Sara Lee Announces Fiscal 2005 Results and New Capital Structure Initiatives

-- Diluted earnings per share for fiscal 2005 were $.90; diluted EPS for the fourth quarter were a loss of $.19 per share; significant items reduced EPS by $.55 per share in the fourth quarter and full year

-- Company announces a $2 billion share repurchase program, has decided to maintain a dividend of $.79 per share for fiscal 2006, and plans at least $1.5 billion in debt reduction over the next two years

Sara Lee Corporation today announced financial results for fiscal2005, ending July 2, 2005. The company also announced initiatives toreturn value to shareholders and optimize the company's capitalstructure as it pursues its Transformation plan.

Fiscal 2005 Results

During the fourth quarter of fiscal 2005, the Direct Sellingbusiness has been recognized as a discontinued operation. The prioryear's results have been restated to reflect this treatment.

Net sales for fiscal 2005 were $19.3 billion, up 1% over fiscal2004. For the fourth quarter of fiscal 2005, net sales were $4.8billion, down 5% compared to $5.0 billion in the prior year's fourthquarter, which included the positive effect of a 53rd week.

Diluted earnings per share (EPS) for the corporation for fiscal2005 were $.90, versus $1.59 in fiscal 2004, while diluted EPS in thefourth quarter were a loss of $.19 per share, compared to diluted EPSof $.44 for the year-ago period. Both the fiscal 2005 and fourthquarter diluted EPS numbers were reduced by $.55 per share in netcharges for exit and business disposition activities; impairment ofgoodwill, intangibles and properties; tax on repatriation of foreignearnings; and actions taken to implement the company's Transformationplan. The remaining decrease in diluted EPS in both periods wasprimarily due to lower operating segment income as a result of the53rd week in the prior year, higher commodity costs across most linesof business and the difficult European retail environment.

The reported results of the corporation in both fiscal 2005 and2004 were impacted by a number of significant events and transactions.Attached to this news release is a detailed analysis of all of theseitems. A summary of these items is presented below:
Fourth Quarter Fiscal Year
--------------------------------
2005 2004 2005 2004
--------------------------------
Diluted (loss) earnings per share $(.19) $.44 $.90 $1.59
================================

Increase / (decrease) in EPS from:
Impairment charges (.37) - (.37) -
Exit, business disposition and
other costs related to business
transformation (.12) (.03) (.10) (.04)
Impact of 53rd week - .04 - .04
Various income tax charges and exam
resolutions (.06) .08 (.09) .08
--------------------------------
Total(1) $(.55) $.09 $(.55) $.08
================================

(1) EPS amounts are rounded to the nearest $.01 and may not add to the
total.

Capital Structure Initiatives

Sara Lee has adopted a plan to return value to shareholders,optimize the company's capital structure and maintain a strong creditprofile as it pursues its Transformation plan.

Sara Lee intends to maintain the annual dividend of $.79 per sharein fiscal 2006, regardless of the timing of dispositions. During thefive-year Transformation period, the company also intends to maintainan attractive dividend yield relative to its food peers, which mayresult in a payout ratio in excess of the company's targeted 40 to 50%payout, excluding the effects of Transformation costs.

Sara Lee's Board of Directors has authorized the repurchase of anadditional 100 million shares of company stock, or approximately $2billion in share buy-backs based on the current stock price. Sara Leeplans to repurchase $1 billion of stock under this authorization infiscal 2006 and the remaining purchases will be made early during theTransformation period.

In the next two years, the company expects to use divestitureproceeds and cash from operations to reduce total debt by at least$1.5 billion.

Additional Detail On Fiscal 2005

Total cash flow from operations for the corporation was $1.3billion for fiscal 2005 and $300 million for the fourth quarter offiscal 2005. Media advertising and promotion (MAP) spending forcontinuing operations for the year was at a similar level to lastyear, but MAP spending for the Strategic Investment brands, Sara Lee'sbrands with the highest growth potential, was up 12%. Total MAPspending for continuing operations increased 4% in the fourth quarter.

For fiscal 2005, corporate unit volumes decreased 4%, primarilydue to softness in U.S. regional white breads, planned exit ofunprofitable, non-core bakery business and volume weakness in theglobal air care, U.S. coffee and European intimate apparel businesses.Corporate unit volumes declined 8% during the fourth quarter of fiscal2005, primarily due to the effect of the 53rd week in last year'sfourth quarter.

"Although our business results are in line with what weanticipated, they are not where we want them to be, underscoring theneed for the Transformation plan we announced in February," saidBrenda C. Barnes, president and chief executive officer of Sara LeeCorporation.

"In less than six months, we've completed an incredible amount ofTransformation work," she added. "Our new organization design iscompleted and implemented. We have a new headquarters facility justoutside of Chicago in Downers Grove and the first people have alreadymoved in. We have hired Chief Information and Chief ProcurementOfficers and are well along in staffing those organizations. We havedeveloped plans for fiscal 2006 that include initiatives to improveour operational efficiencies. We also continue to move forward withour announced divestitures and the spin-off of Branded ApparelAmericas/Asia. At the same time, we have developed and announced plansto return value to shareholders.

"We continue to focus on improving our operating results andbelieve they will get progressively better over the course of fiscal2006. We are taking the right steps to make Sara Lee a substantiallybetter company as quickly as possible, and we are making greatprogress," concluded Barnes.

Performance Review

A performance review for each line of business follows. Unitvolumes exclude acquisitions and divestitures subsequent to the startof fiscal 2004.

MEATS

Fourth Quarter Highlights

-- Net sales decreased due to the impact of the 53rd week and business dispositions, partially offset by favorable product mix and foreign currency exchange rates

-- Global unit volumes were down as a result of the 53rd week and softness in Mexico

-- Operating segment income decreased due to higher commodity costs and the impact of the 53rd week

-- MAP spending was down 13%
Fourth Quarter Change Fiscal Year Change
--------------------------------------------------------
In millions 2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------
Net sales $1,066 $1,117 $(51) (4.6)% $4,254 $4,171 $83 2.0%
----------------------------------------------------------------------
Increase/
(decrease) in
net sales
from:
Changes in
foreign
currency
exchange
rates $- $(14) $14 $- $(71) $71
Acquisitions/
dispositions - 23 (23) - 42 (42)
Activity in
the 53rd
week(2) - 83 (83) - 83 (83)
----------------------------------------------------------------------

----------------------------------------------------------------------
Operating
segment
income $72 $102 $(30)(29.7)% $323 $415 $(92) (22.1)%
----------------------------------------------------------------------
Increase/
(decrease) in
operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $(2) $2 $- $(9) $9
Exit
activities
and business
dispositions (2) - (2) 33 3 30
Transformation/
restructuring
costs (4) - (4) (4) - (4)
Acquisitions/
dispositions - 2 (2) - 4 (4)
Activity in
the 53rd
week(2) - 7 (7) - 7 (7)


Unit volume change vs. 2004(2)

Fourth Fiscal
Quarter Year
2005 2005
------------------
Global unit volume (5)% (3)%
U.S. (4)% (3)%
Europe (6)% (2)%
Mexico (9)% (7)%

(2) Fiscal 2004 was a 53-week year

Retail

-- Overall U.S. retail sales were down in the quarter due to the 53rd week. By refocusing on marketing execution, pricing and promotions, core retail businesses such as Ball Park hot dogs and Hillshire Farm smoked sausage began to show momentum in the fourth quarter, particularly in market share gains. Value-added new products such as Jimmy Dean frozen breakfast items and Hillshire Farm Ultra Thin deli meats continued to perform well, driving a positive product mix. Jimmy Dean Breakfast Skillets were launched at the end of the fourth quarter. In fiscal 2005, U.S. retail unit volumes declined, but sales were up.

-- Higher pork and beef commodity costs, the 53rd week and charges related to the Transformation drove lower profits in the U.S. retail business in the fourth quarter and fiscal 2005.

-- The European Meats business reported decreased unit volumes and sales in the fourth quarter, due to the 53rd week. Profits declined in the period due to the 53rd week and higher commodity costs. For fiscal 2005, European unit volumes decreased, sales were up and profits were down.

-- Unit volumes declined in Mexico in the fourth quarter due to the 53rd week and softness in the supermarket channel. Sales and profits were up in the quarter on higher net average selling prices. For fiscal 2005, volumes were down, while sales and profits were up.

Foodservice

-- Foodservice volumes, sales and profits decreased in the fourth quarter, primarily due to the effect of the 53rd week. Higher commodity costs also contributed to lower foodservice profits in the fourth quarter. For fiscal 2005, foodservice volumes declined, sales were up and profits were down.

BAKERY

Fourth Quarter Highlights

-- Net sales and unit volumes decreased primarily due to the planned exit from unprofitable non-branded business and the impact of the 53rd week

-- Operating segment income rose significantly as a result of cost savings from restructuring actions and product mix improvements

-- MAP spending decreased 17%
Fourth Quarter Change Fiscal Year Change
--------------------------------------------------------
In millions 2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------
Net sales $816 $898 $(82) (9.2)% $3,297 $3,415 $(118)(3.5)%
----------------------------------------------------------------------
Increase/
(decrease) in
net sales
from:
Changes in
foreign
currency
exchange
rates $- $(10) $10 $- $(48) $48
Activity in
the 53rd
week(3) - 69 (69) - 69 (69)
----------------------------------------------------------------------

----------------------------------------------------------------------
Operating
segment
income $53 $35 $18 49.6% $213 $156 $57 36.4%
----------------------------------------------------------------------
Increase/
(decrease) in
operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $- $- $- $(4) $4
Exit
activities
and business
dispositions (6) (10) 4 (5) (14) 9
Accelerated
depreciation - - - (10) (5) (5)
Retiree
medical
curtailment
gain - - - 28 - 28
Transformation/
restructuring
costs (4) - (4) (4) - (4)
Activity in
the 53rd
week(3) - 7 (7) - 7 (7)


Unit volume change vs. 2004(3)

Fourth Fiscal
Quarter Year
2005 2005
------------------
Global unit volume (14)% (8)%
Fresh baked goods (15)% (10)%
Refrigerated dough (10)% (2)%
Frozen baked goods (8)% (3)%

(3) Fiscal 2004 was a 53-week year

Fresh Baked Goods

-- New products continued to drive volume and sales increases for the Sara Lee fresh bread brand in the United States. Sara Lee is America's leading brand in the combined fresh bread, buns, rolls and bagels category according to Information Resources, Inc., share data. New Sara Lee products launched in the fourth quarter included wheat hot dog buns, wheat and white hamburger buns and premium-size 100% whole-wheat hamburger buns.

-- Total U.S. fresh bread unit volume declines in the fourth quarter and fiscal 2005 resulted from the effect of the 53rd week, planned exit from unprofitable non-branded business, and general category softness in white breads.

-- Cost savings resulting from restructuring actions and favorable product mix drove higher profits for the U.S. fresh bakery business in the fourth quarter and fiscal 2005.

-- MAP spending was down in the fourth quarter due to timing between the quarters as well as a shift to other forms of promotion, which are reflected as a deduction from sales.

-- In Europe, fresh bread unit volumes and sales decreased in the fourth quarter primarily due to the effect of the 53rd week. Sales increased in fiscal 2005 due to growth for crustless bread in Spain.

Refrigerated and Frozen

-- Worldwide, refrigerated dough unit volumes and sales decreased in the fourth quarter, primarily because of the 53rd week. For the year, global refrigerated dough sales were up, driven by success with private label products in Europe, particularly sales to discounters in Germany.

-- In the United States, sales for frozen products at retail were up in the fourth quarter driven by improved product mix and effective promotions. Volumes and sales for frozen products at foodservice declined in the fourth quarter due to the 53rd week and timing of Easter pie sales.

-- In Australia, success with new products such as Sara Lee frozen fruits and cookie dough drove sales in the fourth quarter and fiscal year. Product launches in the fourth quarter included Sara Lee Bake at Home Refrigerated Muffins and Brownie Batter.

BEVERAGE

Fourth Quarter Highlights

-- Net sales increased, driven by favorable foreign currency exchange rates, higher selling prices and a significant increase in Senseo sales, partially offset by the impact of the 53rd week

-- Unit volumes were down primarily as a result of the 53rd week and volume softness in the United States

-- Operating segment income declined as a result of charges for exit activities and impairment

-- MAP spending was down 6%
Fourth Quarter Change Fiscal Year Change
--------------------------------------------------------
In millions 2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------
Net sales $871 $843 $28 3.4% $3,357 $3,157 $200 6.3%
----------------------------------------------------------------------
Increase/
(decrease) in
net sales
from:
Changes in
foreign
currency
exchange
rates $- $(35) $35 $- $(155) $155
Activity in
the 53rd
week(4) - 61 (61) - 61 (61)
----------------------------------------------------------------------

----------------------------------------------------------------------
Operating
segment
income $44 $131 $(87)(66.2)% $388 $492 $(104)(21.2)%
----------------------------------------------------------------------
Increase/
(decrease) in
operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $(6) $6 $- $(32) $32
Exit
activities
and business
dispositions (37) 2 (39) (37) 2 (39)
Transformation/
restructuring
costs (3) - (3) (3) - (3)
Impairment
charge (45) - (45) (45) - (45)
Activity in
the 53rd
week(4) - 10 (10) - 10 (10)


Unit volume change vs. 2004(4)

Fourth Fiscal
Quarter Year
2005 2005
------------------
Global unit volume (7)% (3)%
Retail (5)% (2)%
Europe (6)% (3)%
U.S. (11)% (8)%
Brazil 1% 4%
Foodservice (12)% (5)%
Europe (5)% 0%
U.S. (15)% (7)%

(4) Fiscal 2004 was a 53-week year

Retail

-- In fiscal 2005, Senseo continued its impressive growth with sales increasing 39% to $327 million. The number of Senseo machines in the global marketplace grew 56% during the year to over 8 million.

-- In Europe, Senseo coffee pods continued to show strong unit volume gains in the fourth quarter, particularly in the Netherlands, Belgium, France and Germany. Total European roast and ground retail coffee volume was down in the quarter and fiscal 2005, primarily due to the effect of the 53rd week and private label competition.

-- Net sales for European retail coffee increased in the fourth quarter as a result of favorable currency exchange rates and higher consumer prices. Profits declined due to lower unit volumes and higher green coffee prices not entirely offset by price increases. For fiscal 2005, retail coffee sales and profits were up in Europe.

-- U.S. retail coffee unit volumes declined during the fourth quarter due to the 53rd week and competition in the category. The growth in U.S. retail sales was driven by price increases implemented across the roast and ground coffee brands to offset higher commodity costs, as well as incremental sales for Senseo. Profits decreased in the fourth quarter due to lower volumes and lower margins. For fiscal 2005, U.S. retail coffee sales were up, while volumes and profits decreased.

-- In Brazil, unit volumes were up in the fourth quarter in a very competitive market. Sales rose due to increased unit volumes combined with price increases implemented to offset commodity cost increases. Profits were down in the fourth quarter, due to lower margins as price increases did not entirely offset higher green coffee costs. For the year, volumes and sales were up in Brazil, while profits were down.

Foodservice

-- Worldwide, foodservice coffee sales increased in the fourth quarter due to higher selling prices, while profits decreased as a result of the 53rd week, lower roast and ground coffee volumes and lower margins. For the year, worldwide foodservice coffee sales were up, while profits declined.

-- Foodservice unit volumes in the United States declined in the fourth quarter due to the 53rd week and volume weakness in the traditional roast and ground coffee market. In Europe, fourth quarter foodservice unit volumes declined as growth of Cafitesse liquid coffee concentrate was not enough to offset the effect of the 53rd week.

HOUSEHOLD PRODUCTS

Fourth Quarter Highlights

-- Net sales declined due to the effect of the 53rd week and weakness in air care and insecticides, partially offset by favorable currency exchange rates

-- Total core category unit volumes decreased as a result of the 53rd week and significantly lower air care volumes

-- Operating segment income was down as a result of unit volume declines, lower margins and restructuring charges

-- MAP spending was up 6%
Fourth
Quarter(5) Change Fiscal Year(5) Change
---------------------------------------------------------
In millions 2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------
Net sales $490 $521 $(31) (5.8)% $1,927 $1,934 $(7) (0.3)%
----------------------------------------------------------------------
Increase/
(decrease)
in net sales
from:
Changes in
foreign
currency
exchange
rates $- $(20) $20 $- $(106) $106
Acquisitions/
dispositions - 5 (5) - 24 (24)
Activity in
the 53rd
week(6) - 46 (46) - 46 (46)
----------------------------------------------------------------------

----------------------------------------------------------------------
Operating
segment
income $72 $112 $(40)(34.9)% $310 $354 $(44)(12.3)%
----------------------------------------------------------------------
Increase/
(decrease)
in operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $(5) $5 $- $(19) $19
Exit
activities
and business
dispositions (16) 2 (18) 1 - 1
Accelerated
depreciation 1 - 1 (9) - (9)
Acquisitions/
dispositions - 3 (3) - 9 (9)
Activity in
the 53rd
week(6) - 8 (8) - 8 (8)


(5) Prior year's results have been restated to exclude Direct Selling,
which is being reported as a discontinued operation.


Unit volume change vs. 2004(6)

Fourth Fiscal
Quarter Year
2005 2005
--------------------
Household and Body Care core
category unit volumes (6)% (3)%
Body Care 0% 1%
Air Care (22)% (14)%
Shoe Care (3)% 0%
Insecticides (5)% 3%

(6) Fiscal 2004 was a 53-week year

Household and Body Care

-- Body care sales were down in the fourth quarter as favorable currency effects and increased sales for the Sanex brand could not entirely offset declines in other body care brands and the effect of the 53rd week. In fiscal 2005, body care unit volumes and sales were up.

-- Air care unit volumes and sales remained weak in the fourth quarter due to category softness in Europe and strong competition in the challenging European retail environment. To help counter market and competitive pressures, the company continued to launch new products, such as the Pink Clarity variant of the Ambi Pur Welcome bathroom door air freshener and the Ambi Pur Electrical Solo Plug. In fiscal 2005, air care unit volumes and sales were down.

-- Shoe care unit volumes decreased during the fourth quarter as a result of last year's 53rd week. Sales increased as a result of positive product mix and favorable foreign currency effects. Following the launches in China and Spain, Kiwi Express Cream was successfully introduced in Europe in the fourth quarter. In fiscal 2005, shoe care unit volumes were flat, while sales were up.

-- Unit volumes for insecticides decreased in the fourth quarter primarily due to the 53rd week. European unit volumes also were lower as a result of unfavorable weather conditions and the challenging retail environment. Fourth quarter insecticides sales declined as a result of the lower volumes and unfavorable product mix, particularly in India. For the year, insecticides unit volumes were up, but sales were slightly down.

Direct Selling

Direct Selling is no longer included in the Household Productsbusiness segment as its results are being reported as a discontinuedoperation.

BRANDED APPAREL

Fourth Quarter Highlights

-- Net sales decreased as strong underwear and sock sales in the United States were more than offset by the impact of last year's 53rd week, sales weakness in Europe and lower printable T-shirt volumes

-- C9 by Champion continued to perform well

-- Operating segment income was down significantly, due to various restructuring and impairment charges, lower sales and higher MAP spending

-- MAP spending was up 32%
Fourth Quarter Change Fiscal Year Change
--------------------------------------------------------
In millions 2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------
Net sales $1,514 $1,644 $(130) (8.0)% $6,426 $6,449 $(23) (0.4)%
----------------------------------------------------------------------
Increase/
(decrease) in
net sales
from:
Changes in
foreign
currency
exchange
rates $- $(19) $19 $- $(134) $134
Acquisitions/
dispositions 1 - 1 77 41 36
Activity in
the 53rd
week(7) - 105 (105) - 105 (105)
----------------------------------------------------------------------


----------------------------------------------------------------------
Operating
segment
income $(265) $148 $(413) NM $114 $549 $(435)(79.2)%
----------------------------------------------------------------------
Increase/
(decrease) in
operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $(1) $1 $- $(5) $5
Exit
activities
and business
dispositions (48) (31) (17) (40) (35) (5)
Acquisitions/
dispositions - (1) 1 6 (2) 8
Transformation/
restructuring
costs (4) - (4) (4) - (4)
Impairment
charge (305) - (305) (305) - (305)
(Increase)/
decrease in
U.S. underwear
inventory
reserves 2 5 (3) (29) (1) (28)
Activity in
the 53rd
week(7) - 20 (20) - 20 (20)


Unit volume change vs. 2004(7)

Fourth Fiscal
Quarter Year
2005 2005
------------------
Global unit volume (7)% (3)%
Intimate Apparel (5)% (6)%
U.S. (1)% (3)%
Europe (8)% (9)%
Knit Products (8)% (1)%
U.S. (8)% (1)%
Europe (3)% (3)%
Legwear (4)% 0%
Sheer Hosiery (17)% (6)%
Socks 9% 8%

(7) Fiscal 2004 was a 53-week year

Intimate Apparel

-- Global intimate apparel unit volumes and sales declined in the fourth quarter and in fiscal 2005, due to weak sales in Europe and the 53rd week.

-- In Europe, intimates volume declined in the fourth quarter and for fiscal 2005, as the transition of a key cutting facility from Scotland to Tunisia caused delivery delays. In addition, the category faced increased price competition and a soft retail environment.

-- In the United States, unit volumes declined slightly but sales dollars were up in the fourth quarter due to higher Bali and barely there sales to department stores.

Knit Products

-- Global knit products unit volumes and sales declined in the fourth quarter, mainly due to decreased sales of low-margin commodity T-shirts in the printables channel and the 53rd week. In addition, some casualwear customers took delivery in the third quarter this year compared to the fourth quarter last year. U.S. underwear volumes were up 1% in the fourth quarter, despite the extra week in fiscal 2004.

-- The re-launch of the Hanes brand, including new advertising featuring Michael Jordan, Matthew Perry, Marisa Tomei, Damon Wayans and Jennifer Love Hewitt, was well-received in the market. Hanes boxers and boxer briefs with the ComfortSoft waistband performed very well and helped drive increased sales for the Hanes brand in fiscal 2005.

-- C9 by Champion, the athleticwear line exclusively sold at Target stores, continued to do well in the fourth quarter.

Legwear

-- Global legwear volumes and sales were down in the fourth quarter, primarily due to the 53rd week. For fiscal 2005, unit volumes were flat and sales were down slightly.

-- In the United States, sock volumes and sales continued to increase. However, this growth was offset by a decrease in sheer hosiery volumes and sales due to ongoing category declines.

Net Interest Expense, General Corporate Expenses, Tax Rate andShare Repurchase

For fiscal 2005, net interest expense was $186 million, comparedto $183 million in fiscal 2004. Interest expense was $50 million forthe fourth quarter, compared to $48 million in last year's quarter.The increase for both periods was due primarily to higher net averageinterest rates.

In fiscal 2005, general corporate expenses were $231 million,compared to $313 million in fiscal 2004. Of the change, $38 millionwas related to non-recurring stock compensation costs in fiscal 2004for certain former Earthgrains employees and the remainder was dueprimarily to lower administrative and employee benefits costs. Generalcorporate expenses were $53 million in the fourth quarter of fiscal2005, compared to $46 million in the comparable period of the prioryear. The increase in the quarter was primarily due to costs relatedto the implementation of the Transformation plan.

In fiscal 2005, the effective tax rate on the continuingoperations of the business was 21.7% as compared to 16.7% in fiscal2004. The effective tax rate on the continuing operations of thebusiness for the fourth quarter of fiscal 2005 was 29.3% as comparedto 14.9% in the fourth quarter of fiscal 2004. The fiscal 2005effective tax rate was impacted by a number of significant itemsincluding costs associated with the remittance of current year foreignearnings to the United States (including $48 million of tax under theHomeland Investment Act); the impairment of goodwill, trademarks andproperty, plant and equipment in certain businesses; the recognitionof deferred taxes on foreign subsidiaries which are no longerconsidered permanently invested and the finalization of various taxaudits and reviews. These amounts are quantified on the schedulesattached to this news release.

In fiscal 2005, the company repurchased 18.3 million shares of itscommon stock at an average price of $21.65 per share. During thefourth quarter of fiscal 2005, the company repurchased 2.4 millionshares of its common stock at an average price of $21.20 per share. OnAug. 1, 2005, the Board of Directors increased the number of sharesauthorized for repurchase under the corporation's continuing stockrepurchase program by 100 million shares. As a result, approximately116 million shares are authorized for repurchase.

Exit Activities, Business Dispositions and Other TransformationActivity

The reported results for fiscal 2005 and 2004 and the fourthquarter results of those years reflect amounts recognized for exitactivities and business dispositions, as well as other costsassociated with the corporation's previously announced Transformationplan. The following table illustrates where the costs (income)associated with all exit and disposal activities are recognized in theConsolidated Statements of Income of the corporation.
In millions
Fourth Quarter Fiscal Year
2005 2004 2005 2004
----------------------------
Cost of sales
Curtailment gain from Bakery workforce
reduction $- $- $(28) $-
Accelerated depreciation related to
facility closures in:
Bakery segment - - 10 5
Household Products segment (1) - 9 -
Other transformation costs 2 - 2 -

Selling, general and administrative
expenses 13 - 22 1

Charges for (income from):
Exit activities 116 37 119 57
Business dispositions 12 - (26) (9)

----------------------------
Decrease in income from continuing
operations before taxes 142 37 108 54

Income tax benefit (48) (13) (34) (18)

----------------------------
Decrease in income from continuing
operations $94 $24 $74 $36
============================

The $22 million of costs recognized in selling, general andadministrative expenses in fiscal 2005 relate to the acceleratedamortization of certain bakery intangibles being exited, theaccelerated depreciation of certain leasehold improvements in theBranded Apparel segment to be exited, consulting costs associated withthe Transformation plan and various employee relocation andrecruitment efforts.

Exit activities in fiscal 2005 consisted of a $119 million netcharge, of which $116 million was recognized in the fourth quarter offiscal 2005. The $119 million consists of a $123 million chargerelated to the planned termination of approximately 2,000 employeesand an $8 million charge related to the exit of leases and othercontractual commitments offset in part by a $12 million credit fromcompleting certain previous exit activities for amounts more favorablethan originally estimated. The $57 million of exit activitiesrecognized in fiscal 2004 primarily consisted of $70 million of costsassociated with the planned termination of 6,222 individuals offset inpart by income related to the disposal of assets and the settlement oflease and employee termination obligations for amounts less thanoriginally anticipated.

The $26 million of income related to business dispositionactivities in fiscal 2005 consists of $60 million of gains from thedisposition of the various trademarks and productive assets used inthe Sara Lee Meats and Household Products segments, offset in part byprofessional fees and employee costs associated with businessestargeted for future disposition. The $9 million of gains related tofiscal 2004 business dispositions consist of a $13 million gain on thesale of an equity method investment in Johnsonville Foods offset inpart by a loss on the disposal of the assets of an Italian hosieryoperation.

Impairment Charges

The corporation recognized in fiscal 2005 an impairment chargethat reduced income from continuing operations before income taxes by$350 million, reduced income from continuing operations by $291million, and reduced diluted EPS by $.37. The $350 million pretaxcharge consists of a $305 million charge for the European BrandedApparel business and a $45 million charge for the U.S. retail coffeebusiness.

Outlook

Sara Lee's management currently expects fiscal 2006 corporate unitvolumes to be flat to slightly up, compared to a decrease of 4% infiscal 2005. Net sales are forecasted to be flat to slightly down,primarily due to unfavorable foreign currency exchange rates, comparedto an increase of 1% to $19.3 billion in fiscal 2005. Cash flow fromoperations for the corporation is projected to be $1.6 billion infiscal 2006, compared to $1.3 billion in fiscal 2005.

Diluted EPS for the corporation for the first quarter of fiscal2006 are expected to fall within a range of $.22 to $.27 per share,compared to $.44 per share in the year-ago period. In July 2005, aportion of the contingencies associated with the sale of a Europeancut tobacco business in fiscal 1999 was resolved and the corporationreceived a third cash payment of $114 million, contributingapproximately $.14 per share to first quarter and full year 2006earnings, compared to $117 million, or $.15 per share in fiscal 2005.

Full year fiscal 2006 diluted EPS for the corporation are expectedto be in a range of $1.24 to $1.34 per share, compared to $.90 pershare in fiscal 2005, which included $.55 per share in net chargesrelated to significant items.

The first quarter and full fiscal year 2006 guidance does not takeinto consideration any dispositions and excludes Transformation coststhat are estimated to be $325 million to $375 million for the year,but includes anticipated Transformation benefits of $48 million forthe year.

The fiscal 2006 plan anticipates $50 million in additionalmarketing spending, $60 million in higher interest expense and $700million in capital expenditures. Finally, the fiscal 2006 outlook isbased on a euro rate of $1.20 versus $1.27 in fiscal 2005 and a taxrate of 21%.

For fiscal 2006, net sales for the Sara Lee Food & Beverageoperating group are expected to be flat to slightly up. Net sales forthe Sara Lee Foodservice operating group are anticipated to be up lowsingle digits, net sales for Sara Lee International are expected to beflat to slightly down, and net sales for Branded Apparel are expectedto be down single digits.

The corporation recognized significant Transformation,restructuring and impairment charges in fiscal 2005, which willfavorably affect the comparison to fiscal 2006 results as costs ofthis nature have not been included in fiscal 2006 projections. Thefollowing guidance summarizes the remaining expected change in incomein each of the corporation's operating groups. The Sara Lee Food &Beverage and Sara Lee Foodservice operating groups are expected toshow double-digit gains in income. Sara Lee International's profit isexpected to be down low double digits, while Branded Apparel's incomeis expected to decrease low single digits.

Webcast

Sara Lee Corporation's review of fourth quarter results for fiscal2005 will be broadcast live via the Internet today at 10 a.m. CDT.During the webcast, the company will discuss fourth quarter and fiscalyear 2005 results and provide an outlook for fiscal year 2006. Thelive webcast can be accessed at www.saralee.com and is anticipated toconclude by 11:30 a.m. CDT.

The webcast will resume at 12:45 p.m. CDT with Sara Lee's "Meetthe Management" analyst day. During this analyst meeting, Brenda C.Barnes will provide an update on the company's Transformation plan. Inaddition, the meeting will feature Sara Lee's operating management,who will discuss the strategies to drive growth in the company'songoing businesses. The live webcast is anticipated to conclude by 4p.m. CDT. For people who are unable to listen to the webcasts live,they will be available at 7 p.m. on Thursday, Aug. 4, in the Investorssection of the Sara Lee corporate Web site until Friday, Feb. 3, 2006.

Forward-looking Statements

This news release contains forward-looking statements regardingSara Lee's business plans, operating results and capital structureinitiatives, including statements contained under the heading"Outlook." In addition, from time to time, in oral statements andwritten reports, the corporation discusses its expectations regardingthe corporation's future performance by making forward-lookingstatements preceded by terms such as "expects," "projects" or"believes." These forward-looking statements are based on currentlyavailable competitive, financial and economic data and management'sviews and assumptions regarding future events. Such forward-lookingstatements are inherently uncertain, and investors must recognize thatactual results may differ from those expressed or implied in theforward-looking statements. Consequently, the corporation wishes tocaution readers not to place undue reliance on any forward-lookingstatements.

Among the factors that could cause Sara Lee's actual results todiffer from such forward-looking statements are factors relating to:

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

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

-- Sara Lee's Transformation plan, such as (vii) Sara Lee's ability to complete planned business dispositions, and the timing and terms of such transactions; (viii) Sara Lee's ability to obtain a favorable tax ruling, and any other required regulatory approvals, on the proposed spin-off of its Branded Apparel Americas/Asia business; (ix) Sara Lee's ability to effectively integrate its remaining businesses into the contemplated new business structure, including Sara Lee's ability to transition customers to different Bakery brands, transition to common information systems and processes and manage plant capacity and workforce reductions; (x) Sara Lee's ability to generate the anticipated efficiencies and savings from the Transformation plan; and (xi) the impact of the Transformation plan on Sara Lee's relationships with its employees, its major customers and vendors and Sara Lee's cost of funds;

-- Sara Lee's international operations, such as (xii) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the euro, given Sara Lee's significant concentration of business in Western Europe; and (xiii) Sara Lee's ability to continue to source production and conduct manufacturing and selling operations in various countries due to changing business conditions, political environments, import quotas and the financial condition of suppliers; and

-- Previous business decisions, such as (xiv) Sara Lee's ability to achieve planned cash flows from capital expenditures and acquisitions, particularly Earthgrains, and the impact of changing interest rates and the cost of capital on the discounted value of those planned cash flows; (xv) credit ratings issued by the three major credit rating agencies and the impact these ratings have on Sara Lee's cost to borrow funds; (xvi) the settlement of a number of ongoing reviews of Sara Lee's income tax filing positions in various jurisdictions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Sara Lee transacts business; and (xvii) the continued legality of tobacco products in the Netherlands, Germany and Belgium.

In addition, the corporation's results may also be affected bygeneral factors, such as economic conditions, political developments,interest and inflation rates, accounting standards, taxes, and lawsand regulations in markets where the corporation competes. We haveprovided additional information in our Form 10-K for fiscal 2004,which readers are encouraged to review, concerning factors that couldcause actual results to differ materially from those in theforward-looking statements. Sara Lee undertakes no obligation topublicly update any forward-looking statements, whether as a result ofnew information, future events or otherwise.

Company Description

Sara Lee Corporation (www.saralee.com) is a global manufacturerand marketer of high-quality, brand-name products for consumersthroughout the world. With headquarters in Chicago, Sara Lee hasoperations in 58 countries and markets products in nearly 200 nations.
Brand Segmentation Strategy Update
Fiscal Year 2005

Sales by Segment
($ in millions)

% Change Effect of Currency
Fiscal Year vs. Fiscal Rate Changes(9)
2005 Year 2004(8) (percentage points)
-------------------------------------------------

Strategic Investment $3,773 11% 3 pts.
Support and Grow 5,167 - 3
Sustain 3,987 (3) 2
Manage for Cash 3,231 (8) 3
-------------------------------------------------
Total Retail 16,158 - 3
Foodservice/Other 3,096 5 2
-------------------------------------------------
Total $19,254 1% 3 pts.
=================================================


Strategic Investment Brand Sales
($ in millions)

Effect of Currency
Fiscal Year Fiscal Year Rate Changes(9)
2005 2004(8) % Change (percentage points)
--------------------------------------------------------
Sara Lee $802 $671 20% 1 pt.
Ball Park 261 264 (1) -
Hillshire Farm 574 552 4 -
Jimmy Dean 399 350 14 -
Senseo 327 234 39 8
Ambi Pur 380 419 (9) 6
Champion 450 330 37 1
Dim 411 414 (1) 6
Just My Size 169 181 (6) 1
--------------------------------------------------------
Total $3,773 $3,415 11% 3 pts.
========================================================


Retail Sales and MAP Spending - Percent to Total Retail

Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2005 Sales 2005 MAP 2004 Sales(8) 2004 MAP(8)
--------------------------------------------------
Strategic Investment 23% 35% 21% 32%
Support and Grow 32 38 32 37
Sustain 25 20 25 22
Manage for Cash 20 7 22 9
--------------------------------------------------
Total Retail 100% 100% 100% 100%
==================================================

(8) Fiscal Year 2004 was a 53-week year.
(9) In order to calculate the % change in sales on a constant
currency basis, the reported % change vs. Fiscal Year 2004 should
be decreased by the effect of currency rate changes.

For more information on Sara Lee's Brand Segmentation Strategy,please refer to the company's earnings release for the fourth quarterof fiscal year 2004. The release is archived in the Newsroom sectionof the Sara Lee Web site (www.saralee.com) under Corporate News 2004.
Sara Lee Corporation (NYSE)
---------------------------
Consolidated Statements of Income


(In millions, except per share amounts)
----------------------------------------------------------------------

Fourth Quarter Ended Years Ended
------------------------ -------------------------
July 2, July 3, Percent July 2, July 3, Percent
2005 2004 Change 2005 2004 Change
-------- ------- ------- -------- -------- -------

Continuing
operations
Net sales $4,754 $5,020 (5.3)% $19,254 $19,119 0.7%
-------- ------- -------- --------

Cost of sales 3,024 3,147 12,284 11,867
Selling,
general and
administrative
expenses 1,357 1,383 5,524 5,653
Charges for
(income from)
exit
activities and
business
dispositions 127 37 93 48
Impairment
charges 350 -- 350 --
Contingent sale
proceeds -- -- (117) (119)
Interest
expense 76 76 290 271
Interest income (26) (28) (104) (88)
-------- ------- -------- --------
4,908 4,615 18,320 17,632
-------- ------- -------- --------

(Loss) income
from
continuing
operations
before income
taxes (154) 405 NM 934 1,487 (37.2)
Income tax
(benefit)
expense (45) 60 203 248
-------- ------- -------- --------
(Loss) income from
continuing
operations (109) 345 NM 731 1,239 (41.0)
-------- ------- -------- --------

(Loss) income from
discontinued
operations (39) 9 (12) 33
-------- ------- -------- --------

Net (loss) income $(148) $354 NM $719 $1,272 (43.5)
======== ======= ======== ========

(Loss) Income from
continuing
operations per
common share
Basic $(0.14) $0.44 NM $0.93 $1.57 (40.8)
======== ======= ======== ========
Diluted $(0.14) $0.43 NM $0.92 $1.55 (40.6)
======== ======= ======== ========

Net (loss) income
per common share
Basic $(0.19) $0.45 NM $0.91 $1.61 (43.5)
======== ======= ======== ========
Diluted $(0.19) $0.44 NM $0.90 $1.59 (43.4)
======== ======= ======== ========

Average shares
outstanding
Basic 787 793 789 788
======== ======= ======== ========
Diluted 787 799 796 798
======== ======= ======== ========

See accompanying Notes to Financial Statements.



Sara Lee Corporation (NYSE)
---------------------------
Operating Results by Industry Segment


(In millions) Fourth Quarter Ended
----------------------------------------------------------------------
Sales Operating Income
----------------- -----------------
July 2, July 3, Percent July 2, July 3, Percent
2005 2004 Change 2005 2004 Change
-------- -------- ------- --------- ------- -------
Sara Lee Meats $1,066 $1,117 (4.6)% $72 $102 (29.7)%
Sara Lee Bakery 816 898 (9.2) 53 35 49.6
Beverage 871 843 3.4 44 131 (66.2)
Household Products 490 521 (5.8) 72 112 (34.9)
Branded Apparel 1,514 1,644 (8.0) (265) 148 NM
-------- -------- ------- --------- ------- -------
Total sales and
operating
segment (loss)
income 4,757 5,023 (5.3) (24) 528 NM
Intersegment sales (3) (3) (9.1) -- -- --
Amortization of
identifiable
intangibles -- -- -- (27) (29) 6.2
General corporate
expenses -- -- -- (53) (46) (12.0)
Contingent sale
proceeds -- -- -- -- -- NM
-------- -------- ------- --------- ---------------
Total net sales
and operating
(loss) income 4,754 5,020 (5.3) (104) 453 NM
Net interest
expense -- -- -- (50) (48) (4.2)
-------- -------- ------- --------- ------- -------
Net sales and
(loss) income
from continuing
operations
before income
taxes $4,754 $5,020 (5.3)% $(154) $405 NM%
======== ======== ======= ========= ======= =======


Years Ended
----------------------------------------------------------------------
Sales Operating Income
----------------- -----------------
July 2, July 3, Percent July 2, July 3, Percent
2005 2004 Change 2005 2004 Change
-------- -------- ------- --------- ------- -------
Sara Lee Meats $4,254 $4,171 2.0% $323 $415 (22.1)%
Sara Lee Bakery 3,297 3,415 (3.5) 213 156 36.4
Beverage 3,357 3,157 6.3 388 492 (21.2)
Household Products 1,927 1,934 (0.3) 310 354 (12.3)
Branded Apparel 6,426 6,449 (0.4) 114 549 (79.2)
-------- -------- ------- --------- ------- -------
Total sales and
operating
segment income 19,261 19,126 0.7 1,348 1,966 (31.4)
Intersegment sales (7) (7) (1.5) -- -- --
Amortization of
identifiable
intangibles -- -- -- (114) (102) (11.9)
General corporate
expenses -- -- -- (231) (313) 26.2
Contingent sale
proceeds -- -- -- 117 119 (1.8)
-------- -------- ------- --------- ------- -------
Total net sales
and operating
income 19,254 19,119 0.7 1,120 1,670 (32.9)
Net interest
expense -- -- -- (186) (183) (1.6)
-------- -------- ------- --------- ------- -------
Net sales and
(loss) income
from continuing
operations before
income taxes $19,254 $19,119 0.7% $934 $1,487 (37.2)%
======== ======== ======= ========= ======= =======

See accompanying Notes to Financial Statements.



Sara Lee Corporation
Impact of Significant Items on Income from
Continuing Operations and Net Income
Amounts in millions


13 Weeks Ended July 2, 2005
---------------------------
Diluted
Pretax Net EPS
Note Impact Tax Income Impact
---- ------ ----- ------ -------

Income (loss) from continuing
operations $(154) $45 $(109) $(0.14)
====== ===== ====== =======

Net (loss) income $(148) $(0.19)
====== =======

Significant items affecting
comparability of income from
continuing operations and net income:

Impairment charges A $(350) $59 $(291) $(0.37)
Charges for Exit Activities and
Business Dispositions:
Charges for exit activities B (116) 38 (78) (0.10)
Charges for business disposition
activities B (12) 4 (8) (0.01)
Transformation charges in cost of
sales and SG&A B (14) 6 (8) (0.01)
Bakery curtailment gain B - - - -
Impact of 53rd week C - - - -
Impact of significant items on income
from continuing operations ------ ----- ------ -------
before income taxes (492) 107 (385) (0.49)
------ ----- ------ -------

Significant tax matters affecting
comparability
Finalization of tax audits and
reviews D - 348 348 0.44
Tax on remittance of foreign
earnings E - (314) (314) (0.40)
Netherlands tax rate change F - - - -
Deferred taxes provided on earnings
of foreign subsidiaries G - (30) (30) (0.04)

Impact of significant items on income ------ ----- ------ -------
from continuing operations: (492) 111 (381) (0.48)
------ ----- ------ -------
Deferred taxes provided on earnings
of Direct Selling business reported
as a discontinued operation H - (50) (50) (0.06)

------ ----- ------ -------
Impact of significant items on net
income $(492) $61 $(431) $(0.55)
====== ===== ====== =======


14 Weeks Ended July 3, 2004
---------------------------
Diluted
Pretax Net EPS
Note Impact Tax Income Impact
---- ------ ----- ------ -------

Income (loss) from continuing
operations $405 $(60) $345 $0.43
====== ===== ====== =======

Net (loss) income $354 $0.44
====== =======

Significant items affecting
comparability of income from
continuing operations and net income:

Impairment charges A $- $- $- $-
Charges for Exit Activities and
Business Dispositions:
Charges for exit activities B (37) 13 (24) (0.03)
Charges for business disposition
activities B - - - -
Transformation charges in cost of
sales and SG&A B - - - -
Bakery curtailment gain B - - - -
Impact of 53rd week C 48 (17) 31 0.04
Impact of significant items on income
from continuing operations ------ ----- ------ -------
before income taxes 11 (4) 7 0.01
------ ----- ------ -------

Significant tax matters affecting
comparability
Finalization of tax audits and
reviews D - 207 207 0.26
Tax on remittance of foreign
earnings E - (140) (140) (0.18)
Netherlands tax rate change F - - - -
Deferred taxes provided on earnings
of foreign subsidiaries G - - - -

Impact of significant items on income ------ ----- ------ -------
from continuing operations: 11 63 74 0.09
------ ----- ------ -------
Deferred taxes provided on earnings
of Direct Selling business reported
as a discontinued operation H - - - -

------ ----- ------ -------
Impact of significant items on net
income $11 $63 $74 $0.09
====== ===== ====== =======

NOTES
EPS amounts are rounded to the nearest $0.01 and may not add to the
total.
Tax impact on the impact of the 53rd week is assumed at 35%.
See accompanying Notes to Financial Statements.



Sara Lee Corporation
Impact of Significant Items on Income from
Continuing Operations and Net Income
Amounts in millions


52 Weeks Ended July 2, 2005
------------------------------
Diluted
Pretax Net EPS
Note Impact Tax Income Impact
----- ------- ------ ------- -------

Income from continuing operations $934 $(203) $731 $0.92
======= ====== ======= =======

Net Income $719 $0.90
======= =======

Significant items affecting
comparability of income from
continuing operations and net income:

Impairment charges A $(350) $59 $(291) $(0.37)
Charges for Exit Activities and
Business Dispositions:
Charges for exit activities B (119) 41 (78) (0.10)
Income from business
disposition activity B 26 (9) 17 0.02
Transformation charges in cost of
sales and SG&A B (43) 12 (31) (0.04)
Bakery curtailment gain B 28 (10) 18 0.02
Impact of 53rd week C - - - -
Impact of significant items on
income from continuing operations ------- ------ ------- -------
before income taxes (458) 93 (365) (0.47)
------- ------ ------- -------

Significant tax matters affecting
comparability:
Finalization of tax audits and
reviews D - 348 348 0.44
Tax on remittance of foreign
earnings E - (365) (365) (0.46)
Netherlands tax rate change F - 24 24 0.03
Deferred taxes provided on
earnings of foreign
subsidiaries G - (30) (30) (0.04)

Impact of significant items on income ------- ------ ------- -------
from continuing operations: (458) 70 (388) (0.49)
------- ------ ------- -------
Deferred taxes provided on
earnings of Direct Selling
business reported as a
discontinued operation H - (50) (50) (0.06)

------- ------ ------- -------
Impact of significant items on net
income $(458) $20 $(438) $(0.55)
======= ====== ======= =======


53 Weeks Ended July 3, 2004
------------------------------
Diluted
Pretax Net EPS
Note Impact Tax Income Impact
---- ------- ------ ------- -------

Income from continuing operations $1,487 $(248) $1,239 $1.55
======= ====== ======= =======

Net Income $1,272 $1.59
======= =======

Significant items affecting
comparability of income from
continuing operations and net income:

Impairment charges A $- $- $- $-
Charges for Exit Activities and
Business Dispositions:
Charges for exit activities B (57) 20 (37) (0.04)
Income from business disposition
activity B 9 (4) 5 0.01
Transformation charges in cost of
sales and SG&A B (6) 2 (4) (0.01)
Bakery curtailment gain B - - - -
Impact of 53rd week C 48 (17) 31 0.04
Impact of significant items on
income from continuing operations ------- ------ ------- -------
before income taxes (6) 1 (5) -
------- ------ ------- -------

Significant tax matters affecting
comparability:
Finalization of tax audits and
reviews D - 207 207 0.26
Tax on remittance of foreign
earnings E - (140) (140) (0.18)
Netherlands tax rate change F - - - -
Deferred taxes provided on
earnings of foreign
subsidiaries G - - - -

Impact of significant items on income ------- ------ ------- -------
from continuing operations: (6) 68 62 0.08
------- ------ ------- -------
Deferred taxes provided on
earnings of Direct Selling
business reported as a
discontinued operation H - - - -

------- ------ ------- -------
Impact of significant items on net
income $(6) $68 $62 $0.08
======= ====== ======= =======

NOTES
EPS amounts are rounded to the nearest $0.01 and may not add to the
total.
Tax impact on the impact of the 53rd week is assumed at 35%.
See accompanying Notes to Financial Statements.


Notes to the Financial Statements and the Impact of Significant Items
on Income From Continuing Operations and Net Income

Note A - Impairment Charges

The corporation recognized in fiscal 2005 an impairment chargethat reduced income from continuing operations before income taxes by$350 million, reduced income from continuing operations by $291million, and reduce diluted earnings per share ("EPS") by $0.37. The$350 million pretax charge consists of a $305 million charge for theEuropean Branded Apparel business and a $45 million charge for theU.S. retail coffee business.

Note B - Charges for Exit Activities, Business Dispositions andOther Transformation Activity

The reported results for fiscal 2005 and 2004 and the fourthquarter results of those years reflect amounts recognized for exitactivities and business dispositions, as well as other costsassociated with the corporation's previously announced Transformationplan. The following table illustrates where the costs (income)associated with all exit and disposal activities are recognized in theConsolidated Statements of Income of the corporation.
In millions
-----------
Fourth Quarter Fiscal Year
2005 2004 2005 2004
----------------------------
Cost of sales
Curtailment gain from Bakery workforce
reduction $- $- $(28) $-
Accelerated depreciation related to
facility closures in:
Bakery segment - - 10 5
Household Products segment (1) - 9 -
Other transformation costs 2 - 2 -

Selling, general and administrative
expenses 13 - 22 1

Charges for (income from):
Exit activities 116 37 119 57
Business dispositions 12 - (26) (9)

----------------------------
Decrease in income from continuing
operations before taxes 142 37 108 54

Income tax benefit (48) (13) (34) (18)
----------------------------

Decrease in income from continuing
operations $94 $24 $74 $36
============================

The $22 million of costs recognized in selling, general andadministrative expenses in fiscal 2005 relate to the acceleratedamortization of certain bakery intangibles being exited, theaccelerated depreciation of certain leasehold improvements in theBranded Apparel segment to be exited, consulting costs associated withthe Transformation plan and various employee relocation andrecruitment efforts.

Exit activities in fiscal 2005 consisted of a $119 million netcharge, of which $116 million was recognized in the fourth quarter offiscal 2005. The $119 million consists of a $123 million chargerelated to the planned termination of approximately 2,000 employeesand an $8 million charge related to the exit of leases and othercontractual commitments, offset in part by a $12 million credit fromcompleting certain previous exit activities for amounts more favorablethan originally estimated. The $57 million of exit activitiesrecognized in fiscal 2004 primarily consisted of $70 million of costsassociated with the planned termination of 6,222 individuals offset inpart by income related to the disposal of assets and the settlement oflease and employee termination obligations for amounts less thanoriginally anticipated.

The $26 million of income related to business dispositionactivities in fiscal 2005 consists of $60 million of gains from thedisposition of the various trademarks and productive assets used inthe Sara Lee Meats and Household Products segments, offset in part byprofessional fees and employee costs associated with businessestargeted for future disposition. The $9 million of gains related tofiscal 2004 business dispositions consist of a $13 million gain on thesale of an equity method investment in Johnsonville Foods offset inpart by a loss on the disposal of the assets of an Italian hosieryoperation.

Note C - Impact of 53-Week Year

Fiscal year 2005 is a 52-week year, while fiscal year 2004 was a53-week year.

Note D - Finalization of Tax Audits and Reviews

The corporation finalized certain tax reviews for amounts lessthan originally anticipated and recognized a tax credit of $348million that increased diluted EPS for the year and the fourth quarterof 2005 by $0.44. In 2004, certain tax audits were finalized and thecorporation recognized a tax credit of $207 million that increaseddiluted EPS for both the year and the fourth quarter of fiscal 2004 by$0.26.

Note E - Tax on Remittance of Foreign Earnings

The corporation recognized a tax provision of $365 million infiscal 2005, of which $314 million was recognized in the fourthquarter, related to the repatriation to the U.S. of certain foreignearnings of the corporation that reduced diluted EPS for the year by$0.46 and in the fourth quarter of fiscal 2005 by $0.40. Earlier inthe year, the corporation provided $48 million of tax expense for cashrepatriation under the Homeland Investment Act. In fiscal 2004, thecorporation recognized a tax provision of $140 million related to therepatriation of certain foreign earnings that reduced diluted EPS inboth the year and fourth quarter by $0.18.

Note F - Netherlands Tax Rate Change

The government of the Netherlands passed legislation that willreduce the statutory tax rate on profits from 34.5% to 30.0% bycalendar 2007. The rate reduction that went into effect on January 1,2005 was a reduction to 31.5%. The impact of this change reduced thecorporation's deferred tax liability by $24 million during fiscal2005, which increased diluted EPS for the year by $0.03.

Note G - Deferred Taxes Provided on Earnings of ForeignSubsidiaries

The corporation recognized a tax provision of $30 million torecord deferred taxes after it became apparent that undistributedforeign earnings of certain subsidiaries that had previously beendeemed permanently invested would be remitted to the U.S. and becometaxable due to the corporation's Transformation plan and relatedbusiness dispositions. These earnings are invested in foreignsubsidiaries and will become taxable upon the sale of the business.This decreased diluted EPS in both the year and the fourth quarter by$0.04.

Note H - Deferred Taxes Provided on Earnings of Direct SellingBusiness Reported as a Discontinued Operation

The corporation recognized a tax provision of $50 million indiscontinued operations to record deferred taxes after it becameapparent that undistributed foreign earnings of the direct sellingbusiness that had previously been deemed permanently invested wouldbecome taxable upon the sale of the business. This tax provisiondecreased diluted EPS in both the year and fourth quarter of fiscal2005 by $0.06.

Note I - Receipt of Contingent Sale Proceeds

The corporation sold its European cut tobacco business in fiscal1999. Under the terms of that agreement, the corporation will receivean annual cash payment of 95 million euros if tobacco continues to bea legal product in the Netherlands, Germany and Belgium through 2010.The legal status of tobacco in each country accounts for a portion ofthe total contingency with the Netherlands accounting for 67%, Germany22% and Belgium 11%. If tobacco ceases to be a legal product withinany of these countries, the corporation forfeits the receipt of allfuture amounts related to that country. The contingencies associatedwith the fiscal 2005 payment passed in the first quarter of fiscal2005 and the corporation received the payment that was equivalent to$117 million based upon exchange rates on the date of receipt. Theseamounts are recognized in the corporation's earnings when received andthis payment increased diluted earnings per share by $0.15 when it wasrecognized.