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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 1, 1995 COMMISSION FILE NUMBER 1-3344
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SARA LEE CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 36-2089049
(State of Incorporation) (I.R.S. Employer Identification No.)
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602-4260
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (312) 726-2600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.33 1/3 par value The Chicago Stock Exchange
The New York Stock Exchange
The Pacific Stock Exchange
Amsterdam Stock Exchange
The Bourse (Paris)
Stock Exchange of Basel
Stock Exchange of Geneva
The Stock Exchange (London)
Stock Exchange of Zurich
Preferred Stock Purchase Rights The Chicago Stock Exchange
The New York Stock Exchange
The Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of September 1, 1995, the aggregate market value of the voting stock
(based upon the closing price per share of Common Stock on The New York Stock
Exchange on such date) held by non-affiliates of the registrant was
$13,981,096,170.
On September 1, 1995, the registrant had outstanding 484,116,512 shares of
common stock of $1.33 1/3 par value, which is the registrant's only class of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement, dated September 20, 1995, are
incorporated by reference into Items 10-12 of Part III.
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PART I
Item 1. Business
(A) GENERAL DEVELOPMENT OF BUSINESS
Sara Lee Corporation ("Sara Lee") is a global manufacturer and marketer of
high-quality, brand-name products for consumers throughout the world. It was
incorporated in Baltimore, Maryland in 1939 as the C.D. Kenney Company and
adopted its current name in 1985.
In fiscal 1995, the main focus of Sara Lee's two industry segments,
Packaged Foods and Packaged Consumer Products, was to continue to build brand
equity and improve returns. These objectives were pursued through the
introduction of new products, the expansion of existing products into new
markets, and a significant commitment to marketing support in order to build
leadership brands. In fiscal 1995, Sara Lee spent nearly $1.7 billion to retain
and grow the equity its brands have with customers, and to support its stable of
value-added, high-margin products. This amount represents an increase of 11.8%
over fiscal 1994.
During fiscal 1995, Sara Lee continued to implement its worldwide
restructuring program, which was announced in the latter part of fiscal 1994. As
part of the restructuring, 42 manufacturing and distribution facilities were
closed and 6,029 employees were terminated during fiscal 1995. Sara Lee
anticipates that the restructuring will be substantially completed by the close
of calendar year 1996.
SARA LEE PACKAGED FOODS
SARA LEE PACKAGED MEATS AND BAKERY
Sara Lee Packaged Meats continued to introduce new food products during
fiscal 1995, with an emphasis on "better-for-you" products and convenience
foods. Several Sara Lee meat brands introduced no-fat or reduced-fat products in
fiscal 1995, including Ball Park Fat Free Classics, Kahn's Fat Free Franks and
Bryan Fat Free Juicy Jumbos. Jimmy Dean Foods introduced Tastefuls! packaged
meals, consisting of two small submarine sandwiches, potato chips and cookies.
In fiscal 1995, Sara Lee pursued its objectives of building brands and
increasing business outside the United States through its acquisition of
Imperial Meats Group, Belgium's largest packaged meats producer. The company's
Imperial, Cornby, and Marcassou brands are sold in Belgium, France, Germany and
the Netherlands.
Sara Lee Bakery introduced, and/or expanded its distribution of, a number
of new products. In fiscal 1995, Sara Lee added a collection of sweet goods to
its fresh-baked line, including Danish, pound cakes, iced cakes, muffins,
doughnuts, cookies and pies. Sara Lee Chocolate Chip Cheesecake, Strawberry
Swirl Pound Cake, Breakfast Quick Breads, several flavors of reduced-fat,
no-sugar-added fruit pies and reduced-fat muffins were new frozen product
introductions. In addition, Sara Lee Bakery's foodservice unit introduced a
variety of mini-muffins and homestyle cakes.
Sara Lee Foodservice's business, PYA/Monarch, strengthened its position as
the leading foodservice distributor in the southeastern United States and the
third-largest full-line foodservice company in the nation with the acquisition
of the remaining outstanding shares of Virginia-based Consolidated Foodservice
Companies.
SARA LEE COFFEE AND GROCERY
During fiscal 1995, the Coffee and Grocery line of business introduced new
items to meet growing consumer demand for premium and specialty products,
including Marcilla Mocca coffee in Spain, an assortment of roasted coffees under
the Moccona label in Australia, and Merrild Gourmet coffee, sold as whole beans
that are ground at the point of sale, in Denmark. For the out-of-the-home
market, Superior Coffee introduced an Instant Cappuccino beverage. The Cafitesse
system of coffee serving equipment was introduced in Europe, and Piazza D'Oro
espresso was introduced in Australia. Sara Lee also acquired an interest in the
Bravo coffee company in Greece in fiscal 1995.
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Green coffee costs fluctuated severely during fiscal 1995, principally due
to unfavorable weather conditions and economic and social instability in several
coffee-producing nations. In Brazil, for example, two frosts in a single winter
season -- the first such occurrence on record -- were followed by severe
drought. These extraordinary events in the green coffee market led to higher
retail prices and reduced consumption in fiscal 1995. Sara Lee's retail coffee
operations managed price changes on a market-by-market basis in an effort to
protect margins and profits. Modest declines in market share were reported in
the Netherlands, Belgium, Denmark, the Czech Republic and the United Kingdom for
fiscal 1995, while market share remained stable in France and Australia, and
improved slightly in Spain and Hungary. Primarily due to the effect of high
green coffee costs on consumer buying habits, unit volumes for retail and
out-of-home roasted coffee were down 8% for fiscal 1995, excluding the effect of
acquisitions.
New tea products were launched during the fiscal year. In the Netherlands,
major product introductions under the Pickwick brand were Pickwick Framboos
fruit tea and Pickwick Seasons variety packs. Pickwick Regelli breakfast tea was
introduced in Hungary. To supply growing Russian and Eastern European markets,
capacity was expanded at Pickwick's Budapest production facility.
SARA LEE PACKAGED CONSUMER PRODUCTS
SARA LEE PERSONAL PRODUCTS
Sara Lee Intimates introduced new features and products and increased the
profitability of its bra, panty and shapewear business in fiscal 1995. North
American manufacturing operations faced capacity constraints primarily as a
result of the national introduction of the Wonderbra brand in fiscal 1995.
Playtex launched a minimizer bra with comfort straps for full-busted women in
fiscal 1995. In Europe, Sara Lee introduced a line of coordinating bras and
panties under the Liabel brand in Italy.
Sara Lee formed the Sara Lee Bodywear Group in fiscal 1995 to manufacture
and market exercise wear and activewear under the Champion Jogbra, Body Force
and Hanes Her Way names. The group also acquired the license for Spalding
Bodywear and will market sports-inspired bodywear under the Spalding name.
Sara Lee Accessories opened 17 new Coach retail stores in the United
States, including a flagship location in New York City. The major new Coach
product introduction of 1995 was the Sonoma Collection, a line of nubuc and
natural grain leather handbags, backpacks, wallets and belts. Mark Cross, a
premium leather goods company, reintroduced its handbags, business cases and
executive accessories into department stores, and resumed its catalog business.
Also in fiscal 1995, Aris Isotoner expanded its line of slippers. Aris Isotoner
posted weak results in fiscal 1995, due in part to warmer than normal winter
temperatures.
Sara Lee Knit Products focused on value-added products and cost-effective
manufacturing and sourcing in fiscal 1995. In the U.S. women's and girls'
panties category, Hanes Her Way and other Sara Lee brands increased their
leading market position. The increase in Sara Lee's share of the girls' panties
market was partially a result of increased distribution and new licensed
character agreements. In fiscal 1995, Hanes underwear was introduced in Brazil
and Venezuela.
In fiscal 1995, Sara Lee Knit Products became the master licensee to
manufacture sports apparel bearing the Spalding name. Hanes Licensed Products,
which markets licensed college and professional sportswear, was negatively
affected by labor strikes in professional sports. In the retail fleece business,
Sara Lee reduced excess capacity.
For all apparel categories, Sara Lee began to capitalize on its unique
partnership agreement with the 1996 Olympic Games -- the first agreement of its
kind to combine Games sponsorship, product licensing and U.S. Team outfitting.
An agreement with Warner Brothers and the United States Olympic Committee led to
the introduction of Warner Brothers' familiar Looney Tunes characters on Hanes
T-shirts to be used in creative apparel relating to the Olympics.
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Sara Lee Hosiery continued to respond to changing market forces in the
hosiery area during fiscal 1995 through the introduction of shaping and toning
products, new colors and textures, increased durability and special occasion
hosiery. The global market for sheer hosiery continued to exhibit weakness, and
unit volumes fell 7% as Sara Lee eliminated low-margin items from its product
line. However, profits for Sara Lee's worldwide sheer hosiery business
increased. In the United States, Sara Lee Hosiery continued to decrease
production capacity and improve inventory flow to maximize efficiencies, returns
and profitability. In Europe, Sara Lee continued to reduce manufacturing
overhead and excess sheer hosiery capacity.
L'eggs launched Smooth Silhouettes, a Body Contouring product in fiscal
1995. Hanes introduced its own Body Contouring product, Smooth Illusions, in
fiscal 1995, with strong advertising support and a "tag" line of "Liposuction
without surgery." Under its licensed designer brand Donna Karan, Sara Lee
introduced The Nudes hosiery, an ultrasheer product offering colors to
complement a wide array of skin tones. In Mexico, Sara Lee introduced Hanes Her
Way hosiery in fiscal 1995. In Europe, Sara Lee introduced several new hosiery
products under the Dim brand, including Teint de Soleil, extra-sheer hosiery for
warm weather, and Ventre Plat, the first hosiery with tummy control to be
introduced in Europe. Pretty Polly introduced Legworks hosiery, which offers
thigh and tummy control, in the United Kingdom.
In fiscal 1995, Sara Lee introduced the Silk Reflections Casual collection
of tights, trouser socks and casual socks in North America, contributing to
strong growth in unit and dollar sales of tights and opaque legwear.
SARA LEE HOUSEHOLD AND PERSONAL CARE
Sara Lee Household and Personal Care continued to grow through the
introduction of new products and entry into new markets. Geographic expansion of
Sara Lee's shoe care business continued in fiscal 1995, with the introduction of
Kiwi products in China, Mexico and Hungary. Also in fiscal 1995, Sara Lee
acquired the rights to market Brylcreem products for men in Indonesia.
Sanex Sun Care tanning lotions and sunblockers were introduced in the
Netherlands during the fiscal year. Also in the Netherlands, Sanex toothpaste
debuted. In Spain, the Sanex brand was extended to a line of new shaving creams
and aftershaves under the Sanex for Men label. Duschdas Milk & Silk bath and
shower foam was introduced in Germany, while Badedas for Kids soap was launched
in the Netherlands. The Ambi-Pur electrical diffuser air freshener, introduced
in five European markets in fiscal 1994, was extended to Belgium, the United
Kingdom and Hungary. The Ambi-Pur Neutraliser air freshener debuted in the
Netherlands and Italy. In the oral care line, Prodent Sensitive and Prodent
Baking Soda toothpastes were made available in the Netherlands.
Sara Lee's Direct Selling business in Mexico, House of Fuller, suffered the
negative impact of the peso's devaluation on sales in Mexico. House of Fuller
has nevertheless expanded its product offerings, particularly in the area of
apparel products and, in fiscal 1995, House of Fuller began selling Playtex
intimate apparel.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Sara Lee's businesses are classified into two industry segments: Sara Lee
Packaged Foods and Sara Lee Packaged Consumer Products. The financial
information about Sara Lee's industry segments can be found on page F-21 of this
Report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
SARA LEE PACKAGED FOODS
Sara Lee's Packaged Foods segment is comprised of Sara Lee Packaged Meats
and Bakery, and Sara Lee Coffee and Grocery.
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SARA LEE PACKAGED MEATS AND BAKERY
Sara Lee Packaged Meats processes and sells pork, poultry and beef products
to supermarkets, warehouse clubs, national chains and institutions throughout
the United States, Europe and Mexico. Sales are transacted through Sara Lee's
own sales force, brokers and institutional buyers. Some of the more prominent
brands in the United States within this category include Ball Park, Best's
Kosher, Bryan, Hillshire Farm, Hygrade, Jimmy Dean, Kahn's, Mr. Turkey, Sara Lee
and Sinai 48. Sara Lee's more prominent European brands include Stegemann in the
Netherlands, Argal in Spain and Nobre in Portugal. Sara Lee has a 49.9% interest
in AXA Alimentos, S.A. de C.V., which owns Kir Alimentos S.A. de C.V., a leading
processed meats company in Mexico. In fiscal 1995, Sara Lee acquired Imperial
Meats Group, Belgium's largest packaged meats producer. The company's Imperial,
Cornby and Marcassou brands are sold in Belgium, France, Germany and the
Netherlands.
The products offered by this line of business include smoked sausage,
bacon, hot dogs, breakfast sausage, breakfast sandwiches, premium deli and
luncheon meats, ham, turkey, and packaged lunch combinations. The ingredients --
pork, turkey and beef -- are purchased by Sara Lee from a variety of sources.
The prices of these raw materials fluctuate, depending primarily on supply and
demand. Because of the range of sources from which these raw materials are
available, Sara Lee believes that it will continue to have access to adequate
supplies.
The Packaged Meats category is highly competitive, with an emphasis on
product quality, price, advertising and promotion, and customer service. Sara
Lee's competitors include international, national, regional and local companies.
The Packaged Meats category has accounted for 10% or more of Sara Lee's
consolidated revenues during the past three fiscal years. Sara Lee believes it
is one of the three industry leaders in the United States.
Most of Sara Lee's Packaged Meats operations are regulated by the U.S.
Department of Agriculture, whose focus is the quality, sanitation and safety of
meat products, and, to some extent, by state and local government agencies. Sara
Lee's Packaged Meats operations in Europe and Mexico are regulated by local
authorities.
Sara Lee Bakery produces a wide variety of fresh and frozen baked and
specialty items. Its core products are pies, cheesecakes, pound cakes and
Danish. These products are sold through supermarkets, foodservice distributors,
bakery-deli and direct channels throughout the United States, United Kingdom,
France, Mexico, Australia and numerous Asia-Pacific countries. Sales are
transacted through Sara Lee's sales force and independent wholesalers and
distributors. The key ingredients for these products -- butter, milk, sugar,
fruits, eggs and flour -- are purchased from suppliers at prices that are
subject to such influences as supply and demand, weather, and government price
controls. Because of the number of sources from which such raw materials are
generally available, Sara Lee believes it will continue to have access to
adequate supplies.
Competition in this category is keen, with a large number of participants.
Sara Lee seeks to maintain and enhance a leading position in the industry
through marketing efforts that are designed to reinforce and build brand
recognition, and through superior customer service.
In the United States, Sara Lee Bakery products are subject to regulation by
the Food and Drug Administration, the federal agency charged with, among other
things, enforcing laws pertaining to food processing, content and labeling, and
to a lesser extent, by state and local government agencies.
Sara Lee Foodservice's business is conducted principally under the
PYA/Monarch name. With the acquisition of the remaining outstanding shares of
Virginia-based Consolidated Foodservice Companies in fiscal 1995, PYA/Monarch
strengthened its position as the leading foodservice distributor in the
southeastern United States and became the third largest full-line foodservice
company in the nation. This business distributes dry, refrigerated and frozen
foods, paper supplies and foodservice equipment to institutional and commercial
foodservice customers.
The institutional foodservice distribution industry is highly competitive,
with price and service being the major means by which Sara Lee Foodservice
competes. This line of business generates lower margins on sales dollars than
Sara Lee's other businesses.
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SARA LEE COFFEE AND GROCERY
Sara Lee believes it is one of the top four coffee roasters in the world,
and one of the top three in the European market. It has a significant presence
in such countries as the Netherlands, Belgium, France, Denmark, Spain and
Australia, and has established positions in Central and Eastern Europe through
acquisitions and expanded sales efforts. While Douwe Egberts is its European
flagship brand, its other premium European coffee brands include Maison du Cafe,
Marcilla, and Merrild. Sara Lee's Pickwick brand, an important brand in the
European tea market, is expanding its current lines in an effort to appeal to
younger consumers and is entering the Russian and Eastern European markets.
This is a very competitive business with the other participants consisting
primarily of other large multi-national companies. Sara Lee seeks to maintain a
competitive edge by offering its customers superior quality and value.
Sara Lee is also a significant competitor in the out-of-home coffee service
business. Its Douwe Egberts Coffee Systems business provides coffee and
dispensing equipment in Europe, while its Superior Coffee and Foods business
provides similar products and services in the United States.
The significant cost item in the production of coffee products is the price
of green coffee, which varies depending on such factors as weather (which
affects the quality and quantity of available supplies), consumer demand, the
political climate in the producing nations, unilateral pricing policies of
producing nations, speculation on the commodities market, and the relative
valuations and fluctuations of the currencies of producer versus consumer
countries. These factors also generally affect Sara Lee's competitors. At the
end of fiscal 1994, and the beginning of fiscal 1995, Brazil, the world's
largest coffee producer, suffered two major frosts, followed by a drought, that
negatively affected crop output in fiscal 1995. Uncertainty over the
availability of supplies resulted in extreme volatility in the price of green
coffee in fiscal 1995, leading to the highest prices in recent years. Sara Lee
anticipates that green coffee prices will continue to be affected due to
uncertainty over the availability of future supplies. Sara Lee has and expects
to continue to offset the negative effect of price increases through careful
inventory management, cost cutting, and higher prices for its coffee products.
Primarily due to the effect of higher green coffee costs on consumer buying
habits, unit volumes for retail and out-of-home roasted coffee were down 8% for
fiscal 1995, excluding the effect of acquisitions.
The Sara Lee Coffee and Grocery line of business also manufactures rice
products under the Lassie brand in the Netherlands, and snack and nut products
under the Duyvis, Felix and Benenuts brands in the Netherlands, Belgium and
France, respectively.
The Sara Lee Coffee and Grocery business has accounted for 10% or more of
Sara Lee's consolidated revenues during the past three fiscal years.
SARA LEE PACKAGED CONSUMER PRODUCTS
Sara Lee's Packaged Consumer Products segment is divided into two lines of
business: Personal Products and Household and Personal Care.
SARA LEE PERSONAL PRODUCTS
The Personal Products line of business, which is headquartered in
Winston-Salem, North Carolina, includes the Intimates, Accessories, Knit
Products and Hosiery business groups.
Sara Lee Intimates' business includes bras, panties and shapewear. These
are manufactured and distributed under such labels as Bali, Hanes Her Way,
Playtex, WonderBra and Daisyfresh in North America, and Playtex and Dim in
Europe. Sara Lee holds a leading position in the Mexican bra market through its
Playtex and Hanes Her Way brand and continued to build market share in Canada
during fiscal 1995 through its Playtex, Wonderbra, Daisyfresh and Hanes Her Way
brands.
Distribution channels for intimate apparel range from department and
specialty stores for such premium brands as Bali, and some Playtex products, to
warehouse clubs and mass-merchandise outlets for some of the value-priced
brands. Sales are effected through Sara Lee's sales force.
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The intimate apparel market is a competitive one based on consumer brand
loyalty. Sara Lee endeavors to maintain its competitive edge through marketing
and promotional efforts, and by offering consumers value through a superior
combination of quality and price.
Sara Lee Accessories' business involves the manufacture and marketing of
premium leather products through its Coach division, under the Coach and Mark
Cross brands, and the manufacture and marketing of men's and women's gloves,
slippers and knitwear through its Aris Isotoner division under the Aris and
Isotoner brands. Aris Isotoner products are sold primarily to department stores,
while Coach and Mark Cross products are sold through department stores, catalog
sales and Sara Lee stores. Coach and Mark Cross now operate approximately 120
stores in the United States.
Sara Lee Knit Products' business involves the manufacture and distribution
of men's, women's and children's underwear and activewear (T-shirts, fleecewear
and other jersey products for casualwear) in North America, South and Central
America, Europe and the Asia-Pacific countries. These products are sold through
Sara Lee's sales force to department stores, mass merchandisers, discount chains
and the screen print trade. Principal brands in this category include Champion,
Hanes, Hanes Her Way and Rinbros in North America, and Abanderado, Princesa,
Champion, Hanes and Dim in Europe. Sara Lee believes that it has the leading
market share in the women's and girls' panties category in the United States,
the second largest share in the heavily branded category of men's and boys'
underwear in the United States, and the leading position in men's and boys'
underwear in Mexico.
Activewear is marketed under Sara Lee's Hanes and Champion lines. In
addition to targeting the public activewear market, Champion also manufactures
and markets authentic uniforms and practicewear for professional and amateur
athletic teams, including such organizations as the National Basketball
Association, the National Football League, the Olympics and a number of major
university sports teams.
The principal raw material in this product category is cotton. Sara Lee
currently believes it has access to an adequate supply of cotton from a variety
of sources.
The knit products business is highly competitive, with products relying on
brand recognition, quality, price and loyalty. Sara Lee competes by offering
superior value, utilizing its megabranding strategy -- marketing various
products through common packaging, promotion and advertising, increased
marketing activity, and low-cost sourcing. The Knit Products business has
accounted for 10% or more of Sara Lee's consolidated revenues during each of the
past three fiscal years.
Sara Lee Hosiery is the market leader in hosiery markets in North America,
Western Europe, Australia, New Zealand and South Africa. It also continues to
establish operations in various Asia-Pacific countries, placing it in a
strategic position to capitalize on developing markets in that area. The
European hosiery business is somewhat seasonal in nature in contrast to the
domestic business.
Hosiery products consist of a wide variety of branded, packaged consumer
products, including pantyhose, stockings, combination panty and pantyhose
garments, tights, knee-highs and socks, many of which are available in both
sheer and opaque styles. These products are sold domestically under such brand
names as Hanes, L'eggs, Donna Karan and DKNY (the last two being licensed), and
abroad under such labels as Dim, Pretty Polly, Elbeo, Nur Die, Bellinda,
Filodoro, Philippe Matignon and Omero. Sara Lee is the largest sock manufacturer
in the United States.
Hosiery products are sold by Sara Lee's sales force in channels ranging
from department and specialty stores (for premium brands such as Hanes, Donna
Karan and DKNY in the United States, and Dim abroad), to supermarkets, warehouse
clubs, discount chains and convenience stores for brands like L'eggs and some
Dim products aimed at the price-conscious consumer. Hosiery products are also
distributed through catalog sales and Sara Lee stores. The hosiery business has
accounted for 10% or more of Sara Lee's consolidated revenues during each of the
past three fiscal years.
The hosiery business is very competitive in both the United States and
Europe. In the United States, Sara Lee's major competitors are other hosiery
companies, and the primary methods of competition are quality, value, function,
and, with respect to L'eggs products, service and distribution. In Europe, where
most of Sara
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Lee's competitors are small companies who compete in the unbranded sector of the
market, the primary focus is on quality.
Raw materials -- nylon, spandex, and cotton -- for the products in this
category are readily available to Sara Lee from a variety of sources.
HOUSEHOLD AND PERSONAL CARE
Sara Lee's Household and Personal Care line of business includes three
primary core categories: shoe care -- led by a worldwide line of Kiwi products;
body care items -- led by the Sanex brand, but also including Duschdas and
Badedas and baby care products sold under the Zwitsal, Fissan and Proderm names;
and insecticides -- sold internationally under the Catch, Bloom, Vapona and
Ridsect brand names. Ambi-Pur air fresheners, Zendium and Prodent oral care
products, and Biotex and Neutral specialty detergents are also important
categories for Sara Lee.
Sara Lee Direct Selling distributes a wide range of products -- cosmetics,
fragrances, toiletries, personal products and jewelry -- through a network of
independent sales representatives. This method of reaching the consumer has been
particularly successful at the House of Fuller business in Mexico, the House of
Sara Lee businesses in Indonesia and the Philippines, and the Avroy Shlain
business in South Africa. While this segment is very fragmented, Sara Lee
believes it has an important position in many product lines in those countries
in which it competes.
TRADEMARKS
Sara Lee is the owner of over 30,000 trademark registrations and
applications in over 140 countries. Sara Lee's trademarks are among its most
valuable assets as it pursues its strategy of building brands globally.
CUSTOMERS
None of Sara Lee's business segments or lines of business is dependent upon
a single customer or a small number of customers, the loss of whom would have a
material adverse effect on Sara Lee's consolidated operations. Sara Lee
considers major mass retailers and supermarket chains in both the United States
and Europe to be significant customers across one or more product categories,
and it has developed specific approaches to working with individual customers.
ENVIRONMENTAL MATTERS
Sara Lee is subject to a number of federal, state and local statutes,
rules, regulations and ordinances in the United States and other countries
relating to the discharge of materials into the environment, or otherwise
relating to the protection of the environment ("Environmental Laws").
While Sara Lee expects to make capital and other expenditures in compliance
with Environmental Laws, it does not anticipate that such compliance will have a
material adverse effect on its capital expenditures, earnings or competitive
position. Sara Lee has implemented a program to monitor compliance with
Environmental Laws and is continually examining its methods of operation and
product packaging to reduce its use of natural resources.
EMPLOYEES
Sara Lee has approximately 149,000 employees worldwide.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Sara Lee's foreign operations are conducted primarily through wholly- or
partially-owned subsidiaries incorporated outside the United States. The foreign
operations of the Packaged Meats line of business within the Packaged Foods
segment are conducted through Sara Lee Processed Meats (Europe) B.V., while the
Sara Lee Bakery business includes Kitchens of Sara Lee U.K. Ltd. and Kitchens of
Sara Lee (Australia) Pty. Ltd. The Coffee and Grocery line of business within
the Packaged Foods segment is conducted by a number of
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subsidiaries, principally European, including Douwe Egberts Nederland B.V.,
Douwe Egberts France S.A., Douwe Egberts Espana S.A., Merrild Kaffe A/S, Douwe
Egberts N.V., Compack Douwe Egberts Rt., Harris/DE Pty. Ltd., Balirny Douwe
Egberts A.S. and Douwe Egberts Coffee Systems Nederland B.V.
The Personal Products line of business within the Packaged Consumer
Products segment includes numerous foreign businesses, including Dim S.A., Grupo
Sans S. A., Sara Lee Personal Products (Australia) Pty. Ltd., Pretty Polly Ltd.,
Vatter GmbH, the Filodoro Group, Manufacturas Mallorca, S.A. de C.V., Rinbros,
S.A. de C.V., and a 60% interest in Maglificio Bellia S.p.A.
The Household and Personal Care line of business within the Packaged
Consumer Products segment is composed of subsidiaries in over forty countries.
The principal subsidiaries are Kiwi Brands Pty. Ltd., Kiwi France S.A., Kortman
Intradal B.V., A/S Blumoller, Sara Lee/DE Espana S.A., Sara Lee Household and
Personal Care U.K. Ltd., and Sara Lee/DE Italy S.p.A.
The financial information about foreign and domestic operations can be
found on page F-22 of this Report.
Item 2. Properties.
Sara Lee operates 289 food processing and consumer product manufacturing
plants, each containing more than 20,000 square feet in building area, in 27
states and 35 foreign countries. Sara Lee owns 221 and leases 68 of these
plants. It also operates 135 warehouses containing more than 20,000 square feet
in building area in 18 states and 20 foreign countries. Of these warehouses, 57
are owned and 78 are leased. The following table identifies the plants and
warehouses presently owned or leased by Sara Lee that contain at least 250,000
square feet in building area.
APPROXIMATE
INDUSTRY SEGMENT AND BUILDING AREA
DIVISION OR SUBSIDIARY LOCATION IN SQUARE FEET
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SARA LEE PACKAGED FOODS
Bil Mar Foods.......................... Zeeland, Michigan 567,000
Bryan Foods, Inc. ..................... West Point, Mississippi 769,000
Douwe Egberts Van Nelle
Tabaksmaatschappij B.V. ............. Rotterdam, the Netherlands 605,000
Hillshire Farm & Kahn's................ Alexandria, Kentucky 325,000
Hillshire Farm & Kahn's................ Cincinnati, Ohio 556,000
Hillshire Farm & Kahn's................ New London, Wisconsin 563,000
Koninklijke Douwe Egberts B.V. ........ Joure, the Netherlands 1,094,000
Koninklijke Douwe Egberts B.V. ........ Utrecht, the Netherlands 577,000
Koninklijke Douwe Egberts B.V. ........ Zaandam, the Netherlands 367,000
PYA/Monarch, Inc. ..................... Charlotte, North Carolina 288,000
PYA/Monarch, Inc. ..................... Lexington, South Carolina 364,000
PYA/Monarch, Inc. ..................... Montgomery, Alabama 276,000
Sara Lee Bakery........................ Forest, Mississippi 260,000
Sara Lee Bakery........................ New Hampton, Iowa 294,000
Sara Lee Bakery........................ Tarboro, North Carolina 346,000
Sara Lee Bakery........................ Traverse City, Michigan 295,000
Sara Lee Processed Meats (Europe)
B.V. ................................ Rio Maior, Portugal 348,000
Sara Lee Processed Meats (Europe)
B.V. ................................ Miralcamp, Spain 260,000
Van Nelle International B.V. .......... Joure, the Netherlands 301,000*
8
10
APPROXIMATE
INDUSTRY SEGMENT AND BUILDING AREA
DIVISION OR SUBSIDIARY LOCATION IN SQUARE FEET
- --------------------------------------- --------------------------------------- --------------
SARA LEE PACKAGED CONSUMER PRODUCTS
Adams-Millis Corporation Kernersville, North Carolina 340,000
Aris Isotoner Edison, New Jersey 297,000*
Aris Philippines Manila, Philippines 334,000***
Canadelle Inc. Montreal, Canada 261,000
Champion Products, Inc. Laurel Hill, North Carolina 368,000
Champion Products, Inc. Gaffney, South Carolina 294,000
Champion Products, Inc. Perry, New York 253,000**
Champion Products, Inc. Dunn, North Carolina 289,000
Filodoro Calze SpA Casalmoro, Italy 319,000
Kiwi Brands Inc. Douglassville, Pennsylvania 290,000
Kiwi Brands Pty. Ltd. Clayton, Australia 271,000
L'eggs Products Clarksville, Arkansas 321,000
L'eggs Products Rockingham, North Carolina 440,000
Playtex Apparel, Inc. Dover, Delaware 424,000
Sara Lee/DE Espana S.A. Santiga, Spain 284,000*
Sara Lee/DE Germany Dusseldorf, Germany 333,000*
Sara Lee Direct Rural Hall, North Carolina 598,000*
Sara Lee Hosiery East Rockingham, North Carolina 330,000*
Sara Lee Hosiery Winston-Salem, North Carolina 770,000
Sara Lee Hosiery Darlington, South Carolina 287,000
Sara Lee Household & Personal Care U.K.
Limited Slough, England, United Kingdom 331,000
Sara Lee Knit Products Forest City, North Carolina 340,000
Sara Lee Knit Products Eden, North Carolina 418,000
Sara Lee Knit Products Galax, Virginia 424,000
Sara Lee Knit Products Martinsville, Virginia 704,000*
Sara Lee Knit Products Martinsville, Virginia 628,000**
Sara Lee Knit Products Martinsville, Virginia 442,000**
Sara Lee Knit Products Mountain City, Tennessee 562,000
Sara Lee Knit Products Rabun Gap, Georgia 754,000
Sara Lee Knit Products Rural Hall, North Carolina 931,000
Sara Lee Knit Products Sanford, North Carolina 275,000
Sara Lee Knit Products Winston-Salem, North Carolina 568,000
Sara Lee Knit Products Greenwood, South Carolina 500,000
Vatter GmbH Augsburg, Germany 297,000***
Vatter GmbH Rheine, Germany 482,000
Vatter GmbH Schongau, Germany 256,000
- ---------------
* These facilities are leased; the remainder are owned by Sara Lee.
** Facilities have been closed as part of 1994 restructuring and are awaiting
sale. See pages F-16 through F-17 of this Report for a description of the
restructuring.
*** Facilities have been closed and are awaiting sale.
Item 3. Legal Proceedings.
In September 1994, Sara Lee and the State of Wisconsin stipulated and
agreed that (i) Sara Lee would pay $200,000 into an escrow fund established at
the conclusion of the bankruptcy proceedings of Peck Foods Corporation ("Peck"),
a former subsidiary of Sara Lee sold in 1988, in connection with certain
allegations that Peck had violated hazardous spill remediation laws, and (ii)
judgment in the amount of $218,400, including a penalty assessment, would be
entered against Sara Lee in connection with certain allegations that Peck had
illegally discharged wastewater in violation of water pollution control laws.
The current owners of Peck have reimbursed Sara Lee for approximately $318,000
of these costs.
9
11
In addition to the foregoing, Sara Lee is a party to several pending legal
proceedings and claims, and environmental actions by governmental agencies.
Although the outcome of such items cannot be determined with certainty, Sara
Lee's General Counsel and management are of the opinion that the final outcomes
should not have a material adverse effect on Sara Lee's results of operations or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
10
12
EXECUTIVE OFFICERS OF SARA LEE
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on October 26, 1995 (the "Proxy Statement").
The following is a list of names and ages of all current executive officers
of Sara Lee indicating positions and offices with Sara Lee held by each such
person. All such persons have been elected by, and hold office at the pleasure
of, the Board of Directors. No person other than those listed below has been
chosen to become an executive officer of Sara Lee.
AGE AS OF FIRST
OCTOBER 26, OFFICES AND ELECTED
NAME 1995 POSITIONS HELD AN OFFICER
- ----------------------------------------- ----------- --------------------------------- -----------
John H. Bryan............................ 59 Chairman of the Board, Chief 3/28/74
Executive Officer and Director
Michael E. Murphy........................ 59 Vice Chairman, Chief 6/28/79
Administrative Officer and
Director
Donald J. Franceschini................... 60 Executive Vice President and 8/27/92
Director
C. Steven McMillan....................... 49 Executive Vice President and 3/31/83
Director
Gary C. Grom............................. 48 Senior Vice President -- Human 10/25/90
Resources
Joseph E. Heid........................... 49 Senior Vice President 4/28/94*
Janet Langford Kelly..................... 37 Senior Vice President, Secretary 1/25/95
and General Counsel
Mark J. McCarville....................... 49 Senior Vice President -- 6/24/82
Corporate Development
Frank L. Meysman......................... 43 Senior Vice President 3/31/94*
Judith A. Sprieser....................... 42 Senior Vice President and Chief 11/1/94
Financial Officer
- ---------------
* Mr. Heid and Mr. Meysman assumed the duties of executive officers (as defined
in Rule 3b-7 under the Securities Exchange Act of 1934, as amended) of Sara
Lee as of September 26, 1995.
There are no family relationships between any of the above-named executive
officers and directors.
Each of the executive officers listed above has served Sara Lee or its
subsidiaries in various executive capacities for the past five years except
Donald J. Franceschini, Joseph E. Heid and Janet Langford Kelly.
Prior to his election, Mr. Franceschini served in various executive
capacities at Playtex Apparel, Inc. prior to its acquisition by Sara Lee. Before
joining Sara Lee in December 1992, Mr. Heid was President of Guiness America,
Inc., a marketer and producer of distilled beverages. Ms. Kelly was a partner in
the Chicago office of Sidley & Austin from June 1991 until her election and
prior thereto was an associate at Sidley & Austin.
11
13
PART II
Item 5. Market for Sara Lee's Common Equity and Related Stockholder Matters.
Sara Lee's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of September 1, 1995, Sara Lee had approximately
93,200 holders of record of its Common Stock. Information about the high and low
sales prices for each full quarterly period and the amount of cash dividends
declared on Sara Lee's Common Stock during the past three fiscal years is set
forth on page F-23 of this Report.
Item 6. Selected Financial Data.
The requisite financial information for Sara Lee for the five fiscal years
ending July 1, 1995, is set forth on pages F-2 and F-3 of this Report. Such
information should be read in conjunction with the consolidated Financial
Statements and related Notes to Financial Statements on pages F-4 through F-23
of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the General Development of
Business on pages 1 through 3, Narrative Description of Business on pages 3
through 7, and the consolidated Financial Statements and related Notes to
Financial Statements on pages F-4 through F-23 of this Report.
RESULTS OF OPERATIONS
Net sales increased 14.1% to $17.7 billion in 1995, from $15.5 billion in
1994, and $14.6 billion in 1993. The increase in 1995 was due to higher unit
volumes and improved product mix, as well as the strengthening of foreign
currencies relative to the U.S. dollar and business acquisitions. Business
acquisitions and unit volume growth, offset in part by the weakening of foreign
currencies relative to the U.S. dollar, were the primary contributing factors in
the 1994 increase. Excluding the effects of foreign currencies and acquisitions
and dispositions, sales dollars increased 6% in 1995 and 3% in 1994.
The gross profit margin was 37.8% in 1995, compared with 37.6% in 1994 and
38.0% in 1993. Improved margins in the corporation's Personal Products and
Packaged Meats and Bakery operations, offset in part by lower Coffee and Grocery
margins, generated the increase in 1995. The decrease in 1994 was attributable
to margin declines in the European hosiery and knit products businesses, offset
in part by improved margins in the Household and Personal Care and Packaged
Meats and Bakery operations.
On June 6, 1994, the corporation announced a restructuring of its worldwide
operations that will ultimately result in the closure of 94 manufacturing and
distribution facilities and the severance of 9,900 employees. This restructuring
reduced 1994 operating income (pretax earnings before interest and corporate
expenses), net income and primary earnings per share by $732 million, $495
million and $1.03, respectively. The 1994 operating income included charges for
restructuring as follows: Personal Products -- $630 million; Household and
Personal Care -- $55 million; Coffee and Grocery -- $25 million; and Packaged
Meats and Bakery -- $22 million.
Of the total provision of $732 million, non-cash charges of $304 million
represent the excess of the net book value of plants to be closed and businesses
to be sold over the estimated sales proceeds. The balance of the restructuring
provision primarily represents cash outflows. During fiscal 1995, cash payments
totaled $173 million. Restructuring actions are expected to be substantially
completed by the close of 1996 and the corporation expects to fund the remaining
costs of the plan from internal sources and available borrowings.
During 1995, 42 manufacturing and distribution facilities were closed and
6,029 employees terminated. Operating costs were lowered in 1995 by $89 million,
primarily as a result of lower plant overhead and labor costs. The corporation
expects the restructuring plan to generate increasing savings in subsequent
years, growing to an annual savings of approximately $250 million in 1998.
Savings from the planned actions will be
12
14
used for both business-building initiatives and profit improvement. The
restructuring reserve is analyzed in greater detail in the Restructuring
Provision note to the financial statements on pages F-16 and F-17.
Operating income, excluding the restructuring charge, increased 18.5% in
the Packaged Foods segment, while the Packaged Consumer Products segment
increased 15.6% from 1994 results. The increase in the Packaged Foods segment is
primarily attributable to business acquisitions, the strengthening of foreign
currencies relative to the U.S. dollar and cost controls. The increased results
in the Packaged Consumer Products segment were primarily attributable to the
improved profitability of the worldwide hosiery, knit products and intimates
businesses. Business acquisitions and the strengthening of foreign currencies
relative to the U.S. dollar also contributed to the improved results of the
Packaged Consumer Products segment. Excluding the restructuring charge and the
effects of acquisitions and fluctuations in foreign exchange rates, operating
income increased 7% in 1995, and in 1994 was virtually unchanged from 1993.
Net interest expense was $185 million in 1995, compared with $145 million
in 1994 and $82 million in 1993. The 1995 increase was largely due to higher
interest rates, while the increase in 1994 interest expense was a result of
increased financing needs for acquisitions and capital expenditures.
Unallocated corporate expenses are costs not directly attributable to
specific segment operations. Unallocated corporate expenses were $192 million in
1995, $98 million in 1994 and $143 million in 1993. Unallocated corporate
expenses in 1995 were negatively impacted by the costs of hedging foreign
currency movements and expenses associated with minority interests in
subsidiaries. In 1993, unallocated corporate expenses were greater than in 1994
because of costs of hedging foreign currency movements and higher administrative
expenses.
The effective tax rate was 34.1% in 1995, 39.9% in 1994 and 34.9% in 1993.
Excluding the impact of unusual items in 1994, the effective tax rate was 35.0%.
The reduction of the tax rate from 35.0% in 1994 to 34.1% in 1995 was primarily
due to increased earnings in certain foreign jurisdictions that have lower tax
rates than the United States.
In fiscal 1994, the corporation adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this
mandated accounting change was a one-time charge of $35 million, or $.07 per
share.
Excluding the effects of the 1994 restructuring charge and the cumulative
effect of the accounting change, 1995 net income increased 10.3% to $804
million, and earnings per share increased 10.2% to $1.62. In 1994, net income
decreased 71.8% to $199 million and primary earnings per share decreased 73.6%
to $.37. Excluding the effects of the restructuring charge and the cumulative
effect of the accounting change, net income and primary earnings per share in
1994 increased 3.5% and 5.0%, respectively.
During 1995, the corporation acquired several companies for an aggregate
purchase price of $168 million in cash. The principal acquisitions were in the
Packaged Meats and Bakery segment, and included the remaining outstanding shares
of Consolidated Foodservice Companies, a domestic foodservice distribution
business, and the Imperial Meats Group, a European manufacturer and distributor
of processed meats.
During 1994, the corporation acquired several companies for an aggregate
purchase price of $412 million in cash. The principal acquisitions were the
European personal care businesses of SmithKline Beecham (Household and Personal
Care), Kiwi Brands (Pty.) Ltd. and subsidiaries (Household and Personal Care and
Personal Products), and Maglificio Bellia S.p.A. (Personal Products).
During 1993, the corporation acquired several companies for an aggregate
purchase price of $352 million in cash and the issuance of common stock having a
market value of $69 million. The principal acquisitions were BP Nutrition's
Consumer Food Group (Packaged Meats and Bakery) and the Filodoro Group (Personal
Products).
These transactions are discussed in greater detail in the Acquisitions and
Divestments note to the financial statements on page F-12.
13
15
During the past three years, the general rate of inflation has averaged 2%.
Additionally, approximately 35% of the corporation's inventories are valued on
the last-in, first-out basis. As a result, much of the current cost of
production is reflected in operating results and not retained as a component of
inventory.
FINANCIAL POSITION
Net cash provided from operating activities was $1.4 billion in 1995 as
compared to $839 million in 1994. The favorable 1995 results were due to
improved gross margins, operating efficiencies resulting in part from the 1994
restructuring, and improved working capital management. Net cash provided from
operating activities in 1994 was approximately the same as in 1993.
Net cash used in investment activities was $517 million in 1995, $937
million in 1994 and $967 million in 1993. Lower capital expenditures and
business acquisition costs were the primary reasons for the reduced 1995 cash
use. Capital expenditures were $480 million in 1995, $628 million in 1994 and
$728 million in 1993. A significant portion of these expenditures was for the
reduction of manufacturing and distribution costs, and for expansion of capacity
to meet internal growth. The corporation expects fiscal 1996 capital
expenditures to approximate $600 million. The 1996 expenditures will be funded
from internal sources and available borrowing capacity. The corporation retains
substantial flexibility to adjust its spending levels in order to act upon other
opportunities, including business acquisitions.
During 1995, cash of $853 million was used for financing activities,
primarily to repay $459 million of debt and pay dividends of $358 million.
During 1994, cash of $42 million was used in financing activities. In 1994, a
domestic subsidiary of the corporation issued $200 million of equity securities,
the proceeds of which were used to purchase shares of the corporation's common
stock. During 1993, cash of $248 million was provided from financing activities,
primarily through the utilization of available short-term debt capacity. As of
July 1, 1995, the total-debt-to-total-capital ratio decreased to 33.8% from
38.9% at July 2, 1994. The current capital structure is within the corporation's
objective of maintaining a total-debt-to-total-capital ratio of no more than 40%
over time, and provides sufficient financial flexibility to pursue business
opportunities.
Item 8. Financial Statements and Supplementary Data.
The consolidated Financial Statements and related Notes to Financial
Statements of Sara Lee identified in the Index to Financial Statements appearing
under Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K,
are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
14
16
PART III
Item 10. Directors and Executive Officers of Sara Lee.
For information with respect to the executive officers of Sara Lee, see
"Executive Officers of Sara Lee" on page 11 of this Report. For information with
respect to the directors of Sara Lee, see "Election of Directors" on pages 2
through 8 of the Proxy Statement, which is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth in the Proxy Statement on pages 11 through 19,
under the caption "Executive Compensation," and on pages 19 through 21, under
the caption "Retirement Plans," is incorporated herein by reference; provided,
however, that the Report of the Compensation and Employee Benefits Committee on
Executive Compensation and the Performance Graph contained therein is
specifically excluded and shall not be deemed so incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person or "group" (as that term is used in Section 3(d)(3) of the
Securities Exchange Act of 1934) is known by Sara Lee to beneficially own more
than 5% of any class of Sara Lee's voting securities, except that, as of
September 1, 1995, State Street Bank & Trust Company of Boston, as trustee
("Trustee") of the Sara Lee Corporation Employee Stock Ownership Plan ("ESOP"),
held in trust 4,514,427 shares (100% of the outstanding shares) of Sara Lee's
Employee Stock Ownership Plan Convertible Preferred Stock ("ESOP Stock"), of
which 1,168,043 shares (25.87%) were allocated to participant accounts and
3,346,384 shares (74.13%) were unallocated shares, and 9,517 shares of Sara Lee
Common Stock (less than 1% of the outstanding shares of Common Stock), all of
which were allocated to participant accounts. Each ESOP participant is entitled
to direct the Trustee how to vote the shares allocated to such participant's
account, as well as a proportionate share of unallocated or unvoted shares. The
ESOP Stock votes as a class with the Common Stock and each share of ESOP Stock
is entitled to 5.133 votes. Each share of ESOP Stock is convertible into four
shares of Sara Lee Common Stock.
(b) Security ownership by management as outlined on page 9 of the Proxy
Statement under the caption "Ownership of Common Stock and ESOP Stock by
Directors, Nominees and Executive Officers" is incorporated herein by reference.
(c) There are no arrangements known to Sara Lee the operation of which may
at a subsequent date result in a change in control of Sara Lee.
Item 13. Certain Relationships and Related Transactions.
During fiscal 1995, Sara Lee paid fees for legal services performed by the
law firm of Sidley & Austin, to which Newton N. Minow is counsel, and the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., of which Vernon E. Jordan,
Jr. is a senior partner. Sara Lee paid fees for investment banking services to
The First National Bank of Chicago, of which Richard L. Thomas is Chairman of
the Board and Chief Executive Officer. Each of the above individuals is a
director of Sara Lee.
15
17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
PAGE
----
(A) 1. FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Statements of Income -- Years ended July 3, 1993, July 2, 1994
and July 1, 1995 F-4
Consolidated Balance Sheets -- July 3, 1993, July 2, 1994 and July 1, 1995 F-5
Consolidated Statements of Common Stockholders' Equity -- Balances at July
3, 1993, July 2, 1994 and July 1, 1995 F-7
Consolidated Statements of Cash Flows -- Years ended July 3, 1993, July 2,
1994 and July 1, 1995 F-8
Notes to Financial Statements F-9
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants F-24
Schedule II -- Valuation and Qualifying Accounts F-25
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS PAGE/INCORPORATION BY REFERENCE
(3a) Articles of Restatement of the Charter, Exhibit 4.1 to Registration Statement
as amended No. 33-35760 on Form S-8 dated July 6,
1990, and Exhibit 3(a) to Report on Form
10-K for Fiscal Year ended July 2, 1994
(3b) By-Laws, as amended
(4) Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange
Commission, upon its request, a copy of any instrument which defines the rights of
holders of long-term debt of Sara Lee and all of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be filed, and
which authorizes a total amount of securities not in excess of 10% of the total
assets of Sara Lee and its subsidiaries on a consolidated basis.
(10) 1. 1979 Stock Option Plan, as amended
2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K
for Fiscal Year ended July 1, 1989
3. 1988 Non-Qualified Stock Option Plan,
as amended
4. 1989 Incentive Stock Plan, as amended Exhibit B to 1991 Proxy Statement dated
September 20, 1991
5. Supplemental Benefit Plan, as amended Exhibit 10 (8) to Report on Form 10-K
for Fiscal Year ended June 30, 1990
6. Short-Term (Annual) Incentive Plan
Fiscal Year 1995
7. Accelerated Growth Incentive Plan Exhibit 10 (12) to Report on Form 10-K
Fiscal Years 1990-1994 for Fiscal Year ended June 30, 1990
8. 1991 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended June 29, 1991
16
18
EXHIBITS PAGE/INCORPORATION BY REFERENCE
9. 1992 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended June 27, 1992
10. FY '93 Non-Qualified Deferred Exhibit 10 (16) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended June 27, 1992
11. 1993 Non-Qualified Deferred Exhibit 10 (19) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended July 3, 1993
12. FY '94 Non-Qualified Deferred Exhibit 10 (20) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended July 3, 1993
13. 1994 Non-Qualified Deferred Exhibit 10 (14) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended July 2, 1994
14. FY '95 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended July 2, 1994
15. Performance-Based Annual Incentive Appendix A, Exhibit 99 to Proxy
Plan Statement dated September 20, 1995
16. 1995 Long-Term Incentive Stock Plan Appendix B, Exhibit 99 to Proxy
Statement dated September 20, 1995
17. 1995 Non-Employee Director Stock Appendix C, Exhibit 99 to Proxy
Plan Statement dated September 20, 1995
18. Non-Qualified Deferred Compensation Exhibit 10 (21) to Report on Form 10-K
Plan for Outside Directors for Fiscal Year ended July 3, 1993
19. Non-Qualified Estate Builder Exhibit 10 (17) to Report on Form 10-K
Deferred Compensation Plan for Fiscal Year ended June 29, 1985
20. Severance Policy for Corporate Exhibit 10 (19) to Report on Form 10-K
Officers for Fiscal Year ended July 2, 1994
21. Stockholder Rights Agreement Exhibit 4 to Report on Form 10-Q for the
quarter ended March 26, 1988
22. Employment Agreement, dated November
9, 1994, between Sara Lee
Corporation and Frank L. Meysman
23. Employment Agreement, dated November
9, 1994, between Sara Lee/DE N.V.
and Frank L. Meysman and attachments
(translated from Dutch)
(11) Computation of Net Income per Common
Share
(12) 1. Computation of Ratio of Earnings to
Fixed Charges
2. Computation of Ratio of Earnings to
Fixed Charges and Preferred Stock
Dividend Requirements
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney from those directors
whose names appear on pages 18 and
19 hereof followed by an asterisk
(27) Financial Data Schedules
17
19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Sara Lee Corporation has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
September 29, 1995
SARA LEE CORPORATION
By: /s/ JANET LANGFORD KELLY
----------------------------------
Janet Langford Kelly
Senior Vice President,
Secretary and General Counsel
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of Sara Lee
Corporation and in the capacities indicated on September 29, 1995.
SIGNATURE CAPACITY
- --------------------------------------------- ---------------------------------------------
/s/ JOHN H. BRYAN Chairman of the Board, Chief Executive
- --------------------------------------------- Officer and Director
John H. Bryan
/s/ MICHAEL E. MURPHY Vice Chairman, Chief Administrative Officer
- --------------------------------------------- and Director
Michael E. Murphy
/s/ DONALD J. FRANCESCHINI Executive Vice President and Director
- ---------------------------------------------
Donald J. Franceschini
/s/ C. STEVEN MCMILLAN Executive Vice President and Director
- ---------------------------------------------
C. Steven McMillan
/s/ JUDITH A. SPRIESER Senior Vice President and Chief Financial
- --------------------------------------------- Officer
Judith A. Sprieser
/s/ WAYNE R. SZYPULSKI Vice President and Controller
- ---------------------------------------------
Wayne R. Szypulski
* Director
- ---------------------------------------------
Paul A. Allaire
* Director
- ---------------------------------------------
Frans H.J.J. Andriessen
* Director
- ---------------------------------------------
Duane L. Burnham
* Director
- ---------------------------------------------
Charles W. Coker
18
20
SIGNATURE CAPACITY
--------- --------
* Director
- ---------------------------------------------
Willie D. Davis
* Director
- ---------------------------------------------
Allen F. Jacobson
* Director
- ---------------------------------------------
Vernon E. Jordan, Jr.
* Director
- ---------------------------------------------
James L. Ketelsen
* Director
- ---------------------------------------------
Hans B. van Liemt
* Director
- ---------------------------------------------
Joan D. Manley
* Director
- ---------------------------------------------
Newton N. Minow
* Director
- ---------------------------------------------
Sir Arvi H. Parbo A.C.
* Director
- ---------------------------------------------
Rozanne L. Ridgway
* Director
- ---------------------------------------------
Richard L. Thomas
*By Janet Langford Kelly as Attorney-in-Fact pursuant to Powers of Attorney
executed by the directors listed above, which Powers of Attorney have been filed
with the Securities and Exchange Commission.
/s/ JANET LANGFORD KELLY
------------------------------------
Janet Langford Kelly
As Attorney-in-Fact
19
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
SARA LEE CORPORATION:
We have audited the accompanying consolidated balance sheets of SARA LEE
CORPORATION (a Maryland corporation) AND SUBSIDIARIES as of July 1, 1995, July
2, 1994, and July 3, 1993, and the related consolidated statements of income,
common stockholders' equity, and cash flows for each of the three years in the
period ended July 1, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sara Lee
Corporation and Subsidiaries as of July 1, 1995, July 2, 1994, and July 3, 1993,
and the results of their operations and their cash flows for each of the three
years in the period ended July 1, 1995 in conformity with generally accepted
accounting principles.
As explained in the Notes to Financial Statements, the Corporation adopted
the requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective July 4, 1993.
/s/ Arthur Andersen LLP
Chicago, Illinois,
July 31, 1995.
F-1
22
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
COMPOUND YEARS ENDED
GROWTH RATE ------------------------
-------------------- JULY 1, JULY 2,
5 YEARS 10 YEARS 1995 1994
------- -------- -------- -----------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS
Net sales.......................................... 8.8% 8.1% $ 17,719 $ 15,536
Operating income................................... 11.2 12.9 1,596 632
Income before income taxes......................... 11.3 13.4 1,219 389
Net income......................................... 11.3 14.6 804 199
Effective tax rate................................. -- -- 34.1% 39.9%
- ------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets....................................... 10.2% 14.5% $ 12,431 $ 11,665
Long-term debt..................................... -- -- 1,817 1,496
Redeemable preferred stock......................... -- -- 334 331
Common stockholders' equity........................ 11.4 14.8 3,939 3,326
Return on average common stockholders' equity...... -- -- 21.4% 5.1%
- ------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income -- primary.............................. 11.0% 13.7% $ 1.62 $ .37
Average shares outstanding (in millions)...... -- -- 480 480
Net income -- fully diluted........................ 11.0 13.3 1.57 .36
Average shares outstanding (in millions)...... -- -- 499 498
Dividends ...................................... 10.6 14.3 .67 .63
Book value at year-end............................. 10.5 13.5 8.20 6.92
Market value at year-end........................... 14.4 18.1 28.50 20.63
- ------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Capital expenditures............................... (4.2)% 6.9% $ 480 $ 628
Depreciation and amortization...................... 11.5 14.7 606 568
Media advertising expense.......................... 6.2 7.6 422 371
Total advertising and promotion expense............ 10.6 10.9 1,675 1,498
Common stockholders of record...................... -- -- 93,400 95,600
Number of employees................................ -- -- 149,100 145,900
- ------------------------------------------------------------------------------------------------------
In 1994, a restructuring provision reduced operating income and income
before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of
accounting for income taxes reduced net income by $35.
53-week year.
Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.
Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.
Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987.
Fiscal 1992 includes a $.12 special dividend.
The Notes to Financial Statements should be read in conjunction with the
Financial Summary.
F-2
23
SARA LEE CORPORATION AND SUBSIDIARIES
FINANCIAL SUMMARY
YEARS ENDED
------------------------------------------------------------------------------------------------------
JULY 3, JUNE 27, JUNE 29, JUNE 30, JULY 1, JULY 2, JUNE 27, JUNE 28, JUNE 29,
1993 1992 1991 1990 1989 1988 1987 1986 1985
------- -------- -------- -------- ------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS
Net sales................. $14,580 $ 13,243 $12,381 $11,606 $11,718 $10,424 $9,155 $7,938 $8,117
Operating income.......... 1,307 1,207 1,085 938 847 753 632 514 474
Income before income
taxes................... 1,082 1,174 830 713 639 513 448 356 345
Net income................ 704 761 535 470 410 325 267 223 206
Effective tax rate........ 34.9% 35.2% 35.5% 34.1% 35.8% 36.7% 40.4% 37.2% 40.3%
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets.............. $10,862 $ 9,989 $ 8,122 $ 7,636 $ 6,523 $ 5,012 $4,192 $3,503 $3,216
Long-term debt............ 1,164 1,389 1,399 1,524 1,488 893 633 634 464
Redeemable preferred
stock................... 357 351 344 338 182 225 75 75 75
Common stockholders'
equity.................. 3,551 3,382 2,550 2,292 1,915 1,575 1,416 1,155 991
Return on average common
stockholders' equity.... 19.6% 24.7% 20.6% 20.9% 22.7% 21.1% 20.5% 20.4% 20.5%
- ---------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income -- primary..... $ 1.40 $ 1.54 $ 1.08 $ .96 $ .88 $ .71 $ .59 $ .51 $ .45
Average shares
outstanding (in
millions)........... 485 476 464 460 454 447 447 433 443
Net income -- fully
diluted................. 1.37 1.50 1.05 .93 .87 .71 .59 .50 .45
Average shares
outstanding (in
millions)........... 504 497 485 480 456 447 447 434 444
Dividends.............. .56 .61 .46 .41 .35 .29 .24 .20 .18
Book value at year-end.... 7.31 7.05 5.48 4.97 4.21 3.56 3.20 2.70 2.32
Market value at
year-end................ 24.25 24.81 20.19 14.56 13.47 9.22 11.63 8.91 5.39
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Capital expenditures...... $ 728 $ 509 $ 522 $ 595 $ 541 $ 449 $ 287 $ 222 $ 247
Depreciation and
amortization............ 522 472 394 351 280 251 202 165 153
Media advertising
expense................. 392 325 288 313 303 253 203 195 202
Total advertising and
promotion expense....... 1,455 1,294 1,067 1,013 925 801 637 587 594
Common stockholders of
record.................. 88,100 75,400 69,400 64,800 56,500 52,400 50,000 44,900 42,600
Number of employees....... 138,000 128,000 113,400 107,800 101,800 85,700 92,400 87,000 92,800
- ---------------------------------------------------------------------------------------------------------------------------------
In 1994, a restructuring provision reduced operating income and income
before income taxes by $732 and net income by $495. In addition, in 1994,
the cumulative effect of adopting a mandated change in the method of
accounting for income taxes reduced net income by $35.
53-week year.
Fiscal 1992 income before income taxes includes a $412 gain on sale of
business offset by a $190 restructuring provision. These transactions
increased net income by $140.
Fiscal 1989 income before income taxes includes an $87 gain on sales of
businesses offset by a $55 restructuring provision. These transactions
increased net income by $11.
Restated for the 2-for-1 stock splits in fiscal 1993, 1990 and 1987.
Fiscal 1992 includes a $.12 special dividend.
The Notes to Financial Statements should be read in conjunction with the
Financial Summary.
F-3
24
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED
-------------------------------
JULY 1, JULY 2, JULY 3,
1995 1994 1993
------- ------- -------
(IN MILLIONS EXCEPT PER SHARE
DATA)
NET SALES..................................................... $17,719 $15,536 $14,580
------- ------- -------
Cost of sales................................................. 11,023 9,700 9,039
Selling, general and administrative expenses.................. 5,292 4,570 4,377
Interest expense.............................................. 243 188 162
Interest income............................................... (58) (43) (80)
Restructuring provision....................................... -- 732 --
------- ------- -------
16,500 15,147 13,498
------- ------- -------
Income before income taxes.................................... 1,219 389 1,082
Income taxes.................................................. 415 155 378
------- ------- -------
NET INCOME BEFORE ACCOUNTING CHANGE........................... 804 234 704
Cumulative effect of accounting change........................ -- (35) --
------- ------- -------
NET INCOME.................................................... 804 199 704
Preferred dividends, net of tax............................... (28) (24) (26)
------- ------- -------
Net income available for common stockholders.................. $ 776 $ 175 $ 678
======= ======= =======
NET INCOME PER COMMON SHARE -- PRIMARY
Before cumulative effect of accounting change............... $ 1.62 $ .44 $ 1.40
Cumulative effect of accounting change...................... -- (.07) --
------- ------- -------
$ 1.62 $ .37 $ 1.40
======= ======= =======
Average shares outstanding.................................. 480 480 485
======= ======= =======
NET INCOME PER COMMON SHARE -- FULLY DILUTED
Before cumulative effect of accounting change............... $ 1.57 $ .43 $ 1.37
Cumulative effect of accounting change...................... -- (.07) --
------- ------- -------
$ 1.57 $ .36 $ 1.37
======= ======= =======
Average shares outstanding.................................. 499 498 504
======= ======= =======
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-4
25
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 1, JULY 2, JULY 3,
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS EXCEPT SHARE
DATA)
ASSETS
Cash and equivalents...................................... $ 202 $ 189 $ 325
Trade accounts receivable, less allowances of $192 in
1995, $164 in 1994 and $154 in 1993..................... 1,653 1,472 1,171
Inventories
Finished goods.......................................... 1,782 1,603 1,413
Work in process......................................... 423 361 322
Materials and supplies.................................. 625 603 545
------- ------- -------
2,830 2,567 2,280
Other current assets...................................... 243 241 200
------- ------- -------
Total current assets...................................... 4,928 4,469 3,976
------- ------- -------
Investments in associated companies....................... 109 142 205
Trademarks and other assets............................... 506 492 518
Property
Land.................................................... 136 131 129
Buildings and improvements.............................. 1,879 1,746 1,570
Machinery and equipment................................. 3,462 3,077 2,804
Construction in progress................................ 206 283 339
------- ------- -------
5,683 5,237 4,842
Accumulated depreciation................................ 2,719 2,337 1,964
------- ------- -------
Property, net............................................. 2,964 2,900 2,878
Intangible assets, net.................................... 3,924 3,662 3,285
------- ------- -------
$12,431 $11,665 $10,862
======= ======= =======
The accompanying Notes to Financial Statements are an integral part of these
balance sheets.
F-5
26
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 1, JULY 2, JULY 3,
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS EXCEPT SHARE
DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable............................................. $ 559 $ 1,281 $ 843
Accounts payable.......................................... 1,436 1,253 1,151
Accrued liabilities
Payroll and employee benefits........................... 693 668 429
Advertising and promotion............................... 278 313 282
Taxes other than payroll and income..................... 218 206 179
Income taxes............................................ 66 13 50
Other................................................... 1,373 1,103 909
Current maturities of long-term debt...................... 221 82 426
------- ------- -------
Total current liabilities................................. 4,844 4,919 4,269
------- ------- -------
Long-term debt............................................ 1,817 1,496 1,164
Deferred income taxes..................................... 273 290 512
Other liabilities......................................... 705 783 705
Minority interest in subsidiaries......................... 519 520 304
Preferred stock (authorized 13,500,000 shares; no par
value)
Convertible adjustable: Issued and
outstanding -- 607,000 shares in 1993; redeemed in
1994 at $50 per share................................ -- -- 30
Auction: Issued and outstanding -- 3,000 shares;
redeemable at $100,000 per share..................... 300 300 300
ESOP convertible: Issued and outstanding -- 4,570,153
shares in 1995, 4,678,857 shares in 1994 and
4,755,217 shares in 1993............................. 331 339 345
Unearned deferred compensation.......................... (297) (308) (318)
Common stockholders' equity
Common stock: (authorized 600,000,000 shares;
$1.33 1/3 par value)
Issued and outstanding -- 480,656,301 shares in 1995,
480,765,240 shares in 1994 and 485,378,368 shares in
1993................................................. 640 641 647
Capital surplus......................................... 67 76 66
Retained earnings....................................... 3,252 2,799 3,056
Translation adjustments................................. 3 (170) (194)
Unearned restricted stock issued for future services.... (23) (20) (24)
------- ------- -------
Total common stockholders' equity......................... 3,939 3,326 3,551
------- ------- -------
$12,431 $11,665 $10,862
======= ======= =======
The accompanying Notes to Financial Statements are an integral part of these
balance sheets.
F-6
27
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
UNEARNED
COMMON CAPITAL RETAINED TRANSLATION RESTRICTED
TOTAL STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK
------ ------ ------- -------- ----------- ----------
(DOLLARS IN MILLIONS EXCEPT SHARE DATA)
BALANCES AT JUNE 27, 1992................ $3,382 $320 $ 306 $2,649 $ 126 $(19)
Net income............................... 704 -- -- 704 -- --
Cash dividends
Common ($.56 per share)................ (270) -- -- (270) -- --
Convertible adjustable preferred
($2.75 per share)................... (2) -- -- (2) -- --
Auction preferred ($2,860.33 per
share).............................. (8) -- -- (8) -- --
ESOP convertible preferred
($5.4375 per share)................. (26) -- -- (26) -- --
Two-for-one stock split.................. -- 322 (322) -- -- --
Stock issuances
Business acquisitions.................. 69 3 66 -- -- --
Stock option and benefit plans......... 66 6 60 -- -- --
Restricted stock, less amortization of
$4.................................. 4 -- 8 -- -- (4)
Reacquired shares........................ (77) (4) (73) -- -- --
Translation adjustments.................. (320) -- -- -- (320) --
ESOP tax benefit......................... 10 -- -- 10 -- --
Other.................................... 19 -- 21 (1) -- (1)
- ----------------------------------------------------------------------------------------------------------
BALANCES AT JULY 3, 1993................. 3,551 647 66 3,056 (194) (24)
Net income............................... 199 -- -- 199 -- --
Cash dividends
Common ($.625 per share)............... (298) -- -- (298) -- --
Auction preferred ($2,732.33 per
share).............................. (8) -- -- (8) -- --
ESOP convertible preferred
($5.4375 per share)................. (26) -- -- (26) -- --
Stock issuances
Stock option and benefit plans......... 69 6 63 -- -- --
Restricted stock, less amortization of
$4.................................. 4 -- 2 -- -- 2
Reacquired shares........................ (224) (12) (82) (130) -- --
Translation adjustments.................. 24 -- -- -- 24 --
ESOP tax benefit......................... 10 -- -- 10 -- --
Other.................................... 25 -- 27 (4) -- 2
- ----------------------------------------------------------------------------------------------------------
BALANCES AT JULY 2, 1994................. 3,326 641 76 2,799 (170) (20)
Net income............................... 804 -- -- 804 -- --
Cash dividends
Common ($.67 per share)................ (320) -- -- (320) -- --
Auction preferred ($4,188.00 per
share).............................. (13) -- -- (13) -- --
ESOP convertible preferred
($5.4375 per share)................. (25) -- -- (25) -- --
Stock issuances
Stock option and benefit plans......... 57 4 53 -- -- --
Restricted stock, less amortization of
$7.................................. 7 -- 13 -- -- (6)
Reacquired shares........................ (93) (5) (88) -- -- --
Translation adjustments.................. 173 -- -- -- 173 --
ESOP tax benefit......................... 10 -- -- 10 -- --
Other.................................... 13 -- 13 (3) -- 3
------ ------ ------ ------ ------ -----
BALANCES AT JULY 1, 1995................. $3,939 $640 $ 67 $3,252 $ 3 $(23)
====== ====== ====== ====== ====== =====
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-7
28
SARA LEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
---------------------------------
JULY 1, JULY 2, JULY 3,
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS)
OPERATING ACTIVITIES
Net income.................................................... $ 804 $ 199 $ 704
Adjustments for noncash charges included in net income
Depreciation and amortization of intangibles................ 606 568 522
Restructuring provision..................................... -- 732 --
Cumulative effect of accounting change...................... -- 35 --
Increase (decrease) in deferred taxes....................... 88 (222) 27
Other noncash credits, net.................................. (118) (109) (117)
Changes in current assets and liabilities, net of businesses
acquired and sold
(Increase) decrease in trade accounts receivable......... (38) (162) 57
(Increase) in inventories................................ (138) (224) (124)
(Increase) decrease in other current assets.............. 18 (29) (40)
Increase (decrease) in accounts payable.................. 81 20 (10)
Increase (decrease) in accrued liabilities............... 70 31 (169)
------- ------- ------
Net cash from operating activities.......................... 1,373 839 850
------- ------- ------
INVESTMENT ACTIVITIES
Purchases of property and equipment........................... (480) (628) (728)
Acquisitions of businesses.................................... (168) (412) (352)
Returns from associated companies............................. 43 48 5
Dispositions of businesses.................................... 12 -- 31
Sales of property............................................. 73 49 51
Other......................................................... 3 6 26
------- ------- ------
Net cash used in investment activities...................... (517) (937) (967)
------- ------- ------
FINANCING ACTIVITIES
Issuances of common stock..................................... 57 69 66
Purchases of common stock..................................... (93) (224) (77)
Redemption of preferred stock................................. -- (30) --
Issuance of equity securities by subsidiary................... -- 200 --
Borrowings of long-term debt.................................. 573 385 256
Repayments of long-term debt.................................. (289) (438) (300)
Short-term borrowings (repayments), net....................... (743) 328 609
Payments of dividends......................................... (358) (332) (306)
------- ------- ------
Net cash (used in) from financing activities................ (853) (42) 248
------- ------- ------
Effect of changes in foreign exchange rates on cash........... 10 4 (4)
------- ------- ------
Increase (decrease) in cash and equivalents................... 13 (136) 127
Cash and equivalents at beginning of year..................... 189 325 198
------- ------- ------
Cash and equivalents at end of year........................... $ 202 $ 189 $ 325
======= ======= ======
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-8
29
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in millions except per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany transactions of consolidated
subsidiaries are eliminated. Acquisitions recorded as purchases are included in
the income statement from the date of acquisition.
INVESTMENTS IN ASSOCIATED COMPANIES
Investments in associated companies consist of minority positions in
several companies whose activities are similar to those of the corporation's
operating divisions. The equity method of accounting is used when the
corporation's ownership exceeds 20% and it exercises significant influence over
the investee. Other minority positions are recorded at cost.
FISCAL YEAR
The corporation's fiscal year ends on the Saturday closest to June 30.
Fiscal 1995 and 1994 were 52-week years, while 1993 was a 53-week year. Unless
otherwise stated, references to years relate to fiscal years.
INTANGIBLE ASSETS
The excess of cost over the fair market value of tangible net assets and
trademarks of acquired businesses is amortized on a straight-line basis over the
periods of expected benefit, which range from 10 years to 40 years. Accumulated
amortization of intangible assets amounted to $710 at July 1, 1995, $572 at July
2, 1994 and $457 at July 3, 1993.
Subsequent to its acquisition, the corporation continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be recoverable. When factors
indicate that an intangible asset should be evaluated for possible impairment,
the corporation uses an estimate of the related business' undiscounted future
cash flows over the remaining life of the asset in measuring whether the
intangible asset is recoverable.
INVENTORY VALUATION
Inventories are valued at the lower of cost (in 1995, approximately 35% at
last-in, first-out [LIFO] and the remainder at first-in, first-out [FIFO]) or
market. Inventories recorded at LIFO were approximately $18 at July 1, 1995, $24
at July 2, 1994 and $38 at July 3, 1993, lower than if they had been valued at
FIFO. Inventory cost includes material and conversion costs.
PROPERTY
Property is stated at cost, and depreciation is computed using principally
the straight-line method at annual rates of 2% to 20% for buildings and
improvements, and 4% to 33% for machinery and equipment. Additions and
improvements that substantially extend the useful life of a particular asset and
interest costs incurred during the construction period of major properties are
capitalized. Repair and maintenance costs are charged to expense. Upon sale, the
cost and related accumulated depreciation are removed from the accounts.
F-9
30
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
FOREIGN OPERATIONS
Foreign currency-denominated assets and liabilities are translated into
U.S. dollars at the exchange rates existing at the balance sheet date.
Translation adjustments resulting from fluctuations in the exchange rates are
recorded as a separate component of common stockholders' equity. Income and
expense items are translated at the average exchange rates during the respective
periods.
FINANCIAL INSTRUMENTS
The corporation uses financial instruments in its management of foreign
currency and interest rate exposures. Financial instruments are not held or
issued for trading purposes. Non-U.S. dollar financing transactions generally
are effective as hedges of long-term investments or intercompany loans in the
corresponding currency. Foreign currency gains and losses on the hedges of
long-term investments are recorded as foreign currency translation adjustments
included in stockholders' equity. Gains and losses related to hedges of
intercompany loans offset the gains and losses on intercompany loans and are
recorded in net income. Interest rate exchange agreements are effective at
modifying the corporation's interest rate exposures. Net interest is accrued as
either interest receivable or payable with the offset recorded in interest
expense. The company also uses short-term forward exchange contracts for hedging
purposes. Realized and unrealized gains and losses on these instruments are
deferred and recorded in the carrying amount of the related hedged asset,
liability or firm commitment.
NET INCOME PER COMMON SHARE
Primary net income per common share is based on the average number of
common shares outstanding and common share equivalents and net income reduced
for preferred dividends, net of the tax benefits related to the ESOP convertible
preferred stock dividends. The fully diluted net income per share calculation
assumes conversion of the ESOP convertible preferred stock into common stock and
further adjusts net income for the additional ESOP compensation expense, net of
tax benefits, resulting from the assumed replacement of the ESOP convertible
preferred stock dividends with common stock dividends.
INCOME TAXES
Income taxes are provided on the income reported in the financial
statements, regardless of when such taxes are payable. U.S. income taxes are
provided on undistributed earnings of foreign subsidiaries that are intended to
be remitted to the corporation. If the permanently reinvested earnings of
foreign subsidiaries were remitted, the U.S. income taxes due under current tax
law would not be material.
ADVERTISING
The costs of advertising are generally expensed in the year in which the
advertising first takes place.
COMMON STOCK
Under the corporation's stock option plans, executive employees may be
granted options to purchase common stock at the market value on the date of
grant. Under the corporation's nonqualified stock option plans, an active
employee will receive a replacement stock option equal to the number of shares
surrendered upon a stock-for-stock exercise. The exercise price of the
replacement option will be 100% of the market value at the date of exercise of
the original option and will remain exercisable for the remaining term of the
original option.
F-10
31
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
At July 1, 1995, 3,428,746 common shares were available for granting;
options had been granted on 15,947,144 shares at prices ranging from $8.30 to
$31.94 per share. During 1995, options on 4,798,160 shares were granted at
prices ranging from $19.63 to $28.68; options for 1,403,375 shares were
exercised at prices ranging from $5.38 to $28.07; and options for 466,051 shares
expired or were canceled. Options exercisable at year-end were: 1995-10,111,475;
1994-9,548,858; and 1993-10,425,115.
Employees may purchase up to twenty-five thousand dollars market value of
common stock annually at 85% of the market value. At July 1, 1995, 10,044,613
shares of common stock were available for issuance under this stock purchase
plan.
The corporation has restricted stock plans that provide for awards of
common stock to executive employees, subject to forfeiture if employment
terminates prior to the end of prescribed periods. The market value of shares
awarded under the plans is recorded as unearned compensation. The unearned
amounts are amortized to compensation expense over the periods the restrictions
lapse.
Effective December 1, 1992, the corporation declared a two-for-one stock
split in the form of a 100% stock dividend.
Changes in outstanding common shares for the past three years were:
1995 1994 1993
----------- ----------- -----------
Beginning balances.................................. 480,765,240 485,378,368 239,862,390
Stock issuances
Business acquisitions............................. -- -- 1,924,411
Stock option and benefit plans.................... 3,157,809 4,413,148 4,276,753
Restricted stock plans............................ 367,650 87,000 238,700
Two-for-one stock split........................... -- -- 241,988,568
Stock purchased/retired............................. (3,932,400) (9,098,100) (2,922,000)
Other............................................... 298,002 (15,176) 9,546
----------- ----------- -----------
Ending balances..................................... 480,656,301 480,765,240 485,378,368
=========== =========== ===========
PREFERRED STOCK
Six series of 500 shares each of nonvoting auction preferred stock are
outstanding. Dividends are cumulative and are determined every 49 days through
specific auction procedures.
The convertible preferred stock sold to the corporation's Employee Stock
Ownership Plan (ESOP) is redeemable at the option of the corporation at any time
after December 15, 2001. Each share is currently convertible into four shares of
the corporation's common stock and is entitled to 5.133 votes. This stock has a
7.5% annual dividend rate, payable semiannually, and has a liquidation value of
$72.50 plus accrued but unpaid dividends. The purchase of the preferred stock by
the ESOP was funded with notes guaranteed by the corporation. The loan is
included in long-term debt and is offset in the corporation's Consolidated
Balance Sheets under the caption Unearned Deferred Compensation. Each year, the
corporation makes contributions that, with the dividends on the preferred stock
held by the ESOP, will be used to pay loan interest and principal. Shares are
allocated to participants based upon the ratio of the current year's debt
service to the sum of the total principal and interest payments over the life of
the loan. Plan expense is recognized in accordance with methods prescribed by
the FASB.
F-11
32
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
ESOP-related expenses amounted to $12 in 1995, $11 in 1994, and $11 in
1993. Payments to the ESOP were $38 in 1995, $38 in 1994 and $35 in 1993.
Principal and interest payments by the ESOP amounted to $12 and $26 in 1995, $11
and $27 in 1994, and $7 and $28 in 1993.
The corporation has a Preferred Stock Purchase Rights Plan. The Rights are
exercisable 10 days after certain events involving the acquisition of 20% or
more of the corporation's outstanding common stock or the commencement of a
tender or exchange offer for at least 25% of the common stock. Upon the
occurrence of such an event, each Right, unless redeemed by the board of
directors, entitles the holder to receive common stock equal to twice the
exercise price of the Right. The exercise price is $140 multiplied by the number
of preferred shares held. There are 3,000,000 shares of preferred stock reserved
for issuance upon exercise of the Rights.
The corporation redeemed for cash its cumulative convertible adjustable
preferred stock on July 26, 1993 for $30.
MINORITY INTEREST IN SUBSIDIARIES
Minority interest in subsidiaries primarily consists of preferred equity
securities issued by subsidiaries of the corporation. No gain or loss was
recognized as a result of the issuance of these securities and the corporation
owned substantially all of the voting equity of the subsidiaries both before and
after the transactions.
In 1994, a domestic subsidiary of the corporation issued $200 of preferred
equity securities. The securities provide the holder a rate of return based upon
a specified inter-bank borrowing rate, are redeemable in 1998 and may be called
at any time by the subsidiary. The subsidiary has the option of redeeming the
securities with either cash, debt or equity of the corporation. The subsidiary
used the cash proceeds received to purchase the common stock of the corporation
on the open market.
Minority interest in subsidiaries also includes $295 of preferred equity
securities issued by a wholly owned foreign subsidiary of the corporation. The
securities provide a rate of return based upon specified inter-bank borrowing
rates. The securities are redeemable in 1997 in exchange for common shares of
the issuer, which may then be put to the corporation for preferred stock. The
subsidiary may call the securities at any time.
ACQUISITIONS AND DIVESTMENTS
During 1995, the corporation acquired several companies for an aggregate
purchase price of $168 in cash. The principal acquisitions were the remaining
outstanding shares of the Consolidated Foodservice Companies, a domestic
foodservice distribution business, and the Imperial Meats Group, a European
manufacturer and distributor of processed meats.
During 1994, the corporation acquired several companies for an aggregate
purchase price of $412 in cash. The principal acquisitions were the European
personal care businesses of SmithKline Beecham; Kiwi Brands (Pty.) Ltd. and
subsidiaries, a group of South African companies that manufacture and market
personal care products and hosiery; and Maglificio Bellia S.p.A., a manufacturer
and marketer of intimate apparel in Italy.
During 1993, the corporation acquired several companies for an aggregate
purchase price of $352 in cash and the issuance of 1,924,411 shares of common
stock having a market value of $69. The principal acquisitions were BP
Nutrition's Consumer Food Group, a manufacturer and marketer of packaged meat
products in Europe, and the Filodoro Group, a manufacturer and marketer of
hosiery in Italy.
No material divestments were made during the last three years.
F-12
33
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
INTEREST RATE AND CURRENCY SWAPS
To manage interest rate and foreign exchange risk and to lower its cost of
borrowing, the corporation has entered into interest rate and currency swaps.
The currency swaps effectively hedge long-term Dutch guilder-and Swiss
franc-denominated investments and French franc-denominated intercompany loans.
The weighted average maturities of interest rate and currency swaps as of July
1, 1995 were 2.6 years and 1.2 years, respectively.
WEIGHTED AVERAGE
INTEREST
RATES
NOTIONAL ----------------
PRINCIPAL RECEIVE PAY
------------ ------- ---
INTEREST RATE SWAPS
1995 Receive variable -- pay fixed............................... $200 6.1% 5.7%
Receive fixed -- pay variable............................... 45 7.6 5.9
1994 Receive variable -- pay fixed............................... 150 4.3 8.8
1993 Receive variable -- pay fixed............................... 160 3.3 8.8
Receive fixed -- pay variable............................... 1 9.0 4.1
CURRENCY SWAPS
1995 Receive variable -- pay fixed............................... $175 6.4% 7.3%
Receive fixed -- pay fixed.................................. 194 6.4 6.6
Receive variable -- pay variable............................ 320 7.9 6.9
1994 Receive variable -- pay fixed............................... 175 4.1 7.3
Receive fixed -- pay fixed.................................. 90 5.1 7.3
Receive variable -- pay variable............................ 281 6.6 6.2
1993 Receive variable -- pay fixed............................... 175 3.5 7.3
Receive fixed -- pay fixed.................................. 90 5.1 7.3
Receive variable -- pay variable............................ 298 11.1 4.4
- ---------------
The notional principal is the amount used for the calculation of interest
payments which are exchanged over the life of the swap transaction and is
equal to the amount of foreign currency or dollar principal exchanged at
maturity.
The weighted average interest rates are as of the respective balance sheet
dates.
FORWARD EXCHANGE CONTRACTS
The corporation uses forward exchange contracts to reduce the effect of
fluctuating foreign currencies on short-term foreign currency-denominated
intercompany transactions, firm third-party product sourcing commitments and
other known foreign currency exposures.
The table below summarizes by major currency the contractual amounts of the
corporation's forward exchange contracts in U.S. dollars. The bought amounts
represent the net U.S. dollar equivalent of commitments to purchase foreign
currencies, and the sold amounts represent the net U.S. dollar equivalent of
commitments to sell foreign currencies. The foreign currency amounts have been
translated into a U.S. dollar
F-13
34
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
equivalent value using the exchange rate at the reporting date. Forward exchange
contracts mature at the anticipated cash requirement date of the hedged
transaction, generally within one year.
BOUGHT (SOLD)
--------------------------
FOREIGN CURRENCY 1995 1994 1993
- ------------------------------------------------------------------ ---- ---- ----
French franc...................................................... (352) (242) (402)
Italian lira...................................................... (254) (151) 1
Belgian franc..................................................... (230) (52) (7)
Dutch guilder..................................................... (236) 73 (165)
German mark....................................................... 36 (174) (37)
Other............................................................. (139) (223) 117
At July 1, 1995, the deferred unrealized gains and losses on forward
exchange contracts were not material to the financial position of the
corporation.
CONCENTRATIONS OF CREDIT RISK
A large number of major international financial institutions are
counterparties to the corporation's financial instruments. The corporation
enters into financial instrument agreements only with those counterparties
meeting very stringent credit standards, limiting the amount of agreements or
contracts it enters into with any one party and, where legally available,
executing master netting agreements. These positions are continuously monitored.
While the corporation may be exposed to credit losses in the event of
nonperformance by these counterparties, it does not anticipate losses, because
of these control procedures.
Trade accounts receivable due from highly leveraged customers were $49 at
July 1, 1995, $52 at July 2, 1994 and $41 at July 3, 1993. The financial
position of these businesses has been considered in determining allowances for
doubtful accounts.
GUARANTEES
The corporation had third-party guarantees outstanding, aggregating
approximately $31 at July 1, 1995, $28 at July 2, 1994 and $22 at July 3, 1993.
These guarantees relate primarily to financial arrangements to support various
suppliers of the corporation, and are secured by the inventory and fixed assets
of suppliers.
FAIR VALUES
The carrying amounts of cash and equivalents, trade receivables, notes
payable, accounts payable, and auction preferred shares approximated fair value
as of July 1, 1995, July 2, 1994 and July 3, 1993. The fair values of the
remaining financial instruments recognized on the Consolidated Balance Sheets of
the corporation at the respective year-end were:
1995 1994 1993
------ ------ ------
Long-term debt, including current portion.................... $2,102 $1,549 $1,645
ESOP convertible preferred stock............................. 567 443 530
The fair value of the corporation's long-term debt, including the current
portion, is estimated using discounted cash flows based on the corporation's
current incremental borrowing rates for similar types of borrowing arrangements.
The fair value of the ESOP preferred shares is based upon the contracted
conversion into the corporation's common stock.
F-14
35
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
The fair value of the corporation's interest rate swaps, currency swaps,
and forward exchange contracts approximate their carrying value in the financial
statements as of July 1, 1995, July 2, 1994 and July 3, 1993. The fair value of
these instruments was not material to the financial position of the corporation.
LONG-TERM DEBT
INTEREST RATE RANGE MATURITY 1995 1994 1993
------------------- --------- ------ ------ ------
U.S. dollar
obligations: ESOP debt...................... 8.176% 2004 $ 311 $ 323 $ 334
Notes and debentures........... 4.40-9.70 1996-2016 1,165 876 548
Revenue bonds.................. 4.10-6.10 2002-2024 36 23 25
Zero coupon notes.............. 10.00-14.25 2014-2015 14 12 11
Eurodollar bonds............... -- -- 150
Various other obligations...... 7 8 17
------ ------ ------
1,533 1,242 1,085
------ ------ ------
Foreign currency
obligations: Swiss franc.................... 4.75 1998 111 96 223
Dutch guilder.................. 6.00-6.50 1998 259 123 177
Various other obligations...... 135 117 105
------ ------ ------
505 336 505
------ ------ ------
Total long-term debt.............................. 2,038 1,578 1,590
Less current maturities........................... 221 82 426
------ ------ ------
$1,817 $1,496 $1,164
====== ====== ======
The ESOP debt is guaranteed by the corporation.
The zero coupon notes are net of unamortized discounts of $110 in 1995,
$112 in 1994 and $113 in 1993. Principal payments of $19 and $105 are due in
2014 and 2015, respectively.
Payments required on long-term debt during the years ending in 1996 through
2000 are $221, $132, $419, $86 and $241, respectively.
The corporation made cash interest payments of $236, $203, and $161 in
1995, 1994 and 1993, respectively.
Rental expense under operating leases amounted to approximately $222 in
1995, $207 in 1994 and $182 in 1993. Future minimum annual fixed rentals
required during the years ending in 1996 through 2000 under noncancelable
operating leases having an original term of more than one year are $113, $95,
$81, $68 and $62, respectively. The aggregate obligation subsequent to 2000 is
$137.
The corporation is contingently liable for long-term leases on properties
operated by others. The minimum annual rentals under these leases average
approximately $5 for the years ending in 1996-2000 and $2 in 2001-2005. Amounts
thereafter are not material.
CREDIT FACILITIES
The corporation has numerous credit facilities available, including
revolving credit agreements totaling $1,920 that had an annual fee of 0.07% as
of July 1, 1995. These agreements support commercial paper
F-15
36
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
borrowings. Subsequent to July 1, 1995 the corporation reduced its revolving
credit facility to $1,635 in anticipation of lower borrowing needs. Selected
data on the corporation's short-term obligations follow:
1995 1994 1993
------ ------ ------
Maximum period-end borrowings.................................... $2,300 $1,998 $1,484
Average borrowings during the year............................... 1,969 1,833 1,067
Weighted average interest rate during the year................... 6.6% 4.2% 5.3%
Weighted average interest rate at year-end....................... 6.9 5.0 5.0
CONTINGENCIES
The corporation is a party to several pending legal proceedings and claims,
and environmental actions by governmental agencies. Although the outcome of such
items cannot be determined with certainty, the corporation's general counsel and
management are of the opinion that the final outcome should not have a material
effect on the corporation's results of operations or financial position.
RESTRUCTURING PROVISION
The composition of the corporation's restructuring reserves is as follows:
WRITEDOWN OF RECOGNITION OF
PROPERTY AND CURTAILMENT
INVESTMENTS LOSS AND RESTRUCTURING
ORIGINAL TO NET SPECIAL FOREIGN RESERVES
RESTRUCTURING REALIZABLE TERMINATION CASH EXCHANGE AS OF
RESERVE VALUE BENEFITS PAYMENTS IMPACTS JULY 1, 1995
------------- ------------ -------------- -------- -------- -------------
Anticipated losses
associated with disposal
of land, buildings and
improvements, and
machinery and
equipment................. $289 $(289) $ -- $ -- $-- $ --
Anticipated expenditures to
close and dispose of idle
facilities -- includes $33
of noncancelable lease
obligations............... 112 -- -- (30) -- 82
Anticipated severance
benefits.................. 239 -- -- (99) -- 140
Pension benefits associated
with severed employee
group..................... 33 -- (33) -- -- --
Anticipated losses
associated with the
disposal of certain
businesses................ 59 (15) -- (44) -- --
---- ----- ---- ----- --- ----
732 (304) (33) (173) -- 222
Foreign exchange impacts.... -- -- -- -- 20 20
---- ----- ---- ----- --- ----
Total restructuring
reserves.................. $732 $(304) $(33) $(173) $20 $242
==== ===== ==== ===== === ====
In the fourth quarter of 1994, the corporation provided for the cost of
restructuring its worldwide operations, which will result in the closure of 94
manufacturing and distribution facilities and the severance of 9,900 employees.
The restructuring provision reduced 1994 income before income taxes, net income
and net
F-16
37
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
income per common share by $732, $495 and $1.03, respectively. As of July 2,
1994, no material actions contemplated in the restructuring plan had taken
place.
During 1995, 42 manufacturing and distribution facilities were closed and
6,029 employees terminated. Operating costs were lowered in 1995 by $89,
primarily as a result of lower plant overhead and labor costs. The corporation
expects the restructuring plan to generate increasing savings in subsequent
years, growing to an annual savings of approximately $250 in 1998. Savings from
the planned actions will be used both for business-building initiatives and
profit improvement. As of July 1, 1995, $166 of the remaining reserves were
classified as current liabilities and $76 as noncurrent.
RETIREMENT PLANS
The corporation has noncontributory defined benefit plans covering certain
of its domestic employees. The benefits under these plans are primarily based on
years of service and compensation levels. The plans are funded in conformity
with the requirements of applicable government regulations. The plans' assets
consist principally of marketable equity securities, corporate and government
debt securities and real estate.
The corporation's foreign subsidiaries have plans for employees consistent
with local practices.
The corporation also sponsors defined contribution pension plans at several
of its subsidiaries. Contributions are determined as a percent of each covered
employee's salary.
Certain employees are covered by union-sponsored, collectively bargained,
multi-employer pension plans. Contributions are determined in accordance with
the provisions of negotiated labor contracts and generally are based on the
number of hours worked.
The annual pension expense for all plans was:
1995 1994 1993
---- ---- ----
Defined benefit plans................................................... $43 $31 $30
Defined contribution plans.............................................. 11 11 13
Multi-employer plans.................................................... 4 4 4
--- --- ---
Total pension expense................................................... $58 $46 $47
=== === ===
The components of the defined benefit plan expenses were:
1995 1994 1993
---- ---- -----
Benefits earned by employees..................................... $ 60 $ 52 $ 50
Interest on projected benefit obligations........................ 105 92 90
Actual investment return on plan assets.......................... (47) (99) (131)
Net amortization and deferral.................................... (75) (14) 21
---- ---- -----
Net pension expense.............................................. $ 43 $ 31 $ 30
==== ==== =====
The increase in the 1995 defined benefit plan expense is primarily
attributable to lower asset returns, the strengthening of foreign currencies
relative to the U.S. dollar, and benefit increases in certain foreign plans.
F-17
38
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
The status of defined benefit plans at the respective year-end was:
1995 1994 1993
------ ------ -------
Fair market value of plan assets................................ $1,592 $1,420 $ 1,284
------ ------ -------
Actuarial present value of benefits for services rendered:
Accumulated benefits based on salaries to date:
Vested..................................................... 1,281 1,144 989
Nonvested.................................................. 47 38 42
Additional benefits based on estimated future salary levels... 204 217 222
------ ------ -------
Projected benefit obligations................................. 1,532 1,399 1,253
------ ------ -------
Excess of plan assets over projected benefit obligations........ 60 21 31
Unamortized net transitional asset.............................. (17) (26) (33)
Unrecognized net gain........................................... (3) (8) (62)
Unrecognized prior service cost................................. 81 88 89
------ ------ -------
Prepaid pension liability recognized on the Consolidated Balance
Sheets........................................................ $ 121 $ 75 $ 25
====== ====== =======
Weighted average rates used in determining net pension expense and related
obligations for defined benefit plans were:
1995 1994 1993
---- ---- ----
Discount rate........................................................... 7.5% 7.5% 7.6%
Rate of compensation increase........................................... 5.2 5.2 5.3
Long-term rate of return on plan assets................................. 8.3 8.3 8.8
The corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions"
(SFAS 106), for its domestic retiree benefit plans in 1994. Under SFAS 106, the
corporation accrues the estimated cost of retiree health care and life insurance
benefits during the employees' active service periods. The corporation's
previous method of accounting for postretirement benefits other than pensions
was similar to that required by SFAS 106, and as of the start of 1994, the
accumulated benefit obligation for domestic employees had been accrued.
The corporation provides health care and life insurance benefits to certain
domestic retired employees, their covered dependents and beneficiaries.
Generally, employees who have attained age 55 and who have rendered 10 years of
service are eligible for these postretirement benefits. Certain retirees are
required to contribute to plans in order to maintain coverage. The components of
the expense for these plans were:
1995 1994
---- ----
Benefits earned by employees................................................. $ 5 $ 4
Interest on projected benefit obligations.................................... 11 11
--- ---
Net postretirement benefit expense........................................... $16 $15
=== ===
The domestic postretirement benefit expense was $18 in 1993.
F-18
39
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
The status of domestic postretirement benefit plans at the respective
year-end was:
1995 1994
---- ----
Actuarial present value of benefits for services rendered:
Retirees.................................................................. $ 90 $ 87
Fully eligible active participants........................................ 15 19
Other active participants................................................. 43 48
---- ----
Accumulated postretirement benefit obligations.............................. 148 154
Fair market value of plan assets............................................ 2 2
---- ----
Accumulated postretirement benefit obligations in excess of plan assets..... 146 152
Unrecognized net transitional asset......................................... 14 15
Unrecognized net gain (loss)................................................ 14 (4)
Unrecognized prior service cost............................................. (1) (1)
---- ----
Postretirement benefit obligations recognized on Consolidated Balance
Sheets.................................................................... $173 $162
==== ====
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation include a discount rate of 7.75% for 1995 and 1994. The
assumed health care cost trend rate was 14% for 1995, decreasing to 7% by the
year 2002 and remaining at that level thereafter. These trend rates reflect the
corporation's prior experience and management's expectation that future rates
will decline. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of July 1, 1995 by 10% and the post-retirement benefit
expense for 1995 by 12%.
Employees outside the United States are covered principally by
government-sponsored plans, and the cost of company-provided plans is not
material. The corporation is required to adopt SFAS 106 for its plans outside
the United States in 1996.
INCOME TAXES
Effective July 4, 1993, the corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
cumulative effect as of July 4, 1993 of adopting SFAS 109 was a one-time charge
of $35, or $.07 per share, primarily due to adjusting deferred taxes from
historical to current rates. Financial statements for years prior to 1994 have
not been restated to reflect the adoption of this standard.
F-19
40
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
The provisions for income taxes computed by applying the U.S. statutory
rate to income before taxes as reconciled to the actual provisions were:
1995 1994 1993
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Income before provision for income taxes
United States................................ $ 648 53.1% $218 56.0% $ 615 56.8%
Foreign...................................... 571 46.9 171 44.0 467 43.2
------ ----- ---- ----- ------ -----
$1,219 100.0% $389 100.0% $1,082 100.0%
====== ===== ==== ===== ====== =====
Taxes at U.S. statutory rates.................. $ 427 35.0% $136 35.0% $ 368 34.0%
States taxes, net of federal benefit........... 16 1.3 24 6.2 22 2.0
Difference between U.S. and foreign rates...... (67) (5.5) (34) (8.8) (31) (2.8)
Nondeductible amortization..................... 50 4.1 46 11.7 44 4.0
Other, net..................................... (11) (0.8) (17) (4.2) (25) (2.3)
------ ------ ---- ----- ------ -----
Taxes at effective worldwide tax rates......... $ 415 34.1% $155 39.9% $ 378 34.9%
====== ===== ==== ===== ====== =====
Current and deferred tax provisions were:
1995 1994 1993
------------------ ------------------ ------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
United States................................. $154 $39 $200 $(144) $175 $(7)
Foreign....................................... 150 47 143 (61) 159 17
State......................................... 23 2 34 (17) 33 1
---- --- ---- ----- ---- ---
$327 $88 $377 $(222) $367 $11
==== === ==== ===== ==== ===
Following are the components of the deferred tax provisions occurring as a
result of transactions being reported in different years for financial and tax
reporting:
1995 1994 1993
----- ----- ----
Depreciation.......................................................... $ 31 $ 22 $ 1
Unremitted earnings of foreign subsidiaries........................... -- -- 20
Inventory valuation methods........................................... (4) 2 (1)
Restructuring reserves................................................ 64 (230) --
Other, net............................................................ (3) (16) (9)
---- ----- ----
$ 88 $(222) $ 11
==== ===== ====
Cash payments for income taxes........................................ $279 $ 295 $304
==== ===== ====
F-20
41
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
The deferred tax (assets) liabilities at the respective year-end were as
follows:
1995 1994
----- -----
Deferred tax (assets):
Restructuring reserves..................................................... $(166) $(230)
Reserves not deductible until paid......................................... (213) (243)
Pension, postretirement and other employee benefits........................ (8) (4)
Net operating loss and other tax carryforwards............................. (3) (15)
Deferred tax liabilities:
Property, plant and equipment.............................................. 265 230
Other...................................................................... 13 62
----- -----
Net deferred tax (assets).................................................... $(112) $(200)
===== =====
INDUSTRY SEGMENT INFORMATION
The corporation's business segments are described in the Narrative
Description of Business on pages 3 through 7.
PACKAGED CONSUMER
PACKAGED FOODS PRODUCTS
-------------------- ------------------------
PACKAGED COFFEE HOUSEHOLD
MEATS AND PERSONAL AND INTER-
AND BAKERY GROCERY PRODUCTS PERSONAL CARE CORPORATE SEGMENT TOTAL
---------- ------- -------- ------------- --------- ------- -------
1995
Sales.................... $6,110 $2,777 $7,151 $1,691 $ -- $ (10) $17,719
Pretax income................ 383 374 658 181 (377) -- 1,219
Assets....................... 2,062 1,986 6,686 1,391 306 -- 12,431
Depreciation and
amortization............... 129 82 294 79 22 -- 606
Capital expenditures......... 116 66 262 35 1 -- 480
1994
Sales.................... $5,472 $2,090 $6,449 $1,530 $ -- $ (5) $15,536
Pretax income (loss)..... 318 274 (71) 111 (243) -- 389
Assets....................... 1,662 1,776 6,535 1,335 357 -- 11,665
Depreciation and
amortization............... 108 74 289 71 26 -- 568
Capital expenditures......... 108 69 408 41 2 -- 628
1993
Sales.................... $5,148 $2,058 $6,098 $1,279 $ -- $ (3) $14,580
Pretax income................ 287 292 602 126 (225) -- 1,082
Assets....................... 1,560 1,629 6,209 859 605 -- 10,862
Depreciation and
amortization............... 99 80 265 55 23 -- 522
Capital expenditures......... 99 87 485 42 15 -- 728
- ---------------
Includes sales between segments. Such sales are at transfer prices that are
equivalent to market value.
Includes net interest expense of $185 in 1995, $145 in 1994 and $82 in 1993
incurred primarily in the United States to finance and support consolidated
operations.
Principally cash and equivalents and investments in associated companies
and certain fixed assets.
Includes provisions for restructuring reported in the 1994 Consolidated
Statement of Income, as follows: Packaged Meats and Bakery $22; Coffee and
Grocery $25; Personal Products $630; and Household and Personal Care $55.
Industry segment sales and operating income applicable to businesses sold
prior to July 1, 1995 were not material.
F-21
42
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
GEOGRAPHIC AREA INFORMATION
ASIA-
WESTERN/ PACIFIC/
UNITED CENTRAL LATIN
STATES EUROPE AMERICA OTHER CORPORATE INTER-AREA TOTAL
------- -------- ------- ----- --------- ---------- -------
1995
Sales...................... $10,659 $5,484 $1,160 $439 $ -- $(23) $17,719
Pretax income.................. 880 564 101 51 (377) -- 1,219
Assets..................... 5,729 5,038 999 359 306 -- 12,431
- ----------------------------------------------------------------------------------------------------------------
1994
Sales...................... $ 9,782 $4,433 $1,006 $348 $ -- $(33) $15,536
Pretax income.............. 330 193 65 44 (243) -- 389
Assets..................... 5,558 4,459 984 307 357 -- 11,665
- ----------------------------------------------------------------------------------------------------------------
1993
Sales...................... $ 9,423 $4,114 $801 $257 $ -- $(15) $14,580
Pretax income.................. 763 422 94 28 (225) -- 1,082
Assets..................... 5,364 3,880 858 155 605 -- 10,862
- ----------------------------------------------------------------------------------------------------------------
Includes sales between geographic areas. Such sales are at transfer prices
that are equivalent to market value.
Includes net interest expense of $185 in 1995, $145 in 1994 and $82 in 1993
incurred primarily in the United States to finance and support consolidated
operations.
The tangible net assets of foreign operations included in the accompanying
Consolidated Balance Sheets were $892 at July 1, 1995, $594 at July 2, 1994
and $651 at July 3, 1993.
Principally cash and equivalents and investments in associated companies and
certain fixed assets.
Includes provisions for restructuring reported in the 1994 Consolidated
Statement of Income, as follows: United States $483; Western/Central Europe
$200; Asia-Pacific/Latin America $42; and Other $7.
F-22
43
SARA LEE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(dollars in millions except per share data)
QUARTERLY FINANCIAL DATA
(unaudited)
QUARTER
----------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
1995
Net sales.................................................... $4,290 $4,648 $4,193 $4,588
Gross profit................................................. 1,618 1,764 1,565 1,749
Net income................................................... 165 252 166 221
Per common share
Net income................................................. .33 .51 .33 .45
Cash dividends declared.................................... .16 .17 .17 .17
Market price -- high....................................... 23.38 26.00 27.75 29.00
-- low........................................ 19.38 22.38 24.25 26.25
- -------------------------------------------------------------------------------------------------
1994
Net sales.................................................... $3,796 $4,010 $3,664 $4,066
Gross profit................................................. 1,412 1,533 1,388 1,503
Net income (loss)............................................ 120 236 152 (309)
Per common share
Net income (loss).......................................... .24 .48 .30 (.65)
Cash dividends declared.................................... .145 .16 .16 .16
Market price -- high....................................... 26.63 28.25 26.00 23.75
-- low........................................ 21.00 23.38 21.00 20.13
- -------------------------------------------------------------------------------------------------
1993
Net sales.................................................... $3,583 $3,840 $3,308 $3,849
Gross profit................................................. 1,355 1,493 1,259 1,434
Net income................................................... 142 220 152 190
Per common share
Net income................................................. .28 .44 .30 .38
Cash dividends declared.................................... .125 .145 .145 .145
Market price -- high....................................... 29.19 32.44 31.88 28.13
-- low........................................ 24.75 27.63 27.00 23.25
- -------------------------------------------------------------------------------------------------
Includes cumulative effect of accounting change of $35.
Includes provision for restructuring of $495.
Restated for the 2-for-1 stock split in December 1992.
F-23
44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Management
of SARA LEE CORPORATION:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Sara Lee Corporation included in this
Form 10-K, and have issued our report thereon dated July 31, 1995. Our audit was
made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The supplemental schedule II is the responsibility
of the Corporation's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This supplemental schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Chicago, Illinois,
July 31, 1995.
F-24
45
SCHEDULE II
SARA LEE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 3, 1993, JULY 2, 1994, AND JULY 1, 1995
(IN MILLIONS)
BALANCE AT PROVISION WRITE-OFFS/ OTHER BALANCE
BEGINNING CHARGED TO COSTS ALLOWANCES ADDITIONS AT END
OF YEAR AND EXPENSES TAKEN (DEDUCTIONS) OF YEAR
---------- ---------------- -------------- ------------ -------
(IN MILLIONS)
FOR THE YEAR ENDED JULY 3, 1993:
Allowances for bad debts.......... $101 $ 23 $ (19) $ (6) $ 99
Other receivable allowances....... 53 86 (97) 13 55
---- ---- ------ ---- -----
Total.......................... $154 $109 $ (116) $ 7 $ 154
==== ==== ====== ==== =====
FOR THE YEAR ENDED JULY 2, 1994:
Allowances for bad debts.......... $ 99 $ 30 $ (21) $ 1 $ 109
Other receivable allowances....... 55 78 (81) 3 55
---- ---- ------ ---- -----
Total.......................... $154 $108 $ (102) $ 4 $ 164
==== ==== ====== ==== =====
FOR THE YEAR ENDED JULY 1, 1995:
Allowances for bad debts.......... $109 $ 42 $ (30) $ 6 $ 127
Other receivable allowances....... 55 122 (115) 3 65
---- ---- ------ ---- -----
Total.......................... $164 $164 $ (145) $ 9 $ 192
==== ==== ====== ==== =====
- ---------------
Net of collections on accounts previously written off.
F-25
46
EXHIBIT INDEX
EXHIBITS PAGE/INCORPORATION BY REFERENCE
- -------- -----------------------------------------
(3a) Articles of Restatement of the Charter, Exhibit 4.1 to Registration Statement No.
as amended 33-35760 on Form S-8 dated July 6, 1990,
and Exhibit 3(a) to Report on Form 10-K
for Fiscal Year ended July 2, 1994
(3b) By-Laws, as amended
(4) Sara Lee, by signing this Report, agrees to furnish the Securities and Exchange
Commission, upon its request, a copy of any instrument which defines the rights of
holders of long-term debt of Sara Lee and all of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be filed, and
which authorizes a total amount of securities not in excess of 10% of the total
assets of Sara Lee and its subsidiaries on a consolidated basis.
(10) 1. 1979 Stock Option Plan, as amended
2. 1981 Stock Option Plan, as amended Exhibit 10 (11) to Report on Form 10-K
for Fiscal Year ended July 1, 1989
3. 1988 Non-Qualified Stock Option Plan,
as amended
4. 1989 Incentive Stock Plan, as amended Exhibit B to 1991 Proxy Statement, dated
September 20, 1991
5. Supplemental Benefit Plan, as amended Exhibit 10 (8) to Report on Form 10-K for
Fiscal Year ended June 30, 1990
6. Short-Term (Annual) Incentive Plan
Fiscal Year 1995
7. Accelerated Growth Incentive Plan Exhibit 10 (12) to Report on Form 10-K
Fiscal Years 1990-1994 for Fiscal Year ended June 30, 1990
8. 1991 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended June 29, 1991
9. 1992 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended June 27, 1992
10. FY '93 Non-Qualified Deferred Exhibit 10 (16) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended June 27, 1992
11. 1993 Non-Qualified Deferred Exhibit 10 (19) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended July 3, 1993
12. FY '94 Non-Qualified Deferred Exhibit 10 (20) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended July 3, 1993
13. 1994 Non-Qualified Deferred Exhibit 10 (14) to Report on Form 10-K
Compensation Plan (Base Salary) for Fiscal Year ended July 2, 1994
14. FY '95 Non-Qualified Deferred Exhibit 10 (15) to Report on Form 10-K
Compensation Plan (Annual Bonus) for Fiscal Year ended July 2, 1994
15. Performance-Based Annual Incentive Appendix A, Exhibit 99 to Proxy Statement
Plan dated September 20, 1995
16. 1995 Long-Term Incentive Stock Plan Appendix B, Exhibit 99 to Proxy Statement
dated September 20, 1995
17. 1995 Non-Employee Director Stock Plan Appendix C, Exhibit 99 to Proxy Statement
dated September 20, 1995
47
EXHIBITS PAGE/INCORPORATION BY REFERENCE
- -------- -----------------------------------------
18. Non-Qualified Deferred Compensation Exhibit 10 (21) to Report on Form 10-K
Plan for Outside Directors for Fiscal Year ended July 3, 1993
19. Non-Qualified Estate Builder Deferred Exhibit 10 (17) to Report on Form 10-K
Compensation Plan for Fiscal Year ended June 29, 1985
20. Severance Policy for Corporate Exhibit 10 (19) to Report on Form 10-K
Officers for Fiscal year ended July 2, 1994
21. Stockholder Rights Agreement Exhibit 4 to Report on Form 10-Q for the
quarter ended March 26, 1988
22. Employment Agreement, dated November
9, 1994, between Sara Lee Corporation
and Frank L. Meysman
23. Employment Agreement, dated November
9, 1994, between Sara Lee/DE N.V. and
Frank L. Meysman and attachments
(translated from Dutch)
(11) Computation of Net Income per Common
Share
(12) 1. Computation of Ratio of Earnings to
Fixed Charges
2. Computation of Ratio of Earnings to
Fixed Charges and Preferred Stock
Dividend Requirements
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney from those directors
whose names appear on pages 18 and 19
hereof followed by an asterisk
(27) Financial Data Schedules