Introduction

The following is management's discussion and analysis of the results of operations for the first quarter of 2009 compared with the first quarter of 2008 and a discussion of the changes in financial condition and liquidity during the first three months of 2009. Below is an outline of the analyses included herein:

• Business Overview

• Consolidated Results - First Quarter of 2009

• Operating Results by Business Segment

• Financial Condition

• Liquidity

• Significant Accounting Policies and Critical Estimates

• Forward-Looking Information

Business Overview

Our Business

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

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

Challenges and Risks

As an international consumer products company, we face certain risks and challenges that impact our business and financial performance. Commodity prices directly impact our business because of their effect on the cost of raw materials used to make our products and the cost of inputs to manufacture, package and ship our products. The commodities we use, including beef, pork, coffee, wheat, corn, corn syrup, soybean and corn oils, butter, sugar and fuel, may experience price volatility due to factors beyond our control. The company's objective is to be able to offset commodity price increases with pricing actions and to offset any operating costs increases with continuous improvement savings. During the first quarter of 2009, the corporation estimates that commodity cost increases at the operating income level of approximately $170 million over the first quarter of the prior year were offset by favorable pricing actions of approximately $180 million.

The company's business results are also heavily influenced by changes in foreign currency exchange rates. For the most recently completed fiscal year, nearly 50% of net sales and significantly more than 50% of operating segment income were generated outside of the U.S. As a result, changes in foreign currency exchange rates, particularly the European euro, can have a significant impact on the reported results. Changes in foreign currency exchange rates increased net sales by $118 million and increased operating income by $15 million.

The company's international operations also provide a significant portion of the company's cash flow from operating activities, which is expected to require the company to continue to repatriate a greater portion of cash generated outside of the U.S. The repatriation of these funds has and is expected to continue to result in higher income tax expense and cash tax payments. During the first quarter of 2009, the corporation repatriated $413 million of accumulated earnings with an estimated tax cost of $77 million.

The corporation believes that, based on its current cash balance and continued access to financing, the recent turmoil and decreased liquidity in the financial markets will not have a material adverse impact on our liquidity or cash flow. In light of the current credit market instability, however, the corporation has taken certain actions to maintain its liquidity and preserve operating flexibility. Although the corporation continues to regularly access the commercial paper market, it has shortened maturities on its commercial paper and reduced the total amount of its commercial paper that matures each day in response to reduced market liquidity. In addition, to preserve our capital position, the corporation has suspended plans to make additional purchases under the corporation's common stock repurchase program; however, purchases may be resumed when market conditions improve.

The corporation believes that continued turmoil in the financial markets may lead to general economic weakness, which could have a negative impact on our business. Economic uncertainly may result in increased pressure to reduce the prices for some of our products, limit our ability to increase prices or lead to a shift toward private label. In addition, certain reporting units of the corporation, especially those carrying significant goodwill balances, could experience reduced profitability which potentially could trigger a goodwill impairment.

Transformation Actions and Other Significant Items Affecting Comparability

The reported results for 2009 and 2008 reflect amounts recognized for actions associated with the corporation's ongoing business transformation program and other significant amounts that impact comparability. The nature of these items includes the following:

Exit Activities, Asset and Business Dispositions - These costs are reported on a separate line of the Consolidated Statements of Income. Exit activities primarily relate to charges taken to recognize severance actions approved by the corporation's management and the exit of leased facilities or other contractual arrangements. Asset and business disposition activities include costs associated with separating businesses targeted for sale and preparing financial statements for these businesses, as well as gains and losses associated with the disposition of asset groups that do not qualify for discontinued operations reporting. More information on these costs can be found in Note 5 to the Consolidated Financial Statements, "Exit, Disposal and Transformation Activities."

Business Transformation Costs - These include costs to retain and relocate existing employees, recruit new employees, third-party consulting costs associated with transformation efforts, and amortization costs for new enterprise-wide software. In addition, these costs include incremental depreciation associated with decisions to close facilities at dates sooner than originally anticipated, pursuant to an exit plan. These costs are recognized in the Consolidated Statements of Income in Selling, General and Administrative Expenses or Cost of Sales. More information on these costs can be found in Note 5 to the Consolidated Financial Statements, "Exit, Disposal and Transformation Activities."

Other Significant Items - The reported results are also impacted by other items that affect comparability. These items may include impairment charges, curtailment gains and certain discrete tax matters, which include contingent tax obligation adjustments, valuation allowances and various other tax matters.

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

                   Impact of Significant Items on Net Income



                                                        Quarter ended September 27, 2008                         Quarter ended September 29, 2007
                                                Pretax              Net              Diluted EPS         Pretax              Net              Diluted EPS
In millions, except per share data              Impact           Income (2)          Impact (1)          Impact           Income (2)          Impact (1)
Net income                                     $     328        $        230        $        0.32       $     265        $        200        $        0.28

Significant items affecting comparability
of net income:
Charges for exit activities, asset and
business dispositions:
Income from (charges for) exit activities      $       1        $         -         $          -        $      (3 )      $         (2 )      $          -
Income from (charges for) business
disposition activities                                 3                   2                   -               (1 )                (1 )                 -

Subtotal                                               4                   2                   -               (4 )                (3 )                 -
(Charges) income in cost of sales:
Transformation charges - IT costs                     (2 )                (1 )                 -               (4 )                (2 )                 -
Curtailment gain                                       7                   5                 0.01              -                   -                    -
(Charges) income in SG&A expenses:
Transformation charges - IT costs                     (8 )                (6 )              (0.01 )           (12 )                (8 )              (0.01 )
Transformation charges - Other                        -                   -                    -               (2 )                (1 )                 -
Curtailment gain                                      10                   7                 0.01              -                   -                    -

Impact of significant items on income
before income taxes                                   11                   7                 0.01             (22 )               (14 )              (0.02 )
Significant tax matters affecting
comparability:
Contingent tax obligation adjustment                  -                   -                    -               -                   12                 0.02
Other tax adjustments                                 -                   -                    -               -                    1                   -

Impact of significant items on net income      $      11        $          7        $        0.01       $     (22 )      $         (1 )      $          -

Notes:

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

(2) Taxes computed at applicable statutory rates.

Consolidated Results - First Quarter of 2009 Compared with First Quarter of 2008

The following table summarizes net sales and operating income for the first
quarter of 2008 and 2007 and certain items that affected the comparability of
these amounts:



                                                                               Quarter ended
                                                      September 27,         September 29,                       Percent
Total Corporation Performance (In millions)               2008                  2007              Change        Change
Net sales                                            $         3,349       $         3,054       $    295           9.6 %

Increase / (Decrease) in net sales from:
Changes in foreign currency exchange rates           $            -        $          (118 )     $    118
Dispositions                                                      -                      9             (9 )

Total                                                $            -        $          (109 )     $    109

Operating income                                     $           353       $           293       $     60          20.5 %

Increase / (Decrease) in operating income from:
Contingent sales proceeds                            $           150       $           130       $     20
Changes in foreign currency exchange rates                        -                    (15 )           15
Exit activities, asset and business dispositions                   4                    (4 )            8
Transformation charges                                           (10 )                 (18 )            8
Curtailment gain                                                  17                    -              17

Total                                                $           161       $            93       $     68

Net Sales

Net sales increased by $295 million or 9.6%. The strengthening of foreign currencies, particularly the European euro and Brazilian real increased reported net sales by $118 million, or 4.1%. Pricing actions, taken across all business segments to offset increased commodity costs, increased reported net sales by approximately 6 percentage points. These favorable impacts were partially offset by an overall slight decline in unit volumes of 0.1%. The following table summarizes the components of the percentage change in net sales as compared to the prior year:

First Quarter 2009
                      Unit             Price/           Acquisitions/          Foreign          Net Sales
Net Sales Changes    Volumes      +   Mix/Other     +   Divestitures       +   Exchange     =    Change
Total Corporation       (0.1 )%             6.0 %                (0.4 )%            4.1 %             9.6 %

Operating Income

Operating income increased by $60 million, or 20.5%. Of the increase, $15 million was due to the favorable impact of changes in foreign currency exchange rates; $16 million was due to a reduction in charges related to exit activities, asset and business dispositions and transformation charges and $20 million was due to an increase in the contingent sale proceeds related to the disposition of the tobacco operations, resulting from a change in foreign currency exchange rates. Operating results were also favorably impacted by a $17 million curtailment gain related to a postretirement health care benefit plan. The remaining decline in operating income of $8 million was primarily due to $35 million of mark-to-market losses on derivative contracts related to commodities in the first quarter of 2009 as compared to $2 million of mark-to-market derivative gains in the first quarter of 2008. The mark-to-market losses were offset by the 9.6% net sales increase previously mentioned along with cost savings from continuous improvement programs. The individual components that impacted operating income are discussed in more detail below.

Gross Margin

Gross margin dollars in the quarter increased $83 million over the prior year due to the favorable impact of pricing actions; changes in foreign currency exchange rates; and savings from continuous improvement programs, which were partially offset by higher commodity, labor and energy costs and an unfavorable sales mix. The corporation estimates that commodity cost increases of approximately $164 million in the first quarter of 2009 versus the first quarter of 2008 were offset by favorable pricing actions of approximately $180 million. The gross margin percent in the first quarter of 2009 declined 0.9%, from 37.9% in the first quarter of 2008 to 37.0% in the first quarter of 2009 due to the negative impact of higher commodity costs.

Selling, General and Administrative Expenses



                                                                    Quarter ended
                                            September 27,       September 29,                      Percent
(In millions)                                   2008                2007             Change        Change
SG&A expenses in the business segment
results:
Media advertising and promotion            $           146     $           148       $    (2 )        (1.6 )%
Other                                                  793                 763            30           3.8

Total business segments                                939                 911            28           3.0
Amortization of identifiable
intangibles                                             17                  16             1           5.0
General corporate expenses:
Other                                                   63                  64            (1 )        (1.4 )
Mark-to-market derivative (gains) /
losses                                                  22                  (1 )          23            NM

Total SG&A Expenses                        $         1,041     $           990       $    51           5.0 %

Selling, general and administrative (SG&A) expenses increased by $51 million, or 5.0%. Measured as a percent of sales, SG&A expenses decreased from 32.4% in 2008 to 31.1% in 2009. Changes in foreign currency exchange rates increased SG&A costs by $37 million, or 3.7%. The remaining increase in SG&A expenses is $14 million. SG&A expenses in the business segments increased by

$28 million, or 3.0%, which was primarily due to the strengthening of foreign currencies and the impact of inflation on labor and other costs. General corporate expenses were virtually unchanged versus the prior year. Derivative losses were $22 million in 2009 versus gains of $1 million in 2008, due to mark-to-market losses incurred on commodity related derivative contracts primarily related to energy.

Transformation Actions, Impairment Charges, Exit Activities and Other Significant Items

The reported results for the first quarter of 2009 and 2008 reflect amounts recognized for actions associated with the corporation's ongoing business transformation program and other exit and disposal actions. The amounts related to exit activities, asset and business dispositions were $4 million of income in the first quarter of 2009 versus $4 million of expense in the first quarter of 2008. The gain from business disposition activities in 2009 related to the disposition of the company's sauces and dressing business.

Transformation costs related to information technology were down $6 million primarily due to a reduction in costs related to the implementation of new information technology systems. The transformation - IT costs in the first quarter of 2009 include $6 million of computer software amortization expense related to systems that were put into use in 2008. The total amortization expense for the year is expected to be $23 million.

These actions are more fully described in the Exit, Disposal and Transformation Activities Note to the Consolidated Financial Statements.

Receipt of Contingent Sale Proceeds

The corporation sold its European cut tobacco business in 1999. Under the terms of that agreement, the corporation will receive an annual cash payment of 95 million euros. The 2009 annual payment was equivalent to $150 million and the 2008 annual payment was equivalent to $130 million based upon the respective exchange rates on the dates of receipt. The amount received in 2008 increased diluted earnings per share by $0.18 per share and the amount received in 2009 is expected to increase diluted earnings per share by $0.21 per share.

Net Interest Expense

Net interest expense in the first quarter of 2009 was $25 million, a decrease of $3 million over the first quarter of the prior year. Interest expense declined by $7 million due to the repayment of debt using proceeds from prior business dispositions and cash on hand, while interest income declined by $4 million due to lower cash and cash equivalents.

Income Tax Expense