added products.

Operating segment income declined by $42 million, or 31.6%, in 2007. The net impact of the amounts identified in the table above reduced operating segment income by $64 million. The remaining operating segment income increase of $22 million, or 11.6%, was due to the favorable impact of higher volumes, an improved product mix, savings from continuous improvement programs and a reduction in pension, postretirement and other benefit plan costs, which were partially offset by higher commodity costs, higher media advertising and promotion expenses to support new product introductions, and higher distribution and administrative costs due to the impact of inflation on labor and other costs.

Sara Lee Corporation and Subsidiaries    21

Financial review

North American Retail Bakery

In millions	2008		2007		Dollar Change	Percent Change		2007		2006		Dollar Change		Percent Change
Net sales	$2,183		$1,998		$185	9.2	%	$1,998		$1,871		$127		6.8	%
Increase/(decrease) in net sales from Acquisition/dispositions	$       –		$       –		$    –			$   106		$       –		$106
Operating segment income (loss)	$     55		$     (2	)	$  57	NM		$     (2	)	$ (197	)	$195		99.1	%
Increase/(decrease) in operating segment income from
Exit activities, asset and business dispositions	$     (3	)	$     (8	)	$    5			$     (8	)	$     (7	)	$  (1	)
Transformation charges	(1	)	(21	)	20			(21	)	(18	)	(3	)
Impairment charge	–		(16	)	16			(16	)	(179	)	163
Acquisition/dispositions	–		–		–			7		–		7
Vacation accrual	–		–		–			–		3		(3	)
Accelerated depreciation	–		(3	)	3			(3	)	(7	)	4
Total	$     (4	)	$  (48	)	$  44			$  (41	)	$ (208	)	$167
Gross margin %	46.0	%	46.4	%		(0.4	)%	46.4	%	46.2	%			0.2	%

2008 versus 2007 The North American Retail Bakery segment also includes the results of the corporation’s Senseo retail coffee business in the U.S.

Net sales increased $185 million, or 9.2% over 2007. The increase in net sales was attributable to positive pricing actions to cover higher commodity costs and higher unit volumes. The pricing actions were primarily in the fresh bakery channel. Net unit volumes increased 1.3% due to an increase in unit volumes for branded fresh and frozen bakery products as well as nonbranded fresh bakery products. Sales of Sara Lee branded products continued their strong growth, with an increase of 19% versus the prior year.

Operating segment income increased by $57 million in 2008. The net impact of the change in exit activities, asset and business dispositions, transformation charges, impairment charges and accelerated depreciation increased operating segment income by $44 million. The remaining operating segment income increase of $13 million, or 29.7%, was due to the benefits of price increases, hedging gains and savings from continuous improvement programs. These benefits were offset somewhat by higher costs for key ingredients and wages, and higher SG&A costs driven primarily by labor, fuel, and selling expenses.

2007 versus 2006 Net sales in 2007 increased $127 million, or 6.8%, over 2006. Acquisitions completed after the start of fiscal 2006 increased sales by $106 million, or 5.7%, during the period. The remaining increase in net sales of $21 million, or 1.1%, was primarily attributable to certain selling price increases to offset higher costs, which was partially offset by a 3.9% decline in unit volumes. The lower unit volumes were the result of a decline in unbranded U.S. fresh bread business, particularly with certain private label customers, which was partially offset by increases in sales of frozen bakery products. Sales of Sara Lee branded products were particularly strong during the period, up 15% versus the prior year.

The segment reported an operating segment loss of $2 million in 2007 compared to a loss of $197 million in 2006. The change in exit activities, transformation and impairment charges and the other items identified in the table above increased 2007 operating segment income by $167 million. The remaining operating segment income increase of $28 million was attributable to improved pricing and product mix, the benefits of continuous improvement programs, lower media advertising and promotion spending, and a reduction in pension and postretirement benefit plan costs partially offset by higher commodity and labor costs.

22    Sara Lee Corporation and Subsidiaries

Foodservice

In millions	2008		2007		Dollar Change		Percent Change		2007		2006		Dollar Change		Percent Change
Net sales	$2,221		$2,197		$    24		1.1	%	$2,197		$2,179		$18		0.8	%
Increase/(decrease) in net sales from Changes in foreign currency exchange rates	$       –		$     (4	)	$      4				$       –		$     (1	)	$  1
Operating segment income	$ (295	)	$   139		$(434	)	NM		$   139		$   116		$23		20.2	%
Increase/(decrease) in operating segment income from
Changes in foreign currency exchange rates	$       –		$       –		$      –				$       –		$       –		$  –
Exit activities, asset and business dispositions	(5	)	(7	)	2				(7	)	(8	)	1
Transformation charges	–		(3	)	3				(3	)	(8	)	5
Impairment charge	(431	)	–		(431	)			–		–		–
Hurricane losses	–		–		–				–		(5	)	5
Vacation accrual	–		–		–				–		4		(4	)
Accelerated depreciation	–		(1	)	1				(1	)	(4	)	3
Total	$ (436	)	$   (11	)	$(425	)			$   (11	)	$   (21	)	$10
Gross margin %	25.1	%	26.3	%			(1.2	)%	26.3	%	27.2	%			(0.9	)%

2008 versus 2007 Net sales increased $24 million, or 1.1% over 2007. Changes in foreign currency exchange rates, primarily the Canadian dollar, increased net sales by $4 million, or 0.2%. The remaining net sales increase of $20 million, or 0.9%, was due to selected price increases to cover higher commodity costs and an improved product mix related to beverage products partially offset by a 3.1% decline in unit volumes. Net unit volumes decreased as a result of volume declines for meat and beverage products partially offset by higher volumes for private label bakery products. The volume declines were due in part to the planned exit of certain low-margin meats, sauces and dressing products, and overall volume softness due to competitive and economic pressures.

Operating segment income decreased by $434 million versus the prior year. The net change in exit activities, asset and business dispositions, transformation charges, impairment charges and accelerated depreciation decreased operating segment income by $425 million. This change included $431 million of impairment charges related to goodwill and fixed assets in the foodservice bakery and beverage businesses. The remaining operating segment income decline of $9 million, or 7.5%, was due to higher commodity and overhead costs as well as lower unit volumes, partially offset by pricing actions, and savings from continuous improvement initiatives.

2007 versus 2006 Net sales in 2007 increased $18 million, or 0.8%, over the comparable prior year period. Changes in foreign currency exchange rates, primarily the Canadian dollar, increased net sales by $1 million. The remaining net sales increase of $17 million, or 0.8%, was due to price increases to cover higher commodity costs; an improved sales mix reflecting growth in liquid coffee and a reduction in lower margin sauces; partially offset by a 1.8% decline in unit volumes. Net unit volumes declined during the period as increases for meat products were offset by declines in roast and ground coffee, sauces and dressing products and bakery products.

Operating segment income increased by $23 million, or 20.2%, in 2007. The change in exit activities, transformation expenses, accelerated depreciation, hurricane losses and a change in vacation accrual increased operating segment income by $10 million, or 8.6%. The remaining operating segment income increased by $13 million, or 11.5%, due to lower SG&A costs driven by savings from continuous improvement initiatives, the impact of higher pricing and a reduction in pension and postretirement benefit plan costs partially offset by higher commodity costs and the negative impact of inflation on employee costs.

Sara Lee Corporation and Subsidiaries    23

Financial review

International Beverage

In millions	2008			2007			Dollar Change	Percent Change		2007			2006			Dollar Change		Percent Change
Net sales	$	3,215		$	2,617		$598	22.9	%	$	2,617		$	2,320		$  297		12.8	%
Increase/(decrease) in net sales from
Changes in foreign currency exchange rates	$	–		$	(347	)	$347			$	–		$	(162	)	$  162
Dispositions		–			2		(2)				–			51		(51	)
Total	$	–		$	(345	)	$345			$	–		$	(111	)	$  111
Operating segment income	$	547		$	317		$230	72.8	%	$	317		$	388		$   (71	)	(18.4	)%
Increase/(decrease) in operating segment income from
Changes in foreign currency exchange rates	$	–		$	(59	)	$  59			$	–		$	(28	)	$    28
Exit activities, asset and business dispositions		(4	)		(12	)	8				(12	)		3		(15	)
Transformation charges		(10	)		(8	)	(2)				(8	)		(16	)	8
Impairment charge		–			(118	)	118				(118	)		–		(118	)
Dispositions		–			–		–				–			8		(8	)
Accelerated depreciation		(1	)		(1	)	–				(1	)		(3	)	2
Total	$	(15	)	$	(198	)	$183			$	(139	)	$	(36	)	$(103	)
Gross margin %		41.4	%		43.0	%		(1.6	) %		43.0	%		43.5	%			(0.5	)%

2008 versus 2007  Net sales increased by $598 million, or 22.9%. The impact of changes in foreign currency exchange rates, particularly in the European euro and Brazilian real, increased reported net sales by $347 million, or 14.3%, while a disposition decreased sales by $2 million. The remaining net sales increase of $253 million, or 8.6%, was due to the impact of pricing actions, a favorable sales mix into higher priced single serve products and concentrates, and an increase in unit volumes. Net unit volumes increased 1.5% with increases in both the retail and foodservice sectors. In the retail channel, volume growth was driven by increases in single-serve products, especially in France and the Netherlands, and in instant coffees. Unit volume growth in the foodservice channel was driven by increased sales of concentrates.

Operating segment income increased by $230 million, or 72.8%. Changes in foreign currency exchange rates increased operating segment income by $59 million, or 14.2%. The net impact of the change in exit activities, asset and business dispositions, transformation charges, accelerated depreciation and impairment charges increased operating segment income by $124 million, or 49.4%. The remaining operating segment income increase of $47 million, or 9.2%, was due to the favorable impact of price increases, higher unit volumes and the benefits of continuous improvement programs, which were partially offset by higher green coffee and packaging costs and an increase in SG&A costs due to higher labor costs to support general growth in the business.

2007 versus 2006  Net sales in 2007 increased by $297 million, or 12.8%. The impact of changes in foreign currency exchange rates, particularly the European euro, increased reported net sales by $162 million, or 7.6%. Dispositions completed after the start of 2006 reduced net sales by $51 million, or 2.5%, during the year. The remaining net sales increase of $186 million, or 7.7%, was due to an improved product mix, higher unit volumes and price increases to pass on certain raw material cost increases to the customer. Net unit volumes in the International Beverage segment increased 1.6% compared to the prior year, as unit volumes for retail coffee products increased 1.7% while foodservice coffee unit volumes increased 0.4%. Unit volume growth in retail was driven by strong double digit growth in single-serve coffee in Europe and growth in roast and ground coffee in Brazil.

Operating segment income decreased $71 million, or 18.4%, in 2007. Changes in foreign currency exchange rates increased operating segment income by $28 million, or 7.7%. The net impact of the change in the remaining items identified in the table above decreased operating segment income by $131 million, or 33.5%. The remaining operating segment income increase of $32 million, or 7.4%, was due to higher unit volumes, an improved product mix and lower pension costs, partially offset by higher selling and administrative costs and higher media advertising and promotion expense.

24    Sara Lee Corporation and Subsidiaries

International Bakery

In millions	2008			2007			Dollar Change		Percent Change		2007			2006			Dollar Change	Percent Change
Net sales	$	929		$	799		$  130		16.1	%	$	799		$	742		$57	7.8	%
Increase/(decrease) in net sales from
Changes in foreign currency exchange rates	$	–		$	(102	)	$  102				$	–		$	(51	)	$51
Operating segment income	$	(346	)	$	38		$(384	)	NM	%	$	38		$	20		$18	91.3	%
Increase/(decrease) in operating segment income from
Changes in foreign currency exchange rates	$	–		$	(7	)	$      7				$	–		$	(5	)	$  5
Exit activities, asset and business dispositions		(7	)		(14	)	7					(14	)		(25	)	11
Transformation charges		(2	)		(4	)	2					(4	)		(5	)	1
Impairment charge		(400	)		–		(400	)				–			(14	)	14
Total	$	(409	)	$	(25	)	$(384	)			$	(18	)	$	(49	)	$31
Gross margin %		37.6	%		40.0	%			(2.4	) %		40.0	%		41.8	%		(1.8	)%

2008 versus 2007  Net sales in 2008 increased $130 million, or 16.1% over 2007. The impact of changes in foreign currency exchange rates, particularly in the European euro, increased reported net sales by $102 million, or 13.1%. The remaining net sales increase of $28 million, or 3.0%, was primarily a result of price increases to cover higher commodity costs and higher unit volumes in Europe, partially offset by an unfavorable sales mix due to an increase in private label sales. Net unit volumes increased 0.3% due to an increase in private label fresh bread volumes in Spain, and refrigerated dough volumes in Europe, which were partially offset by a volume decline in private label frozen products and the planned exit of certain products in Australia.

Operating segment income in 2008 decreased by $384 million versus 2007. Changes in foreign currency exchange rates increased operating segment income by $7 million, or 12.6%. The net impact of the change in exit activities, asset and business dispositions, transformation charges and impairment charges decreased operating segment income by $391 million due primarily to a $400 million goodwill impairment charge related to the Spanish bakery operations. The remaining operating segment income was unchanged versus the prior year as favorable pricing actions and savings from continuous improvement programs were offset by higher commodity and labor costs and an unfavorable sales mix shift to private label in Spain.

2007 versus 2006  Net sales increased $57 million, or 7.8%, in 2007. The impact of changes in foreign currency exchange rates, particularly in the European euro, increased reported net sales by $51 million, or 7.0%. The remaining net sales increase of $6 million, or 0.8%, was a result of higher unit volumes and price increases to offset certain cost increases. Net unit volumes increased 1.9% in 2007 with increases in unit volumes for refrigerated dough products and fresh bread in Europe and frozen baked goods in Australia.

Operating segment income increased by $18 million, or 91.3%, in 2007. The impact of changes in foreign currency exchange rates increased operating segment income by $5 million, or 5.8%. The net impact of changes related to exit activities and transformation expenses increased operating segment income by $26 million, or 104.0%. The remaining decline in operating segment income of $13 million, or 18.5%, was primarily due to an unfavorable product mix due to a shift into discount channels and higher commodity, energy and employee costs, which were partially offset by savings from continuous improvement initiatives.

Sara Lee Corporation and Subsidiaries    25

Financial review

Household and Body Care

In millions	2008			2007			Dollar Change		Percent Change		2007			2006			Dollar Change			Percent Change
Net sales	$	2,291		$	2,042		$249		12.2	%	$	2,042		$	1,827		$	215		11.8	%
Increase/(decrease) in net sales from
Changes in foreign currency exchange rates	$	–		$	(197	)	$197				$	–		$	(102	)	$	102
Acquisition/dispositions		2			–		2					10			3			7
Total	$	2		$	(197	)	$199				$	10		$	(99	)	$	109
Operating segment income	$	315		$	272		$  43		15.7	%	$	272		$	216		$	56		25.7	%
Increase/(decrease) in operating segment income from
Changes in foreign currency exchange rates	$	–		$	(24	)	$  24				$	–		$	(11	)	$	11
Exit activities, asset and business dispositions		1			–		1					–			(1	)		1
Transformation charges		(8	)		(13	)	5					(13	)		(19	)		6
Impairment charge		–			(4	)	4					(4	)		–			(4	)
Acquisition		(1	)		–		(1	)				(1	)		–			(1	)
Accelerated depreciation		–			–		–					–			(8	)		8
Total	$	(8	)	$	(41	)	$  33				$	(18	)	$	(39	)	$	21
Gross margin %		49.4	%		49.8	%			(0.4	) %		49.8	%		49.9	%				(0.1	)%

2008 versus 2007  Net sales in 2008 increased $249 million, or 12.2%. The impact of changes in foreign currency exchange rates increased reported net sales by $197 million, or 9.9%, primarily due to the strengthening of the European euro, Indian rupee, Danish krone and the British pound. The 2008 net sales includes $2 million from an acquisition made after the start of 2007, which increased net sales by 0.1%. The remaining net sales increase of $50 million, or 2.2%, was due to higher unit volumes, partially offset by increased trade promotions related to new product launches and competitive market pressures. Unit volumes for the four core categories – shoe care, body care, air care and insecticides – increased 4.6%, primarily as a result of increased volumes in body care products driven by promotional activities and air care products due to the continuing success of new products, partially offset by a decline in insecticide volumes due to unfavorable weather conditions in Europe.

Operating segment income in 2008 increased $43 million, or 15.7%. Changes in foreign currency exchange rates increased operating segment income by $24 million, or 8.9%. The net change in exit activities, asset and business dispositions, transformation charges and an impairment charge increased operating segment income by $10 million, or 3.8%. The 2008 results include $1 million of losses from an acquisition made after the start of 2007. The remaining operating segment income increase of $10 million, or 3.3%, was due to the higher unit volumes and savings from continuous improvement initiatives, partially offset by an increase in trade promotions, higher SG&A costs due to higher labor costs, an $8 million charge for legal matters and higher commodity and packaging costs.

2007 versus 2006  Net sales increased $215 million, or 11.8% in 2007. The impact of changes in foreign currency exchange rates, primarily the European euro and British pound sterling, increased net sales by $102 million, or 5.9%. The impact of acquisitions, net of product lines that had been disposed of after the start of 2006 increased net sales by $7 million, or 0.4%. The remaining net sales increase of $106 million, or 5.5%, was due to higher unit volumes and an improved product mix. Unit volumes for the four core categories increased 5.6% in 2007, driven primarily by strong unit volume growth for insecticides, body care and air care products. Insecticide volumes grew due to strength in India and Europe. Body care unit volumes increases were driven by strong volumes across this core category particularly in deodorants and bath and shower products. Air care volumes increased behind new product introductions.

Operating segment income increased $56 million, or 25.7%, in 2007. Changes in foreign currency exchange rates increased operating segment income by $11 million, or 5.2%. The change in transformation charges, exit activities, an impairment charge, and accelerated depreciation between 2006 and 2007 increased operating segment income by $11 million, or 7.7%, in 2007. Acquisitions reduced operating segment income by $1 million, or 0.5%. The remaining operating segment income increased by $35 million, or 13.3%, due to an increase in unit volumes, the favorable impact of cost saving initiatives and a reduction in pension costs, partially offset by higher media advertising and promotion to support new products.

26    Sara Lee Corporation and Subsidiaries

Financial Condition

The corporation’s cash flow statements include amounts related to discontinued operations through the date of disposal. The discontinued operations had a significant impact on the cash flows from operating, investing and financing activities in 2007 and 2006.

Cash from Operating Activities  The total cash generated from operating activities was $606 million in 2008, $492 million in 2007 and $1,265 million in 2006.

The cash from operating activities generated by continuing and discontinued operations is summarized in the following table:

	2008		2007		2006
Cash from operating activities
Continuing operations	$	596	$	404	$	405
Discontinued operations		10		88		860
Total	$	606	$	492	$	1,265

The increase in cash from operating activities of $114 million in 2008 was due to an increase in earnings, after adjusting for the non-cash impairment and other charges, partially offset by an increase in cash used to fund working capital requirements.

Changes in current assets and liabilities resulted in the usage of $507 million of cash in 2008, $527 million in 2007 and $44 million in 2006. In 2008, the primary changes in working capital which impacted cash flow from operations were:

•    Accrued liabilities, other than income taxes, declined by $318 million due to $194 million of cash contributions to pension and postretirement plans and a reduction in accrued liabilities resulting from cash expenditures exceeding expenses for various operating expenses.

•    Accrued taxes increased by $18 million primarily as a result of a current tax provision of $468 million partially offset by $459 million of cash tax payments.

•    Cash was used to fund a $117 million increase in inventories and a $92 million increase in accounts receivable during the year due in part to the general growth in the business, as well as higher commodity costs with respect to inventories.

The most significant reason for the decline in cash from operating activities from 2006 to 2007 was the disposition of a number of businesses which are reported as discontinued operations. The Branded Apparel Americas/Asia and the European Meats businesses, which were disposed of in the first quarter of 2007, generated the majority of the cash from operating activities related to discontinued operations in 2007 and a significant portion of the 2006 amount as well.

In 2007, the primary changes in working capital which impacted cash from operations were a $270 million decline in accrued liabilities related to cash contributions to pension and postretirement plans and various operating expenses. In addition, the corporation made cash payments for income taxes of $378 million and used $106 million to fund an increase in inventories, which was partially offset by a $93 million increase in accounts payable. In 2006, the corporation reduced inventories, generating $108 million of cash, which was offset by $132 million of additional cash that was used to fund various accrued liabilities and other current assets.

Cash from Investment Activities  In 2008, $196 million of cash was used in investment activities, while the corporation received $568 million from investment activities in 2007 and $365 million in 2006.

Net cash (used in) generated from investment activities is split between continuing and discontinued operations as follows:

	2008			2007			2006
Cash from (used in) investment activities
Continuing operations	$	(188	)	$	615		$	704
Discontinued operations		(8	)		(47	)		(339	)
Total	$	(196	)	$	568		$	365

A significant amount of cash was received in 2007 and 2006 from the disposition of businesses and assets as well as the cash received from the collection of loans receivable related to prior business dispositions. In total, $223 million, $1,224 million and $1,101 million were received in 2008, 2007 and 2006, respectively.

During 2008, the corporation completed the disposition of its meat operations in Mexico and received $55 million. It also received 95 million euros or $130 million in contingent proceeds from the previous sale of the corporation’s tobacco product line. The increase versus the prior year was due to a change in foreign currency exchange rates.

During 2007, the corporation completed the disposition of Hanesbrands and the European Meats businesses. The net assets of businesses disposed of included certain intercompany loans payable which were paid shortly after the businesses were disposed of. The corporation received $688 million of cash in total from the settlement of these notes receivable – $450 million of cash received was related to the Hanesbrands disposition and $238 million was related to the European Meats disposition. The corporation also received $346 million in proceeds primarily related to the disposition of the European Meats business and received 95 million euros or $120 million in contingent proceeds from the sale of the corporation’s tobacco product line.

Sara Lee Corporation and Subsidiaries    27

Financial review

In 2006, cash proceeds from dispositions of businesses and assets were $1,101 million, which includes proceeds from the sale of several businesses that are reported in discontinued operations, the sale of certain working capital, trademarks and assets related to certain suncare and rice product lines, proceeds from the sale of an investment in a foreign company and $114 million in contingent proceeds from the sale of the corporation’s tobacco product line.

The corporation spent $515 million, $631 million and $625 million for the purchase of property, equipment, computer software and intangibles in 2008, 2007, and 2006, respectively. The higher level of spending in 2007 and 2006 were due in part to an increase in expenditures for certain information technology assets and for certain costs for the corporation’s new headquarters facility in Downers Grove, Illinois and other facilities that are being used to centralize management. The corporation expects capital expenditures for property and equipment to be approximately $500 million in 2009 due to a reduction in projected expenditures related to information technology assets.

In 2008 and 2007, the corporation did not expend any funds to make any business acquisitions. However, in 2006, the corporation used $78 million of cash for the purchase of certain businesses, the largest of which was Butter-Krust Baking, a Mid-Atlantic fresh bread and baking company for $53 million.

Cash from Financing Activities  The total cash used in financing activities was $1,811 million in 2008, $913 million in 2007 and $41 million in 2006. The net cash (used in) received from financing activities is split between continuing and discontinued operations as follows:

	2008			2007			2006
Cash (used in) received from financing activities
Continuing operations	$	(1,806	)	$	(857	)	$	509
Discontinued operations		(5	)		(56	)		(550	)
Total	$	(1,811	)	$	(913	)	$	(41	)

Significant items impacting the cash used in financing activities are discussed below.

Purchases of Common Stock  The corporation expended $315 million to repurchase shares of its common stock in 2008, versus $686 million and $561 million in 2007 and 2006, respectively. An ongoing share repurchase program is in place that allows the repurchase of the corporation’s common

stock at times management deems appropriate, given current market valuations. During 2008, the corporation repurchased 20 million shares of its common stock. At June 28, 2008, the corporation had approximately 24.8 million shares remaining on its existing share authorization. The corporation intends to repurchase additional shares in 2009 with a total value of $500 million. These repurchases will be influenced by market conditions and other factors.

Long-Term Borrowings  During 2008, the corporation had net repayments of long-term borrowings of $1,456 million. During 2007, the corporation had net borrowings of long-term debt of $2,479 million versus net repayments of long-term borrowings of $430 million in 2006. As noted below, prior to the 2007 spin off, Hanesbrands borrowed $2,558 million, which is included in the $2,479 million of net borrowings in 2007. In 2008 and 2006, the corporation utilized a combination of cash on hand and short-term borrowings to repay maturing long-term debt.

Prior to being spun off by the corporation, Hanesbrands borrowed $2,600 million from a group of banks. Net of loan origination fees, Hanesbrands received $2,558 million of cash proceeds, and this amount is included in the corporation’s borrowings of long-term debt. Using a portion of the proceeds received from the borrowing, Hanesbrands paid a dividend of $1,950 million to the corporation. Immediately following this dividend, the corporation distributed to stockholders of record one share of Hanesbrands common stock for every eight shares of Sara Lee common stock held. A total of $650 million of cash was transferred to Hanesbrands at the spin off date.

Short-Term Borrowings  During 2008 and 2006, the corporation had net short-term borrowings of $251 million and $1,528 million, respectively, versus net repayments of short-term borrowings in 2007 of $1,720 million. In 2007, the corporation utilized a combination of cash on hand and the proceeds from the borrowing of long-term debt noted above to fund the repayments.

At the end of 2006, the corporation chose not to utilize cash on hand to repay outstanding notes payable borrowings that had been made during the year as it had done in prior years. This resulted in a higher amount of cash on the balance sheet at the end of 2006 and higher borrowings of short-term debt, which are reflected in the corporation’s cash flow statement as a financing activity.

Cash Dividends  Dividends paid during 2008 were $296 million, as compared to the $374 million paid in 2007 and $605 million paid in 2006. The decline in dividends paid in 2008 is due to a lower number of shares outstanding due to the impact of the share repurchase program. The decline in the dividends paid in 2007 versus 2006 was primarily due to the reduction in the annual dividend rate after the spin off of Hanesbrands, from $0.79 per share in 2006 to $0.40 per share in 2007. The annual dividend rate in 2008 was $0.42 per share.

28    Sara Lee Corporation and Subsidiaries

Liquidity

Notes Payable  Notes payable increased from $23 million in 2007 to $280 million in 2008 as the corporation utilized short-term borrowings to repay a portion of its maturing long-term debt. The corporation had cash and cash equivalents on the balance sheet at the end of 2008 and 2007 of $1,284 million and $2,517 million, respectively.

Debt  The corporation’s total long-term debt decreased $1,289 million in 2008, to $2,908 million at June 28, 2008, primarily due to the use of cash on hand and short term borrowings to repay long-term debt that matured during the year. The corporation’s total remaining long-term debt of $2,908 million is due to be repaid as follows: $568 million in 2009, $52 million in 2010, $20 million in 2011, $1,128 million in 2012, $517 million in 2013 and $623 million thereafter. Of the amounts that are due to be repaid in 2009, approximately $394 million matures in the second quarter, $5 million matures in the third quarter, $152 million matures in the fourth quarter and the remainder matures throughout the year. Debt obligations due to mature in the next year are expected to be satisfied with cash on hand, cash from operating activities or with additional borrowings.

Including the impact of swaps, which are effective hedges and convert the economic characteristics of the debt, the corporation’s long-term debt and notes payable consist of 66.2% fixed-rate debt as of June 28, 2008, as compared with 60.7% as of June 30, 2007. The increase in fixed-rate debt at the end of 2008 versus the end of 2007 is due to the repayment of long-term variable rate debt during the period and the impact of changes in foreign currency exchange rates. The corporation monitors the interest rate environments in the geographic regions in which it operates and modifies the components of its debt portfolio as necessary to manage interest rate and foreign currency risks.

Pension Plans  As shown in Note 19 to the Consolidated Financial Statements, titled “Defined Benefit Pension Plans,” the funded status of the corporation’s defined benefit pension plans is defined as the amount the projected benefit obligation exceeds the plan assets. The underfunded status of the plans is $321 million at the end of fiscal 2008 as compared to $580 million at the end of fiscal 2007.

The corporation expects to contribute $196 million of cash to its pension plans in 2009 as compared to $175 million in 2008, $191 million in 2007 and $331 million in 2006. The 2009 contributions are for pension plans of continuing operations and pension plans where the corporation has agreed to retain the pension liability after certain business dispositions were completed. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which the company operates,

the timing of cash tax benefits for amounts funded and arrangements made with the trustees of certain foreign plans. As a result, the actual funding in 2009 may be materially different from the estimate.

During 2006, the corporation entered into an agreement to fully fund certain U.K. pension obligations by 2015. The anticipated 2009 contributions reflect the amounts agreed upon with the trustees of these U.K. plans. Under the terms of this agreement, the corporation will make annual pension contributions of 32 million British pounds to the U.K. plans through 2015. Subsequent to 2015, the corporation has agreed to keep the U.K. plans fully funded in accordance with local funding standards. If at any time prior to January 1, 2016, Sara Lee Corporation ceases having a credit rating equal to or greater than all three of the following ratings, the annual pension funding of these U.K. plans will increase by 20%: Standard & Poor’s minimum credit rating of “BBB-,” Moody’s Investors Service minimum credit rating of “Baa3” and FitchRatings minimum credit rating of “BBB-.” The corporation’s credit ratings are currently above these levels and are discussed below in this Liquidity section.

Repatriation of Foreign Earnings and Income Taxes  Since 2006, the corporation has adopted a policy of repatriating a higher level of foreign sourced earnings to fund U.S. cash requirements. The Hanesbrands business that was spun off in 2007 historically generated a significant amount of cash from operations within the U.S., which was used to service debt payments, dividends and other domestic capital requirements. As a result of the spin off of Hanesbrands and the disposition of a number of significant European operations, the corporation has repatriated dividends annually since 2006 and will likely continue to do so in the future. This policy will increase the corporation’s income tax rate and increase cash income taxes paid.

The tax costs associated with the anticipated repatriation of foreign earnings are recognized as the amounts are earned. However, the corporation pays the tax liability upon completing the repatriation action.

During the first quarter of 2008, the corporation repatriated $1.4 billion of foreign accumulated earnings to the U.S. The taxes paid on the $1.4 billion dividend were fully accrued in 2007 and prior years. This dividend, in isolation, would have required the payment of approximately $420 million of cash taxes over the remainder of 2008. However, other income or losses generated by the business impacted the ultimate amount of 2008 cash taxes paid. During 2008 the corporation accrued $125 million of taxes payable relating to the repatriation of $720 million of 2008 foreign earnings. This repatriation, in isolation, will result in a payment of $125 million of cash tax in 2009. However, other income or losses generated by the business will impact the ultimate cash tax payment.

Sara Lee Corporation and Subsidiaries    29

Financial review

Cash and Equivalents, Short-Term Investments and Cash Flow  The corporation’s cash balance of $1,284 million at the end of 2008 was invested in interest-bearing bank deposits that are redeemable on demand by the corporation. A significant portion of cash and equivalents are held by the corporation’s subsidiaries outside of the U.S. A portion of these balances will be used to fund future working capital and other funding requirements.

The corporation has also recognized amounts for transformation and other restructuring charges and at the end of 2008 recognized a liability of approximately $110 million that relates primarily to future severance and other lease and contractual payments. These amounts will be paid when the obligation becomes due, and the corporation expects a significant portion of these amounts will be paid in 2009. The anticipated 2009 payments of cash taxes and severance associated with previously recognized exit activities will have a significant negative impact on cash from operating activities.

Dividend  Annual dividend amounts paid per share by the corporation were $0.41 in 2008, $0.50 in 2007, and $0.79 in 2006. Future dividends are determined by the corporation’s Board of Directors and are not guaranteed.

Credit Facilities and Ratings  The corporation has a $1.85 billion five-year revolving credit facility available which management considers sufficient to satisfy its operating requirements. This facility expires in December 2011 and the pricing under this facility is based upon the corporation’s current credit rating. At June 28, 2008, the corporation had not borrowed under the facility and the facility does not mature or terminate upon a credit rating downgrade. The facility contains a number of typical covenants, which the corporation is in compliance with, including a requirement to maintain an interest coverage ratio of at least 2.0 to 1.0. The interest coverage ratio is generally defined as a ratio of pretax income (excluding net interest expense, any extraordinary or non-recurring non-cash charges or gains), to net interest expense. For the 12 months ended June 28, 2008, the corporation’s interest coverage ratio was 11.2 to 1.0.

The corporation’s credit ratings by Standard & Poor’s, Moody’s Investors Service and FitchRatings, as of June 28, 2008, were as follows. Standard & Poor’s and Moody’s Investors Service have the corporation’s long-term credit rating classified as having a negative outlook.

	Senior Unsecured Obligations	Short-term Borrowings	Outlook
Standard & Poor’s	BBB+	A-2	Negative
Moody’s	Baa1	P-2	Negative
FitchRatings	BBB	F-2	Stable

Changes in the corporation’s credit ratings result in changes in the corporation’s borrowing costs. The corporation’s current short-term credit rating allows it to participate in a commercial paper market that has a number of potential investors and a historically

high degree of liquidity. A downgrade of the corporation’s short-term credit rating would place the corporation in a commercial paper market that would contain significantly less market liquidity than it currently operates in with a rating of “A-2,” “P-2,” or “F-2.” This would reduce the amount of commercial paper the corporation could issue and raise its commercial paper borrowing cost. To the extent that the corporation’s operating requirements were to exceed its ability to issue commercial paper following a downgrade of its short-term credit rating, the corporation has the ability to use available credit facilities to satisfy operating requirements, if necessary.

Off-Balance Sheet Arrangements  The off-balance sheet arrangements that are reasonably likely to have a current or future effect on the corporation’s financial condition are lease transactions for facilities, warehouses, office space, vehicles and machinery and equipment.

Leases  The corporation has numerous operating leases for manufacturing facilities, warehouses, office space, vehicles and machinery and equipment. Operating lease obligations are scheduled to be paid as follows: $116 million in 2009, $76 million in 2010, $53 million in 2011, $33 million in 2012, $26 million in 2013 and $102 million thereafter. The corporation is also contingently liable for certain long-term leases on property operated by others. These leased properties relate to certain businesses that have been sold. The corporation continues to be liable for the remaining terms of the leases on these properties in the event that the owners of the businesses are unable to satisfy the lease liability. The minimum annual rentals under these leases are as follows: $29 million in 2009, $27 million in 2010, $23 million in 2011, $18 million in 2012, $14 million in 2013 and $61 million thereafter.

Future Contractual Obligations and Commitments  During 2007, the corporation exited a U.S. meat production plant that included a hog slaughtering operation. Certain purchase contracts for the purchase of live hogs at this facility were not exited or transferred after the closure of the facility. These contracts, the majority of which will expire by December 2009, represent the purchase of approximately $158 million of hogs over the remaining life of the contracts. Under the terms of these contracts, the corporation must continue to purchase these live hogs and therefore, the corporation has entered into a hog sales contract under which these hogs will be sold to another slaughter operator. The corporation’s purchase price of these hogs is generally based on the price of corn products, and the corporation’s selling price for these hogs is generally based on USDA posted hog prices. Divergent movements in these indices will result in either gains or losses on these hog transactions. Expected losses from the sale of these hogs are recognized when the loss is probable of occurring. At the end of 2008, based on current market pricing, the corporation deemed that it was not probable that material future near-term losses would occur. The contractual commitment for these purchases is included in the table below.

30    Sara Lee Corporation and Subsidiaries

The corporation has no material unconditional purchase obligations as defined by SFAS No. 47, “Disclosure of Long-Term Purchase Obligations.” The following table aggregates information on the corporation’s contractual obligations and commitments:

			Payments Due by Fiscal Year
In millions	Total		2009		2010		2011		2012		2013		Thereafter
Long-term debt	$	2,908	$	568	$	52	$	20	$	1,128	$	517		$   623
Interest on debt obligations1		1,164		147		131		130		78		59		619
Operating lease obligations		406		116		76		53		33		26		102
Purchase obligations2		3,237		1,765		775		348		185		138		26
Other long-term liabilities3		1,086		239		112		93		83		390		169
Subtotal		8,801		2,835		1,146		644		1,507		1,130		1,539
Contingent lease obligations4		172		29		27		23		18		14		61
Total5	$	8,973	$	2,864	$	1,173	$	667	$	1,525	$	1,144	$	1,600

1 Interest obligations on floating rate debt instruments are calculated for future periods using interest rates in effect at the end of 2008. See Note 12 to the Consolidated Financial Statements for further details on the corporation’s long-term debt.

2 Purchase obligations include expenditures to purchase goods and services in the ordinary course of business for production and inventory needs (such as raw materials, supplies, packaging, manufacturing arrangements, storage, distribution and union wage agreements); capital expenditures; marketing services; information technology services; and maintenance and other professional services where, as of the end of 2008, the corporation has agreed upon a fixed or minimum quantity to purchase, a fixed, minimum or variable pricing arrangement and the approximate delivery date. Future cash expenditures will vary from the amounts shown in the table above. The corporation enters into purchase obligations when terms or conditions are favorable or when a long-term commitment is necessary. Many of these arrangements are cancelable after a notice period without a significant penalty. Additionally, certain costs of the corporation are not included in the table since at the end of 2008 an obligation did not exist. An example of these includes situations where purchasing decisions for these future periods have not been made at the end of 2008. Ultimately, the corporation’s decisions and cash expenditures to purchase these various items will be based upon the corporation’s sales of products, which are driven by consumer demand. The corporation’s obligations for accounts payable and accrued liabilities recorded on the balance sheet are also excluded from the table.

3 Represents the projected 2009 pension contribution of $196 million and the projected payment for long-term liabilities recorded on the balance sheet for deferred compensation, restructuring costs, deferred income, sales and other incentives. The 2009 projected pension contribution of $196 million and subsequent years through 2015 include an annual pension contribution of 32 million British pounds related to the terms of an agreement to fully fund certain U.K. pension obligations. The corporation has employee benefit obligations consisting of pensions and other postretirement benefits including medical; other than the projected 2009 pension contribution of $196 million and the U.K. funding amounts, noted previously, pension and postretirement obligations, including any contingent amounts that may be due related to multi-employer pension plans, have been excluded from the table. A discussion of the corporation’s pension and postretirement plans, including funding matters, is included in Notes 19 and 20 to the Consolidated Financial Statements. The corporation’s obligations for employee health and property and casualty losses are also excluded from the table. Finally, the amount does not include any reserves for income taxes under FIN 48 because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes (balance was $617 million at June 28, 2008).

4 Contingent lease obligations represent leases on property operated by others that only become an obligation of the corporation in the event that the owners of the businesses are unable to satisfy the lease liability. A significant portion of these amounts relates to leases operated by Coach, Inc. At June 28, 2008, the corporation has not recognized a contingent lease liability on the Consolidated Balance Sheets.

5 Contractual commitments and obligations identified under SFAS No. 5 are reflected and disclosed on the Consolidated Balance Sheets and in the related notes. Amounts exclude any payments related to deferred tax balances including any tax related to future repatriation of foreign earnings. See Note 21 to the corporation’s Consolidated Financial Statements regarding income taxes for further details.

Guarantees  The corporation is a party to a variety of agreements under which it may be obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts entered into by the corporation under which the corporation agrees to indemnify a third party against losses arising from a breach of representations and covenants related to such matters as title to assets sold, the collectibility of receivables, specified environmental matters, lease obligations assumed and certain tax matters including a manufacturing facility pledged as collateral for a Brazilian tax dispute. In each of these circumstances, payment by the corporation is conditioned on the other party making a claim pursuant to the procedures specified in the contract. These procedures allow the corporation to challenge the other party’s claims. In addition, the corporation’s obligations under these agreements may be limited in terms of time and/or amount, and in some cases the corporation may have recourse against third parties for certain payments made by the corporation. It is not possible to predict the maximum potential amount of future payments under certain of these agreements, due to the conditional nature of the corporation’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the corporation under

these agreements have not had a material effect on the corporation’s business, financial condition or results of operations. The corporation believes that if it were to incur a loss in any of these matters, such loss would not have a material effect on the corporation’s business, financial condition or results of operations.

The material guarantees, within the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), for which the maximum potential amount of future payments can be determined, include the corporation’s contingent liability on leases on property operated by others that is described above, and the corporation’s guarantees of certain third-party debt. These debt guarantees require the corporation to make payments under specific debt arrangements in the event that the third parties default on their debt obligations. The maximum potential amount of future payments that the corporation could be required to make in the event that these third parties default on their debt obligations is $32 million. At the present time, the corporation does not believe it is probable that any of these third parties will default on the amount subject to guarantee.

Sara Lee Corporation and Subsidiaries    31

Financial review

Risk Management

Geographic Risks  The corporation maintains a presence in a large number of nations in the world. This includes geographic locations where the corporation has a direct economic presence through owned manufacturing or distribution facilities, or companies where Sara Lee maintains a direct equity investment. The corporation also has an indirect economic presence in many geographic locations through third-party suppliers who provide inventory or distribution services. In most cases, alternative sources of supply are available for inventory products that are manufactured or purchased from these foreign locations. However, the general insurance coverage that is maintained by the corporation does not cover losses resulting from acts of war or terrorism. As a result, a loss of a significant direct or indirect manufacturing or distribution location could impact the corporation’s operations, cash flows and liquidity.

Foreign Exchange, Interest and Commodity Risks  The corporation is exposed to market risk from changes in foreign currency exchange rates, interest rates and commodity prices. To mitigate the risk from 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 primarily uses foreign currency forward and option contracts to hedge its exposure to adverse changes in foreign currency exchange rates. The corporation’s exposure to foreign currency exchange rates exists primarily with the European euro, British pound, Brazilian real, Danish krone, Hungarian forint, Russian ruble and Australian dollar 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, a 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 modify interest payments under these instruments.

Commodities  The corporation is a purchaser of certain commodities such as beef, pork, coffee, wheat, corn, corn syrup, soybean and corn oils, butter, sugar, natural gas and diesel fuel. The corporation generally buys these commodities based upon market prices that are established with the vendor as part of the purchase process. In circumstances where commodity derivative instruments are used, there is a high correlation between the commodity costs and the derivative instrument.

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 currency exchange rates, given a specified confidence level, over a given period of time. Loss is defined in the value at risk estimation as fair market value loss. As a result, foreign exchange gains or losses that are charged directly to translation adjustments in common stockholders’ equity are included in this estimate. The value at risk estimation utilizes historical interest rates and foreign currency 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. Foreign exchange value at risk includes the net assets invested in foreign locations. 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 currency exchange rates for a one-day period. The average value at risk amount 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.

In millions	Amounts	Average	Time Interval	Confidence Level
Value at Risk Amounts
2008
Interest rates	$16	$18	1 day	95	%
Foreign exchange	35	27	1 day	95	%
2007
Interest rates	$11	$  9	1 day	95	%
Foreign exchange	9	9	1 day	95	%

32    Sara Lee Corporation and Subsidiaries

Increases in foreign exchange value at risk amounts in 2008 were primarily due to increased levels of volatility in foreign exchange between the Euro and U.S. dollar, in addition to U.S. dollar interest rate volatility.

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 the end of 2008 and 2007, the potential change in fair value of commodity derivative instruments, assuming a 10% change in the underlying commodity price, was $16 million and $11 million, respectively. This amount is not significant compared with the earnings and equity of the corporation.

Significant Accounting Policies and Critical Estimates

The corporation’s summary of significant accounting policies is discussed in Note 2 to the Consolidated Financial Statements. The application of certain of these policies requires significant judgments or a complex estimation process that can affect the results of operations and financial position of the corporation, as well as the related footnote disclosures. The corporation bases its estimates on historical experience and other assumptions that it believes are most likely to occur. If actual amounts are ultimately different from previous estimates, the revisions are included in the corporation’s results of operations for the period in which the actual amounts become known, and, if material, are disclosed in the financial statements. The disclosures below also note situations in which it is reasonably likely that future financial results could be impacted by changes in these estimates and assumptions. The term “reasonably likely” refers to an occurrence that is more than remote but less than probable in the judgment of management.

Sales Recognition and Incentives  Sales are recognized when title and risk of loss pass to the customer. Reserves for uncollectible accounts are based upon historical collection statistics, current customer information, and overall economic conditions. These estimates are reviewed each quarter and adjusted based upon actual experience. The reserves for uncollectible trade receivables are disclosed and trade receivables due from customers that the corporation considers highly leveraged are presented in Note 18 to the Consolidated Financial Statements, titled “Financial Instruments and Risk Management Interest Rate and Currency Swaps.” The corporation has a significant number of individual accounts receivable and a number of factors outside of the corporation’s control that impact the collectibility of a receivable. It is reasonably likely that actual collection experience will vary from the assumptions and estimates made at the end of each accounting period.

The Notes to the Consolidated Financial Statements specify a variety of sales incentives that the corporation offers to resellers and consumers of its products. Measuring the cost of these incentives requires, in many cases, estimating future customer utilization and redemption rates. Historical data for similar transactions are used in estimating the most likely cost of current incentive programs. These estimates are reviewed each quarter and adjusted based upon actual experience and other available information. The corporation has a significant number of trade incentive programs and a number of factors outside of the corporation’s control impact the ultimate cost of these programs. It is reasonably likely that actual experience will vary from the assumptions and estimates made at the end of each accounting period.

Inventory Valuation  Inventory is carried on the balance sheet at the lower of cost or market. Obsolete, damaged and excess inventories are carried at net realizable value. Historical recovery rates, current market conditions, future marketing and sales plans and spoilage rates are key factors used by the corporation in assessing the most likely net realizable value of obsolete, damaged and excess inventory. These factors are evaluated at a point in time and there are inherent uncertainties related to determining the recoverability of inventory. It is reasonably likely that market factors and other conditions underlying the valuation of inventory may change in the future.

Impairment of Property  Property is tested for recoverability whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Such events include significant adverse changes in the business climate, current period operating or cash flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of its useful life. Recoverability of property is evaluated by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset exceeds the estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amount of those assets is depreciated over its remaining useful life. Restoration of a previously recognized impairment loss is not allowed.

There are inherent uncertainties associated with these judgments and estimates and it is reasonably likely that impairment charges can change from period to period. Note 3 to the Consolidated Financial Statements discloses the impairment charges recognized by the corporation and the factors which caused these charges. It is also reasonably likely that the sale of a business can result in the recognition of an impairment that differs from that anticipated prior to the closing date.

Sara Lee Corporation and Subsidiaries    33

Financial review

Note 5 to the Consolidated Financial Statements sets out the impact of the corporation’s decisions to exit the use of property in advance of previously anticipated useful lives. Given the corporation’s ongoing efforts to improve operating efficiency, it is reasonably likely that future restructuring actions could result in decisions to dispose of other assets before the end of their useful life and it is reasonably likely that the impact of these decisions would result in impairment and other related costs including employee severance that in the aggregate would be significant.

Trademarks and Other Identifiable Intangible Assets  The primary identifiable intangible assets of the corporation are trademarks and customer relationships acquired in business combinations and computer software. Identifiable intangibles with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of an identifiable intangible asset to the corporation is based upon a number of factors, including the effects of demand, competition, expected changes in distribution channels and the level of maintenance expenditures required to obtain future cash flows. As of June 28, 2008, the net book value of trademarks and other identifiable intangible assets was $1,021 million, of which $926 million is being amortized. The anticipated amortization over the next five years is $437 million.

Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate elements of property. Identifiable intangible assets not subject to amortization are assessed for impairment at least as often as annually and as triggering events may occur. The impairment test for identifiable intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset. The fair value of the intangible asset is measured using the royalty saved method. In making this assessment, management relies on a number of factors to discount anticipated future cash flows including operating results, business plans and present value techniques. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a point in time.

There are inherent assumptions and estimates used in developing future cash flows requiring management’s judgment in applying these assumptions and estimates to the analysis of intangible asset impairment including projecting revenues, interest rates, the cost of capital, royalty rates and tax rates. Many of the factors used in assessing fair value are outside the control of management and it is reasonably likely that assumptions and estimates will change in future periods. These changes can result in future impairments. Note 3 to the Consolidated Financial Statements sets out the impact of charges taken to recognize the impairment of intangible assets and the factors which led to changes in estimates and assumptions.

Goodwill  Goodwill is not amortized but is subject to periodic assessments of impairment and is discussed further in Note 15. Goodwill is assessed for impairment at least as often as annually and as triggering events may occur. The corporation performs its annual review in the second quarter of each year. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the implied fair value and carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. Reporting units are business components one level below the operating segment level for which discrete financial information is available and reviewed by segment management. In evaluating the recoverability of goodwill, it is necessary to estimate the fair value of the reporting units. In making this assessment, management relies on a number of factors to discount anticipated future cash flows including operating results, business plans and present value techniques. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a point in time.

There are inherent assumptions and estimates used in developing future cash flows requiring management’s judgment in applying these assumptions and estimates to the analysis of goodwill impairment including projecting revenues and profits, interest rates, the cost of capital, tax rates, and the allocation of shared or corporate items. Many of the factors used in assessing fair value are outside the control of management and it is reasonably likely that assumptions and estimates can change in future periods. These changes can result in future impairments. Note 3 to the Consolidated Financial Statements sets out the impact of charges taken to recognize the impairment of goodwill and the factors which led to changes in estimates and assumptions.

Self-Insurance Reserves  The corporation purchases third-party insurance for workers’ compensation, automobile and product and general liability claims that exceed a certain level. The corporation is responsible for the payment of claims under these insured limits, and consulting actuaries are utilized to estimate the obligation associated with incurred losses. Historical loss development factors are utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claim experience and settlements. Consulting actuaries make a significant number of estimates and assumptions in determining the cost to settle these claims and many of the factors used are outside the control of the corporation. Accordingly, it is reasonably likely that these assumptions and estimates may change and these changes may impact future financial results.

34    Sara Lee Corporation and Subsidiaries

Income Taxes  Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. Federal and state income taxes are provided on that portion of foreign subsidiaries income that is expected to be remitted to the U.S. and be taxable.

The corporation’s effective tax rate is based on pretax income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the corporation operates. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the corporation transacts business. We establish reserves for income taxes when, despite the belief that our tax positions are fully supportable, we believe that our position may be challenged and possibly disallowed by various tax authorities. The corporation’s recorded estimates of liability related to income tax positions are based on management’s judgments made in consultation with outside tax and legal counsel, where appropriate, and are based upon the expected outcome of proceedings with worldwide tax authorities in consideration of applicable tax statutes and related interpretations and precedents. We also provide interest on these reserves at the appropriate statutory interest rates and these charges are also included in the corporation’s effective tax rate. The ultimate liability incurred by the corporation may differ from its estimates based on a number of factors, including the application of relevant legal precedent, the corporation’s success in supporting its filing positions with tax authorities, and changes to, or further interpretations of, law.

The corporation’s tax returns are routinely audited by federal, state, and foreign tax authorities. Reserves for uncertain tax positions represent a provision for the corporation’s best estimate of taxes expected to be paid based upon all available evidence recognizing that over time, as more information is known, these reserves may require adjustment. Reserves are adjusted when (a) new information indicates a different estimated reserve is appropriate; (b) the corporation finalizes an examination with a tax authority, eliminating uncertainty regarding tax positions taken; or (c) a tax authority does not examine a tax year within a given statute of limitations, also eliminating the uncertainty with regard to tax positions for a specific tax period. The actual amounts settled with respect to these examinations were the result of discussions and settlement negotiations involving the interpretation of complex income tax laws in the context of our fact patterns. Any adjustment to a tax reserve impacts the corporation’s tax expense in the period in which the adjustment is made.

As a global commercial enterprise, the corporation’s tax rate from period to period can be affected by many factors. The most significant of these factors are changes in tax legislation, the corporation’s global mix of earnings, the tax characteristics of the corporation’s income, the timing and recognition of goodwill

impairments, acquisitions and dispositions, adjustments to the corporation’s reserves related to uncertain tax positions and the portion of the income of foreign subsidiaries that is expected to be remitted to the U.S. and be taxable. It is reasonably possible that the following items can have a material impact on income tax expense, net income and liquidity in future periods:

•    The spin off of the Hanesbrands business that was completed in 2007 has resulted in, and may continue to result in, an increase in the corporation’s effective tax rate in future years as the operations that were spun off had, historically, a lower effective tax rate than the remainder of the business and generated a significant amount of operating cash flow. The elimination of this cash flow has required the corporation to remit a greater portion of the future foreign earnings to the U.S. than has historically been the case and resulted in higher levels of tax expense and cash taxes paid.

•    Tax legislation in the jurisdictions in which the corporation does business may change in future periods. While such changes cannot be predicted, if they occur, the impact on the corporation’s tax assets and obligations will need to be measured and recognized in the financial statements.

•    The corporation has ongoing U.S. and foreign tax audits for various tax periods. The U.S. federal tax years from 2005 onward remain subject to audit. Fiscal years remaining open to examination in the Netherlands include 2003 forward. Other foreign jurisdictions remain open to audits ranging from 1999 to 2007. With few exceptions, the corporation is no longer subject to state and local income tax examinations by tax authorities for years before 2003. The tax reserves for uncertain tax positions recorded in the financial statements reflect the expected finalization of worldwide examinations. The corporation believes that it has sufficient cash resources to fund the settlement of these audits.

Audit outcomes and the timing of audit settlements are subject to significant uncertainty. The corporation estimates reserves for uncertain tax positions, but is not able to control or predict the extent to which tax authorities will examine specific periods, the outcome of examinations, or the time period in which examinations will be conducted and finalized. Favorable or unfavorable past audit experience in any particular tax jurisdiction is not indicative of the outcome of future examinations by those tax authorities. Based on the nature of uncertain tax positions and the examination process, management is not able to predict the potential outcome with respect to tax periods that have not yet been examined or the impact of any potential reserve adjustments on the corporation’s tax rate or net earnings trends.

•    Facts and circumstances may change that cause the corporation to revise the conclusions on its ability to realize certain net operating losses and other deferred tax attributes.

Sara Lee Corporation and Subsidiaries    35

Financial review

Note 21 to the Consolidated Financial Statements, titled “Income Taxes,” sets out the factors which caused the corporation’s effective tax rate to vary from the statutory rate and certain of these factors result from finalization of tax audits and review and changes in estimates and assumptions regarding tax obligations and benefits.

Contingent Asset  The corporation sold its European cut tobacco business in 1999. Under the terms of that agreement, the corporation can receive an annual cash payment of 95 million euros if tobacco continues to be a legal product in the Netherlands, Germany and Belgium through July 2009. If tobacco ceases to be a legal product at any time during this period, the corporation forfeits the receipt of all future amounts related to that country. Payments of 95 million euros were received in 2008, 2007 and 2006 that were equivalent to $130 million, $120 million and $114 million, respectively. Any future contingent payments received will be recognized in the corporation’s earnings on a separate line in the income statement when received. The future receipt of any payments is dependent upon factors outside of the control of the corporation, including legislation in foreign countries, and the corporation cannot predict such actions.

Stock Compensation  The corporation issues restricted stock units (RSUs) to employees and non-employee directors and issues stock options to employees. See Note 8 to the Consolidated Financial Statements regarding stock-based compensation for further information on these awards. The cost of RSUs and stock option awards is equal to the fair value of the award at the date of grant, and compensation expense is recognized for those awards earned over the service period. Certain of the RSUs vest based upon the employee achieving certain defined performance measures. During the service period, management estimates the number of awards that will meet the defined performance measures. With regard to stock options, at the date of grant, the corporation determines the fair value of the award using the Black-Scholes option pricing formula. Management estimates the period of time the employee will hold the option prior to exercise and the expected volatility of the corporation’s stock, each of which impacts the fair value of the stock options. The corporation believes that changes in the estimates and assumptions associated with prior grants are not reasonably likely to have a material impact on future operating results.

Defined Benefit Pension Plans  See Note 19 to the Consolidated Financial Statements, titled “Defined Benefit Pension Plans,” for information regarding plan obligations, plan assets and the measurements of these amounts, as well as the net periodic benefit cost and the reasons for changes in this cost.

Pension costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. The assumptions used in developing the required estimates include the following key factors: discount rates, salary growth, expected return on plan assets, retirement rates and mortality.

In determining the discount rate, the corporation utilizes the yield on high-quality fixed-income investments that have a AA bond rating and match the average duration of pension obligations. Salary increase assumptions are based on historical experience and anticipated future management actions. In determining the long-term rate of return on plan assets, the corporation assumes that the historical long-term compound growth rate of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio. Investment management and other fees paid out of plan assets are factored into the determination of asset return assumptions. Retirement rates are based primarily on actual plan experience, while standard actuarial tables are used to estimate mortality. Results that differ from these assumptions are accumulated and amortized over future periods and, therefore, generally affect the net periodic benefit cost in future periods.

Net periodic benefit costs for the corporation’s defined benefit pension plans was $107 million in 2008, $141 million in 2007 and $181 million in 2006, and the projected benefit obligation was $4,744 million at the end of 2008 and $4,926 million at the end of 2007. The following information illustrates the sensitivity of these amounts to a change in the discount rate and return on plan assets. Amounts relating to foreign plans are translated at the spot rate at the close of 2008. The sensitivities reflect the impact of changing one assumption at a time and are specific to base conditions at the end of 2008. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and that the effects of changes in assumptions are not necessarily linear.

			Increase/(Decrease) in
Assumption		Change	2009 Net Periodic Benefit Cost		2008 Projected Benefit Obligation
Discount rate	1%	increase	$(28	)	$(612	)
Discount rate	1%	decrease	64		755
Asset return	1%	increase	(44	)	–
Asset return	1%	decrease	44		–

36    Sara Lee Corporation and Subsidiaries

The corporation’s defined benefit pension plans had a net actuarial loss of $570 million in 2008 and $746 million at the end of 2007. At June 28, 2008, the unamortized actuarial loss is reported in the “Accumulated other comprehensive loss” line of the Consolidated Balance Sheet. The reduction in the net actuarial loss in 2008 was primarily due to an actuarial gain resulting from an increase in the discount rate used to measure plan obligations to 6.3% in 2008 from 5.4% in 2007. Also, the amortization of the opening deferred loss was partially offset by an actuarial loss due to actual asset returns being less than the assumed long-term rate of return.

As indicated above, changes in the bond yields, expected future returns on assets, and other assumptions can have a material impact upon the funded status and the net periodic benefit cost of defined benefit pension plans. It is reasonably likely that changes in these external factors will result in changes to the assumptions used by the corporation to measure plan obligations and net periodic benefit cost in future periods.

Issued but not yet Effective Accounting Standards  Following is a discussion of recently issued accounting standards that the corporation will be required to adopt in a future period.

Accounting for Defined Benefit Pension and Other Postretirement Plans  In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” In accordance with the provisions of SFAS 158, a portion of the requirements had been adopted in 2007 and the remainder will be adopted in 2009, as described below. SFAS 158 requires an employer to recognize the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income in shareholders’ equity. The company has recognized the funded status of its defined benefit pension and other postretirement benefit plans at the end of 2007.

SFAS 158 also requires consistent measurement of plan assets and benefit obligations as of the date of the fiscal year end statement of financial position. This provision is effective for the corporation in 2009. As the corporation currently measures the assets and obligations of its defined benefit pension plans and postretirement medical plans as of March 31st of each year, the adoption of this portion of the standard will require a change in the plan measurement date to the fiscal year end. The impact of adopting the measurement date provision of SFAS 158 will be recorded as an adjustment to beginning of year retained earnings in 2009. The corporation does not believe the impact will be material to the consolidated financial statements.

Fair Value Measurements  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosure requirements about fair value measurements. SFAS 157 is effective for the corporation at the beginning of 2009. In November 2007, the FASB decided to defer the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The corporation is currently evaluating the provisions of this new standard. We currently believe the adoption of this standard will not have a material impact on the consolidated financial statements because we already report the applicable assets and liabilities at fair value. The adoption will impact us through the enhanced disclosure requirements noted above.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The corporation does not believe the adoption of this standard will have a material impact on the consolidated financial statements.

Business Combinations  In December 2007, the FASB issued SFAS 141(R), “Business Combinations,” which requires changes in the accounting and reporting of business acquisitions. The statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in purchased entities, measured at their fair values at the date of acquisition based upon the definition of fair value outlined in SFAS No. 157. SFAS 141(R) is effective for the corporation for acquisitions that occur beginning in 2010. The corporation is currently evaluating the provisions of this new standard and has not determined the impact of adopting it at this time.

Minority Interests  In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51,” which requires changes in the accounting and reporting of noncontrolling interests in a subsidiary, also known as minority interest. The statement clarifies that a minority interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for the corporation at the beginning of 2010. The corporation is evaluating the provision of this new standard; however, we currently believe the adoption of SFAS 160 will not have a material impact on the consolidated financial statements.

Sara Lee Corporation and Subsidiaries    37

Financial review

Disclosures about Derivative Instruments and Hedging Activities  In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which amends SFAS No. 133 and requires expanded disclosure for derivative instruments. The statement requires companies to provide a tabular presentation of gains and losses by type of derivative and to disclose the line item impacted in the income statement. Fair value disclosures of derivatives, by type, must also be included that highlight the line in the balance sheet where the fair values are recorded and the total notional value of all derivatives must be disclosed. Additionally, companies must include additional qualitative disclosures including why derivatives are used and what risk exposures are addressed by executing a hedging program. These disclosures are required for both interim and annual financial statements and must be adopted by the corporation in the third quarter of fiscal 2009.

Useful Life of Intangible Assets  In April 2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP142-3). This position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 applies to both intangible assets that are acquired individually or with a group of other assets as well as intangible assets acquired in business combinations and asset acquisitions. This position is effective for fiscal years beginning after December 15, 2008, which for us is fiscal 2010. Early adoption is not allowed. The corporation is currently evaluating the provisions of this new staff position and has not determined the impact of adoption at this time.

Forward-Looking Information

This document contains certain forward-looking statements, including the anticipated costs and benefits of restructuring and transformation actions, access to credit markets and the corporation’s credit ratings, the planned extinguishment of debt, the funding of pension plans, potential payments under guarantees and amounts due under future contractual obligations and commitments, projected capital expenditures, cash tax payments, pension settlement amounts and effective tax rates. In addition, from time to time, in oral statements and written reports, the corporation discusses its expectations regarding the corporation’s future performance by making forward-looking statements preceded by terms such as “expects,” “projects,” “anticipates” or “believes.” These forward-looking statements are based on currently available competitive, financial and economic data, as well as management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ 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 cause Sara Lee’s actual results to differ from such forward-looking statements are factors relating to:

•    Sara Lee’s relationship with its customers, such as (i) a significant change in Sara Lee’s business with any of its major customers, such as Wal-Mart, its largest customer, including changes in the level of inventory these customers maintain; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment;

•    The consumer marketplace, such as (iii) significant competition, including advertising, promotional and price competition, and changes in consumer demand for Sara Lee’s products; (iv) fluctuations in the availability and cost of raw materials, Sara Lee’s ability to increase product prices in response and the impact on Sara Lee’s profitability; (v) the impact of various food safety issues and regulations on sales and profitability of Sara Lee products; and (vi) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance;

•    Sara Lee’s international operations, such as (vii) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the European euro, given Sara Lee’s significant concentration of business in Western Europe; (viii) Sara Lee’s generation of a high percentage of its revenues from businesses outside the U.S. and costs to remit these foreign earnings into the U.S. to fund Sara Lee’s domestic operations; and (ix) Sara Lee’s ability to continue to source production and conduct manufacturing and selling operations in various countries due to changing business conditions, political environments, import quotas and the financial condition of suppliers;

•    Previous business decisions, such as (x) Sara Lee’s ability to generate margin improvement through continuous improvement initiatives and transitioning the entire organization to a common information technology system and the risk that the transition to a common information technology system will be disruptive to the business; (xi) Sara Lee’s ability to achieve planned cash flows from capital expenditures and acquisitions, particularly its worldwide bakery business, and the impact of changing interest rates and the cost of capital on the discounted value of those planned cash flows, which could impact future impairment analyses; (xii) credit ratings issued by the three major credit rating agencies and the impact these ratings have on Sara Lee’s cost to borrow funds and access to capital/debt markets; (xiii) the settlement of a number of ongoing reviews of Sara Lee’s income tax filing positions in various jurisdictions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Sara Lee transacts business; and (xiv) changes in the expense for multi-employer pension plans that Sara Lee participates in.

In addition, the corporation’s results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes and laws and regulations in markets where the corporation competes. Sara Lee undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

38    Sara Lee Corporation and Subsidiaries

Consolidated Statements of Income

Dollars in millions except per share data	Years ended	June 28, 2008		June 30, 2007		July 1, 2006
Continuing Operations
Net sales		$13,212		$11,983		$11,175
Cost of sales		8,154		7,370		6,857
Selling, general and administrative expenses		4,039		3,905		3,737
Net charges for exit activities, asset and business dispositions		38		94		86
Impairment charges		851		172		193
Contingent sale proceeds		(130	)	(120	)	(114	)
Interest expense		187		261		302
Interest income		(87	)	(128	)	(75	)
		13,052		11,554		10,986
Income from continuing operations before income taxes		160		429		189
Income tax expense (benefit)		201		(11	)	158
Income (loss) from continuing operations		(41	)	440		31
Discontinued Operations
Net income (loss) from discontinued operations, net of tax expense of nil, $34, and $21		(14	)	48		123
Gain (loss) on sale of discontinued operations, net of tax expense (benefit) of $1, $(11), and $65		(24	)	16		401
Net Income (Loss)		$      (79	)	$     504		$     555
Income (loss) from continuing operations per share of common stock
Basic		$   (0.06	)	$    0.59		$    0.04
Diluted		$   (0.06	)	$    0.59		$    0.04
Net income (loss) per share of common stock
Basic		$   (0.11	)	$    0.68		$    0.72
Diluted		$   (0.11	)	$    0.68		$    0.72

The accompanying Notes to Financial Statements are an integral part of these statements.

Sara Lee Corporation and Subsidiaries    39

Consolidated Balance Sheets

Dollars in millions except share data	June 28, 2008	June 30, 2007
Assets
Cash and equivalents	$  1,284	$  2,517
Trade accounts receivable, less allowances of $91 in 2008 and $82 in 2007	1,491	1,277
Inventories
Finished goods	775	712
Work in process	43	34
Materials and supplies	402	294
	1,220	1,040
Current deferred income taxes	111	33
Other current assets	361	277
Assets of discontinued operations	–	64
Total current assets	4,467	5,208
Other non-current assets	233	194
Property
Land	122	107
Buildings and improvements	1,506	1,402
Machinery and equipment	3,631	3,498
Construction in progress	185	223
	5,444	5,230
Accumulated depreciation	2,925	2,837
Property, net	2,519	2,393
Trademarks and other identifiable intangibles, net	1,021	1,002
Goodwill	2,223	2,698
Deferred income taxes	295	137
Assets held for sale	72	2
Assets of discontinued operations	–	121
	$10,830	$11,755

The accompanying Notes to Financial Statements are an integral part of these balance sheets.

40    Sara Lee Corporation and Subsidiaries

	June 28, 2008		June 30, 2007
Liabilities and Stockholders’ Equity
Notes payable	$     280		$       23
Accounts payable	1,258		1,127
Accrued liabilities
Payroll and employee benefits	726		635
Advertising and promotion	440		389
Taxes other than payroll and income	71		60
Income taxes payable and current deferred taxes	16		89
Other	465		590
Current maturities of long-term debt	568		1,427
Liabilities of discontinued operations	–		48
Liabilities held for sale	17		–
Total current liabilities	3,841		4,388
Long-term debt	2,340		2,770
Pension obligation	405		662
Deferred income taxes	177		128
Other liabilities	1,237		1,157
Liabilities of discontinued operations	–		93
Minority interests in subsidiaries	19		14
Common stockholders’ equity
Common stock: (authorized 1,200,000,000 shares; $0.01 par value) Issued and outstanding – 706,358,624 shares in 2008 and 724,432,686 shares in 2007	7		7
Capital surplus	7		–
Retained earnings	2,760		3,413
Unearned stock of ESOP	(112	)	(123	)
Accumulated other comprehensive income (loss)	149		(754	)
Total common stockholders’ equity	2,811		2,543
	$10,830		$11,755

See accompanying Notes to Consolidated Financial Statements

Sara Lee Corporation and Subsidiaries    41

Consolidated Statements of Common Stockholders’ Equity

Dollars in millions	Total		Common Stock		Capital Surplus		Retained Earnings		Unearned Stock		Accumulated Other Comprehensive Income (Loss)		Comprehensive Income
Balances at July 2, 2005	$2,577		$ 8		$  79		$4,206		$(155	)	$(1,561	)
Net income	555		–		–		555		–		–			$   555
Translation adjustments, net of tax of $(43)	70		–		–		–		–		70			70
Minimum pension liability, net of tax of $96	180		–		–		–		–		180			180
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $(18)	(28	)	–		–		–		–		(28)			(28	)
Comprehensive income														$   777
Dividends	(456	)	–		–		(456	)	–		–
Stock issuances – restricted stock	55		–		55		–		–		–
Stock option and benefit plans	33		–		33		–		–		–
Tax benefit related to stock-based compensation	1		–		1		–		–		–
Share repurchases and retirement	(561	)	–		(107	)	(454	)	–		–
ESOP tax benefit, redemptions and other	23		–		1		4		18		–
Balances at July 1, 2006	2,449		8		62		3,855		(137	)	(1,339)
Adjustment to apply SAB No. 108	58		–		–		53		–		5
Net income	504		–		–		504		–		–			$   504
Translation adjustments, net of tax of $(48)	504		–		–		–		–		504			504
Minimum pension liability, net of tax of $1	143		–		–		–		–		143			143
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $20	34		–		–		–		–		34			34
Comprehensive income														$1,185
Adjustment to apply SFAS No. 158, net of tax of $(49)	(168	)	–		–		–		–		(168)
Dividends	(370	)	–		–		(370	)	–		–
Spin off of Hanesbrands Inc. business	(29	)	–		–		(96	)	–		67
Stock issuances – restricted stock	29		–		29		–		–		–
Stock option and benefit plans	47		–		47		–		–		–
Tax benefit related to stock-based compensation	1		–		1		–		–		–
Share repurchases and retirement	(686	)	(1	)	(139	)	(546	)	–		–
ESOP tax benefit, redemptions and other	27		–		–		13		14		–
Balances at June 30, 2007	2,543		7		–		3,413		(123	)	(754)
Net loss	(79	)	–		–		(79	)	–		–			$    (79	)
Translation adjustments, net of tax of $(14)	686		–		–		–		–		686			686
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $14	25		–		–		–		–		25			25
Pension/Postretirement activity, net of tax of $4	192		–		–		–		–		192			192
Comprehensive income														$   824
Adoption of FASB Interpretation No. 48	13		–		–		13		–		–
Dividends	(300	)	–		–		(300	)	–		–
Stock issuances – restricted stock	25		–		25		–		–		–
Stock option and benefit plans	9		–		9		–		–		–
Share repurchases and retirement	(315	)	–		(27	)	(288	)	–		–
ESOP tax benefit, redemptions and other	12		–		–		1		11		–
Balances at June 28, 2008	$2,811		$ 7		$    7		$2,760		$(112	)	$    149

The accompanying Notes to Financial Statements are an integral part of these statements.

42    Sara Lee Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Dollars in millions	June 28, 2008		June 30, 2007		July 1, 2006
Operating Activities
Net income (loss)	$    (79	)	$    504		$   555
Less: Cash received from contingent sale proceeds	(130	)	(120	)	(114	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation	403		420		541
Amortization	122		119		160
Impairment charges	851		172		587
Net loss (gain) on business dispositions	25		(29	)	(589	)
Increase (decrease) in deferred income taxes	(267	)	(138	)	112
Other	188		91		57
Change in current assets and liabilities, net of businesses acquired and sold
Trade accounts receivable	(92	)	18		(14	)
Inventories	(117	)	(106	)	108
Other current assets	(36	)	(50	)	(65	)
Accounts payable	38		93		(10	)
Accrued liabilities	(318	)	(270	)	(67	)
Accrued taxes	18		(212	)	4
Net cash from operating activities	606		492		1,265
Investment Activities
Purchases of property and equipment	(454	)	(529	)	(615	)
Purchase of software and other intangibles	(61	)	(102	)	(10	)
Acquisitions of businesses and investments	–		–		(78	)
Dispositions of businesses and investments	55		346		868
Cash received from loans receivable	–		688		33
Cash received from contingent sale proceeds	130		120		114
Cash received from (used in) derivative transactions	96		(25	)	(33	)
Cash used to invest in short-term investments	–		(647	)	–
Cash received from maturing short-term investments	–		647		–
Sales of assets	38		70		86
Net cash received from (used in) investment activities	(196	)	568		365
Financing Activities
Issuances of common stock	5		38		27
Purchases of common stock	(315	)	(686	)	(561	)
Borrowings of long-term debt			2,895		37
Repayments of long-term debt	(1,456	)	(416	)	(467	)
Borrowings (repayments) of short-term debt, net	251		(1,720	)	1,528
Cash transferred to Hanesbrands Inc. in spin off	–		(650	)	–
Payments of dividends	(296	)	(374	)	(605	)
Net cash (used in) financing activities	(1,811	)	(913	)	(41	)
Effect of changes in foreign exchange rates on cash	165		128		86
Increase (decrease) in cash and equivalents	(1,236	)	275		1,675
Add: Cash balance of discontinued operations at beginning of year	3		18		47
Less: Cash balance of discontinued operations at end of year	–		(3	)	(18	)
Cash and equivalents at beginning of year	2,517		2,227		523
Cash and equivalents at end of year	$1,284		$ 2,517		$2,227

The accompanying Notes to Financial Statements are an integral part of these statements.

Sara Lee Corporation and Subsidiaries    43

Notes to financial statements

Dollars in millions except per share data

Note 1 – Nature of Operations and Basis of Presentation

Nature of Operations  Sara Lee Corporation (the corporation or Sara Lee) is a U.S.-based multinational corporation. The corporation’s principal product lines are branded packaged meat products, fresh and frozen bakery products, roast and ground coffee and household and body care products. The relative importance of each operation over the past three years, as measured by sales and operating segment income, is presented in Note 22, “Business Segment Information,” of these financial statements. Food and beverage sales are made in both the retail channel, to supermarkets, warehouse clubs and national chains, and the foodservice channel. Household and body care products are primarily sold through the retail channel.

Basis of Presentation  The Consolidated Financial Statements include Sara Lee Corporation and its controlled subsidiaries and have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. The results of the corporation’s Mexican Meats, Direct Selling, U.S. Retail Coffee, European Branded Apparel, European Nuts and Snacks, U.K. Apparel, U.S. Meat Snacks, European Meats and Branded Apparel Americas/Asia businesses are reported as discontinued operations in all years.

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, revenues and expenses and certain financial statement disclosures. Significant estimates in these Consolidated Financial Statements include allowances for doubtful accounts receivable, net realizable value of inventories, the cost of sales incentives, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, identifiable intangible assets and goodwill, self-insurance reserves, income tax and valuation reserves, the valuation of assets and liabilities acquired in business combinations, assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans, and the volatility, expected lives and forfeiture rates for stock compensation instruments granted to employees. Actual results could differ from these estimates.

The corporation’s fiscal year ends on the Saturday closest to June 30. Fiscal years 2008, 2007 and 2006 were 52-week years. Unless otherwise stated, references to years relate to fiscal years.

Discontinued Operations  The results of the corporation’s Mexican Meats business have been reported as a discontinued operation as a result of its sale in 2008. The corporation’s Direct Selling, U.S. Retail Coffee, European Branded Apparel, European Nuts and Snacks, U.K. Apparel, U.S. Meat Snacks, European Meats, and Branded Apparel Americas/Asia businesses had previously been reported as discontinued operations in the corporation’s 2007 annual report. The results of operations of all of these businesses through the date of sale or spin off are presented as discontinued operations in the Consolidated Statements of Income. Prior to disposition, the assets and liabilities of discontinued operations are aggregated and reported on separate lines of the Consolidated Balance Sheets. Prior periods have been reclassified to reflect this presentation.

Balance Sheet Revision – Income Taxes  In the third quarter of 2008, the corporation determined that a $420 deferred income tax liability related to the anticipated repatriation of foreign earnings was misclassified as a noncurrent deferred income tax liability on the consolidated balance sheet at June 30, 2007. Because these deferred income tax amounts are settled at the time the earnings are repatriated and it was anticipated the repatriation would occur within twelve months, the deferred income tax liability should have been classified as current. Additionally, during the third quarter 2008 financial statement closing process, the corporation reviewed the detail of its balance sheet classification of other significant deferred tax items and identified $30 of additional items that were incorrectly classified as noncurrent at June 30, 2007. Correction of these classification errors moves most of the balance from long-term deferred income tax liabilities to current deferred income tax assets because the tax jurisdiction the corrections pertain to is in a net current deferred income tax asset position. These classification errors resulted in a $435 overstatement of current deferred income tax assets, a $450 overstatement of noncurrent deferred tax liabilities, and a $15 understatement of income taxes payable but had no impact on net income, common stockholders’ equity or cash flows. While the corporation has concluded that this misclassification did not materially misstate any previously issued financial statements, the June 30, 2007 balance sheet was revised in order to provide consistency and comparability in the presentation of deferred income tax balances. The impact of this revision on the relevant lines in the balance sheet (as adjusted for discontinued operations) is summarized below:

Balances at June 30, 2007	As Reported	As Adjusted
Current deferred income tax asset	$    468	$      33
Total current assets	5,643	5,208
Total assets	12,190	11,755
Income taxes payable and current deferred taxes	74	89
Total current liabilities	4,301	4,388
Noncurrent deferred income taxes	578	128
Total liabilities and equity	12,190	11,755

Balance Sheet Revision – Dividends  In the fourth quarter of 2008, the corporation determined that dividends presented in the consolidated balance sheets and consolidated statements of common stockholders’ equity only included dividends recorded on the dividend record date. Dividends should have been recorded in retained earnings at the dividend declaration date rather than the dividend record date. As a result, retained earnings at July 2, 2005 were overstated by $155, dividends for 2006 were overstated by $155, dividends for 2007 were understated by $72, and at June 30, 2007, retained earnings were overstated and accounts payable understated by $72. This error did not impact net income or cash flows. While the corporation has concluded that this error did not materially misstate any previously issued financial statements, the July 2, 2005 and June 30, 2007 consolidated balance sheet and 2005 through 2007 consolidated statements of common stockholders’ equity were revised in order to provide consistency and comparability in

44    Sara Lee Corporation and Subsidiaries

the presentation of dividends, retained earnings and total equity. The impact of this revision on the relevant lines in the balance sheet and common stockholders’ equity statement (as adjusted for discontinued operations) is summarized below:

	As Reported	As Adjusted
Total common stockholders’ equity July 2, 2005	$2,732	$2,577
Retained earnings July 2, 2005	4,361	4,206
Dividends 2006	611	456
Dividends 2007	298	370
Balance at June 30, 2007:
Accounts payable	1,055	1,127
Total current liabilities	4,301	4,388
Retained earnings	3,485	3,413
Total common stockholders’ equity	2,615	2,543

Accounting Changes – Adoption of Staff Accounting Bulletin No. 108  In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement for the purpose of a materiality assessment. SAB 108 requires that misstatements be measured under the dual approach which requires that errors be evaluated under the rollover method and the iron curtain method. Under the rollover method, the amount of the error in the current period is evaluated against current period income, including the reversing effects of prior year misstatements. Under the iron curtain method, the error is quantified by evaluating the total error in the balance sheet as of the end of the current period. The corporation adopted SAB 108 in the fourth quarter of 2007 and recognized a $58 adjustment upon adoption.

Note 2 – Summary of Significant Accounting Policies

The Consolidated Financial Statements include the accounts of the corporation and its controlled subsidiary companies, which in general are majority owned. The Consolidated Financial Statements also include the accounts of variable interest entities (VIEs) for which the corporation is deemed the primary beneficiary, as defined by the Financial Accounting Standards Board’s Interpretation No. 46(R) (FIN 46(R)) and related interpretations, but the VIEs are not material. The results of companies acquired or disposed of during the year are included in the Consolidated Financial Statements from the effective date of acquisition, or up to the date of disposal. All significant intercompany balances and transactions have been eliminated in consolidation. Gains and losses resulting from the issuance of common stock by a subsidiary of the corporation are recognized in earnings as realized.

Foreign Currency Translation  Foreign-currency-denominated assets and liabilities are translated into U.S. dollars at exchange rates existing at the respective balance sheet dates. Translation adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income within common stockholders’ equity.

The corporation translates the results of

operations of its foreign subsidiaries at the average exchange rates during the respective periods. Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income.

Sales Recognition and Incentives  The corporation recognizes sales when they are realized or realizable and earned. The corporation considers revenue realized or realizable and earned when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price charged is fixed or determinable, and collectibility is reasonably assured. For the corporation, this generally means that we recognize sales when title to and risk of loss of our products pass to our resellers or other customers. In particular, title usually transfers upon receipt of our product at our customers’ locations, or upon shipment, as determined by the specific sales terms of the transactions.

Sales are recognized as the net amount to be received after deducting estimated amounts for sales incentives, trade allowances and product returns. The corporation estimates trade allowances and product returns based on historical results taking into consideration the customer, transaction and specifics of each arrangement. The corporation provides a variety of sales incentives to resellers and consumers of its products, and the policies regarding the recognition and display of these incentives within the Consolidated Statements of Income are as follows:

Discounts, Coupons and Rebates  The cost of these incentives is recognized at the later of the date at which the related sale is recognized or the date at which the incentive is offered. The cost of these incentives is estimated using a number of factors, including historical utilization and redemption rates. Substantially all cash incentives of this type are included in the determination of net sales. Incentives offered in the form of free product are included in the determination of cost of sales.

Slotting Fees  Certain retailers require the payment of slotting fees in order to obtain space for the corporation’s products on the retailer’s store shelves. The cost of these fees is recognized at the earlier of the date cash is paid or a liability to the retailer is created. These amounts are included in the determination of net sales.

Volume-Based Incentives  These incentives typically involve rebates or refunds of a specified amount of cash only if the reseller reaches a specified level of sales. Under incentive programs of this nature, the corporation estimates the incentive and allocates a portion of the incentive to reduce each underlying sales transaction with the customer.

Cooperative Advertising  Under these arrangements, the corporation agrees to reimburse the reseller for a portion of the costs incurred by the reseller to advertise and promote certain of the corporation’s products. The corporation recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity first takes place. The costs of these incentives are generally included in the determination of net sales.

Sara Lee Corporation and Subsidiaries    45

Notes to financial statements

Dollars in millions except per share data

Fixtures and Racks  Store fixtures and racks are given to retailers to display certain of the corporation’s products. The costs of these fixtures and racks are recognized as expense in the period in which they are delivered to the retailer.

Advertising Expense  Advertising costs, which include the development and production of advertising materials and the communication of this material through various forms of media, are expensed in the period the advertising first takes place. Advertising expense is recognized in the “Selling, general and administrative expenses” line in the Consolidated Statements of Income. Total media advertising expense for continuing operations was $325 in 2008, $313 in 2007 and $298 in 2006.

Cash and Equivalents  All highly liquid investments purchased with a maturity of three months or less at the time of purchase are considered to be cash equivalents.

Accounts Receivable Valuation  Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts reflects the corporation’s best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information.

Shipping and Handling Costs  The corporation recognizes shipping and handling costs in the “Selling, general and administrative expenses” line of the Consolidated Statements of Income and recognized $703 in 2008, $656 in 2007 and $619 in 2006.

Inventory Valuation  Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases is reflected as a reduction in the cost of the related inventory item, and is therefore, reflected in cost of sales when the related inventory item is sold.

Recognition and Reporting of Planned Business Dispositions

When a decision to dispose of a business component is made, it is necessary to determine how the results will be presented within the financial statements and whether the net assets of that business are recoverable. The following summarizes the significant accounting policies and judgments associated with a decision to dispose of a business.

Discontinued Operations  A discontinued operation is a business component that meets several criteria. First, it must be possible to clearly distinguish the operations and cash flows of the component from other portions of the business. Second, the operations need to have been sold or classified as held for disposal. Finally, after the disposal, the cash flows of the component must be eliminated from continuing operations and the corporation may not have any significant continuing involvement in the business. Significant judgments are involved in determining whether a business component meets the criteria for discontinued operation reporting and the period in which these criteria are met.

If a business component is reported as a discontinued operation, the results of operations through the date of sale are presented on a separate line of the income statement. Interest on corporate level debt is not allocated to discontinued operations. Any gain or loss recognized upon the disposition of a discontinued operation is also reported on a separate line of the income statement. Prior to disposition, the assets and liabilities of discontinued operations are aggregated and reported on separate lines of the balance sheet.

Gains and losses related to the sale of business components that do not meet the discontinued operation criteria are reported in continuing operations and separately disclosed if significant.

Businesses Held for Disposal  In order for a business to be classified as held for disposal, several criteria must be achieved. These criteria include, among others, an active program to market the business and locate a buyer, as well as the probable disposition of the business within one year. Upon being classified as held for disposal, the recoverability of the carrying value of a business must be assessed. Evaluating the recoverability of the assets of a business classified as held for disposal follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill, intangible assets not subject to amortization and other assets are assessed. After the valuation process is completed, the held for disposal business is reported at the lower of its carrying value or fair value less cost to sell. The carrying value of a held for disposal business includes the portion of the cumulative translation adjustment related to the operation.

Businesses Held for Use  If a decision to dispose of a business is made and the held for disposal criteria are not met, the business is considered held for use and its assets are evaluated for recoverability in the following order: assets other than goodwill, property and intangibles; property and intangibles subject to amortization; and finally, goodwill. In evaluating the recoverability of property and intangible assets subject to amortization, in a held for use business, the carrying value of the business is first compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the operation. If the carrying value exceeds the undiscounted expected cash flows, then an impairment is recognized if the carrying value of the business exceeds its fair value.

There are inherent judgments and estimates used in determining future cash flows and it is possible that additional impairment charges may occur in future periods. In addition, the sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to the closing date.

Property  Property is stated at historical cost and depreciation is computed using the straight-line method over the lives of the assets. Machinery and equipment are depreciated over periods ranging from 3 to 25 years and buildings and building improvements over periods of up to 40 years. 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. Leasehold improvements are capitalized and amortized over the

46    Sara Lee Corporation and Subsidiaries

shorter of the remaining lease term or remaining economic useful life. Repairs and maintenance costs are charged to expense. Upon sale or disposition of a property element, the cost and related accumulated depreciation are removed from the accounts. Capitalized interest was $18, $20 and $20 in 2008, 2007 and 2006, respectively.

Property is tested for recoverability whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Such events include significant adverse changes in the business climate, current period operating or cash flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of its useful life. Recoverability of property is evaluated by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If the carrying amount exceeds the estimated future undiscounted cash flows then an asset is not recoverable. The impairment loss recognized is the amount by which the carrying amount of the asset exceeds the estimated fair value using discounted estimated future cash flows.

Assets that are to be disposed of by sale are recognized in the financial statements at the lower of carrying amount or fair value, less cost to sell, and are not depreciated after being classified as held for disposal. In order for an asset to be classified as held for disposal, the asset must be actively marketed, be available for immediate sale and meet certain other specified criteria.

Trademarks and Other Identifiable Intangible Assets  The primary identifiable intangible assets of the corporation are trademarks and customer relationships acquired in business combinations and computer software. The corporation capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Identifiable intangibles with finite lives are amortized and those with indefinite lives are not amortized. The estimated useful life of a finite-lived identifiable intangible asset is based upon a number of factors, including the effects of demand, competition, expected changes in distribution channels and the level of maintenance expenditures required to obtain future cash flows.

Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used in evaluating the recoverability of property, plant and equipment. Identifiable intangible assets not subject to amortization are assessed for impairment at least annually and as triggering events may occur. The impairment test for identifiable intangible assets not subject to amortization consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset. In making this assessment, management relies on a number of factors to discount estimated future cash flows including operating results, business plans and present value techniques. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a point in time. There are inherent assumptions and judgments required in the analysis of intangible asset impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future.

Goodwill  Goodwill is the difference between the purchase price and the fair value of the assets acquired and liabilities assumed in a business combination. When a business combination is completed, the assets acquired and liabilities assumed are assigned to the reporting unit or units of the corporation given responsibility for managing, controlling and generating returns on these assets and liabilities. Reporting units are business components one level below the operating segment level for which discrete financial information is available and reviewed by segment management. In many instances, all of the acquired assets and liabilities are assigned to a single reporting unit and in these cases all of the goodwill is assigned to the same reporting unit. In those situations in which the acquired assets and liabilities are allocated to more than one reporting unit, the goodwill to be assigned to each reporting unit is determined in a manner similar to how the amount of goodwill recognized in the business combination is determined.

Goodwill is not amortized; however, it is assessed for impairment at least annually and as triggering events may occur. The corporation performs its annual review in the second quarter of each year. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process is necessary and involves a comparison of the implied fair value and the carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

In evaluating the recoverability of goodwill, it is necessary to estimate the fair values of the reporting units. In making this assessment, management relies on a number of factors to discount anticipated future cash flows, including operating results, business plans and present value techniques. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a point in time. Because some of the inherent assumptions and estimates used in determining the fair value of these reporting units are outside the control of management, including interest rates, the cost of capital, and tax rates, changes in these underlying assumptions and our credit rating can also adversely impact the business units’ fair values. The amount of any impairment is dependent on these factors, which cannot be predicted with certainty.

Exit and Disposal Activities  Exit and disposal activities primarily consist of various actions to sever employees, exit certain contractual obligations and dispose of certain assets. Charges are recognized for these actions at their fair value in the period in which the liability is incurred. Adjustments to previously recorded charges resulting from a change in estimated liability are recognized in the period in which the change is identified. Our methodology used to record these charges is described below.

Sara Lee Corporation and Subsidiaries    47

Notes to financial statements

Dollars in millions except per share data

Severance  Severance actions initiated by the corporation are generally covered under previously communicated benefit arrangements under SFAS 112, which provides for termination benefits in the event that an employee is involuntarily terminated. Liabilities are recorded under these arrangements when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. This occurs when management with the appropriate level of authority approves an action to terminate employees who have been identified and targeted for termination within one year.

Noncancelable Lease and Contractual Obligations  Liabilities are incurred for noncancelable lease and other contractual obligations when the corporation terminates the contract in accordance with contract terms or when the corporation ceases using the right conveyed by the contract or exits the leased space. The charge for these items is determined based on the fair value of remaining lease rentals reduced by the fair value of estimated sublease rentals that could reasonably be obtained for the property, estimated using an expected present value technique.

Accelerated Depreciation and Amortization  In certain cases the corporation has targeted an asset or group of assets for disposal and assesses impairment under the “held and used” model under SFAS 144. See the description under “Property” and “Trademarks and Other Identifiable Intangible Assets” discussed previously in this Note for further details of the impairment methodology followed by the corporation. Accelerated depreciation and amortization is associated with decisions to dispose of or abandon the use of certain tangible and intangible assets at dates earlier than previously anticipated, pursuant to an exit plan. Accelerated depreciation and amortization represents the incremental impact of the revised estimate of remaining depreciation expense in excess of the original depreciation expense.

Other  For other costs associated with exit and disposal activities, a charge is recognized at its fair value in the period in which the liability is incurred, estimated using an expected present value technique, generally when the services are rendered.

Stock-Based Compensation  On July 3, 2005, the corporation adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (SFAS No. 123(R)), using the modified prospective method. SFAS No. 123(R) requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. Under the modified prospective method of adopting SFAS No. 123(R), the corporation recognized compensation cost for all share-based payments granted after July 3, 2005, plus any awards granted to employees prior to July 3, 2005 that remained unvested at that time. Under this method of adoption, no restatement of prior periods was made. The impact of adopting SFAS No. 123(R) did not have a significant impact on income from continuing operations,

income before income taxes, net income, cash flow from operations or earnings per share during 2006. Upon the adoption of SFAS No. 123(R), the corporation utilized the alternative transition method of FASB Staff Position 123(R)-C and determined that no pool of excess tax benefits existed at the date of adoption.

Income Taxes  As a global commercial enterprise, the corporation’s tax rate from period to period is affected by many factors. The most significant of these factors includes changes in tax legislation, the global mix of earnings, the tax characteristics of the corporation’s income, the timing and recognition of goodwill impairments, acquisitions and dispositions and the portion of the income of foreign subsidiaries that is expected to be repatriated to the U.S. and be taxable. In addition, the corporation’s tax returns are routinely audited and finalization of issues raised in these audits sometimes affects the tax provision. It is reasonably possible that tax legislation in the jurisdictions in which the corporation does business may change in future periods. While such changes cannot be predicted, if they occur, the impact on the corporation’s tax assets and obligations will need to be measured and recognized in the financial statements.

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates for the years in which the differences are expected to reverse. Federal income taxes are provided on that portion of the income of foreign subsidiaries that are expected to be remitted to the U.S. and be taxable.

The management of the corporation periodically estimates the probable tax obligations of the corporation using historical experience in tax jurisdictions and informed judgments in accordance with FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement 109.” For a tax benefit to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authority. The corporation adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these situations, the ultimate payment may be materially different from the estimated recorded amounts. Any adjustment to a tax reserve impacts the corporation’s tax expense in the period in which the adjustment is made.

Defined Benefit, Postretirement and Life-Insurance Plans

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158)”, which requires the recognition of the funded status of defined pension and postretirement plans in the statement of financial position. The funded status is measured as the difference between the fair market value of the plan assets and the benefit obligation. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation; for any other defined benefit postretirement plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. Any overfunded status should be recognized as an asset and any

48    Sara Lee Corporation and Subsidiaries

underfunded status should be recognized as a liability. As part of the initial recognition of the funded status, any transitional asset/(liability), prior service cost (credit) or actuarial (gain)/loss that had not yet been recognized as a component of net periodic cost was recognized in the accumulated other comprehensive income section of the Consolidated Statements of Common Stockholders’ Equity, net of tax. Accumulated other comprehensive income will be adjusted as these amounts are subsequently recognized as a component of net periodic benefit costs in future periods.

The method of calculating net periodic benefit cost under SFAS 158 is the same as under existing practices. SFAS 158 prescribes additional disclosure requirements including the classification of the current and noncurrent components of plan liabilities, as well as the disclosure of amounts included in Accumulated Other Comprehensive Income (Loss) that will be recognized as a component of net periodic benefit cost in the following year.

The recognition of the funded status requirement and certain disclosure provisions of SFAS 158 were effective for the corporation as of the end of 2007. Retrospective application of SFAS 158 was not permitted. The initial incremental recognition of the funded status under SFAS 158 that was reflected upon adoption in the Accumulated Other Comprehensive Loss section of Common Stockholders’ Equity was an after tax charge to equity of $168.

SFAS 158 also requires the consistent measurement of plan assets and benefit obligations as of the date of the fiscal year end statement of financial position. This provision is effective for the corporation in 2009. As the corporation currently uses a plan measurement date of March 31 for all of its benefit plans, the adoption of this portion of the standard will require a change in the plan measurement date to fiscal year end.

Financial Instruments  The corporation uses financial instruments, including forward exchange, options, futures and swap contracts, to manage its exposures 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 or cost to the corporation. The corporation does not use derivatives for trading purposes and is not a party to leveraged derivatives.

The corporation uses either hedge accounting or mark-to-market accounting for its derivative instruments. In 2007, the corporation adopted a policy to use mark-to-market accounting for foreign currency derivatives due to the high cost of using hedge accounting and maintaining hedge documentation.

Under hedge accounting, the corporation formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions. The corporation also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging

transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the corporation discontinues hedge accounting and any deferred gains or losses are recorded in the “Selling, general and administrative expenses” line in the Consolidated Statements of Income.

Derivatives are recorded in the Consolidated Balance Sheets at fair value in other assets and other liabilities. The fair value is based upon either market quotes for actively traded instruments or independent bids for non-exchange-traded instruments.

On the date the derivative is entered into, the corporation designates the derivative as one of the following types of hedging instruments and accounts for the derivative as follows:

Fair Value Hedge  A hedge of a recognized asset or liability or an unrecognized firm commitment is declared as a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the Consolidated Statements of Income on the same line as the hedged item.

Cash Flow Hedge  A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is declared as a cash flow hedge. The effective portion of the change in the fair value of a derivative that is declared as a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts the income statement, the gain or loss included in accumulated other comprehensive income is reported on the same line in the Consolidated Statements of Income as the hedged item to match the gain or loss on the derivative to the loss or gain on the hedged item. In addition, both the fair value of changes excluded from the corporation’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in the “Selling, general and administrative expenses” line in the Consolidated Statements of Income.

Net Investment Hedge  A hedge of a net investment in a foreign operation is declared as a net investment hedge. The effective portion of the change in the fair value of derivatives, based upon spot rates, used as a net investment hedge of a foreign operation is recorded in the cumulative translation adjustment account within common stockholders’ equity. The ineffective portion of the change in the fair value of a derivative or non-derivative instrument designated as a net investment hedge is recorded in “Selling, general and administrative expenses,” or “Interest expense,” if the hedging instrument is a swap, in the Consolidated Statements of Income. Non-U.S. dollar financing transactions are accounted for as net investment hedges when the hedged item is a long-term investment in the corresponding foreign currency.

Sara Lee Corporation and Subsidiaries    49

Notes to financial statements

Dollars in millions except per share data

Mark-to-Market Hedge  A derivative that is not declared as a hedge in one of the categories above is accounted for under mark-to-market accounting and referred to as a mark-to-market hedge. Changes in the fair value of the derivative declared as a mark-to-market hedge are recognized in the Consolidated Statements of Income to act as an economic hedge against changes in the values of another item or transaction. Forward exchange contracts are recorded as mark-to-market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period, in accordance with SFAS No. 52, “Foreign Currency Translation.” For derivatives designated as mark-to-market hedges, changes in their fair value are reported in earnings in either the “Cost of sales” or “Selling, general and administrative expenses” lines of the Consolidated Statements of Income where the underlying transaction that is being hedged is recorded.

Cash Flow Presentation  The settlement of derivative contracts related to the purchase of inventory, commodities or other hedged items that utilize hedge accounting are reported in the Consolidated Statements of Cash Flows as an operating cash flow, while those derivatives that utilize the mark-to-market hedge accounting model are reported in investing activities. Fixed to floating rate swaps are reported as a component of interest expense and therefore are reported in cash flow from operating activities similar to how cash interest payments are reported. The portion of the gain or loss on a cross currency fixed to fixed swap that offsets the change in the value of interest expense is recognized in cash flow from operations, while the gain or loss on the swap that is offsetting the change in value of the debt is classified as a financing activity in the Consolidated Statement of Cash Flows.

Self-Insurance Reserves  The corporation purchases third-party insurance for workers’ compensation, automobile and product and general liability claims that exceed a certain level. The corporation is responsible for the payment of claims under these insured limits. The undiscounted obligation associated with these claims is accrued based on estimates obtained from consulting actuaries. Historical loss development factors are utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claim experience and settlements. Accrued reserves, excluding any amounts covered by insurance, were $202 and $187 as of June 28, 2008 and June 30, 2007, respectively.

Business Acquisitions  All business acquisitions have been accounted for under the purchase method. Cash, the fair value of other assets distributed, securities issued unconditionally and amounts of consideration that are determinable at the date of acquisition are included in determining the cost of an acquired business. Consideration that is issued or issuable at the expiration of a contingency period, or that is held in escrow pending the outcome of a contingency, is not recorded as a liability or shown as an outstanding security unless the outcome of the contingency is determinable.

Substantially all consideration associated with business acquisitions involves the payment of cash. These amounts are disclosed in the Consolidated Statements of Cash Flows.

Note 3 – Impairment Charges

The corporation has recognized impairment charges related to its operations in 2008, 2007 and 2006 and the significant impairments are recorded in “Impairment charges” in the Consolidated Statements of Income. The impact of these charges, is summarized in the following tables:

	Pretax Impairment Charge		Tax Benefit	After Tax Charge
2008
Continuing operations
North American Retail Meats	$  (20	)	$    8	$  (12	)
Foodservice	(431	)	16	(415	)
International Bakery	(400	)	–	(400	)
Total impairments 2008	$(851	)	$  24	$(827	)
2007
Continuing operations
North American Retail Meats	$  (34	)	$  12	$  (22	)
North American Retail Bakery	(16	)	6	(10	)
International Beverage	(118	)	9	(109	)
Household and Body Care	(4	)	–	(4	)
Total impairments 2007	$(172	)	$  27	$(145	)
2006
Continuing operations
North American Retail Bakery	$(179	)	$  68	$(111	)
International Bakery	(14	)	5	(9	)
Continuing operations subtotal	(193	)	73	(120	)
Discontinued operations
European Branded Apparel	(179	)	47	(132	)
U.S. Retail Coffee	(44	)	5	(39	)
U.K. Apparel	(34	)	–	(34	)
U.S. Meat Snacks	(12	)	4	(8	)
European Meats	(125	)	–	(125	)
Discontinued operations subtotal	(394	)	56	(338	)
Total impairments 2006	$(587	)	$129	$(458	)

The following is a discussion of each impairment charge.

2008 Impairment Charges Recognized in Continuing Operations

North American Retail Meats Property and Trademarks  During the fourth quarter of 2008, management determined that a North American retail meats facility will be disposed due to its high cost structure and reduced demand for the products produced at the facility. Based on estimates of cash flows to be generated through the date of disposition, the corporation concluded that it was necessary to recognize an impairment charge of $20, of which $7 and $13 are related to property and trademarks, respectively. The after tax impact of this impairment charge is $12.

Foodservice and International Bakery Goodwill  The corporation tests goodwill and intangible assets not subject to amortization for impairments in the second quarter of each fiscal year and whenever a significant event occurs or circumstances change that would more likely than not reduce the fair value of these intangible assets. In the second quarter of fiscal 2008, this review was performed and, although the test did not indicate any reporting units may be impaired, two reporting units – North American Foodservice Bakery and Spanish

50    Sara Lee Corporation and Subsidiaries

Bakery – were identified as reporting units where it was reasonably likely that they might become impaired in future periods if operating earnings for those two reporting units did not show continued improvement. The potential for impairment was disclosed in the Form 10Q for the second and third quarters of 2008. Weaker than previously anticipated performance and a decline in forecasted financial performance occurred in the second half of 2008, which compelled management to re-perform the goodwill impairment test for these two business units in the fourth quarter. As a part of the review in the fourth quarter, the corporation concluded that the carrying amounts of the North American Foodservice Bakery and Spanish Bakery reporting units exceeded their respective fair values. Based upon the results of a third-party appraisal of long-lived assets and internal estimates of discounted cash flows, management compared the implied fair value of the goodwill in each reporting unit with the carrying value and concluded that a $782 goodwill impairment charge needed to be recognized. Of this amount, $382 relates to the North American Foodservice Bakery reporting unit and $400 relates to the Spanish Bakery reporting unit. No tax benefit is recognized on the goodwill impairments. After the recognition of the impairment losses, the remaining goodwill in the North American Foodservice Bakery and Spanish Bakery reporting units is $477 and $139, respectively.

Foodservice Property, Goodwill and Trademarks  In 2008, steps were taken to market and identify potential buyers for a business that is part of the Foodservice segment. In June 2008, the corporation’s board of directors authorized management to negotiate and sell the business under certain criteria. As part of this process, the corporation received a non-binding offer for the business which is less than the carrying value. Utilizing the net purchase price, the corporation conducted an impairment review of the business and recognized a pretax impairment charge of $49 in the fourth quarter of 2008, of which $36, $8 and $5 are related to property, goodwill and trademarks, respectively. The after tax impact of the impairment charge is $33. The remaining assets of this reporting unit were classified as held for sale at the end of 2008.

2007 Impairment Charges Recognized in Continuing Operations

North American Retail Meats Property  During the second quarter of 2007, management completed an analysis of the manufacturing activities being conducted at a facility that is part of the North American Retail Meats segment. As a result of this analysis, the corporation concluded that operations at this facility would be substantially reduced in order to improve efficiency and long-term profitability. Certain of the activities performed at the location have been transferred to more efficient third-party suppliers and others have been eliminated as part of the shutdown of this plant. These actions are consistent with the corporation’s previously announced transformation plan. Based upon the results of a third-party appraisal and internal estimates of cash flows to be generated through the date of disposition, the corporation concluded that it was necessary to recognize an impairment charge of $34 for this asset group in 2007. The after tax impact of this impairment charge is $22.

North American Retail Bakery Trademarks  In 2007, as part of the corporation’s transformation plan to improve operating efficiency and profitability, the North American Retail Bakery business continues to focus its marketing, advertising and promotion spending on a

select number of brands. As a result of these plans, the company assessed the recoverability of certain trademarks impacted by this strategy. The company determined that the undiscounted cash flows over the remaining lives of the trademarks did not recover the carrying value of the assets. Therefore, the company calculated the estimated fair value of the trademarks using the royalty savings method and recorded an impairment charge of $16 for the difference between fair value and carrying value. The after tax impact of the trademark impairment charge is $10.

International Beverage Goodwill and Trademarks  In 2007, the corporation recognized a $118 pretax impairment charge in its International Beverage operations to record the impairment of $92 of goodwill and $26 of trademarks. No tax benefit was recognized on the goodwill impairment charge. The after tax impact of the trademark impairment charge is $17.

Goodwill Impairment—In 2007, the corporation concluded that the carrying amounts of its Brazilian and Austrian coffee reporting units exceeded their respective fair values. As a result, the corporation compared the implied fair value of the goodwill in each reporting unit with the carrying value and concluded that a $92 impairment loss needed to be recognized. Of this amount, $86 relates to the Brazilian reporting unit and $6 relates to the Austrian reporting unit. The impairment loss recognized equals the entire remaining amount of goodwill in each reporting unit.

The Brazilian coffee operation had experienced a sustained decline in profitability due to a highly competitive market in which the business operates. As a result of the sustained underperformance of this business, management revised its future cash flow expectations in the second quarter of 2007. These revised future cash flow expectations, along with comparable fair value information from the recent sale of a coffee business of comparable size and profitability, resulted in the corporation lowering its estimate of fair value of the business in the 2007 impairment review. Similarly, the underperformance of the Austrian business in 2007 led the corporation to lower its forecasted future cash flow expectations and resultant estimate of fair value.

Trademark Impairment—In conjunction with the actions resulting in the impairment of the Brazilian goodwill, the corporation assessed the realization of its long-lived assets associated with this held-for-use asset grouping. The primary asset in this asset group was determined to be trademarks, which had a carrying value of $47 and are being amortized over 10 years. Using the anticipated undiscounted cash flows of the asset group, the corporation concluded that the asset group was not fully recoverable. As a result of this evaluation, the corporation concluded that the carrying value of the trademarks exceeded the fair value by $26. The fair value of the trademarks was estimated using the royalty savings method.

After considering the lower future profit expectations for the Brazilian operations, the corporation concluded that it was also necessary to recognize a $27 valuation reserve on the net deferred tax assets related to the Brazilian tax jurisdiction as the realization of such tax assets was not reasonably assured. This charge is reported as tax expense in the 2007 Consolidated Statement of Income.

Sara Lee Corporation and Subsidiaries    51

Notes to financial statements

Dollars in millions except per share data

Household and Body Care  The corporation owns and operates a manufacturing plant in Zimbabwe. In 2007, changes in local governmental regulations in Zimbabwe included severe foreign exchange restrictions which inhibit the corporation from declaring dividends and repatriating earnings from the local operation. Based on these severe foreign exchange restrictions and general economic uncertainty in this economy, the corporation has considered the investment in the local business impaired, recognized a pretax and after tax impairment charge in the third quarter of 2007 for $4, and deconsolidated the business at the end of the third quarter of 2007. The remaining investment in these operations will be recorded as a cost basis investment and has a value of less than $1.

In conjunction with the 2007 annual impairment review of goodwill and indefinite lived intangible assets, the corporation concluded that the fair value of certain Household and Body Care trademarks exceeded their carrying value. However, sales for these trademarks, having a carrying value of $99, had been declining. Based on these sales declines, the corporation decided to begin amortizing these trademarks over periods ranging from 5 to 20 years.

2006 Impairment Charges Recognized in Continuing Operations

North American Retail and International Bakery Trademarks  As part of the transformation plan, the operating management of the bakery business was changed at the start of 2006 and new long-range plans were developed for the U.S. and European businesses in preparation for the start of 2007. In order to improve the efficiency and profitability of the U.S. operations, it was decided to eliminate certain regional brands, reduce the marketing, advertising and promotion spending behind other regional brands, and place more resources behind those brands with greater penetration of the domestic market. A greater portion of future research and development spending would also be focused on these larger brands. Similar decisions were made regarding the European business. These decisions impacted the anticipated future sales and cash flows of certain brands. All trademarks of the corporation’s bakery operations have been subject to amortization and the corporation conducted an impairment review of the trademarks impacted by these decisions. A third-party appraisal was used to determine the fair value of the trademarks considered to be impaired. The fair value of the trademarks was determined using the royalty savings method and pretax impairment charges of $179 and $14 were recognized in 2006 in the North American Retail Bakery and International Bakery segments, respectively. The after tax impact of these impairment charges is $111 and $9, respectively.

Impairment Charges Recognized in Discontinued Operations

After announcing its intent to dispose of certain businesses, the corporation assessed the reporting and recoverability of these operations in each quarter through the date of sale. Several significant charges were recognized in 2006 and reported on the line labeled “Net (loss) income from discontinued operations, net of tax (benefit) expense” of the Consolidated Statements of Income. Note 2 to the Consolidated Financial Statements describes the accounting policies and significant judgments related to planned business dispositions. The following is a description of the discontinued operations that incurred impairment charges.

European Branded Apparel  This business was initially marketed for sale in 2005 and, as part of this process, the corporation recognized a pretax impairment charge of $305 in 2005 related to goodwill ($182) and indefinite-lived trademarks ($123). In 2006, the corporation’s board of directors authorized management to negotiate and enter into a definitive agreement to sell this business, and the corporation entered into an exclusive negotiating period with a prospective buyer. Utilizing the agreed upon sale price, the corporation conducted an impairment review of the business and recognized an additional pretax impairment charge of $179 in the first quarter of 2006 within discontinued operations. The after tax impact of the impairment charge was $132. The sale of this business closed in the third quarter of 2006.

U.S. Retail Coffee  In 2005, the corporation initiated steps to dispose of certain assets used to manufacture and market roast and ground coffee products in the U.S. retail coffee channel and recognized a pretax impairment charge of $45 related to manufacturing assets ($13) and trademarks ($32). In 2006, the corporation announced that it had entered into an agreement to sell the U.S. Retail Coffee business for $83. As a result of allocating the goodwill to the U.S. Retail Coffee business to be sold, and utilizing the agreed upon selling price of the business, the corporation recognized an impairment charge of $44 in 2006 to record the impairment of $29 of goodwill and $15 of other long-lived assets. No tax benefit was recognized on the goodwill impairment and a $5 tax benefit was recognized on the other long-lived assets. The U.S. Retail Coffee business was sold in December 2005.

U.K. Apparel  In 2006, the corporation classified as held for disposal the U.K. Apparel business, which was comprised of the Courtaulds operations and several Sri Lankan ventures that supplied a portion of the Courtaulds inventory needs. The corporation recognized a $34 impairment charge to write down the value of the Courtaulds business to its fair value after discussions with potential buyers indicated that the fair value of the Courtalds business was less than its carrying value. There was no tax benefit associated with the impairment. In June 2006, the corporation closed on the sales of the Courtaulds business and the Sri Lankan ventures.

U.S. Meat Snacks  In 2006, the U.S. Meat Snacks business was marketed for sale and a sale agreement was entered into which indicated that the fair value of the business was less than the carrying value of the business. Goodwill associated with this business was evaluated for impairment in accordance with SFAS No. 142 and the corporation recognized a goodwill impairment charge of $12 pretax and $8 after tax. In June 2006, the sale of this business was completed.

European Meats  During 2006, the corporation marketed its European Meats business for sale and received several non-binding offers from prospective buyers. Based on indications of fair value from these offers, the carrying value of the business, including the related portion of the cumulative translation adjustment, was determined to exceed its fair value and the corporation evaluated the recoverability of the long-lived assets. The measurement process utilized the

52    Sara Lee Corporation and Subsidiaries

third-party offers received for the business and involved a number of judgments including estimates of the fair value of the property and amortizable intangible assets of the business. As a result of the evaluation, the corporation recognized a $125 goodwill impairment charge with no tax benefit. In June 2006, the corporation entered into a definitive agreement to sell this business to Smithfield Foods, and in August 2006, the transaction closed.

Note 4 – Discontinued Operations

In 2008, the corporation disposed of its Mexican meats operations. At the end of 2007, as part of the corporation’s transformation plan, eight businesses have been disposed of. The results of these businesses have been reported as discontinued operations. The amounts in the tables below reflect the operating results of the businesses reported as discontinued operations. The impact of the impairments discussed in Note 3 to the Consolidated Financial Statements, “Impairment Charges”, is included in these operating results. Gains and losses related to the disposal of these discontinued operations are excluded from the following tables; however, they are discussed further below.

	Net Sales	Pretax Income (Loss)		Income (Loss)
2008
European Branded Apparel	$       –	$   (15	)	$  (15	)
Mexican Meats	238	1		1
Total	$   238	$   (14	)	$  (14	)
2007
European Meats	$   114	$     7		$     3
Branded Apparel Americas/Asia	787	85		59
Mexican Meats	296	(10	)	(14	)
Total	$1,197	$   82		$   48
2006
Direct Selling	$   202	$   14		$   54
U.S. Retail Coffee	122	(46	)	(39	)
European Branded Apparel	641	(186	)	(153	)
European Nuts and Snacks	54	8		3
U.K. Apparel	437	(69	)	(71	)
U.S. Meat Snacks	25	(14	)	(9	)
European Meats	1,114	(57	)	(41	)
Branded Apparel Americas/Asia	4,484	491		379
Mexican Meats	285	3		–
Total	$7,364	$ 144		$ 123

Results of Discontinued Operations  Net sales of discontinued operations were $238 in 2008, $1,197 in 2007 and $7,364 in 2006; a full year of results for the Mexican meats business was not included in 2008 as the business was sold in the third quarter of 2008; and a full year of results for the European Meats and Branded Apparel Americas/Asia businesses was not included in 2007 as each of the businesses was sold in the first quarter of that fiscal year. The 2006 results also did not include a full year of results as the corporation completed the sale of the remaining discontinued operations during that year.

The corporation reported income (loss) from discontinued operations of $(14) in 2008, $48 in 2007 and $123 in 2006. In 2008, the corporation recognized a $15 charge related to the settlement of a pension plan in the U.K. associated with the European

Branded Apparel business, which was sold in 2006. The corporation recognized after tax impairment charges of $338 in 2006, which reduced income from discontinued operations and are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.”

Gain (Loss) on the Sale of Discontinued Operations  The gains (losses) recognized in 2008, 2007 and 2006 are summarized in the following tables. A further discussion of each disposition follows.

	Pretax Gain (Loss) on Sale		Tax (Charge)/ Benefit		After Tax Gain (Loss)
2008
Mexican Meats	$  (23	)	$     (1	)	$  (24	)
2007
European Meats	$   18		$     (1	)	$   17
Branded Apparel Americas/Asia	(23	)	6		(17	)
Philippines portion of European Branded Apparel	8		(2	)	6
Other	2		8		10
Total	$     5		$   11		$   16
2006
Direct Selling	$ 327		$(107	)	$ 220
U.S. Retail Coffee	5		(2	)	3
European Branded Apparel	45		41		86
European Nuts and Snacks	66		4		70
U.K. Apparel	22		–		22
U.S. Meat Snacks	1		(1	)	–
Total	$ 466		$  (65	)	$ 401

Business Sold in 2008

Mexican Meats  In March 2008, the corporation completed the disposition of its investment in its Mexican meats operation as it wanted to more closely focus on its core brands in the U.S. The corporation recognized a pretax loss of $23 and an after tax loss of $24. A total of $55 million of cash proceeds was received from the disposition of the business. The Mexican meats operation had been reported in the North American Retail Meats segment.

Businesses Sold in 2007

European Meats  In June 2006, the corporation entered into a definitive agreement to sell its European Meats business. The transaction closed in August 2006 after receiving European regulatory approval and the corporation recognized a pretax and after tax gain of $18 and $17, respectively. The capital gain related to this transaction was offset by capital losses on other disposition transactions. A total of $337 of cash proceeds was received from the disposition of the business and an additional $238 was received from the repayment of an obligation to the corporation, which was included in the net assets sold.

The sale agreement provided for working capital and other customary postclosing adjustments relating to the assets transferred. The final resolution of these items may impact the gain recognized. The corporation has not had any significant continuing involvement in the business after the disposal date and does not expect any material direct cash inflows or outflows with the sold entity.

Sara Lee Corporation and Subsidiaries    53

Notes to financial statements

Dollars in millions except per share data

Branded Apparel Americas/Asia  In February 2005, as part of its transformation plan, the corporation announced its intent to spin off the corporation’s apparel business in the Americas/Asia. This business is referred to as Branded Apparel Americas/Asia. In preparation for the spin off, the corporation incorporated Hanesbrands Inc., a Maryland corporation to which it transferred the assets and liabilities that relate to the Branded Apparel Americas/Asia business. On September 5, 2006, Hanesbrands borrowed $2,600 from a group of banks. Net of loan origination fees, Hanesbrands received $2,558 of cash proceeds. Using a portion of the proceeds received from the borrowing, Hanesbrands paid a dividend of $1,950 to the corporation. Immediately following this dividend payment, Sara Lee distributed to each stockholder of record one share of Hanesbrands common stock for every eight shares of Sara Lee common stock held. The spin off was tax free on a U.S. tax basis to the corporation and its shareholders.

After the spin off was completed, Hanesbrands paid $450 to the corporation to settle the note payable it had with Sara Lee Corporation. In addition, the corporation recognized as expense $23 of investment banker and other fees as a direct result of this transaction. The after tax loss recognized on these fees was $17. These amounts are recognized as part of the net gain on disposal of discontinued operations in 2007. The corporation has no significant continuing involvement in this business after the disposal date and does not expect any material direct cash inflows or outflows with this business.

Subsequent to the spin off date, the corporation has completed certain postclosing adjustments, tax reporting and other postclosing reconciliations in various areas, including completing the split of the corporation’s pension plans and the determination under ERISA rules of the relevant asset split to each plan. The net assets of the Hanesbrands business distributed were $29 and this amount is reflected as a dividend in the corporation’s Consolidated Statements of Common Stockholders’ Equity.

Philippines Portion of European Branded Apparel  Substantially all of the European Branded Apparel business was sold in February 2006 and is further described below under the heading “Businesses Sold in 2006”. When this business was sold, certain operations in the Philippines were awaiting local governmental approval to legally transfer the assets. Under the terms of the sale agreement, the buyer of this business assumed financial responsibility for all of the operations, including the Philippines business, even though legal transfer of the Philippines assets had not been completed. In September 2006, upon receiving local government approval, the corporation completed the legal transfer of the assets and recognized in 2007 a pretax and after tax gain of $8 and $6, respectively. Under the terms of the sale agreement of the business, the buyer assumed financial responsibility for the Philippines business in February 2006 upon the initial closing of the sale transaction. As such, no financial results for the Philippines business are included in the results of the corporation after that date.

The corporation has no significant continuing involvement in this business after the disposal date and does not expect any material direct cash inflows or outflows with the sold entity.

Other  During 2007, the corporation completed certain postclosing adjustments which included certain working capital adjustments related to the assets transferred, finalized certain related tax reporting and completed certain financial and tax reporting adjustments related to the U.K. Apparel and Direct Selling businesses that were sold in 2006. As a result of these adjustments, the corporation recognized a pretax and after tax gain in discontinued operations of $2 and $10, respectively.

Businesses Sold in 2006

Direct Selling  On August 10, 2005, the corporation announced that it had entered into a definitive agreement to sell this business, and in December 2005, the corporation completed the sale of substantially all of the operations to Tupperware Corporation except certain operations located in the Philippines. After receiving local governmental approval in June 2006, the corporation completed and recognized the sale of the Philippines operations. The net pretax and after tax gain recognized on the sale of the Direct Selling business was $327 and $220, respectively, and the corporation received the following consideration:

•    $420, which consisted of $464 of cash received less $44 of cash that was included in the net assets transferred to the buyer.

•    The liabilities transferred to the buyer included a $33 obligation to a retained foreign subsidiary of the corporation. Subsequent to the closing, the buyer remitted cash to the corporation to settle this obligation. The payment of this obligation is reflected in the investment activities section of the Consolidated Statements of Cash Flows.

•    Subsequent to the closing, the buyer paid $93 to settle certain Sara Lee tax obligations that were directly related to the sale transaction.

The sale agreement provided for working capital and other customary postclosing adjustments relating to the assets transferred. The final resolution of these items did not have a material impact on the consolidated financial statements. After the sale, the corporation has not had any continuing involvement in the business and has not had any material direct cash inflows or outflows with the sold entity.

U.S. Retail Coffee  In the first quarter of 2006, the corporation announced that it had entered into an agreement to sell its U.S. Retail Coffee business, and the transaction closed in the second quarter of 2006. The corporation received $82 of cash at closing and recognized a pretax and after tax gain of $5 and $3, respectively.

The corporation has no continuing involvement in the business after the date of sale and does not expect any material direct cash inflows or outflows with the sold entity.

European Branded Apparel  During the third quarter of 2006, the corporation sold substantially all of the European Branded Apparel business. Using foreign exchange rates on the date of the transaction, the corporation received cash proceeds of $117 and recognized a pretax and after tax gain of $45 and $86, respectively. Although an impairment charge was recognized in the first quarter of 2006,

54    Sara Lee Corporation and Subsidiaries

the working capital of the business declined through the date of sale and a gain was recognized. The tax benefit recognized on the transaction resulted from a capital loss that the corporation was able to carry back against a capital gain recognized in a prior transaction. The definitive sale agreement provided for the sale of certain operations in the Philippines which were sold in 2007 and discussed above under the heading “Businesses Sold in 2007”.

Under the terms of the transaction, the corporation can receive additional cash proceeds if the buyer receives cash distributions as a result of certain events such as the sale of the business, the payment of dividends or redemption of capital or loans. Distributions of available cash from the sold business will be made in the following order:

•    The buyer will first receive any amounts owed as a result of working capital and other purchase price adjustments.

•    After the purchase price adjustments are satisfied, the corporation will receive 49% of the next 200 million euros of cash distributions.

•    If additional cash is distributed, the corporation may receive between 15% and 25% of these amounts.

If any amounts are received, they will be recognized in income when the cash is received. The corporation has no continuing involvement in the business after the date of sale and does not expect any material direct cash inflows or outflows with the sold entity.

Under the terms of the sale agreement, the corporation retained certain of the pension obligations of this business. As a result of an agreement reached with the trustees of a retained plan at the time of sale, it was agreed that annuities would be purchased to settle the related obligations. In 2008 the corporation recognized a $15 non-cash charge related to the final settlement of this pension obligation which was recorded in discontinued operations.

European Nuts and Snacks  During the second quarter of 2006, the corporation entered into a definitive agreement to sell its European Nuts and Snacks business for 130 million euros and the corporation closed this transaction in June 2006. The Nuts and Snacks business in the Netherlands is separately reported and its operations and cash flows are identifiable. As a result, this component of the business is reported as a discontinued operation. The Nuts and Snacks operations in France and Belgium are integrated into the corporation’s other operations in these countries and share common distribution, sales and administrative functions. Since the operations and cash flows of these businesses could not be clearly distinguished from the retained businesses, the operating results of the businesses continue to be included in continuing operations. As a result of this business being reported in both discontinued and continuing operations, the gain on the sale of business is also reported in discontinued and continuing operations. The sale of the Nuts and Snacks business in the Netherlands generated a pretax and after tax gain of $66 and $70, respectively, and is reported in discontinued operations. An additional pretax and after tax gain of $41 and $27, respectively, related to the French and Belgian operations is recognized in continuing operations.

The sale agreement provided for working capital and other customary postclosing adjustments relating to the assets transferred. The corporation has not had any significant continuing involvement in this business after it was sold and does not expect to have any material direct cash inflows or outflows with the sold entity.

U.K. Apparel  The U.K. Apparel business was sold in June 2006 in two transactions, with one buyer purchasing certain manufacturing operations in Sri Lanka and a separate buyer purchasing the Courtaulds operations centered in the U.K. The corporation recognized a pretax and after tax gain of $22 from selling the U.K. Apparel operations which was primarily related to the sale of the Sri Lankan operations. The gain on these sales was not subject to tax.

The sale agreement provided for working capital and other customary postclosing adjustments relating to the assets transferred. Under the terms of the sale agreement, the corporation retained certain pension obligations associated with the U.K. Apparel business that was sold. The corporation has not had any significant continuing involvement in this business after it was sold and does not expect to have any material direct cash inflows or outflows with the sold entity.

U.S. Meat Snacks  In March 2006, the corporation entered into a definitive agreement to sell its U.S. Meat Snacks business for $9. In June 2006, the corporation closed this transaction and recognized a pretax gain of $1 that was primarily offset by taxes. The corporation has no continuing involvement in the business after the date of sale and does not expect any material direct cash inflows or outflows with the sold entity.

Discontinued Operations Cash Flows  The corporation’s discontinued operations impacted the cash flows of the corporation as summarized in the table below.

	2008			2007			2006
Discontinued operations impact on
Cash from operating activities	$	10		$	88		$	860
Cash from investing activities		(8	)		(47	)		(339	)
Cash from financing activities		(5	)		(56	)		(550	)
Net cash impact of discontinued operations	$	(3	)	$	(15	)	$	(29	)
Cash balance of discontinued operations
At start of period	$	3		$	18		$	47
At end of period		–			3			18
Decrease in cash of discontinued operations	$	(3	)	$	(15	)	$	(29	)

Note 5 – Exit, Disposal and Transformation Activities

The company announced a transformation plan in February 2005 designed to improve performance and better position the company for long-term growth. The plan involved significant changes in the company’s organizational structure, portfolio changes involving the disposition of a significant portion of the corporation’s business, and a number of actions to improve operational efficiency. As part of its ongoing efforts to improve its operational performance, the corporation initiated additional actions in 2008 and recognized certain trailing costs related to transformation actions initiated in earlier years, including the impact of certain activities that were completed for amounts more favorable than previously estimated.

Sara Lee Corporation and Subsidiaries    55

Notes to financial statements

Dollars in millions except per share data

The nature of the costs incurred under actions initiated in 2008 and the long-term transformation plan includes the following:

Exit Activities, Asset and Business Disposition Actions

These amounts primarily relate to:

•    Employee termination costs

•    Lease exit costs

•    Gains or losses on the disposition of assets or asset groupings that do not qualify as discontinued operations

Transformation Costs

These amounts primarily relate to:

•    Expenses associated with the installation of new information systems, including the amortization of capitalized software costs

•    Costs to retain and relocate employees, as well as costs to recruit new employees

•    Consulting costs

•    Accelerated depreciation and amortization associated with decisions to dispose of or abandon the use of certain tangible and intangible assets at dates earlier than previously anticipated, pursuant to an exit plan. Accelerated depreciation represents the incremental impact of the revised estimate of remaining depreciation expense in excess of the original depreciation expense.

Transformation costs do not qualify for treatment as an exit activity or asset and business disposition under Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” However, management believes that the disclosure of these transformation related charges provides the reader with greater transparency to the total cost of the transformation plan.

The following is a summary of the (income) expense associated with new and ongoing actions, which also highlights where the costs are reflected in the Consolidated Statements of Income along with the impact on diluted EPS from continuing operations:

In millions	2008			2007			2006
Cost of sales
Accelerated depreciation	$	1		$	31		$	30
Transformation charges		8			10			5
Selling, general and administrative expenses
Accelerated depreciation		–			1			9
Transformation charges		43			109			154
Vacation policy change		–			–			(14	)
Net charges for (income from)
Exit activities		39			106			166
Asset and business dispositions		(1	)		(12	)		(80	)
Reduction in income from continuing operations before income taxes		90			245			270
Income tax benefit		(31	)		(89	)		(91	)
Reduction in income from continuing operations	$	59		$	156		$	179
Impact on diluted EPS from continuing operations	$	0.08		$	0.21		$	0.23

The impact of these actions on the corporation’s business segments and unallocated corporate expenses is summarized as follows:

In millions	2008		2007		2006
North American Retail Meats	$	13	$	78	$	48
North American Retail Bakery		4		32		29
Foodservice		5		11		16
International Beverage		15		21		16
International Bakery		9		18		30
Household and Body Care		7		13		28
Decrease in business segment income		53		173		167
Increase in general corporate expenses		37		72		103
Total	$	90	$	245	$	270

The following discussion provides information concerning the exit, disposal and transformation activities for each year where actions were initiated.

2008 Actions  During 2008, the corporation approved certain actions related to exit, disposal and transformation activities and recognized net charges of $90 related to these actions. Each of these activities are to be completed within a 12-month period after being approved and include the following:

•    Implemented a plan to terminate 603 employees and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. The specific location of these employees and the status of the terminations are summarized in a table contained in this note.

•    Incurred costs to exit certain leased space, including the exit of a North American R&D facility.

•    Recognized net gains associated with the disposal of several asset groupings, the largest of which was a $3 gain related to the disposition of a Foodservice manufacturing facility. Total proceeds from these disposals were $9.

•    Recognized costs related to the implementation of common information systems across the organization in order to improve operational efficiencies. These primarily relate to costs associated with assessing current systems, the evaluation of system alternatives, and process re-engineering costs, as well as the amortization of certain capitalized software.

The following table summarizes the net charges taken for the exit, disposal and transformation activities approved during 2008 and the related status as of June 28, 2008. The accrued amounts remaining as of the end of 2008 represent those cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next two years. The corporation does not anticipate any additional material future charges related to the 2008 actions.

56    Sara Lee Corporation and Subsidiaries

In millions	Employee Termination and Other Benefits		Non-cancelable Lease and Other Contractual Obligations	Asset and Business Disposition Actions		Accelerated Depreciation		Transformation Costs – IT and Other		Total
Exit and disposal costs recognized during 2008	$36		$3	$(1	)	$ 1		$ 51		$ 90
Charges against assets and other non-cash charges	–		–	–		(1	)	(16	)	(17	)
Asset and business disposition gains (losses)	–		–	1		–		–		1
Cash payments	(7	)	–	–		–		(33	)	(40	)
Accrued costs as of June 28, 2008	$29		$3	$ –		$ –		$   2		$ 34

The following table summarizes the employee terminations

by location and business segment.

Number of employees	North American Retail Meats	North American Retail Bakery	Foodservice	International Beverage	International Bakery	Household and Body Care	Corporate	Total
United States	266	32	167	–	–	–	88	553
Europe	–	–	–	1	23	–	–	24
Australia	–	–	–	–	26	–	–	26
	266	32	167	1	49	–	88	603
As of June 28, 2008
Actions completed	59	25	122	–	27	–	10	243
Actions remaining	207	7	45	1	22	–	78	360
	266	32	167	1	49	–	88	603

2007 Actions  During 2007, the corporation approved certain actions related to exit, disposal and transformation activities and recognized net charges of $251 related to these actions. Each of these actions was to be completed within a 12-month period after being approved. During 2008, certain of these actions were completed for amounts that differed from those originally estimated. A description of these activities includes the following:

•    Implemented a plan to terminate 2,512 employees and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. The specific location of these employees is summarized in a table contained in this note. Of the 2,512 targeted employees, 37 have not yet been terminated. A majority of these actions are expected to be completed by the first quarter of 2009.

•    Incurred costs to exit certain leased space and other contractual obligations, including those costs related to the relocation of the corporation’s headquarters to Downers Grove, Illinois.

•    Recognized a loss related to the decision to abandon certain capitalized software in the International Beverage segment.

•    Recognized net gains associated with the disposal of several asset groupings, the largest of which was a net $19 gain related to the disposition of two Household and Body Care facilities offset by charges related to various disposition costs primarily associated with the spin off of the Branded Apparel business. Total proceeds from these disposals were $31.

•    Recognized accelerated depreciation primarily on domestic meat processing facilities and equipment. All of the facilities were closed by the end of 2007.

•    Incurred transformation costs as a result of management’s decision to centralize the management of its North American and European operations. Costs were incurred to relocate employees, recruit new employees, and pay retention bonuses to preserve business continuity. The corporation also incurred consulting costs to assist in the development of strategic operating and financial plans and employee training. Certain information technology costs were also incurred and related to the implementation of common information systems across the organization.

The following table summarizes the net charges taken for the exit, disposal and transformation activities approved during 2007 and the related status as of June 28, 2008. The accrued amounts remaining as of the end of 2008 represent those cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next year. The corporation does not anticipate any additional material future charges related to the 2007 actions.

Sara Lee Corporation and Subsidiaries    57

Notes to financial statements

Dollars in millions except per share data

In millions	Employee Termination and Other Benefits		Non-cancelable Lease and Other Contractual Obligations		Losses on Abandonment of Assets		Asset and Business Disposition Actions		Accelerated Depreciation		Transformation Costs – IT and Other		Total
Exit and disposal costs recognized during 2007	$ 98		$13		$ 1		$(12	)	$ 32		$ 119		$ 251
Cash payments	(30	)	(2	)	–		(11	)	–		(100	)	(143	)
Charges against assets and other non-cash charges	–		–		(1	)	–		(32	)	(12	)	(45	)
Asset and business disposition gains (losses)	–		–		–		23		–		–		23
Accrued costs as of June 30, 2007	68		11		–		–		–		7		86
Cash payments	(40	)	(9	)	–		–		–		(7	)	(56	)
Change in estimate	(3	)	2		–		–		–		–		(1	)
Foreign exchange impacts	6		–		–		–		–		–		6
Accrued costs as of June 28, 2008	$ 31		$  4		$ –		$   –		$   –		$     –		$   35

The following table summarizes the employee terminations

by location and business segment.

Number of employees	North American Retail Meats	North American Retail Bakery	Foodservice	International Beverage	International Bakery	Household and Body Care	Corporate	Total
United States	1,572	263	199	–	–	–	17	2,051
Europe	–	–	–	65	118	94	–	277
South America	–	–	–	184	–	–	–	184
	1,572	263	199	249	118	94	17	2,512

2006 Actions  During 2006, the corporation approved certain actions related to exit, disposal and transformation activities and recognized net charges of $277 related to these actions. Each of these actions was to be completed within a 12-month period after being approved. A description of these activities includes the following:

•    Implemented a plan to terminate 1,873 employees and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. The specific location of these employees is summarized in a table contained in this note. All of these actions have been completed.

•    Incurred costs to exit certain leased space and other contractual obligations, including costs to close facilities related to the North American Retail Meats and Foodservice segments and various bakery stores.

•    Recognized a loss related to the decision to abandon certain capitalized software in the International Beverage segment.

•    Recognized net gains associated with various asset and business disposition actions related primarily to our European operations. Total proceeds from these disposals were $215.

•    Recognized accelerated depreciation on manufacturing facilities and equipment impacting all of our segments and on certain administrative buildings in our North American operations.

•    Incurred transformation costs as a result of management’s decision to improve operational efficiency and standardize systems. Costs were incurred to relocate employees, recruit new employees, and pay retention bonuses to preserve business continuity. The corporation also incurred consulting costs to assist in the development of strategic operating and financial plans and employee training costs. Certain information technology costs were also incurred and related to the implementation of common information systems across the organization.

•    Realized a net gain related to the corporation’s decision to modify its vacation policy for U.S. employees.

The following table summarizes the net charges taken for the exit, disposal and transformation activities approved during 2006 and the related status as of June 28, 2008. The accrued amounts remaining as of the end of 2008 represent those cash expenditures necessary to satisfy remaining obligations. The majority of the cash payments to satisfy the accrued costs are expected to be paid in the next year. The corporation does not anticipate any additional material future charges related to the 2006 actions.

58    Sara Lee Corporation and Subsidiaries

In millions	Employee Termination and Other Benefits		Non-cancelable Lease and Other Contractual Obligations		Losses on Abandonment of Assets		Asset and Business Disposition Actions		Accelerated Depreciation		Transformation Costs – IT and Other		Vacation Policy Change		Total
Exit and disposal costs recognized during 2006	$159		$ 8		$ 6		$  (80	)	$ 39		$ 159		$(14	)	$ 277
Cash payments	(42	)	(6	)	–		(31	)	–		(117	)	–		(196	)
Charges against assets and other non-cash charges	–		–		(6	)	–		(39	)	(26	)	14		(57	)
Asset and business disposition gains (losses)	–		–		–		119		–		–		–		119
Foreign exchange impacts	3		–		–		–		–		–		–		3
Accrued costs as of July 1, 2006	120		2		–		8		–		16		–		146
Cash payments	(59	)	(2	)	–		(8	)	–		(15	)	–		(84	)
Change in estimate	(6	)	3		–		–		–		–		–		(3	)
Foreign exchange impacts	5		–		–		–		–		–		–		5
Accrued costs as of June 30, 2007	60		3		–		–		–		1		–		64
Cash payments	(28	)	(1	)	–		–		–		(1	)	–		(30	)
Change in estimate	1		–		–		–		–		–		–		1
Foreign exchange impacts	8		–		–		–		–		–		–		8
Accrued costs as of June 28, 2008	$  41		$ 2		$ –		$     –		$   –		$     –		$    –		$   43

The following table summarizes the employee terminations

by location and business segment.

Number of employees	North American Retail Meats	North American Retail Bakery	Foodservice	International Beverage	International Bakery	Household and Body Care	Corporate	Total
United States	328	271	94	–	–	2	25	720
Canada	–	–	–	–	–	1	–	1
Europe	–	–	–	675	138	182	1	996
Australia	–	–	–	38	17	73	–	128
Asia	–	–	–	–	–	28	–	28
	328	271	94	713	155	286	26	1,873

Other Restructuring Actions  In prior periods, the corporation had approved and completed various actions to exit certain defined business activities and lower its cost structure.

During 2007, adjustments were made to certain accrued obligations remaining for these completed actions. These adjustments related to the final settlement of certain planned termination actions for amounts more favorable than originally anticipated. These adjustments resulted in an increase of $3 to income from continuing operations before income taxes and are reported in the “Net charges for exit activities, asset and business dispositions” line of the Consolidated Statements of Income.

During 2006, adjustments were made to certain accrued obligations remaining for these completed actions. These adjustments related to the final settlement of certain planned termination actions for amounts more favorable than originally anticipated. These adjustments resulted in an increase of $7 to income from continuing operations before income taxes and are reported in the “Net charges for exit activities, asset and business dispositions” line of the Consolidated Statements of Income.

As of June 28, 2008, the accrued liabilities remaining in the Consolidated Balance Sheet related to these completed actions total $7 and represent certain severance obligations. These accrued amounts are expected to be satisfied in cash and will be funded from operations. In 2008 there were no significant adjustments made to these reserves.

Note 6 – Common Stock

Changes in outstanding shares of common stock for the past three years were:

Shares in thousands	2008		2007		2006
Beginning balances	724,433		760,980		785,895
Stock issuances
Stock option and benefit plans	1,163		2,556		1,613
Restricted stock plans	320		2,514		3,481
Other	112		113		63
Reacquired shares	(19,669	)	(41,730	)	(30,072	)
Ending balances	706,359		724,433		760,980

Sara Lee Corporation and Subsidiaries    59

Notes to financial statements

Dollars in millions except per share data

Common stock dividends and dividend-per-share amounts declared on outstanding shares of common stock were $298 and $0.42 in 2008, $368 and $0.50 in 2007 and $450 and $0.59 in 2006. The corporation is incorporated in the state of Maryland and under those laws repurchased shares are retired as repurchased.

Note 7 – Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income are as follows:

	Cumulative Translation Adjustment		Net Unrealized Gain (Loss) on Qualifying Cash Flow Hedges		Pension Liability Adjust- ment		Accu- mulated Other Compre- hensive Income
Balance at July 2, 2005	$(731	)	$(14	)	$(816	)	$(1,561	)
Other comprehensive income (loss) activity	70		(28	)	180		222
Balance at July 1, 2006	(661	)	(42	)	(636	)	(1,339	)
Spin off of Hanesbrands, Inc.	5		4		58		67
Adjustment to apply SAB No. 108	5		–		–		5
Adjustment to initially apply SFAS No. 158	–		–		(168	)	(168	)
Disposition of European Meat business	229		–		–		229
Other comprehensive income (loss) activity	275		34		143		452
Balance at June 30, 2007	(147	)	(4	)	(603	)	(754	)
Goodwill redenomination	106		–		–		106
Disposition of Mexican Meat business	31		–		–		31
Amortization of net actuarial loss and prior service credit	–		–		27		27
Net actuarial gain arising during the period	–		–		165		165
Other comprehensive income (loss) activity	549		25		–		574
Balance at June 28, 2008	$ 539		$ 21		$(411	)	$    149

Note 8 – Stock-Based Compensation

The corporation has various stock option, employee stock purchase and stock award plans. At June 28, 2008, 98.0 million shares were available for future grant in the form of options, restricted shares or stock appreciation rights out of 118.7 million shares originally authorized.

Stock Options  The exercise price of each stock option equals the market price of the corporation’s stock on the date of grant. Options can generally be exercised over a maximum term of 10 years. Options granted up to and through 2006 generally vest ratably over three years and expense is recognized in accordance with the provisions of FASB Interpretation No. 28 (FIN 28). Options granted after 2006 cliff vest and expense is recognized on a straightline basis during the vesting period. 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:

	2008		2007		2006
Weighted average expected lives	8.0 years		6.1 years		6.1 years
Weighted average risk-free interest rates	4.2	%	4.8	%	4.3	%
Range of risk-free interest rates	4.2	%	4.7 – 4.9	%	4.2 – 4.3	%
Weighted average expected volatility	24.3	%	22.3	%	26.2	%
Range of expected volatility	24.3	%	21.5 – 22.4	%	25.2 – 26.4	%
Dividend yield	2.4	%	2.8	%	4.2	%

The corporation uses historical volatility for a period of time that is comparable to the expected life of the option to determine volatility assumptions. In 2008 the corporation increased the expected life of stock options to eight years. This estimate is reasonable considering only senior executives receive stock options and this group historically has held options for longer periods of time compared to other employee groups.

A summary of the changes in stock options outstanding under the corporation’s option plans during 2008 is presented below:

Shares in thousands	Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at June 30, 2007	42,994		$18.65	3.2	$21
Granted	1,322		16.49	–	–
Exercised	(312	)	14.40	–	–
Canceled/expired	(12,073	)	19.66	–	–
Options outstanding at June 28, 2008	31,931		$18.20	3.2	$  –
Options exercisable at June 28, 2008	27,665		$18.61	2.4	$  –

At June 30, 2007 and July 1, 2006, the number of options exercisable was 38,987 and 54,323, respectively, with weighted average exercise prices of $18.98 and $18.99, respectively. The weighted average grant date fair value of options granted during 2008, 2007 and 2006 was $4.36, $3.23 and $4.01, respectively. The total intrinsic value of options exercised during 2008, 2007 and 2006 was $1, $5 and $2, respectively. The fair value of options that vested during both 2008 and 2007 was $3. The corporation received cash from the exercise of stock options during 2008 of $4. As of June 28, 2008, the corporation had $4 of total unrecognized compensation expense related to stock option plans that will be recognized over the weighted average period of 1.02 years.

60    Sara Lee Corporation and Subsidiaries

Stock Unit Awards  Restricted stock units (RSUs) are granted to certain employees to incent performance and retention over periods ranging from one to five years. Upon the achievement of defined parameters, the RSUs are generally converted into shares of the corporation’s common stock on a one-for-one basis and issued to the employees. A substantial portion of all RSUs vest solely upon continued future service to the corporation. A small portion of RSUs vest based upon continued future employment and the achievement of certain defined performance measures. The cost of these awards is determined using the fair value of the shares on the date of grant, and compensation is recognized over the period during which the employees provide the requisite service to the corporation. Compensation expense is recognized in accordance with the provisions of FIN 28. A summary of the changes in the stock unit awards outstanding under the corporation’s benefit plans during 2008 is presented below:

Shares in thousands	Shares		Weighted Average Grant Date Fair Value	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Nonvested share units at June 30, 2007	6,132		$16.13	1.34	$107
Granted	2,993		16.32
Vested	(1,634	)	17.58
Forfeited	(1,261	)	17.16
Nonvested share units at June 28, 2008	6,230		$15.63	1.47	$  76
Exercisable share units at June 28, 2008	135		$16.41	4.30	$    2

The total fair value of share-based units that vested during 2008 and 2007 was $29 and $66, respectively. As of June 28, 2008, the corporation had $39 of total unrecognized compensation expense related to stock unit plans that will be recognized over the weighted average period of 1.81 years.

Expense Recognized for All Stock-Based Compensation  For all share-based payments during 2008, the corporation recognized total compensation expense of $38 and recognized a tax benefit of $10. The corporation will satisfy the requirement for common stock for share-based payments by issuing shares out of authorized but unissued common stock.

Note 9 – Employee Stock Ownership Plans (ESOP)

The corporation maintains an ESOP that holds common stock of the corporation and provides a retirement benefit for nonunion domestic employees. During 2008, 2007 and 2006, the Sara Lee ESOP unallocated common stock received total dividends of $4 or $0.41 per share, $4 or $0.50 per share and $7 or $0.79 per share, respectively. The purchase of the original stock by the Sara Lee ESOP was funded both with debt guaranteed by the corporation and loans from the corporation. The debt guaranteed by the corporation was fully paid in 2004, and only loans from the corporation to the ESOP remain. Each year, the corporation makes contributions that, with the dividends on the common stock held by the Sara Lee ESOP, are 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 remaining life of the loan. Plan expense is recognized in accordance with Emerging Issues Task Force Opinion 89-8.

Sara Lee ESOP-related expenses amounted to $7 in 2008 and $11 in 2007 and 2006. Payments to the Sara Lee ESOP were $16 in 2008, $19 in 2007 and $20 in 2006.

Note 10 – Minority Interest in Subsidiaries

Minority interest in subsidiaries in 2008 consists of the equity interest of minority investors in consolidated subsidiaries of the corporation. The corporation’s consolidated minority interest income of $10 in 2008, expense of $8 in 2007 and $6 in 2006 is recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Income.

Note 11 – Earnings per Share

Net income (loss) per share – basic is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Net income (loss) per share – diluted reflects the potential dilution that could occur if options and fixed awards to be issued under stock-based compensation arrangements were converted into common stock.

Options to purchase 28.2 million shares of common stock at June 28, 2008, 35.2 million shares of common stock at June 30, 2007 and 46.0 million shares of common stock at July 1, 2006 were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the corporation’s outstanding common stock, and therefore anti-dilutive. Additionally, in 2008, no potential common shares have been included in the computation of diluted loss per share as these shares are anti-dilutive.

Sara Lee Corporation and Subsidiaries    61

Notes to financial statements

Dollars in millions except per share data

The following is a reconciliation of net income (loss) to net income (loss) per share – basic and diluted – for the years ended June 28, 2008, June 30, 2007 and July 1, 2006:

Shares in millions	2008		2007	2006
Income (loss) from continuing operations	$   (41	)	$  440	$   31
Income (loss) from discontinued operations	(14	)	48	123
Gain (loss) on sale of discontinued operations	(24	)	16	401
Net income (loss)	$   (79	)	$  504	$ 555
Average shares outstanding – basic	715		741	766
Dilutive effect of stock option and stock award plans	–		2	2
Diluted shares outstanding	715		743	768
Income (loss) from continuing operations per share
Basic	$(0.06	)	$0.59	$0.04
Diluted	$(0.06	)	$0.59	$0.04
Net income (loss) from discontinued operations per share
Basic	$(0.05	)	$0.09	$0.68
Diluted	$(0.05	)	$0.09	$0.68
Net income (loss) per share
Basic	$(0.11	)	$0.68	$0.72
Diluted	$(0.11	)	$0.68	$0.72

Note 12 – Long-Term Debt

The composition of the corporation’s long-term debt, which includes capital lease obligations, is summarized in the following table:

	Maturity Date	2008		2007
Senior Debt – Fixed Rate
6.125% notes	2008	$       –		$   806
6.0% – 6.95% medium-term notes	2008	–		227
2.75% notes	2008	–		300
7.05% – 7.40% notes	2008	–		75
6.5% notes	2009	150		150
7.26% – 7.71% notes	2010	25		25
6.25% notes	2012	1,110		1,110
3.875% notes	2013	500		500
10% zero coupon notes	2014	11		10
10% – 14.25% zero coupon notes	2015	50		44
6.125% notes	2033	500		500
Total senior debt		2,346		3,747
Senior Debt – Variable Rate
Euro denominated – euro interbank offered rate (EURIBOR) plus .10%	2009	394		336
Total senior debt		2,740		4,083
Obligations under capital lease		61		68
Other debt		103		64
Total debt		2,904		4,215
Unamortized discounts		(6	)	(7	)
Hedged debt adjustment to fair value		10		(11	)
Total long-term debt		2,908		4,197
Less current portion		568		1,427
		$2,340		$2,770

Payments required on long-term debt during the years ending 2009 through 2013 are $568, $52, $20, $1,128 and $517, respectively. The corporation made cash interest payments of $249, $266 and $311 in 2008, 2007 and 2006, respectively.

Note 13 – Leases

The corporation leases certain facilities, equipment and vehicles under agreements that are classified as either operating or capital leases. The building leases have original terms that range from 10 to 15 years, while the equipment and vehicle leases have terms of generally less than seven years. The gross book value of capital lease assets included in property at June 28, 2008 and June 30, 2007 was $118 and $138, respectively. The net book value of capital lease assets included in property at June 28, 2008 and June 30, 2007 was $61 and $68, respectively.

Future minimum payments, by year and in the aggregate, under capital leases and noncancelable operating leases having an original term greater than one year at June 28, 2008 were as follows:

	Capital Leases		Operating Leases
2009	$16		$116
2010	19		76
2011	16		53
2012	10		33
2013	5		26
Thereafter	4		102
Total minimum lease payments	70		$406
Amounts representing interest	(9	)
Present value of net minimum payments	61
Current portion	12
Noncurrent portion	$49

Depreciation expense of capital lease assets was $20 in 2008, $27 in 2007 and $26 in 2006. Rental expense under operating leases was $146 in 2008, $130 in 2007 and $135 in 2006.

Contingent Lease Obligation  The corporation is contingently liable for leases on property operated by others. At June 28, 2008, the maximum potential amount of future payments the corporation could be required to make, if all of the current operators default on the rental arrangements, is $172. The minimum annual rentals under these leases are $29 in 2009, $27 in 2010, $23 in 2011, $18 in 2012, $14 in 2013 and $61 thereafter. The two largest components of these amounts relate to a number of retail store leases operated by Coach, Inc. and certain leases related to the corporation’s U.K. Apparel operations that have been sold. Coach, Inc. is contractually obligated to provide the corporation, on an annual basis, with a standby letter of credit approximately equal to the next year’s rental obligations. The letter of credit in place at the close of 2008 was $13. This obligation to provide a letter of credit expires when the corporation’s contingent lease obligation is substantially extinguished. The corporation has not recognized a liability for the contingent obligation on the Coach, Inc. leases.

62    Sara Lee Corporation and Subsidiaries

Note 14 – Credit Facilities

The corporation has a $1.85 billion credit facility that had an annual fee of 0.08% as of June 28, 2008. This agreement supports commercial paper borrowings and other financial instruments. This facility, along with certain other debt instruments, contain a number of typical debt covenants, including a requirement to maintain an interest coverage ratio of at least 2.0 to 1.0, which the corporation is in compliance with. Selected data on the corporation’s short-term obligations follow:

	2008		2007		2006
Maximum month-end borrowings	$280		$1,348		$1,928
Average borrowings during the year	56		271		1,648
Year-end borrowings	280		23		1,776
Weighted average interest rate during the year	3.9	%	5.2	%	4.3	%
Weighted average interest rate at year-end	3.1		3.9		5.2

Note 15 – Intangible Assets and Goodwill Intangible Assets

The primary components of the corporation’s intangible assets reported in continuing operations and the related amortization expense are as follows:

	Gross	Accumulated Amortization	Net Book Value
2008
Intangible assets subject to amortization
Trademarks and brand names	$   864	$331	$   533
Customer relationships	440	208	232
Computer software	394	244	150
Other contractual agreements	32	21	11
	$1,730	$804	926
Trademarks and brand names not subject to amortization			95
Net book value of intangible assets			$1,021
2007
Intangible assets subject to amortization
Trademarks and brand names	$   793	$263	$   530
Customer relationships	420	165	255
Computer software	338	221	117
Other contractual agreements	28	15	13
	$1,579	$664	915
Trademarks and brand names not subject to amortization			87
Net book value of intangible assets			$1,002

The amortization expense reported in continuing operations for intangible assets subject to amortization was $120 in 2008, $112 in 2007 and $106 in 2006. The estimated amortization expense for the next five years, assuming no change in the estimated useful lives of identifiable intangible assets or changes in foreign exchange rates, is as follows: $120 in 2009, $110 in 2010, $106 in 2011, $62 in 2012 and $39 in 2013.

During 2008, the corporation recognized impairment charges of $13 related to certain trademarks that are related to the North American Retail Meats segment. These charges are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.” In addition, as a result of a proposed sale of a certain business in the Foodservice segment, trademarks of $7 were reclassified as net assets held for sale.

During 2007, the corporation recognized impairment charges of $26 and $16 related to certain trademarks that are used in the International Beverage and North American Retail Bakery segments, respectively. These charges are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.” In addition, as a result of the annual impairment review, the corporation concluded that certain trademarks were no longer indefinite-lived and amortization was initiated. Trademarks of $28 and certain other intangible assets of $2 were acquired in 2007 in the Household and Body Care segment.

During 2006, the corporation recognized a $193 impairment charge related to certain trademarks that are used in the North American Retail Bakery and International Bakery segments. These charges are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.”

Goodwill  In 2008, the corporation determined that the amount of goodwill attributed to certain reporting units needed to be revised. Goodwill has been reallocated based upon the relative fair value of the reporting units that existed at the time the corporation realigned its business units into new segments during 2006. During 2006 and through the first quarter of 2008, the goodwill allocated to the International Bakery segment had been denominated in U.S. dollars. In the second quarter of 2008, the corporation determined that goodwill allocated to its International Bakery segment should have been denominated in European euros and subject to translation into the company’s reporting currency from 2006 to present. While the adjustment related to the reallocation of goodwill had no impact on the corporation’s total goodwill value, the adjustment related to the redenomination of goodwill had the impact of increasing the corporation’s total value of goodwill and increasing the total currency translation adjustment included in the accumulated other comprehensive income section of stockholders’ equity and other comprehensive income.

The goodwill redenomination of $106 presented below represents the cumulative adjustment up to the end of 2007. As the error was discovered and corrected in the second quarter of 2008, the impact of this error on the currency translation adjustment in the first quarter of 2008 was $41, and the cumulative error amount was $147 through the end of the first quarter of 2008, an amount which management believes to be immaterial to the consolidated quarterly and annual financial statements.

Sara Lee Corporation and Subsidiaries    63

Notes to financial statements

Dollars in millions except per share data

The goodwill reported in continuing operations associated with

each business segment and the changes in those amounts during

2008 and 2007 are as follows:

	North American Retail Meats	North American Retail Bakery	Foodservice		International Beverage		International Bakery		Household and Body Care	Total
Net book value at July 1, 2006	$92	$294	$954		$272		$ 622		$517	$2,751
Impairment	–	–	–		(92	)	–		–	(92	)
Foreign exchange/other	–	–	–		13		–		26	39
Net book value at June 30, 2007	92	294	954		193		622		543	2,698
Impairments	–	–	(382	)	–		(400	)	–	(782	)
Reclass to net assets held for sale	–	–	(19	)	–		–		–	(19	)
Reallocation	–	3	48		–		(51	)	–	–
Redenomination	–	–	–		24		63		19	106
Foreign exchange/other	–	–	–		46		110		64	220
Net book value at June 28, 2008	$92	$297	$601		$263		$ 344		$626	$2,223

In 2008, non-deductible goodwill of $382 and $400 was impaired in the Foodservice Bakery and Bakery Spain reporting units, respectively. These charges are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.”

In 2007, non-deductible goodwill of $92 was impaired in the International Beverage segment. Of this amount, $86 relates to the Brazilian reporting unit and $6 relates to the Austrian reporting unit. These charges are more fully described in Note 3 to the Consolidated Financial Statements, “Impairment Charges.”

Note 16 – Contingencies and Commitments

Contingent Asset  The corporation sold its European cut tobacco business in 1999. Under the terms of that agreement, the corporation will receive an annual cash payment of 95 million euros if tobacco continues to be a legal product in the Netherlands, Germany and Belgium through July 15, 2009. The legal status of tobacco in each country accounts for a portion of the total contingency with the Netherlands accounting for 67%, Germany 22% and Belgium 11%. If tobacco ceases to be a legal product within any of these countries, the corporation forfeits the receipt of all future amounts related to that country. The contingencies associated with the 2008 and prior payments passed in the first quarter of each fiscal year and the corporation received the annual payments. The 2008 annual payment was equivalent to $130, the 2007 annual payment was equivalent to $120 and the 2006 annual payment was equivalent to $114 based upon the respective exchange rates on the dates of receipt. These amounts were recognized in the corporation’s earnings when received. The payments increased diluted earnings per share by $0.18 in 2008, $0.16 in 2007 and $0.15 in 2006.

Contingent Liabilities  The corporation is a party to various pending legal proceedings, claims and environmental actions by government agencies. In accordance with SFAS No. 5, “Accounting for Contingencies,” the corporation records a provision with respect to a claim, suit, investigation or proceeding when it is probable that

a liability has been incurred and the amount of the loss can reasonably be estimated. Any provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to the particular matter. The recorded liabilities for these items were not material to the Consolidated Financial Statements of the corporation in any of the years presented. 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 of these matters will not have a material adverse impact on the consolidated financial position, results of operations or liquidity.

Aris  Since 1995, three complaints have been filed on behalf of employees of a former subsidiary of the corporation known as Aris Philippines, Inc. (Aris) alleging unfair labor practices associated with Aris’ termination of manufacturing operations in the Philippines. Each of these three complaints includes allegations with the same issues and facts. With regard to two of these complaints, Aris prevailed in the administrative hearings held in the Philippines. Although implicated in these complaints, the corporation was not a party. The third complaint is a consolidation of cases filed in the Republic of the Philippines, Department of Labor and Employment and the National Labor Relations Commission (NLRC) from 1998 through July 1999 by individual complainants. On December 11, 1998, the third complaint was amended to name the corporation as a party. The case is styled: Emelinda Mactlang, et al. v. Aris Philippines, Inc., et al. In the underlying proceedings during 2006, the arbitrator ruled against the corporation and awarded the plaintiffs $60 in damages and fees. The corporation appealed this administrative ruling. On December 19, 2006, the NLRC issued a ruling setting aside the arbitrator’s ruling, and remanded the case to the arbitrator for further proceedings. The complainants and the corporation have filed motions for reconsideration – the corporation seeking a final judgment and outright dismissal of the case, instead of a remand to the arbitrator; and complaints seeking to reinstate

64    Sara Lee Corporation and Subsidiaries

the original arbitrator’s judgment against the defendants, including the corporation. The respective motions for reconsideration have been fully briefed by the parties and we await the NLRC’s rulings.

The corporation’s request to the Court of Appeals to reconsider its decision to require that the bond related to the arbitrator’s original ruling be set at approximately $23 has been denied. On December 10, 2007, the corporation petitioned the Supreme Court for review, arguing, among other things, that the appellate court’s decision is now moot in light of the December 19, 2006 ruling by the NLRC setting aside the underlying judgment. No additional bond posting is required until all allowable appeals have been exhausted. On March 24, 2008, the Supreme Court issued a resolution requiring all parties to file comments on their respective petitions. The corporation has filed its comments on the aforementioned petition and is now awaiting the Supreme Court’s decision as to whether it will accept the corporation’s petition for review. The Supreme Court will now determine whether to give due course to the petitions and if due course is denied, the petitions will be dismissed. Otherwise, the Supreme Court will then require the petitioners to file their reply and thereafter, the parties will be required to file simultaneous memoranda within a specified time. This process may take from three to twelve months. The corporation continues to believe that the plaintiffs’ claims are without merit; however, it is reasonably possible that this case will be ruled against the corporation and have a material adverse impact on the corporation’s financial position, results of operations or cash flows.

American Bakers Association (ABA) Retirement Plan  The corporation is a participating employer in the American Bakers Association Retirement Plan. In 1979, the Pension Benefit Guaranty Corporation (PBGC) determined that the ABA plan was an aggregate of single-employer pension plans, rather than a multi-employer plan. Under the express terms of the ABA plan’s governing documents, the corporation’s contributions can only be used to pay for the benefits of its own employee-participants. Based upon the PBGC determination and the advice of counsel, the corporation has recognized its obligations under the plan as if it participated in a single-employer defined benefit plan under the provisions of Statement of Financial Accounting Standards No. 87, “Employers Accounting for Pensions.”

In August 2006, the PBGC rescinded its 1979 determination and concluded that the ABA plan was a multi-employer plan in which the participating parties share in the plan underfunding. The other major participant in the ABA plan is a bankrupt third party that is seeking an injunction to enforce the PBGC determination made in August 2006. If the ABA plan were declared to be a multi-employer pension plan, this third party would successfully reduce its under-funded liability under the ABA plan by roughly $80. The corporation has initiated litigation seeking to overturn the August 2006 PBGC determination and intends to vigorously defend the position that it is responsible only for the obligations related to its current and former employees.

In February 2008, the bankrupt third party filed a motion to reject certain of its collective bargaining agreements related to the ABA plan, in which the third party seeks permission from the bankruptcy court to reopen these agreements and reject any obligations to continue participation in the ABA plan. Through this motion, the third party seeks to discharge its underfunding obligations under the ABA Plan as if the Plan were a multi- employer plan, limiting its potential liabilities through the bankruptcy to approximately $10. The corporation has worked with the ABA Plan to object to this motion, and the relevant unions have also objected to this motion. A hearing on the motion and the reorganization plan has been continued until October 1, 2008. In addition, in April 2008, the third party notified the ABA Plan that it intended to cease contributions to the ABA Plan for its non-union active employee participants. This decision is further evidence of the third party’s intent to withdraw fully from the ABA Plan. The corporation continues to believe that the PBGC’s August 2006 determination is without merit; however, it is reasonably possible that this case will be ruled against the corporation and have a material adverse impact on the corporation’s financial position, results of operations or cash flows.

Multi-Employer Pension Plans  The corporation participates in multi-employer pension plans that provide retirement benefits to employees covered by certain collective bargaining agreements and certain of these plans have unfunded vested benefits. Under the Multi-employer Pension Plan Amendments Act, a cessation of contributions to a multi-employer pension fund, which has unfunded vested benefits, and a series of other factors could result in a termination, withdrawal or significant partial withdrawal, which could render us liable for our proportionate share of the unfunded vested benefits and may require the recognition of a liability. The corporation has been contacted by one of the multi-employer pension funds regarding a prior plant closing and at the present time no assessment has been made by the fund. However, it is reasonably possible an assessment may be made in the future although we cannot estimate what the potential loss may be at this time. If an assessment is made by the fund, the corporation intends to dispute the matter, but would be required to pay the assessment amount under ERISA rules while the dispute is resolved. No assurances can be given that this matter will not have a material impact on the corporation’s financial position, results of operations or cash flows.

Purchase Commitments  During 2007, the corporation exited a U.S. meat production plant that included a hog slaughtering operation. Certain purchase contracts for the purchase of live hogs at this facility were not exited or transferred after the closure of the facility. However, the corporation has entered into a hog sales contract under which these hogs will be sold to another slaughter operator. The majority of these purchase commitments expire by December 2009 and, using hog pricing at June 28, 2008, the corporation has approximately $158 of commitments remaining under these contracts.

Sara Lee Corporation and Subsidiaries    65

Notes to financial statements

Dollars in millions except per share data

Note 17 – Guarantees

The corporation is a party to a variety of agreements under which it may be obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts entered into by the corporation under which the corporation agrees to indemnify a third party against losses arising from a breach of representations and covenants related to matters such as title to assets sold, the collectibility of receivables, specified environmental matters, lease obligations assumed and certain tax matters. In each of these circumstances, payment by the corporation is conditioned on the other party making a claim pursuant to the procedures specified in the contract. These procedures allow the corporation to challenge the other party’s claims. In addition, the corporation’s obligations under these agreements may be limited in terms of time and/or amount, and in some cases the corporation may have recourse against third parties for certain payments made by the corporation. It is not possible to predict the maximum potential amount of future payments under certain of these agreements, due to the conditional nature of the corporation’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the corporation under these agreements have not had a material effect on the corporation’s business, financial condition or results of operations. The corporation believes that if it were to incur a loss in any of these matters, such loss would not have a material effect on the corporation’s business, financial condition or results of operations.

The material guarantees, within the scope of FIN 45, for which the maximum potential amount of future payments can be determined, are as follows:

•    The corporation is contingently liable for leases on property operated by others. At June 28, 2008, the maximum potential amount of future payments that the corporation could be required to make if all the current operators default is $172. This contingent obligation is more completely described in Note 13 to the Consolidated Financial Statements, “Leases”.

•    The corporation has guaranteed the payment of certain third-party debt. The maximum potential amount of future payments that the corporation could be required to make, in the event that these third parties default on their debt obligations, is $32. At the present time, the corporation does not believe it is probable that any of these third parties will default on the amount subject to guarantee.

Additionally, the corporation has pledged as collateral, a manufacturing facility in Brazil in connection with a tax dispute in that country.

Note 18 – Financial Instruments and Risk Management

Interest Rate and Currency Swaps  To manage interest rate risk, the corporation has entered into interest rate swaps that effectively convert certain fixed-rate debt instruments into floating-rate instruments. The corporation has issued certain foreign-denominated debt instruments and utilizes currency swaps to reduce the variability of functional currency cash flows related to the foreign currency debt.

Interest rate swap agreements that are effective at hedging the fair value of fixed-rate debt agreements are designated and accounted for as fair value hedges.

Currency swap agreements that are effective at hedging the variability of foreign-denominated cash flows are designated and accounted for as cash flow hedges. The effective portion of the gains or losses of currency swaps that are recorded as cash flow hedges is recorded in accumulated other comprehensive income and reclassified into earnings to offset the gain or loss arising from the remeasurement of the hedged item.

The fair value of interest rate and currency swaps is determined based upon externally developed pricing models, using financial data obtained from swap dealers.

Weighted Average
Interest Rates
²  

	Notional Principal	1	Receive	Pay
Interest Rate Swaps
2008 Receive fixed – pay variable	$  385		5.3%	3.5	%
2007 Receive fixed – pay variable	1,315		5.1	6.0
2006 Receive fixed – pay variable	1,316		5.1	5.8
Currency Swaps
2008 Receive fixed – pay fixed	$  886		5.1%	5.0	%
2007 Receive fixed – pay fixed	755		5.1	5.0
2006 Receive fixed – pay fixed	711		5.1	5.0

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, if applicable.

2 The weighted average interest rates are as of the respective balance sheet dates.

Forward Exchange, Futures and Option Contracts  The corporation uses forward exchange and option contracts to reduce the effect of fluctuating foreign currencies on short-term foreign-currency-denominated intercompany transactions, third-party product-sourcing transactions, foreign-denominated investments and other known foreign currency exposures. Gains and losses on the derivative are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. The principal currencies hedged by the corporation include the European euro, British pound, Brazilian real, Hungarian forint, Russian ruble, Australian dollar and Danish krone.

The corporation uses commodity forwards and options to hedge commodity price risk. The principal commodities hedged by the corporation include hogs, beef, natural gas, diesel fuel, coffee, corn and wheat. The corporation does not use significant levels of commodity financial instruments to hedge commodity prices. In circumstances where commodity-derivative instruments are used, there is a high correlation between the commodity costs and the derivative instrument.

66    Sara Lee Corporation and Subsidiaries

The following table summarizes by major currency the contractual amounts of the corporation’s forward exchange contracts used in continuing operations in U.S. dollars. The bought amounts represent the net U.S. dollar equivalent of commitments to purchase foreign currencies, and the sold amounts represent the net U.S. dollar equivalent of commitments to sell foreign currencies. The foreign currency amounts have been translated into a U.S. dollar equivalent value using the exchange rate at the reporting date. Forward exchange contracts mature at the anticipated cash requirement date of the hedged transaction, generally within one year.

	2008			2007			2006
Foreign Currency – Bought (Sold)
European euro	$	122		$	16		$	88
British pound		(180	)		(151	)		(66	)
Brazilian real		43			26			4
Danish krone		50			48			(8	)
Hungarian forint		329			255			188
Russian ruble		(38	)		(47	)		(14	)
Australian dollar		111			(36	)		2
Other		(21	)		(65	)		(18	)

The corporation held foreign exchange option contracts to reduce the foreign exchange fluctuations on anticipated purchase transactions. The following table summarizes the notional amount of option contracts relating to continuing operations to sell foreign currency, in U.S. dollars:

	2008	2007	2006
Foreign Currency Sold
European euro	$–	$8	$547
Australian dollar	–	9	–

The following table summarizes the net derivative gains or losses deferred into accumulated other comprehensive income and reclassified to earnings in 2008, 2007 and 2006:

	2008		2007		2006
Net accumulated derivative gain (loss) deferred at beginning of year	$  (4	)	$(42	)	$(14	)
Deferral of net derivative gain (loss) in accumulated other comprehensive income	(27	)	29		(38	)
Spin off of Hanesbrands	–		4		–
Reclassification of net derivative (gain) loss to income	52		5		10
Net accumulated derivative gain (loss) at end of year	$ 21		$  (4	)	$(42	)

At June 28, 2008, the maximum maturity date of any cash flow hedge was 5.0 years (principally two currency swaps that mature in 2012 and 2013), excluding any forward exchange, option or swap contracts related to the payment of variable interest on existing financial instruments. The corporation expects to reclassify into earnings during the next 12 months net gains from accumulated other comprehensive income of $14 at the time the underlying hedged transactions are realized. In 2008, 2007 and 2006, hedge ineffectiveness was insignificant. In 2008, 2007 and 2006, derivative losses excluded from the assessment of effectiveness, and gains or losses resulting from the disqualification of hedge accounting are insignificant in each of these periods.

Non-U.S. Dollar Financing Transactions  The corporation uses non-U.S. dollar financing transactions as net investment hedges of long-term investments in the corresponding foreign currency. Hedges that meet the effectiveness requirements are accounted for under net investment hedging rules. For 2008, 2007 and 2006, a net loss of $378, $77 and $70, respectively, arising from effective hedges of net investments has been reflected in the cumulative translation adjustment account within common stockholders’ equity.

Fair Values The carrying amounts of cash and equivalents, trade accounts receivable, notes payable and accounts payable approximated fair value as of June 28, 2008 and June 30, 2007. The fair value of the remaining financial instruments recognized in continuing operations on the Consolidated Balance Sheets of the corporation at the respective year-ends were:

	2008			2007
Long-term debt, including current portion	$	2,929		$	4,161
Interest rate swaps		10			(18	)
Currency swaps		(311	)		(216	)
Foreign currency forwards and options		7			7
Commodity forwards and options		33			7

The fair value of the corporation’s long-term debt, including the current portion, is estimated using discounted cash flows based on the corporation’s current incremental borrowing rates for similar types of borrowing arrangements. The fair value of interest rate and currency swaps is determined based upon externally developed pricing models, using financial market data obtained from swap dealers. The fair value of foreign currency and commodity forwards and options is based upon information obtained from third-party institutions.

Sara Lee Corporation and Subsidiaries    67

Notes to financial statements

Dollars in millions except per share data

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 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 customers that the corporation considers highly leveraged were $158 at June 28, 2008 and $109 at June 30, 2007. The financial position of these businesses has been considered in determining allowances for doubtful accounts.

Note 19 – Defined Benefit Pension Plans

The corporation sponsors a number of U.S. and foreign pension plans to provide retirement benefits to certain employees. The benefits provided under these plans are based primarily on years of service and compensation levels.

On June 30, 2007, the corporation adopted certain of the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS 158). See Note 2 – “Summary of Significant Accounting Policies” for additional information regarding the impact of the adoption of SFAS 158.

Measurement Date and Assumptions  A March 31 measurement date is utilized to value plan assets and obligations for all of the corporation’s defined benefit pension plans. However, SFAS 158 requires entities to measure plan assets and benefit obligations as of the date of its fiscal year-end statement of financial position for fiscal years ending after December 15, 2008. As such, the company expects to adopt the measurement date provision of SFAS 158 in fiscal 2009. The impact of adopting the measurement date provision of SFAS 158 will be recorded as an adjustment to beginning of year retained earnings in 2009. The corporation does not believe the impact will be material to the consolidated financial statements.

The weighted average actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of continuing operations for the three years ending June 28, 2008 were as follows:

	2008		2007		2006
Net Periodic Benefit Cost
Discount rate	5.4	%	5.1	%	5.2	%
Long-term rate of return on plan assets	6.7		6.8		6.4
Rate of compensation increase	3.8		3.9		3.9
Plan Obligations
Discount rate	6.3	%	5.4	%	5.1	%
Rate of compensation increase	3.7		3.8		3.9

In determining the discount rate, the corporation utilizes the yield on high-quality fixed-income investments that have a AA bond rating and match the average duration of the pension benefit payments. Salary increase assumptions are based upon historical experience and anticipated future management actions. In determining the long-term rate of return on plan assets, the corporation assumes that the historical long-term compound growth rates of equity and fixed-income securities and other plan investments will predict the future returns of similar investments in the plan portfolio. Investment management and other fees paid out of plan assets are factored into the determination of asset return assumptions.

Net Periodic Benefit Cost and Funded Status  The components of the net periodic benefit cost for continuing operations were as follows:

	2008			2007			2006
Components of Defined Benefit
Net Periodic Benefit Cost
Service cost	$	91		$	97		$	104
Interest cost		267			253			230
Expected return on assets		(293	)		(279	)		(226	)
Amortization of
Prior service cost		8			8			2
Net actuarial loss		34			62			71
Net periodic benefit cost	$	107		$	141		$	181

The corporation also recognized settlement losses of $16 in 2008, $15 of which related to the settlement of a pension plan in the U.K. and is reported as part of discontinued operations. It also recognized settlement, curtailment and termination losses of $12 in 2007 as a result of the termination of certain foreign employees due to plant closures and employee terminations in the U.S. The corporation had settlement and termination losses of $6 in 2006.

The amount of prior service cost and net actuarial loss that is expected to be amortized from accumulated other comprehensive income and reported as a component of net periodic benefit cost during 2009 is $9 and $27, respectively.

The net periodic benefit cost of the corporation’s defined benefit pension plans in 2008 was $34 lower than in 2007. The decline was primarily due to a $28 reduction in amortization of net actuarial losses due to net actuarial gains in the prior year, which reduced the amount subject to amortization; and a $6 reduction in service cost due to headcount reductions versus the prior year.

The net periodic benefit cost of the corporation’s defined benefit pension plans in 2007 was $40 lower than in 2006. This was primarily due to a $53 increase in the expected return on plan assets in 2007 partially offset by higher interest expense. The greater asset return resulted from the fact that plan assets at the start of 2007 were $741 greater than at the start of 2006, and the corporation contributed $191 of cash to the plans during 2007.

68    Sara Lee Corporation and Subsidiaries

The funded status of defined benefit pension plans at the respective year-ends was as follows:

	2008			2007
Projected Benefit Obligation
Beginning of year	$	4,926		$	4,904
Service cost		91			97
Interest cost		267			253
Plan amendments		6			(10	)
Benefits paid		(241	)		(201	)
Participant contributions		3			3
Actuarial (gain) loss		(476	)		(367	)
Settlement/curtailment		(87	)		(13	)
Foreign exchange		255			260
End of year		4,744			4,926
Fair Value of Plan Assets
Beginning of year		4,346			4,094
Actual return on plan assets		(27	)		143
Employer contributions		175			191
Participant contributions		3			3
Benefits paid		(241	)		(201	)
Settlement		(88	)		(8	)
Acquisitions/(dispositions)		–			(24	)
Hanesbrands spin off adjustment		(3	)		(70	)
Foreign exchange		258			218
End of year		4,423			4,346
Funded status	$	(321	)	$	(580	)
Amounts Recognized on the
Consolidated Balance Sheets
Noncurrent asset	$	93		$	84
Accrued liabilities		(9	)		(2	)
Pension obligation		(405	)		(662	)
Prepaid benefit cost (liability) recognized	$	(321	)	$	(580	)
Amounts Recognized in Accumulated
Other Comprehensive Income
Unamortized prior service cost	$	93		$	84
Unamortized actuarial loss, net		570			746
Total	$	663		$	830

The underfunded status of the plans declined from $580 in 2007 to $321 in 2008, due to actuarial gains resulting from, in part, an increase in the discount rate; and employer contributions made during the year.

In 2007, an actuarial analysis under ERISA guidelines was completed to determine the plan assets that related to the pension plans that were transferred to Hanesbrands Inc. Based on this analysis, the corporation determined that $70 of plan assets in excess of the amount originally estimated would be transferred to Hanesbrands Inc. This additional asset transfer is reflected in 2007 above as a reduction to the plan assets.

The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels. The accumulated benefit obligations of the corporation’s pension plans as of the measurement dates in 2008 and 2007 were $4,543 and $4,716, respectively. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were:

	2008		2007
Projected benefit obligation	$	3,009	$	3,261
Accumulated benefit obligation		2,945		3,188
Fair value of plan assets		2,603		2,598

Plan Assets, Expected Benefit Payments and Funding The allocation of pension plan assets as of the respective year-end measurement dates is as follows:

	2008		2007
Asset Category
Equity securities	40	%	43	%
Debt securities	46		32
Real estate	2		3
Cash and other	12		22
Total	100	%	100	%

The investment strategies for the pension plan assets are designed to generate returns that will enable the pension plans to meet their future obligations. The actual amount for which these obligations will be settled depends on future events, including the life expectancy of the plan participants and salary inflation. The obligations are estimated using actuarial assumptions based on the current economic environment. The investment strategy balances the requirements to generate returns, using higher-returning assets such as equity securities with the need to control risk in the pension plan with less volatile assets, such as fixed-income securities. Risks include, among others, the likelihood of the pension plans becoming underfunded, thereby increasing their dependence on contributions from the corporation. The assets are managed by professional investment firms and performance is evaluated against specific benchmarks. In the U.S., assets are primarily invested in broadly diversified passive vehicles.

Sara Lee Corporation and Subsidiaries    69

Notes to financial statements

Dollars in millions except per share data

Outside the U.S., the investment objectives are similar, subject to local regulations. In some countries, a higher percentage allocation to fixed-income securities is required. The responsibility for the investment strategies typically lies with a board that may include up to 50% of members elected by employees and retirees. During 2007, a greater amount of assets of certain plans in the U.K. were invested in cash and other securities as the assets were being transitioned into investments that better match the inflation and interest characteristics of the respective pension liabilities. In 2008, these assets are invested in fixed income investments and related derivative contracts, which are long term in nature. These assets are included in the debt securities asset category.

Pension assets at the 2008 and 2007 measurement dates do not include any direct investment in the corporation’s debt or equity securities. The allocation of plan assets in 2008 generally reflects the anticipated future allocation of plan assets.

Substantially all pension benefit payments are made from assets of the pension plans. Using foreign currency exchange rates as of June 28, 2008 and expected future service, it is anticipated that the future benefit payments will be as follows: $245 in 2009, $242 in 2010, $252 in 2011, $264 in 2012, $272 in 2013 and $1,486 from 2014 to 2018.

At the present time, the corporation expects to contribute $196 of cash to its pension plans in 2009. During 2006, the corporation entered into an agreement to fully fund certain U.K. pension obligations by 2015. The anticipated 2009 contributions reflect the amounts agreed upon with the trustees of these U.K. plans. Subsequent to 2015, the corporation has agreed to keep the U.K. plans fully funded in accordance with certain local funding standards. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors including minimum funding requirements in the jurisdictions in which the company operates, the tax deductibility of amounts funded and arrangements made with the trustees of certain foreign plans.

Defined Contribution Plans  The corporation sponsors defined contribution plans, which cover certain salaried and hourly employees. The corporation’s cost is determined by the amount of contributions it makes to these plans. The amounts charged to expense for contributions made to these defined contribution plans totaled $43 in 2008, $38 in 2007 and $33 in 2006.

Multi-employer Plans  The corporation participates in multi-employer plans that provide defined benefits to certain employees covered by collective bargaining agreements. Such plans are usually administered by a board of trustees composed of the management of the participating companies and labor representatives. The net pension cost of these plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. These contributions were $48 in 2008, $47 in 2007 and $45 in 2006.

Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to the employees of the corporation. The future cost of these plans is dependent on a number of factors including the funded status of the plans and the ability of the other participating companies to meet ongoing funding obligations.

Note 20 – Postretirement Health-Care and Life-Insurance Plans

The corporation provides health-care and life-insurance benefits to certain retired employees and their covered dependents and beneficiaries. Generally, employees who have attained age 55 and have rendered 10 or more years of service are eligible for these postretirement benefits. Certain retirees are required to contribute to plans in order to maintain coverage.

On June 30, 2007, the corporation adopted certain of the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158).” See Note 2 – “Summary of Significant Accounting Policies” for additional information regarding the impact of the adoption of SFAS 158 and the related disclosure requirements.

Measurement Date and Assumptions  A March 31 measurement date is utilized to value plan assets and obligations for the corporation’s postretirement health-care and life-insurance plans.

The weighted average actuarial assumptions used in measuring the net periodic benefit cost and plan obligations for the three years ending June 28, 2008 were:

	2008		2007		2006
Net Periodic Benefit Cost
Discount rate	5.7	%	5.5	%	5.1	%
Plan Obligations
Discount rate	6.4		5.7		5.5
Health-care cost trend assumed for the next year	9.5		9.5		8.6
Rate to which the cost trend is assumed to decline	5.5		5.5		5.3
Year that rate reaches the ultimate trend rate	2015		2015		2010

In determining the discount rate, the corporation utilizes the yield on high-quality fixed-income investments that have an AA bond rating that matches the average duration of the plan obligations. Assumed health-care trend rates are based on historical experience and management’s expectations of future cost increases. A one-percentage-point change in assumed health-care cost trend rates would have the following effects:

	One Percentage Point Increase	One Percentage Point Decrease
Effect on total service and interest components	$  2	$  (2	)
Effect on postretirement benefit obligation	22	(16	)

70    Sara Lee Corporation and Subsidiaries

Net Periodic Benefit Cost and Funded Status  The components of the net periodic benefit cost and curtailment gains associated with continuing operations were as follows:

	2008			2007			2006
Components of Defined Benefit Net Periodic Cost
Service cost	$	8		$	8		$	8
Interest cost		16			13			14
Net amortization and deferral		(18	)		(22	)		(20	)
Net periodic benefit cost (income)	$	6		$	(1	)	$	2
Curtailment gains	$	–		$	(2	)	$	(7	)

The amount of the prior service credits, net actuarial loss and net initial asset that is expected to be amortized from accumulated other comprehensive income and reported as a component of net periodic benefit cost during 2009 is $23 of income, $3 of expense and $2 of income, respectively.

The funded status of postretirement health-care and life-insurance plans related to continuing operations at the respective year-ends were:

	2008			2007
Accumulated Postretirement Benefit Obligation
Beginning of year	$	279		$	227
Service cost		8			8
Interest cost		16			13
Net benefits paid		(19	)		(19	)
Actuarial (gain) loss		(39	)		52
Curtailment		–			(5	)
Foreign exchange		7			3
End of year		252			279
Fair value of plan assets		1			1
Funded status	$	(251	)	$	(278	)
Amounts Recognized on the
Consolidated Balance Sheets
Accrued liabilities	$	(17	)	$	(18	)
Other liabilities		(234	)		(260	)
Total liability recognized	$	(251	)	$	(278	)
Amounts Recognized in Accumulated
Other Comprehensive Loss
Unamortized prior service credit	$	(167	)	$	(186	)
Unamortized net actuarial loss		37			86
Unamortized net initial asset		(9	)		(11	)
Total	$	(139	)	$	(111	)

During 2006, the corporation amended several of its postretirement medical plans. These amendments eliminated coverage for certain groups and required retirees to bear a greater portion of the cost of the plans. As a result of these actions, the accumulated postretirement benefit obligation declined and the plans recognized a significant amount of unamortized prior service credits which are being amortized in subsequent years.

The increase in net periodic benefit costs in 2008 was driven by higher interest costs as a result of the higher accumulated benefit obligation at the start of the year, and a reduction in net amortization and deferral income due to an increase in amortization of unamortized net actuarial losses.

Expected Benefit Payments and Funding  Substantially all postretirement health-care and life-insurance benefit payments are made by the corporation. Using foreign exchange rates at June 30, 2008 and expected future service, it is anticipated that the future benefit payments that will be funded by the corporation will be as follows: $17 in 2009, $17 in 2010, $18 in 2011, $18 in 2012, $18 in 2013 and $90 from 2014 to 2018.

The Medicare Part D subsidies received by the corporation have not been material in any of the past three years.

Note 21 – Income Taxes

The provisions for income taxes on continuing operations computed by applying the U.S. statutory rate to income from continuing operations before taxes as reconciled to the actual provisions were:

	2008		2007		2006
Income from continuing operations before income taxes
United States	(347.5	)%	(44.4	)%	(255.3	)%
Foreign	447.5		144.4		355.3
	100.0	%	100.0	%	100.0	%
Tax expense at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Tax on remittance of foreign earnings	74.0		42.4		279.2
Finalization of tax reviews and audits	(59.9	)	(25.7	)	(175.2	)
Foreign taxes different than U.S. statutory rate	(30.0	)	(13.4	)	16.1
Valuation allowances	(12.2	)	6.1		(18.9	)
Benefit of foreign tax credits	(14.5	)	(7.2	)	(5.5	)
Contingent sale proceeds	(28.6	)	(9.8	)	(21.1	)
Tax rate changes	(0.1	)	(3.8	)	(2.4	)
Goodwill impairment	173.5		7.8		–
Tax provision adjustments	(8.5	)	3.8		12.5
Sale of capital assets	–		(35.5	)	(14.6	)
Other, net	(3.1	)	(2.3	)	(21.5	)
Taxes at effective worldwide tax rates	125.6	%	(2.6	)%	83.6	%

The tax expense related to continuing operations was $212 higher in 2008 than in 2007 despite a $269 decrease in income from continuing operations before income taxes. The tax expense was impacted by $790 of non-deductible impairment charges, a reduction in costs associated with the repatriation of earnings from certain foreign subsidiaries, the reduction in certain contingent tax obligations after statutes in multiple jurisdictions lapsed, and certain tax regulatory examinations and reviews were completed.

The tax expense related to continuing operations in 2007 was $169 lower in 2007 than in 2006 despite a $240 increase in income from continuing operations before income taxes. The decrease is primarily attributable to a reduction in costs associated with the repatriation of earnings from certain foreign subsidiaries and from the corporation recognizing certain tax benefits in 2007 from the sale of a subsidiary and the reduction in certain contingent tax obligations after statutes in multiple jurisdictions lapsed and certain tax regulatory examinations and reviews were completed.

Sara Lee Corporation and Subsidiaries    71

Notes to financial statements

Dollars in millions except per share data

The corporation recognized income tax expense of $194 in 2007 and $529 in 2006 related to certain earnings outside of the U.S. which were not deemed to be indefinitely reinvested. Hanesbrands historically generated a significant amount of cash from operations in the U.S. and this cash was used to service the corporation’s debt, as well as to pay dividends and support domestic capital requirements. As a result of the 2007 spin off of Hanesbrands and the disposition of a number of significant European operations, the level of cash necessary to finance the domestic operations and the cash considered to be permanently invested outside the U.S. was modified at the end of 2006. Aside from the items mentioned above, the corporation intends to continue to invest certain earnings outside of the U.S. and, therefore, has not recognized U.S. tax expense on these earnings. U.S. federal income tax and withholding tax on these foreign unremitted earnings would be approximately $425 to $450 for 2008 and $375 to $400 for 2007.

Current and deferred tax provisions (benefits) were:

				2008						2007					2006
	Current			Deferred			Current			Deferred			Current		Deferred
U.S.		$310			$(247	)		$  18			$(144	)		$  96		$ 256
Foreign		168			(32	)		123			4			29		(224	)
State		(10	)		12			(4	)		(8	)		23		(22	)
		$468			$(267	)		$137			$(148	)		$148		$   10

Cash payments for income taxes from continuing operations were $459 in 2008, $378 in 2007 and $121 in 2006.

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

	2008			2007
Deferred tax (assets)
Pension liability	$	(192	)	$	(246	)
Employee benefits		(97	)		(129	)
Unrealized foreign exchange		(187	)		(227	)
Nondeductible reserves		(193	)		(188	)
Net operating loss and other tax carryforwards		(384	)		(407	)
Other		(19	)		(57	)
Gross deferred tax (assets)		(1,072	)		(1,254	)
Less valuation allowances		283			374
Net deferred tax (assets)		(789	)		(880	)
Deferred tax liabilities
Property, plant and equipment	$	166		$	174
Intangibles		274			278
Unrepatriated earnings		125			418
Deferred tax liabilities		565			870
Total net deferred tax (assets) liabilities	$	(224	)	$	(10	)

Tax-effected net operating loss and other tax carryforwards expire as follows: $22 in 2009, $2 in 2010, $21 in 2011, $1 in 2012, $1 in 2014, $2 in 2018, $26 in 2021, $9 in 2022, and $3 in 2023. There is no expiration date on $259 of net operating loss carryforwards. There are state net operating losses of $38 that expire in 2009 through 2028.

Valuation allowances have been established on net operating losses and other deferred tax assets in the United Kingdom, Brazil and other foreign and U.S. state jurisdictions as a result of the corporation’s determination that there is less than a 50% likelihood that these assets will be realized. The pension deferred tax assets and valuation allowance amounts for 2007 have been revised from the prior year’s presentation in order to reflect both the deferred tax asset and full valuation allowance related to U.K. pension liabilities.

In June 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109” (FIN 48), which provides guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 addresses the determination of whether tax benefits, either permanent or temporary, should be recorded in the financial statements. For those tax benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon audit settlement.

The company adopted and applied FIN 48 on July 1, 2007 and recognized an increase to the retained earnings component of shareholder’s equity of $13.

Sara Lee Corporation and eligible subsidiaries file a consolidated U.S. federal income tax return. The company uses the asset-and-liability method required by SFAS 109 to provide income taxes on all transactions recorded in the consolidated financial statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax liability or asset for each temporary difference is determined based upon the tax rates that the company expects to be in effect when the underlying items of income and expense are realized. The company’s expense for income taxes includes the current and deferred portions of that expense. A valuation allowance is established to reduce deferred tax assets to the amount the company expects to realize.

Due to the inherent complexities arising from the nature of the company’s businesses, and from conducting business and being taxed in a substantial number of jurisdictions, significant judgments and estimates are required to be made. Agreement of tax liabilities between Sara Lee Corporation and the many tax jurisdictions in which the company files tax returns may not be finalized for several years. Thus, the company’s final tax-related assets and liabilities may ultimately be different from those currently reported.

72    Sara Lee Corporation and Subsidiaries

Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $556 and $562 as of June 28, 2008 and June 30, 2007. At this time the corporation estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by approximately $10 – $30 in the next 12 months from a variety of uncertain tax positions as a result of the completion of various worldwide tax audits currently in process and the expiration of the statute of limitations in several jurisdictions.

The company recognizes interest and penalties related to unrecognized tax benefits in tax expense. As of June 28, 2008 and June 30, 2007, the corporation had accrued interest and accrued penalties of approximately $96 million.

As the result of the completion of tax audits and the expiration of statutes of limitations in France, Morocco, the Netherlands, the Philippines and various state and local jurisdictions, there was a decrease in the gross liability for uncertain tax positions of $114 for 12 months ended June 28, 2008. Of this amount $58 relates to the completion of tax audits and $56 relates to the expiration of statutes. This decrease was offset by $102 of increases to reserves for uncertain tax positions and $50 of unfavorable foreign currency exchange impacts. As a result, the net decrease in the gross liabilities for uncertain tax positions was $2, resulting in an ending balance of $617 as of June 28, 2008.

The corporation’s tax returns are routinely audited by federal, state and foreign tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service (IRS) has completed examinations of the company’s U.S. income tax returns through July 3, 2004. Fiscal years remaining open to examination in the Netherlands include 2003 and forward. Other foreign jurisdictions remain open to audits ranging from 1999 to 2007. With few exceptions, the company is no longer subject to state and local income tax examinations by tax authorities for years before June 28, 2003.

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended June 28, 2008.

	2008
Unrecognized Tax Benefits
Balance at July 1, 2007	$	619
Increases based on tax positions related to the current period		96
Increases based on tax positions related to prior periods		6
Decreases based on tax positions related to prior periods		(40	)
Decreases related to settlements with the taxing authorities		(58	)
Decreases related to a lapse of applicable statute of limitations		(56	)
Foreign currency translation adjustment		50
Balance at June 28, 2008	$	617

Note 22 – Business Segment Information

The following are the corporation’s six business segments and the types of products and services from which each reportable segment derives its revenues.

•    North American Retail Meats sells a variety of meat products to retail customers in North America, including hot dogs and corn dogs, breakfast sausages and sandwiches, smoked and dinner sausages, premium deli and luncheon meats, bacon and cooked hams.

•    North American Retail Bakery sells a wide variety of fresh and frozen baked products and specialty items to retail customers in North America and includes the corporation’s U.S. Senseo retail coffee business. Such products include bread, buns, bagels, rolls, muffins, specialty bread, frozen pies, cakes, cheesecakes and other desserts.

•    Foodservice sells meat, bakery and coffee products to the following customers in North America: broad-line foodservice distributors, restaurants, hospitals and other large institutions.

•    International Beverage sells coffee and tea products to retail and foodservice customers in certain markets around the world, including Europe, Australia and Brazil.

•    International Bakery sells a variety of bakery and dough products to retail and foodservice customers in Europe and Australia.

•    Household and Body Care produces and sells products in four primary product categories: body care, air care, shoe care and insecticides.

The corporation’s management uses operating segment income, which is defined as operating income before general corporate expenses and amortization of trademarks and customer relationship intangibles, to evaluate segment performance and allocate resources. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments. Interest and other debt expense, as well as income tax expense, are centrally managed, and accordingly, such items are not presented by segment since they are not included in the measure of segment profitability reviewed by management. The accounting policies of the segments are the same as those described in Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Sara Lee Corporation and Subsidiaries    73

Notes to financial statements

Dollars in millions except per share data

	2008			2007			2006
Sales1,2
North American Retail Meats	$	2,424		$	2,355		$	2,259
North American Retail Bakery		2,183			1,998			1,871
Foodservice		2,221			2,197			2,179
International Beverage		3,215			2,617			2,320
International Bakery		929			799			742
Household and Body Care		2,291			2,042			1,827
		13,263			12,008			11,198
Intersegment		(51	)		(25	)		(23	)
Total	$	13,212		$	11,983		$	11,175
Operating Segment Income (Loss)3,4,5
North American Retail Meats	$	175		$	94		$	136
North American Retail Bakery		55			(2	)		(197	)
Foodservice		(295	)		139			116
International Beverage		547			317			388
International Bakery		(346	)		38			20
Household and Body Care		315			272			216
Total operating segment income		451			858			679
Amortization of trademarks and other intangibles5		(67	)		(64	)		(58	)
General corporate expenses3,4,5		(254	)		(352	)		(319	)
Contingent sale proceeds		130			120			114
Total operating income		260			562			416
Net interest expense		(100	)		(133	)		(227	)
Income from continuing operations before income taxes	$	160		$	429		$	189

1 Includes sales between segments. Such sales are at transfer prices that are equivalent to market value.    

2 Revenues from one customer represent approximately $1.3 billion, $1.3 billion and $1.2 billion of the corporation’s consolidated revenues in 2008, 2007 and 2006, respectively. Each of the corporation’s business segments sells to this customer, except International Bakery.

3 2008 includes amounts recognized for exit activities, asset and business dispositions, impairment charges, transformation expenses and accelerated depreciation in the Consolidated Statements of Income that impacted operating segment income by: North American Retail Meats – a charge of $33; North American Retail Bakery – a charge of $4; Foodservice – a charge of $436; International Beverage – a charge of $15; International Bakery – a charge of $409; Household and Body Care – a charge of $7; Corporate Office – a charge of $37.

4 2007 includes amounts recognized for exit activities, asset and business dispositions, impairment charges, transformation expenses and accelerated depreciation in the Consolidated Statements of Income that impacted operating segment income by: North American Retail Meats – a charge of $112; North American Retail Bakery – a charge of $48; Foodservice – a charge of $11; International Beverage – a charge of $139; International Bakery – a charge of $18; Household and Body Care – a charge of $17; Corporate Office – a charge of $72.

5 2006 includes amounts recognized for exit activities, asset and business dispositions, impairment charges, transformation expenses and accelerated depreciation in the Consolidated Statements of Income that impacted operating segment income by: North American Retail Meats – a charge of $48; North American Retail Bakery – a charge of $208; Foodservice – a charge of $21; International Beverage – a charge of $16; International Bakery – a charge of $44; Household and Body Care – a charge of $28; Corporate Office – a charge of $103.

	2008		2007		2006
Assets
North American Retail Meats	$	975	$	929	$	879
North American Retail Bakery		1,172		1,129		1,149
Foodservice		1,138		1,608		1,587
International Beverage		2,637		2,886		2,219
International Bakery		1,153		1,485		1,352
Household and Body Care		2,664		2,880		2,406
		9,739		10,917		9,592
Net assets held for sale		72		2		1
Discontinued operations		–		185		3,969
Other1		1,019		651		1,098
Total assets	$	10,830	$	11,755	$	14,660
Depreciation
North American Retail Meats	$	81	$	102	$	90
North American Retail Bakery		76		76		80
Foodservice		67		66		72
International Beverage		88		72		67
International Bakery		28		24		25
Household and Body Care		34		35		42
		374		375		376
Discontinued operations		5		25		152
Other		24		20		13
Total depreciation	$	403	$	420	$	541
Additions to Long-Lived Assets
North American Retail Meats	$	114	$	194	$	104
North American Retail Bakery		114		84		147
Foodservice		68		88		71
International Beverage		142		127		113
International Bakery		26		28		24
Household and Body Care		46		74		44
		510		595		503
Other		24		51		25
Total additions to long-lived assets	$	534	$	646	$	528

1 Principally trade receivables of the U.S. operations that are centrally managed, cash and cash equivalents, certain corporate fixed assets, deferred tax assets and certain other noncurrent assets.

Note 23 – Geographic Area Information

	United States		Spain		Netherlands	Other		Total
2008
Sales		$6,860		$  995	$1,267		$4,090		$13,212
Long-lived assets		3,026		777	428		1,555		5,786
2007
Sales		$6,602		$  871	$1,077		$3,433		$11,983
Long-lived assets		3,409		1,004	346		1,351		6,110
2006
Sales		$6,362		$  793	$1,010		$3,010		$11,175
Long-lived assets		3,342		990	341		1,398		6,071

74    Sara Lee Corporation and Subsidiaries

Note 24 – Quarterly Financial Data (Unaudited)

Quarter	First	Second	Third	Fourth
2008
Continuing operations1
Net sales	$3,054	$3,408	$3,243	$3,507
Gross profit	1,157	1,292	1,259	1,350
Income (loss)	200	182	234	(657	)
Income (loss) per common share
Basic	0.28	0.25	0.33	(0.93	)
Diluted	0.28	0.25	0.33	(0.93	)
Net income (loss)2	200	182	211	(672	)
Net income (loss) per common share
Basic2	0.28	0.25	0.30	(0.95	)
Diluted2	0.28	0.25	0.30	(0.95	)
Cash dividends declared	–	0.1050	0.1050	0.210
Market price
High	17.54	16.95	16.22	15.00
Low	14.75	15.67	12.32	12.15
Close	16.69	16.23	13.66	12.18

1 The results have been reclassified to reflect the Mexican Meats business as a discontinued operation.

2 The quarterly financial data shown above includes the impact of significant items. Significant items include exit activities, asset and business dispositions, impairment charges, transformation charges, accelerated depreciation, and curtailment gains. Further details of these items are included in the Financial Review on page 13. The impact of these items is shown below where negative amounts are charges, and positive amounts are income.

Quarter	First		Second	Third	Fourth
2008
Impact of significant items on income (loss) from continuing operations	$(1	)	$24	$67	$(855	)
EPS impact
Basic	–		0.03	0.10	(1.21	)
Diluted	–		0.03	0.10	(1.21	)
Impact of significant items on net income (loss)	(1	)	24	42	(870	)
EPS impact
Basic	–		0.03	0.06	(1.23	)
Diluted	–		0.03	0.06	(1.23	)

Quarter	First		Second			Third			Fourth
2007
Continuing operations1
Net sales		$2,817		$3,105			$2,935			$3,126
Gross profit		1,066		1,186			1,157			1,204
Income (loss)		257		(48	)		113			118
Income (loss) per common share
Basic		0.34		(0.07	)		0.15			0.16
Diluted		0.34		(0.07	)		0.15			0.16
Net income (loss)2		333		(62	)		116			117
Net income (loss) per common share
Basic2		0.44		(0.08	)		0.16			0.16
Diluted2		0.44		(0.08	)		0.16			0.16
Cash dividends declared		0.1000		0.1000			0.1000			0.2000
Market price
High		17.11		17.23			17.49			18.15
Low		14.08		16.00			16.00			16.33
Close		16.07		17.03			16.92			17.40
Quarter	First		Second			Third			Fourth
2007
Impact of significant items on income (loss) from continuing operations		$132		$(212	)		$(5	)		$(5	)
EPS impact
Basic		0.17		(0.29	)		(0.01	)		(0.01	)
Diluted		0.17		(0.29	)		(0.01	)		(0.01	)
Impact of significant items on net income (loss)		148		(217	)		(2	)		(4	)
EPS impact
Basic		0.20		(0.29	)		0.00			(0.01	)
Diluted		0.19		(0.29	)		0.00			(0.01	)

Note 25 – Subsequent Events

Contingent Sale Proceeds  In July 2008, the corporation received a payment of 95 million euros, as the contingencies had passed related to the 2009 annual contingent payment from the sale of the corporation’s cut tobacco business. Based upon exchange rates in effect on the date of receipt, the payment was equivalent to $150 and will be recognized in the first quarter of 2009. Further details regarding these contingent payments from the sale of the corporation’s cut tobacco business are contained in Note 16 to the Consolidated Financial Statements, “Contingencies.”

Sara Lee Corporation and Subsidiaries    75

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Sara Lee Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, common stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Sara Lee Corporation and its subsidiaries at June 28, 2008 and June 30, 2007, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the

assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the Consolidated Financial Statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans in fiscal 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Chicago, Illinois

August 25, 2008

76    Sara Lee Corporation and Subsidiaries

Management’s Report

Management’s Report on Internal Control

Over Financial Reporting

Under Section 404 of The Sarbanes-Oxley Act of 2002, the corporation is required to assess the effectiveness of its internal control over financial reporting as of June 28, 2008 and report, based on that assessment, whether the corporation’s internal controls over financial reporting are effective.

Management of the corporation is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a-15f and 15d-15f under the Securities Exchange Act of 1934. The corporation’s internal control over reporting is designed to provide reasonable assurance regarding the reliability of the corporation’s financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The corporation’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the corporation’s assets that could have a material effect on the financial statements.

Internal control over reporting, because of its inherent limitations, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The corporation’s management has assessed the effectiveness of its internal control over financial reporting as of June 28, 2008. In making this assessment, the corporation used the criteria established in Internal Control – Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission. These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring. The corporation’s assessment included documenting, evaluating and testing of the design and operating effectiveness of its internal control over financial reporting. Management of the corporation reviewed the results of its assessment with the Audit Committee of our Board of Directors.

Based on the corporation’s assessment, management has concluded that, as of June 28, 2008, the corporation’s internal control over financial reporting was effective.

The effectiveness of the corporation’s internal control over financial reporting as of June 28, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report that appears herein.

Brenda C. Barnes

Chairman and Chief Executive Officer

L.M. (Theo) de Kool

Chief Financial and Administrative Officer

Sara Lee Corporation and Subsidiaries    77

EX-21

Exhibit 21

Sara Lee Corporation—Subsidiaries

Following is a list of active subsidiaries of the registrant. Subsidiaries that are inactive or exist solely to protect business names but do not conduct business have been omitted. The omitted subsidiaries, considered in the aggregate, do not constitute a significant subsidiary.

NAME OF SUBSIDIARY	PLACE OF FORMATION
UNITED STATES SUBSIDIARIES
BRYAN FOODS, INC.	Delaware
EGR CALIFORNIA REGION SUPPORT SERVICES, INC.	California
COURTAULDS TEXTILES U.S., INC.	Delaware
EARTHGRAINS BAKING COMPANIES, INC.	Delaware
EARTHGRAINS INTERNATIONAL HOLDINGS, INC.	Delaware
EGBERT LLC	Delaware
EGR INTERNATIONAL, INC.	Delaware
EGR RESOURCES, INC.	Delaware
EGR TEXAS GENERAL PARTNER, LLC	Delaware
GALLO SALAME, INC.	California
INTERNATIONAL AFFILIATES & INVESTMENT LLC	Delaware
SARA LEE—KIWI HOLDINGS, INC.	Delaware
SARA LEE BAKERY GROUP, INC.	Delaware
SARA LEE CHAMPION EUROPE, INC.	Delaware
SARA LEE EQUITY, L.L.C.	Delaware
SARA LEE FOODS, LLC	Delaware
SARA LEE FRENCH FUNDING COMPANY L.L.C	Delaware
SARA LEE FRENCH INVESTMENT COMPANY, L.L.C.	Delaware
SARA LEE GLOBAL FINANCE, L.L.C.	Delaware
SARA LEE INTERNATIONAL FINANCE CORPORATION	Delaware
SARA LEE INTERNATIONAL FUNDING COMPANY L.L.C.	Delaware
SARA LEE INTERNATIONAL LLC	Delaware
Sara Lee Mexicana Holdings Investment, L.L.C.	Delaware
SARA LEE/DE US LLC	Delaware
SARAMAR, L.L.C.	Delaware
SOUTHERN FAMILY FOODS, L.L.C.	Delaware
WS REAL ESTATE, LLC	Delaware
EARTHGRAINS REFRIGERATED DOUGH PRODCUTS, L.P.	Texas
FOREIGN SUBSIDIARIES
SARA LEE AUSTRALIA	Australia
SARA LEE AUSTRALIA & NZ PTY. LTD.	Australia
SARA LEE FOOD & BEVERAGE (AUSTRALIA) PTY. LTD.	Australia
SARA LEE FOOD HOLDINGS PTY. LTD.	Australia
SARA LEE FOODSERVICE (AUSTRALIA) PTY. LTD.	Australia

NAME OF SUBSIDIARY	PLACE OF FORMATION
SARA LEE GROUP (AUSTRALIA) PTY LTD	Australia
SARA LEE HOLDINGS (AUSTRALIA) PTY. LTD.	Australia
SARA LEE HOUSEHOLD & BODY CARE (AUSTRALIA) PTY LTD.	Australia
SL/DE AUSTRALIA PTY LTD	Australia
SL/DE Holdings (Australia) Pty. Ltd.	Australia
SANTORA KAFFEE SYSTEME GmbH	Austria
SARA LEE HOUSEHOLD AND BODY CARE OSTERREICH GMBH	Austria
DOUWE EGBERTS COFFEE SYSTEMS N.V.	Belgium
INTRADAL PRODUKTIE BELGIUM NV	Belgium
JACQMOTTE N.V.	Belgium
SARA LEE COFFEE & TEA BELGIUM N.V./S.A.	Belgium
SARA LEE FINANCE BELGIUM B.V.B.A.	Belgium
SARA LEE HOUSEHOLD AND BODY CARE BELGIUM N.V.	Belgium
SARA LEE/DE IMMO N.V.	Belgium
ZWARTE KAT B.V.B.A.	Belgium
CONOPLEX INSURANCE COMPANY LTD.	Bermuda
Sara Lee Cafes Do Brasil Ltda.	Brazil
Kiwi Canada, a division of Sara Lee of Canada Limited Partnership	Canada
Sara Lee Foodservice Ltd.	Canada
TANA CANADA INCORPORATED/TANA CANADA INCORPOREE.	Canada
FUJIAN SARA LEE CONSUMER PRODUCTS CO. LTD.	China
KIWI BRANDS TIANJIN CO. LTD.	China
NUTRI-METICS INTERNATIONAL (GUANGZHOU) LTD.	China
SARA LEE/DE (CYPRUS) LIMITED	Cyprus
SARA LEE/DE INVESTMENTS (CYPRUS) LIMITED	Cyprus
BALIRNY DOUWE EGBERTS A.S.	Czech Republic
A/S BLUMOLLER	Denmark
MERRILD KAFFE A/S	Denmark
Sara Lee Intimates Scandinavia A/S	Denmark
SARA LEE/DE NORDIC FINANCE K/S	Denmark
Douwe Egberts Coffee Systems Limited	England
Import Foods Sara Lee Ltd	England
Kiwi (EA) Limited	England
Sara Lee (UK Investments) Limited	England
Sara Lee Acquisition Limited	England
Sara Lee Bakery UK Limited	England
Sara Lee Coffee & Tea UK Limited	England
Sara Lee Investments	England
Sara Lee UK Finance Limited	England
Sara Lee UK Holdings Limited	England
Sara Lee/DE Holdings Limited	England
Zambesi Finance	England

2

NAME OF SUBSIDIARY	PLACE OF FORMATION
Courtaulds Textiles Holding S.A.S.	France
DA+ S.A.S.	France
DEF FINANCE S.N.C.	France
DEF HOLDING S.N.C.	France
EuroDough, S.A.S.	France
Euro-Raulet, S.A.S.	France
EuroRol, S.A.S.	France
EuroVita, S.A.S.	France
KIWI HOLDINGS S.N.C.	France
MAISON DU CAFÉ COFFEE SYSTEMS FRANCE S.N.C.	France
SARA LEE COFFEE & TEA FRANCE S.N.C.	France
Sara Lee France Finance S.A.S.	France
Sara Lee France S.N.C.	France
SARA LEE HOUSEHOLD AND BODY CARE FRANCE S.N.C.	France
Sara Lee/DE France S.A.S.	France
Allsohl GmbH	Germany
BAMA INTERNATIONAL, a branch of Sara Lee Deutschland GmbH	Germany
COFFENCO INTERNATIONAL GMBH	Germany
DEFACTO DEUTSCHLAND GMBH	Germany
FAIRWIND GMBH	Germany
INTEX DESSOUS GMBH, a branch of Sara Lee Germany GmbH	Germany
ISCAL GmbH	Germany
Jensen & Graf Kaffeespezialitaten GmbH	Germany
Justepas GmbH	Germany
Meltonian GmbH	Germany
SARA LEE COFFEE & TEA GERMANY GmbH	Germany
SARA LEE DEUTSCHLAND GmbH	Germany
SARA LEE FOODS GERMANY GMBH	Germany
Sara Lee Germany GmbH	Germany
SARA LEE HOUSEHOLD & BODY CARE DEUTSCHLAND	Germany
Sara Lee Household & Body Care, a branch of Sara Lee Deutschland GmbH	Germany
SARA LEE/DE HOLDING GMBH	Germany
Yourstep GmbH	Germany
SARA LEE COFFEE AND TEA HELLAS S.A.	Greece
SARA LEE HELLAS A.E.	Greece
Sara Lee Holdings Hellas E.P.E.	Greece
SARA LEE HONG KONG LTD.	Hong Kong
SARA LEE HUNGARY KAVE ES TEA KERESKEDELMI KFT.	Hungary
SARA LEE KAVE ES TEA ELELMIEZER FELDOLGOZO, CSOMAGOLO, KERESKEDELMI RT	Hungary
GODREJ SARA LEE LTD.	India
SARA LEE HOUSEHOLD AND BODY CARE INDIA PVT. LTD.	India

3

NAME OF SUBSIDIARY	PLACE OF FORMATION
P.T. PREMIER VENTURES INDONESIA	Indonesia
P.T. SARA LEE BODY CARE INDONESIA TBK	Indonesia
P.T. SARA LEE HOUSEHOLD INDONESIA	Indonesia
P.T. SARA LEE INDONESIA	Indonesia
P.T. SARA LEE TRADING INDONESIA	Indonesia
P.T. SURIA YOZANI INDONESIA	Indonesia
Linnyshaw Insurance Limited	Isle Of Man
DIM, a division of Sara Lee Branded Apparel Italia SpA	Italy
EURODOUGH ITALIA SRL	Italy
SARA LEE HOUSEHOLD AND BODY CARE ITALY S.p.A.	Italy
SARA LEE HOUSEHOLD AND BODY CARE KENYA LTD.	Kenya
SARA LEE BALTIC, S.I.A.	Latvia
AGEPAL SARL	Luxembourg
SARA LEE COFFEE LUXEMBOURG S.a.r.L.	Luxembourg
SARA LEE FINANCE LUXEMBOURG SARL	Luxembourg
SARA LEE HOUSEHOLD AND BODY CARE (MALAWI) LTD.	Malawi
HOMESAFE PRODUCTS (M) SDN. BHD.	Malaysia
KIWI MANUFACTURING SDN. BHD.	Malaysia
SARA LEE MALAYSIA SDN. BHD.	Malaysia
SARA LEE SOUTH EAST ASIA SDN BHD	Malaysia
SARA LEE MAURITIUS HOLDING PTE LTD.	Mauritius
CONGELACION Y CONSERVACION DE ALIMENTOS, S. de R.L. de C.V.	Mexico
DECS GLOBAL NETWORK MEXICANA, S.A. DE C.V.	Mexico
DECS INTERNATIONAL MEXICO, S.A. DE C.V.	Mexico
Mexican Traders S.A. de C.V.	Mexico
SARA LEE HOUSEHOLD AND BODY CARE DE MEXICO S. DE R.L. DE C.V.	Mexico
SARA LEE MEXICAN FUNDING, S. de R.L. de C.V.	Mexico
AVORY SHLAIN COSMETICS (NAMIBIA) PTY. LTD.	Namibia
BARO BESTUURSMAATSCHAPPIJ B.V.	Netherlands
BEHEERSMAATSCHAPPIJ BEVEM B.V.	Netherlands
BETKE HOLLANDSCHE CACAPRODUCTEN EXPORT MAATSCHAPPIJ B.V.	Netherlands
BIOTEX BV	Netherlands
BUTTRESS B.V.	Netherlands
COOPERATIEVE DOUWE EGBERTS FINANCE U.A.	Netherlands
COOPERATIEVE SARA LEE HOUSEHOLD AND BODY CARE FINANCE U.A.	Netherlands
DECAF B.V.	Netherlands
DEFACTO B.V.	Netherlands
DOUWE EGBERTS BELEGGINGSMAATSCHAPPIJ B.V.	Netherlands
DOUWE EGBERTS COFFEE SYSTEMS GLOBAL NETWORK B.V.	Netherlands
DOUWE EGBERTS COFFEE SYSTEMS INTERNATIONAL B.V.	Netherlands
DOUWE EGBERTS COFFEE SYSTEMS NEDERLAND B.V.	Netherlands
DOUWE EGBERTS COFFEE TREATMENT & SUPPLY B.V.	Netherlands

4

NAME OF SUBSIDIARY	PLACE OF FORMATION
DOUWE EGBERTS KOFFIE & KADO BV	Netherlands
DOUWE EGBERTS NEDERLAND B.V.	Netherlands
DOUWE EGBERTS RHO BV	Netherlands
DOUWE EGBERTS SIGMA BV	Netherlands
DOUWE EGBERTS VAN NELLE PARTICIPATIONS B.V.	Netherlands
Earthgrains European Holdings, C.V.	Netherlands
Earthgrains European Investments, B.V.	Netherlands
FIHOMIJ B.V.	Netherlands
I. TAS EZN B.V.	Netherlands
INTEC B.V.	Netherlands
KIWI EUROPEAN HOLDINGS B.V.	Netherlands
KONINKLIJKE DOUWE EGBERTS B.V.	Netherlands
LODA B.V.	Netherlands
MARANDER ASSURANTIE COMPAGNIE B.V.	Netherlands
SARA LEE COFFEE & TEA ASIA B.V.	Netherlands
SARA LEE EXPORT B.V.	Netherlands
SARA LEE FOODS EUROPE B.V.	Netherlands
SARA LEE FOODS PARTICIPATIES B.V.	Netherlands
SARA LEE HOUSEHOLD & BODY CARE RESEARCH, a branch of Sara Lee Household & Body Care International B.V.	Netherlands
Sara Lee Household and Body Care International B.V.	Netherlands
SARA LEE HOUSEHOLD AND BODY CARE NEDERLAND BV	Netherlands
Sara Lee International BV	Netherlands
SARA LEE INTERNATIONAL HOLDINGS B.V.	Netherlands
Sara Lee Intimates Nederland B.V.	Netherlands
SARA LEE INVESTMENTS GREECE B.V.	Netherlands
SARA LEE/DE FINANCE B.V.	Netherlands
SARA LEE/DE INVESTMENTS B.V.	Netherlands
SARA LEE/DE N.V.	Netherlands
SARAMAR EUROPE B.V.	Netherlands
ZIJLSTRA’S MEUBELFABRIEK B.V.	Netherlands
CAITLIN FINANCIAL CORPORATION N.V.	Netherlands Antilles
CODEF FINANCIAL SERVICES CV	Netherlands Antilles
COFICO N.V.	Netherlands Antilles
DEFICO N.V.	Netherlands Antilles
SARA LEE/DE ANTILLES N.V.	Netherlands Antilles
SARA LEE/DE FINANCE (ANTILLES) N.V.	Netherlands Antilles
SARA LEE/DE FINANCE S.E.P.	Netherlands Antilles
SARA LEE/DE INVESTMENTS (ANTILLES) NV	Netherlands Antilles
SARA LEE/DE TRADING (Antilles) N.V.	Netherlands Antilles
SARA LEE (NZ) LTD.	New Zealand
SARA LEE FOODSERVICE (NZ) LTD.	New Zealand

5

NAME OF SUBSIDIARY	PLACE OF FORMATION
Sara Lee Group (N.Z.) Ltd.	New Zealand
SARA LEE HOLDINGS (NZ) LTD.	New Zealand
Kiwi (Nigeria) Limited	Nigeria
KAFFEHUSET FRIELE A/S	Norway
SARA LEE HOUSEHOLD & BODY CARE NORGE AS	Norway
SARA LEE CANADA HOLDINGS LIMITED	Nova Scotia
PERVEZ INDUSTRIAL CORPORATION PTE. LTD.	Pakistan
Cavite Horizons Holding Inc.	Philippines
HOUSEHOLD AND BODY CARE, a division of Sara Lee Philippines Inc.	Philippines
METROLAB INDUSTRIES, INC.	Philippines
SARA LEE PHILIPPINES INC.	Philippines
BAMA Polska Sp. z.o.o.	Poland
PRZEDIEBIORSTWO PRIMA SA	Poland
SARA LEE HOUSEHOLD AND BODY CARE POLAND Sp.z.o.o.	Poland
BIMBO-PRODUCTOS ALIMENTARES SOCOEDADE UNIPESSOAL, LIMITADA	Portugal
DOUWE EGBERTS PORTUGAL - PRODUTOS ALIMENTARES LDA.	Portugal
SARA LEE HOUSEHOLD AND BODY CARE PORTUGAL, PRODUTOS DE CONSUMO Lda	Portugal
Sara Lee/DE Espana, Portuguese Branch	Portugal
SARA LEE EXPORT B.V. (Rep. Office)	Russian Federation
Sara Lee Rus LLC	Russian Federation
SARA LEE SINGAPORE PTE LTD.	Singapore
SARA LEE SLOVAKIA, s.r.o.	Slovak Republic
SARA LEE (SOUTH AFRICA) PTY LTD.	South Africa
SARA LEE HOUSEHOLD AND BODY CARE, a division of Sara Lee (South Africa) Pty Ltd.	South Africa
South African Gossard (Proprietary) Limited	South Africa
Bimbo, S.A.	Spain
Bimbo-Martinez Comercial, S.L.	Spain
Catdes, S.A.	Spain
Pimad, S.A.	Spain
SARA LEE BAKERY IBERIA CORPORATIVA, S.L.	Spain
SARA LEE BAKERY IBERIAN INVESTMENTS, S.L.	Spain
Sara Lee Finance Spain S.L.	Spain
Sara Lee Household and Body Care Espana, S.L.	Spain
Sara Lee Iberia, SL	Spain
SARA LEE SOUTHERN EUROPE, S.L.	Spain
GODREJ SARA LEE LANKA PVT. LTD.	Sri Lanka
SARA LEE HOUSEHOLD & BODY CARE LANKA PVT. LTD.	Sri Lanka
MERRILD COFFEE SYSTEMS SVERIGE AB	Sweden
OPUS HEALTH CARE AB	Sweden
SARA LEE HOUSEHOLD & BODY CARE SVERIGE AB	Sweden

6

NAME OF SUBSIDIARY	PLACE OF FORMATION
Sara Lee Intimates Scandinavia AB	Sweden
DECOTRADE AG	Switzerland
PRODUCT SUPPLIERS A.G.	Switzerland
SARA LEE HOUSEHOLD AND BODY CARE SCHWEIZ AG	Switzerland
TELEC A.G.	Switzerland
KIWI (THAILAND) LTD	Thailand
SARA LEE (THAILAND) LTD.	Thailand
SARA LEE COFFEE & TEA (THAILAND) LTD.	Thailand
Gromtex S.A.R.L.	Tunisia
KRS S.A.R.L.	Tunisia
P.T.X. Tunisie S.A.R.L.	Tunisia
SARA LEE HOUSEHOLD AND BODY CARE (TURKEY), REP. OFFICE	Turkey
SARA LEE HOUSEHOLD & BODY CARE UGANDA LTD.	Uganda
Throgmorton UK Limited	United Kingdom
SARA LEE KNIT PRODUCTS, Venezuelan branch of Sara Lee Colombia S.A.	Venezuela
SARA LEE HOUSEHOLD AND BODY CARE ZAMBIA LTD.	Zambia
KIWI BRANDS (PRIVATE) LIMITED	Zimbabwe
SARA LEE HOUSEHOLD AND BODY CARE ZIMBABWE PTE LTD.	Zimbabwe

7

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-35760, 33-63717, 333-17987, 333-41427, 333-71839, 333-91345, 333-67442, 333-68958, 333-107692, 333-112615) and Form S-3 (Nos. 333-83776, 333-18385, 33-60071, 333-71797, 333-96173, 333-67512) of Sara Lee Corporation of our report dated August 25, 2008 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated August 25, 2008 relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

August 25, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brenda C. Barnes, certify that:

1. I have reviewed this annual report on Form 10-K of Sara Lee Corporation for the fiscal year ended June 28, 2008.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 27, 2008

/s/ Brenda C. Barnes,

Chairman and Chief Executive Officer

2

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, L.M. (Theo) de Kool, certify that:

1. I have reviewed this annual report on Form 10-K of Sara Lee Corporation for the fiscal year ended June 28, 2008.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 27, 2008

/s/ L.M. (Theo) de Kool,

Executive Vice President and Chief Financial and Administrative Officer

2

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Sara Lee Corporation (the “Company”) for the fiscal year ended June 28, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brenda C. Barnes, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: August 27, 2008

/s/ Brenda C. Barnes,

Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Sara Lee Corporation (the “Company”) for the fiscal year ended June 28, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L.M. (Theo) de Kool, Executive Vice President and Chief Financial and Administrative Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: August 27, 2008

/s/ L.M. (Theo) de Kool,

Executive Vice President and Chief Financial and Administrative Officer