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1 Campbell Place, Camden, NJ 08103-1799 www.campbellsoupcompany.com
Campbell Soup Company 2004 Annual Report
Better organization.
Better employee engagement.
Better consumer insights.
Better business strategies.
Better products.
Better packaging.
Better marketing.
Better innovation pipeline.
Better customer relationships.
Better trade spending productivity.
Better competitiveness.
Better organic growth profi le.
Better fi nancial foundation.
Better prospects for the company’s future.
Board of
Directors
Officers
(as of October 2004)
Shareowner
Information
George M. Sherman
Chairman of Campbell Soup
Company, Retired President and
Chief Executive Officer
of Danaher Corporation 2
Douglas R. Conant
President and Chief Executive
Officer of Campbell Soup Company 3
Edmund M. Carpenter
President and Chief Executive
Officer of Barnes Group, Inc. 1, 3
Paul R. Charron
Chairman and Chief Executive
Officer of Liz Claiborne, Inc.3
Bennett Dorrance
Private Investor and Chairman
and Managing Director
of DMB Associates 2, 3
Kent B. Foster
Chairman and Chief Executive
Officer of Ingram Micro, Inc.1, 4
Harvey Golub
Retired Chairman and Chief
Executive Officer of American
Express Company 2, 3
Randall W. Larrimore
Non-executive Chairman of Olin
Corporation and Retired President
and Chief Executive Officer of
United Stationers Inc. 1, 4
Philip E. Lippincott
Former Chairman of
Campbell Soup Company,
Retired Chairman and
Chief Executive Officer
of Scott Paper Company 2, 3
Mary Alice D. Malone
Private Investor and President
of Iron Spring Farm, Inc.3, 4
David C. Patterson
Founder and Chairman
Brandywine Trust Company 3, 4
Charles R. Perrin
Non-executive Chairman of
Warnaco Group, Inc., and Retired
Chairman and Chief Executive
Officer of Avon Products, Inc.1, 2
Donald M. Stewart
President of the Chicago
Community Trust 2, 4
George Strawbridge, Jr.
Private Investor and President of
Augustin Corporation 1, 4
Les C. Vinney
President and Chief Executive
Officer of STERIS Corporation 1, 4
Charlotte C. Weber
Private Investor and Chief Executive
Officer of Live Oak Properties 2, 4
Douglas R. Conant
President and Chief
Executive Officer
Mark A. Sarvary
Executive Vice President
and President –
Campbell North America
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
Larry S. McWilliams
Senior Vice President and
President – U.S. Soup, Sauces,
and Beverages
Denise M. Morrison
Senior Vice President and
President – Global Sales and
Chief Customer Officer
Nancy A. Reardon
Senior Vice President and
Chief Human Resources and
Communications Officer
Robert A. Schiffner
Senior Vice President and
Chief Financial Officer
David R. White
Senior Vice President –
Global Supply Chain
Doreen A. Wright
Senior Vice President and
Chief Information Officer
Anthony P. DiSilvestro
Vice President – Controller
John Doumani
Vice President and
President – Campbell International
John J. Furey
Vice President and
Corporate Secretary
Richard J. Landers
Vice President – Taxes
Gerald S. Lord
Vice President – Finance and
Strategy, Campbell North America
William J. O’Shea
Vice President – Treasurer
World Headquarters
Campbell Soup Company
1 Campbell Place
Camden, NJ 08103
(856) 342-4800
(856) 342-3878 (Fax)
Stock Exchange Listings
New York, Philadelphia,
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 reinvestment 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 18, 2004
at 3 p.m., Eastern Standard Time,
at the Wyndham Reading Hotel,
Reading, PA 19601.
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.campbellsoupcompany.com.
For copies of the Campbell Soup
Foundation’s Giving Report, write to:
Public Affairs at the World
Headquarters address.
Committees 1 Audit 2 Compensation & Organization 3 Finance & Corporate Development 4 Governance
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 John Faulkner,
Director – Corporate Communications
at the World Headquarters address,
or call (856) 342-3738.
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 worldwide website at
www.campbellsoupcompany.com.
Campbell Brands
Product trademarks of Campbell
Soup Company and/or its
subsidiaries appearing in the
narrative text of this report are
italicized.
* Kahlua and Tia Maria are registered
trademarks of Allied Domecq and a
license for their use on Arnott’s
products has been granted by the
owners to Arnott’s.
Thanks to all the Campbell
employees pictured in this year’s
annual report.
1
Dear Shareowner,
In July 2001, we launched a bold plan — and made a
massive commitment — to transform Campbell Soup
Company. Despite many challenges, it is now clear that
we have renewed, revitalized, and reinvigorated our
company and put it back on a growth track. We’ve
rebuilt our organization, recharged our brands, and reinforced our market positions
around the world. We are clearly better as a company, and ready for the next
phase of our transformation: driving quality growth in everything we do.
In fiscal 2004, net sales increased 6 percent to $7.1 billion. Currency and the impact of one less week in fiscal 2004 accounted
for 2 percent of the increase. Earnings per share of $1.57 in 2004 met our target when adjusted for the fourth quarter restructuring
charge and third and fourth quarter reported gains.
From fiscal 2002 to 2004, we achieved our sales growth and earnings goals when adjusted for the restructuring charge and
the reported gains. We generated $2.6 billion in cash from operations, invested more than $800 million in capital to improve
our business profile, paid $800 million in dividends, and repaid $800 million in debt. Overall, we significantly improved our
financial profile.
In the next phase, we aim to:
• Maintain our current net sales growth rate;
• Lower our overhead costs while upgrading our operating systems; and
• Improve the quality of our earnings by maintaining strong operating margins
and returns as we grow.
Going forward, our plan for “driving quality growth” means we will drive quality
in everything we do. As a result, shareowners will see:
• Quality in top-line growth driven by improving volumes, appropriate pricing, and
higher value products;
• Quality in operating earnings driven by strong margin management; and
• Quality in our products, our marketing, our supply chain, and our management.
2
3
“Now, it’s time to move to the next phase of
our revitalization: to drive quality growth in everything we do.”
Douglas R. Conant
To enhance our ability to drive this profitable growth, we have initiated two plans of action: Restructuring and Reorganizing.
Restructuring
We have eliminated approximately 400 positions to improve our agility and streamline our decision-making process. This has
resulted in a pre-tax charge of $23 million, or $.03 per share, in the fourth quarter of the fiscal year, and is expected to generate
a pre-tax savings of approximately $40 million per year beginning in fiscal 2005.
In Australia, we are converting from a direct store delivery system to one in which we will deliver product to our customers’ central
warehouses. This will result in more effective sales and distribution. This conversion will occur over the next three years and will
generate appreciable pre-tax savings annually beginning in fiscal 2008. In the fourth quarter, we recorded a portion of the
expense with a pre-tax charge of $9 million, or $.02 per share.
Over the next three years, we will install the SAP enterprise resource-planning system to replace much of the current complex
patchwork of applications that support our core business processes in North America. This will enable us to make better
decisions, become a stronger partner with our customers, and reduce operating costs. The installation of this system will cost
approximately $125 million. Lower operating costs, quicker transaction processing, and improved supply chain processes will
generate significant cost savings beginning in fiscal 2008.
Reorganizing
Building the right kind of organization is vital to making our vision for the future a reality. Today, we face much more discerning
consumers. We face much more demanding customers. We face much more aggressive competition.
In fiscal 2004, we created a new organizational structure for our North American business to better meet this challenging
environment and boost our momentum in the marketplace. The new alignment improves our speed to market, maximizes our
resources, and increases our overall efficiency. Campbell North America comprises the following businesses:
• U.S. Soup, Sauces, and Beverages
• Campbell Away From Home, and Canada, Mexico, and Latin America
• Pepperidge Farm
• Godiva Worldwide
Mark Sarvary was named to lead this new organization. Mark is adept at managing large, complex consumer businesses with a
focus on delivering breakthrough thinking and innovation.
This new North American structure follows the creation of Campbell’s International division in fiscal 2003, under the
leadership of John Doumani. John is a seasoned international executive with extensive experience managing businesses in a
global marketplace.
These two leaders will drive decision-making across all areas of the company to give us more agility and speed in executing plans.
Later in this report, you’ll get a more in-depth look at their businesses.
Moving Forward with a Quality Plan
Today, we have “world-class” brands anchored in two large global core product portfolios: Thermal (soup, sauces, and beverages) and
Snacking and Baking (cookies, crackers, salty snacks, and bread). These two areas account for a majority of our sales and earnings.
Importantly, we have both brand power and scale in these two areas that give us competitive advantage, which we intend to
leverage fully. Within these areas, we will focus our resources on building our existing brands in wet soup, sauces, vegetable-based
beverages, simple meals, and the cookie, cracker, and snack categories.
We are also developing a strong capability in instant dry soup. Internationally, dry soup resonates with consumers, offering
very attractive price/value propositions while delivering excellent margins for Campbell.
In addition, we will continue to seek strategically attractive and financially viable fold-in acquisitions that complement our
existing infrastructure.
2
3
Winning in the Workplace and in Our Communities
We remain committed to our Campbell Promise: Campbell Valuing People, People Valuing Campbell, which embodies a culture
of mutual respect. We know that to win in the marketplace, we must win in the workplace. That’s why we continue to focus on
improving our employee engagement and to measure our progress regularly through employee surveys. We also remain committed
to valuing our communities. Through the Campbell Soup Foundation in the U.S. and our many Campbell employee volunteer
efforts worldwide, we strive to be good corporate citizens, working to make life better in the communities where our employees
work and live.
New Financial Goals
Beginning in fiscal 2005, it is our goal to sustain net sales growth of 3 to 4 percent per year, earnings before interest and taxes
of 5 to 6 percent per year, and earnings per share growth of 5 to 7 percent per year from the adjusted fiscal 2004 base.
In September, following the close of the fiscal year, we made two important announcements. First, we increased our annual
dividend 7.9 percent from $.63 per share to $.68 per share, reflecting our improved financial performance and underscoring our
confidence in our future plans. Second, we announced that Harvey Golub, a Campbell director since 1996 and former Chairman
and Chief Executive Officer of American Express Company, would become Chairman of the Campbell Board in November. He will
succeed George M. Sherman, who is retiring from the Board following nine years of distinguished service as a director. I am most
appreciative of George’s wise counsel as we executed our Transformation Plan, and I look forward to working more closely with
Harvey to further strengthen our company.
Progress, Not Perfection
We have made good progress with our Transformation effort. We have rebuilt the company “top to bottom” and put it back
on a growth track. Now, it’s time to move to the next phase of our revitalization: to drive quality growth in everything we do.
And we will.
Douglas R. Conant, President and Chief Executive Officer
Chairman’s message
In fiscal 2004, we completed the third year of the Transformation Plan initiated by Doug Conant and his
management team. The Board is confident that the actions taken during the past three years provide a strong
foundation to drive quality growth in the years ahead. I believe that Campbell Soup Company is now well
positioned to take advantage of the opportunities to grow and leverage our brands in new and exciting ways,
such as our microwavable convenience soup platform.
In November 2004, I will retire from the Board to focus on and devote more time to private equity. I am proud and grateful to
have led the Campbell Board during the Transformation Plan. I believe that Campbell is well positioned to consistently perform at
the top of the food industry.
The Board has elected Harvey Golub as your new Chairman, beginning after the 2004 Annual Meeting. Harvey’s record of success
as Chief Executive Officer and Chairman of American Express Company, and his outstanding contributions as a director and
Chairman of the Compensation and Organization Committee of the Campbell Board, make him an ideal choice. He will provide
strong leadership to the Board as Doug and his management team continue to build the business.
The nominee to replace me on the Board is John Brock, Chief Executive Officer of InBev, based in Brussels, Belgium. John’s
international consumer products experience with InBev and Cadbury Schweppes will make him a valuable addition to the Board.
I wish him and the Board great success for the future.
George M. Sherman, Chairman of the Board
4
5
Financial Highlights
(millions of dollars, except per share amounts)
2004
52 weeks
2003
53 weeks
Net sales $ 7,109 $ 6,678
Gross margin $ 2,922 $ 2,873
Percent of sales 41.1%
Earnings before interest and taxes1 $ 1,115 $ 1,105
Percent of sales 15.7%
Net cash provided by operating activities $ 744 $ 873
Capital expenditures $ 288 $ 283
43.0%
16.5%
Earnings before cumulative effect of
accounting change1, 2 $ 647 $ 626
Per share1, 2
Basic1, 2 $ 1.58 $ 1.52
Diluted1, 2 $ 1.57 $ 1.52
Dividends $ 259 $ 259
Per share $ 0.63 $ 0.63
1 2004 results include pre-tax restructuring charges of $32 ($22 after tax or $.05 per share) related to a reduction in workforce and the
implementation of a distribution and logistics realignment in Australia.
2 In 2003, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets” and
discontinued the amortization of goodwill and indefinite-lived intangible assets. See also Note 3 to the Consolidated Financial Statements.
4
5
How will Campbell
drive “Quality Growth”
in 2005 and beyond?
By leveraging our brands to meet the
changing needs of our customers
and consumers — better, faster, and more
completely than the competition.
Following our three-year Transformation,
we have greatly improved our position to
compete and to win in the marketplace.
A Q U E S T I O N A N D A N S W E R S E S S I O N
In the following pages, we’ll explore our North American and International businesses through a conversation with
Mark Sarvary – President, Campbell North America, and John Doumani – President, Campbell International.
Campbell North America
Campbell North America
7
Campbell North America’s portfolio includes powerful retail and food service brands, including:
Campbell’s, Pace, Prego, Swanson, Stockpot, V8, Pepperidge Farm, and Godiva. Each of these brands is
#1 or #2 in its category or segment. Our North American business represents $5.2 billion in sales, with operations
in the United States, Canada, Mexico, and Latin America. In addition, our Godiva business operates worldwide.
Questions and Answers with Mark Sarvary – President, Campbell North America
7
“Our brands have leadership positions — they are known and
cherished by consumers and are part of their daily lives.”
Mark, you have a number of
diverse product offerings in
Campbell North America.
How do you prioritize your
investments?
Obviously, we remain focused on the core strategies of our
extraordinary soup business, continuing to grow our ready-
to-serve business, expanding our innovative convenience
platform, and moderating the decline of our condensed
business. At the same time, we are introducing new simple
meals that are closely related to soup — like chili.
However, soup is not our only investment area. V8 and
Pepperidge Farm are powerful brands with leadership positions,
and both are growing strongly with recent investments in new
products and marketing. Prego, Pace, and Godiva also have
opportunities, and we will continue to allocate appropriate
resources to support their success.
Q: What opportunities do you see to build the
U.S. Soup business?
We believe that ready-to-serve soups are well positioned to
help build the U.S. Soup business, and that convenient
versions of ready-to-serve soup will be a particular strength.
Soup has always been a convenient product, and with our
M’m! M’m! Good! To Go line of microwavable soups, including
Campbell’s Chunky and Select bowls and Campbell’s Soup at
Hand sippable soup, we have made soup simple and portable.
Not only are these products easier to prepare and consume,
but they also are expanding usage — many consumers are
now taking soup to work, to school, and to the sidelines at
athletic fields.
Our M’m! M’m! Good! To Go convenience products are already
generating more than $200 million in annual sales at retail,
and we are expanding our production capability this year.
smarter merchandising
Our breakthroughs in soup merchandising have made it simpler for retailers to stock
and maintain their soup shelves and easier and faster for consumers to shop. By the
end of fiscal 2004, we had installed more than 8,700 iQ Maximizer shelf systems
in U.S. stores. The gravity-feed shelf system organizes Campbell’s condensed soups
so that consumers can clearly see all the varieties. In 2005, we’ll be rolling out the
system more broadly.
In 2004, we also introduced a Customer Investment Program that dramatically
improved joint business planning between our sales teams and the retailers they
service. This program enables our sales teams to design more efficient and effective
plans, creating win-win solutions for our customers, for Campbell, and ultimately, for
our consumers.
8
eating well
9
Campbell’s soup portfolio is well positioned when it comes to healthful
eating. For example, in the U.S., 150 Campbell’s soups contain three
grams of fat or less, and 95 Campbell’s soups contain 100 calories or
less per serving. In fall 2004, we introduced Campbell’s Carb Request
soups, which have three to six grams of net carbs per serving.
Based on research showing the benefits of soup for weight control, we
unveiled Campbell’s Soup for Life Plan, which was developed by
nutritionists from Campbell’s Center for Nutrition & Wellness and the
culinary experts in Campbell’s Kitchen. In 2004, we partnered with the
U.S. Surgeon General, the American Academy of Pediatrics, Nike, and
McNeil Nutritionals on a major initiative aimed at improving the health
of American children. This effort, called “Shaping America’s Youth,”
strives to help reverse the prevalence of obesity and inactivity among
U.S. children and adolescents.
For more nutrition information and wellness solutions, visit
www.campbellwellness.com.
We also believe there is opportunity for restaurant-quality,
ready-to-serve pureed soup sold in aseptic packages, which
we are currently developing in the U.S. We have had success
with products like these in France, Australia, and, most
recently, Canada.
Another area closely related to soup that provides a signifi-
cant opportunity is simple meals. We will introduce more
simple meals to expand our convenience platform beyond the
soup aisle. A great example is Campbell’s Chunky chili, which
was introduced into the U.S. this year after a successful
launch in Canada.
Q: What is your focus for condensed soups?
Condensed soups continue to provide good value as a
convenient, nutritious, and wholesome way to feed your
family. Over the past three years, we have improved the
quality of our products, and made them easier to use by
adding easy-open lids. We have made them simpler to shop
for — our iQ Maximizer gravity-feed shelf set helps people
to find their favorites quickly. And we continue to innovate.
This fall, we introduced a line of Southwestern-style
condensed soups for cooking.
Q: Health and wellness are major issues for
today’s consumers. How will you address this
growing trend?
Soup is an inherently nourishing, good-for-you product. Many
of our sauces and beverages are low in fat and calories, and
provide the goodness of vegetable nutrition. And, of course,
many of our products contain the goodness of tomatoes —
Prego and Pace sauces, Campbell’s Tomato soup, V8
Vegetable juice, and Campbell’s Tomato juice. Carb-conscious
consumers can now enjoy new Campbell’s Carb Request
soups. We’ll also be introducing Swanson Organic broths,
following the success of Campbell’s Organic Tomato juice.
Campbell
North America
is $5.2 billion
in sales
Q: V8 is a powerful brand in its own right.
How are you going to use V8 to capitalize on
the growing trend in healthful beverages?
V8 Vegetable juice is a very strong performer. The V8 brand
is all about vegetable nutrition and great taste, and we
continue to leverage that equity. For families that are
interested in lowering their sugar intake, we’re introducing
reduced sugar varieties of V8 Splash juice drinks and V8
Splash Smoothies that contain one-third less sugar than
leading juice drinks. This is in addition to our popular Diet V8
Splash beverages. We’re also expanding the brand with V8
vegetarian frozen soups, chilis, and entrées for the Away
From Home market.
Q: Pepperidge Farm is certainly on a growth
track. What accounts for its success?
Pepperidge Farm offers unique lines of delicious premium
baked goods, breads, cookies, and crackers. Pepperidge
Farm is able to grow by innovating and expanding around its
icons, such as with new varieties of Goldfish crackers and
new flavors of Milano cookies. We recently introduced
lower-carb versions of Pepperidge Farm breads and rolls,
which are doing very well. In addition, consumers generally
react positively to product improvements. For example,
sales of Pepperidge Farm bagels and Mini bagels have risen
8
9
dramatically since their reformulation last year. With our
new bakery in Bloomfield, Connecticut, which opened in
2003, we have greatly expanded our capacity and efficiency.
Overall household penetration of our biscuit and bakery
products is still small compared to our major competitors,
so we have plenty of room to grow.
Q: Godiva has had some challenging years. How
do you plan to rebuild that business momentum?
Godiva is an extraordinary brand, and there is opportunity to
capitalize on its equity. While it is true that Godiva has been
impacted by overall softness in spending on luxury goods, it
has never stopped growing. Recently, we have seen the
business start to accelerate that growth. We are excited about
our plans for next year, which are focused on contemporizing
the brand with new products, new packaging, and new
advertising and promotions. We are also broadening our
distribution. In 2005, Godiva will enter China with our first
retail store in Shanghai.
Q: It seems that the Away From Home business
has been a relatively minor player for Campbell.
Will that change?
It certainly will. Our Away From Home business will play a
critical role in our plans to drive availability of our products.
It makes perfect sense — we’re selling the same quality
brands in growth channels such as schools, vending, and
club stores, which share elements of both retail and food
service. Expanding distribution in these channels is key to
our success in this area.
Q: How are you leveraging your brands with
the youth market?
We have great opportunities with kids and preteens. We
recently refocused our advertising and marketing for our
“kid-preferred” soups — including Campbell’s Chicken
Noodle — with promotions such as Campbell’s Souper Star
Fantasy. This creative program is aimed at making soup
more relevant to kids as a fun mealtime option, and has been
a major hit with preteens.
Goldfish crackers, with their Colors variety appealing to young
kids, and the Flavor-Blasted sub-brand for preteens, are also
growing strongly. One of the reasons we rebranded the
SpaghettiOs brand under the Campbell’s banner is to increase
its relevance to kids.
Q: Mark, why should an investor be excited
about Campbell’s business in North America?
Because we have strong brands with growth potential. Our
brands have leadership positions — they are known and
cherished by consumers and are part of their daily lives.
We will continue to generate growth from innovation, such as
expanding our M’m! M’m! Good! To Go microwavable
convenience platform within soups and into simple meals,
and growing our Pepperidge Farm business through
product and packaging innovations.
Our portfolio is well suited to America’s growing interest in
healthier eating. For example, our V8 brand already has a
strong growth trajectory, and we will leverage the brand into
other healthy beverages and into other categories.
And we will continue to grow by increasing the availability of
our products, reaching consumers in more outlets. We have
to be where consumers buy food — and that is fast evolving
into anywhere they can buy anything. That’s pretty exciting!
on-the-run snacking
Last year’s introduction of Pepperidge Farm Mini cookies
was one of the most successful new product introductions
in the company’s history. These bite-size replicas of five
cookie classics — Milano, Mint Milano, Chessmen,
Brussels, and Sausalito — became an instant hit. With
the same fine ingredients, buttery taste, and crisp
textures as original Pepperidge Farm cookies, these
treats cater to consumers of all ages who enjoy savoring
“the essence of a big cookie in a mini bite.”
This year, Pepperidge Farm launched Goldfish Sandwich
Snackers, a line of munchable, Goldfish-shaped sandwich
crackers with creamy fillings of cheese and peanut
butter. Available in three flavor combinations, Goldfish
Sandwich Snackers are favored by preteen snackers.
Leading the way in providing wholesome snacks for kids,
this year Pepperidge Farm Goldfish became the first
major cracker line in North America to contain zero
grams of trans fat.
Campbell International
11
Campbell International’s portfolio features leading brands in Europe and Asia Pacific. Beyond the Campbell’s worldwide
brand, we own a variety of soup and sauce brands, including Erasco soups in Germany, Liebig soups in France, and
Homepride sauces in the United Kingdom. The company also owns dry soup and sauce businesses in Europe under the
Batchelors, OXO, Royco, Liebig, Heisse Tasse, Blå Band, and Erin brands. In Asia Pacific we own the Arnott’s brand
of biscuits. Our International business represents $1.9 billion in sales.
Questions and Answers with John Doumani – President, Campbell International
11
“Throughout Campbell International, we have enviable brands,
strong teams, and enormous potential.”
John, Campbell North America
is clearly a primary focus for
the company. How important
is the International business?
Extremely so. We have established businesses in 14 countries,
with leadership brands in all of our core categories. With
$1.9 billion in sales, we represent more than 25 percent of
the company — I’d call that very significant and a strong
base. But importantly, we have plenty of opportunity.
Q: Let’s start with Europe. What growth
opportunities do you see there?
We have a profitable business — and it’s even stronger
today following the acquisition of several leading dry soup
brands in 2001. These brands have given us a more
profitable and growth-oriented mix of businesses, with a
stronger presence in our existing markets and a new
geography in the Nordic region.
We are now concentrating on building a stronger branded
profile for our European business. We have a better innovation
pipeline, are increasing marketing support, and are further
leveraging pan-European opportunities.
Soup is our largest product throughout most of Europe. We
are the strong leader in wet soup in France and Germany, and
we have opportunities for further expansion of wet soup into
other countries. We also see opportunities for instant dry
soup, which is popular in Europe as a snack. We have the #1
instant dry soup position in our core markets, with 60 to 70
percent market shares among icon brands such as Batchelors
in the United Kingdom, Royco in France and Belgium, Heisse
Tasse in Germany, and Blå Band in the Nordic countries.
exploring possibilities
With tempting treats such as Tim Tam and Tiny Teddy
biscuits, Arnott’s is an Australian icon — the country’s
favorite biscuit maker for nearly 140 years.
has doubled its market share. We’re also test-marketing
Arnott’s biscuits in China and are exploring expansion
into other developing markets in Asia.
But today, consumers throughout Asia are discovering that
there is a lot to love about Arnott’s. Its powerful brands,
aggressive innovation program, and high-quality foods
have made products such as Stikko Fingers and Nyam
Nyam snacks growing favorites in Hong Kong, Malaysia,
Singapore, Thailand, the Philippines, and Vietnam.
In Indonesia, sales of Arnott’s products have grown more
than eight-fold since fiscal year 1998, and the business
While Arnott’s is expanding its Asian business, it is still
intent on looking for new ways to meet consumer
demands — whether they are for new limited-edition
varieties of old favorites such as Tim Tam Chewy Choc
Fudge, healthy alternatives such as reduced-fat Arnott’s
Snack Right fruit biscuits, or products that provide
“adult indulgence” such as Tim Tam Tia Maria and
Kahlua Slice biscuits.
12
13
Campbell
International
is $1.9 billion
in sales
Q: While we’re talking about soup, what can you
tell us about the soup business in Australia?
In the last six years, we’ve become #1 in soup in Australia.
We’ve launched products such as hearty Campbell’s Chunky
soups, premium Country Ladle soups, and Velish soups for
the ultra-premium segment. We’ve given consumers innovative
solutions supported by strong marketing campaigns.
Q: Biscuits and snacks also comprise a solid
business for you across Asia Pacific. What are
your priorities in that area?
Our largest Asia Pacific business is Arnott’s biscuits in
Australia. Arnott’s is the nation’s largest grocery brand, and
innovation has driven great success. We are leveraging this
success by growing the Arnott’s brand in other parts of Asia,
such as New Zealand and Indonesia.
We are focusing on building strong customer partnerships
through initiatives with our retail trading partners. We are
working hand-in-hand with retailers to implement what will
ultimately be a much more effective route-to-market system.
Lastly, we are growing through acquisition. In the salty snack
category, through acquisition, we jumped from a weak #3
position to a strong #2. We are now leveraging the strong
brand equity of Arnott’s across this new business to further
strengthen our market position in this category.
Q: How are you leveraging Campbell’s
global capabilities?
Campbell’s leadership in many categories can be effectively
leveraged to seize opportunities. For example, dry soup is
more economical to produce than condensed. With our
European success in this area, we have the opportunity to
expand into less-developed markets with products that are
more affordable — such as expanding into Malaysia with dry
soups. We are also launching soups in microwavable bowls in
Australia and launching aseptic soups outside Europe.
Q: How are you addressing the growing
global concerns about health and wellness?
We are always looking at ways to meet consumer demand for
more healthful eating, such as with our reduced-fat Arnott’s
Snack Right fruit biscuits in Australia and our 98 percent
fat-free Heisse Tasse Swing dry soups in Germany. In France
this year, we’ll be introducing Liebig Legere, a delicious
low-fat, low-calorie vegetable soup.
Q: What are the opportunities beyond
Campbell’s current International geographies?
We have a great stable of products and brands to plant seeds
in developing markets. Our first initiative is a test market of
Arnott’s biscuits in China.
Expansion into emerging markets will not distract us from
our primary focus on driving organic growth through our
businesses in current geographies. Over the next three to five
years we should see increased innovation in our products, our
packaging, our supply chain — in every area of our business.
Throughout Campbell International, we have enviable brands,
strong teams, and enormous potential. We have a whole
world of opportunity — literally — and we’re working to seize
that opportunity.
expanding convenience
Campbell owns four of Europe’s leading instant dry soup
brands — Batchelors in the United Kingdom, Royco in
France and Belgium, Heisse Tasse in Germany, and Blå
Band in the Nordic countries. Dry soup has long been a
favorite snack food in Europe. In fact, it is the most
popular form of soup in continental Europe, representing
about half of commercial soup consumption. We are
leveraging our dry soup technology and expertise
throughout Europe to produce products for consumers
who are on the go or just looking for a tasty snack.
With our solid success in the dry soup market in Europe,
we’re also seizing opportunities to expand into less-
developed markets such as Malaysia, where a line of
Campbell’s branded fortified, instant dry soups was
recently introduced as a children’s breakfast food.
12
13
How is Campbell
demonstrating its commitment
to its employees and to
its communities?
We know that extraordinary things don’t
just happen — they are inspired by people
who are eager to continuously improve
the world around them. People like Campbell
employees, and like our community neighbors,
who are personally committed to
positive change. We are proud to value them,
to support them, and to celebrate them.
C A M P B E L L VA L U I N G PE O P L E A N D C O M M U N I T Y
On the next two pages, you will meet some of our talented Campbell employees from around the world and
learn how they are making a difference in our workplace and in our communities.
14
15
Campbell Valuing Employees
> “As a chef at Godiva, I have
the opportunity to share my
passion for food with my team
members, creating indulgent
products like our exotic Limited
Edition truffles.”
~Jody Klocko, Chef Chocolatier, Godiva
> “At Pepperidge Farm, I am part
of a fast-paced team that’s up to
the challenge of producing the
finest quality breads every day.”
~Derrick Tatem, Bread Processing
Mixer, Pepperidge Farm
> “At our Stockpot Culinary
Campus, we are passionate about
maintaining an environment that
encourages fresh ideas. We bring
our vision to life by challenging
each other to achieve together
that which could not be imagined
alone. And we have fun doing it.”
~Kathleen Horner, President, Stockpot
> “At our Gerwisch plant in
Germany, we are proud of the
quality products we make. That’s
why we are excited by the success
of our Erasco Mediterrano soups
in pouches. Quality is key at every
stage, from the fresh ingredients
and delicious new recipes to the
innovative packaging.”
~Ute Köppe, Quality Assurance
Manager, Campbell Germany
> “In addition to top-quality
Campbell products, we offer our
customers top-quality Campbell
people — people from all disciplines
who are proud to create the
customized products, packaging,
and strategies our club channel
customers need to drive success
in this growing market.”
~Ray Martinez, Team Leader, Costco
The progress we’ve made over the last three years is due entirely to the determined efforts of our
24,000 associates around the world. We aspire to create an inclusive workplace that provides
opportunities for all employees to reach their full potential. Our level of employee engagement has improved,
and our teams now have a greater passion for winning. We know that if it is to be, it is up to us.
14
15
Campbell Valuing Community
> Leveraging Campbell Canada’s
sponsorship of Kids Help Phone,
a youth crisis counseling service,
Campbell volunteers raised more
than $10,000 at the annual Bell
Walk for Kids.
> Campbell is a sponsor of
Students In Free Enterprise (SIFE),
an international non-profit
organization that helps college
students improve their communities.
In Australia, Arnott’s executives
often judge SIFE competitions.
> In Florida, following the
devastation from Hurricane
Charley during the summer of
2004, Vytas Omilijonas, Manager
of Disaster Relief for Operation
Blessing, gratefully accepted
truckloads of product donated
from Campbell’s Maxton, North
Carolina, plant.
> Reverend Floyd White, pictured
far right, with Carlos del Sol, Vice
President of Global Engineering
and Vice Chairman of the Campbell
Soup Foundation, was honored
with Campbell’s “Hometown Hero
Award” for his extraordinary efforts
to improve Camden, our birthplace
and hometown.
> When Campbell’s IT Department
renovated the library and launched
a homework program at St. Joseph’s
School in East Camden, New Jersey,
Tonayia Coffer, IT Business Analyst,
organized volunteers to create a
constructive after-school program
for the students.
Campbell has a proud history of commitment to the community. Deeply rooted in this tradition is our
collaboration with individuals and organizations that make it their business to build better communities.
We partner with these diverse groups through our product donations, charitable giving, and volunteerism.
We believe these relationships can effect global change and make a real difference.
16
Next goal:
Drive
Quality
“
Growth”
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
August 1, 2004
Commission File Number
1-3822
CAMPBELL SOUP COMPANY
New Jersey
State of Incorporation
21-0419870
I.R.S. Employer Identification No.
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Capital Stock, par value $.0375
Name of Each Exchange on Which Registered
New York Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
3
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
3
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 13a-2 of the Securities Exchange Act of 1934).
Yes No
3
As of September 21, 2004, the aggregate market value of capital stock held by non-affiliates of the Registrant was $6,312,173,575. There
were 410,241,976 shares of capital stock outstanding as of September 21, 2004.
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareowners to be held on November 18, 2004, are incorporated by
reference into Part III.
1
Campbell Soup Company
Form 10-K
For Fiscal Year Ended August 1, 2004
Index
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Item X.
Part II
Item 5.
Item 6.
Item 7.
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
Market for Registrant’s Capital Stock, Related Shareowner Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Results of Operations and Financial Condition
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
1
3
4
5
5
6
7
8
19
20
41
41
41
41
42
42
43
43
44
46
Part I
1
Item 1. Business
The Company Campbell Soup Company (“Campbell” or the
“company”), together with its consolidated subsidiaries, is a
global manufacturer and marketer of high quality, branded, conve-
nience food products. Campbell was incorporated as a business
corporation under the laws of New Jersey on November 23, 1922;
however, through predecessor organizations, it traces its heritage
in the food business back to 1869. The company’s principal
executive offices are in Camden, New Jersey 08103-1799.
On June 24, 2004, the company announced a series of initiatives
designed to improve the company’s sales growth and the quality
and growth of its earnings. These include the following:
• The elimination of approximately 400 positions worldwide,
which resulted in a pre-tax charge of $23 million, or three
cents per share, in the fourth quarter of fiscal 2004;
• The implementation of a new sales and distribution system for
the company’s business in Australia, converting from a direct
store delivery system to a central warehouse system. As a
result of this new system, over 200 positions are expected to
be eliminated, with most of the terminations occurring in fiscal
2005. The company recorded a pre-tax charge of $9 million, or
two cents per share, in the fourth quarter of fiscal 2004 related
to this new system;
• The implementation of a new SAP enterprise-resource planning
system in North America. The project is planned for the next
three years and is expected to cost approximately $125 million;
and
• An expanded focus on convenience and availability as the
primary sources of incremental future revenue growth, along
with an increased emphasis on “wellness” initiatives.
See also “Management’s Discussion and Analysis of Results
of Operations and Financial Condition” and the Consolidated
Financial Statements (and the Notes thereto).
Through fiscal 2004, the company’s operations were organized
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. The segments
are discussed in greater detail below.
North America Soup and Away From Home 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 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
in North America.
North America Sauces and Beverages The North America Sauces
and Beverages segment includes U.S. retail sales for Prego pasta
sauces, Pace Mexican sauces, Franco-American canned pastas
and gravies, V8 vegetable juices, V8 Splash juice beverages, and
Campbell’s tomato juice, as well as the total of all businesses in
Mexico and other Latin American and Caribbean countries. The
company operates this segment and the North America Soup and
Away From Home operations under an integrated supply chain
organization, in which these operations share substantially all
manufacturing, warehouse, distribution and sales activities.
Biscuits and Confectionery The Biscuits and Confectionery
segment includes all retail sales of Pepperidge Farm cookies,
crackers, breads and frozen products in the United States,
Arnott’s biscuits and crackers in Australia and Asia Pacific,
Arnott’s Snackfoods salty snacks in Australia, and Godiva choco-
lates worldwide.
International Soup and Sauces 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, Blå Band soups and
sauces in Sweden, and McDonnells and Erin soups in Ireland. In
Asia Pacific, operations include Campbell’s soup and stock and
Swanson broths across the region.
Ingredients The ingredients required for the manufacture of the
company’s food products are purchased from various suppliers.
While all such ingredients are available from numerous indepen-
dent suppliers, raw materials are subject to fluctuations in price
attributable to a number of factors, including changes in crop
size, cattle cycles, government-sponsored agricultural programs,
import and export requirements and weather conditions during
the growing and harvesting seasons. Ingredient inventories are
at a peak during the late fall and decline during the winter and
spring. Since many ingredients of suitable quality are available in
sufficient quantities only at certain seasons, the company makes
commitments for the purchase of such ingredients during their
respective seasons. At this time, the company does not anticipate
any material restrictions on availability or shortages of ingredients
that would have a significant impact on the company’s busi-
nesses. For information relating to the impact of inflation on the
company, see “Management’s Discussion and Analysis of Results
of Operations and Financial Condition.”
Customers In the United States, Canada, Europe and the Asia
Pacific region, sales solicitation activities are conducted by the
company’s own sales force and through broker and distributor
2
3
arrangements. In the United States and Canada, the company’s
products are generally resold to consumers in retail food chains,
mass discounters, mass merchandisers, club stores, convenience
stores, drug stores and other retail establishments. In Europe,
the company’s products are generally resold to consumers in
retail food chains, mass discounters and other retail estab-
lishments. In the Asia Pacific region, the company’s products
are generally resold to consumers through retail food chains,
convenience stores, vending machines and other retail establish-
ments. Godiva’s products are sold generally through a network of
company-owned retail boutiques in North America, Europe, and
Asia, franchised third-party retail boutique operators in Europe,
third-party distributors in Europe and Asia, and major retailers,
including finer department stores and duty-free shops, world-
wide. Godiva’s products are also sold through catalogs and on
the Internet, although these sales are primarily limited to North
America. The company makes shipments promptly after receipt
and acceptance of orders.
The company’s largest customer, Wal-Mart Stores, Inc. and its
affiliates, accounted for approximately 13% of the company’s
consolidated net sales during fiscal 2004 and 12% during fiscal
2003. All of the company’s segments sold products to Wal-Mart
Stores, Inc. or its affiliates.
Trademarks and Technology The company owns over 6,900
trademark registrations and applications in over 160 countries
and believes that its trademarks are of material importance to
its business. Although the laws vary by jurisdiction, trademarks
generally are valid as long as they are in use and/or their regis-
trations are properly maintained and have not been found to
have become generic. Trademark registrations generally can be
renewed indefinitely as long as the trademarks are in use. The
company believes that its principal brands, including Campbell’s,
Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson,
Batchelors, Arnott’s, and Godiva, are protected by trademark
law in the company’s relevant major markets. In addition, some
of the company’s products are sold under brands that have been
licensed from third parties.
Although the company owns a number of valuable patents, it
does not regard any segment of its business as being dependent
upon any single patent or group of related patents. In addition,
the company owns copyrights, both registered and unregistered,
and proprietary trade secrets, technology, know-how processes,
and other intellectual property rights that are not registered.
Competition The company experiences worldwide competition
in all of its principal products. This competition arises from
numerous competitors of varying sizes, including producers of
generic and private label products, as well as from manufac-
turers of other branded food products, which compete for trade
merchandising support and consumer dollars. As such, the
number of competitors cannot be reliably estimated. The prin-
cipal areas of competition are brand recognition, quality, price,
advertising, promotion and service.
Working Capital For information relating to the company’s cash
and other working capital items, see “Management’s Discussion
and Analysis of Results of Operations and Financial Condition.”
Research and Development During the last three fiscal years,
the company’s expenditures on research activities relating to
new products and the improvement and maintenance of existing
products were $93 million in 2004, $88 million in 2003 and
$79 million in 2002. The increase in research and development
spending in 2004 is primarily due to currency fluctuations. The
increase from 2002 to 2003 was consistent with previously
announced investment initiatives designed to drive top line
growth and improve the company’s cost position. The company
conducts this research primarily at its headquarters in Camden,
New Jersey, although important research is also undertaken in
various other locations inside and outside the United States.
Environmental Matters The company has programs for the
operation and design of its facilities that meet or exceed appli-
cable environmental rules and regulations. The company’s capital
expenditures during fiscal 2004 were $288 million, of which
approximately $5 million was for compliance with environmental
laws and regulations in the United States. The company further
estimates that approximately $6 million of the capital expendi-
tures anticipated during fiscal 2005 will be for compliance with
such environmental laws and regulations. The company believes
that continued compliance with existing environmental laws and
regulations will not have a material effect on capital expenditures,
earnings or the competitive position of the company. Additional
information regarding the company’s environmental matters is set
forth in “Legal Proceedings.”
Employees At August 1, 2004, there were approximately
24,000 full-time employees of the company.
Financial Information For information with respect to revenue,
operating profitability and identifiable assets attributable to the
company’s business segments and geographic areas, see Note 4
to the Consolidated Financial Statements.
Company Website The company’s primary corporate website
can be found at www.campbellsoupcompany.com. The company
makes available free of charge at this website (under the “Investor
Center – Financial Reports – SEC Financial Reports” caption) all
of its reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, including its annual
report on Form 10-K, its quarterly reports on Form 10-Q and its
Current Reports on Form 8-K. These reports are made available
on the website as soon as reasonably practicable after their filing
with, or furnishing to, the Securities and Exchange Commission.
2
3
Item 2. Properties
The company’s principal executive offices and main research
facilities are company-owned and located in Camden, New
Jersey. The following table sets forth the company’s principal
manufacturing facilities and the business segment that primarily
uses each of the facilities:
Inside the U.S.
California
• Dixon (NASA/NASB)
• Sacramento (NASA/NASB)
• Stockton (NASA/NASB)
Ohio
• Napoleon (NASA/NASB)
• Wauseon (NASA)
• Willard (BC)
Connecticut
• Bloomfield (BC)
Florida
• Lakeland (BC)
Illinois
• Downers Grove (BC)
Michigan
• Marshall (NASA)
New Jersey
• South Plainfield
(NASA/NASB)
North Carolina
• Maxton (NASA)
Pennsylvania
• Denver (BC)
• Downingtown (BC)
• Reading (BC)
South Carolina
• Aiken (BC)
Texas
• Paris (NASA/NASB)
Utah
• Richmond (BC)
Washington
• Woodinville (NASA)
Wisconsin
• Milwaukee (NASA/NASB)
NASA – North America Soup and Away From Home
NASB – North America Sauces and Beverages
BC – Biscuits and Confectionery
ISS – International Soup and Sauces
Outside the U.S.
Australia
• Huntingwood (BC)
• Marleston (BC)
• Shepparton (ISS)
• Virginia (BC)
• Miranda (BC)
• Smithfield (BC)
• Scoresby (BC)
Belgium
• Puurs (ISS)
• Brussels (BC)
Canada
• Listowel (NASA)
• Toronto (NASA)
United Kingdom
• Ashford (ISS)
• King’s Lynn (ISS)
• Worksop (ISS)
France
• LePontet (ISS)
• Dunkirk (ISS)
Germany
• Luebeck (ISS)
• Gerwisch (ISS)
Indonesia
• Jawa Barat (BC)
Ireland
• Thurles (ISS)
Malaysia
• Selangor Darul Ehsan (ISS)
Mexico
• Villagran (NASA)
• Guasave (NASA)
Netherlands
• Utrecht (ISS)
Papua New Guinea
• Port Moresby (BC)
• Malahang Lae (BC)
Sweden
• Kristianstadt (ISS)
Each of the foregoing manufacturing facilities is company-owned,
except that the Woodinville, Washington facility, the Scoresby,
Australia facility and portions of the Ashford, United Kingdom
facility are subject to leases. The Utrecht, Netherlands facility
is subject to a ground lease. The company also operates retail
confectionery shops in the United States, Canada, Europe
and Asia; retail bakery thrift stores in the United States; and
other plants, facilities and offices at various locations in the
United States and abroad, including additional executive offices in
Norwalk, Connecticut; Paris, France; and Homebush, Australia.
Management believes that the company’s manufacturing and
processing plants are well maintained and are generally adequate
to support the current operations of the businesses.
4
5
Item 3. Legal Proceedings
As previously reported, 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 L.L.C., 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 amended complaint to be $200
million), plus unspecified exemplary and punitive damages. While
the ultimate disposition of complex litigation is inherently difficult
to assess, the company believes the action is without merit and
is defending the case vigorously.
As previously reported, the company received an Examination
Report from the Internal Revenue Service on December 23, 2002,
which included a challenge to the treatment of gains and interest
deductions claimed in the company’s fiscal 1995 federal income
tax return, relating to transactions involving government securi-
ties. If the proposed adjustment were upheld, it would require the
company to pay a net amount of approximately $100 million in
taxes, accumulated interest to December 23, 2002, and penal-
ties. Interest will continue to accrue until the matter is resolved.
The company believes these transactions were properly reported
on its federal income tax return in accordance with applicable tax
laws and regulations in effect during the period involved and is
challenging these adjustments vigorously. While the outcome of
proceedings of this type cannot be predicted with certainty, the
company believes that the ultimate outcome of this matter will
not have a material impact on the consolidated financial condition
or results of operation of the company.
As previously reported, in July 2003, the company began discus-
sions with the Wisconsin Department of Natural Resources
(“WDNR”) regarding certain air emissions from the company’s
Milwaukee, Wisconsin flavoring and spice mix plant. These
emissions may have exceeded limits established pursuant to the
Wisconsin Clean Air Act Program. As a result of these discussions,
the company has (i) installed air emission control equipment at
a cost of approximately $700 thousand, and (ii) submitted
a payment of approximately $50 thousand to the WDNR for
additional emission fees. As of August 1, 2004, in addition to
the amounts described above, the company incurred costs of
approximately $275 thousand related to the evaluation of this
issue. While the WDNR may require additional expenditures, the
company believes that the WDNR is unlikely to do so and that, in
the event that the WDNR does impose such additional expendi-
tures, they would not have a material impact on the consolidated
financial condition or results of operation of the company.
As previously reported, on April 22, 2004, the company entered
into an Administrative Consent Order (“ACO”) with the New
Jersey Department of Environmental Protection (“NJDEP”) to
settle alleged violations of the New Jersey Air Pollution Control
Act related to certain air emissions from the company’s South
Plainfield, New Jersey flavoring and spice mix plant. Under the
ACO, the company agreed to (i) modify existing process equip-
ment and to install additional air emission control equipment at
a cost of approximately $1.5 million, (ii) pay a $300 thousand
penalty, (iii) pay $100 thousand for a supplemental environmental
project, and (iv) pay approximately $185 thousand in outstanding
air emission fees. The company has complied with its obligations
under the ACO, and the company expects the ACO to be officially
terminated following an inspection by the NJDEP. The ACO does
not constitute an admission of liability by the company.
As previously reported, on July 15, 2003, Pepperidge Farm,
Incorporated, an indirect wholly-owned subsidiary of the
company, made a submission to the United States Environmental
Protection Agency (“EPA”) relating to its use and replacement
of certain appliances containing ozone-depleting refrigerants.
The submission was made pursuant to the terms of the Ozone-
Depleting Substance Emission Reduction Bakery Partnership
Agreement (the “EPA Agreement”) entered into by and between
Pepperidge Farm and the EPA. Pepperidge Farm executed the
EPA Agreement in April 2002 as part of a voluntary EPA-
sponsored program relating to the reduction of ozone-depleting
refrigerants used in the bakery industry. As a result of the EPA
Agreement, as of August 1, 2004, Pepperidge Farm has incurred
costs of approximately $4.75 million relating to the evaluation
and replacement of certain of its refrigerant appliances. Of this
amount, $4 million was incurred in fiscal 2003; the remainder
was incurred in fiscal 2004. If the submission is approved by the
EPA, in addition to the expenditures previously made, Pepperidge
Farm will be required to pay a penalty in the amount of approxi-
mately $370 thousand. The company does not expect that the
cost of complying with the EPA Agreement will have a material
impact on the consolidated financial condition or results of opera-
tion of the company.
4
5
Item 4. Submission of Matters to a Vote of
Security Holders
None.
Executive Officers of the Company
The following list of executive officers as of October 1, 2004, is included as an item in Part III of this Form 10-K:
Name
Present Title
Douglas R. Conant
President and Chief Executive Officer
Anthony P. DiSilvestro
Vice President – Controller
John A. Doumani
Vice President
M. Carl Johnson, III
Senior Vice President
Ellen Oran Kaden
Senior Vice President – Law and Government Affairs
Larry S. McWilliams
Senior Vice President
Denise M. Morrison
Senior Vice President
Nancy A. Reardon
Senior Vice President
Mark A. Sarvary
Executive Vice President
Robert A. Schiffner
Senior Vice President and Chief Financial Officer
David R. White
Senior Vice President
Doreen A. Wright
Senior Vice President and Chief Information Officer
Age
53
45
47
56
53
48
50
52
45
54
49
47
Year First Appointed
Executive Officer
2001
2004
2002
2001
1998
2001
2003
2004
2002
2001
2004
2001
Douglas R. Conant served as President of Nabisco Foods
Company (1995–2001) prior to joining Campbell in 2001.
John A. Doumani served as a Managing Director of Goodman
Fielder Limited (1997–1999) prior to joining Campbell in 1999.
M. Carl Johnson, III served as Executive Vice President and
President, New Meals Division, Kraft Foods, N.A. (1997–2001)
and Member of Kraft Foods Operating Committee (1995–2001)
prior to joining Campbell in 2001.
Larry S. McWilliams served as Senior Vice President and General
Manager, U.S. Business (1998–2001) of the Minute Maid
Company prior to joining Campbell in 2001.
Denise M. Morrison served as Executive Vice President and General
Manager, Kraft Snacks division (2001–2003) of Kraft Foods, Inc.,
Executive Vice President and General Manager, Kraft Confection
division (2001) of Kraft Foods, Inc., Senior Vice President,
Nabisco DTS (2000) of Nabisco, Inc. and Senior Vice President,
Nabisco Food and Sales Integrated Logistics (1998–2000) of
Nabisco, Inc. prior to joining Campbell in 2003.
Nancy A. Reardon served as Executive Vice President of Human
Resources, Comcast Cable Communications (2002–2004) and
Executive Vice President – Human Resources/Corporate Affairs
(1997– 2002) of Borden Capital Management Partners prior to
joining Campbell in 2004.
Mark A. Sarvary served as Chief Executive Officer, J. Crew Group
(1999–2002) and President/General Manager, Frozen Foods
(1997–1999) of Nestlé USA prior to joining Campbell in 2002.
Robert A. Schiffner served as Senior Vice President and Treasurer
(1998–2001) of Nabisco Holdings Corporation prior to joining
Campbell in 2001.
David R. White served as Vice President, Product Supply – Global
Family Care Business (1999–2004) of The Procter & Gamble
Company prior to joining Campbell in 2004.
Doreen A. Wright served as Executive Vice President and Chief
Information Officer of Nabisco, Inc. (1999–2001) and Senior Vice
President – Operations and Systems, of Prudential Investments
(1995–1998) prior to joining Campbell in 2001.
The company has employed Ellen Oran Kaden and Anthony P.
DiSilvestro in an executive or managerial capacity for at least
five years.
There is no family relationship among any of the company’s
executive officers or between any such officer and any director
of Campbell. All of the executive officers were elected at the
July 2004 meeting of the Board of Directors.
6
Part II
7
Item 5. Market for Registrant’s Capital Stock,
Related Shareowner Matters and Issuer
Purchases of Equity Securities
Market for Registrant’s Capital Stock
The company’s capital stock is listed and principally traded on the
New York Stock Exchange. The company’s capital stock is also
listed on the Philadelphia Stock Exchange and the SWX Swiss
Exchange. On September 21, 2004, there were 32,399 holders
of record of the company’s capital stock. The market price and
dividend information with respect to the company’s capital
stock are set forth in Note 22 to the Consolidated Financial
Statements. In September 2004, the company increased the
quarterly dividend to be paid in the first quarter of fiscal 2005 to
$0.17 per share. Future dividends will be dependent upon future
earnings, financial requirements and other factors.
Issuer Purchases of Equity Securities
Period
5/2/04–5/31/04
6/1/04–6/30/04
7/1/04–8/1/04
Total
Number of
Shares
Purchased1
257,472 3
270,165 4
151,071 5
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that
May Yet Be
Purchased
Under the Plans
or Programs
0
0
0
0
0
0
Average
Price Paid
Per Share2
$ 26.78 3
$ 25.98 4
$ 26.56 5
1 The company repurchases shares of capital stock to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans.
The company also repurchases shares of capital stock that are owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted
shares. All share repurchases were made in open-market transactions, except for the shares owned and tendered by employees to satisfy tax withholding obligations
(which, unless otherwise indicated, were purchased at the closing price of the company’s shares on the date of tender). None of these transactions were made
pursuant to a publicly announced repurchase plan or program.
2 Average price paid per share is calculated on a settlement basis and excludes commission.
3 Includes 2,472 shares owned and tendered by employees at an average price per share of $27.57 to satisfy tax withholding requirements on the vesting of
restricted shares.
4 Includes 165 shares owned and tendered by employees at an average price per share of $27.63 to satisfy tax withholding requirements on the vesting of restricted shares.
5 Includes 1,071 shares owned and tendered by employees at an average price per share of $26.32 to satisfy tax withholding requirements on the vesting of restricted shares.
6
7
Item 6. Selected Financial Data
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 before cumulative effect
of accounting change
Cumulative effect of accounting change
Net earnings
Financial Position
Plant assets – net
Total assets
Total debt
Shareowners’ equity (deficit)
Per Share Data
Earnings before cumulative effect
of accounting change – basic
Earnings before cumulative effect
of accounting change – assuming dilution
Net earnings – basic
Net earnings – assuming dilution
Dividends declared
Other Statistics
Capital expenditures
Number of shareowners (in thousands)
Weighted average shares outstanding
Weighted average shares outstanding –
assuming dilution
2004 )1
2003 )2
2002)3
2001)4
2000
$ 7,109
1,115
947
647
—
647
$ 6,678
$ 6,133
$ 5,771
1,105
924
626
(31)
595
984
798
525
—
525
1,194
987
649
—
649
$ 5,626
1,265
1,077
714
—
714
$ 1,901
$ 1,843
$ 1,684
$ 1,637
$ 1,644
6,675
3,353
874
6,205
3,528
387
5,721
3,645
(114)
5,927
4,049
(247)
5,196
3,091
137
$ 1.58
$ 1.52
$ 1.28
$ 1.57
$ 1.68
1.57
1.58
1.57
0.63
1.52
1.45
1.45
0.63
1.28
1.28
1.28
0.63
1.55
1.57
1.55
0.90
1.65
1.68
1.65
0.90
$ 288
$ 283
$ 269
$ 200
$ 200
45
409
412
46
411
411
47
410
411
48
414
418
51
425
432
In 2003, the company adopted SFAS No. 142 resulting in the elimination of amortization of goodwill and other indefinite-lived intangible assets. Prior periods have not
been restated. See Note 3 to the Consolidated Financial Statements for additional information.
The 2003 fiscal year consisted of fifty-three weeks compared to fifty-two weeks in all other periods. The additional week contributed 2 percentage points of the sales
increase compared to 2002, and approximately $.02 per share to net earnings.
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 years 2000 to 2001.
1 2004 results include pre-tax restructuring charges of $32 ($22 after tax or $.05 per share basic and assuming dilution) related to a reduction in workforce and the
implementation of a distribution and logistics realignment in Australia.
2 2003 results include pre-tax costs of $1 ($1 after tax) related to an Australian manufacturing reconfiguration. These costs were recorded in Cost of products sold.
3 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.
4 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.
8
9
Item 7. Management’s Discussion and
Analysis of Results of Operations and
Financial Condition
Results of Operations
Overview
2004 Net earnings were $647 million ($1.57 per share) in
2004 compared to $626 million before the cumulative effect
of accounting change ($1.52 per share) in 2003. (All earnings
per share amounts included in Management’s Discussion and
Analysis are presented on a diluted basis.) The 2004 results
were impacted by the following:
• A pre-tax restructuring charge of $32 million ($22 million after
tax or $.05 per share) related to a reduction in workforce and
the implementation of a distribution and logistics realignment in
Australia. (See also the section entitled Restructuring Program
and Note 5 to the Consolidated Financial Statements);
• A pre-tax gain of $16 million ($10 million after tax or $.02
per share) from a settlement of a class action lawsuit involving
ingredient suppliers; and
• A pre-tax gain of $10 million ($6 million after tax or $.02 per
share) from a sale of a manufacturing site in California.
The gains were recorded in Other expenses/(income).
Comparisons between 2004 and 2003 of earnings before the
cumulative effect of accounting change were also impacted by an
increase in sales, favorable currency translation, lower interest
expense and a lower tax rate, partially offset by a decline in
gross margin as a percentage of sales and higher administrative
expenses. In addition, there were 52 weeks in 2004 and 53
weeks in 2003. The additional week contributed approximately
$.02 per share to earnings.
In the first quarter 2004, the company acquired certain Australian
chocolate biscuit brands for approximately $9 million. These
brands are included in the Biscuits and Confectionery segment.
2003 In 2003, earnings before the cumulative effect of
accounting change increased 19% to $626 million from
$525 million and earnings per share increased 19% to $1.52
from $1.28 in 2002. Comparisons to 2002 were impacted by
the adoption of Statement of Financial Accounting Standards
(SFAS) No. 142 “Goodwill and Other Intangible Assets,” as of
the beginning of 2003. In accordance with the provisions of this
standard, the company discontinued amortization of goodwill
and indefinite-lived intangible assets on a prospective basis
from the date of adoption. Had such amortization been elimi-
nated as of the beginning of 2002, net earnings for 2002 would
have been $579 million, or $1.41 per share. The 2002 results
included a restructuring charge and related costs of approxi-
mately $20 million pre-tax ($.03 per share) associated with
the Australian manufacturing reconfiguration. Pre-tax charges
of $19 million were classified as Cost of products sold and
$1 million were classified as a Restructuring charge. The increase
in earnings before the cumulative effect of accounting change in
2003 was primarily related to higher sales during the year, lower
interest expense, and a lower effective tax rate compared to
2002, partially offset by higher administrative expenses and
higher pension expense. The additional week contributed approxi-
mately $.02 per share to earnings in 2003.
In connection with the adoption of SFAS No. 142, the company
recognized a non-cash charge of $31 million (net of a $17 million
tax benefit), or $.08 per share, in the first quarter of 2003 as a
cumulative effect of accounting change. This charge related to
impaired goodwill associated with the Stockpot business, a food
service business acquired in August 1998. See also Note 3 to the
Consolidated Financial Statements.
Although SFAS No. 142 precludes restatement of prior period
results, the 2002 segment operating earnings have been adjusted
to reflect the pro forma impact of amortization eliminated under
the standard.
During the first quarter ended October 27, 2002, the company
acquired two businesses for cash consideration of approximately
$170 million and assumed debt of approximately $20 million.
The company acquired Snack Foods Limited, a leader in the
Australian salty snack category, and Erin Foods, the number
two dry soup manufacturer in Ireland. Snack Foods Limited is
included in the Biscuits and Confectionery segment. Erin Foods
is included in the International Soup and Sauces segment. The
businesses have annual sales of approximately $160 million.
Sales Sales increased 6% in 2004 to $7.1 billion from
$6.7 billion. The current fiscal year included 52 weeks compared
to 53 weeks in 2003. The increase in sales was due to a 2%
increase in volume and mix, a 2% increase due to higher selling
prices, a 4% increase due to currency, offset by a 2% decrease
due to one less week in the fiscal year.
Sales increased 9% in 2003 to $6.7 billion from $6.1 billion. The
increase in sales was due to a 1% increase in volume and mix,
a 2% increase from the additional week in 2003, a 1% increase
due to higher selling prices, a 3% increase from currency, and
a 2% increase from the acquisitions of Erin Foods and Snack
Foods Limited.
8
9
An analysis of net sales by segment follows:
(millions)
2004
2003
2002
% Change
2004/
2003
2003/
2002
North America Soup
and Away From Home
$ 2,699 $ 2,606 $ 2,524
4
North America Sauces
and Beverages
1,246
1,246
1,182
—
3
5
Biscuits and
Confectionery
International Soup
and Sauces
1,982
1,774
1,507
12
18
1,182
1,052
920
$ 7,109 $ 6,678 $ 6,133
12
6
14
9
North America Soup and Away From Home sales increased 4%
in 2004 versus 2003. The increase in sales was due to a 1%
increase from volume and mix, a 1% decrease due to one less
week in 2004, a 3% increase from higher net price realization,
a 1% decrease due to higher revenue reductions from trade
promotion and consumer coupon redemption programs, and a
2% increase from currency. In the U.S., ready-to-serve soup
sales increased 8% as volume increased 6%. The ready-to-serve
sales performance was driven by the strong performance on the
new M’m! M’m! Good! To Go convenience platform including
Campbell’s Select and Campbell’s Chunky soups in microwav-
able bowls, which were introduced this year, and Campbell’s
Soup at Hand sippable soups. Condensed soup sales were
down 2% on volume declines of 4%. Broth sales increased 6%
reflecting volume growth of 5%. Away From Home sales grew
slightly primarily due to strong sales of refrigerated soups. The
Canadian business reported a sales increase versus prior year
due to currency.
The 3% increase in sales from North America Soup and Away
From Home in 2003 versus 2002 was due to a 1% increase
due to the additional week in 2003, a 1% increase due to lower
revenue reductions from trade promotion and consumer coupon
redemption programs, and a 1% increase from currency. U.S.
wet soup volume increased 2% over the prior year. Ready-to-
serve volume increased 8% behind volume gains in Campbell’s
Chunky and Campbell’s Select soups, and the launch of Soup
at Hand sippable soups in convenient portable microwavable
packaging. Swanson broth reported a volume increase of 13%
due to successful promotional campaigns for cooking with broth.
Condensed soup volume declined 6%. Canada reported growth
in soup volume, due in part to the regional introduction of the
new Campbell’s Gardennay soup in aseptic packages. Away From
Home experienced increased soup volume, offset by declines in
lower margin businesses.
North America Sauces and Beverages sales of $1.2 billion in
2004 were equal to 2003. Sales were impacted by a 1% increase
from volume and mix, a 2% decrease due to one less week in
2004, and a 1% increase due to lower revenue reductions from
trade promotion and consumer coupon redemption programs.
Sales were favorably impacted by the growth of beverages, led by
sales growth of V8 vegetable juice. Sales of Pace Mexican sauces
were equal to 2003. Prego pasta sauces experienced a decline in
sales, attributable in part to weakness in the dry pasta category.
The 5% increase in sales from North America Sauces and
Beverages in 2003 versus 2002 was due to a 2% increase in
volume and mix, a 2% increase due to the additional week in
2003, a 1% increase from higher net price realization and a
1% increase due to lower revenue reductions from trade promo-
tion and consumer coupon redemption programs, offset by a
1% decline due to currency. The sales increase was driven by
strong gains in Pace Mexican sauces, Prego brand products,
V8 vegetable juices, Campbell’s tomato juice, Latin America,
and the introduction of V8 Splash Smoothies. The introduction of
Prego Hearty Meat sauces and Pace Mexican Creations sauces
contributed to the sales growth. These gains were partially offset
by declines in Franco-American canned pasta and gravies.
Biscuits and Confectionery reported a 12% increase in sales in
2004 due to a 4% increase from volume and mix, a 2% decrease
due to one less week in 2004, a 2% increase from higher net
price realization, a decrease of 1% due to higher revenue reduc-
tions from trade promotion and consumer coupon redemption
programs, a 2% increase from the acquisition of Snack Foods
Limited in Australia, and a 7% increase from currency. The
favorable currency impact was attributable primarily to the
strengthening of the Australian dollar. Pepperidge Farm contrib-
uted to the sales increase as a result of growth in Goldfish
crackers and fresh bread. Arnott’s reported a sales increase
driven by innovation on the Tim Tam, Shapes and Jatz products
and new product offerings in the Snack Right and Salada brands.
Godiva Chocolatier’s worldwide sales increased due to improving
same store sales trends in North America and increased sales in
duty free stores.
Sales from Biscuits and Confectionery increased 18% in 2003
due to a 1% increase in volume and mix, a 2% increase due to
the additional week in 2003, a 4% increase from higher net price
realization, an 8% increase from the acquisition of Snack Foods
Limited in Australia, and a 4% increase from currency, offset by
a 1% increase in revenue reductions from trade promotion and
consumer coupon redemption programs. The favorable currency
impact principally reflected the strengthening of the Australian
dollar. Pepperidge Farm reported sales increases in cookies,
10
11
crackers, and fresh bread. Arnott’s contributed to the sales
increase with growth in the chocolate segment and new products
introduced in the year, particularly Snack Right fruit-based low
fat biscuits. Godiva Chocolatier’s worldwide sales increased due
to growth in Asia, partially offset by continued weakness in same
store sales in North America.
International Soup and Sauces reported an increase in sales
of 12% in 2004. Improvements in volume and mix added 2%
growth offset by a decline of 2% due to one less week in 2004.
The favorable impact of currency accounted for a 12% increase.
The increase in volume and mix was driven primarily by sales
gains in France, Australia, Belgium, and Asia, partially offset by
sales declines in the United Kingdom and Germany. In Australia,
soup had strong sales and volume growth driven by Campbell’s
Country Ladle and Chunky soups.
International Soup and Sauces reported a 14% increase in sales
in 2003 due to a 12% increase from currency and a 2% increase
from the acquisition of Erin Foods in Ireland. Volume and mix
declined 2% offset by a 2% increase due to the additional week
in 2003. Strong performance of dry soups in Europe was offset
by weakness in the wet soup and sauces businesses in the
United Kingdom, France, and Germany. The United Kingdom
performance reflected declines in Homepride sauces and
Campbell’s soups. Sales in France declined due primarily to
aggressive competitive activity. In Germany, a significant portion
of the private-label soup business is being discontinued. The Asia
Pacific region reported sales growth.
Gross Margin Gross margin, defined as Net sales less Cost of
products sold, increased by $49 million in 2004. As a percent
of sales, gross margin was 41.1% in 2004, 43.0% in 2003
and 43.9% in 2002. The percentage decrease in 2004 was
due to costs associated with quality and packaging improve-
ments (approximately 1 percentage point), mix (approximately
0.7 percentage points), higher pension expense and the
impact of acquisitions (approximately 0.3 percentage points),
and the impact of inflation and other factors (approximately
2.7 percentage points), partially offset by higher selling prices
(approximately 0.9 percentage points) and productivity improve-
ments (approximately 1.9 percentage points). The percentage
decrease in 2003 was due to the lower margin structure of
acquisitions
(approximately 0.5 percentage points), costs
associated with transition and startup of the new Pepperidge
Farm bakery and with the discontinuance of certain co-packing
contracts (approximately 0.3 percentage points), the net impact
of mix (approximately 0.3 percentage points) and inflation/quality
improvements (approximately 2.7 percentage points), partially
offset by the benefits of lower costs related to the Australian
manufacturing reconfiguration (approximately 0.3 percentage
points), pricing (approximately 0.7 percentage points) and
productivity gains (approximately 1.9 percentage points).
Marketing and Selling Expenses Marketing and selling expenses
as a percent of sales were 16.2% in 2004, 17.1% in 2003
and 17.5% in 2002. Marketing and selling expenses increased
1% in 2004. The increase was driven by currency, partially
offset by reductions in marketing expenses related to consumer
promotion activity and lower media production costs. In 2003,
Marketing and selling expenses increased 7% from 2002. The
increase was driven by currency and acquisitions (3 percentage
points), increased advertising, primarily for V8 Splash Smoothies,
V8 juices, and Pace Mexican sauces (3 percentage points)
and incremental selling expense due to shelving initiatives and
systems upgrades.
Administrative Expenses Administrative expenses as a percent
of sales were 7.6% in 2004 and 2003. Administrative expenses
increased by 7% in 2004 from 2003. Currency accounted for
approximately 4 percentage points of the increase with the
balance due to general inflationary increases and costs associ-
ated with litigation. In 2003, Administrative expenses increased
to 7.6% of Net sales from 7.4% in 2002. Administrative expenses
increased by 12% from 2002 to 2003. Currency and acquisi-
tions accounted for approximately 5 percentage points of the
increase. The remaining increase was driven by a number of
items, including costs associated with litigation, investments in
information technology, and an increase in bad debt expense.
Research and Development Expenses Research and develop-
ment expenses increased $5 million or 6% in 2004 from 2003
primarily due to currency which accounted for approximately
4 percentage points of the increase. Research and development
expenses increased $9 million or 11% in 2003 from 2002 due
to costs associated with quality improvement initiatives and new
product development costs (approximately 8 percentage points)
and the impact of currency and acquisitions (approximately
3 percentage points).
Other Expenses / (Income) Other income in 2004 of $13 million
included a $16 million gain from the company’s share of a class
action settlement involving ingredient suppliers, a $10 million
gain on a sale of a manufacturing site, other net income of
$4 million, partially offset by a $10 million adjustment to the
carrying value of long-term investments in affordable housing
partnerships and $7 million in expense from currency hedging
related to the financing of international activities.
Other expenses of $28 million in 2003 included a $36 million
adjustment to the carrying value of long-term investments
in affordable housing partnerships, $15 million in expenses
from currency hedging related to the financing of international
10
11
activities, partially offset by $16 million of gains on the sales of
land and buildings, a $5 million one-time payment for the transfer
of the Godiva Chocolatier ice cream license, and other net income
of $2 million. The sales of land and buildings relate to the closure
of a dry soup plant in Ireland ($8 million) and an Arnott’s plant in
Melbourne, Australia ($8 million).
Other expenses of $99 million in 2002 included $78 million in
amortization expense, $16 million in adjustments to the carrying
value of long-term investments in affordable housing partner-
ships, $9 million in expenses from currency hedging related to
the financing of international activities, partially offset by other
net income of $4 million. Approximately $70 million of amorti-
zation was eliminated from 2002 results on a pro forma basis
upon adoption of SFAS No. 142 in 2003. See also Note 6 to the
Consolidated Financial Statements.
In 2003, costs related to stock-based incentive compensation
and deferred compensation were reclassified from Other expenses
to reflect the costs by function. The prior period was adjusted to
conform to the current presentation.
Operating Earnings Segment operating earnings declined 3% in
2004 from 2003. The restructuring charges accounted for 2% of
the decline.
As previously noted, operating segment results for 2002 have
been restated to reflect the pro forma impact of SFAS No. 142.
Consequently, amortization expense of $70 million was eliminated
from 2002 operating earnings. Segment operating earnings, on a
comparable basis, increased 5% in 2003 from 2002.
An analysis of operating earnings by segment follows:
(millions)
20041
2003
2002
% Change
2004/
2003
2003/
2002
North America Soup
and Away From Home
$ 602 $ 632 $ 634
(5) —
North America Sauces
and Beverages
Biscuits and
Confectionery
International Soup
and Sauces
Corporate
268
289
257
(7)
12
216
212
186
2
14
135
128
120
1,221
1,261
1,197
(106)
(156)
(143)
$ 1,115 $ 1,105 $ 1,054
5
(3)
7
5
1 Contributions to earnings by segment include the effect of a pre-tax fourth quarter 2004
restructuring charge of $32 million as follows: North America Soup and Away From Home –
$7 million, North America Sauces and Beverages – $3 million, Biscuits and Confectionery –
$12 million, International Soup and Sauces – $9 million and Corporate – $1 million.
Earnings from North America Soup and Away From Home
declined 5% in 2004 from 2003. The results included restruc-
turing charges of $7 million, which negatively impacted earnings
by 1 percentage point. Earnings were negatively impacted by
costs associated with quality improvements, higher inflation and
trade promotion, and product mix. These factors were partially
offset by an increase in sales and productivity improvements.
Earnings from North America Soup and Away From Home in
2003 were even with 2002 earnings. The increase in sales was
offset by a decline in gross margin due to quality improvements,
packaging improvements and product mix. In addition, costs
increased due to shelving initiatives and system upgrades.
Earnings from North America Sauces and Beverages decreased
7% in 2004 from 2003. The results included restructuring charges
of $3 million, which negatively impacted earnings by 1 percentage
point. The earnings decline also reflected higher costs associated
with new product introductions and inflation, partially offset by
productivity improvements and lower marketing expenses.
Earnings from North America Sauces and Beverages increased
12% in 2003 from 2002 primarily due to the increase in sales of
Pace, V8 Splash and Prego brand products, and an improvement
in gross margin.
Earnings from Biscuits and Confectionery increased 2% in 2004
versus 2003. The results included restructuring charges of
$12 million, which negatively impacted earnings by 6 percentage
points. Currency added 8 percentage points of growth. Earnings
growth at Pepperidge Farm, Arnott’s, and Godiva was offset by a
decline in the Australian Snackfoods business.
Earnings from Biscuits and Confectionery increased 14% in 2003
compared to 2002. Favorable currency translation accounted for
approximately 4 percentage points of the increase. Operating
earnings in 2003 were impacted by approximately $10 million
of transitional expenses related to the closure of the Pepperidge
Farm bakery in Norwalk, Connecticut and startup of the new
bakery in Bloomfield, Connecticut. Earnings in 2003 benefited
from a $5 million payment to Godiva Chocolatier for the transfer
of an ice cream license. Earnings from Arnott’s were impacted
by an $8 million gain on sale of the closed facility in Melbourne.
This gain was completely offset by start-up costs related to the
Australian manufacturing reconfiguration and costs related to the
integration of the Snack Foods acquisition. Operating earnings in
2002 included $20 million of costs associated with the Australian
manufacturing reconfiguration compared to $1 million in 2003.
Earnings from International Soup and Sauces increased 5% in
2004. Favorable currency translation accounted for approximately
11 percentage points of the increase, partially offset by restruc-
turing charges of $9 million (approximately 7 percentage points).
12
13
The 7% increase in 2003 earnings from International Soup
and Sauces was primarily due to favorable currency translation,
partially offset by $8 million of costs associated with the discon-
tinuance in 2004 of certain co-packing contracts in Europe.
Earnings during 2003 were impacted by costs associated with
the closure of a dry soup plant in Ireland, offset by a gain on the
sale of the closed facility.
Corporate expenses decreased in 2004 primarily due to lower
adjustments related to the carrying value of long-term invest-
ments in affordable housing partnerships, the gain from the
company’s share of a class action lawsuit involving ingredient
suppliers, the gain on sale of a manufacturing site in California,
lower expenses from currency hedging related to the financing of
international investments, partially offset by increases in costs
associated with ongoing litigation.
Corporate expenses increased in 2003 primarily due to adjust-
ments recorded to the carrying value of long-term investments
in affordable housing partnerships and legal expenses related to
ongoing litigation, partially offset by lower stock-related compen-
sation costs.
Nonoperating Items Interest expense declined 6% in 2004 from
2003 primarily due to lower levels of debt.
Interest expense declined 2% in 2003 from 2002 due to lower
levels of debt and lower interest rates.
The effective tax rate was 31.7% in 2004, 32.2% in 2003 and
34.2% in 2002, as reported. The reduction in the rate from 2003
to 2004 reflects a lower U.S. tax liability which resulted from
an increase in charitable contribution deductions and research
and development credits, and the favorable resolution of certain
income tax audits. The comparable tax rate for 2002 would be
33.3% based on a pro forma adjustment for the adoption of
SFAS No. 142. The reduction from 2002 to 2003 reflects favor-
able resolution of certain state income tax audits and a reduction
of foreign tax expense.
Restructuring Program A restructuring charge of $32 million
($22 million after tax) was recorded in the fourth quarter 2004 for
severance and employee benefit costs associated with a worldwide
reduction in workforce and with the implementation of a distribu-
tion and logistics realignment in Australia. These programs are
part of cost savings initiatives designed to improve the company’s
operating margins and asset utilization. Approximately 400 posi-
tions were eliminated under the reduction in workforce program
resulting in a restructuring charge of $23 million. The reductions
represent the elimination of layers of management, elimination of
redundant positions due to the realignment of operations in North
America, and reorganization of the U.S. sales force. Annual pre-
tax savings from the reduction are expected to be approximately
$40 million beginning in 2005.
The distribution and logistics realignment in Australia represents
converting a direct store delivery system to a central warehouse
system. A restructuring charge of $9 million was recorded for
this program. As a result of this program, over 200 positions
will be eliminated due to the outsourcing of the infrastructure.
Annual pre-tax benefits are expected to be approximately
$10–$15 million beginning in 2008. The cash outflows related to
these programs are not expected to have a material adverse effect
on the company’s liquidity.
A restructuring charge of $10 million ($7 million after tax) was
recorded in the fourth quarter 2001 for severance costs asso-
ciated with the reconfiguration of the manufacturing network
of Arnott’s 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 approxi-
mately $1 million and $19 million ($13 million after tax) were
recorded in 2003 and 2002, 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. In 2003, the company incurred start-up costs
associated with the transition of production. These costs were
substantially offset by a gain on the sale of the facility.
See Note 5 to the Consolidated Financial Statements for further
discussion of these programs.
Liquidity and Capital Resources
Net cash flows from operating activities provided $744 million in
2004, compared to $873 million in 2003. The reduction was due
to higher working capital requirements and an increase in pension
fund contributions, partially offset by an increase in earnings. Net
cash flows from operating activities provided $873 million in
2003, compared to $1.0 billion in 2002. The 2002 cash flow
benefited from a significant reduction in working capital to a low
level, which was maintained in 2003. Over the last three years,
operating cash flows totaled approximately $3 billion. This cash
generating capability provides the company with substantial
financial flexibility in meeting its operating and investing needs.
Capital expenditures were $288 million in 2004, $283 million
in 2003 and $269 million in 2002. Capital expenditures are
projected to be approximately $380 million in 2005. The increase
in 2004 was primarily driven by currency. Capital expenditures
in 2004 included projects to increase manufacturing capacity for
soup, beverages and Goldfish Sandwich Snackers crackers, as well
as investments in U.S. sales systems. The increase in 2003 was
driven by the Pepperidge Farm bakery and soup quality projects,
partially offset by reduced spending in Australia on the manufac-
turing reconfiguration that was substantially completed in 2002.
12
13
Businesses acquired, as presented in the Statements of Cash
Flows, primarily represents the acquisition of certain brands from
George Weston Foods Limited in Australia in the first quarter of
2004 and the acquisitions of Snack Foods Limited and Erin Foods
in the first quarter of 2003. The purchase price adjustment in
2002 related to the European dry soup and sauces acquisition,
completed in 2001.
In September 2003, the company issued $300 million ten-year
4.875% fixed-rate notes. The proceeds were used to repay
commercial paper borrowings and for other general corporate
purposes. While planning for the issuance of these notes, the
company entered into treasury lock agreements with a notional
value of $100 million that effectively fixed a portion of the interest
rate on the debt prior to issuance of the notes. These agreements
were settled at a minimal gain upon issuance of the notes, which
will be amortized over the life of the notes. In connection with this
issuance, the company entered into ten-year interest rate swaps
that converted $200 million of the fixed-rate debt to variable.
In September 2003, the company also entered into $100 million
five-year interest rate swaps that converted a portion of the
5.875% fixed-rate notes due October 2008 to variable.
In April 2004, the company entered into a $50 million interest
rate swap that converted a portion of the 6.9% fixed-rate notes
due October 2006 to variable.
In May 2004, the company entered into a $50 million interest
rate swap that converted a portion of the 6.9% fixed-rate notes
due October 2006 to variable.
Long-term borrowings in 2003 included the issuance of
$400 million of ten-year 5% fixed-rate notes due December 2012.
The proceeds were used to retire $300 million 6.15% notes and
to repay commercial paper borrowings. In connection with this
issuance, the company entered into ten-year interest rate swaps
that converted $300 million of the fixed-rate debt to variable.
In November 2002, the company terminated interest rate swap
contracts with a notional value of $250 million that converted
fixed-rate debt (6.75% notes due 2011) to variable and received
$37 million. Of this amount, $3 million represented accrued
interest earned on the swap prior to the termination date. The
remainder will be amortized over the remaining life of the notes
as a reduction to interest expense.
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 converted 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
converted the variable-rate debt to fixed.
In November 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.
In December 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.
In March 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 converted
$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 securities 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. As
of August 1, 2004, the company had $300 million available for
issuance under this registration statement.
Dividend payments were $259 million in 2004 and 2003. Annual
dividends declared in 2004, 2003 and 2002 totaled $0.63 per
share. The 2004 fourth quarter rate was $0.1575 per share.
The company repurchased 2 million shares at a cost of
$56 million during 2004, compared to 1 million shares at a cost
of $24 million during 2003 and 200,000 shares at a cost of
$5 million in 2002. The company expects to repurchase sufficient
shares over time to offset the impact of dilution from shares issued
under the company’s stock compensation plans. See “Market For
14
15
Registrant’s Capital Stock, Related Shareowner Matters and
Issuer Purchases of Equity Securities” for more information.
At August 1, 2004, the company had $810 million of notes
payable due within one year and $34 million of standby letters
of credit issued on behalf of the company. The company main-
tained $1.8 billion of committed revolving credit facilities, which
were unused at August 1, 2004, except for $34 million of
standby letters of credit. Both of these facilities were replaced
in September 2004. As part of the replacement, the company
entered into a $500 million committed 364-day revolving credit
facility, which replaced the existing $900 million 364-day facility
that matured in September 2004. The 364-day revolving credit
facility contains a one-year term-out feature. The company also
entered into a $1 billion revolving credit facility that matures
in September 2009, which replaced the existing $900 million
revolving credit facility that was scheduled to mature in
September 2006. These agreements support the company’s
commercial paper program.
The company is in compliance with the covenants contained in its
revolving credit facilities and debt securities.
The company believes that foreseeable liquidity, including the
resolution of the contingencies described in Note 20 to the
Consolidated Financial Statements, and capital resource require-
ments 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 borrow-
ings, including commercial paper. The company believes that its
sources of financing are adequate to meet its future 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.
Contractual Obligations and Other Commitments
Contractual Obligations The following table summarizes the
company’s obligations and commitments to make future payments
under certain contractual obligations. For additional information
on debt, see Note 16 to the Consolidated Financial Statements.
Operating leases are primarily entered into for warehouse and
office facilities, retail store space, and certain equipment.
Purchase commitments represent purchase orders and long-term
purchase arrangements related to the procurement of ingredients,
supplies, machinery, equipment and services. These commit-
ments are not expected to have a material impact on liquidity.
Other long-term liabilities primarily represent payments related to
deferred compensation obligations and postemployment benefits.
For additional information on other long-term liabilities, see
Note 17 to the Consolidated Financial Statements.
(millions)
Total
Contractual Payments Due by Fiscal Year
2006-
2007
2008-
2009
2005
Thereafter
Debt obligations1
$ 3,353 $ 810 $ 607
$ 302 $ 1,634
Interest payments2
1,201
Purchase commitments
1,278
Operating leases
Derivative payments
281
162
153
754
65
11
297
365
94
90
312
153
65
6
439
6
57
55
Other long-term
liabilities 3
Total long-term
135
15
32
20
68
cash obligations
$ 6,410 $ 1,808 $ 1,485
$ 858 $ 2,259
1 Includes capital lease obligations totaling $9 million, unamortized net premium on debt
issuances, unamortized gain on an interest rate swap and a gain on fair-value interest rate
swaps. For additional information on debt obligations, see Note 16 to the Consolidated
Financial Statements.
2 Interest payments for notes payable, long-term debt and derivative instruments are
calculated as follows. For notes payable, interest is based on par values and coupon rates
of contractually obligated issuances at fiscal year end. For long-term debt, interest is
based on principal amounts and fixed coupon rates at fiscal year end. Interest on fixed-rate
derivative instruments is based on notional amounts and fixed interest rates contractually
obligated at fiscal year end. Interest on variable-rate derivative instruments is based on
notional amounts contractually obligated at fiscal year end and weighted-average rates
estimated over the instrument’s life using forward interest rates plus applicable spreads.
3 Represents other long-term liabilities, excluding deferred taxes and minority interest. This
table does not include postretirement medical benefits or payments related to pension
plans. The company made a $35 million voluntary contribution to a U.S. plan subsequent
to August 1, 2004.
Off-Balance Sheet Arrangements and Other Commitments
The company guarantees approximately 1,300 bank loans to
Pepperidge Farm independent sales distributors by third party
financial institutions used to purchase distribution routes. The
maximum potential amount of the future payments the company
could be required to make under the guarantees is approximately
$95 million. The company’s guarantees are indirectly secured by
the distribution routes. The company does not believe that it is
probable that it will be required to make guarantee payments as a
result of defaults on the bank loans guaranteed. See also Note 20
to the Consolidated Financial Statements for information on off-
balance sheet arrangements.
Inflation
Inflation during recent years has not had a significant effect on
the company. The company mitigates the effects of inflation by
pricing and aggressively pursuing cost productivity initiatives,
including global procurement strategies, and making capital
investments that improve the efficiency of operations.
Market Risk Sensitivity
The principal market risks to which the company is exposed
are changes in commodity prices, interest rates and foreign
currency exchange rates. In addition, the company is exposed to
equity price changes related to certain employee compensation
14
15
obligations. 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 36% of 2004 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 curren-
cies and utilizing cross-currency swaps and forward contracts.
Swaps and forward contracts are entered into for periods consis-
tent 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 in
connection with the purchase of raw materials, including certain
commodities and agricultural products. The company may also
enter into commodity futures contracts, as considered appro-
priate, to reduce the volatility of price fluctuations for commodities
such as corn, cocoa, soybean meal, soybean oil and wheat. At
August 1, 2004 and August 3, 2003, 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 August 1, 2004. 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 weighted-average
forward rates for the term of each contract.
Expected Fiscal Year of Maturity
(millions)
Debt
Fixed rate
2005
2006
2007
2008
2009
Thereafter
Total
Fair Value
$ 6
$ 1
$ 606
$ 1
$ 301
$ 1,634
$ 2,549
$ 2,736
Weighted-average interest rate
2.87%
6.19%
6.20%
6.35%
5.88%
6.23%
6.17%
Variable rate
Weighted-average interest rate
$ 804
3.30%
$ 804
$ 804
3.30%
Interest Rate Swaps
Fixed to variable
Average pay rate1
Average receive rate
$ 200)2
5.11%
6.20%
$ 175)3
$ 500)4
$ 875
$ —
5.50%
5.88%
5.15%
4.95%
5.21%
5.42%
1 Weighted-average pay rates estimated over life of swap by using forward LIBOR interest rates plus applicable spread.
2 Hedges $100 million of 5.50% notes and $100 million of 6.90% notes due in 2007.
3 Hedges $175 million of 5.875% notes due in 2009.
4 Hedges $300 million of 5.00% notes and $200 million of 4.875% notes due in 2013 and 2014, respectively.
As of August 3, 2003, fixed-rate debt of approximately $2.6 billion with an average interest rate of 6.17% and variable-rate debt of approximately $1 billion with an average interest rate of
2.07% were outstanding. As of August 3, 2003, the company had also swapped $475 million of fixed-rate debt to variable. The average rate received on these swaps was 5.24% and the average
rate paid was estimated to be 4.89% over the remaining life of the swaps. Additionally, the company had swapped $300 million of floating-rate debt to fixed. The swap matured in 2004.
16
17
18
$
(1)
Receive CAD / Pay USD
The company is exposed to foreign exchange risk related to its
international operations, including non-functional currency inter-
company debt and net investments in subsidiaries.
table below summarizes
The
the cross-currency swaps
outstanding as of August 1, 2004, 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
(millions)
Pay variable SEK
Receive variable USD
Pay fixed SEK
Receive fixed USD
Pay variable EUR
Receive variable USD
Pay variable EUR
Receive variable USD
Pay variable GBP
Receive variable USD
Pay variable CAD
Receive variable USD
Pay fixed EUR
Receive fixed USD
Pay fixed CAD
Receive fixed USD
Pay fixed GBP
Receive fixed USD
Pay fixed GBP
Receive fixed USD
Pay fixed GBP
Receive fixed USD
Pay fixed CAD
Receive fixed USD
Total
Expiration
2005
2005
2005
2006
2006
2007
2007
2009
2011
2011
2011
2014
Interest
Rate
Notional
Value
Fair
Value
4.01% $
3.95%
5.78% $
5.25%
47
$ (15)
2.71% $ 137
2.38%
3.06% $
3.12%
32
6.35% $ 125
3.80%
$
$
6
1
$ (11)
4.89% $
4.32%
53
$
(3)
5.46% $ 200
5.75%
$ (77)
5.13% $
4.22%
61
$
(5)
5.97% $ 200
6.08%
$ (44)
5.97% $
5.01%
5.97% $
4.76%
6.24% $
5.66%
30
$
(1)
40
$
1
61
$
(5)
$ 1,004
$ (154)
The cross-currency swap contracts outstanding at August 3, 2003 represented two pay fixed
SEK/receive fixed USD swaps with notional values of $31 million and $47 million, a pay fixed
EUR/receive fixed USD swap with a notional value of $200 million, and a pay fixed GBP/receive
fixed USD swap with a notional value of $200 million. The aggregate fair value of these swap
contracts was $(97) million as of August 3, 2003.
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 exchange forward purchase and sale contracts
to hedge these exposures. The following table summarizes the
foreign exchange forward contracts outstanding and the related
weighted-average contract exchange rates as of August 1, 2004.
Forward Exchange Contracts
(millions)
Receive USD / Pay CAD
Receive EUR / Pay GBP
Receive AUD / Pay NZD
Receive GBP / Pay USD
Receive JPY / Pay USD
Receive USD / Pay AUD
Receive EUR / Pay USD
Receive EUR / Pay SEK
Receive USD / Pay EUR
Receive USD / Pay JPY
Receive EUR / Pay JPY
Receive GBP / Pay AUD
Receive SEK / Pay USD
Contract
Amount
Average Contractual
Exchange Rate
$ 52
$ 36
$ 33
$ 31
$ 16
$ 13
$ 11
$ 10
$ 9
$ 9
$ 7
$ 7
$ 7
$ 6
1.34
0.69
1.13
1.81
0.01
1.35
1.23
9.20
0.83
0.75
109.25
131.67
2.40
0.13
The company had an additional $8 million in a number of smaller contracts to purchase or
sell various other currencies, such as the Australian dollar, British pound, Canadian dollar,
euro, New Zealand dollar and Swiss franc as of August 1, 2004. The aggregate fair value of all
contracts was $2 million as of August 1, 2004. Total forward exchange contracts outstanding
as of August 3, 2003 were $750 million with a fair value of $4 million.
The company had swap contracts outstanding as of August 1,
2004, 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 August 1, 2004 and $10 million
at August 3, 2003. The average forward interest rate appli-
cable to the contract, which expires in 2005, was 1.81% at
August 1, 2004. The notional value of the contract that is linked
to the total return on company capital stock was $13 million at
August 1, 2004 and $11 million at August 3, 2003. The average
forward interest rate applicable to this contract, which expires
in 2005, was 2.22% at August 1, 2004. The fair value of these
contracts was a $1 million gain at both August 1, 2004 and
August 3, 2003.
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, debt repayment and debt
issuances, market effects on debt and foreign currency, and the
company’s acquisition and divestiture activities.
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17
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 assump-
tions 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 the Consolidated Financial Statements for a discus-
sion of significant accounting policies. The following areas all
require the use of subjective or complex judgments, estimates
and assumptions:
Trade and consumer promotion program 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 the
costs for these programs, which are classified as a reduction of
revenue, involves use of judgment related to performance and
redemption estimates. 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. Discounted cash
flow analyses are used to assess nonamortizable intangible asset
impairment, while undiscounted cash flow analyses are used
to assess other long-lived asset impairment. 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 assumptions, 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 generally accumulated and amortized over future periods.
The discount rate is established as of the company’s fiscal year-
end measurement date based on high-quality, long-term debt
securities. The estimated return on plan assets is a long-term
assumption based upon historical experience and expected future
performance, considering the company’s current and projected
investment mix. Within any given fiscal period, significant differ-
ences may arise between the actual return and the estimated
long-term return on plan assets. The value of plan assets, used
in the calculation of pension expense, is determined on a calcu-
lated method that recognizes 20% of the difference between the
actual fair value of assets and the expected calculated method.
Gains and losses resulting from differences between actual expe-
rience and the assumptions are determined at each measurement
date. If the net gain or loss exceeds 10% of the greater of plan
assets or liabilities, a portion is amortized into earnings in the
following year.
When the fair value of pension plan assets is less than the
accumulated benefit obligation, accounting principles generally
accepted in the United States require a company to recognize
an additional minimal liability. This adjustment is recorded in
Other comprehensive income within Shareowners’ Equity. As
of August 1, 2004 and August 3, 2003, Shareowners’ Equity
includes a minimum liability, net of tax, of $196 million and
$210 million, respectively.
Net periodic pension and postretirement medical expense was
$65 million in 2004, $43 million in 2003 and $8 million in
2002. The increase in 2004 was primarily due to a lower
discount rate and a reduction in the expected return on assets,
partially offset by the returns associated with a $50 million volun-
tary contribution to a U.S. plan. Significant weighted-average
assumptions as of the end of the year are as follows:
2004
2003
2002
Discount rate for benefit obligations
6.19%
6.39%
6.90%
Expected return on plan assets
8.76%
8.80%
9.30%
Initial health care trend rate
9.00%
9.00%
8.00%
Ultimate health care trend rate
4.50%
4.50%
4.50%
Estimated sensitivities to the net periodic pension cost are as
follows: a 50 basis point reduction in the discount rate would
increase expense by approximately $10 million; a 50 basis point
reduction in the estimated return on assets assumption would
increase expense by approximately $9 million. A one percentage
point change in assumed health care costs would increase service
and interest cost by approximately $2 million.
Although there were no mandatory funding requirements to the
U.S. plans in 2004, the company made a $50 million contribu-
tion to a U.S. plan based on expected future funding requirements.
Contributions to international plans were $15 million. In 2003,
there were no contributions to the U.S. plans and contributions
to international plans were $19 million. Subsequent to August 1,
2004, the company made a $35 million voluntary contribution to
a U.S. plan in anticipation of future funding requirements.
See also Note 9 to the Consolidated Financial Statements for
additional information on pension and postretirement medical
expenses.
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19
Income taxes The effective tax rate reflects 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
The company adopted SFAS No. 144 “Accounting for the
Impairment or Disposal of Long-Lived Assets” on July 29, 2002.
This standard was effective for the company on a prospective
basis. This standard addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This standard
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 Accounting
Principles Board (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. Long-lived assets are tested for impairment if certain
triggers occur. The adoption of this standard did not have a
material impact on the financial statements.
In July 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146 “Accounting for Exit or Disposal Activities.”
The provisions of this standard apply to disposal activities initi-
ated after December 31, 2002. The adoption of this standard did
not have a material impact on the financial statements.
In December 2002, the FASB issued SFAS No. 148 “Accounting
for Stock-Based Compensation — Transition and Disclosure.” This
standard amends the transition and disclosure requirements of
SFAS No. 123 “Accounting for Stock-Based Compensation.” The
required disclosures are included in Note 1 to the Consolidated
Financial Statements. As permitted by SFAS No. 148, the
company accounts for stock option grants and restricted stock
awards in accordance with APB Opinion No. 25 “Accounting
for Stock Issued to Employees” and related Interpretations.
Accordingly, no compensation expense has been recognized for
stock options since all options granted had an exercise price equal
to the market value of the underlying stock on the grant date.
In November 2002, FASB Interpretation No. 45 (FIN 45)
“Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others” was issued. FIN 45 clarifies the requirements relating to
a guarantor’s accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance
of a guarantee, the guarantor must recognize a liability for the
fair value of the obligation it assumes under that guarantee. The
initial recognition and measurement provisions are applicable
on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure provisions are included in
Note 20 to the Consolidated Financial Statements.
In January 2003, the FASB issued FIN 46 “Consolidation of
Variable Interest Entities, an Interpretation of ARB 51.” This
Interpretation addresses consolidation by business enterprises
of certain variable interest entities (VIEs). The Interpretation as
amended is effective immediately for all enterprises with interests
in VIEs created after January 31, 2003. In December 2003,
the FASB issued a revised version of FIN 46 (FIN 46R), which
clarified the provisions of FIN 46 by addressing implementa-
tion issues. FIN 46R must be applied to all entities subject to
the Interpretation as of the first interim quarter ending after
March 15, 2004. The company has investments of approxi-
mately $150 million as of August 1, 2004 consisting of limited
partnership interests in affordable housing partnership funds. The
company’s ownership ranges from approximately 12% to 19%.
The company evaluated the nature of these investments, which
were in existence before January 31, 2003, against the provisions
of the guidance and determined that such investments do not
need to be consolidated in the financial statements.
In May 2003, the FASB issued SFAS No. 150 “Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” SFAS No. 150 changes the accounting for
certain financial instruments that, under previous guidance, could
be classified as equity or “mezzanine” equity, by now requiring
those instruments to be classified as liabilities (or assets in
some circumstances) in the statement of financial position.
Further, SFAS No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. The guidance in
SFAS No. 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this standard did not
impact the financial statements.
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law. The
Act introduced a prescription drug benefit under Medicare Part D
and a federal subsidy to sponsors of retirement health care plans
that provide a benefit that is at least actuarially equivalent to
Medicare Part D. In accordance with FASB Staff Position (FSP)
FAS 106-1, the company elected in January to defer recognizing
the effects of the Act on accounting for postretirement health care
plans until the FASB guidance was finalized.
In May 2004, the FASB issued FSP FAS 106-2, which provides
accounting guidance to sponsors of postretirement health
care plans that are impacted by the Act. The FSP is effective
for interim or annual periods beginning after June 15, 2004.
Although detailed regulations necessary to implement the Act
have not yet been finalized, the company believes that certain
18
19
drug benefits offered under postretirement health care plans will
qualify for the subsidy under Medicare Part D. The effects of the
subsidy were factored into the 2004 annual year-end valuation.
The reduction in the benefit obligation attributable to past service
cost was approximately $32 million and has been reflected as an
actuarial gain. The reduction in benefit cost for 2005 related to
the Act is approximately $5 million.
Recent Developments
As part of the initiatives announced by the company on June 24,
2004, the company will implement a new SAP enterprise-
resource planning system in North America. The project is
planned for the next three years and is expected to cost approxi-
mately $125 million.
Earnings Outlook
On September 13, 2004, the company issued a press release
announcing results for 2004 and commented on the outlook for
earnings per share for 2005.
• 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 marketing plans;
• the company’s ability to realize projected cost savings and ben-
efits, including those contemplated by restructuring programs
and other cost-savings initiatives;
• the company’s ability to successfully manage changes to its
business processes, including selling, distribution, product
capacity, information management systems and the integration
of acquisitions;
• the increased significance of certain of the company’s key trade
customers;
• the difficulty of predicting the pattern of inventory movements
by the company’s trade customers and of predicting changes
in the policies of its customers, such as changes in customer
inventory levels, pricing and access to shelf space;
• the impact of fluctuations in the supply and cost of raw
materials;
• the uncertainties of litigation described from time to time in the
Cautionary Factors That May Affect Future Results
company’s Securities and Exchange Commission filings;
This Report contains “forward-looking” statements 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. 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 current plans and expectations
and are based on information currently available to it. They rely
on a number of assumptions regarding future events and esti-
mates 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 else-
where 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 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, shelving initiatives, and
new product introductions;
• the impact of unforeseen economic changes in currency
exchange rates, tax rates, interest rates, equity markets, infla-
tion rates, recession and other external factors over which the
company has no control; and
• the impact of unforeseen business disruptions in one or more of
the company’s markets due to political instability, civil disobe-
dience, 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 circum-
stances after the date they are made.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
The information presented in the section entitled “Management’s
Discussion and Analysis of Results of Operations and Financial
Condition — Market Risk Sensitivity” is incorporated herein by
reference.
20
21
Item 8. Financial Statements and Supplementary Data
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 / (income) (Note 6)
Restructuring charges (Note 5)
Total costs and expenses
Earnings Before Interest and Taxes
Interest expense (Note 7)
Interest income
Earnings before taxes
Taxes on earnings (Note 10)
Earnings before cumulative effect of accounting change
Cumulative effect of change in accounting principle
Net Earnings
Per Share – Basic
Earnings before cumulative effect of accounting change
Cumulative effect of change in accounting principle
Net Earnings
Weighted average shares outstanding – basic
Per Share – Assuming Dilution
Earnings before cumulative effect of accounting change
Cumulative effect of change in accounting principle
Net Earnings
Weighted average shares outstanding – assuming dilution
See accompanying Notes to Consolidated Financial Statements.
The sum of the individual per share amounts does not equal net earnings per share due to rounding.
2004
52 weeks
$ 7,109
2003
53 weeks
$ 6,678
2002
52 weeks
$ 6,133
4,187
1,153
542
93
(13)
32
5,994
1,115
174
6
947
300
647
—
3,805
1,145
507
88
28
—
5,573
1,105
186
5
924
298
626
(31)
3,443
1,073
454
79
99
1
5,149
984
190
4
798
273
525
—
$ 647
$ 595
$ 525
$ 1.58
—
$ 1.58
409
$ 1.57
—
$ 1.57
412
$ 1.52
(.08)
$ 1.45
411
$ 1.52
(.08)
$ 1.45
411
$ 1.28
—
$ 1.28
410
$ 1.28
—
$ 1.28
411
20
21
Consolidated Balance Sheets
(millions, except per share amounts)
Current Assets
Cash and cash equivalents
Accounts receivable (Note 11)
Inventories (Note 12)
Other current assets (Note 13)
Total current assets
Plant Assets, Net of Depreciation (Note 14)
Goodwill (Note 3)
Other Intangible Assets, Net of Amortization (Note 3)
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 9)
Other Liabilities (Note 17)
Total liabilities
Shareowners’ Equity (Note 19)
Preferred stock; authorized 40 shares; none issued
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares
Additional paid-in capital
Earnings retained in the business
Capital stock in treasury, 134 shares in 2004 and 132 shares in 2003, at cost
Accumulated other comprehensive loss
Total shareowners’ equity
Total liabilities and shareowners’ equity
See accompanying Notes to Consolidated Financial Statements.
August 1, 2004
August 3, 2003
$
32
$
32
490
795
164
1,481
1,901
1,900
1,095
298
413
709
136
1,290
1,843
1,803
1,018
251
$ 6,675
$ 6,205
$ 810
$ 1,279
607
607
65
250
2,339
2,543
298
621
5,801
—
20
264
5,642
(4,848)
(204)
874
620
602
65
217
2,783
2,249
304
482
5,818
—
20
298
5,254
(4,869)
(316)
387
$ 6,675
$ 6,205
22
23
Consolidated Statements of Cash Flows
(millions)
Cash Flows from Operating Activities:
Net earnings
Non-cash charges to net earnings
Cumulative effect of accounting change
Restructuring charges
Depreciation and amortization
Deferred taxes
Other, net
Changes in working capital
Accounts receivable
Inventories
Prepaid assets
Accounts payable and accrued liabilities
Pension fund contributions
Other
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of plant assets
Sales of plant assets
Businesses acquired
Sales of businesses
Long-term investments
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Long-term borrowings
Repayments of long-term borrowings
Net repayments of short-term borrowings
Dividends paid
Treasury stock purchases
Treasury stock issuances
Other, net
Net Cash 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 Statetments.
2004
2003
2002
$ 647
$ 595
$ 525
—
32
260
51
97
(61)
(67)
2
(49)
(65)
(103)
744
(288)
22
(9)
—
—
(275)
301
—
(486)
(259)
(56)
25
—
(475)
6
—
32
31
—
243
72
93
46
(33)
1
(38)
(19)
(118)
873
(283)
22
(177)
10
(4)
(432)
400
—
(566)
(259)
(24)
17
—
(432)
2
11
21
—
—
319
5
53
40
(30)
9
195
(8)
(91)
1,017
(269)
5
(15)
3
(12)
(288)
1,100
(628)
(915)
(286)
(5)
14
(6)
(726)
(6)
(3)
24
$ 32
$ 32
$ 21
22
23
Consolidated Statements of Shareowners’ Equity (Deficit)
(millions, except per share amounts)
Capital Stock
Issued
In Treasury
Amount
Shares
Amount
Additional
Paid-in
Capital
Earnings
Retained
Accumulated
Other
in the Comprehensive
Total
Shareowners’
Income (Loss) Equity (Deficit)
Business
$ 20
(133)
$ (4,908)
$ 314
$ 4,651
$ (324)
$ (247)
Shares
542
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 ($.63 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
525
(258)
49
2
(208)
(157)
—
(5)
1
22
6
Balance at July 28, 2002
542
20
(132)
(4,891)
320
4,918
(481)
Comprehensive income (loss)
Net earnings
Foreign currency
translation adjustments
Cash-flow hedges, net of tax
Minimum pension liability,
net of tax
Other comprehensive income
Total Comprehensive income
Dividends ($.63 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
595
(259)
174
(7)
(2)
165
(1)
(24)
1
46
(22)
Balance at August 3, 2003
542
20
(132)
(4,869)
298
5,254
(316)
Comprehensive income (loss)
Net earnings
Foreign currency
translation adjustments
Cash-flow hedges, net of tax
Minimum pension liability,
net of tax
Other comprehensive income
Total Comprehensive income
Dividends ($.63 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
647
(259)
94
4
14
112
(2)
(56)
—
77
(34)
Balance at August 1, 2004
542
$ 20
(134)
$ (4,848)
$ 264
$ 5,642
$ (204)
$ 874
See accompanying Notes to Consolidated Financial Statements.
525
49
2
(208)
(157)
368
(258)
(5)
28
(114)
595
174
(7)
(2)
165
760
(259)
(24)
24
387
647
94
4
14
112
759
(259)
(56)
43
24
25
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
1 Summary of Significant Accounting Policies
Basis of Presentation The consolidated financial statements
include the accounts of the company and its majority-owned
subsidiaries. Significant intercompany transactions are eliminated
in consolidation. Certain amounts in prior year financial state-
ments were reclassified to conform to the current presentation.
The company’s fiscal year ends on the Sunday nearest July 31.
There were 52 weeks in 2004, 53 weeks in 2003 and 52 weeks
in 2002.
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.
Beginning in 2002, the company adopted the consensus reached
by the Financial Accounting Standards Board’s (FASB) Emerging
Issues Task Force (EITF) on Issue No. 01-09 “Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the
Vendor’s Products.” Under this consensus, 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.
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 and Other Long-Lived 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.
Ordinary repairs and maintenance are charged to operating costs.
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.
The company adopted Statement of Financial Accounting
Standards (SFAS) No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” on July 29, 2002. This standard
was effective for the company on a prospective basis. This
standard addresses financial accounting and reporting for the
impairment or disposal of long-lived assets such as property,
plants, equipment and amortized intangibles. This standard
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 Accounting
Principles Board (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. Long-lived assets are tested for impairment if certain
triggers occur. The adoption of this standard did not have a
material impact on the financial statements.
Derivative Financial Instruments The company uses derivative
financial instruments primarily for purposes of hedging expo-
sures to fluctuations in interest rates, foreign currency exchange
rates, commodities and equity-linked employee benefit obliga-
tions. 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 comprehensive income are reclas-
sified to earnings in the period in which earnings are affected by
the underlying hedged item. The ineffective portion of all hedges
is recognized in earnings in the current period. See Note 18 of
the Notes to Consolidated Financial Statements for additional
information.
the
In December 2002,
transition and disclosure
issued SFAS No. 148 “Accounting
the
Stock-Based Compensation
for Stock-Based
FASB
Compensation — Transition and Disclosure.” This standard
amends
requirements of
SFAS No. 123 “Accounting for Stock-Based Compensation.” As
permitted by SFAS No. 148, the company accounts for stock
option grants and restricted stock awards in accordance with
APB Opinion No. 25 “Accounting for Stock Issued to Employees”
and related Interpretations. Accordingly, no compensation
expense has been recognized for stock options since all options
granted had an exercise price equal to the market value of the
underlying stock on the grant date. Restricted stock awards
are expensed. See also Note 19 of the Notes to Consolidated
Financial Statements. The following table illustrates the effect on
net earnings and earnings per share if the company had applied
24
25
the fair value recognition provisions of SFAS No. 123 to stock-
based employee compensation.
Net Earnings, as reported
$ 647
$ 595
$ 525
2004
2003
2002
Add: Stock-based employee compensation
expense included in reported net earnings,
net of related tax effects1
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
Pro forma net earnings
Earnings per share:
Basic – as reported
Basic – pro forma
Diluted – as reported
Diluted – pro forma
1 Represents restricted stock expense.
11
13
19
(40)
(37)
(34)
$ 618
$ 571
$ 510
$ 1.58
$ 1.45
$ 1.28
$ 1.51
$ 1.39
$ 1.24
$ 1.57
$ 1.45
$ 1.28
$ 1.50
$ 1.39
$ 1.24
The weighted average fair value of options granted in 2004,
2003 and 2002 was estimated as $5.73, $5.91 and $8.09,
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
2004, 2003 and 2002:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
2004
2003
2002
4.1%
4.0%
5.0%
6
6
24%
26%
2.4%
2.8%
6
31%
2.2%
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 in accordance with
SFAS No. 109 “Accounting for Income Taxes.” 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.
Recently Issued Accounting Pronouncements In July 2002,
the FASB issued SFAS No. 146 “Accounting for Exit or Disposal
Activities.” The provisions of this standard apply to disposal
activities initiated after December 31, 2002. The adoption of
this standard did not have a material impact on the financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46
(FIN 46) “Consolidation of Variable Interest Entities, an
Interpretation of ARB 51.” This Interpretation addresses consoli-
dation by business enterprises of certain variable interest entities
(VIEs). The Interpretation as amended is effective immediately
for all enterprises with interests in VIEs created after January 31,
2003. In December 2003, the FASB issued a revised version
of FIN 46 (FIN 46R), which clarified the provisions of FIN 46
by addressing implementation issues. FIN 46R must be applied
to all entities subject to the Interpretation as of the first interim
quarter ending after March 15, 2004. The company has invest-
ments of approximately $150 as of August 1, 2004 consisting
of limited partnership interests in affordable housing partnership
funds. The company’s ownership ranges from approximately 12%
to 19%. The company evaluated the nature of these investments,
which were in existence before January 31, 2003, against the
provisions of the guidance and determined that such investments
do not need to be consolidated in the financial statements.
In May 2003, the FASB issued SFAS No. 150 “Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” SFAS No. 150 changes the accounting for
certain financial instruments that, under previous guidance, could
be classified as equity or “mezzanine” equity, by now requiring
those instruments to be classified as liabilities (or assets in
some circumstances) in the statement of financial position.
Further, SFAS No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. The guidance in
SFAS No. 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this standard did not
impact the financial statements.
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law. The
Act introduced a prescription drug benefit under Medicare Part D
and a federal subsidy to sponsors of retirement health care plans
that provide a benefit that is at least actuarially equivalent to
Medicare Part D. In accordance with FASB Staff Position (FSP)
FAS 106-1, the company elected in January to defer recognizing
the effects of the Act on accounting for postretirement health care
plans until the FASB guidance was finalized.
26
27
In May 2004, the FASB issued FSP FAS 106-2, which provides
accounting guidance to sponsors of postretirement health
care plans that are impacted by the Act. The FSP is effective
for interim or annual periods beginning after June 15, 2004.
Although detailed regulations necessary to implement the Act
have not yet been finalized, the company believes that certain
drug benefits offered under postretirement health care plans will
qualify for the subsidy under Medicare Part D. The effects of the
subsidy were factored into the 2004 annual year-end valuation.
The reduction in the benefit obligation attributable to past service
cost was approximately $32 and has been reflected as an actu-
arial gain. The reduction in benefit cost for 2005 related to the
Act is approximately $5.
2 Comprehensive Income
Total comprehensive income is comprised of net earnings, net
foreign currency translation adjustments, minimum pension
liability adjustments (see Note 9), and net unrealized gains and
losses on cash-flow hedges. Total comprehensive income for
the twelve months ended August 1, 2004, August 3, 2003 and
July 28, 2002 was $759, $760 and $368, respectively.
The components of Accumulated other comprehensive loss, as
reflected in the Statements of Shareowners’ Equity (Deficit),
consisted of the following:
value exceeds the fair value, an impairment loss is recognized.
The assessment of goodwill is a two-step process in which the
first step identifies impairment by requiring a comparison of the
fair value of each reporting unit to the carrying value, including
goodwill allocated to the unit. If the carrying value exceeds the fair
value, goodwill is considered to be impaired. The amount of impair-
ment is measured in a second step as the difference between the
carrying value of goodwill and the “implied” fair value of goodwill,
which is determined by calculating goodwill as if the reporting unit
had just been acquired and accounted for as a business combi-
nation. Fair values were determined using discounted cash flow
analyses. As a result of this evaluation, the company recorded a
non-cash after-tax charge of $31 (net of a $17 tax benefit), or
$.08 per share in 2003, for impaired goodwill associated with
the Stockpot business, a food service business acquired in August
1998. Stockpot is a reporting unit in the North America Soup and
Away From Home segment. This non-cash charge was recorded
as a cumulative effect of a change in accounting principle. The
impairment of Stockpot goodwill was the result of a reduction in
actual sales attained and forecasted future sales growth relative to
projections made at the time of the acquisition.
The provisions of SFAS No. 142 were adopted on a prospective
basis and prior year results are not restated. The following tables
present a reconciliation of earnings before cumulative effect of
accounting change, adjusted to exclude amortization of goodwill
and indefinite-lived intangible assets:
2004
2003
2004
2003)1
2002
Foreign currency translation adjustments
$
(7)
$ (101)
Earnings before cumulative effect
Cash-flow hedges, net of tax
Minimum pension liability, net of tax1
(1)
(5)
(196)
(210)
Total Accumulated other comprehensive loss
$ (204)
$ (316)
of accounting change, as reported
$ 647
$ 626
$ 525
Add back: Goodwill Amortization
Trademark Amortization
Adjusted earnings before cumulative
—
—
—
—
36
18
1 Includes a tax benefit of $111 in 2004 and $120 in 2003.
effect of accounting change
$ 647
$ 626
$ 579
3 Goodwill and Intangible Assets
On July 29, 2002, the company adopted SFAS No. 142 “Goodwill
and Other Intangible Assets.” Under this standard, goodwill and
intangible assets with indefinite useful lives are no longer amor-
tized, but rather are to be tested at least annually for impairment.
Intangible assets with finite lives should continue to be amortized
over the estimated useful life and reviewed for impairment in
accordance with SFAS No. 144 “Accounting for the Impairment or
Disposal of Long-lived Assets.” In connection with the adoption of
SFAS No. 142, the company was required to perform an impair-
ment assessment on all goodwill and indefinite-lived intangible
assets as of July 29, 2002. The assessment of the indefinite-lived
intangible assets requires a comparison between the fair value and
carrying value of the intangible asset. To the extent the carrying
Basic earnings per share before cumulative
effect of accounting change, as reported
Add back: Goodwill Amortization
Trademark Amortization
Adjusted basic earnings per share before
cumulative effect of accounting change
2004
2003)1
2002
$ 1.58
$ 1.52
$ 1.28
—
—
—
—
0.09
0.04
$ 1.58
$ 1.52
$ 1.41
2004
2003)1
2002
Diluted earnings per share before cumulative
effect of accounting change, as reported
Add back: Goodwill Amortization
Trademark Amortization
Adjusted diluted earnings per share before
cumulative effect of accounting change
$ 1.57
$ 1.52
$ 1.28
—
—
—
—
0.09
0.04
$ 1.57
$ 1.52
$ 1.41
1 In the first quarter of 2003, the company recognized a $31 (net of a $17 tax benefit),
or $.08 per share, cumulative effect of accounting change related to the adoption of
SFAS No. 142.
26
27
The following table sets forth balance sheet information for
intangible assets, excluding goodwill, subject to amortization and
intangible assets not subject to amortization:
Intangible assets subject
to amortization:1
Trademarks
Other
Total
Intangible assets not subject
to amortization:
Trademarks
Pension
Other
Total
August 1, 2004
August 3, 2003
Carrying Accumulated
Amount Amortization
Carrying Accumulated
Amount Amortization
$ 6
17
$ 23
$ (3)
(7)
$ (10)
$ 6
16
$ 22
$ (2)
(7)
$ (9)
$ 1,053
27
2
$ 1,082
$ 975
28
2
$ 1,005
1 Amortization related to these assets was approximately $2 for 2004 and 2003. The
estimated aggregated amortization expense for each of the five succeeding fiscal years is
less than $2 per year. Asset useful lives range from five to thirty-four years.
Changes in the carrying amount for goodwill for the period are as
follows:
North America North America
Soup and
Away From Home
Sauces and Biscuits and
Beverages Confectionery
International
Soup and
Sauces
Total
Balance at
July 28, 2002
$ 336
$ 365
$ 339
$ 541 $ 1,581
Goodwill acquired
Impairment losses
Foreign currency
—
(48)
translation adjustment
10
Balance at
—
—
—
92
—
11
—
103
(48)
93
64
167
August 3, 2003
298
365
524
616
1,803
Foreign currency
translation adjustment
5
—
40
52
97
Balance at
August 1, 2004
$ 303
$ 365
$ 564
$ 668 $ 1,900
4 Business and Geographic Segment Information
Campbell Soup Company, together with its consolidated subsid-
iaries, is a global manufacturer and marketer of high quality,
branded convenience food products. The company is organized
and reports the results of operations in four segments: North
America Soup and Away From Home, North America Sauces and
Beverages, Biscuits and Confectionery, and International Soup
and Sauces.
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 Habitant and Campbell’s soups, Prego pasta
sauce and V8 juices. The Away From Home operations repre-
sent 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 in North America. The North America Sauces
and Beverages segment includes U.S. retail sales for Prego pasta
sauces, Pace Mexican sauces, Franco-American canned pastas
and gravies, V8 vegetable juices, V8 Splash juice beverages,
Campbell’s tomato juice, as well as the total of all businesses in
Mexico and other Latin American and Caribbean countries. The
Biscuits and Confectionery segment includes all retail sales of
Pepperidge Farm cookies, crackers, breads and frozen products
in the United States, Arnott’s biscuits and crackers in Australia
and Asia Pacific, Arnott’s Snackfoods salty snacks in Australia,
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, Blå Band soups and
sauces in Sweden, and McDonnells and Erin soups in Ireland. 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. 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 13% of consolidated
net sales in 2004 and 12% during 2003 and 2002. All of the
company’s segments sold products to Wal-Mart Stores, Inc. or
its affiliates.
Segment financial information for 2003 reflects the adoption of
SFAS No. 142 as discussed in Note 3. Operating segment results
for 2002 have been adjusted to reflect the pro forma impact
of amortization eliminated under the standard. Amortization
expense of $70 for 2002 has been eliminated from the prior
period results.
28
29
Information about operations by business segment, reflecting the
reclassifications described in Note 1, is as follows:
Geographic Area Information
Information about operations in different geographic areas is as
follows:
Earnings
Before Depreciation
and
and Taxes2 Amortization
Interest
Capital
Expen-
ditures
Net Sales
Net sales
United States
Segment
Assets
Europe
Business Segments
2004
North America Soup
Biscuits and
Confectionery
International Soup
and Sauces
Corporate and
Eliminations1
2004
2003
2002
$ 4,581 $ 4,549 $ 4,339
1,090
965
570
969
779
492
843
554
502
$ 909 $ 965 $ 913
132
126
96
84
93
77
92
41
81
and Away From Home $ 2,699 $ 602
$ 64 $ 97 $ 1,357
North America Sauces
and Beverages
1,246
268
35
53
1,249
Australia/Asia Pacific
Other countries
Adjustments and eliminations
(97)
(111)
(105)
Consolidated
$ 7,109 $ 6,678 $ 6,133
1,982
216
91
83
1,764
Earnings before interest and taxes
2004
2003
2002
1,182
135
41
40
1,959
United States
Europe
—
(106)
29
15
346
Australia/Asia Pacific
Total
$ 7,109 $ 1,115
$ 260 $ 288 $ 6,675
Other countries
2003
North America Soup
Earnings
Segment earnings before interest and taxes
1,221
1,261
1,127
Before Depreciation
and
Interest
and Taxes 3 Amortization
Capital
Expen-
ditures
Segment
Assets
Net Sales
Unallocated corporate expenses
(106)
(156)
(143)
Consolidated
$ 1,115 $ 1,105 $ 984
and Away From Home $ 2,606 $ 632
$ 62 $ 71 $ 1,237
North America Sauces
and Beverages
1,246
289
34
42
1,213
Identifiable assets
United States
Europe
Biscuits and
Confectionery
International Soup
and Sauces
Corporate and
Eliminations1
1,774
212
85
115
1,680
Australia/Asia Pacific
1,052
128
30
34
1,775
—
(156)
32
21
300
Other countries
Corporate
Consolidated
2004
2003
2002
$ 2,898 $ 2,774 $ 2,797
1,890
1,718
1,586
1,184
1,100
357
346
313
300
725
288
325
$ 6,675 $ 6,205 $ 5,721
Total
$ 6,678 $ 1,105
$ 243 $ 283 $ 6,205
Earnings
Before Depreciation
and
Interest
and Taxes 3 Amortization
Capital
Expen-
ditures
Segment
Assets
Net Sales
2002
North America Soup
and Away From Home $ 2,524 $ 634
$ 58
$ 75 $ 1,263
North America Sauces
and Beverages
1,182
257
32
47
1,228
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 charge of $32 in 2004
was allocated to the geographic regions as follows: United States –
$12, Europe – $9, Australia/Asia Pacific – $10, and Other
countries – $1. The restructuring charge in 2002 was allocated to
Australia/Asia Pacific.
1,507
186
90
100
1,276
920
120
27
28
1,632
5 Restructuring Program
—
(143)
42
19
322
Total
$ 6,133 $ 1,054
$ 249
$ 269 $ 5,721
1 Represents unallocated corporate expenses and unallocated assets, including corporate
offices, deferred income taxes and investments.
2 Contributions to earnings before interest and taxes by segment include the effect of a
fourth quarter 2004 restructuring charge of $32 as follows: North America Soup and Away
From Home – $7, North America Sauces and Beverages – $3, Biscuits and Confectionery –
$12, International Soup and Sauces – $9, and Corporate – $1.
3 Contributions to earnings before interest and taxes by the Biscuits and Confectionery
segment include the effect of costs of $1 in 2003 and $20 in 2002 associated with the
Australian manufacturing reconfiguration.
A restructuring charge of $32 ($22 after tax) was recorded in the
fourth quarter 2004 for severance and employee benefit costs
associated with a worldwide reduction in workforce and with
the implementation of a distribution and logistics realignment
in Australia. These programs are part of cost savings initiatives
designed to improve the company’s operating margins and asset
utilization. Approximately 400 positions were eliminated under
the reduction in workforce program resulting in a restructuring
charge of $23. The reductions represent the elimination of layers
of management, elimination of redundant positions due to the
Biscuits and
Confectionery
International Soup
and Sauces
Corporate and
Eliminations1
28
29
realignment of operations in North America, and reorganization
of the U.S. sales force. The majority of the terminations occurred
in the fourth quarter.
The distribution and logistics realignment in Australia represents
converting a direct store delivery system to a central warehouse
system. As a result of this program, over 200 positions will be
eliminated due to the outsourcing of the infrastructure. A restruc-
turing charge of $9 was recorded for this program. The majority
of the terminations will occur in 2005.
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 Arnott’s in
Australia. In the second quarter 2002, the company recorded
an additional $1 restructuring charge related to planned sever-
ance actions. Related costs of approximately $1 in 2003 and
$19 ($13 after tax) in 2002 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 August 1, 2004 and
related activity is as follows:
Accrued
Balance at
August 3,
2003
2004
Charge
Accrued
Pension Balance at
August 1,
2004
Cash Termination
Benefits)1
Payments
Severance pay and benefits $ —
32
(1)
(3)
$ 28
1 Pension termination benefits are recognized as a reduction of the prepaid pension asset.
See Note 9 to the Consolidated Financial Statements.
6 Other Expenses /(Income)
Foreign exchange losses
Amortization of intangible and other assets
Gain on asset sales
Adjustments to long-term investments
Gain from settlement of a lawsuit
Other
2004
$ 7
2
(10)
10
(16)
(6)
2003
$ 15
2
(16)
36
—
(9)
2002
$ 9
78
—
16
—
(4)
$ (13)
$ 28
$ 99
Adjustments to long-term investments represent a non-cash
write-down to estimated fair market value of investments in
affordable housing partnerships.
In 2003, certain stock-based incentive compensation expenses
were reclassified from Other expenses/(income) to reflect
the costs by function on various lines of the Statements of
Earnings. Prior periods have been reclassified to conform to the
current presentation.
7 Interest Expense
Interest expense
Less: Interest capitalized
8 Acquisitions
2004
2003
2002
$ 177
$ 188
$ 191
3
2
1
$ 174
$ 186
$ 190
In the first quarter 2004, the company acquired certain Australian
chocolate biscuit brands for approximately $9. These brands are
included in the Biscuits and Confectionery segment.
In the first quarter 2003, the company acquired two businesses
for cash consideration of approximately $170 and assumed debt
of approximately $20. The company acquired Snack Foods
Limited, a leader in the Australian salty snack category, and Erin
Foods, the number two dry soup manufacturer in Ireland. Snack
Foods Limited is included in the Biscuits and Confectionery
segment. Erin Foods is included in the International Soup and
Sauces segment. The businesses have annual sales of approxi-
mately $160. The pro forma impact on net earnings or earnings
per share for the prior periods would not have been material.
9 Pension and Postretirement Benefits
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 imple-
mented 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 securi-
ties, and real estate.
Postretirement Benefits The company provides postretirement
benefits including health care and life insurance to substan-
tially all retired U.S. employees and their dependents. In 1999,
changes were made to the postretirement benefits offered to
certain U.S. employees. Participants who were not receiving post-
retirement benefits as of May 1, 1999 will no longer be eligible to
receive such benefits in the future, but the company will provide
30
31
Change in the fair value of pension plan assets:
access to health care 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.
The company uses the fiscal year end as the measurement date
for the benefit plans.
Employer contributions
Participants contributions
Fair value at beginning of year
Acquisition adjustment
Actual return on plan assets
Benefits paid
Foreign currency adjustment
Fair value at end of year
2004
2003
$ 1,472 $ 1,377
—
184
65
3
12
172
19
2
(115)
(127)
18
17
$ 1,627 $ 1,472
Components of net periodic benefit cost:
Pension
Service cost
Interest cost
2004
2003
2002
$ 50
$ 46
$ 36
111
112
109
Expected return on plan assets
(150)
(153)
(159)
Amortization of prior service cost
Recognized net actuarial loss
Curtailment/special termination benefits
6
23
3
6
14
4
6
4
—
Net periodic pension (income) expense
$ 43
$ 29
$
(4)
The special termination benefits recognized in 2004 primarily
relate to a reduction in workforce in the United Kingdom. This
amount was recognized as a component of the restructuring
charges described in Note 5 to the Consolidated Financial
Statements. The special termination benefits recognized in 2003
relate to European reductions in workforce.
Postretirement
Service cost
Interest cost
Amortization of prior service cost
Amortization of net loss
23
(10)
5
21
(11)
—
21
(14)
—
Net periodic postretirement expense
$ 22
$ 14
$ 12
Change in benefit obligation:
Pension
Postretirement
2004
2003
2004
2003
Obligation at beginning of year
$ 1,798 $ 1,669
$ 373
$ 340
Acquisition adjustment
Service cost
Interest cost
Plan amendments
Actuarial loss
Participant contributions
Curtailment/
special termination benefits
—
50
13
46
111
112
(3)
23
3
3
—
62
2
4
Benefits paid
(119)
(132)
Foreign currency adjustment
27
22
—
4
23
(21)
(19)
—
—
(27)
—
—
4
21
—
37
—
—
(29)
—
Benefit obligation at end of year
$ 1,893 $ 1,798
$ 333
$ 373
Funded status as recognized in the
Consolidated Balance Sheets:
Pension
Postretirement
2004
2003
2004
2003
Funded status at end of year
$ (266)
$ (326)
$ (333)
$ (373)
Unrecognized prior service cost
Unrecognized loss
42
661
51
682
(33)
(22)
49
72
Net amount recognized
$ 437
$ 407
$ (317)
$ (323)
Amounts recognized in the Consolidated Balance Sheets:
Pension
Prepaid benefit cost
Intangible asset
2004
2003
2002
Accumulated other comprehensive loss
$
4
$
4
$
5
Net amount recognized
2004
2003
$ 103
$ 49
27
307
28
330
$ 437
$ 407
The accumulated benefit obligation for all pension plans was
$1,336 at August 1, 2004 and $1,249 at August 3, 2003. 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 $1,340, $1,204,
and $1,046, respectively, as of August 1, 2004 and $1,256,
$1,131, and $929, respectively, as of August 3, 2003.
The current portion of nonpension postretirement benefits
included in Accrued liabilities was $19 at August 1, 2004 and
August 3, 2003.
Increase (decrease) in pension minimum liability included
in other comprehensive income:
2004
$ (23)
2003
$ 3
Weighted-average assumptions used to determine benefit
obligations at the end of the year:
Pension
Postretirement
2004
2003
2004
2003
Discount rate
6.19%
6.39%
6.25%
6.50%
Rate of compensation increases
4.21%
4.43%
—
—
30
31
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended:
Pension
Discount rate
2004
2003
2002
6.39%
6.90%
7.25%
Expected return on plan assets
8.78%
9.30% 10.00%
Rate of compensation increase
4.43%
4.50%
4.50%
The discount rate used to determine postretirement medical benefit
cost was 6.5% in 2004, 7.00% in 2003, and 7.25% in 2002.
The long-term rate of return on assets for the company’s global
plans is a weighted average of the long-term rates of return
selected for the various countries where the company has funded
pension plans. These rates of return are set annually and are
based upon the long-term historical investment performance of
the plans and an estimate of future long-term investment returns
for the current asset allocation.
Assumed health care cost trend rates at the end of the year:
Health care cost trend rate assumed for next year
9.00%
9.00%
Rate to which the cost trend rate is assumed to
decline (ultimate trend rate)
4.50%
4.50%
Year that the rate reaches the ultimate trend rate
2009
2008
2004
2003
A one percentage point change in assumed health care costs
would have the following effects on 2004 reported amounts:
Effect of service and interest cost
Effect on the 2004 accumulated benefit obligation
Increase
Decrease
$ 2
$ 32
$ (2)
$ (27)
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law.
The Act introduced a prescription drug benefit under Medicare
Part D and a federal subsidy to sponsors of retirement health
care plans that provide a benefit that is at least actuarially equiva-
lent to Medicare Part D. The effects of the Act were reflected in
the 2004 valuation. See also Note 1 to Consolidated Financial
Statements for additional information.
Obligations related to non-U.S. postretirement benefit plans are
not significant since these benefits are generally provided through
government-sponsored plans.
Plan Assets
The company’s year-end pension plan weighted-average asset
allocations by category were:
Equity securities
Debt securities
Real estate and other
Total
Strategic
Target
68%
22%
10%
2004
2003
68%
21%
11%
73%
21%
6%
100%
100%
100%
The fundamental goal underlying the pension plans’ investment
policy is to ensure that the assets of the plans are invested in
a prudent manner to meet the obligations of the plans as these
obligations come due. Investment practices must comply with
applicable laws and regulations.
The company’s investment strategy is based on an expectation
that equity securities will outperform debt securities over the
long term. Accordingly, in order to maximize the return on assets,
a majority of assets are invested in equities. Additional asset
classes with dissimilar expected rates of return, return volatility,
and correlations of returns are utilized to reduce risk by providing
diversification relative to equities. Investments within each asset
class are also diversified to further reduce the impact of losses in
single investments. The use of derivative instruments is permitted
where appropriate and necessary to achieve overall investment
policy objectives and asset class targets.
The company establishes strategic asset allocation percentage
targets and appropriate benchmarks for each significant asset
class to obtain a prudent balance between return and risk. The
interaction between plan assets and benefit obligations is peri-
odically studied to assist in the establishment of strategic asset
allocation targets.
Estimated future benefit payments are as follows:
2005
2006
2007
2008
2009
2010–2014
Pension
$ 144
$ 138
$ 139
$ 140
$ 147
$ 790
Postretirement
$ 30
$ 30
$ 29
$ 28
$ 27
$ 123
The benefit payments include payments from funded and
unfunded plans.
The company made a voluntary contribution of $35 to a U.S.
pension plan subsequent to August 1, 2004. The company is
not required to make additional contributions to the U.S. plans in
2005. Contributions to non-U.S. plans are expected to be $20
in 2005.
32
33
Savings Plan The company sponsors employee savings plans
which cover substantially all U.S. employees. After one year of
continuous service, the company historically matched 50% of
employee contributions up to 5% of compensation. Effective
January 1, 2004, the company increased the amount of matching
contribution from 50% to 60% of the employee’s contributions.
Amounts charged to Costs and expenses were $14 in 2004, $11
in 2003 and $13 in 2002.
10 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.
2004
2003
2002
$ 184
$ 178
$ 201
13
52
249
47
2
2
51
13
35
226
62
1
9
72
19
48
268
7
—
(2)
5
Deferred tax liabilities and assets are comprised of the following:
Depreciation
Pensions
Amortization
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
2004
2003
$ 186
$ 170
37
169
125
517
202
26
96
324
(22)
302
24
138
109
441
184
22
100
306
(20)
286
$ 215
$ 155
At August 1, 2004, non-U.S. subsidiaries of the company have
tax loss carryforwards of approximately $78. Of these carryfor-
wards, $3 expire through 2009 and $75 may be carried forward
indefinitely. The current statutory tax rates in these countries
range from 13% to 46%.
U.S. income taxes have not been provided on undistributed earnings
of non-U.S. subsidiaries of approximately $514, which are deemed
to be permanently invested. If remitted, tax credits or planning
strategies should substantially offset any resulting tax liability.
$ 300
$ 298
$ 273
11 Accounts Receivable
Earnings before income taxes:
United States
Non-U.S.
$ 691
$ 686
$ 642
256
238
156
$ 947
$ 924
$ 798
The following is a reconciliation of the effective income tax rate
on continuing operations with the U.S. federal statutory income
tax rate:
2004
2003
2002
Federal statutory income tax rate
35.0%
35.0%
35.0%
State income taxes (net of federal tax benefit)
1.0
Tax effect of international items
Tax loss carryforwards
Other
(2.9)
(0.2)
(1.2)
1.0
(2.3)
(0.1)
(1.4)
1.6
(0.8)
(0.4)
(1.2)
Effective income tax rate
31.7%
32.2%
34.2%
Customers
Allowances
Other
12 Inventories
Raw materials, containers and supplies
Finished products
2004
2003
$ 503
$ 425
(39)
(40)
464
26
385
28
$ 490
$ 413
2004
2003
$ 294
$ 264
501
445
$ 795
$ 709
Approximately 55% of inventory in 2004 and 57% of inven-
tory in 2003 is accounted for on the last in, first out method
of determining cost. If the first in, first out inventory valuation
32
33
method had been used exclusively, inventories would not differ
materially from the amounts reported at August 1, 2004 and
August 3, 2003.
16 Notes Payable and Long-term Debt
Notes payable consists of the following:
13 Other Current Assets
Deferred taxes
Other
14 Plant Assets
Land
Buildings
Machinery and equipment
Projects in progress
Accumulated depreciation
2004
2003
$ 117
$ 90
47
46
$ 164
$ 136
2004
2003
$
70 $
66
1,009
974
2,977
2,827
192
145
4,248
4,012
(2,347)
(2,169)
$ 1,901 $ 1,843
Depreciation expense provided in Costs and expenses was $258
in 2004, $241 in 2003 and in 2002. Approximately $129 of
capital expenditures are required to complete projects in progress
at August 1, 2004.
15 Other Assets
Prepaid pension benefit cost
Investments
Other
2004
2003
$ 103
$ 49
150
45
160
42
$ 298
$ 251
Investments consist primarily of several limited partnership
interests in affordable housing partnership funds. These invest-
ments generate significant tax credits. The company’s ownership
primarily ranges from approximately 12% to 19%. The decrease
in the carrying value of these investments represents a write-
down to estimated fair market value.
Commercial paper
Current portion of Long-term Debt
Variable-rate bank borrowings
Fixed-rate borrowings
2004
2003
$ 790 $ 668
—
14
6
600
11
—
$ 810 $ 1,279
Commercial paper had a weighted average interest rate of 3.23%
and 2.33% at August 1, 2004 and August 3, 2003, respectively.
The current portion of Long-term Debt had a weighted average
interest rate of 3.15% at August 3, 2003.
The company has two committed lines of credit totaling $1,800
that support commercial paper borrowings and remain unused at
August 1, 2004, except for $34 of standby letters of credit issued
on behalf of the company.
Long-term Debt consists of the following:
Type
Notes
Notes
Notes
Notes
Notes
Notes
Debentures
Other
Fiscal Year of Maturity
Rate
2004
2003
2007
6.90% $ 300 $ 300
2007
5.50%
2009
5.88%
2011
6.75%
2013
5.00%
2014
4.88%
2021
8.88%
300
300
700
400
300
200
43
300
300
700
400
—
200
49
$ 2,543 $ 2,249
The fair value of the company’s long-term debt including the
current portion of long-term debt in Notes payable was $2,736
at August 1, 2004, and $3,080 at August 3, 2003.
The company has $300 of long-term debt available to issue as of
August 1, 2004 under a shelf registration statement filed with the
Securities and Exchange Commission.
Principal amounts of debt mature as follows: 2005 – $810 (in
current liabilities); 2006 – $1; 2007 – $606; 2008 – $1; 2009 –
$301 and beyond – $1,634.
34
35
17 Other Liabilities
Deferred taxes
Deferred compensation
Postemployment benefits
Fair value of derivatives
Other
2004
2003
$ 332
$ 245
108
15
151
15
102
19
97
19
$ 621
$ 482
The deferred compensation plan is an unfunded plan maintained
for the purpose of providing the company’s directors and certain
of its executives the opportunity to defer a portion of their
compensation. All forms of compensation contributed to the
deferred compensation plan are accounted for in accordance
with the underlying program. Contributions are credited to an
investment account in the participant’s name, although no funds
are actually contributed to the investment account and no invest-
ment choices are actually purchased. Four investment choices
are available, including: (1) a book account which tracks the
total return on company stock; (2) a book account that tracks
performance of Fidelity’s Spartan U.S. Equity Index Fund; (3) a
book account which tracks the performance of Fidelity’s Puritan
Fund and; (4) a book account that credits interest based on the
Wall Street Journal indexed prime rate. Participants can reallo-
cate investments daily and are entitled to the gains and losses
on investment funds. The company recognizes an amount in the
Statements of Earnings for the market appreciation/depreciation
of each fund, as appropriate.
18 Financial Instruments
The carrying values of cash and cash equivalents, accounts and
notes receivable, accounts payable and short-term debt approxi-
mate fair value. The fair values of long-term debt, as indicated
in Note 16, and derivative financial instruments are 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 and SFAS No. 149. 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 that exist as part of ongoing business
operations. Derivative instruments are entered into for periods
consistent with related underlying exposures and do not consti-
tute 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 nonper-
formance by the counterparties on derivative contracts. The
company minimizes its credit risk on these transactions by
dealing only with leading, credit-worthy financial institutions
having long-term credit ratings of “A” or better and, therefore,
does not anticipate nonperformance. In addition, the contracts
are distributed among several financial institutions, thus mini-
mizing credit risk concentration.
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 commit-
ment (fair-value hedge), (2) a hedge of a forecasted 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 commit-
ments), are recorded in current period earnings. Changes in the
fair value of a cash-flow hedge are recorded in other comprehen-
sive 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 adjust-
ments 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-rate versus fixed-rate debt.
34
35
In September 2003, the company entered into ten-year interest
rate swaps that converted $200 of the 4.875% fixed-rate notes
issued during that month to variable. The company also entered
into $100 five-year interest rate swaps that converted a portion
of the 5.875% fixed-rate notes due October 2008 to variable.
In April 2004, the company entered into a $50 interest rate swap
that converted a portion of the 6.9% fixed-rate notes due October
2006 to variable.
In May 2004, the company entered into a $50 interest rate swap
that converted a portion of the 6.9% fixed-rate notes due October
2006 to variable.
In November 2002, the company terminated interest rate swap
contracts with a notional value of $250 that converted fixed-
rate debt (6.75% notes due 2011) to variable and received $37.
Of this amount, $3 represented accrued interest earned on the
swap prior to the termination date. The remainder of $34 is being
amortized over the remaining life of the notes as a reduction to
interest expense. The company also entered into ten-year interest
rate swaps that converted $300 of ten-year 5% fixed-rate notes
issued in November 2002 to variable.
In 2002, the company entered into interest rate swaps that
converted fixed-rate debt (5.50% notes due in 2007 and 5.875%
notes due in 2009) to variable. Fixed-to-variable interest rate
swaps are accounted for as fair-value hedges. Gains and losses
on these instruments are recorded in earnings as adjustments to
interest expense, offsetting gains and losses on the hedged item.
The notional amount of fair-value interest rate swaps was $875
and $475 at August 1, 2004 and August 3, 2003, respectively.
The swaps had a minimal fair value at August 1, 2004 and a fair
value of $2 at August 3, 2003.
In 2002, the company also entered into interest rate swaps with
a notional value of $300 that converted variable-rate debt to
fixed. The swaps matured in 2004.
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 functional
currency of certain subsidiaries, including subsidiary financing
transactions. 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 intercompany transactions in the normal
course of business.
Qualifying foreign exchange forward 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 Statements of Earnings
on the same line item and in the same period or periods in which
the hedged transaction affects earnings. The assessment of effec-
tiveness for contracts is based on changes in spot rates. The fair
value of these instruments was $(147) at August 1, 2004.
Qualifying foreign exchange forward 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 August 1, 2004.
The company also enters into certain foreign exchange forward
contracts and variable-to-variable cross-currency swap contracts
that are not designated as accounting hedges. These instruments
are primarily intended to reduce volatility of certain intercom-
pany financing transactions. Gains and losses on derivatives not
designated as accounting hedges are typically recorded in Other
expenses/(income), as an offset to gains (losses) on the under-
lying transactions. The fair value of these instruments was $(8)
at August 1, 2004.
Foreign exchange forward contracts typically have maturities
of less than eighteen months. Principal currencies include the
Australian dollar, British pound, Canadian dollar, euro, Japanese
yen and Swedish krona.
As of August 1, 2004, the accumulated derivative net loss in
other comprehensive income for cash-flow hedges, including the
foreign exchange forward and cross-currency contracts, forward-
starting swap contracts and treasury lock agreements was $1,
net of tax. As of August 3, 2003 the accumulated derivative
net loss 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 $5, net of
tax. Reclassifications from Accumulated other comprehensive
income (loss) into the Statements of Earnings during the period
ended August 1, 2004 were not material. There were no discon-
tinued cash-flow hedges during the year. At August 1, 2004, the
maximum maturity date of any cash-flow hedge was approxi-
mately 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.
36
37
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. The company
may also enter into commodity futures contracts, as considered
appropriate, to reduce the volatility of price fluctuations for
commodities such as corn, cocoa, soybean meal, soybean oil,
and wheat. As of August 1, 2004 the fair value of open contracts
related to commodity hedging activity was $(4).
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 rate and receives the equity
returns under these instruments. The notional value of the equity
swap contracts, which mature in 2005, was $34 at August 1,
2004. These instruments are not designated as accounting
hedges. Gains and losses are recorded in the Statements of
Earnings. The net asset recorded under these contracts at
August 1, 2004 was approximately $1.
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 future awards of approximately 32 million shares of
Capital stock, although this amount may increase upon the lapse,
expiration, or termination of previously issued awards. 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. See also Note 1 to
the Consolidated Financial Statements for additional information
on accounting for stock-based compensation, including the pro
forma impact if the company applied the fair value recognition
provisions of SFAS No. 123.
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 voluntary,
replaced approximately 4.7 million options with approximately one
million restricted shares. Depending on the original grant date of
the options, the restricted shares vested in 2002, 2003 or 2004.
The company recognized compensation expense throughout the
vesting period of the restricted stock. Compensation expense
related to this award was $3 in 2004, $6 in 2003 and $11
in 2002.
Restricted shares granted are as follows:
(shares in thousands)
Restricted Shares
Granted
2004
2003
2002
1,324
900
94
Information about stock options and related activity is as follows:
(options in thousands)
Weighted
Average
Exercise
Price
2004
Weighted
Average
Exercise
Price
2003
Weighted
Average
Exercise
Price
2002
Beginning of year 28,862 $ 28.29 30,006 $ 28.21 17,370 $ 30.30
Granted
Exercised
10,471 $ 26.85
577 $ 22.89 15,176 $ 25.53
(1,325) $ 19.08
(847) $ 19.66
(827) $ 17.52
Terminated
(2,233) $ 28.69
(874) $ 28.67
(1,713) $ 31.16
End of year
35,775 $ 28.18 28,862 $ 28.29 30,006 $ 28.21
Exercisable at
end of year
21,234
17,665
12,595
(options in thousands) Stock Options Outstanding Exercisable Options
Weighted
Range of
Exercise
Prices
Average Weighted
Average
Exercise
Price
Remaining
Contractual
Life
Shares
Weighted
Average
Exercise
Price
Shares
$16.81–$22.60
1,156
2.1 $ 22.49
1,022 $ 22.56
$22.61–$31.91
31,544
7.0 $ 27.16 17,137 $ 27.93
$31.92–$44.41
2,611
4.5 $ 38.52
2,611 $ 38.52
$44.42–$56.50
464
2.5 $ 54.10
464 $ 54.10
35,775
21,234
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 incre-
mental effect of stock options and restricted stock programs,
except when such effect would be antidilutive. Stock options to
purchase 26 million shares of capital stock for 2004 and 2003
and 18 million shares of capital stock for 2002 were not included
in the calculation of diluted earnings per share because the
exercise price of the stock options exceeded the average market
price of the capital stock and therefore, would be antidilutive.
36
37
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 effec-
tive 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 L.L.C., 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 amended complaint to be $200),
plus unspecified exemplary and punitive damages. While the
ultimate disposition of complex litigation is inherently difficult to
assess, the company believes the action is without merit and is
defending the case vigorously.
The company received an Examination Report from the Internal
Revenue Service on December 23, 2002, which included a chal-
lenge to the treatment of gains and interest deductions claimed
in the company’s fiscal 1995 federal income tax return, relating
to transactions involving government securities. If the proposed
adjustment were upheld, it would require the company to pay a
net amount of approximately $100 in taxes, accumulated interest
as of December 23, 2002, and penalties. Interest will continue to
accrue until the matter is resolved. The company believes these
transactions were properly reported on its federal income tax
return in accordance with applicable tax laws and regulations in
effect during the period involved and is challenging these adjust-
ments vigorously. While the outcome of proceedings of this type
cannot be predicted with certainty, the company believes that the
ultimate outcome of this matter will not have a material impact
on the consolidated financial condition or results of operation of
the company.
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 manage-
ment’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 space, and
certain equipment. Future minimum annual rental payments
under these operating leases are as follows:
2005
$ 65
2006
$ 53
2007
$ 41
2008
$ 35
2009
Thereafter
$ 30
$ 57
In November 2002, FIN 45 “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” was issued. FIN 45 clari-
fies the requirements relating to a guarantor’s accounting for, and
disclosure of, the issuance of certain types of guarantees. FIN 45
requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it assumes
under that guarantee. The initial recognition and measurement
provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002.
The company guarantees almost 1,300 bank loans made to
Pepperidge Farm independent sales distributors by third party
financial institutions for the purchase of distribution routes. The
maximum potential amount of future payments the company
could be required to make under the guarantees is approximately
$95. The company’s guarantees are indirectly secured by the
distribution routes. The company does not believe it is probable
that it will be required to make guarantee payments as a result
of defaults on the bank loans guaranteed. Prior to the adoption of
FIN 45, no amounts were recognized on the Consolidated Balance
Sheets related to these guarantees. The amounts recognized as of
August 1, 2004 and August 3, 2003 are not material.
The company has provided certain standard indemnifications in
connection with divestitures, contracts and other transactions.
Certain indemnifications have finite expiration dates. Liabilities
recognized based on known exposures related to such matters are
not material at August 1, 2004.
38
39
21 Statements of Cash Flows
22 Quarterly Data (unaudited)
Cash Flows from Operating Activities:
Other non-cash charges to net earnings:
Non-cash compensation/benefit
related expense
Net loss on fixed assets, long-term
investments, minority interest
Other
Total
Other:
2004
2003
2002
2004
Net sales
First
Second
Third
Fourth
$ 1,909 $ 2,100 $ 1,667 $ 1,433
Cost of products sold
1,108
1,212
211
235
995
142
872
59
$ 91
$ 60
$ 41
11
(5)
33
—
16
(4)
Net earnings1
Per share – basic
Net earnings1
Dividends
$ 97
$ 93
$ 53
Per share – assuming dilution
0.51
0.57
0.35
0.14
0.1575
0.1575
0.1575
0.1575
Net earnings1
0.51
0.57
0.34
0.14
Benefit related payments
$ (46)
$ (44)
$ (46)
Market price
Payments for hedging activities
Other
Total
(59)
2
(67)
(7)
(48)
3
High
Low
$ (103)
$ (118)
$ (91)
2004
2003
2002
2003
Net sales
Interest paid, net of amounts capitalized
$ 168
$ 173
$ 173
Cost of products sold
Interest received
Income taxes paid
$
6
$
5
$ 4
Net earnings2
$ 249
$ 225
$ 222
Per share – basic
$ 27.90 $ 27.39 $ 28.70 $ 28.13
$ 23.26 $ 24.92 $ 26.15 $ 25.03
First
Second
Third
Fourth
$ 1,705 $ 1,918 $ 1,600 $ 1,455
971
161
1,056
231
920
129
858
74
Net earnings2
Dividends
0.39
0.56
0.31
0.18
0.1575 0.1575 0.1575 0.1575
Per share – assuming dilution
Net earnings2
Market price
High
Low
0.39
0.56
0.31
0.18
$ 23.90 $ 24.99 $ 24.30 $ 26.43
$ 21.00 $ 19.65 $ 19.95 $ 21.35
1 Net earnings in the fourth quarter include a restructuring charge of $22 or $.05 per share.
(See Note 5 to the Consolidated Financial Statements.)
2 Net earnings in the first quarter include the cumulative effect of a change in accounting
principle of $31 or $.08 per share. (See Note 3 to the Consolidated Financial Statements.)
In 2003, the company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” and
discontinued the amortization of goodwill and indefinite-lived intangible assets. See Note 3 to
the Consolidated Financial Statements.
38
39
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 auditors, 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 auditors. The independent auditors 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
Anthony P. DiSilvestro
Vice President — Controller
September 13, 2004
40
41
Report of Independent Registered Public Accounting Firm
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
August 1, 2004 and August 3, 2003, and the results of their operations and their cash flows for each of the three years in the period
ended August 1, 2004 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 state-
ments based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-
ance 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 our audits provide a reasonable basis for
our opinion.
As discussed in Note 3 to the consolidated financial statements, effective July 29, 2002, the Company adopted Statement of Financial
Accounting Standard No. 142, “Goodwill and Other Intangible Assets."
Philadelphia, Pennsylvania
September 23, 2004
40
41
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
Financial Officer have concluded that, as of the Evaluation Date,
the company’s disclosure controls and procedures are effec-
tive, and are reasonably designed to ensure that all material
information relating to the company (including its consolidated
subsidiaries) required to be included in the company’s reports
filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
Evaluation of Disclosure Controls and Procedures
Changes in Internal Control Over Financial Reporting
The company, under the supervision and with the participation
of its management, including the President and Chief Executive
Officer and the Senior Vice President and Chief Financial Officer,
has evaluated the effectiveness of the company’s disclosure
controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), as of August 1, 2004 (the
“Evaluation Date”). Based on such evaluation, the President and
Chief Executive Officer and the Senior Vice President and Chief
During the quarter ended August 1, 2004, there were no changes
in the company’s internal control over financial reporting that
materially affected, or are reasonably likely to materially affect,
such internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers
of the Registrant
The sections entitled “Election of Directors” and “Directors and
Executive Officers Stock Ownership Reports” in the company’s
Proxy Statement for the Annual Meeting of Shareowners to be
held on November 18, 2004 (the “2004 Proxy”) are incorporated
herein by reference. The information presented in the section
entitled “Board Committees” in the 2004 Proxy relating to the
members of the company’s Audit Committee is incorporated herein
by reference. The information presented in the section entitled
“Audit Committee Report” in the 2004 Proxy relating to the Audit
Committee’s financial experts is incorporated herein by reference.
Certain of the information required by this Item relating to
the executive officers of Campbell is set forth in the heading
“Executive Officers of the Company.”
The company has adopted a Code of Ethics for the Chief Executive
Officer and Senior Financial Officers that applies to the company’s
Chief Executive Officer, Chief Financial Officer, Controller and
members of the Chief Financial Officer’s financial leadership
team. The Code of Ethics for the Chief Executive Officer and
Senior Financial Officers is posted on the company’s website,
www.campbellsoupcompany.com
the “Governance”
caption). The company intends to satisfy the disclosure require-
ment regarding any amendment to, or a waiver of, a provision
of the Code of Ethics for the Chief Executive Officer and Senior
Financial Officers by posting such information on its website.
(under
The company has also adopted a separate Code of Business
Conduct and Ethics applicable to the Board of Directors, the
company’s officers and all of the company’s employees. The Code of
Business Conduct and Ethics is posted on the company’s website,
www.campbellsoupcompany.com
the “Governance”
caption). The company’s Corporate Governance Standards and the
(under
42
43
charters of the company’s four standing committees of the Board
of Directors can also be found at this website. Printed copies of
the foregoing are available to any shareowner requesting a copy
by writing to: Corporate Secretary, Campbell Soup Company,
1 Campbell Place, Camden, NJ 08103.
Item 11. Executive Compensation
The information presented in the sections entitled “Summary
Compensation,” “Option Grants in Last Fiscal Year,” “Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values,” “Pension Plans,” “Director Compensation,” “Employment
Agreements and Termination Arrangements” and “Compensation
and Organization Committee Interlocks and Insider Participation”
in the 2004 Proxy is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
and Management
The information presented in the sections entitled “Security
Ownership of Directors and Executive Officers” and “Security
Ownership of Certain Beneficial Owners” in the 2004 Proxy is
incorporated herein by reference.
Securities Authorized for Issuance under Equity
Compensation Plans
The following table provides information about the company’s
capital stock that may be issued under the company’s equity
compensation plans as of August 1, 2004:
Plan Category
Equity Compensation Plans Approved by
Security Holders (1)
Equity Compensation Plans Not Approved
by Security Holders (2)
Total
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights (b)
Number of Securities Remaining
Available For Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in the First Column) (c)
35,774,544
$ 28.18
1,174,909
36,949,453
N/A
N/A
32,097,311
N/A
32,097,311
(1) Column (a) represents stock options granted under the 2003 Long-Term Incentive Plan, 1994 Long-Term Incentive Plan and
the 1984 Long-Term Incentive Plan. No additional awards can be made under the 1994 Long-Term Incentive Plan or the 1984
Long-Term Incentive Plan. Column (c) represents the maximum amount of future equity awards that can be made under the 2003
Long-Term Incentive Plan as of August 1, 2004, which may take the form of stock options, stock appreciation rights, performance
unit awards, restricted stock, restricted performance stock or stock awards. In the event any award (or portion thereof) under the
1994 Long-Term Incentive Plan lapses, expires or is otherwise terminated without the issuance of any company capital stock or is
settled by delivery of consideration other than company capital stock, the maximum number of future equity awards that can be
made under the 2003 Long-Term Incentive Plan automatically increases by the number of such shares.
(2) The company’s Deferred Compensation Plan (the “Plan”) allows participants the opportunity to invest in various book accounts,
including a book account that tracks the performance of the company’s capital stock (the “Stock Account”). Upon distribution,
participants may receive the amounts invested in the Stock Account in the form of shares of capital stock. Column (a) represents the
maximum number of shares that could be issued upon a complete distribution of all amounts in the Stock Account. This calculation is
based upon the amount of funds in the Stock Account as of August 1, 2004 and a $25.59 share price, which was the closing price
of a share of company stock on July 30, 2004 (the last business day before August 1, 2004). 767,096 of the total number of shares
that could be issued upon a complete distribution of the Plan are fully vested, and 407,813 of the shares are subject to restrictions.
42
43
Deferred Compensation Plan The Compensation and Organization
Committee of the Board of Directors approved the Plan. The Plan
is an unfunded plan maintained for the purpose of providing the
company’s directors and U.S.-based executives and key managers
the opportunity to defer a portion of their earned compensation.
Plan participants may defer a portion of their base salaries and
all or a portion of their annual incentive compensation, long-term
incentive awards, certain stock option gains (eliminated following
fiscal 2004) and director retainers and fees. The Plan was not
submitted for security holder approval because it does not
provide additional compensation to participants. It is a vehicle for
participants to defer earned compensation, and phantom stock
units are credited to each participant’s account based upon the
full current market value of the company’s capital stock.
Each participant’s contributions to the Plan are credited to an
investment account in the participant’s name. Gains and losses
in the participant’s account are based on the performance of the
investment choices the participant has selected. Four investment
choices are available, including the Stock Account. In addition to
the Stock Account, participants also generally have the opportu-
nity to invest in (i) a book account that tracks the performance
of Fidelity’s Spartan U.S. Equity Index Fund, (ii) a book account
that tracks the performance of Fidelity’s Puritan Fund, and (iii)
a book account that credits interest at the Wall Street Journal
indexed prime rate (determined on November 1 for the subse-
quent calendar year).
A participant may reallocate his or her investment account at any
time among the four investment choices, except that (i) stock
option gains must be invested in the Stock Account, (ii) restricted
stock awards must be invested in the Stock Account during the
restriction period and (iii) reallocations of the Stock Account must
be made in compliance with the company’s policies on trading
company stock. Dividends on amounts invested in the Stock
Account may be reallocated among the four investment accounts.
The company credits a participant’s account with an amount equal
to the matching contribution that the company would have made
to the participant’s 401(k) Plan account if the participant had
not deferred compensation under the Plan. In addition, for those
individuals whose base salary and annual incentive compensa-
tion exceed the Internal Revenue Service indexed compensation
limit for the 401(k) Plan, the company credits such individual’s
account with an amount equal to the contribution the company
would have made to the 401(k) Plan but for the compensation
limit. These company contributions vest in 20% increments over
the participant’s first five (5) years of credited service; after the
participant’s first five (5) years of service, the company contribu-
tions vest automatically. Except as described above, there is no
company match on deferred compensation.
For terminations and retirements, a participant’s account is gener-
ally paid out in accordance with the last valid distribution election
made by the participant. The applicable elections include: (i) a
lump sum, (ii) 5 annual installments, (iii) 10 annual installments,
(iv) 15 annual installments (not available to participants terminated
prior to their 55th birthday), and (v) 20 annual installments (not
available to participants terminated prior to their 55th birthday).
For distributions upon death, if a participant’s beneficiary is his or
her spouse, the account is generally paid out in accordance with
the last valid death distribution election (or, if there is no death
distribution election, the regular distribution election). If a partic-
ipant’s beneficiary is not his or her spouse, then the account is
generally paid out in a lump sum. The Plan administrator has also
established procedures for hardship withdrawals and unplanned
withdrawals (with a penalty). The current penalty for unplanned
withdrawals is 10%. In the event of a change in control of the
company, the Stock Account is automatically converted into cash
based upon a formula provided in the Plan.
Item 13. Certain Relationships and Related
Transactions
The information presented in the section entitled “Certain
Relationships and Related Transactions” in the 2004 Proxy is
incorporated herein by reference.
Item 14. Principal Accounting Fees
and Services
The information presented in the section entitled “Independent
Auditors Fees and Services” in the 2004 Proxy is incorporated
herein by reference.
44
Part IV
45
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
• Consolidated Statements of Earnings for 2004, 2003 and 2002
• Consolidated Balance Sheets as of August 1, 2004 and August 3, 2003
• Consolidated Statements of Cash Flows for 2004, 2003 and 2002
• Consolidated Statements of Shareowners’ Equity (Deficit) for 2004, 2003 and 2002
• Notes to Consolidated Financial Statements
• Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
None.
3. Exhibits
3(i)
Campbell’s Restated Certificate of Incorporation as amended through February 24, 1997 was filed with the Securities and
Exchange Commission (“SEC”) with Campbell’s Form 10-K for the fiscal year ended July 28, 2002, and is incorporated
herein by reference.
3(ii)
Campbell’s By-Laws, effective as of July 22, 2004.
4(i)
With respect to Campbell’s 6.75% notes due 2011, the form of Indenture between Campbell and Bankers Trust Company,
as Trustee, and the associated form of security were filed with Campbell’s Registration Statement No. 333-11497, and are
incorporated herein by reference.
4(ii)
9
Except as described in 4(i) above, there is no instrument with respect to long-term debt of the company that involves
indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the company and its subsid-
iaries on a consolidated basis. The company agrees to file a copy of any instrument or agreement defining the rights of
holders of long-term debt of the company upon request of the SEC.
Major Stockholders’ Voting Trust Agreement dated June 2, 1990, as amended, was filed with the SEC by (i) Campbell
as Exhibit 99.C to Campbell’s Schedule 13E-4 filed on September 12, 1996, and (ii) with respect to certain subsequent
amendments, the Trustees of the Major Stockholders’ Voting Trust as Exhibit 99.G to Amendment No. 7 to their Schedule
13D dated March 3, 2000, and as Exhibit 99.M to Amendment No. 8 to their Schedule 13D dated January 26, 2001,
and as Exhibit 99.P to Amendment No. 9 to their Schedule 13D dated September 30, 2002, and is incorporated herein
by reference.
10(a) Campbell Soup Company 1984 Long-Term Incentive Plan, as amended on March 30, 1998, was filed with the SEC with
Campbell’s Form 10-K for the fiscal year ended August 2, 1998, and is incorporated herein by reference.
44
45
10(b) Campbell Soup Company 1994 Long-Term Incentive Plan, as amended on November 17, 2000, was filed with the SEC
with Campbell’s 2000 Proxy Statement, and is incorporated herein by reference.
10(c) Campbell Soup Company 2003 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2003 Proxy Statement,
and is incorporated herein by reference.
10(d) Campbell Soup Company Management Worldwide Incentive Plan, as amended on November 17, 2000, was filed with the
SEC with Campbell’s 2000 Proxy Statement, and is incorporated herein by reference.
10(e) Campbell Soup Company Mid-Career Hire Pension Program, amended effective as of January 25, 2001, was filed with the
SEC with Campbell’s Form 10-K for the fiscal year ended July 29, 2001, and is incorporated herein by reference.
10(f) Deferred Compensation Plan, effective November 18, 1999, was filed with the SEC with Campbell’s Form 10-K for the
fiscal year ended July 30, 2000, and is incorporated herein by reference.
10(g) Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant, President and Chief Executive Officer,
was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated
herein by reference. Agreements with the other executive officers listed under the heading “Executive Officers of the
Company” are in all material respects the same as Mr. Conant’s agreement.
10(h) Employment agreement between the company and Douglas R. Conant dated January 8, 2001, was filed with the SEC with
Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated herein by reference.
10(i) Letter Agreement between the company and Mark A. Sarvary, effective as of February 9, 2004, regarding severance
arrangements was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended May 2, 2004, and is incor-
porated herein by reference.
21
Subsidiaries (Direct and Indirect) of the company.
23
Consent of Independent Registered Public Accounting Firm.
24
Power of Attorney.
31(i) Certification of Douglas R. Conant pursuant to Rule 13a-14(a).
31(ii) Certification of Robert A. Schiffner pursuant to Rule 13a-14(a).
32(i) Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350.
32(ii) Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350.
46
47
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Campbell has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 12, 2004
CAMPBELL SOUP COMPANY
By: /s/ Robert A. Schiffner
Robert A. Schiffner
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of Campbell and in the capacity and on the date indicated.
Date: October 12, 2004
/s/ Robert A. Schiffner
Robert A. Schiffner
Senior Vice President
and Chief Financial Officer
George M. Sherman
Douglas R. Conant
Edmund M. Carpenter
Paul R. Charron
Bennett Dorrance
Kent B. Foster
Harvey Golub
Randall W. Larrimore
Philip E. Lippincott
Mary Alice D. Malone
David C. Patterson
Charles R. Perrin
Donald M. Stewart
George Strawbridge, Jr.
Les C. Vinney
Charlotte C. Weber
/s/ Anthony P. DiSilvestro
Anthony P. DiSilvestro
Vice President – Controller
By: /s/ Ellen Oran Kaden
Ellen Oran Kaden
Senior Vice President –
Law and Government Affairs
Chairman and Director
President, Chief Executive
Officer and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
46
47
Exhibit 31(i)
Certification Pursuant to Rule 13a-14(a)
I, Douglas R. Conant, certify that:
1. I have reviewed this Annual Report on Form 10-K of Campbell Soup Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact neces-
sary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: October 12, 2004
By: /s/ Douglas R. Conant
Name: Douglas R. Conant
Title: President and Chief Executive Officer
48
49
Exhibit 31(ii)
Certification Pursuant to Rule 13a-14(a)
I, Robert A. Schiffner, certify that:
1. I have reviewed this Annual Report on Form 10-K of Campbell Soup Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact neces-
sary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: October 12, 2004
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer
48
49
Exhibit 32(i)
Certification Pursuant to
18 U.S.C. Section 1350
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended August 1,
2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas R. Conant, President and
Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: October 12, 2004
By: /s/ Douglas R. Conant
Name: Douglas R. Conant
Title: President and Chief Executive Officer
50
Exhibit 32(ii)
Certification Pursuant to
18 U.S.C. Section 1350
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended August 1,
2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert A. Schiffner, Senior Vice
President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: October 12, 2004
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer
Better organization.
Better employee engagement.
Better consumer insights.
Better business strategies.
Better products.
Better packaging.
Better marketing.
Better innovation pipeline.
Better customer relationships.
Better trade spending productivity.
Better competitiveness.
Better organic growth profi le.
Better fi nancial foundation.
Better prospects for the company’s future.
Board of
Directors
Officers
(as of October 2004)
Shareowner
Information
George M. Sherman
Chairman of Campbell Soup
Company, Retired President and
Chief Executive Officer
of Danaher Corporation 2
Douglas R. Conant
President and Chief Executive
Officer of Campbell Soup Company 3
Edmund M. Carpenter
President and Chief Executive
Officer of Barnes Group, Inc. 1, 3
Paul R. Charron
Chairman and Chief Executive
Officer of Liz Claiborne, Inc.3
Bennett Dorrance
Private Investor and Chairman
and Managing Director
of DMB Associates 2, 3
Kent B. Foster
Chairman and Chief Executive
Officer of Ingram Micro, Inc.1, 4
Harvey Golub
Retired Chairman and Chief
Executive Officer of American
Express Company 2, 3
Randall W. Larrimore
Non-executive Chairman of Olin
Corporation and Retired President
and Chief Executive Officer of
United Stationers Inc. 1, 4
Philip E. Lippincott
Former Chairman of
Campbell Soup Company,
Retired Chairman and
Chief Executive Officer
of Scott Paper Company 2, 3
Mary Alice D. Malone
Private Investor and President
of Iron Spring Farm, Inc.3, 4
David C. Patterson
Founder and Chairman
Brandywine Trust Company 3, 4
Charles R. Perrin
Non-executive Chairman of
Warnaco Group, Inc., and Retired
Chairman and Chief Executive
Officer of Avon Products, Inc.1, 2
Donald M. Stewart
President of the Chicago
Community Trust 2, 4
George Strawbridge, Jr.
Private Investor and President of
Augustin Corporation 1, 4
Les C. Vinney
President and Chief Executive
Officer of STERIS Corporation 1, 4
Charlotte C. Weber
Private Investor and Chief Executive
Officer of Live Oak Properties 2, 4
Douglas R. Conant
President and Chief
Executive Officer
Mark A. Sarvary
Executive Vice President
and President –
Campbell North America
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
Larry S. McWilliams
Senior Vice President and
President – U.S. Soup, Sauces,
and Beverages
Denise M. Morrison
Senior Vice President and
President – Global Sales and
Chief Customer Officer
Nancy A. Reardon
Senior Vice President and
Chief Human Resources and
Communications Officer
Robert A. Schiffner
Senior Vice President and
Chief Financial Officer
David R. White
Senior Vice President –
Global Supply Chain
Doreen A. Wright
Senior Vice President and
Chief Information Officer
Anthony P. DiSilvestro
Vice President – Controller
John Doumani
Vice President and
President – Campbell International
John J. Furey
Vice President and
Corporate Secretary
Richard J. Landers
Vice President – Taxes
Gerald S. Lord
Vice President – Finance and
Strategy, Campbell North America
William J. O’Shea
Vice President – Treasurer
World Headquarters
Campbell Soup Company
1 Campbell Place
Camden, NJ 08103
(856) 342-4800
(856) 342-3878 (Fax)
Stock Exchange Listings
New York, Philadelphia,
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 reinvestment 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 18, 2004
at 3 p.m., Eastern Standard Time,
at the Wyndham Reading Hotel,
Reading, PA 19601.
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.campbellsoupcompany.com.
For copies of the Campbell Soup
Foundation’s Giving Report, write to:
Public Affairs at the World
Headquarters address.
Committees 1 Audit 2 Compensation & Organization 3 Finance & Corporate Development 4 Governance
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 John Faulkner,
Director – Corporate Communications
at the World Headquarters address,
or call (856) 342-3738.
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 worldwide website at
www.campbellsoupcompany.com.
Campbell Brands
Product trademarks of Campbell
Soup Company and/or its
subsidiaries appearing in the
narrative text of this report are
italicized.
* Kahlua and Tia Maria are registered
trademarks of Allied Domecq and a
license for their use on Arnott’s
products has been granted by the
owners to Arnott’s.
Thanks to all the Campbell
employees pictured in this year’s
annual report.
Simply
better
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1 Campbell Place, Camden, NJ 08103-1799 www.campbellsoupcompany.com
Campbell Soup Company 2004 Annual Report