Sara Lee Reports Earnings for First Quarter of Fiscal 2006

-- Diluted earnings per share for the first quarter were $.09, impacted by impairment and transformation charges, exit costs and lower net sales

-- Transformation progressing well; new organization structure in place; process improvement, Lean Enterprise and cost savings initiatives being implemented throughout the company; strong progress being made on divestiture program

Sara Lee Corporation (NYSE:SLE) today announced that net sales forthe first quarter of fiscal 2006, ending Oct. 1, 2005, were $4.3billion compared to $4.4 billion in the prior year's first quarter, adecrease of 2%. Sales grew in North American retail meats andinternational beverage and bakery during the quarter, while decliningin North American retail bakery, household and body care and brandedapparel.

Diluted earnings per share (EPS) were $.09 for the first quarterof fiscal 2006, compared to $.44 for the year-ago period. Fiscal 2006first quarter diluted EPS were reduced by $.22 per share for chargesfor the impairment of goodwill, intangibles and property at theEuropean Branded Apparel and U.S. Retail Coffee businesses. Chargesrelating to the implementation of the company's transformation plan,business exit costs and accelerated depreciation reduced first quarterdiluted EPS by another $.05 per share. Diluted EPS in the firstquarter also included a gain of $.02 per share from businessdispositions. Finally, diluted EPS were negatively impacted by loweroperating segment income as a result of lower net sales, higher coffeecommodity and energy costs and unit volume softness in Europe due tothe challenging retail environment.
First Quarter 2006 First Quarter 2005
----------------------------------------
Earnings per share $.09 $.44
========================================
Increase / (decrease) in EPS
from:
Impairment charges $(.22) -
Transformation costs $(.02) -
Exit activities $(.02) -
Accelerated depreciation /
amortization $(.01) $(.02)
Gain on business
dispositions $.02 -
Curtailment gain - $.01
----------------------------------------

Total(a) $(.25) $-
========================================

(a) EPS amounts are rounded and may not add to the total.

"During the quarter, our management team continued to take thenecessary steps to transform Sara Lee and improve our performance,"said Brenda C. Barnes, chairman and chief executive officer of SaraLee Corporation. "While we exceeded our forecasted earnings per sharetarget, we still are not satisfied with our business performance.However, our ongoing transformation initiatives are building themomentum needed to drive improvement. The organization is fully inplace, focused on driving the top-line with new products, marketinginnovation and customer focus. Efforts behind procurement, processimprovement and IT also are well underway to improve our overallefficiencies.

"The plans to focus our business portfolio continue to moveforward, with agreements in place to sell U.S. retail coffee anddirect selling," added Barnes. "In fact, we expect net proceeds fromall of our dispositions, including the spin-off of Branded ApparelAmericas/Asia, to be in excess of $3 billion, with the majority comingfrom the spin-off. We remain confident that we will generatesufficient cash to fund our previously announced capital structureinitiatives."

Net cash from operating activities for the first quarter of fiscal2006 grew to $188 million, compared to $72 million in the year-agoperiod, primarily due to improved working capital utilization. Totalmedia advertising and promotion (MAP) spending for continuingoperations decreased 1% in the first quarter, primarily because oflower spending behind Senseo in the United States compared to thehigher level of spending in the first quarter of the prior year tosupport the brand's U.S. launch. The consolidated unit volumes for thecorporation decreased 3% during the first quarter of fiscal 2006.

Transformation Plan Update

In February 2005, Sara Lee embarked on a bold, multi-year,strategic plan to transform the company and tighten its focus on food,beverage, and household and body care. The transformation plan isdesigned to dramatically improve Sara Lee's performance and betterposition the company for long-term growth. The plan is built uponthree pillars and a first quarter update for each pillar follows.

Pillar 1: Organize the business around consumers, customers andgeographic markets.

Sara Lee's new organization structure has been in place since thestart of the fiscal year. To better serve our consumers and customersin the geographies in which we compete, Sara Lee's new organizationstructure is built around the three ongoing businesses - Sara Lee Food& Beverage, Sara Lee Foodservice and Sara Lee International. Theorganization design and staffing for the two continuing North Americanbusinesses and the corporate functions are now 90% complete. The planfor relocating the management of these groups to a single headquartersin Downers Grove, Ill., is on track for completion in the fall of2006. As of the end of the first quarter, Sara Lee Food & Beveragealready had consolidated its management team from several differentcities into the new location. In the areas of consumer and customerfocus, Sara Lee Food & Beverage hired a new Chief Marketing Officerand has a 500-person national account sales force in place.Additionally, a new head of research & development for the NorthAmerican businesses began work in October. Sara Lee International ismoving forward with the consolidation of its local offices into onecentralized location per country or region, supported by a sharedservices organization for back-office functions. The internationalbusiness also made significant progress with its previously announcedworkforce reduction.

Pillar 2: Achieve operational efficiency to fund growth

During the first quarter, the company started the implementationof operational efficiency initiatives such as centralized procurement,common IT systems, Lean Enterprise and the Process Improvement toExcellence (PIE) program. The new global procurement organization isoff to a strong start with 70% of its positions filled and isdeveloping significant cost reduction initiatives initially focused onpackaging, co-packing, commodities and indirect spending. The globalinformation systems group completed its business plan built around theexecution of a common IT platform across the entire company and is nowgearing up for the first phase of the implementation process. And thePIE team is currently focusing on four key areas for processimprovement: innovation, pricing and trade spending, sales andoperations planning and business planning processes. In addition, thePIE team is developing a Lean Center of Excellence to facilitate thefurther roll-out of the Lean Enterprise concept across the company.

Pillar 3: Focus the portfolio

In August, Sara Lee announced that it had entered into adefinitive agreement for the sale of its direct selling business toTupperware Corporation for $557 million. The transaction is expectedto close in the second quarter of fiscal 2006. In September, thecompany closed a transaction to sell its Delial sun care brand to theFrench company L'Oreal as part of the household and body carebusiness' program to exit non-core brands and businesses. Also inSeptember, Sara Lee announced that it had entered into exclusivenegotiations regarding the sale of its European branded apparelbusiness with an affiliate of Sun Capital Partners, Inc., a leading,U.S. private investment firm. And on October 26, after the close ofthe first quarter, Sara Lee announced that the company had signed anagreement to sell its U.S. retail coffee business, excluding theSenseo single-serve coffee business, to the Segafredo Zanetti Groupfor $82.5 million. This transaction is expected to close by the end ofDecember 2005, subject to regulatory approvals and other customaryclosing conditions. Finally, preparations for the spin-off toshareholders of the Branded Apparel Americas/Asia business, whichrecently announced that its new name as an independent, publiclytraded company would be Hanesbrands Inc., are on track for completionin the June - September 2006 timeframe.

Other Notable First Quarter Events

In July 2005, the corporation received a cash payment of $114million as a portion of the contingencies associated with the sale ofits European cut tobacco business in fiscal 1999 was satisfied. Thisamount was recognized in the corporation's earnings in the firstquarter of fiscal 2006 and contributed $.15 per share to diluted EPS.The company received $117 million, or $.15 per share, in tobaccoproceeds in the prior year's first quarter.

Sara Lee repurchased more than 29 million shares of itsoutstanding common stock in the first quarter of fiscal 2006. Thecompany's repurchases were made through a combination of open marketpurchases and an accelerated share repurchase program facilitated byCitigroup for a total cost of $562 million. More than 87 millionshares remain authorized for buy-back as part of the company's $2billion share repurchase program announced in August.

Business Performance Review

In the first quarter of fiscal 2006, the following businesses havebeen reported as discontinued operations: Direct Selling, EuropeanBranded Apparel (excluding the U.K.-based private label division),U.S. Retail Coffee and the European Nuts and Snacks business. Prioryear amounts have been restated to conform with the current year'spresentation.

Sara Lee Food & Beverage

The Sara Lee Food & Beverage business is the company's NorthAmerican retail food group, comprised of the retail meats and retailbakery segments, the latter including the Senseo single-serve coffeeinnovation.

North American Retail Meats

Net sales were up 3% to $615 million on the strength of a 5%increase in processed meats unit volumes, partially offset by thenegative impact of the disposition of the canned meat business in theprior year. Strong new product performance by Jimmy Dean BreakfastSandwiches and Skillets and higher unit volumes for Hillshire Farmsmoked sausage and Ball Park hot dogs, as well as improved performancein Mexico, drove this unit volume and sales growth during the firstquarter of fiscal 2006. Operating segment income in the first quarterwas $17 million, down $7 million or 29%. Restructuring charges andtransformation costs reduced operating segment income by $10 million.The remaining increase in operating segment income was due to thehigher volumes and lower commodity costs.

North American Retail Bakery (including Senseo coffee)

The very successful launch of Sara Lee Soft & Smooth whole grainwhite bread, combined with the ongoing success of previously launchedSara Lee bakery products in the United States, led to an increase inSara Lee branded bakery sales of approximately 30% in the firstquarter. Sara Lee continues to be America's leading brand in thecombined fresh bread, buns and bagels category according toInformation Resources, Inc. share data, and Sara Lee reached itshighest share position ever with 6.5%. However, unit volumes and salesfor other fresh bakery businesses declined, primarily due to softnessin traditional white breads, planned exits from low-margin regionalbread business and weakness in the Earth Grains brand. Unit volumesand sales for Senseo single-serve coffee, which are reported in theNorth American retail bakery segment, increased significantly comparedto last year's first quarter.

Overall, the North American retail bakery segment showed a unitvolume decline in the first quarter of 5%, which drove a 2% decreasein sales to $460 million. The segment reported a loss of $4 million inthe first quarter of fiscal 2006, compared to a profit of $9 millionin the year-ago period, primarily due to restructuring charges andtransformation costs, the impact of a non-recurring curtailment gainin the prior year and higher commodity and fuel costs.

On a combined basis, net sales for the Sara Lee Food & Beveragebusiness increased 1% to $1.08 billion in the first quarter of fiscal2006, while profits were down 62% to $13 million.

Sara Lee Foodservice

The Sara Lee Foodservice business is a leading supplier of coffee,meats and bakery solutions to a broad base of foodservice operatorsacross North America.

Overall, Sara Lee Foodservice unit volumes were up 2% in the firstquarter, primarily due to strong volumes for refrigerated dough, hotdogs, breakfast sausages and lunchmeats. In coffee, Cafitesse, SaraLee's liquid coffee concentrate system, also recorded unit volumeincreases, which were more than offset by volume declines in thetraditional roast and ground business. The overall volume decline infoodservice coffee in the first quarter can be attributed to a verycompetitive business environment, some business disruption resultingfrom hurricane Katrina and a long, warm summer.

For the first quarter of fiscal 2006, Sara Lee Foodservicereported net sales of $536 million, essentially flat compared to theyear-ago period. Operating segment income for the first quarter offiscal 2006 was $16 million, compared to $43 million for thecorresponding period in fiscal 2005. In addition to transformationcosts, operating segment income was negatively impacted by the softunit volumes in beverage, an unfavorable sales mix, higher commodityand other input costs, and a curtailment gain recognized in the prioryear. These negative margin drivers were partially offset by pricingactivities.

Catering to the considerable growth in the demand for gourmetfoodservice coffee, Sara Lee Foodservice recently launched DouweEgberts roast and ground premium coffee products. And, at the end ofthe quarter, Burger King's new BK Joe coffee line, produced by SaraLee, began rolling out to more than 7,000 Burger King restaurantsnationwide.

Sara Lee International

The Sara Lee International business is comprised of internationalbeverage, international bakery and the global household and body caresegment. Results for the European meats business - which is beingconsidered for divestiture - are included within the internationalbeverage segment.

International Beverage (including European meats)

In the company's international beverage segment, unit volumes weredown 9% in the first quarter of fiscal 2006, primarily due to volumeweakness for retail coffee in Brazil and Europe. The volume decline inBrazil resulted from a price increase taken in the quarter to coverhigher commodity costs. Meanwhile, competition from discounters andprivate labels put pressure on coffee unit volumes in several Europeanretail markets. Unit volumes for international Senseo single-servecoffee were up 6% in the first quarter, while unit volumes forEuropean meats increased 2%. Net sales in the international beveragesegment rose 4% to $809 million in the first quarter, as priceincreases taken to offset higher commodity costs, positive sales mixand favorable foreign currency exchange rates more than offset thelower unit volumes. Operating segment income dropped 31% to $91million in the quarter, mainly as a result of transformation costs andhigher commodity costs that could not be fully priced through to theconsumer and higher MAP spending.

International Bakery

Unit volumes in the international bakery segment decreased 1% inthe first quarter as unit volume growth in the European refrigerateddough business was more than offset by lower unit volumes for thefresh bakery business in Spain and frozen bakery in Australia. Netsales for the international bakery segment increased 3% to $192million in the first quarter primarily driven by higher pricing.Operating segment income was $12 million in the first quarter offiscal 2006, compared to $21 million in the year-ago period, or adecline of 43%, mainly due to higher MAP spending in Spain and thecost of exit activities.

Household and Body Care

Unit volumes in the household and body care segment's four corecategories declined 4% in the first quarter, as increased unit volumesin body care due to strong volume trends for Sanex, Duschdas and Radoxin the bath and shower category were more than offset by lower unitvolumes in air care and insecticides in Europe and shoe care in theUnited States.

Sanex for Men continued to perform well through its roll-outacross Europe. Sanex Excel, a new deodorant spray, and Sanex Vitality,a body care line aimed at women, were launched in the first quarter.The lower unit volumes in the core categories translated into lowernet sales, down 4% to $446 million in the first quarter. Operatingsegment income rose 19% to $79 million in the first quarter of fiscal2006, due to a gain on the sale of a non-core product line, partiallyoffset by weakness in air care results.

On a combined basis, net sales for the Sara Lee Internationalbusiness were up 1% to $1.45 billion in the first quarter of fiscal2006, while profits were down 17% to $182 million.

Branded Apparel

Branded Apparel markets a portfolio of apparel brands in theouterwear (i.e. T-shirts, casualwear and Champion products), innerwear(i.e. underwear, socks and intimate apparel) and hosiery categories.The Branded Apparel Americas/Asia business is currently preparing tobe spun off from Sara Lee between June and September, 2006, under thecorporate name Hanesbrands Inc.

For the first quarter of fiscal 2006, Branded Apparel reported netsales of $1.25 billion, down 8% compared to the same period last year.This decrease was largely driven by overall volume declines of 4%,primarily due to continued weakness in the hosiery category andplanned exits of various low-margin product lines. In addition, unitvolumes and sales were negatively impacted by competitive pricingissues, an unfavorable sales mix and weak private label sales in theUnited Kingdom, partially offset by continued strong results for C9 byChampion, sold exclusively at Target stores.

Operating segment income for the first quarter of fiscal 2006 was$105 million, compared to $133 million for the first quarter of fiscal2005, down 21%. Favorable cotton costs were more than offset by lowervolumes and an unfavorable sales mix.

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

Net interest expense was $52 million for the first quarter offiscal 2006, an increase of $12 million compared to the year-agoperiod, resulting from higher net average interest rates. Generalcorporate expenses were $48 million in the first quarter, compared to$49 million in the comparable period of the prior year. The effectivetax rate for continuing operations was 17.1% for the first quarter offiscal 2006, compared to 19.4% in last year's first quarter. Duringthe first quarter of fiscal 2006, the company repurchased more than 29million shares of its common stock at an average price of $19.31 pershare. More than 87 million shares remain authorized by the board ofdirectors for repurchase.

Outlook

Sara Lee's management currently expects diluted EPS for the secondquarter of fiscal 2006 to fall within a range of $.25 to $.30,compared to $.41 in the year-ago period. The second quarter guidancedoes not include any gains or losses on dispositions or any chargesassociated with the transformation that may be recognized during thequarter. Results for businesses currently reported as discontinuedoperations are included for the entire second quarter.

Full-year fiscal 2006 diluted EPS for the corporation are expectedto be in a range of $.97 to $1.07, compared to $.90 in fiscal 2005,which was negatively impacted by $.55 per share in net charges relatedto significant items. The current full-year guidance includes onlythose significant items reported in the first quarter of fiscal 2006,which reduced EPS by $.25 (including impairment charges, exitactivities, transformation costs and gains on business dispositions).It does not include any transformation related charges, gains orlosses from business dispositions, or further impairment charges thatmay occur in subsequent quarters. The guidance includes a $.04 pershare decrease based on the assumption that all businesses currentlyreported as discontinued operations remain that way through the end ofthe second quarter, that the company will not own these businesses inthe second half of the fiscal year and that the proceeds generatedfrom these sales are redeployed in the business. The guidance includesa $.02 per share benefit resulting from the share repurchase activityin the first quarter. After taking into account the above, there is nochange in the annual guidance on a comparative basis.

For the second quarter of fiscal 2006, profitability is expectedto improve in six of the company's seven business segments, with onlyHousehold and Body Care showing weaker results. The company currentlyexpects base business profitability to improve over the course of thefiscal year for each of its business segments.

Webcast

Sara Lee Corporation's review of first quarter results for fiscal2006 will be broadcast live via the Internet today at 9 a.m. CST.During the webcast, the company will discuss first quarter results andprovide an outlook for the second quarter and full fiscal year. Thelive webcast can be accessed at www.saralee.com and is anticipated toconclude by 10 a.m. CST. For people who are unable to listen to thewebcast live, the earnings review will be available two hoursfollowing the completion of the webcast in the Investors section ofthe Sara Lee corporate Web site until Wednesday, May 3, 2006.

Forward-looking Statements

This news release contains forward-looking statements regardingSara Lee's business prospects, costs and operating results, includingstatements contained under the heading "Outlook," and the timing andexpected net proceeds from planned business divestitures. In addition,from time to time, in oral statements and written reports, thecorporation discusses its expectations regarding the corporation'sfuture performance by making forward-looking statements preceded byterms such as "expects," "likely" or "believes." These forward-lookingstatements are based on currently available competitive, financial andeconomic data and management's views and assumptions regarding futureevents. Such forward-looking statements are inherently uncertain, andinvestors must recognize that actual results may differ from thoseexpressed or implied in the forward-looking statements. Consequently,the corporation wishes to caution readers not to place undue relianceon any forward-looking statements. Among the factors that could causeSara Lee's actual results to differ from such forward-lookingstatements 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 also may 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 2005,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 Chicago-based globalmanufacturer and marketer of high-quality, brand-name products forconsumers throughout the world. In February 2005, the company beganexecuting a bold and ambitious multi-year plan to transform Sara Leeinto a company focused on its food, beverage, and household and bodycare businesses around the world. As part of its transformation plan,Sara Lee will drive growth in its key categories via such strongbrands as Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi,Sanex, Senseo and its namesake, Sara Lee.

Consolidated Statements of Income Sara Lee Corporation (NYSE)
--------------------------

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

First Quarter Ended
--------------------------------
October 1, October 2, Percent
2005 2004 Change
---------- ---------- ----------

Continuing operations
Net sales $4,305 $4,395 (2.1)%
---------- ----------

Cost of sales 2,789 2,815
Selling, general and
administrative
expenses 1,273 1,236
Charges for (income
from) exit activities
and business
dispositions (1) (6)
Contingent sale
proceeds (114) (117)
Interest expense 74 67
Interest income (22) (27)
---------- ----------
3,999 3,968
---------- ----------

Income from continuing
operations before
income taxes 306 427 (28.4)
Income taxes 53 83
---------- ----------
Income from continuing
operations 253 344 (26.3)
---------- ----------
(Loss) income from
discontinued operations,
net of tax of $(35) and $6 (186) 8
---------- ----------

Net income $67 $352 (81.0)
========== ==========

Income from continuing
operations per common
share
Basic $0.33 $0.43 (23.3)
========== ==========
Diluted $0.32 $0.43 (25.6)
========== ==========

Net income per common
share
Basic $0.09 $0.45 (80.0)
========== ==========
Diluted $0.09 $0.44 (79.5)
========== ==========

Average shares
outstanding
Basic 779 790
========== ==========
Diluted 782 795
========== ==========

See accompanying Notes to Financial Information.



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

(In millions) First Quarter Ended
---------------------------------------------------------------------

Income from
Continuing Operations
Sales Before Income Taxes
-------------------- ---------------------

October 1, October 2, Percent October 1, October 2, Percent
2005 2004 Change 2005 2004 Change
---------- ---------- ------- ---------- ---------- -------
North
American
Retail Meats $615 $596 3.1% $17 $24 (28.6)%
North
American
Retail
Bakery 460 471 (2.3) (4) 9 NM
Foodservice 536 538 (0.3) 16 43 (63.5)
International
Beverage 809 781 3.6 91 132 (31.0)
International
Bakery 192 187 2.6 12 21 (42.6)
Household &
Body Care 446 462 (3.6) 79 67 19.1
Branded
Apparel 1,252 1,362 (8.1) 105 133 (21.0)
---------- ---------- ------- ---------- ---------- -------
Total sales
and
operating
segment
income 4,310 4,397 (2.0) 316 429 (26.3)
Intersegment
sales (5) (2) NM -- -- --
Amortization
of
identifiable
intangibles -- -- -- (24) (30) 19.1
General
corporate
expenses -- -- -- (48) (49) 2.6
Contingent
sale
proceeds -- -- -- 114 117 2.3
---------- ---------- ------- ---------- ---------- -------
Total net
sales and
operating
income 4,305 4,395 (2.1) 358 467 23.3
Net interest
expense -- -- -- (52) (40) (30.9)
---------- ---------- ------- ---------- ---------- -------
Net sales and
income from
continuing
operations
before
income
taxes $4,305 $4,395 (2.1)% $306 $427 (28.4)%
========= ========== ======= ========== ========== =======

See accompanying Notes to Financial Information.



Consolidated Balance Sheets Sara Lee Corporation (NYSE)
--------------------------

(In millions)
----------------------------------------------------------------------
October 1, July 2,
2005 2005
---------- ----------
ASSETS
Cash and equivalents $1,592 $539
Trade accounts receivable 1,806 1,830
Inventories 2,427 2,371
Other current assets 430 347
Assets of discontinued operations held for sale 718 729
---------- ----------

Total current assets 6,973 5,816

Other noncurrent assets 117 117
Deferred tax asset 295 273
Property, net 3,033 3,039
Trademarks and other identifiable intangibles,
net 1,533 1,574
Goodwill 3,156 3,154
Assets of discontinued operations held for sale 320 445
---------- ----------

$15,427 $14,418
========== ==========

LIABILITIES AND EQUITY
Notes payable $1,866 $249
Accounts payable 1,256 1,299
Accrued liabilities 2,659 2,580
Current maturities of long-term debt 341 381
Liabilities of discontinued operations held for
sale 491 464
---------- ----------

Total current liabilities 6,613 4,973

Long-term debt 4,086 4,116
Pension obligation 858 858
Other liabilities 1,400 1,353
Liabilities of discontinued operations held for
sale 104 100
Minority interest in subsidiaries 87 80
Common stockholders' equity 2,279 2,938
---------- ----------

$15,427 $14,418
========== ==========
See accompanying Notes to Financial Information.



Impact of Significant Items on Income
From Continuing Operations and Net Income
Amounts in millions

13 Weeks Ended 13 Weeks Ended
October 1, 2005 October 2, 2004
---------------------------- ------------------------

In millions, Diluted Diluted
except per Pretax Net EPS Pretax Net EPS
share data Impact Tax Income Impact Impact Tax Income Impact
------------ ------ ---- ------- ------ ------ --- ------ ------

Income from
continuing
operations $306 $(53) $253 $0.32 $427 $(83) $344 $0.43
====== ===== ======= ======= ===== ===== ===== ======
Net income $67 $0.09 $352 $0.44
======= ======= ===== ======

Significant items
affecting
comparability of
income from
continuing
operations and
net income:
Charges for exit
activities and
business
dispositions
(Note A)
Charges for
exit
activities $(25) $8 $(17) $(0.02) $3 $(1) $2 $--
Income
(charges) for
business
disposition
activities 26 (9) 17 0.02 3 -- 3 --

------ ----- ------- ------- ----- ----- ----- ------
Subtotal 1 (1) -- -- 6 (1) 5 0.01

Charges to cost
of sales and
SG&A expenses
(Note A)
Transformation
charges in
cost of sales
and SG&A (25) 9 (16) (0.02) -- -- -- --
Hurricanes
losses (3) 1 (2) -- -- -- -- --
Accelerated
depreciation
and
amortization (11) 4 (7) (0.01) (18) 5 (13) (0.02)
Bakery
curtailment
gain -- -- -- -- 16 (6) 10 0.01


------ ----- ------- ------- ----- ----- ----- ------
Impact of
significant items
on income from
continuing
operations before
income taxes: (38) 13 (25) (0.03) 4 (2) 2 --
------ ----- ------- ------- ----- ----- ----- ------

Significant tax
matters affecting
comparability
Tax benefit on
foreign taxes
paid (Note B) -- 12 12 0.01 -- -- -- --

------ ----- ------- ------- ----- ----- ----- ------
Impact of
significant items
on income
from continuing
operations: (38) 25 (13) (0.02) 4 (2) 2 -
------ ----- ------- ------- ----- ----- ----- ------

Significant items
impacting
discontinued
operations
(Note C)
European Branded
Apparel
impairment (179) 47 (132) (0.17) -- -- -- --
U.S. Retail
Coffee
impairment (44) 5 (39) (0.05) -- -- -- --
Charges for exit
activities (1) -- (1) -- -- -- -- --
Tax
deconsolidation
charges of
Direct
Selling
business -- (12) (12) (0.01) -- -- -- --

------ ----- ------- ------- ----- ----- ----- ------
Impact of
significant
items on net
income $(262) $65 $(197) $(0.25) $4 $(2) $2 $--
====== ===== ======= ======= ===== ===== ===== ======

Notes:

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

See accompanying Notes to Financial Information.



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

Introduction

Effective in the first quarter of fiscal 2006, the corporation
reorganized its business operations around distinct consumers,
customers and geographic markets in order to build functional
excellence, increase strategic focus and simplify the organization. As
a result of these changes, the corporation has reorganized its
business operations into seven business segments. Historical results
have been restated to present the business segments on a comparable
basis. The following is a general description of the corporation's
seven business segments.

-- North American Retail Meats - sells a variety of packaged meat
products to retail customers in North America.

-- North American Retail Bakery - sells a variety of bakery products
to retail customers in North America and includes the
corporation's U.S. Senseo retail coffee business.

-- Foodservice - sells a variety of meats, bakery and beverage
products to foodservice customers in the United States.

-- International Beverage - sells coffee and tea products in major
non-U.S. markets around the world, including Europe, Australia and
Brazil. The International Beverage segment also includes the
corporation's European meats business. The corporation has
announced it is exploring the sale of the European meats business,
but no decisions have been made at this time regarding the
ultimate actions that may be taken.

-- International Bakery - sells a variety of bakery and dough
products to retail and foodservice customers in Europe and
Australia.

-- Household and Body Care - sells products in four primary product
categories - body care, air care, shoe care and insecticides.

-- Branded Apparel - sources, manufactures and markets basic branded
apparel products under the categories of innerwear, outerwear and
sheer hosiery in the Americas and Asia, and operates a private
label apparel operation in the United Kingdom.

Note A - Charges for Exit Activities, Business Dispositions, Other
Transformation Activities and Hurricane Losses

The reported results for the first quarter of fiscal 2006 and fiscal
2005 reflect amounts recognized for exit activities and business
dispositions, costs associated with the corporation's previously
announced transformation plan, and losses from the recent hurricanes
in the southeastern portion of the United States. The following table
illustrates where the costs (income) associated with these activities
are recognized in the Consolidated Financial Statements.



Thirteen Weeks Ended
---------------------
October 1, October 2,
(In millions) 2005 2004
------------------------------------------------ ---------- ----------

Cost of sales
Accelerated depreciation related to facility
closures in the North American Retail Bakery
segment $3 $11
Hurricane losses 2 --
Curtailment gain from Sara Lee Bakery
workforce reduction -- (16)

Selling, general and administrative expenses
(SG&A)
Transformation charges 22 --
Accelerated depreciation on facilities
targeted for closure 11 --
Accelerated amortization of intangibles -- 7
Hurricane losses 1 --

(Income from) charges for
Exit activities 25 (3)
Business dispositions (26) (3)
---------- ----------

Impact on income from continuing operations
before income taxes 38 (4)

Income (taxes) benefits (13) 2

---------- ----------

Impact on income from continuing operations $25 $(2)
========== ==========


During the first quarter of fiscal 2006, the corporation recognized in
cost of sales and SG&A $14 million of accelerated depreciation related
to facilities targeted for closure, $22 million of transformation
expenses such as relocation, recruiting and the costs associated with
the development of new facilities, and $3 million of losses related to
recent hurricanes in the United States. The corporation recognized
charges for exit activities of net $25 million, primarily related to
management's approved actions to reduce the workforce by 446 employees
under the corporation's previously announced transformation plan.
Offsetting these charges is a $26 million credit from disposition
activities that resulted from the sale of certain trademarks and
inventory of a skincare and sunscreen product line and a minority
investment in a Branded Apparel company. These completed asset
dispositions resulted in a gain of $32 million. This gain was
partially offset by $6 million of expenses to prepare other businesses
for sale. These items reduced income from continuing operations before
taxes and income from continuing operations in the first quarter of
fiscal 2006 by $38 million and $25 million, respectively.

During the first quarter of fiscal 2005, the corporation recognized a
$16 million curtailment gain and a $6 million credit from exit
activities and business dispositions that were completed for amounts
more favorable than originally estimated. Partially offsetting these
amounts was $18 million of accelerated depreciation and amortization
for facilities targeted for closure and trademarks that will be
exited. These amounts increased income from continuing operations
before income taxes and income from continuing operations by $4
million and $2 million, respectively.

Note B - Tax Benefit on Foreign Tax Paid

The corporation recognized a $12 million tax benefit related to
foreign taxes associated with the planned sale of certain foreign
operations.

Note C - Discontinued Operations

The corporation recognized the following significant items in
discontinued operations in the first quarter of fiscal 2006:

-- A $179 million pretax impairment charge was recognized related to
the corporation's European Branded Apparel operations.

-- A $44 million pretax impairment charge was recognized related to
the corporation's U.S. Retail Coffee business.

-- A charge of $1 million related to certain approved exit activities
related to the discontinued operations.

-- A $12 million tax charge related to the deconsolidation for tax
purposes of certain foreign operations in the corporation's Direct
Selling business.

These charges reduced pretax earnings of the discontinued operations
by $224 million and after-tax earnings by $184 million.

Note D - Receipt of Contingent Sales Proceeds

The corporation sold its European cut tobacco business in fiscal 1999.
Under the terms of that agreement, the corporation will receive an
annual cash payment of 95 million euros if tobacco continues to be a
legal product in the Netherlands, Germany and Belgium through 2010.
The legal status of tobacco in each country accounts for a portion of
the total contingency with the Netherlands accounting for 67%, Germany
22% and Belgium 11%. If tobacco ceases to be a legal product within
any of these countries, the corporation forfeits the receipt of all
future amounts related to that country. The contingencies associated
with the fiscal 2006 and fiscal 2005 payment each passed in the first
quarter, respectively, of each fiscal year and the corporation
received the annual payments. The fiscal 2006 annual payment was
equivalent to $114 million and the fiscal 2005 annual payment was
equivalent to $117 million based upon the respective exchange rates on
the dates of receipt. Each of these amounts is recognized in the
corporation's earnings when received and each of the payments
increased diluted earnings per share by $0.15 when they were
recognized.

Note E - Stock Repurchases

The corporation has an ongoing share repurchase program in place that
allows the repurchase of the corporation's common stock at times
management deems appropriate, given current market valuations. On
August 1, 2005, the corporation's board of directors authorized the
repurchase of an additional 100 million shares of common stock. As a
result of this action, the total number of shares authorized for
repurchase increased to 116 million. At a $19 per share price, the
additional authorization is equivalent to $2 billion, and the
corporation indicated that it expects to repurchase $1 billion of the
corporation's common stock in fiscal 2006, using either cash generated
from operations, proceeds from borrowings or the proceeds from
business dispositions. During the first quarter of fiscal 2006, the
corporation repurchased 29.1 million shares of common stock for a
purchase price of $561 million. Of this total, 20.9 million shares
were purchased for $400 million under an accelerated share repurchase
program where the final purchase price will be based upon the average
daily share price over a period of time that will not exceed 6 months.
The final purchase price settlement options available to the
corporation are either share settlement or cash settlement. Until this
transaction is completed, the corporation's purchase of additional
shares of its common stock is subject to conditions imposed by the
counterparty to the transaction. The timing and amount of share
repurchases for the remainder of fiscal 2006 and beyond will be based
upon market conditions and other factors.



Sara Lee Corporation
Operating Results by Business Segment
(in millions)
Dollar Percent
First Quarter Change Change
--------------- ----------------
2006 2005
------- -------

North American Retail Meats

Net Sales $615 $596 $19 3.1%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(4) $4
Dispositions - 21 (21)
------- ------- -------
Total $- $17 $(17)
======= ======= =======

Operating segment income $17 $24 $(7) (28.6)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Exit activities and business
dispositions $(4) $- $(4)
Transformation charges (6) - (6)
Dispositions - 2 (2)
------- ------- -------
Total $(10) $2 $(12)
======= ======= =======

----------------------------------------------------------------------


North American Retail Bakery

Net Sales $460 $471 $(11) (2.3)%
--------- ======= ======= ======= ========

Operating segment income $(4) $9 $(13) (147.8)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Exit activities and business
dispositions $(1) $- $(1)
Transformation charges (5) - (5)
Acquisitions/dispositions - - -
Accelerated depreciation (3) (4) 1
Retiree medical curtailment gain - 7 (7)
------- ------- -------
Total $(9) $3 $(12)
======= ======= =======

----------------------------------------------------------------------


Total Sara Lee Food & Beverage Business

Net Sales $1,075 $1,067 $8 0.7%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- (4) $4
Dispositions - 21 (21)
------- ------- -------
Total $- $17 $(17)
======= ======= =======

Operating segment income $13 $33 $(20) (61.9)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Exit activities and business
dispositions $(5) $- $(5)
Transformation charges (11) - (11)
Dispositions - 2 (2)
Accelerated depreciation (3) (4) 1
Retiree medical curtailment gain - 7 (7)
------- ------- -------
Total $(19) $5 $(24)
======= ======= =======



Sara Lee Corporation
Operating Results by Business Segment
(in millions)

Dollar Percent
First Quarter Change Change
--------------- ----------------
2006 2005
------- -------

Sara Lee Foodservice

Net Sales $536 $538 $(2) (0.3)%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(1) $1
Dispositions - 1 (1)
------- ------- -------
Total $- $- $-
======= ======= =======

Operating segment income $16 $43 $(27) (63.5)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $- $-
Transformation charges (3) - (3)
Accelerated depreciation - (4) 4
Retiree medical curtailment gain - 9 (9)
Hurricane Katrina losses (3) - (3)
------- ------- -------
Total $(6) $5 $(11)
======= ======= =======



Sara Lee Corporation
Operating Results by Business Segment
(in millions)

Dollar Percent
First Quarter Change Change
--------------- ----------------
2006 2005
------- -------


International Beverage

Net Sales $809 $781 $28 3.6%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(14) $14
======= ======= =======
Operating segment income $91 $132 $(41) (31.0)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $(1) $1
Exit activities and business
dispositions (16) - (16)
Transformation charges (3) - (3)
------- ------- -------
Total $(19) $(1) $(18)
======= ======= =======

----------------------------------------------------------------------


International Bakery

Net Sales $192 $187 $5 2.6%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(1) $1
======= ======= =======

Operating segment income $12 $21 $(9) (42.6)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $- $-
Exit activities and business
dispositions (5) - (5)
------- ------- -------
Total $(5) $- $(5)
======= ======= =======

----------------------------------------------------------------------


Household & Body Care

Net Sales $446 $462 $(16) (3.6)%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(1) $1
Dispositions - 3 (3)
------- ------- -------
Total $- $2 $(2)
======= ======= =======

Operating segment income $79 $67 $12 19.1%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $- $-
Exit activities and business
dispositions 26 - 26
Transformation charges (7) - (7)
Dispositions - 2 (2)
Accelerated depreciation - (3) 3
------- ------- -------
Total $19 $(1) $20
======= ======= =======



Sara Lee Corporation
Operating Results by Business Segment
(in millions)

Dollar Percent
First Quarter Change Change
--------------- ----------------
2006 2005
------- -------

Total Sara Lee International Business

Net Sales $1,447 $1,430 $17 1.1%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(16) $16
Dispositions - 3 (3)
------- ------- -------
Total $- $(13) $13
======= ======= =======

Operating segment income $182 $220 $(38) (16.9)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $(1) $1
Exit activities and business
dispositions 5 - 5
Transformation charges (10) - (10)
Dispositions - 2 (2)
Accelerated depreciation - (3) 3
------- ------- -------
Total $(5) $(2) $(3)
======= ======= =======

----------------------------------------------------------------------


Branded Apparel

Net Sales $1,252 $1,362 $(110) (8.1)%
--------- ======= ======= ======= ========
Increase/(decrease) in net sales
from:
Changes in foreign currency exchange
rates $- $(3) $3
Acquisitions 6 - 6
------- ------- -------
Total $6 $(3) $9
======= ======= =======

Operating segment income $105 $133 $(28) (21.0)%
------------------------ ======= ======= ======= ========
Increase/(decrease) in operating
segment income from:
Changes in foreign currency exchange
rates $- $(1) $1
Exit activities and business
dispositions - 6 (6)
Acquisitions 1 - 1
------- ------- -------
Total $1 $5 $(4)
======= ======= =======



First Quarter Fiscal 2006 Unit Volume Overview
----------------------------------------------


Unit volume changes versus Fiscal 2005

First Quarter
Fiscal 2006
-------------
Sara Lee Corporation (3)%


Sara Lee Food & Beverage Business (1)%

North American Retail Meats 5%
North American Retail Bakery (incl. Senseo) (5)%


Sara Lee Foodservice 2%


Sara Lee International Business (7)%

International Beverage (incl. Meats Europe) (9)%
International Beverage (roast and ground
coffee) (15)%
Meats Europe 2%
International Bakery (1)%
Global Household & Body Care (four core
categories) (4)%


Branded Apparel(a) (4)%

(a) Excludes unit volume impacts from the continental European branded
apparel business, which has been reported as a discontinued
operation.