10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-3344

Sara Lee Corporation

(Exact name of registrant as specified in its charter)

Maryland	36-2089049
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3500 Lacey Road, Downers Grove, Illinois 60515

(Address of principal executive offices)

(Zip Code)

(630) 598-6000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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 the definitions of “accelerated filer, large accelerated filer, smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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  ¨    No  x

On October 2, 2010, the Registrant had 639,266,211 outstanding shares of common stock $.01 par value, which is the Registrant’s only class of common stock.

SARA LEE CORPORATION AND SUBSIDIARIES

INDEX

PART I	–
ITEM 1	–	FINANCIAL STATEMENTS (Unaudited)
		Condensed Consolidated Balance Sheets - At October 2, 2010 and July 3, 2010	3
		Consolidated Statements of Income - For the Quarters ended October 2, 2010 and September 26, 2009	4
		Condensed Consolidated Statements of Equity - For the period June 27, 2009 to October 2, 2010	5
		Consolidated Statements of Cash Flows - For the Quarters ended October 2, 2010 and September 26, 2009	6
		Notes to Consolidated Financial Statements	7
ITEM 2	–	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 4	–	CONTROLS AND PROCEDURES	47
PART II	–
ITEM 1A	–	RISK FACTORS	48
ITEM 2(c)	–	REPURCHASES OF EQUITY SECURITES BY THE ISSUER	48
ITEM 6	–	EXHIBITS	49
SIGNATURE			50

2

SARA LEE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets at October 2, 2010 and July 3, 2010

(Unaudited)

In millions	October 2, 2010		July 3, 2010
Assets
Cash and equivalents	$	1,125	$	955
Trade accounts receivable, less allowances		1,229		1,187
Inventories
Finished goods		497		406
Work in process		35		31
Materials and supplies		408		309
		940		746
Current deferred income taxes		225		262
Other current assets		332		370
Assets held for sale		270		260
Total current assets		4,121		3,780
Property, net of accumulated depreciation of $2,945 and $2,822, respectively		2,100		2,070
Trademarks and other identifiable intangibles, net		501		504
Goodwill		1,297		1,261
Deferred income taxes		243		225
Other noncurrent assets		174		164
Noncurrent assets held for sale		818		832
	$	9,254	$	8,836
Liabilities and Equity
Notes payable	$	111	$	47
Accounts payable		979		1,005
Income taxes payable and current deferred taxes		14		8
Other accrued liabilities		1,254		1,255
Current maturities of long-term debt		473		16
Liabilities held for sale		291		253
Total current liabilities		3,122		2,584
Long-term debt		2,432		2,718
Pension obligation		513		530
Deferred income taxes		617		548
Other liabilities		1,052		931
Noncurrent liabilities held for sale		3		10
Equity
Sara Lee common stockholders’ equity		1,486		1,487
Noncontrolling interest		29		28
Total Equity		1,515		1,515
	$	9,254	$	8,836

See accompanying Notes to Consolidated Financial Statements.

3

SARA LEE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

For the Quarters ended October 2, 2010 and September 26, 2009

(Unaudited)

In millions, except per share data	Oct. 2, 2010			Sept. 26, 2009
Continuing Operations
Net sales	$	2,575		$	2,588
Cost of sales		1,663			1,619
Selling, general and administrative expenses		738			763
Net charges for exit activities, asset and business dispositions		5			13
Contingent sale proceeds		—			(133	)
Operating income		169			326
Interest expense		36			35
Interest income		(6	)		(6	)
Debt extinguishment costs		30			—
Income from continuing operations before income taxes		109			297
Income tax expense		41			106
Income from continuing operations		68			191
Discontinued operations
Income from discontinued operations net of tax expense (benefit) of $21 and $(31)		37			96
Gain on sale of discontinued operations, net of tax expense of $166 and nil		89			—
Net income from discontinued operations		126			96
Net income		194			287
Less: Income from noncontrolling interests, net of tax
Continuing operations		2			1
Discontinued operations		—			2
Net income attributable to Sara Lee	$	192		$	284
Amounts attributable to Sara Lee:
Net income from continuing operations	$	66		$	190
Net income from discontinued operations		126			94
Net income attributable to Sara Lee	$	192		$	284
Earnings per share of common stock
Basic
Income from continuing operations	$	0.10		$	0.27
Net income	$	0.29		$	0.41
Average shares outstanding		653			697
Diluted
Income from continuing operations	$	0.10		$	0.27
Net income	$	0.29		$	0.41
Average shares outstanding		655			698
Cash dividends declared per share of common stock	$	—		$	—

See accompanying Notes to Consolidated Financial Statements.

4

SARA LEE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

For the period June 27, 2009 to October 2, 2010

(Unaudited)

				Sara Lee Common Stockholders’ Equity
In millions	Total			Common Stock		Capital Surplus			Retained Earnings			Unearned Stock			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest
Balances at June 27, 2009	$	2,070		$	7	$	17		$	2,721		$	(104	)	$	(605	)	$	34
Net income		527			—		—			506			—			—			21
Translation adjustments, net of tax		(82	)		—		—			—			—			(82	)		—
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax		8			—		—			—			—			8			—
Pension/Postretirement activity, net of tax		(235	)		—		—			—			—			(235	)		—
Other comprehensive income activity, net of tax		2			—		—			—			—			2			—
Comprehensive income	$	220																$	21
Dividends on common stock		(302	)		—		—			(302	)		—			—			—
Dividends paid on noncontrolling interest/Other		(2	)		—		—			—			—			—			(2	)
Disposition of noncontrolling interest		(25	)		—		—			—			—			—			(25	)
Stock issuances—
Restricted stock		27			—		27			—			—			—			—
Stock option and benefit plans		19			—		19			—			—			—			—
Share repurchases and retirement		(500	)		—		(47	)		(453	)		—			—			—
ESOP tax benefit, redemptions and other		8			—		1			—			7			—			—
Balances at July 3, 2010		1,515			7		17			2,472			(97	)		(912	)		28
Net income		194			—		—			192			—			—			2
Translation adjustments, net of tax		193			—		—			—			—			193			—
Pension/Postretirement activity, net of tax		(29	)		—		—			—			—			(29	)		—
Comprehensive income	$	358																$	2
Dividends on common stock		2			—		—			2			—			—			—
Dividends paid on noncontrolling interest/other		(1	)		—		—			—			—			—			(1	)
Stock issuances—
Stock option and benefit plans		4			—		4			—			—			—			—
Restricted stock		11			—		2			9			—			—			—
Share repurchases and retirement		(373	)		—		(22	)		(351	)		—			—			—
ESOP tax benefit, redemptions and other		(1	)		—		(1	)		—			—			—			—
Balances at October 2, 2010	$	1,515		$	7	$	—		$	2,324		$	(97	)	$	(748	)	$	29

Total comprehensive income was $479 million in the first quarter of 2010, of which $475 million was attributable to Sara Lee.

See accompanying Notes to Consolidated Financial Statements.

5

SARA LEE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Quarters ended October 2, 2010 and September 26, 2009

(Unaudited)

	Quarter ended
In millions	October 2, 2010			September 26, 2009
OPERATING ACTIVITIES—
Net income	$	194		$	287
Less: Cash received from contingent sale proceeds		—			(133	)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		82			99
Amortization		21			27
Net (gain) loss on business dispositions		(255	)		—
Pension contributions, net of expense		(17	)		28
Increase in deferred income taxes for unremitted earnings		77			—
Debt extinguishment costs		30			—
Other		21			24
Changes in current assets and liabilities, net of businesses acquired and sold
Trade accounts receivable		35			(30	)
Inventories		(140	)		(80	)
Other current assets		(64	)		(2	)
Accounts payable		9			(44	)
Accrued liabilities		(47	)		(37	)
Accrued taxes		82			48
Net cash from operating activities		28			187
INVESTMENT ACTIVITIES—
Purchases of property and equipment		(66	)		(59	)
Purchases of software and other intangibles		(7	)		(5	)
Dispositions of businesses and investments		355			—
Cash received from contingent sale proceeds		—			133
Cash received from derivative transactions		26			34
Sales of assets		7			6
Net cash received from investment activities		315			109
FINANCING ACTIVITIES—
Issuances of common stock		1			—
Purchases of common stock		(373	)		—
Borrowings of other debt		890			8
Repayments of other debt		(708	)		(35	)
Net change in financing with less than 90-day maturities		(22	)		62
Payments of dividends		(73	)		(78	)
Net cash used in financing activities		(285	)		(43	)
Effect of changes in foreign exchange rates on cash		112			51
Increase (decrease) in cash and equivalents		170			304
Add: Cash balances of discontinued operations at beginning of year		—			8
Less: Cash balances of discontinued operations at end of period		—			(12	)
Cash and equivalents at beginning of year		955			951
Cash and equivalents at end of quarter	$	1,125		$	1,251
Supplemental Cash Flow Data:
Cash paid for restructuring actions	$	25		$	36
Cash contributions to pension plans		30			5
Cash paid for income taxes		68			26

See accompanying Notes to Consolidated Financial Statements.

6

SARA LEE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Basis of Presentation

The consolidated financial statements for the first quarter ended October 2, 2010 have not been audited by an independent registered public accounting firm, but in the opinion of Sara Lee Corporation (corporation or company), these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial position, operating results, and cash flows. The results of operations for the quarter ended October 2, 2010 are not necessarily indicative of the operating results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet as of July 3, 2010 has been derived from the corporation’s audited financial statements included in our Annual Report on Form 10-K for the year ended July 3, 2010. The businesses comprising the former International Household and Body Care segment are presented as discontinued operations in the corporation’s consolidated financial statements. See Note 4 – “Discontinued Operations” for additional information regarding these discontinued operations. Unless stated otherwise, any reference to income statement items in these financial statements refers to results from continuing operations.

The interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Although the corporation believes the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the corporation’s Form 10-K for the year ended July 3, 2010 and other financial information filed with the Securities and Exchange Commission. These financial statements consider subsequent events through the date of filing with the Securities and Exchange Commission.

The corporation’s fiscal year ends on the Saturday closest to June 30. Fiscal 2011 ends on July 2, 2011. The first quarter of fiscal 2011 ended on October 2, 2010 and the first quarter of fiscal 2010 ended on September 26, 2009. Each of the quarters was a thirteen-week period. Fiscal 2011 is a 52-week year, whereas fiscal 2010 was a 53-week year. Unless otherwise stated, references to years relate to fiscal years.

Balance sheet correction – During the first quarter of 2011, the corporation corrected an error in the classification of certain asset and liability balances in the balance sheet associated with casualty losses from workers’ compensation, auto liability and general liability claims by recording a portion of the liability for these losses and the related insurance receivable as long-term. The corporation has revised the 2010 balance sheet as follows:

	Balance at July 3, 2010
(in millions)	As Reported		As Adjusted
Other current assets	$	400	$	370
Total current assets		3,810		3,780
Other noncurrent assets		134		164
Other accrued liabilities		1,394		1,255
Total current liabilities		2,723		2,584
Other liabilities		792		931

The corporation has concluded that this revision did not materially misstate previously issued financial statements. The prior year’s condensed consolidated balance sheet has been revised in order to provide consistency and comparability in the classification of casualty reserves and the related insurance receivables.

7

As noted in the Summary of Significant Accounting Policies footnote to the company’s 2010 annual report, the majority of the corporation’s shipping and handling costs is being recognized in the Selling, general and administrative expenses (SG&A) line of the Consolidated Income Statement. Beginning in 2011, the corporation has begun reporting all shipping and handling costs incurred after a product is considered complete and ready for sale in SG&A. Previously, the North American Fresh Bakery, North American Foodservice and International Beverage business segments were recognizing a portion of these costs in Cost of sales. The impact of this change is considered to be immaterial to both the consolidated quarterly and annual financial statements.

Consolidation of Variable Interest Entities – In June 2009, the FASB issued an update to the guidance for determining whether an entity is a variable interest entity (VIE) and who is the primary beneficiary of the VIE. The new guidance requires an ongoing reassessment of the primary beneficiary of a VIE and new expanded disclosures surrounding the nature of the VIE and an entity’s involvement with the VIE. The new guidance, which was effective for the corporation beginning in the first quarter of fiscal 2011, has not had a material impact on the consolidated financial statements.

The corporation consolidates variable interest entities (“VIEs”) of which it is the primary beneficiary. Legal entities with which the corporation becomes involved are assessed to determine whether such entities are VIEs and, if so, whether or not the corporation is the primary beneficiary. In general, the corporation determines whether it is the primary beneficiary of a VIE through a qualitative analysis of risk, which identifies which variable interest holder absorbs the majority of the financial risk or rewards and variability of the VIE. In performing this analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, terms of VIE contracts, identification of other variable interest holders, our explicit arrangements and our implicit variable interests.

The corporation enters into franchise agreements with independent third party contractors (“Independent Operators”) representing distribution rights to sell and distribute fresh bakery products via direct-store-delivery to retail outlets in defined sales territories. The corporation does not hold equity interests in any of the Independent Operator entities. Independent Operators generally finance the purchase of distribution rights through note agreements with a financial institution, which, in the aggregate, are partially guaranteed by Sara Lee. In addition, the corporation maintains explicit and implicit commitments to maintain the function of routes to ensure product delivery to customers. The corporation determined that all Independent Operators are variable interest entities of which it is the primary beneficiary, primarily as a result of Sara Lee’s debt guarantee and other route maintenance obligations.

As a result of consolidating these Independent Operator variable interest entities, the corporation reflected the following in its balance sheets:

(in millions)	October 2, 2010		July 3, 2010
Inventories – Finished goods	$	1	$	2
Property – Machinery and equipment		21		22
Total assets	$	22	$	24
Current portion of long-term debt	$	12	$	12
Long-term debt excluding current portion		55		58
Total liabilities	$	67	$	70
Noncontrolling interests	$	24	$	23

Lease obligations presented within long-term debt captions on the balance sheet are secured by the vehicles subject to lease and do not represent additional claims on the corporation’s general assets. The corporation’s maximum exposure for loss associated with the Independent Operator entities is limited to $50 million of long-term debt of the Independent Operators as of October 2, 2010.

8

2. Net Income (Loss) Per Share

The computation of net income (loss) per share only includes results attributable to Sara Lee and does not include earnings related to noncontrolling interests. Net income per share – basic is computed by dividing net income (loss) attributable to Sara Lee by the weighted average number of shares of common stock outstanding for the period. Net income per share – diluted reflects the potential dilution that could occur if options or fixed awards to be issued under stock-based compensation awards were converted into common stock. For the quarter ended October 2, 2010, options to purchase 13.7 million shares of the corporation’s common stock had exercise prices that were greater than the average market price of those shares during the respective reporting periods. For the quarter ended September 26, 2009, options to purchase 24.0 million shares of the corporation’s common stock had exercise prices that were greater than the average market price of those shares during the respective reporting periods. These shares are excluded from the earnings per share calculation as they are anti-dilutive.

The average shares outstanding declined in the first quarter of 2011 as compared to the first quarter of 2010 as a result of shares repurchased under the corporation’s ongoing share repurchase program. During the first quarter of 2011, the corporation repurchased 24.4 million shares of common stock for $360 million. The corporation also paid $13 million as a final settlement on the accelerated share repurchase program (ASR) initiated in 2010. The ASR provided for a final settlement adjustment at termination based on the final volume weighted average stock price. As of October 2, 2010, the corporation was authorized to repurchase approximately $2.14 billion of common stock under its existing share repurchase program, plus 13.5 million shares of common stock that remain authorized for repurchase under the corporation’s prior share repurchase program. The corporation repurchases common stock at times management deems appropriate. The timing and amount of future share repurchases will be based upon the completion of the corporation’s sale of its household and body care businesses, market conditions and other factors.

The following is a reconciliation of net income to net income per share – basic and diluted – for the first quarter of 2011 and 2010 (per share amounts are rounded and may not add to total):

Computation of Net Income per Common Share

(In millions, except per share data)

	Oct. 2, 2010		Sept. 26, 2009
Amounts attributable to Sara Lee:
Income from continuing operations	$	66	$	190
Income from discontinued operations		126		94
Net income	$	192	$	284
Average shares outstanding – basic		653		697
Dilutive effect of stock option and award plans		2		1
Diluted shares outstanding		655		698
Earnings per common share – Basic
Income from continuing operations	$	0.10	$	0.27
Income from discontinued operations	$	0.19	$	0.13
Net income	$	0.29	$	0.41
Earnings per common share – Diluted
Income from continuing operations	$	0.10	$	0.27
Income from discontinued operations	$	0.19	$	0.13
Net income	$	0.29	$	0.41

9

3. Segment Information

The following is a general description of the corporation’s five business segments:

• North American Retail – sells a variety of packaged meat and frozen bakery products to retail customers in North America and includes the corporation’s U.S. Senseo retail coffee business.

• North American Fresh Bakery – sells a variety of fresh bakery products to retail customers in North America.

• North American Foodservice – sells a variety of meat, bakery, and beverage products to foodservice customers in North America.

• International Beverage – sells coffee and tea products in major 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.

The following is a summary of net sales and operating segment income by business segment for the first quarters of 2011 and 2010.

	Net Sales						Income before Income Taxes
(In millions)	First Quarter 2011			First Quarter 2010			First Quarter 2011			First Quarter 2010
North American Retail	$	707		$	659		$	63		$	80
North American Fresh Bakery		516			541			(1	)		14
North American Foodservice		445			457			29			38
International Beverage		728			734			90			123
International Bakery		186			204			8			6
Total business segments		2,582			2,595			189			261
Intersegment sales		(7	)		(7	)		—			—
Total net sales and operating segment income		2,575			2,588			189			261
General corporate expenses		—			—			(25	)		(55	)
Mark-to-Market derivative gains/(losses)		—			—			14			(3	)
Amortization of intangibles		—			—			(11	)		(11	)
Adjustment for noncontrolling interest		—			—			2			1
Contingent sale proceeds		—			—			—			133
Total net sales and operating income		2,575			2,588			169			326
Net interest expense		—			—			(30	)		(29	)
Debt extinguishment costs		—			—			(30	)		—
Net sales and income before income taxes	$	2,575		$	2,588		$	109		$	297

4. Discontinued Operations

In 2010, the corporation received binding offers for the sale of its global body care and European detergents businesses for €1.275 billion; its air care business for €320 million; and its non-Indian insecticides business for €154 million. The corporation is also actively marketing for sale its remaining household and body care businesses and, as a result, the businesses that formerly comprised the International Household and Body Care segment are classified as discontinued operations and are presented in a separate line in the Consolidated Statements of Income for all periods presented. The assets and liabilities of these businesses to be sold meet the accounting criteria to be classified as held for sale and have been aggregated and reported on separate lines of the Condensed Consolidated Balance Sheets for all periods presented.

In July 2010, the corporation completed the disposition of the majority of its air care business and anticipates closing on the sales of the body care and European detergents, and insecticides businesses during calendar 2010.

10

The following is a summary of the operating results of the corporation’s discontinued operations:

	First Quarter 2011						First Quarter 2010
(In millions)	Net Sales		Pretax Income		Net Income		Net Sales		Pretax Income		Net Income
International Household and Body Care businesses	$	408	$	58	$	37	$	521	$	65	$	96

The $31 million tax benefit reported in the first quarter of 2010 was due to a $53 million net tax benefit that is related primarily to the reversal of a tax valuation allowance in the United Kingdom as the corporation anticipates being able to utilize tax loss carryforwards as a result of the anticipated disposition of the household and body care businesses in that country.

Gain on the Sale of Discontinued Operations

A majority of the air care business was sold in July 2010. Using foreign exchange rates on the date of the transaction, the corporation received cash proceeds of $355 million, which represents approximately 85% of the total proceeds expected to be received, and reported an after tax gain on disposition of $89 million. When this business was sold, certain operations were retained, primarily in Spain, until production related to non-air care businesses ceases at the facility. Sara Lee will continue to manufacture air care products for the buyer for a period of approximately 16 months, at which point, the production facility will be sold to the buyer and the final gain on the sale will be recognized. The corporation entered into a customary transitional services agreement with the purchaser of this business to provide for the orderly separation of the business and the orderly transition of various functions and processes. The terms of the agreement apply to specific functions or actions including sales, marketing and supply chain functions as well as certain accounting, payroll and tax processing, information technology services, and other services that will be performed for certain periods of time, which in each case is less than six months. The net amount recorded under the transition services agreement, including the service fee charged by the corporation, is a receivable which has been recorded in Other current assets in the Condensed Consolidated Balance Sheet.

(in millions) 2011	Pretax Gain on Sale		Tax (Charge)			After Tax Gain
Air Care Products	$	255	$	(166	)	$	89

The tax expense recognized on the sale includes a $77 million charge related to the anticipated repatriation of the cash proceeds received on the disposition of this business.

The following is a summary of the net assets held for sale as of October 2, 2010 and July 3, 2010, which primarily consists of the net assets of the international household and body care businesses.

(In millions)	October 2, 2010		July 3, 2010
Trade accounts receivable	$	35	$	48
Inventories		181		188
Other current assets		54		24
Total current assets held for sale		270		260
Property		146		144
Trademarks and other intangibles		203		188
Goodwill		461		496
Other assets		8		4
Assets held for sale	$	1,088	$	1,092
Accounts payable	$	28	$	27
Accrued expenses and other current liabilities		260		220
Current maturities of long-term debt		3		6
Total current liabilities held for sale		291		253
Long-term debt		3		2
Other liabilities		—		8
Liabilities held for sale	$	294	$	263
Noncontrolling interest	$	5	$	5

11

The discontinued operations cash flows are summarized in the table below:

(In millions) – Increase / (Decrease)	Quarter ended Oct. 2,  2010			Quarter ended Sept. 26, 2010
Cash flow from operating activities	$	73		$	68
Cash flow from (used in) investing activities		344			(3	)
Cash flow used in financing activities		(417	)		(61	)
Increase (decrease) in net cash of discontinued operations		—			4
Cash and cash equivalents at beginning of year		—			8
Cash and cash equivalents at end of period	$	—		$	12

The net cash received from investing activities primarily represents the cash proceeds received on the sale of the air care business. The cash used in financing operations primarily represents the net transfers of cash with the corporate office. The net assets of the discontinued operations includes only the cash noted above as most of the cash of those businesses has been retained as a corporate asset.

5. Debt Issuances and Redemptions

On September 7, 2010, the corporation completed a tender offer for any and all of its 6  ¹/4 % Notes due September 15, 2011, of which $1.11 billion aggregate principal amount was outstanding. At the time of expiration of the tender offer, $653.3 million of the 6  ¹/4% notes had been validly tendered. The corporation recognized a $30 million charge associated with the early extinguishment of this debt, which is reported on the Debt extinguishment costs line of the Consolidated Income Statement. On September 8, 2010, the corporation announced that it was redeeming the remaining $456.7 million of aggregate principal outstanding of the 6  ¹/4% Notes on October 8, 2010. This debt was redeemed subsequent to the end of the first quarter and will result in the recognition of an additional debt extinguishment charge in the second quarter of approximately $25 million.

The company funded a portion of the redemption of the 6  ¹/4 Notes with the proceeds from the sale of $400 million 2.75% Notes due in September 2015 and $400 million 4.1% Notes due in September 2020. The remaining portion of the redemption of the 6  ¹/4% Notes in the second quarter of 2011 will be funded by cash on hand and/or the net proceeds from commercial paper issuances.

6. Exit, Disposal and Project Accelerate Activities

As part of its ongoing efforts to improve its operational performance and reduce costs, the corporation initiated Project Accelerate (“Accelerate”) in 2009, which is a series of global initiatives designed to drive significant savings in the next three years. It is anticipated that the overall cost of the initiatives will include severance costs as well as transition costs associated with transferring services to an outside third party. An important component of Accelerate involves outsourcing pieces of the North American and European Finance (transaction processing) and Global Information Services (applications development and maintenance) groups as well as the company’s global indirect procurement activities. In addition to cost savings, this business process outsourcing will help the corporation drive standardization, increase efficiency and provide flexibility. The corporation began implementation of the initiative in North America and Europe in the second quarter of 2009 and plans to complete global implementation within three years.

The company announced a transformation plan in 2005 that 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. The corporation continues to recognize certain trailing costs related to these transformation actions, including the impact of certain activities that were completed for amounts more favorable than previously estimated.

The corporation also incurs exit, disposition and restructuring charges for initiatives outside of the scope of the projects noted above.

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The nature of the costs incurred under these plans includes the following:

1) 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

2) Transformation/Accelerate Costs recognized in Cost of sales and Selling, general and administrative expenses primarily relate to:

• Expenses associated with the installation of new information systems

• Costs to retain and relocate employees

• Consulting costs

• Costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative

Transformation/Accelerate 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 the accounting rules for exit and disposal activities. However, management believes the disclosure of these transformation/Accelerate related charges provides the reader greater transparency to the total cost of the initiatives.

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:

	Quarter ended
(In millions)	Oct. 2, 2010			Sept. 26, 2009
Selling, general and administrative expenses:
Project Accelerate costs	$	3		$	5
Net charges for (income from):
Exit activities		5			13
Decrease in income from continuing operations before income taxes		8			18
Income tax benefit		(3	)		(6	)
Decrease in income from continuing operations	$	5		$	12
Impact on diluted EPS	$	0.01		$	0.01

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

	Quarter ended
(In millions)	Oct. 2, 2010		Sept. 26, 2009
North American Retail	$	1	$	3
North American Fresh Bakery		1		1
North American Foodservice		—		—
International Beverage		2		2
International Bakery		—		7
Decrease in operating segment income		4		13
Increase in general corporate expenses		4		5
Total	$	8	$	18

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

2011 Actions

During 2011, the corporation approved certain actions related to exit, disposal, and Accelerate activities and recognized charges of $8 million related to these actions. Each of these activities is expected to be completed within a 12-month period after being approved and include the following:

• Recognized a charge to implement a plan to terminate 96 employees, related to European beverage, North American fresh bakery and corporate office operations and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 96 targeted employees, 94 employees have not yet been terminated, but are expected to be terminated within the next 12 months.

• Recognized costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative.

The following table summarizes the net charges taken for the exit, disposal and Accelerate activities approved during 2011 and the related status as of October 2, 2010. The accrued amounts remaining 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 12 months. The composition of these charges and the remaining accruals are summarized below. Approximately $115 to $135 million of charges related to continuing operations is expected to be recognized in 2011, of which approximately $85 million relates to the elimination of stranded overhead resulting from the divestiture of the household and body care businesses.

(In millions)	Employee termination and other benefits		Accelerate costs – IT and other			Total
Exit, disposal and other costs recognized during 2011	$	5	$	3		$	8
Charges recognized in discontinued operations		8		2			10
Cash payments		—		(2	)		(2	)
Accrued costs as of October 2, 2010	$	13	$	3		$	16

2010 Actions

During 2010, the corporation approved certain actions related to exit, disposal, and Accelerate activities and recognized charges of $118 million related to these actions. Each of these activities is to be completed within a 12-month period after being approved and include the following:

• Recognized a charge to implement a plan to terminate 1,154 employees, related to European beverage, European bakery and North American foodservice operations, and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 1,154 targeted employees, 384 employees have not yet been terminated, but are expected to be terminated within the next 12 months.

• Recognized costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative.

• Recognized a $20 million net loss associated with the disposition of certain bakery manufacturing facilities in Spain.

The following table summarizes the significant actions completed during the first quarter of 2011 and the status of the remaining accruals related to the 2010 actions as of October 2, 2010. The accrued amounts remaining 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 12 months. The corporation does not anticipate any additional material future charges related to the 2010 actions. The composition of these charges and the remaining accruals are summarized below.

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(In millions)	Employee termination and other benefits			Accelerate costs – IT and other			Non- cancellable Leases			Total
Accrued costs as of July 3, 2010	$	40		$	9		$	13		$	62
Cash payments		(10	)		(2	)		(4	)		(16	)
Change in estimate		(1	)		—			—			(1	)
Foreign exchange impacts		3			—			—			3
Accrued costs as of October 2, 2010	$	32		$	7		$	9		$	48

2009 Actions

During 2009, the corporation approved certain actions related to exit, disposal, transformation and Accelerate activities and recognized charges of $125 million related to these actions. Each of these activities was to be completed within a 12-month period after being approved and include the following:

• Implemented a plan to terminate 969 employees, related to the European beverage and bakery operations and the fresh bakery operations and corporate office group in North America, and provide them with severance benefits in accordance with benefit plans previously communicated to the affected employee group or with local employment laws. Of the 969 targeted employees, 36 employees have not yet been terminated, but are expected to be terminated within the next 12 months.

• Recognized costs related to the implementation of common information systems across the organization in order to improve operational efficiencies. These costs primarily relate to the amortization of certain capitalized software costs.

• Recognized costs associated with the transition of business support services to an outside third party vendor as part of a business process outsourcing initiative.

Significant actions completed during the first quarter of 2011 and the status of the remaining elements of the 2009 actions, along with the remaining accruals, is described below. The accrued amounts remaining 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 12 months. The corporation does not anticipate any additional material future charges related to the 2009 actions. The composition of these charges and the remaining accruals are summarized below.

(In millions)	Employee termination and other benefits			Transformation/ Accelerate costs – IT and other		Total
Accrued costs as of July 3, 2010	$	22		$	3	$	25
Cash payments		(4	)		—		(4	)
Change in estimate		(1	)		—		(1	)
Foreign exchange impacts		1			—		1
Accrued costs as of October 2, 2010	$	18		$	3	$	21

In periods prior to 2009, the corporation had approved and completed various actions to exit certain defined business activities and lower its cost structure and these actions have had minimal impact on current year results. As of October 2, 2010, the accrued liabilities remaining in the Condensed Consolidated Balance Sheet related to these completed actions total $22 million and primarily represent certain severance obligations. These accrued amounts are expected to be satisfied in cash and will be funded from operations.

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7. Financial Instruments

Background Information

The corporation uses derivative financial instruments, including forward exchange, futures, options and swap contracts, to manage its exposures to foreign exchange, commodity prices and interest rate risks. The use of these derivative 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 or speculative purposes and is not a party to leveraged derivatives.

The corporation recognizes all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheet. The corporation uses either hedge accounting or mark-to-market accounting for its derivative instruments. For derivatives that qualify for hedge accounting, the corporation designates these derivatives as fair value, cash flow or net investment hedges by formally documenting the 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. The process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions.

As noted above, the corporation uses derivative financial instruments to manage some of its exposure to commodity prices. A commodity derivative not declared a hedge in accordance with the accounting rules related to derivative instruments and hedging activities is accounted for under mark-to-market accounting with changes in fair value recorded in the Consolidated Statements of Income. The corporation includes these unrealized mark-to-market gains and losses in general corporate expenses until the derivative instrument is settled. At that time, the cumulative gain or loss previously recorded in general corporate expenses for the derivative instrument will be reclassified into the business segment’s results.

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 which qualifies for hedge accounting. 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 are reported in the Consolidated Statements of Income on the same line as the hedged item.

Cash Flow Hedge – A hedge of a forecasted transaction, firm commitment or of the variability of cash flows to be received or paid related to a recognized asset or liability is declared a cash flow hedge. Cash flow hedges qualify for hedge accounting. The effective portion of the change in the fair value of the derivative that is declared as a cash flow hedge is recorded in accumulated other comprehensive income (within common stockholders’ equity) and later reclassified to the income statement at the same time the underlying hedged item impacts the income statement. 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 Selling, general and administrative expenses in the Consolidated Statements of Income.

At October 2, 2010 the maximum maturity date of any cash flow hedge was approximately three years principally related to two cross currency swaps that mature in 2012 and 2013. The corporation expects to reclassify into earnings during the next twelve months net gains from Accumulated Other Comprehensive Income of approximately $8 million at the time the underlying hedged transaction is recognized in the Consolidated Statement of Income.

Net Investment Hedge – A hedge of the exposure of changes in the underlying foreign currency denominated subsidiary net assets is declared as a net investment hedge. Net investment hedges qualify for hedge accounting. Net investment hedges can include either derivative or non-derivative instruments such as non-U.S. dollar financing transactions or non-U.S. dollar assets or liabilities, including intercompany loans. The effective portion of the change in the fair value of net investment hedges is recorded in the cumulative translation adjustment account within common stockholders’ equity. At October 2, 2010 and July 3, 2010, the U.S. dollar equivalent of intercompany loans and forward exchange contracts designated as net investment hedges was $5.0 billion and $4.5 billion, respectively.

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Mark-to-Market Hedge – A derivative that does not qualify for hedge accounting 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 a mark-to-market hedge are recognized in the Consolidated Statements of Income to act as an economic hedge against the changes in the values of another item or transaction. Changes in the fair value of derivatives classified as mark-to-market hedges 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 change in value of the underlying transaction is recorded.

Types of Derivative Instruments

Interest Rate and Cross 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 debt instruments. 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. The corporation utilizes interest rate swap derivatives in order to maintain a targeted amount of both fixed-rate and floating-rate long term debt and notes payable. In the first quarter of 2011, the corporation settled $235 million of interest rate swaps. Currently, the corporation has a fixed interest rate on approximately 77% of long-term debt and notes payable issued.

The corporation has issued certain foreign-denominated debt instruments and utilizes cross currency swaps to reduce the variability of functional currency cash flows related to the foreign currency debt. Cross currency swap agreements that are effective at hedging the variability of foreign-denominated cash flows are designated and accounted for as cash flow hedges. As of October 2, 2010 and July 3, 2010, the total notional amount of the corporation’s interest rate swaps was $559 million and $761 million, respectively and the total notional amount of cross currency swaps was $766 million and $704 million, respectively. The notional value of the cross currency swaps is calculated by multiplying the euro value swapped by the exchange rate at the reporting date.

The corporation maintains a $50 million forward starting swap to effectively fix the cash flows related to interest payments on future anticipated debt issuances.

Currency 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 (including subsidiary net assets) and other known foreign currency exposures. Gains and losses on the derivative instruments 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. Forward currency exchange contracts mature at the anticipated cash requirement date of the hedged transaction, generally within one year to eighteen months. Forward currency exchange contracts which are effective at hedging the fair value of a recognized asset or liability are designated and accounted for as fair value hedges. Forward currency contracts that act as a hedge of changes in the underlying foreign currency denominated subsidiary net assets are accounted for as net investment hedges. All remaining currency forward and options contracts are accounted for as mark-to-market hedges.

The principal currencies hedged by the corporation include the European euro, British pound, Danish krone, Hungarian forint, U.S. dollar, Swiss franc and Brazilian real. The net U.S. dollar equivalent of commitments to purchase and sell foreign currencies is $3,619 million and $3,631 million, respectively as of October 2, 2010 and $4,211 million and $4,066 million, respectively as of July 3, 2010, using the exchange rates as of the reporting dates. The corporation hedges virtually all foreign exchange risk derived from recorded transactions and firm commitments and only hedges foreign exchange risk related to anticipated transactions where the exposure is potentially significant.

The notional value of foreign exchange options contracts outstanding was $5 million as of October 2, 2010 and $9 million as of July 3, 2010 as determined by the ratio of the change in option value to the change in the underlying hedged item.

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Commodity Futures and Options Contracts – The corporation uses commodity futures and options to hedge a portion of its commodity price risk. The principal commodities hedged by the corporation include hogs, beef, natural gas, diesel fuel, coffee, corn, wheat and other ingredients. The corporation does not use significant levels of commodity financial instruments to hedge commodity prices and primarily relies upon fixed rate supplier contracts to determine commodity pricing. In circumstances where commodity-derivative instruments are used, there is a high correlation between the commodity costs and the derivative instruments. For those instruments where the commodity instrument and underlying hedged item correlate between 80-125%, the corporation accounts for those contracts as cash flow hedges. However, the majority of commodity derivative instruments are accounted for as mark-to-market hedges.

As of October 2, 2010 and July 3, 2010, the total notional amount of commodity futures contracts was $100 million and $169 million, respectively, and the total notional amount of option contracts was $21 million and $3 million, respectively. The notional amount of commodity futures contracts is determined by the initial cost of the contracts while the notional amount of options contracts is determined by the ratio of the change in option value to the change in the underlying hedged item.

The corporation only enters into futures and options contracts that are traded on established, well-recognized exchanges that offer high liquidity, transparent pricing, daily cash settlement and collateralization through margin requirements.

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 when those contracts are realized in cash. 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 swap that offsets the change in the value of interest expense is recognized in cash flow from operations.

Contingent Features/Concentration of Credit Risk

All of the corporation’s derivative instruments are governed by International Swaps and Derivatives Association (i.e. ISDA) master agreements, requiring the corporation to maintain an investment grade credit rating from both Moody’s and Standard & Poor’s credit rating agencies. If the corporation’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate collateralization on the derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on October 2, 2010, is $272 million for which the corporation has posted no collateral. If the credit-risk-related contingent features underlying these agreements were triggered on October 2, 2010, the corporation would be required to post collateral of, at most, $272 million with its counterparties.

A large number of major international financial institutions are counterparties to the corporation’s financial instruments including cross currency swaps, interest rate swaps, and currency exchange forwards and swaps. The corporation enters into financial instrument agreements only with counterparties meeting very stringent credit standards (a credit rating of A-/A3 or better), 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 continually monitored. While the corporation may be exposed to credit losses in the event of nonperformance by individual counterparties of the entire group of counterparties, it has not recognized any losses with these counterparties in the past and does not anticipate material losses in the future.

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Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while level 3 generally requires significant management judgment. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1 – Unadjusted Quoted Prices – Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. An example would be a marketable equity security that is traded on a major stock exchange.

Level 2 – Pricing Models with Significant Observable Inputs – Valuations are based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the asset or liability being measured, or an inactive market transaction. Circumstances when adjustments to market quoted prices may be appropriate include (i) a quoted price for an actively traded equity investment that is adjusted for a contractual trading restriction, or (ii) the fair value derived from a trade of an identical or similar security in an inactive market. An interest rate swap derivative valued based on a LIBOR swap curve is an example of a level 2 asset or liability.

Level 3 – Pricing Models with Significant Unobservable Inputs – Valuations are based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument, which are significant to the overall fair value measurement. These assumptions are unobservable in either an active or inactive market. The inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. A goodwill impairment test that utilizes an internally developed discounted cash flow model is an example of a level 3 asset or liability.

The carrying amounts of cash and equivalents, trade accounts receivables, accounts payable, derivative instruments and notes payable approximate fair values.

The fair values and carrying amounts of long-term debt, including the current portion, at October 2, 2010 were $3.1 billion and $2.9 billion, and at July 3, 2010 were $2.9 billion and $2.7 billion, respectively. 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.

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Information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheet at October 2, 2010 and July 3, 2010 is as follows:

	Assets								Liabilities
	Other Current Assets				Other Non- Current Assets				Accrued Liabilities – Other				Other
(in millions)	Oct. 2, 2010		July 3, 2010		Oct. 2, 2010		July 3, 2010		Oct. 2, 2010		July 3, 2010		Oct. 2, 2010		July 3, 2010
Derivatives designated as hedging instruments:
Interest rate contracts (b)	$	3	$	4	$	17	$	27	$	2	$	—	$	—	$	—
Foreign exchange contracts (b)		—		143		—		—		25		2		218		153
Commodity contracts (a)		—		—		—		—		—		—		—		—
Total derivatives designated as hedging instruments		3		147		17		27		27		2		218		153
Derivatives not designated as hedging instruments:
Foreign exchange contracts (b)		39		42		—		—		27		42		—		—
Commodity contracts (a)		—		—		—		—		—		—		—		—
Total derivatives not designated as Hedging instruments		39		42		—		—		27		42		—		—
Total derivatives	$	42	$	189	$	17	$	27	$	54	$	44	$	218	$	153

(a) Categorized as level 1: Fair value of level 1 assets and liabilities as of October 2, 2010 are nil and nil and at July 3, 2010 are nil and nil, respectively.

(b) Categorized as level 2: Fair value of level 2 assets and liabilities as of October 2, 2010 are $59 million and $272 million and at July 3, 2010 are $216 million and $197 million, respectively.

Information related to our cash flow hedges, net investment hedges, fair value hedges and other derivatives not designated as hedging instruments for the quarter ended October 2, 2010, and September 26, 2009, follows:

	Interest Rate Contracts						Foreign Exchange Contracts						Commodity Contracts					Total
	Quarter Ended						Quarter Ended						Quarter Ended					Quarter Ended
(In Millions)	Oct. 2, 2010			Sept. 26, 2009			Oct. 2, 2010			Sept. 26, 2009			Oct. 2, 2010		Sept. 26, 2009			Oct. 2, 2010			Sept. 26, 2009
Cash Flow Derivatives:
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)	$	(3	)	$	(1	)	$	(48	)	$	(21	)	$	6	$	(2	)	$	(45	)	$	(24	)
Amount of gain (loss) reclassified from AOCI into earnings (a) (b)		(2	)		—			(47	)		(26	)		—		(3	)		(49	)		(29	)
Amount of ineffectiveness recognized in earnings (c) (d)		—			—			(2	)		(3	)		1		—			(1	)		(3	)
Net Investment Derivatives:
Amount of gain (loss) recognized in OCI (a)		—			—			(405	)		(152	)		—		—			(405	)		(152	)
Amount of gain (loss) recognized from OCI into earnings (f)		—			—			(9	)		—			—		—			(9	)		—
Fair Value Derivatives:
Amount of derivative gain (loss) recognized in earnings (e)		4			5			—			—			—		—			4			5
Amount of Hedged Item gain (loss) recognized in earnings (e)		—			(1	)		—			—			—		—			—			(1	)
Derivatives Not Designated as Hedging Instruments:
Amount of gain (loss) recognized in Cost of Sales		—			—			(17	)		(5	)		2		2			(15	)		(3	)
Amount of gain(loss) recognized in SG&A		—			—			64			49			4		(5	)		68			44

(a) Effective portion.

(b) Gain (loss) reclassified from AOCI into earnings is reported in interest, for interest rate swaps, in selling, general, and administrative (SG&A) expenses for foreign exchange contracts and in cost of sales for commodity contracts.

(c) Gain (loss) recognized in earnings is related to the ineffective portion and amounts excluded from the assessment of hedge effectiveness.

(d) Gain (loss) recognized in earnings is reported in interest expense for foreign exchange contract and SG&A expenses for commodity contracts.

(e) The amount of gain (loss) recognized in earnings on the derivative contracts and the related hedged item is reported in interest expense.

(f) The gain (loss) recognized from OCI into earnings is reported in gain on sale of discontinued operations.

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8. Pension and Other Postretirement Benefit Plans

The components of the net periodic pension cost and the postretirement medical cost (benefit) for the first quarter of 2011 and 2010 are as follows:

	Pension						Postretirement Medical and Life Insurance
(In millions)	First Quarter 2011			First Quarter 2010			First Quarter 2011			First Quarter 2010
Service cost	$	11		$	14		$	1		$	1
Interest cost		62			68			2			3
Expected return on plan assets		(73	)		(65	)		—			—
Amortization of:
Prior service cost (benefit)		2			2			(7	)		(8	)
Net actuarial loss		11			13			1			—
Net periodic benefit cost (benefit)	$	13		$	32		$	(3	)	$	(4	)

The net periodic benefit cost of the corporation’s defined benefit pension plans in the first quarter of 2011 was $19 million lower than in 2010 as a result of the following:

• An increase in the expected return on plan assets as a result of a larger amount of plan assets as of the beginning of this fiscal year as compared to the prior year due to improved asset returns during 2010 as well as a $200 million contribution into the U.S. pension plans in the fourth quarter of 2010.

• A reduction in service cost and interest cost as a result of freezing the pension benefits under the U.S. salaried pension plans during the third quarter of 2010 as well as a reduction in interest rates.

• The amortization of net actuarial losses decreased in 2011 despite an increase in the total amount of unamortized actuarial losses at the end of 2010 as compared to 2009. Amortization of actuarial losses declined as the total amount of unamortized actuarial losses associated with the U.S plans was reduced due to the freezing of the U.S. salaried pension plans, which also extended the amortization period. This decline in amortization was partially offset by an increase in amortization associated with the non-U.S. plans.

In 2010, the corporation classified the international household and body care businesses as discontinued operations and anticipates retaining the pension and postretirement medical obligations related to those businesses. The corporation no longer anticipates incurring service cost for the participants in those plans after these businesses are sold and this cost component is recognized in discontinued operations, while the remainder of net periodic benefit cost is recognized in continuing operations.

During the first quarter of 2011 and 2010, the corporation contributed $30 million and $5 million, respectively, to its defined benefit pension plans. At the present time, the corporation expects to contribute approximately $110 million of cash to its defined benefit pension plans in 2011 as part of its normal funding requirements. 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 corporation operates and arrangements made with trustees of certain foreign plans. As a result, the actual funding in 2011 may differ from the current estimate.

The corporation recognized a $7 million charge to income during the first quarter of 2010 to establish the estimated partial withdrawal liability for certain multi-employer pension plans. The charges were all recognized in Selling, general and administrative expenses in the Consolidated Statements of Income and related to the North American Fresh Bakery segment.

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9. Receipt of Contingent Sale Proceeds

The corporation sold its European cut tobacco business in 1999. Under the terms of that agreement, the corporation was to receive an annual cash payment of 95 million euros if tobacco continued to be a legal product in the Netherlands, Germany and Belgium through July 15, 2009. The final payment associated with this contingency of $133 million, which increased diluted earnings per share for the full year by $0.19 per share, was received in the first quarter of 2010 and recorded as income on the Contingent sale proceeds line in the Consolidated Statements of Income.

10. Income Taxes

The following table sets out the tax expense and the effective tax rate for the corporation from continuing operations:

	First Quarter
(In millions)	2011			2010
Continuing operations
Income before income taxes	$	109		$	297
Income tax expense		41			106
Effective tax rate		37.1	%		35.5	%

First quarter of 2011

In the first quarter of 2011, the corporation recognized tax expense of $41 million on pretax income from continuing operations of $109 million, or an effective tax rate of 37.1%. The tax expense and related effective tax rate on continuing operations was determined by applying a 34.9% estimated annual effective tax rate to pretax earnings and then recognizing various discrete tax items, none of which were material individually or in the aggregate. The expected repatriation of a portion of 2011 earnings increases the 2011 estimated annual effective tax rate by 2%.

First quarter of 2010

In the first quarter of 2010, the corporation recognized tax expense of $106 million on pretax income from continuing operations of $297 million, or an effective tax rate of 35.5%. The tax expense and related effective tax rate on continuing operations was determined by applying a 27.6% estimated annual effective tax rate to pretax earnings and then recognizing $24 million of discrete tax items. The discrete tax items primarily relate to additional tax expense of $25 million to establish a valuation allowance on net operating losses and other deferred tax assets in Belgium. The 2010 estimated annual effective rate includes a charge of $32 million related to the expected repatriation of a portion of 2010 earnings, which increases the rate by 4%. The estimated annual effective tax rate also includes $16 million of non-recurring tax benefits related to the utilization of U.K. net operating losses which lowered the estimated annual effective rate by approximately 2%. The portion of this tax benefit recognized in the first quarter of 2010 is $6 million.

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income of the corporation in each tax jurisdiction in which it operates and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, the corporation’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

Unrecognized Tax Benefits

Each quarter, the corporation makes a determination of the tax liability needed for unrecognized tax benefits that should be recorded in the financial statements. For tax benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

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The year-to-date net increase in the liability for unrecognized tax benefits was $39 million, resulting in an ending balance of $406 million as of October 2, 2010. There was an increase in the gross liability for uncertain tax positions of $43 million, of which $19 million relates to 2011 increases, and $1 million relates to prior year increases, and $23 million relates to unfavorable foreign currency exchange translation. This increase was offset by a decrease in the gross liability for uncertain tax positions of $4 million, of which $3 million relates to the expiration of statutes of limitation and $1 million relates to audit settlements.

At this time, the corporation estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by up to $25 million in the next twelve 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 statutes of limitations in several jurisdictions.

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 2006. Fiscal years remaining open to examination in the Netherlands include 2003 and forward. Other foreign jurisdictions remain open to audits after 2000. With few exceptions, the company is no longer subject to state and local income tax examinations by tax authorities for years prior to 2005.

11. Contingencies and Commitments

Aris – This is a consolidation of cases filed by individual complainants with the Republic of the Philippines, Department of Labor and Employment and the National Labor Relations Commission (NLRC) from 1998 through July 1999. The complaint alleges unfair labor practices due to the termination of manufacturing operations in the Philippines by Aris Philippines, Inc. (Aris), a former subsidiary of the corporation. The complaint names the corporation as a party defendant. 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 results of operations or cash flows. For further information, see Note 14 to the financial statements, “Contingencies and Commitments,” in the company’s 2010 Annual Report.

Hanesbrands Inc. – In September 2006, the corporation spun off its branded apparel business into an independent publicly-traded company named Hanesbrands Inc. (“HBI”). In connection with the spin off, the corporation and HBI entered into a tax sharing agreement that governs the allocation of tax assets and liabilities between the parties. HBI has initiated binding arbitration claiming that it is owed $72 million from the corporation under the tax sharing agreement. The corporation believes HBI’s claims are without merit and is vigorously contesting the matter. It is anticipated that the final decision by the arbitrator will occur in 2011.

Multi-Employer Pension Plans – The corporation participates in various multi-employer pension plans that provide retirement benefits to certain employees covered by collective bargaining agreements (MEPP). Participating employers in a MEPP are jointly responsible for any plan underfunding. MEPP contributions are established by the applicable collective bargaining agreements; however, the MEPPs may impose increased contribution rates and surcharges based on the funded status of the plan and the provisions of the Pension Protection Act, which requires substantially underfunded MEPPs to implement rehabilitation plans to improve funded status. Factors that could impact funded status of a MEPP include investment performance, changes in the participant demographics, financial stability of contributing employers and changes in actuarial assumptions.

In addition to regular contributions, the corporation could be obligated to pay additional contributions (known as a complete or partial withdrawal liability) if a MEPP has unfunded vested benefits. These withdrawal liabilities, which would be triggered if the corporation ceases to make contributions to a MEPP with respect to one or more collective bargaining units, would equal the corporation’s proportionate share of the unfunded vested benefits based on the year in which the liability is triggered. The corporation believes that certain of the MEPPs in which it participates have unfunded vested benefits, and some are significantly underfunded. Withdrawal liability triggers could include the corporation’s decision to close a plant or the dissolution of a collective bargaining unit. Due to uncertainty regarding future withdrawal liability triggers, we are unable to determine the amount and timing of the corporation’s future withdrawal liability, if any, or whether the corporation’s participation in these MEPPs could have any material adverse impact on its financial condition, results of operations or liquidity. Disagreements over potential withdrawal liability may lead to legal disputes.

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The corporation’s regular scheduled contributions to MEPPs totaled $50 million in 2010, $49 million in 2009 and $48 million in 2008. The corporation recognized charges for partial withdrawal liabilities of approximately $23 million in 2010, $31 million in 2009, and an immaterial amount in 2011.

Competition Law – During the past few years, competition authorities in various European countries and the European Commission have initiated investigations into the conduct of consumer products companies. These investigations usually continue for several years and, if violations are found, may result in substantial fines. In connection with these investigations, Sara Lee’s household and body care business operating in Europe has received requests for information, made employees available for interviews, and been subjected to unannounced inspections by various competition authorities. Sara Lee has been imposed fines in two instances (a €3.7 million fine imposed by the Spanish Competition Authorities in the second quarter of 2010 related to claims that the corporation engaged in inappropriate activities to indirectly increase prices of its shower gel products, and a €5.5 million fine imposed by the German cartel authorities in February 2008), but no formal charges have been brought against Sara Lee concerning the substantive conduct that is the subject of these other investigations. Our practice is to comply with all laws and regulations applicable to our business, including the antitrust laws, and to cooperate with relevant regulatory authorities.

Charges for fines that already have been imposed against the corporation have been reflected in the Consolidated Statements of Income in the periods we were notified of the fines or it was probable that a loss was incurred. The total amount currently accrued for competition matters is €28 million, which represents an accrual for fines that have already been assessed and an estimate of additional fines that are probable of being imposed. Based on currently available information, it is reasonably possible the corporation may be subject to additional fines related to several of these investigations. Except for fines previously assessed or accrued by the corporation, we are unable to estimate the impact on our financial statements of additional fines, if any, that may be imposed against the corporation.

Belgian tax matter – In 1997, the corporation sold a Belgian subsidiary to an unrelated third party. At the time of the sale, the Belgian subsidiary owed a Belgian tax liability of approximately €30 million (resulting from an intercompany restructuring completed before the 1997 sale) and the third party buyer assumed all assets and liabilities of the subsidiary. In 1999, the former Belgian subsidiary, then owned by the third party buyer, declared bankruptcy and did not pay the outstanding Belgian tax liability. In 2001, the Belgian Ministry of Finance launched an investigation into the 1997 sale. In November 2009, the corporation received from the Belgian state prosecutor a notice of intent to indict the third party buyer as well as several of the corporation’s international subsidiaries and several current and former directors and officers of such subsidiaries, in connection with the 1997 sale. The notice alleges various tax-related legal violations, some of which carry criminal penalties. The corporation has agreed to a settlement with the Belgian authorities, which is subject to final approval by the Belgian Judiciary, and accrued $40 million for Belgian taxes, interest and penalties.

Nestec/Nespresso – In June 2010, Nestec/Nespresso (Nestle) filed a suit against Sara Lee Coffee and Tea France (SLCTF), a subsidiary of the corporation, alleging patent infringement for two of their European patents related to SLCTF’s use of espresso capsules. Nestle claims that damages could be as high as €50 million. The corporation believes Nestle’s claims are without merit and is vigorously contesting the matter.

12. Subsequent events

On November 9, 2010, the corporation signed an agreement to sell its North American Fresh Bakery business to Grupo Bimbo for $959 million. The agreement will enable Grupo Bimbo to use the Sara Lee brand in the fresh bakery category throughout the world, except Western Europe, Australia and New Zealand, while the corporation retains the brand for all other categories and geographies. The sale also includes a small portion of business that is currently part of the North American Foodservice segment. The transaction, which is subject to customary closing conditions and regulatory clearances, is anticipated to close by the middle of calendar 2011.

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Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following is management’s discussion and analysis of the results of operations for the first quarter of 2011 compared with the first quarter of 2010 and a discussion of the changes in financial condition and liquidity during the first quarter of 2011. Below is an outline of the analyses included herein:

• Business Overview

• Summary of Results

• Consolidated Results – First Quarter of 2011

• Operating Results by Business Segment

• Financial Condition

• Liquidity

• 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 meat, bakery, and beverage products categories. Our brands include Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Senseo and our namesake, Sara Lee.

In North America, the company sells a variety of packaged meat products that include hot dogs, corn dogs, breakfast sausages, dinner sausages and deli meats as well as 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 company also sells a variety of meat, bakery and beverage products to foodservice customers in North America. Internationally, the company sells coffee and tea products in Europe, Brazil, Australia and Asia through the retail and foodservice channels as well as a variety of bakery and dough products to retail and foodservice customers in Europe and Australia.

The results of the household and body care businesses, which were previously reported as a separate business segment, are being reported as discontinued operations. See Note 4 – “Discontinued Operations” for additional information. Unless stated otherwise, any reference to income statement items in these financial statements refers to results from continuing operations.

Summary of Results

The business highlights include the following:

• Reported operating income for the first quarter of 2011 was $169 million, a decrease of $157 million over the same period of the prior year. The decrease was due to the cessation of the contingent sale proceeds, which was $133 million in the prior year, as well as a decline in business segment results, primarily the North American Retail, North American Fresh Bakery and International Beverage business segments. These declines were partially offset by a $30 million decrease in general corporate expenses, which was due to lower cost related to information systems implementation costs, a gain on the disposition of a corporate airplane and lower employee costs; and a $17 million improvement in mark-to-market results related to unrealized commodity derivatives.

• Net sales for the first quarter of $2.6 billion were virtually unchanged as the negative impact of volume declines and the unfavorable impact of changes in foreign currency exchange rates were offset by pricing actions and a favorable sales mix shift.

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• Diluted earnings per share from continuing operations declined from $0.27 to $0.10 due to the cessation of the contingent sale proceeds, which was a gain of $133 million, or $0.15 per share, in the first quarter of the prior year and the negative impact of a $30 million or $0.03 per share charge for debt extinguishment costs in the current year.

• Total cash flow from operating activities of $28 million for the first three months of 2011 showed a decline of $159 million over the prior year driven primarily by a decline in operating results and a $42 million increase in cash taxes paid, a $25 million increase in cash contributions to pension plans partially offset by an improvement in the cash used for working capital. Discontinued operations contributed $73 million of the total cash from operating activities, an increase of $5 million over the prior year.

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 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. As a result, from time to time, we may need to reduce the prices for some of our products to respond to competitive pressures. In addition, the turmoil in the financial markets has led to general economic weakness, which has negatively impacted our business. The continued economic uncertainty may also result in increased pressure to reduce the prices for some of our products, limit our ability to increase or maintain prices or lead to a continued shift toward private label products. Any reduction in prices or our inability to increase prices could negatively impact profit margins and the overall profitability of our reporting units, which could potentially trigger a goodwill impairment.

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. In addition, under some of our contracts, the prices at which we sell our products are tied to increases and decreases in commodity costs. Many of the commodities we use, including coffee, wheat, beef, pork, 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 cost increases with continuous improvement savings. Commodity costs, excluding mark-to-market derivative gains/losses, increased by approximately $90 million in the first quarter. This increase in commodity costs was partially offset by approximately $28 million in pricing actions, resulting in a net unfavorable impact from commodities net of pricing of $62 million in the first quarter of 2011.

The company’s business results are also heavily influenced by changes in foreign currency exchange rates. For the most recently completed fiscal year, approximately 40% of net sales and 50% 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. Changes in foreign currency exchange rates decreased net sales by $51 million and decreased operating income by $9 million in the first quarter of 2011.

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

Non-GAAP Measures

Management measures and reports Sara Lee’s financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). In this report, Sara Lee highlights certain items that have significantly impacted the corporation’s financial results and uses several non-GAAP financial measures to help investors understand the financial impact of these significant items. The non-GAAP financial measures used by Sara Lee in this report are adjusted net sales, adjusted operating segment income,

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and adjusted operating income, which exclude from a financial measure computed in accordance with GAAP the impact of significant items, the receipt of contingent sale proceeds, the impact of acquisitions and dispositions and changes in foreign currency exchange rates. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of Sara Lee’s business that, when viewed together with Sara Lee’s financial results computed in accordance with GAAP, provide a more complete understanding of factors and trends affecting Sara Lee’s historical financial performance and projected future operating results, greater transparency of underlying profit trends and greater comparability of results across periods. These non-GAAP financial measures are not intended to be a substitute for the comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

In addition, investors frequently have requested information from management regarding significant items and the impact of the contingent sale proceeds. Management believes, based on feedback it has received during earnings calls and discussions with investors, that these non-GAAP measures enhance investors’ ability to assess Sara Lee’s historical and project future financial performance. Management also uses certain of these non-GAAP financial measures, in conjunction with the GAAP financial measures, to understand, manage and evaluate our businesses, in planning for and forecasting financial results for future periods, and as one factor in determining achievement of incentive compensation. Two of the three performance measures under Sara Lee’s annual incentive plan are net sales and operating income, which are the reported amounts as adjusted for significant items and possibly other items. Operating income, as adjusted for significant items, also may be used as a component of Sara Lee’s long-term incentive plans. Many of the significant items will recur in future periods; however, the amount and frequency of each significant item varies from period to period. See Non-GAAP Measures Definitions on page 45 of this report for additional information regarding these financial measures.

Significant Items Affecting Comparability

The reported results for 2011 and 2010 reflect amounts recognized for actions associated with the corporation’s ongoing Project Accelerate and other significant amounts that impact comparability. More information on these costs can be found in Note 6 to the Consolidated Financial Statements, “Exit, Disposal and Project Accelerate Activities.” 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, as well as gains and losses associated with the disposition of asset groups that do not qualify for discontinued operations reporting.

The corporation is currently in the process of divesting the household and body care businesses but there is more than $100 million of related overhead that is expected to remain after these businesses have been sold. The corporation will take action to eliminate the majority of these costs but it is anticipated that approximately $25 million to $30 million will remain in our cost structure in 2011. The corporation estimates that the actions to eliminate this stranded overhead will result in charges of approximately $150 million to $200 million, a portion of which will be recognized in continuing operations. The majority of these charges are expected to be incurred in 2011.

Project Accelerate Costs – These include costs associated with the transition of services to an outside third party vendor as part of a business process outsourcing initiative. The initiative includes the outsourcing of a portion of the North American and European finance processing functions, information systems application development and maintenance as well as indirect procurement activities. These costs are recognized in the Consolidated Statements of Income in Selling, general and administrative expenses or Cost of sales. Employee termination costs, lease exit costs and gains or losses on the disposition of assets or asset groupings that do not qualify as discontinued operations associated with these initiatives are reported as part of exit activities, asset and business dispositions.

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For continuing operations, the incremental savings resulting from Accelerate and other restructuring actions were approximately $30 million in the first quarter of 2011. The corporation anticipates annualized savings in 2011 of approximately $270-$290 million related to these actions, of which $90-$110 million is incremental to the $280 million of cumulative Accelerate savings in 2010. The company expects Accelerate costs in fiscal 2011 to be approximately $30 to $50 million.

Other Significant Items – The reported results are also impacted by other items that affect comparability. These items include, but are not limited to, impairment charges, pension partial withdrawal liability charges, debt extinguishment costs, curtailment gains (losses) and certain discrete tax matters, which include charges related to the tax on unremitted earnings, audit settlements/reserve adjustments, valuation allowance adjustments and various other tax matters.

Impact of Significant Items on Net Income and Diluted Earnings per Share Attributable to Sara Lee

	Quarter ended October 2, 2010									Quarter ended September 26, 2009
In millions, except per share data	Pretax Impact			Net Income Attributable  to Sara Lee (2)			Diluted EPS Impact (1)			Pretax Impact			Net Income Attributable  to Sara Lee (2)			Diluted EPS Impact (1)
Continuing operations:
Business outsourcing costs	$	(3	)	$	(2	)	$	—		$	(5	)	$	(3	)	$	—
Severance charges		(5	)		(3	)		(0.01	)		(13	)		(9	)		(0.01	)
Accelerated depreciation		(2	)		(1	)		—			—			—			—
Total Project Accelerate charges		(10	)		(6	)		(0.01	)		(18	)		(12	)		(0.01	)
Other:
Pension partial withdrawal liability charge		—			—			—			(7	)		(5	)		(0.01	)
Debt extinguishment costs		(30	)		(19	)		(0.03	)		—			—			—
Impact of significant items on income from continuing operations before significant tax matters		(40	)		(25	)		(0.04	)		(25	)		(17	)		(0.02	)
Significant tax matters affecting comparability:
U.K. net operating loss utilization		—			—			—			—			6			0.01
Tax audit settlement/reserve adjustments		—			4			0.01			—			1			—
Tax valuation allowance adjustment		—			—			—			—			(25	)		(0.04	)
Impact of significant items on income from continuing operations		(40	)		(21	)		(0.03	)		(25	)		(35	)		(0.05	)
Discontinued operations:
Professional fees/other		(4	)		(3	)		(0.01	)		(4	)		(3	)		—
Project Accelerate charges		(7	)		(5	)		(0.01	)		—			—			—
Gain on sale of discontinued operation		255			89			0.14			—			—			—
Tax valuation allowance adjustment		—			—			—			—			47			0.07
Tax basis difference adjustment		—			2			—			—			11			0.02
Tax on unremitted earnings		—			(5	)		(0.01	)		—			(5	)		(0.01	)
Significant items impacting discontinued operations:		244			78			0.12			(4	)		50			0.08
Impact of significant items on net income attributable to Sara Lee	$	204		$	57		$	0.08		$	(29	)	$	15		$	0.03
Impact of significant items on income from continuing operations before income taxes:
Cost of sales	$	(2	)							$	(1	)
Selling, general and administrative expenses		(3	)								(11	)
Exit and business dispositions		(5	)								(13	)
Debt extinguishment costs		(30	)								—
Total	$	(40	)							$	(25	)

Notes:

(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.

(2) Taxes computed at applicable statutory rates.

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Consolidated Results – First Quarter of 2011 Compared with First Quarter of 2010

The following table summarizes net sales and operating income for the first quarter of 2011 and 2010 and certain items that affected the comparability of these amounts:

	Quarter ended
Total Corporation Performance (In millions)	Oct. 2, 2010			Sept. 26, 2009			Change			Percent Change
Net sales	$	2,575		$	2,588		$	(13	)		(0.5	)%
Less: Increase / (decrease) in net sales from:
Changes in foreign currency exchange rates	$	—		$	51		$	(51	)
Adjusted net sales	$	2,575		$	2,537		$	38			1.5	%
Operating income	$	169		$	326		$	(157	)		(48.1	)%
Less: Increase / (decrease) in operating income from:
Contingent sales proceeds	$	—		$	133		$	(133	)
Changes in foreign currency exchange rates		—			9			(9	)
Project Accelerate charges		(8	)		(18	)		10
Accelerated depreciation		(2	)		—			(2	)
Pension partial withdrawal liability charge		—			(7	)		7
Adjusted operating income	$	179		$	209		$	(30	)		(14.4	)%

Net Sales

Net sales decreased by $13 million or 0.5%. The weakening of foreign currencies, particularly the European euro decreased reported net sales by $51 million, or 2.0%. Adjusted net sales increased by $38 million or 1.5% due to a favorable shift in sales mix and the impact of pricing actions partially offset by the negative impact of a 2.0% decline in unit volumes.

The following table summarizes the components of the percentage change in net sales as compared to the prior year:

First Quarter 2011

Net Sales Changes	Unit Volumes			+	Mix			+	Price			+	Other			+	Acquisitions/ (Divestitures)			+	Foreign Exchange			=	Net Sales Change
Total Continuing Business		(2.0	)%			2.0	%			1.1	%			0.4	%			0.0	%			(2.0	)%			(0.5	)%

All volume data being reported excludes the impact of commodity hog volumes as the corporation has exited nearly all of its commodity hog contracts.

Operating Income

Operating income decreased by $157 million, or 48.1%. The year-over-year net impact of the changes in contingent sale proceeds, foreign currency exchange rates, Project Accelerate charges, and the other factors identified in the preceding table decreased operating income by $127 million. Adjusted operating income decreased $30 million or 14.4% due in part to the decline in adjusted operating results for the business segments, primarily in International Beverage, North American Fresh Bakery and North American Retail business segments partially offset by the favorable impact of a $17 million improvement in unrealized commodity mark-to-market derivatives versus the prior year and a $28 million decline in general corporate expenses. The individual components that impacted operating income are discussed in more detail below.

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Gross Margin

Gross margin dollars in the first quarter of 2011 decreased $57 million over the prior year due to higher commodity costs and lower unit volumes partially offset by savings from continuous improvement programs, an improved sales mix and pricing actions. The gross margin percent decreased from 37.5% in the first quarter of 2010 to 35.4% in the first quarter of 2011 primarily due to the impact of higher commodity costs.

Selling, General and Administrative Expenses

	Quarter ended
(In millions)	Oct. 2, 2010			Sept. 26, 2009			Change			Percent Change
SG&A expenses in the business segment results:
Media advertising and promotion	$	85		$	72		$	13			18.3	%
Other		625			621			4			0.6
Total business segments		710			693			17			2.4
General corporate expenses		24			55			(31	)		(57.1	)
Mark-to-market derivative (gains) / losses		(5	)		5			(10	)		NM
Amortization of identifiable intangibles		11			11			—			(2.2	)
Adjustment for noncontrolling interest		(2	)		(1	)		(1	)		(42.1	)
Total SG&A Expenses	$	738		$	763		$	(25	)		(3.3	)%

Selling, general and administrative (SG&A) expenses decreased by $25 million, or 3.3%. Measured as a percent of sales, SG&A expenses decreased from 29.5% in 2010 to 28.6% in 2011. Changes in foreign currency exchange rates decreased SG&A costs by $16 million, or 2.1%. The remaining decrease in SG&A expenses is $9 million, or 1.2%. SG&A expenses in the business segments increased by $17 million, or 2.4%, due to a $13 million increase in MAP spending and the impact of the reclassification of certain shipping and handling costs previously included in Cost of sales. General corporate expenses decreased $31 million versus the prior year due to a reduction in information technology costs, lower employee benefit costs and a gain on the disposition of the corporate airplane. The year-over-year change in the mark-to-market gains/losses related to unrealized commodity derivatives reduced SG&A expenses by $10 million due to an improvement in derivative energy contracts.

Project Accelerate Actions, Impairment Charges, Exit Activities and Other Significant Items

The reported results for the first quarter of 2011 and 2010 reflect amounts recognized for actions associated with the corporation’s ongoing Project Accelerate business improvement and cost reduction program and other exit and disposal actions. The charge related to exit activities, asset and business dispositions was $5 million in the first quarter of 2011 versus $13 million in the first quarter of 2010. As discussed in Note 6 to the financial statements, “Exit, Disposal and Accelerate Activities,” the charges in 2011 and 2010 primarily relate to the planned termination of employees related to both European and North American operations as part of Project Accelerate.

Receipt of Contingent Sale Proceeds

The corporation sold its European cut tobacco business in 1999. Under the terms of that agreement, the corporation received an annual cash payment of 95 million euros. The 2010 annual payment, which represented the final payment to be received, was equivalent to $133 million based upon the respective exchange rates on the dates of receipt. The amount received in 2010 increased diluted earnings per share by $0.15 per share in the first quarter and by $0.19 per share for the full year.

Net Interest Expense

Net interest expense in the first quarter of 2011 was $30 million, which was $1 million higher than the first quarter of the prior year due to an increase in interest expense as interest income was unchanged year-over-year. For the year, net interest expense is expected to decline by approximately $20 million as a result of refinancing approximately $800 million of debt at lower interest rates.

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Debt Extinguishment Costs

On September 7, the corporation completed a tender offer for its 6  ¹/4 % Notes due September 15, 2011, of which $653.3 million was tendered, and recognized a $30 million charge associated with the early extinguishment of this debt. The corporation also redeemed the remaining $456.7 million of aggregate principal outstanding of the 6  ¹/4% Notes on October 8, 2010. This debt was redeemed subsequent to the end of the first quarter and will result in the recognition of an additional loss related to the early extinguishment of debt in the second quarter of 2010 of approximately $25 million.

Income Tax Expense

Note 10 to the Consolidated Financial Statements provides a detailed explanation of the determination of the interim tax provision.

The following table sets out the tax expense and effective tax rate for the corporation’s continuing operations:

	First Quarter
(In millions)	2011			2010
Continuing operations
Income before income taxes	$	109		$	297
Income tax expense		41			106
Effective tax rate		37.1	%		35.5	%

In the first quarter of 2011, the corporation recognized tax expense of $41 million on pretax income from continuing operations of $109 million, or an effective tax rate of 37.1%. The tax expense and related effective tax rate on continuing operations was determined by applying a 34.9% estimated annual effective tax rate to pretax earnings and then recognizing various discrete tax items, none of which were material individually or in the aggregate. The expected repatriation of a portion of 2011 earnings increases the 2011 estimated annual effective rate by 2%.

In the first quarter of 2010, the corporation recognized tax expense of $106 million on pretax income from continuing operations of $297 million, or an effective tax rate of 35.5%. The tax expense and related effective tax rate on continuing operations was determined by applying a 27.6% estimated annual effective tax rate to pretax earnings and then recognizing $24 million of discrete tax items. The discrete tax items primarily relate to additional tax expense of $25 million to establish a valuation allowance on net operating losses and other deferred tax assets in Belgium. The 2010 estimated annual effective rate includes a charge of $32 million related to the expected repatriation of a portion of 2010 earnings, which increases the rate by 4%. The estimated annual effective tax rate also includes $16 million of non-recurring tax benefits related to the utilization of U.K. net operating losses which lowered the estimated annual effective rate by approximately 2%. The portion of this tax benefit recognized in the first quarter of 2010 is $6 million.

Income from Continuing Operations and Diluted Earnings per Share (EPS)

Income from continuing operations in the first quarter of 2011 was $68 million, a decrease of $123 million over the comparable period of the prior year, due to a $157 million decrease in operating income and a $30 million charge for debt extinguishment costs partially offset by a $65 million decrease in income tax expense.

The net income from continuing operations attributable to Sara Lee, which excludes the results of noncontrolling interests, was $66 million for the first quarter of 2011 and $190 million for the first quarter of 2010.

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Diluted EPS from continuing operations decreased from $0.27 in the first quarter of 2010 to $0.10 in the first quarter of 2011. Diluted EPS were favorably impacted by lower average shares outstanding during the first quarter of 2011 than during the first quarter of 2010, as the average shares outstanding declined from 698 million to 655 million. The lower average shares outstanding are due to the corporation’s ongoing share repurchase program.

Discontinued Operations

Income from discontinued operations – Net sales reported by discontinued operations were $408 million in the first quarter of 2011, down 21.7% compared to the $521 million of net sales in the prior year. On a constant currency basis and excluding the impact of the disposition of businesses, net sales were down 0.2%. Pre-tax income decreased to $58 million from $65 million, driven by the impact of business dispositions of $14 million. The remaining increase in pre-tax income was due to higher sales, continuous improvement savings partially offset by a $7 million charge for exit activities. Pre-tax income was also favorably impacted by approximately $12 million of lower depreciation and amortization expense versus the prior year related to assets which are now classified as held for sale and as such are no longer subject to depreciation and amortization beginning in the second quarter of 2010 under the accounting rules.

The results of discontinued operations in the first quarter of 2011 and 2010 are related to the international household and body care businesses. The amounts reported in 2010 represent a full three months of results of operations for these businesses, while the amounts in 2011 include less than a full three months of results for these businesses due to the divestiture of the air care business in July 2010 and the Godrej Sara Lee joint venture in May 2010.

Gain on sale of discontinued operations – As noted above, the corporation completed the disposition of its air care business, which had been part of the household and body care businesses, in July 2010. It recognized a pretax gain of $255 million and an after tax gain of $89 million on the disposition. Further details regarding this transaction are included in Note 4 to the Consolidated Financial Statements, “Discontinued Operations.”

Net Income and Diluted Earnings per Share (EPS)

In the first quarter of 2011, the corporation reported net income of $194 million versus $287 million in the comparable period of the prior year. The $93 million decrease in net income was due to the $123 million decrease in income related to continuing operations due to the cessation of the contingent sale proceeds partially offset by a $30 million increase in net income from discontinued operations. The increase in net income from discontinued operations was due to an $89 million gain on the disposition of businesses, partially offset by a $59 decrease in income from discontinued operations. The net income attributable to Sara Lee was $192 million in the first quarter of 2011 compared to $284 million in the first quarter of 2010.

Diluted EPS decreased from $0.41 per share in the first quarter of 2010 to $0.29 per share in the first quarter of 2011. Diluted EPS were favorably impacted by lower average shares outstanding during the first quarter of 2011 than during the first quarter of 2010. The lower average shares are due to the corporation’s ongoing share repurchase program.

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Operating Results by Business Segment

The results of the corporation’s household and body care businesses, which were previously reported as a separate business segment, are being reported as discontinued operations. See Note 4 – “Discontinued Operations” for additional information regarding these discontinued operations.

Net sales and income before income taxes by business segment for 2011 and 2010 are as follows:

	Quarter Ended
	Net Sales						Income Before Income Taxes
(In millions)	Oct. 2, 2010			Sept. 26, 2009			Oct. 2, 2010			Sept. 26, 2009
North American Retail	$	707		$	659		$	63		$	80
North American Fresh Bakery		516			541			(1	)		14
North American Foodservice		445			457			29			38
International Beverage		728			734			90			123
International Bakery		186			204			8			6
Total business segments		2,582			2,595			189			261
Intersegment sales		(7	)		(7	)		—			—
Total net sales and operating segment income		2,575			2,588			189			261
General corporate expense		—			—			(25	)		(55	)
Mark-to-market derivative gains/(losses)		—			—			14			(3	)
Amortization of intangibles		—			—			(11	)		(11	)
Adjustment for noncontrolling interest		—			—			2			1
Contingent sale proceeds		—			—			—			133
Total net sales and operating income		2,575			2,588			169			326
Net interest expense		—			—			(30	)		(29	)
Debt extinguishment costs		—			—			(30	)		—
Net sales and income before income taxes	$	2,575		$	2,588		$	109		$	297

The following tables illustrate the components of the change in net sales versus the prior year for each business segment and the total corporation:

First Quarter 2011

Net Sales Changes	Unit Volumes			+	Mix			+	Price			+	Other			+	Acquisitions/ (Divestitures)			+	Foreign Exchange			=	Net Sales Change
North American Retail		4.4	%			1.3	%			2.3	%			(0.7	)%			0.0	%			0.0	%			7.3	%
North American Fresh Bakery		(2.4	)			1.0				(3.4	)			0.2				0.0				0.0				(4.6	)
North American Foodservice		(17.6	)			10.6				4.5				(0.2	)			0.0				0.1				(2.6	)
International Beverage		1.7				(0.3	)			2.3				0.9				0.0				(5.5	)			(0.9	)
International Bakery		(3.7	)			(0.1	)			(2.9	)			3.9				0.0				(6.2	)			(9.0	)
Total Continuing Business		(2.0	)%			2.0	%			1.1	%			0.4	%			0.0	%			(2.0	)%			(0.5	)%

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The following tables summarize the net sales and operating segment income for each of the business segments for 2011 and 2010 and certain items that affected the comparability of these amounts:

North American Retail

	Quarter Ended
(In millions)	October 2, 2010			September 26, 2009			Change			Percent Change
Net sales	$	707		$	659		$	48			7.3	%
Adjusted net sales	$	707		$	659		$	48			7.3	%
Operating segment income	$	63		$	80		$	(17	)		(20.6	)%
Less: Increase / (Decrease) in operating segment income from
Exit activities, asset and business dispositions	$	(1	)	$	(3	)	$	2
Adjusted operating segment income	$	64		$	83		$	(19	)		(23.0	)%
Gross margin percentage		30.0	%		33.3	%					(3.3	)%

First Quarter –

Net sales increased by $48 million, or 7.3%. Sales increased as a result of improved unit volumes, pricing actions and an improved sales mix. Unit volumes increased 4.4% due to higher volumes for breakfast sandwiches, breakfast sausages, lunchmeats and smoked sausages which more than offset volume declines for frozen bakery products. Pricing actions, net of trade promotions, increased net sales by 2%. The improved sales mix was driven in part by the sale of innovative new products in the breakfast and lunchmeat categories and the continuing exit of the lower margin commodity hog business.

Operating segment income decreased by $17 million, or 20.6%, while adjusted operating segment income decreased by $19 million, or 23.0%. The decrease in operating segment income was due to a significant increase in commodity costs net of pricing actions, higher MAP spending and higher SG&A costs related to the implementation of new information systems partially offset by an improved sales mix, savings from continuous improvement programs and higher unit volumes.

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North American Fresh Bakery

	Quarter Ended
(In millions)	October 2, 2010			September 26, 2009			Change			Percent Change
Net sales	$	516		$	541		$	(25	)		(4.6	)%
Adjusted net sales	$	516		$	541		$	(25	)		(4.6	)%
Operating segment income (loss)	$	(1	)	$	14		$	(15	)		NM
Less: Increase / (Decrease) in operating segment income from
Exit activities, asset and business dispositions	$	(1	)	$	(1	)	$	—
Pension partial withdrawal liability charge		—			(7	)		7
Adjusted operating segment income	$	—		$	22		$	(22	)		NM
Gross margin percentage		47.2	%		47.3	%					(0.1	)%

First quarter–

Net sales decreased by $25 million, or 4.6% due to price reductions, in response to competitive pressure, and a decline in unit volumes partially offset by a favorable shift in sales mix. The pricing actions decreased net sales by approximately 3%. Unit volumes decreased 2.4% as an increase in branded fresh bakery volumes, due in part to the pricing actions, was offset by the decline attributable to the timing of the 4^th of July holiday and a decline in private label unbranded bakery products. The lower unbranded volumes were due to increased competitive pressure and continuing weak economic conditions. The favorable sales mix resulted from the shift to branded products.

Operating segment income decreased by $15 million. The decrease in pension partial withdrawal liability charges increased operating segment income by $7 million. Adjusted operating segment income decreased by $22 million due to the negative impact of pricing actions, lower unit volumes, higher labor and employee benefit costs partially offset by the favorable impact of lower costs for key ingredients, savings from continuous improvement programs and a favorable sales mix shift to higher margin branded products.

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North American Foodservice

	Quarter Ended
(In millions)	October 2, 2010			September 26, 2009			Change			Percent Change
Net sales	$	445		$	457		$	(12	)		(2.6	)%
Adjusted net sales	$	445		$	457		$	(12	)		(2.7	)%
Operating segment income	$	29		$	38		$	(9	)		(23.2	)%
Less: Increase / (Decrease) in operating segment income from
Accelerated depreciation	$	(2	)	$	—		$	(2	)
Adjusted operating segment income	$	31		$	38		$	(7	)		(20.1	)%
Gross margin percentage		24.8	%		26.6	%					(1.8	)%

First quarter –

Net sales decreased by $12 million, or 2.6%, while adjusted net sales decreased by 2.7%. The net sales decrease was due to unit volume declines for bakery and beverage products partially offset by an improved sales mix and the impact of price increases in response to an increase in commodity costs. The pricing actions increased sales by approximately 5%. Overall, net unit volumes declined 17.6% due to demand softness resulting from the continued weak economic conditions and the loss of certain contracts. The decline in bakery volumes was due primarily to the loss of a high volume, low margin pizza dough contract. Beverage volumes are down due to declines in roast and ground and coffee concentrates. The decline in coffee concentrates is due to the recent loss of a high margin liquid coffee concentrate contract, which will have a negative impact on sales and operating segment income for the remainder of the year. Meat volumes increased during the quarter, driven in part by growth in breakfast sausage.

Operating segment income decreased by $9 million, or 23.2%. The net impact of the change in accelerated depreciation charges decreased operating segment income by $2 million. Adjusted operating segment income decreased by $7 million, or 20.1%, due to lower unit volumes, including the loss of the liquid coffee business noted above, and the unfavorable impact of higher commodity costs net of pricing actions, partially offset by continuous improvement savings and lower distribution costs.

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International Beverage

	Quarter Ended
(In millions)	October 2, 2010			September 26, 2009			Change			Percent Change
Net sales	$	728		$	734		$	(6	)		(0.9	)%
Less: Increase / (Decrease) in net sales from
Changes in foreign currency exchange rates	$	—		$	38		$	(38	)
Adjusted net sales	$	728		$	696		$	32			4.6	%
Operating segment income	$	90		$	123		$	(33	)		(27.2	)%
Less: Increase / (Decrease) in operating segment income from
Changes in foreign currency exchange rates	$	—		$	9		$	(9	)
Exit activities, asset and business dispositions		(2	)		(2	)		—
Adjusted operating segment income	$	92		$	116		$	(24	)		(20.2	)%
Gross margin percentage		36.9	%		39.5	%					(2.6	)%

First quarter–

Net sales decreased by $6 million, or 0.9%. The impact of foreign currency changes, particularly in the European euro, decreased reported net sales by $38 million. Adjusted net sales increased by $32 million, or 4.6%. The increase was due to pricing actions, which included increased trade promotion activity; an increase in unit volumes; and higher green coffee export sales. Pricing actions increased net sales by approximately 2%. Unit volumes increased 1.7% due to volume growth in single serve, traditional roast and ground, concentrates and instants. Retail volumes in Europe decreased due to volume declines in traditional roast and ground due in part to competitive pressures from private label and hard discounters as well as weak economic conditions throughout Europe, which was partially offset by increases in single serve coffee volumes in France and Germany. The volume declines in Europe were offset by improved volumes in Brazil. Unit volumes in the foodservice channel increased both in Europe and Australia.

Operating segment income decreased by $33 million, or 27.2%. Changes in foreign currency exchange rates decreased operating segment income by $9 million. Adjusted operating segment income decreased by $24 million, or 20.2% due to the negative impact of $31 million of foreign currency hedging losses related to raw material purchases, higher commodity costs and higher SG&A costs, which were partially offset by the impact of pricing actions, the increase in unit volumes and the benefits of continuous improvement programs.

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International Bakery

	Quarter Ended
(In millions)	October 2, 2010			September 26, 2009			Change			Percent Change
Net sales	$	186		$	204		$	(18	)		(9.0	)%
Less: Increase / (Decrease) in net sales from
Changes in foreign currency exchange rates	$	—		$	13		$	(13	)
Adjusted net sales	$	186		$	191		$	(5	)		(2.8	)%
Operating segment income	$	8		$	6		$	2			48.2	%
Less: Increase / (Decrease) in operating segment income from
Changes in foreign currency exchange rates	$	—		$	1		$	(1	)
Exit activities, asset and business dispositions		—			(7	)		7
Adjusted operating segment income	$	8		$	12		$	(4	)		(27.4	)%
Gross margin percentage		36.8	%		39.0	%					(2.2	)%

First quarter –

Net sales decreased by $18 million, or 9.0%. The impact of foreign currency changes, particularly in the European euro, decreased reported net sales by $13 million. Adjusted net sales decreased $5 million, or 2.8% due to the negative impact of price reductions in response to competitive pressures, which decreased net sales by approximately 3% and lower unit volumes. Net unit volumes decreased 3.7% due to a decline in fresh bread volumes in Spain, as a result of a reduction in branded sales due in part to economic and competitive pressures and volume declines in Australia. These volume declines were partially offset by increased refrigerated dough volumes in Europe.

Operating segment income increased by $2 million, or 48.2%. The net change in foreign currency exchange rates and exit activities, asset and business dispositions increased operating segment income by $7 million. Adjusted operating segment income decreased by $4 million, or 27.4% due to the negative impact of pricing actions, lower unit volumes, and an unfavorable sales mix shift to lower margin products partially offset by continuous improvement savings.

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Financial Condition

The Consolidated Statements of Cash Flows include amounts related to discontinued operations. The discontinued operations had a significant impact on the cash flows from operating activities for the first three months of 2011 and 2010. See Note 4 – “Discontinued Operations” for additional information regarding cash flows related to discontinued operations.

Cash from Operating Activities

The cash from operating activities generated by continuing and discontinued operations in the first quarter of 2011 and 2010 is summarized in the following table.

	Quarter ended
(In millions)	Oct. 2, 2010			Sept. 26, 2009
Cash from Operating Activities:
Continuing Operations	$	(45	)	$	119
Discontinued Operations		73			68
Total	$	28		$	187

The decrease in cash from operating activities of $159 million over the prior year was due in large part to the decline in operating income, including the impact of the change in depreciation and amortization. Cash from operations was also negatively impacted by a $25 million increase in cash contributions to pension plans and a $42 million increase in cash taxes paid. Working capital improved from a use of $145 million in 2010 to a use of $125 million in 2011. There were improvements in working capital related to accounts receivable and accounts payable due to better working capital management, which were partially offset by an increase in inventories, due in part to higher commodity costs, and an increase in other current assets.

Cash used in Investment Activities

The cash provided by investment activities was $315 million in the first quarter of 2011, which was $206 million more than the comparable period of 2010. The increase in cash provided by investment activities was due to the receipt of $355 million of cash related to the disposition of a business. This increased source of cash was partially offset by a $133 million reduction in cash received from contingent sale proceeds as the amount received in 2010 represented the final payment to be received. The cash received from derivative transactions in 2011 was $26 million as compared to $34 million in the prior year. The year-over-year change was due primarily to a decrease in cash received on the settlement of foreign exchange derivative contracts. Capital expenditures for the purchases of property, equipment, software and other intangibles increased by $9 million in 2011 from $64 million in 2010 to $73 million in 2011 due to continued expenditures for the new Kansas City meat plant.

Cash used in Financing Activities

Net cash used in financing activities was $285 million during the first quarter of 2011, which was $242 million higher than the prior year period. The year-over-year increase was due to the $373 million of cash expended for share repurchases. The increased use of cash was partially offset by a $125 million increase in the net cash received from borrowings of debt, net of repayments. In the first quarter of 2011, the corporation had net borrowings of $160 million of short-term and long-term debt as compared to net borrowings of $35 million during the first quarter of the prior year. The amount of borrowings and repayments in 2011 were impacted by significant debt issuances and redemptions. Further details regarding these transactions are included in Note 5 to the Consolidated Financial Statements, “Debt Issuances and Redemptions.” The cash dividends paid decreased by $5 million in 2011 due to fewer shares outstanding as a result of the share repurchases.

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Liquidity

Notes Payable/Cash and Equivalents

The balance of notes payable at October 2, 2010 of $111 million was $64 million higher than the amount reported at July 3, 2010. The corporation had cash and cash equivalents on the balance sheet at October 2, 2010 of $1.125 billion, which was $170 million higher than the balance at July 3, 2010, due in part to the cash proceeds received from the disposition of a business.

Anticipated Business Dispositions/Use of Proceeds

Sara Lee has made substantial progress toward divesting its International Household and Body Care businesses. The company announced and closed transactions for the divestiture of the Indian insecticides business to Godrej for €185 million in the fourth quarter of 2010 and the majority of the air care business to Procter & Gamble for $355 million in early fiscal 2011. The company is also working on the announced divestiture of the global body care business to Unilever for €1.275 billion and on the announced divestiture of the non-Indian insecticides business to SC Johnson for €153.5 million. The divestiture of the non-Indian insecticides business is expected to close in calendar year 2010, and is subject to customary closing conditions and regulatory clearances. The European Commission is currently in Phase II review of the global body care divestiture to Unilever and a final decision by the commission is scheduled to be made in late November. The body care divestiture is expected to close in calendar 2010. Sara Lee is also confident it will be able to successfully divest the remaining household businesses, primarily its global shoe care and Asian cleaning businesses, based on interest from various parties. The corporation increased its net investment hedges in 2010 in order to offset the euro exposure associated with the proceeds anticipated to be generated by the divestiture of its household and body care businesses.

During 2010, Sara Lee announced a revised capital plan that focuses on share repurchase, dividend pay-out and the funded status of the company’s pension plans, while maintaining a solid investment grade credit profile.

As part of this capital plan, the company plans to buy back $2.5 to $3 billion of shares of its common stock over a three-year period. Sara Lee bought back approximately 36 million shares of common stock through an accelerated share repurchase (ASR) program begun in March 2010 and completed in the first quarter of 2011 at a total cost of $513 million, of which $500 million was paid in 2010 and an additional $13 million was paid in the first quarter of 2011 as a final settlement. The company also repurchased 24.4 million shares of common stock at a cost of $360 million in the first quarter of 2011. Sara Lee plans to repurchase $1.0 to $1.5 billion of shares during fiscal 2011, of which $125 to $425 million is expected to be repurchased in the remainder of calendar year 2010. As of October 2, 2010, approximately $2.1 billion remains authorized for share repurchase by the board of directors, in addition to the 13.5 million share authorization remaining under the prior program.

In addition, Sara Lee indicated its intention to maintain and gradually increase the corporation’s dividend. In October 2010, Sara Lee’s board of directors announced that it had increased the corporation’s dividend from $0.44 per share to $0.46 per share on an annualized basis.

The company made a $200 million voluntary cash contribution to the company’s pension plans in the fourth quarter of fiscal 2010 as part of its announced capital plan.

The company continues to evaluate the best opportunities for value creation and investment of cash, including potential acquisitions or other investments in the company’s growth.

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Credit Facility and Credit Ratings

The corporation has a $1.85 billion five-year revolving credit facility available that 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 October 2, 2010, the corporation did not have any borrowings outstanding under the credit facility but it did have approximately $150 million of letters of credit outstanding under this credit facility. The facility does not mature or terminate upon a credit rating downgrade.

The corporation’s credit ratings by Standard & Poor’s, Moody’s Investors Service and FitchRatings, as of October 2, 2010, were as follows:

	Senior Unsecured Obligations		Short-term Borrowings		Outlook
Standard & Poor’s		BBB		A-2		Stable
Moody’s Investors Service		Baa1		P-2		Stable
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 higher 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.

Debt

The corporation’s total long-term debt increased $171 million in the first quarter of 2011, from $2.7 billion at July 3, 2010, to $2.9 billion at October 2, 2010, as a result of the borrowing of approximately $890 million of long-term debt during the first quarter of 2010 which was only partially offset by repayments of other debt of $708 million. See below for additional information regarding the new borrowings and redemptions.

The corporation’s total long-term debt is due to be repaid as follows: $468 million in the remainder of 2011; $454 million in 2012; $535 million in 2013; $29 million in 2014; $77 million in 2015; $408 million in 2016 and $934 million thereafter. These maturing debt obligations are expected to be satisfied with a combination of new long-term debt issuances, short-term borrowings, cash on hand, and operating cash flows.

On September 7, 2010, the corporation completed a tender offer for any and all of its 6  ¹/4 % Notes due September 15, 2011, of which $1.11 billion aggregate principal amount was outstanding. At the time of expiration of the tender offer, $653.3 million of the 6  ¹/4% notes had been validly tendered. The corporation recognized a $30 million charge associated with the early extinguishment of this debt, which is reported on the Debt extinguishment costs line of the Consolidated Income Statement. On September 8, 2010, the corporation announced that it was redeeming the remaining $456.7 million of aggregate principal outstanding of the 6  ¹/4% Notes on October 8, 2010. This debt was redeemed subsequent to the end of the first quarter and will result in the recognition of an additional debt extinguishment charge in the second quarter of approximately $25 million. For the year, net interest expense is expected to decline approximately $20 million primarily as a result of the net impact of the debt refinancing.

The company funded a portion of the redemption of the 6  ¹/4 Notes with the proceeds from the sale of $400 million 2.75% Notes due in September 2015 and $400 million 4.1% Notes due in September 2020. The remaining portion of the redemption of the 6  ¹/4% Notes in the second quarter of 2011 will be funded by cash on hand and/or the net proceeds from commercial paper issuances.

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From time to time, the corporation opportunistically may repurchase or retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the corporation’s liquidity requirements, contractual restrictions and other factors. The amounts involved could be material.

Including the impact of swaps that are effective hedges and convert the economic characteristics of the debt, the corporation’s long-term debt and notes payable consist of 77.0% fixed-rate debt as of October 2, 2010, as compared with 69.7% as of July 3, 2010. 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.

Covenants

The corporation’s debt agreements and credit facility contain customary representations, warranties and events of default, as well as, affirmative, negative and financial covenants with which the corporation is in compliance. One financial covenant includes a requirement to maintain an interest coverage ratio of not less than 2.0 to 1.0. The interest coverage ratio is based on the ratio of EBIT to consolidated net interest expense with consolidated EBIT equal to net income attributable to Sara Lee plus interest expense, income tax expense, and extraordinary or non-recurring non-cash charges and gains. For the 12 months ended October 2, 2010, the corporation’s interest coverage ratio was 6.2 to 1.0.

Leases

The corporation has numerous operating leases for manufacturing facilities, warehouses, office space, vehicles, machinery and equipment. Operating lease obligations are scheduled to be paid as follows: $64 million in the remainder of 2011; $64 million in 2012; $46 million in 2013; $30 million in 2014; $23 million in 2015; $15 million in 2016 and $55 million, thereafter. The corporation is 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: $15 million in the remainder of 2011; $15 million in 2012; $11 million in 2013; $9 million in 2014; $8 million in 2015; $2 million in 2016 and $28 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. Under the terms of this contract, which is open through June 2012, the corporation will 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 suppliers’ production costs, which includes 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 these hog purchase commitments are recognized when we determine the loss is probable of occurring.

The corporation has various funding obligations and certain contingent guaranty obligations that are outlined below.

Pension Plans

The funded status of the corporation’s defined benefit pension plans is defined as the amount by which the projected benefit obligation exceeds the plan assets. The underfunded status of the plans was $530 million at the end of 2010 as compared to $466 million at the end of 2009. Further information on the corporation’s pension plans is contained in Note 8 to these Consolidated Financial Statements. The corporation anticipates recognizing total pension expense for its defined benefit plans of approximately $50 million in 2011.

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In the first quarter of 2011, the corporation contributed $30 million to these defined benefit pension plans and the corporation anticipates that approximately $110 million of cash contributions will be made for the entire fiscal year as part of its normal funding requirements. 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 and arrangements made with the trustees of certain foreign plans. As a result, actual funding in 2011 may be materially different from the current estimate. The Significant Accounting Policies section and Note 16 – Defined Benefit Pension Plans to the Consolidated Financial Statements, that are included in the corporation’s 2010 Annual Report on Form 10-K, provide a more complete description of the measurement date, assumptions, funded status, expected benefit payments and funding policies related to these defined benefit plans.

The corporation participates in various multi-employer pension plans that provide retirement benefits to certain employees covered by collective bargaining agreements (MEPP). Participating employers in a MEPP are jointly responsible for any plan underfunding. MEPP contribution are established by the applicable collective bargaining agreements; however, the MEPPs may impose increased contribution rates and surcharges based on the funded status of the plan and the provisions of the Pension Protection Act, which requires substantially underfunded MEPPs to implement rehabilitation plans to improve funded status. The corporation believes that its contributions to MEPPs may increase by approximately 12% to 15% through 2011 due to increased contribution rates and surcharges MEPPs are expected to impose under the Pension Protection Act. Factors that could impact funded status of a MEPP include investment performance, changes in the participant demographics, financial stability of contributing employers and changes in actuarial assumptions.

In addition to regular contributions, the corporation could be obligated to make additional contributions (known as a complete or partial withdrawal liability) if a MEPP has unfunded vested benefits. These withdrawal liabilities, which would be triggered if the corporation ceases to make contributions to a MEPP with respect to one of more collective bargaining units, would equal the corporation’s proportionate share of the unfunded vested benefits based on the year in which liability is triggered. The corporation believes that certain of the MEPPs in which we participate have unfunded vested benefits, and some are significantly underfunded. Withdrawal liability triggers could include the corporation’s decision to close a plant or the dissolution of a collective bargaining unit. Due to uncertainty regarding future withdrawal liability triggers, we are unable to determine the amount and timing of the corporation’s future withdrawal liability, if any, or whether the corporation’s participation in these MEPPs could have any material adverse impact on its financial condition, results of operations or liquidity. Disagreements over potential withdrawal liability may lead to legal disputes.

The corporation’s regular scheduled contributions to MEPPs totaled $50 million in 2010, $49 million in 2009 and $48 million in 2008. The corporation recognized charges for withdrawal liabilities of approximately $23 million in 2010, $31 million in 2009 and an immaterial amount in 2011.

Repatriation of Foreign Earnings and Income Taxes

The corporation anticipates that it will continue to repatriate a portion of its foreign subsidiaries earnings. The tax expense associated with any return of foreign earnings will be recognized as such earnings are realized. However, the corporation pays the tax liability upon completing the repatriation action. The repatriation of foreign sourced earnings is not the only source of liquidity for the corporation. In addition to cash flow derived from operations, the corporation has access to the commercial paper market, a $1.85 billion revolving credit facility, and access to public and private debt markets as means to generate liquidity sufficient to meet its U.S. cash flow needs.

The corporation currently estimates that the continuing operation’s tax expense for the repatriation of a portion of 2011 and prior year foreign earnings to the U.S. will be approximately $16 million, with the majority of these taxes expected to be paid during 2011. In addition, the corporation has recognized $77 million of tax expense in the first quarter of 2011 related to the repatriation of the gain on the sale of the air care business. It is anticipated that the majority of the cash taxes related to this repatriation action will be paid after 2011.

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Project Accelerate Liabilities

The corporation has recognized amounts for Project Accelerate and other restructuring charges. At October 2, 2010, the corporation had recognized cumulative liabilities of approximately $110 million that relate 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 over the next twelve months.

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 collectability 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 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 which are 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 approximately $13 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.

In October 2009, the Spanish tax administration upheld the challenge made by its local field examination against tax positions taken by the corporation’s Spanish subsidiaries. In November 2009, the corporation filed an appeal against this claim with the Spanish Tax Court. In April 2010, the Spanish Chief Inspector upheld a portion of the claim raised by the Spanish tax authorities, which the corporation will appeal. The corporation believes it is adequately reserved for the claim upheld by the Spanish Chief Inspector. The corporation is currently appealing the Court’s decision and has obtained a bank guarantee of €64 million as security against all allegations.

Risk Management

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 corporation utilizes derivative instruments to create offsetting hedge positions and accounts for these instruments under either the hedge accounting model or the mark-to-market accounting model. The corporation utilizes the mark-to-market accounting model for certain of these derivative instruments and the change in fair value of derivatives that are accounted for under the mark-to-market accounting model are reported in earnings each period, which can lead to increased volatility in reported earnings.

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As outlined in the corporation’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission, the corporation’s control systems use analytical techniques including market value, sensitivity analysis and value at risk estimations. The value at risk estimations shown in the table below, which includes risks for the entire corporation, are intended to measure the maximum amount the corporation could lose from adverse market movements in interest rates and foreign exchange rates for a one-day period at a 95% confidence level.

(In millions)	Amounts		Average		Time Interval		Confidence Level
Value at Risk Amounts
First quarter 2011
Interest rates	$	23	$	23		1 day		95	%
Foreign exchange		18		18		1 day		95
Year End 2010
Interest rates	$	11	$	12		1 day		95	%
Foreign exchange		21		23		1 day		95

Interest rate value at risk increased over 2010 due to an increase in debt outstanding and the general increase in short term rate volatilities. Decreases in foreign exchange value at risk amounts in 2011 were primarily due to decreases in the value of euro based net assets.

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 fair value change in the underlying exposure. At the end of the first quarter of 2011 and the end of 2010, the potential change in fair value of commodity derivative instruments, assuming a 10% change in the underlying commodity price, was $8 million and $2 million, respectively.

Non-GAAP Financial Measures Definitions

The following is an explanation of the non-GAAP financial measures presented in this report. “Adjusted net sales” excludes from net sales the impact of businesses acquired or divested after the start of the fiscal period and excludes the impact of an additional week in those fiscal years with 53 weeks versus 52 weeks. It also adjusts the previous year’s sales for the impact of any changes in foreign currency exchange rates. “Adjusted operating segment income” for a specified business segment or discontinued operation excludes from operating segment income the impact of significant items recognized by that portion of the business during the fiscal period and businesses acquired or divested after the start of the fiscal period. It also adjusts for the impact of an additional week in those fiscal years that include a 53^rd week. It also adjusts the previous year’s operating segment income for the impact of any changes in foreign currency exchange rates. “Adjusted operating income” excludes from operating income the impact of significant items recognized during the fiscal period, contingent sale proceeds, if any, and businesses acquired or divested after the start of the fiscal period. It also adjusts for the impact of an additional week in those fiscal years that include a 53^rd week. It also adjusts the previous year’s operating segment income for the impact of any changes in foreign currency exchange rates.

Significant Accounting Policies and Critical Estimates

The corporation’s significant accounting policies are discussed in the Notes to the Consolidated Financial Statements that are incorporated in the 2010 Annual Report on Form 10-K that is filed with the Securities and Exchange Commission. The accounting policies and estimates that can have a significant impact upon the operating results, financial position and footnote disclosures of the corporation are described in the Financial Review in the corporation’s 2010 Annual Report on Form 10-K.

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Issued but not yet Effective Accounting Standards

A summary of new accounting pronouncements issued, but not yet effective, which are relevant to the operations of the corporation are summarized below.

Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses

On July 21, 2010 new accounting guidance was issued that significantly expands the disclosure requirements related to financing receivables and the related allowance for credit losses. Specifically, the new guidance requires, among other things, disclosure of: i) a rollforward of the allowance for credit losses along with the balance of the allowance reserve and the related financing receivable; ii) the reasons for the changes in the allowance for credit losses; iii) the aging of past due financing receivables at period end by customer class; iv) the nature of credit risk inherent in the financing receivables; and v) how the risk is analyzed and assessed in estimating the allowance for credit losses. The new guidance is to be implemented in several steps with the first implementation required in the second quarter of 2011. Trade accounts receivable with contractual maturities of one year or less that arose from the sales of goods or services are excluded from the new guidance so the corporation believes this new guidance will not result in significant new disclosures.

Forward-Looking Information

This document contains certain forward-looking statements, including the anticipated costs and benefits of restructuring, transformation and Project Accelerate 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 share repurchase and other capital plans, such as (i) future opportunities that the Board may determine present greater potential value to shareholders than the current capital plans and targets, including without limitation potential acquisitions, joint ventures or other corporate transactions, and investments in Sara Lee’s business; (ii) future operating or capital needs that require a more significant outlay of cash than currently anticipated; or (iii) future changes in facts or circumstances that may impact the anticipated accounting treatment of such activities;

• Sara Lee’s relationship with its customers, such as (iv) a significant change in Sara Lee’s business with any of its major customers, such as Walmart, its largest customer, including changes in how such customers manage their suppliers and the level of inventory these customers maintain; and (v) credit and other business risks associated with customers operating in a highly competitive retail environment;

• The consumer marketplace, such as (vi) significant competition, including advertising, promotional and price competition; (vii) changes in consumer behavior due to economic conditions, such as a shift in consumer demand toward private label; (viii) fluctuations in the cost of raw materials, Sara Lee’s ability to increase or maintain product prices in response to fluctuations in cost and the impact on Sara Lee’s profitability; (ix) the impact of various food safety issues and regulations on sales and profitability of Sara Lee products; and (x) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance;

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• Sara Lee’s international operations, such as (xi) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the euro; (xii) Sara Lee’s generation of a high percentage of its revenues from businesses outside the United States and costs to remit these foreign earnings into the U.S. to fund Sara Lee’s domestic operations, share repurchase plans, dividends, debt service and corporate costs; (xiii) the impact on Sara Lee’s business of its receipt of binding offers to purchase a large portion of its H&BC business, its intent to divest the remainder of that business and any inability to complete these transactions or to divest the remaining H&BC businesses on favorable terms; and (xiv) difficulties and costs associated with complying with U.S. laws and regulations, such as Foreign Corrupt Practices Act, applicable to entities with overseas operations, and different regulatory structures and unexpected changes in regulatory environments overseas, including without limitation potentially negative consequences from changes in anti-competition and tax laws; and (xv) 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 (xvi) Sara Lee’s ability to generate margin improvement through cost reduction and efficiency initiatives, including Project Accelerate and the outsourcing of significant portions of our financial transaction processing, global IT, and global indirect procurement activities; (xvii) Sara Lee’s ability to achieve planned cash flows from capital expenditures and acquisitions 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; (xviii) credit ratings issued by the three major credit rating agencies, the impact of Sara Lee’s capital plans and targets on such credit ratings and the impact these ratings and changes in these ratings may have on Sara Lee’s cost to borrow funds, access to capital/debt markets, and ability to complete the planned share repurchase; (xix) Sara Lee’s plan to refinance significant outstanding indebtedness in the next two years and the impact of potential changes in the credit environment; (xx) Sara Lee’s plan to repurchase a significant amount of its common stock and the impact of such repurchases on its earnings, cash flow and credit ratings; (xxi) 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 (xxii) changes in the expense for and contingent liabilities relating to multi-employer pension plans in which Sara Lee participates; and

• Uncertainty relating to our chief executive officer position and the fact that Sara Lee’s board has initiated a process to identify a permanent successor.

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.

ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports the corporation files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the corporation’s management, including its Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure based on management’s interpretation of the definition of “disclosure controls and procedures,” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost/benefit relationship of possible controls and procedures.

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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) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”) and, based upon such evaluation, have concluded that as of the Evaluation Date, the corporation’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the last fiscal quarter there have been no changes in the corporation’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the corporation’s internal control over financial reporting.

PART II

ITEM 1A – RISK FACTORS

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 3, 2010.

ITEM 2(c) – REPURCHASES OF EQUITY SECURITIES BY THE ISSUER

Issuer Purchases of Equity Securities

The following table outlines Sara Lee’s purchases of shares of its common stock during the first quarter of 2011.

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 and Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 4, 2010 to August 7, 2010		—		—		—		13,459,121	$	2.5 billion
August 8, 2010 to September 4, 2010		24,437,804		14.73		24,437,804		13,459,121	$	2.1 billion
September 5, 2010 to October 2, 2010		—		—		—		13,459,121	$	2.1 billion
Total		24,437,804		14.73		24,437,804		13,459,121	$	2.1 billion

(1) Sara Lee has two continuing stock repurchase programs under which it may repurchase shares of common stock in either open market or private transactions. With respect to the first program, Sara Lee announced on August 4, 2005 that its Board of Directors had increased the number of shares authorized under this program by an additional 100 million shares. As of October 2, 2010, 13.5 million shares remain authorized for repurchase under this program. With respect to the second program, Sara Lee announced on September 25, 2009 that its Board of Directors had authorized a $1.0 billion share repurchase program and on February 16, 2010 its Board of Directors had increased this repurchase program by $2.0 billion shares (for a total authorization of $3.0 billion shares). As of October 2, 2010, $873 million of shares have been repurchased under this program. There is no expiration date for either program.

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ITEM 6 – EXHIBITS

The Exhibits are numbered in accordance with Item 601 of Regulation S-K.

Exhibit Number	Description
10.1	Fiscal Year 2011-2013 Long-Term Restricted Stock Unit Grant Program Description
10.2	Form of Fiscal Year 2011-2013 Restricted Stock Unit Grant Notice and Agreement
10.3	Fiscal Year 2011-2013 Executive Management Long-Term Incentive Program Description
10.4	Form of Fiscal Year 2011-2013 Executive Management Long-Term Incentive Program Grant Notice and Agreement
10.5	Fiscal Year 2011-2013 Stock Option Grant Program Description
10.6	Form of Stock Option Grant Notice and Agreement under the 2002 Long-Term Incentive Stock Plan
10.7	Fiscal Year 2011 Annual Incentive Plan Program Description
12	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	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
32.2	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
101.1	Sections of the Sara Lee Corporation Quarterly Report on Form 10-Q for the quarter ended October 2, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Common Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; (v) Notes to Consolidated Financial Statements; and (vi) document and entity information.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SARA LEE CORPORATION
	(Registrant)
	By:	/s/ John P. Zyck
		John P. Zyck
		Interim Corporate Controller
DATE: November 10, 2010

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EX-10.1

Exhibit 10.1

SARA LEE CORPORATION

LONG-TERM RESTRICTED STOCK UNIT GRANT

PROGRAM DESCRIPTION

FISCAL YEARS 2011-2013

Highlights

This booklet explains the plan provisions of the Sara Lee Corporation Long-Term Restricted Stock Unit (LTRSU) grant covering fiscal years 2011 through 2013 (“Service Period”) with the restricted stock units (“RSUs”) vesting 100% on August 31, 2013 (the “Vesting Date”). The following pages provide detailed information relating to the grant of RSUs that you have received under the Plan.

The key features of this Plan are summarized below. In some countries other than the United States, variations in Plan design and rules may occur in order to comply with local laws and tax provisions.

Purpose

The LTRSU program is a significant component of Sara Lee’s executive compensation program. It enhances the competitiveness of Sara Lee’s total executive compensation package and facilitates the attraction and retention of highly qualified executives.

Restricted Stock Units

LTRSU awards are authorized under the Sara Lee Corporation 1998 Long-Term Incentive Stock Plan (“Stock Plan”). LTRSU awards are initially granted as RSUs at the beginning of the Service Period. On the Vesting Date, all of the RSUs that are earned will be converted to shares of Sara Lee common stock. Dividend equivalents that are payable on RSUs during the vesting periods are accrued on your behalf.

The release of RSUs on the Vesting Date is contingent upon your continued active employment by the Corporation until the Vesting Date, which is August 31, 2013.

SLC may substitute or offer alternative forms of incentive compensation in the event it either determines that tax or legal regulations in some countries require alternative forms of incentive compensation or as a voluntary alternative to RSUs.

• Individual RSU awards are approved on August 26, 2010 and on the January 2011 meeting of the Compensation and Employee Benefits Committee. Based upon your continued active service through the Vesting Date the RSUs are converted to actual shares of SLC stock, on a one-for-one basis, and issued in your name.

• You do not have voting rights on RSUs until the RSUs are converted to actual shares.

Dividend Equivalents

During the Service Period, dividend equivalents that are payable on the RSUs will be accrued on your behalf. These dividend equivalents are paid to you in cash after the RSUs have vested. At the Corporation’s discretion, the dividend equivalents may be applied toward your tax withholding obligations.

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Award Grant Notice

You will receive a Restricted Stock Unit Grant Notice and Agreement (“Grant Notice”) specifying the number of RSUs that have been granted and certain terms and conditions applicable to the grant. You should retain a copy of your Grant Notice along with other important legal documents. The Grant Notice will be distributed electronically through your E*Trade account. You must log into your E*Trade account and accept your grant(s) on-line. Instructions will be provided at the appropriate time. Sara Lee may from time to time modify the grant acceptance process and will notify you of any changes.

Tax Consequences

United States

Under current United States tax law, a Participant receives no taxable income from the RSUs when initially granted, or from accrued dividend equivalents. The Vesting Date is the date when the taxable event occurs, except to the extent a Participant paid in the U.S. and subject to U.S. taxation has elected to defer eligible distributions of the shares until a later date (“Deferred Vesting Date”). The market value of SLC common stock on the Vesting Date or the Deferred Vesting Date, as the case may be, will determine the amount of taxable income. When the number of shares actually earned has been determined, the market value of the shares on the Vesting Date or the Deferred Vesting Date, as well as the proportionate dividend equivalents are considered taxable income to the Participant. This amount is then subject to any applicable federal, state and local withholding. Amounts necessary to settle the tax-withholding obligation will be withheld from the accrued dividend equivalents and/or shares otherwise to be distributed to the Participant unless the Company determines otherwise.

If during the first two years following the Grant Date a Participant becomes retirement-eligible, as defined in the Administrative Guidelines Section, Sara Lee is required to withhold FICA taxes on all outstanding RSUs. The measurement date to determine retirement-eligible status and the value of the outstanding RSUs will be the first business day of each month, beginning in September each year. For those Participants who are identified as retirement-eligible at the measurement date, the FICA tax will be collected through payroll withholding during the payroll cycle(s) following the measurement date (e.g. September through December based upon the amount to be withheld). Once the FICA tax has been paid, no additional FICA tax will be required on the date of vest.

Countries other than the United States

Tax laws vary significantly from country to country, so professional advice should be obtained from appropriate counsel concerning the tax consequences of this grant. In most cases, Participants incur no taxable income from RSUs when initially awarded, or on the accrued dividend equivalents, until the Vesting Date. When the shares are earned, both the market value of the shares on the Vesting Date as well as the dividends distributed are typically considered income. For Participants residing outside the U.S. and not subject to U.S. tax laws, tax withholding for certain countries may be required and will be taken by Sara Lee Corporation in the U.S. Each Participant is responsible for compliance with the relevant legal and tax regulations in his or her tax jurisdiction.

Impact on Other Benefits

Any shares or dividend equivalents ultimately earned under this LTRSU grant are not considered compensation for purposes of any retirement plan, severance arrangement or other benefit plans in which a Participant currently participates or may become eligible to participate in at a later date.

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Stock Ownership Compliance

These RSUs will count towards the Corporation’s stock ownership guidelines during the Service Period. See Appendix II for the specific ownership guidelines by salary grade.

Non-Competetion/Non-Solicitation/Confidentialty Agreement

In order to receive your RSU grant, you are required to sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is a condition of your receipt of the RSU grant. Please read the Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety.

Forfeiture

Notwithstanding anything contained in this document to the contrary, if you engage in any activity contrary or harmful to the interests of the Company, including but not limited to: (1) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (2) violating any Company policies or breaching any non-competition, non-solicitation, or confidentiality agreement with the Company (or refusing to sign any such agreement if it is required as a condition to your employment or continued employment with the Company), (3) soliciting any present or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (4) disclosing or misusing any confidential information regarding the Company, or (5) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (i) this RSU award, to the extent it remains restricted, shall terminate automatically on the date on which you first engaged in such wrongful conduct and (ii) if the misconduct occurred within 6 months following the Vesting Date, you shall pay to the Company in cash any financial gain you realized from the vesting of the RSU, and (iii) if the misconduct occurred after the RSU has been deferred in the Deferred Compensation Plan and prior to the deferred payment date, you shall forfeit the deferred RSU and this RSU award shall terminate automatically on the date on which you first engaged in such wrongful conduct. For purposes of this section, financial gain shall equal, the fair market value of the Common Stock on the Vesting Date, multiplied by the number of RSUs pursuant to the vesting (without reduction for any shares of Common Stock surrendered or attested to for tax withholding purposes) reduced by any taxes paid in countries other than the United States (which taxes are not otherwise eligible for refund from the taxing authorities). By accepting this RSU award, you consent to and authorize the Sara Lee Companies to deduct from any amounts payable by the Sara Lee Companies to you, any amounts you owe to the Company under this section. This right of set-off is in addition to any other remedies the Company may have against you for the wrongful conduct.

Administrative Guidelines

The following guidelines apply to the FY11-13 LTRSU grant. Additional Administrative Guidelines may be adopted, as needed, during the Service Period for the efficient administration of the Plan.

• The Compensation and Employee Benefit Committee (“Committee”) is responsible for administering the Plan and has full power and authority to interpret the Plan and to adopt rules, regulations and guidelines for administering the Plan, as it deems necessary.

• The Committee functions as the Plan Administrator and its decisions are binding on all Participants.

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• The Committee reserves the right, in its absolute discretion, to make further adjustments in awards granted to any Participant prior to the release of those RSUs.

• The Committee may, as it deems appropriate, delegate some or all of its power to the Chief Executive Officer of Sara Lee Corporation. However, the Committee may not delegate its power concerning the grant, timing, pricing or amount of an award to any person who is a corporate officer or Key Executive.

• The Committee will approve the awards at the time they are granted for all Corporate Officers and Key Executives. The RSUs to be distributed along with the related dividend equivalents will be distributed as soon as practicable after the Vesting Date.

• Awards may be made to new Participants during the first year of the Service Period. The number of RSUs awarded may be adjusted to reflect that the executive is not a Participant for the entire Service Period.

• Awards may also be made to Participants who change positions during the first year of the Service Period, if such a change would have resulted in the Participant qualifying for an increased level of award.

• In the event of death or if the Participant becomes Totally Disabled (as defined under the appropriate long term disability benefit plan if applicable) the RSUs immediately vest and will be distributed to the estate or Participant as soon as practicable after that event date.

• In the case of a Participant attaining age 55 or older and having at least 10 years of service with the Corporation when a Participant’s employment terminates or attaining age 65, regardless of service, the RSUs will continue to vest under the normal vesting schedule (no pro-ration) and payout will occur at the normal payout time.

• A Participant who resigns or is terminated for cause during the Service Period generally forfeits the rights to all RSUs and any accrued dividend equivalents. Exceptions to this rule must be approved by the Chief Executive Officer of the Company.

• A Participant who is involuntarily terminated and receives severance from the Company is eligible for a pro-rated distribution of shares and any accrued dividend equivalents. The period of active employment (i.e., period in which the Participant is coded as active on the payroll system), but not the severance period, will be used to determine the pro-ration and payout will occur at the normal payout time.

• In the event that the division, business unit or business segment of the Company to which at least 80% of the Participant’s time is dedicated or from which the Participant is on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, the Participant’s employment with the Sara Lee Companies is terminated, the Participant will be eligible for a full distribution of shares and any accrued dividend equivalents. The shares will be distributed as soon as practicable after the event.

• Should a change in control occur (as defined in the Stock Plan), the Committee will decide what effect, if any, this should have on the awards which are outstanding under this Plan.

• If any statement in this Plan Description or any oral representation differs from the Stock Plan, the Stock Plan document prevails. The Stock Plan, the Grant Notice, and the Plan Description collectively comprise all terms and conditions applicable to the FY11-13 LTRSU grant.

• Any stock dividend, stock split, combination or exchange of securities, merger, consolidation, recapitalization, spin-off or other distribution of any or all of the assets of the Company will be handled as provided for in the Stock Plan.

• Nothing in the LTRSU grant shall confer on a Participant any right to continue in the employ of SLC or in any way affect SLC’s right to terminate the Participant’s employment in accordance with applicable laws.

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Appendix I

Definitions FY11- 13 LTRSU

a) Award Date means the date upon which the Committee approved the awards under this Plan. In this case the Award Date can mean August 26, 2010 or the January 2011 meeting of the Committee, unless an alternate date was required for tax and/or legal reasons in locations outside the United States.

b) The Committee means the Compensation and Employee Benefits Committee of the Sara Lee Corporation Board of Directors.

c) Company, Corporation or SLC means Sara Lee Corporation or any entity that is directly or indirectly controlled by Sara Lee Corporation, and its subsidiaries.

d) Deferred Vesting Date means the Distribution Date specified under the Sara Lee Corporation Executive Deferred Compensation Plan, in the event the Participant elected to defer his or her LTRSU award.

e) Dividend Equivalents has the same meaning as in the Stock Plan.

f) E*Trade is Sara Lee Corporation’s executive equity outsourcing vendor.

g) Grant Notice means the electronic document provided to each Participant evidencing the number of restricted stock units awarded, Vesting Dates and the basic terms and conditions of the award.

h) Key Executive means an employee in salary grade 38 and above.

i) Participant means an executive of the company who has been determined to be an eligible Participant and who has received a Grant Notice specifying the basic terms of participation in this Plan.

j) Restricted Stock Units (“RSUs”) has the same meaning as “stock awards” as that term is used in the Stock Plan.

k) Service Period is the three-year period of August 26, 2010 through and including August 31, 2013.

l) Stock Plan means the Sara Lee Corporation 1998 Long-Term Incentive Stock Plan or its successor plan or plans.

m) Total Disability is defined in the Key Executive Long-Term Disability Plan of SLC.

n) Vesting Date means August 31, 2013.

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Appendix II

Sara Lee Corporation

Executive Stock Ownership Requirements

Executive Position	Number of Shares
SLC Chairman & CEO Corporate Officer)	400,000
SLC Executive Vice President (Corporate Officer)	100,000
SLC Senior Vice President Corporate Officer)	50,000
SLC Vice President Corporate Officer)	15,000
Non-Officers (Salary grades 38 - 40)	15,000
Non-Officers (Salary grade 37)	14,000
Non-Officers (Salary grade 36)	12,000
Non-Officers (Salary grade 35)	11,000
Non-Officers (Salary grade 34)	10,000

STOCK HOLDINGS SATISFYING STOCK OWNERSHIP REQUIREMENTS

CONSIDERED SHARES OWNED	NOT CONSIDERED SHARES OWNED
Stock owned outright or in joint ownership	Stock options
Stock held in trusts over which the executive still retains control of the assets	Performance-based restricted stock units (PSUs) granted under any of the Sara Lee Corporation Long-Term Incentive programs
Stock held in brokerage accounts, mutual funds, IRA (retirement) accounts, or E*trade
Service-based Restricted Stock Units (RSUs) granted under any of the Sara Lee Corporation Long-Term Restricted Stock Unit (LTRSU) programs (both vested and non-vested shares count as shares owned)
Restricted shares paid under the Annual Incentive Plan; both vested and non-vested shares count as shares owned)
Shares held in the Sara Lee Corporation Employee Stock Purchase Plan
Shares held in any of the Sara Lee Corporation non-U.S. stock purchase plans or savings schemes
Shares held in the Sara Lee Corporation Investment Plan - (formerly known as the Dividend Reinvestment Plan (DRIP)
Common Stock Equivalents held in the Sara Lee Corporation Executive Deferred Compensation Plan
401(k) employee and employer contributions invested in the Sara Lee stock fund and all ESOP shares
Special retention grants

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EX-10.2

Exhibit 10.2

SARA LEE CORPORATION

RESTRICTED STOCK UNIT GRANT NOTICE AND AGREEMENT

FY 11-13 LTRSU

[INSERT PARTICIPANT NAME]

This Restricted Stock Unit (RSU) Grant Notice and Agreement, made this August 26, 2010 (“Award Date”), by Sara Lee Corporation, a Maryland corporation ( the “Company”) to you is evidence of an award made under the Sara Lee Corporation 1998 Long-Term Incentive Stock Plan (“Plan”) which is incorporated into this “Grant Notice and Agreement” by reference. A copy of the Plan and the FY11-13 LTRSU Program Description (“Program Description”) have been provided to you and are also available from the Sara Lee Corporate Compensation Department.

1. Restricted Stock Unit Award. Subject to the restrictions, limitations, terms and conditions specified in the Program Description, the Plan and this Grant Notice and Agreement, the Company hereby awards to you as of the Award Date:

             restricted stock units (RSUs)

from the FY11-13 LTRSU grant

which vest as follows:

100% on August 31, 2013

which are considered Stock Awards under the Plan (the “Award”). These RSUs will remain restricted until the Vesting Date (“Vesting Date”). Subject to paragraphs 6 and 7 below, if you are continuously employed by the Company or any of its subsidiaries (collectively the “Sara Lee Companies”) from the Award Date until the applicable Vesting Date, this Award will vest as indicated above on the Vesting Date.

Prior to the Vesting Date, the RSUs are not transferable by you by means of sale, assignment, exchange, pledge, or otherwise.

2. Acceptance of Terms and Conditions. By electronically acknowledging and accepting this Award, you agree to be bound by the terms and conditions contained in this Grant Notice and Agreement, the Plan and the Program Description and any and all conditions established by the Company in connection with Awards issued under the Plan and the Program Description, and understand that this Award neither confers any legal or equitable right (other than those rights constituting the Award itself) against the Company directly or indirectly, nor does it give rise to any cause of action at law or in equity against the Company. In order to vest in the Award described in this Grant Notice and Agreement, you must have accepted this Award.

3. Dividend Equivalents. Subject to the restrictions, limitations and conditions as described in the Plan and the Program Description, dividend equivalents payable on the RSUs will be accrued (in cash, without interest) on your behalf at the time that dividends are otherwise paid to owners of Sara Lee Corporation common stock.

4. Distribution of the Award. If the distribution is subject to tax withholding, such taxes will be settled by withholding cash and/or a number of shares with a market value not less than the amount of such taxes. Any cash from dividend equivalents remaining after withholding taxes are paid will be paid in cash to you. The net number of shares of Sara Lee Corporation common stock to be distributed will be delivered to your electronic stock plan account as soon as practicable after the Vesting Date. If withholding of taxes is not required, none will be taken and the gross number of shares will be distributed. You are personally responsible for the proper reporting and payment of all taxes related to this distribution.

5. Election to Defer Distribution. If the distribution is subject to U.S. tax law, you may elect to defer the distribution of all of the RSUs. Such election must be received by the Company in the form required by the Company no later than 30 days after the Award Date and is contingent upon the Company’s allowing deferrals into the Sara Lee Corporation Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) at that time. The deferral, if elected, will result in the transfer of the RSUs into the Deferred Compensation Plan’s Stock Equivalent Fund in effect at the time the RSUs would have otherwise been distributed. The Deferred Compensation Plan rules will govern the administration of this Award beginning on the date the RSUs are credited to the Deferred Compensation Plan.

6. Death, Total Disability or Retirement. If you cease active employment (i.e., cease to be coded as active on the payroll system) with the Sara Lee Companies, because of your death or because you become Totally Disabled (as defined under the appropriate long term disability benefit plan if applicable), the Award will vest immediately and be distributed to you or your estate as soon as practical. In the case of your attaining age 55 or older and, if you have at least 10 years of service with the Sara Lee Companies when your employment terminates or attain age 65 regardless of service, the Award will continue to vest after your termination. These provisions apply only to Awards under this Grant Notice and Agreement; other types of awards may have different provisions.

7. Involuntary Termination, Voluntary Termination and Non-Severance Event Termination. The following provisions apply only to the Award granted herein; other types of Awards may have different provisions:

(a) Involuntary Termination. If your employment with the Sara Lee Companies is terminated and you are eligible to receive severance benefits under the Sara Lee Corporation Severance Plan for Corporate Officers, the Severance Pay Plan, the Severance Pay Plan for Executives, the Severance Pay Plan for Certain Events or any other written severance plan of the Company (collectively, a “Severance Event Termination”), you will receive a prorated portion of the non-vested shares after the Vesting Date determined by multiplying the Award by a fraction, the numerator of which is your service from the Date of this Grant Notice and Agreement through your date of termination (not including severance period), and the denominator of which is three years.

In the event that the division, business unit or business segment of the Company to which at least 80% of your time is dedicated or from which you are on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, your employment with the Sara Lee Companies is terminated, all RSUs will vest as of the closing date of the transaction and be distributed as soon as practicable after the closing date of the transaction, unless otherwise determined by the Company. This provision does not apply with respect to any transaction that would be considered a Change of Control as defined in Article X of the Plan.

(b) Voluntary Termination and Non-Severance Event Termination. If your employment terminates for reasons other than those described above (i.e., you voluntarily terminate employment with the Sara Lee Companies or your employment is terminated by the Sara Lee Companies and you are not eligible for severance pay under any of the Company’s severance plans), then this Award shall be canceled on the date of your termination of employment.

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8. Non-Competition/Non-Solicitation/Confidentiality. In order to receive your RSU grants, you must sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is also a condition of your receipt of the RSU grant. Please carefully read the attached Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety and feel free to have your lawyer review it prior to signing it.

9. Forfeiture. Notwithstanding anything contained in this Grant Notice and Agreement to the contrary, if you engage in any activity inimical, contrary or harmful to the interests of the Company, including but not limited to: (a) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (b) violating any Company policies or breaching any non-competition, non-solicitation, or confidentiality agreement with the Company (or refusing to sign any such agreement if it is required as a condition to your employment or continued employment with the Company, (c) soliciting any present or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (d) disclosing or misusing any confidential information regarding the Company, or (e) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (i) this Award, to the extent it remains restricted, shall terminate automatically on the date on which you first engaged in such wrongful conduct, (ii) if the misconduct occurred within six months of a Vesting Date, you shall pay to the Company in cash any financial gain you realized from the vesting of the RSU, and (iii) if the misconduct occurred after the RSU has been deferred in the Deferred Compensation Plan and prior to the deferred payment date, you shall forfeit the deferred RSU and this Award shall terminate automatically on the date on which you first engaged in such wrongful conduct. For purposes of this section, financial gain shall equal, the fair market value of the Sara Lee Corporation common stock on the Vesting Date, multiplied by the number of RSUs actually distributed pursuant to this Award, reduced by any taxes paid in countries other than the United States which taxes are not otherwise eligible for refund from the taxing authorities. By accepting this RSU, you consent to and authorize the Company to deduct from any amounts payable by the Company to you, any amounts you owe to the Company under this section. This right of set-off is in addition to any other remedies the Company may have against you for breach of this Grant Notice and Agreement.

10. Rights as a Stockholder. You will have no rights as a stockholder with respect to any RSUs until and unless ownership of such RSUs have been transferred to you.

11. Conformity with the Plan. This Award is intended to conform in all respects with, and is subject to, all applicable provisions of the Plan. Any inconsistencies between this Grant Notice and Agreement, the Plan or the Program Description shall be resolved in accordance with the terms of the Plan. By your acceptance of this Grant Notice and Agreement, you agree to be bound by all of the terms of this Grant Notice and Agreement, the Plan and the Program Description.

12. Interpretations. Any dispute, disagreement or question which arises under, or as a result of, or in any way relates to the interpretation, construction or application of the Plan, this Grant Notice and Agreement or the Program Description will be determined and resolved by the Compensation and Employee Benefits Committee of the Company’s Board of Directors (“Committee”) or its delegate. Such determination or resolution by the Committee or its delegate will be final, binding and conclusive for all purposes.

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13. Employment Rights. Nothing in the Plan, this Grant Notice and Agreement or the Program Description confers on any Participant any right to continue in the employ of the Sara Lee Companies or in any way affects a Sara Lee Company’s right to terminate your employment without prior notice any time for any reason.

14. Consent to Transfer Personal Data. By accepting this Award, you voluntarily acknowledge and consent to the collection, use, processing and transfer of personal data as described in this paragraph. You are not obliged to consent to such collection, use, processing and transfer of personal data. The Company holds certain personal information about you, that may include your name, home address and telephone number, fax number, email address, sex, beneficiary information, age, language skills, date of birth, social security number or other employee identification number, job title, employment or severance contract, current wage and benefit information, tax-related information, plan or benefit enrollment forms and elections, option or benefit statements, any shares of stock or directorships in the Company, details of all options or any other entitlements to shares of stock awarded, canceled, purchased, vested, unvested or outstanding in your favor, for the purpose of managing and administering the Plan (“Data”). The Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan, and the Company may further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan or Program Description. These recipients may be located throughout the world, including the United States. You authorize them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of stock on your behalf to a broker or other third party with whom you may elect to deposit any shares of stock acquired pursuant to the Plan. You may, at any time, review Data, require any necessary amendments to it or withdraw the consents herein in writing by contacting the Company.

15. Miscellaneous.

(a) Modification. This Award is documented by the minutes of the Committee and or as approved by the CEO for non-corporate officers, which records are the final determinant of the number of RSUs granted and the conditions of this grant. The Committee may amend or modify this Award in any manner to the extent that the Committee would have had the authority under the Plan initially to grant such RSUs, provided that no such amendment or modification shall impair your rights under this Grant Notice and Agreement without your consent. Except as in accordance with the two immediately preceding sentences and paragraph 16, this Grant Notice and Agreement may be amended, modified or supplemented only by an instrument in writing signed by both parties hereto.

(b) Governing Law. All matters regarding or affecting the relationship of the Company and its stockholders shall be governed by the General Corporation Law of the State of Maryland. All other matters arising under this Grant Notice and Agreement shall be governed by the internal laws of the State of Illinois, including matters of validity, construction and interpretation. You and the Company agree that all claims in respect of any action or proceeding arising out of or relating to this Grant Notice and Agreement shall be heard or determined in any state or federal court sitting in Chicago, Illinois, and you agree to submit to the jurisdiction of such courts, to bring all such actions or proceedings in such courts and to waive any defense of inconvenient forum to such actions or proceedings. A final judgment in any action or proceeding so brought shall be conclusive and may be enforced in any manner provided by law.

(c) Successors and Assigns. Except as otherwise provided herein, this Grant Notice and Agreement will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not.

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(d) Severability. Whenever feasible, each provision of this Grant Notice and Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Grant Notice and Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Grant Notice and Agreement.

16. Amendment. Notwithstanding anything in the Plan, the Program Description or this Grant Notice and Agreement to the contrary, this Award may be amended by the Company without the consent of you, including but not limited to modifications to any of the rights granted to you under this Award, at such time and in such manner as the Company may consider necessary or desirable to reflect changes in law.

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EX-10.3

Exhibit 10.3

SARA LEE CORPORATION

EXECUTIVE MANAGEMENT LONG-TERM INCENTIVE PROGRAM

FISCAL YEARS 2011-2013

Program Description

Highlights

This booklet explains the provisions of the Sara Lee Corporation (“SLC” or the “Company”) Executive Management Long-Term Incentive Program (the “EMLTIP” or the “Program”) which covers fiscal years 2011 - 2013 (the “Performance Cycle”). The following pages provide detailed information relating to the grant of Performance Stock Units (“PSUs”) awarded under the Program. Awards granted under the Program are made from shares authorized under either the 1998 or 2002 Long-Term Incentive Stock Plans (the “Plan(s)”).

The key features of this Program are summarized below. In some countries other than the United States, variations in Program design may occur in order to comply with local laws and tax regulations.

This brochure provides a summary of the Program and in the case of a conflict between this document and the terms of the Plan, the Plan’s terms shall govern. The Compensation and Employee Benefits Committee (the “Committee”) of the Sara Lee Corporation Board of Directors retains the discretion to make changes in the Program and/or the performance measurement methodology and any such changes shall be binding on all Program Participants.

Purpose

SLC has created the Program for fiscal years 2011-2013 in order to:

• Motivate and reward Global Leadership Team (“GLT”) executives for the achievement of a specified 3-year target of operating income

• Provide, in combination with stock options and restricted stock units, a competitive long-term incentive compensation opportunity to Participants and assist in attracting and retaining highly qualified and motivated executive talent

Participation

• Participation in the Program is limited to the GLT, which typically includes all executives in salary grades 33 and above.

Performance Stock Units

PSUs are restricted, with payout based upon both the continued service of Program Participants and SLC’s performance against the established financial performance goal. These restrictions include a prohibition against the transfer of the PSUs during the Performance Cycle. Any shares not earned at the end of the Performance Cycle are forfeited and returned to the Plans.

SLC may substitute or offer alternative forms of incentive compensation in the event it is determined that tax or legal regulations in a country provide more favorable treatment for those alternative forms of incentive compensation or as a voluntary alternative to PSUs. The key terms of this Program are as follows:

• PSUs under this Program are granted only during the first fiscal year of the Performance Cycle. At the end of the Performance Cycle, based upon the actual performance results, the appropriate number of PSUs are converted to shares of SLC common stock and issued to Program Participants.

• The number of shares that will be released to Participants is dependent upon the extent to which the pre-established performance goal is achieved during the Performance Cycle. EMLTIP awards are initially granted in the form of a target number of PSUs at the beginning of the Performance Cycle. If the Threshold performance goal is achieved and based upon the actual performance results at the end of the Performance Cycle, the number of PSUs earned can range between 25% and 150% of the original number of PSUs granted and will be converted to shares of SLC’s common stock.

• Participants do not have voting rights on PSUs during the Performance Cycle.

• PSUs are not considered as shares owned during the Performance Cycle for purposes of compliance with the Company’s Stock Ownership Program.

Dividend Equivalents

During the Performance Cycle, Dividend Equivalents are accrued on behalf of the Participants. Amounts credited to the accrued Dividend Equivalent account at the end of the Performance Cycle are distributed in the same proportion as the restrictions on the PSUs lapse. For example, if 125% of the PSUs are earned, then 125% of the balance in the accrued Dividend Equivalent account will be paid at the same time the SLC shares of common stock are released. Dividend Equivalents that were accrued but not earned based upon the actual performance results as determined at the end of the Performance Cycle will be forfeited.

Performance Measure

The Performance Cycle begins July 4, 2010 and ends June 29, 2013, and is aligned with SLC’s fiscal years 2011 through 2013.

The Performance Levels and Payout are as follows:

	Threshold	Target	Maximum
Performance Level	90% of Target	100% of Target	115% of Target
Payout of PSUs Granted	25%	100%	150%

• Payouts between payout levels will be determined by linear interpolation

• Results below Threshold will result in a zero payout

The specific performance goals for the 3-year Cumulative Operating Income Targets were approved by the Committee and are contained in the minutes of the meeting at which the Program was approved.

The above information is confidential and is intended only for Program Participants’ use and is bound by the Non-Competition/Non-Solicitation/Confidentiality Agreement, described below, between the Company and the Program Participant.

Form of Payment

Vested awards are paid in shares of SLC common stock while earned Dividend Equivalents are paid in cash. Payouts will be made net of any required tax withholding, which will be taken first from the earned

Dividend Equivalents and then secondarily from the SLC shares that have been earned, unless the Company determines otherwise.

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Award Grant Notice and Agreement

Each Participant will receive a PSU Grant Notice and Agreement (“Grant Notice”) specifying the number of PSUs that have been granted and the terms and conditions applicable to the grant. The Grant Notice and Agreement and this Program Description should be retained with the Participant’s other important documents.

Tax Consequences

United States

Under current United States tax laws, a Participant does not realize any taxable income from the PSUs when they are initially granted, or from accrued Dividend Equivalents. The “Vesting Date”, i.e., August 31, 2013, is the date when the taxable event occurs, except to the extent that a Participant who is subject to the U.S. federal income tax has elected to defer distribution of the shares until a later date (“Deferred Vesting Date”). The market value of SLC common stock on the Vesting Date or the Deferred Vesting Date, as the case may be, will determine the amount of taxable income. When the number of shares actually earned has been determined, the market value of the shares on the Vesting Date or the Deferred Vesting Date, as well as the proportionate Dividend Equivalents are considered income to the Participant. This amount is then subject to applicable federal, state and local withholding. Amounts necessary to settle the tax-withholding obligation will first be withheld from the accrued Dividend Equivalents and then from the shares that would be distributed to the Participant, unless the Company determines otherwise. Federal tax will be withheld at the required statutory supplemental federal tax rate in effect at the time of the distribution. In 2010 that rate was 25%.

Countries other than the United States

Tax laws vary among countries, so Participants should seek reputable tax counsel concerning the tax consequences of this grant in their respective countries of taxation. In most cases, Participants incur no taxable income from PSUs when initially awarded, or on the accrued Dividend Equivalents, until the Vesting Date. When the shares are earned, both the market value of the shares on the Vesting Date as well as the Dividends Equivalents distributed are typically considered income. For those individuals residing outside the U.S. and not subject to U.S. tax laws, tax due for some countries may be required to be withheld by SLC in the U.S. Each Participant is responsible for compliance with the relevant legal and tax regulations in his or her tax jurisdiction.

Impact on Other Benefits

Any shares or Dividend Equivalents earned under the EMLTIP are not considered compensation for purposes of any retirement plan, severance arrangement or other benefit plans in which a Participant currently participates or may become eligible to participate in at a later date.

Non-Competetion/Non-Solicitation/Confidentialty Agreement

In order to receive your PSU grant, you must sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is a condition of your receipt of the PSU grant. You are advised to read the Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety before signing.

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Forfeiture

Notwithstanding anything contained in this document to the contrary, you may forfeit all or a portion of the Award and/or be required to repay the Company, or you may be entitled to an increased Award, upon the occurrence of any of the following events.

(a) Misconduct. If you engage in any activity contrary or harmful to the interests of the Company, including but not limited to: (i) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (ii) violating any Company policies, (iii) soliciting any present or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (iv) disclosing or misusing any confidential information regarding the Company, or (v) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (A) this Award, to the extent it remains restricted, shall terminate automatically on the date on which you first engaged in such wrongful conduct, (B) if the wrongful conduct occurred within six months of a Vesting Date, you shall pay to the Company in cash any financial gain you realized from the vesting of the PSU, and (C) if the wrongful conduct occurred after the PSU has been deferred in the Deferred Compensation Plan and prior to the deferred payment date, you shall forfeit the deferred PSU and this Award shall terminate automatically on the date on which you first engaged in such wrongful conduct.

(b) Restatement of Financial Results. This paragraph (b) applies to you only if you are an “officer” of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, at the time you received this Award (“Officer Participant”). If you are an Officer Participant and you vest in an Award (including if the distribution of an incentive award is deferred pursuant to the Deferred Compensation Plan), which vesting was predicated upon the Company achieving certain financial results (the “Original Amount”), and within two years after the Vesting Date the Company restates its financial statements due to material noncompliance with financial reporting requirements under the securities laws (such restated financial statements, the “Restated Financials”), then the vested amount of the Award shall be recalculated based on the Restated Financials (the “Adjusted Amount”). If the Original Amount is greater than the Adjusted Amount, then on the date on which the Company files the Restated Financials with the Securities and Exchange Commission (“SEC”), any vested portion of this Award that has not yet been distributed automatically shall be reduced by an amount equal to (i) the Original Amount, less (ii) the Adjusted Amount. If the Adjusted Amount is greater than the Original Amount, then on the date on which the Company files the Restated Financials with the SEC, any vested amount that has not yet been distributed automatically shall be increased by an amount equal to (A) the Adjusted Amount, less (B) the Original Amount. If the incentive award already has been distributed then, within 90 days after the date on which the Company files the Restated Financials with the SEC, (x) you shall pay to the Company, in cash, any financial gain you realized from the vesting of the incentive award that is attributable to the excess of the Original Amount over the Adjusted Amount, if the Original Amount is greater than the Adjusted Amount, or (y) the Company shall pay to you, in cash, an amount equal to the excess of the Adjusted Amount over the Original Amount, if the Adjusted Amount is greater than the Original Amount. No interest will be due to or paid by the Company or you to the other with respect to any such true up payment. If you elected to defer any portion of an incentive award pursuant to the Deferred Compensation Plan and an adjustment under this paragraph (b) is required before the deferral payment date, then your account under the Deferred Compensation Plan shall be credited or charged so that the deferred award equals the Adjusted Amount. The Compensation and Employee Benefits Committee of the Company’s Board of Directors may determine, in its discretion and based on the circumstances leading to the Company’s filing of Restated Financials with the SEC, that any recoupment or payment under this paragraph (b) is not practical and may elect to forego the application of this paragraph (b)

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Administrative Guidelines

The following guidelines apply to the Program. Additional Administrative Guidelines may be adopted, as needed, during the Performance Cycle for the efficient administration of the Program.

• The Committee is responsible for administering the Program and has full power and authority to interpret the Program and to adopt rules, regulations and guidelines for carrying out the Program, as it deems necessary.

• The Committee functions as the Program Administrator and its decisions are binding on all persons.

• The Committee reserves the right, in its absolute discretion, to reduce or eliminate the awards earned by any Participant.

• The Committee reserves the right, in its absolute discretion, to make adjustments in reported performance (for purposes of measuring results vs. the goals) or in awards earned by reference to that performance with respect to any Participant who would not qualify as a Participant at the end of the Performance Cycle.

• The Committee reserves the right to change any of the terms and conditions of the Program award to the Participants, including the definition of adjusted operating income, if deemed necessary on advice of counsel to meet the requirements for a “performance-based exemption” under the regulations or rulings of §162(m) of the Internal Revenue Code.

• The Committee may, as it deems appropriate, delegate some or all of its power to the Chief Executive Officer or other executive officer of the Corporation. However, the Committee may not delegate its power concerning the grant, timing, pricing or amount of an award to any person who is a Program Participant.

• The Chief Financial Officer will be responsible for confirming the financial results under the Program. The Committee will approve the awards when granted during fiscal year 2011 and approve distributions to be made at the end of the Performance Cycle for all Program Participants. The portion of the shares earned along with the related accrued Dividend Equivalents will be distributed as soon as practicable after the completion of the Performance Cycle and the Vesting Date.

• Awards may be made to new Participants during the first year of the Performance Cycle. The number of PSUs awarded may be adjusted to reflect that the executive is not a Participant for the entire Performance Cycle.

• Awards may be made to Participants who change positions during the first year of the Performance Cycle, if such a change would have resulted in the Participant’s qualifying for an increased level of award.

• In the event of a Participant’s death, a Participant becoming Totally Disabled (as defined under the appropriate long term disability benefit plan if applicable) or if a Participant retires at age 55 or later and has at least 10 years of service with SLC or if the Participant has attained age 65, regardless of the service period prior to the last day of fiscal year 2010, all PSUs granted would continue to vest and be eligible for distribution at the end of the Performance Cycle based upon proration for performance only, subject to approval of the Committee. If applicable, the shares and related Dividend Equivalents will be distributed at the normal payout time.

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• A Participant who voluntarily resigns or is terminated without severance benefits during the Performance Cycle forfeits the rights to all PSUs, RSUs and any accrued Dividend Equivalents. Participants who are involuntarily terminated and receive severance benefits are eligible for a prorated distribution, subject to Committee approval. In order to be considered for any prorated distribution under this Program provision, a Participant must have completed 12 months of active employment (i.e., coded as active on the payroll system). The period of active employment, but not the severance period, will be used to determine the pro-ration and payout will occur at the normal payout time.

• In the event that the division, business unit or business segment of the Company to which at least 80% of the Participant’s time is dedicated or from which the Participant is on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, the Participant’s employment with the Sara Lee Companies is terminated, PSUs will continue to vest during the Performance Cycle and the Participant will be eligible for a distribution of shares at the end of the Performance Cycle, pro-rated only for performance, subject to approval of the Committee.

• Should a change in control occur (as defined in the Stock Plan), the Committee will decide what effect, if any, this should have on the awards which are outstanding under this Plan.

• If any statement in this Program Description or any oral representation differs from the Plans, the Plans prevail. The Plans, Grant Notice and Agreement and Program Description collectively comprise all terms and conditions applicable to the Program.

• Any stock dividend, stock split, combination or exchange of securities, merger, consolidation, recapitalization, spin-off or other distribution of any or all of the assets of the SLC will be handled as provided for in the Plans.

• Nothing in the Program shall confer on a Participant any right to continue in the employ of SLC or in any way affect SLC’s right to terminate the Participant’s employment in accordance with applicable laws.

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APPENDIX I

Definitions

a) Adjusted Operating Income is defined in the same way for the EMLTIP as for the FY11 Annual Incentive Plan, and means pre-tax income, before interest, and tobacco proceeds, with the following adjustment(s):

• Actual Operating Income shall be measured using plan currency rates at FY11 peg rates

• Operating Income of businesses acquired during the year and not included in the Annual Operating Plan shall be excluded.

• Operating Income of businesses divested and not included in the Annual Operating Plan as divestments will only be included through the date of divestment, and targets and results will be adjusted accordingly.

b) Award Date means the date upon which the Board of Directors or the Committee approved the awards under this Program.

c) Committee means the Compensation and Employee Benefits Committee of the Sara Lee Corporation Board of Directors.

d) Company or Corporation means Sara Lee Corporation or any entity that is directly or indirectly controlled by Sara Lee Corporation, and its subsidiaries.

e) Deferred Vesting Date means the Distribution Date specified under the Sara Lee Corporation Executive Deferred Compensation Plan, in the event the Participant elected to defer his or her LTI award.

f) Dividend Equivalents has the same meaning as in the Plans.

g) Grant Notice and Agreement means the document provided to each Participant evidencing the number of Performance Stock Units awarded and the basic terms and conditions of the award.

h) Participant means an executive of the company who has been determined to be an eligible Participant and who has received a Grant Notice and Agreement specifying the basic terms of participation in this Program. Participants for the FY11-13 Performance Cycle include all GLT members which typically includes all executives in salary grades 33 and above.

i) Performance Cycle is the three-year period consisting of SLC’s fiscal years 2011 through and including 2013.

j) Performance Stock Units has the same meaning as “performance units” as that term is used in the Plans.

k) Plans mean the Sara Lee Corporation 1998 and 2002 Long-Term Incentive Stock Plans or the successor plan or plans.

l) Program means the FY11-13 Executive Management Long-Term Incentive Plan.

m) Totally Disabled is as defined under the SLC Key Executive Long-Term Disability Plan or the equivalent term under the specific Sara Lee sponsored long term disability plan under which the Participant is covered.

n) Vesting means the determination made at the end of the Performance Cycle as to how many, if any, of the PSUs that are actually earned by a Participant based upon actual performance results.

o) Vesting Date means August 31, 2013.

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EX-10.4

Exhibit 10.4

SARA LEE CORPORATION

EXECUTIVE MANAGEMENT LONG-TERM INCENTIVE PROGRAM

(FY11-13 EMLTIP)

Grant Notice and Agreement

[INSERT PARTICIPANT NAME]

This Performance-Based Restricted Stock Unit (PSU) Grant Notice and Agreement, made this August 26, 2010 (“Award Date”), by Sara Lee Corporation, a Maryland corporation (“Company”) to you is evidence of an award made under the Sara Lee Corporation 2002 Long-Term Incentive Stock Plan (“Plan”) which is incorporated into this “Grant Notice and Agreement” by reference. A copy of the Plan and the FY11-13 EMLTIP Program Description (“Program Description”) have been or will be provided to you and are also available from the Sara Lee Corporate Compensation Department.

1. Performance-Based Restricted Stock Unit Award. Subject to the restrictions, limitations, terms and conditions specified in the Program Description, the Plan and this Grant Notice and Agreement, the Company hereby awards to you as of the Award Date:

             Performance Stock Units (PSUs)

which are considered Stock Awards under the Plan (the “Award”). The vesting of this Award is based both upon your continued service with the Company or any of its subsidiaries (collectively the “Sara Lee Companies”) and the Company’s performance during the “Performance Cycle”, as detailed in the Program Description, and therefore the actual number of PSUs ultimately released, if any, is determined at the end of the Performance Cycle. Prior to the date the PSUs vest (“Vesting Date”), the PSUs are not transferable by you by means of sale, assignment, exchange, pledge, or otherwise.

2. Acceptance of Terms and Conditions. By acknowledging and accepting this Award, you agree to be bound by the terms and conditions contained in this Grant Notice and Agreement, the Plan and the Program Description and any and all conditions established by the Company in connection with Awards issued under the Plan and the Program Description, and understand that this Award neither confers any legal or equitable right (other than those rights constituting the Award itself) against the Company directly or indirectly, nor does it give rise to any cause of action at law or in equity against the Company. In order to vest in the Award described in this Grant Notice and Agreement, you must have accepted this Award.

3. Dividend Equivalents. Subject to the restrictions, limitations and conditions as described in the Plan and the Program Description, dividend equivalents payable on the PSUs will be accrued (in cash, without interest) on your behalf at the time that dividends are otherwise paid to owners of Sara Lee Corporation common stock.

4. Distribution of the Award. If the distribution is subject to tax withholding, such taxes will be settled by withholding cash and/or a number of shares with a market value not less than the amount of such taxes. Any cash from dividend equivalents remaining after withholding taxes are paid will be paid in cash to you. The net number of shares of Sara Lee Corporation common stock to be distributed will be delivered to your electronic stock plan account as soon as practicable after the Vesting Date. If withholding of taxes is not required, none will be taken and the gross number of shares will be distributed. You are personally responsible for the proper reporting and payment of all taxes related to this distribution.

5. Election to Defer Distribution. If the distribution is subject to U.S. tax law, you may elect to defer the distribution of all of the PSUs. Such election must be received by the Company in the form required by the Company no later than 30 days after the Award Date and is contingent upon the Company’s allowing deferrals into the Sara Lee Corporation Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) at that time. The deferral, if elected, will result in the transfer of the PSUs into the Deferred Compensation Plan’s Stock Equivalent Fund in effect at the time the PSUs would have otherwise been distributed. The Deferred Compensation Plan rules will govern the administration of this Award beginning on the date the PSUs are credited to the Deferred Compensation Plan.

6. Death, Total Disability or Retirement. If you cease active employment (i.e., cease to be coded as active on the payroll system) with the Sara Lee Companies, because of your death or because you become Totally Disabled (as defined under the appropriate long term disability benefit plan, if applicable), the Award will continue to vest and be distributed to you or your estate at the same time as it is to other Participants. In the case of your attaining age 55 or older and, if you have at least 10 years of service with the Sara Lee Companies when your employment terminates or attain age 65, regardless of service, the Award will continue to vest after your termination. These provisions apply only to Awards under this Grant Notice and Agreement; other types of awards may have different provisions.

7. Involuntary Termination, Voluntary Termination and Non-Severance Event Termination. The following provisions apply only to the Award granted herein; other types of Awards may have different provisions

(a) Involuntary Termination. If your employment with the Sara Lee Companies is terminated and you are eligible to receive severance benefits under the Sara Lee Corporation Severance Plan for Corporate Officers, the Severance Pay Plan, the Severance Pay Plan for Executives, the Severance Pay Plan for Certain Events or any other written severance plan of the Company (collectively, a “Severance Event Termination”), you must have completed at least twelve full months of active employment during the Performance Cycle to be eligible to receive a pro-rated distribution based upon your service through the termination date (not including severance period) and the Company’s performance results. If the requirement for twelve months of active employment is not met, all the PSUs under this grant will be canceled.

In the event that the division, business unit or business segment of the Company to which at least 80% of your time is dedicated or from which you are on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, your employment with the Sara Lee Companies is terminated, PSUs will continue to vest during the Performance Cycle and are subject to pro-ration only for performance results. This provision does not apply with respect to any transaction that would be considered a Change of Control as defined in Article X of the Plan.

(b) Voluntary Termination and Non-Severance Event Termination. If your employment terminates for reasons other than those described above (i.e., you voluntarily terminate employment with the Sara Lee Companies or your employment is terminated by the Sara Lee Companies and you are not eligible for severance pay under any of the Company’s severance plans), then this Award shall be canceled on the date of your termination of employment.

8. Non-Competition/Non-Solicitation/Confidentiality. In order to receive your PSU grants, you must sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is also a condition of your receipt of the PSU grant. Please carefully read the attached Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety and feel free to have your lawyer review it prior to signing it.

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9. Forfeiture or Adjustment. Notwithstanding anything contained in this Grant Notice and Agreement to the contrary, you may forfeit all or a portion of the Award and/or be required to repay the Company, or you may be entitled to an increased Award, upon the occurrence of any of the following events.

(a) Misconduct. If you engage in any activity contrary or harmful to the interests of the Company, including but not limited to: (i) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (ii) violating any Company policies, (iii) soliciting any present or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (iv) disclosing or misusing any confidential information regarding the Company, or (v) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (A) this Award, to the extent it remains restricted, shall terminate automatically on the date on which you first engaged in such wrongful conduct, (B) if the wrongful conduct occurred within six months of a Vesting Date, you shall pay to the Company in cash any financial gain you realized from the vesting of the PSU, and (C) if the wrongful conduct occurred after the PSU has been deferred in the Deferred Compensation Plan and prior to the deferred payment date, you shall forfeit the deferred PSU and this Award shall terminate automatically on the date on which you first engaged in such wrongful conduct.

(b) Restatement of Financial Results. This paragraph (9)(b) applies to you only if you are an “officer” of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, at the time you received this Award (“Officer Participant”). If you are an Officer Participant and you vest in an Award (including if the distribution of an incentive award is deferred pursuant to the Deferred Compensation Plan), which vesting was predicated upon the Company achieving certain financial results (the “Original Amount”), and within two years after the Vesting Date the Company restates its financial statements due to material noncompliance with financial reporting requirements under the securities laws (such restated financial statements, the “Restated Financials”), then the vested amount of the Award shall be recalculated based on the Restated Financials (the “Adjusted Amount”). If the Original Amount is greater than the Adjusted Amount, then on the date on which the Company files the Restated Financials with the Securities and Exchange Commission (“SEC”), any vested portion of this Award that has not yet been distributed automatically shall be reduced by an amount equal to (i) the Original Amount, less (ii) the Adjusted Amount. If the Adjusted Amount is greater than the Original Amount, then on the date on which the Company files the Restated Financials with the SEC, any vested amount that has not yet been distributed automatically shall be increased by an amount equal to (A) the Adjusted Amount, less (B) the Original Amount. If the incentive award already has been distributed then, as soon as practicable after the date on which the Company files the Restated Financials with the SEC, (x) you shall pay to the Company, in cash, any financial gain you realized from the vesting of the incentive award that is attributable to the excess of the Original Amount over the Adjusted Amount, if the Original Amount is greater than the Adjusted Amount, or (y) the Company shall pay to you, in cash, an amount equal to the excess of the Adjusted Amount over the Original Amount, if the Adjusted Amount is greater than the Original Amount. No interest will be due to or paid by the Company or you to the other with respect to any such true up payment. If you elected to defer any portion of an incentive award pursuant to the Deferred Compensation Plan and an adjustment under this paragraph 9(b) is required before the deferral payment date, then your account under the Deferred Compensation Plan shall be credited or charged so that the deferred award equals the Adjusted Amount. The Compensation and Employee Benefits Committee of the Company’s Board of Directors may determine, in its discretion and based on the circumstances leading to the Company’s filing of Restated Financials with the SEC, that any recoupment or payment under this paragraph 9(b) is not practical and may elect to forego the application of this paragraph 9(b).

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10. Rights as a Stockholder. You will have no rights as a stockholder with respect to any PSUs until and unless ownership of such PSUs have been transferred to you.

11. Conformity with the Plan. This Award is intended to conform in all respects with, and is subject to, all applicable provisions of the Plan. Any inconsistencies between this Grant Notice and Agreement, the Plan or the Program Description shall be resolved in accordance with the terms of the Plan. By your acceptance of this Grant Notice and Agreement, you agree to be bound by all of the terms of this Grant Notice and Agreement, the Plan and the Program Description.

12. Interpretations. Any dispute, disagreement or question which arises under, or as a result of, or in any way relates to the interpretation, construction or application of the Plan, this Grant Notice and Agreement or the Program Description will be determined and resolved by the Compensation and Employee Benefits Committee of the Company’s Board of Directors (“Committee”) or its delegate. Such determination or resolution by the Committee or its delegate will be final, binding and conclusive for all purposes.

13. Employment Rights. Nothing in the Plan, this Grant Notice and Agreement or the Program Description confers on any Participant any right to continue in the employ of the Sara Lee Companies or in any way affects a Sara Lee Company’s right to terminate your employment without prior notice any time for any reason.

14. Consent to Transfer Personal Data. By accepting this Award, you voluntarily acknowledge and consent to the collection, use, processing and transfer of personal data as described in this paragraph. You are not obliged to consent to such collection, use, processing and transfer of personal data. The Company holds certain personal information about you, that may include your name, home address and telephone number, fax number, email address, sex, beneficiary information, age, language skills, date of birth, social security number or other employee identification number, job title, employment or severance contract, current wage and benefit information, tax-related information, plan or benefit enrollment forms and elections, option or benefit statements, any shares of stock or directorships in the Company, details of all options or any other entitlements to shares of stock awarded, canceled, purchased, vested, unvested or outstanding in your favor, for the purpose of managing and administering the Plan (“Data”). The Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan, and the Company may further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan or Program Description. These recipients may be located throughout the world, including the United States. You authorize them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of stock on your behalf to a broker or other third party with whom you may elect to deposit any shares of stock acquired pursuant to the Plan. You may, at any time, review Data, require any necessary amendments to it or withdraw the consents herein in writing by contacting the Company.

15. Miscellaneous.

(a) Modification. This Award is documented by the minutes of the Committee and or as approved by the CEO for non-corporate officers, which records are the final determinant of the number of PSUs granted and the conditions of this grant. The Committee may amend or modify this Award in any manner to the extent that the Committee would have had the authority under the Plan initially to grant such PSUs, provided that no such amendment or modification shall impair your rights under this Grant Notice and Agreement without your consent. Except as in accordance with the two immediately preceding sentences and paragraph 16, this Grant Notice and Agreement may be amended, modified or supplemented only by an instrument in writing signed by both parties hereto.

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(b) Governing Law. All matters regarding or affecting the relationship of the Company and its stockholders shall be governed by the General Corporation Law of the State of Maryland. All other matters arising under this Grant Notice and Agreement shall be governed by the internal laws of the State of Illinois, including matters of validity, construction and interpretation. You and the Company agree that all claims in respect of any action or proceeding arising out of or relating to this Grant Notice and Agreement shall be heard or determined in any state or federal court sitting in Chicago, Illinois, and you agree to submit to the jurisdiction of such courts, to bring all such actions or proceedings in such courts and to waive any defense of inconvenient forum to such actions or proceedings. A final judgment in any action or proceeding so brought shall be conclusive and may be enforced in any manner provided by law.

(c) Successors and Assigns. Except as otherwise provided herein, this Grant Notice and Agreement will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not.

(d) Severability. Whenever feasible, each provision of this Grant Notice and Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Grant Notice and Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Grant Notice and Agreement.

16. Amendment. Notwithstanding anything in the Plan, the Program Description or this Grant Notice and Agreement to the contrary, this Award may be amended by the Company without the consent of you, including but not limited to modifications to any of the rights granted to you under this Award, at such time and in such manner as the Company may consider necessary or desirable to reflect changes in law.

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EX-10.5

Exhibit 10.5

SARA LEE CORPORATION

STOCK OPTION GRANT

FISCAL YEARS 2011-2013

Program Description

Highlights

This booklet explains the plan provisions of the Sara Lee Corporation Stock Option grant covering fiscal years 2011 through 2013 (“Service Period”) with the Stock Options (“Options”) vesting 100% on August 31, 2013 (the “Vesting Date”). The following pages provide detailed information relating to the grant of Options that you have received under the program.

The key features of this program are summarized below. In some countries other than the United States, variations in program design and rules may occur in order to comply with local laws and tax provisions.

Purpose

The Option program is a significant component of Sara Lee’s long-term incentive compensation program. It enhances the competitiveness of Sara Lee’s total executive compensation package, aligns senior executives with stockholder interests, and facilitates the attraction and retention of highly qualified executives.

Stock Options

A stock option entitles the Participant to purchase shares of SLE stock at a fixed price over a period of time, typically 10 years. The value of the stock option increases when the market value of SLE stock exceeds the “Exercise Price” of the stock option. When you exercise an option, you purchase and then own the Sara Lee common shares you receive from the transaction.

Option awards are authorized under the Sara Lee Corporation 1998 Long-Term Incentive Stock Plan (“Stock Plan”). Option awards are granted at the beginning of the Service Period. The vesting of the Options on the Vesting Date is contingent upon your continued active employment by the Corporation until the Vesting Date, which is August 31, 2013.

SLC may substitute or offer alternative forms of incentive compensation in the event it either determines that tax or legal regulations in some countries outside the United States provide more favorable treatment for these alternative forms of incentive compensation or as a voluntary alternative to Options.

• Individual Option awards are approved on August 26, 2010 and on the January 2011 meeting of the Compensation and Employee Benefit Committee. Based upon your continued active service through the Vesting Date, the Options become fully vested and are eligible to be exercised.

• You do not have voting rights on Options until you exercise the Option to purchase actual shares.

• You do not receive dividends or dividend equivalents on Options.

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Award Grant Notice

You will receive a Stock Option Grant Notice and Agreement (“Grant Notice”) specifying the number of Options that have been granted, and certain terms and conditions applicable to the grant. You should retain a copy of your Grant Notice along with other important legal documents. The Grant Notice will be distributed electronically through your E*Trade account. You must log into your E*Trade account and accept your grant(s) on-line. Instructions will be provided at the appropriate time. Sara Lee may from time to time modify the grant acceptance process and will notify you of any changes.

Tax Consequences

United States

Under current United States tax law, a Participant receives no taxable income from the Options when initially granted. The Exercise Date is the date when the taxable event occurs. The amount of taxable income, or the gain, is the difference between the market value of SLC common stock on the Exercise Date and the Option’s Exercise Price. This amount is then subject to any applicable federal, state and local withholding. Amounts necessary to settle the tax-withholding obligation will be withheld from shares otherwise to be distributed to the Participant, unless otherwise determined by the Company.

Countries other than the United States

Tax laws vary significantly from country to country, so professional advice should be obtained from appropriate counsel concerning the tax consequences of this grant. In most cases, Participants incur no taxable income from Options when initially granted. When the Options are exercised, the difference between the market value of the shares on the Exercise Date and the Option Exercise Price is typically considered taxable income. For Participants residing outside the U.S. and not subject to U.S. tax laws, tax withholding for certain countries may be required and will be taken by Sara Lee Corporation in the U.S. Each Participant is responsible for compliance with the relevant legal and tax regulations in his or her tax jurisdiction.

Exercising Stock Options

You may exercise your vested stock option – that is, purchase any or all of the vested shares in your grant at the Exercise Price, at any time between the Vesting Date and the Expiration Date (subject to earlier expiration upon death, disability or other termination of employment, as provided below). The minimum number of vested Options that you may exercise is 100 shares. For information on how to exercise your options, refer to your E*TRADE Stock Plans account or contact E*TRADE directly at 1-866-987-2339 or 1-678-319-7967.

Impact on Other Benefits

Any shares acquired upon the exercise of Options under this Option grant are not considered compensation for purposes of any retirement plan, severance arrangement or other benefit plans in which a Participant currently participates or may become eligible to participate in at a later date.

Stock Ownership Compliance

Any shares acquired and retained upon the exercise of Options will count towards the Corporation’s stock ownership guidelines during the Service Period. Stock Options do not count towards compliance with the stock ownership guidelines.

Non-Competetion/Non-Solicitation/Confidentialty Agreement

In order to receive your Stock Option grant, you are required to sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is a condition of your receipt of the Stock Option grant. Please read the Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety.

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Forfeiture

Notwithstanding anything contained in this Grant Notice and Agreement to the contrary, if you engage in any activity contrary or harmful to the interests of the Company, including but not limited to: (a) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (b) violating any Company policies, (c) soliciting any present or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (d) disclosing or misusing any confidential information regarding the Company, or (e) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (i) this Option, to the extent it remains unexercised, shall terminate automatically on the date on which you first engaged in such wrongful conduct and (ii) you shall pay to the Company in cash any financial gain you realized from exercising all or a portion of this Option within the six month period immediately preceding such wrongful conduct. For purposes of this section, financial gain shall equal, on each date of exercise during the six month period immediately preceding such wrongful conduct, the difference between the fair market value of the Common Stock on the date of exercise and the Exercise Price, multiplied by the number of shares of Common Stock purchased pursuant to that exercise (without reduction for any shares of Common Stock surrendered or attested to) reduced by any taxes paid in countries other than the United States to acquire and or exercise and which taxes are not otherwise eligible for refund from the taxing authorities. By accepting this Option, you consent to and authorize the Company to deduct from any amounts payable by the Company to you, any amounts you owe to the Company under this section. This right of set-off is in addition to any other remedies the Company may have against you for your breach of this Grant Notice and Agreement.

Administrative Guidelines

The following guidelines apply to the FY11-13 Stock Option grant. Additional Administrative Guidelines may be adopted, as needed, during the Service Period for the efficient administration of the Plan.

• The Compensation and Employee Benefit Committee (“Committee”) is responsible for administering the Plan and has full power and authority to interpret the Plan and to adopt rules, regulations and guidelines for administering the Plan, as it deems necessary.

• The Committee functions as the Plan Administrator and its decisions are binding on all Participants.

• The Committee reserves the right, in its absolute discretion, to make further adjustments in awards granted to any Participant prior to the vesting of those Options.

• The Committee may, as it deems appropriate, delegate some or all of its power to the Chief Executive Officer of Sara Lee Corporation. However, the Committee may not delegate its power concerning the grant, timing, pricing or amount of an award to any person who is a corporate officer or Key Executive.

• The Committee approves the awards granted to all Corporate Officers and Key Executives.

• Awards may be made to new Participants during the first year of the Service Period. The number of Options awarded may be adjusted to reflect that the executive is not a Participant for the entire Service Period.

• Awards may also be made to Participants who change positions during the first year of the Service Period, if such a change would have resulted in the Participant qualifying for an increased level of award.

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• In the event of death or the Participant becoming Totally Disabled (as defined under the appropriate long term disability benefit plan if applicable) the Options immediately vest and the last date on which the Participant’s Options may be exercised will be the earlier of five years from the date of death or disability or the Expiration Date of the Option.

• In the case of a Participant attaining age 55 or older and having at least 10 years of service with the Corporation when a Participant’s employment terminates or attaining age 65 regardless of service, the Option will continue to vest after your termination and the last date on which your Options may be exercised will be the Expiration Date.

• A Participant who resigns or is terminated for cause during the Service Period generally forfeits the rights to all Options. Exceptions to this rule must be approved by the Chief Executive Officer of Sara Lee Corporation.

• A Participant who is involuntarily terminated and receives severance from the Company is eligible for a pro-rated vesting of stock options. The period of active employment (i.e., the period in which the Participant is coded as active on the payroll system), but not the severance period, will be used to determine the pro-ration period. The option will remain exercisable until 90 days following termination of employment.

• In the event that the division, business unit or business segment of the Company to which at least 80% of the Participant’s time is dedicated or from which the Participant is on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, the Participant’s employment with the Sara Lee Companies is terminated, all Options will vest upon the closing date of the transaction and remain exercisable for six months following the date of the transaction.

• Should a change in control occur (as defined in the Stock Plan), the Committee will decide what effect, if any, this should have on the awards which are outstanding under this Plan.

• If any statement in this Program Description or any oral representation differs from the Stock Plan, the Stock Plan document prevails. The Stock Plan, the Grant Notice, and the Program Description collectively comprise all terms and conditions applicable to the FY11-13 Stock Option grant.

• Any stock dividend, stock split, combination or exchange of securities, merger, consolidation, recapitalization, spin-off or other distribution of any or all of the assets of the Company will be handled as provided for in the Stock Plan.

• Nothing in the Stock Option grant shall confer on a Participant any right to continue in the employ of SLC or in any way affect SLC’s right to terminate the Participant’s employment in accordance with applicable laws.

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Appendix I

Definitions FY11- 13 STOCK OPTION

a) Award Date means the date upon which the Committee approved the awards under this Plan. In this case the Award Date can mean August 26, 2010 or the January 2011 meeting of the Committee, unless an alternate date was required for tax and/or legal reasons in locations outside the United States.

b) The Committee means the Compensation and Employee Benefits Committee of the Sara Lee Corporation Board of Directors.

c) Company, Corporation or SLC means Sara Lee Corporation or any entity that is directly or indirectly controlled by Sara Lee Corporation, and its subsidiaries.

d) E*Trade is Sara Lee Corporation’s executive equity outsourcing vendor.

e) Exercise means the purchase of some or all of the stock from Options that have been granted.

f) Exercise Date is the date that the payment for exercise is received. Participants may pay using cash or shares of Sara Lee Corporation common stock already owned.

g) Exercise Period is the period during which a stock option can be exercised (subject to meeting the vesting period requirement), ending no later than the Expiration Date of the Option.

h) Exercise Price is the price per share that must be paid to exercise a stock option. Typically, the exercise price equals the fair market value of Sara Lee Corporation common stock on the date the option was granted. May also be referred to as “grant price” or “option price.”

i) Expiration Date is August 26, 2020.

j) Fair Market Value (FMV) For purposes of the Program, fair market value is the closing price of Sara Lee Corporation common stock as reported by the New York Stock Exchange Composite Transactions Tape on a given day.

k) Gain is the difference between the exercise price and the fair market value on the Exercise Date.

l) Grant Date is either August 26, 2010 or the date of the January 2011 meeting of the Committee.

m) Grant Notice means the electronic document provided to each Participant evidencing the number of restricted stock units awarded, Vesting Dates and the basic terms and conditions of the award.

n) Key Executive means an employee in salary grade 38 and above.

o) Participant means an executive of the company who has been determined to be an eligible Participant and who has received a Grant Notice specifying the basic terms of participation in this Plan.

p) Service Period is the three-year period of August 26, 2010 through and including August 31, 2013.

q) Stock Plan means the Sara Lee Corporation 1998 Long-Term Incentive Stock Plan or its successor plan or plans.

r) Vesting Date means August 31, 2013.

s) Vesting Period is the time between the Grant Date and the Vesting Date.

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EX-10.6

Exhibit 10.6

SARA LEE CORPORATION

1998 Long-Term Incentive Stock Plan

Stock Option Grant Notice and Agreement

[INSERT PARTICIPANT NAME]

Sara Lee Corporation (the “Company”) is pleased to confirm that you have been granted a stock option (an “Option”), effective as of August 26, 2010 (the “Grant Date”), as provided in this Stock Option Grant Notice and Agreement (the “Grant Notice and Agreement”):

1. Option Right. Your Option is to purchase, on the terms and conditions set forth below, the following number of shares (the “Option Shares”) of the Company’s Common Stock, par value $.01 per share (the “Common Stock”) at the exercise price specified below (the “Exercise Price”).

Number of Option Shares Exercise Price Per Option

which vests as follows:

100% on August 31, 2013

2. Acceptance of Terms and Conditions. By acknowledging and accepting this Option, you agree to be bound by the terms and conditions contained in this Grant Notice and Agreement, the Plan and any and all conditions established by the Company in connection with Options issued under the Plan, and understand that this Option neither confers any legal or equitable right (other than those rights constituting the Option itself) against the Company directly or indirectly, nor does it give rise to any cause of action at law or in equity against the Company. In order to vest in the Option described in this Grant Notice and Agreement, you must accept this Option.

3. Option. This Option is a non-qualified stock option that is intended to conform in all respects with the 1998 Long-Term Incentive Stock Plan (the “Plan”), a copy of which has been provided to you, and the provisions of which are incorporated herein by reference. This Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

4. Expiration Date. This Option expires on the tenth anniversary of the Grant Date (the “Expiration Date”), subject to earlier expiration upon your death, disability or other termination of employment, as provided below.

5. Vesting. This Option may be exercised only to the extent it has vested. Subject to paragraphs 6 and 7 below, if you are continuously employed by the Company or any of its subsidiaries (collectively, the “Sara Lee Companies”) from the Grant Date until the Vesting Date, this Option will vest as indicated above on that Vesting Date.

6. Death, Total Disability or Retirement. If you cease active employment (i.e., cease to be coded as active on the payroll system) with the Sara Lee Companies, because of your death or because you become Totally Disabled (as defined under the appropriate long term disability benefit plan if applicable), your Option Shares will vest immediately and the last date on which your Option Shares may be exercised will be the earlier of five years from the date of death or disability or the expiration date of

this award. In the case of your attaining age 55 or older and, if you have at least 10 years of service with the Sara Lee Companies when your employment terminates or attain age 65 regardless of service, the Option will continue to vest after your termination and the last date on which your Option Shares may be exercised will be the Expiration Date. These provisions apply only to the awards granted herein; other types of awards may have different provisions.

7. Involuntary Termination, Voluntary Termination and Non-Severance Event Termination.

(a) Involuntary Termination. If your employment with the Sara Lee Companies is terminated and you are eligible to receive severance benefits under the Sara Lee Corporation Severance Plan for Corporate Officers, the Severance Pay Plan, the Severance Pay Plan for Executives, the Severance Pay Plan for Certain Events or any other written severance plan of the Company (collectively, a “Severance Event Termination”), the last day on which this Option may be exercised is the earlier of (i) the Expiration Date or (ii) 90 days following your employment termination date. This Option will not continue to vest through your severance period.

In the event that the division, business unit or business segment of the Company to which at least 80% of your time is dedicated or from which you are on leave of absence is sold, closed, spun off or otherwise divested and, as a result of such transaction, your employment with the Sara Lee Companies is terminated, all Option Shares will vest as of the closing date of the transaction and be exercisable for six months following the closing date of the transaction, subject to the provisions of paragraph 6, unless otherwise determined by the Company. This provision does not apply with respect to any transaction that would be considered a Change of Control as defined in Article X of the Plan.

(b) Voluntary Termination and Non-Severance Event Termination. If your employment terminates for reasons other than those described in 6 and 7(a), (i.e., you voluntarily terminate your employment with the Sara Lee Companies or your employment is terminated by the Sara Lee Companies and you are not eligible for severance pay under the Company’s severance plans), then this Option shall terminate 90 days after the date of your termination of employment. Vesting of this Option ends on the date of your termination of employment.

8. Non-Competition/Non-Solicitation/Confidentiality. In order to receive your Stock Option grants, you must sign a Non-Competition/Non-Solicitation/Confidentiality Agreement as a condition of your continuing employment. Signing the agreement is also a condition of your receipt of the Stock Option grant. Please carefully read the attached Non-Competition/Non-Solicitation/Confidentiality Agreement in its entirety and feel free to have your lawyer review it prior to signing it.

9. Exercise. This Option may be exercised in whole or in part for the number of shares specified with the Company’s designated agent by remitting full payment of the Exercise Price for such number of Option Shares. A number of exercise alternatives are available through the Company’s agent. This Option will be considered exercised on the date that (a) your execution of the exercise with the Agent and (b) your payment of the Exercise Price have both been received by the Agent. Your written acceptance of the grant as well as the exercise of any portion of this Option will be considered your acceptance of all terms and conditions specified in this Grant Notice and Agreement.

10. Forfeiture. Notwithstanding anything contained in this Grant Notice and Agreement to the contrary, if you engage in any activity inimical, contrary or harmful to the interests of the Company, including but not limited to: (a) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (b) violating any Company policies, (c) soliciting any present

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or future employees or customers of the Company to terminate such employment or business relationship(s) with the Company, (d) disclosing or misusing any confidential information regarding the Company, or (e) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the Plan) (such activities to be collectively referred to as “wrongful conduct”), then (i) this Option, to the extent it remains unexercised, shall terminate automatically on the date on which you first engaged in such wrongful conduct and (ii) you shall pay to the Company in cash any financial gain you realized from exercising all or a portion of this Option within the six month period immediately preceding such wrongful conduct. For purposes of this section, financial gain shall equal, on each date of exercise during the six month period immediately preceding such wrongful conduct, the difference between the fair market value of the Common Stock on the date of exercise and the Exercise Price, multiplied by the number of shares of Common Stock purchased pursuant to that exercise (without reduction for any shares of Common Stock surrendered or attested to) reduced by any taxes paid in countries other than the United States to acquire and or exercise and which taxes are not otherwise eligible for refund from the taxing authorities. By accepting this Option, you consent to and authorize the Company to deduct from any amounts payable by the Company to you, any amounts you owe to the Company under this section. This right of set-off is in addition to any other remedies the Company may have against you for your breach of this Grant Notice and Agreement.

11. Rights as a Stockholder. You will have no rights as a stockholder with respect to any Option Shares until and unless ownership of such Option Shares has been transferred to you.

12. Transferability of Option Shares. You may not offer, sell or otherwise dispose of any Common Stock covered by the Option in a way which would: (i) require the Company to file any registration statement with the Securities and Exchange Commission (or any similar filing under state law or the laws of any other country) or to amend or supplement any such filing or (ii) violate or cause the Company to violate the Securities Act of 1933, as amended, the Securities Act of 1934, as amended, the rules and regulations promulgated thereunder, any other state or federal law, or the laws of any other country. The Company reserves the right to place restrictions on Common Stock received by you pursuant to this Option.

13. Conformity with the Plan. This Option is intended to conform in all respects with, and is subject to, all applicable provisions of the Plan. Any inconsistencies between this Grant Notice and Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By your acceptance of this Grant Notice and Agreement, you agree to be bound by all of the terms of this Grant Notice and Agreement and the Plan.

14. Interpretations. Any dispute, disagreement or question which arises under, or as a result of, or in any way relates to the interpretation, construction or application of the Plan or this Grant Notice and Agreement will be determined and resolved by the Compensation and Employee Benefits Committee of the Company’s Board of Directors (“Committee”) or its authorized delegate. Such determination or resolution by the Committee or its authorized delegate will be final, binding and conclusive for all purposes.

15. Employment Rights. Nothing in the Plan or this Grant Notice and Agreement confers on any Participant any right to continue in the employ of the Sara Lee Companies or in any way affects a Sara Lee Company’s right to terminate your employment without prior written notice any time for any reason.

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16. Consent to Transfer Personal Data. By accepting this Award, you voluntarily acknowledge and consent to the collection, use, processing and transfer of personal data as described in this paragraph. You are not obliged to consent to such collection, use, processing and transfer of personal data. The Company holds certain personal information about you, that may include your name, home address and telephone number, fax number, email address, sex, beneficiary information, age, date of birth, social security number or other employee identification number, job title, employment or severance contract, current wage and benefit information, tax-related information, plan or benefit enrollment forms and elections, option or benefit statements, any shares of stock or directorships in the Company, details of all options or any other entitlements to shares of stock awarded, canceled, purchased, vested, unvested or outstanding in your favor, for the purpose of managing and administering the Plan (“Data”). The Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan, and the Company may further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan. These recipients may be located throughout the world, including the United States. You authorize them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of stock on your behalf to a broker or other third party with whom you may elect to deposit any shares of stock acquired pursuant to the Plan. You may, at any time, review Data, require any necessary amendments to it or withdraw the consents herein in writing by contacting the Company.

17. Miscellaneous.

(a) Modification. The grant of this Option is documented by the minutes of the Committee and or as approved by the CEO for non-corporate officers, which records are the final determinant of the number of Option Shares granted and the conditions of this grant. The Committee may amend or modify this Option in any manner to the extent that the Committee would have had the authority under the Plan initially to grant such Option, provided that no such amendment or modification shall impair your rights under this Grant Notice and Agreement without your consent. Except as in accordance with the two immediately preceding sentences and paragraph 18, this Agreement may be amended, modified or supplemented only by an instrument in writing signed by both parties hereto.

(b) Governing Law. All matters regarding or affecting the relationship of the Company and its stockholders shall be governed by the General Corporation Law of the State of Maryland. All other matters arising under this Grant Notice and Agreement shall be governed by the internal laws of the State of Illinois, including matters of validity, construction and interpretation. You and the Company agree that all claims in respect of any action or proceeding arising out of or relating to this Grant Notice and Agreement shall be heard or determined in any state or federal court sitting in Chicago, Illinois, and you agree to submit to the jurisdiction of such courts, to bring all such actions or proceedings in such courts and to waive any defense of inconvenient forum to such actions or proceedings. A final judgment in any action or proceeding so brought shall be conclusive and may be enforced in any manner provided by law.

(c) Successors and Assigns. Except as otherwise provided herein, this Grant Notice and Agreement will bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not.

(d) Severability. Whenever feasible, each provision of this Grant Notice and Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Grant Notice and Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Grant Notice and Agreement.

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17. Confidentiality. You agree that you will not disclose the existence or terms of this Grant Notice and Agreement to any other employees of the Company or third parties with the exception of your accountants, attorneys, or spouse, and shall ensure that none of them discloses such existence or terms to any other person, except as required to comply with legal process.

18. Amendment. Notwithstanding anything in the Plan or this Grant Notice and Agreement to the contrary, this Option may be amended by the Company without your consent, including but not limited to modifications to any of the rights granted to you under this Option, at such time and in such manner as the Company may consider necessary or desirable to reflect changes in law.

SARA LEE CORPORATION

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EX-10.7

Exhibit 10.7

SARA LEE CORPORATION

CORPORATE ANNUAL INCENTIVE PLAN

PROGRAM DESCRIPTION

FISCAL YEAR 2011

Capitalized terms used but not defined are defined in Attachment 2.

Purpose

The objective of the Annual Incentive Plan (the “AIP”) is to advance the interests of Sara Lee Corporation (“SLC”) by:

a) Rewarding financial performance that contributes to increased shareholder value;

b) Measuring the effectiveness of SLC operating performance and capital management;

c) Continuing to provide significant rewards for exceptional performance.

Incentive Opportunity & Performance Objectives

Attachment 1 shows the FY11 AIP Target and Maximum payout levels at the various salary grades.

The following applies to the Plan goals:

• Financial objectives are established at the beginning of the Incentive Plan Year. The financial objectives for Corporate Staff Participants and the Plan parameters applicable to all Plan Participants are approved by the Compensation and Employee Benefits Committee of the SLC Board of Directors (“the Committee”).

• Business Segment executive management will develop the financial objectives within their respective business. The Chief Executive Officer (CEO) of SLC will approve the Business Segment financial objectives for each business.

• The FY11 Performance Measures are:

• Operating Income/Profit – (Operating Income will be used for Corporate Staff positions) 55% of target bonus opportunity

• The permissible spread is 40% - 65%

• If Gross Profit is added, the standard weighting will be 20% for Gross Profit and 35% for Operating Profit (the permissible spread for Gross Profit is 0% - 30%)

• Net Sales – 25% of target bonus opportunity

• The permissible spread is 15% - 35%

• Cash Flow – (Average Working Capital will be used as a measure of Cash Flow for Corporate and Segment positions) 20% of target bonus opportunity

• The permissible spread is 10% - 30%

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• In FY11, Business Segment CEOs will continue to have a range of flexibility to approve different weightings of the financial Performance Measures to allow better alignment and line of sight to those measures with certain employees’ responsibilities, e.g. executives in a Sales function may have an increased weighting of the Sales Performance Measure and a reduced weighting of the Cash Flow Performance Measure. However, there is no flexibility to change any of the Plan Financial Performance Measures. So, for example, Cash Flow cannot be replaced by Continuous Improvement Initiatives (see attachment 2 for Performance Measure definitions).

• When expressed as a percentage of target bonus opportunity, the weighting of each performance measure is the same for each salary grade. A summary of FY11 Performance Measures and the corresponding incentive opportunities for Participants are shown in Attachment 3. If Business Segment CEOs approve different weightings within their groups, multiply the target bonus opportunity by the revised weightings to determine the weighting of each performance measure.

• Financial performance within a Business Segment may be measured at different levels, ranging from a geographic or customer level, or a business unit/Division level, to the total Business Segment level. Business Segment CEOs are responsible for setting guidelines regarding the assignment of appropriate levels for performance measurement for the functions within their Business Segment. Business Segment CEOs are also responsible for setting guidelines for split weightings within their segments.

• When an employee reporting into a single Business Segment also supports another Business Segment, a split weighting between the two Business Segments may be applied. The Business Segment CEO managing the employee is responsible for determining the appropriate split after consulting with the CEO of the other supported business.

• As a general rule, corporate and enterprise-wide employees should be assigned financial performance measures at the total SLC level. However, corporate and enterprise-wide employees who primarily support a specific Business Segment may have financial performance measures split based on the areas they support. Splits for these employees will be determined by the corporate function leader, working in conjunction with his or her HR and Compensation business partners, and consulting with the leaders of the business segments supported.

• Whether within or across Business Segments, split weightings should only be applied to employees who dedicate a majority of their resources/time to directly supporting another business entity. As a general rule, an employee’s incentive opportunity should be split to a maximum of three (3) entities.

• Maximum payout opportunity is 150% of target bonus opportunity, and minimum payout opportunity is 0% of target bonus opportunity.

Performance Period

All objectives are measured over a one-year performance period, i.e. the Incentive Plan Year which is July 4, 2010 to July 2, 2011.

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Performance Levels

Threshold performance for each of the financial measures is defined as the prior fiscal year actual result for Operating Income, 95% of the Target performance level for Net Sales and 110% of the Target performance level for Cash Flow (Working Capital). The Level 2 - Below Target performance level (62.5% of target bonus opportunity) is the midpoint between the Threshold and Target performance levels. Similarly, the Level 4 - Above Target performance level (125% of target bonus opportunity) is the midpoint between the Target and Maximum performance levels.

Level 5 - Maximum – An unusually high level of performance far exceeding targeted performance requiring significant “stretch” to achieve.

Level 4 – Above Target – A high level of performance exceeding targeted performance requiring “stretch” to achieve.

Level 3 - Target –Target level of performance typically equivalent to the Annual Operating Plan (“AOP”).

Level 2 - Below Target – The level of performance at which attainment of goals is below the Target level but above the Threshold level, mid-way between Threshold and Target.

Level 1 - Threshold – Performance that just achieves an acceptable level of results warranting incentive recognition.

Incentive Award Payout Levels

The following table is to be used in setting the performance goals at the various payout levels.

Performance Measure

Performance Level	Performance Goal (Operating Profit )	Performance Goal (Net Sales)	Performance Goal (Cash Flow/Working Capital)	Payout Level as a % of Target Bonus Opportunity
Level 5 – Maximum	110% of Target	105% of Target	90% of Target	150%
Level 4 – Above Target	105% of Target	102.5% of Target	95% of Target	125%
Level 3 – Target	Target	100% of Target	100% of Target	100%
Level 2 – Below Target	Midpoint between Threshold and Target	Midpoint between Threshold and Target	Midpoint between Threshold and Target	62.5%
Level 1 – Threshold (1)	FY10 Actual	95% of Target	110% of Target	25%

Attachment 4 graphically displays the payout curve for all three performance measures.

Straight-line interpolation is used for calculating results between performance levels.

⁽¹⁾ Business Segment leaders are expected to use appropriate discretion in applying the revised Threshold definition in practice. For example, for Business Segments with low growth targets (prior year results are above or equal to the Incentive Plan Year’s Target, or are greater than 90% of Target), Business Segment CEOs should consider setting the Threshold at 90% of Target, or an alternatively appropriate level. Similar discretion should be used in setting the Maximum

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performance level. If, for example, business conditions have changed significantly since the formulation of the FY11 AOP, and 10% improvement no longer provides an appropriate level of stretch, or if a 10% performance improvement reflects too narrow a range of improvement relative to incremental payout, then Business Segment CEOs and CFOs should work with their Compensation business partner to set appropriate Maximum targets.

Incentive Award Payments

Incentive award payments are distributed after the Incentive Plan Year results have been publicly announced and the individual awards requiring the review and approval of the Committee have been approved at its August 2011 meeting. Generally, a Participant must be an employee on the last day of the fiscal year in order to be eligible to receive any incentive award.

Administrative Provisions

The Committee and the Chief Executive Officer of SLC shall administer the Plan jointly and their decisions are final. The Executive Vice President Human Resources and Chief Financial Officer will be responsible for the administrative procedures governing the Plan, including ensuring the existence of approved Performance Measures and Goals and the presentation of the performance results under the Plan to the Committee for its approval. The following administrative procedures shall govern:

a) The Committee will approve individual incentive awards for all corporate officers and those executives in salary grade 38 and above. For individuals who participate in the SLC Performance-Based Incentive Plan (the “PBIP”), individual incentive awards are coordinated with and subject to the terms, conditions, maximums and limitations of the PBIP (which, for those individuals, is incorporated into this FY11 AIP by reference), with the AIP incentive award being one factor to be considered by the Committee in exercising its negative discretion to reduce the maximum award under the PBIP. The SLC CEO and his or her direct reports may approve all other incentive awards.

b) Any awards earned under the FY11 AIP will be paid in cash. Participants paid in the U.S. and subject to taxation in the U.S. may elect to defer part or all of their incentive awards pursuant to the terms and conditions of the SLC Executive Deferred Compensation Plan.

c) A new Participant who begins participation during the Incentive Plan Year may be eligible for a pro-rata incentive award from the date of entry into the Plan. Typically, a new Participant should have been actively employed in a bonus-eligible role for at least one calendar quarter of the Incentive Plan Year in order to receive consideration for a pro-rata incentive award.

d) In the case of death, Disability, Total Disability, or retirement under a SLC retirement plan during the Incentive Plan Year, a Participant or the Participant’s estate is eligible for a pro-rata incentive award based upon the Participant’s period of active service (i.e., coded as active on the payroll system) during the Incentive Plan Year and an assessment of all actual performance measures. The award will be distributed at the same time as those of active Participants.

e) A Participant who is involuntarily terminated and who subsequently receives severance pay under a SLC severance plan may be eligible for a pro-rata incentive award based on active service through the date of the Participant’s termination of employment. The amount of any pro-rata incentive award will be determined based upon the facts and circumstances related to the Participant’s termination as well as the amount of time the Participant was actively employed during the Incentive Plan Year and an assessment of all actual performance measures.

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f) Unless otherwise approved by the Committee or Chief Executive Officer of SLC, any Participant who voluntarily terminates, or who is involuntarily terminated and does not receive severance pay, regardless of the Participant’s eligibility for retirement status, during the Incentive Plan Year will not be entitled to any incentive award attributable to the Incentive Plan Year.

g) Notwithstanding anything contained in this document to the contrary, a Participant may be entitled to receive either an increased or reduced incentive award payment, or no incentive award payment whatsoever, attributable to the Incentive Plan Year upon the occurrence of any of the following events:

(A) If any Participant engages in any activity contrary or harmful to the interests of the Company, including but not limited to: (1) competing, directly or indirectly (either as owner, employee or agent), with any of the businesses of the Company, (2) violating any Company policies, (3) soliciting any present or future employees or customers of the Company to terminate such employment or business relationships(s) with the Company, (4) disclosing or misusing any confidential information regarding the Company, or (5) participating in any activity not approved by the Board of Directors of the Company which could reasonably be foreseen as contributing to or resulting in a Change of Control of the Company (as defined in the 1998 and 2002 Long-Term Incentive Stock Plan), then the Participant will not be entitled to any incentive award attributable to the Incentive Plan Year.

(B) This paragraph (g)(B) applies only to those Participants who are “officers” of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934 during the Incentive Plan Year and who participate in any SLC Executive Management Long-Term Incentive Program (each such Participant, an “Officer Participant”). If an Officer Participant receives an incentive award payment that was predicated upon the Company achieving certain Performance Measures (the “Original Payout”) and, within two years after the date of such Original Payout, the Company restates its financial statements due to material noncompliance with the financial reporting requirements under the securities laws (such restated financial statements, the “Restated Financials”), then the amount of the incentive award payment for such Officer Participant shall be recalculated based on the Restated Financials (such recalculated amount, the “Restated Amount”). If the Original Payout is greater than the Restated Amount, then the Company shall be entitled to recoup from such Officer Participant, and such Officer Participant shall pay to the Company, in cash, an amount equal to (1) the Original Payout, less (2) the Restated Amount. If the Restated Amount is greater than the Original Payout, then the Company shall pay to the Officer Participant an amount equal to (i) the Restated Amount, less (ii) the Original Payout. Any such payment or recoupment shall be due and payable within 90 days after the date on which the Company files the Restated Financials with the Securities and Exchange Commission. If an Officer Participant elected to defer part or all of their Original Payout pursuant to the SLC Executive Deferred Compensation Plan, then the Officer Participant’s account under the Plan automatically shall be credited or charged so that the amount deferred in connection with such incentive award payment equals the Restated Amount. No interest will be due to or paid by the Company or you to the other with respect to any true up payment. Notwithstanding the foregoing, the Committee may determine, in its discretion and based on the circumstances leading to the filing of the Restated Financials, that recoupment or payment under this paragraph (g)(B) of the Restated Amount is not practical and may elect to forego the application of this paragraph (g)(B).

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h) Performance results under the Plan will be measured in accordance with the Definitions in Attachment 2.

i) Performance results and Eligible Earnings will be used to determine the incentive award payment.

j) Any Participant who is employed as of the end of the Incentive Plan Year shall be entitled to receive an incentive award payment regardless of whether the Participant resigns or is terminated between the end of the Incentive Plan Year and the date the incentive awards are distributed.

k) Except with respect to Participants who elect to defer their incentive awards pursuant to the SLC Executive Deferred Compensation Plan, incentive award payments shall be distributed no later than the 15th day of the third month following the close of the Incentive Plan Year.

l) SLC reserves the right to offset against any incentive award payment due to a terminating or terminated Participant any amounts to which SLC has a “claim of right.”

m) Except for participant deferral elections made under the SLC Executive Deferred Compensation Plan (which shall be construed to comply with Section 409A of the Internal Revenue Code and the Treasury Regulation guidance thereunder), the terms of the AIP shall be construed and paid in such manner as to satisfy the short-term deferral exception to the application of Section 409A as set forth in Subsections (a)(4) and (b)(4) of Treasury Regulations Section 1.409A-1.

n) Nothing herein shall be construed as an agreement or commitment to employ any Participant or to employ a Participant for any fixed period of time or constitute a commitment by SLC that any Participant will continue to receive an incentive award or will continue as a Participant in the Plan.

o) The Committee reserves the right to amend, modify, interpret or terminate the Plan or awards to be paid under the Plan at any time for any reason. Specifically, the performance criteria may be adjusted by the Committee for extraordinary and similar items that prevent undue and/or unintended gain or loss; provided that, for any incentive awards under the AIP to individuals participating in the PBIP, any adjustments will be subject to the terms, conditions, maximums and limitations under the PBIP.

p) The Committee may delegate certain administrative responsibilities to the Chief Executive Officer except for the following:

1) Any actions affecting the Chief Executive Officer, and other elected officers of SLC,

2) Approval of corporate Financial Standards of Performance and certification of performance results relative to such standards following the end of the Incentive Plan Year,

3) Approval of any substantive changes or amendments to the Plan.

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Attachment 1

SARA LEE CORPORATION

FY11 ANNUAL INCENTIVE PLAN

TARGETS AND MAXIMUMS

Salary Grades	Target %	Maximum %
50	200.00%	300.00%
49	200.00%	300.00%
48	165.00%	247.50%
47	160.00%	240.00%
46	150.00%	225.00%
45	145.00%	217.50%
44	135.00%	202.50%
43	130.00%	195.00%
42	125.00%	187.50%
41	125.00%	187.50%
40	120.00%	180.00%
39	120.00%	180.00%
38	115.00%	172.50%
37	115.00%	172.50%
36	115.00%	172.50%
35	95.00%	142.50%
34	75.00%	112.50%
33	65.00%	97.50%
32	55.00%	82.50%
31	45.00%	67.50%
30	40.00%	60.00%
29	30.00%	45.00%
28	30.00%	45.00%
27	15.00%	22.50%
26	15.00%	22.50%
25	15.00%	22.50%
24	7.50%	11.25%
23	7.50%	11.25%
22	7.50%	11.25%

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Attachment 2

Definitions

a) Board means the SLC Board of Directors.

b) Business Segment means one of the following Sara Lee business units, i.e. North American Fresh Bakery, North American Retail, North American Foodservice, International Beverage and International Bakery. For FY11, also includes discontinued operations, International Household & Body Care.

c) Committee is the Compensation and Employee Benefits Committee of the Board.

d) Cost of Sales is the sum of direct material(s), direct labor and factory overheads in manufacturing a product. Also known as cost of goods sold (“COGS”).

e) Disability is as defined under the applicable SLC Long Term Disability Plan or the specific Sara Lee sponsored long-term disability plan under which the Participant is covered

f) Division means an operating profit center of SLC.

g) Eligible Earnings mean regular salary or wages paid to the Participant from July 1, 2010 through June 30, 2011. It does not include allowances, reimbursements, commissions, other incentives, severance, lump sums, awards, deferred compensation and compensation attributable to the exercise of stock options or other forms of long-term incentive compensation.

h) Gross Profit means Net Sales less Cost of Sales.

i) Incentive Plan Year is the fiscal year starting July 4, 2010 and ending July 2, 2011.

j) Net Sales means net outside sales, as shown on Line 5 of the EO-200 income statement, with the following adjustment(s):

1. Actual Net Sales shall be measured using plan currency rates

2. Net Sales of businesses acquired during the year and not included in the Annual Operating Plan shall be excluded.

3. Net Sales of businesses divested and not included in the Annual Operating Plan as divestments will only be included through the date of divestment, and targets will be adjusted accordingly.

4. Significant Items should be excluded, subject to the Committee’s use of negative discretion.

k) Operating Income means pre-tax income, before interest, and tobacco proceeds, with the following adjustment(s):

1. Actual Operating Income shall be measured using plan currency rates

2. Operating Income of businesses acquired during the year and not included in the Annual Operating Plan shall be excluded.

3. Operating Income of businesses divested and not included in the Annual Operating Plan as divestments will only be included through the date of divestment, and targets will be adjusted accordingly.

4. Significant Items should be excluded, subject to the Committee’s use of negative discretion.

8

l) Operating Profit means Line 16 of the EO-200 income statement, using FY11 peg currency rates, with the following exceptions:

1. Operating Profit of businesses acquired during the year and not included in the Annual Operating Plan shall be excluded.

2. Operating Profit of businesses divested and not included in the Annual Operating Plan as divestments will only be included through the date of divestment.

m) Participant means a Sara Lee employee in salary grades 22 through and including 50. (Employees in grades 22 through 27 eligible for Sales Incentive Plans are excluded from the Plan.)

n) Significant Items mean those items that are reported by the Corporation in its annual report in the table entitled “Impact of Significant Items on Income from Continuing Operations and Net Income” and that meet the Controller’s criteria for materiality.

o) Total Disability is as defined under the SLC Key Executive Long Term Disability Plan under which the Participant is covered.

p) Working Capital means current assets minus current liabilities excluding cash, cash equivalents, restructuring accrual reserves, intracompany accounts, income tax accounts, accrued dividends, and interest receivables/payables. Average Working Capital is the average of Working Capital over a 13-month period.

1. Adjustments will be made based on fluctuations in commodity market costs and/or sales levels.

2. All adjustments will be reviewed by the Business Segment CEOs and CFOs and approved by the Committee.

9

Attachment 3

SARA LEE CORPORATION

FY11 ANNUAL INCENTIVE PLAN

PERFORMANCE MEASURES AND WEIGHTINGS

	Performance Measures as a % of Target Annual Incentive Opportunity
	Operating Profit/Income	Net Sales	Cash Flow (Working Capital)	Target Annual Incentive Opportunity
	55%	25%	20%	100%
Salary Grades	Operating Income	Sales	Cash Flow	Target
50	110.00%	50.00%	40.00%	200.00%
49	110.00%	50.00%	40.00%	200.00%
48	90.75%	41.25%	33.00%	165.00%
47	88.00%	40.00%	32.00%	160.00%
46	82.50%	37.50%	30.00%	150.00%
45	79.75%	36.25%	29.00%	145.00%
44	74.25%	33.75%	27.00%	135.00%
43	71.50%	32.50%	26.00%	130.00%
42	68.75%	31.25%	25.00%	125.00%
41	68.75%	31.25%	25.00%	125.00%
40	66.00%	30.00%	24.00%	120.00%
39	66.00%	30.00%	24.00%	120.00%
38	63.25%	28.75%	23.00%	115.00%
37	63.25%	28.75%	23.00%	115.00%
36	63.25%	28.75%	23.00%	115.00%
35	52.25%	23.75%	19.00%	95.00%
34	41.25%	18.75%	15.00%	75.00%
33	35.75%	16.25%	13.00%	65.00%
32	30.25%	13.75%	11.00%	55.00%
31	24.75%	11.25%	9.00%	45.00%
30	22.00%	10.00%	8.00%	40.00%
29	16.50%	7.50%	6.00%	30.00%
28	16.50%	7.50%	6.00%	30.00%
27	8.25%	3.75%	3.00%	15.00%
26	8.25%	3.75%	3.00%	15.00%
25	8.25%	3.75%	3.00%	15.00%
24	4.13%	1.88%	1.50%	7.50%
23	4.13%	1.88%	1.50%	7.50%
22	4.13%	1.88%	1.50%	7.50%

10

Attachment 4

FY11 AIP PAYOUT CURVE FOR ALL PERFORMANCE MEASURES

11

EX-12

Exhibit 12

SARA LEE CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(In millions except ratios)

	Quarter Ended			Years Ended
	October 2 2011 1			July 3 2010 2		June 27 2009 3			June 28 2008 4			June 30 2007 5			July 1 2006 6
Fixed charges:
Interest expense - continuing operations 7	$	36		$	147	$	170		$	185		$	258		$	300
Interest expense - discontinued operations 7		—			1		—			5			6			9
Interest portion of rental expense		11			47		48			49			48			74
Total fixed charges before capitalized interest and preference security dividends of consolidated subsidiaries		47			195		218			239			312			383
Preference security dividends of consolidated subsidiaries		—			—		—			—			—			—
Capitalized interest		3			10		10			18			21			19
Total fixed charges	$	50		$	205	$	228		$	257		$	333		$	402
Earnings available for fixed charges:
Income from continuing operations before income taxes	$	109		$	795	$	358		($	156	)	$	161		($	26	)
Less undistributed income in minority owned companies		(1	)		—		(1	)		(1	)		(1	)		—
Add minority interest in majority-owned subsidiaries		—			—		—			—			—			—
Add amortization of capitalized interest		3			12		12			11			9			12
Add fixed charges before capitalized interest and preference security dividends of consolidated subsidiaries		47			195		218			239			312			383
Total earnings available for fixed charges	$	158		$	1,002	$	587		$	93		$	481		$	369
Ratio of earnings to fixed charges		3.2			4.9		2.6			0.4			1.4			0.9

(1) During fiscal 2011, the corporation recorded a pretax charge of $5 million in connection with certain restructuring activities and $30 million in debt extinguishment costs.

(2) During fiscal 2010, the corporation recorded a pretax charge of $84 million in connection with certain restructuring activities. Also during fiscal 2010, the corporation recognized non-cash impairment charges of $28 million and recognized income of $133 million from contingent sales proceeds related to the disposal of its European tobacco business in 1999.

(3) During fiscal 2009, the corporation recorded a pretax charge of $103 million in connection with certain restructuring activities. Also during fiscal 2009, the corporation recognized non-cash impairment charges of $314 million and recognized income of $150 million from contingent sales proceeds related to the disposal of its European tobacco business in 1999.

(4) During fiscal 2008, the corporation recorded a pretax charge of $39 million in connection with certain restructuring activities. Also during fiscal 2008, the corporation recognized non-cash impairment charges of $851 million and recognized income of $130 million from contingent sales proceeds related to the disposal of its European tobacco business in 1999.

(5) 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 non-cash impairment charges of $168 million and recognized income of $120 million from contingent sales proceeds related to the disposal of its European tobacco business in 1999.

(6) During fiscal 2006, the corporation recorded a pretax charge of $85 million in connection with certain restructuring activities. Also during fiscal 2006, the corporation recognized non-cash impairment charges of $193 million and recognized income of $114 million from contingent sales proceeds related to the disposal of its European tobacco business in 1999.

(7) Excludes interest on uncertain tax positions.

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marcel Smits, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sara Lee Corporation for the fiscal quarter ended October 2, 2010.

2. Based on my knowledge, this 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: November 10, 2010

/s/ Marcel Smits,

Interim Chief Executive Officer

2

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Garvey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sara Lee Corporation for the fiscal quarter ended October 2, 2010.

2. Based on my knowledge, this 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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: November 10, 2010

/s/ Mark A. Garvey,

Interim Chief Financial 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 Quarterly Report on Form 10-Q of Sara Lee Corporation (the “Company”) for the fiscal quarter ended October 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marcel Smits, Interim 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: November 10, 2010

/s/ Marcel Smits,

Interim 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 Quarterly Report on Form 10-Q of Sara Lee Corporation (the “Company”) for the fiscal quarter ended October 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Garvey, Interim Chief Financial 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: November 10, 2010

/s/ Mark Garvey,

Interim Chief Financial Officer