Campbell Soup Company Annual Report 2002

Plain-text annual report

Working the plan How the people of Campbell are transforming their company – by delighting consumers, revitalizing great brands, enhancing quality and productivity, and laying the groundwork for a more rewarding future. 2002 Annual Report In 2001, Campbell launched a clear plan for corporate renewal: 1. Revitalize U.S. Soup. 2. Strengthen the broader portfolio for consistent sales and earnings growth. 3. Build new growth avenues. 4. Drive a quality agenda while continuing to drive productivity. 5. Improve organization excellence and vitality. In 2002, we rolled up our sleeves and began to put our plan into action. As a result, we’re making progress in nearly every part of the company. In this annual report, we’ll show you what we’ve been doing – and, more importantly, where we’re going from here. As you turn the pages, you’ll see how the transformation of Campbell has begun – how we’re leveraging great brands and talented people to win in the marketplace and in the workplace. At Campbell, we’re working the plan... and the plan is beginning to work. >> Financial Highlights (millions of dollars, except per share amounts) Net sales Gross margin Percent of sales Earnings before interest and taxes 2 Percent of sales Free cash ﬂow 3 Cash margin 4 Net earnings Per share Basic Diluted Dividends Per share Campbell Soup Company Annual Report 2002 2002 $ 6,133 $ 2,690 43.9% $ 984 16.0% $ 748 21.2% $ 525 $ 1.28 $ 1.28 $ 258 $ 0.63 2001 $ 5,7711 $ 2,6391 45.7% $ 1,194 20.7% $ 906 25.4% $ 649 $ 1.57 $ 1.55 $ 371 $ 0.90 1 In 2002, ﬁnancial results were restated to conform to the requirements of new accounting standards. Certain consumer and trade promotional expenses have been reclassiﬁed from Marketing and selling expenses and Cost of products sold to Net sales for 2001. 2 2002 and 2001 results include pre-tax costs of $20 ($14 after tax or $.03 per share) and $15 ($11 after tax or $.03 per share), respectively, related to an Australian manufacturing reconﬁguration. Of these amounts, pre-tax costs of approximately $19 and $5 were recorded in 2002 and 2001, respectively, in Cost of products sold. 3 Free cash ﬂow equals net cash provided by operating activities less capital expenditures. 4 Cash margin equals cash earnings divided by net sales. Cash earnings equals earnings before interest and taxes plus depreciation, amortization and minority interest expense. About Campbell Soup Company Campbell Soup Company is a global manufacturer and marketer of high quality soups, sauces, beverages, biscuits, confectionery, and prepared food products. The company owns a portfolio of more than 20 market-leading businesses, each with more than $100 million in sales. They include Campbell’s soups worldwide, Erasco soups in Germany, Liebig soups in France, Pepperidge Farm cookies and crackers, V8 vegetable juices, V8 Splash juice beverages, Pace Mexican sauces, Prego Italian sauces, Franco-American canned pastas and gravies, Swanson broths, Homepride sauces in the United Kingdom, Arnott’s biscuits in Australia, and Godiva chocolates worldwide. The company also owns dry soup and sauce businesses in Europe under the Batchelors, Oxo, Lesieur, Royco, Liebig, Heisse Tasse, Blå Band, and McDonnells brands. 02 03 Fellow Shareowners: I am pleased to report that we have made substantial progress in this ﬁrst year of our three-year Transformation Plan. The plan is designed to rebuild long-term shareowner wealth by re-energizing our brands and our people. It is the most comprehensive renewal effort in the 133-year history of Campbell Soup Company. As I explained in my ﬁrst letter as CEO last year, this plan requires signiﬁcant investment to build a sustainable growth proﬁle. In 2002, sales grew 6 percent to $6.1 billion, while net earnings declined 18 percent to $539 million, or $1.31 per share, excluding the costs associated with the Australian manufacturing reconﬁguration. This reduction was driven by our decision to substantially increase our investment in marketing to reinvigorate our brands and in infrastructure to rebuild our company. Encouragingly, we made progress toward that goal on multiple fronts: • We began to improve the quality of many of our market-leading products, notably in U.S. Soup, by leveraging improved consumer understanding and technical capabilities. • We dramatically increased marketing investments to highly competitive levels for many of our core brands, resulting in solid volume growth. • We ramped up our productivity proﬁle, leveraging fresh thinking, new tools and techniques, and plenty of old-fashioned hard work. • We added depth and breadth to our new product pipelines around the world, and we announced two acquisitions to strengthen our international growth prospects. • We further strengthened our global leadership team to ensure both short-term and long-term success. In short, we did what we said we would do. However, we are far from satisﬁed. We can and will do better. 1. Revitalize U.S. Soup. Our highest priority is to revitalize our core U.S. Soup business. We have set in motion a comprehensive program to upgrade product quality, substantially increase marketing investment, accelerate product innovation, and improve sales execution. This program delivered a healthy 9 percent increase in our ready-to-serve soup portfolio, and we expect this momentum to continue. Our condensed soup portfolio declined 5 percent. We expect improved performance on condensed in ﬁscal 2003 and 2004, as we introduce signiﬁcant product improvements and more convenient easy-to-open packaging. >> Campbell Soup Company Annual Report 2002 Letter to Shareowners continued “Change is well underway at Campbell. We are pleased with the ﬁrst year of this change, but we still have much more to do to resume our winning ways ... and we will.” Doug Conant >> Toward year end, we took a major step in delivering breakthrough soup forms by beginning the national launch of Campbell’s Soup at Hand, the ﬁrst sippable soup in its own microwaveable container in the U.S. 2. Strengthen the Broader Portfolio. Beyond U.S. Soup, we have a strong portfolio of brands in growing categories and focused geographies that has responded positively to the increased resources in marketing and infrastructure. We advanced our new North America Sauces and Beverages Division with a dedicated leadership team. Three of the division’s core brands – V8 vegetable juice, Pace Mexican sauces and Prego sauces – have delivered strong growth. Our Biscuits and Confectionery businesses also responded to increased support. Pepperidge Farm and Arnotts delivered strong sales growth and gains in market share across many key segments. Even our Godiva business, which was adversely impacted by the events of September 11 and a slowing U.S. economy, delivered improved sales performance as we continued to invest in new stores around the world. We delivered solid sales growth in our Canadian, Mexican and Latin American operations. 3. Begin to Build New Growth Avenues. Over the past year, we completed the integration of the European dry soup and sauce brands we acquired in May 2001. Now, we are focusing on leveraging our more substantial European presence for improved growth. To further augment our European effort, we have recently acquired Erin Foods, the #2 dry soup company in Ireland. In Australia, we have strengthened our presence in the snack market through the acquisition of Snack Foods Limited, the #2 salty snack company. Given our #1 position in biscuits with the Arnott’s brand, we are now even more competitive in the broader snacking category. To help foster greater organic growth, we created a new growth business unit with a charter to identify new opportunities that do not naturally fall within the scope of our existing business units. 4. Drive Quality and Productivity. We have substantially improved our ability to create superior products by increasing research and development resources, and by introducing a comprehensive product quality tracking and improvement process across our top-selling 150 products. On the productivity side, we generated well over $100 million in savings in ﬁscal 2002, and we have targeted an even greater amount in ﬁscal 2003. 04 05 5. Improve Organization Excellence and Vitality. Revitalizing our workforce is essential to the success of our Transformation Plan. By strengthening our functional capabilities, expanding the capacity of our business units, and improving the morale of our associates, we have galvanized our organization and attracted talented new leaders. To ensure that we stay on track, we have also implemented a systematic process to measure employee engagement and satisfaction. Outlook As we enter the second year of our Transformation Plan, our business is poised for growth, but not yet at the levels to which we aspire. We will continue to invest, for the long-term, in brand building, innovation, quality, and infrastructure. We expect our soup business to achieve positive growth this year as we see more of our revitalization plan pay beneﬁts. We also expect to see continued growth in our broader portfolio, including our Biscuits and Confectionery businesses. Capital spending will remain at a higher level as we continue to invest in our soup plants with new and enhanced technologies, and complete a new Pepperidge Farm bakery in Connecticut. Change is well underway at Campbell. We are pleased with the ﬁrst year of this change, but we still have much more to do to resume our winning ways ... and we will. Sincerely, Chairman’s Message In ﬁscal 2002, we completed the ﬁrst year of our Transformation Plan. Clearly, we followed through with key investments necessary to lay the foundation for future success. Product improvements are creating consumer preference, brands are being strengthened, and stronger partner- ships are being formed with our customers for mutually proﬁtable growth. Importantly, additional emphasis is now being placed on strategic breakthroughs, of which Campbell’s Soup at Hand is the ﬁrst example. The two strategic acquisitions in Ireland and Australia approved by the Board are consistent with our strategy to build our business in geographies and categories we know well. We continue to evaluate ways to leverage this strong cash ﬂow to create shareholder value. The Board visited the company’s largest manufacturing facility in Napoleon, Ohio, to see ﬁrsthand the new technology being used to improve soup quality and to meet with local employees. We are making signiﬁ- cant capital investments in our facilities and we will continue to monitor the results of these investments. Campbell has been a leader in corporate governance, and the Board is reviewing the new requirements of the Sarbanes-Oxley Act and the proposed New York Stock Exchange corporate governance listing standards. Campbell already meets many of these requirements. The Board views these new laws as an opportunity to assess and strengthen our governance position. In November 2002, Al App and Charlie Mott will retire from the Board, and we will miss them. Al has been a Director since 1986. His perspectives as a scientist and international executive have been valuable. Charlie has been a Director since 1990, and has served as co-chair of the Finance and Corporate Development Committee since 1997. He has been a highly effective leader in eval- uating investment, ﬁnance, and pension issues. The nominees to succeed them are Randall W. Larrimore, President and CEO of United Stationers, Inc., and David C. Patterson, Chairman of Brandywine Trust Company. Randy brings outstanding leadership skills and many years’ experience in the consumer goods industry. David brings important experience in the legal and investment management areas. I am conﬁdent Randy and David will be valuable additions to the Board. Douglas R. Conant President and Chief Executive Ofﬁcer Sincerely, George M. Sherman Chairman of the Board Campbell Soup Company Annual Report 2002 >> U.S. Soup. 1Revitalize A better soup in every bowl Our drive to delight consumers combines culinary skills, technological knowledge, deep understanding of consumer needs, and our unwavering commitment to improve the quality and value of Campbell’s soups. We’re dramatically enhancing the ﬂavor, texture, and appearance of our soups. We’re adding more ingredients and new varieties to win over more consumers. At the same time, more frequent advertising reinforces the pleasures of a bowl of Campbell’s soup. The goal: to gain competitive advantage with all of our soups for a vast array of meal occasions. A measurable difference Over the next three years, our chefs will transform the very meaning of M’m! M’m! Good! with improvements to 80 percent of Campbell’s condensed soups. This year, Campbell’s condensed Vegetable soup will have more vegetables and Campbell’s condensed Chicken with Rice soup will have more rice. Also on the horizon for our condensed soups are easy-open lids. We are working to make these soups the best they can be – and will spread the news through targeted advertising. 06 07 Campbell Soup Company Annual Report 2002 Red, white, and gold Capitalizing on our success as the ofﬁcial soup supplier to the 2002 Olympic Winter Games, we have partnered with U.S. women’s ﬁgure skating Gold Medal-winner Sarah Hughes, who will serve as our new ambassador for Campbell’s Labels for Education program. In addition to helping Campbell provide schools with valuable educational equipment, Hughes will also be featured on the label of Campbell’s condensed Chicken Noodle soup, our #1 selling variety. Stirring new ideas We connect with our consumers by encouraging them to add a personal touch that makes our soups their own. That’s why we’ll be promoting the power of personalization for our #2 selling soup, Campbell’s condensed Tomato soup. Whether sour cream and scallions or cheese and salsa, these creative additions will make each bowl of tomato soup a new taste sensation. Goldﬁsh Crackers Add a little “character” – there’s fun in every one! Sour Cream and Scallions Velvety smooth, just a little tart – this tempting addition should add the right zest. Image TK Seasonings Add some robust ﬂavor with basil, oregano or garlic – fresh or dried. Salsa Make it mild or wild. This easy addition will wake up any weeknight dinner. 08 09 >> 1 Revitalize U.S. Soup. For moms who care With sales nearly doubling over the past five years, we’ve accelerated our push behind Campbell’s Chunky soups. New advertising features National Football League stars and their real-life moms, addressing hunger in their local communities. This year’s Chunky spokespersons include Philadelphia Eagle Donovan McNabb and his mom, Wilma; Pittsburgh Steeler Jerome Bettis and his mom, Gladys; New York Giant Michael Strahan and his mom, Louise; and Chicago Bear Brian Urlacher and his mom, Lavoyda. Watch for the Chunky Tackling Hunger tour, which will visit all National Football League markets during the 2002 season. Take a behind-the-scene peek at our Chunky soup athletes and their moms as they ﬁlm this season’s commercials. Simple pleasures Campbell’s Select ready-to-serve soups delivered their second straight year of double-digit sales growth in 2002. During the next three years, we’ll build on our success by offering an even more competitive array of Select soups. Look for more compelling advertising and a bold new label for this brand, plus unique new ﬂavors such as Beef with Portabello Mushrooms and Rice. Beef with Portabello Mushrooms and Rice Herbed Chicken with Roasted Potatoes Beef with Roasted Barley Rosemary Chicken with Roasted Potatoes Campbell Soup Company Annual Report 2002 From Campbell’s Kitchen to yours For generations, the friendship between Campbell’s Kitchen and America’s home cooks has grown and strengthened. Almost 1.5 million cans of Campbell’s soups are used as an ingredient to prepare dinner each day. In 2002, more than 21,000 of these home cooks told us they liked new, improved creamier Campbell’s condensed Cream of Mushroom soup. As a result, we’ll make two other cooking favorites creamier next year – Campbell’s Cream of Chicken and Cream of Celery. 10 11 Soup at Hand The soup for people on the go A few words with Diane Teer, Vice President – North America Soup Innovation Q: What is Campbell’s Soup at Hand? DT: It’s a new, sippable soup that debuts nationally this year. Simply pop the top, microwave and enjoy. It ﬁts perfectly in your hand or car cupholder, so you can have your soup almost anywhere. Q: How good is it? DT: Delicious, just like the Campbell’s soups you already enjoy, except that smaller, blended ingredients make it easy to sip. To start, we’ve introduced four ﬂavors: Classic Tomato, Creamy Chicken, Cream of Broccoli and Blended Vegetable Medley. Q: Why is this a big idea? DT: Campbell’s Soup at Hand is absolutely on-trend! This product moves Campbell further into the fast- growing, $5 billion on-the-go food category. Fifty-nine percent of meals are rushed; 44 percent of women carry their lunch to work, and 34 percent of lunches are eaten on the run or skipped entirely. That’s a lot of opportunity. In test marketing, over half of consumption took place outside the home, and nearly half of those who tried it made a repeat purchase. This means the availability of Campbell’s Soup at Hand is driving new behavior, opening up new occasions for having delicious, hot soup. Soup innovators – (l.to r.) Manuel Haro, Diana Peebles, Diane Teer and Tim Blankenbaker launched Campbell’s Soup at Hand in 2002. Popular soups “pop” out 1>> Revitalize U.S. Soup. Soups Soups arranged by arranged by Beef/Vegetable, Beef/Vegetable, Chicken and Chicken and Cream flavors Cream flavors Signs and tags organize the shelf A smart approach to shelving Campbell’s IQ Shelf program is a smart, new approach to merchandising Campbell’s soups on store shelves, helping consumers notice new varieties and ﬁnd the soups they want – three to four times easier than before. We intend to have new smart shelving in approximately 13,000 supermarkets nationwide, as we reach out to customers with increased store coverage. Campbell Soup Company Annual Report 2002 >> 2 Strengthen the broader portfolio for consistent sales and earnings growth. Investing in our brands, unleashing their power Beyond U.S. Soup, our portfolio includes powerful brands such as Prego sauces, V8 beverages, Pace Mexican sauces, Pepperidge Farm breads, cookies, and crackers, Franco- American pasta and gravies, Arnott’s biscuits and snacks, and Godiva chocolate. All offer opportunities for growth in large, on-trend categories and segments, including health and nutrition, simple meals, and premium indulgent snacking. In 2002, we increased our investment and focus behind this portfolio, bolstering advertising and promotion, introducing new products, and enabling some of the world’s best brands to begin to deliver stronger results. 12 13 Campbell Soup Company Annual Report 2002 2>> Strengthen the broader portfolio for consistent sales and earnings growth. Our successful “Flirtation” TV spot Wow! A smart drink shows its muscle After a hiatus of several years, it’s great to be back on the air with V8 vegetable juice. Our new television advertising aimed at health-conscious consumers helped put our V8 vegetable juice business back on track in 2002. This year, we will support the V8 brand by expanding our successful advertising, launching an exciting V8 promotion and introducing Lemon Twist V8. We’re also renewing our efforts behind V8 Splash juice beverages. Following the introduction of V8 Splash Lemonades and convenient plastic packaging for 16-ounce single-serve V8 Splash products, we’ll launch V8 Splash Smoothies, a line of smooth and fruity beverages with energizing nutrition. In addition, we’ve established a multi-year partnership with USA Swimming and the U.S. National Swim Team to reinforce the brand’s refreshing and healthy image. ♥ ♥ 14 15 Prego bakes up success New Prego pasta bake sauce was a big success in 2002, fueling signiﬁcant volume gains for the Prego brand. To contemporize our spaghetti sauce brand, we’ll introduce new packaging and label designs and enhance support of our base Prego sauces with more competitive advertising. What’s up down under Arnotts introduced low-fat Rix Rice potato chips and premium Kettle Sweet Potato chips in 2002. Arnotts also announced its intent to purchase Snack Foods Limited, Australia’s #2 manufacturer of salty snacks. Coming up from Down Under – two new varieties of Emporio gourmet biscuits. “Never have an ordinary day“ Innovation, strong trademark campaigns, and distribution initiatives have driven substantial growth across all segments of Pepperidge Farm. Star additions included new varieties of Farmhouse bread, Giant Goldﬁsh Sandwich crackers, Five Cheese Texas Toast, Raspberry Milano cookies, and single- serve varieties of cookies and crackers. Debuting this year: Goldﬁsh Colors, Farmhouse Buttertop varieties and Oatmeal Brown Sugar Swirl bread. Pace takes historic trailride In 2002, the Pace Mexican sauce brand reached back in its advertising history, introducing television spots loaded with Southwestern imagery and focused on the brand’s heritage and high-quality ingredients. This strategy drove increased sales and volume growth across all channels. We’ll take Pace advertising national in 2003, introduce a new Mexican sauce, and continue to support core markets “West of the Mississippi” with focused grassroots-marketing efforts. Premier chocolatier Godiva continued its quest to become the world’s premier chocolatier, opening 33 new stores in 2002. In 2003, a new Nut & Chocolate collection will make its debut – along with a redesigned gold ballotin, featuring three new ganache chocolates. Campbell Soup Company Annual Report 2002 >> 3 Build new growth avenues. New ideas, new opportunities Offering fresh taste and added convenience, soups in aseptic packaging are becoming more popular worldwide, creating new opportunities for growth. In France, where we have the most extensive expertise in aseptic technology, our Liebig soups target a range of desirable segments. In Australia, Velish vegetable soups lead the aseptic market. And in Canada, our newest introduction of Gardennay aseptic soups brings restaurant quality to Canadian consumers who desire smoother blended soup. Avenue for growth In Europe, instant dry soups are the most popular form of soup, growing at 5 percent per year. By acquiring leading dry soup brands, we’ve increased our market share in Europe by 50 percent and gained new access to millions of consumers. This year, we completed the integration of brands such as Batchelors and Oxo in the United Kingdom, Royco in France and Belgium, Heisse Tasse in Germany, Blå Band in Sweden, and McDonnells in Ireland. We also announced our agreement to acquire Erin Foods, a leading manufacturer of dry soups in Ireland. 16 17 Michelle Dobbyn, Marketing, Canada “We chose the name Gardennay because it had appetite appeal for both French- and English- speaking Canadian consumers.” Al Brezina, Supply Chain, Canada “Aseptic technology produces extraordinary taste and is a building block for future product innovation.” Zahir Kassam, Consumer Insights, Canada “Consumers tell us Gardennay embodies exceptional taste, vegetable goodness, and high quality.” Raewyn Hill, Research & Development, Australia “We benchmarked successes in Australia and France to create delicious ﬂavors like Butternut Squash and Blended Country Vegetable.” 18 19 >> 4 Drive a quality agenda while continuing to drive productivity. A new way to cook, a new way to work Improving product quality while at the same time improving productivity is essential. In 2002, we made substantial progress on both sides of this equation, strengthening research and development and creating a global supply chain that leverages our scale. We are also changing our manufacturing processes for soup and believe that these processes will make Campbell’s soups the preferred choice of more and more consumers. Our plans, however, go far beyond soup, as we begin to set higher quality standards across our entire portfolio. Working smart Using advanced technology, new formulations, and innovative ideas, we’re redeﬁning how we work in manufacturing plants like Napoleon, Ohio, pictured on the opposite page. Our new approach to soup manufacturing is already driving superior marketplace results for Campbell’s Select soups and Campbell’s Chunky soups, and we expect it will have a major impact on our condensed soups as well. Enhanced color and flavor The cold blend revolution Cold blend processing enables us to uniquely deliver truer ﬂavors, tastier ingredients, and brighter, clearer, more delicious broth to our consumers. Cold blend technology, combined with additional processing technology upgrades, is fundamental to our efforts to reinvigorate U.S. Soup and offers a quantum leap in quality that will be difﬁcult for our competitors to match. Firmer pasta Improved taste Campbell Soup Company Annual Report 2002 >> 5 Improve organization excellence and vitality. Investing in, and tapping the power of, our people Organization renewal at Campbell moved into high gear in 2002. While we stepped up efforts to attract and develop the best talent in the industry, we also introduced a “matrix organization”that enables us to leverage our skills and share best practices worldwide. At the same time, we are upgrading our resources and improving work environments, ensuring that our people have the tools they need to win in the workplace and in the marketplace. In 2002, we: >> Continued strengthening our leaders by fashioning a company leadership model that values integrity, motivation, and a “can do”mindset. >> Launched The Campbell Vision, including a unifying, company-wide pledge to work together to achieve extraordinary results. >> Initiated a continuing series of employee satisfaction surveys, providing fresh insight on how to make working at Campbell a more productive and rewarding experience for our employees. >> Introduced Campbell’s Camp de Cuisine – an immersion experience for our business school recruits about our company, our consumers, and our rich culinary history, including hands-on time in the kitchen preparing the same meals consumers have cooked and cherished for years. 20 21 The Campbell Vision Together we will do extraordinary things in the workplace and in the marketplace The Campbell Way Together we will... >> Delight our consumers >> Build the world’s greatest brands >> Deliver the highest imaginable quality >> Drive the lowest imaginable cost >> Develop the best imaginable team >> Produce the most extraordinary results Campbell Soup Company Annual Report 2002 Financial Review 23 Management’s Discussion and Analysis of Results of Operations and Financial Condition 32 Consolidated Statements of Earnings 33 Consolidated Balance Sheets 34 Consolidated Statements of Cash Flows 35 Consolidated Statements of Shareowners’ Equity (Deﬁcit) 36 Notes to Consolidated Financial Statements 48 Report of Management 49 Report of Independent Accountants 50 Five-Year Review – Consolidated 22 23 Management’s Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Overview Net earnings for 2002 were $525 million ($1.28 per share). (All earnings per share amounts included in Management’s Discussion and Analysis are presented on a diluted basis.) In 2002, net earnings declined 19% and earnings per share declined 17%. The 2002 results included costs of $20 million pre-tax ($.03 per share) associated with the Australian manufacturing reconﬁguration which commenced in 2001. Pre-tax costs of $19 million were classi- fied as Cost of products sold and $1 million as a Restructuring charge. The 2001 results included a restructuring charge and related costs of approximately $15 million pre-tax ($.03 per share) associated with the manufacturing reconﬁgu- ration. Pre-tax charges of $10 million were classiﬁed as a Restructuring charge and $5 million were classiﬁed as Cost of products sold. Net earnings in 2001 also include an approx- imate $.03 per share dilutive impact from the European soup and sauce brands acquisition. Excluding the impact of the costs associated with the manufacturing reconﬁguration, net earnings in 2002 declined 18% and earnings per share declined 17%. The earnings decline was primarily related to planned increases in marketing and infrastructure invest- ments across major businesses, partially offset by lower interest expense. Certain reclassiﬁcations were made to the ﬁnancial state- ments to comply with new accounting standards. In the ﬁrst quarter of 2002, the company adopted EITF Issue No. 00-14 “Accounting for Certain Sales Incentives” and Issue No. 00-25 “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products,” as codiﬁed by Issue No. 01-9 “Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products.” Under these Issues, the EITF concluded that certain consumer and trade promotion expenses, such as coupon redemption costs, cooperative advertising programs, new product intro- duction fees, feature price discounts and in-store display incentives, should be classiﬁed as a reduction of sales rather than as marketing expenses. The adoption of these new accounting standards in 2002 resulted in the following reclas- siﬁcations to the annual results for 2001 and 2000: Net sales were reduced by $893 million and $840 million, respectively; Cost of products sold was reduced by $14 million and $19 million, respectively; and Marketing and selling expenses were reduced by $879 million and $821 million, respectively. These reclassiﬁcations had no impact on net earnings. Sales Sales increased 6% in 2002 to $6.1 billion from $5.8 billion. The increase in sales was due to a 4% increase from the European acquisition which was completed in May 2001, a 2% increase due to volume and mix, a 1% increase due to higher selling prices, offset by a 1% decline due to increased trade promotion and consumer coupon redemption expenses. Worldwide wet soup volume increased 1% from 2001. Sales in 2001 increased 3% to $5.8 billion from $5.6 billion. The increase was attributed to a 4% increase due to volume and mix, a 1% increase from higher selling prices, a 1% increase from the acquisition, offset by a 1% decrease due to increased trade promotion and consumer coupon redemption expenses and a 2% decrease due to currency. Worldwide wet soup volume increased 5% from 2000. An analysis of net sales by segment follows: (millions) 2002 2001 2000 % Change 2002/ 2001 2001/ 2000 North America Soup and Away From Home $ 2,524 $ 2,532 $ 2,434 — North America Sauces and Beverages Biscuits and Confectionery International Soup and Sauces Other 1,182 1,161 1,156 1,507 1,446 1,391 920 — 632 — 622 23 $ 6,133 $ 5,771 $ 5,626 2 4 46 — 6 4 — 4 2 — 3 Sales in 2002 from North America Soup and Away From Home were ﬂat with 2001. Volume and mix increased 1% from the prior year, offset by an increase in trade promotion and consumer coupon redemption expenses. U.S. wet soup volume increased 1%. Ready-to-serve volume increased 9% behind the double-digit volume gains in Campbell’s Chunky and Campbell’s Select soups. This sales growth was driven by new varieties, quality improvements, and increased advertising. Swanson broth volume increased 4%. Condensed soup volume declined 5%. Canada reported sales growth in all businesses, particularly soup, in response to increased marketing. Away From Home sales slightly increased over the prior year led by solid soup sales performance, which offset a decline in lower margin bakery and frozen entrée sales. The 4% increase in sales from North America Soup and Away From Home in 2001 versus 2000 was due to the following: 6% increase from volume and mix, offset by a 1% increase in trade promotion and consumer coupon redemption expenses, and a 1% decline due to currency. Soup volume in the U.S. increased 6% over the prior year based on the performance of condensed Chicken Noodle, Tomato and Cream of Mushroom, ready-to-serve varieties such as Campbell’s Chunky and Campbell’s Select and the introduction of Campbell’s ready-to-serve classics. Canada and Away From Home also contributed to volume growth. Campbell Soup Company Annual Report 2002 Management’s Discussion and Analysis of Results of Operations and Financial Condition The 2% increase in sales from North America Sauces and Beverages in 2002 versus 2001 was due to a 3% increase in volume and mix, offset by a 1% reduction due to higher trade promotion and consumer coupon redemption expenses. The volume growth resulted from the performance of Prego pasta bake sauces, which were introduced in the fourth quarter of 2001, Pace Mexican sauces, V8 vegetable juices and the Mexican business. These volume gains were partially offset by continued declines in Franco-American canned pasta and V8 Splash. Sales from North America Sauces and Beverages were relatively ﬂat in 2001 compared to 2000. Franco-American products and V8 Splash experienced sales declines in highly competitive categories. Sales of Prego sauce and Pace salsa increased modestly. Sales from Biscuits and Confectionery increased 4% in 2002 due to a 4% increase in volume and mix, a 1% increase from higher selling prices, offset by a 1% decline from currency, primarily the Australian dollar. Pepperidge Farm contributed to the sales growth with new products, including the intro- duction of Dessert Bliss cookies and Goldﬁsh Sandwich crackers, and increased distribution. Arnotts in Australia reported volume gains due to increases in value-added products in the snack foods category, such as Rix Rice chips and Kettle chips. Tim Tams biscuit sales also increased signiﬁcantly. Godiva sales rose slightly, as new store openings worldwide offset lower same store sales in North America in the aftermath of September 11th. Sales from Biscuits and Confectionery increased 4% in 2001 versus 2000 due to a 9% increase from volume and mix, a 1% increase from higher selling prices, offset by a 5% decline from currency, primarily the Australian dollar, and a 1% decrease due to increased trade promotion and consumer coupon redemption expenses. The entire portfolio contributed to the volume gains. Pepperidge Farm cookies, crackers, fresh bread and frozen products all demonstrated improve- ments in sales volume. Arnott’s Tim Tams, Shapes and Kettle chips contributed to the growth in sales. Godiva reported a double-digit increase in sales due to new store openings and increased comparable store sales. International Soup and Sauces reported a 46% increase in sales in 2002 due primarily to a 44% increase from the European acquisition, which was completed in the fourth quarter of 2001, and a 2% increase from currency. The base business in Europe declined slightly as weakness in United Kingdom soup and sauces was partially offset by gains in soup sales in Belgium and France. Asia Paciﬁc sales grew robustly due to continued growth in Australian soup and broth. International Soup and Sauces reported a 2% increase in sales in 2001 versus 2000 due primarily to the European acquisition, which was completed in the fourth quarter 2001. The decline in sales from Other in 2001 versus 2000 was due to the divestiture of MacFarms in April 2000. Gross Margin Gross margin, deﬁned as Net sales less Cost of products sold, increased by $51 million in 2002 due to the increase in sales. As a percent of sales, gross margin was 43.9% in 2002, 45.7% in 2001, and 45.1% in 2000. The per- centage decline in 2002 was due mainly to the continuing mix shift in U.S. soup towards ready-to-serve products, the cost of quality improvements across a number of products, and costs associated with the Australian manufacturing recon- ﬁguration. The improvement in gross margin percentage in 2001 from 2000 was due to cost productivity programs and favorable sales mix. Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 17.4% in 2002, 15.4% in 2001, and 14.2% in 2000. In 2002, Marketing and selling expenses increased approximately 21% from 2001, 16% excluding the impact of the European acquisition. The increase in 2002 was due primarily to the planned increases in advertising investments across the portfolio, particularly in U.S. soup and sauces, and selling infrastructure investments. The increase in 2001 was due to an increase in advertising behind core U.S. brands, principally U. S. soup, and incremental selling costs associated with new store openings in the Godiva Chocolatier business. General and Administrative Expenses Administrative expenses as a percent of sales increased to 6.9% in 2002 from 6.4% in 2001 due to costs associated with infrastructure investments and higher compensation costs. In 2001, Administrative expenses increased to 6.4% of Net sales from 5.7% in 2000 due to higher compensation costs and costs associated with infrastructure enhancements. Research and development expenses increased $14 million or 22% in 2002 from 2001 due to costs associated with quality improvement initiatives and new product development. Other expenses increased 21% in 2002 due primarily to increased amortization expense associated with the European acquisition. Other expenses increased in 2001 as compared to 2000 primarily due to higher stock-based incentive compensation costs and slightly higher amortization expense. 24 25 Operating Earnings Segment operating earnings, both as reported and excluding the costs associated with the Australian manufacturing strategy, declined 14% in 2002 from 2001. Segment operating earnings in 2001 were relatively ﬂat as compared with 2000, excluding the costs associated with the Australian manufacturing strategy and before the impact of currency. Operating earnings as reported declined 2% in 2001 compared to 2000. An analysis of operating earnings by segment follows: (millions) North America Soup 2002)1 2001)1 2000 % Change 2002/ 2001 2001/ 2000 and Away From Home $ 624 $ 774 $ 768 North America Sauces and Beverages Biscuits and Confectionery International Soup and Sauces Corporate 236 175 92 295 309 197 206 51 64 1,127 1,317 1,347 (143) (123) (82) $ 984 $ 1,194 $ 1,265 (19) (20) (11) 80 (14) 1 (5) (4) (20) (2) 1 Contributions to earnings by the Biscuits and Confectionery segment include the effect of pre-tax costs of $20 million in 2002 and $15 million in 2001 associated with the Australian manufacturing reconﬁguration strategy. Earnings from North America Soup and Away From Home decreased 19% in 2002 from 2001 due to planned increases in trade and consumer promotion expenses, advertising expenses, infrastructure investments and costs of quality improvements. The promotion and advertising investments were focused on ready-to-serve products, including Campbell’s Chunky and Campbell’s Select, and the new Campbell’s Supper Bakes. Earnings from North America Soup and Away From Home increased 1% in 2001 from 2000 due to sales volume growth partially offset by increased marketing investments. Earnings from North America Sauces and Beverages declined 20% in 2002 from 2001 primarily due to a signiﬁcant increase in marketing investments, principally on Prego pasta bake sauces, Pace and V8 vegetable juices. Earnings from North America Sauces and Beverages declined 5% in 2001 from 2000 primarily due to increased marketing investments. In 2002, earnings from Biscuits and Confectionery decreased 11% as reported, 8% excluding the impact of the Australian manufacturing reconﬁguration costs. The decline was due to increased marketing investments across the portfolio and a decline in earnings from Godiva, partially offset by increased sales in Pepperidge Farm and Arnotts. In 2001, earnings from Biscuits and Confectionery increased 8% before the impact of currency and excluding the impact of the Australian manufacturing reconﬁguration costs. Reported earnings increased 3% before the impact of Australian manufacturing reconﬁguration costs. The increase was due to higher sales volume across the portfolio. The 80% increase in 2002 earnings from International Soup and Sauces was due to the European acquisition. Excluding the acquisition, earnings declined signiﬁcantly due to lower sales in the United Kingdom soup and sauces business and planned increases in marketing across the portfolio. The 20% decline in 2001 earnings from International Soup and Sauces was primarily due to costs associated with the integration of the European acquisition. Corporate expenses increased in 2002 due principally to planned infrastructure investments and higher compensation costs. Corporate expenses increased in 2001 primarily due to an increase in incentive compensation costs and costs associated with infrastructure enhancements. Nonoperating Items Interest expense decreased 13% in 2002 from 2001. Higher interest expense due to increased average debt levels following the fourth quarter 2001 European acquisition was more than offset by a steep decline in short-term rates. Interest expense increased 11% in 2001 from 2000 due to higher debt balances resulting from the ﬁnancing of the acquisition of European soup and sauce brands and capital share repurchases, partially offset by lower average interest rates. The effective tax rate was 34.2% in both 2002 and 2001. The 2000 effective tax rate was 33.7%. The 2000 rate was favorably impacted by a lower effective rate on foreign earnings, primarily driven by a reduction in the Australian statutory rate. Restructuring Program A restructuring charge of $10 million ($7 million after tax) was recorded in the fourth quarter 2001 for severance costs associated with the reconﬁguration of the manufacturing network of Arnotts in Australia. In the second quarter of 2002, the company recorded an additional $1 million restructuring charge related to planned severance actions. Related costs of approximately $19 million ($13 million Campbell Soup Company Annual Report 2002 Management’s Discussion and Analysis of Results of Operations and Financial Condition after tax) and $5 million ($4 million after tax) were recorded in 2002 and 2001, respectively, as Cost of products sold, primarily representing accelerated depreciation on assets to be taken out of service. This program was designed to drive greater manufacturing efﬁciency resulting from the closure of the Melbourne plant. Approximately 550 jobs were eliminated due to the plant closure. Remaining spending under this program primarily relates to severance payments. As a result of this reconﬁguration, the company expects annual pre-tax cost savings of approximately $10 million, a portion of which will be realized in 2003. See Note 4 to the Consolidated Financial Statements for further discussion of this program. Liquidity and Capital Resources Net cash ﬂows from operating activities provided $1 billion in 2002, compared to $1.1 billion in 2001. The decrease was primarily due to lower net earnings resulting from planned increases in marketing and infrastructure investments. Net cash ﬂows from operations in 2001 decreased to $1.1 billion from $1.2 billion in 2000 due primarily to lower net earnings. Over the last three years, operating cash ﬂows totaled over $3 billion. This cash generating capability provides the company with substantial ﬁnancial ﬂexibility in meeting its operating and investing needs. Capital expenditures were $269 million in 2002, $200 million in 2001 and 2000. Capital expenditures are projected to be approximately $285 million in 2003. The increase in 2002 was due to planned process improvements, product quality enhancements, the Australian plant reconﬁguration, and the construction of the new Pepperidge Farm bakery in Connecticut. Businesses acquired in 2001 represented the purchase of the European soup and sauce brands in May 2001. The acquisition spending in 2002 represented a purchase price adjustment related to the European acquisition. In 2000, sale of businesses represented the divestiture of MacFarms. Long-term borrowings in 2002 were the result of a series of debt issuances throughout the year. In September 2001, the company issued $300 million seven-year 5.875% ﬁxed- rate notes. The proceeds were used to repay short-term borrowings. While planning for the issuance of these notes, the company entered into interest rate swaps with a notional value of approximately $138 million that effectively ﬁxed a portion of the interest rate on the debt prior to issuance. These contracts were settled at a loss of approximately $4 million upon issuance of the notes. This loss is being amortized over the life of the notes. In conjunction with the issuance of these notes, the company also entered into a $75 million seven-year interest rate swap that converts ﬁxed- rate debt to variable. In October 2001, the company issued $300 million two-year variable-rate notes. The proceeds were also used to repay short-term borrowings. In connection with this issuance, the company entered into a $300 million two-year interest rate swap that converts the variable-rate debt to ﬁxed. On November 23, 2001, the company redeemed $100 million 5.625% ﬁxed-rate notes due in September 2003. The notes were callable at par. This redemption was ﬁnanced with lower rate commercial paper. On December 11, 2001, the company issued an additional $200 million of its existing 6.75% ﬁxed-rate notes due February 2011, originally issued in February 2001. These additional notes were priced at a premium to reﬂect market conditions. The proceeds were used to repay short- term borrowings. In January 2002, the company repaid $300 million of variable-rate notes due December 2003. The notes were repaid with lower cost short-term borrowings. On March 19, 2002, the company issued $300 million ﬁve-year 5.50% ﬁxed-rate notes. The proceeds were used to repay $228 million variable-rate notes due in December 2003 and short-term borrowings. In connection with this issuance, the company entered into a ﬁve-year interest rate swap that converts $100 million of the ﬁxed-rate debt to variable. In June 2002, the company ﬁled a $1 billion shelf registration statement with the Securities and Exchange Commission to use for future offerings of debt securities. Under the registration statement, the company may issue debt securi- ties from time to time, depending on market conditions. The company intends to use the proceeds to repay short- term debt, to reduce or retire other indebtedness or for other general corporate purposes. In 2001, the company filed a shelf registration statement with the Securities and Exchange Commission for $1 billion of debt, bringing total capacity available under registration statements to $1.1 bil- lion. This shelf registration was depleted in 2002. Long-term borrowings completed in 2001 included both a three-year ﬂoating rate loan, which funded the purchase of 11 million shares under forward stock purchase contracts for approximately $521 million in December 2000, and the issuance of $500 million 6.75% ﬁxed-rate notes due February 2011. The company also entered into ten-year 26 27 interest rate swap contracts with a notional value of $250 million in connection with the issuance of the 6.75% ﬁxed-rate notes. The proceeds of the 6.75% notes were used primarily to repay short-term borrowings. There were no new long-term borrowings in 2000. Dividend payments decreased to $286 million in 2002, compared to $374 million in 2001, due to the reduction of the dividend per share. Dividends declared in 2002 totaled $0.63 per share and in 2001 and 2000 totaled $0.90 per share. The 2002 fourth quarter rate was $0.1575 per share. The expected annual dividend rate for 2003 is $0.63. Capital stock repurchases totaled two hundred thousand shares at a cost of $5 million during 2002, compared to 14.3 million shares at a cost of $618 million during 2001 and repurchases of 10.7 million shares at a cost of $394 million in 2000. In 2001, the strategic share repurchase plan was suspended. The company expects to continue to repurchase shares to offset the impact of dilution from shares issued under incentive stock compensation plans. Total shareowners’ equity (deﬁcit) on a book basis increased in 2002 to $(114) million from $(247) million in 2001. In 2002, shareowners’ equity (deﬁcit) includes a minimum liability of $208 million, net of tax, related to the company’s principal U.S. pension plan. Following the stock market declines in June and July 2002, the fair value of the assets included in the pension fund fell below the accumulated beneﬁt obligation. As required under accounting principles generally accepted in the United States, the company recognized the additional minimum liability and reclassiﬁed an existing pension asset to equity. Although this non-cash adjustment did not impact the 2002 operating results, pension expense is expected to increase in 2003 primarily due to the lower fair value of pension assets and a reduction in the estimated return on plan assets. See also Note 8 to the Consolidated Financial Statements. The company believes that foreseeable liquidity and capital resource requirements are expected to be met through anticipated cash ﬂows from operations, management of working capital, long-term borrowings under its shelf registration, and short-term borrowings, including commercial paper. The company believes that its sources of ﬁnancing are adequate to meet its liquidity and capital resource requirements. The cost and terms of any future ﬁnancing arrangements depend on the market conditions and the company’s ﬁnancial position at that time. Operating Leases Total Long-term Cash Obligations The following table represents signiﬁcant long-term cash obligations: Contractual Payments Due by Fiscal Year (US$ equivalents in millions) Total 2003 2004- 2006 2007- 2008 Thereafter Debt Obligations* $ 3,645 $ 1,196 $ 602 $ 605 $ 1,242 Purchase Commitments** 2,781 540 54 1,333 109 788 53 120 35 251 $ 6,677 $ 1,790 $ 2,044 $ 1,446 $ 1,397 * Includes capital lease obligations totaling $9 million ** Represents certain long-term supply and service agreements At July 28, 2002, the company had $1,196 million of notes payable due within one year and $45 million of standby letters of credit issued on behalf of the company. The company maintains $1.8 billion of committed revolving credit facilities, which remain unused at July 28, 2002, except for the $45 million of standby letters of credit. The company is in compliance with the covenants contained in its revolving credit facilities and debt securities. The company enters into other commitments, such as oper- ating lease commitments, surety bonds, and long-term purchase arrangements, in the ordinary course of business. Operating leases are primarily entered into for warehouse and ofﬁce facilities, retail store space, and certain equip- ment. Purchase commitments relate to the procurement of ingredients, supplies, machinery and equipment and serv- ices. These commitments are not expected to have a material impact on liquidity. The company guarantees approximately $74 million of bank loans to Pepperidge Farm independent sales distributors, which are secured by their distribution routes that are purchased from the company. In September 2002, the company entered into a $900 million committed 364-day revolving credit facility, which replaced an existing facility that matured in September 2002. The company also has a $900 million revolving credit facility that matures in September 2006. These agreements support the company’s commercial paper program. The company has ﬁnancial resources available, including lines of credit totaling approximately $2 billion, and has ready access to ﬁnancial markets around the world. The pre-tax interest coverage ratio was 5.2 for 2002 compared to 5.4 for 2001 and 6.2 for 2000. Inﬂation Inﬂation during recent years has not had a signiﬁcant effect on the company. The company mitigates the effects of inﬂation by aggressively pursuing cost productivity initiatives, including global procurement strategies and making capital investments that improve the efﬁciency of operations. Campbell Soup Company Annual Report 2002 Management’s Discussion and Analysis of Results of Operations and Financial Condition Market Risk Sensitivity The principal market risks to which the company is exposed are changes in interest rates and foreign currency exchange rates. In addition, the company is exposed to equity price changes related to certain employee compensation obliga- tions. The company manages its exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain its variable-to-total debt ratio within targeted guidelines. International operations, which accounted for approximately 29% of 2002 net sales, are concentrated principally in Australia, Canada, France, Germany and the United Kingdom. The company manages its foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps, forward contracts, and options. Swaps and forward contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into contracts for speculative purposes and does not use leveraged instruments. The company principally uses a combination of purchase orders and various short- and long-term supply arrangements Expected Fiscal Year of Maturity in connection with the purchase of raw materials, including certain commodities and agricultural products. On occasion, the company may also enter into commodity futures contracts, as considered appropriate, to reduce the volatility of price ﬂuctuations for commodities such as corn, soybean meal and cocoa. At July 28, 2002 and July 29, 2001, the notional values and unrealized gains or losses on commodity futures contracts held by the company were not material. The information below summarizes the company’s market risks associated with debt obligations and other signiﬁcant ﬁnancial instruments as of July 28, 2002. Fair values included herein have been determined based on quoted market prices. The information presented below should be read in conjunction with Notes 16 and 18 to the Consolidated Financial Statements. The table below presents principal cash ﬂows and related interest rates by ﬁscal year of maturity for debt obligations. Variable interest rates disclosed represent the weighted- average rates of the portfolio at the period end. Notional amounts and related interest rates of interest rate swaps are presented by ﬁscal year of maturity. For the swaps, variable rates are the average forward rates for the term of each contract. (US$ equivalents in millions) 2003 2004 2005 2006 2007 Thereafter Total Fair Value Debt Fixed rate Weighted average interest rate Variable rate Weighted average interest rate Interest Rate Swaps Fixed to variable Average pay rate Average receive rate Variable to ﬁxed Average pay rate Average receive rate $ 301 $ 300 $ 1 $ 1 $ 605 $ 1,242 $ 2,450 $ 2,652 6.16% $ 895 4.76% $ 300 2.52% 2.29% $ 300)1 3.74% 2.63% 9.00% 9.00% 6.20% 6.90% 6.37% $ 1,195 $ 1,195 2.46% $ 100)2 4.12% 5.50% $ 325)3 $ 425 $ 31 5.39% 6.55% 5.09% 6.30% $ 300 $ (4) 3.74% 2.63% 1 Hedges variable-rate notes due in 2004. 2 Hedges 5.50% notes due in 2007. 3 Hedges $75 million of 5.875% notes and $250 million of 6.75% notes, respectively, due in 2009 and 2011. As of July 29, 2001, ﬁxed-rate debt of approximately $1.7 billion with an average interest rate of 6.51% and variable-rate debt of approximately $2.3 billion with an average interest rate of 4.43% were outstanding. At July 29, 2001, the company had swapped $250 million of ﬁxed-rate debt to variable. The average rate received on these swaps was 6.75% and the average rate paid was 6.47%. 28 29 The company is exposed to foreign exchange risk related to its international operations, including non-functional currency intercompany debt and net investments in subsidiaries. The table below summarizes the cross-currency swaps outstanding as of July 28, 2002, which hedge such exposures. The notional amount of each currency and the related weighted-average forward interest rate are presented in the Cross-Currency Swaps table. Cross-Currency Swaps (US$ equivalents in millions) Expiration Pay ﬁxed SEK Receive ﬁxed USD Pay ﬁxed SEK Receive ﬁxed USD Pay ﬁxed EUR Receive ﬁxed USD Pay ﬁxed GBP Receive ﬁxed USD 2003 2005 2007 2011 Interest Rate 5.72% 4.03% 5.78% 5.25% 5.46% 5.75% 5.97% 6.08% Notional Value $ 29 Fair Value $ (2) $ 47 $ (2) $ 200 $ (19) $ 200 $ (14) The cross-currency contract outstanding at July 29, 2001 represented a pay variable FrF/ receive variable US$ contract with a notional value of $110 million. This contract was canceled in 2002. The aggregate fair value of the contract was $25 million as of July 29, 2001. The company is also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary debt. The company utilizes foreign currency forward purchase and sale contracts to hedge these exposures. The table below summarizes the foreign currency forward contracts outstanding and the related weighted-average contract exchange rates as of July 28, 2002. Forward Exchange Contracts (US$ equivalents in millions) Receive USD / Pay GBP Receive USD / Pay EUR Receive CAD / Pay USD Receive GBP / Pay USD Receive USD / Pay SEK Receive AUD / Pay NZD Receive USD / Pay CAD Receive JPY / Pay USD Receive EUR / Pay GBP Receive EUR / Pay USD Receive USD / Pay JPY Receive EUR / Pay SEK Average Contractual Exchange Rate 0.67 1.03 0.63 1.57 9.24 1.20 1.56 0.01 0.62 0.90 124.67 9.44 Contract Amount $ 229 $ 207 $ 74 $ 28 $ 20 $ 18 $ 18 $ $ $ $ $ 9 9 9 6 5 The company had an additional $5 million in a number of smaller contracts to purchase or sell various other currencies, such as the Australian dollar, British pound, Canadian dollar, euro and New Zealand dollar, as of July 28, 2002. The aggregate fair value of all contracts was $(7) million as of July 28, 2002. Total forward exchange contracts outstanding as of July 29, 2001 were $880 million with a fair value of $(7) million. The company had swap contracts outstanding as of July 28, 2002, which hedge a portion of exposures relating to certain employee compensation liabilities linked to the total return of the Standard & Poor’s 500 Index or to the total return of the company’s capital stock. Under these contracts, the company pays variable interest rates and receives from the counterparty either the Standard & Poor’s 500 Index total return or the total return on company capital stock. The notional value of the contracts that are linked to the return on the Standard & Poor’s 500 Index was $21 million at July 28, 2002 and $28 million at July 29, 2001. The average forward interest rate applicable to the contract, which expires in 2003, was 2.22% at July 28, 2002. The notional value of the contract that is linked to the total return on company capital stock was $32 million at both July 28, 2002 and July 29, 2001. The average forward interest rate applicable to this contract, which expires in 2003, was 2.07% at July 28, 2002. The net cost to settle these contracts was $22 million at July 28, 2002 and $17 million at July 29, 2001. Gains and losses on the contracts, which offset gains and losses on the underlying employee compensation obligations, are recorded in Other expenses. The company’s utilization of ﬁnancial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of ﬁnancial instruments are a function of the results of operations, market effects on debt and foreign currency, and the company’s acquisition and divestiture activities. Signiﬁcant Accounting Estimates The consolidated ﬁnancial statements of the company are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these ﬁnancial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the ﬁnancial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to Consolidated Financial Statements for a discussion of signiﬁcant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions: Trade and consumer promotion expenses – The company offers various sales incentive programs to customers and consumers, such as cooperative advertising programs, feature price discounts, in-store display incentives and coupons. The recognition of expense for these programs involves use Campbell Soup Company Annual Report 2002 Management’s Discussion and Analysis of Results of Operations and Financial Condition of judgment related to performance and redemption esti- mates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from estimates. Valuation of long-lived assets – Long-lived assets, including fixed assets and intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. An estimate of undiscounted cash ﬂows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash ﬂows involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash ﬂows could differ from management’s estimates due to changes in business conditions, operating performance, and economic conditions. Pension and postretirement medical beneﬁts – The company provides certain pension and postretirement beneﬁts to employees and retirees. Determining the cost associated with such beneﬁts is dependent on various actuarial assump- tions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted in the United States, perform the required calculations to determine expense. Actual results that differ from the actuarial assumptions are gener- ally accumulated and amortized over future periods. Income taxes – The effective tax rate and the tax bases of assets and liabilities reﬂect management’s estimate of the ultimate outcome of various tax audits and issues. In addition, valuation allowances are established for deferred tax assets where the amount of expected future taxable income from operations does not support the realization of the asset. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.” In addition to requiring that all business combinations be accounted for under the purchase method, SFAS No. 141 requires intangible assets that meet certain criteria to be recognized as assets apart from goodwill. The provisions of SFAS No. 142 indicate that goodwill and indeﬁnite life intangible assets should no longer be amortized, but rather be tested for impairment annually. Intangible assets with a ﬁnite life shall continue to be amortized over the estimated useful life. SFAS No. 141 was effective for business combinations initiated after June 30, 2001. The company will adopt SFAS No. 142 in 2003. The elimination of amortization is to be applied on a prospective basis and prior periods are not to be restated. However, the impact of amortization of goodwill and indeﬁnite life intangible assets is to be disclosed for prior periods. The company is currently evaluating the impact of SFAS No. 142. With the adoption of SFAS No. 142, the company will use the new criteria to assess whether goodwill and cer- tain other intangible assets are impaired. Any impairment charge resulting from the initial impairment assessment will be recorded as a cumulative effect of an accounting change. The company estimates that the cumulative effect of adopting this standard will result in a non-cash charge of approxi- mately $45 million on a pre-tax basis in 2003. In addition, the adoption of this standard is expected to beneﬁt net earnings by approximately $55 million in reduced amortization of goodwill and indeﬁnite-lived intangible assets. In June 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations.” This Statement addresses ﬁnancial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for ﬁscal years beginning after June 15, 2002. The company is currently evaluating the impact of this Statement, but does not expect the adoption to have a material impact on the ﬁnancial statements. In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement addresses ﬁnancial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. The provisions of this Statement are effective for ﬁscal years beginning after December 15, 2001. The company is currently evaluating the impact of this Statement, but does not expect the adoption to have a material impact on the ﬁnancial statements. In July 2002, the FASB issued SFAS No. 146 “Accounting for Exit or Disposal Activities.” The provisions of this 30 31 Statement are effective for disposal activities initiated after December 31, 2002, with early application encouraged. The company is currently evaluating the impact of this Statement. Recent Developments On June 4, 2002, the company announced that its Australian subsidiary, Arnott’s Biscuits Holdings Pty Ltd (“Arnott’s Holdings”), had agreed to acquire all of the shares of Snack Foods Limited, a leader in the Australian salty snack category (“Snack Foods”), for approximately $145 million. In August 2002, Arnott’s Holdings completed the acquisition of approx- imately 98% of the outstanding shares of Snack Foods. Arnott’s Holdings completed the acquisition of the remaining approx- imate 2% of Snack Foods shares on September 20, 2002. On September 20, 2002, the company also completed the purchase of Erin Foods, the number two dry soup manufacturer in Ireland. Earnings Outlook On September 5, 2002, the company issued a press release announcing results for 2002 and commented on the outlook for earnings per share for the ﬁrst quarter and full year for 2003. Cautionary Factors That May Affect Future Results This 2002 Annual Report contains “forward-looking” state- ments that reﬂect the company’s current expectations regarding future results of operations, economic performance, financial condition and achievements of the company. The company tries, wherever possible, to identify these forward- looking statements by using words such as “anticipate,” “believe,” “estimate,” “expect,” “will” and similar expressions in conjunction with, among other things, discussions of the company’s “Transformation Plan.” One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements reﬂect the company’s cur- rent plans and expectations and are based on information currently available to it. They rely on a number of assump- tions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties. The company wishes to caution the reader that the following important factors and those important factors described elsewhere in the commentary, or in the Securities and Exchange Commission ﬁlings of the company, could affect the company’s actual results and could cause such results to vary materially from those expressed in any forward- looking statements made by, or on behalf of, the company: • the company’s ability to achieve the goals of its “Transformation Plan”; • the impact of strong competitive response to the company’s efforts to leverage its brand power with product innovation, promotional programs and new advertising, and of changes in consumer demand for the company’s products; • the risks in the marketplace associated with trade and consumer acceptance of product improvements and new product introductions; • the company’s ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume and product mix and the impact of increased marketing investments; • the company’s ability to realize forecasted cost savings, including the projected outcome of global supply chain management programs; • the difﬁculty of predicting the pattern of inventory movements by the company’s trade customers; • the impact of unforeseen economic changes in currency exchange rates, interest rates, equity markets, inﬂation rates, recession and other external factors over which the company has no control, including the possibility of increased pension expense and contributions resulting from continued decline in stock market returns; and • the impact of unforeseen business disruptions in one or more of the company’s markets due to political instability, civil disobedience, armed hostilities or other calamities. This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact the company’s outlook. The company disclaims any obligation or intent to update forward-looking statements made by the company in order to reﬂect new information, events or circumstances after the date they are made. Consolidated Statements of Earnings (millions, except per share amounts) Net Sales Costs and expenses Cost of products sold Marketing and selling expenses Administrative expenses Research and development expenses Other expenses (Note 5) Restructuring charges (Note 4) Total costs and expenses Earnings Before Interest and Taxes Interest expense (Note 6) Interest income Earnings before taxes Taxes on earnings (Note 9) Net Earnings Per Share – Basic Net Earnings Weighted average shares outstanding – basic Per Share – Assuming Dilution Net Earnings Weighted average shares outstanding – assuming dilution See accompanying Notes to Consolidated Financial Statements. Campbell Soup Company Annual Report 2002 2002 $ 6,133 2001 $ 5,771 2000 $ 5,626 3,443 1,069 421 77 138 1 5,149 984 190 4 798 273 525 $ $ 1.28 410 $ 1.28 411 3,132 3,088 886 372 63 114 10 4,577 1,194 219 12 987 338 801 319 64 89 — 4,361 1,265 198 10 1,077 363 $ 649 $ 714 $ 1.57 414 $ 1.55 418 $ 1.68 425 $ 1.65 432 32 33 Consolidated Balance Sheets (millions, except per share amounts) Current Assets Cash and cash equivalents Accounts receivable (Note 10) Inventories (Note 11) Other current assets (Note 12) Total current assets Plant Assets, Net of Depreciation (Note 13) Intangible Assets, Net of Amortization (Note 14) Other Assets (Note 15) Total assets Current Liabilities Notes payable (Note 16) Payable to suppliers and others Accrued liabilities Dividend payable Accrued income taxes Total current liabilities Long-term Debt (Note 16) Nonpension Postretirement Beneﬁts (Note 8) Other Liabilities (Note 17) Total liabilities Shareowners’ Equity (Deﬁcit) (Note 19) Preferred stock; authorized 40 shares; none issued Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares Capital surplus Earnings retained in the business Capital stock in treasury, 132 shares in 2002 and 133 shares in 2001, at cost Accumulated other comprehensive loss Total shareowners’ equity (deﬁcit) Total liabilities and shareowners’ equity (deﬁcit) See accompanying Notes to Consolidated Financial Statements. July 28, 2002 July 29, 2001 $ 21 417 638 123 1,199 1,684 2,503 335 $ 24 442 597 140 1,203 1,637 2,451 636 $ 5,721 $ 5,927 $ 1,196 $ 1,806 681 503 65 233 2,678 2,449 319 389 5,835 — 20 320 4,918 (4,891) (481) (114) 582 450 92 190 3,120 2,243 336 475 6,174 — 20 314 4,651 (4,908) (324) (247) $ 5,721 $ 5,927 Consolidated Statements of Cash Flows (millions) Cash Flows from Operating Activities: Net earnings Non-cash charges to net earnings Restructuring charges Depreciation and amortization Deferred taxes Other, net Changes in working capital Accounts receivable Inventories Other current assets and liabilities Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Purchases of plant assets Sales of plant assets Businesses acquired Sales of businesses Other, net Net Cash Used in Investing Activities Cash Flows from Financing Activities: Long-term borrowings Repayments of long-term borrowings Short-term borrowings Repayments of short-term borrowings Dividends paid Treasury stock purchases Treasury stock issuances Other, net Net Cash Provided by (Used in) Financing Activities Effect of Exchange Rate Changes on Cash Net Change in Cash and Cash Equivalents Cash and Cash Equivalents – Beginning of Year Cash and Cash Equivalents – End of Year See accompanying Notes to Consolidated Financial Statements. Campbell Soup Company Annual Report 2002 2002 2001 2000 $ 525 $ 649 $ 714 — 319 5 53 40 (30) 105 1,017 (269) 5 (15) 3 (12) (288) 1,100 (628) 776 (1,691) (286) (5) 14 (6) (726) (6) (3) 24 21 $ 10 266 4 38 (11) (1) 151 1,106 (200) 8 (911) — (19) (1,122) 1,028 — 1,962 (2,007) (374) (618) 24 — 15 (2) (3) 27 24 $ — 251 17 20 90 23 50 1,165 (200) 7 — 11 (22) (204) — (7) 1,028 (1,206) (384) (394) 20 — (943) 3 21 6 27 $ 34 35 Consolidated Statements of Shareowners’ Equity (Deﬁcit) (millions, except per share amounts) Capital Stock Issued In Treasury Shares 542 Amount $ 20 Shares Amount (113) $ (4,058) Capital Surplus $ 382 Earnings Retained in the Business Accumulated Other Com- prehensive Income (Loss) Total Share- owners’ Equity (Deﬁcit) $ 4,041 $ (150) $ 235 Balance at July 30, 2000 542 20 (121) (4,373) (11) (394) 3 79 (11) (3) (521) (97) 2 83 542 20 (133) (4,908) Balance at August 1, 1999 Comprehensive income (loss) Net earnings Foreign currency translation adjustments Other comprehensive loss Total Comprehensive income Dividends ($.90 per share) Treasury stock purchased Treasury stock issued under management incentive and stock option plans Comprehensive income (loss) Net earnings Foreign currency translation adjustments Other comprehensive loss Total Comprehensive income Dividends ($.90 per share) Repurchase of shares under forward stock purchase contracts Treasury stock purchased Treasury stock issued under management incentive and stock option plans Balance at July 29, 2001 Comprehensive income (loss) Net earnings Foreign currency translation adjustments Cash-ﬂow hedges, net of tax Minimum pension liability, net of tax Other comprehensive loss Total Comprehensive income Dividends ($.63 per share) Treasury stock purchased Treasury stock issued under management incentive and stock option plans 714 (382) (77) (77) (38) 344 4,373 (227) 649 (371) (97) (97) (30) 314 4,651 (324) 525 (258) 49 2 (208) (157) 714 (77) (77) 637 (382) (394) 41 137 649 (97) (97) 552 (371) (521) (97) 53 (247) 525 49 2 (208) (157) 368 (258) (5) 28 — 1 (5) 22 6 Balance at July 28, 2002 542 $ 20 (132) $ (4,891) $ 320 $ 4,918 $ (481) $ (114) See accompanying Notes to Consolidated Financial Statements. Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) 1. Summary of Signiﬁcant Accounting Policies Consolidation The consolidated ﬁnancial statements include the accounts of the company and its majority-owned subsidiaries. Signiﬁcant intercompany transactions are eliminated in consolidation. Investments of 20% or more in afﬁliates are accounted for by the equity method. Fiscal Year The company’s ﬁscal year ends on the Sunday nearest July 31. There were 52 weeks in 2002, 2001 and 2000. There will be 53 weeks in 2003. Revenue Recognition Revenues are recognized when the earnings process is complete. This occurs when products are shipped in accordance with terms of agreements, title and risk of loss transfer to customers, collection is probable and pricing is ﬁxed or determinable. Cash and Cash Equivalents All highly liquid debt instruments purchased with a maturity of three months or less are classiﬁed as cash equivalents. Inventories Substantially all U.S. inventories are priced at the lower of cost or market, with cost determined by the last in, ﬁrst out (LIFO) method. Other inventories are priced at the lower of average cost or market. Plant Assets Plant assets are stated at historical cost. Alterations and major overhauls, which extend the lives or increase the capacity of plant assets, are capitalized. The amounts for property disposals are removed from plant asset and accumulated depreciation accounts and any resultant gain or loss is included in earnings. Ordinary repairs and maintenance are charged to operating costs. Depreciation Depreciation provided in Costs and expenses is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and machinery and equipment are depreciated over periods not exceeding 45 years and 15 years, respectively. Long-lived Assets Long-lived assets are comprised of intangible assets and property, plant and equipment. Intangible assets consist principally of the excess purchase price over net assets of businesses acquired and trade- marks. Intangibles are amortized on a straight-line basis over periods not exceeding 40 years. Long-lived assets are reviewed for impairment as events or changes in circum- stances occur indicating that the carrying amount of the asset may not be recoverable. An estimate of undiscounted future cash ﬂows produced by the asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. See Recently Issued Accounting Pronouncements for the accounting for intangi- ble assets in 2003. Derivative Financial Instruments The company uses deriva- tive ﬁnancial instruments primarily for purposes of hedging exposures to ﬂuctuations in interest rates, foreign currency exchange rates and equity-linked employee beneﬁt obliga- tions. Beginning in 2001, all derivatives are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Derivatives and Hedging Activities,” as amended by SFAS No. 137 and No. 138. All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in other compre- hensive income are reclassiﬁed to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in earn- ings in the current period. The cumulative effect of adopting SFAS No. 133 was not material to the company’s consoli- dated ﬁnancial statements. Use of Estimates Generally accepted accounting principles require management to make estimates and assumptions that affect assets and liabilities, contingent assets and liabilities, and revenues and expenses. Actual results could differ from those estimates. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the ﬁnancial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax beneﬁt will not be realized. Reclassiﬁcations Prior year ﬁnancial statements and footnotes have been reclassiﬁed to conform to the current year presentation. In September 2000, the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) reached a ﬁnal consensus on Issue No. 00-10 “Accounting for Shipping and 36 37 Handling Fees and Costs” that such costs cannot be reported as a reduction of revenue. The consensus was effective in the fourth quarter 2001. Shipping and handling costs of approximately $207 in 2001 and $199 in 2000 were reclassiﬁed from Net sales to Cost of products sold. The reclassiﬁcations had no impact on net earnings or earnings per share. In the ﬁrst quarter 2002, the company adopted EITF Issue No. 00-14 “Accounting for Certain Sales Incentives” and Issue No. 00-25 “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products,” as codiﬁed by Issue No. 01-9 “Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor’s Products.” Under these Issues, the EITF concluded that certain consumer and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising programs, new product introduction fees, feature price discounts and in-store display incentives, should be classiﬁed as a reduction of sales rather than as marketing expenses. The adoption of these new accounting standards in 2002 resulted in the following reclassiﬁcations to the annual results for 2001 and 2000: Net sales were reduced by $893 and $840, respectively; Cost of products sold was reduced by $14 and $19, respectively; and Marketing and selling expenses were reduced by $879 and $821, respectively. These reclassiﬁcations had no impact on net earnings. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.” In addition to requiring that all business combinations be accounted for under the purchase method, SFAS No. 141 requires intangible assets that meet certain criteria to be recognized as assets apart from goodwill. The provisions of SFAS No. 142 indicate that goodwill and indeﬁnite life intangible assets should no longer be amortized, but rather be tested for impairment annually. Intangible assets with a ﬁnite life shall continue to be amortized over the estimated useful life. SFAS No. 141 was effective for business combinations initiated after June 30, 2001. The company will adopt SFAS No. 142 in 2003. The elimination of amortization is to be applied on a prospective basis and prior periods are not to be restated. However, the impact of amortization of goodwill and indeﬁnite life intangible assets is to be disclosed for prior periods. The company is currently evaluating the impact of SFAS No. 142. With the adoption of SFAS No. 142, the company will use the new criteria to assess whether goodwill and certain other intangible assets are impaired. Any impairment charge resulting from the initial impairment assessment will be recorded as a cumulative effect of an accounting change. The company estimates that the cumulative effect of adopting this standard will result in a non-cash charge of approximately $45 on a pre-tax basis in 2003. In addition, the adoption of this standard is expected to beneﬁt net earnings by approximately $55 in reduced amortization of goodwill and indeﬁnite-lived intangible assets. In June 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations.” This Statement addresses ﬁnancial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for ﬁscal years beginning after June 15, 2002. The company is currently evaluating the impact of this Statement, but does not expect the adoption to have a material impact on the ﬁnancial statements. In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement addresses ﬁnancial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. The provisions of this Statement are effective for ﬁscal years beginning after December 15, 2001. The company is currently evaluating the impact of this Statement, but does not expect the adoption to have a material impact on the ﬁnancial statements. In July 2002, the FASB issued SFAS No. 146 “Accounting for Exit or Disposal Activities.” The provisions of this Statement are effective for disposal activities initiated after December 31, 2002, with early application encouraged. The company is currently evaluating the impact of this Statement. 2. Comprehensive Income Total comprehensive income is comprised of net earnings, net foreign currency translation adjustments, minimum pension liability adjustments (see Note 8), and net unrealized gains and losses on cash-ﬂow hedges. Total comprehensive income for the twelve months ended July 28, 2002, July 29, 2001 and July 30, 2000 was $368, $552, and $637, respectively. Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) The components of Accumulated other comprehensive loss, as reﬂected in the Statements of Shareowners’ Equity (Deﬁcit), consisted of the following: Foreign currency translation adjustments Cash-ﬂow hedges, net of tax Minimum pension liability, net of tax* Total Accumulated other comprehensive loss * Includes a tax beneﬁt of $119. 2002 $ (275) 2 (208) 2001 $ (324) — — $ (481) $ (324) The net gain on cash-ﬂow hedges was not material at July 29, 2001. 3. Business and Geographic Segment Information Campbell Soup Company, together with its consolidated subsidiaries, is a global manufacturer and marketer of high quality, branded convenience food products. Through 2001, the company was organized and reported the results of operations in three business segments: Soup and Sauces, Biscuits and Confectionery, and Away From Home. Beginning in 2002, the company changed its organizational structure such that operations are managed and reported in four segments: North America Soup and Away From Home, North America Sauces and Beverages, Biscuits and Confectionery, and International Soup and Sauces. Segment ﬁnancial information has been modiﬁed for all periods in order to conform to the new structure. In addition, Net sales reﬂect the reclassiﬁcations related to the adoption of new accounting standards as discussed in Note 1. The North America Soup and Away From Home segment comprises the retail soup and Away From Home business in the U.S. and Canada. The U.S. retail business includes the Campbell’s brand condensed and ready-to-serve soups and Swanson broths. The segment includes the company’s total business in Canada, which comprises the Habitant and Campbell’s soups, Prego pasta sauce and V8 juices. The Away From Home operations represent the distribution of products such as Campbell’s soups, Campbell’s specialty entrees, beverage products, other prepared foods and Pepperidge Farm products through various food service channels. The North America Sauces and Beverages segment includes Prego pasta sauces, Pace Mexican sauces, Franco-American canned pastas and gravies, V8 vegetable juices, V8 Splash juice beverages, Campbell’s tomato juice and the total of all businesses in Mexico and other Latin American countries. The Biscuits and Confectionery segment includes Pepperidge Farm cookies, crackers, breads and frozen products in North America, Arnott’s biscuits and crackers in Australia and Asia Paciﬁc and Godiva chocolates worldwide. The International Soup and Sauces segment comprises operations outside of North America, including Erasco and Heisse Tasse soups in Germany, Liebig and Royco soups and Lesieur sauces in France, Campbell’s and Batchelors soups, Oxo stock cubes and Homepride sauces in the United Kingdom, Devos Lemmens mayonnaise and cold sauces, and Campbell’s and Royco soups in Belgium, and Blå Band and McDonnells soups in Sweden and Ireland, respectively. In Asia Paciﬁc, operations include Campbell’s soups and stock and Swanson broths across the region. Accounting policies for measuring segment assets and earnings before interest and taxes are substantially consistent with those described in Note 1. The company evaluates segment performance before interest and taxes, excluding certain non-recurring charges. The North America Soup and Away From Home and North America Sauces and Beverages segments operate under an integrated supply chain organization, sharing substantially all manufacturing, warehouse, distribution and sales activities. Accordingly, assets have been allocated between the two segments based on various measures, for example, budgeted production hours for ﬁxed assets and depreciation. The company’s largest customer, Wal-Mart Stores, Inc. and its afﬁliates, accounted for approximately 12% of consolidated net sales during 2002. All of the company’s segments sold products to Wal-Mart Stores, Inc. and its afﬁliates. Information about operations by business segment, reﬂecting the reclassiﬁcations described in Note 1, is as follows: Business Segments 2002 Net Sales North America Soup Earnings Before Depreciation and Interest and Taxes)3 Amortization Capital Expen- ditures Segment Assets and Away From Home $ 2,524 $ 624 $ 71 $ 75 $ 1,263 North America Sauces and Beverages 1,182 236 60 47 1,228 Biscuits and Confectionery International Soup and Sauces Corporate and Eliminations1 1,507 175 101 100 1,276 920 92 — (143) 55 32 28 1,632 19 322 Total $ 6,133 $ 984 $ 319 $ 269 $ 5,721 38 39 2001 North America Soup Earnings Before Depreciation and Interest and Taxes)3 Amortization Net Sales)2 Capital Expen- ditures Segment Assets and Away From Home $ 2,532 $ 774 $ 67 $ 59 $ 1,248 Geographic Area Information Information about operations in different geographic areas is as follows: North America Sauces and Beverages Biscuits and Confectionery International Soup and Sauces Corporate and Eliminations1 1,161 295 1,446 197 632 51 — (123) 53 87 32 27 33 1,243 77 1,249 21 1,519 Net sales1 United States Europe Australia/Asia Paciﬁc Other countries Adjustments and eliminations 2002 2001 2000 $ 4,339 $ 4,313 $ 4,179 843 554 502 (105) 558 517 455 (72) 526 561 426 (66) 10 668 Consolidated $ 6,133 $ 5,771 $ 5,626 Total 2000 $ 5,771 $ 1,194 $ 266 $ 200 $ 5,927 Earnings Before Depreciation and Interest and Taxes Amortization Net Sales)2 Capital Expen- ditures Segment Assets North America Soup and Away From Home $ 2,434 $ 768 $ 67 $ 63 $ 1,302 North America Sauces and Beverages Biscuits and Confectionery International Soup and Sauces Other Corporate and Eliminations1 Total 1,156 309 1,391 206 622 23 64 — — (82) 52 83 24 — 25 34 1,281 63 1,366 26 — 14 593 — 654 $ 5,626 $ 1,265 $ 251 $ 200 $ 5,196 1 Represents elimination of intersegment sales, unallocated corporate expenses and unallocated assets, including corporate ofﬁces, deferred income taxes and prepaid pension assets. 2 In the fourth quarter of 2001, the company adopted new guidance on the classiﬁcation of shipping and handling costs. Shipping and handling costs of $207 and $199 for 2001 and 2000, respectively, were reclassiﬁed from Net sales to Cost of products sold. In the ﬁrst quarter of 2002, the company adopted new accounting standards related to the income statement classiﬁcation of certain consumer and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising programs and in-store display incentives. As a result, the reclassiﬁcations, recorded in 2002, reduced Net sales by $893 and $840 for 2001 and 2000, respectively. See Note 1 for further discussion. 3 Contributions to earnings before interest and taxes by the Biscuits and Confectionery segment include the effect of costs of $20 in 2002, and $15 in 2001 associated with the Australian manufacturing reconﬁguration. Earnings before interest and taxes United States Europe Australia/Asia Paciﬁc Other countries Segment earnings before interest and taxes Unallocated corporate expenses Consolidated Identiﬁable assets United States Europe Australia/Asia Paciﬁc Other countries Corporate Consolidated 2002 2001 2000 $ 913 $ 1,137 $ 1,135 92 41 81 53 46 81 55 72 85 1,127 1,317 1,347 (143) (123) (82) $ 984 $ 1,194 $ 1,265 2002 $ 2,797 1,586 725 288 325 2001 2000 $ 2,737 $ 2,792 1,472 717 293 708 533 852 315 704 $ 5,721 $ 5,927 $ 5,196 1 In the fourth quarter of 2001, the company adopted new guidance on the classiﬁcation of shipping and handling costs. Shipping and handling costs of $207 and $199 for 2001 and 2000, respectively, were reclassiﬁed from Net sales to Cost of products sold. In the ﬁrst quarter of 2002, the company adopted new accounting standards related to the income statement classiﬁcation of certain consumer and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising programs and in-store display incentives. As a result, the reclassiﬁcations, recorded in 2002, reduced Net sales by $893 and $840 for 2001 and 2000, respectively. See Note 1 for further discussion. Transfers between geographic areas are recorded at cost plus markup or at market. Identiﬁable assets are those assets, including goodwill, which are identiﬁed with the operations in each geographic region. The restructuring charges in 2002 and 2001 were allocated to Australia/Asia Paciﬁc. Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) 4. Restructuring Program A restructuring charge of $10 ($7 after tax) was recorded in the fourth quarter 2001 for severance costs associated with the reconﬁguration of the manufacturing network of Arnotts in Australia. In the second quarter 2002, the company recorded an additional $1 restructuring charge related to planned severance actions. Related costs of approximately $19 ($13 after tax) in 2002 and $5 ($4 after tax) in 2001 were recorded as Cost of products sold, primarily representing accelerated depreciation on assets to be taken out of service. This program was designed to drive greater manufacturing efﬁciency resulting from the closure of the Melbourne plant. Approximately 550 jobs were eliminated due to the plant closure. A summary of restructuring reserves at July 28, 2002 and related activity is as follows: Accrued Balance at July 29, 2001 2002 Charge Accrued Balance at Spending July 28, 2002 allocated as follows: approximately $100 to ﬁxed assets and inventory; approximately $490 to trademarks and other identiﬁable intangible assets; and approximately $330 to the excess of the purchase price over net assets acquired (goodwill). Goodwill and trademarks were being amortized on a straight-line basis over 40 years. An additional purchase price adjustment of $15 was paid in 2002 related to inventory. Had the acquisition occurred at the beginning of 2000, based on unaudited data, net sales for 2001 and 2000 would have increased approximately $300 and $400, respectively, and net earnings would have decreased $2 in 2001 and $7 in 2000. Basic and diluted earnings per share would have decreased $.01 and $.02 in 2001 and 2000, respectively. These pro forma estimates factor in certain adjustments, including amortization of goodwill, additional depreciation expense, increased interest expense on debt related to the acquisition, and related income tax effects. The pro forma results do not include any synergies expected to result from the acquisition. $ 10 1 (7) $ 4 8. Pension and Postretirement Beneﬁts Severance pay and beneﬁts 5. Other Expenses Stock price related incentive programs Amortization of intangible and other assets Minority interest Other, net 6. Interest Expense Interest expense Less: Interest capitalized 7. Acquisitions 2002 2001 2000 $ 39 $ 36 $ 26 78 — 21 57 3 18 55 1 7 $ 138 $ 114 $ 89 2002 $ 191 1 $ 190 2001 $ 222 3 2000 $ 204 6 $ 219 $ 198 In May 2001, the company acquired the assets of the European culinary brands business, comprised of several soup and sauce businesses, from Unilever, PLC/Unilever N.V. for approximately $920. The acquisition was ﬁnanced with available cash and commercial paper borrowings. This acquisition was accounted for as a purchase transaction, and operations of the acquired business are included in the ﬁnancial statements from May 4, 2001, the date the acquisition was consummated. The purchase price was Pension Beneﬁts Substantially all of the company’s U.S. and certain non-U.S. employees are covered by noncontributory deﬁned beneﬁt pension plans. In 1999, the company implemented signiﬁcant amendments to certain U.S. plans. Under a new formula, retirement beneﬁts are determined based on percentages of annual pay and age. To minimize the impact of converting to the new formula, service and earnings credit will continue to accrue for active employees participating in the plans under the formula prior to the amendments through the year 2014. Employees will receive the beneﬁt from either the new or old formula, whichever is higher. Beneﬁts become vested upon the completion of ﬁve years of service. Beneﬁts are paid from funds previously provided to trustees and insurance companies or are paid directly by the company from general funds. Plan assets consist primarily of investments in equities, ﬁxed income securities, and real estate. Pension coverage for employees of certain non-U.S. subsidiaries are provided to the extent determined appropriate through their respective plans. Obligations under such plans are systematically provided for by depositing funds with trusts or under insurance contracts. The assets and obligations of these plans are not material. Postretirement Beneﬁts The company provides postretirement beneﬁts including healthcare and life insurance to substantially all retired U.S. employees and their dependents. In 1999, changes were made to the 40 41 postretirement beneﬁts offered to certain U.S. employees. Participants who were not receiving postretirement beneﬁts as of May 1, 1999 will no longer be eligible to receive such beneﬁts in the future, but the company will provide access to healthcare coverage for non-eligible future retirees on a group basis. Costs will be paid by the participants. To preserve the economic beneﬁts for employees near retirement, participants who were at least age 55 and had at least 10 years of continuous service remain eligible for postretirement beneﬁts. Components of net periodic beneﬁt cost: Pension Service cost Interest cost Expected return on plan assets Amortization of net transition obligation Amortization of prior service cost Recognized net actuarial loss Curtailment 2002 $ 36 109 2001 $ 35 106 2000 $ 37 103 (159) (158) (150) — 6 4 — (1) 5 1 — (3) 5 6 1 Change in the fair value of pension plan assets: Fair value at beginning of year Acquisition adjustment Actual return on plan assets Employer contributions Beneﬁts paid Foreign currency adjustment Fair value at end of year 2002 2001 $ 1,644 $ 1,846 — (159) 8 (118) 2 23 (97) — (118) (10) $ 1,377 $ 1,644 Funded status as recognized in the Consolidated Balance Sheet: Funded status at end of year Unrecognized prior service cost Unrecognized loss Pension Postretirement 2002 2001 2002 2001 $ (292) $ 122 $ (340) $ (338) 57 644 54 220 (33) 36 (32) 15 Net amount recognized $ 409 $ 396 $ (337) $ (355) Amounts recognized in the Consolidated Balance Sheet: Net periodic pension income $ (4) $ (12) $ (1) Pension Postretirement Service cost Interest cost Amortization of prior service cost Amortization of net gain Settlement Net periodic postretirement (income) expense Change in beneﬁt obligation: $ 2002 5 21 $ 2001 3 20 $ 2000 5 18 (14) — — (12) (7) — (11) (12) (3) $ 12 $ 4 $ (3) Obligation at beginning of year Acquisition adjustment Service cost Interest cost Plan amendments Actuarial loss Settlement Beneﬁts paid Foreign currency adjustment Beneﬁt obligation at end of year Pension Postretirement 2002 2001 2002 2001 $ 1,522 $ 1,428 $ 338 $ 260 — 36 109 6 117 — 23 35 106 — 60 — (123) (122) 2 (8) — 5 21 (16) 21 — (29) — — 3 20 — 86 (1) (30) — $ 1,669 $ 1,522 $ 340 $ 338 Prepaid beneﬁt cost Intangible asset Accumulated other comprehensive loss 2002 $ 51 31 327 2001 $ 396 — — Net amount recognized $ 409 $ 396 The projected beneﬁt obligation, accumulated beneﬁt obligation, and fair value of plan assets for the pension plans with accumulated beneﬁt obligations in excess of plan assets were $1,144, $1,048 and $864, respectively, as of July 28, 2002. The current portion of nonpension postretirement beneﬁts included in Accrued liabilities was $19 at July 28, 2002 and July 29, 2001. Pension Weighted-average assumptions at end of year: Discount rate for beneﬁt obligation Expected return on plan assets Rate of compensation increases 2002 2001 2000 6.90% 7.25% 7.75% 9.30% 10.00% 10.50% 4.50% 4.50% 4.50% Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) Postretirement The discount rate used to determine the accumulated postretirement beneﬁt obligation was 7.00% in 2002 and 7.25% in 2001. The assumed health care cost trend rate used to measure the accumulated postretirement beneﬁt obligation was 8%, declining to 4.50% in 2007 and continuing at 4.50% thereafter. A one percentage point change in assumed health care costs would have the following effects on 2002 reported amounts: Effect on service and interest cost Effect on the 2002 accumulated beneﬁt obligation Increase Decrease $ 2 $ 12 $ (2) $ (12) Obligations related to non-U.S. postretirement beneﬁt plans are not signiﬁcant since these beneﬁts are generally provided through government-sponsored plans. Savings Plan The company sponsors employee savings plans which cover substantially all U.S. employees. After one year of continuous service, the company generally matches 50% of employee contributions up to 5% of compensation. Amounts charged to Costs and expenses were $13 in 2002, $11 in 2001, and $10 in 2000. 9. Taxes on Earnings The provision for income taxes on earnings consists of the following: Income taxes: Currently payable Federal State Non-U.S. Deferred Federal State Non-U.S. Earnings before income taxes: United States Non-U.S. 2002 2001 2000 $ 201 $ 254 $ 246 19 48 268 7 — (2) 5 29 51 334 13 (1) (8) 4 30 70 346 36 (4) (15) 17 $ 273 $ 338 $ 363 $ 685 113 $ 798 $ 835 $ 880 152 197 $ 987 $ 1,077 The following is a reconciliation of the effective income tax rate on continuing operations with the U.S. federal statutory income tax rate: Federal statutory income tax rate State income taxes (net of federal tax beneﬁt) Non-U.S. earnings taxed at other than federal statutory rate Tax loss carryforwards Other 2002 35.0% 2001 35.0% 2000 35.0% 1.6 (0.1) (0.4) (1.9) 1.5 (0.9) (0.3) (1.1) 1.5 (1.0) (0.3) (1.5) Effective income tax rate 34.2% 34.2% 33.7% Deferred tax liabilities and assets are comprised of the following: Depreciation Pensions Other Deferred tax liabilities Beneﬁts and compensation Tax loss carryforwards Other Gross deferred tax assets Deferred tax asset valuation allowance Net deferred tax assets Net deferred tax liability 2002 $ 154 2001 $ 160 10 238 402 195 12 103 310 (10) 300 125 216 501 197 12 95 304 (12) 292 $ 102 $ 209 At July 28, 2002, non-U.S. subsidiaries of the company have tax loss carryforwards of approximately $34. Of these carryforwards, $2 expire through 2007 and $32 may be carried forward indeﬁnitely. The current statutory tax rates in these countries range from 28% to 40%. U.S. income taxes have not been provided on undistributed earnings of non-U.S. subsidiaries of approximately $578, which are deemed to be permanently invested. If remitted, tax credits or planning strategies should substantially offset any resulting tax liability. 10. Accounts Receivable Customers Allowances for cash discounts and bad debts Other 2002 $ 431 (36) 395 22 2001 $ 441 (28) 413 29 $ 417 $ 442 42 43 11. Inventories 15. Other Assets Raw materials, containers and supplies Finished products 2002 $ 231 407 $ 638 2001 $ 216 381 $ 597 Prepaid pension beneﬁt cost Intangible pension asset Investments Other Approximately 60% of inventory in 2002 and 61% in 2001 is accounted for on the last in, ﬁrst out method of determining cost. If the ﬁrst in, ﬁrst out inventory valuation method had been used exclusively, inventories would not differ materially from the amounts reported at July 28, 2002 and July 29, 2001. 12. Other Current Assets Deferred taxes Other 13. Plant Assets Land Buildings Machinery and equipment Projects in progress Accumulated depreciation 2002 $ 86 37 $ 123 2001 $ 94 46 $ 140 $ 2002 53 868 2,482 230 3,633 (1,949) $ 2001 50 840 2,354 133 3,377 (1,740) $ 1,684 $ 1,637 Depreciation expense provided in Costs and expenses was $241 in 2002, $209 in 2001, and $196 in 2000. Approximately $159 of capital expenditures are required to complete projects in progress at July 28, 2002. 14. Intangible Assets Purchase price in excess of net assets of businesses acquired (goodwill) Trademarks Other intangibles Accumulated amortization Type Notes Notes Notes Notes Notes Notes Notes Notes Notes 2002 2001 $ 1,881 $ 1,856 993 16 2,890 (387) 890 11 2,757 (306) $ 2,503 $ 2,451 Debentures 2002 $ 51 31 203 50 2001 $ 396 — 215 25 $ 335 $ 636 16. Notes Payable and Long-term Debt Notes payable consists of the following: Commercial paper Current portion of Long-term Debt Variable-rate bank borrowings 2002 2001 $ 886 $ 1,789 301 9 6 11 $ 1,196 $ 1,806 Commercial paper had a weighted average interest rate of 2.54% and 4.38% at July 28, 2002 and July 29, 2001, respectively. The current portion of Long-term Debt had a weighted average interest rate of 6.16% and 5.79% at July 28, 2002 and July 29, 2001, respectively. The company has short-term lines of credit of approximately $1,982 at July 28, 2002. These lines of credit include two committed lines of credit totaling $1,800 which support commercial paper borrowings and remain unused at July 28, 2002, except for $45 of standby letters of credit issued on behalf of the company. Long-term Debt consists of the following: Fiscal Year of Maturity 2003 2004 2004 2004 2004 2007 2007 2009 2011 2021 Rate 2002 6.15% $ — $ 4.75% 5.63% 2.29% 5.72% 6.90% 5.50% 5.88% 6.75% 8.88% 300 — 300 — 300 300 300 700 200 49 2001 300 300 100 — 528 300 — — 500 200 15 $ 2,449 $ 2,243 Other 2004-2010 6.40%-9.00% Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) The fair value of the company’s long-term debt including the current portion of long-term debt in Notes payable was $2,952 at July 28, 2002, and $2,323 at July 29, 2001. therefore, does not anticipate nonperformance. In addition, the contracts are distributed among several ﬁnancial institu- tions, thus minimizing credit risk concentration. The company has $1,000 of long-term debt available to issue as of July 28, 2002 under a shelf registration statement ﬁled with the Securities and Exchange Commission. Principal amounts of long-term debt mature as follows: 2003–$301 (in current liabilities); 2004–$600; 2005–$1; 2006–$1; 2007–$605 and beyond–$1,242. 17. Other Liabilities Deferred taxes Deferred compensation Postemployment beneﬁts Other 2002 $ 188 121 15 65 2001 $ 303 123 13 36 $ 389 $ 475 18. Financial Instruments The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term debt approximate fair value. The fair value of long-term debt, as indicated in Note 16, and derivative ﬁnancial instruments is based on quoted market prices. In 2001, the company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138. The standard requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships. The company utilizes certain derivative ﬁnancial instruments to enhance its ability to manage risk, including interest rate, foreign currency, commodity and certain equity-linked employee compensation exposures which exist as part of ongoing business operations. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into contracts for speculative purposes, nor is it a party to any leveraged derivative instrument. The company is exposed to credit loss in the event of non- performance by the counterparties on derivative contracts. The company minimizes its credit risk on these transactions by dealing only with leading, credit-worthy ﬁnancial institu- tions having long-term credit ratings of “A” or better and, All derivatives are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized ﬁrm commitment (fair-value hedge), (2) a hedge of a fore- casted transaction or of the variability of cash ﬂows to be received or paid related to a recognized asset or liability (cash-ﬂow hedge), (3) a foreign-currency fair-value or cash- ﬂow hedge (foreign-currency hedge), or (4) a hedge of a net investment in a foreign operation. Some derivatives may also be considered natural hedging instruments (changes in fair value are recognized to act as economic offsets to changes in fair value of the underlying hedged item and do not qualify for hedge accounting under SFAS No. 133). Changes in the fair value of a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on ﬁrm commitments), are recorded in current period earnings. Changes in the fair value of a cash-ﬂow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash ﬂows. Changes in the fair value of a foreign-currency hedge are recorded in either current-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value hedge (e.g., a hedge of a ﬁrm commitment that is to be settled in foreign currency) or a cash-ﬂow hedge (e.g., a hedge of a foreign- currency-denominated forecasted transaction). If, however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within Shareowners’ equity (deﬁcit). The company ﬁnances a portion of its operations through debt instruments primarily consisting of commercial paper, notes, debentures and bank loans. The company utilizes interest rate swap agreements to minimize worldwide ﬁnancing costs and to achieve a targeted ratio of variable versus ﬁxed-rate debt. In 2002, the company entered into interest rate swaps that convert ﬁxed-rate debt (5.50% notes due in 2007 and 5.875% notes due in 2009) to variable. These swaps mature in 2007 and 2009, respectively, and are accounted for as fair-value hedges. The amounts paid or received on these hedges and adjustments to fair value are recognized as adjustments to interest expense. In 2001, the company entered into interest rate swaps that convert ﬁxed-rate debt (6.75% notes due in 2011) to variable. The 44 45 swaps mature in 2011 and are accounted for as fair-value hedges. The notional amount of fair-value interest rate swaps was $425 and $250, respectively, at July 28, 2002 and July 29, 2001. The swaps had a fair value of $31 and $5, respectively, at July 28, 2002 and July 29, 2001. In 2002, the company entered into interest rate swaps with a notional value of $300 that convert variable-rate debt to ﬁxed. The swaps mature in 2004 and are accounted for as cash-ﬂow hedges. Consequently, the effective portion of unrealized gains (losses) is deferred as a component of Accumulated other comprehensive income/(loss) and is recognized in earnings at the time the hedged item affects earnings. The amounts paid or received on the hedge are recognized as adjustments to interest expense. The fair value of the swaps was $(4) as of July 28, 2002. In anticipation of the $300 seven-year notes issued in September 2001, the company entered into forward-starting interest rate swap contracts with a notional value of $138. Upon issuance of the notes, the contracts were settled at a loss of approximately $4. This loss was recorded in other comprehensive income/(loss) and is being amortized to interest expense over the life of the notes. The company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the func- tional currency of certain subsidiaries. The company utilizes foreign currency forward purchase and sale contracts, options and cross-currency swaps in order to manage the volatility associated with foreign currency purchases and certain inter- company transactions in the normal course of business. Qualifying forward exchange contracts and cross-currency swap contracts are accounted for as cash-ﬂow hedges when the hedged item is a forecasted transaction, or when future cash ﬂows related to a recognized asset or liability are expected to be received or paid. The effective portion of the changes in fair value on these instruments is recorded in Accumulated other comprehensive income/(loss) and is reclassiﬁed into the Statement of Earnings on the same line item and in the same period or periods in which the hedged transaction affects earnings. The fair value of these instruments was $(38) at July 28, 2002. Qualifying forward exchange contracts are accounted for as fair-value hedges when the hedged item is a recognized asset, liability or ﬁrm commitment. The fair-value of such contracts was not material at July 28, 2002. The company also enters into certain foreign currency derivative instruments that are not designated as accounting hedges. These instruments are primarily intended to reduce volatility of certain intercompany ﬁnancing transactions. Gains and losses on derivatives not designated as accounting hedges are typically recorded in Other expenses, as an offset to gains/(losses) on the underlying transaction. Foreign currency forward contracts typically have maturities of less than one year. Principal currencies include the Australian dollar, British pound, Canadian dollar, euro, Japanese yen and Swedish krona. As of July 28, 2002, the accumulated derivative net gain in other comprehensive income for cash-ﬂow hedges, including the cross-currency swaps, variable to ﬁxed interest rate swaps and forward starting swap contracts was $2, net of tax. At July 29, 2001, the accumulated net gain in other compre- hensive income was not material. Reclassiﬁcations from Accumulated other comprehensive income/(loss) into the Statement of Earnings during the period ended July 28, 2002 were not material. There were no discontinued cash- ﬂow hedges during the year. At July 28, 2002, the maximum maturity date of any cash-ﬂow hedge was approximately nine years. Other disclosures related to hedge ineffectiveness, gains/(losses) excluded from the assessment of hedge effectiveness, gains/(losses) arising from effective hedges of net investments, gains/(losses) resulting from the discontinuance of hedge accounting and reclassiﬁcations from other comprehensive income to earnings have been omitted due to the insigniﬁcance of these amounts. The company principally uses a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. On occasion, the company may also enter into commodity futures contracts, as considered appropriate, to reduce the volatility of price ﬂuctuations for commodities such as corn, soybean meal and cocoa. These instruments are designated as cash- ﬂow hedges. The fair value of the effective portion of the contracts is recorded in Accumulated other comprehensive income/(loss) and reclassiﬁed into Cost of products sold in the period in which the underlying transaction is recorded in earnings. Commodity hedging activity is not material to the company’s ﬁnancial statements. The company is exposed to equity price changes related to certain employee compensation obligations. Swap contracts are utilized to hedge exposures relating to certain employee compensation obligations linked to the total return of the Standard & Poor’s 500 Index and the total return of the company’s capital stock. The company pays a variable interest Campbell Soup Company Annual Report 2002 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) rate and receives the equity returns under these instruments. The notional value of the equity swap contracts, which mature in 2003, was $53 at July 28, 2002. These instruments are not designated as accounting hedges. Gains and losses are recorded in Other expenses. The net liability recorded under these contracts at July 28, 2002 was approximately $22. 19. Shareowners’ Equity (Deﬁcit) The company has authorized 560 million shares of Capital stock with $.0375 par value and 40 million shares of Preferred stock, issuable in one or more classes, with or without par as may be authorized by the Board of Directors. No Preferred stock has been issued. The company sponsors a long-term incentive compensation plan. Under the plan, restricted stock and options may be granted to certain ofﬁcers and key employees of the company. The plan provides for awards up to an aggregate of 50 million shares of Capital stock. Options are granted at a price not less than the fair value of the shares on the date of grant and expire not later than ten years after the date of grant. Options vest over a three-year period. The company accounts for the stock option grants and restricted stock awards in accordance with Accounting Principles Board Opinion No. 25 and related Interpretations. Accordingly, no compensation expense has been recognized in the Statements of Earnings for the options. In 1997, the company adopted the disclosure provisions of SFAS No. 123 “Accounting for Stock-Based Compensation.” Had the company recorded compensation expense for the fair value of options granted consistent with SFAS No. 123, earnings from continuing operations would have been reduced by approximately $15, $14, and $13 in 2002, 2001 and 2000, respectively. Earnings per share from continuing operations, both basic and assuming dilution, would have been reduced by $.04 in 2002, and $.03 in both 2001 and 2000. In 2001, the Board of Directors authorized the conversion of certain stock options to shares of restricted stock based on speciﬁed conversion ratios. The exchange, which was vol- untary, replaced approximately 4.7 million options with approximately one million restricted shares. Depending on the original grant date of the options, the restricted shares vest in 2002, 2003 or 2004. The company recognizes compen- sation expense throughout the vesting period of the restricted stock. Compensation expense related to this award was $11 in 2002 and $8 in 2001. The weighted average fair value of options granted in 2002, 2001 and 2000 was estimated as $8.09, $7.96 and $7.94, respectively. The fair value of each option grant at grant date is estimated using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in 2002, 2001 and 2000: Risk-free interest rate Expected life (in years) Expected volatility Expected dividend yield 2002 5.0% 6 31% 2.2% 2001 5.1% 6 30% 3.1% 2000 6.3% 6 29% 3.0% Restricted shares granted are as follows: (shares in thousands) Restricted Shares Granted 2002 2001 2000 94 184 573 Information about stock options and related activity is as follows: (options in thousands) 2002 Weighted Average Exercise Price Weighted Average Exercise Price 2001 Weighted Average Exercise Price 2000 Beginning of year 17,370 $ 30.30 24,024 $ 32.16 19,880 $ 32.37 Granted Exercised Terminated Converted to restricted stock 15,176 25.53 1,361 31.95 6,105 29.84 (827) 17.52 (2,434) 16.82 (1,350) 17.81 (1,713) 31.16 (929) 40.36 (611) 45.40 — — (4,652) 46.13 — — End of year 30,006 $ 28.21 17,370 $ 30.30 24,024 $ 32.16 Exercisable at end of year 12,595 12,160 14,850 (options in thousands) Stock Options Outstanding Exercisable Options Range of Exercise Prices $16.81–$22.60 $22.61–$31.91 $31.92–$44.41 $44.42–$56.50 Weighted Average Weighted Average Exercise Price Remaining Contractual Life Weighted Average Exercise Price Shares 2.0 $ 20.14 2,951 $ 20.14 Shares 2,951 23,745 8.3 $ 27.38 7,163 $ 30.76 2,754 556 30,006 6.3 $ 38.78 1,926 $ 41.28 3.8 $ 53.97 555 $ 53.99 12,595 In 1999, the company entered into forward stock purchase contracts to partially hedge the company’s equity exposure from its stock option program. On December 12, 2000, the company purchased 11 million shares of common stock under the existing forward contracts for approximately $521. For the periods presented in the Consolidated Statements of Earnings, the calculations of basic earnings per share and earnings per share assuming dilution vary in that the weighted average shares outstanding assuming dilution includes the incremental effect of stock options, except when 46 47 such effect would be antidilutive. In 2001 and 2000, the weighted average shares outstanding assuming dilution also includes the incremental effect of approximately three million and four million shares, respectively, under forward stock purchase contracts. space, and certain equipment. Future minimum annual rental payments under these operating leases are as follows: 2003 $ 54 2004 $ 45 2005 $ 34 2006 $ 30 2007 $ 26 Thereafter $ 62 20. Commitments and Contingencies On March 30, 1998, the company effected a spinoff of several of its non-core businesses to Vlasic Foods International Inc. (“VFI”). VFI and several of its afﬁliates (collectively, “Vlasic”) commenced cases under Chapter 11 of the Bankruptcy Code on January 29, 2001 in the United States Bankruptcy Court for the District of Delaware. Vlasic’s Second Amended Joint Plan of Distribution under Chapter 11 (the “Plan”) was conﬁrmed by an order of the Bankruptcy Court dated November 16, 2001, and became effective on or about November 29, 2001. The Plan provides for the assignment of various causes of action allegedly belonging to the Vlasic estates, including claims against the company allegedly arising from the spinoff, to VFB LLC, a limited liability company (“VFB”) whose membership interests are to be distributed under the Plan to Vlasic’s general unsecured creditors. On February 19, 2002, VFB commenced a lawsuit against the company and several of its subsidiaries in the United States District Court for the District of Delaware alleging, among other things, fraudulent conveyance, illegal dividends and breaches of ﬁduciary duty by Vlasic directors alleged to be under the company’s control. The lawsuit seeks to hold the company liable in an amount necessary to satisfy all unpaid claims against Vlasic (which VFB estimates in the complaint to be $250), plus unspeciﬁed exemplary and punitive damages. While this case is still in its early stages and the ultimate disposition of complex litigation is inherently difﬁcult to assess, the company believes the action is without merit and intends to defend the case vigorously. The company is a party to other legal proceedings and claims, environmental matters and tax issues arising out of the normal course of business. Although the results of the pending claims and litigation cannot be predicted with certainty, in management’s opinion, the ﬁnal outcome of these other legal proceedings and claims, environmental matters and tax issues will not have a material effect on the consolidated results of operations, ﬁnancial position or cash ﬂows of the company. The company has certain operating lease commitments, primarily related to warehouse and ofﬁce facilities, retail store The company guarantees approximately $74 of bank loans to Pepperidge Farm independent sales distributors, which are secured by their distribution routes that are purchased from the company. 21. Statements of Cash Flows Interest paid, net of amounts capitalized Interest received Income taxes paid 2002 2001 2000 $ 173 $ 4 $ 222 $ 208 $ 12 $ 310 $ 199 $ 10 $ 253 22. Quarterly Data (unaudited) 2002 Net sales1 Cost of products sold1 Net earnings Per share – basic Net earnings Dividends Per share – assuming dilution Net earnings Market price High Low 2001 Net sales1 Cost of products sold1 Net earnings Per share – basic Net earnings Dividends Per share – assuming dilution Net earnings Market price High Low First Second Third Fourth $ 1,729 $ 1,810 $ 1,371 $ 1,223 971 171 1,004 203 782 96 686 55 0.42 0.49 0.23 0.13 0.1575 0.1575 0.1575 0.1575 0.42 0.49 0.23 0.13 $ 29.27 $ 31.44 $ 28.85 $ 28.40 $ 25.52 $ 27.81 $ 25.59 $ 21.00 First Second Third Fourth $ 1,581 $ 1,755 $ 1,271 $ 1,164 856 204 918 271 712 122 646 52 0.48 0.225 0.65 0.225 0.30 0.225 0.13 0.225 0.47 0.65 0.30 0.13 $ 28.81 $ 23.75 $ 35.44 $ 28.19 $ 33.05 $ 28.25 $ 31.00 $ 25.75 1 In the fourth quarter of 2001, the company adopted new guidance on the classiﬁcation of shipping and handling costs. Shipping and handling costs of $207 in 2001 were reclas- siﬁed from Net sales to Cost of products sold. In the ﬁrst quarter of 2002, the company adopted new accounting standards related to the income statement classiﬁcation of cer- tain consumer and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising programs and in-store display incentives. As a result, the reclassiﬁ- cations, recorded in 2002, reduced Net sales by $893 and reduced Cost of products sold by $14 for 2001. See Note 1 for further discussion. Campbell Soup Company Annual Report 2002 Report of Management The accompanying ﬁnancial statements have been prepared by the management of the company in conformity with generally accepted accounting principles to reﬂect the ﬁnancial position of the company and its operating results. Financial information appearing throughout this Annual Report is consistent with that in the ﬁnancial statements. Management is responsible for the information and representations in such ﬁnancial statements, including the estimates and judgments required for their preparation. In order to meet its responsibility, management maintains a system of internal controls designed to assure that assets are safeguarded and that ﬁnancial records properly reﬂect all transactions. The company also maintains a worldwide auditing function to periodically evaluate the adequacy and effectiveness of such internal controls, as well as the company’s administrative procedures and reporting practices. The company believes that its long-standing emphasis on the highest standards of conduct and business ethics, set forth in extensive written policy statements, serves to reinforce its system of internal accounting controls. The report of PricewaterhouseCoopers LLP, the company’s independent accountants, covering their audit of the ﬁnancial statements, is included in this Annual Report. Their independent audit of the company’s financial statements includes a review of the system of internal accounting controls to the extent they consider necessary to evaluate the system as required by generally accepted auditing standards. The company’s internal auditors report directly to the Audit Committee of the Board of Directors, which is composed entirely of Directors who are not ofﬁcers or employees of the company. The Audit Committee meets regularly with the internal auditors, other management personnel, and the independent accountants. The independent accountants and the internal auditors have had, and continue to have, direct access to the Audit Committee without the presence of other management personnel, and have been directed to discuss the results of their audit work and any matters they believe should be brought to the Committee’s attention. Douglas R. Conant President and Chief Executive Ofﬁcer Robert A. Schiffner Senior Vice President and Chief Financial Ofﬁcer Gerald S. Lord Vice President – Controller September 5, 2002 48 49 Report of Independent Accountants To the Shareowners and Directors of Campbell Soup Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareowners’ equity (deﬁcit) and cash ﬂows present fairly, in all material respects, the ﬁnancial position of Campbell Soup Company and its subsidiaries at July 28, 2002, and July 29, 2001, and the results of their operations and their cash ﬂows for each of the three years in the period ended July 28, 2002, in conformity with accounting principles generally accepted in the United States of America. These ﬁnancial statements are the responsibility of the company’s management; our responsibility is to express an opinion on these ﬁnancial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements, assessing the accounting principles used and signiﬁcant estimates made by management, and evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Philadelphia, Pennsylvania September 5, 2002 Campbell Soup Company Annual Report 2002 Five-Year Review – Consolidated (millions, except per share amounts) Fiscal Year Summary of Operations Net sales Earnings before interest and taxes Earnings before taxes Earnings from continuing operations Loss from discontinued operations Net earnings 20021 20012 2000 19993 19984 $ 6,133 984 798 525 — 525 $ 5,771 1,194 987 649 — 649 $ 5,626 1,265 1,077 714 — 714 $ 5,803 1,270 1,097 724 — 724 $ 6,220 1,248 1,073 689 (18) 660 Financial Position Plant assets – net Total assets Total debt Shareowners’ equity Per Share Data $ 1,684 $ 1,637 $ 1,644 $ 1,726 $ 1,723 5,721 3,645 (114) 5,927 4,049 (247) 5,196 3,091 137 5,522 3,317 235 5,633 2,570 874 Earnings from continuing operations – basic $ 1.28 $ 1.57 $ 1.68 $ 1.64 $ 1.52 Earnings from continuing operations – assuming dilution Net earnings – basic Net earnings – assuming dilution Dividends declared Other Statistics Cash margin5 Capital expenditures Number of shareowners (in thousands) Weighted average shares outstanding Weighted average shares outstanding – assuming dilution 1.28 1.28 1.28 0.63 21.2% $ 269 47 410 411 1.55 1.57 1.55 0.90 1.65 1.68 1.65 0.90 1.63 1.64 1.63 0.885 1.50 1.46 1.44 0.823 25.4% 27.0% 26.3% 24.4% $ 200 $ 200 $ 297 $ 256 48 414 418 51 425 432 51 441 445 51 454 460 1 2002 results include pre-tax costs of $20 ($14 after tax or $.03 per share basic and assuming dilution) related to an Australian manufacturing reconﬁguration. Of this amount, pre-tax costs of approximately $19 were recorded in Cost of products sold. 2 2001 results include pre-tax costs of $15 ($11 after tax or $.03 per share basic and assuming dilution) related to an Australian manufacturing reconﬁguration. Of this amount, pre-tax costs of approximately $5 were recorded in Cost of products sold. 3 1999 earnings from continuing operations include a net pre-tax restructuring charge of $36 ($27 after tax or $.06 per share basic and assuming dilution). Earnings from continuing operations also include the effect of certain non-recurring costs of $22 ($15 after tax or $.03 per share basic and assuming dilution). 4 1998 earnings from continuing operations include a pre-tax restructuring charge of $262 ($193 after tax or $.42 per share basic and assuming dilution). Earnings from continuing operations also include a gain on divestiture of $14 ($9 after tax or $.02 per share basic and assuming dilution). Net earnings include the cumulative effect of a change in accounting for business process reengineering costs of $11 or $.02 per share (basic and assuming dilution). 5 Cash margin equals earnings before interest and taxes plus depreciation, amortization and minority interest expense divided by net sales. In 2002, ﬁnancial results were restated to conform to the requirements of new accounting standards. Certain consumer and trade promotional expenses have been reclassiﬁed from Marketing and selling expenses and Cost of products sold to Net sales for 1998 to 2001. The company spun off its Specialty Foods segment in 1998 and accounted for it as a discontinued operation. Board of Directors Ofﬁcers (as of October 2002) Shareowner Information Douglas R. Conant President and Chief Executive Ofﬁcer Jerry S. Buckley Senior Vice President – Public Affairs M. Carl Johnson, III Senior Vice President – Chief Strategy Ofﬁcer Ellen Oran Kaden Senior Vice President – Law and Government Affairs R. David C. Macnair Senior Vice President – Global Research and Development Larry S. McWilliams Senior Vice President – Sales and Chief Customer Ofﬁcer Patrick O’Malley Senior Vice President – Global Operations Robert A. Schiffner Senior Vice President and Chief Financial Ofﬁcer Doreen A. Wright Senior Vice President and Chief Information Ofﬁcer John Doumani Vice President and President – Campbell International Anthony P. DiSilvestro Vice President and Managing Director – Campbell International John J. Furey Vice President and Corporate Secretary James A. Goldman Vice President and President – North America Sauces and Beverages Richard J. Landers Vice President – Taxes Gerald S. Lord Vice President – Controller William J. O’Shea Vice President – Treasurer Mark A. Sarvary Vice President and President – Pepperidge Farm World Headquarters Campbell Soup Company Campbell Place Camden, NJ 08103 (856) 342-4800 (856) 342-3878 (Fax) Stock Exchange Listings New York, Philadelphia, London, Swiss Ticker Symbol: CPB Newspaper Listing: CamSp Transfer Agent and Registrar EquiServe Trust Company P.O. Box 43069 Providence, RI 02940-3069 1-800-446-2617 Independent Accountants PricewaterhouseCoopers LLP Two Commerce Square Suite 1700 2001 Market Street Philadelphia, PA 19103-7042 Dividends Campbell has paid dividends since the company became public in 1954. Dividends are normally paid quarterly, at the end of January, April, July and October. A dividend reinvestment plan is available to shareowners. For information about dividends or the dividend investment plan, write: Dividend Reinvestment Plan Agent, Campbell Soup Company, P.O. Box 43081, Providence, RI 02940-3081, or call (781) 575-2723 or 1-800-446-2617. Annual Meeting The Annual Meeting of Shareowners will be held on November 22, 2002 at 11:00 a.m. Eastern Standard Time, at Doneckers Ballroom, 100 North State Street, Ephrata, PA 17522. Publications For copies of the Annual Report or the SEC Form 10-K (ﬁled annually in October) or other ﬁnancial information, write Investor Relations at the World Headquarters address, or call 1-888-SIP-SOUP (1-888-747-7687) or visit our worldwide website at www.campbellsoup.com. For copies of Campbell Soup Company’s Equal Opportunity Report or the Annual Report of the Campbell Soup Foundation, write to Public Affairs at the World Headquarters address. Information Sources Inquiries regarding our products may be addressed to Campbell’s Consumer Response and Information Center at the World Headquarters address, or call 1-800-257-8443. Media and public relations inquiries should be directed to Michelle Davidson, Director – Corporate Communications at the World Headquarters address, or call (856) 968-4390. Investors and ﬁnancial analysts may contact Leonard F. Griehs, Vice President – Investor Relations, at the World Headquarters address, or call (856) 342-6428. Communications concerning share transfer, lost certiﬁcates, dividends and change of address should be directed to EquiServe Trust Company, 1-800-446-2617. Shareowner Information Service For the latest quarterly business results, or other information requests such as dividend dates, shareowner programs or product news, call 1-888-SIP-SOUP (1-888-747-7687). Shareowner information is also available on the World Wide Web at: www.campbellsoup.com. Campbell Brands Product trademarks of Campbell Soup Company and/or its subsidiaries appearing in the narrative text of this report are italicized. Thanks to all the employees pictured in this year’s annual report. George M. Sherman Chairman of Campbell Soup Company (2, 3) Douglas R. Conant President and Chief Executive Ofﬁcer of Campbell Soup Company (3, 4) Alva A. App Retired Senior Scientiﬁc Advisor to the United Nations Development Programme (3, 4, 5) Edmund M. Carpenter President and Chief Executive Ofﬁcer of Barnes Group, Inc. (1, 4) Bennett Dorrance Private Investor and Chairman and Managing Director of DMB Associates (2, 3, 4) Thomas W. Field, Jr. President, Field & Associates (1, 3, 5) Kent B. Foster Chairman and Chief Executive Ofﬁcer of Ingram Micro, Inc. (1, 5) Harvey Golub Retired Chairman and Chief Executive Ofﬁcer of American Express Company (2, 4) David K. P. Li Chairman and Chief Executive of The Bank of East Asia, Limited (4) Philip E. Lippincott Former Chairman of Campbell Soup Company (2, 3, 4) Mary Alice D. Malone Private Investor and President of Iron Spring Farm, Inc. (4, 5) Charles H. Mott President and Chief Executive Ofﬁcer of John W. Bristol & Co., Inc. (4, 5) Charles R. Perrin Retired Chairman and Chief Executive Ofﬁcer of Avon Products, Inc. (1, 2) Donald M. Stewart President and Chief Executive Ofﬁcer of the Chicago Community Trust (2, 5) George Strawbridge, Jr. Private Investor (1, 3, 5) Charlotte C. Weber Private Investor and President and Chief Executive Ofﬁcer of Live Oak Properties (2, 5) Committees 1 Audit 2 Compensation and Organization 3 Executive 4 Finance and Corporate Development 5 Governance C a m p b e l l S o u p C o m p a n y 2 0 0 2 A n n u a l R e p o r t Campbell Place, Camden, NJ 08103-1799 www.campbellsoup.com

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