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1 Campbell Place, Camden, NJ 08103-1799 www.campbellsoupcompany.com
Campbell Soup Company 2006 Annual Report
In 2006, our Company is
On trend,
On target &
On demand
Financial Highlights
(millions of dollars, except per share amounts)
Results of Operations
Net sales
Gross profi t
Percent of sales
Earnings before interest and taxes
Earnings from continuing operations
Per share — diluted
Earnings from discontinued operations
Per share — diluted
Net earnings
Per share — diluted
Other Information
Net cash provided by operating activities
Capital expenditures
Dividends per share
2006
2005
$ 7,343
$ 3,075
$ 7,072
$ 2,897
41.9%
41.0%
$ 1,151
$ 755
$ 1.82
11
$
$ 0.03
$ 766
$ 1.85
$ 1,226
$ 309
$ 0.72
$ 1,132
$ 644
$ 1.56
63
$
$ 0.15
$ 707
$ 1.71
$ 990
$ 332
$ 0.68
The 2006 Earnings from continuing operations were impacted by the following: a $60 ($.14 per share) benefi t from the favorable resolution of a
U.S. tax contingency; an $8 ($.02 per share) benefi t from a change in inventory accounting method; incremental tax expense of $13 ($.03 per
share) associated with the repatriation of non-U.S. earnings under the American Jobs Creation Act; and a $14 ($.03 per share) tax benefi t related
to higher levels of foreign tax credits, which can be utilized as a result of the sale of the businesses in the United Kingdom and Ireland. The 2006
results of discontinued operations included $56 of deferred tax expense due to book/tax basis differences and $5 of after-tax costs associated with
the sale of the businesses (aggregate impact of $.15 per share).
As of August 1, 2005, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS
No. 123R). Under SFAS No. 123R, compensation expense is to be recognized for all stock-based awards, including stock options. Had all stock-
based compensation been expensed in 2005, Earnings from continuing operations would have been $616 and earnings per share would have
been $1.49. Net earnings would have been $678 and earnings per share would have been $1.64.
See page 24 for a reconciliation of the impact of these items on reported results.
Our Quality Growth Strategies
1 Expand our icon brands
within Simple Meals and
Baked Snacks.
3 Make our products more
5 Improve overall organizational
broadly available in existing
and new markets.
diversity, engagement,
excellence, and agility.
2 Trade consumers up to higher
levels of satisfaction centered
on convenience, wellness,
and quality.
4 Increase margins by improving
price realization and company-
wide productivity.
Board of
Directors
(as of October 2006)
Harvey Golub
Chairman of Campbell Soup
Company, Retired Chairman
and Chief Executive Officer of
American Express Company
Douglas R. Conant
President and Chief Executive
Officer of Campbell Soup Company 3
Edmund M. Carpenter
President and Chief Executive
Officer of Barnes Group, Inc. 1, 3
Paul R. Charron
Chairman and Chief Executive
Officer of Liz Claiborne, Inc. 2, 3
Bennett Dorrance
Private Investor and Chairman
and Managing Director
of DMB Associates 2, 4
Kent B. Foster
Chairman of Ingram Micro, Inc. 2, 4
Randall W. Larrimore
Retired President and
Chief Executive Officer
of United Stationers, Inc. 1, 4
Philip E. Lippincott
Former Chairman of
Campbell Soup Company,
Retired Chairman and
Chief Executive Officer
of Scott Paper Company 2, 3
Mary Alice D. Malone
Private Investor and President
of Iron Spring Farm, Inc. 3, 4
Sara Mathew
Chief Financial Officer and
President – U.S. of The Dun &
Bradstreet Corporation
David C. Patterson
Founder and Chairman,
Brandywine Trust Company 3, 4
Charles R. Perrin
Non-executive Chairman
of Warnaco Group, Inc. 1, 2
A. Barry Rand
Retired Chairman and CEO of
Equitant, Inc. 2
George Strawbridge, Jr.
Private Investor and
President of
Augustin Corporation 1, 3
Les C. Vinney
President and
Chief Executive Officer
of STERIS Corporation 1, 4
Charlotte C. Weber
Private Investor and
Chief Executive Officer
of Live Oak Properties 2, 4
Officers
(as of October 2006)
Shareowner
Information
Douglas R. Conant
President and Chief
Executive Officer
Mark A. Sarvary
Executive Vice President
and President –
Campbell North America
Arthur B. Anderson
Senior Vice President –
Global Research &
Development and Quality
Jerry S. Buckley
Senior Vice President –
Public Affairs
M. Carl Johnson, III
Senior Vice President –
Chief Strategy Officer
Ellen Oran Kaden
Senior Vice President –
Law and Government Affairs
Larry S. McWilliams
Senior Vice President
and President –
Campbell International
Denise M. Morrison
Senior Vice President
and President –
U.S. Soup, Sauces, and Beverages
Nancy A. Reardon
Senior Vice President and
Chief Human Resources
and Communications Officer
Robert A. Schiffner
Senior Vice President and
Chief Financial Officer
David R. White
Senior Vice President –
Global Supply Chain
Doreen A. Wright
Senior Vice President and
Chief Information Officer
Anthony DiSilvestro
Vice President – Controller
John J. Furey
Vice President and
Corporate Secretary
Richard J. Landers
Vice President – Taxes
Gerald S. Lord
Vice President –
Finance and Strategy,
Campbell North America
William J. O’Shea
Vice President – Treasurer
World Headquarters
Campbell Soup Company
1 Campbell Place
Camden, NJ 08103
(856) 342-4800
(856) 342-3878 (Fax)
Stock Exchange Listings
New York, Swiss
Ticker Symbol: CPB
Transfer Agent and Registrar
Computershare Limited
P.O. Box 43069
Providence, RI 02940-3069
1-800-446-2617
Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Dividends
Campbell has paid dividends since
the company became public in
1954. Dividends are normally paid
quarterly, at the end of January,
April, July, and October.
A dividend reinvestment plan
is available to shareowners.
For information about dividends
or the dividend reinvestment plan,
write: Dividend Reinvestment
Plan Agent, Campbell Soup
Company, P.O. Box 43081,
Providence, RI 02940-3081
Or call: (781) 575-2723 or
1-800-446-2617.
Annual Meeting
The Annual Meeting of Shareowners
will be held on November 16, 2006,
at 2:30 p.m., Eastern Standard
Time, at the Sheraton Great Valley
Hotel, 707 East Lancaster Ave.,
Frazer, PA 19355.
Publications
For copies of the Annual Report or
the SEC Form 10-K (filed annually
in October) or other financial
information, write: Investor
Relations at the World Headquarters
address, or call 1-888-SIP-SOUP
(1-888-747-7687) or visit
our worldwide website at
www.campbellsoupcompany.com
For copies of the Campbell Soup
Foundation’s Giving Report, write to
Public Affairs at the World
Headquarters address.
Information Sources
Inquiries regarding our products
may be addressed to Campbell’s
Consumer Response and Information
Center at the World Headquarters
address, or call 1-800-257-8443.
Media and public relations inquiries
should be directed to Anthony Sanzio,
Director – Corporate Communications,
at the World Headquarters address,
or call (856) 968-4390.
Investors and financial analysts
may contact Leonard F. Griehs,
Vice President – Investor Relations,
at the World Headquarters address,
or call (856) 342-6428.
Communications concerning share
transfer, lost certificates, dividends,
and change of address, should be
directed to Computershare Limited,
1-800-446-2617.
Shareowner Information Service
For the latest quarterly business
results or other information
requests such as dividend dates,
shareowner programs or product
news, call 1-888-SIP-SOUP
(1-888-747-7687). Shareowner
information is also available on
our worldwide website at
www.campbellsoupcompany.com
Campbell Brands
Product trademarks of Campbell
Soup Company and/or its
subsidiaries appearing in the
narrative text of this report
are italicized.
Certifications
The certifications required by
Section 302 of the Sarbanes-Oxley
Act have been filed as exhibits to
Campbell’s SEC Form 10-K. The
most recent certification required by
Section 303A.12(a) of the New York
Stock Exchange Listed Company
Manual has been filed with the New
York Stock Exchange.
The papers, paper mills and printer utilized in the production of
this Annual Report are all certified for Forest Stewardship Council
(FSC) standards, which promote environmentally appropriate,
socially beneficial and economically viable management of the
world’s forests. Covers and pp. 1 – 24 are printed on Mohawk
Navajo, a 20% post-consumer waste recycled paper, manufactured
with Green-e certified, nonpolluting, wind-generated electricity.
Pages 25 – 78 of this publication are printed on Domtar Opaque-
Plainfield, an Elemental Chlorine Free (ECF) paper. The report was
produced by The Hennegan Company, which has implemented
Committees 1 Audit 2 Compensation & Organization
3 Finance & Corporate Development 4 Governance
new technologies and processes to substantially reduce the volatile organic compound
(VOC) content of inks, coatings and solutions, and invested in equipment to capture and
recycle virtually all VOC emissions from web press operations.
CAMPBELL SOUP COMPANY | PAGE 1
Fellow Shareowners,
It’s been over fi ve years since I joined Campbell Soup
Company and we unveiled our plans to revitalize our business
with a sound strategic growth plan. We have made signifi cant
investments since then — to improve our product quality and
packaging, strengthen our marketing programs, develop a
robust innovation pipeline, improve our information systems,
and upgrade our supply chain effectiveness. We also have
improved our fi nancial profi le, enhanced our relationships
with our customers, deepened our connections with our
consumers, and consistently improved employee engagement.
As a result, Campbell is a formidable force in the global food
industry. We are a company on the move.
Douglas R. Conant
PRESIDENT AND CEO
CAMPBELL SOUP COMPANY | PAGE 2
Raising the Bar
I’m pleased to report that in fi scal 2006, Campbell’s total shareowner
For example, in continental Europe, our portfolio is well positioned
in the Simple Meals category. In the Asia Pacifi c region, we are
return (stock appreciation plus dividends) was 22 percent, making
aligning our organization around a structure that will enable us to
us the top performer in the S&P Food Group.
focus better on both Baked Snacks and Simple Meals. Meanwhile,
Adjusted earnings from continuing operations were $686 million,
we have created an Emerging Markets group to explore opportunities
or $1.66 per share, an increase of 11 percent over 20051. Net sales
in two countries where sizable consumer behaviors for soup already
increased to $7.34 billion from $7.07 billion last year.
exist — China and Russia.
Reported results were impacted by the sale of our businesses in
the U.K. and Ireland, which was announced in the fourth quarter
and completed in August. These businesses are accounted for as
discontinued operations.
Managing Costs More Effectively
In fi scal 2006, we successfully completed the initial installation of
our SAP enterprise-resource planning system in Canada, and began
to prepare for its implementation in the U.S. This project will help us
A Strong Portfolio of Brands
Our product portfolio is focused on Simple Meals, heavily anchored
to lower costs associated with processing transactions and managing
our information technology infrastructure. It also will enable us to
by Campbell’s soup, and Baked Snacks, heavily anchored by
capture better, more timely information to make improved business
Pepperidge Farm premium baked goods in North America and
decisions. We plan to complete our rollout of SAP in the U.S. over
Arnott’s biscuits in Asia Pacifi c. We also have two high-performing
fi scal 2007 and 2008. In Australia, we continue to roll out our new
allied growth businesses: Godiva premium chocolate and V8 vege-
sales and distribution system to convert from a direct store delivery
table-based beverages. Today, our products are on trend, on target,
system to a central warehouse system. As we drive efforts behind
and on demand.
convenience, wellness, and quality, these new systems will improve
supply chain planning and profi tability.
Launching a Major New Initiative
At mid-year, we took a signifi cant step toward creating an improved
health and wellness profi le for a major portion of our portfolio, with
Diversifying the Workforce
As we gain momentum in the marketplace, we must make similar
an emphasis on reducing sodium levels in our soups over time. You
strides in the workplace. We are changing how we recruit and retain
will read more about this in the pages that follow. This initiative will
talent and identifying new ways to develop, train, and mentor our
span multiple years, as we strive to make soup the ultimate healthy
employees. Our core strategies also refl ect a deep commitment to
simple meal.
Realigning Our International Businesses
The sale of our businesses in the U.K. and Ireland will better enable
enhance diversity within our company. With the changing demographics
of today’s global marketplace and its consumers who are driving eating
and cooking trends, we are determined to have a workforce that refl ects
the markets in which we compete. This way we can better understand,
us to focus on building our businesses within the Simple Meals
relate to, and anticipate consumer demands. The collaboration of
and Baked Snacks categories in markets with the greatest potential
various cultures, ideas, and perspectives will bring forth greater
for growth.
creativity and innovation. It offers a clear competitive advantage.
Five Years of Transformation
The covers of our Annual Reports over the last fi ve years have told the story of Campbell’s effort to once again become a leader in the food industry.
It’s not enough to be a legend.
Working
n
Building
momentum
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Driving
quality growth
How the people of Campbell are transforming their company –
by delighting consumers, revitalizing great brands, enhancing quality and
productivity, and laying the groundwork for a more rewarding future.
2002 Annual Report
2001 ANNUAL REPORT
Campbell Soup Company
nnual
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Campbell Soup Company 2005 Annual Report
1 These amounts are adjusted for certain changes in accounting methods, certain tax matters, and other transactions not considered to be part of the ongoing business.
See reconciliation of non-GAAP measures on page 24.
CAMPBELL SOUP COMPANY | PAGE 3
A Bright Outlook
Ultimately, our success as an organization must be measured by
This is an aspirational goal that is not easily attained. The
challenges we face today are many: to meet our fi nancial and business
performance. I ended my fi rst shareowner letter in 2001 by saying
goals while continuing to invest heavily in innovation, to keep our
that change was underway at Campbell … that we were committed
information systems up-to-date, and to seek out global opportunities
to transforming our company into a winning organization again. In
for growth. We are up to these challenges. We will continue to focus
2002, I concluded by saying we were pleased with the fi rst year of
on consistent and high-quality results. Our long-term fi nancial goals
change, but we had much more to do to resume our winning ways.
remain unchanged: to grow sales 3 to 4 percent, earnings before
At the end of fi scal 2006, I am pleased to report that we are
interest and taxes at 5 to 6 percent, and earnings per share at 5 to
achieving our goal of driving sustainable quality growth. This year’s
7 percent.
fi nancial performance not only met the goals we set for ourselves in
In September 2006, we increased our annual dividend from
our Transformation Plan, but exceeded them.
$.72 per share to $.80 per share.
On the pages that follow, we outline fi ve key strategies to drive
We are determined to create sustainably good performance over
success both in the marketplace and the workplace. These strategies,
the long term … and we will.
which have evolved over the past fi ve years, are clearly energizing
our brands and employees. We are well on our way to achieving our
mission: to build the world’s most extraordinary food company by
nourishing people’s lives everywhere, every day.
Douglas R. Conant
PRESIDENT AND CEO
Chairman’s Message
As Doug described, our company’s business results in fi scal 2006
and Chief Executive Offi cer of Coca-Cola Enterprises, Inc. The
were very strong. We achieved the highest total shareowner return
company benefi ted greatly from John’s experience in consumer
in the peer food group and our growth in sales and operating earn-
products and international, and we are grateful for his contribu-
ings exceeded the median for the group. Campbell increasingly is
tions. Last year the Board nominated Sara Mathew, Chief Financial
recognized as one of the best packaged food companies, based
Offi cer and President – U.S. of Dun & Bradstreet in anticipation of
upon the strength of its management, innovation initiatives, and
Phil Lippincott’s expected retirement in November 2006. However,
strategies for sustainable growth. The Board appreciates the
we decided this year to change our mandatory retirement age for
leadership of the senior management team in building the world’s
directors from 70 to 72. Consequently, Phil has agreed to stand
most extraordinary food company and delivering superior long-term
for re-election again this year. The Board is delighted to continue to
shareowner returns.
have the benefi t of his extensive knowledge of the company and the
The Board discussed strategies for international operations
consumer products industry.
at four meetings, and concluded that the best strategic direction
is to focus, streamline, and then grow its businesses. In Continental
Europe, the businesses are focused on Simple Meals and in Asia
Pacifi c, the main business is focused on Baked Snacks. The busi-
nesses in the U.K. and Ireland did not meet our company’s growth
Harvey Golub
expectations and the Board determined that they should be divested.
CHAIRMAN OF THE BOARD
We support management’s commitment of resources to develop
Simple Meals and Baked Snacks businesses in emerging markets.
The Board followed a very thorough and deliberative process in
making these important decisions.
In May 2006, John Brock resigned from the Board to devote
his energies on a full-time basis to his new position as President
CAMPBELL SOUP COMPANY | PAGE 4
STRATEGY
1
Expand our icon brands
within Simple Meals and
Baked Snacks.
Finally, we will accelerate the growth of our $250 million retail
convenience platform that includes Campbell’s Soup at Hand
soups in portable microwavable cups and Chunky and Select
soups in microwavable bowls. In total, more than 20 convenience
soup offerings will be available in fi scal 2007 in the U.S. We
also will expand our offerings in Canada with new Campbell’s
We will continue to seize opportunities that lie within Simple
Chunky microwavable bowls and in Australia with more fl avors of
Meals and Baked Snacks. Our brands — and the growth platforms
Campbell’s Country Ladle microwavable soup bowls.
that support them — provide advantages in these two attractive
mega-categories.
Simple Meals
Simple Meals is a category worth more than $90 billion in North
Baked Snacks
Baked Snacks also offers tremendous opportunity for growth. The
category is a $40 billion segment of the larger $110 billion snacks
market in North America and Australia, which are our primary
America and even more globally. In fi scal 2007, we have opportunities
Baked Snacks geographies.
to expand within Simple Meals, especially in soup. To be successful,
Our initial focus has been to grow our position within Baked
however, each of our brands must deliver preferred consumer benefi ts
Snacks and to expand the sales and margins of our icon brands —
at an acceptable price.
Goldfi sh snack crackers, Pepperidge Farm cookies and breads,
Today’s American consumer encompasses a wide range of ages,
and Arnott’s biscuits and snacks. Popular Goldfi sh snack crackers
lifestyles, and ethnicities. We believe Campbell’s condensed soups
achieved double-digit growth again in fi scal 2006 through product
have relevance for all of them, and we’re committed to bringing that
improvements, new packaging, and targeted advertising featuring
potential to life. Our condensed soups have shown sales growth for
a group of memorable characters. Pepperidge Farm launched a new
the second consecutive year, increasing by 5 percent.
line of “Chocolate Delight” cookies under its Distinctive Cookies
Campbell’s condensed soups for cooking and Swanson broth
banner, and added Black & White and Amaretto varieties to its
provide us with opportunities to increase our share of the Simple
Milano cookie line.
Meals category. To capitalize on these priorities, we’ll focus on driving
Arnott’s continues to leverage its strong Tim Tam brand with new
volume with “Power Dishes,” which are simple casseroles made with
varieties. These biscuits offer chocolate lovers a sophisticated twist
Campbell’s condensed soups and consumer-tested recipes.
with fl avors such as Latte, Orange, and a limited-editon Luscious
We’ll also introduce additional varieties of condensed soups for
Strawberry. In savory snacks, Arnott’s will introduce puffed crackers
kids, reducing sodium and adding more vegetables.
into its market-leading Shapes line.
Campbell’s Chunky soup will continue to satisfy a hearty appe-
tite, and we will reinforce the brand’s meal credentials with new
fl avors such as BBQ Seasoned Burger soup.
In the mega-categories of Simple Meals and
Baked Snacks, we are leveraging the power
of well-known brands such as Campbell’s
Chunky and Pepperidge Farm Goldfi sh to
expand into new segments.
CAMPBELL SOUP COMPANY | PAGE 5
STRATEGY
2
Trade consumers up to higher
levels of satisfaction centered
on convenience, wellness,
and quality.
program, which includes a wellness theme and a sponsorship with
the Harlem Globetrotters aimed at improving youth fi tness.
In keeping with consumers’ growing interest in organic products,
Campbell offers organic options under such brands as Swanson,
Pace, Prego, and V8.
Our innovation efforts are aimed at giving consumers a higher level
Taking Quality to New Heights
We also are expanding our quality efforts across our global portfolio.
of satisfaction centering on convenience, wellness, and quality.
In fi scal 2006, we launched shelf-stable premium soups in the U.S.
Great Taste and Better For You
In fi scal 2006, we launched a major sodium reduction initiative in
under the Campbell’s Select Gold Label brand. Made with an aseptic
process and packaging, these restaurant-quality soups now can be
enjoyed at home. In Canada, Campbell’s Gardennay aseptically
our soup portfolio. Our long-term goal is to create great-tasting soups
packaged soups will include three new varieties. In Belgium, our
that contain 480 milligrams or less of sodium per serving, further
shelf-stable aseptic soups are available under the Campbell’s DéliSoup
enabling us to promote the positive health benefi ts of our products.
brand; and in France, we will launch Liebig refrigerated soups to
Recently, we introduced soups using lower sodium, all-natural
complement our market-leading aseptic soups. Australian consumers
sea salt. We now offer 25-percent reduced sodium versions of our
can enjoy shelf-stable aseptic soups with the Velish brand.
most popular condensed soups: Campbell’s Chicken Noodle, Tomato,
In Baked Snacks, we now are offering consumers portion-
and Cream of Mushroom. New Campbell’s Healthy Request soups
controlled, snack alternatives such as Goldfi sh crackers 100-calorie
include four varieties of Campbell’s Chunky, and three Campbell’s
packs and Arnott’s Smart Serve potato chip packs.
Select soups. Our existing varieties of Healthy Request condensed
Pepperidge Farm introduced new varieties of whole grain sand-
soups also have been reformulated with lower sodium sea salt for
wich bread and swirl breakfast breads that had strong consumer
better taste. In Canada, 30 reduced sodium soups will be on the
appeal. Additionally, Pepperidge Farm Natural Whole Grain breads
shelf in fi scal 2007.
were repositioned to better leverage their key benefi ts: all-natural
V8 vegetable juice had a strong year and we are continuing to
ingredients and the goodness of whole grain. Our Pepperidge Farm
reinvigorate our beverage business by reducing sodium in our V8
bakery business has had strong sales and earnings growth for three
vegetable juice and by creating a fi rst-of-its-kind vegetable and fruit
consecutive years.
juice, V8 V-Fusion.
At Godiva, we are relaunching our classic Gold Collection
To support our reduced sodium efforts, we are working with the
globally with 40 new and improved pieces of chocolate and a new
American Heart Association (AHA). Nearly 50 products in Campbell’s
elegant gold box. Godiva also is driving increased sales at retail with
portfolio will bear the AHA heart-check mark. Complementing our
new fl avors of our Godiva Chocolixir beverages.
efforts will be a more enhanced Campbell’s Labels for Education
We continue to raise the bar when
it comes to delivering products
that meet and exceed consumers’
expectations for convenience,
wellness, and quality.
CAMPBELL SOUP COMPANY | PAGE 6
STRATEGY
3
Make our products more
broadly available in existing
and new markets.
PhysEdibles sport-themed animal crackers were specifi cally developed
to meet the general U.S. guidelines for school lunch menus.
Reaching Customers in New Places
Alternate channels also offer signifi cant growth opportunities for a
variety of Campbell products. Campbell’s microwavable soups and
iQ Maximizer gravity-feed shelving, now available in 16,000 stores
Campbell’s Chunky chili bowl products increasingly are available at
in the U.S., continues to be a powerful tool to merchandise
convenience stores for the on-the-go consumer. In addition, strong
Campbell’s condensed soups. We have expanded this shelving to
growth of Goldfi sh snack crackers is being driven in part by new
include ready-to-serve, microwavable, and aseptic soups. We now
single-serve pouches, which are available near check-out registers
can use this tool to deliver impactful consumer messages at the
in many major retailers. Our Pace brand, which will be celebrating
point of purchase. For example, the newest generation of this
its 60th anniversary in 2007, delivered strong sales growth with
shelving system uses color coding to group soups into categories
new larger size jars of its Mexican sauces.
such as wellness, kids, and cooking. In fi scal 2007, we will expand
Beyond North America, we will use our advantaged platforms
iQ Maximizer nationally in Canada.
in Simple Meals and Baked Snacks to expand our presence in
Premium refrigerated soups in our Away From Home business
emerging markets. For example, our aseptic packaging for Swanson
have grown dramatically. We are expanding our production capacity
broth in Hong Kong is expanding usage in a highly developed
with a new refrigerated soup plant in Washington State, which will
broth market. We recently opened business offi ces in China and
help us provide more soup offerings and increase the number of
Russia and are researching consumer opportunities in soup. Both
stores we can serve. We’ll also test our own retail refrigerated line
countries have a well-developed soup culture and a growing
in fi scal 2007 under the Campbell’s StockPot brand, which will
demand for commercially prepared foods.
broaden our presence in the perimeter of the grocery store.
At Godiva, we’re expanding our reach in Asia, where total sales
We will continue to target other food service venues, such as
grew by almost 20 percent in fi scal 2006. We also are accelerating
schools and university and business cafeterias with more healthful
the global rollout of our new store design focused on contemporizing
choices. Our Campbell’s Well & Good frozen soups are designed to
our retail stores, providing a greater focus on self treat while main-
appeal to weight-conscious consumers with on-trend fl avors. Goldfi sh
taining our historical focus on gift collections.
With customized packaging and
products, we are making our products
more available in new and existing
channels and markets.
CAMPBELL SOUP COMPANY | PAGE 7
STRATEGY
4
Increase margins by
improving price realization
and company-wide
productivity.
To help us improve our profi t margins we are focusing on Total
Delivered Cost, which incorporates all of the cost factors that impact
our gross margins. Total Delivered Cost is generating new thinking
about ways to reduce costs across our organization.
In the past, we’ve had a more narrow focus on cost savings —
the positive things we could do to improve yields or to make our
products in a more effi cient and less costly manner. That program
has been extremely successful, delivering $1 billion of savings
over the last seven years. Total Delivered Cost expands on this
strategy by identifying and evaluating supply chain opportunities
from a holistic point of view rather than in small increments. By
implementing SAP across North America, we will have greater
real-time visibility into all our cost factors. The integrated nature of
SAP’s enterprise-resource planning system will make it easier to
optimize costs across entire business processes.
Over the next few years, we will strive to keep Total Delivered
Cost per case fl at, while increasing our commitment to quality
To help us achieve fl at Total Delivered Cost, we have launched two
major programs. First, we will continue to expand our global reliability
efforts to ensure that the production lines in our manufacturing sites
are running as effi ciently as possible. Second, we are piloting a new
manufacturing initiative to better align our production with the actual
needs of our customers. This produce-to-demand approach will enable
us to reduce inventory levels, to distribute our products on a more
timely basis, and to reduce handling costs.
Our Product Lifecycle Management system will streamline the
way product specifi cations — formulas, ingredients, and labeling —
fl ow through the organization. The system eliminates redundancies
and allows information to be available to a broad range of users on
a real-time basis, making us more agile in our business procedures.
In fi scal 2007, we plan to complete the North American rollout of
this important global initiative.
For the past two years, we have used new systems and
approaches to help us better analyze the profi tability of our
marketing and promotion programs. We have applied world-class
analytics to assess the sales and profi t impact of promotion and
advertising spending in key Campbell categories in the U.S. In
addition, we have made signifi cant progress in expanding these
capabilities outside the U.S.
and innovation.
With new systems and
cost-saving initiatives,
Campbell employees
around the world are
helping us to improve
our effi ciency and
to become more
agile in meeting
customers’ needs.
A.J. Sumpter
Warehouse Manager
Napoleon, Ohio
Michele Takeuchi
Training Manager
Toronto, Canada
Adam Hayes
Program Manager
Homebush, Australia
Kim Wolf
Plant Manager
Listowel, Canada
CAMPBELL SOUP COMPANY | PAGE 8
STRATEGY
5
Improve overall organizational
diversity, engagement,
excellence, and agility.
aimed at hiring and retaining high-potential employees, rewarding
long-term high performers, and developing our current talent.
Excellence and Agility
In 2002, we created a leadership model designed to make us more
agile as an organization, more effective in our planning, and more
Diversity
Workforce diversity is critical to ensure that we raise the awareness
rewarding of extraordinary contributions. In fi scal 2007, we will
advance this leadership model by launching Campbell University.
of cultural differences across the countries in which we operate.
Campbell University will not only provide a curriculum for learning
In fi scal 2006, we expanded our networks for women and
and development, but a forum for our employees to deepen their
African American employees and launched two new networks that
understanding of the model. It also will provide training to enhance
support our Hispanic and Asian employees. Our employees embrace
manager quality across the organization.
the inclusive environment that the networks provide and participate in
opportunities for development through networking events, mentoring,
and information sharing.
Community Commitment
We embrace our responsibility as a good corporate leader by
By reaching out into diverse communities, our new Supplier
making a difference in our communities. Our product donations help
Diversity initiative, which increases our utilization of women- and
food banks provide nutritious meals for needy families. Our efforts
minority-owned suppliers, will strengthen our vendor base, stimulate
with organizations, such as the American Red Cross, provide food to
economic development, and build greater consumer loyalty.
disaster survivors. And, with partners, such as the National Association
To measure our success in attracting and retaining multicultural
of Letter Carriers, we sponsor the Stamp Out Hunger! Food Drive
talent, we created a Diversity Scorecard, which will also help us
to combat hunger in the U.S. Our employees are involved in the
benchmark our yearly progress.
communities where they work through Campbell’s 50 Hours for the
Community program, which encourages Campbell teams through-
Engagement
For the past fi ve years, we have consistently measured our overall
out the U.S. to complete 50 hours of volunteer service each year.
Through fi nancial contributions from the Campbell Soup Foundation
employee engagement through annual workplace surveys. Each year
in the U.S. and the Arnott’s Foundation in Australia, we also help
our scores have improved. We continue to put in place new programs
local nonprofi t organizations transform their communities.
Carole Wehn
Vice President
Corporate Audit
Harry Perales
Senior Manager
Procurement
Leslie Tietjen
Program Manager
Research &
Development
Marlon Doles
Senior Manager
Human Resources
Our employee networks
play a critical role
in Campbell’s ability
to attract, develop,
and retain a diverse
workforce and to
understand
ever-changing
consumer markets.
CAMPBELL SOUP COMPANY | PAGE 9
We’re on the way to achieving sustainable growth for
years to come because we’re leveraging our legendary
Campbell brands in new ways. Above all, we’re utilizing
our creativity and innovation to focus on consumer
mega-trends that are accelerating opportunities in
markets worldwide — from the drive toward healthier
eating, to the need for a convenient meal in minutes,
to the demand for high-quality products with fresh
ingredients and exceptional fl avors.
We’re leading the way — and winning the hearts
and minds of consumers. We’re on the move, striving
to nourish people’s lives everywhere, every day.
On trend
Watching Your Sodium? So Are We. For fi scal 2007, we’ve introduced or reformulated many varieties of your
favorite Campbell’s soups to reduce sodium. Now, you can enjoy lower-sodium versions of Chicken Noodle, Tomato,
Cream of Mushroom, and other soups that do not sacrifi ce anything when it comes to taste. The sodium reduction is
achieved by incorporating a unique, all-natural sea salt and using sophisticated blending and fl avoring techniques. This
breakthrough technology is helping us offer consumers more choices without asking them to compromise on great taste.
On trend
The Goodness of Fruits and Vegetables in Every Bottle. Worried about you and your family getting all of your
recommended daily servings of vegetables and fruits? V8 V-Fusion juices make it easy. Made with 100 percent juice
and no added sugar, each delicious 8-ounce serving provides a full serving of both vegetables and fruits. Packed with
antioxidants and vitamins A, C and E, V8 V-Fusion juice is designed to appeal to health-conscious consumers who
want a quick and great-tasting way to get their daily requirements of vegetables and fruits.
On target
When Only the Best Will Do. Discerning diners know that Campbell’s Select Gold Label products have taken soup
innovation to a whole new level. To develop these restaurant-quality soups you can enjoy at home, we leveraged our
extensive knowledge of aseptic technology and packaging from France, Australia, and Canada. The innovative format
ensures that each of the fi ve fl avors — Golden Butternut Squash, Blended Red Pepper Black Bean, Italian Tomato with
Basil and Garlic, Creamy Portobello Mushroom, and new Southwestern Corn — holds its rich taste, nutrient value, color,
and aroma to the fullest. Bon appetit!
On target
Uncompromising Taste and Quality. Campbell has long been a trailblazer when it comes to introducing new and
convenient products for European consumers. Nearly 10 years ago, we were the fi rst company to launch aseptically
packaged soup in Belgium. Today, we’re continuing to leverage our expertise and creativity in Belgium to develop
varieties of Campbell’s DéliSoup products that are designed to appeal to consumers in search of new taste sensations.
They’re easy to prepare, delivering great fl avor and quality that’s as close to homemade as you can get.
On target
Going from 14K to 24K. New products, packaging, marketing, and merchandising — including a more contemporary
store design — continue to help reinvigorate the Godiva brand. In 2006, Godiva is celebrating 80 years of Belgian
chocolate-making with the rebirth of a true legend: the iconic Godiva Gold Collection signature product line. The new
Godiva Gold Collection offers luscious new chocolates alongside reformulated classics, all designed to give you more of
what you’ve always loved about Godiva. Like many Godiva products, it’s not only the perfect gift for many occasions, but
also the perfect indulgence for those who don’t want to wait for a special reason to treat themselves.
On demand
Making Shopping Even Simpler. Sixteen thousand and counting. That’s how many iQ Maximizer gravity-feed shelf
systems have been installed in U.S. stores to date. In fi scal 2006, this breakthrough in soup merchandising also began
rolling out in Canada and Latin America. The newest generation of the shelving system makes it easier for retailers to
stock products such as Campbell’s Soup at Hand soups in portable microwavable cups and Campbell’s Chunky and
Select soups in microwavable bowls. It also uses color coding to cluster soups into categories such as wellness, cooking,
and kids, making it easier for consumers to fi nd their current and soon-to-be favorites.
On demand
The Best Things Can Come in Small Packages. All of the fun and great taste of Pepperidge Farm Goldfi sh snack
crackers now can be found in 100-calorie-per-serving pouches. These portion-control packs are available in four varieties:
Cheddar, Flavor Blasted Xtra Cheddar, Cinnamon Graham, and Chocolate Graham. They’re easy to toss in a lunchbox,
backpack or briefcase. They’re the perfect solution for moms seeking better snacks for their kids, dieters looking for help
with portion control, and other consumers who are just looking for a convenient, on-the-go treat.
CAMPBELL SOUP COMPANY | PAGE 24
Reconciliation of GAAP and Non-GAAP Financial Measures
The following information is provided to reconcile certain non-GAAP
Consequently, the company believes that investors may be able to
fi nancial measures disclosed in the Letter to Shareowners, page 2,
better understand its earnings results if these transactions are
to reported results. The company believes that fi nancial information
excluded from the results. These non-GAAP fi nancial measures
excluding certain changes in accounting methods, certain tax matters
are measures of performance not defi ned by accounting principles
and other transactions not considered to be part of the ongoing
generally accepted in the United States and should be considered in
business improves the comparability of year-to-year results.
addition to, not in lieu of, GAAP reported measures.
(dollars in millions, except per share amounts)
2006
2005
Earnings
Impact
Diluted
Earnings
Impact
Earnings
Impact
Diluted
Earnings
Impact
Earnings
% Change
EPS %
Change
Earnings from continuing operations, as reported
$ 755
$ 1.82
$ 644
$ 1.56
17%
17%
Pro forma impact of expensing all stock-based
compensation under SFAS No. 123R1
Impact of change in inventory accounting method2
Favorable resolution of a U.S. tax contingency 3
Tax expense on repatriation of earnings
under the American Jobs Creation Act 4
Tax benefi t related to the use of foreign tax credits5
Adjusted Earnings from continuing operations
Earnings from discontinued operations, as reported
Pro forma impact of expensing all stock-based
—
(8)
(60)
13
(14)
$ 686
$ 11
—
(0.02)
(0.14)
0.03
(0.03)
$ 1.66
$ 0.03
(28)
—
—
—
—
$ 616
$ 63
(0.07)
—
—
—
—
$ 1.49
$ 0.15
11%
11%
compensation under SFAS No. 123R1
—
—
(1)
—
Impact of adjustments to deferred tax expense
due to the sale of the United Kingdom and
Irish businesses and after-tax costs associated
with the sale6
Adjusted Earnings from discontinued operations
Net earnings, as reported
Impact of adjustments
Adjusted Net earnings
61
$ 72
$ 766
(8)
0.15
—
—
$ 0.17
$ 62
$ 0.15
$ 1.85
(0.02)
$ 707
(29)
$ 1.71
(0.07)
16%
8%
13%
8%
$ 758
$ 1.83
$ 678
$ 1.64
12%
12%
The sum of the individual per share amounts does not equal earnings per share due to rounding.
1 In 2006, the company adopted SFAS No. 123R which requires that all stock-based compensation be expensed based on the fair value of the awards. In 2005, the company did not
recognize compensation expense for stock options under previous accounting guidelines. This adjustment refl ects the pro forma impact had all stock-based awards been expensed.
2 In 2006, the company changed the method of determining the cost of certain U.S. inventories from the LIFO method to the average cost method. As a result, the company recorded an $8
after-tax benefi t from the change in accounting method.
3 In 2006, the company recorded a non-cash tax benefi t of $60 resulting from the favorable resolution of a U.S. tax contingency related to a prior period.
4 In 2006, the company recorded incremental tax expense of $13 associated with the repatriation of non-U.S. earnings under the American Jobs Creation Act.
5 In the fourth quarter of 2006, the company recorded a non-cash tax benefi t of $14 from the anticipated use of higher levels of foreign tax credits, which can be utilized as a result of the sale
of the company’s United Kingdom and Irish businesses.
6 On August 15, 2006, the company completed the sale of its businesses in the United Kingdom and Ireland pursuant to a Sale and Purchase Agreement dated July 12, 2006. The results
of these businesses are refl ected as discontinued operations. The 2006 results of discontinued operations included $56 of deferred tax expense due to book/tax basis differences and $5 of
after-tax costs associated with the sale of the businesses.
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 30, 2006
Commission File Number
1-3822
CAMPBELL SOUP COMPANY
New Jersey
State of Incorporation
21-0419870
I.R.S. Employer Identifi cation 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ✓ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No ✓
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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ✓
Accelerated filer
Non-accelerated filer
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 27, 2006 (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 $7,208,804,190. There were 403,417,924 shares of capital stock
outstanding as of September 19, 2006.
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareowners to be held on November 16, 2006, are incorporated by
reference into Part III.
Campbell Soup Company
Form 10-K
Table of Contents
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item X.
Part II
Item 5.
Item 6.
Item 7.
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
4
4
5
6
6
7
8
9
21
22
44
44
44
44
45
45
46
46
47
49
PAGE 1
Part I
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.
Throughout fiscal 2006, the company continued its focus on
the five previously announced strategies designed to improve
the company’s sales growth and the quality and growth of its
earnings. The five strategies include:
(cid:129) Expanding the company’s well-known brands within the simple
meal and baked snack categories;
(cid:129) Trading consumers up to higher levels of satisfaction centering
on convenience, wellness and quality;
(cid:129) Making the company’s products more broadly available in
existing and new markets;
(cid:129) Increasing margins by improving price realization and company-
wide productivity; and
(cid:129) Improving overall organizational diversity, engagement, excel-
lence and agility.
Consistent with these strategies, on July 12, 2006, the company
announced the sale of its United Kingdom and Irish businesses to
Premier Foods plc. The sale, which was completed on August 15,
2006, better enables Campbell to focus on building its businesses
within the simple meals and baked snacks categories in markets
with the greatest potential for growth.
The company’s 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
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 juice and juice
drinks; 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 businesses
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, Devos Lemmens mayonnaise and cold sauces and
Campbell’s and Royco soups in Belgium, and Blå Band soups
and sauces in Sweden. In Asia Pacific, operations include
Campbell’s soup and stock, Swanson broths and V8 beverages.
In Canada, operations include Habitant and Campbell’s soups,
Prego pasta sauce and V8 beverages. As previously discussed, on
August 15, 2006, the company completed the sale of its United
Kingdom and Irish businesses, which included Homepride sauces,
OXO stock cubes, and Batchelors, McDonnells and Erin soups.
The results of these divested businesses have been reflected as
discontinued operations in the consolidated statements of earnings.
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, wheat and dairy. Ingredient inventories are
at a peak during the late fall and decline during the winter and
spring. Since many ingredients of suitable quality are available in
sufficient quantities only at certain seasons, the company makes
commitments for the purchase of such ingredients during their
respective seasons. At this time, the company does not anticipate
any material restrictions on availability or shortages of ingredients
that would have a significant impact on the company’s busi-
nesses. For 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 20 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 generally resold to
consumers in retail food chains, mass discounters, mass merchan-
disers, club stores, convenience stores, drug stores and other retail
establishments. In Europe, the company’s products are generally
PAGE 2
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 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 establishments. 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 primarily in Europe, third-party distributors in
Europe and Asia, and major retailers, including 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 shipments 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 2006 and 2005. 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 As of October 1, 2006, the company
owns over 7,100 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 registrations 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, 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 manufacturers 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 principal 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 2006, the company’s aggregate
capital expenditures were $309 million. The company expects to
spend approximately $325 to $350 million for capital projects in
fiscal 2007. The single largest planned fiscal 2007 capital project
is the ongoing implementation of the SAP enterprise-resource
planning system in North America.
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 for continuing operations were $99 million in 2006,
$90 million in 2005 and $88 million in 2004. The increase from
2005 to 2006 was primarily due to higher stock-based compen-
sation expense recognized under SFAS No. 123R and expenses
related to new product development. The increase from 2004 to
2005 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
$309 million in capital expenditures made during fiscal 2006,
approximately $8 million was for compliance with environmental
laws and regulations in the United States. The company further
estimates that approximately $9 million of the capital expendi-
tures anticipated during fiscal 2007 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.
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 U.S. 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 Council of Better Business Bureaus.
PAGE 3
Employees On July 30, 2006, there were approximately 24,000
full-time employees of the company. Following the sale of the
company’s United Kingdom and Irish businesses on August 15,
2006, the company had approximately 23,000 full-time employees.
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 5
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 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the
following risks and uncertainties could materially adversely affect
the company’s business, financial condition and results of opera-
tions. Additional risks and uncertainties not presently known to the
company or that the company currently deems immaterial also may
impair the company’s business operations and financial condition.
The company operates in a highly competitive industry The
company operates in the highly competitive food industry and
experiences worldwide competition in all of its principal products.
A number of the company’s primary competitors have substantial
financial, marketing and other resources. A strong competitive
response from one or more of these competitors to the company’s
marketplace efforts could result in the company reducing pricing,
increasing capital, marketing or other expenditures, or losing
market share. These changes may have a material adverse effect
on the business and financial results of the company.
The company’s long-term results are dependent on successful
marketplace initiatives The company’s long-term results are depen-
dent on successful marketplace initiatives. The company’s product
introductions and product improvements, along with its other
marketplace initiatives, are designed to capitalize on new customer
or consumer trends. In order to remain successful, the company
must anticipate and react to these new trends and develop new
products or processes to address them. While the company devotes
significant resources to meeting this goal, the company may not be
successful in developing new products or processes, or its new
products or processes may not be accepted by customers or
consumers. These results could have a material adverse effect on
the business and financial results of the company.
The company may not properly execute, or realize anticipated
cost savings or benefits from, its ongoing supply chain, infor-
mation technology or other initiatives The company’s success
is partly dependent upon properly executing, and realizing cost
savings or other benefits from, its ongoing supply chain, infor-
mation technology and other initiatives. These initiatives are
primarily designed to make the company more efficient in the
manufacture and distribution of its products, which is necessary
in the company’s highly competitive industry. These initiatives
are often complex, and a failure to implement them properly may,
in addition to not meeting projected cost savings or benefits,
result in an interruption to the company’s sales, manufacturing,
logistics, customer service or accounting functions. Furthermore,
the company has invested a significant amount of capital into
a number of these initiatives, which may have been more effi-
ciently used if the full cost savings or benefits are not realized.
Finally, the company may not meet expected cost savings from
publicly-announced restructuring programs. Any of these results
could have a material adverse effect on the business and financial
results of the company.
The company may be adversely impacted by the increased
significance of some of its customers The loss of any of the
company’s large customers, such as Wal-Mart Stores, Inc., for
an extended period of time could adversely affect the company’s
business or financial results. In addition, the retail grocery trade
continues to consolidate and mass market retailers continue to
become larger. In such an environment, a large retail customer
may attempt to increase its profitability by improving efficiency,
lowering its costs or increasing promotional programs. If the
company is unable to use its scale, marketing expertise, product
innovation and category leadership positions to respond to these
customer demands, the company’s business or financial results
could be negatively impacted.
The company’s long-term results may be adversely impacted by
increases in the price of raw materials The raw materials used
in the company’s business include tomato paste, beef, poultry,
vegetables, metal containers, glass, paper, resin and energy.
Many of these materials are subject to price fluctuations from a
number of factors, including product scarcity, commodity market
speculation, currency fluctuations, weather conditions, import
and export requirements and changes in government-sponsored
agricultural programs. To the extent any of these factors result
in an unforeseen increase in raw material prices, the company
may not be able to offset such increases through productivity or
price increases. In such case, the company’s business or financial
results could be negatively impacted.
The company may be adversely impacted by the failure to success-
fully identify and execute acquisitions and divestitures From time
to time, the company undertakes acquisitions or divestitures. The
success of any such acquisition or divestiture depends, in part,
upon the company’s ability to identify suitable buyers or sellers,
PAGE 4
negotiate favorable contractual terms and, in many cases, obtain
governmental approval. For acquisitions, success is also dependent
upon efficiently integrating the acquired business into the company’s
existing operations. In cases where acquisitions or divestitures are
not successfully implemented or completed, the company’s business
or financial results could be negatively impacted.
The company’s long-term results may be impacted negatively
by political and/or economic conditions in the United States or
other nations The company is a global manufacturer and marketer
of high-quality, branded convenience food products. Because of
its global reach, the company’s performance may be impacted
negatively by political and/or economic conditions in the United
States as well as other nations. A change in any one or more of
the following factors in the United States, or in other nations,
could impact the company: currency exchange rates, tax rates,
interest rates, legal or regulatory requirements, tariffs, export
and import restrictions or equity markets. The company may
also be impacted by recession, political instability, civil disobedi-
ence, armed hostilities, natural disasters and terrorist acts in the
United States or throughout the world. Any one of the foregoing
could have a material adverse effect on the business and financial
results of the company.
Item 2. Properties
If the company’s food products become adulterated or are misla-
beled, the company might need to recall those items and may
experience product liability claims if consumers are injured The
company may need to recall some of its products if they become
adulterated or if they are mislabeled. The company may also be
liable if the consumption of any of its products causes injury. A
widespread product recall could result in significant losses due
to the costs of a recall, the destruction of product inventory and
lost sales due to the unavailability of product for a period of time.
The company could also suffer losses from a significant product
liability judgment against it. A significant product recall or product
liability case could also result in adverse publicity, damage to the
company’s reputation and a loss of consumer confidence in the
company’s food products, which could have a material adverse
effect on the business and financial results of the company.
Item 1B. Unresolved Staff Comments
None.
The company’s principal executive offices and main research facilities are company-owned and located in Camden, New Jersey. The following
table sets forth the company’s principal manufacturing facilities and the business segment that primarily uses each of the facilities:
Principal Manufacturing Facilities
Inside the U.S.
California
(cid:129) Dixon (SSB)
(cid:129) Sacramento (SSB/OT)
(cid:129) Stockton (SSB)
Connecticut
(cid:129) Bloomfield (BS)
Florida
(cid:129) Lakeland (BS)
Illinois
(cid:129) Downers Grove (BS)
Michigan
(cid:129) Marshall (SSB)
New Jersey
(cid:129) South Plainfield (SSB)
North Carolina
(cid:129) Maxton (SSB/OT)
SSB – U.S. Soup, Sauces and Beverages
BS – Baking and Snacking
ISS – International Soup and Sauces
OT – Other
Ohio
(cid:129) Napoleon (SSB/OT)
(cid:129) Wauseon (SSB/ISS)
(cid:129) Willard (BS)
Pennsylvania
(cid:129) Denver (BS)
(cid:129) Downingtown (BS)
(cid:129) Reading (OT)
South Carolina
(cid:129) Aiken (BS)
Texas
(cid:129) Paris (SSB/OT)
Utah
(cid:129) Richmond (BS)
Washington
(cid:129) Woodinville (OT)
Wisconsin
(cid:129) Milwaukee (SSB)
Outside the U.S.
Australia
(cid:129) Huntingwood (BS)
(cid:129) Marleston (BS)
(cid:129) Shepparton (ISS)
(cid:129) Virginia (BS)
(cid:129) Miranda (BS)
(cid:129) Smithfield (BS)
(cid:129) Scoresby (BS)
Belgium
(cid:129) Puurs (ISS)
(cid:129) Brussels (OT)
Canada
(cid:129) Listowel (ISS/OT)
(cid:129) Toronto (ISS/OT)
France
(cid:129) LePontet (ISS)
(cid:129) Dunkirk (ISS)
Germany
(cid:129) Luebeck (ISS)
(cid:129) Gerwisch (ISS)
Indonesia
(cid:129) Jawa Barat (BS)
Malaysia
(cid:129) Selangor Darul Ehsan (ISS)
Mexico
(cid:129) Villagran (ISS)
(cid:129) Guasave (SSB)
Netherlands
(cid:129) Utrecht (ISS)
Papua New Guinea
(cid:129) Port Moresby (BS)
(cid:129) Malahang Lae (BS)
Sweden
(cid:129) Kristianstadt (ISS)
PAGE 5
Each of the foregoing manufacturing facilities is company-owned,
except that the Woodinville, Washington facility, the Scoresby,
Australia facility, and the Selangor Darul Ehsan, Malaysia, 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,
New York, New York, and Homebush, Australia. The company
is constructing a new facility in Everett, Washington, to replace
the existing Woodinville, Washington, facility. This new facility
will manufacture refrigerated soups and sauces. On August 15,
2006, as part of the divestiture of the United Kingdom and Irish
businesses, the following facilities were sold: Ashford, King’s Lynn
and Worksop in the United Kingdom and Thurles in Ireland.
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 affiliates (collectively,
“Vlasic”) commenced cases under Chapter 11 of the Bankruptcy
Code on January 29, 2001 in the United States Bankruptcy Court for
the District of Delaware. Vlasic’s Second Amended Joint Plan of
Distribution under Chapter 11 (the “Plan”) was confirmed by an
order of the Bankruptcy Court dated November 16, 2001, and
became effective on or about November 29, 2001. The Plan provides
for the assignment of various causes of action allegedly belonging to
the Vlasic estates, including claims against the company allegedly
arising from the spinoff, to VFB L.L.C., a limited liability company
(“VFB”) whose membership interests are to be distributed under the
Plan to Vlasic’s general unsecured creditors.
On February 19, 2002, VFB commenced a lawsuit against the
company and several of its subsidiaries in the United States
District Court for the District of Delaware alleging, among other
things, fraudulent conveyance, illegal dividends and breaches
of fiduciary duty by Vlasic directors alleged to be under the
company’s control. The lawsuit seeks to hold the company liable
in an amount necessary to satisfy all unpaid claims against Vlasic
(which VFB estimates in the amended complaint to be $200
million), plus unspecified exemplary and punitive damages.
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. On November 1,
2005, VFB appealed the decision to the United States Court of
Appeals for the Third Circuit.
The company continues to believe this action is without merit
and is defending the case vigorously. In addition, although the
results of this matter cannot be predicted with certainty, in
management’s opinion, the final outcome of this proceeding will
not have a material adverse effect on the consolidated results of
operations or financial condition of the company.
PAGE 6
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, 2006, 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
55
47
58
55
50
52
54
47
56
51
49
Year First Appointed
Executive Officer
2001
2004
2001
1998
2001
2003
2004
2002
2001
2004
2001
Denise M. Morrison served as Executive Vice President and
General Manager, Kraft Snacks division (2001 – 2003) of
Kraft Foods, Inc., and Executive Vice President and General
Manager, Kraft Confection division (2001) of Kraft Foods, Inc.
prior to joining Campbell in 2003. Nancy A. Reardon served as
Executive Vice President of Human Resources, Comcast Cable
Communications (2002 – 2004) and Executive Vice President
– Human Resources/Corporate Affairs (1997 – 2002) of Borden
Capital Management Partners prior to joining Campbell in 2004.
Mark A. Sarvary served as Chief Executive Officer, J. Crew Group
(1999 – 2002) prior to joining Campbell in 2002. 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. The company has employed
Douglas R. Conant, Anthony P. DiSilvestro, M. Carl Johnson, III,
Ellen Oran Kaden, Larry S. McWilliams, Robert A. Schiffner and
Doreen A. Wright in an executive or managerial capacity for at
least five years.
There is no family relationship among any of the company’s
executive officers or between any such officer and any director
of Campbell. All of the executive officers were elected at the
November 2005 meeting of the Board of Directors.
Part II
PAGE 7
Item 5. Market for Registrant’s Capital Stock,
Related Shareowner Matters and Issuer
Purchases of Equity Securities
Market for Registrant’s Capital Stock
The company’s capital stock is listed and principally traded on
the New York Stock Exchange. The company’s capital stock
is also listed on the SWX Swiss Exchange. On September 19,
2006, there were 29,889 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 24 to the
Consolidated Financial Statements. In September 2006, the
company increased the quarterly dividend to be paid in the first
quarter of fiscal 2007 to $0.20 per share. Future dividends will
be dependent upon future earnings, financial requirements and
other factors.
Issuer Purchases of Equity Securities
Period
5/1/06 – 5/31/06
6/1/06 – 6/30/06
7/1/06 – 7/30/06
Total
Total
Number of
Shares
Purchased1
1,142,6984
4,180,0005
3,627,2546
8,949,952
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs3
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
($ in millions)3
408,120
1,496,440
1,016,140
2,920,700
$ 492
$ 438
$ 400
$ 400
Average
Price Paid
Per Share2
$ 34.644
$ 35.905
$ 36.926
$ 36.15
1 Includes (i) 6,009,300 shares repurchased in open-market transactions to offset the dilutive impact to existing shareowners of issuances under the company’s stock
compensation plans, and (ii) 19,952 shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted shares. Unless
otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the company’s shares on
the date of vesting.
2 Average price paid per share is calculated on a settlement basis and excludes commission.
3 On November 21, 2005, the company announced that its Board of Directors authorized the purchase of up to $600 million of company capital stock on the open
market or through privately negotiated transactions through the end of fiscal 2008. As previously disclosed on August 15, 2006, subsequent to the end of the fourth
quarter of fiscal 2006, the company announced that its Board of Directors authorized the purchase of an additional $620 million of company capital stock, which is
expected to be completed in fiscal 2007. This new authorization is in addition to the November 21, 2005 plan described above. Pursuant to this new authorization,
the company entered into accelerated repurchase agreements on September 28, 2006, with a financial institution to repurchase approximately $600 million of stock.
4 Includes (i) 731,880 shares repurchased in open-market transactions at an average price of $34.64 to offset the dilutive impact to existing shareowners of issuances
under the company’s stock compensation plans, and (ii) 2,698 shares owned and tendered by employees at an average price per share of $32.16 to satisfy tax
withholding requirements on the vesting of restricted shares.
5 Includes 2,683,560 shares repurchased in open-market transactions at an average price of $35.90 to offset the dilutive impact to existing shareowners of issuances
under the company’s stock compensation plans.
6 Includes (i) 2,593,860 shares repurchased in open-market transactions at an average price of $36.87 to offset the dilutive impact to existing shareowners of
issuances under the company’s stock compensation plans, and (ii) 17,254 shares owned and tendered by employees at an average price per share of $37.61 to
satisfy tax withholding requirements on the vesting of restricted shares.
PAGE 8
20061
2005
20042
20033
20024
$ 7,343
1,151
1,001
755
11
—
766
$ 1,954
7,870
3,213
1,768
$ 1.86
1.82
1.88
1.85
952
644
63
—
707
$ 1,987
6,776
2,993
1,270
$ 1.57
1.56
1.73
1.71
0.72
0.68
$ 7,072
1,132
$ 6,660
1,038
$ 6,271
1,030
870
582
65
—
647
849
568
58
(31)
595
$ 5,771
923
737
477
48
—
525
$ 1,901
6,662
3,353
874
$ 1,843
6,205
3,528
387
$ 1,684
5,721
3,645
(114)
$ 1.42
$ 1.38
$ 1.16
1.41
1.58
1.57
0.63
1.38
1.45
1.45
0.63
1.16
1.28
1.28
0.63
$ 309
$ 332
$ 288
$ 283
$ 269
407
414
409
413
409
412
411
411
410
411
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 from continuing operations
Earnings from discontinued operations
Cumulative effect of accounting change
Net earnings
Financial Position
Plant assets – net
Total assets
Total debt
Shareowners’ equity (deficit)
Per Share Data
Earnings from continuing operations – basic
Earnings from continuing operations – assuming dilution
Net earnings – basic
Net earnings – assuming dilution
Dividends declared
Other Statistics
Capital expenditures
Weighted average shares outstanding
Weighted average shares outstanding – assuming dilution
(All per share amounts below are on a diluted basis.)
In 2006, the company entered into an agreement to sell its United Kingdom and Irish businesses. The sale was completed in August 2006. The results of operations of
the businesses have been reflected as discontinued operations for all periods presented.
As of August 1, 2005, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS No. 123R). Under
SFAS No. 123R, compensation expense is to be recognized for all stock-based awards, including stock options. Had all stock-based compensation been expensed in
2005, Earnings from continuing operations would have been $616 and earnings per share would have been $1.49. Net earnings would have been $678 and earnings
per share would have been $1.64. The pro forma reduction on earnings from continuing operations in prior years would have been as follows: 2004 – $28 or $.07 per
share; 2003 – $24 or $.06 per share; 2002 – $15 or $.04 per share.
In 2003, the company adopted SFAS No. 142 resulting in the elimination of amortization of goodwill and other indefinite-lived intangible assets. The 2002 results have
not been restated.
1 The 2006 earnings from continuing operations were impacted by the following: a $60 ($.14 per share) benefit from the favorable resolution of a U.S. tax contingency;
an $8 ($.02 per share) benefit from a change in inventory accounting method; incremental tax expense of $13 ($.03 per share) associated with the repatriation of
non-U.S. earnings under the American Jobs Creation Act; and a $14 ($.03 per share) tax benefit related to higher levels of foreign tax credits, which can be utilized
as a result of the sale of the businesses in the United Kingdom and Ireland. The 2006 results of discontinued operations included $56 of deferred tax expense due to
book/tax basis differences and $5 of after-tax costs associated with the sale of the businesses (aggregate impact of $.15 per share).
2 2004 results from continuing operations included a pre-tax restructuring charge of $26 ($18 after tax or $.04 per share) related to a reduction in workforce and
the implementation of a distribution and logistics realignment in Australia. Results from discontinued operations included an after-tax effect of $4 ($.01 per share)
associated with a reduction in workforce.
3 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.
4 2002 results included pre-tax costs of $20 ($14 after tax or $.03 per share) related to an Australian manufacturing reconfiguration.
Five-Year Review should be read in conjunction with the Notes to Consolidated Financial Statements.
PAGE 9
Item 7. Management’s Discussion and
Analysis of Results of Operations and
Financial Condition
Overview
Campbell Soup Company is a global manufacturer and marketer
of high-quality, branded convenience food products. The company
is organized and reports operating results as follows: U.S. Soup,
Sauces and Beverages, Baking and Snacking and International
Soup and Sauces, with the balance of the portfolio, which
includes Godiva Chocolatier worldwide and the Away From Home
operations, reported as Other. See also Note 5 to the Consolidated
Financial Statements for additional information on segments.
On August 15, 2006, the company completed the sale of its
businesses in the United Kingdom and Ireland for £460 million,
or approximately $870 million, pursuant to a Sale and Purchase
Agreement dated July 12, 2006. The United Kingdom and
Irish businesses include Homepride sauces, OXO stock cubes,
Batchelors soups and McDonnells and Erin soups. The purchase
price is subject to certain post-closing adjustments. The company
has reflected the results of these businesses as discontinued
operations in the consolidated statements of earnings for all years
presented. The assets and liabilities of these businesses were
reflected as assets and liabilities of discontinued operations held
for sale in the consolidated balance sheet as of July 30, 2006. The
company will use approximately $620 million of the net proceeds
to purchase company stock. These purchases are expected to
be completed in 2007. See Note 2 to the Consolidated Financial
Statements for additional information.
Results of Operations
2006 Net earnings were $766 million ($1.85 per share) in 2006
compared to $707 million ($1.71 per share) in 2005. Earnings
from continuing operations were $755 million ($1.82 per share) in
2006 and $644 million ($1.56 per share) in 2005. (All earnings
per share amounts included in Management’s Discussion and
Analysis are presented on a diluted basis.)
There were several items that impacted the comparability
of earnings:
(cid:129) As of August 1, 2005, the company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004) “Share-
Based Payment” (SFAS No. 123R). Under SFAS No. 123R,
compensation expense is to be recognized for all stock-based
awards, including stock options. Had all stock-based compensa-
tion been expensed in 2005, Earnings from continuing operations
would have been $616 million and earnings per share would
have been $1.49. Net earnings would have been $678 million
and earnings per share would have been $1.64 (See Notes 1 and
21 to the Consolidated Financial Statements);
(cid:129) In the first quarter of 2006, the company recorded a non-cash
tax benefit of $47 million resulting from the favorable resolution
of a U.S. tax contingency related to transactions in government
securities in a prior period. In addition, the company reduced
interest expense and accrued interest payable by $21 million
and adjusted deferred tax expense by $8 million ($13 million
after tax). The aggregate non-cash impact of the settlement on
Earnings from continuing operations was $60 million, or $.14 per
share. (See Note 11 to the Consolidated Financial Statements);
(cid:129) In the first quarter of 2006, a $13 million pre-tax gain was
recognized due to a change in the method of accounting for
certain U.S. inventories from the LIFO method to the average
cost method. The impact on Earnings from continuing opera-
tions was $8 million, or $.02 per share. Prior periods were not
restated since the impact of the change on previously issued
financial statements was not considered material. (See Note 13
to the Consolidated Financial Statements);
(cid:129) In 2006, incremental tax expense of $13 million, or $.03 per
share, was recognized associated with incremental dividends
of $294 million as the company finalized its plan to repatriate
earnings from non-U.S. subsidiaries under the provisions of the
American Jobs Creation Act (the AJCA);
(cid:129) In the fourth quarter of 2006, the company recorded a non-
cash tax benefit of $14 million, or $.03 per share, from the
anticipated use of higher levels of foreign tax credits, which
can be utilized as a result of the sale of the company’s United
Kingdom and Irish businesses in August 2006; and
(cid:129) The 2006 results of discontinued operations included $56 mil-
lion of deferred tax expense due to book/tax basis differences
and $7 million pre-tax costs ($5 million after tax) associated
with the sale of the businesses. The aggregate impact of these
items was $.15 per share.
PAGE 10
The items impacting comparability are summarized below:
(millions, except per share amounts)
Impact EPS Impact
Impact EPS Impact
2006
2005
Earnings
Earnings
$ 755
$ 1.82
$ 644 $ 1.56
$ 766
$ 1.85
$ 707 $ 1.71
$ —
$ —
$ (28) $ (0.07)
Had all stock-based compensation been expensed, Net earnings
would have been $678 million and earnings per share would
have been $1.64 in 2005; Net earnings would have been $618
million and earnings per share would have been $1.50 in 2004.
Earnings from continuing operations would have been $616
million ($1.49 per share) in 2005 and $554 million ($1.34 per
share) in 2004.
(8)
(0.02)
—
—
An analysis of net sales by reportable segment follows:
Sales
(60)
(0.14)
—
—
of earnings under the AJCA
13
0.03
—
—
Tax benefit related to the
use of foreign tax credits
(14)
(0.03)
—
—
Impact of significant items
on continuing operations1
$ (69) $ (0.17)
$ (28) $ (0.07)
(millions)
2006
2005
2004
U.S. Soup, Sauces and
Beverages
$ 3,257 $ 3,098 $ 2,998
Baking and Snacking
1,747
1,742
1,613
International Soup
and Sauces
Other
1,255
1,227
1,146
1,084
1,005
903
$ 7,343 $ 7,072 $ 6,660
% Change
2006/
2005
2005/
2004
5
—
2
8
4
3
8
7
11
6
Earnings from continuing
operations
Net earnings
Pro forma impact of
SFAS No. 123R
Impact of change
in inventory
accounting method
Favorable resolution of a
U.S. tax contingency
Tax expense on repatriation
Deferred taxes and after-
tax costs associated with the
sale of discontinued operations
Pro forma impact of
SFAS No. 123R
Impact of significant items
on net earnings
61
0.15
—
—
—
—
(1)
—
An analysis of percent change of net sales by reportable segment
follows:
$
(8) $ (0.02)
$ (29) $ (0.07)
2006/2005
U.S. Soup,
Sauces and
Beverages
Baking International
Soup and
and
Snacking
Sauces
Other
Total
1 The sum of the individual per share amounts does not equal due to rounding.
The remaining improvement in 2006 earnings from 2005 was
due to an increase in sales, an improvement in gross margin as a
percentage of sales, a lower effective tax rate, and higher interest
income, partially offset by higher administrative and marketing
and selling costs.
2005 Earnings from continuing operations were $644 million
($1.56 per share) in 2005 compared to $582 million ($1.41 per
share) in 2004. Earnings from continuing operations 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:
(cid:129) A pre-tax restructuring charge of $26 million ($18 million after
tax or $.04 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 6 to the Consolidated Financial Statements);
(cid:129) 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
(cid:129) 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).
Volume and Mix
(1)%
—%
Price and Sales Allowances
6
Increased
Promotional Spending1
Currency
—
—
3
(2)
(1)
3%
—
—
(1)
6%
3
(1)
—
1%
3
—
—
5%
—%
2%
8%
4%
2005/2004
U.S. Soup,
Sauces and
Beverages
Baking International
Soup and
and
Snacking
Sauces
Other
Total
Volume and Mix
2%
Price and Sales Allowances
1
Increased
Promotional Spending1
Currency
—
—
4%
3
(1)
2
2%
1
(2)
6
7%
3
—
1
3%
2
(1)
2
3%
8%
7%
11%
6%
1 Represents revenue reductions from trade promotion and consumer coupon redemption
programs.
In 2006, U.S. Soup, Sauces and Beverages sales increased
5%. U.S. soup sales increased 4% as condensed soup sales
increased 5%, ready-to-serve soup sales increased 1% and broth
sales increased 11%. The U.S. Soup sales growth was primarily
driven by higher prices across the portfolio. Condensed soup
PAGE 11
also benefited from the additional installation of gravity-feed
shelving systems and increased advertising. The ready-to-serve
sales performance was positively impacted by the introductions
of Campbell’s Select Gold Label soups in aseptic packaging and
Campbell’s Chicken Noodle, Tomato and Vegetable soups in
microwavable bowls, which were partially offset by the discon-
tinuance of Campbell’s Kitchen Classics soups and a decline
in Campbell’s Chunky soups. The introduction of Campbell’s
Chicken Noodle, Tomato and Vegetable soups in microwavable
bowls, combined with sales gains from Campbell’s Chunky and
Campbell’s Select soups in microwavable bowls and Campbell’s
Soup at Hand sippable soups, drove significant growth in the
convenience platform. Swanson broth sales growth was primarily
due to volume gains of aseptically-packaged products and
successful holiday merchandising. In other parts of the business,
Prego pasta sauces and Pace Mexican sauces delivered solid
sales growth. Beverage sales increased double digits driven by
V8 vegetable juices, which had strong volume growth. The intro-
duction of V8 V-Fusion juice beverages also contributed to sales
growth, while sales of V8 Splash juice beverages declined.
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 competi-
tive activity. Sales of microwavable soups were flat for the year,
as double-digit growth of Campbell’s Chunky and Campbell’s
Select soups in microwavable 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 2006, Baking and Snacking sales were flat versus 2005 as
growth at Pepperidge Farm was offset by declines in the Arnott’s
business. Pepperidge Farm reported sales increases in its bakery
and cookies and crackers businesses. Sales of bakery products
increased due to the strong performance of Pepperidge Farm
whole grain breads. Sales gains in cookies and crackers were
primarily due to double-digit growth of Pepperidge Farm Goldfish
snack crackers. Arnott’s sales declined, primarily due to a decline
in the Australian snack foods business and the unfavorable impact
of currency.
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 snack 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.
International Soup and Sauces sales increased 2% in 2006 versus
2005. In Canada, sales increased due to the favorable impact of
currency and a strong performance in ready-to-serve soup, which
grew double digits, aided by the introduction of Campbell’s Soup
at Hand sippable soups. Sales from the Australian soup business
increased double digits, primarily due to the performance of
ready-to-serve soup and broth. In Europe, sales declined primarily
due to currency. Excluding the impact of currency, sales grew
slightly driven by the business in Belgium and higher sales of V8
vegetable juice.
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.
In Other, sales increased 8% in 2006 versus 2005. Godiva
Chocolatier sales increased primarily due to same-store sales
growth in all regions, new product introductions in the U.S., an
PAGE 12
points), and an increase in costs associated with the ongoing
implementation of the SAP enterprise-resource planning system in
North America (approximately 2 percentage points). Administrative
expenses increased by 5% in 2005 from 2004. Currency accounted
for approximately 1 percentage point of the increase and costs
associated with the implementation of the SAP enterprise-resource
planning system in North America and higher general administrative
expenses each accounted for 2 percentage points of the increase.
Administrative expenses would have been $25 million higher
in 2005 and $26 million higher in 2004 had all stock-based
compensation been expensed.
Research and Development Expenses Research and develop-
ment expenses increased $9 million or 10% in 2006 from 2005
primarily due to higher stock-based compensation recognized
under SFAS No. 123R and expenses related to new product
development. Research and development expenses increased
$2 million or 2% in 2005 from 2004 primarily due to currency.
Research and development expenses would have been $4 million
higher in 2005 and 2004 had all stock-based compensation
been expensed.
Other Expenses / (Income) Other expense of $5 million in 2006
included the cost of acquiring the rights to the Pepperidge Farm
Goldfish trademark in certain non-U.S. countries and a write-
down of a trademark used in the Australian snack foods market.
Other income in 2005 of $5 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.
Operating Earnings Segment operating earnings increased 5% in
2006 from 2005. Segment operating earnings increased 6% in
2005 from 2004. Operating earnings would have been $45 mil-
lion lower in 2005 and 2004 had all stock-based compensation
been expensed.
increase in duty-free sales in Europe and new stores in Asia.
Away From Home sales increased primarily due to sales growth
in soup, including refrigerated soups, and beverages.
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.
Gross Profit Gross profit, defined as Net sales less Cost of
products sold, increased by $178 million in 2006. As a percent
of sales, gross profit was 41.9% in 2006, 41.0% in 2005 and
41.4% in 2004. The percentage point increase in 2006 was due
to higher selling prices (approximately 2.0 percentage points),
productivity improvements (approximately 1.8 percentage points),
and a change in the method of accounting for inventory (approxi-
mately 0.2 percentage points), partially offset by a higher level
of promotional spending (approximately 0.1 percentage points),
mix (approximately 0.2 percentage points) and inflation and other
factors (approximately 2.8 percentage points). The percentage
point decrease in 2005 was due to the impact of inflation and other
factors (approximately 3.1 percentage points) and a higher level
of promotional spending (approximately 0.3 percentage points),
partially offset by mix (approximately 0.2 percentage points),
productivity improvements (approximately 1.9 percentage points)
and higher selling prices (approximately 0.9 percentage points).
Gross profit would have been $4 million lower in 2005 and 2004
had all stock-based compensation been expensed.
Marketing and Selling Expenses Marketing and selling expenses
as a percent of sales were 16.4% in 2006, 16.0% in 2005 and
16.5% in 2004. Marketing and selling expenses increased 6%
in 2006. The increase was driven primarily by higher advertising
(approximately 3 percentage points), higher selling expenses
(approximately 2 percentage points) and increased stock-based
compensation recognized under SFAS No. 123R (approximately
1 percentage point). In 2005, Marketing and selling expenses
increased 3% from 2004. The increase was driven by higher
levels of advertising and currency.
Marketing and selling expenses would have been $12 million
higher in 2005 and $11 million higher in 2004 had all stock-
based compensation been expensed.
Administrative Expenses Administrative expenses as a percent
of sales were 8.4% in 2006 and 7.8% in 2005 and 2004.
Administrative expenses increased 12% in 2006 from 2005. The
increase was due to higher stock-based compensation recognized
under SFAS No. 123R (approximately 5 percentage points), higher
compensation and benefit expenses (approximately 5 percentage
PAGE 13
An analysis of operating earnings by reportable segment follows:
(millions)
2006
2005
20041
% Change
2006/
2005
2005/
2004
U.S. Soup, Sauces and
Beverages
$ 815 $ 747 $ 730
9
2
Baking and Snacking
187
198
166
(6)
19
International Soup
and Sauces
Other
144
143
128
110
110
101
1,256
1,198
1,125
1
—
5
12
9
6
Corporate
(105)
(66)
(87)
$ 1,151 $ 1,132 $ 1,038
1 Contributions to earnings by segment included the effect of a pre-tax fourth quarter 2004
restructuring charge of $26 million as follows: U.S. Soup, Sauces and Beverages —
$8 million, Baking and Snacking — $10 million, International Soup and Sauces — $4
million, Other — $3 million and Corporate — $1 million.
Earnings from U.S. Soup, Sauces and Beverages increased 9% in
2006 from 2005. The 2005 earnings would have been $4 million
lower had all stock-based compensation been expensed. The 2006
results included an $8 million benefit from the change in the method
of accounting for inventories. The remaining increase in earnings was
primarily due to higher selling prices and productivity gains, which
were partially offset by cost inflation and higher advertising.
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 in
2005 and 2004 would have been $4 million and $6 million lower,
respectively, had all stock-based compensation been expensed.
Earnings from Baking and Snacking decreased 6% in 2006 from
2005. The 2005 earnings would have been $8 million lower had
all stock-based compensation been expensed. The 2006 results
included a $5 million benefit from the change in the method of
accounting for inventories. The earnings results were driven by
declines in the Indonesian biscuit business and the Australian
snack foods business, and the unfavorable impact of currency,
partially offset by higher earnings at Pepperidge Farm.
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 snack
foods business in Australia, partially offset by expenses associ-
ated with the implementation of a new sales and distribution
system in Australia. Earnings in 2005 and 2004 would have been
$8 million lower had all stock-based awards been expensed.
Earnings from International Soup and Sauces increased 1% in 2006
from 2005. The 2005 earnings would have been $3 million lower
had all stock-based compensation been expensed. The increase
in earnings was primarily due to strong market performance in
Canada, partially offset by expenses associated with improving
the cost structure of the supply chain in Europe and an organizational
realignment in Europe due to the sale of the United Kingdom and
Irish businesses.
Earnings from International Soup and Sauces increased 12%
in 2005 versus 2004. The 2004 results included a $4 million
restructuring charge. The remaining increase in earnings was due
to the favorable impact of currency (8 percentage points) and
operating earnings growth in Canada, partially offset by a decline
in Latin America. Earnings in 2005 and 2004 would have been
$3 million lower had all stock-based compensation been expensed.
Earnings from Other were $110 million in both 2006 and 2005.
Prior year earnings would have been $6 million lower had all
stock-based awards been expensed. The increase was primarily
due to earnings growth in Godiva Chocolatier.
Earnings from Other increased 9% in 2005 versus 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 in 2005 and 2004
would have been $6 million lower had all stock-based compensa-
tion been expensed.
Corporate expenses increased $39 million from $66 million in
2005 to $105 million in 2006. The 2005 expenses would have
been $24 million higher had all stock-based compensation been
expensed. The remaining increase was primarily due to costs
associated with the ongoing implementation of the SAP enterprise-
resource planning system in North America.
Corporate expenses decreased $21 million from $87 million
in 2004 to $66 million in 2005 due to lower costs associated
with ongoing litigation, lower adjustments related to the carrying
value of long-term investments in affordable housing partner-
ships, 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 manufacturing site
in California. Corporate expenses would have been $24 million
higher in 2005 and $22 million higher in 2004 had all stock-
based compensation been expensed.
Interest Expense/Income Interest expense decreased 10% in 2006
from 2005, primarily due to a non-cash reduction of $21 million
associated with the favorable settlement of a U.S. tax contingency
and lower levels of debt, partially offset by higher interest rates.
Interest income increased to $15 million in 2006 from $4 million
in 2005 due to higher levels of cash and cash equivalents.
PAGE 14
Interest expense increased 6% in 2005 from 2004 primarily due
to higher interest rates, partially offset by lower levels of debt.
Taxes on Earnings The effective tax rate was 24.6% in 2006,
32.4% in 2005, and 33.1% in 2004. The reduction in rate from
2005 to 2006 was attributable primarily to the favorable resolution
of federal income tax audits of $68 million, including $47 million
related to transactions involving government securities, an increased
deduction related to U.S. manufacturing activities under the AJCA
of $10 million, and higher levels of foreign tax credits of $14 million,
partially offset by incremental tax expense associated with the
repatriation of non-U.S. earnings under the AJCA of $13 million.
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.
Discontinued Operations The results of the company’s businesses
in the United Kingdom and Ireland are classified as discontinued
operations. Results of the businesses are summarized below:
(millions)
Net sales
Earnings before taxes
Taxes on earnings
Earnings from
discontinued operations
2006
2005
2004
$ 435
$ 476
$ 449
$ 83
$ 78
$ 77
72
15
12
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 $37 million. The sales and logistics realignment in
Australia involves the conversion of a direct store delivery system to
a central warehouse system, outsourcing of warehouse operations,
and the consolidation of the field sales organization. A restructuring
charge of $9 million was recorded for this program. As a result of
this program, over 200 positions will be eliminated. The majority of
the terminations occurred in 2005. Annual pre-tax benefits are
expected to be approximately $12 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 6 to the Consolidated Financial Statements for further
discussion of these programs.
A restructuring charge of $6 million ($4 million after tax) was
recorded by the United Kingdom and Irish businesses associated
with a reduction in workforce and is included in Earnings from
discontinued operations. See also Note 2 to the Consolidated
Financial Statements.
$ 11
$ 63
$ 65
Liquidity and Capital Resources
The 2006 results included $56 million of deferred tax expense,
which was recognized in accordance with Emerging Issues Task
Force Issue No. 93-17 “Recognition of Deferred Tax Assets for a
Parent Company’s Excess Tax Basis in the Stock of a Subsidiary
That is Accounted for as a Discontinued Operation.” Results also
included $7 million pre-tax ($5 million after tax) of costs associ-
ated with the sale of the businesses. The remaining increase in
earnings was primarily due to lower marketing and administrative
expenses, partially offset by the decline in sales, the unfavorable
impact of currency, and a higher tax rate.
The decline in earnings from $65 million in 2004 to $63 million
in 2005 was primarily due to lower gross margins and a higher
effective tax rate. The 2004 results included a $6 million pre-tax
restructuring charge ($4 million after tax).
Restructuring Program A restructuring charge included in Earnings
from continuing operations of $26 million ($18 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 sales 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 $17 million in Earnings from continuing operations. The reduc-
tions represented the elimination of layers of management,
Net cash flows from operating activities provided $1,226 million
in 2006, compared to $990 million in 2005. The increase was
due primarily to a reduction in working capital and an increase
in earnings. 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. Over the last three years,
operating cash flows totaled approximately $3 billion. This cash
generating capability provides the company with substantial finan-
cial flexibility in meeting its operating and investing needs.
Capital expenditures were $309 million in 2006, $332 million
in 2005 and $288 million in 2004. Capital expenditures are
projected to be approximately $325 to $350 million in 2007.
Capital expenditures in 2006 included investments to increase
the manufacturing capacity for refrigerated soups, implement
the SAP enterprise-resource planning system in North America,
and implement certain quality and productivity projects in U.S.
manufacturing facilities. The increase in 2005 was primarily driven
by investments to increase manufacturing capacity for microwav-
able 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.
PAGE 15
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.
Long-term borrowings in 2006 included the issuance of $202 mil-
lion of five-year variable-rate debt in Australia due July 2011. The
proceeds were used to repatriate earnings pursuant to the AJCA.
While planning for the issuance of the debt, the company entered
into interest rate swap agreements to effectively fix the interest
rate on $149 million of the debt prior to its issuance.
As of July 30, 2006, the company had $300 million available
for issuance under a $1 billion shelf registration statement filed
with the Securities and Exchange Commission in June 2002.
Under the registration statement, the company may issue debt
securities, depending on market conditions.
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.
Dividend payments were $292 million in 2006, $275 million in
2005 and $259 million in 2004. Annual dividends declared in
2006 were $.72 per share, $.68 per share in 2005 and $.63 per
share in 2004. The 2006 fourth quarter rate was $.18 per share.
Excluding shares owned and tendered by employees to satisfy
tax withholding requirements on vesting of restricted shares, the
company repurchased 15 million shares at a cost of $506 million
during 2006, compared to 4 million shares at a cost of $110 mil-
lion during 2005 and 2 million shares at a cost of $56 million
during 2004. Of the 2006 repurchases, 6 million shares at a cost
of $200 million were under the Board of Directors authorization
announced on November 21, 2005 to purchase up to $600 million
of company stock through fiscal 2008. The remaining shares were
repurchased 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 30, 2006, the company had $1,097 million of notes
payable due within one year and $33 million of standby letters of
credit issued on behalf of the company. The company maintained
committed revolving credit facilities totaling $1.5 billion, which
were unused at July 30, 2006 except for $1 million of standby
letters of credit. Another $32 million of standby letters of credit
was issued under a separate facility. In September 2006, the
company entered into a $1.5 billion, 5-year revolving credit facility
that will mature in September 2011. This facility replaced the
existing $500 million 364-day revolving credit facility that matured
in September 2006 and the $1 billion revolving multi-year credit
facility that would have matured in September 2010. These agree-
ments support the company’s commercial paper programs.
The company is in compliance with the covenants contained in its
revolving credit facilities and debt securities.
Cash and cash equivalents were $657 million at July 30, 2006
and $40 million at July 31, 2005. The company expects to
maintain higher cash balances until $600 million of notes payable
that matures in 2007 are repaid.
The company believes that foreseeable liquidity and capital
resource requirements, including notes payable due within one
year and cash outflows to repurchase shares and pay dividends,
are expected to be met through cash and cash equivalents,
anticipated cash flows from operations, long-term borrowings
under its shelf registration and short-term borrowings, including
commercial paper. The company believes that its sources of
financing are adequate to meet its 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.
On August 15, 2006, the company completed the sale of its United
Kingdom and Irish businesses for £460 million or approximately
$870 million. The company also announced that its Board of
Directors authorized using approximately $620 million of the net
proceeds of the sales to purchase company stock. These purchases
are expected to be completed in 2007. On September 28, 2006,
the company entered into accelerated share repurchase agree-
ments with a financial institution to repurchase approximately
$600 million of stock. This share repurchase authority is in addition
to the three-year $600 million share repurchase plan announced
in November 2005 and the company’s ongoing practice of buying
back shares sufficient to offset shares issued under incentive
PAGE 16
compensation plans. The remaining net proceeds will be used to
pay taxes and expenses associated with the sale, to settle foreign
currency hedging contracts associated with intercompany financing
transactions of the businesses, and to repay debt.
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 18 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
19 to the Consolidated Financial Statements.
(millions)
Total
Contractual Payments Due by Fiscal Year
2008-
2009
2010-
2011
2007
Thereafter
Off-Balance Sheet Arrangements and Other Commitments
The company guarantees approximately 1,500 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 $122 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 22 to the
Consolidated Financial Statements for information on off-balance
sheet arrangements.
Inflation
During the past three 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.
Debt obligations1
$ 3,213 $ 1,097 $ 308 $ 912 $ 896
Market Risk Sensitivity
Interest payments2
884
175
263
216
230
Purchase commitments
1,484
997
441
Operating leases
335
77
114
Derivative payments3
197
167
14
31
80
1
Other long-term
liabilities4
Total long-term
152
14
29
24
15
64
15
85
cash obligations
$ 6,265 $ 2,527 $ 1,169 $ 1,264 $ 1,305
1 Includes capital lease obligations totaling $18 million, unamortized net premium on debt
issuances, unamortized gain on a terminated interest rate swap and a loss on fair-value
interest rate swaps. For additional information on debt obligations, see Note 18 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 rates of
contractually obligated issuances at fiscal year end. For fixed-rate long-term debt, interest
is based on principal amounts and fixed coupon rates at fiscal year end. For variable-rate
long-term debt, interest is based on principal amounts and rates estimated over the life of
the instrument using forward interest rates and applicable spreads. 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 rates estimated over the
instrument’s life using forward interest rates plus applicable spreads.
3 Represents payments of cross-currency swaps and forward exchange contracts. Includes
payments of derivatives settled in 2007 associated with the sale of the businesses in the
United Kingdom and Ireland.
4 Represents other long-term liabilities, excluding deferred taxes and minority interest.
This table does not include postretirement medical benefits, payments related to pension
plans or unvested stock-based compensation. The company made a $22 million voluntary
contribution to a U.S. plan subsequent to July 30, 2006.
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 obligations. The
company manages its exposure to changes in interest rates by
optimizing the use of variable-rate and fixed-rate debt and by
utilizing interest rate swaps in order to maintain its variable-to-
total debt ratio within targeted guidelines. International operations,
which accounted for approximately 30% of 2006 net sales, are
concentrated principally in Australia, Canada, France and Germany.
The company sold its operations in the United Kingdom and Ireland
on August 15, 2006 as discussed in Note 2 to the Consolidated
Financial Statements. 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
connection with the purchase of raw materials, including certain
commodities and agricultural products. The company may also
enter into commodity futures contracts, as considered appropriate,
to reduce the volatility of price fluctuations for commodities such
as corn, cocoa, soybean meal, soybean oil, wheat and dairy. At
PAGE 17
July 30, 2006 and July 31, 2005, the notional values and unreal-
ized 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 30, 2006. Fair values included herein have
been determined based on quoted market prices. The information
presented below should be read in conjunction with Notes 18 and
20 to the Consolidated Financial Statements.
The table below presents principal cash flows and related interest
rates by fiscal year of maturity for debt obligations. Interest rates
disclosed on variable-rate debt maturing in 2007 represent the
weighted-average rates at the period end. Interest rates disclosed
on variable-rate debt maturing in 2011 represent the weighted-
average forward rates for the term. 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.
2007
2008
2009
2010
2011
Thereafter
Total
Fair Value
$ 5
4.17%
$ 303
$ 3
$ 702
$ 896
$ 2,520
$ 2,579
5.87%
5.10%
6.75%
5.86%
6.18%
$ 207 2
6.81%
$ 693
$ 693
6.18%
Expected Fiscal Year of Maturity
(millions)
Debt
Fixed Rate
Weighted-average interest rate
Variable rate
Weighted-average interest rate
Interest Rate Swaps
Fixed to variable
Average pay rate
Average receive rate
Variable to fixed
Average pay rate
Average receive rate
$ 611
6.19%
$ 4861
5.92%
$ 2003
7.33%
6.20%
$ 1754
6.94%
5.88%
$ 776
$ 50 6
$ 276
6.74%
6.71%
6.67%
6.77%
6.83%
6.80%
$ 500 5
$ 875
$
(29)
5.66%
6.27%
4.95%
5.39%
$ 154
$ —
6.73%
6.74%
1 Represents $419 million equivalent of AUD borrowing, $55 million equivalent of CAD borrowing, and $12 million equivalent of borrowings in other currencies.
2 Represents $207 million equivalent of AUD borrowing.
3 Hedges $100 million of 5.50% notes and $100 million of 6.90% notes due in 2007.
4 Hedges $175 million of 5.875% notes due in 2009.
5 Hedges $300 million of 5.00% notes and $200 million of 4.875% notes due in 2013 and 2014, respectively.
6 Hedges a portion of $207 million equivalent of AUD borrowing.
PAGE 18
As of July 31, 2005, fixed-rate debt of approximately $2.5 billion
with an average interest rate of 6.17% and variable-rate debt
of approximately $446 million with an average interest rate of
5.44% were outstanding. As of July 31, 2005, 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 5.28% over the remaining life of
the swaps.
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 30, 2006, which hedge such exposures,
excluding contracts related to the divested United Kingdom and
Irish businesses. The notional amount of each currency and the
related weighted-average forward interest rate are presented in
the Cross-Currency Swaps table.
Cross-Currency Swaps
(millions)
Pay variable EUR
Receive variable USD
Pay variable EUR
Receive variable USD
Pay fixed EUR
Receive fixed USD
Pay variable CAD
Receive variable USD
Pay variable SEK
Receive variable USD
Pay fixed EUR
Receive fixed USD
Pay fixed CAD
Receive fixed USD
Pay fixed SEK
Receive fixed USD
Pay fixed CAD
Receive fixed USD
Total
Expiration
2007
2007
2007
2007
2008
2008
2009
2010
2014
Interest
Rate
Notional
Value
Fair
Value
3.44%
5.43%
3.48%
5.46%
5.46%
5.75%
5.92%
6.78%
3.74%
5.97%
2.92%
4.47%
5.13%
4.22%
4.53%
4.29%
6.24%
5.66%
$ 11
$ —
$ 69
$
(4)
$ 200
$
(92)
$ 31
$
(7)
$ 16
$
(1)
$ 69
$
1
$ 60
$
(17)
$ 32
$
(3)
$ 548
$ (144)
The cross-currency swap contracts outstanding at July 31, 2005
represented one pay fixed SEK/receive fixed USD swap with a
notional value of $32 million, a pay variable SEK/receive variable
USD swap with a notional value of $32 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 $120 million, two pay variable EUR/receive variable USD swaps
with notional values of $89 million, two pay fixed EUR/receive fixed
USD swaps with notional values of $269 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
$990 million as of July 31, 2005 and the aggregate fair value of
these swap contracts was $(168) million as of July 31, 2005.
The following contracts were outstanding at July 30, 2006 related
to intercompany financing of the divested United Kingdom and
Irish businesses. These instruments were settled in August 2006
in connection with the sale of the business.
Cross-Currency Swaps
(millions)
Pay variable GBP
Receive variable USD
Pay fixed GBP
Receive fixed USD
Pay fixed GBP
Receive fixed USD
Pay fixed GBP
Receive fixed USD
Total
Interest
Rate
Notional
Value
Fair
Value
5.67%
6.37%
5.97%
6.08%
5.97%
5.01%
5.97%
4.76%
$ 138
$
(2)
$ 200
$ (66)
$ 30
$
(3)
$ 40
$
(2)
$ 408
$ (73)
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 30, 2006. The table
excludes forward contracts used to hedge the investment in and
intercompany transactions associated with the United Kingdom
and Irish businesses sold in August 2006.
Forward Exchange Contracts
(millions)
Receive USD / Pay CAD
Receive AUD / Pay NZD
Receive EUR / Pay GBP
Receive EUR / Pay USD
Receive USD / Pay EUR
Receive EUR / Pay JPY
Receive GBP / Pay EUR
Receive JPY / Pay EUR
Contract
Amount
Average Contractual
Exchange Rate
$ 33
$ 18
$ 9
$ 8
$ 8
$ 7
$ 5
$ 5
$ 4
1.15
1.13
1.85
0.70
1.24
0.79
137.00
1.46
0.01
The company had an additional $13 million in a number of smaller
contracts to purchase or sell various other currencies, such as the
Australian dollar, Mexican peso, Japanese yen, and Canadian dollar
as of July 30, 2006. The aggregate fair value of all contracts was
$2 million as of July 30, 2006. Total forward exchange contracts
outstanding as of July 31, 2005 were $402 million with a fair
value of $3 million.
$ 60
$
(21)
Receive GBP / Pay USD
PAGE 19
The following forward contracts, which hedge exposures related
to the United Kingdom and Irish businesses, were outstanding
as of July 30, 2006 and settled in August 2006 in connection
with the sale. The fair value of these contracts was $(5) million
at July 30, 2006.
GBP Forward Exchange Contracts
(millions)
Receive USD / Pay GBP
Receive GBP / Pay EUR
Receive EUR / Pay GBP
Contract
Amount
$ 347
$ 54
$ 12
Average Contractual
Exchange Rate
0.54
1.46
0.71
The company had swap contracts outstanding as of July 30,
2006, 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 company’s
capital stock and 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 contract that
is linked to the return on the Standard & Poor’s 500 Index was
$18 million at July 30, 2006 and $20 million at July 31, 2005.
The average forward interest rate applicable to the contract,
which expires in 2007, was 5.00% at July 30, 2006. The notional
value of the contract that is linked to the return on the Puritan
Fund was $10 million at July 30, 2006 and $9 million at July 31,
2005. The average forward interest rate applicable to the contract,
which expires in 2007, was 5.24% at July 30, 2006. The notional
value of the contract that is linked to the total return on company
capital stock was $27 million at July 30, 2006 and $20 million
at July 31, 2005. The average forward interest rate applicable to
this contract, which expires in 2007, was 5.13% at July 30,
2006. The fair value of these contracts was a $2 million gain at
July 30, 2006 and a $1 million gain at July 31, 2005.
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
PAGE 20
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.
When the fair value of pension plan assets is less than the
accumulated benefit obligation, an additional minimum liability
is recorded in Other comprehensive income within Shareowners’
Equity. As of July 30, 2006 and July 31, 2005, Shareowners’
Equity includes a minimum liability, net of tax, of $67 million and
$238 million, respectively.
Net periodic pension and postretirement medical expense was
$77 million in 2006, $67 million in 2005 and $65 million in
2004. Significant weighted-average assumptions as of the end of
the year are as follows:
Pension
2006
2005
2004
Discount rate for benefit obligations
6.05%
5.44%
6.19%
Expected return on plan assets
8.71%
8.76%
8.76%
Postretirement
Discount rate for obligations
Initial health care trend rate
6.25%
5.50%
6.25%
9.00%
9.00%
9.00%
Ultimate health care trend rate
4.50%
4.50%
4.50%
Estimated sensitivities to annual 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 $10 million. A one percentage
point increase in assumed health care costs would increase post-
retirement service and interest cost by approximately $2 million.
Although there were no mandatory funding requirements to the
U.S. plans in 2006, 2005 and 2004, the company made a
$35 million contribution in 2006 and 2005 and a $50 million
contribution in 2004 to a U.S. plan based on expected future
funding requirements. Contributions to international plans were
$17 million in 2006, $26 million in 2005 and $15 million in
2004. Subsequent to July 30, 2006, the company made a
$22 million voluntary contribution to a U.S. plan in anticipation of
future funding requirements. Contributions to non-U.S. plans are
expected to be approximately $10 million in 2007.
See also Note 10 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 contingencies. 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, as well as for
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 11
to the Consolidated Financial Statements for further discussion
on income taxes, including the impact of the AJCA, and FASB
Interpretation No. (FIN) 48 “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109.”
Recently Issued Accounting Pronouncements
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 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 production facilities. SFAS No. 151 was effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005. The adoption of SFAS No. 151 in 2006 did not
have a material impact on the financial statements.
In October 2004, the AJCA was signed into law. The AJCA
provides for a deduction of 85% of certain non-U.S. 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 Financial Accounting Standards
Board (FASB) issued FASB Staff Position FAS 109-1 and 109-2 to
address the accounting and disclosure requirements related to the
AJCA. The total amount repatriated in 2006 under the AJCA was
$494 million and the related tax cost was $20 million. In 2005,
the company recorded $7 million in tax expense for $200 million
of anticipated earnings to be repatriated. In 2006, the company
finalized its plan under the AJCA and recorded tax expense of
$13 million for $294 million of earnings repatriated.
PAGE 21
In March 2005, the FASB issued 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 obligation 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. The company adopted
FIN 47 in 2006. The adoption did not have a material impact on
the financial statements.
In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty
in Income Taxes – an interpretation of FASB Statement No. 109.”
FIN 48 clarifies the criteria that must be met for financial statement
recognition and measurement of tax positions taken or expected
to be taken in a tax return. This Interpretation also addresses
derecognition, recognition of related penalties and interest,
classification of liabilities and disclosures of unrecognized tax
benefits. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The company is in the process of evaluating
the impact of FIN 48.
Earnings Outlook
On September 11, 2006, the company issued a press release
announcing results for 2006 and commented on the outlook for
earnings per share for 2007.
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 estimates
which could be inaccurate and which are inherently subject to
risks and uncertainties.
The company wishes to caution the reader that the following
important factors and those important factors described in Part
1, Item 1A and elsewhere in the commentary, or in the Securities
and Exchange Commission filings of the company, could affect
the company’s actual results and could cause such results to vary
materially from those expressed in any forward-looking state-
ments made by, or on behalf of, the company:
(cid:129) 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;
(cid:129) the risks in the marketplace associated with trade and consumer
acceptance of product improvements, shelving initiatives and
new product introductions;
(cid:129) 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;
(cid:129) the company’s ability to realize projected cost savings and
benefits, including those contemplated by restructuring
programs and other cost-savings initiatives;
(cid:129) 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;
(cid:129) the increased significance of certain of the company’s key trade
customers;
(cid:129) the impact of fluctuations in the supply and cost of energy and
raw materials;
(cid:129) the risks associated with portfolio changes and completion of
acquisitions and divestitures;
(cid:129) the uncertainties of litigation described from time to time in the
company’s Securities and Exchange Commission filings;
(cid:129) the impact of changes in currency exchange rates, tax rates,
interest rates, equity markets, inflation rates, recession and
other external factors; and
(cid:129) 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.
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.
PAGE 22
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 7)
Restructuring charge (Note 6)
Total costs and expenses
Earnings Before Interest and Taxes
Interest expense (Note 8)
Interest income
Earnings before taxes
Taxes on earnings (Note 11)
Earnings from continuing operations
Earnings from discontinued operations
Net Earnings
Per Share – Basic
Earnings from continuing operations
Earnings from discontinued operations
Net Earnings
Weighted average shares outstanding – basic
Per Share – Assuming Dilution
Earnings from continuing operations
Earnings from discontinued operations
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.
2006
$ 7,343
4,268
1,203
617
99
5
—
6,192
1,151
165
15
1,001
246
755
11
2005
$ 7,072
4,175
1,131
549
90
(5)
—
2004
$ 6,660
3,902
1,097
522
88
(13)
26
5,940
1,132
5,622
1,038
184
4
952
308
644
63
174
6
870
288
582
65
$ 766
$ 707
$ 647
$ 1.86
.03
$ 1.88
407
$ 1.82
.03
$ 1.85
414
$ 1.57
.15
$ 1.73
409
$ 1.56
.15
$ 1.71
413
$ 1.42
.16
$ 1.58
409
$ 1.41
.16
$ 1.57
412
PAGE 23
Consolidated Balance Sheets
(millions, except per share amounts)
Current Assets
Cash and cash equivalents
Accounts receivable (Note 12)
Inventories (Note 13)
Other current assets (Note 14)
Current assets of discontinued operations held for sale
Total current assets
Plant Assets, Net of Depreciation (Note 15)
Goodwill (Note 4)
Other Intangible Assets, Net of Amortization (Note 4)
Other Assets (Note 16)
Non-current assets of discontinued operations held for sale
Total assets
Current Liabilities
Notes payable (Note 18)
Payable to suppliers and others
Accrued liabilities (Note 17)
Dividend payable
Accrued income taxes
Current liabilities of discontinued operations held for sale
Total current liabilities
Long-term Debt (Note 18)
Nonpension Postretirement Benefits (Note 10)
Other Liabilities (Note 19)
Non-current liabilities of discontinued operations held for sale
Total liabilities
Shareowners’ Equity (Note 21)
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, 140 shares in 2006 and 134 shares in 2005, at cost
Accumulated other comprehensive income (loss)
Total shareowners’ equity
Total liabilities and shareowners’ equity
See accompanying Notes to Consolidated Financial Statements.
July 30, 2006
July 31, 2005
$
657
494
728
133
100
2,112
1,954
1,765
596
605
838
$
40
509
753
181
—
1,483
1,987
1,950
1,059
297
—
$ 7,870
$ 6,776
$ 1,097
$
691
820
74
202
78
451
624
606
70
251
—
2,962
2,116
2,002
2,542
278
721
25
278
684
—
6,102
5,506
—
20
352
6,539
(5,147)
4
1,768
$ 7,870
—
20
236
6,069
(4,832)
(223)
1,270
$ 6,776
PAGE 24
Consolidated Statements of Cash Flows
(millions)
Cash Flows from Operating Activities:
Net earnings
Non-cash charges to net earnings
Change in accounting method (Note 13)
Restructuring charge
Stock-based compensation
Resolution of tax contingency (Note 11)
Depreciation and amortization
Deferred taxes
Other, net (Note 23)
Changes in working capital
Accounts receivable
Inventories
Prepaid assets
Accounts payable and accrued liabilities
Pension fund contributions
Other (Note 23)
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of plant assets
Sales of plant assets
Businesses acquired
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Long-term borrowings
Net short-term borrowings (repayments)
Dividends paid
Treasury stock purchases
Treasury stock issuances
Excess tax benefits on stock-based compensation
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 Period
Cash and Cash Equivalents – End of Period
See accompanying Notes to Consolidated Financial Statements.
2006
2005
2004
$ 766
$ 707
$ 647
(8)
—
85
(60)
289
29
82
(18)
(2)
—
168
(52)
(53)
—
—
28
—
279
47
81
(10)
21
(17)
(26)
(61)
(59)
1,226
990
(309)
2
—
13
(294)
202
31
(292)
(506)
236
11
(318)
3
617
40
(332)
11
—
7
(314)
—
(354)
(275)
(110)
71
—
(668)
—
8
32
$ 657
$ 40
—
32
18
—
260
51
68
(61)
(43)
2
(62)
(65)
(103)
744
(288)
22
(9)
—
(275)
301
(486)
(259)
(56)
25
—
(475)
6
—
32
$ 32
PAGE 25
Consolidated Statements of Shareowners’ Equity
(millions, except per share amounts)
Capital Stock
Issued
Shares
542
Amount
$ 20
Balance at August 3, 2003
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
In Treasury
Shares
Amount
Additional
Paid-in
Capital
Earnings
Retained
Accumulated
Other
in the Comprehensive
Income (Loss)
Business
Total
Shareowners’
Equity
(132)
$ (4,869)
$ 298
$ 5,254
$ (316)
$ 387
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 ($.68 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
707
(280)
42
(19)
(42)
(19)
(4)
(110)
4
126
(28)
Balance at July 31, 2005
542
20
(134)
(4,832)
236
6,069
(223)
1,270
Comprehensive income (loss)
Net earnings
Foreign currency
translation adjustments
Cash-flow hedges, net of tax
Minimum pension liability,
net of tax
Other comprehensive income
Total Comprehensive income
Dividends ($.72 per share)
Treasury stock purchased
Treasury stock issued under
management incentive and
stock option plans
(15)
(506)
9
191
Balance at July 30, 2006
542
$ 20
(140)
$ (5,147)
See accompanying Notes to Consolidated Financial Statements.
766
(296)
51
5
171
227
766
51
5
171
227
993
(296)
(506)
307
$ 6,539
$
4
$ 1,768
116
$ 352
647
94
4
14
112
759
(259)
(56)
43
874
707
42
(19)
(42)
(19)
688
(280)
(110)
98
PAGE 26
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-year presentation. The
company’s fiscal year ends on the Sunday nearest July 31. There
were 52 weeks in 2006, 2005, and 2004.
On August 15, 2006, the company completed the sale of its
United Kingdom and Irish businesses to Premier Foods
Investments Limited, HL Foods Limited and Premier Foods plc for
£460, or approximately $870, pursuant to a Sale and Purchase
Agreement dated July 12, 2006. The company has reflected the
results of these businesses as discontinued operations in the
consolidated statements of earnings for all years presented. The
assets and liabilities of these businesses were reflected as assets
and liabilities of discontinued operations held for sale in the
consolidated balance sheet as of July 30, 2006. See Note 2 for
additional information on the sale.
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 deter-
minable. Revenues are recognized net of provisions for returns,
discounts and allowances. Certain sales promotion expenses, such
as coupon redemption costs, cooperative advertising programs,
new product introduction fees, feature price discounts and in-store
display incentives are classified as a reduction 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 In 2006, all inventories are valued at the lower of
average cost or market. Prior to 2006, substantially all U.S.
inventories were valued based on the last in, first out (LIFO)
method. See also Note 13.
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 production
facilities. SFAS No. 151 was effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The adoption
of SFAS No. 151 in 2006 did not have a material impact on the
financial statements.
Property, Plant and Equipment Property, plant and equipment
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 conditions indicate that the carrying
value may not be recoverable. Such conditions include significant
adverse changes in business climate or a plan of disposal.
In March 2005, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. (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 obligation 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. The company adopted
FIN 47 in 2006. The adoption did not have a material impact on
the financial statements.
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 4 for
information on goodwill and other intangible assets.
PAGE 27
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 20 for
additional information.
Stock-Based Compensation In December 2004, the FASB issued
SFAS No. 123 (revised 2004) “Share-Based Payment” (SFAS No.
123R), which requires 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
company adopted the provisions of SFAS No. 123R as of August 1,
2005. The company issues restricted stock, restricted stock
units, stock options, and beginning in fiscal 2006, performance
restricted stock.
Prior to August 1, 2005, the company accounted for stock-based
compensation in accordance with Accounting Principles Board
Opinion No. 25 “Accounting for Stock Issued to Employees” and
related Interpretations. Accordingly, no compensation expense had
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. SFAS No. 123R was adopted using the modified
prospective transition method. Under this method, the provisions
of SFAS No. 123R apply to all awards granted or modified after
the date of adoption. In addition, compensation expense must be
recognized for any unvested stock option awards outstanding as
of the date of adoption. Prior periods have not been restated. See
also Note 21. Total pre-tax stock-based compensation recognized
in the Statements of Earnings was $85, $26, and $18 for 2006,
2005 and 2004, respectively. Tax related benefits of $31, $10,
and $7 were also recognized for 2006, 2005, and 2004, respec-
tively. Amounts recorded in 2005 and 2004 primarily represent
expenses related to restricted stock awards since no expense
was recognized for stock options. Stock-based compensation
associated with discontinued operations was not material.
SFAS No. 123R requires disclosure of pro forma information
for periods prior to the adoption. The pro forma disclosures are
based on the fair value of awards at the grant date, amortized to
expense over the service period. 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. 123R to
stock-based employee compensation.
Net earnings, as reported
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.
2005
2004
$ 707
$ 647
16
11
(45)
(40)
$ 678
$ 618
$ 1.73
$ 1.66
$ 1.71
$ 1.64
$ 1.58
$ 1.51
$ 1.57
$ 1.50
The pro forma expense impact on Earnings from continuing oper-
ations in 2005 and 2004 was $28, or $.07 per share.
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, as well as for operating
loss and tax credit carryforwards. Deferred tax assets and liabili-
ties 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 non-U.S. 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 FAS 109-1 and 109-2 to
address the accounting and disclosure requirements related to the
PAGE 28
AJCA. The total amount repatriated in 2006 under the AJCA was
$494 and the related tax cost was $20. In 2005, the company
recorded $7 in tax expense for $200 of anticipated earnings to be
repatriated. In 2006, the company finalized its plan under the AJCA
and recorded tax expense of $13 for $294 of earnings repatriated.
In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty
in Income Taxes – an interpretation of FASB Statement No. 109.”
FIN 48 clarifies the criteria that must be met for financial statement
recognition and measurement of tax positions taken or expected
to be taken in a tax return. This Interpretation also addresses
derecognition, recognition of related penalties and interest,
classification of liabilities and disclosures of unrecognized tax
benefits. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The company is in the process of evaluating
the impact of FIN 48.
2 Discontinued Operations
On August 15, 2006, the company completed the sale of its
businesses in the United Kingdom and Ireland for £460, or
approximately $870, pursuant to a Sale and Purchase Agreement
dated July 12, 2006. The United Kingdom and Irish businesses
include Homepride sauces, OXO stock cubes, Batchelors soups
and McDonnells and Erin soups. The purchase price is subject
to certain post-closing adjustments. The company has reflected
the results of these businesses as discontinued operations in the
consolidated statements of earnings for all years presented. The
businesses were historically included in the International Soup
and Sauces segment.
Results of discontinued operations were as follows:
Net sales
Earnings before taxes
Taxes on earnings
Earnings from
2006
2005
2004
$ 435
$ 476
$ 449
$ 83
$ 78
$ 77
72
15
12
discontinued operations
$ 11
$ 63
$ 65
The 2006 results included deferred tax expense of $56, which was
recognized in accordance with Emerging Issues Task Force Issue
No. 93-17 “Recognition of Deferred Tax Assets for a Parent
Company’s Excess Tax Basis in the Stock of a Subsidiary That is
Accounted for as a Discontinued Operation” due to book/tax basis
differences of these businesses as of July 30, 2006. The 2006
results also included $7 pre-tax ($5 after tax) of costs associated
with the sale. The company expects to recognize an estimated pre-
tax gain of approximately $20 in 2007, subject to certain purchase
price adjustments, including an adjustment for working capital.
In 2004, the earnings from discontinued operations included the
after-tax effect of a restructuring charge of $4 associated with a
worldwide reduction in workforce.
The assets and liabilities of the United Kingdom and Irish
businesses are reflected as discontinued operations in the consol-
idated balance sheet as of July 30, 2006 and are comprised of
the following:
Cash
Accounts receivable
Inventories
Prepaid expenses
Current assets
Property, plant and equipment, net
Deferred taxes
Goodwill
Other intangible assets, net of amortization
Non-current assets
Accounts payable
Accrued liabilities
Accrued income taxes
Current liabilities
Non-current pension obligation
2006
$
2
43
53
2
$ 100
$ 90
2
244
502
$ 838
61
12
5
$ 78
$ 25
The company expects to use $620 of the net proceeds to repur-
chase shares. On September 28, 2006, the company entered into
accelerated share repurchase agreements with a financial institu-
tion to repurchase approximately $600 of stock.
3 Comprehensive Income
Total comprehensive income is comprised of net earnings, net
foreign currency translation adjustments, minimum pension
liability adjustments (see Note 10), and net unrealized gains and
losses on cash-flow hedges. Total comprehensive income for the
twelve months ended July 30, 2006, July 31, 2005 and August 1,
2004 was $993, $688 and $759, respectively.
The components of Accumulated other comprehensive income
(loss), as reflected in the Statements of Shareowners’ Equity,
consisted of the following:
Foreign currency translation adjustments
Cash-flow hedges, net of tax
Minimum pension liability, net of tax1
2006
2005
$ 86
$ 35
(15)
(67)
(20)
(238)
Total Accumulated other comprehensive income (loss)
$ 4
$ (223)
1 Includes a tax benefit of $32 in 2006 and $139 in 2005.
PAGE 29
4 Goodwill and Intangible Assets
5 Business and Geographic Segment Information
The following table sets forth balance sheet information for
intangible assets, excluding goodwill, subject to amortization and
intangible assets not subject to amortization:
Intangible assets subject to
amortization:
Trademarks
Other
Total
Intangible assets not subject to
amortization:
Trademarks
Pension
Other
Total
July 30, 2006
July 31, 2005
Carrying Accumulated
Amount Amortization
Carrying Accumulated
Amount Amortization
$ —
$ — $
15
(7)
$ 15
$ (7) $
6
17
23
$
(4)
(7)
$ (11)
$ 586
2
—
$ 588
$ 1,042
3
2
$ 1,047
Amortization was approximately $1 in 2006 and $2 in 2005 and
primarily related to intangible assets of discontinued operations.
The estimated aggregated amortization expense for each of the
five succeeding fiscal years is less than $1 per year. Asset useful
lives range from twelve to thirty-four years.
The company recognized an impairment loss of approximately $2
in 2006 due to the business performance of an Australian trade-
mark used in the Baking and Snacking segment.
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 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
Reclassification to assets
held for sale
—
—
(244) —
(244)
Foreign currency
translation adjustment
—
Other
Balance at
—
8
7
44
—
—
—
52
7
July 30, 2006
$ 428
$ 617
$ 569 $ 151 $ 1,765
Campbell Soup Company, together with its consolidated subsid-
iaries, is a global manufacturer and marketer of high-quality,
branded convenience food products. The company manages and
reports the results of operations in the following segments: U.S.
Soup, Sauces and Beverages, Baking and Snacking, International
Soup and Sauces, and Other.
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 juice and juice drinks; 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. See also Note 2 for information
on the sale of the businesses in the United Kingdom and Ireland.
These businesses were historically included in this segment.
The assets of these businesses were reflected as discontinued
operations as of July 30, 2006. The results of operations of these
businesses have been reflected as discontinued operations for all
years presented.
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.
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 refrigerated 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 refrigerated soup 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 2006 and 2005 and 12% in 2004. All of the company’s
segments sold products to Wal-Mart Stores, Inc. or its affiliates.
PAGE 30
Business Segments
Net sales
2006
2005
2004
U.S. Soup, Sauces and Beverages
$ 3,257 $ 3,098 $ 2,998
Baking and Snacking
1,747
1,742
1,613
International Soup and Sauces
1,255
1,227
1,146
Other
Total
1,084
1,005
903
$ 7,343 $ 7,072 $ 6,660
Geographic Area Information
Information about operations in different geographic areas is as
follows:
Net sales
United States
Europe
Australia/Asia Pacific
2006
2005
2004
$ 5,120 $ 4,842 $ 4,590
660
677
988
1,028
575
525
632
952
486
Earnings before interest and taxes
20062
2005
20043
Other countries
U.S. Soup, Sauces and Beverages
$ 815 $ 747 $ 730
Consolidated
$ 7,343 $ 7,072 $ 6,660
Baking and Snacking
International Soup and Sauces
Other
Corporate1
Total
187
144
110
198
143
110
166
128
101
(105)
(66)
(87)
$ 1,151 $ 1,132 $ 1,038
Earnings before interest and taxes
2006
2005
2004
United States
Europe
Australia/Asia Pacific
Other countries
$ 1,003 $ 931 $ 890
52
94
107
64
112
91
56
99
80
Depreciation and Amortization
2006
2005
2004
Segment earnings before interest and taxes
1,256
1,198
1,125
U.S. Soup, Sauces and Beverages
$
91 $
89 $
Baking and Snacking
International Soup and Sauces
Other
Corporate1
Discontinued Operations
94
35
28
26
15
84
35
26
28
17
80
74
30
24
30
22
Total
$ 289 $ 279 $ 260
Capital Expenditures
2006
2005
2004
U.S. Soup, Sauces and Beverages
$
91 $ 124 $ 123
Baking and Snacking
International Soup and Sauces
Other
Corporate1
Discontinued Operations
Total
60
29
80
43
6
80
49
33
32
14
73
51
14
15
12
$ 309 $ 332 $ 288
Segment Assets
2006
2005
2004
U.S. Soup, Sauces and Beverages
$ 2,110 $ 2,070 $ 2,051
Baking and Snacking
1,676
1,687
1,613
Corporate
Consolidated
Identifiable assets
United States
Europe
Australia/Asia Pacific
Other countries
Corporate
Discontinued operations
Consolidated
(105)
(66)
(87)
$ 1,151 $ 1,132 $ 1,038
2006
2005
2004
$ 2,907 $ 2,939 $ 2,885
1,186
1,883
1,890
1,296
1,274
1,184
380
1,163
938
350
330
—
357
346
—
$ 7,870 $ 6,776 $ 6,662
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 $26 in 2004
was allocated to the geographic regions as follows: United States
— $12, Europe — $3, Australia/Asia Pacific — $10, and Other
countries — $1.
International Soup and Sauces
1,522
2,309
2,311
6 Restructuring Program
Other
Corporate1
Discontinued Operations
Total
461
1,163
938
380
330
—
341
346
—
$ 7,870 $ 6,776 $ 6,662
1 Represents unallocated corporate expenses and unallocated assets, including corporate
offices, deferred income taxes, prepaid pension assets and investments.
2 Contributions to earnings before interest and taxes by segment included the effect of a $13
benefit due to a change in the method of accounting for certain U.S. inventories from the
LIFO method to the average cost method as follows: U.S. Soup, Sauces and Beverages – $8
and Baking and Snacking – $5.
3 Contributions to earnings before interest and taxes by segment included the effect of
a fourth quarter 2004 restructuring charge of $26 as follows: U.S. Soup, Sauces and
Beverages – $8, Baking and Snacking – $10, International Soup and Sauces – $4,
Other – $3 and Corporate – $1.
A restructuring charge included in Earnings from continuing
operations of $26 ($18 after tax) was recorded in the fourth
quarter 2004 for severance and employee benefit costs asso-
ciated with a worldwide reduction in workforce and with the
implementation of a sales 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 $17 in
Earnings from continuing operations. The reductions represented
the elimination of layers of management, elimination of redundant
positions due to the realignment of operations in North America,
PAGE 31
9 Acquisitions
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.
10 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
company from general funds. Plan assets consist primarily of
investments in equities, fixed income securities, and real estate.
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 as of May 1, 1999, 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.
and reorganization of the U.S. sales force. The majority of the
terminations occurred in the fourth quarter of 2004. The sales
and logistics realignment in Australia involves the conversion of
a direct store delivery system to a central warehouse system,
outsourcing of warehouse operations, and the consolidation of
the field sales organization. As a result of this program, over
200 positions will be eliminated. A restructuring charge of $9
was recorded for this program. The majority of the terminations
occurred in 2005.
A restructuring charge of $6 ($4 after tax) was recorded by the
United Kingdom and Irish businesses associated with a reduction
in workforce and is included in Earnings from discontinued opera-
tions. See also Note 2.
A summary of restructuring reserves at July 30, 2006 and related
activity is as follows:
Accrued
Balance at
August 1,
2004
Cash
Payments
Accrued
Balance at
July 31,
Cash
2005 Payments
Accrued
Balance at
July 30,
2006
Severance pay
and benefits
$ 28
(24)
$ 4
(2)
$ 2
7
Other Expenses/(Income)
Foreign exchange (gains)/losses
$ —
$ (1)
$ 7
2006
2005
2004
Amortization/impairment of intangible
and other assets
Gain on asset sales
Adjustments to long-term investments
Gain from settlement of lawsuits
Other
2
—
—
—
3
—
—
—
(2)
(2)
1
(10)
10
(16)
(5)
$ 5
$ (5)
$ (13)
Adjustments to long-term investments represent a non-cash write-
down to estimated fair market value of investments in affordable
housing partnerships.
8 Interest Expense
Interest expense
Less: Interest capitalized
2006
2005
2004
$ 170
$ 188
$ 177
5
4
3
$ 165
$ 184
$ 174
In 2006, a non-cash reduction of $21 was recognized in connec-
tion with the favorable settlement of a U.S. tax contingency.
PAGE 32
Components of net periodic benefit cost:
Pension
Service cost
Interest cost
2006
2005
2004
$ 57
$ 56
$ 50
113
113
111
Expected return on plan assets
(163)
(155)
(150)
Amortization of prior service cost
Recognized net actuarial loss
Special termination benefits
1
43
—
6
30
2
6
23
3
Net periodic pension expense
$ 51
$ 52
$ 43
Pension expense of $8, $11 and $12 for 2006, 2005 and 2004,
respectively, was recorded by the United Kingdom and Irish
businesses and is included in Earnings from discontinued opera-
tions. See also Note 2. The special termination benefits relate to
discontinued operations.
Postretirement
Service cost
Interest cost
Amortization of prior service cost
Recognized net actuarial loss
2006
2005
2004
$ 4
21
$ 1
20
$ 4
23
(3)
4
(7)
1
(10)
5
Net periodic postretirement expense
$ 26
$ 15
$ 22
Change in benefit obligation:
Pension
Postretirement
2006
2005
2006
2005
Obligation at beginning of year
$ 2,136 $ 1,893
$ 397
$ 333
Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
57
113
—
56
113
4
21
(37)
—
(86)
230
(31)
1
20
33
37
Participant contributions
Special termination benefits
3
—
2
2
4
—
—
—
Benefits paid
Medicare subsidies
Foreign currency adjustment
(128)
(128)
(32)
(27)
—
24
—
5
2
—
—
—
Benefit obligation at end of year $ 2,119 $ 2,136
$ 365
$ 397
Funded status as recognized in the
Consolidated Balance Sheets:
Pension
Postretirement
2006
2005
2006
2005
Funded status at end of year
$ (116) $ (289) $ (365) $ (397)
Unrecognized prior service cost
(1)
(1)
Unrecognized loss
581
745
9
51
7
85
Net asset (liability) recognized
$ 464
$ 455
$ (305) $ (305)
Amounts recognized in the Consolidated Balance Sheets:
Prepaid benefit cost
Intangible asset
Accumulated other comprehensive income (loss)
Noncurrent liabilities of discontinued operations
Net amount recognized
Pension
2006
2005
$ 388
$ 75
2
3
99
377
(25)
—
$ 464
$ 455
The accumulated benefit obligation for all pension plans was
$1,961 at July 30, 2006 and $1,945 at July 31, 2005. 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 $455, $392 and
$278, respectively, as of July 30, 2006 and $1,598, $1,444
and $1,292, respectively, as of July 31, 2005. The balance in
Accumulated other comprehensive income (loss) included $22 in
2006 related to the discontinued operations.
The current portion of nonpension postretirement benefits included
in Accrued liabilities was $27 at July 30, 2006 and July 31, 2005.
Increase (decrease) in minimum pension liability included in
other comprehensive income:
2006
2005
$ (278)
$ 70
Weighted-average assumptions used to determine benefit
obligations at the end of the year:
Change in the fair value of pension plan assets:
2006
2005
Discount rate
Pension
Postretirement
2006
2005
2006
2005
6.05%
5.44%
6.25%
5.50%
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
$ 1,847 $ 1,627
206
273
52
3
61
2
Rate of compensation increase
3.95%
3.93%
—
—
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended:
(124)
(123)
Pension
19
7
Discount rate
2006
2005
2004
5.44%
6.19%
6.39%
$ 2,003 $ 1,847
Expected return on plan assets
8.71%
8.76%
8.78%
Rate of compensation increase
3.93%
4.21%
4.43%
The discount rate used to determine net periodic postretirement
expense was 5.5% in 2006, 6.25% in 2005 and 6.5% in 2004.
PAGE 33
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 periodically studied
to assist in the establishment of strategic asset allocation targets.
Estimated future benefit payments are as follows:
2007
2008
2009
2010
2011
2012-2016
Pension
$ 140
$ 141
$ 141
$ 148
$ 148
$ 820
Postretirement
$ 33
$ 32
$ 32
$ 32
$ 31
$ 157
The benefit payments include payments from funded and
unfunded plans.
Estimated future Medicare subsidy receipts are $3 – $4 annually from
2007 through 2011, and $21 for the period 2012 through 2016.
The company made a voluntary contribution of $22 to a U.S.
pension plan subsequent to July 30, 2006. The company is not
required to make additional contributions to the U.S. plans in 2007.
Contributions to non-U.S. plans are expected to be approximately
$10 in 2007.
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 $16 in 2006 and
$14 in 2005 and 2004.
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 projected asset allocation.
Assumed health care cost trend rates at the end of the year:
Health care cost trend rate assumed for next year
9.00%
9.00%
Rate to which the cost trend rate is assumed to
decline (ultimate trend rate)
4.50%
4.50%
Year that the rate reaches the ultimate trend rate
2011
2010
2006
2005
A one-percentage-point change in assumed health care costs
would have the following effects on 2006 reported amounts:
Effect on service and interest cost
Effect on the 2006 accumulated benefit obligation
Increase
Decrease
$ 2
$ 25
$
(1)
$ (22)
Obligations related to non-U.S. postretirement benefit plans are
not significant, since these benefits are generally provided through
government-sponsored plans.
Plan Assets
The company’s year-end pension plan weighted-average asset
allocations by category were:
Equity securities
Debt securities
Real estate and other
Total
Strategic
Target
68%
22%
10%
2006
2005
67%
20%
13%
68%
21%
11%
100%
100%
100%
The fundamental goal underlying the pension plans’ investment
policy is to ensure that the assets of the plans are invested in
a prudent manner to meet the obligations of the plans as these
obligations come due. Investment practices must comply with
applicable laws and regulations.
The company’s investment strategy is based on an expectation
that equity securities will outperform debt securities over the
long term. Accordingly, in order to maximize the return on assets,
a majority of assets are invested in equities. Additional asset
classes with dissimilar expected rates of return, return volatility,
and correlations of returns are utilized to reduce risk by providing
diversification relative to equities. Investments within each asset
PAGE 34
the settlement, in the first quarter of 2006 the company adjusted
tax reserves and recorded a $47 tax benefit. In addition, the
company reduced interest expense and accrued interest payable
by $21 and adjusted deferred tax expense by $8 ($13 after
tax). The aggregate non-cash impact of the settlement on net
earnings was $60, or $.14 per share. The settlement did not have
a material impact on the company’s consolidated cash flow. In
2006, the company also recognized an additional tax benefit of
$21 related to the resolution of certain U.S. tax issues for open
tax years through 2001.
See also Note 1 for additional information on the tax impact of the
repatriation of earnings under the AJCA.
Deferred tax liabilities and assets are comprised of the following:
11 Taxes on Earnings
The provision for income taxes on earnings from continuing opera-
tions consists of the following:
2006
2005
2004
Income taxes:
Currently payable
Federal
State
Non-U.S.
Deferred
Federal
State
Non-U.S.
Earnings from continuing operations before
income taxes:
United States
Non-U.S.
$ 187
$ 224
$ 195
17
56
6
31
13
29
260
261
237
(6)
4
(12)
(14)
38
3
6
47
47
2
2
51
$ 246
$ 308
$ 288
238
199
179
$ 1,001
$ 952
$ 870
$ 763
$ 753
$ 691
Other
Deferred taxes attributable to the divestiture
Depreciation
Pensions
Amortization
Deferred tax liabilities
Benefits and compensation
Tax loss carryforwards
Other
Gross deferred tax assets
Deferred tax asset valuation allowance
The following is a reconciliation of the effective income tax rate
on continuing operations with the U.S. federal statutory income
tax rate:
Federal statutory income tax rate
35.0%
35.0%
35.0%
Net deferred tax liability
2006
2005
2004
Net deferred tax assets
2006
2005
$ 184
$ 198
133
30
298
252
56
79
—
80
750
560
218
195
25
23
125
125
368
343
—
(5)
368
338
$ 382
$ 222
State income taxes (net of federal tax benefit)
1.4
Tax effect of international items
Settlement of U.S. tax contingencies
Taxes on AJCA repatriation
Federal manufacturing deduction
Other
(4.4)
(6.8)
1.3
(1.0)
(0.9)
0.6
(2.6)
—
0.7
—
1.0
(1.5)
—
—
—
(1.3)
(1.4)
Effective income tax rate
24.6%
32.4%
33.1%
The tax effect of international items included a $14 deferred tax
benefit related to foreign tax credits, which can be utilized as a
result of the sale of the United Kingdom and Irish businesses. See
also Note 2 for information on the divestiture.
The company received an Examination Report from the Internal
Revenue Service (IRS) 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 securities. If the
proposed adjustment were upheld, it would have required the
company to pay a net amount of over $100 in taxes, accumulated
interest and penalties. The company had maintained a reserve for
a portion of this contingency. In November 2005, the company
negotiated a settlement of this matter with the IRS. As a result of
At July 30, 2006, non-U.S. subsidiaries of the company have
tax loss carryforwards of approximately $80. Of these carryfor-
wards, $5 expire through 2011 and $75 may be carried forward
indefinitely. The current statutory tax rates in these countries
range from 18% to 39%.
The company has undistributed earnings of non-U.S. subsidiaries
of approximately $549. U.S. income taxes have not been provided
on undistributed earnings, which are deemed to be permanently
reinvested. It is not practical to estimate the tax liability that
might be incurred if such earnings were remitted to the U.S.
12 Accounts Receivable
Customers
Allowances
Other
2006
2005
$ 489
$ 509
(24)
(36)
465
473
29
36
$ 494
$ 509
PAGE 35
13 Inventories
from 2 to 15 years. Approximately $152 of capital expenditures is
required to complete projects in progress at July 30, 2006.
Raw materials, containers and supplies
Finished products
Less: Adjustment to LIFO valuation method
2006
2005
$ 252
$ 278
476
488
—
(13)
$ 728
$ 753
16 Other Assets
Prepaid pension benefit cost
As of August 1, 2005, the company changed the method of
accounting for certain U.S. inventories from the LIFO method to
the average cost method. Approximately 55% of inventory in 2005
was accounted for on the LIFO method of determining cost.
Investments
Deferred taxes
Other
2006
2005
$ 388
$ 75
147
150
1
69
6
66
$ 605
$ 297
The company believes that the average cost method of accounting
for U.S. inventories is preferable and will improve financial
reporting by better matching revenues and expenses as average
cost reflects the physical flow of inventory and current cost. In
addition, the change from LIFO to average cost will enhance the
comparability of the company’s financial statements with peer
companies since the average cost method is consistent with
methods used in the industry. The impact of the change was a
pre-tax $13 benefit ($8 after tax or $.02 per share). Prior periods
were not restated since the impact of the change on previously
issued financial statements was not considered material.
14 Other Current Assets
Deferred taxes
Other
15 Plant Assets
Land
Buildings
Machinery and equipment
Projects in progress
2006
2005
$ 78
$ 114
55
67
$ 133
$ 181
2006
2005
$
56 $
69
1,052 1,062
3,144 3,172
Investments consist of several limited partnership interests in
affordable housing partnership funds. These investments have
generated significant tax credits. The company’s ownership
primarily ranges from approximately 12% to 19%.
17 Accrued Liabilities
Accrued compensation and benefits
Fair value of derivatives
Accrued trade and consumer promotion programs
Accrued interest
Other
2006
2005
$ 204
$ 187
184
117
76
12
96
94
239
217
$ 820
$ 606
The fair value of derivatives included $78 related to hedging inter-
company financing of the United Kingdom and Irish businesses.
These instruments were settled upon completion of the sale of the
businesses in August 2006.
18 Notes Payable and Long-term Debt
Notes payable consists of the following:
Accumulated depreciation
(2,543)
(2,524)
Variable-rate bank borrowings
$ 1,954 $ 1,987
Fixed-rate borrowings
245
208
Commercial paper
4,497 4,511
Current portion of long-term debt
2006
2005
$ 419
$ 428
606
—
67
5
18
5
$ 1,097
$ 451
Depreciation expense was $286 in 2006, $277 in 2005 and
$258 in 2004. Depreciation expense of continuing operations was
$272 in 2006, $261 in 2005 and $237 in 2004. Buildings are
depreciated over periods ranging from 10 to 45 years. Machinery
and equipment are depreciated over periods generally ranging
Commercial paper had a weighted-average interest rate of 6.00%
and 5.34% at July 30, 2006 and July 31, 2005, respectively.
PAGE 36
The company has two committed revolving credit facilities totaling
$1,500 that support commercial paper borrowings and remain
unused at July 30, 2006, except for $1 of standby letters of credit.
Another $32 of standby letters of credit was issued under a
separate facility.
Long-term Debt consists of the following:
Fiscal Year of Maturity
Rate
2006
2005
Type
Notes
Notes
Notes
Notes
Notes
Notes
Debentures
Australian dollar loan facility
2011
Other
2007
2007
2009
2011
2013
2014
2021
6.90%
$ — $ 300
5.50%
5.88%
6.75%
5.00%
4.88%
8.88%
6.81%
—
300
700
400
300
200
207
9
300
300
700
400
300
200
—
42
$ 2,116 $ 2,542
The fair value of the company’s long-term debt including the
current portion of long-term debt in Notes payable was $2,786 at
July 30, 2006 and $2,727 at July 31, 2005.
The company has $300 of long-term debt available to issue as of
July 30, 2006 under a shelf registration statement filed with the
Securities and Exchange Commission.
Principal amounts of debt mature as follows: 2007–$1,097 (in
current liabilities); 2008–$5; 2009–$303; 2010–$3; 2011–
$909 and beyond–$896.
19 Other Liabilities
Deferred taxes
Deferred compensation
Postemployment benefits
Fair value of derivatives
Other
2006
2005
$ 463
$ 342
137
116
28
70
23
22
174
30
$ 721
$ 684
The deferred compensation plan is an unfunded plan maintained for
the purpose of providing the company’s directors and certain of its
executives the opportunity to defer a portion of their compensation.
All forms of compensation contributed to the deferred compensation
plan are accounted for in accordance with the underlying program.
Contributions are credited to an investment account in the participant’s
name, although no funds are actually contributed to the investment
account and no investment 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 reallocate
investments daily and are entitled to the gains and losses on invest-
ment funds. The company recognizes an amount in the Statements
of Earnings for the market appreciation/depreciation of each fund,
as appropriate.
20 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 18, and derivative financial instruments are based on
quoted market prices.
In 2001, the company adopted SFAS No. 133 “Accounting for
Derivative Instruments and Hedging Activities” as amended by
SFAS No. 138 and SFAS No. 149. The standard requires that all
derivative instruments be recorded on the balance sheet at fair
value and establishes criteria for designation and effectiveness of
the hedging relationships.
The company utilizes certain derivative financial instruments
to enhance its ability to manage risk, including interest rate,
foreign currency, commodity and certain equity-linked employee
compensation exposures that exist as part of ongoing business
operations. Derivative instruments are entered into for periods
consistent with related underlying exposures and do not consti-
tute positions independent of those exposures. The company does
not enter into contracts for speculative purposes, nor is it a party
to any leveraged derivative instrument.
The company is exposed to credit loss in the event of 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
PAGE 37
(changes in fair value are recognized to act as economic offsets
to changes in fair value of the underlying hedged item and do not
qualify for hedge accounting under SFAS No. 133).
Changes in the fair value of a fair-value hedge, along with the loss
or gain on the hedged asset or liability that is attributable to the
hedged risk (including losses or gains on firm commitments), are
recorded in current period earnings. Changes in the fair value of a
cash-flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability of cash flows. Changes
in the fair value of a foreign-currency hedge are recorded in either
current-period earnings or other comprehensive income, depending
on whether the hedge transaction is a fair-value hedge (e.g., a
hedge of a firm commitment that is to be settled in foreign
currency) or a cash-flow hedge (e.g., a hedge of a foreign-currency-
denominated forecasted transaction). If, however, a derivative is
used as a hedge of a net investment in a foreign operation, its
changes in fair value, to the extent effective as a hedge, are
recorded in the cumulative translation adjustments account within
Shareowners’ equity.
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.
In July 2006, the company entered into three interest rate swaps
that converted $154 of the $207 Australian variable-rate debt to
a weighted-average fixed rate of 6.73%.
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 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.
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 30, 2006 and July 31,
2005. The swaps had a fair value of $(29) at July 30, 2006 and
$(2) at July 31, 2005.
Variable-to-fixed interest rate swaps are accounted for as cash-flow
hedges. Consequently, the effective portion of unrealized gains
(losses) is deferred as a component of Accumulated other compre-
hensive income (loss) and is recognized in earnings at the time the
hedged item affects earnings. The amounts paid or received on the
hedge are recognized as adjustments to interest expense. The fair
value of the swaps was not material as of July 30, 2006. The
notional amount was $154 as of July 30, 2006.
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 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 the spot rates. The
fair value of these instruments was $(202) at July 30, 2006. The
notional amount was $756 as of July 30, 2006. Of these amounts,
fair value of $(71) was related to $270 notional value of pay fixed
GBP/receive fixed USD swaps settled upon completion of the sale
of the United Kingdom and Irish businesses in August 2006.
Qualifying foreign exchange forward contracts are accounted for
as fair-value hedges when the hedged item is a recognized asset,
liability or firm commitment. No such contracts were outstanding
at July 30, 2006.
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 intercompany 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 underlying transactions. Cross-
currency contracts mature in 2007 through 2014. The fair value of
these instruments was $(18) at July 30, 2006. Of this amount, $(6)
was related to forward contracts to hedge the company’s investment
in the United Kingdom and Irish businesses and a cross-currency
swap associated with intercompany financing, which were settled
upon completion of the sale in August 2006. The notional amount of
all instruments was $723 at July 30, 2006.
PAGE 38
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 30, 2006, 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 $15, net of
tax. As of July 31, 2005 the accumulated derivative net loss in
other comprehensive income for cash-flow hedges was $20, net
of tax. Reclassifications from Accumulated other comprehensive
income (loss) into the Statements of Earnings during the period
ended July 30, 2006 were not material. There were no discon-
tinued cash-flow hedges during the year. At July 30, 2006, the
maximum maturity date of any cash-flow hedge was approxi-
mately seven years. The amount expected to be reclassified into
the Statements of Earnings in 2007 is approximately $(8).
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, wheat and dairy. As of July 30,
2006 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 2007, was $55 at July 30, 2006. 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 30, 2006 was approximately $2.
21 Shareowners’ Equity
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.
Stock Plans
In 2003, shareowners approved the 2003 Long-Term Incentive
Plan, which authorized the issuance of 28 million shares to satisfy
awards of stock options, stock appreciation rights, unrestricted
stock, restricted stock (including performance restricted stock)
and performance units. Approximately 3.2 million shares available
under a previous long-term plan were rolled into the 2003 Long-
Term Incentive Plan, making the total number of available shares
approximately 31.2 million. In November 2005, shareowners
approved the 2005 Long-Term Incentive Plan, which authorized
the issuance of an additional 6 million shares to satisfy the same
types of awards.
Awards under the 2003 and 2005 Long-Term Incentive Plans
may be granted to employees and directors. The term of a stock
option granted under these plans may not exceed ten years
from the date of grant. Options granted under these plans vest
cumulatively over a three-year period at a rate of 30%, 60% and
100%, respectively. The option price may not be less than the
fair market value of a share of common stock on the date of the
grant. Restricted stock granted in fiscal 2004 and 2005 vests in
three annual installments of 1/3 each, beginning 2½ years from
the date of grant.
Pursuant to the 2003 Long-Term Incentive Plan, in July 2005 the
company adopted a long-term incentive compensation program for
fiscal 2006 which provides for grants of total shareowner return
(TSR) performance restricted stock, EPS performance restricted
stock, and time-lapse restricted stock. Initial grants made in
accordance with this program were approved in September 2005.
Under the program, awards of TSR performance restricted stock
will be earned by comparing the company’s total shareowner
return during the period 2006 to 2008 to the respective total
shareowner returns of companies in a performance peer group.
Based upon the company’s ranking in the performance peer
group, a recipient of TSR performance restricted stock may earn a
total award ranging from 0% to 200% of the initial grant. Awards
of EPS performance restricted stock will be earned based upon
the company’s achievement of annual earnings per share goals.
During the period 2006 to 2008, a recipient of EPS performance
restricted stock may earn a total award ranging from 0% to 100%
of the initial grant. Awards of time-lapse restricted stock will vest
ratably over the three-year period. Annual stock option grants
are not part of the long-term incentive compensation program for
2006. However, stock options may still be granted on a selective
basis under the 2003 and 2005 Long-Term Incentive Plans.
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
PAGE 39
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.
Information about stock options and related activity is as
follows:
Weighted-
Average
Weighted-
Average
Remaining
Exercise Contractual
Life
Price
Aggregate
Intrinsic
Value
2006
(options in thousands)
Beginning of year
Granted
Exercised
Terminated
End of year
39,548 $ 27.85
212 $ 29.82
(8,296) $ 28.49
(857) $ 28.32
30,607 $ 27.77
Exercisable at end of year
21,971 $ 28.20
6.1
5.4
$ 274
$ 187
The total intrinsic value of options exercised during 2006, 2005, and
2004 was $35, $15, and $10, respectively. As of July 30, 2006,
total remaining unearned compensation related to unvested stock
options was $19, which will be amortized over the weighted-average
remaining service period of 1 year. The weighted-average fair value of
options granted in 2006, 2005, and 2004 was estimated as $6.85,
$4.74, and $5.73, 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
2006, 2005 and 2004:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividend yield
2006
2005
2004
4.3%
3.2%
4.1%
6
6
23%
21%
2.4%
2.4%
6
24%
2.4%
The following table summarizes time-lapse restricted stock and
EPS performance restricted stock as of July 30, 2006:
(restricted stock in thousands)
Nonvested at July 31, 2005
Granted
Vested
Forfeited
Nonvested at July 30, 2006
Weighted-
Average
Grant-Date
Fair Value
Shares
2,447 $ 26.51
1,746 $ 29.48
(498) $ 26.69
(298) $ 27.51
3,397 $ 27.92
The fair value of time-lapse restricted stock and EPS performance
restricted stock is determined based on the number of shares
granted and the quoted price of the company’s stock at the date
of grant. Time-lapse restricted stock granted in fiscal 2004 and
2005 is expensed on a graded-vesting basis. Time-lapse restricted
stock granted in fiscal 2006 is expensed on a straight-line basis
over the vesting period, except for awards issued to retirement-
eligible participants, which are expensed on an accelerated basis.
EPS performance restricted stock is expensed on a graded-vesting
basis, except for awards issued to retirement-eligible participants,
which are expensed on an accelerated basis.
As of July 30, 2006, total remaining unearned compensation
related to nonvested time-lapse restricted stock and EPS perfor-
mance restricted stock was $44, which will be amortized over the
weighted-average remaining service period of 1.9 years. The fair
value of restricted stock vested during 2006, 2005, and 2004
was $16, $24, and $14, respectively. The weighted-average
grant-date fair value of restricted stock granted during 2005 and
2004 was $26.32 and $26.78, respectively.
In 2006, the company granted approximately 1.7 million shares
of TSR performance restricted stock with a grant-date fair value
of $28.73. Approximately 1.6 million shares were outstanding at
July 30, 2006. The fair value of TSR performance restricted stock is
estimated at the grant date using a Monte Carlo simulation. Expense
is recognized on a straight-line basis over the service period. As of
July 30, 2006, total remaining unearned compensation related to
TSR performance restricted stock was $34, which will be amortized
over the weighted-average remaining service period of 2.2 years.
Employees can elect to defer all types of restricted stock awards.
These awards are classified as liabilities because of the possibility
that they may be settled in cash. The fair value is adjusted quar-
terly. The total cash paid to settle the liabilities in 2006, 2005
and 2004 was not material. The liability for deferred awards was
$16 at July 30, 2006.
Prior to the adoption of SFAS No. 123R, the company presented
the tax benefits of deductions resulting from the exercise of stock
options as cash flows from operating activities in the Consolidated
Statements of Cash Flows. SFAS No. 123R requires the cash
flows from the excess tax benefits the company realizes on
stock-based compensation to be presented as cash flows from
financing activities. The excess tax benefits on the exercise of
stock options and vested restricted stock presented as cash flows
from financing activities in 2006 were $11 and presented as cash
flows from operating activities in 2005 were $6 and in 2004
were $3. Cash received from the exercise of stock options was
$236, $71, and $25 for 2006, 2005, and 2004, respectively,
and is reflected in cash flows from financing activities in the
Consolidated Statements of Cash Flows.
PAGE 40
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 include the incremental effect
of stock options and restricted stock programs, except when such
effect would be antidilutive. Stock options to purchase 3 million
shares of capital stock for 2006, 10 million shares of capital stock
for 2005 and 26 million shares of capital stock for 2004 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.
22 Commitments and Contingencies
On March 30, 1998, the company effected a spinoff of several of
its non-core businesses to Vlasic Foods International Inc. (VFI). VFI
and several of its affiliates (collectively, Vlasic) commenced cases
under Chapter 11 of the Bankruptcy Code on January 29, 2001 in
the United States Bankruptcy Court for the District of Delaware.
Vlasic’s Second Amended Joint Plan of Distribution under Chapter
11 (the Plan) was confirmed by an order of the Bankruptcy Court
dated November 16, 2001, and became effective on or about
November 29, 2001. The Plan provides for the assignment of
various causes of action allegedly belonging to the Vlasic estates,
including claims against the company allegedly arising from the
spinoff, to VFB L.L.C., a limited liability company (VFB) whose
membership interests are to be distributed under the Plan to
Vlasic’s general unsecured creditors.
On February 19, 2002, VFB commenced a lawsuit against the
company and several of its subsidiaries in the United States
District Court for the District of Delaware alleging, among other
things, fraudulent conveyance, illegal dividends and breaches of
fiduciary duty by Vlasic directors alleged to be under the company’s
control. The lawsuit seeks to hold the company liable in an amount
necessary to satisfy all unpaid claims against Vlasic (which VFB
estimates in the amended complaint to be $200), plus unspecified
exemplary and punitive damages.
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. On November 1,
2005, VFB appealed the decision to the United States Court of
Appeals for the Third Circuit. The company continues to believe
this action is without merit and is defending the case vigorously.
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 $82 in 2006, $84 in 2005 and $79 in 2004. Future
minimum annual rental payments under these operating leases
are as follows:
2007
$ 77
2008
$ 65
2009
$ 49
2010
$ 44
2011
Thereafter
$ 36
$ 64
The company guarantees approximately 1,500 bank loans made to
Pepperidge Farm independent sales distributors by third party finan-
cial 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 $122. 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 30, 2006 and July 31, 2005 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 30, 2006.
PAGE 41
2006
2005
2004
2005
Net sales
Gross profit
Earnings from
First
Second
Third
Fourth
$ 1,969 $ 2,085 $ 1,614 $ 1,404
808
853
661
575
continuing operations3
215
218
130
$ 87
$ 83
$ 73
(5)
(2)
(5)
$ 82
$ 81
$ 68
Earnings from
discontinued operations3
Net earnings3
Per share – basic
Earnings from
15
230
17
235
16
146
81
15
96
23 Statements of Cash Flows
Cash Flows From Operating Activities:
Other non-cash charges to net earnings:
Non-cash compensation/benefit
related expense
Other
Total
Other:
Benefit related payments
$ (44)
$ (47) $
(46)
Payments for hedging activities
Other
Total
(9)
—
(19)
7
(59)
2
$ (53)
$ (59) $ (103)
continuing operations3
0.53
0.53
0.32
0.20
Earnings from
discontinued operations3
Net earnings3
Dividends
Per share – assuming dilution
0.04
0.56
0.17
0.04
0.57
0.17
0.04
0.36
0.17
0.04
0.23
0.17
Interest paid
Interest received
Income taxes paid
2006
2005
2004
Earnings from
$ 173
$ 176
$ 168
continuing operations3
0.52
0.53
0.31
0.20
$ 15
$
4
$
6
Earnings from
$ 303
$ 258
$ 249
discontinued operations3
Net earnings3
Market price
High
Low
0.04
0.56
0.04
0.57
0.04
0.35
0.04
0.23
$ 27.13 $ 30.52 $ 29.74 $ 31.60
$ 25.21 $ 26.68 $ 27.35 $ 29.53
1 Includes a $13 ($8 after tax or $.02 per share) benefit from a change in inventory
accounting method (see also Note 13) and a $60 ($.14 per share) benefit from the
favorable resolution of a U.S. tax contingency. (See also Note 11.)
2 The results of discontinued operations included $56 of deferred tax expense due to book/
tax basis differences and $5 of after-tax costs associated with the sale of the businesses
(aggregate impact of $.15 per share).
3 As of August 1, 2005, the company adopted SFAS No. 123R using the modified
prospective method. Prior periods were not restated. (See also Note 1.)
24 Quarterly Data (unaudited)
2006
Net sales
Gross profit
Earnings from
First1
Second
Third
Fourth2
$ 2,002 $ 2,159 $ 1,728 $ 1,454
847
909
708
611
continuing operations
286
239
146
84
Earnings (loss) from
discontinued operations
Net earnings
Per share – basic
Earnings from
16
302
15
254
20
166
(40)
44
continuing operations
0.70
0.59
0.36
0.21
Earnings (loss) from
discontinued operations
Net earnings
Dividends
Per share – assuming dilution
Earnings from
0.04
0.74
0.18
0.04
0.62
0.18
0.05
0.41
0.18
(0.10)
0.11
0.18
continuing operations
0.69
0.58
0.35
0.20
Earnings (loss) from
discontinued operations
Net earnings
Market price
High
Low
0.04
0.73
0.04
0.61
0.05
0.40
(0.10)
0.11
$ 31.46 $ 31.30 $ 32.74 $ 38.02
$ 28.29 $ 28.30 $ 28.88 $ 32.12
PAGE 42
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 information and
representations in such financial statements, including the estimates
and judgments required for their preparation. The financial state-
ments 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:
(cid:129) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company;
(cid:129) 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
(cid:129) 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 30,
2006. 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 30, 2006.
Management’s assessment of the effectiveness of the company’s
internal control over financial reporting as of July 30, 2006 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 28, 2006
PAGE 43
Report of Independent Registered Public Accounting Firm
To the Shareowners and Directors of Campbell Soup Company
We have completed integrated audits of Campbell Soup Company’s
2006 and 2005 consolidated financial statements and of its
internal control over financial reporting as of July 30, 2006 and an
audit of its 2004 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 and of cash flows present fairly, in all material respects,
the financial position of Campbell Soup Company and its subsid-
iaries at July 30, 2006 and July 31, 2005, and the results
of their operations and their cash flows for each of the three
years in the period ended July 30, 2006 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 1, the company adopted a new financial
accounting standard for share-based compensation during 2006.
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 effective
internal control over financial reporting as of July 30, 2006 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, effective internal
control over financial reporting as of July 30, 2006, 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, evalu-
ating 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 main-
tenance 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 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 (iii) 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.
Philadelphia, Pennsylvania
September 28, 2006
PAGE 44
The annual report of management on the company’s internal control
over financial reporting is provided under “Financial Statements
and Supplementary Data” on page 42. The attestation report of
PricewaterhouseCoopers LLP, the company’s independent registered
public accounting firm, regarding the company’s internal control
over financial reporting is provided under “Financial Statements and
Supplementary Data” on page 43.
During the quarter ended July 30, 2006, except as described
below, 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.
During the quarter, the company implemented a new enterprise-
resource planning system in its Canadian business as part of the
previously announced North American implementation of SAP. In
conjunction with this implementation, changes were made in the
company’s internal control over financial reporting in order to adapt
to the new system.
Item 9B. Other Information
None.
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 disclosure
controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) as of July 30, 2006 (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.
Part III
Item 10. Directors and Executive Officers of
the Registrant
The sections entitled “Election of Directors,” “Security Ownership
of Directors and Executive Officers” 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 16, 2006 (the “2006 Proxy”) are incorporated herein
by reference. The information presented in the section entitled
“Board Committees” in the 2006 Proxy relating to the members
of the company’s Audit Committee is incorporated herein by refer-
ence. The information presented in the section entitled “Audit
Committee Report” in the 2006 Proxy relating to the Audit
Committee’s financial experts is incorporated herein by reference.
Certain of the information required by this Item relating to the
executive officers of the company is set forth in the heading
“Executive Officers of the Company.”
The company has adopted a Code of Ethics for the Chief Executive
Officer and Senior Financial Officers that applies to the company’s
Chief Executive Officer, Chief Financial Officer, Controller and
members of the Chief Financial Officer’s financial leadership team.
The Code of Ethics for the Chief Executive Officer and Senior
Financial Officers is posted on the company’s website, www.
campbellsoupcompany.com (under the “Governance” caption).
The company intends to satisfy the disclosure requirement
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 company’s website, www.
campbellsoupcompany.com (under the “Governance” caption). The
PAGE 45
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.
Item 11. Executive Compensation
The information presented in the sections entitled “Summary
Compensation,” “Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values,” “Fiscal 2006 Long-Term
Incentive Grants,” “Pension Plans,” “Director Compensation,”
“Termination of Employment and Change in Control Arrangements”
and “Compensation and Organization Committee Interlocks and
Insider Participation” in the 2006 Proxy is incorporated herein
by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management and
Related Shareowner Matters
Security Ownership of Certain Beneficial Owners and
Management
The information presented in the sections entitled “Security
Ownership of Directors and Executive Officers” and “Security
Ownership of Certain Beneficial Owners” in the 2006 Proxy is
incorporated herein by reference.
Securities Authorized for Issuance Under Equity
Compensation Plans
The following table provides information about the company’s
stock that may be issued under the company’s equity compensa-
tion plans as of July 30, 2006:
Plan Category
Equity Compensation Plans Approved by
Security Holders1
Equity Compensation Plans Not Approved
by Security Holders2
Total
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights (b)
Number of Securities Remaining
Available For Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in the First Column) (c)
31,655,167
$ 27.77
1,544,822
33,199,989
N/A
N/A
15,117,452
N/A
15,117,452
1 Column (a) represents stock options and restricted stock units outstanding under the 2005 Long-Term Incentive Plan, the 2003
Long-Term Incentive Plan and the 1994 Long-Term Incentive Plan. No additional awards can be made under the 1994 Long-Term
Incentive Plan. Future equity awards under the 2005 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan may take the
form of stock options, stock appreciation rights, performance unit awards, restricted stock, restricted performance stock, restricted
stock units or stock awards. Column (b) represents the weighted-average exercise price of the outstanding stock options only; the
outstanding restricted stock units are not included in this calculation. Column (c) represents the maximum aggregate number of future
equity awards that can be made under the 2005 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan as of July 30,
2006. The maximum number of future equity awards that can be made under the 2005 Long-Term Incentive Plan as of July 30,
2006 is 5,980,870. The maximum number of future equity awards that can be made under the 2003 Long-Term Incentive Plan as of
July 30, 2006 is 9,136,582 (the “2003 Plan Limit”). Each stock option or stock appreciation right awarded under the 2003 Long-
Term Incentive Plan reduces the 2003 Plan Limit by one share. Each restricted stock unit, restricted stock, restricted performance
stock or stock award under the 2003 Long-Term Incentive Plan reduces the 2003 Plan Limit by four shares. In the event any award
(or portion thereof) under the 1994 Long-Term Incentive Plan lapses, expires or is otherwise terminated without the issuance of any
company stock or is settled by delivery of consideration other than company stock, the maximum number of future equity awards that
can be made under the 2003 Long-Term Incentive Plan automatically increases by the number of such shares.
2 The company’s Deferred Compensation Plans (the “Plans”) allow participants the opportunity to invest in various book accounts,
including a book account that tracks the performance of the company’s stock (the “Stock Account”). Upon distribution, participants
may receive the amounts invested in the Stock Account in the form of shares of company stock. Column (a) represents the maximum
number of shares that could be issued upon a complete distribution of all amounts in the Stock Account. This calculation is based
upon the amount of funds in the Stock Account as of July 30, 2006 and a $36.77 share price, which was the closing price of a share
of company stock on July 28, 2006 (the last business day before July 30, 2006). 853,796 of the total number of shares that could
be issued upon a complete distribution of the Plans are fully vested, and 691,026 of the shares are subject to restrictions.
PAGE 46
For terminations and retirements, a participant’s account is gener-
ally paid out in accordance with the last valid distribution election
made by the participant. The applicable elections include: (i) a
lump sum, (ii) 5 annual installments, (iii) 10 annual installments,
(iv) 15 annual installments (not available to participants terminated
prior to their 55th birthday), and (v) 20 annual installments (not
available to participants terminated prior to their 55th birthday).
For distributions upon death, if a participant’s beneficiary is his
or her spouse, the account is generally paid out in accordance
with the last valid death distribution election (or, if there is no
death distribution election, the regular distribution election). If a
participant’s beneficiary is not his or her spouse, then the account
is generally paid out in a lump sum. The administrator of the Plans
has also established procedures for hardship withdrawals and, for
amounts vested prior to January 1, 2005, unplanned withdrawals.
In the event of a change in control of the company, the Stock
Account is automatically converted into cash based upon a formula
provided in the Plan.
Item 13. Certain Relationships and Related
Transactions
The information presented in the section entitled “Certain
Relationships and Related Transactions” in the 2006 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
2006 Proxy is incorporated herein by reference.
Deferred Compensation Plans
The Plans are unfunded and maintained for the purpose of
providing the company’s directors and U.S.-based executives and
key managers the opportunity to defer a portion of their earned
compensation. Participants may defer a portion of their base
salaries and all or a portion of their annual incentive compensation,
long-term incentive awards, and director retainers and fees. The
Plans were not submitted for security holder approval because they
do not provide additional compensation to participants. They are
vehicles for participants to defer earned compensation.
Each participant’s contributions to the Plans are credited to an
investment account in the participant’s name. Gains and losses
in the participant’s account are based on the performance of the
investment choices the participant has selected. Four investment
choices are available, including the Stock Account. In addition to
the Stock Account, participants also generally have the opportu-
nity to invest in (i) a book account that tracks the performance
of Fidelity’s Spartan U.S. Equity Index Fund, (ii) a book account
that tracks the performance of Fidelity’s Puritan Fund, and (iii)
a book account that credits interest at the Wall Street Journal
indexed prime rate (determined on November 1 for the subse-
quent calendar year).
A participant may reallocate his or her investment account at any
time among the four investment choices, except that (i) restricted
stock awards must be invested in the Stock Account during the
restriction period, and (ii) reallocations of the Stock Account must
be made in compliance with the company’s policies on trading
company stock. Dividends on amounts invested in the Stock
Account may be reallocated among the four investment accounts.
The company credits a participant’s account with an amount equal
to the matching contribution that the company would have made
to the participant’s 401(k) Plan account if the participant had
not deferred compensation under the Plan. In addition, for those
individuals whose base salary and annual incentive compensation
exceed the Internal Revenue Service indexed compensation limit
for the 401(k) Plan, the company credits such individual’s account
with an amount equal to the contribution the company would have
made to the 401(k) Plan but for the compensation limit. These
company contributions vest in 20% increments over the partici-
pant’s first five (5) years of credited service; after the participant’s
first five (5) years of service, the company contributions vest imme-
diately. Except as described above, there is no company match on
deferred compensation.
Part IV
PAGE 47
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements
(cid:129) Consolidated Statements of Earnings for 2006, 2005 and 2004
(cid:129) Consolidated Balance Sheets as of July 30, 2006 and July 31, 2005
(cid:129) Consolidated Statements of Cash Flows for 2006, 2005 and 2004
(cid:129) Consolidated Statements of Shareowners’ Equity for 2006, 2005 and 2004
(cid:129) Notes to Consolidated Financial Statements
(cid:129) Management’s Report on Internal Control Over Financial Reporting
(cid:129) 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 May 25, 2006, were filed with the SEC on a Form 8-K on May 26, 2006, and
are incorporated herein by reference.
4
9
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.
10(c) Campbell Soup Company 2005 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2005 Proxy Statement,
and is incorporated herein by reference.
10(d) 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(e) Campbell Soup Company Mid-Career Hire Pension Program, amended effective as of January 25, 2001, was filed with the
SEC with Campbell’s Form 10-K for the fiscal year ended July 29, 2001, and is incorporated herein by reference.
10(f) Deferred Compensation Plan, effective November 18, 1999, was filed with the SEC with Campbell’s Form 10-K for the
fiscal year ended July 30, 2000, and is incorporated herein by reference.
10(g) Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant, President and Chief Executive Officer,
was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated
herein by reference. Agreements with the other executive officers listed under the heading “Executive Officers of the
Company” are in all material respects the same as Mr. Conant’s agreement.
PAGE 48
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)
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(j)
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(k) Compensation arrangements relating to the company’s executive officers and members of the company’s Board of Directors were
described in a company Form 8-K filed on September 27, 2005, and such description is incorporated herein by reference.
10(l)
A special long-term incentive grant of 54,667 performance-restricted shares made to the Senior Vice President and Chief
Information Officer, in lieu of grants under the company’s regular long-term incentive program, was described in a Form
8-K filed on November 22, 2005, and such description is incorporated herein by reference.
10(m) Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2006,
was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29, 2006, and is incorporated
herein by reference.
10(n) Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees, as amended and restated
effective January 1, 2006, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29,
2006, and is incorporated herein by reference.
10(o) Board of Director compensation for calendar year 2007 was described in a Campbell Form 8-K filed on June 27, 2006,
and such description is incorporated herein by reference.
10(p) Agreement between Campbell’s UK Limited, Campbell Soup UK Limited, Campbell Netherlands Holdings B.V., Campbell
Investment Company, Campbell Soup Company, Premier Foods Investments Limited, HL Foods Limited and Premier Foods
plc dated July 12, 2006, was filed with the SEC with a Campbell Form 8-K filed on July 14, 2006, and is incorporated
herein by reference.
21
Subsidiaries (Direct and Indirect) of the company.
23
Consent of Independent Registered Public Accounting Firm.
24
Power of Attorney.
31(i) Certification of Douglas R. Conant pursuant to Rule 13a-14(a).
31(ii) Certification of Robert A. Schiffner pursuant to Rule 13a-14(a).
32(i) Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350.
32(ii) Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350.
PAGE 49
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, 2006
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, 2006
/s/ Robert A. Schiffner
Robert A. Schiffner
Senior Vice President
and Chief Financial Officer
Harvey Golub
Douglas R. Conant
Edmund M. Carpenter
Paul R. Charron
Bennett Dorrance
Kent B. Foster
Randall W. Larrimore
Philip E. Lippincott
Mary Alice D. Malone
Sara Mathew
David C. Patterson
Charles R. Perrin
A. Barry Rand
George Strawbridge, Jr.
Les C. Vinney
Charlotte C. Weber
/s/ Anthony P. DiSilvestro
Anthony P. DiSilvestro
Vice President – Controller
Chairman and Director
President, Chief Executive
Officer and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
}
}
}
}
}
}
} By: /s/ Ellen Oran Kaden
}
}
}
}
}
}
}
}
}
}
Ellen Oran Kaden
Senior Vice President –
Law and Government
Affairs
PAGE 50
Exhibit 31(i)
Certification Pursuant to Rule 13a-14(a)
I, Douglas R. Conant, certify that:
1. I have reviewed this Annual Report on Form 10-K of Campbell Soup Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact neces-
sary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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, 2006
By: /s/ Douglas R. Conant
Name: Douglas R. Conant
Title: President and Chief Executive Officer
PAGE 51
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, 2006
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer
PAGE 52
Exhibit 32(i)
Certification Pursuant to 18 U.S.C. Section 1350
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended July 30,
2006, 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, 2006
By: /s/ Douglas R. Conant
Name: Douglas R. Conant
Title: President and Chief Executive Officer
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 30,
2006, 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, 2006
By: /s/ Robert A. Schiffner
Name: Robert A. Schiffner
Title: Senior Vice President and Chief Financial Officer
In 2006, our Company is
On trend,
On target &
On demand
Financial Highlights
(millions of dollars, except per share amounts)
Results of Operations
Net sales
Gross profi t
Percent of sales
Earnings before interest and taxes
Earnings from continuing operations
Per share — diluted
Earnings from discontinued operations
Per share — diluted
Net earnings
Per share — diluted
Other Information
Net cash provided by operating activities
Capital expenditures
Dividends per share
2006
2005
$ 7,343
$ 3,075
$ 7,072
$ 2,897
41.9%
41.0%
$ 1,151
$ 755
$ 1.82
11
$
$ 0.03
$ 766
$ 1.85
$ 1,226
$ 309
$ 0.72
$ 1,132
$ 644
$ 1.56
63
$
$ 0.15
$ 707
$ 1.71
$ 990
$ 332
$ 0.68
The 2006 Earnings from continuing operations were impacted by the following: a $60 ($.14 per share) benefi t from the favorable resolution of a
U.S. tax contingency; an $8 ($.02 per share) benefi t from a change in inventory accounting method; incremental tax expense of $13 ($.03 per
share) associated with the repatriation of non-U.S. earnings under the American Jobs Creation Act; and a $14 ($.03 per share) tax benefi t related
to higher levels of foreign tax credits, which can be utilized as a result of the sale of the businesses in the United Kingdom and Ireland. The 2006
results of discontinued operations included $56 of deferred tax expense due to book/tax basis differences and $5 of after-tax costs associated with
the sale of the businesses (aggregate impact of $.15 per share).
As of August 1, 2005, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS
No. 123R). Under SFAS No. 123R, compensation expense is to be recognized for all stock-based awards, including stock options. Had all stock-
based compensation been expensed in 2005, Earnings from continuing operations would have been $616 and earnings per share would have
been $1.49. Net earnings would have been $678 and earnings per share would have been $1.64.
See page 24 for a reconciliation of the impact of these items on reported results.
Our Quality Growth Strategies
1 Expand our icon brands
within Simple Meals and
Baked Snacks.
3 Make our products more
5 Improve overall organizational
broadly available in existing
and new markets.
diversity, engagement,
excellence, and agility.
2 Trade consumers up to higher
levels of satisfaction centered
on convenience, wellness,
and quality.
4 Increase margins by improving
price realization and company-
wide productivity.
Board of
Directors
(as of October 2006)
Harvey Golub
Chairman of Campbell Soup
Company, Retired Chairman
and Chief Executive Officer of
American Express Company
Douglas R. Conant
President and Chief Executive
Officer of Campbell Soup Company 3
Edmund M. Carpenter
President and Chief Executive
Officer of Barnes Group, Inc. 1, 3
Paul R. Charron
Chairman and Chief Executive
Officer of Liz Claiborne, Inc. 2, 3
Bennett Dorrance
Private Investor and Chairman
and Managing Director
of DMB Associates 2, 4
Kent B. Foster
Chairman of Ingram Micro, Inc. 2, 4
Randall W. Larrimore
Retired President and
Chief Executive Officer
of United Stationers, Inc. 1, 4
Philip E. Lippincott
Former Chairman of
Campbell Soup Company,
Retired Chairman and
Chief Executive Officer
of Scott Paper Company 2, 3
Mary Alice D. Malone
Private Investor and President
of Iron Spring Farm, Inc. 3, 4
Sara Mathew
Chief Financial Officer and
President – U.S. of The Dun &
Bradstreet Corporation
David C. Patterson
Founder and Chairman,
Brandywine Trust Company 3, 4
Charles R. Perrin
Non-executive Chairman
of Warnaco Group, Inc. 1, 2
A. Barry Rand
Retired Chairman and CEO of
Equitant, Inc. 2
George Strawbridge, Jr.
Private Investor and
President of
Augustin Corporation 1, 3
Les C. Vinney
President and
Chief Executive Officer
of STERIS Corporation 1, 4
Charlotte C. Weber
Private Investor and
Chief Executive Officer
of Live Oak Properties 2, 4
Officers
(as of October 2006)
Shareowner
Information
Douglas R. Conant
President and Chief
Executive Officer
Mark A. Sarvary
Executive Vice President
and President –
Campbell North America
Arthur B. Anderson
Senior Vice President –
Global Research &
Development and Quality
Jerry S. Buckley
Senior Vice President –
Public Affairs
M. Carl Johnson, III
Senior Vice President –
Chief Strategy Officer
Ellen Oran Kaden
Senior Vice President –
Law and Government Affairs
Larry S. McWilliams
Senior Vice President
and President –
Campbell International
Denise M. Morrison
Senior Vice President
and President –
U.S. Soup, Sauces, and Beverages
Nancy A. Reardon
Senior Vice President and
Chief Human Resources
and Communications Officer
Robert A. Schiffner
Senior Vice President and
Chief Financial Officer
David R. White
Senior Vice President –
Global Supply Chain
Doreen A. Wright
Senior Vice President and
Chief Information Officer
Anthony DiSilvestro
Vice President – Controller
John J. Furey
Vice President and
Corporate Secretary
Richard J. Landers
Vice President – Taxes
Gerald S. Lord
Vice President –
Finance and Strategy,
Campbell North America
William J. O’Shea
Vice President – Treasurer
World Headquarters
Campbell Soup Company
1 Campbell Place
Camden, NJ 08103
(856) 342-4800
(856) 342-3878 (Fax)
Stock Exchange Listings
New York, Swiss
Ticker Symbol: CPB
Transfer Agent and Registrar
Computershare Limited
P.O. Box 43069
Providence, RI 02940-3069
1-800-446-2617
Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Dividends
Campbell has paid dividends since
the company became public in
1954. Dividends are normally paid
quarterly, at the end of January,
April, July, and October.
A dividend reinvestment plan
is available to shareowners.
For information about dividends
or the dividend reinvestment plan,
write: Dividend Reinvestment
Plan Agent, Campbell Soup
Company, P.O. Box 43081,
Providence, RI 02940-3081
Or call: (781) 575-2723 or
1-800-446-2617.
Annual Meeting
The Annual Meeting of Shareowners
will be held on November 16, 2006,
at 2:30 p.m., Eastern Standard
Time, at the Sheraton Great Valley
Hotel, 707 East Lancaster Ave.,
Frazer, PA 19355.
Publications
For copies of the Annual Report or
the SEC Form 10-K (filed annually
in October) or other financial
information, write: Investor
Relations at the World Headquarters
address, or call 1-888-SIP-SOUP
(1-888-747-7687) or visit
our worldwide website at
www.campbellsoupcompany.com
For copies of the Campbell Soup
Foundation’s Giving Report, write to
Public Affairs at the World
Headquarters address.
Information Sources
Inquiries regarding our products
may be addressed to Campbell’s
Consumer Response and Information
Center at the World Headquarters
address, or call 1-800-257-8443.
Media and public relations inquiries
should be directed to Anthony Sanzio,
Director – Corporate Communications,
at the World Headquarters address,
or call (856) 968-4390.
Investors and financial analysts
may contact Leonard F. Griehs,
Vice President – Investor Relations,
at the World Headquarters address,
or call (856) 342-6428.
Communications concerning share
transfer, lost certificates, dividends,
and change of address, should be
directed to Computershare Limited,
1-800-446-2617.
Shareowner Information Service
For the latest quarterly business
results or other information
requests such as dividend dates,
shareowner programs or product
news, call 1-888-SIP-SOUP
(1-888-747-7687). Shareowner
information is also available on
our worldwide website at
www.campbellsoupcompany.com
Campbell Brands
Product trademarks of Campbell
Soup Company and/or its
subsidiaries appearing in the
narrative text of this report
are italicized.
Certifications
The certifications required by
Section 302 of the Sarbanes-Oxley
Act have been filed as exhibits to
Campbell’s SEC Form 10-K. The
most recent certification required by
Section 303A.12(a) of the New York
Stock Exchange Listed Company
Manual has been filed with the New
York Stock Exchange.
The papers, paper mills and printer utilized in the production of
this Annual Report are all certified for Forest Stewardship Council
(FSC) standards, which promote environmentally appropriate,
socially beneficial and economically viable management of the
world’s forests. Covers and pp. 1 – 24 are printed on Mohawk
Navajo, a 20% post-consumer waste recycled paper, manufactured
with Green-e certified, nonpolluting, wind-generated electricity.
Pages 25 – 78 of this publication are printed on Domtar Opaque-
Plainfield, an Elemental Chlorine Free (ECF) paper. The report was
produced by The Hennegan Company, which has implemented
Committees 1 Audit 2 Compensation & Organization
3 Finance & Corporate Development 4 Governance
new technologies and processes to substantially reduce the volatile organic compound
(VOC) content of inks, coatings and solutions, and invested in equipment to capture and
recycle virtually all VOC emissions from web press operations.
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1 Campbell Place, Camden, NJ 08103-1799 www.campbellsoupcompany.com
Campbell Soup Company 2006 Annual Report