“ Our company has delivered a year of quality
growth, surpassing the financial goals we
set for ourselves…This is an important step
forward in fulfilling our mission to build the
world’s most extraordinary food company.”
Douglas R. Conant
President and Chief Executive Officer
Fellow Shareowners,
I am pleased to report that our company has delivered a year of quality growth,
surpassing the financial goals we set for ourselves. We’ve again become fully
competitive in the food industry. We’ve earned loyalty from our consumers,
accolades from our customers, and credibility with the investment community.
Over the past four years, we have made significant progress. We’ve
improved the quality of our top products. We’ve strengthened innovation pipe-
lines in all our businesses. We’ve increased our marketing support across the
board. We’ve enhanced relationships with our customers. We’ve improved our
working environment, resulting in a more engaged workforce. As a result of all
these actions, we’ve improved our sales growth profile significantly since the
launch of our transformation plan in 2001.
Campbell Soup Company | page 1
Renewing
the Legend
Campbell’s condensed soups are again showing
strength through a focus on improving product quality,
packaging, and marketing. We’re building on our
success by launching more kid-preferred varieties,
such as Campbell’s condensed soup with pasta-
shaped characters from the popular animated
television series The BatmanTM, and merchandising
events, such as the SouperStar Island contest. We’re
also ramping up investment in Campbell’s Healthy
Request reduced-sodium soups, and working to “win
the holidays” with Campbell’s cream soups for cooking
as we celebrate the 50th anniversary of Campbell’s
Green Bean Casserole Bake recipe.
Fellow Shareowners
Now, we’ll continuously improve on our performance in a
These are some highlights from our fiscal 2005 performance:
sustainable fashion. Our mission is “to build the world’s most
extraordinary food company.” Our vision to deliver that mission is
“to nourish the lives of people everywhere, every day.” We have
two key metrics that will define our success. In the marketplace,
we will define winning by delivering the best total shareowner
returns in our peer group over the next decade. Our annual goal
is to deliver above-average total shareowner returns on a rolling
three-year basis. In the workplace, we will define winning by
enhancing employee engagement every year.
We will continue to drive quality growth — in our products,
our marketing, our supply chain, our information management
systems, and the capabilities of our associates; in top-line growth
through higher volumes, appropriate pricing, and higher-value
products; and in operating earnings, by focusing on improving
margin management and lowering total delivered cost.
A Productive Year
Perhaps nothing exemplifies our improvement as a company
better than the performance of our Campbell’s condensed soup
Campbell North America Our North American businesses
account for $5.5 billion in sales and include leading retail and
food service brands such as Campbell’s, Pepperidge Farm, V8,
Prego, Pace, Swanson, StockPot, and our Godiva business,
which operates worldwide.
In fiscal 2005, U.S. soup sales grew 5 percent. Along
with the progress in our Campbell’s condensed soup business,
Swanson broth and Campbell’s Chunky soups had strong sales
growth. Our kids marketing programs not only helped drive
growth of Campbell’s condensed soups, but also drove growth
of our rebranded Campbell’s SpaghettiOs pasta. In addition,
our premium refrigerated soups from our Stockpot business
delivered record results.
Pepperidge Farm showed strength across all of its catego-
ries, but particularly in fresh bakery, where whole grain items
were a significant success. Godiva had an excellent year, with
growth across all channels and markets worldwide, most nota-
bly driven by strong same-store sales growth in North America.
business, our single largest product line. After many years of
Campbell International Our International businesses represent
decline, condensed soup sales grew 8 percent in fiscal 2005.
$2.0 billion in sales with leading brands in Europe and Asia
This strong performance is attributable to our relentless focus on
Pacific. We own a variety of soup and sauce brands, including
doing several critical things better over the past four years. First,
Erasco products in Germany, Liebig soups in France, and
we strengthened our U.S. soup management team. Second,
Homepride sauces in the U.K., as well as dry soup and sauce
we significantly enhanced the quality and taste of virtually our
businesses throughout Europe. In Asia Pacific, we own the
entire range of soups. Third, we converted our entire U.S.
Arnott’s brand of biscuits.
line to convenient, easy-open lids. Finally, we began a broad-
In fiscal 2005, Europe sales grew slightly, primarily due to
scale marketing campaign that included better advertising
favorable currency and sales gains in France and Belgium.
and promotions and a major change in the way we display and
In Asia Pacific, Arnott’s turned in another solid performance
merchandise condensed soups at retail. We’re working to bring
in Australia and the Australian Snackfoods business improved
this type of comprehensive transformation to all our major
its profitability from 2004. Our Australian and New Zealand
product lines around the world.
soup, stock, and beverage businesses continued to deliver
As a result of efforts like these, in fiscal 2005, we reported
strong sales growth.
net sales of $7.5 billion and earnings per share of $1.71.
These results exceeded the financial goals established for our
company: net sales growth of 3 to 4 percent per year, earnings
Our Strategies
Our greatest assets are our icon brands, the competitive advan-
before interest and taxes of 5 to 6 percent per year, and earnings
tages that underlie them, and the talents of our people. We are
per share growth of 5 to 7 percent per year.
evolving our core strategies to leverage these assets and better
drive quality growth. These updated strategies build on those
we have been executing over the past four years. On the next
several pages, you’ll get an in-depth look at these strategies.
Campbell Soup Company | page 3
Our brands play in multiple areas within Simple Meals.
The Simple Meals category offers tremendous growth opportunities for Campbell. By redesigning the packaging
graphics for Campbell’s Soup at Hand sippable soups and rebranding SpaghettiOs pasta under the Campbell’s
brand, we’ve extended our brands and driven marketing efficiencies. The successful launch of Campbell’s Chunky
chili demonstrates how our brands can transcend their formats and product categories within Simple Meals.
Expand our icon brands
within Simple Meals and
Baked Snacks.
Additionally, we are more closely aligning our Campbell’s Soup
at Hand sippable soups with the Campbell’s condensed line by
coordinating the packaging graphics. This will drive marketing
efficiency and broaden the positioning of Campbell’s Soup at
Hand sippable soups.
Simple Meals, heavily anchored by Soup, and Baked Snacks,
Campbell’s Chunky and Campbell’s Select soups each offer
heavily anchored by Biscuits, make up the majority of our
unique benefits. Campbell’s Chunky soups have been a strong
portfolio — more than 80 percent of our net sales and operating
top-line contributor for several years, and in fiscal 2006 we are
earnings. These are large and growing consumer-based mega-
augmenting this growth with new varieties. Campbell’s Select
categories. Significant opportunity exists within these categories
soups, while growing over the past decade, have performed
for our key brands, all of which have potential to expand beyond
inconsistently. In fiscal 2006, we are putting major efforts
the segments and categories in which we compete today.
behind restoring the brand’s vitality by launching distinctive
In the U.S., the brand equity associated with our iconic
advertising to core users, putting three bestsellers in convenient
Campbell’s condensed soups offers many opportunities for
microwaveable bowls, and introducing other unique varieties.
expansion. In fiscal 2006, we are launching three varieties of
While soup is clearly central to our plans, there are other
our traditional condensed soups — Chicken Noodle, Tomato,
Simple Meals where our brand equities can be competitively
and Vegetable — as ready-to-serve soups in microwaveable
leveraged and our existing assets more fully utilized. We
bowls under the “M’m! M’m! Good! To Go” umbrella.
have made significant progress already with the launch of
Campbell Soup Company | page 4
The Baked Snacks mega-category is huge and growing.
Whether it’s for “on-the-go” munching, an indulgent treat, or a nutritious bite, Pepperidge Farm and Arnott’s are
leaders in building on the power of our brands within Baked Snacks. Pepperidge Farm has introduced Goldfish
crackers made with whole grains and added three deliciously rich Soft Baked cookies — Snickerdoodle, Sugar, and
Oatmeal Cranberry. In fiscal 2006, Arnott’s will introduce Australians to Tim Tam Balls, a bite-sized version of their
favorite chocolate biscuit.
Campbell’s Chunky chili in both Canada and the U.S., and by
Arnott’s launch of Dangerous Liaison Tim Tam biscuits in sophis-
converting Franco-American pasta to Campbell’s branding in
ticated flavors such as Black Forest Fantasy and Creamy Truffle
the U.S. Internationally, we plan to accelerate innovation by
Sensation continued to drive incremental sales for its Tim Tam
expanding the line of Campbell’s soups in microwaveable bowls
brand. In fiscal 2006, it will expand “beyond the biscuit” with
in Australia and introducing new formats for Batchelors Super
indulgent, bite-sized Tim Tam Balls.
Noodles in the U.K.
Beyond Simple Meals and Baked Snacks, we have two
Our Pepperidge Farm premium baked goods in the U.S.
other growth platforms that can be leveraged: V8 beverages and
and Arnott’s biscuits in Asia Pacific are leading brands in the
Godiva premium chocolate products.
Baked Snacks category.
Our V8 brand is ranked at the high end of consumers’ health
Through continuous innovation, Pepperidge Farm Goldfish
and wellness perceptions. We are leveraging these perceptions
crackers delivered 14 consecutive years of sales growth. In
of convenient, vegetable nutrition by increasing top-of-mind
fiscal 2005, this record continued with the addition of whole
awareness of the core V8 juice products and extending house-
grain and calcium-fortified varieties. Pepperidge Farm extended
hold reach with innovative vegetable-based products.
its cookie line with new varieties of its popular Soft Baked cookies,
Godiva products have traditionally been purchased as gifts.
which achieved double-digit growth. We also introduced
We’re now broadening our offerings for immediate “self-treat”
sugar-free varieties of our best-selling Milano and Chocolate
consumption, with products such as our new Godiva Chocolixir
Chunk cookies.
beverage and handmade peanut butter cups.
Campbell Soup Company | page 5
Convenience.
Wellness.
Quality.
We are raising the bar when it comes to delivering
products that meet consumers’ expectations in these
areas. Poppable Pepperidge Farm Whims cookies
are packaged in a resealable, portable container that
makes them ideal for on-the-go adults. The launch of
V8 fruit and vegetable juices in the U.K. is making
it easier for British consumers to embrace a healthy
diet. The organic line of Swanson broth is appealing
to consumers’ demands for high-quality, health-
focused offerings.
Fellow Shareowners
Trade consumers up to
higher levels of satisfaction
centering on convenience,
wellness, and quality.
have already achieved market leadership in the three countries
where the aseptic format is widely used — France, Australia,
and Canada.
In Europe, we are capitalizing on consumers’ preferences
for convenience with the introduction of instant dry soups
in multi-serving jars in the U.K. and France. In the area of
Today’s consumers are more demanding than ever, and willing
wellness, we are expanding the presence of our V8 brand in the
to pay a premium for products that deliver higher quality, taste,
U.K. by launching five flavors of 100 percent fruit and vegetable
and portability. As a result, we see a significant opportunity to
juice to appeal to health-conscious consumers.
“trade consumers up” to products that offer these enhanced
In Australia, V8 juice had double-digit sales growth in fiscal
attributes. For example, we launched organic lines of Swanson
2005 and became the country’s leading premium juice brand.
broth and Prego spaghetti sauce to appeal to consumers’
We also launched V8 Carrot, Apple & Ginger, and V8 Plus
demand for more healthful offerings.
beverages, which enhanced our base drink line with ginkgo
Campbell’s Healthy Request soups, a line of reduced-
biloba, ginseng, green tea, and wheatgrass.
sodium and low-fat products, had double-digit sales growth in
Godiva is enticing chocolate lovers with its Godiva Platinum
fiscal 2005, after years of flat or declining sales growth, primarily
Collection, a new assortment of chocolates, featuring unique
due to better merchandising. We believe upside opportunity
textures and flavors, packaged in an elegant Platinum ballotin.
exists for this product line, and we’ll continue to focus on it.
These signature chocolates are being introduced globally in
Pepperidge Farm is responding to consumers’ increasing
fiscal 2006.
demand for foods containing whole grains through its line of
whole wheat and whole grain breads, rolls, English muffins,
and bagels. These delicious and nutritious offerings have helped
Pepperidge Farm achieve strong sales growth in its fresh bakery
business for two consecutive years.
Australian consumers can enjoy two new varieties of
Arnott’s leading better-for-you Snack Right biscuits with Apricot
and Yoghurt Fruit Slice and Wild Berry Pillow. On the savory
Make our products more
broadly available in existing
and new markets.
side, Arnott’s has extended its crispbread line, with Vita-Weat
As prepared food offerings grow in U.S. supermarket delis,
Soy & Linseed, which is 100 percent natural and a source of
retailers recognize the value of our high-quality refrigerated soups.
Omega 3, and Salada Poppy & Sesame.
Demand for our refrigerated soups has increased dramatically,
In fiscal 2006, we are moving into the premium shelf-stable
with double-digit sales growth in fiscal 2005.
soup market in the U.S., with Campbell’s Select Gold Label
This demand contributed to our decision to build a new
soups, which use aseptic technology. Aseptic processing and
$80 million culinary campus in Washington state to accommodate
packaging provide high-quality, delicious products, including
the anticipated growth, increasing our production capacity by
such unique varieties as Golden Butternut Squash and Creamy
50 percent. This will better position us to further penetrate retail
Portobello Mushroom. Food retailers’ early response to these
grocery stores, traditional food service chains, and independent
new soups has been enthusiastic, which is no surprise, as we
restaurant locations.
Campbell Soup Company | page 7
Available where — and how — consumers shop.
Customized products and packaging for emerging channels and markets will help make our offerings more available
to more consumers. For instance, we introduced Arnott’s Tim Tam biscuits in China. We are driving penetration of
traditional food service chains, independent restaurant locations, and retail grocers in the U.S. with refrigerated
soups made by our Stockpot business. Campbell’s Chunky soups in customized case packs allow consumers who
desire larger quantities the convenience of purchasing several cans at one time.
The strong performance of Campbell’s condensed soup
business demonstrates the value of the iQ Maximizer, an
innovative gravity-feed shelf system for merchandising soup.
This adaptable unit, now in about 14,000 stores, makes stocking
and maintaining shelves simpler for retailers, while making the
soup aisle dramatically easier for consumers to shop.
Increase margins by
improving price realization
and company-wide
productivity.
Outside the U.S., we’re accelerating our brand and product
Consistent with our financial goals of growing earnings faster
offerings in key markets, especially those with high per capita
than sales, we believe we can improve our margins. To do this,
consumption of soup. In South Asia, we introduced the first
we plan on capturing more of the value our products create
Campbell’s brand instant dry soups for breakfast, featuring nine
— through improved price realization and better product mix
nutritious varieties based on popular flavors for children.
management. We also expect to improve productivity through
Capitalizing on its leadership position in Australia and New
more efficient customer and marketing spending and further
Zealand, Arnott’s launched Tim Tam biscuits in China during the
optimization of our supply chain.
year with seven varieties tailored to Chinese tastes throughout
During fiscal 2006, we will continue work on the new sales
the cities of Guangzhou and Shenzhen. This builds on Arnott’s
and distribution system in Australia announced last year to
expansion in recent years into Indonesia and Malaysia.
increase productivity across our Australian operations.
We will continue to focus efforts behind Simple Meals and
From a strategic viewpoint, we plan on rolling out our SAP
Baked Snacks in Hong Kong, Indonesia, Japan, and Malaysia,
enterprise-resource planning system in Canada in fiscal 2006
while exploring opportunities in new markets, such as China
and will begin to prepare other North American businesses to
and Russia.
implement SAP over the next few years. Further, the Global
Campbell Soup Company | page 8
Our Corporate Leadership Team
Robert Schiffner
Senior VP and
Chief Financial
Officer
Jerry Buckley
Senior VP
Public Affairs
Doreen Wright
Senior VP
and Chief
Information
Officer
David White
Senior VP
Global Supply
Chain
Nancy Reardon
Senior VP and
Chief Human
Resources and
Communications
Officer
Larry McWilliams
Senior VP and
President–
Campbell
International
Carl Johnson
Senior VP and
Chief Strategy
Officer
Ellen Oran Kaden
Senior VP
Law and
Government
Affairs
Arthur Anderson
Senior VP
Global Research
& Development
and Quality
Mark Sarvary
Executive VP
and President–
Campbell
North America
Supply Chain team will continue to focus on lowering costs
Valuing Campbell. We remain committed to developing a culture
incurred across the total supply chain, from the procurement of
of mutual respect. In fiscal 2005, to help drive this spirit across
ingredients and packaging to the delivery to customers.
the organization, we introduced our Campbell Values, which
Improve overall
organizational diversity,
engagement, excellence,
and agility.
focus on character, competence, and teamwork. We know that
to win in the marketplace, we must first win in the workplace.
We are committed to increasing the diversity of our work-
force to better reflect the markets in which we operate
and sell our products. In fiscal 2005, we developed a
comprehensive plan to improve how the company leverages
diversity for overall business success. We are rolling out
diversity education and training to build competence in
managing diversity, and will continue to support affinity
The diversity, engagement, excellence, and agility of our
networks at Campbell. We also launched a Diversity Advisory
workforce are critical to our long-term success. We’ve made
Board to help guide our initiatives and support a culture of
great strides in these areas, but there’s always room for improve-
inclusion across our organization.
ment in the speed, quality, and dexterity of our problem solving,
For the past four years, we have conducted annual work-
decision-making, and execution.
place surveys to assess the level of employee engagement. We
During the past four years, we have continued to promote
have improved overall engagement every year, incorporating
our Campbell Promise — Campbell Valuing People, People
ideas from Campbell associates at all levels.
Campbell Soup Company | page 9
Fellow Shareowners
In addition, we inaugurated a “Winning With Integrity”
on total shareowner returns as a critical measure of our progress
compliance program, which reinforces the importance of ethical
and, consequently, have incorporated this measurement as the
principles and behaviors in all parts of our business practices.
cornerstone of our long-term compensation program.
We also continue to make a difference in our communi-
ties by encouraging volunteerism and striving to be good
corporate citizens.
To Be Extraordinary
I am pleased by the performance of our associates and our
company since I became CEO in January 2001. We have relied
Financial Goals
As we continue to generate top-line growth through higher
on our talented, dedicated people to restore our competitiveness.
We have made tough decisions, reorganizing, restructuring,
volume, appropriate pricing, and higher-value products, we
and reassessing. This year’s performance is an important step
will strive to generate higher operating earnings driven by
forward in fulfilling our mission to build the world’s most
margin improvement.
extraordinary food company.
Over the longer term, we intend to maintain 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.
After the close of fiscal 2005, we increased our annual divi-
dend from $.68 per share to $.72 per share. We intend to focus
Doug Conant
PR ESI DE NT AN D C EO
Chairman’s Message
This is my first report as Chairman
Organization Committee approved a new long-term incentive
of Campbell Soup Company after
compensation program. Our shareowners and potential investors
eight years as a director. I’m
will be pleased to see that total shareowner returns, compared
delighted to write it because I am
to other food companies, will be the central driver of incentive
very proud to be associated with
compensation for Campbell’s executives under this new
our company. The reasons are
program. This will align management’s interests with those of
easy to state: Campbell produces
shareowners as much as any program I have ever seen.
high-quality food products, is
In November 2005, Don Stewart will retire from the Board
managed by an equally high-quality management team, and
after 14 years of dedicated service. We have greatly benefited
overseen by a dedicated, experienced, and competent Board.
from the perspective Don has contributed to our work from his
All of us are focused on doing the right things in the right way,
and are committed to serving long-term shareowner interests.
distinguished experience in the academic and not-for-profit
worlds. The nominee to succeed him is Barry Rand, formerly
Doug has reported on business results in more detail earlier
the chairman and CEO of Avis. Barry’s wide-ranging business
in this report, but it is clear that, in fiscal 2005, we began to
background will make him a valuable addition to the Board. In
see the results of the investments we have made since 2001 to
anticipation of Phil Lippincott’s retirement next year, the Board
transform our company in the marketplace and in the workplace.
has also nominated Sara Mathew, senior vice president and
Campbell is a far more competitive and innovative company today
than it was four years ago when Doug joined as CEO. Earlier this
chief financial officer of Dun & Bradstreet, who was previously
associated with Procter & Gamble for over 18 years. Sara
year, the Board reviewed with management a thoughtful strategic
brings an extensive background in finance and the consumer
plan to drive quality growth through an expanded focus on
products industry.
“Simple Meals” and “Baked Snacks.” We believe that Campbell
now has the capabilities it needs to succeed in these broader
arenas, and has made important strides toward achieving our long-
term goal of being the world’s most extraordinary food company.
To further align management’s and shareowners’ interests,
during the last fiscal year the Board’s Compensation and
Harvey Golub
C HA IR MA N OF THE BOA RD
Campbell Soup Company | page 10
Innovation on every
level is driving
quality growth.
Simple Meals and Baked Snacks ... perfect for people on the go ... exciting new
soups, snacks, and indulgent beverages that leverage iconic Campbell brands ...
nutritious baked goods that don’t scrimp on taste ... enhanced packaging with
easy-open lids, microwaveable bowls, multi-serving jars, and aseptic cartons ...
new merchandising that makes it easier for consumers to shop or to find the
ideal “self-treat” ... everywhere you look at Campbell, innovation is on the move.
These advances, moreover, are aimed at mega-trends spreading around
the world: a demand for convenience, high quality, and foods that promote
health and wellness. As a result, innovation not only drives results, but it also
adds a platform for sustainable performance that will, over time, make our
company extraordinary.
What’s New?
>
No Waiter Necessary
We’ve taken soup innovation to the next level with Campbell’s Select Gold Label soups in the U.S. These vegetarian soups
are made with the highest quality ingredients and their distinctive taste is similar to what you would find in a fine restaurant
— only now you can enjoy them in your home. Aseptic technology and packaging ensure each flavor — Golden Butternut
Squash, Blended Red Pepper Black Bean, Creamy Portobello Mushroom, Roasted Red Pepper and Tomato, and Italian Tomato
with Basil and Garlic — holds its rich taste, color, and aroma without any artificial flavors or preservatives.
A New Twist on the Classics
We’ve made it even easier for time-starved consumers to enjoy three of their favorite classic soups — Campbell’s Chicken
Noodle, Tomato, and Vegetable “Alphabet” — by putting them in convenient, microwaveable bowls. These latest additions to
our “M’m! M’m! Good! To Go” line of microwaveable soups and chilis make it easy for consumers to enjoy a hot, nourishing,
and delicious bowl of soup at work, at school, at home, or anywhere their busy lifestyles take them.
Stir and Serve
Dry soup has long been a favorite snack food in Europe. It’s the most popular form of soup in continental Europe, representing
about half of commercial soup consumption. In recent years, we have leveraged our dry soup technology and expertise to
produce new products for European consumers. One of our latest products is a multi-serving instant dry soup in a jar. This new
format allows consumers to customize each cup, while the resealable jar keeps the soup fresh. The product is being launched
in France under the Royco brand and in the U.K. under the Batchelors brand.
Smarter Merchandising
Our breakthroughs in soup merchandising continue to make it simpler for retailers to stock and maintain their soup shelves
and easier and faster for consumers to shop. By the end of fiscal 2005, we had installed approximately 14,000 iQ Maximizer
gravity-feed shelf systems in U.S. stores. In fiscal 2006, we are rolling innovative shelving out more broadly with the next
generation of shelving systems designed for Campbell’s Soup at Hand sippable soups, Campbell’s Chunky and Campbell’s
Select soups in microwaveable bowls, and new Campbell’s Select Gold Label soups in aseptic packaging.
Going With the Whole Grain
Pepperidge Farm is making it easy for consumers to have it all — taste and the healthful nutrients they need. The business
has an almost 70-year heritage of making whole grain breads that taste great. These days, Pepperidge Farm produces a range
of products to help individuals get their daily servings of whole grains. They include a line of sandwich breads, 100% Whole
Wheat Bagels, 7-Grain and 100% Whole Wheat English Muffins, Whole Grain Seasoned Croutons, Whole Wheat Garlic Texas
Toast, and even a version of Goldfish crackers with whole grains.
Indulge Yourself
A gift of Godiva chocolates is always in good taste. But today’s Godiva products also are the perfect indulgence for consumers
who don’t want to wait for a special occasion to treat themselves. New merchandising, packaging, and products, including
Chocolixir, a frosty, blended beverage made with Godiva chocolate, helped reinvigorate the brand in fiscal 2005. Godiva retail
stores are being revitalized with a contemporary store design that features indulgent self-treat products while continuing to
showcase the beautiful Godiva gift collections.
Snack Attack
This year, Arnott’s introduced Tasty Jacks crinkle-cut potato chips, a flavor-packed snack with a fresh, roasted potato taste.
One of the secrets to the success of Tasty Jacks has been its “real-food” flavors, such as the taste of Herb Roasted Chicken,
Grilled BBQ, and Sour Cream and Bacon. Made with a unique blade that produces a deeper crinkle in the chips, Tasty Jacks
chips offer a crunchier taste that has been an instant hit with consumers.
UNITED STATES
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
July 31, 2005
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
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
.
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. [ ✓ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ✓ No
.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No ✓ .
As of January 28, 2005 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value
of capital stock held by non-affiliates of the registrant was approximately $6,908,285,404. There were 410,636,363 shares of capital stock
outstanding as of September 21, 2005.
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareowners to be held on November 18, 2005, are incorporated by
reference into Part III.
Campbell Soup Company
Form 10-K
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 and Related Shareowner Matters
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
1
3
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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 convenience
food products. Campbell was incorporated as a business corpo-
ration 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 exec-
utive 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. Beginning with fiscal 2006, the
company updated the strategies it is using to continue this effort.
The five strategies include:
• Expanding the company’s well-known brands within the simple
meal and baked snack categories;
• Trading consumers up to higher levels of satisfaction centering
on convenience, wellness and quality;
• Making the company’s products more broadly available in
existing and new markets;
• Increasing margins by improving price realization and company-
wide productivity; and
• Improve overall organizational diversity, engagement, excel-
lence and agility.
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. Beginning
with fiscal 2005, the company changed its organizational struc-
ture and as a result its operations are organized and reported
in the following segments: U.S. Soup, Sauces and Beverages;
Baking and Snacking; International Soup and Sauces; and Other.
The new segments are discussed in greater detail below.
U.S. Soup, Sauces and Beverages The U.S. Soup, Sauces and
Beverages segment includes the following retail businesses:
Campbell’s condensed and ready-to-serve soups; Swanson broth
and canned poultry; Prego pasta sauce; Pace Mexican sauce;
Campbell’s Chunky chili; Campbell’s canned pasta, gravies, and
beans; Campbell’s Supper Bakes meal kits; V8 vegetable juice;
V8 Splash juice beverages; and Campbell’s tomato juice.
Baking and Snacking The Baking and Snacking segment includes
the following businesses: Pepperidge Farm cookies, crackers,
bakery and frozen products in U.S. retail; Arnott’s biscuits in
Australia and Asia Pacific; and Arnott’s salty snacks in Australia.
International Soup and Sauces The International Soup and
Sauces segment includes the soup, sauce and beverage busi-
nesses outside of the United States, including Europe, Mexico,
Latin America, the Asia Pacific region and the retail business in
Canada. The segment’s operations include 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, opera-
tions include Campbell’s soup and stock and Swanson broths
across the region. In Canada, operations include Habitant and
Campbell’s soups, Prego pasta sauce and V8 juices.
Other The balance of the portfolio reported in Other includes
Godiva Chocolatier worldwide and the company’s Away From
Home operations, which represent the distribution of products
such as soup, specialty entrees, beverage products, other
prepared foods and Pepperidge Farm products through various
food service channels in the United States and Canada.
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. To help reduce some of this
volatility, the company uses commodity futures contracts for a
number of its ingredients, such as corn, cocoa, soybean meal,
soybean oil and wheat. 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 restric-
tions on availability or shortages of ingredients that would have
a significant impact on the company’s businesses. For additional
information on the company’s ingredient management and for
information relating to the impact of inflation on the company, see
“Management’s Discussion and Analysis of Results of Operations
and Financial Condition” and Note 18 to the Consolidated
Financial Statements.
Customers In most of the company’s markets, sales activities
are conducted by the company’s own sales force and through
broker and distributor arrangements. In the United States,
Canada and Latin America, the company’s products are gener-
ally 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 establishments. In Mexico,
the company’s products are generally resold to consumers in
retail food chains, club stores, convenience stores, drug stores
2
and other retail establishments. In the Asia Pacific region, the
company’s products are generally resold to consumers through
retail food chains, convenience stores and other retail establish-
ments. Godiva Chocolatier’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,
worldwide. Godiva Chocolatier’s products are also sold through
catalogs and on the Internet, although these sales are primarily
limited to North America and Japan. The company makes ship-
ments promptly after receipt and acceptance of orders.
The company’s largest customer, Wal-Mart Stores, Inc. and its
affiliates, accounted for approximately 14% of the company’s
consolidated net sales during fiscal 2005 and 12% during fiscal
2004. All of the company’s segments sold products to Wal-Mart
Stores, Inc. or its affiliates. No other customer accounted for 10%
or more of the company’s consolidated net sales.
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, convenience and service.
Working Capital For information relating to the company’s cash
and working capital items, see “Management’s Discussion and
Analysis of Results of Operations and Financial Condition.”
Capital Expenditures During fiscal 2005, the company’s aggre-
gate capital expenditures were $332 million. The company
expects to spend approximately $360 million for capital projects
in fiscal 2006. The major fiscal 2006 capital projects include the
ongoing implementation of the SAP enterprise-resource planning
system in North America and the construction of a new facility in
Everett, Washington, for the company’s Stockpot subsidiary.
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 $95 million in 2005, $93 million in 2004 and
$88 million in 2003. The increase during the last two fiscal
years in research and development spending was primarily due
to currency fluctuations. The company conducts this research
primarily at its headquarters in Camden, New Jersey, although
important research is undertaken at various other locations inside
and outside the United States.
Environmental Matters The company has requirements for the
operation and design of its facilities that meet or exceed appli-
cable environmental rules and regulations. Of the company’s
$332 million in capital expenditures made during fiscal 2005,
approximately $5.8 million was for compliance with environmental
laws and regulations in the United States. The company further
estimates that approximately $6.4 million of the capital expendi-
tures anticipated during fiscal 2006 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.”
Seasonality Demand for the company’s products is somewhat
seasonal, with the fall and winter months usually accounting
for the highest sales volume due primarily to demand for the
company’s soup and sauce products. Godiva Chocolatier sales are
also strongest during the fall and winter months. Demand for the
company’s beverage, baking and snacking products, however, is
generally evenly distributed throughout the year.
Regulation The manufacture and marketing of food products is
highly regulated. In the United States, the company is subject to
regulation by various government agencies, including the Food
and Drug Administration, the Department of Agriculture and the
Federal Trade Commission, as well as various state and local
agencies. The company is also regulated by similar agencies
outside the United States and by voluntary organizations such as
the National Advertising Division of the Better Business Bureau.
Employees On July 31, 2005, there were approximately 24,000
full-time employees of the company.
3
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 Filings” 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.
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 manufac-
turing facilities and the business segment that primarily uses each
of the facilities:
Principal Manufacturing Facilities
Inside the U.S.
California
• Dixon (SSB)
• Sacramento (SSB/OT)
• Stockton (SSB)
Connecticut
• Bloomfield (BS)
Florida
• Lakeland (BS)
Illinois
• Downers Grove (BS)
Michigan
• Marshall (SSB)
New Jersey
• South Plainfield (SSB)
North Carolina
• Maxton (SSB/OT)
Ohio
• Napoleon (SSB/OT)
• Wauseon (SSB)
• Willard (BS)
Pennsylvania
• Denver (BS)
• Downingtown (BS)
• Reading (OT)
South Carolina
• Aiken (BS)
Texas
• Paris (SSB/OT)
Utah
• Richmond (BS)
Washington
• Woodinville (OT)
Wisconsin
• Milwaukee (SSB)
SSB – U.S. Soup, Sauces and Beverages
BS – Baking and Snacking
ISS – International Soup and Sauces
OT – Other
Outside the U.S.
Australia
• Huntingwood (BS)
• Marleston (BS)
• Shepparton (ISS)
• Virginia (BS)
• Miranda (BS)
• Smithfield (BS)
• Scoresby (BS)
Belgium
• Puurs (ISS)
• Brussels (OT)
Canada
• Listowel (ISS/OT)
• Toronto (ISS/OT)
France
• Le Pontet (ISS)
• Dunkirk (ISS)
Germany
• Luebeck (ISS)
• Gerwisch (ISS)
Indonesia
• Jawa Barat (BS)
Ireland
• Thurles (ISS)
Malaysia
• Selangor Darul Ehsan (ISS)
Mexico
• Villagran (ISS)
• Guasave (ISS)
Netherlands
• Utrecht (ISS)
Papua New Guinea
• Port Moresby (BS)
• Malahang Lae (BS)
Sweden
• Kristianstadt (ISS)
United Kingdom
• Ashford (ISS)
• King’s Lynn (ISS)
• Worksop (ISS)
4
Each of the foregoing manufacturing facilities is company-owned,
except that the Woodinville, Washington, facility; the Scoresby,
Australia, facility; the Selangor Darul Ehsan, Malaysia, facility;
and portions of the Ashford, United Kingdom, facility are leased.
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. On July 15, 2005, the company announced
plans to build a new facility in Everett, Washington, to replace the
existing Woodinville, Washington, facility for the manufacture of
refrigerated soups by its Stockpot subsidiary.
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.
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 affili-
ates (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 compa-
ny’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.
Following a trial on the merits, on September 13, 2005, the
District Court issued Post-Trial Findings of Fact and Conclusions
of Law, ruling in favor of the company and against VFB on all
claims. The Court ruled that VFB failed to prove that the spinoff
was a constructive or actual fraudulent transfer. The Court also
rejected VFB’s claim of breach of fiduciary duty, VFB’s claim that
VFI was an alter ego of the company, and VFB’s claim that the
spinoff should be deemed an illegal dividend. VFB will have 30
days following the entry of the judgment of the District Court to
appeal the decision.
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. The company expects
a final resolution of this matter in fiscal 2006.
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 submis-
sion 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 July
31, 2005, 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 approximately $370 thousand.
Although the results of these matters cannot be predicted with
certainty, in management’s opinion, the final outcome of these
legal proceedings, tax issues and environmental matters will not
have a material adverse effect on the consolidated results of
operations or financial condition of the company.
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, 2005, 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
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
54
46
57
54
49
51
53
46
55
50
48
Year First Appointed
Executive Officer
2001
2004
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.
Mark A. Sarvary served as Chief Executive Officer of J. Crew
Group (1999–2002) prior to joining Campbell in 2002.
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.
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) 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 exec-
utive officers or between any such officer and any director of
Campbell. All of the executive officers were elected at the June
2005 meeting of the Board of Directors.
6
Part II
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 SWX Swiss Exchange. On September 21,
2005, there were 31,186 holders of record of the company’s
capital stock. 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 2005,
the company increased the quarterly dividend to be paid in the
first quarter of fiscal 2006 to $0.18 per share. Future dividends
will be dependent upon future earnings, financial requirements
and other factors.
Issuer Purchases of Equity Securities
Period
5/2/05–5/31/05
6/1/05–6/30/05
7/1/05–7/31/05
Total
Total
Number of
Shares
Purchased1
529 3
588,000
841,266 4
1,429,795
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
0
0
Average
Price Paid
Per Share2
$ 29.93 3
$ 31.06
$ 30.64 4
$ 30.81
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 vesting). 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 Represents shares owned and tendered by employees to satisfy tax withholding requirements on the vesting of restricted shares.
4 Includes 1,266 shares owned and tendered by employees at an average price per share of $30.97 to satisfy tax withholding requirements on the vesting
of restricted shares.
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
2005
20041
2003
20022
20013
$ 7,548
1,210
1,030
$ 7,109
1,115
$ 6,678
1,105
947
924
707
—
707
647
—
647
626
(31)
595
$ 6,133
984
798
525
—
525
$ 5,771
1,194
987
649
—
649
$ 1,987
6,776
2,993
1,270
$ 1,901
6,662
3,353
$ 1,843
6,205
3,528
$ 1,684
5,721
3,645
$ 1,637
5,927
4,049
874
387
(114)
(247)
$ 1.73
$ 1.58
$ 1.52
$ 1.28
$ 1.57
1.71
1.73
1.71
0.68
1.57
1.58
1.57
0.63
1.52
1.28
1.55
1.45
1.45
0.63
1.28
1.28
0.63
1.57
1.55
0.90
$ 332
$ 288
$ 283
$ 269
$ 200
43
409
45
409
413
412
46
411
411
47
410
411
48
414
418
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.
1 2004 results include a pre-tax restructuring charge 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 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.
3 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.
8
Item 7. Management’s Discussion and
Analysis of Results of Operations and
Financial Condition
Results of Operations
Overview
2005 Net earnings were $707 million ($1.71 per share) in
2005 compared to $647 million ($1.57 per share) in 2004. (All
earnings per share amounts included in Management’s Discussion
and Analysis are presented on a diluted basis.) Net earnings
between 2005 and 2004 were impacted by an increase in sales,
lower corporate expenses and the favorable impact of currency,
partially offset by a decline in gross margin as a percentage of
sales and an increase in interest expense. The 2004 results were
also 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).
2004 In 2004, net earnings increased 3% to $647 million from
$626 million before the cumulative effect of accounting change and
earnings per share increased 3% to $1.57 from $1.52 in 2003.
In addition to the 2004 restructuring charge and gains, earnings
between 2004 and 2003 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 connection with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, the company recog-
nized 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.
In the first quarter 2004, the company acquired certain Australian
chocolate biscuit brands for approximately $9 million. These
brands are included in the Baking and Snacking segment.
During the first quarter of 2003, 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 manu-
facturer in Ireland. Snack Foods Limited is included in the Baking
and Snacking segment. Erin Foods is included in the International
Soup and Sauces segment. The businesses have annual sales of
approximately $160 million.
Sales
An analysis of net sales by segment follows:
(millions)
2005
2004
2003
U.S. Soup, Sauces and
Beverages
$ 3,098 $ 2,998 $ 2,944
Baking and Snacking
1,742
1,613
1,428
% Change
2005/
2004
2004/
2003
3
8
2
13
International Soup
and Sauces
Other
1,703
1,595
1,438
7
11
1,005
903
868
$ 7,548 $ 7,109 $ 6,678
11
6
4
6
An analysis of percent change of net sales by reportable segment
follows:
2005/2004
U.S. Soup,
Sauces and
Beverages
Baking
and
Snacking
International
Soup and
Sauces
Other
Total
Volume and Mix
2%
Price and Sales Allowances
1
Increased
Promotional Spending1
Currency
—
—
4%
3
(1)
2
2%
—
(1)
6
7%
3
—
1
3%
2
(1)
2
3%
8%
7%
11%
6%
2004/2003
Volume and Mix
53rd Week
—%
(1)
Price and Sales Allowances
2
Decreased / (Increased)
Promotional Spending1
Acquisitions
Currency
1
—
—
U.S. Soup,
Sauces and
Beverages
Baking
and
Snacking
International
Soup and
Sauces
Other
Total
4%
2%
1%
2%
(2)
2
(1)
2
8
(2)
—
—
—
11
(1)
2
—
—
2
(2)
2
—
—
4
6%
2%
13%
11%
4%
1 Represents revenue reductions from trade promotion and consumer coupon redemption
programs.
9
In 2005, U.S. Soup, Sauces and Beverages sales increased
3%. U.S. soup sales increased 5%, driven by an 8% gain in
condensed soup and a 12% increase in broth, partially offset by
a 1% decline in ready-to-serve soup. The U.S. condensed soup
increase was driven by a double-digit increase in eating soups,
due in part to the combination of successful merchandising and
kids promotional marketing programs, increased advertising and
higher prices. Cooking varieties of condensed soup also achieved
sales growth behind strong performance during the holiday
season. Condensed soup sales also benefited from gravity-feed
shelving systems installed in retail stores. Broth sales increased,
driven by gains achieved through its expanded use in cooking
and strong consumer response to two new organic varieties in
aseptic containers introduced earlier in 2005. In ready-to-serve
soup, Campbell’s Chunky soup sales increased 7%. These gains
were offset by declines in sales of Campbell’s Select soups and
Campbell’s Kitchen Classics soups. The Campbell’s Select
soups decline of 15% was due to volume losses resulting from
competitive activity. Sales of microwaveable soups were flat
for the year, as double-digit growth of Campbell’s Chunky and
Campbell’s Select soups in microwaveable bowls was offset by
declines in Campbell’s Soup at Hand sippable soups. In other
parts of the business, the launch of Campbell’s Chunky chili
in 2005 added to sales gains. Campbell’s SpaghettiOs pasta
sales rose as consumers responded to the transition from the
Franco-American brand to the Campbell’s brand and to new
advertising. Sales of Prego pasta sauces declined slightly, while
sales of Pace Mexican sauces were flat for the year. V8 vegetable
juice sales increased due to higher prices and improved volume,
while sales of V8 Splash juice beverages and Campbell’s tomato
juice declined.
In 2004, U.S. Soup, Sauces and Beverages sales increased 2%.
U.S. soup sales increased 2%, driven by an 8% gain in ready-to-
serve soup, partially offset by a 2% decline in condensed soup.
The ready-to-serve sales performance was driven by the strong
performance from microwaveable soups, including Campbell’s
Select and Campbell’s Chunky soups, which were introduced
in 2004, and Campbell’s Soup at Hand sippable soups. Broth
sales increased 6%. Beverage sales increased, led by growth of
V8 vegetable juice. Sales of Pace Mexican sauces were equal to
2003, and Prego pasta sauces experienced a decline in sales,
attributable in part to weakness in the dry pasta category.
Baking and Snacking sales increased 8% in 2005 versus 2004.
Pepperidge Farm contributed significantly to the sales increase
as a result of sales gains across bakery, cookies and crackers
and frozen, primarily due to higher volume and increased prices.
The fresh bakery business experienced double-digit growth as
a result of expanded distribution and product improvements
on bagels and English muffins along with strong results from
Pepperidge Farm Farmhouse breads and Pepperidge Farm Carb
Style breads and rolls. In cookies and crackers, sales growth was
driven by Pepperidge Farm Chocolate Chunk cookies, four new
soft-baked varieties of cookies, and the introduction of sugar-free
cookies and Whims poppable snacks. In addition, Pepperidge
Farm Goldfish crackers delivered sales growth. Pepperidge Farm
frozen product sales increased behind the strong performance
of pot pies, breads and pastry. Arnott’s sales grew primarily due
to currency and volume gains. Arnott’s achieved sales growth in
each of its three businesses: sweet biscuits, savory biscuits and
salty snacks.
Baking and Snacking sales increased 13% in 2004 versus 2003.
The favorable currency impact was due primarily to the strength-
ening of the Australian dollar. Pepperidge Farm contributed to the
sales increase as a result of growth in Goldfish crackers and fresh
bread. Arnott’s achieved an increase in sales driven by innovation
on the Tim Tam, Shapes and Jatz products and new product
offerings in the Snack Right and Salada brands.
International Soup and Sauces sales increased 7% in 2005 versus
2004, driven primarily by currency. In Europe, strong sales gains of
wet and dry soups in France and Campbell’s wet soups in Belgium
also contributed to growth. In Asia Pacific, Australian beverages
and broth delivered volume gains, while sales increased in Asia, in
part, from the launch of a new dry soup product targeting break-
fast consumption. Canada achieved volume growth due in part to
its ready-to-serve soup business, which includes a new aseptic
variety, Campbell’s Gardennay soup.
International Soup and Sauces sales increased 11% in 2004 versus
2003, primarily due to currency. 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 soup.
In Other, sales increased 11% in 2005 versus 2004. Away From
Home delivered strong sales growth, led by premium refrigerated
soups. Godiva Chocolatier’s worldwide sales increased double-
digits with North America, Europe and Asia all contributing to
growth. In North America, Godiva achieved double-digit same-
store sales results driven by successful new products, including
sugar-free chocolates and the relaunch of truffles.
In Other, sales increased 4% in 2004 versus 2003. Away
From Home sales grew slightly, primarily due to strong sales
of premium refrigerated soups. Godiva Chocolatier’s worldwide
sales increased due to improving same-store sales trends in North
America and increased sales in duty free stores.
10
Gross Margin Gross margin, defined as Net sales less Cost of
products sold, increased by $135 million in 2005. As a percent
of sales, gross margin was 40.5% in 2005, 41.1% in 2004 and
43.0% in 2003. The percentage point decrease in 2005 was
due to the impact of inflation and other factors (approximately
3.0 percentage points), a higher level of promotional spending
(approximately 0.3 percentage points) and mix (approximately 0.1
percentage points), partially offset by productivity improvements
(approximately 2.0 percentage points) and higher selling prices
(approximately 0.8 percentage points). The percentage point
decrease in 2004 was due to costs associated with quality and
packaging improvements (approximately 1.0 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 (approxi-
mately 2.7 percentage points), partially offset by higher selling
prices (approximately 0.9 percentage points) and productivity
improvements (approximately 1.9 percentage points).
Marketing and Selling Expenses Marketing and selling expenses
as a percent of sales were 15.7% in 2005, 16.2% in 2004 and
17.1% in 2003. Marketing and selling expenses increased 3% in
2005. The increase was driven by higher levels of advertising and
currency. In 2004, Marketing and selling expenses increased 1%
from 2003. The increase was driven by currency, partially offset
by reductions in marketing expenses related to consumer promo-
tion activity and lower media production costs.
Administrative Expenses Administrative expenses as a percent
of sales were 7.6% in 2005, 2004, and 2003. Administrative
expenses increased by 5% in 2005 from 2004. Currency
accounted for approximately 2 percentage points of the increase
and costs associated with the implementation of the SAP enter-
prise-resource planning system in North America accounted for
2 percentage points of the increase. 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.
Research and Development Expenses Research and develop-
ment expenses increased $2 million or 2% in 2005 from 2004,
primarily due to currency. Research and development expenses
increased $5 million or 6% in 2004 from 2003, primarily due to
currency, which accounted for approximately 4 percentage points
of the increase.
Other Expenses / (Income) Other income in 2005 of $4 million
was primarily royalty income related to the company’s brands.
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 manu-
facturing 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
expenses from currency hedging related to the financing of inter-
national 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 activi-
ties, 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 closures
of a dry soup plant in Ireland ($8 million) and an Arnott’s plant in
Melbourne, Australia ($8 million).
Operating Earnings Segment operating earnings increased 6% in
2005 from 2004.
Segment operating earnings declined 3% in 2004 from 2003.
The restructuring charge accounted for 2 percentage points of
the decline.
An analysis of operating earnings by segment follows:
(millions)
2005
20041
2003
U.S. Soup, Sauces and
Beverages
$ 747 $ 730 $ 772
Baking and Snacking
198
166
161
International Soup
and Sauces
Other
221
205
201
110
101
100
1,276
1,202
1,234
% Change
2005/
2004
2004/
2003
2
19
8
9
6
(5)
3
2
1
(3)
Corporate
(66)
(87)
(129)
$ 1,210 $ 1,115 $ 1,105
1 Contributions to earnings by segment include the effect of a pre-tax fourth quarter 2004
restructuring charge of $32 million as follows: U.S. Soup, Sauces and Beverages – $8
million, Baking and Snacking – $10 million, International Soup and Sauces – $10 million,
Other – $3 million and Corporate – $1 million.
Earnings from U.S. Soup, Sauces and Beverages increased 2%
in 2005 versus 2004. The 2004 results included an $8 million
restructuring charge. The remaining increase in 2005 was due to
productivity improvements and higher sales volume and prices,
partially offset by cost inflation and increased marketing.
Earnings from U.S. Soup, Sauces and Beverages decreased 5%
in 2004 versus 2003. The 2004 results included an $8 million
restructuring charge, which accounted for 1 percentage point of the
earnings decline. The remainder of the earnings decline was due
to quality improvements, higher inflation and product mix, partially
offset by an increase in sales and productivity improvements.
11
Earnings from Baking and Snacking increased 19% in 2005
versus 2004. The 2004 results included a $10 million restruc-
turing charge. Currency accounted for 3 percentage points of
the earnings increase. The remaining increase in earnings was
due to sales growth in Pepperidge Farm and improvement in the
Snackfoods business in Australia, partially offset by expenses
associated with the implementation of a new sales and distribu-
tion system in Australia.
Earnings from Baking and Snacking increased 3% in 2004 versus
2003. The 2004 results included a $10 million restructuring
charge, which reduced earnings by 6 percentage points. Currency
accounted for 9 percentage points of growth.
Earnings from International Soup and Sauces increased 8% in
2005 versus 2004. The 2004 results included a $10 million
restructuring charge. The remaining increase in earnings was due
to the favorable impact of currency (6 percentage points) and
operating earnings growth in Canada, partially offset by declines
in Europe and Latin America.
Earnings from International Soup and Sauces increased 2% in
2004 versus 2003. Currency accounted for 11 percentage points
of growth, partially offset by a $10 million restructuring charge
(approximately 5 percentage points) and declines in earnings in
Canada and Europe.
Earnings from Other increased 9% in 2005 from 2004. The
2004 results included a $3 million restructuring charge. Currency
accounted for 2 percentage points of the increase. The remainder
of the increase was due to the strong sales growth in Godiva
Chocolatier and Away From Home.
Earnings from Other increased 1% in 2004 from 2003. The
2004 results included a $3 million restructuring charge, which
negatively impacted earnings by 3 percentage points. Currency
accounted for 4 percentage points of growth.
Corporate expenses decreased in 2005 due to lower costs asso-
ciated with ongoing litigation, lower adjustments related to the
carrying value of long-term investments in affordable housing
partnerships, and lower expenses from currency hedging related
to the financing of international activities, partially offset by the
gains in 2004 related to the company’s share of a class action
lawsuit involving ingredient suppliers and the sale of a manufac-
turing site in California.
Corporate expenses decreased in 2004, primarily due to lower
adjustments related to the carrying value of long-term investments
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
activities, partially offset by increases in costs associated with
ongoing litigation.
Nonoperating Items Interest expense increased 6% in 2005 from
2004, primarily due to higher interest rates, partially offset by
lower levels of debt.
Interest expense declined 6% in 2004 from 2003, primarily due
to lower levels of debt.
The effective tax rate was 31.4% in 2005, 31.7% in 2004 and
32.2% in 2003. The reduction in the rate in 2005 from 2004
was due to lower international taxes, which reflected a one-time
benefit in Australia related to a change in tax law. The reduction
in the rate from 2003 to 2004 reflected a lower U.S. tax liability
which resulted from an increase in charitable contribution deduc-
tions and research and development credits, and the favorable
resolution of certain income tax audits.
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
represented 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. The
majority of the terminations occurred in the fourth quarter of
2004. Annual pre-tax savings from the reduction are expected to
be approximately $40 million beginning in 2005.
The distribution and logistics realignment in Australia involves
the conversion of 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. The majority of the terminations occurred in
2005. 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.
See Note 5 to the Consolidated Financial Statements for further
discussion of these programs.
12
Liquidity and Capital Resources
Net cash flows from operating activities provided $990 million in
2005, compared to $744 million in 2004. The increase was due
primarily to a lower increase in working capital, an increase in
earnings, and lower cash settlements related to foreign currency
hedging transactions. 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 require-
ments and an increase in pension fund contributions, partially
offset by an increase in earnings. Over the last three years, oper-
ating cash flows totaled approximately $2.6 billion. This cash
generating capability provides the company with substantial
financial flexibility in meeting its operating and investing needs.
Capital expenditures were $332 million in 2005, $288 million
in 2004 and $283 million in 2003. Capital expenditures are
projected to be approximately $360 million in 2006. The increase
in 2005 was primarily driven by investments to increase manufac-
turing capacity for microwaveable products, implement the SAP
enterprise-resource planning system in North America, increase
manufacturing capacity for refrigerated soups, and implement a
new sales and distribution system in Australia. 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.
Businesses acquired, as presented in the Statements of Cash
Flows, 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.
There were no new long-term borrowings in 2005. Long-term
borrowings in 2004 included the issuance of $300 million of ten-
year 4.875% fixed-rate notes due October 2013. 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 agree-
ments 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.
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 July 31, 2005, the company had $300 million available for
issuance under this registration statement.
Dividend payments were $275 million in 2005 and $259 million
in 2004 and 2003. Annual dividends declared in 2005 were
$.68 and $.63 per share in 2004 and 2003. The 2005 fourth
quarter rate was $.17 per share.
The company repurchased 4 million shares at a cost of $110 million
during 2005, compared to 2 million shares at a cost of $56
million during 2004 and 1 million shares at a cost of $24 million
during 2003. 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
Registrant’s Capital Stock, Related Shareowner Matters and Issuer
Purchases of Equity Securities” for more information.
At July 31, 2005, the company had $451 million of notes
payable due within one year and $35 million of standby letters
of credit issued on behalf of the company. The company main-
tained committed revolving credit facilities totaling $1.5 billion,
which were unused at July 31, 2005 except for $5 million of
13
standby letters of credit. Another $30 million of standby letters of
credit was issued under a separate facility. In September 2005,
the company entered into a $500 million committed 364-day
revolving credit facility, which replaced the existing $500 million
364-day facility that matured in September 2005. The 364-day
revolving credit facility contains a one-year term-out feature. The
company also has a $1 billion revolving multi-year credit facility.
In September 2005, the maturity of this facility was extended
from 2009 to 2010. 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
2007-
2008
2009-
2010
2006
Thereafter
Debt obligations1
$ 2,993 $ 451 $ 614
$ 304 $ 1,624
Interest payments2
951
161
260
212
318
Purchase commitments
1,251
1,008
208
Operating leases
Derivative payments
297
183
68
107
7
98
22
71
15
Other long-term
liabilities3
Total long-term
149
24
30
23
13
51
63
72
cash obligations
$ 5,824 $ 1,719 $ 1,317
$ 647 $ 2,141
1 Includes capital lease obligations totaling $13 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 July 31, 2005.
Off-Balance Sheet Arrangements and Other Commitments
The company guarantees approximately 1,400 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 $112 million.
The company’s guarantees are indirectly secured by the distribu-
tion 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
During the past two years, inflation, on average, has been higher
than previous years but has not had a significant effect on the
company. The company uses a number of strategies to mitigate
the effects of cost inflation. These strategies include increasing
prices, pursuing cost productivity initiatives such as global
procurement strategies, and making capital investments that
improve the efficiency of operations.
14
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 obliga-
tions. The company manages its exposure to changes in interest
rates by optimizing the use of variable-rate and fixed-rate debt and
by utilizing interest rate swaps in order to maintain its variable-to-
total debt ratio within targeted guidelines. International operations,
which accounted for over 35% of 2005 net sales, are concen-
trated principally in Australia, Canada, France, Germany and the
United Kingdom. The company manages its foreign currency
exposures by borrowing in various foreign currencies and utilizing
cross-currency swaps and forward contracts. Swaps and forward
contracts are entered into for periods consistent with related
underlying exposures and do not constitute positions independent
of those exposures. The company does not enter into contracts for
speculative purposes and does not use leveraged instruments.
The company principally uses a combination of purchase orders
and various short- and long-term supply arrangements in connec-
tion 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
July 31, 2005 and August 1, 2004, the notional values and unre-
alized gains or losses on commodity futures contracts held by the
company were not material.
The information below summarizes the company’s market risks
associated with debt obligations and other significant financial
instruments as of July 31, 2005. 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
2006
2007
2008
2009
2010
Thereafter
Total
Fair Value
$ 5
$ 610
$
4
$ 302
$
2
$ 1,624
$ 2,547
$ 2,727
Weighted-average interest rate
4.27%
6.19%
3.74%
5.87%
4.40%
6.23%
6.17%
Variable rate
Weighted-average interest rate
$ 446
5.44%
$ 446
$ 446
5.44%
Interest Rate Swaps
Fixed to variable
Average pay rate1
Average receive rate
$ 200)2
6.45%
6.20%
$ 175)3
5.82%
5.88%
$ 500)4
$ 875
$
(2)
4.63%
4.95%
5.28%
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 1, 2004, fixed-rate debt of approximately $2.5 billion with an average interest rate of 6.17% and variable-rate debt of approximately $1 billion with an average interest rate of
3.30% were outstanding. As of August 1, 2004, the company had also swapped $875 million of fixed-rate debt to variable. The average rate received on these swaps was 5.42% and the
average rate paid was estimated to be 5.21% over the remaining life of the swaps.
15
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.
The table below summarizes the cross-currency swaps outstanding
as of July 31, 2005, 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.
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 table below summarizes the foreign
exchange forward contracts outstanding and the related weighted-
average contract exchange rates as of July 31, 2005.
Cross-Currency Swaps
Forward Exchange Contracts
Contract
Amount
Average Contractual
Exchange Rate
$ 97
$ 46
$ 39
$ 37
$ 32
$ 28
$ 24
$ 17
$ 15
$ 11
$ 11
$ 9
$ 8
$ 7
$ 5
$ 4
$ 4
1.29
1.74
0.71
0.63
1.08
1.24
0.82
11.3
0.01
0.81
1.34
0.53
130.70
2.41
0.76
104.8
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, euro, New Zealand dollar,
Japanese yen, Swedish krona and Swiss franc as of July 31, 2005. The aggregate fair
value of all contracts was $3 million as of July 31, 2005. Total forward exchange contracts
outstanding as of August 1, 2004 were $255 million with a fair value of $2 million.
(millions)
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 EUR
Receive fixed USD
Pay variable SEK
Receive variable USD
Pay fixed CAD
Receive fixed USD
Pay fixed SEK
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
2006
2006
2006
2007
2007
2008
2008
2009
2010
2011
2011
2011
2014
Interest
Rate
2.68%
4.41%
2.68%
3.95%
5.57%
5.01%
4.69%
5.48%
5.46%
5.75%
2.92%
4.47%
2.72%
4.62%
5.13%
4.22%
4.53%
4.29%
5.97%
6.08%
5.97%
5.01%
5.97%
4.76%
6.24%
5.66%
Notional
Value
$ 20
$ 69
Fair
Value
$
$
1
4
(millions)
Receive EUR / Pay USD
Receive GBP / Pay USD
Receive EUR / Pay GBP
Receive CAD / Pay EUR
$ 125
$
(7)
Receive AUD / Pay NZD
$ 53
$
(8)
$ 200
$ (84)
$ 69
$ 32
$
$
4
1
Receive USD / Pay CAD
Receive USD / Pay EUR
Receive USD / Pay MXN
Receive JPY / Pay EUR
Receive CAD / Pay USD
Receive USD / Pay AUD
Receive USD / Pay GBP
Receive EUR / Pay JPY
$ 60
$ (13)
Receive GBP / Pay AUD
Receive AUD / Pay USD
Receive USD / Pay JPY
Receive SEK / Pay USD
$ 32
$
(2)
$ 200
$ (49)
$ 30
$
(1)
$ 40
$
1
$ 60
$ (15)
$ 990
$ (168)
The cross-currency swap contracts outstanding at August 1, 2004 represented one pay fixed
SEK/receive fixed USD swap with a notional value of $47 million, a pay variable SEK/receive
variable USD swap with a notional value of $18 million, a pay variable CAD/receive variable
USD swap with a notional value of $53 million, two pay fixed CAD/receive fixed USD swaps
with notional values of $122 million, two pay variable EUR/receive variable USD swaps with
notional values of $169 million, a pay fixed EUR/receive fixed USD swap with a notional
value of $200 million, a pay variable GBP/receive variable USD swap with a notional value
of $125 million, and three pay fixed GBP/receive fixed USD swaps with notional values of
$270 million. The notional value of these swap contracts was $1 billion as of August 1, 2004
and the aggregate fair value of these swap contracts was $(154) million as of August 1, 2004.
16
The company had swap contracts outstanding as of July 31,
2005, which hedge a portion of exposures relating to certain
employee compensation obligations linked to the total return of
the Standard & Poor’s 500 Index, the total return of the compa-
ny’s capital stock and beginning in February 2005, the total
return of the Puritan Fund. Under these contracts, the company
pays variable interest rates and receives from the counterparty
either the Standard & Poor’s 500 Index total return, the Puritan
Fund 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 $20 million at July 31,
2005 and $21 million at August 1, 2004. The average forward
interest rate applicable to the contract, which expires in 2006,
was 4.02% at July 31, 2005. The notional value of the contract
that is linked to the return on the Puritan Fund was $9 million at
July 31, 2005. The average forward interest rate applicable to the
contract, which expires in 2006, was 4.38% at July 31, 2005.
The notional value of the contract that is linked to the total return
on company capital stock was $20 million at July 31, 2005 and
$13 million at August 1, 2004. The average forward interest rate
applicable to this contract, which expires in 2006, was 4.43% at
July 31, 2005. The fair value of these contracts was a $1 million
gain at both July 31, 2005 and August 1, 2004.
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.
Significant Accounting Estimates
The consolidated financial statements of the company are prepared
in conformity with accounting principles generally accepted in
the United States. The preparation of these financial statements
requires the use of estimates, judgments and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and reported amounts of revenues
and expenses during the periods presented. Actual results could
differ from those estimates and assumptions. See Note 1 to the
Consolidated Financial Statements for a discussion of significant
accounting policies. The following areas all require the use of
subjective or complex judgments, estimates and assumptions:
Trade and consumer promotion programs 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. In establishing the discount rate, the company
reviews published market indices of high-quality debt securities,
adjusted as appropriate for duration. In addition, independent
financial consultants apply high-quality bond yield curves to the
expected benefit payments of the plans. The expected return on
plan assets is a long-term assumption based upon historical experi-
ence and expected future performance, considering the company’s
current and projected investment mix. This estimate is based on
an estimate of future inflation, long-term projected real returns for
each asset class, and a premium for active management. Within
any given fiscal period, significant differences may arise between
the actual return and the expected return on plan assets. The
value of plan assets, used in the calculation of pension expense,
is determined on a calculated 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 experience 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.
17
When the fair value of pension plan assets is less than the accu-
mulated benefit obligation, an additional minimum liability is
recorded in Other comprehensive income within Shareowners’
Equity. As of July 31, 2005 and August 1, 2004, Shareowners’
Equity includes a minimum liability, net of tax, of $238 million
and $196 million, respectively.
Net periodic pension and postretirement medical expense was
$67 million in 2005, $65 million in 2004, and $43 million in
2003. 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 expected returns associated with a $50 million
voluntary contribution to a U.S. plan. Significant weighted-average
assumptions as of the end of the year are as follows:
Pension
2005
2004
2003
Discount rate for benefit obligations
5.44%
6.19%
6.39%
Expected return on plan assets
8.76%
8.76%
8.80%
Postretirement
2005
2004
2003
Discount rate for obligations
5.50%
6.25%
6.50%
Initial health care trend rate
9.00%
9.00%
9.00%
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 $12 million; a 50 basis point
reduction in the estimated return on assets assumption would
increase expense by approximately $8 million. A one percentage
point change in assumed health care costs would increase postre-
tirement service and interest cost by approximately $2 million.
Although there were no mandatory funding requirements to the
U.S. plans in 2005 and 2004, the company made $35 million
and $50 million contributions, respectively, to a U.S. plan based
on expected future funding requirements. Contributions to interna-
tional plans were $26 million in 2005 and $15 million in 2004. In
2003, there were no contributions to the U.S. plans and contribu-
tions to international plans were $19 million. Subsequent to July 31,
2005, 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 addi-
tional information on pension and postretirement medical expenses.
Income taxes The effective tax rate reflects statutory tax rates,
tax planning opportunities available in the various jurisdictions
in which the company operates and management’s estimate of
the ultimate outcome of various tax audits and issues. Significant
judgment is required in determining the effective tax rate and
in evaluating tax positions. Tax reserves are established when,
despite the company’s belief that tax return positions are fully
supportable, certain positions are subject to challenge and
the company may not successfully defend its position. These
reserves, as well as the related interest, are adjusted in light of
changing facts and circumstances, such as the progress of a tax
audit. While it is difficult to predict the final outcome or timing of
resolution of any particular tax matter, the company believes that
the reserves reflect the probable outcome of known tax contin-
gencies. Income taxes are recorded based on amounts refundable
or payable in the current year and include the effect of deferred
taxes. Deferred tax assets and liabilities are recognized for the
future impact of 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
differences are expected to be recovered or settled. Valuation
allowances are established for deferred tax assets when it is more
likely than not that a tax benefit will not be realized. See also
the section entitled Recently Issued Accounting Pronouncements
and Notes 1 and 10 to the Consolidated Financial Statements for
further discussion on income taxes, including the impact of the
American Jobs Creation Act (the AJCA).
Recently Issued Accounting Pronouncements
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. In accordance with FASB Staff Position
(FSP) FAS 106-1, the company elected in January 2004 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 Financial Accounting Standards Board (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 begin-
ning after June 15, 2004. 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 million and has been reflected as an
actuarial gain. The reduction in benefit cost for 2005 related to
the Act was approximately $5 million.
18
In November 2004, SFAS No. 151 “Inventory Costs – an amend-
ment of ARB No. 43, Chapter 4” was issued. SFAS No. 151 is the
result of efforts to converge U.S. accounting standards for inven-
tories with International Accounting Standards. SFAS No. 151
requires abnormal amounts of idle facility expense, freight,
handling costs and spoilage to be recognized as current-period
charges. It also requires that allocation of fixed production over-
heads to the costs of conversion be based on the normal capacity
of the production facilities. SFAS No. 151 will be effective for
inventory costs incurred during fiscal years beginning after June
15, 2005. The company does not expect the adoption to have a
material impact on the financial statements.
In December 2004, the FASB issued SFAS No. 123R (revised
2004) “Share-Based Payment.” SFAS No. 123R requires
employee stock-based compensation to be measured based on
the grant-date fair value of the awards and the cost to be recog-
nized over the period during which an employee is required to
provide service in exchange for the award. The Statement elimi-
nates the alternative use of Accounting Principles Board (APB)
No. 25’s intrinsic value method of accounting for awards, which
is the company’s accounting policy for stock options. See Note 1
to the Consolidated Financial Statements for the pro forma impact
of compensation expense from stock options on net earnings and
earnings per share. SFAS No. 123R is effective for the beginning
of fiscal 2006. The company will adopt the provisions of SFAS
No. 123R on a prospective basis. The financial statement impact
will be dependent on future stock-based awards and any unvested
stock options outstanding at the date of adoption.
In October 2004, the AJCA was signed into law. The AJCA
provides for a deduction of 85% of certain foreign earnings that are
repatriated, as defined by the AJCA, and a phased-in tax deduc-
tion related to profits from domestic manufacturing activities. In
December 2004, the FASB issued FSP FAS 109-1 and 109-2 to
address the accounting and disclosure requirements related to
the AJCA. The company is currently evaluating the impact of the
AJCA along with the additional technical guidance issued by the
U.S. Treasury Department. The company will complete its evalua-
tion in fiscal 2006. The company estimates the range of possible
amounts considered for repatriation to be between $200 and
$425 million and the related impact on income tax to be between
$7 and $16 million. Based on the company’s plans related to the
AJCA as of 2005, tax expense of $7 million has been recorded
for amounts expected to be repatriated.
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47) “Accounting for Conditional Asset Retirement Obligations,
an Interpretation of FASB Statement No. 143.” This Interpretation
clarifies that a conditional retirement obligation refers to a legal
obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a future
event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method
of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obliga-
tion if the fair value of the liability can be reasonably estimated.
The liability should be recognized when incurred, generally upon
acquisition, construction or development of the asset. FIN 47
is effective no later than the end of the fiscal years ending after
December 15, 2005. The company is in the process of evaluating
the impact of FIN 47 but does not expect the adoption to have a
material impact on the financial statements.
Earnings Outlook
On September 12, 2005, the company issued a press release
announcing results for 2005 and commented on the outlook for
earnings per share for 2006.
Cautionary Factors That May Affect Future Results
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;
19
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.
• the risks in the marketplace associated with trade and consumer
acceptance of product improvements, shelving initiatives, and
new product introductions;
• the company’s ability to achieve sales and earnings forecasts,
which are based on assumptions about sales volume and
product mix, and the impact of marketing and pricing actions;
• the company’s ability to realize projected cost savings and
benefits, 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 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
company’s Securities and Exchange Commission filings;
• the impact of changes in currency exchange rates, tax rates,
interest rates, equity markets, inflation rates, recession and
other external factors; 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, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but
is designed to highlight important factors that may impact the
company’s outlook. The company disclaims any obligation or
intent to update forward-looking statements made by the company
in order to reflect new information, events or circumstances after
the date they are made.
20
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 charge (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.
2005
52 weeks
$ 7,548
4,491
1,185
571
95
(4)
—
6,338
1,210
184
4
1,030
323
707
—
2004
52 weeks
$ 7,109
4,187
1,153
542
93
(13)
32
5,994
1,115
174
6
947
300
647
—
2003
53 weeks
$ 6,678
3,805
1,145
507
88
28
—
5,573
1,105
186
5
924
298
626
(31)
$ 707
$ 647
$ 595
$ 1.73
—
$ 1.73
409
$ 1.71
—
$ 1.71
413
$ 1.58
—
$ 1.58
409
$ 1.57
—
$ 1.57
412
$ 1.52
(.08)
$ 1.45
411
$ 1.52
(.08)
$ 1.45
411
21
July 31, 2005
August 1, 2004
$
40
$
32
509
782
181
1,512
1,987
1,950
1,059
268
$ 6,776
490
782
164
1,468
1,901
1,900
1,095
298
$ 6,662
$ 451
$ 810
624
606
70
251
2,002
2,542
278
684
607
594
65
250
2,326
2,543
298
621
5,506
5,788
—
20
236
6,069
(4,832)
(223)
1,270
$ 6,776
—
20
264
5,642
(4,848)
(204)
874
$ 6,662
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 2005 and 2004, at cost
Accumulated other comprehensive loss
Total shareowners’ equity
Total liabilities and shareowners’ equity
See accompanying Notes to Consolidated Financial Statements.
22
Consolidated Statements of Cash Flows
(millions)
Cash Flows from Operating Activities:
Net earnings
Non-cash charges to net earnings
Restructuring charges
Cumulative effect of accounting change
Depreciation and amortization
Deferred taxes
Other, net (Note 21)
Changes in working capital
Accounts receivable
Inventories
Prepaid assets
Accounts payable and accrued liabilities
Pension fund contributions
Other (Note 21)
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of plant assets
Sales of plant assets
Businesses acquired
Sales of businesses
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Long-term borrowings
Net repayments of short-term borrowings
Dividends paid
Treasury stock purchases
Treasury stock issuances
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 Statements.
2005
2004
2003
$ 707
$ 647
$ 595
—
—
279
47
122
(10)
6
(17)
(24)
(61)
(59)
990
(332)
11
—
—
7
(314)
—
(354)
(275)
(110)
71
(668)
—
8
32
$ 40
32
—
260
51
97
(61)
(54)
2
(62)
(65)
(103)
744
(288)
22
(9)
—
—
(275)
301
(486)
(259)
(56)
25
(475)
6
—
32
$ 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
$ 32
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
(132)
$ (4,891)
$ 320
$ 4,918
$ (481)
$ (114)
Shares
542
Balance at July 28, 2002
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 ($.63 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
595
(259)
174
(7)
(2)
165
595
174
(7)
(2)
165
760
(259)
(24)
(1)
(24)
1
46
(22)
Balance at August 3, 2003
542
20
(132)
(4,869)
298
5,254
(316)
Comprehensive income (loss)
Net earnings
Foreign currency
translation adjustments
Cash-flow hedges, net of tax
Minimum pension liability,
net of tax
Other comprehensive income
Total Comprehensive income
Dividends ($.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)
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 ($.68 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
707
(280)
42
(19)
(42)
(19)
(4)
(110)
4
126
(28)
24
387
647
94
4
14
112
759
(259)
(56)
43
874
707
42
(19)
(42)
(19)
688
(280)
(110)
98
Balance at July 31, 2005
542
$ 20
(134)
$ (4,832)
$ 236
$ 6,069
$ (223)
$ 1,270
See accompanying Notes to Consolidated Financial Statements.
24
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. Intercompany transactions are eliminated in consoli-
dation. Certain amounts in prior year financial statements 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 2005 and 2004, and 53 weeks in 2003.
Revenue Recognition Revenues are recognized when the
earnings process is complete. This occurs when products are
shipped in accordance with terms of agreements, title and risk
of loss transfer to customers, collection is probable and pricing is
fixed or determinable. Revenues are recognized net of provisions
for returns, discounts and allowances. Certain sales promotion
expenses, such as coupon redemption costs, cooperative adver-
tising programs, new product introduction fees, feature price
discounts and in-store display incentives are classified as a reduc-
tion of sales.
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.
In November 2004, Statement of Financial Accounting Standards
(SFAS) No. 151 “Inventory Costs — an amendment of ARB
No. 43, Chapter 4” was issued. SFAS No. 151 is the result of
efforts to converge U.S. accounting standards for inventories
with International Accounting Standards. SFAS No. 151 requires
abnormal amounts of idle facility expense, freight, handling costs
and spoilage to be recognized as current-period charges. It also
requires that allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the produc-
tion facilities. SFAS No. 151 will be effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The
company does not expect the adoption to have a material impact
on the financial statements.
Property, Plant and Equipment Property, plant and equip-
ment are recorded at historical cost and are depreciated over
estimated useful lives using the straight-line method. Buildings
and machinery and equipment are depreciated over periods not
exceeding 45 years and 15 years, respectively. Assets are evalu-
ated for impairment when triggering events occur.
Goodwill and Intangible Assets Goodwill and indefinite-lived
intangible assets are not amortized but rather are tested at
least annually for impairment in accordance with SFAS No. 142
“Goodwill and Other Intangible Assets.” Intangible assets with
finite lives are 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.”
Goodwill impairment testing first requires a comparison of the fair
value of each reporting unit to the carrying value. If the carrying
value exceeds fair value, goodwill is considered impaired. The
amount of impairment is the difference between the carrying
value of goodwill and the “implied” fair value, which is calculated
as if the reporting unit had just been acquired and accounted for
as a business combination. Impairment testing for indefinite-lived
intangible assets requires a comparison between the fair value
and carrying value of the asset. If carrying value exceeds the fair
value, the asset is reduced to fair value. Fair values are primarily
determined using discounted cash flow analyses. See Note 3 of
the Notes to Consolidated Financial Statements for information on
goodwill and other intangible assets.
Derivative Financial Instruments The company uses derivative
financial instruments primarily for purposes of hedging exposures
to fluctuations in interest rates, foreign currency exchange rates,
commodities and equity-linked employee benefit obligations.
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 reclassified to earnings
in the period in which earnings are affected by the underlying
hedged item. The ineffective portion of all hedges is recognized
in earnings in the current period. See Note 18 of the Notes to
Consolidated Financial Statements for additional information.
25
Stock-Based Compensation The company accounts for stock
option grants and restricted stock awards in accordance with
Accounting Principles Board (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 the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation.
Net earnings, as reported
$ 707
$ 647
$ 595
2005
2004
2003
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.
16
11
13
(45)
(40)
(37)
$ 678
$ 618
$ 571
$ 1.73
$ 1.58
$ 1.45
$ 1.66
$ 1.51
$ 1.39
$ 1.71
$ 1.57
$ 1.45
$ 1.64
$ 1.50
$ 1.39
The weighted average fair value of options granted in 2005,
2004 and 2003 was estimated as $4.74, $5.73 and $5.91,
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
2005, 2004 and 2003:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
2005
2004
2003
3.2%
4.1%
4.0%
6
6
6
21%
24%
26%
2.4%
2.4%
2.8%
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R (revised 2004) “Share-Based
Payment.” SFAS No. 123R requires employee stock-based
compensation to be measured based on the grant-date fair value
of the awards and the cost to be recognized over the period during
which an employee is required to provide service in exchange
for the award. The Statement eliminates the alternative use of
APB No. 25’s intrinsic value method of accounting for awards.
SFAS No. 123R is effective for the beginning of fiscal 2006.
The company will adopt the provisions of SFAS No. 123R on a
prospective basis. The financial statement impact will be depen-
dent on future stock-based awards and any unvested stock options
outstanding at the date of adoption.
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 impact of 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.
In October 2004, the American Jobs Creation Act (the AJCA)
was signed into law. The AJCA provides for a deduction of 85%
of certain foreign earnings that are repatriated, as defined by
the AJCA, and a phased-in tax deduction related to profits from
domestic manufacturing activities. In December 2004, the
FASB issued FASB Staff Position (FSP) FAS 109-1 and 109-2
to address the accounting and disclosure requirements related
to the AJCA. The company is currently evaluating the impact of
the AJCA along with the additional technical guidance issued by
the U.S. Treasury Department. The company will complete its
evaluation in fiscal 2006. The company estimates the range of
possible amounts considered for repatriation to be between $200
and $425 and the related impact on income tax to be between
$7 and $16. Based on the company’s plans related to the AJCA
as of 2005, tax expense of $7 has been recorded for amounts
expected to be repatriated.
26
Recently Issued Accounting Pronouncements 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 FSP FAS 106-1, the company elected
in January 2004 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. 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 was
reflected as an actuarial gain. The reduction in benefit cost for
2005 related to the Act was approximately $5.
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47) “Accounting for Conditional Asset Retirement Obligations,
an Interpretation of FASB Statement No. 143.” This Interpretation
clarifies that a conditional retirement obligation refers to a legal
obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a future
event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method
of settlement. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obliga-
tion if the fair value of the liability can be reasonably estimated.
The liability should be recognized when incurred, generally upon
acquisition, construction or development of the asset. FIN 47
is effective no later than the end of the fiscal years ending after
December 15, 2005. The company is in the process of evaluating
the impact of FIN 47 but does not expect the adoption to have a
material impact on the financial statements.
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 July 31, 2005, August 1, 2004 and
August 3, 2003 was $688, $759 and $760, respectively.
The components of Accumulated other comprehensive loss, as
reflected in the Statements of Shareowners’ Equity (Deficit),
consisted of the following:
Foreign currency translation adjustments
$ 35
$
Cash-flow hedges, net of tax
(20)
(7)
(1)
Minimum pension liability, net of tax1
(238)
(196)
Total Accumulated other comprehensive loss
$ (223)
$ (204)
2005
2004
1 Includes a tax benefit of $139 in 2005 and $111 in 2004.
3 Goodwill and Intangible Assets
In 2003, the company adopted SFAS No. 142 “Goodwill and
Other Intangible Assets.” In connection with the adoption, the
company recorded a cumulative effect of accounting change 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 within Other in the segment reporting. 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.
27
The following table sets forth balance sheet information for intan-
gible assets, excluding goodwill, subject to amortization and
intangible assets not subject to amortization:
Intangible assets subject
to amortization1:
Trademarks
Other
Total
Intangible assets not subject
to amortization:
Trademarks
Pension
Other
Total
July 31, 2005
August 1, 2004
Carrying Accumulated
Amount Amortization
Carrying Accumulated
Amount Amortization
$ 6
17
$ 23
$ (4)
(7)
$ (11)
$ 6
17
$ 23
$ (3)
(7)
$ (10)
$ 1,042
$ 1,053
3
2
27
2
$ 1,047
$ 1,082
1 Amortization related to these assets was approximately $2 for 2005 and 2004. 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:
U.S. Soup,
Sauces Baking and
Snacking
and Beverages
International
Soup and
Sauces
Other
Total
Balance at
August 3, 2003
$ 428
$ 518
$ 706 $ 151 $ 1,803
Foreign currency
translation adjustment
—
40
57
—
97
Balance at
August 1, 2004
428
558
763
151
1,900
Foreign currency
translation adjustment
—
44
6
—
50
Balance at
July 31, 2005
$ 428
$ 602
$ 769 $ 151 $ 1,950
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. Through fiscal 2004, the
company was organized and reported 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.
As of fiscal 2005, the company changed its organizational struc-
ture and as a result reports the following segments: U.S. Soup,
Sauces and Beverages, Baking and Snacking, International Soup
and Sauces, and Other. Comparative periods have been restated
to conform to the current year presentation. The restatements
also reflect a reallocation of certain expenses between corporate
and the operating segments.
The U.S. Soup, Sauces and Beverages segment includes the
following retail businesses: Campbell’s condensed and ready-
to-serve soups; Swanson broth and canned poultry; Prego pasta
sauce; Pace Mexican sauce; Campbell’s Chunky chili; Campbell’s
canned pasta, gravies and beans; Campbell’s Supper Bakes
meal kits; V8 vegetable juice; V8 Splash juice beverages; and
Campbell’s tomato juice.
The Baking and Snacking segment includes the following busi-
nesses: Pepperidge Farm cookies, crackers, bakery and frozen
products in U.S. retail; Arnott’s biscuits in Australia and Asia
Pacific; and Arnott’s salty snacks in Australia.
The International Soup and Sauces segment includes the soup,
sauce and beverage businesses outside of the United States,
including Europe, Mexico, Latin America, the Asia Pacific region
and the retail business in Canada.
The balance of the portfolio reported in Other includes Godiva
Chocolatier worldwide and the company’s Away From Home oper-
ations, which represent the distribution of products such as soup,
specialty entrees, beverage products, other prepared foods and
Pepperidge Farm products through various food service channels
in the United States and Canada.
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. Away From Home
products are principally produced by the tangible assets of the
company’s other segments, except for Stockpot soups, which
are produced in a separate facility, and certain other products,
which are produced under contract manufacturing agreements.
Accordingly, with the exception of the designated Stockpot
facility, plant assets are not allocated to the Away From Home
operations. Depreciation, however, is allocated to Away From
Home based on production hours.
The company’s largest customer, Wal-Mart Stores, Inc. and
its affiliates, accounted for approximately 14% of consolidated
net sales in 2005 and 12% during 2004 and 2003. All of the
company’s segments sold products to Wal-Mart Stores, Inc. or
its affiliates.
28
Business Segments
Geographic Area Information
2005
Net Sales
Earnings
Before Depreciation
and
and Taxes Amortization
Interest
Capital
Expen-
ditures
Segment
Assets
Information about operations in different geographic areas is as
follows:
U.S. Soup, Sauces
and Beverages
$ 3,098
$ 747
$ 89 $ 124 $ 2,070
Baking and Snacking
1,742
198
84
80
1,687
Net sales
United States
Europe
Australia/Asia Pacific
63
2,309
Other countries
33
32
380
330
Adjustments and eliminations
(123)
(97)
(111)
Consolidated
$ 7,548 $ 7,109 $ 6,678
2005
2004
2003
$ 4,832 $ 4,581 $ 4,549
1,164
1,090
1,038
637
965
570
969
779
492
International Soup
and Sauces
Other
Corporate1
Total
1,703
1,005
221
110
52
26
—
(66)
28
$ 7,548
$ 1,210
$ 279 $ 332 $ 6,776
2004
Net Sales
Earnings
Before Depreciation
and
Interest
and Taxes 2 Amortization
Capital
Expen-
ditures
Segment
Assets
U.S. Soup, Sauces
and Beverages
$ 2,998
$ 730
$ 80 $ 123 $ 2,051
Baking and Snacking
1,613
166
74
73
1,613
International Soup
and Sauces
1,595
Other
Corporate1
Total
205
101
52
24
(87)
30
63
2,311
14
15
341
346
903
—
$ 7,109
$ 1,115
$ 260 $ 288 $ 6,662
2003
Net Sales
Earnings
Before Depreciation
and
Interest
and Taxes Amortization
Capital
Expen-
ditures
Segment
Assets
Earnings before interest and taxes
2005
2004
2003
United States
Europe
Australia/Asia Pacific
Other countries
$ 931 $ 890 $ 942
142
112
91
133
126
99
80
88
78
Segment earnings before interest and taxes
1,276
1,202
1,234
Corporate
Consolidated
Identifiable assets
United States
Europe
Australia/Asia Pacific
Other countries
(66)
(87)
(129)
$ 1,210 $ 1,115 $ 1,105
2005
2004
2003
$ 2,939 $ 2,885 $ 2,774
1,883
1,890
1,718
1,274
1,184
1,100
350
330
357
346
313
300
$ 6,776 $ 6,662 $ 6,205
U.S. Soup, Sauces
and Beverages
Baking and Snacking
1,428
161
68
102
1,513
Consolidated
$ 2,944
$ 772
$ 78 $ 96 $ 1,971
Corporate
International Soup
and Sauces
1,438
Other
Corporate1
Total
201
100
41
49
2,089
25
16
(129)
31
20
339
293
868
—
$ 6,678
$ 1,105
$ 243 $ 283 $ 6,205
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: U.S. Soup, Sauces and
Beverages – $8, Baking and Snacking – $10, International Soup and Sauces – $10,
Other – $3 and Corporate – $1.
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.
29
Adjustments to long-term investments represent a non-cash write-
down to estimated fair market value of investments in affordable
housing partnerships.
7 Interest Expense
Interest expense
Less: Interest capitalized
8 Acquisitions
2005
2004
2003
$ 188
$ 177
$ 188
4
3
2
$ 184
$ 174
$ 186
In the first quarter 2004, the company acquired certain Australian
chocolate biscuit brands for approximately $9. These brands are
included in the Baking and Snacking 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 Baking and Snacking segment. Erin
Foods is included in the International Soup and Sauces segment.
The businesses have annual sales of approximately $160.
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 implemented
significant amendments to certain U.S. plans. Under a new
formula, retirement benefits are determined based on percentages
of annual pay and age. To minimize the impact of converting to
the new formula, service and earnings credit continues 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
5 Restructuring Program
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 represented the elimination of
layers of management, elimination of redundant positions due
to the realignment of operations in North America, and reorga-
nization of the U.S. sales force. The majority of the terminations
occurred in the fourth quarter of 2004.
The distribution and logistics realignment in Australia involves
the conversion of a direct store delivery system to a central ware-
house system. As a result of this program, over 200 positions
will be eliminated due to the outsourcing of the infrastructure.
A restructuring charge of $9 was recorded for this program. The
majority of the terminations occurred in 2005.
A summary of restructuring reserves at July 31, 2005 and related
activity is as follows:
Accrued
Balance at
August 3,
2004
2003 Charge Payments
Accrued
Pension Balance at
Cash Termination August 1,
Benefits 1
Cash
2004 Payments
Accrued
Balance at
July 31,
2005
Severance pay
and benefits
$ —
32
(1)
(3)
$ 28
(24)
$ 4
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
2005
$ —
2
—
—
—
2004
$ 7
2
2003
$ 15
2
(10)
(16)
10
(16)
36
—
(6)
(6)
(9)
$ (4)
$ (13)
$ 28
30
company from general funds. Plan assets consist primarily of
investments in equities, fixed income securities and real estate.
Change in benefit obligation:
Pension
Postretirement
2005
2004
2005
2004
Postretirement Benefits The company provides postretirement
benefits including health care and life insurance to substantially
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 postretirement
benefits as of May 1, 1999 will no longer be eligible to receive
such benefits in the future, but the company will provide access
to 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.
In 2005, the company established retiree medical account
benefits for eligible U.S. retirees, intended to provide reimburse-
ment for eligible health care expenses.
The company uses the fiscal year end as the measurement date
for the benefit plans.
Components of net periodic benefit cost:
Pension
Service cost
Interest cost
2005
2004
2003
$ 56
$ 50
$ 46
113
111
112
Expected return on plan assets
(155)
(150)
(153)
Amortization of prior service cost
Recognized net actuarial loss
Special termination benefits
6
30
2
6
23
3
6
14
4
Net periodic pension expense
$ 52
$ 43
$ 29
The special termination benefits relate to reductions in workforce
in Europe. The 2004 amount was recognized as a component of
the restructuring charges described in Note 5 to the Consolidated
Financial Statements.
Obligation at beginning of year
$ 1,893 $ 1,798
$ 333
$ 373
Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
Participant contributions
Special termination benefits
56
113
(37)
230
2
2
50
111
(3)
23
3
3
1
20
33
37
4
23
(21)
(19)
—
—
—
—
Benefits paid
(128)
(119)
(27)
(27)
Foreign currency adjustment
5
27
—
—
Benefit obligation at end of year
$ 2,136 $ 1,893
$ 397
$ 333
Change in the fair value of pension plan assets:
Fair value at beginning of year
Actual return on plan assets
Employer contributions
Participants contributions
Benefits paid
Foreign currency adjustment
Fair value at end of year
2005
2004
$ 1,627 $ 1,472
273
184
61
2
65
3
(123)
(115)
7
18
$ 1,847 $ 1,627
Funded status as recognized in the
Consolidated Balance Sheets:
Pension
Postretirement
2005
2004
2005
2004
Funded status at end of year
$ (289)
$ (266) $ (397) $ (333)
Unrecognized prior service cost
(1)
42
Unrecognized loss
745
661
7
85
(33)
49
Net amount recognized
$ 455
$ 437
$ (305) $ (317)
Amounts recognized in the Consolidated Balance Sheets:
Postretirement
Service cost
Interest cost
Amortization of prior service cost
Recognized net actuarial loss
2005
2004
2003
Pension
$
1
$
4
$
4
21
(11)
Prepaid benefit cost
Intangible asset
Accumulated other comprehensive loss
5
—
Net amount recognized
23
(10)
20
(7)
1
Net periodic postretirement expense
$ 15
$ 22
$ 14
2005
2004
$ 75
$ 103
3
27
377
307
$ 455
$ 437
31
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
2010
2009
2005
2004
A one-percentage-point change in assumed health care costs
would have the following effects on 2005 reported amounts:
Effect on service and interest cost
Effect on the 2005 accumulated benefit obligation
Incre se
Decrease
$ 2
$ 29
$ (2)
$ (25)
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:
The accumulated benefit obligation for all pension plans was
$1,945 at July 31, 2005 and $1,336 at August 1, 2004. 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 $1,598, $1,444
and $1,292, respectively, as of July 31, 2005 and $1,340,
$1,204, and $1,046, respectively, as of August 1, 2004.
The current portion of nonpension postretirement benefits
included in Accrued liabilities was $27 at July 31, 2005 and $19
at August 1, 2004.
Increase (decrease) in minimum pension liability included
in other comprehensive income:
2005
2004
$ 70
$ (23)
Weighted-average assumptions used to determine benefit
obligations at the end of the year:
Pension
Postretirement
2005
2004
2005
2004
Discount rate
5.44%
6.19%
5.50%
6.25%
Rate of compensation increases
3.93%
4.21%
—
—
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended:
Pension
Discount rate
2005
2004
2003
6.19%
6.39%
6.90%
Expected return on plan assets
8.76%
8.78%
9.30%
Rate of compensation increase
4.21%
4.43%
4.50%
The discount rate used to determine net periodic postretirement
expense was 6.25% in 2005, 6.5% in 2004 and 7.00% in 2003.
Equity securities
Debt securities
The expected rate of return on assets for the company’s global
plans is a weighted average of the expected 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.
Real estate and other
Total
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.
Strategic
Target
68%
22%
10%
2005
2004
68%
21%
11%
68%
21%
11%
100%
100%
100%
Estimated future benefit payments are as follows:
Earnings before income taxes:
32
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.
2006
2007
2008
2009
2010
2011–2015
Pension
$ 146
$ 142
$ 146
$ 150
$ 155
$ 831
Postretirement
$ 31
$ 31
$ 30
$ 29
$ 29
$ 144
The benefit payments include payments from funded and
unfunded plans.
Estimated future Medicare subsidy receipts are $1–$2 annually from
2006 through 2010, and $14 for the period 2011 through 2015.
The company made a voluntary contribution of $35 to a U.S.
pension plan subsequent to July 31, 2005. The company is not
required to make additional contributions to the U.S. plans in
2006. Contributions to non-U.S. plans are expected to be approx-
imately $17 in 2006.
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 contributions.
Amounts charged to Costs and expenses were $14 in 2005 and
2004 and $11 in 2003.
10 Taxes on Earnings
The provision for income taxes on earnings consists of the
following:
2005
2004
2003
Income taxes:
Currently payable
Federal
State
Non-U.S.
Deferred
Federal
State
Non-U.S.
United States
Non-U.S.
$ 214
$ 184
$ 178
6
56
13
13
52
35
276
249
226
38
47
62
3
6
2
2
1
9
47
51
72
$ 323
$ 300
$ 298
$ 753
$ 691
$ 686
277
256
238
$ 1,030
$ 947
$ 924
The following is a reconciliation of the effective income tax rate
on continuing operations with the U.S. federal statutory income
tax rate:
2005
2004
2003
Federal statutory income tax rate
35.0%
35.0%
35.0%
State income taxes (net of federal tax benefit)
0.6
Tax effect of international items
Tax loss carryforwards
Other
(3.5)
—
(0.7)
1.0
(2.9)
(0.2)
(1.2)
1.0
(2.3)
(0.1)
(1.4)
Effective income tax rate
31.4%
31.7%
32.2%
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
2005
2004
$ 198
$ 177
30
47
252
210
80
102
560
536
195
189
23
26
125
112
343
327
(5)
(6)
338
321
$ 222
$ 215
33
2005
2004
$ 114
67
$ 181
$ 117
47
$ 164
2005
2004
$
69 $
70
1,062
1,009
3,172
2,977
208
192
4,511
4,248
(2,524) (2,347)
$ 1,987 $ 1,901
13 Other Current Assets
Deferred taxes
Other
14 Plant Assets
Land
Buildings
Machinery and equipment
Projects in progress
Accumulated depreciation
At July 31, 2005, non-U.S. subsidiaries of the company have tax
loss carryforwards of approximately $75. Of these carryforwards,
$3 expire through 2010 and $72 may be carried forward indefi-
nitely. The current statutory tax rates in these countries range
from 13% to 39%.
The company has undistributed earnings of non-U.S. subsidiaries
of approximately $590. Of this amount, the company intends to
repatriate approximately $200 in 2006 under the AJCA and has
provided tax expense of $7. See also Note 1 to the Consolidated
Financial Statements for additional information on the AJCA. U.S.
income taxes have not been provided on the remaining $390
of undistributed earnings, which are deemed to be permanently
reinvested. If remitted, tax credits or planning strategies should
substantially offset any resulting tax liability.
11 Accounts Receivable
Customers
Allowances
Other
2005
2004
$ 509
$ 503
(36)
(39)
473
464
36
26
$ 509
$ 490
Depreciation expense provided in Costs and expenses was $277
in 2005, $258 in 2004 and $241 in 2003. Buildings are depre-
ciated over periods ranging from 10 to 45 years. Machinery and
equipment are depreciated over periods generally ranging from
2 to 15 years. Approximately $212 of capital expenditures is
required to complete projects in progress at July 31, 2005.
12 Inventories
Raw materials, containers and supplies
2005
2004
$ 297
$ 292
Finished products
498
497
Prepaid pension benefit cost
Less: Adjustment to LIFO valuation method
(13)
(7)
Investments
15 Other Assets
$ 782
$ 782
Deferred taxes
Other
Approximately 54% of inventory in 2005 and 55% of inventory
in 2004 is accounted for on the last in, first out method of deter-
mining cost.
2005
2004
$ 75
$ 103
150
150
6
—
37
45
$ 268
$ 298
Investments consist of several limited partnership interests in
affordable housing partnership funds. These investments generate
significant tax credits. The company’s ownership primarily ranges
from approximately 12% to 19%.
34
16 Notes Payable and Long-term Debt
17 Other Liabilities
Notes payable consists of the following:
Commercial paper
Variable-rate bank borrowings
Fixed-rate bank borrowings
2005
2004
Deferred taxes
$ 428
$ 790
Deferred compensation
18
14
Postemployment benefits
5
6
Fair value of derivatives
$ 451
$ 810
Other
2005
2004
$ 342
$ 332
116
108
22
15
174
151
30
15
$ 684
$ 621
Commercial paper had a weighted-average interest rate of 5.34%
and 3.23% at July 31, 2005 and August 1, 2004, respectively.
The company has two committed lines of credit totaling $1,500 that
support commercial paper borrowings and remain unused at July
31, 2005, except for $5 of standby letters of credit. Another $30 of
standby letters of credit remain unused under a separate facility.
Long-term Debt consists of the following:
Type
Notes
Notes
Notes
Notes
Notes
Notes
Debentures
Other
Fiscal Year of Maturity
Rate
2005
2004
2007
2007
2009
2011
2013
2014
2021
6.90%
$ 300 $ 300
5.50%
5.88%
6.75%
5.00%
4.88%
8.88%
300
300
700
400
300
200
42
300
300
700
400
300
200
43
$ 2,542 $ 2,543
The fair value of the company’s long-term debt including the
current portion of long-term debt in Notes payable was $2,727 at
July 31, 2005 and $2,736 at August 1, 2004.
The company has $300 of long-term debt available to issue as of
July 31, 2005 under a shelf registration statement filed with the
Securities and Exchange Commission.
Principal amounts of debt mature as follows: 2006 – $451 (in
current liabilities); 2007 – $610; 2008 – $4; 2009 – $302;
2010 – $2 and beyond – $1,624.
The deferred compensation plan is an unfunded plan main-
tained 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 real-
locate 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
35
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 nonperfor-
mance 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 nonper-
formance. In addition, the contracts are distributed among several
financial institutions, thus minimizing 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.
There were no changes made to the company’s interest rate swap
portfolio in 2005.
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 of 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.
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 at both July 31, 2005 and
August 1, 2004. The swaps had a fair value of $(2) at July 31,
2005 and a minimal fair value at August 1, 2004.
36
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 sales 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 $(157) at July 31, 2005.
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 July 31, 2005.
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 July 31, 2005.
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, Mexican peso and Swedish krona.
As of July 31, 2005, 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 $20, net of
tax. As of August 1, 2004, the accumulated derivative net loss
in other comprehensive income for cash-flow hedges was $1, net
of tax. Reclassifications from Accumulated other comprehensive
income (loss) into the Statements of Earnings during the period
ended July 31, 2005 were not material. There were no discon-
tinued cash-flow hedges during the year. At July 31, 2005, the
maximum maturity date of any cash-flow hedge was approxi-
mately eight years.
Other disclosures related to hedge ineffectiveness, gains (losses)
excluded from the assessment of hedge effectiveness, gains
(losses) arising from effective hedges of net investments, gains
(losses) resulting from the discontinuance of hedge accounting
and reclassifications from other comprehensive income to earnings
have been omitted due to the insignificance of these amounts.
The company principally uses a combination of purchase orders and
various short- and long-term supply arrangements in connection
with the purchase of raw materials, including certain commodi-
ties 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 July 31,
2005, the notional values and the fair values of open contracts
related to commodity hedging activity were not material.
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, the total return of the company’s capital stock and the total
return of the Puritan Fund. 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 2006, was $49 at July 31, 2005. 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 July 31, 2005 was approximately $1.
37
19 Shareowners’ Equity (Deficit)
Information about stock options and related activity is as follows:
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 20 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 and $6 in 2003.
Restricted shares granted are as follows:
(shares in thousands)
Restricted Shares
Granted
2005
2004
2003
1,399
1,324
900
(options in thousands)
Weighted
Average
Exercise
Price
2005
Weighted
Average
Exercise
Price
2004
Weighted
Average
Exercise
Price
2003
Beginning of year 35,775 $ 28.18 28,862 $ 28.29 30,006 $ 28.21
Granted
Exercised
8,624 $ 26.44 10,471 $ 26.85
577 $ 22.89
(2,916) $ 24.52
(1,325) $ 19.08
(847) $ 19.66
Terminated
(1,935) $ 32.72
(2,233) $ 28.69
(874) $ 28.67
End of year
39,548 $ 27.85 35,775 $ 28.18 28,862 $ 28.29
Exercisable at
end of year
25,147
21,234
17,665
(options in thousands)
Stock Options Outstanding
Exercisable Options
Range of
Exercise
Prices
Weighted
Average
Remaining
Contractual
Life
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
$16.81 – $22.60
185
7.3 $ 21.88
122 $ 21.93
$22.61 – $31.91
36,831
6.7 $ 27.08 22,493 $ 27.40
$31.92 – $44.41
2,271
4.1 $ 37.74 2,271 $ 37.74
$44.42 – $56.50
261
2.9 $ 53.99
261 $ 53.99
39,548
25,147
For the periods presented in the Consolidated Statements of
Earnings, the calculations of basic earnings per share and earnings
per share assuming dilution vary in that the weighted average
shares outstanding assuming dilution includes the incremental
effect of stock options and restricted stock programs, except
when such effect would be antidilutive. Stock options to purchase
10 million shares of capital stock for 2005 and 26 million shares
of capital stock for 2004 and 2003 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.
38
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 compa-
ny’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.
Following a trial on the merits, on September 13, 2005, the
District Court issued Post-Trial Findings of Fact and Conclusions
of Law, ruling in favor of the company and against VFB on all
claims. The Court ruled that VFB failed to prove that the spinoff
was a constructive or actual fraudulent transfer. The Court also
rejected VFB’s claim of breach of fiduciary duty, VFB’s claim that
VFI was an alter ego of the company, and VFB’s claim that the
spinoff should be deemed an illegal dividend. VFB will have 30
days following the entry of the judgment of the District Court to
appeal the decision.
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. The company expects a final resolution of this
matter in 2006.
The company is a party to other legal proceedings and claims,
tax issues and environmental matters arising out of the normal
course of business.
Management assesses the probability of loss for all legal proceed-
ings and claims, tax issues and environmental matters and has
recognized liabilities for such contingencies, as appropriate.
Although the results of these matters cannot be predicted with
certainty, in management’s opinion, the final outcome of legal
proceedings and claims, tax issues and environmental matters
will not have a material adverse effect on the consolidated results
of operations or financial condition of the company.
The company has certain operating lease commitments, primarily
related to warehouse and office facilities, retail store space and
certain equipment. Rent expense under operating lease commit-
ments was $84 in 2005, $79 in 2004 and $66 in 2003. Future
minimum annual rental payments under these operating leases
are as follows:
2006
$ 68
2007
$ 59
2008
$ 48
2009
$ 37
2010
Thereafter
$ 34
$ 51
The company guarantees approximately 1,400 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 $112. 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. The amounts recognized as of
July 31, 2005 and August 1, 2004 were 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
were not material at July 31, 2005.
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
2005
2004
2003
2005
First
Second
Third
Fourth
Net sales
$ 2,091 $ 2,223 $ 1,736 $ 1,498
Cost of products sold
1,245
1,321
1,035
230
235
146
890
96
related expense
$ 109
$ 91
$ 60
Adjustments to long-term investments,
other assets, minority interest
Other
Total
Other:
9
4
11
33
(5)
—
$ 122
$ 97
$ 93
Benefit related payments
$ (47) $ (46) $ (44)
Payments for hedging activities
Other
Total
(19)
(59)
7
2
(67)
(7)
$ (59) $ (103) $ (118)
Net earnings
Per share – basic
Net earnings
Dividends
Per share – assuming dilution
Net earnings
Market price
High
Low
2004
Net sales
0.56
0.57
0.36
0.23
0.17
0.17
0.17
0.17
0.56
0.57
0.35
0.23
$ 27.13 $ 30.52 $ 29.74 $ 31.60
$ 25.21 $ 26.68 $ 27.35 $ 29.53
First
Second
Third
Fourth
$ 1,909 $ 2,100 $ 1,667 $ 1,433
Interest paid
Interest received
Income taxes paid
2005
2004
2003
Cost of products sold
1,108
1,212
$ 176
$ 168
$ 173
Net earnings1
211
235
995
142
872
59
$
4
$
6
$
5
Per share – basic
$ 258
$ 249
$ 225
Net earnings1
0.51
0.57
0.35
0.14
Dividends
0.1575
0.1575
0.1575
0.1575
Per share – assuming dilution
Net earnings1
Market price
High
Low
0.51
0.57
0.34
0.14
$ 27.90 $ 27.39 $ 28.70 $ 28.13
$ 23.26 $ 24.92 $ 26.15 $ 25.03
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.)
40
Reports of Management
Management’s Report on Financial Statements
The accompanying financial statements have been prepared
by the company’s management in conformity with generally
accepted accounting principles to reflect the financial position of
the company and its operating results. The financial information
appearing throughout this Annual Report is consistent with the
financial statements. Management is responsible for the informa-
tion and representations in such financial statements, including the
estimates and judgments required for their preparation. The finan-
cial statements have been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated
in their report, which appears herein.
The Audit Committee of the Board of Directors, which is
composed entirely of Directors who are not officers or employees
of the company, meets regularly with the company’s worldwide
internal auditing department, other management personnel, and
the independent auditors. The independent auditors and the
internal auditing department 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. The internal auditing
department and the independent auditors report directly to the
Audit Committee.
Management’s Report on Internal Control Over
Financial Reporting
The company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting prin-
ciples in the United States of America.
The company’s internal control over financial reporting includes
those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company;
• provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
Directors of the company; and
• provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
The company’s management assessed the effectiveness of the
company’s internal control over financial reporting as of July 31,
2005. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control — Integrated
Framework. Based on this assessment using those criteria,
management concluded that the company’s internal control over
financial reporting was effective as of July 31, 2005.
Management’s assessment of the effectiveness of the company’s
internal control over financial reporting as of July 31, 2005 has
been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which
appears herein.
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 21, 2005
41
Report of Independent Registered Public Accounting Firm
To the Shareowners and Directors of Campbell Soup Company
We have completed an integrated audit of Campbell Soup
Company’s 2005 consolidated financial statements and of its
internal control over financial reporting as of July 31, 2005 and
audits of its 2004 and 2003 consolidated financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, of shareowners’
equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Campbell Soup Company and
its subsidiaries at July 31, 2005 and August 1, 2004, and the
results of their operations and their cash flows for each of the
three years in the period ended July 31, 2005 in conformity with
accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and signifi-
cant 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.”
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in
the accompanying Management’s Report on Internal Control
Over Financial Reporting, that the Company maintained effec-
tive internal control over financial reporting as of July 31, 2005
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), is fairly stated, in all
material respects, based on those criteria. Furthermore, in our
opinion, the Company maintained, in all material respects, effec-
tive internal control over financial reporting as of July 31, 2005,
based on criteria established in Internal Control — Integrated
Framework issued by the COSO. The Company’s management is
responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express
opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based
on our audit. We conducted our audit of internal control over
financial reporting 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 assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes obtaining
an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in
the circumstances. We believe our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transac-
tions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of manage-
ment and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthor-
ized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Philadelphia, Pennsylvania
September 21, 2005
42
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
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 disclo-
sure 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 July 31, 2005
(the “Evaluation Date”). Based on such evaluation, the President
and Chief Executive Officer and the Senior Vice President and
Chief Financial Officer have concluded that, as of the Evaluation
Date, the company’s disclosure controls and procedures are
effective, 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.
The annual report of management on the company’s internal control
over financial reporting is provided under “Financial Statements
and Supplementary Data” on page 40. The attestation report of
PricewaterhouseCoopers LLP, the company’s independent regis-
tered public accounting firm, regarding the company’s internal
control over financial reporting is provided under “Financial
Statements and Supplementary Data” on page 41.
During the quarter ended July 31, 2005, 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.
43
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 2005 Proxy is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management and
Related Shareowner Matters
The information presented in the sections entitled “Security
Ownership of Directors and Executive Officers,” “Security
Ownership of Certain Beneficial Owners,” “Securities Authorized
for Issuance under Equity Compensation Plans” and “Deferred
Compensation Plans” in the 2005 Proxy is incorporated herein
by reference.
Item 13. Certain Relationships
and Related Transactions
The information presented in the section entitled “Certain
Relationships and Related Transactions” in the 2005 Proxy is
incorporated herein by reference.
Item 14. Principal Accounting Fees
and Services
The information presented in the section entitled “Independent
Registered Public Accounting Firm Fees and Services” in the
2005 Proxy is incorporated herein by reference.
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, 2005 (the “2005 Proxy Statement”) are
incorporated herein by reference. The information presented in the
section entitled “Board Committees” in the 2005 Proxy Statement
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 2005 Proxy
Statement 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 compa-
ny’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 (under 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.
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 compa-
ny’s website, www.campbellsoupcompany.com (under the
“Governance” caption). The company’s Corporate Governance
Standards and the 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.
On November 23, 2004, the New York Stock Exchange Annual
CEO Certification was submitted without any qualification.
44
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements
• Consolidated Statements of Earnings for 2005, 2004 and 2003
• Consolidated Balance Sheets as of July 31, 2005 and August 1, 2004
• Consolidated Statements of Cash Flows for 2005, 2004 and 2003
• Consolidated Statements of Shareowners’ Equity (Deficit) for 2005, 2004 and 2003
• Notes to Consolidated Financial Statements
• Management’s Report on Internal Control Over Financial Reporting
• 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 as amended through July 22, 2004 were filed with the SEC with Campbell’s Form 10-K for the fiscal
year ended August 1, 2004, and is incorporated herein by reference.
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 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(b) 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.
45
10(c) Campbell Soup Company Annual Incentive Plan, as amended on November 18, 2004, was filed with the SEC with
Campbell’s 2004 Proxy Statement, and is incorporated herein by reference.
10(d) 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(e) 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(f) 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(g) 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(h) 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.
10(i) Performance goals for the fiscal 2005 awards under the Campbell Soup Company Annual Incentive Plan were described
in a Campbell Form 8-K filed on November 5, 2004, and such description is incorporated herein by reference.
10(j) Form of Stock Option Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004,
and is incorporated herein by reference.
10(k) Form of Restricted Stock Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004,
and is incorporated herein by reference.
10(l) Board of Director compensation for calendar year 2005 was described in a Campbell Form 8-K filed on January 7, 2005,
and such description is incorporated herein by reference.
10(m) Long-term incentive compensation programs adopted pursuant to the Campbell Soup Company 2003 Long-Term Incentive Plan
were described in Campbell Form 8-K filed on July 12, 2005, and such description is incorporated herein by reference.
10(n) Deed of Release, dated May 27, 2005, between John Doumani, Arnott’s Biscuits Ltd and the company.
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
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 11, 2005
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 11, 2005
/s/ Robert A. Schiffner
Robert A. Schiffner
Senior Vice President
and Chief Financial Officer
Harvey Golub
Douglas R. Conant
John F. Brock
Edmund M. Carpenter
Paul R. Charron
Bennett Dorrance
Kent B. Foster
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
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
}
Exhibit 31(i)
Certification Pursuant to Rule 13a-14(a)
47
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)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 finan-
cial 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 11, 2005
By: /s/ Douglas R. Conant
Name: Douglas R. Conant
Title: President and Chief Executive Officer
48
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)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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 finan-
cial 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 11, 2005
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer
Exhibit 32(i)
Certification Pursuant to
18 U.S.C. Section 1350
49
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended July 31,
2005, 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 11, 2005
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 July 31,
2005, 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 11, 2005
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer