CAMPBELL SOUP CO
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For the Fiscal Year Ended
August 1, 2010 |
Commission File Number
1-3822 |
CAMPBELL SOUP COMPANY
| New Jersey | 21-0419870 | |
| State of Incorporation | I.R.S. Employer Identification No. |
1 Campbell Place
Camden, New Jersey
08103-1799
Principal Executive Offices
Telephone Number:
(856) 342-4800
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
| Capital Stock, par value $.0375 | 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.
þ
Yes
o
No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act.
o
Yes
þ
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.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that that the registrant was required to submit and post such
files).
þ
Yes
o
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.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act).
o
Yes
þ
No
As of January 29, 2010 (the last business day of the
registrant’s most recently completed second fiscal
quarter), the aggregate market value of capital stock held by
non-affiliates of the registrant was approximately
$6,473,498,636. There were 335,995,511 shares of capital
stock outstanding as of September 15, 2010.
Portions of the Registrant’s Proxy Statement for the Annual
Meeting of Shareowners to be held on November 18, 2010, are
incorporated by reference into Part III.
Table of
Contents
Table of Contents
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 corporation under the laws of New
Jersey on November 23, 1922; however, through predecessor
organizations, it traces its heritage in the food business back
to 1869. The company’s principal executive offices are in
Camden, New Jersey
08103-1799.
The company’s operations are organized and reported in the
following segments: U.S. Soup, Sauces and Beverages; Baking
and Snacking; International Soup, Sauces and Beverages; and
North America Foodservice. The segments are discussed in greater
detail below.
U.S.
Soup, Sauces and Beverages
The U.S. Soup, Sauces and Beverages segment comprises the
U.S. retail business, including the following products:
Campbell’s
condensed and
ready-to-serve
soups;
Swanson
broth, stocks and canned poultry;
Prego
pasta sauce;
Pace
Mexican sauce;
Campbell’s
canned pasta, gravies, and beans;
V8
vegetable
juices;
V8 V-Fusion
juices and beverages;
V8 Splash
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; and
Arnott’s
biscuits in Australia and Asia Pacific. As previously
disclosed in May 2008, the company completed the divestiture of
certain salty snack food brands and assets in Australia, which
were historically included in this segment.
International
Soup, Sauces and Beverages
The International Soup, Sauces and Beverages segment includes
the soup, sauce and beverage businesses outside of the United
States, including Europe, Latin America, the Asia Pacific
region, as well as the emerging markets of Russia and China, and
the retail business in Canada. The segment’s operations
include
Erasco
and
Heisse Tasse
soups in Germany,
Liebig
and
Royco
soups 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,
V8
beverages and
Prego
pasta sauce. In Canada,
operations include
Habitant
and
Campbell’s
soups,
Prego
pasta sauce,
Pace
Mexican sauce,
V8
beverages and certain Pepperidge Farm products. The
French sauce and mayonnaise business, which was marketed under
the
Lesieur
brand and divested on September 29,
2008, was historically included in this segment.
North
America Foodservice
The North America Foodservice segment includes 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
and Packaging
The ingredients and packaging required for the manufacture of
the company’s food products are purchased from various
suppliers. These items are subject to fluctuations in price
attributable to a number of factors, including changes in crop
size, cattle cycles, product scarcity, demand for raw materials,
energy costs, government-sponsored agricultural programs, import
and export requirements and weather conditions (including the
potential effects of climate change) during the growing and
harvesting seasons. To help reduce some of this price
volatility, the company uses a combination of purchase orders,
short- and long-term contracts and various commodity risk
management tools for most of its ingredients and packaging.
Ingredient inventories are at a peak during the late fall
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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 or
packaging that would have a significant impact on the
company’s businesses. For information on the impact of
inflation on the company, see “Management’s Discussion
and Analysis of Results of Operations and Financial
Condition.”
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 merchandisers, club stores, convenience
stores, drug stores, dollar stores and other retail, commercial
and non-commercial establishments. In Europe, the company’s
products are generally resold to consumers in retail food
chains, mass discounters, mass merchandisers, club stores,
convenience stores and other retail, commercial and
non-commercial establishments. In the Asia Pacific region, the
company’s products are generally resold to consumers
through retail food chains, convenience stores and other retail,
commercial and non-commercial establishments. 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 18% of the
company’s consolidated net sales in fiscal 2010 and fiscal
2009, and 16% in fiscal 2008. 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 September 15, 2010, the company owned over 4,100
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
,
Goldfish
,
V8
,
Pace
,
Prego
,
Swanson
, and
Arnott’s,
are
protected by trademark law in the major markets where they are
used. 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.”
2
Table of Contents
Capital
Expenditures
During fiscal 2010, the company’s aggregate capital
expenditures were $315 million. The company expects to
spend approximately $300 million for capital projects in
fiscal 2011. Major fiscal 2011 capital projects include
continued enhancement of the company’s corporate
headquarters in Camden, New Jersey, an upgrade to the
company’s research and development capabilities and the
upgrade of certain manufacturing equipment at various facilities
in the U.S.
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 $123 million in 2010,
$114 million in 2009, and $115 million in 2008. The
increase from 2009 to 2010 was primarily due to an increase in
compensation and benefit costs, costs associated with an
initiative to simplify the soup-making process in
North America, and the impact of currency. The decrease
from 2008 to 2009 was primarily due to the impact of currency.
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 applicable environmental rules
and regulations. Of the company’s $315 million in
capital expenditures made during fiscal 2010, approximately
$10 million was for compliance with environmental laws and
regulations in the United States. The company further estimates
that approximately $7 million of the capital expenditures
anticipated during fiscal 2011 will be for compliance with
United States 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 products. Demand for the company’s
sauce, beverage, baking and snacking products, however, is
generally evenly distributed throughout the year.
Employees
On August 1, 2010, there were approximately
18,400 employees of the company.
Financial
Information
For information with respect to revenue, operating profitability
and identifiable assets attributable to the company’s
business segments and geographic areas, see Note 6 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 Information — 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 operations. Additional risks
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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. The principal areas of competition are brand
recognition, quality, price, advertising, promotion, convenience
and service. 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, or a
consumer shift towards private label offerings, could result in
the company reducing pricing, increasing marketing or other
expenditures,
and/or
losing market share.
The
company faces risks related to recession, financial and credit
market disruptions and other economic conditions
Customer and consumer demand for the company’s products may
be impacted by recession or other economic downturns in the
United States or other nations. Similarly, disruptions in
financial and credit markets may impact the company’s
ability to manage normal commercial relationships with its
customers, suppliers and creditors. In addition, changes in any
one of the following factors in the United States or other
nations, whether due to recession, financial and credit market
disruptions or other reasons, could impact the company: tax
rates, interest rates or equity markets.
Increased
regulation could adversely affect the company’s business or
financial results
The manufacture and marketing of food products is extensively
regulated. The primary areas of regulation include the
processing, packaging, storage, distribution, advertising,
labeling, quality and safety of the company’s food
products, as well as the health and safety of the company’s
employees and the protection of the environment. 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, the Federal Trade
Commission, the Occupational Safety and Health Administration
and the Environmental Protection Agency, 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 and the
Children’s Food and Beverage Advertising Initiative of the
Council of Better Business Bureaus. Changes in regulatory
requirements (such as proposed requirements designed to enhance
food safety or restrict food marketing), or evolving
interpretations of existing regulatory requirements, may result
in increased compliance cost, capital expenditures and other
financial obligations that could adversely affect the
company’s business or financial results.
Fluctuations
in foreign currency exchange rates could adversely affect the
company’s results
The company holds assets and incurs liabilities, earns revenue,
and pays expenses in a variety of currencies other than the
U.S. dollar, primarily the Australian dollar, Canadian
dollar, and the euro. The company’s consolidated financial
statements are presented in U.S. dollars, and therefore the
company must translate its assets, liabilities, revenue, and
expenses into U.S. dollars for external reporting purposes.
As a result, changes in the value of the U.S. dollar may
materially and negatively affect the value of these items in the
company’s consolidated financial statements, even if their
value has not changed in their original currency.
The
company’s results may be adversely impacted by increases in
the price of raw and packaging materials
The raw and packaging materials used in the company’s
business include tomato paste, grains, beef, poultry,
vegetables, steel, glass, paper and resin. Many of these
materials are subject to price fluctuations from a number of
factors, including product scarcity, demand for raw materials,
commodity market speculation, energy costs, currency
fluctuations, weather conditions (including the potential
effects of climate change), import and export requirements and
changes in government-sponsored agricultural programs. To the
extent any of these factors result
4
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in an increase in raw and packaging material prices, the company
may not be able to offset such increases through productivity or
price increases or through its commodity hedging activity.
The
company’s results are dependent on successful marketplace
initiatives and acceptance by consumers of the company’s
products
The company’s results are dependent on successful
marketplace initiatives and acceptance by consumers of the
company’s products. The company’s product
introductions and product improvements, along with its other
marketplace initiatives, are designed to capitalize on customer
or consumer trends. In order to remain successful, the company
must anticipate and react to these 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.
The
company may be adversely impacted by increased liabilities and
costs related to its defined benefit pension plans
The company sponsors a number of defined benefit pension plans
for employees in the United States and various foreign
locations. The major defined benefit pension plans are funded
with trust assets invested in a globally diversified portfolio
of securities and other investments. Changes in regulatory
requirements or the market value of plan assets, investment
returns, interest rates and mortality rates may affect the
funded status of the company’s defined benefit pension
plans and cause volatility in the net periodic benefit cost,
future funding requirements of the plans and the funded status
as recorded on the balance sheet. A significant increase in the
company’s obligations or future funding requirements could
have a material adverse effect on the financial results of the
company.
The
company may be adversely impacted by the increased significance
of some of its customers
The retail grocery trade continues to consolidate. These
consolidations have produced large, sophisticated customers with
increased buying power and negotiating strength who may seek
lower prices or increased promotional programs funded by their
suppliers. These customers may also in the future use more of
their shelf space, currently used for the company’s
products, for their private label products. If the company is
unable to use its scale, marketing expertise, product innovation
and category leadership positions to respond to these customer
initiatives, the company’s business or financial results
could be negatively impacted. In addition, the disruption of
sales to any of the company’s large customers for an
extended period of time could adversely affect the
company’s business or financial results.
The
company may be adversely impacted by inadequacies in, or failure
of, its information technology systems
Each year the company engages in several billion dollars of
transactions with its customers and vendors. Because the amount
of dollars involved is so significant, the company’s
information technology resources must provide connections among
its marketing, sales, manufacturing, logistics, customer
service, and accounting functions. If the company does not
allocate and effectively manage the resources necessary to build
and sustain an appropriate technology infrastructure and to
maintain the related computerized and manual control processes,
the company’s business or financial results could be
negatively impacted.
The
company may not properly execute, or realize anticipated cost
savings or benefits from, its ongoing supply chain, information
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, information 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.
5
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Disruption
to the company’s supply chain could adversely affect its
business
Damage or disruption to the company’s suppliers or to the
company’s manufacturing or distribution capabilities due to
weather, natural disaster, fire, terrorism, pandemic, strikes,
or other reasons could impair the company’s ability to
manufacture
and/or
sell
its products. Failure to take adequate steps to mitigate the
likelihood or potential impact of such events, or to effectively
manage such events if they occur, particularly when a product is
sourced from a single location, could adversely affect the
company’s business or financial results.
The
company may be adversely impacted by the failure to execute
acquisitions and divestitures successfully
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, 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, successfully managing new risks associated
with the acquired business and achieving expected returns and
other benefits. Acquisitions outside the United States may
present unique challenges or increase the company’s
exposure to risks associated with foreign operations, including
foreign currency risks and the risks of complying with foreign
regulations. Finally, for acquisitions, the company may incur
substantial additional indebtedness, which could adversely
impact its credit rating. 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 results may be impacted negatively by political
conditions in the nations where the company does
business
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 politically motivated factors, such as unfavorable
changes in tariffs or export and import restrictions, in the
nations where it does business. The company may also be impacted
by political instability, civil disobedience, armed hostilities
and terrorist acts in the nations where it does business.
If the
company’s food products become adulterated or are
mislabeled, 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 products. In addition, the company’s results
could be adversely affected if consumers lose confidence in the
safety and quality of the company’s products, ingredients
or packaging, even in the absence of a recall or a product
liability case. Adverse publicity about the company’s
products, whether or not valid, may discourage consumers from
buying the company’s products.
| Item 1B. | Unresolved Staff Comments |
None.
6
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| Item 2. | Properties |
The company’s principal executive offices and main research
facilities are company-owned and located in Camden, New Jersey.
The following table sets forth the company’s principal
manufacturing facilities and the business segment that primarily
uses each of the facilities:
Principal
Manufacturing Facilities
|
Inside the U.S.
|
Outside the U.S. | ||||||
|
California
• Dixon (SSB) • Sacramento (SSB) • Stockton (SSB) Connecticut • Bloomfield (BS) Florida • Lakeland (BS) Illinois • Downers Grove (BS) Michigan • Marshall (SSB) New Jersey • South Plainfield (SSB) • East Brunswick (BS) North Carolina • Maxton (SSB) |
Ohio
• Napoleon (SSB/NAFS/ISSB) • Willard (BS) Pennsylvania • Denver (BS) • Downingtown (BS/NAFS) South Carolina • Aiken (BS) Texas • Paris (SSB/ISSB) Utah • Richmond (BS) Washington • Everett (NAFS) Wisconsin • Milwaukee (SSB) |
Australia
• Huntingwood (BS) • Marleston (BS) • Shepparton (ISSB) • Virginia (BS) Belgium • Puurs (ISSB) Canada • Toronto (ISSB/NAFS) France • LePontet (ISSB) Germany • Luebeck (ISSB) |
Indonesia
• Jawa Barat (BS) Malaysia • Selangor Darul Ehsan (ISSB) Mexico • Villagran (ISSB) Netherlands • Utrecht (ISSB) Sweden • Kristianstadt (ISSB) |
||||
|
|
|||||||
|
SSB — U.S. Soup, Sauces and Beverages
BS — Baking and Snacking ISSB — International Soup, Sauces and Beverages NAFS — North America Foodservice |
|||||||
Each of the foregoing manufacturing facilities is company-owned,
except that the Selangor Darul Ehsan, Malaysia, facility, and
the East Brunswick, New Jersey, facility are leased. The
Utrecht, Netherlands, facility is subject to a ground lease. The
company has proposed the transfer of ownership of the Utrecht,
Netherlands, facility to a third party in fiscal 2011 as part of
a contract manufacturing arrangement. The company also operates
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, Puurs, Belgium, and North Strathfield,
Australia. The Wauseon, Ohio, facility was closed and sold in
fiscal 2010, and the Guasave, Mexico, facility was closed in
fiscal 2010.
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 |
None.
7
Table of Contents
| Item 4. | Removed and Reserved |
Executive
Officers of the Company
The following list of executive officers, effective as of
October 1, 2010, is included as an item in Part III of
this
Form 10-K:
|
Year First
|
||||||||||
|
Appointed
|
||||||||||
|
Executive
|
||||||||||
|
Name
|
Title
|
Age
|
Officer
|
|||||||
|
Mark R. Alexander
|
Senior Vice President | 46 | 2009 | |||||||
|
Irene Chang Britt
|
Senior Vice President | 47 | 2010 | |||||||
|
Patrick J. Callaghan
|
Vice President | 59 | 2007 | |||||||
|
Douglas R. Conant
|
President and Chief Executive Officer | 59 | 2001 | |||||||
|
Sean M. Connolly
|
Senior Vice President | 45 | 2008 | |||||||
|
Anthony P. DiSilvestro
|
Senior Vice President — Finance | 51 | 2004 | |||||||
|
Ellen Oran Kaden
|
Senior Vice President — Law and Government Affairs | 59 | 1998 | |||||||
|
Denise M. Morrison
|
Executive Vice President and Chief Operating Officer | 56 | 2003 | |||||||
|
B. Craig Owens
|
Senior Vice President — Chief Financial Officer and Chief Administrative Officer | 56 | 2008 | |||||||
|
Nancy A. Reardon
|
Senior Vice President | 58 | 2004 | |||||||
|
David R. White
|
Senior Vice President | 55 | 2004 | |||||||
Irene Chang Britt served as Senior Vice President and General
Manager of Kraft Foods’ Post cereal division prior to
joining the company in 2005. B. Craig Owens served as
Executive Vice President and Chief Financial Officer of the
Delhaize Group prior to joining the company in 2008. The company
has employed Mark R. Alexander, Patrick J. Callaghan, Douglas R.
Conant, Sean M. Connolly, Anthony P. DiSilvestro, Ellen Oran
Kaden, Denise M. Morrison, Nancy A. Reardon, and David R. White
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
that is first cousin or closer. All of the executive officers
were elected at the November 2009 meeting of the Board of
Directors, other than Irene Chang Britt who was elected at the
September 2010 meeting.
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PART II
| Item 5. | Market for Registrant’s Capital Stock, Related Shareowner Matters and Issuer Purchases of Equity Securities |
Market
for Registrant’s Capital Stock
The company’s capital stock is listed and principally
traded on the New York Stock Exchange. The company’s
capital stock is also listed on the SWX Swiss Exchange, although
the company’s request to delist its capital stock from the
SWX Swiss Exchange has been approved effective December 7,
2010. On September 15, 2010, there were 26,190 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 20 to the Consolidated
Financial Statements. Future dividends will be dependent upon
future earnings, financial requirements and other factors.
Return to
Shareowners* Performance Graph
The following graph compares the cumulative total shareowner
return (TSR) on the company’s stock with the cumulative
total return of the Standard & Poor’s Packaged
Foods Index (the “S&P Packaged Foods Group”) and
the Standard & Poor’s 500 Stock Index (the
“S&P 500”). The graph assumes that $100 was
invested on July 29, 2005, in each of company stock, the
S&P Packaged Foods Group and the S&P 500, and that all
dividends were reinvested. The total cumulative dollar returns
shown on the graph represent the value that such investments
would have had on July 30, 2010.
* Stock appreciation plus dividend reinvestment.
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||
|
Campbell
|
100 | 122 | 127 | 124 | 111 | 133 | ||||||||||||||||||||||||
|
S&P 500
|
100 | 106 | 123 | 108 | 87 | 99 | ||||||||||||||||||||||||
|
S&P Packaged Foods Group
|
100 | 101 | 115 | 119 | 109 | 127 | ||||||||||||||||||||||||
9
Table of Contents
Issuer
Purchases of Equity Securities
|
Approximate
|
||||||||||||||||
|
Dollar Value of
|
||||||||||||||||
|
Total Number of
|
Shares that may yet
|
|||||||||||||||
|
Shares Purchased
|
be Purchased
|
|||||||||||||||
|
Total Number
|
Average
|
as Part of Publicly
|
Under the Plans or
|
|||||||||||||
|
of Shares
|
Price Paid
|
Announced Plans or
|
Programs
|
|||||||||||||
|
Period
|
Purchased(1) | Per Share(2) | Programs(3) | ($ in Millions)(3) | ||||||||||||
|
5/3/10 — 5/31/10
|
750,679 | (4) | $ | 35.60 | (4) | 337,500 | $ | 605 | ||||||||
|
6/1/10 — 6/30/10
|
1,756,664 | (5) | $ | 36.60 | (5) | 716,250 | $ | 579 | ||||||||
|
7/1/10 — 8/1/10
|
1,816,620 | (6) | $ | 36.03 | (6) | 821,181 | $ | 550 | ||||||||
|
Total
|
4,323,963 | $ | 36.18 | 1,874,931 | $ | 550 | ||||||||||
| (1) | Includes (i) 2,441,069 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) 7,963 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) | During the fourth quarter of fiscal 2010, the company had one publicly announced share repurchase program. Under this program, which was announced on June 30, 2008, the company’s Board of Directors authorized the purchase of up to $1.2 billion of company stock through the end of fiscal 2011. In addition to the publicly announced share repurchase program, the company will continue to purchase shares, under separate authorization, as part of its practice of buying back shares sufficient to offset shares issued under incentive compensation plans. | |
| (4) | Includes (i) 412,500 shares repurchased in open-market transactions at an average price of $35.60 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 679 shares owned and tendered by employees at an average price per share of $35.36 to satisfy tax withholding requirements on the vesting of restricted shares. | |
| (5) | Includes (i) 1,037,750 shares repurchased in open-market transactions at an average price of $36.62 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 2,664 shares owned and tendered by employees at an average price per share of $36.16 to satisfy tax withholding requirements on the vesting of restricted shares. | |
| (6) | Includes (i) 990,819 shares repurchased in open-market transactions at an average price of $36.01 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 4,620 shares owned and tendered by employees at an average price per share of $35.81 to satisfy tax withholding requirements on the vesting of restricted shares. |
10
Table of Contents
| Item 6. | Selected Financial Data |
FIVE-YEAR
REVIEW — CONSOLIDATED
|
Fiscal Year
|
2010(1) | 2009(2) | 2008(3) | 2007(4) | 2006(5) | |||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||
|
Summary of Operations
|
||||||||||||||||||||
|
Net sales
|
$ | 7,676 | $ | 7,586 | $ | 7,998 | $ | 7,385 | $ | 6,894 | ||||||||||
|
Earnings before interest and taxes
|
1,348 | 1,185 | 1,098 | 1,243 | 1,097 | |||||||||||||||
|
Earnings before taxes
|
1,242 | 1,079 | 939 | 1,099 | 947 | |||||||||||||||
|
Earnings from continuing operations
|
844 | 732 | 671 | 792 | 720 | |||||||||||||||
|
Earnings from discontinued operations
|
— | 4 | 494 | 62 | 46 | |||||||||||||||
|
Net earnings
|
844 | 736 | 1,165 | 854 | 766 | |||||||||||||||
|
Financial Position
|
||||||||||||||||||||
|
Plant assets — net
|
$ | 2,051 | $ | 1,977 | $ | 1,939 | $ | 2,042 | $ | 1,954 | ||||||||||
|
Total assets
|
6,276 | 6,056 | 6,474 | 6,445 | 7,745 | |||||||||||||||
|
Total debt
|
2,780 | 2,624 | 2,615 | 2,669 | 3,213 | |||||||||||||||
|
Total equity
|
929 | 731 | 1,321 | 1,298 | 1,770 | |||||||||||||||
|
Per Share Data
|
||||||||||||||||||||
|
Earnings from continuing operations — basic
|
$ | 2.44 | $ | 2.05 | $ | 1.77 | $ | 2.02 | $ | 1.75 | ||||||||||
|
Earnings from continuing operations — assuming dilution
|
2.42 | 2.03 | 1.75 | 1.99 | 1.73 | |||||||||||||||
|
Net earnings — basic
|
2.44 | 2.06 | 3.06 | 2.18 | 1.86 | |||||||||||||||
|
Net earnings — assuming dilution
|
2.42 | 2.05 | 3.03 | 2.14 | 1.84 | |||||||||||||||
|
Dividends declared
|
1.075 | 1.00 | 0.88 | 0.80 | 0.72 | |||||||||||||||
|
Other Statistics
|
||||||||||||||||||||
|
Capital expenditures
|
$ | 315 | $ | 345 | $ | 298 | $ | 334 | $ | 309 | ||||||||||
|
Weighted average shares outstanding
|
340 | 352 | 373 | 386 | 407 | |||||||||||||||
|
Weighted average shares outstanding — assuming dilution
|
343 | 354 | 377 | 392 | 411 | |||||||||||||||
| In the first quarter of fiscal 2010, the company adopted and retrospectively applied new accounting guidance related to a noncontrolling interest in a subsidiary. The guidance requires a noncontrolling interest in a subsidiary to be classified as a separate component of total equity. | ||
| In the first quarter of fiscal 2010, the company adopted and retrospectively applied new accounting guidance related to the calculation of earnings per share. The retrospective application of the provision resulted in the following reductions to basic and diluted earnings per share: |
| 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||||||
|
Continuing operations
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | $ | (.02 | ) | $ | (.01 | ) | ||||||||
|
Net earnings
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.06 | ) | $ | (.03 | ) | $ | (.03 | ) | $ | (.02 | ) | $ | (.02 | ) | $ | (.01 | ) | ||||||||
| (All per share amounts below are on a diluted basis) | ||
| The 2008 fiscal year consisted of fifty-three weeks. All other periods had fifty-two weeks. | ||
| (1) | The 2010 earnings from continuing operations were impacted by the following: a restructuring charge of $8 ($.02 per share) for pension benefit costs associated with the 2008 initiatives to improve operational efficiency and long-term profitability and $10 ($.03 per share) to reduce deferred tax assets as a result of the U.S. health care legislation enacted in March 2010. | |
| (2) | The 2009 earnings from continuing operations were impacted by the following: an impairment charge of $47 ($.13 per share) related to certain European trademarks and $15 ($.04 per share) of restructuring-related costs associated with the 2008 initiatives to improve operational efficiency and long-term profitability. The 2009 |
11
Table of Contents
| results of discontinued operations represented a $4 ($.01 per share) tax benefit related to the sale of the Godiva Chocolatier business. | ||
| (3) | The 2008 earnings from continuing operations were impacted by the following: a $107 ($.28 per share) restructuring charge and related costs associated with initiatives to improve operational efficiency and long-term profitability and a $13 ($.03 per share) benefit from the favorable resolution of a tax contingency. The 2008 results of discontinued operations included a $462 ($1.20 per share) gain from the sale of the Godiva Chocolatier business. | |
| (4) | The 2007 earnings from continuing operations were impacted by the following: a $13 ($.03 per share) benefit from the reversal of legal reserves due to favorable results in litigation; a $25 ($.06 per share) benefit from a tax settlement of bilateral advance pricing agreements; and a $14 ($.04 per share) gain from the sale of an idle manufacturing facility. The 2007 results of discontinued operations included a $24 ($.06 per share) gain from the sale of the businesses in the United Kingdom and Ireland and a $7 ($.02 per share) tax benefit from the resolution of audits in the United Kingdom. On July 29, 2007, the company adopted a new standard for accounting for defined benefit pension and other postretirement plans. As a result, total assets were reduced by $294, shareowners’ equity was reduced by $230, and total liabilities were reduced by $64. | |
| (5) | 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 could 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). | |
| Five-Year Review should be read in conjunction with the Notes to Consolidated Financial Statements. |
| Item 7. | Management’s Discussion and Analysis of Results of Operations and Financial Condition |
Overview
Description
of the Company
Campbell Soup Company is a global manufacturer and marketer of
high-quality, branded convenience food products. The company is
organized and reports in the following segments: U.S. Soup,
Sauces and Beverages; Baking and Snacking; International Soup,
Sauces and Beverages; and North America Foodservice. See
Note 6 to the Consolidated Financial Statements for
additional information on segments.
Key
Strategies
The company’s strategies for driving consistent and
sustainable sales and earnings growth for long-term total
shareowner value are:
1. grow its icon brands within simple meals, baked snacks
and healthy beverages;
2. deliver higher levels of consumer satisfaction through
superior innovation focused on wellness while providing good
value, quality and convenience;
3. make its products more broadly available and relevant in
existing and new markets, consumer segments and eating occasions;
4. strengthen its business through outside partnerships and
acquisitions;
5. increase margins by improving price realization and
company-wide total cost management;
6. improve overall organizational excellence, diversity and
engagement; and
7. advance a powerful commitment to sustainability and
corporate social responsibility.
12
Table of Contents
Grow the company’s icon brands within simple meals,
baked snacks and healthy
beverages.
Campbell’s overarching business
strategy is to drive profitable growth by focusing on three
large and growing categories — simple meals, baked
snacks, and healthy beverages — in geographies where
it has strong brands, leading share positions and regional
scale. Most of the company’s sales currently are
attributable to the United States, Australia, Canada, France,
Germany and Belgium. Its major brands in these categories and
geographies include
Campbell’s, Swanson, Pace, Prego,
Liebig, Erasco, Pepperidge Farm, Arnott’s,
and
V8.
The company intends to enhance the growth of its healthy
beverages and baked snacks portfolio of businesses through
increased innovation and marketing support. The company also
expects to grow its simple meal businesses by increasing its
focus on meal-makers, which are ingredients and components used
to make a meal, such as broth, sauces and cooking soups, while
continuing investments behind its condensed eating and
ready-to-serve
soups.
Deliver higher levels of consumer satisfaction through
superior innovation focused on wellness while providing good
value, quality and convenience.
Consumers are
seeking and will continue to seek products with a strong
value-orientation and with health and wellness benefits.
Campbell is pursuing initiatives designed to address these
consumer trends and to drive strong levels of consumer
satisfaction. For example, in fiscal 2011, building on the
success of the
V8 V-Fusion
juice offerings, the company
will introduce a number of new
V8 V-Fusion
Plus Tea
products. In the baked snacks category, the company
plans to continue upgrading the health credentials of its
cracker (or savory biscuit) offerings. Responding to the
consumer’s value-oriented focus,
Campbell’s
condensed soups will be relaunched with a new contemporary
packaging design and an upgrade to the company’s
gravity-fed shelving system. In the
ready-to-serve
soup portfolio, a number of the company’s offerings in the
United States, Canada, Germany, France, Belgium and Australia
will be enhanced. Finally, all of the company’s
Campbell’s
-branded U.S. soups will benefit from
a unified advertising campaign focusing on the taste and
nutritional attributes of the company’s soup products.
Make the company’s products more broadly available and
relevant in existing and new markets, consumer segments and
eating occasions.
Campbell will pursue strategies
designed to expand the availability and relevance of its
products in existing and new markets, including new consumer
segments and eating occasions. Campbell will continue to develop
its businesses in the emerging markets of Russia and China. In
addition, to capitalize on the global trend of more in-home meal
preparation by consumers, the company will focus consumers on
its extensive portfolio of meal-maker offerings, such as broths,
sauces and cooking soups.
Strengthen the company’s business through outside
partnerships and acquisitions.
Campbell continues
to explore opportunities to accelerate sales and earnings growth
through value-creating external development in its core and
adjacent categories.
Increase margins by improving price realization and
company-wide total cost management.
Over the long
term, the company is committed to increasing margins though a
combination of pricing and cost management efforts. In fiscal
2010, with the assistance of a number of successful supply chain
initiatives, costs per unit declined. Campbell will continue
these efforts in fiscal 2011 by leveraging its new SAP
enterprise-resource planning system and by simplifying the
soup-making process in its North American manufacturing network.
The company also will pursue efficiency initiatives in its
selling and administrative costs.
Improve overall organizational excellence, diversity and
engagement.
Campbell is committed to building a
world-class organization that is diverse, inclusive and engaged.
In order to attract, develop and retain the best talent, the
company focuses on manager quality, employee engagement,
leadership behavior, employee affinity groups, workplace
flexibility and employee wellness. As part of these efforts, the
company recently opened a new 80,000-square foot employee center
at its world headquarters in Camden, New Jersey.
Advance a powerful commitment to sustainability and corporate
social responsibility (CSR).
The company’s
commitment to sustainability and corporate social responsibility
is centered around four key pillars: environmental performance,
community outreach, workplace excellence, and the nutrition and
wellness attributes of the company’s products. The company
has established long-term destination goals against each of
these four pillars and developed strategies to attain these
goals. The goals and strategies are described in the
company’s 2010 CSR report.
13
Table of Contents
Executive
Summary
This Executive Summary provides significant highlights from the
discussion and analysis that follows.
| • | Net sales increased 1% in 2010 to $7.676 billion. | |
| • | Gross profit, as a percent of sales, increased to 41.0% from 39.9% a year ago, reflecting cost savings from productivity initiatives. | |
| • | Net earnings per share in 2010 were $2.42 compared to $2.05. The current year included $.05 per share of expense from items that impacted comparability. The prior year included net expense of $.16 per share from items that impacted comparability, as discussed below. | |
| • | For 2010, cash from operations decreased from $1.166 billion a year ago to $1.057 billion. |
| • | Pension fund contributions were $284 million in 2010 compared to $13 million in 2009. |
Earnings
from Continuing and Discontinued Operations — 2010
Compared with 2009
The following items impacted the comparability of net earnings
and net earnings per share:
Continuing
Operations
| • | In the third quarter of fiscal 2010, the company recorded deferred tax expense of $10 million, or $.03 per share, to reduce deferred tax assets as a result of the U.S. health care legislation enacted in March 2010. The law changed the tax treatment of subsidies to companies that provide prescription drug benefits to retirees; | |
| • | In the third quarter of fiscal 2010, the company recorded a restructuring charge of $12 million ($8 million after tax or $.02 per share) for pension benefit costs related to the previously announced initiatives to improve operational efficiency and long-term profitability. In fiscal 2009, the company recorded pre-tax restructuring-related costs of $22 million ($15 million after tax or $.04 per share) in Cost of products sold associated with the previously announced initiatives. See Note 7 to the Consolidated Financial Statements and “Restructuring Charges” for additional information; and | |
| • | In the fourth quarter of fiscal 2009, as part of the company’s annual review of intangible assets, an impairment charge of $67 million ($47 million after tax or $.13 per share) was recorded in Other expense/(income) related to certain European trademarks, primarily in Germany and the Nordic region, used in the International Soup, Sauces and Beverages segment. See Note 5 to the Consolidated Financial Statements for additional information. |
Discontinued
Operations
| • | In the second quarter of fiscal 2009, the company recorded a $4 million tax benefit ($.01 per share) related to the sale of the Godiva Chocolatier business. |
14
Table of Contents
The items impacting comparability are summarized below:
| 2010 | 2009 | |||||||||||||||
|
Earnings
|
EPS
|
Earnings
|
EPS
|
|||||||||||||
| Impact | Impact | Impact | Impact | |||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||
|
Earnings from continuing operations
|
$ | 844 | $ | 2.42 | $ | 732 | $ | 2.03 | ||||||||
|
Earnings from discontinued operations
|
$ | — | $ | — | $ | 4 | $ | .01 | ||||||||
|
Net earnings(1)
|
$ | 844 | $ | 2.42 | $ | 736 | $ | 2.05 | ||||||||
|
Continuing operations:
|
||||||||||||||||
|
Deferred tax expense from U.S. health care legislation
|
$ | (10 | ) | $ | (.03 | ) | $ | — | $ | — | ||||||
|
Restructuring charges and related costs
|
(8 | ) | (.02 | ) | (15 | ) | (.04 | ) | ||||||||
|
Impairment charge
|
— | — | (47 | ) | (.13 | ) | ||||||||||
|
Discontinued operations:
|
||||||||||||||||
|
Tax benefit from the sale of Godiva Chocolatier business
|
$ | — | $ | — | $ | 4 | $ | .01 | ||||||||
|
Impact of significant items on net earnings
|
$ | (18 | ) | $ | (.05 | ) | $ | (58 | ) | $ | (.16 | ) | ||||
| (1) | The sum of the individual per share amounts does not equal due to rounding. |
Earnings from continuing operations were $844 million in
2010 ($2.42 per share) and $732 million ($2.03 per share)
in 2009. After adjusting for the items impacting comparability,
Earnings from continuing operations increased primarily due to
improved gross margin performance and the impact of currency,
partially offset by lower sales volume. Earnings per share from
continuing operations benefited from a reduction in the weighted
average diluted shares outstanding, which was primarily due to
share repurchases under the company’s strategic share
repurchase program.
Earnings from discontinued operations of $4 million in 2009
represented an adjustment to the tax liability associated with
the sale of the Godiva Chocolatier business.
Earnings
from Continuing and Discontinued Operations — 2009
Compared with 2008
Net earnings were $736 million in 2009 ($2.05 per share)
and $1,165 million ($3.03 per share) in 2008.
In addition to the 2009 items that impacted comparability of net
earnings and net earnings per share, the following items also
impacted comparability:
Continuing
Operations
| • | In fiscal 2008, the company recorded a pre-tax restructuring charge of $175 million ($102 million after tax or $.27 per share) and $7 million ($5 million after tax or $.01 per share) of accelerated depreciation in Cost of products sold. The aggregate impact was $182 million ($107 million after tax or $.28 per share) related to the initiatives. See Note 7 to the Consolidated Financial Statements and “Restructuring Charges” for additional information; and | |
| • | In the second quarter of fiscal 2008, the company recognized a non-cash tax benefit of $13 million ($.03 per share) from the favorable resolution of a state tax contingency in the United States. |
Discontinued
Operations
| • | In 2008, the company recognized a pre-tax gain of $698 million ($462 million after tax or $1.20 per share) from the sale of the Godiva Chocolatier business. |
15
Table of Contents
The items impacting comparability are summarized below:
| 2009 | 2008 | |||||||||||||||
|
Earnings
|
EPS
|
Earnings
|
EPS
|
|||||||||||||
| Impact | Impact | Impact | Impact | |||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||
|
Earnings from continuing operations
|
$ | 732 | $ | 2.03 | $ | 671 | $ | 1.75 | ||||||||
|
Earnings from discontinued operations
|
$ | 4 | $ | .01 | $ | 494 | $ | 1.28 | ||||||||
|
Net earnings(1)
|
$ | 736 | $ | 2.05 | $ | 1,165 | $ | 3.03 | ||||||||
|
Continuing operations:
|
||||||||||||||||
|
Impairment charge
|
$ | (47 | ) | $ | (.13 | ) | $ | — | $ | — | ||||||
|
Restructuring charges and related costs
|
(15 | ) | (.04 | ) | (107 | ) | (.28 | ) | ||||||||
|
Benefit from resolution of state tax contingency
|
— | — | 13 | .03 | ||||||||||||
|
Discontinued operations:
|
||||||||||||||||
|
Tax benefit from the sale of Godiva Chocolatier business
|
$ | 4 | $ | .01 | $ | — | $ | — | ||||||||
|
Gain on sale of Godiva Chocolatier business
|
— | — | 462 | 1.20 | ||||||||||||
|
Impact of significant items on net earnings(1)
|
$ | (58 | ) | $ | (.16 | ) | $ | 368 | $ | .96 | ||||||
| (1) | The sum of the individual per share amounts does not equal due to rounding. |
Earnings from continuing operations were $732 million in
2009 ($2.03 per share) and $671 million ($1.75 per share)
in 2008. After adjusting for the items impacting comparability,
Earnings from continuing operations increased primarily due to
lower interest expense, lower marketing and selling expenses,
partially offset by the negative impact of currency translation.
Earnings per share from continuing operations benefited from a
reduction in the weighted average diluted shares outstanding.
The reduction was primarily due to share repurchases utilizing
the net proceeds from the divestiture of the Godiva Chocolatier
business and the company’s strategic share repurchase
programs. Earnings per share from continuing operations were
negatively impacted by $.09 from currency translation in 2009.
Earnings from discontinued operations of $4 million in 2009
represented an adjustment to the tax liability associated with
the sale of the Godiva Chocolatier business. Earnings from
discontinued operations were $494 million in 2008 and
included the $462 million gain from the sale of the Godiva
Chocolatier business. Earnings per share from discontinued
operations were $.01 in 2009 and $1.28 in 2008. The operations
of Godiva contributed to earnings of $.08 per share in 2008.
Basis
of Presentation
There were 52 weeks in fiscal 2010 and 2009, and
53 weeks in fiscal 2008.
In June 2008, the Financial Accounting Standards Board (FASB)
issued accounting guidance related to the calculation of
earnings per share. The guidance provides that unvested
share-based payment awards that contain non-forfeitable rights
to dividends or dividend equivalents (whether paid or unpaid)
are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula
that determines earnings per share for each class of common
stock and participating security according to dividends declared
and participation rights in undistributed earnings. The company
adopted and retrospectively applied the new guidance in the
first quarter of 2010. The retrospective application of the
provision resulted in the following reductions to basic and
diluted earnings per share for fiscal 2009 and fiscal 2008:
| 2009 | 2008 | |||||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||||
|
Continuing operations
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | ||||
|
Net earnings
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.06 | ) | $ | (.03 | ) | ||||
16
Table of Contents
See Note 9 to the Consolidated Financial Statements for
additional information.
In May 2009, the company acquired Ecce Panis, Inc., an artisan
bread maker, for $66 million. The business is included in
the Baking and Snacking segment. See Note 8 to the
Consolidated Financial Statements for additional information.
In June 2008, the company acquired the Wolfgang Puck soup
business for approximately $10 million. The company also
entered into a master licensing agreement with Wolfgang Puck
Worldwide, Inc. for the use of the
Wolfgang Puck
brand on
soup, stock, and broth products in North America retail
locations. This business is included in the U.S. Soup,
Sauces and Beverages segment. See Note 8 to the
Consolidated Financial Statements for additional information.
In July 2008, the company entered into an agreement to sell its
sauce and mayonnaise business comprised of products sold under
the
Lesieur
brand in France. The business had annual net
sales of approximately $70 million. The sale was completed
on September 29, 2008 and generated $36 million of
proceeds. The purchase price was subject to working capital and
other post-closing adjustments, which resulted in an additional
$6 million of proceeds. See Note 3 to the Consolidated
Financial Statements for additional information.
In the third quarter of 2008, the company entered into an
agreement to sell certain Australian salty snack food brands and
assets. The transaction, which was completed on May 12,
2008, included salty snack brands such as
Cheezels
,
Thins
,
Tasty Jacks
,
French Fries
, and
Kettle Chips
, certain other assets and the assumption of
liabilities. Proceeds of the sale were nominal. The business had
annual net sales of approximately $150 million. This
transaction is included in the restructuring initiatives
described in Note 7.
In March 2008, the company completed the sale of its Godiva
Chocolatier business for $850 million, pursuant to a Sale
and Purchase Agreement dated December 20, 2007. The
purchase price was subject to certain post-closing adjustments,
which resulted in an additional $20 million of proceeds.
The company has reflected the results of this business as
discontinued operations in the consolidated statements of
earnings. The company used approximately $600 million of
the net proceeds to purchase company stock. See Note 3 to
the Consolidated Financial Statements for additional information.
Discussion
and Analysis
Sales
An analysis of net sales by reportable segment follows:
| % Change | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010/2009 | 2009/2008 | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 3,700 | $ | 3,784 | $ | 3,674 | (2 | ) | 3 | |||||||||||
|
Baking and Snacking
|
1,975 | 1,846 | 2,058 | 7 | (10 | ) | ||||||||||||||
|
International Soup, Sauces and Beverages
|
1,423 | 1,357 | 1,610 | 5 | (16 | ) | ||||||||||||||
|
North America Foodservice
|
578 | 599 | 656 | (4 | ) | (9 | ) | |||||||||||||
| $ | 7,676 | $ | 7,586 | $ | 7,998 | 1 | (5 | ) | ||||||||||||
17
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An analysis of percent change of net sales by reportable segment
follows:
|
International
|
||||||||||||||||||||
|
U.S. Soup,
|
Baking
|
Soup,
|
North
|
|||||||||||||||||
|
Sauces and
|
and
|
Sauces
|
America
|
|||||||||||||||||
| Beverages | Snacking | Beverages | Foodservice | Total | ||||||||||||||||
|
2010/2009
|
||||||||||||||||||||
|
Volume and Mix
|
(1 | )% | 2 | % | (1 | )% | (5 | )% | (1 | )% | ||||||||||
|
Price and Sales Allowances
|
1 | 1 | 2 | 1 | 1 | |||||||||||||||
|
Increased Promotional Spending(1)
|
(2 | ) | (3 | ) | (2 | ) | (1 | ) | (2 | ) | ||||||||||
|
Divestitures/Acquisitions
|
— | 1 | (1 | ) | — | — | ||||||||||||||
|
Currency
|
— | 6 | 7 | 1 | 3 | |||||||||||||||
| (2 | )% | 7 | % | 5 | % | (4 | )% | 1 | % | |||||||||||
|
International
|
||||||||||||||||||||
|
U.S. Soup,
|
Baking
|
Soup,
|
North
|
|||||||||||||||||
|
Sauces and
|
and
|
Sauces and
|
America
|
|||||||||||||||||
| Beverages | Snacking | Beverages | Foodservice | Total | ||||||||||||||||
|
2009/2008
|
||||||||||||||||||||
|
Volume and Mix
|
(2 | )% | (1 | )% | (3 | )% | (8 | )% | (2 | )% | ||||||||||
|
Price and Sales Allowances
|
8 | 7 | 5 | 6 | 7 | |||||||||||||||
|
Increased Promotional Spending(1)
|
(2 | ) | (2 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||||
|
Impact of 53rd week
|
(1 | ) | (2 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||
|
Divestitures/Acquisitions
|
— | (6 | ) | (4 | ) | — | (2 | ) | ||||||||||||
|
Currency
|
— | (6 | ) | (11 | ) | (2 | ) | (4 | ) | |||||||||||
| 3 | % | (10 | )% | (16 | )% | (9 | )% | (5 | )% | |||||||||||
| (1) | Represents revenue reductions from trade promotion and consumer coupon redemption programs. |
In 2010, U.S. Soup, Sauces and Beverages sales decreased
2%. U.S. soup sales decreased 4%, due to the following:
| • | Sales of Campbell’s condensed soups declined 2%, as declines in eating varieties were partially offset by gains in cooking varieties. | |
| • | Sales of ready-to-serve soups decreased 9% with declines in both canned and microwavable varieties. | |
| • | Broth sales increased 3% reflecting benefits from growth of in-home eating occasions and consumer demand for 100% natural product offerings. |
Within the U.S. Soup, Sauces and Beverages segment,
beverage sales increased 4% in 2010 primarily due to higher
sales of
V8 V-Fusion
vegetable and fruit juice and gains
in
V8 Splash
juice drinks, partly offset by lower sales
of
V8
vegetable juice.
V8 V-Fusion
vegetable and
fruit juice sales increased double digits due to increased
advertising and new item launches.
Prego
pasta sauce
sales increased, reflecting growth of
Prego
Heart Smart
varieties, while
Pace
Mexican sauce sales declined.
In 2009, U.S. Soup, Sauces and Beverages sales increased
3%. U.S. soup sales increased 5% as
ready-to-serve
soup sales increased 4%, condensed soup sales increased 5% and
broth sales increased 9%. The
ready-to-serve
soup sales increase was primarily due to the successful launches
of
Campbell’s Select Harvest
soups and
Campbell’s V8
soups, partially offset by declines in
Campbell’s Chunky
soups. Within
ready-to-serve,
sales declined in the convenience platform, which includes soups
in microwavable bowls and cups. In condensed, sales increased
with growth in cooking and in eating varieties. The increase in
broth sales was due to growth in aseptic varieties and the
introduction of
Swanson
stock products. The
Wolfgang
Puck
soup, stock and broth business acquired in June 2008
contributed modestly to U.S. soup sales growth. Beverage
sales decreased due to declines in
V8
vegetable juice,
18
Table of Contents
partially offset by gains in
V8 V-Fusion
vegetable and
fruit juice.
Prego
pasta sauce sales increased double
digits and sales of
Pace
Mexican sauces increased
reflecting growth of in-home eating occasions.
In 2010, Baking and Snacking sales increased 7% primarily due to
currency. Pepperidge Farm sales were comparable to a year ago,
as the additional sales from the acquisition of Ecce Panis, Inc.
and volume gains were offset by increased promotional spending.
Arnott’s sales increased due to currency and growth in
Tim Tam
chocolate biscuits and
Shapes
savory
crackers.
In 2009, Baking and Snacking sales decreased 10%. Pepperidge
Farm achieved sales growth with gains in the cookies and
crackers business, reflecting significant growth in
Goldfish
snack crackers. Arnott’s sales declined due to the
divestiture of certain salty snack food brands in May 2008, the
unfavorable impact of currency and the impact of one less week
in 2009. Excluding these items, Arnott’s sales increased
due to growth in savory and chocolate biscuit products and
growth in Indonesia.
In 2010, International Soup, Sauces and Beverages sales
increased 5% primarily due to currency, partly offset by the
divestiture of the company’s French sauce and mayonnaise
business in September 2008. In Europe, sales declined,
reflecting lower sales in Germany and the impact of the
divestiture, partly offset by the impact of currency. In Asia
Pacific, sales increased due to currency and volume-driven gains
in Japan, Australia and Malaysia. In Canada, sales increased due
to currency, partially offset by lower sales volume of
ready-to-serve
soups.
In 2009, International Soup, Sauces and Beverages sales declined
16%. In Europe, sales declined due to the divestiture of the
French sauce and mayonnaise business, the impact of currency,
one less week in 2009, and lower sales in Germany. In the Asia
Pacific region, sales declined due to the impact of currency and
one less week in 2009, partially offset by gains in Malaysia and
in the Australian soup business. In Canada, sales decreased due
to currency and one less week in 2009, partially offset by gains
in the soup business.
In 2010, North America Foodservice sales declined 4% primarily
due to continued weakness in the food service sector.
In 2009, North America Foodservice sales declined 9% primarily
due to weakness in the food service sector and the unfavorable
impact of currency.
Gross
Profit
Gross profit, defined as Net sales less Cost of products sold,
increased by $122 million in 2010 from 2009 and decreased
by $143 million in 2009 from 2008. As a percent of sales,
gross profit was 41.0% in 2010, 39.9% in 2009, and 39.6% in
2008. The percentage point increase in 2010 was due to higher
selling prices (approximately 0.8 percentage point),
productivity improvements (approximately 2.1 percentage
points), costs in the prior year related to the initiatives to
improve operational efficiency and long-term profitability
(approximately 0.3 percentage point), and mix
(0.1 percentage point), partially offset by a higher level
of promotional spending (approximately 1.2 percentage
points) and the impact of cost inflation and other factors
(approximately 1 percentage point). The percentage point
increase in 2009 was due to higher selling prices (approximately
4.4 percentage points), productivity improvements
(approximately 1.8 percentage points) and mix
(0.4 percentage point), partially offset by a higher level
of promotional spending (approximately 1.1 percentage
points) and the impact of cost inflation and other factors
(approximately 5.2 percentage points).
Marketing
and Selling Expenses
Marketing and selling expenses as a percent of sales were 13.8%
in 2010, 14.2% in 2009, and 14.5% in 2008. Marketing and selling
expenses decreased 2% in 2010 from 2009. The decrease was
primarily due to lower advertising and consumer promotion costs
(approximately 3 percentage points) and lower marketing
expenses (approximately 1 percentage point), partially
offset by the impact of currency (approximately
2 percentage points). The lower advertising expenses in the
current year reflected a reduction in media rates and a shift to
trade promotion in many of the businesses. Marketing and selling
expenses decreased 7% in 2009 from 2008. The decrease was
primarily due to the impact of currency (approximately
3 percentage points), lower marketing expenses
(approximately 2 percentage points), and lower selling
expenses (approximately 2 percentage points). In 2009,
while
19
Table of Contents
advertising expenses increased in U.S. soup to support the
launch of new products, marketing expenses were reduced in other
businesses to fund increased promotional activity.
Administrative
Expenses
Administrative expenses as a percent of sales were 7.9% in 2010,
7.8% in 2009, and 7.6% in 2008. Administrative expenses
increased by 2% in 2010 from 2009, primarily due to the impact
of currency (approximately 2 percentage points), an
increase in compensation and benefit costs, including pension
expense (approximately 2 percentage points), partially
offset by the company’s cost management efforts and other
factors (approximately 2 percentage points). Administrative
expenses declined 3% in 2009 from 2008 due primarily to the
impact of currency.
Research
and Development Expenses
Research and development expenses increased $9 million or
8% in 2010 from 2009. The increase was primarily due to an
increase in compensation and benefit costs (approximately
4 percentage points), costs associated with an initiative
to simplify the soup-making process in North America
(approximately 2 percentage points), and the impact of
currency (approximately 2 percentage points). Research and
development expenses decreased $1 million or 1% in 2009
from 2008. The decrease was primarily due to the impact of
currency (approximately 3 percentage points), partially
offset by an increase in wages and other costs (approximately
2 percentage points).
Other
Expenses/(Income)
Other expense in 2009 included a $67 million impairment
charge associated with certain European trademarks primarily
used in Germany and the Nordic region. The charge was recorded
as a result of the company’s annual review of intangible
assets and was reflected in the International Soup, Sauces and
Beverages segment. See also Note 5 to the Consolidated
Financial Statements.
Other expense in 2008 included $6 million of impairment
charges associated with certain trademarks used in the
International Soup, Sauces and Beverages segment and the pending
sale of the sauce and mayonnaise business comprised of products
sold under the
Lesieur
brand in France. See also
Note 3 to the Consolidated Financial Statements.
Operating
Earnings
Segment operating earnings increased 14% in 2010 from 2009 and
increased 5% in 2009 from 2008. The 2010 results included
$12 million of restructuring charges. The 2009 results
included $22 million of restructuring-related costs and a
$67 million impairment charge. The 2008 results included
$182 million of restructuring charges and related costs.
An analysis of operating earnings by reportable segment follows:
| % Change | ||||||||||||||||||||
| 2010(1) | 2009(2) | 2008(3) | 2010/2009 | 2009/2008 | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 943 | $ | 927 | $ | 891 | 2 | 4 | ||||||||||||
|
Baking and Snacking
|
322 | 262 | 120 | 23 | 118 | |||||||||||||||
|
International Soup, Sauces and Beverages
|
161 | 69 | 179 | 133 | (61 | ) | ||||||||||||||
|
North America Foodservice
|
43 | 34 | 40 | 26 | (15 | ) | ||||||||||||||
| 1,469 | 1,292 | 1,230 | 14 | 5 | ||||||||||||||||
|
Unallocated corporate expenses
|
(121 | ) | (107 | ) | (132 | ) | ||||||||||||||
| $ | 1,348 | $ | 1,185 | $ | 1,098 | |||||||||||||||
20
Table of Contents
| (1) | Operating earnings for the North America Foodservice segment included $12 million of restructuring charges. See Note 7 for additional information on restructuring charges. | |
| (2) | Operating earnings by segment included restructuring-related costs of $3 million in Baking and Snacking and $19 million in North America Foodservice. See Note 7 for additional information. The International Soup, Sauces and Beverages segment included a $67 million impairment charge on certain European trademarks. See Note 5 for additional information. | |
| (3) | Operating earnings by segment included the effect of a 2008 restructuring charge and related costs of $182 million as follows: Baking and Snacking — $144 million; International Soup, Sauces and Beverages — $9 million; and North America Foodservice — $29 million. See Note 7 for additional information. |
Earnings from U.S. Soup, Sauces and Beverages increased 2%
in 2010 versus 2009 primarily due to an improvement in gross
margin percentage and lower advertising expenses, partially
offset by lower sales.
Earnings from U.S. Soup, Sauces, and Beverages increased 4%
in 2009 from 2008 primarily due to pricing, net of increased
promotional spending, and productivity improvements, which more
than offset cost inflation and lower sales volume.
Earnings from Baking and Snacking increased 23% in 2010 versus
2009. The prior year included $3 million in
restructuring-related costs. The increase in operating earnings
was due to the impact of currency and earnings growth in
Pepperidge Farm and Arnott’s.
Earnings from Baking and Snacking increased from
$120 million in 2008 to $262 million in 2009. Earnings
in 2009 included $3 million in accelerated depreciation and
other exit costs and earnings in 2008 included $144 million
of restructuring charges related to the initiatives to improve
operational efficiency and long-term profitability. Excluding
these items, operating earnings growth in Pepperidge Farm and
Arnott’s was mostly offset by the negative impact of
currency and one less week.
Earnings from International Soup, Sauces and Beverages increased
to $161 million from $69 million in 2009. Earnings in
2009 included a $67 million impairment charge on certain
European trademarks, primarily in Germany and the Nordic region.
Excluding the impairment charge, the increase in operating
earnings was primarily due to the impact of currency and growth
in the businesses in Europe as well as Asia Pacific, partially
offset by declines in Canada.
Earnings from International Soup, Sauces and Beverages decreased
from $179 million in 2008 to $69 million in 2009.
Earnings in 2009 included a $67 million impairment charge
on certain European trademarks, primarily in Germany and the
Nordic region. Earnings in 2008 included $9 million of
restructuring charges related to the initiatives to improve
operational efficiency and long-term profitability. Excluding
these items, operating earnings declined, primarily due to the
impact of currency and costs associated with establishing
businesses in Russia and China.
Earnings from North America Foodservice increased to
$43 million in 2010 from $34 million in 2009. The
current year included $12 million in restructuring charges,
and the prior year included $19 million in
restructuring-related costs. Excluding these items, earnings
increased slightly due to cost reduction efforts.
Earnings from North America Foodservice decreased 15% in 2009
from 2008. Earnings in 2009 included $19 million in
restructuring-related costs and earnings in 2008 included
$29 million of restructuring charges and costs associated
with the initiatives to improve operational efficiency and
long-term profitability. Excluding these items, earnings
decreased reflecting the reduction in sales.
Unallocated corporate expenses increased from $107 million
in 2009 to $121 million in 2010. The increase was primarily
due to foreign exchange gains recorded in the prior year and
higher equity-related benefit costs in the current year.
Unallocated corporate expenses decreased $25 million from
$132 million in 2008 to $107 million in 2009. The
decrease was primarily due to lower expenses associated with the
company’s North American SAP implementation.
21
Table of Contents
Interest
Expense/Income
Interest expense increased to $112 million in 2010 from
$110 million in 2009 primarily due to an increase in
fixed-rate debt and higher average debt levels, partially offset
by lower average short-term rates. Interest income increased to
$6 million in 2010 from $4 million in 2009 primarily
due to higher levels of cash and cash equivalents.
Interest expense decreased to $110 million in 2009 from
$167 million in 2008 primarily due to lower interest rates.
Interest income declined to $4 million in 2009 from
$8 million in 2008 primarily due to lower levels of cash
and cash equivalents.
Taxes
on Earnings
The effective tax rate was 32.0% in 2010, 32.2% in 2009, and
28.5% in 2008. The following factors impacted the comparability
of the tax rate in 2010 versus 2009:
| • | In 2010, the company recognized deferred tax expense of $10 million as a result of the enactment of U.S. health care legislation in March 2010. The law changed the tax treatment of subsidies to companies that provide prescription drug benefits to retirees. The company recorded the adjustment to reduce the value of the deferred tax asset associated with the subsidy. | |
| • | In 2009, the company recognized an $11 million benefit following the finalization of tax audits. |
The effective rate decreased in 2010 from 2009 reflecting
additional tax expense associated with the repatriation of
foreign earnings in the prior year.
The following factors impacted the 2008 tax rate:
| • | In 2008, the company recognized a tax benefit of $75 million on the $182 million pre-tax restructuring charge and related costs. | |
| • | In 2008, the company recognized a $13 million benefit from the resolution of a state tax contingency. |
The effective rate increased in 2009 from 2008 reflecting
additional tax expense associated with the repatriation of
foreign earnings. The 2008 effective rate reflects a benefit for
tax rate changes in foreign jurisdictions.
Restructuring
Charges
On April 28, 2008, the company announced a series of
initiatives to improve operational efficiency and long-term
profitability, including selling certain salty snack food brands
and assets in Australia, closing certain production facilities
in Australia and Canada, and streamlining the company’s
management structure. As a result of these initiatives, in 2008,
the company recorded a restructuring charge of $175 million
($102 million after tax or $.27 per share). The charge
consisted of a net loss of $120 million ($64 million
after tax) on the sale of certain Australian salty snack food
brands and assets, $45 million ($31 million after tax)
of employee severance and benefit costs, including the estimated
impact of curtailment and other pension charges, and
$10 million ($7 million after tax) of property, plant
and equipment impairment charges. In addition, approximately
$7 million ($5 million after tax or $.01 per share) of
costs related to these initiatives were recorded in Cost of
products sold, primarily representing accelerated depreciation
on property, plant and equipment. The aggregate after-tax impact
of restructuring charges and related costs in 2008 was
$107 million, or $.28 per share.
In 2009, the company recorded approximately $22 million
($15 million after tax or $.04 per share) of costs related
to the 2008 initiatives in Cost of products sold. Approximately
$17 million ($12 million after tax) of the costs
represented accelerated depreciation on property, plant and
equipment; approximately $4 million ($2 million after
tax) related to other exit costs; and approximately
$1 million related to employee severance and benefit costs,
including other pension charges.
In 2010, the company recorded a restructuring charge of
$12 million ($8 million after tax or $.02 per share)
for pension benefit costs, which represented the final costs
associated with the 2008 initiatives.
22
Table of Contents
Details of the components of the initiatives are as follows:
In the third quarter of 2008, as part of the initiatives, the
company entered into an agreement to sell certain Australian
salty snack food brands and assets. The transaction was
completed on May 12, 2008. Proceeds of the sale were
nominal. In connection with this transaction, the company
recognized a net loss of $120 million ($64 million
after tax) in 2008. The terms of the agreement required the
company to provide a loan facility to the buyer of AUD
$10 million, or approximately USD $9 million. The
facility was drawn down in AUD $5 million increments in
2009. Borrowings under the facility are to be repaid five years
after the closing date. See also Note 3 to the Consolidated
Financial Statements for additional information.
In April 2008, as part of the initiatives, the company announced
plans to close the Listowel, Ontario, Canada food plant. The
Listowel facility produced primarily frozen products, including
soup, entrees, and Pepperidge Farm products, as well as ramen
noodles. The facility employed approximately 500 people.
The company closed the facility in April 2009. Production was
transitioned to its network of North American contract
manufacturers and to its Downingtown, Pennsylvania plant. The
company recorded $20 million ($14 million after tax)
of employee severance and benefit costs, including the estimated
impact of curtailment and other pension charges, and
$7 million ($5 million after tax) in accelerated
depreciation of property, plant and equipment in 2008. In 2009,
the company recorded $1 million of employee severance and
benefit costs, including other pension charges, $16 million
($11 million after tax) in accelerated depreciation of
property, plant and equipment and $2 million
($1 million after tax) of other exit costs. In 2010, the
company recorded $12 million ($8 million after tax)
for pension benefit costs, which represented the final costs
associated with the initiatives.
In April 2008, as part of the initiatives, the company also
announced plans to discontinue the private label biscuit and
industrial chocolate production at its Miranda, Australia
facility. The company closed the Miranda facility, which
employed approximately 150 people, in the second quarter of
2009. In connection with this action, the company recorded
$10 million ($7 million after tax) of property, plant
and equipment impairment charges and $8 million
($6 million after tax) in employee severance and benefit
costs in 2008. In 2009, the company recorded $1 million in
accelerated depreciation of property, plant and equipment and
$2 million ($1 million after tax) of other exit costs.
As part of the 2008 initiatives, the company streamlined its
management structure and eliminated certain overhead costs.
These actions began in the fourth quarter of 2008 and were
substantially completed in 2009. In connection with this action,
the company recorded $17 million ($11 million after
tax) in employee severance and benefit costs in 2008.
In aggregate, the company incurred pre-tax costs of
approximately $216 million in 2008 through 2010 by segment
as follows: Baking and Snacking — $147 million,
International Soup, Sauces and Beverages —
$9 million and North America Foodservice —
$60 million.
See Note 7 to the Consolidated Financial Statements for
additional information.
Discontinued
Operations
On March 18, 2008, the company completed the sale of its
Godiva Chocolatier business for $850 million, pursuant to a
Stock Purchase Agreement dated December 20, 2007. The
purchase price was subject to working capital and other
post-closing adjustments, which resulted in an additional
$20 million of proceeds. The company has reflected the
results of this business as discontinued operations in the
consolidated statements of earnings. The company used
$600 million of the net proceeds from the sale to purchase
company stock. In fiscal 2008, the company recognized a pre-tax
gain of $698 million ($462 million after tax or $1.20
per share) on the sale. In fiscal 2009, the company recognized a
$4 million tax benefit as a result of an adjustment to the
tax liability associated with the sale.
23
Table of Contents
Results of the operations of the Godiva Chocolatier business are
summarized below:
| 2009 | 2008 | |||||||
| (Millions) | ||||||||
|
Net sales
|
$ | — | $ | 393 | ||||
|
Earnings from operations before taxes
|
$ | — | $ | 49 | ||||
|
Taxes on earnings — operations
|
— | (17 | ) | |||||
|
Gain on sale
|
— | 698 | ||||||
|
Tax impact from sale of business
|
4 | (236 | ) | |||||
|
Earnings from discontinued operations
|
$ | 4 | $ | 494 | ||||
Liquidity
and Capital Resources
The company expects that foreseeable liquidity and capital
resource requirements, including cash outflows to repurchase
shares, pay dividends and fund pension plan contributions, will
be met through anticipated cash flows from operations; long-term
borrowings under its shelf registration statement; short-term
borrowings, including commercial paper; and cash and cash
equivalents. Over the last three years, operating cash flows
totaled approximately $3 billion. This cash generating
capability provides the company with substantial financial
flexibility in meeting its operating and investing needs. The
company expects 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 may be
negatively impacted by capital and credit market disruptions and
will depend on the market conditions and the company’s
financial position at the time.
The company generated cash from operations of
$1.057 billion in 2010, compared to $1.166 billion
last year. The decline was primarily due to a $260 million
contribution to a U.S. pension plan in 2010, partially
offset by improvements in working capital requirements.
Net cash flows from operating activities provided
$1.166 billion in 2009, compared to $766 million in
2008. The increase was due to higher cash earnings and lower tax
payments. In 2008, net cash flows from operations included tax
payments associated with the divestiture of Godiva.
Capital expenditures were $315 million in 2010,
$345 million in 2009, and $298 million in 2008.
Capital expenditures are expected to total approximately
$300 million in 2011. Capital expenditures in 2010 included
expansion and enhancements of the company’s corporate
headquarters (approximately $36 million), expansion of
Arnott’s production capacity (approximately
$21 million), the ongoing implementation of SAP in
Australia and New Zealand (approximately $15 million) and
expansion of Pepperidge Farm’s production capacity
(approximately $14 million). Capital expenditures in 2009
included expansion of the U.S. beverage production capacity
(approximately $54 million) and expansion and enhancements
of the company’s corporate headquarters (approximately
$20 million). Capital expenditures in 2008 included
investments to expand the Pepperidge Farm bakery production
capacity, implement the SAP enterprise-resource planning system
in North America, expand the U.S. beverage production
capacity, and expand the warehouse at the Maxton, North Carolina
facility.
Business acquired, as presented in the Statements of Cash Flows,
represented the acquisition of the Ecce Panis, Inc. business in
the fourth quarter of 2009 and the Wolfgang Puck soup business
in the fourth quarter of 2008.
Net cash provided by investing activities in 2009 included
$38 million of proceeds from the sale of the sauce and
mayonnaise business in France, net of cash divested. Net cash
provided by investing activities in 2008 included
$828 million of proceeds from the sale of the Godiva
Chocolatier business and certain Australian salty snack food
brands and assets, net of cash divested.
Long-term borrowings in 2010 included the issuance in July of
$400 million of 3.05% notes that mature in July 2017.
Long-term borrowings in 2009 included the issuance in January of
$300 million of 4.5% notes that mature in February
2019 and the issuance in July of $300 million of
3.375% notes that mature in August 2014. The net proceeds
from these issuances were used for the repayment of commercial
paper borrowings and for other general corporate purposes. There
were no new long-term borrowings in 2008.
24
Table of Contents
Dividend payments were $365 million in 2010,
$350 million in 2009, and $329 million in 2008. Annual
dividends declared in 2010 were $1.075 per share, $1.00 per
share in 2009, and $.88 per share in 2008. The 2010 fourth
quarter rate was $.275 per share.
Excluding shares owned and tendered by employees to satisfy tax
withholding requirements on the vesting of restricted shares and
for stock option exercises, the company repurchased
14 million shares at a cost of $472 million during
2010. Approximately 7 million of the shares repurchased in
2010 were repurchased pursuant to the company’s June 2008
publicly announced share repurchase program. Under this program,
the company’s Board of Directors authorized the purchase of
up to $1.2 billion of company stock through the end of
fiscal 2011. Approximately $550 million remained available
under the June 2008 repurchase program as of August 1,
2010. In addition to the June 2008 publicly announced share
repurchase program, the company also purchased shares to offset
the impact of dilution from shares issued under the
company’s stock compensation plans. The company expects to
continue this practice in the future. See “Market for
Registrant’s Capital Stock, Related Shareowner Matters and
Issuer Purchases of Equity Securities” for more information.
Excluding shares owned and tendered by employees to satisfy tax
withholding requirements on the vesting of restricted shares,
the company repurchased 17 million shares at a cost of
$527 million during 2009. Approximately 13 million of
the shares repurchased in 2009 were repurchased pursuant to the
company’s June 2008 publicly announced share repurchase
program. In addition to the June 2008 publicly announced share
repurchase program, the company also purchased shares to offset
the impact of dilution from shares issued under the
company’s stock compensation plans.
Excluding shares owned and tendered by employees to satisfy tax
withholding requirements on the vesting of restricted shares,
the company repurchased 26 million shares at a cost of
$903 million during 2008. During fiscal 2008, the company
purchased shares pursuant to two publicly announced share
repurchase programs. Under the first program, which was
announced on November 21, 2005, the company’s Board of
Directors authorized the purchase of up to $600 million of
company stock through the end of fiscal 2008. The November 2005
program was completed during the third quarter of fiscal 2008.
Under the second program, which was announced on March 18,
2008, the company’s Board of Directors authorized using
approximately $600 million of the net proceeds from the
sale of the Godiva Chocolatier business to purchase company
stock. The March 2008 program was completed during the fourth
quarter of fiscal 2008. In addition to the publicly announced
share repurchase programs, the company also purchased shares to
offset the impact of dilution from shares issued under the
company’s stock compensation plans. Of the 2008
repurchases, approximately 23 million shares at a cost of
$800 million were made pursuant to publicly announced share
repurchase programs. The remaining shares were repurchased to
offset the impact of dilution from shares issued under the
company’s stock compensation plans.
At August 1, 2010, the company had $835 million of
short-term borrowings due within one year and $25 million
of standby letters of credit issued on behalf of the company.
The company had a $1.5 billion committed revolving credit
facility maturing in September 2011, which was unused at
August 1, 2010, except for $25 million of standby
letters of credit. In September 2010, the company entered into a
$975 million committed
364-day
revolving credit facility that contains a one-year term-out
feature. The company also entered into a $975 million
revolving credit facility that matures in September 2013. These
facilities replaced the existing $1.5 billion revolving
credit facility. These agreements support the company’s
commercial paper programs.
In November 2008, the company filed a registration statement
with the Securities and Exchange Commission that registered an
indeterminate amount of debt securities. Under the registration
statement, the company may issue debt securities, depending on
market conditions.
The company is in compliance with the covenants contained in its
revolving credit facilities and debt securities.
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 13 to the Consolidated Financial
25
Table of Contents
Statements. Operating leases are primarily entered into for
warehouse and office facilities 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 commitments
are not expected to have a material impact on liquidity. Other
long-term liabilities primarily represent payments related to
deferred compensation obligations. For additional information on
other long-term liabilities, see Note 19 to the
Consolidated Financial Statements.
| Contractual Payments Due by Fiscal Year | ||||||||||||||||||||
|
2012 -
|
2014 -
|
|||||||||||||||||||
| Total | 2011 | 2013 | 2015 | Thereafter | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Debt obligations(1)
|
$ | 2,734 | $ | 832 | $ | 402 | $ | 600 | $ | 900 | ||||||||||
|
Interest payments(2)
|
552 | 114 | 164 | 100 | 174 | |||||||||||||||
|
Purchase commitments
|
920 | 539 | 164 | 65 | 152 | |||||||||||||||
|
Operating leases
|
186 | 43 | 63 | 38 | 42 | |||||||||||||||
|
Derivative and forward payments(3)
|
74 | 19 | 29 | 26 | — | |||||||||||||||
|
Other long-term liabilities(4)
|
160 | 18 | 32 | 22 | 88 | |||||||||||||||
|
Total long-term cash obligations
|
$ | 4,626 | $ | 1,565 | $ | 854 | $ | 851 | $ | 1,356 | ||||||||||
| (1) | Excludes unamortized net discount/premium on debt issuances, unamortized gain on a terminated interest rate swap and amounts related to interest rate swaps designated as fair-value hedges. For additional information on debt obligations, see Note 13 to the Consolidated Financial Statements. | |
| (2) | Interest payments for short-term borrowings and long-term debt are calculated as follows. For short-term borrowings, interest is based on par values and rates of contractually obligated issuances at fiscal year end. For long-term debt, interest is based on principal amounts and fixed coupon rates at fiscal year end. | |
| (3) | Represents payments of cross-currency swaps, forward exchange contracts, and deferred compensation hedges. | |
| (4) | Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits, payments related to pension plans and unvested stock-based compensation. For additional information on pension and postretirement benefits, see Note 11 to the Consolidated Financial Statements. |
Off-Balance
Sheet Arrangements and Other Commitments
The company guarantees approximately 1,900 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
$161 million. The company’s guarantees are indirectly
secured by the distribution routes. The company does not believe
that it is probable that it will be required to make guarantee
payments as a result of defaults on the bank loans guaranteed.
In connection with the sale of certain Australian salty snack
food brands and assets, the company agreed to provide a loan
facility to the buyer of AUD $10 million, or approximately
USD $9 million. The facility was drawn down in AUD
$5 million increments in 2009. Borrowings under the
facility are to be repaid five years after the closing date. See
also Note 18 to the Consolidated Financial Statements for
information on off-balance sheet arrangements.
Inflation
In fiscal 2008 and 2009, inflation, on average, had been
significantly higher than in the years preceding 2008, and was
primarily reflected in Cost of products sold. In 2010, inflation
was not as significant. 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, commodity
hedging and making capital investments that improve the
efficiency of operations.
26
Table of Contents
Market
Risk Sensitivity
The principal market risks to which the company is exposed are
changes in foreign currency exchange rates, interest rates and
commodity prices. In addition, the company is exposed to equity
price changes related to certain deferred 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 29% of 2010 net sales,
are concentrated principally in Australia, Canada, France,
Germany and Belgium. 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 also enters
into commodity futures and option contracts to reduce the
volatility of price fluctuations of diesel fuel, wheat, natural
gas, soybean oil, aluminum, sugar, cocoa, and corn, which impact
the cost of raw materials.
The information below summarizes the company’s market risks
associated with debt obligations and other significant financial
instruments as of August 1, 2010. Fair values included
herein have been determined based on quoted market prices or
pricing models using current market rates. The information
presented below should be read in conjunction with Notes 13
through 15 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 2010
represent the weighted-average rates at the period end. Notional
amounts and related interest rates of interest rate swaps are
presented by fiscal year of maturity. For the swaps, variable
rates are the weighted-average forward rates for the term of
each contract.
|
Expected Fiscal Year of
Maturity
|
||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||||||||||
|
Debt
(1)
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 702 | $ | 2 | $ | 400 | $ | 300 | $ | 300 | $ | 900 | $ | 2,604 | $ | 2,829 | ||||||||||||||||
|
Weighted-average interest rate
|
6.74 | % | 3.29 | % | 5.00 | % | 4.88 | % | 3.38 | % | 4.83 | % | 5.21 | % | ||||||||||||||||||
|
Variable rate
|
$ | 130 | (2) | $ | 130 | $ | 130 | |||||||||||||||||||||||||
|
Weighted-average interest rate
|
1.47 | % | 1.47 | % | ||||||||||||||||||||||||||||
|
Interest Rate Swaps
|
||||||||||||||||||||||||||||||||
|
Fixed to variable
|
$ | 300 | (3) | $ | 200 | (4) | $ | 500 | $ | 46 | ||||||||||||||||||||||
|
Average pay rate
|
1.32 | % | 1.46 | % | 1.38 | % | ||||||||||||||||||||||||||
|
Average receive rate
|
5.00 | % | 4.88 | % | 4.95 | % | ||||||||||||||||||||||||||
| (1) | Excludes unamortized net premium/discount on debt issuances, unamortized gain on a terminated interest rate swap, and amounts related to interest rate swaps designated as fair-value hedges. | |
| (2) | Represents $96 million of USD borrowings and $34 million equivalent of borrowings in other currencies. | |
| (3) | Swaps $300 million of 5.00% notes due in 2013. | |
| (4) | Swaps $200 million of 4.875% notes due in 2014. |
As of August 2, 2009, fixed-rate debt of approximately
$2.2 billion with an average interest rate of 5.50% and
variable-rate debt of approximately $374 million with an
average interest rate of 0.58% were outstanding. As of
August 2, 2009, the company had swapped $500 million
of fixed-rate debt to variable. The average rate to be
27
Table of Contents
received on these swaps was 4.95% and the average rate paid was
estimated to be 2.81% over the remaining life of the swaps.
The company is exposed to foreign exchange risk related to its
international operations, including non-functional currency
intercompany debt and net investments in subsidiaries. The
following table summarizes the cross-currency swaps outstanding
as of August 1, 2010, which hedge such exposures. The
notional amount of each currency and the related
weighted-average forward interest rate are presented in the
Cross-Currency Swaps table.
Cross-Currency
Swaps
|
Fiscal Year of
|
Interest
|
Notional
|
Fair
|
|||||||||||||
| Expiration | Rate | Value | Value | |||||||||||||
| (Millions) | ||||||||||||||||
|
Pay variable EUR
|
2011 | 2.60 | % | $ | 69 | $ | 1 | |||||||||
|
Receive variable USD
|
2.16 | % | ||||||||||||||
|
Pay variable EUR
|
2011 | 2.25 | % | $ | 69 | $ | 12 | |||||||||
|
Receive variable USD
|
1.63 | % | ||||||||||||||
|
Pay fixed EUR
|
2012 | 4.33 | % | $ | 102 | $ | 3 | |||||||||
|
Receive fixed USD
|
5.11 | % | ||||||||||||||
|
Pay variable CAD
|
2012 | 1.83 | % | $ | 82 | $ | — | |||||||||
|
Receive variable USD
|
0.88 | % | ||||||||||||||
|
Pay variable CAD
|
2012 | 1.85 | % | $ | 37 | $ | (5 | ) | ||||||||
|
Receive variable USD
|
0.84 | % | ||||||||||||||
|
Pay variable EUR
|
2013 | 1.93 | % | $ | 21 | $ | 1 | |||||||||
|
Receive variable USD
|
1.64 | % | ||||||||||||||
|
Pay variable AUD
|
2013 | 5.88 | % | $ | 133 | $ | (4 | ) | ||||||||
|
Receive variable USD
|
1.58 | % | ||||||||||||||
|
Pay variable EUR
|
2013 | 1.90 | % | $ | 41 | $ | (1 | ) | ||||||||
|
Receive variable USD
|
1.75 | % | ||||||||||||||
|
Pay fixed CAD
|
2014 | 6.24 | % | $ | 60 | $ | (24 | ) | ||||||||
|
Receive fixed USD
|
5.66 | % | ||||||||||||||
|
Pay variable AUD
|
2015 | 6.35 | % | $ | 133 | $ | (4 | ) | ||||||||
|
Receive variable USD
|
2.50 | % | ||||||||||||||
|
Total
|
$ | 747 | $ | (21 | ) | |||||||||||
The cross-currency swap contracts outstanding at August 2,
2009 represented one pay fixed SEK/receive fixed USD swap with a
notional value of $32 million, two pay fixed CAD/receive
fixed USD swaps with notional values totaling $141 million,
one pay variable CAD/receive variable USD swap with a notional
value of $37 million, one pay fixed EUR/receive fixed USD
swap with a notional value totaling $102 million, three pay
variable EUR/receive variable USD swaps with notional values
totaling $158 million and two pay variable AUD/receive
variable USD swaps with notional values totaling
$249 million. The aggregate notional value of these swap
contracts was $719 million as of August 2, 2009, and
the aggregate fair value of these swap contracts was a loss of
$35 million as of August 2, 2009.
The company is also exposed to foreign exchange risk as a result
of transactions in currencies other than the functional currency
of certain subsidiaries, including subsidiary debt. The company
utilizes foreign exchange forward purchase and sale contracts to
hedge these exposures. The following table summarizes the
foreign exchange forward contracts outstanding and the related
weighted-average contract exchange rates as of August 1,
2010.
28
Table of Contents
Forward
Exchange Contracts
|
Average Contractual
|
||||||||
|
Exchange Rate
|
||||||||
|
Contract
|
(Currency Paid/
|
|||||||
| Amount | Currency Received) | |||||||
| (Millions) | ||||||||
|
Receive USD/Pay CAD
|
$ | 137 | 1.03 | |||||
|
Receive CAD/Pay USD
|
$ | 45 | 0.97 | |||||
|
Receive AUD/Pay NZD
|
$ | 25 | 1.23 | |||||
|
Receive EUR/Pay SEK
|
$ | 20 | 9.46 | |||||
|
Receive USD/Pay AUD
|
$ | 20 | 1.15 | |||||
|
Receive GBP/Pay AUD
|
$ | 10 | 1.76 | |||||
The company had an additional $14 million in a number of
smaller contracts to purchase or sell various other currencies,
such as the Australian dollar, euro, and Japanese yen, as of
August 1, 2010. The aggregate fair value of all contracts
was not material as of August 1, 2010. The total forward
exchange contracts outstanding as of August 2, 2009 were
$405 million with a fair value loss of $10 million.
The company enters into commodity futures and options contracts
to reduce the volatility of price fluctuations for commodities.
The notional value of these contracts was $50 million and
the aggregate fair value of these contracts was a gain of
$3 million as of August 1, 2010. The total notional
value of these contracts was $51 million and the aggregate
fair value was not material as of August 2, 2009.
The company had swap contracts outstanding as of August 1,
2010, which hedge a portion of exposures relating to certain
deferred 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 $12 million at August 1, 2010 and $8 million
at August 2, 2009. The average forward interest rate
applicable to the contract, which expires in 2011, was 0.84% at
August 1, 2010. The notional value of the contract that is
linked to the return on the Puritan Fund was $9 million at
August 1, 2010 and $6 million at August 2, 2009.
The average forward interest rate applicable to the contract,
which expires in 2011, was 1.39% at August 1, 2010. The
notional value of the contract that is linked to the total
return on company capital stock was $54 million at
August 1, 2010 and $34 million at August 2, 2009.
The average forward interest rate applicable to this contract,
which expires in 2011, was 1.25% at August 1, 2010. The
fair value of these contracts was a $2 million loss at
August 1, 2010 and a $4 million gain at August 2,
2009.
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 the use of
judgment related to performance and redemption estimates.
Estimates are made based
29
Table of Contents
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
— Fixed assets
and amortizable intangible assets are reviewed for impairment as
events or changes in circumstances occur indicating that the
carrying value of the asset may not be recoverable. Undiscounted
cash flow analyses are used to determine if an impairment
exists. If an impairment is determined to exist, the loss is
calculated based on estimated fair value.
Goodwill and indefinite-lived intangible assets are tested at
least annually for impairment, or as events or changes in
circumstances occur indicating that the carrying amount of the
asset may not be recoverable.
Goodwill impairment testing first requires a comparison of the
fair value of each reporting unit to the carrying value. Fair
value is determined based on discounted cash flow analyses. The
discounted estimates of future cash flows include significant
management assumptions such as revenue growth rates, operating
margins, weighted average cost of capital, and future economic
and market conditions. If the carrying value of the reporting
unit exceeds fair value, goodwill is considered impaired. The
amount of the impairment is the difference between the carrying
value of the 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. As of
August 1, 2010, the carrying value of goodwill was
$1.919 billion. The company has not recognized any
impairment of goodwill as a result of annual testing, which
began in 2003. As of the 2010 measurement, the fair value of
each reporting unit exceeded the carrying value by at least 80%.
Holding all other assumptions used in the 2010 measurement
constant, a 100-basis-point increase in the weighted average
cost of capital would not result in the carrying value of any
reporting unit to be in excess of the fair value.
Indefinite-lived intangible assets are tested for impairment by
comparing the fair value of the asset to the carrying value.
Fair value is determined based on discounted cash flow analyses
that include significant management assumptions such as revenue
growth rates, operating margins, weighted average cost of
capital, and assumed royalty rates. If the fair value is less
than the carrying value, the asset is reduced to fair value. As
of August 1, 2010, the carrying value of trademarks was
$496 million. Holding all other assumptions used in the
2010 measurement constant, a 100-basis-point increase in the
weighted average cost of capital would reduce the fair value of
trademarks and result in an impairment charge of approximately
$13 million. In 2009, as part of the company’s annual
review of intangible assets, an impairment charge of
$67 million was recognized related to certain European
trademarks, primarily in Germany and the Nordic region, used in
the International Soup, Sauces and Beverages segment. The
trademarks were determined to be impaired as a result of a
decrease in the fair value of the brands, resulting from reduced
expectations for discounted cash flows in comparison to prior
year. The reduction was due in part to a deterioration in market
conditions and an increase in the weighted average cost of
capital. See Note 5 to the Consolidated Financial
Statements for additional information on goodwill and intangible
assets.
The estimates of future cash flows involve considerable
management judgment and are based upon assumptions about
expected future operating performance, economic conditions,
market conditions, and cost of capital. Assumptions used in
these forecasts are consistent with internal planning. However,
inherent in estimating the future cash flows are uncertainties
beyond the company’s control, such as capital markets. The
actual cash flows could differ from management’s estimates
due to changes in business conditions, operating performance,
and economic conditions.
Pension and postretirement 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 actuaries apply high-quality bond yield
curves to the expected benefit
30
Table of Contents
payments of the plans. The expected return on plan assets is a
long-term assumption based upon historical experience and
expected future performance, considering the company’s
current and projected investment mix. This estimate is based on
an estimate of future inflation, long-term projected real
returns for each asset class, and a premium for active
management. Within any given fiscal period, significant
differences may arise between the actual return and the expected
return on plan assets. The value of plan assets, used in the
calculation of pension expense, is determined on a calculated
method that recognizes 20% of the difference between the actual
fair value of assets and the expected calculated method. Gains
and losses resulting from differences between actual experience
and the assumptions are determined at each measurement date. If
the net gain or loss exceeds 10% of the greater of plan assets
or liabilities, a portion is amortized into earnings in the
following year.
Net periodic pension and postretirement expense was
$92 million in 2010, $53 million in 2009, and
$54 million in 2008. The 2010 expense included
$12 million of pension settlement costs related to the
closure of a plant in Canada. The 2008 expense included $2
million of special termination benefits and curtailment costs
related to the Godiva divestiture, which was recorded in
discontinued operations. The 2008 expense also included
$4 million of special termination and curtailment costs
related to the restructuring initiatives. Significant
weighted-average assumptions as of the end of the year are as
follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Pension
|
||||||||||||
|
Discount rate for benefit obligations
|
5.46 | % | 6.00 | % | 6.87 | % | ||||||
|
Expected return on plan assets
|
8.15 | % | 8.13 | % | 8.60 | % | ||||||
|
Postretirement
|
||||||||||||
|
Discount rate for obligations
|
5.25 | % | 6.00 | % | 7.00 | % | ||||||
|
Initial health care trend rate
|
8.25 | % | 8.25 | % | 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 postretirement service and
interest cost by approximately $1 million.
Net periodic pension and postretirement expense is expected to
increase to approximately $100 million in 2011 primarily
due to a reduction in the discount rate for benefit obligations
and increased amortization of unrecognized losses.
Given the adverse impact of declining financial markets on the
funding levels of the plans, the company contributed
$260 million to a U.S. plan in 2010. The company made
a voluntary contribution of $70 million in 2008 to a
U.S. plan. Contributions to international plans were
$24 million in 2010, $13 million in 2009, and
$8 million in 2008. The company contributed
$100 million to U.S. plans in the first quarter of
2011. Additional contributions to U.S. plans are not expected in
2011. Contributions to
non-U.S. plans
are expected to be approximately $43 million in 2011.
See also Note 11 to the Consolidated Financial Statements
for additional information on pension and postretirement
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. 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.
31
Table of Contents
At the beginning of fiscal 2008, the company adopted revised
accounting guidance related to accounting for uncertainty in
income taxes. Upon adoption, the company recognized a
cumulative-effect adjustment of $6 million as an increase
in the liability for unrecognized tax benefits, including
interest and penalties, and a reduction in retained earnings.
Prior to the adoption, tax reserves were established to reflect
the probable outcome of known tax contingencies. As of
August 1, 2010, the liability for unrecognized tax
benefits, including interest and penalties, was $45 million.
See also Notes 1 and 12 to the Consolidated Financial
Statements for further discussion on income taxes.
Recent
Accounting Pronouncements
In addition to the guidance related to the calculation of
earnings per share described in “Basis of
Presentation” and in Note 9 to the Consolidated
Financial Statements, recent accounting pronouncements are as
follows:
In December 2007, the FASB issued authoritative guidance which
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It requires a noncontrolling
interest in a subsidiary, which was formerly known as minority
interest, to be classified as a separate component of total
equity in the consolidated financial statements. The company
retrospectively adopted the new noncontrolling interest guidance
in the first quarter of fiscal 2010. The adoption did not have a
material impact on the financial statements. See Note 10 to
the Consolidated Financial Statements for additional information.
In January 2010, the FASB issued additional authoritative
guidance related to fair value measurements and disclosures. The
guidance requires disclosure of details of significant transfers
in and out of Level 1 and Level 2 fair value
measurements. Level 1 fair value measurements are based on
unadjusted quoted market prices. Level 2 fair value
measurements are based on significant inputs, other than
Level 1, that are observable for the asset/liability
through corroboration with observable market data. The guidance
also clarifies the existing disclosure requirements for the
level of disaggregation of fair value measurements and the
disclosures on inputs and valuation techniques. The company
adopted these provisions in the third quarter of fiscal 2010.
The adoption did not have a material impact on the consolidated
financial statements. In addition, the guidance requires a gross
presentation of the activity within the Level 3 roll
forward, separately presenting information about purchases,
sales, issuances and settlements. The roll forward information
must be provided by the company for the first quarter of fiscal
2012, as the provision is effective for annual reporting periods
beginning after December 15, 2010 and for interim reporting
periods within those years.
In June 2009, the FASB issued authoritative guidance that
changed the consolidation model for variable interest entities.
The provisions are effective for the first quarter of fiscal
2011. The adoption is not expected to have a material impact on
the company’s consolidated financial statements.
See also Note 2 to the Consolidated Financial Statements
for further discussion on new accounting standards.
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
32
Table of Contents
filings of the company, could affect the company’s actual
results and could cause such results to vary materially from
those expressed in any forward-looking statements made by, or on
behalf of, the company:
| • | the impact of strong competitive response to the company’s efforts to leverage its brand power with product innovation, promotional programs and new advertising, and of changes in consumer demand for the company’s products; | |
| • | the risks in the marketplace associated with trade and consumer acceptance of product improvements, shelving initiatives, new product introductions, and pricing and promotional strategies; | |
| • | the company’s ability to achieve sales and earnings guidance, which is based on assumptions about sales volume, product mix, the development and success of new products, the impact of marketing and pricing actions, product costs and currency; | |
| • | the company’s ability to realize projected cost savings and benefits; | |
| • | the company’s ability to successfully manage changes to its business processes, including selling, distribution, manufacturing, information management systems and the integration of acquisitions; | |
| • | the increased significance of certain of the company’s key trade customers; | |
| • | the impact of inventory management practices by the company’s trade customers; | |
| • | the impact of fluctuations in the supply and inflation in energy, raw and packaging materials cost; | |
| • | the impact associated with portfolio changes and completion of acquisitions and divestitures; | |
| • | the uncertainties of litigation described from time to time in the company’s Securities and Exchange Commission filings; | |
| • | the impact of changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions and other external factors; and | |
| • | the impact of unforeseen business disruptions in one or more of the company’s markets due to political instability, civil disobedience, 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.
33
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
CAMPBELL
SOUP COMPANY
Consolidated
Statements of Earnings
|
2010
|
2009
|
2008
|
||||||||||
| 52 Weeks | 52 Weeks | 53 Weeks | ||||||||||
| (Millions, except per share amounts) | ||||||||||||
|
Net Sales
|
$ | 7,676 | $ | 7,586 | $ | 7,998 | ||||||
|
Costs and expenses
|
||||||||||||
|
Cost of products sold
|
4,526 | 4,558 | 4,827 | |||||||||
|
Marketing and selling expenses
|
1,058 | 1,077 | 1,162 | |||||||||
|
Administrative expenses
|
605 | 591 | 608 | |||||||||
|
Research and development expenses
|
123 | 114 | 115 | |||||||||
|
Other expenses / (income)
|
4 | 61 | 13 | |||||||||
|
Restructuring charges
|
12 | — | 175 | |||||||||
|
Total costs and expenses
|
6,328 | 6,401 | 6,900 | |||||||||
|
Earnings Before Interest and Taxes
|
1,348 | 1,185 | 1,098 | |||||||||
|
Interest expense
|
112 | 110 | 167 | |||||||||
|
Interest income
|
6 | 4 | 8 | |||||||||
|
Earnings before taxes
|
1,242 | 1,079 | 939 | |||||||||
|
Taxes on earnings
|
398 | 347 | 268 | |||||||||
|
Earnings from continuing operations
|
844 | 732 | 671 | |||||||||
|
Earnings from discontinued operations
|
— | 4 | 494 | |||||||||
|
Net Earnings
|
$ | 844 | $ | 736 | $ | 1,165 | ||||||
|
Per Share — Basic
|
||||||||||||
|
Earnings from continuing operations
|
$ | 2.44 | $ | 2.05 | $ | 1.77 | ||||||
|
Earnings from discontinued operations
|
— | .01 | 1.30 | |||||||||
|
Net Earnings
|
$ | 2.44 | $ | 2.06 | $ | 3.06 | ||||||
|
Weighted average shares outstanding — basic
|
340 | 352 | 373 | |||||||||
|
Per Share — Assuming Dilution
|
||||||||||||
|
Earnings from continuing operations
|
$ | 2.42 | $ | 2.03 | $ | 1.75 | ||||||
|
Earnings from discontinued operations
|
— | .01 | 1.28 | |||||||||
|
Net Earnings
|
$ | 2.42 | $ | 2.05 | $ | 3.03 | ||||||
|
Weighted average shares outstanding — assuming dilution
|
343 | 354 | 377 | |||||||||
The sum of individual per share amounts does not equal due to
rounding.
See accompanying Notes to Consolidated Financial Statements.
34
Table of Contents
CAMPBELL
SOUP COMPANY
Consolidated
Balance Sheets
|
August 1,
|
August 2,
|
|||||||
| 2010 | 2009 | |||||||
| (Millions, except per share amounts) | ||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 254 | $ | 51 | ||||
|
Accounts receivable
|
512 | 528 | ||||||
|
Inventories
|
724 | 824 | ||||||
|
Other current assets
|
197 | 148 | ||||||
|
Total current assets
|
1,687 | 1,551 | ||||||
|
Plant Assets, Net of Depreciation
|
2,051 | 1,977 | ||||||
|
Goodwill
|
1,919 | 1,901 | ||||||
|
Other Intangible Assets, Net of Amortization
|
509 | 522 | ||||||
|
Other Assets
|
110 | 105 | ||||||
|
Total assets
|
$ | 6,276 | $ | 6,056 | ||||
|
Current Liabilities
|
||||||||
|
Short-term borrowings
|
$ | 835 | $ | 378 | ||||
|
Payable to suppliers and others
|
545 | 569 | ||||||
|
Accrued liabilities
|
560 | 579 | ||||||
|
Dividend payable
|
95 | 88 | ||||||
|
Accrued income taxes
|
30 | 14 | ||||||
|
Total current liabilities
|
2,065 | 1,628 | ||||||
|
Long-Term Debt
|
1,945 | 2,246 | ||||||
|
Deferred Taxes
|
258 | 237 | ||||||
|
Other Liabilities
|
1,079 | 1,214 | ||||||
|
Total liabilities
|
5,347 | 5,325 | ||||||
|
Campbell Soup Company Shareowners’ Equity
|
||||||||
|
Preferred stock; authorized 40 shares; none issued
|
— | — | ||||||
|
Capital stock, $.0375 par value; authorized
560 shares; issued 542 shares
|
20 | 20 | ||||||
|
Additional paid-in capital
|
341 | 332 | ||||||
|
Earnings retained in the business
|
8,760 | 8,288 | ||||||
|
Capital stock in treasury, at cost
|
(7,459 | ) | (7,194 | ) | ||||
|
Accumulated other comprehensive loss
|
(736 | ) | (718 | ) | ||||
|
Total Campbell Soup Company shareowners’ equity
|
926 | 728 | ||||||
|
Noncontrolling interest
|
3 | 3 | ||||||
|
Total equity
|
929 | 731 | ||||||
|
Total liabilities and equity
|
$ | 6,276 | $ | 6,056 | ||||
See accompanying Notes to Consolidated Financial Statements.
35
Table of Contents
CAMPBELL
SOUP COMPANY
Consolidated
Statements of Cash Flows
| 2010 | 2009 | 2008 | ||||||||||
| (Millions) | ||||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net earnings
|
$ | 844 | $ | 736 | $ | 1,165 | ||||||
|
Adjustments to reconcile net earnings to operating cash flow
|
||||||||||||
|
Impairment charge
|
— | 67 | — | |||||||||
|
Restructuring charges
|
12 | — | 175 | |||||||||
|
Stock-based compensation
|
88 | 84 | 88 | |||||||||
|
Depreciation and amortization
|
251 | 264 | 294 | |||||||||
|
Deferred income taxes
|
54 | 144 | 29 | |||||||||
|
Gain on sale of business
|
— | — | (698 | ) | ||||||||
|
Other, net
|
99 | 57 | 46 | |||||||||
|
Changes in working capital
|
||||||||||||
|
Accounts receivable
|
21 | 27 | (53 | ) | ||||||||
|
Inventories
|
105 | (14 | ) | (91 | ) | |||||||
|
Prepaid assets
|
(9 | ) | 28 | (22 | ) | |||||||
|
Accounts payable and accrued liabilities
|
(34 | ) | (125 | ) | 23 | |||||||
|
Pension fund contributions
|
(284 | ) | (13 | ) | (78 | ) | ||||||
|
Payments for hedging activities
|
(20 | ) | (44 | ) | (65 | ) | ||||||
|
Other
|
(70 | ) | (45 | ) | (47 | ) | ||||||
|
Net Cash Provided by Operating Activities
|
1,057 | 1,166 | 766 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Purchases of plant assets
|
(315 | ) | (345 | ) | (298 | ) | ||||||
|
Sales of plant assets
|
13 | 1 | 3 | |||||||||
|
Businesses acquired
|
— | (66 | ) | (9 | ) | |||||||
|
Sale of businesses, net of cash divested
|
— | 38 | 828 | |||||||||
|
Other, net
|
2 | (6 | ) | 7 | ||||||||
|
Net Cash Provided by (Used in) Investing Activities
|
(300 | ) | (378 | ) | 531 | |||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Net short-term borrowings (repayments)
|
(265 | ) | (320 | ) | 58 | |||||||
|
Long-term borrowings (repayments)
|
400 | 600 | (181 | ) | ||||||||
|
Repayments of notes payable
|
— | (300 | ) | — | ||||||||
|
Dividends paid
|
(365 | ) | (350 | ) | (329 | ) | ||||||
|
Treasury stock purchases
|
(472 | ) | (527 | ) | (903 | ) | ||||||
|
Treasury stock issuances
|
139 | 72 | 47 | |||||||||
|
Excess tax benefits on stock-based compensation
|
11 | 18 | 8 | |||||||||
|
Other, net
|
(4 | ) | (7 | ) | — | |||||||
|
Net Cash Used in Financing Activities
|
(556 | ) | (814 | ) | (1,300 | ) | ||||||
|
Effect of Exchange Rate Changes on Cash
|
2 | (4 | ) | 13 | ||||||||
|
Net Change in Cash and Cash Equivalents
|
203 | (30 | ) | 10 | ||||||||
|
Cash and Cash Equivalents — beginning of period
|
51 | 81 | 71 | |||||||||
|
Cash and Cash Equivalents — end of period
|
$ | 254 | $ | 51 | $ | 81 | ||||||
See accompanying Notes to Consolidated Financial Statements.
36
Table of Contents
CAMPBELL
SOUP COMPANY
Consolidated
Statements of Equity
| Campbell Soup Company Shareowners’ Equity | ||||||||||||||||||||||||||||||||||||
|
Earnings
|
Accumulated
|
|||||||||||||||||||||||||||||||||||
| Capital Stock |
Additional
|
Retained
|
Other
|
|||||||||||||||||||||||||||||||||
| Issued | In Treasury |
Paid-in
|
in
|
Comprehensive
|
Noncontrolling
|
Total
|
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | the Business | Income (Loss) | Interest | Equity | ||||||||||||||||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||||||||||||||||||
|
Balance at July 29, 2007
|
542 | $ | 20 | (163 | ) | $ | (6,015 | ) | $ | 331 | $ | 7,082 | $ | (123 | ) | $ | 3 | $ | 1,298 | |||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||||
|
Net earnings
|
1,165 | — | 1,165 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments, net of tax
|
112 | — | 112 | |||||||||||||||||||||||||||||||||
|
Cash-flow hedges, net of tax
|
11 | 11 | ||||||||||||||||||||||||||||||||||
|
Pension and postretirement benefits, net of tax
|
(136 | ) | (136 | ) | ||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
(13 | ) | — | (13 | ) | |||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
1,152 | |||||||||||||||||||||||||||||||||||
|
Impact of adoption of accounting for uncertainty in income taxes
|
(6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
|
Dividends ($.88 per share)
|
(332 | ) | (332 | ) | ||||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(26 | ) | (903 | ) | (903 | ) | ||||||||||||||||||||||||||||||
|
Treasury stock issued under management incentive and stock
option plans
|
3 | 106 | 6 | 112 | ||||||||||||||||||||||||||||||||
|
Balance at August 3, 2008
|
542 | 20 | (186 | ) | (6,812 | ) | 337 | 7,909 | (136 | ) | 3 | 1,321 | ||||||||||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||||
|
Net earnings
|
736 | — | 736 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments, net of tax
|
(148 | ) | — | (148 | ) | |||||||||||||||||||||||||||||||
|
Cash-flow hedges, net of tax
|
(25 | ) | (25 | ) | ||||||||||||||||||||||||||||||||
|
Pension and postretirement benefits, net of tax
|
(409 | ) | (409 | ) | ||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
(582 | ) | — | (582 | ) | |||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
154 | |||||||||||||||||||||||||||||||||||
|
Dividends ($1.00 per share)
|
(357 | ) | (357 | ) | ||||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(17 | ) | (527 | ) | (527 | ) | ||||||||||||||||||||||||||||||
|
Treasury stock issued under management incentive and stock
option plans
|
4 | 145 | (5 | ) | 140 | |||||||||||||||||||||||||||||||
|
Balance at August 2, 2009
|
542 | 20 | (199 | ) | (7,194 | ) | 332 | 8,288 | (718 | ) | 3 | 731 | ||||||||||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||||
|
Net earnings
|
844 | — | 844 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments, net of tax
|
39 | — | 39 | |||||||||||||||||||||||||||||||||
|
Cash-flow hedges, net of tax
|
2 | 2 | ||||||||||||||||||||||||||||||||||
|
Pension and postretirement benefits, net of tax
|
(59 | ) | (59 | ) | ||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
(18 | ) | — | (18 | ) | |||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
826 | |||||||||||||||||||||||||||||||||||
|
Dividends ($1.075 per share)
|
(372 | ) | (372 | ) | ||||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(14 | ) | (472 | ) | (472 | ) | ||||||||||||||||||||||||||||||
|
Treasury stock issued under management incentive and stock
option plans
|
7 | 207 | 9 | 216 | ||||||||||||||||||||||||||||||||
|
Balance at August 1, 2010
|
542 | $ | 20 | (206 | ) | $ | (7,459 | ) | $ | 341 | $ | 8,760 | $ | (736 | ) | $ | 3 | $ | 929 | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
37
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(currency 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 consolidation. 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
2010 and 2009, and 53 weeks in 2008.
On March 18, 2008, the company completed the sale of its
Godiva Chocolatier business for $850, pursuant to a Sale and
Purchase Agreement dated December 20, 2007. The company has
reflected the results of this business as discontinued
operations in the consolidated statements of earnings. See
Note 3 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 determinable. 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
— All inventories are valued at the
lower of average cost or market.
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 20 years,
respectively. Assets are evaluated 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.
Goodwill and Intangible Assets
— Goodwill and
indefinite-lived intangible assets are not amortized but rather
are tested at least annually for impairment. Goodwill and
indefinite-lived intangible assets are also tested for
impairment as events or changes in circumstances occur
indicating that the carrying value may not be recoverable.
Intangible assets with finite lives are amortized over the
estimated useful life and reviewed for impairment. Goodwill
impairment testing first requires a comparison of the fair value
of each reporting unit to the carrying value. If the carrying
value of the reporting unit exceeds fair value, goodwill is
considered impaired. The amount of the 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 5 for information on goodwill and other intangible
assets.
Derivative Financial Instruments
— The company
uses derivative financial instruments primarily for purposes of
hedging exposures to fluctuations in foreign currency exchange
rates, interest rates, commodities and equity-linked employee
benefit obligations. These derivative contracts are entered into
for periods consistent with the related underlying exposures and
do not constitute positions independent of those exposures. The
company does not enter into derivative contracts for speculative
purposes and does not use leveraged instruments. The
company’s derivative programs include strategies that both
qualify and do not qualify for hedge accounting treatment.
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 a hedge of the fair value
of a recognized asset or liability or a firm commitment
(fair-value hedge), 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), or a hedge of
a net investment in a foreign operation. Some derivatives may
also be considered natural hedging instruments (changes in fair
value act as
38
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
economic offsets to changes in fair value of the underlying
hedged item) and are not designated for hedge accounting.
Changes in the fair value of a fair-value hedge, along with the
gain or loss on the underlying hedged asset or liability
(including losses or gains on firm commitments), are recorded in
current-period earnings. The effective portion of gains and
losses on cash-flow hedges are recorded in other comprehensive
income (loss), until earnings are affected by the variability of
cash flows. If 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 other
comprehensive income (loss). Any ineffective portion of
designated hedges is recognized in current-period earnings.
Changes in the fair value of derivatives that are not designated
for hedge accounting are recognized in current-period earnings.
Cash flows from derivative contracts are included in Net cash
provided by operating activities.
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
— 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 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.
| 2. | Recent Accounting Pronouncements |
In December 2007, the Financial Accounting Standards Board
(FASB) issued authoritative guidance which establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. It requires a noncontrolling interest in a
subsidiary, which was formerly known as minority interest, to be
classified as a separate component of total equity in the
consolidated financial statements. The company retrospectively
adopted the new noncontrolling interest guidance in the first
quarter of fiscal 2010. The adoption did not have a material
impact on the financial statements. See Note 10 for
additional information.
In December 2007, the FASB issued authoritative guidance for
business combinations, which establishes the principles and
requirements for how an acquirer recognizes the assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values
as of that date with limited exceptions. The guidance requires
acquisition-related transaction costs to be expensed as incurred
rather than capitalized as a component of the business
combination. The provisions as revised were effective as of the
first quarter of fiscal 2010 and will be applied to any business
combinations entered into thereafter.
In September 2006, the FASB issued authoritative guidance for
fair value measurements, which establishes a definition of fair
value, provides a framework for measuring fair value and expands
the disclosure requirements about fair value measurements. This
guidance does not require any new fair value measurements but
rather applies to all other accounting pronouncements that
require or permit fair value measurements. In February 2008, the
FASB issued authoritative guidance which delayed by a year the
effective date for certain nonfinancial assets and liabilities.
The company adopted the provisions of the guidance for financial
assets and liabilities in the first quarter of fiscal 2009. The
adoption did not have a material impact on the consolidated
financial statements. The company adopted the remaining
provisions in the first quarter of fiscal 2010 for nonfinancial
assets and liabilities, including goodwill and intangible
assets. The adoption likewise did not have a material impact on
the consolidated financial statements. See Note 15 for
additional information.
In January 2010, the FASB issued additional authoritative
guidance related to fair value measurements and disclosures. The
guidance requires disclosure of details of significant transfers
in and out of Level 1 and Level 2 fair value
measurements. Level 1 fair value measurements are based on
unadjusted quoted market prices. Level 2 fair
39
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
value measurements are based on significant inputs, other than
Level 1, that are observable for the asset/liability
through corroboration with observable market data. The guidance
also clarifies the existing disclosure requirements for the
level of disaggregation of fair value measurements and the
disclosures on inputs and valuation techniques. The company
adopted these provisions in the third quarter of fiscal 2010.
The adoption did not have a material impact on the consolidated
financial statements. In addition, the guidance requires a gross
presentation of the activity within the Level 3 roll
forward, separately presenting information about purchases,
sales, issuances and settlements. The roll forward information
must be provided by the company for the first quarter of fiscal
2012, as the provision is effective for annual reporting periods
beginning after December 15, 2010 and for interim reporting
periods within those years.
In June 2008, the FASB issued authoritative guidance related to
the calculation of earnings per share. The guidance provides
that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. Upon adoption, a company is required to
retrospectively adjust its earnings per share data (including
any amounts related to interim periods, summaries of earnings
and selected financial data) to conform with the new provisions.
The company adopted the guidance in the first quarter of fiscal
2010. Prior periods have been restated. See Note 9 for
additional information.
In June 2009, the FASB Accounting Standards Codification
(Codification) was issued to become the source of authoritative
U.S. generally accepted accounting principles (GAAP) to be
applied by nongovernmental entities and supersede all
then-existing non-Securities and Exchange Commission (SEC)
accounting and reporting standards. Rules and interpretive
releases of the SEC under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. All
other nongrandfathered non-SEC accounting literature not
included in the Codification became nonauthoritative. The
Codification was effective for financial statements issued for
interim and annual periods ending after September 15, 2009.
The company adopted the provisions in the first quarter of
fiscal 2010. The adoption did not impact the company’s
consolidated financial statements.
In December 2008, the FASB issued additional authoritative
guidance related to employers’ disclosures about the plan
assets of defined benefit pension or other postretirement plans.
The required disclosures include a description of how investment
allocation decisions are made, major categories of plan assets,
valuation techniques used to measure the fair value of plan
assets, the impact of measurements using significant
unobservable inputs and concentrations of risk within plan
assets. The disclosures about plan assets required by this
additional guidance must be provided for fiscal years ending
after December 15, 2009. The company adopted the provisions
in fiscal 2010. See Note 11 for additional information.
In June 2009, the FASB issued authoritative guidance that
changed the consolidation model for variable interest entities.
The provisions are effective for the first quarter of fiscal
2011. The adoption is not expected to have a material impact on
the company’s consolidated financial statements.
| 3. | Divestitures |
Discontinued
Operations
On March 18, 2008, the company completed the sale of its
Godiva Chocolatier business for $850. The purchase price was
subject to certain post-closing adjustments, which resulted in
an additional $20 of proceeds. The company has reflected the
results of this business as discontinued operations in the
consolidated statements of earnings. The company used
approximately $600 of the net proceeds to purchase company
stock. The 2008 results included a $462 after-tax gain, or $1.20
per share, on the Godiva Chocolatier sale. The company
recognized a $4 benefit in 2009 as a result of an adjustment to
the tax liability associated with the sale.
40
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Results of the Godiva Chocolatier business were as follows:
| 2009 | 2008 | |||||||
|
Net sales
|
$ | — | $ | 393 | ||||
|
Earnings from operations before taxes
|
$ | — | $ | 49 | ||||
|
Taxes on earnings — operations
|
— | (17 | ) | |||||
|
Gain on sale
|
— | 698 | ||||||
|
Tax impact from sale of business
|
4 | (236 | ) | |||||
|
Earnings from discontinued operations
|
$ | 4 | $ | 494 | ||||
Other
Divestitures
In the third quarter of 2008, the company entered into an
agreement to sell certain Australian salty snack food brands and
assets. The transaction, which was completed on May 12,
2008, included the following salty snack brands:
Cheezels
,
Thins
,
Tasty Jacks
,
French
Fries
, and
Kettle Chips
, certain other assets and the
assumption of liabilities. Proceeds of the sale were nominal.
The business was historically included in the Baking and
Snacking segment and had annual net sales of approximately $150.
In connection with this transaction, the company recognized a
pre-tax loss of $120 ($64 after tax or $.17 per share). This
charge was included in the Restructuring charges on the
Statements of Earnings in 2008. See also Note 7. The terms
of the agreement required the company to provide a loan facility
to the buyer of AUD $10, or approximately USD $9. The facility
was drawn down in AUD $5 increments in 2009. Borrowings under
the facility are to be repaid five years after the closing date.
In July 2008, the company entered into an agreement to sell its
sauce and mayonnaise business comprised of products sold under
the
Lesieur
brand in France. The company recorded a
pre-tax impairment charge of $2 to adjust the net assets to
estimated realizable value in 2008. The sale was completed on
September 29, 2008 and resulted in $36 of proceeds. The
purchase price was subject to working capital and other
post-closing adjustments, which resulted in an additional $6 of
proceeds. The business was historically included in the
International Soup, Sauces and Beverages segment and had annual
net sales of approximately $70.
The company has provided certain indemnifications in connection
with the divestitures. As of August 1, 2010, known
exposures related to such matters are not material.
| 4. | Comprehensive Income |
Total comprehensive income is comprised of net earnings, net
foreign currency translation adjustments, pension and
postretirement benefit adjustments (see Note 11), and net
unrealized gains and losses on cash-flow hedges (see
Note 14). Total comprehensive income for the twelve months
ended August 1, 2010, August 2, 2009, and
August 3, 2008 was $826, $154, and $1,152, respectively.
The components of Accumulated other comprehensive income (loss),
as reflected in the Statements of Equity, consisted of the
following:
| 2010 | 2009 | |||||||
|
Foreign currency translation adjustments, net of tax(1)
|
$ | 132 | $ | 93 | ||||
|
Cash-flow hedges, net of tax(2)
|
(18 | ) | (20 | ) | ||||
|
Unamortized pension and postretirement benefits, net of tax(3):
|
||||||||
|
Net actuarial loss
|
(856 | ) | (787 | ) | ||||
|
Prior service (cost)/credit
|
6 | (4 | ) | |||||
|
Total Accumulated other comprehensive loss
|
$ | (736 | ) | $ | (718 | ) | ||
| (1) | Includes a tax benefit of $1 in 2010 and a tax expense of $7 in 2009. |
41
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (2) | Includes a tax benefit of $10 in 2010 and $11 in 2009. | |
| (3) | Includes a tax benefit of $489 in 2010 and $442 in 2009. |
| 5. | Goodwill and Intangible Assets |
The following table shows the changes in the carrying amount of
goodwill by business segment:
|
U.S.
|
International
|
North
|
||||||||||||||||||
|
Soup, Sauces
|
Baking and
|
Soup, Sauces
|
America
|
|||||||||||||||||
| and Beverages | Snacking | and Beverages | Foodservice | Total | ||||||||||||||||
|
Balance at August 3, 2008
|
$ | 434 | $ | 744 | $ | 674 | $ | 146 | $ | 1,998 | ||||||||||
|
Acquisition(1)
|
— | 30 | — | — | 30 | |||||||||||||||
|
Foreign currency translation adjustment
|
— | (74 | ) | (53 | ) | — | (127 | ) | ||||||||||||
|
Balance at August 2, 2009
|
$ | 434 | $ | 700 | $ | 621 | $ | 146 | $ | 1,901 | ||||||||||
|
Foreign currency translation adjustment
|
— | 54 | (36 | ) | — | 18 | ||||||||||||||
|
Balance at August 1, 2010
|
$ | 434 | $ | 754 | $ | 585 | $ | 146 | $ | 1,919 | ||||||||||
| (1) | In May 2009, the company acquired Ecce Panis, Inc. for $66. See Note 8 for additional information. |
The following table sets forth balance sheet information for
intangible assets, excluding goodwill, subject to amortization
and intangible assets not subject to amortization:
| 2010 | 2009 | |||||||
|
Intangible Assets:
|
||||||||
|
Non-amortizable
intangible assets
|
$ | 496 | $ | 508 | ||||
|
Amortizable intangible assets
|
21 | 21 | ||||||
| 517 | 529 | |||||||
|
Accumulated amortization
|
(8 | ) | (7 | ) | ||||
|
Total net intangible assets
|
$ | 509 | $ | 522 | ||||
Non-amortizable
intangible assets consist of trademarks. Amortizable intangible
assets consist substantially of process technology and customer
intangibles.
Amortization was less than $1 in 2010, 2009, and 2008. The
estimated aggregated amortization expense for each of the five
succeeding fiscal years is less than $1 per year. Asset useful
lives range from ten to twenty years.
In 2009, as part of the company’s annual review of
intangible assets, an impairment charge of $67 was recognized
related to certain European trademarks, primarily in Germany and
the Nordic region, used in the International Soup, Sauces and
Beverages segment. The trademarks were determined to be impaired
as a result of a decrease in the fair value of the brands,
resulting from reduced expectations for discounted cash flows in
comparison to prior year. The reduction was due in part to a
deterioration in market conditions and an increase in the
weighted average cost of capital.
In May 2009, the company acquired Ecce Panis, Inc. Intangible
assets from the acquisition totaled $16. See Note 8 for
additional information.
In 2008, the company recognized an impairment charge of $4
related to the performance of certain trademarks used in the
International Soup, Sauces and Beverages segment.
42
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 6. | Business and Geographic Segment Information |
Campbell Soup Company, together with its consolidated
subsidiaries, is a global manufacturer and marketer of
high-quality, branded convenience food products. The company
manages and reports the results of operations in the following
segments: U.S. Soup, Sauces and Beverages, Baking and
Snacking, International Soup, Sauces and Beverages, and North
America Foodservice.
The U.S. Soup, Sauces and Beverages segment comprises the
U.S. retail business, including the following products:
Campbell’s
condensed and
ready-to-serve
soups;
Swanson
broth, stocks and canned poultry;
Prego
pasta sauce;
Pace
Mexican sauce;
Campbell’s
canned pasta, gravies, and beans;
V8
vegetable
juices;
V8 V-Fusion
juices and beverages;
V8 Splash
juice drinks; and
Campbell’s
tomato juice.
The Baking and Snacking segment includes the following
businesses:
Pepperidge Farm
cookies, crackers, bakery and
frozen products in U.S. retail; and
Arnott’s
biscuits in Australia and Asia Pacific. In May 2008, the
company sold certain salty snack food brands and assets in
Australia, which historically were included in this segment. See
Note 3 for information on the sale.
The International Soup, Sauces and Beverages segment includes
the soup, sauce and beverage businesses outside of the United
States, including Europe, Latin America, the Asia Pacific
region, as well as the emerging markets of Russia and China and
the retail business in Canada. See Note 3 for information
on the sale of the sauce and mayonnaise business comprised of
products sold under the
Lesieur
brand in France. This
business was historically included in this segment.
The North America Foodservice segment represents 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. North America Foodservice
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. Tangible assets of the company’s other segments
are not allocated to the North America Foodservice operations.
Depreciation, however, is allocated to North America Foodservice
based on production hours.
The company’s largest customer, Wal-Mart Stores, Inc. and
its affiliates, accounted for approximately 18% of consolidated
net sales in 2010 and 2009, and 16% in 2008. All of the
company’s segments sold products to Wal-Mart Stores, Inc.
or its affiliates.
Business
Segments
| 2010 | 2009 | 2008 | ||||||||||
|
Net sales
|
||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 3,700 | $ | 3,784 | $ | 3,674 | ||||||
|
Baking and Snacking
|
1,975 | 1,846 | 2,058 | |||||||||
|
International Soup, Sauces and Beverages
|
1,423 | 1,357 | 1,610 | |||||||||
|
North America Foodservice
|
578 | 599 | 656 | |||||||||
|
Total
|
$ | 7,676 | $ | 7,586 | $ | 7,998 | ||||||
43
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2010(2) | 2009(3) | 2008(4) | ||||||||||
|
Earnings before interest and taxes
|
||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 943 | $ | 927 | $ | 891 | ||||||
|
Baking and Snacking
|
322 | 262 | 120 | |||||||||
|
International Soup, Sauces and Beverages
|
161 | 69 | 179 | |||||||||
|
North America Foodservice
|
43 | 34 | 40 | |||||||||
|
Corporate(1)
|
(121 | ) | (107 | ) | (132 | ) | ||||||
|
Total
|
$ | 1,348 | $ | 1,185 | $ | 1,098 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Depreciation and Amortization
|
||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 107 | $ | 101 | $ | 94 | ||||||
|
Baking and Snacking
|
75 | 71 | 81 | |||||||||
|
International Soup, Sauces and Beverages
|
35 | 41 | 47 | |||||||||
|
North America Foodservice
|
13 | 28 | 27 | |||||||||
|
Corporate(1)
|
21 | 23 | 28 | |||||||||
|
Discontinued Operations
|
— | — | 17 | |||||||||
|
Total
|
$ | 251 | $ | 264 | $ | 294 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Capital Expenditures
|
||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 139 | $ | 177 | $ | 132 | ||||||
|
Baking and Snacking
|
81 | 58 | 65 | |||||||||
|
International Soup, Sauces and Beverages
|
26 | 34 | 46 | |||||||||
|
North America Foodservice
|
3 | 17 | 7 | |||||||||
|
Corporate(1)
|
66 | 59 | 33 | |||||||||
|
Discontinued Operations
|
— | — | 15 | |||||||||
|
Total
|
$ | 315 | $ | 345 | $ | 298 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Segment Assets
|
||||||||||||
|
U.S. Soup, Sauces and Beverages
|
$ | 2,146 | $ | 2,168 | $ | 2,039 | ||||||
|
Baking and Snacking
|
1,710 | 1,628 | 1,704 | |||||||||
|
International Soup, Sauces and Beverages
|
1,396 | 1,474 | 1,800 | |||||||||
|
North America Foodservice
|
360 | 377 | 386 | |||||||||
|
Corporate(1)
|
664 | 409 | 545 | |||||||||
|
Total
|
$ | 6,276 | $ | 6,056 | $ | 6,474 | ||||||
| (1) | Represents unallocated corporate expenses and unallocated assets, including corporate offices, deferred income taxes and prepaid pension assets. | |
| (2) | Earnings before interest and taxes of the North America Foodservice segment included a $12 restructuring charge. See Note 7 for additional information. |
44
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (3) | Earnings before interest and taxes by segment included restructuring-related costs of $3 in Baking and Snacking and $19 in North America Foodservice. See Note 7 for additional information. Earnings before interest and taxes of the International Soup, Sauces and Beverages segment included a $67 impairment charge on certain European trademarks. See Note 5 for additional information. | |
| (4) | Earnings before interest and taxes by segment included the effect of a 2008 restructuring charge and related costs of $182 as follows: Baking and Snacking — $144, International Soup, Sauces and Beverages — $9, and North America Foodservice — $29. See Note 7 for additional information. |
Geographic
Area Information
Information about operations in different geographic areas is as
follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Net sales
|
||||||||||||
|
United States
|
$ | 5,436 | $ | 5,548 | $ | 5,448 | ||||||
|
Europe
|
601 | 608 | 770 | |||||||||
|
Australia/Asia Pacific
|
978 | 816 | 1,074 | |||||||||
|
Other countries
|
661 | 614 | 706 | |||||||||
|
Total
|
$ | 7,676 | $ | 7,586 | $ | 7,998 | ||||||
| 2010(2) | 2009(3) | 2008(4) | ||||||||||
|
Earnings before interest and taxes
|
||||||||||||
|
United States
|
$ | 1,160 | $ | 1,118 | $ | 1,080 | ||||||
|
Europe
|
38 | (36 | ) | 42 | ||||||||
|
Australia/Asia Pacific
|
155 | 105 | (17 | ) | ||||||||
|
Other countries
|
116 | 105 | 125 | |||||||||
|
Segment earnings before interest and taxes
|
1,469 | 1,292 | 1,230 | |||||||||
|
Corporate(1)
|
(121 | ) | (107 | ) | (132 | ) | ||||||
|
Total
|
$ | 1,348 | $ | 1,185 | $ | 1,098 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Identifiable assets
|
||||||||||||
|
United States
|
$ | 2,865 | $ | 3,079 | $ | 2,899 | ||||||
|
Europe
|
948 | 994 | 1,283 | |||||||||
|
Australia/Asia Pacific
|
1,465 | 1,205 | 1,340 | |||||||||
|
Other countries
|
385 | 369 | 407 | |||||||||
|
Corporate(1)
|
613 | 409 | 545 | |||||||||
|
Total
|
$ | 6,276 | $ | 6,056 | $ | 6,474 | ||||||
| (1) | Represents unallocated corporate expenses and unallocated assets, including corporate offices, deferred income taxes and prepaid pension assets. | |
| (2) | Earnings before interest and taxes in Other countries included a $12 restructuring charge. See Note 7 for additional information. | |
| (3) | Earnings before interest and taxes by geographic area included restructuring-related costs of $3 in Australia/Asia Pacific and $19 in Other countries. See Note 7 for additional information. Earnings before interest and taxes in Europe included a $67 impairment charge on certain trademarks. See Note 5 for additional information. |
45
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (4) | Earnings before interest and taxes by geographic area included the effect of a 2008 restructuring charge and related costs of $182 as follows: Australia/Asia Pacific — $145, Other countries — $27, Europe — $8, and United States — $2. See Note 7 for additional information. |
Identifiable assets are those assets, including goodwill, which
are identified with the operations in each geographic region.
| 7. | Restructuring Charges |
On April 28, 2008, the company announced a series of
initiatives to improve operational efficiency and long-term
profitability, including selling certain salty snack food brands
and assets in Australia, closing certain production facilities
in Australia and Canada, and streamlining the company’s
management structure. As a result of these initiatives, in 2008,
the company recorded a restructuring charge of $175 ($102 after
tax or $.27 per share). The charge consisted of a net loss of
$120 ($64 after tax) on the sale of certain Australian salty
snack food brands and assets; $45 ($31 after tax) of employee
severance and benefit costs, including the estimated impact of
curtailment and other pension charges; and $10 ($7 after tax) of
property, plant and equipment impairment charges. In addition,
approximately $7 ($5 after tax or $.01 per share) of costs
related to these initiatives were recorded in Cost of products
sold, primarily representing accelerated depreciation on
property, plant and equipment. The aggregate after-tax impact of
restructuring charges and related costs in 2008 was $107, or
$.28 per share.
In 2009, the company recorded approximately $22 ($15 after tax
or $.04 per share) of costs related to the 2008 initiatives in
Cost of products sold. Approximately $17 ($12 after tax) of the
costs represented accelerated depreciation on property, plant
and equipment; approximately $4 ($2 after tax) related to other
exit costs; and approximately $1 related to employee severance
and benefit costs, including other pension charges.
In 2010, the company recorded a restructuring charge of $12 ($8
after tax or $.02 per share) for pension benefit costs, which
represented the final costs associated with the 2008 initiatives.
Of the aggregate $216 of pre-tax costs for the total program,
approximately $40 were cash expenditures, the majority of which
was spent in 2009.
A summary of the pre-tax costs is as follows:
|
Recognized
|
||||||||||||
|
Total
|
Change in
|
as of
|
||||||||||
| Program | Estimate(1) | August 1, 2010 | ||||||||||
|
Severance pay and benefits
|
$ | 62 | $ | (4 | ) | $ | 58 | |||||
|
Asset impairment/accelerated depreciation
|
158 | (4 | ) | 154 | ||||||||
|
Other exit costs
|
10 | (6 | ) | 4 | ||||||||
|
Total
|
$ | 230 | $ | (14 | ) | $ | 216 | |||||
| (1) | Primarily due to foreign currency translation. |
Details of the components of the initiatives are as follows:
In the third quarter of 2008, as part of the initiatives, the
company entered into an agreement to sell certain Australian
salty snack food brands and assets. The transaction was
completed on May 12, 2008. Proceeds of the sale were
nominal. See also Note 3.
In April 2008, as part of the initiatives, the company announced
plans to close the Listowel, Ontario, Canada food plant. The
Listowel facility produced primarily frozen products, including
soup, entrees, and Pepperidge Farm products, as well as ramen
noodles. The facility employed approximately 500 people.
The company closed the facility in April 2009. Production was
transitioned to its network of North American contract
manufacturers and to its Downingtown, Pennsylvania plant. The
company recorded $20 ($14 after tax) of employee severance and
benefit costs, including the estimated impact of curtailment and
other pension charges, and $7 ($5 after tax) in accelerated
46
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
depreciation of property, plant and equipment in 2008. In 2009,
the company recorded $1 of employee severance and benefit costs,
including other pension charges, $16 ($11 after tax) in
accelerated depreciation of property, plant and equipment and $2
($1 after tax) of other exit costs. In 2010, the company
recorded a restructuring charge of $12 ($8 after tax) for
pension benefit costs, which represented the final costs
associated with the initiatives.
In April 2008, as part of the initiatives, the company also
announced plans to discontinue the private label biscuit and
industrial chocolate production at its Miranda, Australia
facility. The company closed the Miranda facility, which
employed approximately 150 people, in the second quarter of
2009. In connection with this action, the company recorded $10
($7 after tax) of property, plant and equipment impairment
charges and $8 ($6 after tax) in employee severance and benefit
costs in 2008. In 2009, the company recorded $1 in accelerated
depreciation of property, plant, and equipment, and $2 ($1 after
tax) in other exit costs.
As part of the 2008 initiatives, the company streamlined its
management structure and eliminated certain overhead costs.
These actions began in the fourth quarter of 2008 and were
substantially completed in 2009. In connection with this action,
the company recorded $17 ($11 after tax) in employee severance
and benefit costs in 2008.
A summary of restructuring activity and related reserves is as
follows:
|
Severance Pay
|
Asset Impairment/
|
Other Exit
|
||||||||||||||
| and Benefits | Accelerated Depreciation | Costs | Total | |||||||||||||
|
Accrued balance at July 29, 2007
|
$ | — | ||||||||||||||
|
2008 charge
|
45 | 137 | — | $ | 182 | |||||||||||
|
Cash payments
|
(4 | ) | ||||||||||||||
|
Pension termination benefits(1)
|
(4 | ) | ||||||||||||||
|
Accrued balance at August 3, 2008
|
37 | |||||||||||||||
|
2009 charge
|
1 | 17 | 4 | $ | 22 | |||||||||||
|
Cash payments
|
(26 | ) | ||||||||||||||
|
Pension termination benefits(1)
|
(2 | ) | ||||||||||||||
|
Foreign currency translation adjustment
|
(6 | ) | ||||||||||||||
|
Accrued balance at August 2, 2009
|
4 | |||||||||||||||
|
2010 charge
|
12 | — | — | $ | 12 | |||||||||||
|
Cash payments
|
(3 | ) | ||||||||||||||
|
Pension termination benefits(1)
|
(12 | ) | ||||||||||||||
|
Accrued balance at August 1, 2010
|
$ | 1 | ||||||||||||||
| (1) | Pension termination benefits are recognized in Other Liabilities and Accumulated Other Compensation Income/(Loss). See Note 11 to the Consolidated Financial Statements. |
A summary of restructuring charges incurred in 2008 through 2010
by reportable segment is as follows:
|
U.S. Soup,
|
International
|
North
|
||||||||||||||||||
|
Sauces and
|
Baking and
|
Soup, Sauces
|
America
|
|||||||||||||||||
| Beverages | Snacking | and Beverages | Foodservice | Total | ||||||||||||||||
|
Severance pay and benefits
|
$ | — | $ | 14 | $ | 9 | $ | 35 | $ | 58 | ||||||||||
|
Asset impairment/accelerated depreciation
|
— | 131 | — | 23 | 154 | |||||||||||||||
|
Other exit costs
|
— | 2 | — | 2 | 4 | |||||||||||||||
| $ | — | $ | 147 | $ | 9 | $ | 60 | $ | 216 | |||||||||||
47
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 8. | Acquisitions |
On May 4, 2009, the company acquired Ecce Panis, Inc., an
artisan bread maker, for $66. The results of operations of Ecce
Panis, Inc. are included in the Baking and Snacking segment and
were not material to 2009 results. The pro forma impact on
sales, net earnings or earnings per share for the prior periods
would not have been material. As part of the purchase price
allocation, $46 was allocated to intangible assets primarily
consisting of goodwill, trade secret process technology,
trademarks and customer relationships.
The following table presents the initial purchase price
allocation of Ecce Panis, Inc.:
| May 4, 2009 | ||||
|
Accounts receivable
|
$ | 2 | ||
|
Inventories
|
1 | |||
|
Other current assets
|
1 | |||
|
Total current assets
|
$ | 4 | ||
|
Plant assets
|
$ | 12 | ||
|
Goodwill
|
30 | |||
|
Other intangible assets
|
16 | |||
|
Other assets
|
14 | |||
|
Total assets acquired
|
$ | 76 | ||
|
Current liabilities
|
$ | 3 | ||
|
Non-current liabilities
|
7 | |||
|
Total liabilities assumed
|
$ | 10 | ||
|
Net assets acquired
|
$ | 66 | ||
In June 2008, the company acquired the Wolfgang Puck soup
business for approximately $10. The company also entered into a
master licensing agreement with Wolfgang Puck Worldwide, Inc.
for the use of the
Wolfgang Puck
brand on soup, stock,
and broth products in North America retail locations. This
business is included in the U.S. Soup, Sauces and Beverages
segment. The pro forma impact on sales, net earnings or earnings
per share for the prior periods would not have been material.
| 9. | Earnings per Share |
In June 2008, the FASB issued accounting guidance related to the
calculation of earnings per share. The guidance provides that
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula
that determines earnings per share for each class of common
stock and participating security according to dividends declared
and participation rights in undistributed earnings. The company
adopted and retrospectively applied the new guidance in the
first quarter of fiscal 2010. The retrospective application of
the provisions resulted in a reduction of basic and diluted
earnings per share:
| 2009 | 2008 | |||||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||||
|
Continuing operations
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | ||||
|
Net earnings
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.06 | ) | $ | (.03 | ) | ||||
48
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The computation of basic and diluted earnings per share
attributable to common shareowners is as follows:
|
August 1,
|
August 2,
|
August 3,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Earnings from continuing operations
|
$ | 844 | $ | 732 | $ | 671 | ||||||
|
Less: Allocation to participating securities
|
(14 | ) | (12 | ) | (12 | ) | ||||||
|
Available to common shareowners
|
$ | 830 | $ | 720 | $ | 659 | ||||||
|
Earnings from discontinued operations
|
$ | — | $ | 4 | $ | 494 | ||||||
|
Less: Allocation to participating securities
|
— | — | (10 | ) | ||||||||
|
Available to common shareowners
|
$ | — | $ | 4 | $ | 484 | ||||||
|
Net earnings
|
$ | 844 | $ | 736 | $ | 1,165 | ||||||
|
Less: Allocation to participating securities
|
(14 | ) | (12 | ) | (22 | ) | ||||||
|
Available to common shareowners
|
$ | 830 | $ | 724 | $ | 1,143 | ||||||
|
Weighted average shares outstanding — basic
|
340 | 352 | 373 | |||||||||
|
Effect of dilutive securities: stock options
|
3 | 2 | 4 | |||||||||
|
Weighted average shares outstanding — diluted
|
343 | 354 | 377 | |||||||||
|
Earnings from continuing operations per common share:
|
||||||||||||
|
Basic
|
$ | 2.44 | $ | 2.05 | $ | 1.77 | ||||||
|
Diluted
|
$ | 2.42 | $ | 2.03 | $ | 1.75 | ||||||
|
Earnings from discontinued operations per common share:
|
||||||||||||
|
Basic
|
$ | — | $ | .01 | $ | 1.30 | ||||||
|
Diluted
|
$ | — | $ | .01 | $ | 1.28 | ||||||
|
Net earnings per common share(1):
|
||||||||||||
|
Basic
|
$ | 2.44 | $ | 2.06 | $ | 3.06 | ||||||
|
Diluted
|
$ | 2.42 | $ | 2.05 | $ | 3.03 | ||||||
| (1) | The sum of the individual per share amounts does not equal due to rounding. |
Stock options to purchase less than 1 million shares of
capital stock in 2010, 3 million shares of capital stock in
2009, and 1 million shares of capital stock in 2008 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.
| 10. | Noncontrolling Interest |
The company owns a 70% controlling interest in a Malaysian
manufacturing company. The noncontrolling interest in this
entity is included in Total equity in the Consolidated Balance
Sheets. The earnings attributable to the noncontrolling interest
were less than $1 in 2010, 2009, and 2008, and were included in
Other expenses/(income) in the Consolidated Statements of
Earnings.
| 11. | 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
49
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 three 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. In 2010, the company amended its
U.S. pension plans. Employees hired or rehired on or after
January 1, 2011 and who are not covered by collective
bargaining agreements will not be eligible to participate in the
plans.
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
reimbursement for eligible health care expenses. In 2010, the
retirement medical program was amended to discontinue retiree
medical accounts for employees not covered by collective
bargaining agreements and who are not at least age 50 with
at least 10 years of service as of December 31, 2010.
The company uses the fiscal year end as the measurement date for
the benefit plans.
Components
of net periodic benefit cost:
| Pension | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Service cost
|
$ | 55 | $ | 46 | $ | 48 | ||||||
|
Interest cost
|
121 | 122 | 120 | |||||||||
|
Expected return on plan assets
|
(170 | ) | (163 | ) | (170 | ) | ||||||
|
Amortization of prior service cost
|
1 | 1 | 1 | |||||||||
|
Recognized net actuarial loss
|
49 | 19 | 24 | |||||||||
|
Curtailment gain
|
— | — | (1 | ) | ||||||||
|
Settlement costs
|
12 | — | — | |||||||||
|
Special termination benefits
|
— | 2 | 5 | |||||||||
|
Net periodic pension expense
|
$ | 68 | $ | 27 | $ | 27 | ||||||
The settlement costs in 2010 are related to the closure of a
plant in Canada. The settlement costs are included in
Restructuring charges in the Consolidated Statements of
Earnings. See Note 7 for additional information.
In 2008, the curtailment gain and special termination benefits
include a curtailment gain of $3 and a special termination
benefit of $3 related to the sale of the Godiva Chocolatier
business. These amounts are included in earnings from
discontinued operations.
In 2008, the curtailment gain and special termination benefits
include a curtailment loss of $2 and a special termination
benefit of $2 related to the closure of a plant in Canada.
The estimated net actuarial loss and prior service cost that
will be amortized from Accumulated other comprehensive loss into
net periodic pension cost during 2011 are $70 and $1,
respectively.
50
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Postretirement | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Service cost
|
$ | 3 | $ | 3 | $ | 4 | ||||||
|
Interest cost
|
19 | 22 | 21 | |||||||||
|
Amortization of prior service cost
|
1 | 1 | — | |||||||||
|
Recognized net actuarial loss
|
1 | — | — | |||||||||
|
Curtailment loss
|
— | — | 1 | |||||||||
|
Special termination benefits
|
— | — | 1 | |||||||||
|
Net periodic postretirement expense
|
$ | 24 | $ | 26 | $ | 27 | ||||||
The curtailment loss and special termination benefits relate to
the sale of the Godiva Chocolatier business and are included in
earnings from discontinued operations.
The estimated prior service credit and net actuarial loss that
will be amortized from Accumulated other comprehensive loss into
net periodic postretirement expense during 2011 are $1 and $7,
respectively.
Change
in benefit obligation:
| Pension | Postretirement | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Obligation at beginning of year
|
$ | 2,077 | $ | 1,882 | $ | 340 | $ | 327 | ||||||||
|
Service cost
|
55 | 46 | 3 | 3 | ||||||||||||
|
Interest cost
|
121 | 122 | 19 | 22 | ||||||||||||
|
Actuarial loss
|
181 | 196 | 50 | 18 | ||||||||||||
|
Participant contributions
|
— | — | 4 | 4 | ||||||||||||
|
Benefits paid
|
(148 | ) | (148 | ) | (39 | ) | (37 | ) | ||||||||
|
Medicare subsidies
|
— | — | 3 | 3 | ||||||||||||
|
Other
|
(2 | ) | (5 | ) | — | — | ||||||||||
|
Plan amendments
|
— | — | (18 | ) | — | |||||||||||
|
Settlement
|
(21 | ) | — | — | — | |||||||||||
|
Special termination benefits
|
— | 2 | — | — | ||||||||||||
|
Foreign currency adjustment
|
12 | (18 | ) | — | — | |||||||||||
|
Benefit obligation at end of year
|
$ | 2,275 | $ | 2,077 | $ | 362 | $ | 340 | ||||||||
Change
in the fair value of pension plan assets:
| 2010 | 2009 | |||||||
|
Fair value at beginning of year
|
$ | 1,415 | $ | 1,854 | ||||
|
Actual return on plan assets
|
222 | (297 | ) | |||||
|
Employer contributions
|
284 | 13 | ||||||
|
Benefits paid
|
(142 | ) | (141 | ) | ||||
|
Settlement
|
(21 | ) | — | |||||
|
Foreign currency adjustment
|
9 | (14 | ) | |||||
|
Fair value at end of year
|
$ | 1,767 | $ | 1,415 | ||||
51
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts
recognized in the Consolidated Balance Sheets:
| Pension | Postretirement | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Accrued liabilities
|
$ | (8 | ) | $ | (6 | ) | $ | (30 | ) | $ | (27 | ) | ||||
|
Other liabilities
|
(500 | ) | (656 | ) | (332 | ) | (313 | ) | ||||||||
|
Net amount recognized
|
$ | (508 | ) | $ | (662 | ) | $ | (362 | ) | $ | (340 | ) | ||||
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
||||||||||||||||
|
Net actuarial loss
|
$ | 1,263 | $ | 1,188 | $ | 87 | $ | 38 | ||||||||
|
Prior service (credit)/cost
|
(1 | ) | (1 | ) | (10 | ) | 8 | |||||||||
|
Total
|
$ | 1,262 | $ | 1,187 | $ | 77 | $ | 46 | ||||||||
The changes in other comprehensive loss associated with pension
benefits included the reclassification of actuarial losses into
earnings of $49 and $19 in 2010 and 2009, respectively. The
remaining changes in other comprehensive loss associated with
pension benefits were primarily due to net actuarial losses
arising during the period. The change in other comprehensive
income associated with postretirement benefits in 2010 included
$50 of net actuarial losses arising during the period and $18 of
prior service credit. The change in other comprehensive income
associated with postretirement benefits in 2009 was primarily
due to $19 of net actuarial losses arising during the period.
The following table provides information for pension plans with
accumulated benefit obligations in excess of plan assets:
| 2010 | 2009 | |||||||
|
Projected benefit obligation
|
$ | 2,261 | $ | 2,066 | ||||
|
Accumulated benefit obligation
|
$ | 2,140 | $ | 1,931 | ||||
|
Fair value of plan assets
|
$ | 1,757 | $ | 1,407 | ||||
The accumulated benefit obligation for all pension plans was
$2,148 at August 1, 2010 and $1,938 at August 2, 2009.
Weighted-average
assumptions used to determine benefit obligations at the end of
the year:
| Pension | Postretirement | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate
|
5.46 | % | 6.00 | % | 5.25 | % | 6.00 | % | ||||||||
|
Rate of compensation increase
|
3.29 | % | 3.29 | % | 3.25 | % | 3.25 | % | ||||||||
Weighted-average
assumptions used to determine net periodic benefit cost for the
years ended:
|
Pension
|
2010 | 2009 | 2008 | |||||||||
|
Discount rate
|
6.00 | % | 6.87 | % | 6.40 | % | ||||||
|
Expected return on plan assets
|
8.13 | % | 8.60 | % | 8.79 | % | ||||||
|
Rate of compensation increase
|
3.29 | % | 3.97 | % | 3.97 | % | ||||||
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 actuaries 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 experience and expected future performance,
considering the company’s current and projected investment
mix.
52
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
The discount rate used to determine net periodic postretirement
expense was 6.00% in 2010, 7.00% in 2009 and 6.50% in 2008.
Assumed
health care cost trend rates at the end of the
year:
| 2010 | 2009 | |||||||
|
Health care cost trend rate assumed for next year
|
8.25 | % | 8.25 | % | ||||
|
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
|
2018 | 2017 | ||||||
A one-percentage-point change in assumed health care costs would
have the following effects on 2010 reported amounts:
| Increase | Decrease | |||||||
|
Effect on service and interest cost
|
$ | 1 | $ | (1 | ) | |||
|
Effect on the 2010 accumulated benefit obligation
|
$ | 20 | $ | (18 | ) | |||
Pension
Plan Assets
The fundamental goal underlying the 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. The primary investment objectives include providing a
total return which will promote the goal of benefit security by
attaining an appropriate ratio of plan assets to plan
obligations, to provide for real asset growth while also
tracking plan obligations, to diversify investments across and
within asset classes, to reduce the impact of losses in single
investments, and to follow investment practices that comply with
applicable laws and regulations.
The primary policy objectives will be met by investing assets to
achieve a reasonable tradeoff between return and risk relative
to the plans’ obligations. This includes investing a
portion of the assets in funds selected in part to hedge the
interest rate sensitivity to plan obligations.
The portfolio includes investments in the following asset
classes: fixed income, equity, real estate and alternatives.
Fixed income will provide a moderate expected return and
partially hedge the exposure to interest rate risk of the
plans’ obligations. Equities are used for their high
expected return. Additional asset classes are used to provide
diversification.
Asset allocation is monitored on an ongoing basis relative to
the established asset class targets. The interaction between
plan assets and benefit obligations is periodically studied to
assist in the establishment of strategic asset allocation
targets. The investment policy permits variances from the
targets within certain parameters. Asset rebalancing occurs when
the underlying asset class allocations move outside these
parameters at which time the asset allocation is rebalanced back
to the policy target weight.
The company’s year-end pension plan weighted-average asset
allocations by category were:
|
Strategic
|
||||||||||||
| Target | 2010 | 2009 | ||||||||||
|
Equity securities
|
51 | % | 49 | % | 62 | % | ||||||
|
Debt securities
|
35 | % | 34 | % | 20 | % | ||||||
|
Real estate and other
|
14 | % | 17 | % | 18 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
53
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company is required to categorize pension plan assets based
on the following fair value hierarchy:
| • | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets. | |
| • | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset through corroboration with observable market data. | |
| • | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
The following table presents the company’s pension plan
assets at August 1, 2010, by asset category as follows:
|
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||
|
as of
|
August 1, 2010 Using
|
|||||||||||||||
|
August 1,
|
Fair Value Hierarchy | |||||||||||||||
| 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Asset category
|
||||||||||||||||
|
Short-term investments
|
$ | 60 | $ | 5 | $ | 55 | $ | — | ||||||||
|
Equities:
|
||||||||||||||||
|
U.S.
|
521 | 308 | 213 | — | ||||||||||||
|
Non-U.S.
|
330 | 245 | 85 | — | ||||||||||||
|
Corporate bonds:
|
||||||||||||||||
|
U.S.
|
363 | — | 363 | — | ||||||||||||
|
Non-U.S.
|
122 | — | 122 | — | ||||||||||||
|
Government and agency bonds:
|
||||||||||||||||
|
U.S.
|
39 | — | 39 | — | ||||||||||||
|
Non-U.S.
|
27 | — | 27 | — | ||||||||||||
|
Mortgage and asset backed securities
|
26 | — | 26 | — | ||||||||||||
|
Real estate
|
60 | 4 | 38 | 18 | ||||||||||||
|
Limited partnerships
|
24 | — | — | 24 | ||||||||||||
|
Hedge funds
|
174 | — | 174 | — | ||||||||||||
|
Guaranteed insurance contracts
|
8 | — | — | 8 | ||||||||||||
|
Total
|
$ | 1,754 | $ | 562 | $ | 1,142 | $ | 50 | ||||||||
|
Other items to reconcile to fair value of plan assets
|
13 | |||||||||||||||
|
Total pension assets at fair value
|
$ | 1,767 | ||||||||||||||
Short-term investments
— Investments include
cash and cash equivalents, and various short-term debt
instruments and short-term investment funds. Institutional
short-term investment vehicles valued daily are classified as
Level 1 at cost which approximates market value. Other
investment vehicles are valued based upon a net asset value and
are classified as Level 2.
Equities
— Common stocks and preferred stocks
are classified as Level 1 and are valued using quoted
market prices in active markets. Investments in commingled funds
are classified as Level 2 assets as the funds are not
traded in active markets. Commingled funds are valued based on
the unit values of such funds. Unit values are based on the fair
value of the underlying assets of the funds derived from inputs
principally based on quoted market prices in an active market or
corroborated by observable market data by correlation or other
means.
Corporate bonds
— These investments are valued
based on quoted market prices, yield curves and pricing models
using current market rates.
Government and agency bonds
— These investments
are generally valued based on bid quotations and recent trade
data for identical or similar obligations.
54
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Mortgage and asset backed securities
— Fair
value is based on prices obtained from third party pricing
sources. The prices from third party pricing sources may be
based on bid quotes from dealers and recent trade data. Mortgage
backed securities are traded in the over the counter market.
Real estate
— Real estate investments consist
of real estate investment trusts and property funds. Real estate
investment trusts are classified as Level 1 and are valued
based on quoted market prices. Property funds are classified as
either Level 2 or Level 3 depending upon whether
liquidity is limited or there are few observable market
participant transactions. Fair value is based on third party
appraisals.
Limited partnerships
— Investments in limited
partnerships are valued based upon valuations provided by the
general partners of the funds. The values of limited
partnerships are based upon an assessment of each underlying
investment, incorporating valuations that consider the
evaluation of financing and sales transactions with third
parties, expected cash flows, and market-based information,
including comparable transactions and performance multiples
among other factors. The investments are classified as
Level 3 since the valuation is determined using
unobservable inputs.
Hedge funds
— Hedge fund investments include
hedge funds valued based upon a net asset value derived from the
fair value of underlying securities and are therefore classified
as Level 2 assets. Hedge fund investments may include long
and short positions in equity and fixed income securities,
derivative instruments such as futures and options, commodities,
and other types of securities.
Guaranteed insurance contracts
— These assets
are classified as Level 3 assets as they are valued using
unobservable inputs. Guaranteed insurance contracts are valued
based on the discounted stream of guaranteed benefit payments at
a market rate increased for expected future profit sharing. The
expected excess return is equal to expected indexation granted
to participants. The discounted stream of guaranteed benefit
payments is calculated based on the expected mortality rates of
plan participants.
Other items to reconcile to fair value of plan assets included
net accrued interest and dividends receivable, amounts due for
securities sold, amounts payable for securities purchased, and
other payables.
The following table summarizes the changes in fair value of
Level 3 investments:
|
Guaranteed
|
||||||||||||||||
|
Real
|
Limited
|
Insurance
|
||||||||||||||
| Estate | Partnerships | Contracts | Total | |||||||||||||
|
Fair value at beginning of year
|
$ | 32 | $ | 31 | $ | 5 | $ | 68 | ||||||||
|
Actual return on plan assets
|
(2 | ) | (4 | ) | 2 | (4 | ) | |||||||||
|
Purchases
|
— | — | 1 | 1 | ||||||||||||
|
Sales
|
(1 | ) | (3 | ) | — | (4 | ) | |||||||||
|
Settlements
|
— | — | — | — | ||||||||||||
|
Transfers out of Level 3
|
(11 | ) | — | — | (11 | ) | ||||||||||
|
Fair value at end of year
|
$ | 18 | $ | 24 | $ | 8 | $ | 50 | ||||||||
The company contributed $100 to U.S. plans in the first
quarter of 2011. Additional contributions to U.S. plans are not
expected in 2011. Contributions to
non-U.S. plans
are expected to be approximately $43 in 2011.
55
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Estimated
future benefit payments are as follows:
| Pension | Postretirement | |||||||
|
2011
|
$ | 141 | $ | 30 | ||||
|
2012
|
$ | 144 | $ | 31 | ||||
|
2013
|
$ | 147 | $ | 32 | ||||
|
2014
|
$ | 148 | $ | 33 | ||||
|
2015
|
$ | 144 | $ | 33 | ||||
|
2016-2020
|
$ | 824 | $ | 169 | ||||
The benefit payments include payments from funded and unfunded
plans.
Estimated future Medicare subsidy receipts are approximately
$2-$3 annually from 2011 through 2015, and $16 for the period
2016 through 2020.
Savings Plan
— The company sponsors employee
savings plans which cover substantially all U.S. employees.
The company provides a matching contribution of 60% (50% at
certain locations) of the employee contributions up to 5% of
compensation after one year of continued service. Amounts
charged to Costs and expenses were $17 in 2010, and $18 in both
2009 and 2008.
Effective January 1, 2011, the company will provide a
matching contribution of 100% of employee contributions up to 4%
of compensation for employees who are not covered by collective
bargaining agreements. Employees hired or rehired on or after
January 1, 2011 who will not be eligible to participate in
the defined benefit plans and who are not covered by collective
bargaining agreements will receive a contribution equal to 3% of
compensation regardless of their participation in the Savings
Plan.
| 12. | Taxes on Earnings |
The provision for income taxes on earnings from continuing
operations consists of the following:
| 2010 | 2009 | 2008 | ||||||||||
|
Income taxes:
|
||||||||||||
|
Currently payable
|
||||||||||||
|
Federal
|
$ | 253 | $ | 145 | $ | 177 | ||||||
|
State
|
46 | 12 | 1 | |||||||||
|
Non-U.S.
|
45 | 46 | 60 | |||||||||
| 344 | 203 | 238 | ||||||||||
|
Deferred
|
||||||||||||
|
Federal
|
38 | 142 | 43 | |||||||||
|
State
|
1 | 9 | 2 | |||||||||
|
Non-U.S.
|
15 | (7 | ) | (15 | ) | |||||||
| 54 | 144 | 30 | ||||||||||
| $ | 398 | $ | 347 | $ | 268 | |||||||
|
Earnings from continuing operations before income taxes:
|
||||||||||||
|
United States
|
$ | 1,051 | $ | 976 | $ | 912 | ||||||
|
Non-U.S.
|
191 | 103 | 27 | |||||||||
| $ | 1,242 | $ | 1,079 | $ | 939 | |||||||
56
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a reconciliation of the effective income tax
rate on continuing operations with the U.S. federal
statutory income tax rate:
| 2010 | 2009 | 2008 | ||||||||||
|
Federal statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes (net of federal tax benefit)
|
2.5 | 1.7 | 1.5 | |||||||||
|
Tax effect of international items
|
(2.5 | ) | (0.8 | ) | (4.6 | ) | ||||||
|
Settlement of tax contingencies
|
(0.7 | ) | (1.0 | ) | (1.4 | ) | ||||||
|
Federal manufacturing deduction
|
(1.3 | ) | (1.0 | ) | (1.5 | ) | ||||||
|
Divestiture of Australian snack food brands(1)
|
— | — | (1.3 | ) | ||||||||
|
Other
|
(1.0 | ) | (1.7 | ) | 0.8 | |||||||
|
Effective income tax rate
|
32.0 | % | 32.2 | % | 28.5 | % | ||||||
| (1) | See Note 7 for information on the divestiture of certain Australian salty snack food brands. |
In the third quarter of 2010, the company recorded deferred tax
expense of $10 due to the enactment of U.S. health care
legislation in March 2010. The law changed the tax treatment of
subsidies to companies that provide prescription drug benefits
to retirees. Accordingly, the company recorded the non-cash
charge to reduce the value of the deferred tax asset associated
with the subsidy.
In the second and third quarters of 2010, the company recorded a
tax benefit of $9 following the finalization of tax audits. The
company recorded an additional tax benefit of $2 during the year
related to the resolution of other tax contingencies.
In the first quarter of 2009, the company recorded a tax benefit
of $11 following the finalization of tax audits.
In the second quarter of 2008, the company recorded a tax
benefit of $13 resulting from the resolution of a state tax
contingency.
Deferred tax liabilities and assets are comprised of the
following:
| 2010 | 2009 | |||||||
|
Depreciation
|
$ | 221 | $ | 204 | ||||
|
Amortization
|
449 | 425 | ||||||
|
Other
|
13 | 17 | ||||||
|
Deferred tax liabilities
|
683 | 646 | ||||||
|
Benefits and compensation
|
319 | 273 | ||||||
|
Pension benefits
|
134 | 141 | ||||||
|
Tax loss carryforwards
|
67 | 60 | ||||||
|
Capital loss carryforwards
|
101 | 93 | ||||||
|
Other
|
76 | 74 | ||||||
|
Gross deferred tax assets
|
697 | 641 | ||||||
|
Deferred tax asset valuation allowance
|
(123 | ) | (108 | ) | ||||
|
Net deferred tax assets
|
574 | 533 | ||||||
|
Net deferred tax liability
|
$ | 109 | $ | 113 | ||||
At August 1, 2010, U.S. and
non-U.S. subsidiaries
of the company have tax loss carryforwards of approximately
$317. Of these carryforwards, $126 expire between 2011 and 2028
and $191 may be carried forward indefinitely. The current
statutory tax rates in these countries range from 20% to 35%. At
August 1, 2010, valuation
57
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
allowances have been established to offset $89 of these tax loss
carryforwards. Additionally, at August 1, 2010,
non-U.S. subsidiaries
of the company have capital loss carryforwards of approximately
$336, which are fully offset by valuation allowances.
The net change in the valuation allowance in 2010 was an
increase of $15. The increase was primarily due to the impact of
currency and the recognition of additional valuation allowances
on foreign loss carryforwards that are not expected to be
utilized prior to the expiration date. The net change in the
valuation allowance in 2009 was a decrease of $7, primarily due
to currency. The net change in the valuation allowance in 2008
was an increase of $79. The increase was primarily due to
establishing a $72 valuation allowance for an increase in
capital loss carryforwards generated by the divestiture of the
Australian snack food brands.
As of August 1, 2010, U.S. income taxes have not been
provided on approximately $605 of undistributed earnings of
non-U.S. subsidiaries,
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.
The company adopted the provisions related to accounting for
uncertainty in income taxes as of July 30, 2007 (the
beginning of fiscal 2008). Upon adoption, the company recognized
a cumulative-effect adjustment of $6 as an increase in the
liability for unrecognized tax benefits, including interest and
penalties, and a corresponding reduction in retained earnings. A
reconciliation of the activity related to unrecognized tax
benefits follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 42 | $ | 54 | $ | 58 | ||||||
|
Increases related to prior-year tax positions
|
14 | — | 5 | |||||||||
|
Decreases related to prior-year tax positions
|
(11 | ) | (11 | ) | (16 | ) | ||||||
|
Increases related to current-year tax positions
|
4 | 4 | 12 | |||||||||
|
Settlements
|
(11 | ) | (2 | ) | (4 | ) | ||||||
|
Lapse of statute
|
(2 | ) | (3 | ) | (1 | ) | ||||||
|
Balance at end of year
|
$ | 36 | $ | 42 | $ | 54 | ||||||
As of August 1, 2010, August 2, 2009, and
August 3, 2008, there were $22, $28, and $37, respectively,
of unrecognized tax benefits that if recognized would affect the
annual effective tax rate. The total amount of unrecognized tax
benefits can change due to audit settlements, tax examination
activities, statute expirations and the recognition and
measurement criteria under accounting for uncertainty in income
taxes. The company is unable to estimate what this change could
be within the next twelve months, but does not believe it would
be material to the financial statements.
The company’s accounting policy with respect to interest
and penalties attributable to income taxes is to reflect any
expense or benefit as a component of its income tax provision.
The total amount of interest and penalties recognized in the
Statements of Earnings was an expense of $2 in 2010 and a
benefit of $1 and $4, respectively for 2009 and 2008. The total
amount of interest and penalties recognized in the Consolidated
Balance Sheets as of August 1, 2010 and August 2, 2009
was $9 and $8, respectively.
None of the unrecognized tax benefit liabilities, including
interest and penalties, are expected to be settled within the
next twelve months. The $45 and $50 of unrecognized tax benefit
liabilities, including interest and penalties, are reported as
other non-current liabilities in the Consolidated Balance Sheets
as of August 1, 2010 and August 2, 2009, respectively.
The company does business globally and, as a result, files
income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. In the normal course of
business, the company is subject to examination by taxing
authorities throughout the world, including such major
jurisdictions as the United States, Australia, Canada, Belgium,
France and Germany. The 2010 tax year is currently under audit
by the IRS. In addition, several state income tax examinations
are in progress for fiscal years 2001 to 2009.
58
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company has been notified of a limited scope audit in
Australia for fiscal years 2007 through 2009. With limited
exceptions, the company has been audited for income tax purposes
in Canada and France through fiscal year 2005 and in Belgium and
Germany through fiscal year 2007.
| 13. | Short-term Borrowings and Long-term Debt |
Short-term borrowings consist of the following:
| 2010 | 2009 | |||||||
|
Commercial paper
|
$ | 96 | $ | 350 | ||||
|
Current portion of long-term debt
|
700 | — | ||||||
|
Variable-rate bank borrowings
|
34 | 24 | ||||||
|
Fixed-rate borrowings
|
1 | 4 | ||||||
|
Capital leases
|
1 | — | ||||||
|
Other(1)
|
3 | — | ||||||
| $ | 835 | $ | 378 | |||||
| (1) | Other includes unamortized net premium/discount on debt issuances and unamortized gain on a terminated interest rate swap. |
As of August 1, 2010, the weighted-average interest rate of
commercial paper, which consisted of U.S. borrowings, was
0.24%. As of August 2, 2009, the weighted-average interest
rate of commercial paper, which consisted of
U.S. borrowings, was 0.28%.
The company had a committed revolving credit facility of $1,500
maturing in September 2011 that supported commercial paper
borrowings and remained unused at August 1, 2010, except
for $25 of standby letters of credit. In September 2010, the
company entered into a $975 committed
364-day
revolving credit facility that contains a
one-year
term-out feature. The company also entered into a $975 revolving
credit facility that matures in September 2013. These facilities
replaced the existing $1,500 revolving credit facility.
Long-term Debt consists of the following:
|
Type
|
Fiscal Year of Maturity | Rate | 2010 | 2009 | ||||||||||||
|
Notes
|
2011 | 6.75 | % | $ | 700 | $ | 700 | |||||||||
|
Notes
|
2013 | 5.00 | % | 400 | 400 | |||||||||||
|
Notes
|
2014 | 4.88 | % | 300 | 300 | |||||||||||
|
Notes
|
2015 | 3.38 | % | 300 | 300 | |||||||||||
|
Notes
|
2017 | 3.05 | % | 400 | — | |||||||||||
|
Notes
|
2019 | 4.50 | % | 300 | 300 | |||||||||||
|
Debentures
|
2021 | 8.88 | % | 200 | 200 | |||||||||||
|
Fixed-rate borrowings
|
1 | — | ||||||||||||||
|
Capital leases
|
1 | 3 | ||||||||||||||
|
Other(1)
|
43 | 43 | ||||||||||||||
|
Total
|
2,645 | 2,246 | ||||||||||||||
|
Less current portion
|
700 | — | ||||||||||||||
|
Total long-term debt
|
$ | 1,945 | $ | 2,246 | ||||||||||||
59
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (1) | Other includes unamortized net premium/discount on debt issuances, unamortized gain on a terminated interest rate swap, and amounts related to interest rate swaps designated as fair-value hedges. For additional information on fair-value interest rate swaps, see Note 14. |
In July 2010, the company issued $400 of 3.05% notes which
mature on July 15, 2017. Interest on the notes is due
semi-annually on January 15 and July 15, commencing on
January 15, 2011. The company may redeem the notes in whole
or in part at any time at a redemption price of 100% of the
principal amount plus accrued interest or an amount designed to
ensure that the note holders are not penalized by the early
redemption.
In July 2009, the company issued $300 of 3.375% notes which
mature on August 15, 2014. Interest on the notes is due
semi-annually on February 15 and August 15, commencing on
February 15, 2010. The company may redeem the notes in
whole or in part at any time at a redemption price of 100% of
the principal amount plus accrued interest or an amount designed
to ensure that the note holders are not penalized by the early
redemption.
In January 2009, the company issued $300 of 4.50% notes
which mature on February 15, 2019. Interest on the notes is
due semi-annually on February 15 and August 15, commencing
on August 15, 2009. The company may redeem the notes in
whole or in part at any time at a redemption price of 100% of
the principal amount plus accrued interest or an amount designed
to ensure that the note holders are not penalized by the early
redemption.
The fair value of the company’s long-term debt, including
the current portion of long-term debt in Short-term borrowings,
was $2,829 at August 1, 2010 and $2,394 at August 2,
2009.
In November 2008, the company filed a registration statement
with the Securities and Exchange Commission that registered an
indeterminate amount of debt securities. Under the registration
statement, the company may issue debt securities, depending on
market conditions.
Principal amounts of debt mature as follows: 2011-$832 (in
current liabilities); 2012-$2; 2013-$400; 2014-$300; 2015-$300
and beyond-$900.
| 14. | Financial Instruments |
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term debt approximate
fair value. The fair value of long-term debt as indicated in
Note 13 is based on quoted market prices or pricing models
using current market rates.
The principal market risks to which the company is exposed are
changes in foreign currency exchange rates, interest rates, and
commodity prices. In addition, the company is exposed to equity
price changes related to certain deferred compensation
obligations. In order to manage these exposures, the company
follows established risk management policies and procedures,
including the use of derivative contracts such as swaps,
forwards and commodity futures and option contracts. These
derivative contracts are entered into for periods consistent
with the related underlying exposures and do not constitute
positions independent of those exposures. The company does not
enter into derivative contracts for speculative purposes and
does not use leveraged instruments. The company’s
derivative programs include strategies that both qualify and do
not qualify for hedge accounting treatment.
The company is exposed to the risk that counterparties to
derivative contracts will fail to meet their contractual
obligations. The company minimizes the counterparty credit risk
on these transactions by dealing only with leading,
credit-worthy financial institutions having long-term credit
ratings of “A” or better. In addition, the contracts
are distributed among several financial institutions, thus
minimizing credit-risk concentration. The company does not have
credit-risk-related contingent features in its derivative
instruments as of August 1, 2010.
Foreign
Currency Exchange Risk
The company is exposed to foreign currency exchange risk related
to its international operations, including non-functional
currency intercompany debt and net investments in subsidiaries.
The company is also exposed to foreign exchange risk as a result
of transactions in currencies other than the functional currency
of certain
60
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
subsidiaries. The company utilizes foreign exchange forward
purchase and sale contracts as well as cross-currency swaps to
hedge these exposures. The contracts are either designated as
cash-flow hedging instruments or are undesignated. The company
typically hedges portions of its forecasted foreign currency
transaction exposure with foreign exchange forward contracts for
up to 18 months. To hedge currency exposures related to
intercompany debt, cross-currency swap contracts are entered
into for periods consistent with the underlying debt. As of
August 1, 2010, cross-currency swap contracts mature in
2011 through 2015. Principal currencies hedged include the
Australian dollar, Canadian dollar, euro, Swedish krona, New
Zealand dollar, British pound and Japanese yen. The notional
amount of foreign exchange forward and cross-currency swap
contracts accounted for as cash-flow hedges was $261 and $322 at
August 1, 2010 and August 2, 2009, respectively. The
effective portion of the changes in fair value on these
instruments is recorded in other comprehensive income (loss) and
is reclassified into the Statements of Earnings on the same line
item and same period in which the underlying hedge transaction
affects earnings. The notional amount of foreign exchange
forward and cross-currency swap contracts that are not
designated as accounting hedges was $757 and $802 at
August 1, 2010 and August 2, 2009, respectively.
Interest
Rate Risk
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. Receive fixed rate/pay
variable rate interest rate swaps are accounted for as
fair-value hedges. The notional amount of outstanding fair-value
interest rate swaps at August 1, 2010 and August 2,
2009 totaled $500.
During fiscal 2010, the company entered into forward starting
interest rate swap contracts accounted for as cash-flow hedges
with a combined notional value of $200 to hedge a July 2010
anticipated debt offering. These swaps were settled concurrent
with the July 2010 debt issuance of $400 seven-year
3.05% notes at a loss of $14, which was recorded in other
comprehensive income (loss). The loss on the swap contracts will
be amortized over the life of the debt as additional interest
expense.
In June 2008, the company entered into two forward starting
interest rate swap contracts accounted for as cash-flow hedges
with a combined notional value of $200 to hedge an anticipated
debt offering in fiscal 2009. These swaps were settled as of
November 2, 2008, at a loss of $13, which was recorded in
other comprehensive income (loss). In January 2009, the company
issued $300 ten-year 4.50% notes. The loss on the swap
contracts will be amortized over the life of the debt as
additional interest expense.
Commodity
Price Risk
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 also enters
into commodity futures and options contracts to reduce the
volatility of price fluctuations of diesel fuel, wheat, natural
gas, soybean oil, aluminum, sugar, cocoa, and corn, which impact
the cost of raw materials. Commodity futures and option
contracts are typically accounted for as cash-flow hedges or are
not designated as accounting hedges. Commodity futures and
option contracts are typically entered into to hedge a portion
of commodity requirements for periods up to 18 months. The
notional amount of commodity contracts accounted for as
cash-flow hedges was $7 at August 1, 2010 and
August 2, 2009. The notional amount of commodity contracts
that are not designated as accounting hedges was $43 and $44 at
August 1, 2010 and August 2, 2009, respectively. As of
August 1, 2010, the contracts mature within 12 months.
Equity
Price Risk
The company hedges a portion of exposures relating to certain
deferred 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
total return of the Standard & Poor’s 500 Index,
the total return of the Puritan Fund, or the total return on
company capital stock. These instruments are not designated as
hedges for accounting purposes. The contracts are
61
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
typically entered into for periods not exceeding 12 months.
The notional amounts of the company’s deferred compensation
hedges as of August 1, 2010 and August 2, 2009 were
$75 and $48, respectively.
The following table summarizes the fair value of derivative
instruments recorded in the Consolidated Balance Sheets as of
August 1, 2010 and August 2, 2009:
| Balance Sheet Classification | 2010 | 2009 | ||||||||
|
Asset Derivatives
|
||||||||||
|
Derivatives designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Other current assets | $ | 1 | $ | 1 | |||||
|
Cross-currency swap contracts
|
Other current assets | — | 3 | |||||||
|
Commodity contracts
|
Other current assets | 1 | — | |||||||
|
Cross-currency swap contracts
|
Other assets | 3 | — | |||||||
|
Interest rate swaps
|
Other assets | 46 | 38 | |||||||
|
Total derivatives designated as hedges
|
$ | 51 | $ | 42 | ||||||
|
Derivatives not designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Other current assets | $ | 1 | $ | 3 | |||||
|
Commodity contracts
|
Other current assets | 3 | 6 | |||||||
|
Cross-currency swap contracts
|
Other current assets | 13 | — | |||||||
|
Deferred compensation contracts
|
Other current assets | — | 4 | |||||||
|
Cross-currency swap contracts
|
Other assets | 1 | 7 | |||||||
|
Total derivatives not designated as hedges
|
$ | 18 | $ | 20 | ||||||
|
Total asset derivatives
|
$ | 69 | $ | 62 | ||||||
|
Liability Derivatives
|
||||||||||
|
Derivatives designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Accrued liabilities | $ | 1 | $ | 3 | |||||
|
Commodity contracts
|
Accrued liabilities | 1 | — | |||||||
|
Cross-currency swap contracts
|
Accrued liabilities | — | 1 | |||||||
|
Cross-currency swap contracts
|
Other liabilities | 24 | 31 | |||||||
|
Total derivatives designated as hedges
|
$ | 26 | $ | 35 | ||||||
|
Derivatives not designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Accrued liabilities | $ | 1 | $ | 11 | |||||
|
Commodity contracts
|
Accrued liabilities | — | 6 | |||||||
|
Cross-currency swap contracts
|
Accrued liabilities | — | 5 | |||||||
|
Deferred compensation contracts
|
Accrued liabilities | 2 | — | |||||||
|
Cross-currency swap contracts
|
Other liabilities | 14 | 8 | |||||||
|
Total derivatives not designated as hedges
|
$ | 17 | $ | 30 | ||||||
|
Total liability derivatives
|
$ | 43 | $ | 65 | ||||||
The derivative assets and liabilities are presented on a gross
basis in the table. Certain derivative asset and liability
balances, including cash collateral, are offset in the balance
sheet when a legally enforceable right of offset exists.
62
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table shows the effect of the company’s
derivative instruments designated as cash-flow hedges for the
years ended August 1, 2010 and August 2, 2009 on other
comprehensive income (loss) (OCI) and the Consolidated
Statements of Earnings:
Derivatives
Designated as Cash-Flow Hedges
|
Total
|
||||||||||
|
Cash-Flow
|
||||||||||
|
Hedge
|
||||||||||
| OCI Activity | ||||||||||
| 2010 | 2009 | |||||||||
|
OCI derivative gain/(loss) at beginning of year
|
$ | (31 | ) | $ | 8 | |||||
|
Effective portion of changes in fair value recognized in OCI:
|
||||||||||
|
Foreign exchange forward contracts
|
(5 | ) | (6 | ) | ||||||
|
Cross-currency swap contracts
|
4 | (6 | ) | |||||||
|
Forward starting interest rate swaps
|
(14 | ) | (15 | ) | ||||||
|
Commodity contracts
|
1 | (11 | ) | |||||||
|
Amount of (gain) or loss reclassified from OCI to earnings:
|
Location in Earnings | |||||||||
|
Foreign exchange forward contracts
|
Other expenses/income | (1 | ) | (2 | ) | |||||
|
Foreign exchange forward contracts
|
Cost of products sold | 17 | (5 | ) | ||||||
|
Forward starting interest rate swaps
|
Interest expense | 1 | 1 | |||||||
|
Commodity contracts
|
Cost of products sold | — | 5 | |||||||
|
OCI derivative gain/(loss) at end of year
|
$ | (28 | ) | $ | (31 | ) | ||||
The amount expected to be reclassified from other comprehensive
income into earnings within the next 12 months is a loss of
$5. The ineffective portion and amount excluded from
effectiveness testing were not material.
The following table shows the effect of the company’s
derivative instruments designated as fair-value hedges on the
Consolidated Statements of Earnings:
|
Amount of
|
Amount of
|
|||||||||||||||||||||
|
Gain or (Loss)
|
Gain or (Loss)
|
|||||||||||||||||||||
|
Recognized in Earnings
|
Recognized in Earnings
|
|||||||||||||||||||||
|
Derivatives Designated
|
Location of Gain or (Loss)
|
on Derivatives | on Hedged Item | |||||||||||||||||||
|
as Fair-Value Hedges
|
Recognized in Earnings | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Interest rate swaps
|
Interest expense | $ | 8 | $ | 24 | $ | (8 | ) | $ | (24 | ) | |||||||||||
63
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table shows the effects of the company’s
derivative instruments not designated as hedges in the
Consolidated Statements of Earnings:
|
Amount of Gain or (Loss)
|
||||||||||
|
Recognized in Earnings
|
||||||||||
|
Location of Gain or (Loss)
|
on Derivatives | |||||||||
|
Derivatives not Designated as Hedges
|
Recognized in Earnings | 2010 | 2009 | |||||||
|
Foreign exchange forward contracts
|
Other expenses/income | $ | (8 | ) | $ | 7 | ||||
|
Foreign exchange forward contracts
|
Cost of products sold | — | 1 | |||||||
|
Cross-currency swap contracts
|
Other expenses/income | (12 | ) | 44 | ||||||
|
Commodity contracts
|
Cost of products sold | — | (24 | ) | ||||||
|
Deferred compensation contracts
|
Administrative expenses | 9 | (8 | ) | ||||||
|
Total
|
$ | (11 | ) | $ | 20 | |||||
| 15. | Fair Value Measurements |
The company is required to categorize financial assets and
liabilities based on the following fair value hierarchy:
| • | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| • | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data. | |
| • | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
Fair value is defined as the exit price, or the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
as of the measurement date. When available, the company uses
unadjusted quoted market prices to measure the fair value and
classifies such items as Level 1. If quoted market prices
are not available, the company bases fair value upon internally
developed models that use current market-based or independently
sourced market parameters such as interest rates and currency
rates.
64
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the company’s financial assets
and liabilities that are measured at fair value on a recurring
basis at August 1, 2010 and August 2, 2009, consistent
with the fair value hierarchy:
|
Fair Value
|
Fair Value Measurements at
|
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||||||||||||||||
|
as of
|
August 1, 2010 Using
|
as of
|
August 2, 2009 Using
|
|||||||||||||||||||||||||||||
|
August 1,
|
Fair Value Hierarchy |
August 2,
|
Fair Value Hierarchy | |||||||||||||||||||||||||||||
| 2010 | Level 1 | Level 2 | Level 3 | 2009 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Interest rate swaps(1)
|
$ | 46 | $ | — | $ | 46 | $ | — | $ | 38 | $ | — | $ | 38 | $ | — | ||||||||||||||||
|
Foreign exchange forward
contracts(2)
|
2 | — | 2 | — | 4 | — | 4 | — | ||||||||||||||||||||||||
|
Cross-currency swap contracts(3)
|
17 | — | 17 | — | 10 | — | 10 | — | ||||||||||||||||||||||||
|
Deferred compensation derivatives(4)
|
— | — | — | — | 4 | — | 4 | — | ||||||||||||||||||||||||
|
Commodity derivatives(5)
|
4 | 4 | — | — | 6 | 6 | — | — | ||||||||||||||||||||||||
|
Total assets at fair value
|
$ | 69 | $ | 4 | $ | 65 | $ | — | $ | 62 | $ | 6 | $ | 56 | $ | — | ||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Foreign exchange forward
contracts(2)
|
$ | 2 | $ | — | $ | 2 | $ | — | $ | 14 | $ | — | $ | 14 | $ | — | ||||||||||||||||
|
Cross-currency swap contracts(3)
|
38 | — | 38 | — | 45 | — | 45 | — | ||||||||||||||||||||||||
|
Deferred compensation derivatives(4)
|
2 | — | 2 | — | — | — | — | — | ||||||||||||||||||||||||
|
Commodity derivatives(5)
|
1 | 1 | — | — | 6 | 6 | — | — | ||||||||||||||||||||||||
|
Deferred compensation obligation(6)
|
149 | 95 | 54 | — | 142 | 80 | 62 | — | ||||||||||||||||||||||||
|
Total liabilities at fair value
|
$ | 192 | $ | 96 | $ | 96 | $ | — | $ | 207 | $ | 86 | $ | 121 | $ | — | ||||||||||||||||
| (1) | Based on LIBOR swap rates. | |
| (2) | Based on observable market transactions of spot currency rates and forward rates. | |
| (3) | Based on observable local benchmarks for currency and interest rates. | |
| (4) | Based on LIBOR and equity index swap rates. | |
| (5) | Based on quoted futures exchanges. | |
| (6) | Based on the fair value of the participants’ investments. |
| 16. | 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.
Share
Repurchase Programs
In November 2005, the company’s Board of Directors
authorized the purchase of up to $600 of company stock through
fiscal 2008. This program was completed during the third quarter
of 2008. In March 2008, the company’s Board of Directors
authorized using approximately $600 of the net proceeds from the
sale of the Godiva Chocolatier business to purchase company
stock. This program was completed during the fourth quarter of
2008. In June 2008,
65
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the company’s Board of Directors authorized the purchase of
up to $1,200 of company stock through fiscal 2011. This program
began in fiscal 2009. In addition to these publicly announced
programs, the company repurchases shares to offset the impact of
dilution from shares issued under the company’s stock
compensation plans.
In 2010, the company repurchased 14 million shares at a
cost of $472. Of the 2010 repurchases, approximately
7 million shares at a cost of $250 were made pursuant to
the company’s June 2008 publicly announced share repurchase
program. Approximately $550 remained available under this
program as of August 1, 2010.
In 2009, the company repurchased 17 million shares at a
cost of $527. Of the 2009 repurchases, approximately
13 million shares at a cost of $400 were made pursuant to
the company’s June 2008 publicly announced share repurchase
program.
In 2008, the company repurchased 26 million shares at a
cost of $903. Of the 2008 repurchases, approximately
23 million shares at a cost of $800 were made pursuant to
the company’s November 2005 and the March 2008 publicly
announced share repurchase programs.
| 17. | Stock-Based Compensation |
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/units (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
2
1
/
2
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 which
provides for grants of total shareowner return (TSR) performance
restricted stock/units, EPS performance restricted stock/units,
and time-lapse restricted stock/units. Initial grants made in
accordance with this program were approved in September 2005.
Under the program, awards of TSR performance restricted
stock/units will be earned by comparing the company’s total
shareowner return during a three-year period 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/units may earn a total award ranging from 0% to 225% of
the initial grant. Awards of EPS performance restricted
stock/units will be earned based upon the company’s
achievement of annual earnings per share goals. During the
three-year vesting period, a recipient of EPS performance
restricted stock/units may earn a total award ranging from 0% to
100% of the initial grant. Awards of time-lapse restricted
stock/units will vest ratably over the three-year period. Annual
stock option grants are not part of the long-term incentive
compensation program for 2008, 2009, and 2010. However, stock
options may still be granted on a selective basis under the 2003
and 2005 Long-Term Incentive Plans.
Total pre-tax stock-based compensation recognized in Earnings
from continuing operations was $88 for 2010, $84 for 2009, and
$83 for 2008. Tax related benefits of $33 were recognized for
2010 and $31 were recognized for 2009 and 2008. Stock-based
compensation associated with 2008 discontinued operations was $3
after-tax.
66
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Information about stock options and related activity is as
follows:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
| 2010 | Price | Life | Value | |||||||||||||
| (Options in thousands) | ||||||||||||||||
|
Beginning of year
|
17,552 | $ | 27.08 | |||||||||||||
|
Granted
|
— | $ | — | |||||||||||||
|
Exercised
|
(4,945 | ) | $ | 28.34 | ||||||||||||
|
Terminated
|
(134 | ) | $ | 33.03 | ||||||||||||
|
End of year
|
12,473 | $ | 26.47 | 2.8 | $ | 117 | ||||||||||
|
Exercisable at end of year
|
12,473 | $ | 26.47 | 2.8 | $ | 117 | ||||||||||
The total intrinsic value of options exercised during 2010,
2009, and 2008 was $33, $30, and $17, respectively. As of
January 2009, compensation related to stock options was fully
expensed. The company measured the fair value of stock options
using the Black-Scholes option pricing model.
The following table summarizes time-lapse restricted stock/units
and EPS performance restricted stock/units activity:
|
Weighted-Average
|
||||||||
|
Grant-Date
|
||||||||
| Shares/Units | Fair Value | |||||||
| (Restricted stock/units in thousands) | ||||||||
|
Nonvested at August 2, 2009
|
2,073 | $ | 38.17 | |||||
|
Granted
|
1,409 | $ | 32.25 | |||||
|
Vested
|
(970 | ) | $ | 37.62 | ||||
|
Forfeited
|
(117 | ) | $ | 35.19 | ||||
|
Nonvested at August 1, 2010
|
2,395 | $ | 35.05 | |||||
The fair value of time-lapse restricted stock/units and EPS
performance restricted stock/units 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/units granted in fiscal 2006 and forward are 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/units
are expensed on a graded-vesting basis, except for awards issued
to retirement-eligible participants, which are expensed on an
accelerated basis.
As of August 1, 2010, total remaining unearned compensation
related to nonvested time-lapse restricted stock/units and EPS
performance restricted stock/units was $35, which will be
amortized over the weighted-average remaining service period of
1.7 years. The fair value of restricted stock/units vested
during 2010, 2009, and 2008 was $32, $47, and $70, respectively.
The weighted-average grant-date fair value of restricted
stock/units granted during 2009 and 2008 was $39.50 and $36.57,
respectively.
67
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes TSR performance restricted
stock/units activity:
|
Weighted-Average
|
||||||||
|
Grant-Date
|
||||||||
| Shares/Units | Fair Value | |||||||
| (Restricted stock/units in thousands) | ||||||||
|
Nonvested at August 2, 2009
|
3,349 | $ | 36.08 | |||||
|
Granted
|
1,518 | $ | 33.84 | |||||
|
Vested
|
(957 | ) | $ | 26.49 | ||||
|
Forfeited
|
(329 | ) | $ | 32.50 | ||||
|
Nonvested at August 1, 2010
|
3,581 | $ | 38.02 | |||||
The fair value of TSR performance restricted stock/units 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 August 1, 2010, total remaining unearned
compensation related to TSR performance restricted stock/units
was $54, which will be amortized over the weighted-average
remaining service period of 1.7 years. In the first quarter
of fiscal 2010, recipients of TSR performance restricted
stock/units earned 85% of their initial grants based upon the
company’s total shareowner return ranking in a performance
peer group during a three-year period ended July 31, 2009.
As a result, approximately 165,000 shares were forfeited.
The total fair value of TSR performance restricted stock/units
vested during 2010 and 2009 was $31 and $58, respectively. The
grant-date fair value of TSR performance restricted stock/units
granted during 2009 and 2008 was $47.20 and $34.64, respectively.
Prior to fiscal 2009, employees could 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 quarterly. The total cash
paid to settle the liabilities in 2010, 2009, and 2008 was not
material. The liability for deferred awards was $7 at
August 1, 2010.
The excess tax benefits on the exercise of stock options and
vested restricted stock presented as cash flows from financing
activities in 2010, 2009, and 2008 were $11, $18, and $8,
respectively. Cash received from the exercise of stock options
was $139, $72, and $47 for 2010, 2009, and 2008, respectively,
and is reflected in cash flows from financing activities in the
Consolidated Statements of Cash Flows.
| 18. | Commitments and Contingencies |
The company is a party to legal proceedings and claims arising
out of the normal course of business.
Management assesses the probability of loss for all legal
proceedings and claims 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 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
commitments was $48 in 2010, $47 in 2009, and $80 in 2008. Rent
expense in 2008 included $33 related to discontinued operations.
Future minimum annual rental payments under these operating
leases are as follows:
|
2011
|
2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||
| $43 | $35 | $28 | $20 | $18 | $42 | |||||||||||||||||
The company guarantees approximately 1,900 bank loans made to
Pepperidge Farm independent sales distributors by third party
financial institutions for the purchase of distribution routes.
The maximum potential amount of future payments the company
could be required to make under the guarantees is $161. The
company’s guarantees are indirectly secured by the
distribution routes. The company does not believe it is probable
that it will
68
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
be required to make guarantee payments as a result of defaults
on the bank loans guaranteed. The amounts recognized as of
August 1, 2010 and August 2, 2009 were not material.
In connection with the sale of certain Australian salty snack
food brands and assets, the company agreed to provide a loan
facility to the buyer of AUD $10, or approximately USD $9. The
facility was drawn down in AUD $5 increments in 2009. Borrowings
under the facility are to be repaid five years after the closing
date.
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 August 1, 2010.
| 19. | Supplemental Financial Statement Data |
Balance
Sheets
| 2010 | 2009 | |||||||
|
Accounts receivable
|
||||||||
|
Customer accounts receivable
|
$ | 483 | $ | 485 | ||||
|
Allowances
|
(17 | ) | (19 | ) | ||||
|
Subtotal
|
466 | 466 | ||||||
|
Other
|
46 | 62 | ||||||
| $ | 512 | $ | 528 | |||||
|
Inventories
|
||||||||
|
Raw materials, containers, and supplies
|
$ | 261 | $ | 324 | ||||
|
Finished products
|
463 | 500 | ||||||
| $ | 724 | $ | 824 | |||||
|
Other current assets
|
||||||||
|
Deferred taxes
|
$ | 128 | $ | 100 | ||||
|
Fair value of derivatives
|
16 | 10 | ||||||
|
Other
|
53 | 38 | ||||||
| $ | 197 | $ | 148 | |||||
|
Plant assets
|
||||||||
|
Land
|
$ | 61 | $ | 59 | ||||
|
Buildings
|
1,182 | 1,111 | ||||||
|
Machinery and equipment
|
3,651 | 3,481 | ||||||
|
Projects in progress
|
149 | 242 | ||||||
|
Total cost
|
5,043 | 4,893 | ||||||
|
Accumulated depreciation(1)
|
(2,992 | ) | (2,916 | ) | ||||
| $ | 2,051 | $ | 1,977 | |||||
|
Other assets
|
||||||||
|
Fair value of derivatives
|
$ | 34 | $ | 25 | ||||
|
Deferred taxes
|
21 | 24 | ||||||
|
Other
|
55 | 56 | ||||||
| $ | 110 | $ | 105 | |||||
69
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2010 | 2009 | |||||||
|
Accrued liabilities
|
||||||||
|
Accrued compensation and benefits
|
$ | 229 | $ | 236 | ||||
|
Fair value of derivatives
|
2 | 19 | ||||||
|
Accrued trade and consumer promotion programs
|
129 | 112 | ||||||
|
Accrued interest
|
47 | 43 | ||||||
|
Restructuring
|
1 | 4 | ||||||
|
Other
|
152 | 165 | ||||||
| $ | 560 | $ | 579 | |||||
|
Other liabilities
|
||||||||
|
Pension benefits
|
$ | 500 | $ | 656 | ||||
|
Deferred compensation(2)
|
149 | 142 | ||||||
|
Postretirement benefits
|
332 | 313 | ||||||
|
Fair value of derivatives
|
22 | 19 | ||||||
|
Unrecognized tax benefits
|
45 | 50 | ||||||
|
Other
|
31 | 34 | ||||||
| $ | 1,079 | $ | 1,214 | |||||
| (1) | Depreciation expense was $251 in 2010, $264 in 2009, and $288 in 2008. Depreciation expense in 2008 included $17 related to discontinued operations. Buildings are depreciated over periods ranging from 7 to 45 years. Machinery and equipment are depreciated over periods generally ranging from 2 to 20 years. | |
| (2) | The deferred compensation obligation represents unfunded plans 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 plans 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. Six investment choices are available, including: (1) a book account that 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 that tracks the performance of Fidelity’s Puritan Fund; (4) a book account that tracks the performance of Fidelity’s Spartan International Index Fund; (5) a book account that tracks the performance of Fidelity’s Spartan Extended Market Index Fund; and (6) 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 investment funds. The company recognizes an amount in the Statements of Earnings for the market appreciation/depreciation of each fund. |
70
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Statements
of Earnings
| 2010 | 2009 | 2008 | ||||||||||
|
Other Expenses/(Income)
|
||||||||||||
|
Foreign exchange (gains)/losses
|
$ | 1 | $ | (7 | ) | $ | 1 | |||||
|
Amortization/impairment of intangible and other assets(1)
|
— | 67 | 6 | |||||||||
|
Other
|
3 | 1 | 6 | |||||||||
| $ | 4 | $ | 61 | $ | 13 | |||||||
|
Interest expense
|
||||||||||||
|
Interest expense
|
$ | 116 | $ | 114 | $ | 171 | ||||||
|
Less: Interest capitalized
|
4 | 4 | 4 | |||||||||
| $ | 112 | $ | 110 | $ | 167 | |||||||
| (1) | In 2009, a $67 impairment charge was recognized on certain European trademarks. See also Note 5. |
Statements
of Cash Flows
|
Cash Flows From Operating Activities
|
2010 | 2009 | 2008 | |||||||||
|
Other non-cash charges to net earnings
|
||||||||||||
|
Non-cash compensation/benefit related expense
|
$ | 90 | $ | 59 | $ | 59 | ||||||
|
Resolution of tax matters
|
— | — | (13 | ) | ||||||||
|
Other
|
9 | (2 | ) | — | ||||||||
| $ | 99 | $ | 57 | $ | 46 | |||||||
|
Other
|
||||||||||||
|
Benefit related payments
|
$ | (58 | ) | $ | (52 | ) | $ | (54 | ) | |||
|
Other
|
(12 | ) | 7 | 7 | ||||||||
| $ | (70 | ) | $ | (45 | ) | $ | (47 | ) | ||||
|
Other Cash Flow Information
|
||||||||||||
|
Interest paid
|
$ | 118 | $ | 120 | $ | 180 | ||||||
|
Interest received
|
$ | 6 | $ | 4 | $ | 7 | ||||||
|
Income taxes paid
|
$ | 333 | $ | 144 | $ | 521 | ||||||
71
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 20. | Quarterly Data (unaudited) |
| 2010 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
|
Net sales
|
$ | 2,203 | $ | 2,153 | $ | 1,802 | $ | 1,518 | ||||||||
|
Gross profit
|
923 | 871 | 743 | 613 | ||||||||||||
|
Net earnings(1)
|
304 | 259 | 168 | 113 | ||||||||||||
|
Per share — basic
|
||||||||||||||||
|
Net earnings
|
0.87 | 0.74 | 0.49 | 0.33 | ||||||||||||
|
Dividends
|
0.25 | 0.275 | 0.275 | 0.275 | ||||||||||||
|
Per share — assuming dilution
|
||||||||||||||||
|
Net earnings(1)
|
0.87 | 0.74 | 0.49 | 0.33 | ||||||||||||
|
Market price
|
||||||||||||||||
|
High
|
$ | 33.98 | $ | 35.80 | $ | 36.25 | $ | 37.50 | ||||||||
|
Low
|
$ | 29.81 | $ | 30.96 | $ | 32.18 | $ | 34.18 | ||||||||
| 2009 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
|
Net sales
|
$ | 2,250 | $ | 2,122 | $ | 1,686 | $ | 1,528 | ||||||||
|
Gross profit
|
871 | 837 | 685 | 635 | ||||||||||||
|
Earnings from continuing operations(2)
|
260 | 229 | 174 | 69 | ||||||||||||
|
Earnings from discontinued operations(3)
|
— | 4 | — | — | ||||||||||||
|
Net earnings
|
260 | 233 | 174 | 69 | ||||||||||||
|
Per share — basic(4)
|
||||||||||||||||
|
Earnings from continuing operations
|
0.71 | 0.63 | 0.49 | 0.20 | ||||||||||||
|
Earnings from discontinued operations
|
— | 0.01 | — | — | ||||||||||||
|
Net earnings
|
0.71 | 0.65 | 0.49 | 0.20 | ||||||||||||
|
Dividends
|
0.25 | 0.25 | 0.25 | 0.25 | ||||||||||||
|
Per share — assuming dilution(4)
|
||||||||||||||||
|
Earnings from continuing operations(2)
|
0.70 | 0.63 | 0.49 | 0.20 | ||||||||||||
|
Earnings from discontinued operations(3)
|
— | 0.01 | — | — | ||||||||||||
|
Net earnings
|
0.70 | 0.64 | 0.49 | 0.20 | ||||||||||||
|
Market price
|
||||||||||||||||
|
High
|
$ | 40.85 | $ | 39.44 | $ | 31.41 | $ | 31.47 | ||||||||
|
Low
|
$ | 32.45 | $ | 27.35 | $ | 24.63 | $ | 25.65 | ||||||||
The sum of the individual per share amounts does not equal due
to rounding.
| (1) | Includes an $8 ($.02 per diluted share) restructuring charge in the third quarter for pension benefit costs related to the 2008 initiatives to improve operational efficiency and long-term profitability. See also Note 7. | |
| A $10 ($.03 per diluted share) deferred tax expense to reduce deferred tax assets as a result of the U.S. health care legislation enacted in March 2010 was recorded in the third quarter. See also Note 12. | ||
| (2) | Includes a $16 ($.04 per diluted share) unrealized loss on the fair value of open commodity hedges contracts in the first quarter, a $7 ($.02 per diluted share) favorable net adjustment on commodity hedges in the third quarter and a $9 ($.03 per diluted share) favorable net adjustment on commodity hedges in the fourth quarter. | |
| Restructuring-related costs associated with initiatives to improve operational efficiency and long-term profitability of $5 ($.01 per diluted share) were recorded in each of the first and second quarters, and $4 ($.01 per |
72
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| diluted share) were recorded in the third quarter. See also Note 7. A $47 ($.13 per diluted share) impairment charge on certain European trademarks was recorded in the fourth quarter. See also Note 5. | ||
| (3) | In the second quarter of fiscal 2009, the company recorded a $4 ($.01 per diluted share) tax benefit from the sale of Godiva. | |
| (4) | In the first quarter of fiscal 2010, the company adopted and retrospectively applied new accounting guidance related to the calculation of earnings per share. The retrospective application of the provision resulted in the following reductions to basic and diluted earnings per share for fiscal 2009: |
| First | Second | Third | Fourth | |||||||||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||||||
|
Continuing operations
|
$ | (.02 | ) | $ | (.01 | ) | $ | (.02 | ) | $ | — | $ | (.01 | ) | $ | — | $ | — | $ | — | ||||||||||||
|
Net earnings
|
$ | (.02 | ) | $ | (.01 | ) | $ | (.01 | ) | $ | — | $ | (.01 | ) | $ | — | $ | — | $ | — | ||||||||||||
| There was no change to the previously reported basic and diluted earnings per share from discontinued operations for the second quarter of fiscal 2009. |
73
Table of Contents
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 statements have been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which appears herein.
The Audit Committee of the Board of Directors, which is composed
entirely of Directors who are not officers or employees of the
company, meets regularly with the company’s worldwide
internal auditing department, other management personnel, and
the independent auditors. The independent auditors and the
internal auditing department have had, and continue to have,
direct access to the Audit Committee without the presence of
other management personnel, and have been directed to discuss
the results of their audit work and any matters they believe
should be brought to the Committee’s attention. The
internal auditing department and the independent auditors report
directly to the Audit Committee.
Management’s
Report on Internal Control Over Financial Reporting
The company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the United States of
America.
The company’s internal control over financial reporting
includes those policies and procedures that:
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and Directors of the company; and | |
| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over
financial 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
August 1, 2010. 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 August 1, 2010.
74
Table of Contents
The effectiveness of the company’s internal control over
financial reporting as of August 1, 2010 has been audited
by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which appears herein.
/s/ Douglas
R. Conant
Douglas R. Conant
President and Chief Executive Officer
/s/ B.
Craig Owens
B. Craig Owens
Senior Vice President — Chief Financial Officer
and Chief Administrative Officer
/s/ Anthony
P. DiSilvestro
Anthony P. DiSilvestro
Senior Vice President — Finance
(Principal Accounting Officer)
September 29, 2010
75
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Shareowners and Directors of Campbell Soup Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings, of equity and
of cash flows present fairly, in all material respects, the
financial position of Campbell Soup Company and its subsidiaries
at August 1, 2010 and August 2, 2009, and the results
of their operations and their cash flows for each of the three
fiscal years in the period ended August 1, 2010 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of August 1, 2010, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Company’s internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe our audits provide a reasonable basis for our opinions.
As discussed in Note 9 and Note 12 to the consolidated
financial statements, the Company changed the manner in which it
accounts for unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents in
the computation of earnings per share pursuant to the two-class
method in 2010 and the manner in which it accounts for uncertain
tax positions in 2008.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
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
financial 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.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 29, 2010
76
Table of Contents
| 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 Senior Vice President — Chief Financial
Officer and Chief Administrative Officer, has evaluated the
effectiveness of the company’s disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of August 1, 2010 (the
“Evaluation Date”). Based on such evaluation, the
President and Chief Executive Officer and the Senior Vice
President — Chief Financial Officer and Chief
Administrative Officer have concluded that, as of the Evaluation
Date, the company’s disclosure controls and procedures are
effective.
The annual report of management on the company’s internal
control over financial reporting is provided under
“Financial Statements and Supplementary Data” on
page 74. 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 76.
During the quarter ended August 1, 2010, as part of the
previously announced SAP enterprise-resource planning system
implementation, the company implemented SAP software at its
Everett, Washington, and its Marleston, South Australia,
manufacturing facilities. In conjunction with this SAP
implementation, the company modified the design, operation and
documentation of its internal control over financial reporting.
Specifically, the company modified controls in the business
processes impacted by the new system, such as user access
security, system reporting and authorization and reconciliation
procedures. There were no other changes in the company’s
internal control over financial reporting that materially
affected, or were reasonably likely to materially affect, such
internal control over financial reporting.
| Item 9B. | Other Information |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
The sections entitled “Election of Directors,”
“Security Ownership of Directors and Executive
Officers” and “Director and Executive Officer Stock
Ownership Reports” in the company’s Proxy Statement
for the Annual Meeting of Shareowners to be held on
November 18, 2010 (the “2010 Proxy”) are
incorporated herein by reference. The information presented in
the section entitled “Corporate Governance —
Board Committee Structure” in the 2010 Proxy relating to
the members of the company’s Audit Committee and the Audit
Committee’s financial expert is incorporated herein by
reference.
Certain of the information required by this Item relating to the
executive officers of the company is set forth under 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 (including the Senior Vice
President — Finance). 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 company’s
77
Table of Contents
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 Investor Relations, Campbell Soup Company, 1 Campbell Place, Camden, NJ 08103-1799; | |
| • | calling 1-800-840-2865; or | |
| • | e-mailing the company’s Investor Relations Department at investorrelations@campbellsoup.com. |
As previously disclosed, on March 25, 2010, the Board of
Directors of the company approved and adopted amendments to the
By-Laws for the company, effective as of that date, adding new
sections 8 and 9 under Article II. The By-Laws were
amended to implement advance notice provisions for director
nominations and other proposals, and to ensure that compliance
with the notice procedures set forth in the By-Laws is the
exclusive means for shareowners to make nominations or submit
other business at a shareowner meeting, other than proposals
governed by
Rule 14a-8
under the Exchange Act. Among other things, the amendments
require shareowners who make proposals or give advance notice of
a director nomination to disclose all ownership interests in the
company’s securities and rights to vote with respect to any
security of the company, and to provide reasonably detailed
descriptions of all agreements, arrangements and understandings
between proposing shareowners and other shareowners of the
company in connection with the proposed business or nomination.
| Item 11. | Executive Compensation |
The information presented in the sections entitled
“Compensation Discussion and Analysis,” “Summary
Compensation Table — Fiscal 2010,” “Grants
of Plan-Based Awards in Fiscal 2010,” “Outstanding
Equity Awards at 2010 Fiscal Year-End,” “Option
Exercises and Stock Vested in Fiscal 2010,” “Pension
Benefits — Fiscal 2010,” “Nonqualified
Deferred Compensation — Fiscal 2010,”
“Potential Payments Upon Termination or Change in
Control,” “Fiscal 2010 Director Compensation,”
“Corporate Governance — Compensation and
Organization Committee Interlocks and Insider
Participation” and “Compensation and Organization
Committee Report” in the 2010 Proxy is incorporated herein
by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters |
The information presented in the sections entitled
“Securities Authorized for Issuance Under Equity
Compensation Plans,” “Security Ownership of Directors
and Executive Officers” and “Security Ownership of
Certain Beneficial Owners” in the 2010 Proxy is
incorporated herein by reference.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information presented in the section entitled
“Transactions with Related Persons,” “Corporate
Governance — Director Independence” and
“Corporate Governance — Board Committee
Structure” in the 2010 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 2010 Proxy is incorporated herein by
reference.
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
report:
| 1. | Financial Statements |
| • | Consolidated Statements of Earnings for 2010, 2009 and 2008 |
78
Table of Contents
| • | Consolidated Balance Sheets as of August 1, 2010 and August 2, 2009 | |
| • | Consolidated Statements of Cash Flows for 2010, 2009 and 2008 | |
| • | Consolidated Statements of Equity for 2010, 2009 and 2008 | |
| • | Notes to Consolidated Financial Statements | |
| • | Management’s Report on Internal Control Over Financial Reporting | |
| • | Report of Independent Registered Public Accounting Firm |
| 2. | Financial Statement Schedules |
None.
| 3. | Exhibits |
|
3(i)
|
Campbell’s Restated Certificate of Incorporation as amended through February 24, 1997 was filed with the SEC with Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended July 28, 2002, and is incorporated herein by reference. | |
|
3(ii)
|
Campbell’s By-Laws, effective October 1, 2010, were filed with the SEC on a Form 8-K (SEC file number 1-3822) on September 28, 2010, and are incorporated herein by reference. | |
|
4(a)
|
With respect to Campbell’s 6.750% notes due 2011, 5.000% notes due 2012 and 4.875% due 2013, the form of Indenture between Campbell and Deutsche Bank Trust Company Americas (successor in interest to Bankers Trust Company), as Trustee, and the associated form of security were filed with the SEC with Campbell’s Registration Statement No. 333-11497, and are incorporated herein by reference. | |
|
4(b)
|
With respect to Campbell’s 3.375% notes due 2014, 3.050% notes due 2014 and 4.500% due 2019, the form of Indenture between Campbell and The Bank of New York Mellon, as Trustee, and the associated form of security were filed with the SEC with Campbell’s Registration Statement No. 333-155626, and are incorporated herein by reference. | |
|
4(c)
|
Except as described in 4(a) and 4(b) above, there is no instrument with respect to long-term debt of the company that involves indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the company upon request of the SEC. | |
|
9
|
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 (SEC file number 5-7735) 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 (SEC file number 5-7735) dated March 3, 2000, and as Exhibit 99.M to Amendment No. 8 to their Schedule 13D (SEC file number 5-7735) dated January 26, 2001, and as Exhibit 99.P to Amendment No. 9 to their Schedule 13D (SEC file number 5-7735) 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 (SEC file number 1-3822), and is incorporated herein by reference. | |
|
10(b)
|
Campbell Soup Company 2003 Long-Term Incentive Plan, as amended and restated on September 25, 2008, was filed with the SEC with Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended August 3, 2008, 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 (SEC file number 1-3822), 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 (SEC file number 1-3822), and is incorporated herein by reference. |
79
Table of Contents
|
10(e)
|
Campbell Soup Company Mid-Career Hire Pension Program, as amended and restated effective as of January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, 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 (SEC file number 1-3822) for the fiscal year ended July 30, 2000, and is incorporated herein by reference. | |
|
10(g)
|
Deferred Compensation Plan II, effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. | |
|
10(h)
|
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 (SEC file number 1-3822) 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” (other than B. Craig Owens) are in all material respects the same as Mr. Conant’s agreement. | |
|
10(i)
|
Amendment to the Severance Protection Agreement dated February 26, 2008, with Douglas R. Conant, President and Chief Executive Officer, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. Amendments with the other executive officers listed under the heading “Executive Officers of the Company” (other than B. Craig Owens) are in all material respects the same as Mr. Conant’s agreement. | |
|
10(j)
|
Form of U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 (such as B. Craig Owens), was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. | |
|
10(k)
|
Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. | |
|
10(l)
|
Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. | |
|
10(m)
|
Campbell Soup Company Supplemental Employees’ Retirement Plan, as amended and restated effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. | |
|
10(n)
|
2003 Long-Term Incentive Plan Time-Lapse Restricted Stock Unit Agreement, dated as of November 1, 2008, between the company and B. Craig Owens was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, 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(a)
|
Certification of Douglas R. Conant pursuant to Rule 13a-14(a). | |
|
31(b)
|
Certification of B. Craig Owens pursuant to Rule 13a-14(a). | |
|
32(a)
|
Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350. | |
|
32(b)
|
Certification of B. Craig Owens pursuant to 18 U.S.C. Section 1350. | |
|
101.INS
|
XBRL Instance Document | |
|
101.SCH
|
XBRL Schema Document | |
|
101.CAL
|
XBRL Calculation Linkbase Document | |
|
101.DEF
|
XBRL Definition Linkbase Document | |
|
101.LAB
|
XBRL Label Linkbase Document | |
|
101.PRE
|
XBRL Presentation Linkbase Document |
80
Table of Contents
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: September 29, 2010
CAMPBELL SOUP COMPANY
| By: |
/s/ B.
Craig Owens
|
B. Craig Owens
Senior Vice President — Chief
Financial Officer and Chief
Administrative 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: September 29, 2010
|
/s/ B. Craig Owens
|
/s/ Anthony P. DiSilvestro | |
|
|
|
|
|
B. Craig Owens
|
Anthony P. DiSilvestro | |
|
Senior Vice President — Chief Financial
|
Senior Vice President — Finance | |
|
Officer and Chief Administrative Officer
|
(Principal Accounting Officer) |
| Paul R. Charron | Chairman and Director | } | ||||
| Douglas R. Conant | President, Chief Executive | } | ||||
| Officer and Director | } | |||||
| Edmund M. Carpenter | Director | } | ||||
| Bennett Dorrance | Director | } | ||||
| Harvey Golub | Director | } | ||||
| Lawrence C. Karlson | Director | } |
By:
/s/ Ellen
Oran Kaden
|
|||
| Randall W. Larrimore | Director | } | Ellen Oran Kaden | |||
| Mary Alice D. Malone | Director | } | Senior Vice President — | |||
| Sara Mathew | Director | } | Law and Government | |||
| William D. Perez | Director | } | Affairs | |||
| Charles R. Perrin | Director | } | ||||
| A. Barry Rand | Director | } | ||||
| Nick Shreiber | Director | } | ||||
| Archbold D. van Beuren | Director | } | ||||
| Les C. Vinney | Director | } | ||||
| Charlotte C. Weber | Director | } |
81
Table of Contents
INDEX OF EXHIBITS
| Document | ||
|
3(i)
|
Campbell’s Restated Certificate of Incorporation as amended through February 24, 1997 was filed with the SEC with Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended July 28, 2002, and is incorporated herein by reference. | |
|
|
||
|
3(ii)
|
Campbell’s By-Laws, effective October 1, 2010, were filed with the SEC on a Form 8-K (SEC file number 1-3822) on September 28, 2010, and are incorporated herein by reference. | |
|
|
||
|
4(a)
|
With respect to Campbell’s 6.750% notes due 2011, 5.000% notes due 2012 and 4.875% due 2013, the form of Indenture between Campbell and Deutsche Bank Trust Company Americas (successor in interest to Bankers Trust Company), as Trustee, and the associated form of security were filed with the SEC with Campbell’s Registration Statement No. 333-11497, and are incorporated herein by reference. | |
|
|
||
|
4(b)
|
With respect to Campbell’s 3.375% notes due 2014, 3.050% notes due 2014 and 4.500% due 2019, the form of Indenture between Campbell and The Bank of New York Mellon, as Trustee, and the associated form of security were filed with the SEC with Campbell’s Registration Statement No. 333-155626, and are incorporated herein by reference. | |
|
|
||
|
4(c)
|
Except as described in 4(a) and 4(b) above, there is no instrument with respect to long-term debt of the company that involves indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the company upon request of the SEC. | |
|
|
||
|
9
|
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 (SEC file number 5-7735) 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 (SEC file number 5-7735) dated March 3, 2000, and as Exhibit 99.M to Amendment No. 8 to their Schedule 13D (SEC file number 5-7735) dated January 26, 2001, and as Exhibit 99.P to Amendment No. 9 to their Schedule 13D (SEC file number 5-7735) 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 (SEC file number 1-3822), and is incorporated herein by reference. | |
|
|
||
|
10(b)
|
Campbell Soup Company 2003 Long-Term Incentive Plan, as amended and restated on September 25, 2008, was filed with the SEC with Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended August 3, 2008, and is incorporated herein by reference. | |
|
|
||
|
10(c)
|
Campbell Soup Company 2005 Long-Term Incentive Plan was filed with the SEC |
Table of Contents
| Document | ||
|
|
with Campbell’s 2005 Proxy Statement (SEC file number 1-3822), 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 (SEC file number 1-3822), and is incorporated herein by reference. | |
|
|
||
|
10(e)
|
Campbell Soup Company Mid-Career Hire Pension Program, as amended and restated effective as of January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, 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 (SEC file number 1-3822) for the fiscal year ended July 30, 2000, and is incorporated herein by reference. | |
|
|
||
|
10(g)
|
Deferred Compensation Plan II, effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. | |
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10(h)
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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 (SEC file number 1-3822) 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” (other than B. Craig Owens) are in all material respects the same as Mr. Conant’s agreement. | |
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10(i)
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Amendment to the Severance Protection Agreement dated February 26, 2008, with Douglas R. Conant, President and Chief Executive Officer, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. Amendments with the other executive officers listed under the heading “Executive Officers of the Company” (other than B. Craig Owens) are in all material respects the same as Mr. Conant’s agreement. | |
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10(j)
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Form of U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 (such as B. Craig Owens), was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. | |
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10(k)
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Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. | |
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10(l)
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Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. | |
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10(m)
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Campbell Soup Company Supplemental Employees’ Retirement Plan, as amended and restated effective January 1, 2009, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2009, and is incorporated herein by reference. |
Table of Contents
| Document | ||
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10(n)
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2003 Long-Term Incentive Plan Time-Lapse Restricted Stock Unit Agreement, dated as of November 1, 2008, between the company and B. Craig Owens was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008, and is incorporated herein by reference. | |
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21
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Subsidiaries (Direct and Indirect) of the company. | |
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23
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Consent of Independent Registered Public Accounting Firm. | |
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24
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Power of Attorney. | |
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31(a)
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Certification of Douglas R. Conant pursuant to Rule 13a-14(a). | |
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31(b)
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Certification of B. Craig Owens pursuant to Rule 13a-14(a). | |
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32(a)
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Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350. | |
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32(b)
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Certification of B. Craig Owens pursuant to 18 U.S.C. Section 1350. | |
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101.INS
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XBRL Instance Document | |
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101.SCH
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XBRL Schema Document | |
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101.CAL
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XBRL Calculation Linkbase Document | |
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101.DEF
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XBRL Definition Linkbase Document | |
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101.LAB
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XBRL Label Linkbase Document | |
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101.PRE
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XBRL Presentation Linkbase Document |
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Removed and ReservedprintPart IIprintItem 5. Market For Registrant S Capital Stock, Related Shareowner Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Results Of Operations and Financial ConditionprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareowner MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint