CAMPBELL SOUP CO
10-Qs and 10-Ks
PROXIES
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
July 31, 2011 |
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 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.
o
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.
| 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 28, 2011 (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
$6,343,490,643. There were 320,209,348 shares of capital
stock outstanding as of September 15, 2011.
Portions of the Registrant’s Proxy Statement for the Annual
Meeting of Shareowners to be held on November 17, 2011, are
incorporated by reference into Part III.
Table of
Contents
| Page | ||||||
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PART I
|
||||||
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Item 1.
|
Business | 1 | ||||
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Item 1A.
|
Risk Factors | 4 | ||||
|
Item 1B.
|
Unresolved Staff Comments | 7 | ||||
|
Item 2.
|
Properties | 8 | ||||
|
Item 3.
|
Legal Proceedings | 8 | ||||
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Item 4.
|
Removed and Reserved | 9 | ||||
| Executive Officers of the Company | 9 | |||||
| PART II | ||||||
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Item 5.
|
Market for Registrant’s Capital Stock, Related Shareowner Matters and Issuer Purchases of Equity Securities | 10 | ||||
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Item 6.
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Selected Financial Data | 12 | ||||
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||||
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk | 33 | ||||
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Item 8.
|
Financial Statements and Supplementary Data | 34 | ||||
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Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 77 | ||||
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Item 9A.
|
Controls and Procedures | 77 | ||||
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Item 9B.
|
Other Information | 77 | ||||
| PART III | ||||||
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Item 10.
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Directors, Executive Officers and Corporate Governance | 77 | ||||
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Item 11.
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Executive Compensation | 78 | ||||
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Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters | 78 | ||||
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence | 79 | ||||
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Item 14.
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Principal Accounting Fees and Services | 79 | ||||
| PART IV | ||||||
|
Item 15.
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Exhibits and Financial Statement Schedules | 79 | ||||
| Signatures | 82 | |||||
| Item 1. | Business |
The
Company
Campbell Soup Company, together with its consolidated
subsidiaries (Campbell or the company), 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.
Reportable
Segments
Commencing with the 2011 Annual Report on
Form 10-K,
the company reports the results of operations in the following
reportable segments: U.S. Simple Meals;
U.S. Beverages; Global Baking and Snacking; International
Simple Meals and Beverages; and North America Foodservice.
Segment results of prior periods were modified to conform to the
current presentation. The company has ten operating segments
based on product type and geographic location and has aggregated
the operating segments into the appropriate reportable segment
based on similar economic characteristics; products; production
processes; types or classes of customers; distribution methods;
and regulatory environment. See also Note 6 to the
Consolidated Financial Statements. The segments are discussed in
greater detail below.
U.S.
Simple Meals
The U.S. Simple Meals segment aggregates the following
operating segments: U.S. Soup and U.S. Sauces. The
U.S. Soup retail business includes the following products:
Campbell’s
condensed and
ready-to-serve
soups; and
Swanson
broth and stocks. The U.S. Sauces
retail business includes the following products:
Prego
pasta sauce;
Pace
Mexican sauce;
Swanson
canned poultry; and
Campbell’s
canned gravies,
pasta, and beans.
U.S.
Beverages
The U.S. Beverages segment represents the U.S. retail
beverages business, including the following products:
V8
juices and beverages and
Campbell’s
tomato juice.
Global
Baking and Snacking
The Global Baking and Snacking segment aggregates the following
operating segments:
Pepperidge Farm
cookies, crackers,
bakery and frozen products in U.S. retail; and
Arnott’s
biscuits in Australia and Asia Pacific.
International
Simple Meals and Beverages
The International Simple Meals and Beverages segment aggregates
the simple meals and beverages operating segments outside of the
United States, including Europe, Latin America, the Asia Pacific
region and the retail business in Canada. The segment’s
operations include
Erasco
and
Heisse Tasse
soups
in Germany,
Liebig
and
Royco
soups 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 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.
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 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
Financial Condition and Results of Operations.”
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. During fiscal 2011, in an
effort to enhance merchandising effectiveness and coverage, the
company outsourced a larger portion of its U.S. retail
merchandising activities to a third party. 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 17% of the
company’s consolidated net sales in fiscal 2011 and 18%
during fiscal 2010 and fiscal 2009. 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, 2011, 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
,
Royco
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
2
dollars. As such, the number of competitors cannot be reliably
estimated. The principal areas of competition are brand
recognition, taste, 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 Financial Condition and Results of Operations.”
Capital
Expenditures
During fiscal 2011, the company’s aggregate capital
expenditures were $272 million. The company expects to
spend approximately $325 million for capital projects in
fiscal 2012. Major fiscal 2012 capital projects include an
ongoing initiative to simplify the soup-making process in North
America (also known as the soup common platform initiative),
Pepperidge Farm’s new 34,000-square-foot innovation center,
packing automation and capacity expansion projects at one of the
company’s Australian biscuit plants, continued enhancement
of the company’s corporate headquarters in Camden, New
Jersey, and a warehouse automation project at one of the
company’s North American plants.
Research
and Development
During the last three fiscal years, the company’s
expenditures on research and development activities relating to
new products and the improvement and maintenance of existing
products were $129 million in 2011, $123 million in
2010, and $114 million in 2009. The increase from 2010 to
2011 was primarily due to costs associated with an ongoing
initiative to simplify the soup-making process in North America,
costs associated with product innovation in North America, costs
associated with a global baked snacks initiative, and the impact
of currency, partially offset by cost savings initiatives. 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 company conducts this research
and development primarily at its headquarters in Camden, New
Jersey, although important research and development is
undertaken at various other locations inside and outside the
United States. On July 12, 2011, as part of its effort to
further increase the rate of innovation across its baking and
snacking portfolio, the company announced plans to invest more
than $30 million to build a
new 34,000-squre-foot
innovation center at its Pepperidge Farm facility in Norwalk,
Connecticut. The project will also include extensive upgrades to
Pepperidge Farm’s existing headquarters at the site.
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 $272 million in
capital expenditures made during fiscal 2011, approximately
$18 million was for compliance with environmental laws and
regulations in the United States. The company further estimates
that approximately $20 million of the capital expenditures
anticipated during fiscal 2012 will be for compliance with
United States environmental laws and regulations. The company
believes that continued compliance with existing environmental
laws and regulations (both within the United States and
elsewhere) will not have a material effect on capital
expenditures, earnings or the competitive position of the
company. In addition, the company continues to monitor pending
environmental laws and regulations within the United States and
elsewhere, including laws and regulations relating to climate
change and greenhouse gas emissions. While the impact of these
pending laws and regulations cannot be predicted with certainty,
the company does not believe that compliance with these pending
laws and regulations will 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.
3
Employees
On July 31, 2011, there were approximately
17,500 employees of the company.
Financial
Information
For information with respect to revenue, operating profitability
and identifiable assets attributable to the company’s
reportable segments and geographic areas, see Note 6 to the
Consolidated Financial Statements. Prior periods have been
modified in Note 6 to reflect the company’s current
reporting segments. For risks attendant to the company’s
foreign operations, see “Risk Factors.”
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 (including amendments)
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 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, taste, 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
4
Better Business Bureaus. Changes in regulatory requirements
(such as proposed requirements designed to 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, generates
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, sales 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 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.
Price
increases may not be sufficient to cover increased costs, or may
result in declines in sales volume due to pricing elasticity in
the marketplace
The company intends to pass along to customers some or all cost
increases in raw and packaging materials and other inputs
through increases in the selling prices of some of its products.
Higher product prices may result in reductions in sales volume.
To the extent the price increases are not sufficient to offset
increased raw and packaging materials and other inputs costs,
and/or
if
they result in significant decreases in sales volume, the
company’s business results and financial condition may be
adversely affected.
The
company’s results are dependent on successful marketplace
initiatives and acceptance by consumers of the company’s
products, including new products or packaging
introductions
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
non-U.S. 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.
5
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. Furthermore, the company’s information
technology systems may be vulnerable to security breaches or
other system failures. If the company is unable to prevent such
security breaches or system failures, 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.
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.
6
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.
7
| 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 (USSM/USB) • Sacramento (USSM/USB/ISMB) • Stockton (USSM/USB) Connecticut • Bloomfield (GBS) Florida • Lakeland (GBS) Illinois • Downers Grove (GBS) New Jersey • South Plainfield (USSM/USB) • East Brunswick (GBS) North Carolina • Maxton (USSM/ISMB) |
Ohio
• Napoleon (USSM/USB/NAFS/ ISMB) • Willard (GBS) Pennsylvania • Denver (GBS) • Downingtown (GBS/NAFS) South Carolina • Aiken (GBS) Texas • Paris (USSM/USB/ISMB) Utah • Richmond (GBS) Washington • Everett (NAFS) Wisconsin • Milwaukee (USSM) |
Australia
• Huntingwood (GBS) • Marleston (GBS) • Shepparton (ISMB) • Virginia (GBS) Belgium • Puurs (ISMB) Canada • Toronto (USSM/ ISMB/NAFS) France • LePontet (ISMB) Germany • Luebeck (ISMB) |
Indonesia
• Jawa Barat (GBS) Malaysia • Selangor Darul Ehsan (ISMB) Mexico • Villagran (ISMB) Sweden • Kristianstadt (ISMB) |
||||
|
|
|||||||
|
USSM — U.S. Simple Meals
USB — U.S. Beverages GBS — Global Baking and Snacking ISMB — International Simple Meals 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 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 company is evaluating the transfer
of ownership of the Kristianstadt, Sweden, facility to a third
party in fiscal 2012 as part of a contract manufacturing
arrangement. The Marshall, Michigan, facility was closed in
fiscal 2011, and the Utrecht, Netherlands, facility was sold in
fiscal 2011.
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.
8
| Item 4. | Removed and Reserved |
Executive
Officers of the Company
The following list of executive officers as of
September 15, 2011, is included as an item in Part III
of this
Form 10-K:
|
Year First
|
||||||||||
|
Appointed
|
||||||||||
|
Executive
|
||||||||||
|
Name
|
Present Title
|
Age
|
Officer
|
|||||||
|
Mark R. Alexander
|
Senior Vice President | 47 | 2009 | |||||||
|
Irene Chang Britt
|
Senior Vice President | 48 | 2010 | |||||||
|
Patrick J. Callaghan
|
Vice President | 60 | 2007 | |||||||
|
Sean M. Connolly
|
Senior Vice President | 46 | 2008 | |||||||
|
Anthony P. DiSilvestro
|
Senior Vice President — Finance | 52 | 2004 | |||||||
|
Ellen Oran Kaden
|
Senior Vice President — Law and Government Affairs | 59 | 1998 | |||||||
|
Denise M. Morrison
|
President and Chief Executive Officer | 57 | 2003 | |||||||
|
B. Craig Owens
|
Senior Vice President — Chief Financial Officer and Chief Administrative Officer | 57 | 2008 | |||||||
|
Nancy A. Reardon
|
Senior Vice President | 58 | 2004 | |||||||
|
David R. White
|
Senior Vice President | 56 | 2004 | |||||||
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,
Irene Chang Britt, Patrick J. Callaghan, 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 2010 meeting of the Board of
Directors, and Denise M. Morrison was promoted to President and
Chief Executive Officer at the June 2011 meeting.
9
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. On September 15,
2011, there were 25,210 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 $100 was invested on July 28,
2006, in each of company stock, the S&P Packaged Foods
Group and the S&P 500, and that all dividends were
reinvested. The total cumulative dollar returns shown on the
graph represent the value that such investments would have had
on July 29, 2011.
* Stock appreciation plus dividend reinvestment.
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||||||||
|
Campbell
|
100 | 104 | 102 | 91 | 109 | 104 | ||||||||||||||||||||||||
|
S&P 500
|
100 | 116 | 103 | 83 | 94 | 112 | ||||||||||||||||||||||||
|
S&P Packaged Foods Group
|
100 | 114 | 118 | 108 | 126 | 152 | ||||||||||||||||||||||||
10
Issuer
Purchases of Equity Securities
|
Approximate
|
||||||||||||||||
|
Dollar Value of
|
||||||||||||||||
|
Total Number of
|
Shares that may yet
|
|||||||||||||||
|
Shares Purchased
|
be Purchased
|
|||||||||||||||
|
Total Number
|
Average
|
as Part of Publicly
|
Under the Plans or
|
|||||||||||||
|
of Shares
|
Price Paid
|
Announced Plans or
|
Programs
|
|||||||||||||
|
Period
|
Purchased(1) | Per Share(2) | Programs(3) | ($ in Millions)(3) | ||||||||||||
|
5/2/11 — 5/31/11
|
250,000 | (4) | $ | 33.84 | (4) | 37,740 | $ | 6 | ||||||||
|
6/1/11 — 6/30/11
|
528,000 | (5) | $ | 34.03 | (5) | 104,640 | $ | 1,002 | ||||||||
|
7/1/11 — 7/31/11
|
168,931 | (6) | $ | 34.41 | (6) | 62,160 | $ | 1,000 | ||||||||
|
Total
|
946,931 | $ | 34.05 | 204,540 | $ | 1,000 | ||||||||||
| (1) | Includes (i) 741,460 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) 931 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 2011, the company had two publicly announced share repurchase programs. Under the first 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. The 2008 program was completed during the fourth quarter of fiscal 2011. Under the second program, which was announced on June 23, 2011, the company’s Board of Directors authorized the purchase of up to $1 billion of company stock. The 2011 program has no expiration date. In addition to the publicly announced share repurchase programs, the company expects to 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 212,260 shares repurchased in open-market transactions at an average price of $33.84 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans. | |
| (5) | Includes 423,360 shares repurchased in open-market transactions at an average price of $34.05 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans. | |
| (6) | Includes (i) 105,840 shares repurchased in open-market transactions at an average price of $34.41 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 931 shares owned and tendered by employees at an average price per share of $34.65 to satisfy tax withholding requirements on the vesting of restricted shares. |
11
| Item 6. | Selected Financial Data |
FIVE-YEAR
REVIEW — CONSOLIDATED
|
Fiscal Year
|
2011(1) | 2010(2) | 2009(3) | 2008(4) | 2007(5) | |||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||
|
Summary of Operations
|
||||||||||||||||||||
|
Net sales
|
$ | 7,719 | $ | 7,676 | $ | 7,586 | $ | 7,998 | $ | 7,385 | ||||||||||
|
Earnings before interest and taxes
|
1,279 | 1,348 | 1,185 | 1,098 | 1,243 | |||||||||||||||
|
Earnings before taxes
|
1,168 | 1,242 | 1,079 | 939 | 1,099 | |||||||||||||||
|
Earnings from continuing operations
|
802 | 844 | 732 | 671 | 792 | |||||||||||||||
|
Earnings from discontinued operations
|
— | — | 4 | 494 | 62 | |||||||||||||||
|
Net earnings
|
802 | 844 | 736 | 1,165 | 854 | |||||||||||||||
|
Net earnings attributable to Campbell Soup Company
|
805 | 844 | 736 | 1,165 | 854 | |||||||||||||||
|
Financial Position
|
||||||||||||||||||||
|
Plant assets — net
|
$ | 2,103 | $ | 2,051 | $ | 1,977 | $ | 1,939 | $ | 2,042 | ||||||||||
|
Total assets
|
6,862 | 6,276 | 6,056 | 6,474 | 6,445 | |||||||||||||||
|
Total debt
|
3,084 | 2,780 | 2,624 | 2,615 | 2,669 | |||||||||||||||
|
Total equity
|
1,096 | 929 | 731 | 1,321 | 1,298 | |||||||||||||||
|
Per Share Data
|
||||||||||||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company — basic
|
$ | 2.44 | $ | 2.44 | $ | 2.05 | $ | 1.77 | $ | 2.02 | ||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company — assuming dilution
|
2.42 | 2.42 | 2.03 | 1.75 | 1.99 | |||||||||||||||
|
Net earnings attributable to Campbell Soup Company —
basic
|
2.44 | 2.44 | 2.06 | 3.06 | 2.18 | |||||||||||||||
|
Net earnings attributable to Campbell Soup Company —
assuming dilution
|
2.42 | 2.42 | 2.05 | 3.03 | 2.14 | |||||||||||||||
|
Dividends declared
|
1.145 | 1.075 | 1.00 | 0.88 | 0.80 | |||||||||||||||
|
Other Statistics
|
||||||||||||||||||||
|
Capital expenditures
|
$ | 272 | $ | 315 | $ | 345 | $ | 298 | $ | 334 | ||||||||||
|
Weighted average shares outstanding — basic
|
326 | 340 | 352 | 373 | 386 | |||||||||||||||
|
Weighted average shares outstanding — assuming dilution
|
329 | 343 | 354 | 377 | 392 | |||||||||||||||
| 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 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | ||||||
|
Net earnings attributable to Campbell Soup Company
|
$ | (.03 | ) | $ | (.01 | ) | $ | (.06 | ) | $ | (.03 | ) | $ | (.03 | ) | $ | (.02 | ) | ||||||
| (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 2011 earnings from continuing operations were impacted by a restructuring charge of $41 million ($.12 per share) associated with initiatives announced in June 2011 to improve supply chain efficiency, reduce overhead costs across the organization and exit the Russian market. |
12
| (2) | The 2010 earnings from continuing operations were impacted by the following: a restructuring charge of $8 million ($.02 per share) for pension benefit costs associated with the 2008 initiatives to improve operational efficiency and long-term profitability and $10 million ($.03 per share) to reduce deferred tax assets as a result of the U.S. health care legislation enacted in March 2010. | |
| (3) | The 2009 earnings from continuing operations were impacted by the following: an impairment charge of $47 million ($.13 per share) related to certain European trademarks and $15 million ($.04 per share) of restructuring-related costs associated with the 2008 initiatives to improve operational efficiency and long-term profitability. The 2009 results of discontinued operations represented a $4 million ($.01 per share) tax benefit related to the sale of the Godiva Chocolatier business. | |
| (4) | The 2008 earnings from continuing operations were impacted by the following: a $107 million ($.28 per share) restructuring charge and related costs associated with initiatives to improve operational efficiency and long-term profitability and a $13 million ($.03 per share) benefit from the favorable resolution of a tax contingency. The 2008 results of discontinued operations included a $462 million ($1.20 per share) gain from the sale of the Godiva Chocolatier business. | |
| (5) | The 2007 earnings from continuing operations were impacted by the following: a $13 million ($.03 per share) benefit from the reversal of legal reserves due to favorable results in litigation; a $25 million ($.06 per share) benefit from a tax settlement of bilateral advance pricing agreements; and a $14 million ($.04 per share) gain from the sale of an idle manufacturing facility. The 2007 results of discontinued operations included a $24 million ($.06 per share) gain from the sale of the businesses in the United Kingdom and Ireland and a $7 million ($.02 per share) tax benefit from the resolution of audits in the United Kingdom. | |
| Five-Year Review should be read in conjunction with the Notes to Consolidated Financial Statements. |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Description
of the Company
Campbell Soup Company is a global manufacturer and marketer of
high-quality, branded convenience food products. Commencing with
the fourth quarter of fiscal 2011, the company reports the
results of operations in the following reportable segments:
U.S. Simple Meals; U.S. Beverages; Global Baking and
Snacking; International Simple Meals and Beverages; and North
America Foodservice. Segment results of prior periods were
modified to conform to the current presentation. See Note 6
to the Consolidated Financial Statements for additional
information on segments.
Key
Strategies
In fiscal 2011, management and the Board of Directors conducted
a comprehensive review of the company’s recent performance
and business strategies. In July 2011, the company announced a
new strategic framework focused on expansion of its brand and
product platforms in its three core categories of simple meals,
healthy beverages and baked snacks. The new framework is
centered on three growth strategies:
| • | Stabilize and then profitably grow the company’s North America soup and simple meals business. | |
| • | Expand the company’s international presence. | |
| • | Continue to drive growth in the company’s healthy beverages and baked snacks businesses. |
The new growth strategies are intended to accelerate profitable
net sales growth and build the foundation for delivery of
sustainable above-average total shareholder returns.
Implementation of the company’s new strategic framework
will require substantial investment in 2012 to extend product
platforms, re-invigorate consumer-focused marketing to expand
the equities of its core brands, and drive global expansion. The
company expects that these investments will negatively affect
financial performance in 2012, but set the stage for profitable
growth in 2013 and beyond.
13
The company is taking a number of steps to stabilize and then
revitalize its soup and simple meals business in North America.
In the first half of fiscal 2011, the company increased
promotional support for its North America soup and simple meals
business. This increased support did not deliver anticipated
volume gains. Going forward, marketing investment in soup and
simple meals will be rebalanced toward a greater emphasis on
consumer brand building, with the recognition that this shift
may have a short-term negative impact on volume. While it will
continue to invest in advertising and innovation focused on
maintaining the vitality of existing product lines, the company
will devote a greater proportion of its research and development
resources than in past years to innovation designed to expand
its product platforms and packaging formats in the simple meals
category and to reach new consumers and new usage occasions. In
the area of health and wellness, the company will emphasize
consumer choice. It will continue to offer a significant variety
of products to meet the needs of consumers for whom lower sodium
is a dietary priority. It will also offer other product
propositions intended to appeal to consumers with a variety of
health and wellness concerns.
The company plans to expand its presence in international
markets by extending its product platforms in its existing
categories in its current businesses in Europe and Asia Pacific,
and by pursuing growth opportunities in fast-growing markets in
Asia and Latin America. The company anticipates that its
expansion into new markets will be anchored in external
development, with transactions that may include both
acquisitions and strategic alliances such as joint ventures and
other strategic partnerships. In the People’s Republic of
China, it will continue to focus on building a soup and simple
meals business through the joint venture with Swire Pacific
Limited announced in January 2011.
In its healthy beverages business, the company will leverage its
differentiating capabilities in the area of fruit and vegetable
nutrition to pursue innovation in fast-growing product segments,
such as energy drinks and juices, and seek to expand the
business in geographies outside of the United States. Growth in
baked snacks will be fueled by continuing innovation in adjacent
product segments and categories and expanded consumer support.
On July 12, 2011, the company announced plans to enhance
its innovation capabilities in baked snacks by building a new
34,000-square-foot innovation center at the headquarters of its
Pepperidge Farm business in Norwalk, Connecticut.
Executive
Summary
This Executive Summary provides significant highlights from the
discussion and analysis that follows.
| • | Net sales increased 1% in 2011 to $7.719 billion. | |
| • | Gross profit, as a percent of sales, decreased to 40.2% from 41.0% a year ago. | |
| • | Net earnings per share were $2.42 in 2011 and 2010. The current year included $.12 per share of expense from items that impacted comparability. The prior year included $.05 per share of expense from items that impacted comparability, as discussed below. | |
| • | For 2011, cash from operations increased from $1.057 billion a year ago to $1.142 billion. |
Net
earnings attributable to Campbell Soup Company — 2011
Compared with 2010
The following items impacted the comparability of net earnings
and net earnings per share:
| • | In the fourth quarter of fiscal 2011, the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive the growth of the business. The company also announced its intent to exit the Russian market. In the fourth quarter of fiscal 2011, the company recorded a restructuring charge of $63 million ($41 million after tax or $.12 per share) related to these initiatives. See Note 7 to the Consolidated Financial Statements and “Restructuring Charges” for additional information; | |
| • | 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 2008 initiatives to improve operational efficiency and long-term profitability. See Note 7 to the Consolidated Financial Statements and “Restructuring Charges” for additional information; and |
14
| • | 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. |
The items impacting comparability are summarized below:
| 2011 | 2010 | |||||||||||||||
|
Earnings
|
EPS
|
Earnings
|
EPS
|
|||||||||||||
| Impact | Impact | Impact | Impact | |||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||
|
Net earnings
|
$ | 805 | $ | 2.42 | $ | 844 | $ | 2.42 | ||||||||
|
Restructuring charges
|
$ | (41 | ) | $ | (.12 | ) | $ | (8 | ) | $ | (.02 | ) | ||||
|
Deferred tax expense from U.S. health care legislation
|
— | — | (10 | ) | (.03 | ) | ||||||||||
|
Impact of significant items on net earnings
|
$ | (41 | ) | $ | (.12 | ) | $ | (18 | ) | $ | (.05 | ) | ||||
Net earnings were $805 million ($2.42 per share) in 2011
and $844 million ($2.42 per share) in 2010. After adjusting
for the items impacting comparability, net earnings decreased in
2011 primarily due to a decline in gross margin percentage and
lower sales volume, partly offset by lower marketing expenses
and the impact of currency. After adjusting for items impacting
comparability, earnings per share increased in 2011 due to a
reduction in the weighted average diluted shares outstanding,
primarily due to share repurchases under the company’s
strategic share repurchase program.
Net
earnings (loss) attributable to noncontrolling
interests
The company owns a 60% controlling interest in a joint venture
formed with Swire Pacific Limited to support the development of
the company’s business in China. The joint venture began
operations on January 31, 2011, the beginning of the third
fiscal quarter. The noncontrolling interest’s share in the
net loss was included in Net earnings (loss) attributable to
noncontrolling interests in the Consolidated Statements of
Earnings.
The company also owns a 70% controlling interest in a Malaysian
manufacturing company. Historically, the earnings attributable
to the noncontrolling interest were less than $1 million
annually and were previously included in Other expenses/(income)
in the Consolidated Statements of Earnings. Beginning in the
third quarter of fiscal 2011, the earnings attributable to the
noncontrolling interest were included in Net earnings (loss)
attributable to noncontrolling interests in the Consolidated
Statements of Earnings. The earnings were not material in 2011.
Net
earnings attributable to Campbell Soup Company — 2010
Compared with 2009
Net earnings were $844 million ($2.42 per share) in 2010
and $736 million ($2.05 per share) in 2009.
In addition to the 2010 items that impacted the comparability of
net earnings and net earnings per share previously disclosed,
the following items also impacted comparability:
Continuing
Operations
| • | 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 related to the previously announced initiatives to improve operational efficiency and long-term profitability. 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, including Heisse Tasse , Blå Band and Royco , used in the International Simple Meals and Beverages segment. See Note 5 to the Consolidated Financial Statements for additional information. |
15
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. |
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.
Discussion
and Analysis
Sales
An analysis of net sales by reportable segment follows:
| % Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
U.S. Simple Meals
|
$ | 2,751 | $ | 2,938 | $ | 3,049 | (6 | ) | (4 | ) | ||||||||||
|
U.S. Beverages
|
759 | 762 | 735 | — | 4 | |||||||||||||||
|
Global Baking and Snacking
|
2,156 | 1,975 | 1,846 | 9 | 7 | |||||||||||||||
|
International Simple Meals and Beverages
|
1,463 | 1,423 | 1,357 | 3 | 5 | |||||||||||||||
|
North America Foodservice
|
590 | 578 | 599 | 2 | (4 | ) | ||||||||||||||
| $ | 7,719 | $ | 7,676 | $ | 7,586 | 1 | 1 | |||||||||||||
16
An analysis of percent change of net sales by reportable segment
follows:
|
Global
|
International
|
|||||||||||||||||||||||
|
U.S.
|
Baking
|
Simple
|
North
|
|||||||||||||||||||||
|
Simple
|
U.S.
|
and
|
Meals and
|
America
|
||||||||||||||||||||
| Meals | Beverages | Snacking | Beverages | Foodservice | Total | |||||||||||||||||||
|
2011 versus 2010
|
||||||||||||||||||||||||
|
Volume and Mix
|
(5 | )% | 2 | % | 3 | % | — | % | (1 | )% | (1 | ) % | ||||||||||||
|
Price and Sales Allowances
|
— | — | 2 | — | — | 1 | ||||||||||||||||||
|
(Increased)/Decreased Promotional Spending(1)
|
(1 | ) | (2 | ) | (1 | ) | (1 | ) | 2 | (1 | ) | |||||||||||||
|
Currency
|
— | — | 5 | 4 | 1 | 2 | ||||||||||||||||||
| (6 | )% | — | % | 9 | % | 3 | % | 2 | % | 1 | % | |||||||||||||
|
Global
|
International
|
|||||||||||||||||||||||
|
U.S.
|
Baking
|
Simple
|
North
|
|||||||||||||||||||||
|
Simple
|
U.S.
|
and
|
Meals and
|
America
|
||||||||||||||||||||
| Meals | Beverages | Snacking | Beverages | Foodservice | Total | |||||||||||||||||||
|
2010 versus 2009
|
||||||||||||||||||||||||
|
Volume and Mix
|
(3 | )% | 6 | % | 2 | % | (1 | )% | (5 | )% | (1 | )% | ||||||||||||
|
Price and Sales Allowances
|
1 | 1 | 1 | 2 | 1 | 1 | ||||||||||||||||||
|
Increased Promotional Spending(1)
|
(2 | ) | (3 | ) | (3 | ) | (2 | ) | (1 | ) | (2 | ) | ||||||||||||
|
Divestitures/Acquisitions
|
— | — | 1 | (1 | ) | — | — | |||||||||||||||||
|
Currency
|
— | — | 6 | 7 | 1 | 3 | ||||||||||||||||||
| (4 | )% | 4 | % | 7 | % | 5 | % | (4 | )% | 1 | % | |||||||||||||
| (1) | Represents revenue reductions from trade promotion and consumer coupon redemption programs. |
In 2011, U.S. Simple Meals sales decreased 6%.
U.S. soup sales decreased 6% reflecting an overall weak
economy; a challenging competitive environment in the
U.S. food industry; changes in buying patterns among
U.S. shoppers, particularly in “stock up”
purchase behavior; and lower levels of product innovation. In
this retail environment, the company’s high levels of
promotional support during the first half of the year did not
deliver anticipated volume gains.
| • | Sales of Campbell’s condensed soups declined 4% primarily due to declines in eating varieties. Sales of eating varieties were negatively impacted by promotional discounting in ready-to-serve soups. | |
| • | Sales of ready-to-serve soups decreased 9% with declines in both canned and microwavable varieties. | |
| • | Broth sales decreased 1%. |
Sales of
Prego
pasta sauce and
Pace
Mexican sauce
declined due to increased competitive activities.
In 2010, U.S. Simple Meals sales decreased 4%.
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. |
Prego
pasta sauce sales increased, reflecting growth of
Prego
Heart Smart varieties, while
Pace
Mexican
sauce sales declined.
17
In 2011, U.S. Beverages sales were comparable to 2010 as
increased volume was offset by higher promotional spending.
Promotional spending was increased to be more competitive with
other beverages. Sales of
V8 Splash
juice drinks and
V8 V-Fusion
juice increased, while sales of
V8
vegetable juice declined.
In 2010, U.S. Beverages sales increased 4% primarily due to
higher sales of
V8 V-Fusion
juice and gains in
V8
Splash
juice drinks, partly offset by lower sales of
V8
vegetable juice.
V8 V-Fusion
juice sales increased
double digits due to increased advertising and new item launches.
In 2011, Global Baking and Snacking sales increased 9% as both
Pepperidge Farm and Arnott’s achieved volume gains and also
benefited from higher selling prices. Pepperidge Farm sales
increased primarily due to growth in
Goldfish
snack
crackers and bakery products, including whole-grain bread. In
Arnott’s, sales increased primarily due to currency, as
well as gains in
Shapes
,
Cruskits
, and
Vita-Weat
savory crackers, and chocolate biscuits.
In 2010, Global Baking and Snacking sales increased 7% primarily
due to currency. Pepperidge Farm sales were comparable to 2009,
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 2011, International Simple Meals and Beverages sales
increased 3%, primarily due to currency. In Europe, sales
declined due to currency. In Asia Pacific, sales increased
primarily due to currency and volume-driven gains in Australia.
In Canada, sales increased due to currency and volume gains,
partially offset by increased promotional spending on soup
products to be more competitive with other simple meal products.
Sales in Latin America declined.
In 2010, International Simple Meals 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 2011, North America Foodservice sales increased 2% primarily
due to gains in refrigerated soup.
In 2010, North America Foodservice sales declined 4% primarily
due to weakness in the food service sector.
Gross
Profit
Gross profit, defined as Net sales less Cost of products sold,
decreased by $47 million in 2011 from 2010 and increased by
$122 million in 2010 from 2009. As a percent of sales,
gross profit was 40.2% in 2011, 41.0% in 2010, and 39.9% in 2009.
The 0.8-percentage-point decrease in gross margin percentage in
2011 was due to the following factors:
| Margin Impact | ||||
|
Cost inflation and other factors, including higher plant costs
|
(2.2 | ) | ||
|
Higher level of promotional spending
|
(0.7 | ) | ||
|
Mix
|
(0.2 | ) | ||
|
Productivity improvements
|
1.9 | |||
|
Higher selling prices
|
0.4 | |||
| (0.8 | ) | |||
18
The 1.1-percentage-point increase in gross margin percentage in
2010 was due to the following factors:
| Margin Impact | ||||
|
Productivity improvements
|
2.1 | |||
|
Higher selling prices
|
0.8 | |||
|
Costs in 2009 related to the initiatives to improve operational
efficiency and
long-term
profitability
|
0.3 | |||
|
Mix
|
0.1 | |||
|
Higher level of promotional spending
|
(1.2 | ) | ||
|
Cost inflation and other factors
|
(1.0 | ) | ||
| 1.1 | ||||
Marketing
and Selling Expenses
Marketing and selling expenses as a percent of sales were 13.0%
in 2011, 13.8% in 2010, and 14.2% in 2009. Marketing and selling
expenses decreased 5% in 2011 from 2010. The decrease was
primarily due to lower advertising expenses (approximately
3 percentage points); lower selling expenses (approximately
2 percentage points); and lower other marketing expenses
(approximately 2 percentage points), partly offset by the
impact of currency (approximately 2 percentage points).
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 2010 reflected a reduction in media rates and a
shift to trade promotion in many of the businesses.
Administrative
Expenses
Administrative expenses as a percent of sales were 7.9% in 2011
and in 2010, and 7.8% in 2009. Administrative expenses increased
by 1% in 2011 from 2010 primarily due to an increase in pension
and health care benefit costs (approximately 2 percentage
points); the impact of currency (approximately 2 percentage
points); and costs associated with the corporate headquarters
facility (approximately 1 percentage point), partially
offset by lower compensation costs (approximately
2 percentage points) and cost management efforts and other
factors (approximately 2 percentage points). 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).
Research
and Development Expenses
Research and development expenses increased $6 million or
5% in 2011 from 2010. The increase was primarily due to costs
associated with an ongoing initiative to simplify the
soup-making process and product innovation in North America
(approximately 2 percentage points); costs associated with
a global baked snacks initiative (approximately
2 percentage points), and the impact of currency
(approximately 2 percentage points), partly offset by costs
savings initiatives (approximately 1 percentage point).
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).
Other
Expenses/(Income)
Other expense in 2011 included a $3 million impairment
charge associated with the
Heisse Tasse
trademark used in
the International Simple Meals and Beverages segment. The charge
was recorded as a result of the company’s annual review of
intangible assets. See Note 5 to the Consolidated Financial
Statements.
19
Other expense in 2009 included a $67 million impairment
charge associated with certain European trademarks, including
Heisse Tasse
,
Blå Band
and
Royco
. The
charge was recorded as a result of the company’s annual
review of intangible assets and was reflected in the
International Simple Meals and Beverages segment. See
Note 5 to the Consolidated Financial Statements.
Operating
Earnings
Segment operating earnings decreased 1% in 2011 from 2010 and
increased 13% in 2010 from 2009. The 2009 results included a
$67 million impairment charge.
An analysis of operating earnings by reportable segment follows:
| % Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
U.S. Simple Meals
|
$ | 657 | $ | 737 | $ | 749 | (11 | ) | (2 | ) | ||||||||||
|
U.S. Beverages
|
182 | 206 | 178 | (12 | ) | 16 | ||||||||||||||
|
Global Baking and Snacking
|
355 | 322 | 265 | 10 | 22 | |||||||||||||||
|
International Simple Meals and Beverages(1)
|
185 | 161 | 69 | 15 | 133 | |||||||||||||||
|
North America Foodservice
|
82 | 55 | 53 | 49 | 4 | |||||||||||||||
|
Segment operating earnings
|
1,461 | 1,481 | 1,314 | (1 | ) | 13 | ||||||||||||||
|
Unallocated corporate expenses
|
(119 | ) | (121 | ) | (107 | ) | ||||||||||||||
|
Restructuring charges and related costs(2)
|
(63 | ) | (12 | ) | (22 | ) | ||||||||||||||
|
Earnings before interest and taxes
|
$ | 1,279 | $ | 1,348 | $ | 1,185 | ||||||||||||||
| (1) | The International Simple Meals and Beverages segment included a $67 million impairment charge in 2009 on certain European trademarks. See Note 5 to the Consolidated Financial Statements for additional information. | |
| (2) | See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges and related costs. Beginning in 2011, segment operating performance is evaluated excluding restructuring charges. Prior periods were modified to conform to the current presentation. See Note 6 to the Consolidated Financial Statements. |
Earnings from U.S. Simple Meals decreased 11% in 2011
versus 2010. The decline was primarily due to lower sales and a
reduced gross margin percentage, partially offset by lower
marketing and selling expenses. In the first half of 2011, in
response to the overall competitive environment, the company
maintained higher levels of promotional support, which did not
deliver anticipated volume gains.
Earnings from U.S. Simple Meals decreased 2% in 2010 versus
2009. The decrease was due to a decline in U.S. Soup,
resulting from lower sales, partly offset by lower advertising
costs. Earnings from U.S. Sauces increased primarily due to
an improvement in gross margin percentage and lower advertising
costs, partially offset by lower sales.
Earnings from U.S. Beverages decreased 12% in 2011 versus
2010 primarily due to increased promotional spending.
Earnings from U.S. Beverages increased 16% in 2010 versus
2009 primarily due to an improvement in gross margin percentage
and higher sales.
Earnings from Global Baking and Snacking increased 10% in 2011
versus 2010. The increase was primarily due to the impact of
currency and volume-driven growth in both Pepperidge Farm and
Arnott’s.
Earnings from Global Baking and Snacking increased 22% in 2010
versus 2009. The increase in operating earnings was due to the
impact of currency and earnings growth in Pepperidge Farm and
Arnott’s.
20
Earnings from International Simple Meals and Beverages increased
to $185 million in 2011 from $161 million in 2010. The
increase was primarily due to growth in the Asia Pacific region,
the impact of currency and reduced investment in Russia.
Earnings from International Simple Meals and Beverages increased
to $161 million in 2010 from $69 million in 2009.
Earnings in 2009 included a $67 million impairment charge
on certain European trademarks, including
Heisse Tasse
,
Blå Band
and
Royco
. 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 North America Foodservice increased to
$82 million in 2011 from $55 million in 2010 primarily
due to reduced promotional spending, productivity improvements
in excess of inflation, and lower administrative expense.
Earnings from North America Foodservice increased to
$55 million in 2010 from $53 million in 2009 due
primarily to cost reduction efforts.
Unallocated corporate expenses decreased $2 million from
$121 million in 2010 to $119 million in 2011.
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 2009 and higher
equity-related benefit costs in 2010.
Interest
Expense/Income
Interest expense increased to $122 million in 2011 from
$112 million in 2010 primarily due to an increase in
fixed-rate debt and higher debt levels. Interest income
increased to $11 million in 2011 from $6 million in
2010 primarily due to higher levels of cash and cash equivalents.
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.
Taxes
on Earnings
The effective tax rate was 31.3% in 2011, 32.0% in 2010, and
32.2% in 2009. The reduction in the effective tax rate in 2011
from 2010 was primarily due to $10 million of deferred tax
expense recognized in 2010 as a result of the enactment of
U.S. health care legislation. 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 addition to the deferred tax expense recognized in 2010
related to the enactment of health care legislation, the change
in the effective tax rate from 2009 to 2010 was impacted by
additional tax expense in 2009 associated with the repatriation
of foreign earnings.
Restructuring
Charges
2011
Initiatives
On June 28, 2011, the company announced a series of
initiatives to improve supply chain efficiency and reduce
overhead costs across the organization to help fund plans to
drive the growth of the business. The company also announced its
intent to exit the Russian market. The company expects to
eliminate approximately 750 positions in connection with these
initiatives. Details of the plans include:
| • | In Australia, the company will invest in a new system to automate packing operations at its biscuit plant in Virginia. This investment will occur over an 18-month period and will result in the elimination of approximately 190 positions, subject to union and employee consultations. Further, the company will improve asset utilization in the U.S. by shifting production of ready-to-serve soups from Paris, Texas, to other facilities in 2012. In addition, the manufacturing facility in Marshall, Michigan, was closed in 2011, |
21
| and manufacturing of Campbell’s Soup at Hand microwavable products will be consolidated at the Maxton, North Carolina, plant in 2012. |
| • | The company streamlined its salaried workforce by approximately 510 positions around the world, including approximately 130 positions at its world headquarters in Camden, New Jersey. These actions were substantially completed in 2011. As part of this initiative, the company outsourced a larger portion of its U.S. retail merchandising activities to its current retail sales agent, Acosta Sales and Marketing, and eliminated approximately 190 positions. The company expects that this action will enhance merchandising effectiveness and coverage for its U.S. customers. | |
| • | In connection with exiting the Russian market, the company will eliminate approximately 50 positions. The exit process commenced in 2011 and is expected to be completed in fiscal 2012. |
In 2011, the company recorded a restructuring charge of
$63 million ($41 million after tax or $.12 per share)
related to these initiatives. A summary of the pre-tax charge
and remaining costs associated with the initiatives is as
follows:
|
Remaining
|
||||||||||||
|
Total
|
Recognized
|
Costs to be
|
||||||||||
| Program | as of July 31, 2011 | Recognized | ||||||||||
| (Millions) | ||||||||||||
|
Severance pay and benefits
|
$ | 40 | $ | (37 | ) | $ | 3 | |||||
|
Asset impairment/accelerated depreciation
|
25 | (22 | ) | 3 | ||||||||
|
Other exit costs
|
10 | (4 | ) | 6 | ||||||||
|
Total
|
$ | 75 | $ | (63 | ) | $ | 12 | |||||
Of the aggregate $75 million of pre-tax costs, the company
expects approximately $50 million will be cash
expenditures, the majority of which will be spent in 2012. In
addition, the company expects to invest approximately
$40 million in capital expenditures in connection with the
actions. The cash outflows related to these programs are not
expected to have a material adverse impact on the company’s
liquidity. The initiatives are expected to be completed by the
end of fiscal 2013.
The initiatives included in this program are expected to
generate annual pre-tax cash savings of approximately
$60 million beginning in fiscal 2012 and increasing to
approximately $70 million in fiscal 2014.
The total pre-tax costs of $75 million associated with each
segment are expected to be as follows: U.S. Simple
Meals — $33 million,
U.S. Beverages — $3 million, Global Baking
and Snacking — $15 million, International Simple
Meals and Beverages — $18 million, North America
Foodservice — $1 million, and
Corporate — $5 million. Segment operating results
do not include restructuring charges as segment performance is
evaluated excluding such charges.
2008
Initiatives
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 2009, the company recorded
approximately $22 million ($15 million after tax or
$.04 per share) of costs 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.
As a result of these initiatives, 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
Details of the impact of the initiatives on fiscal 2010 and 2009
results are as follows:
| • | 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. In connection with this action 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 a restructuring charge of $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 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. |
In aggregate, the company incurred pre-tax costs of
$216 million in 2008 through 2010 associated with the
initiatives. Approximately $40 million of the costs were
cash expenditures, the majority of which was spent in 2009.
In aggregate, the company incurred pre-tax costs of
$216 million in 2008 through 2010 by segment as follows:
Global Baking and Snacking — $147 million,
International Simple Meals 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 certain post-closing adjustments,
which resulted in an additional $20 million of proceeds. 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.
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 $3.4 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
$1.142 billion in 2011, compared to $1.057 billion in
2010. The increase was primarily due to lower pension
contributions and higher cash earnings, partially offset by
higher working capital requirements.
The company generated cash from operations of
$1.057 billion in 2010, compared to $1.166 billion in
2009. 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.
Capital expenditures were $272 million in 2011,
$315 million in 2010, and $345 million in 2009.
Capital expenditures are expected to total approximately
$325 million in 2012. Capital expenditures in 2011 included
the expansion of beverage capacity (approximately
$6 million); the ongoing implementation of SAP
(approximately
23
$13 million); expenditures at the company’s corporate
headquarters (approximately $6 million); Pepperidge
Farm’s new 34,000-square-foot innovation center
(approximately $5 million); expansion of Pepperidge
Farm’s production capacity (approximately $5 million)
and a number of infrastructure projects in the U.S. supply
chain (approximately $31 million). 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).
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.
Net cash used in investing activities in 2009 included
$38 million of proceeds from the sale of the sauce and
mayonnaise business in France, net of cash divested.
Long-term borrowings in 2011 included the issuance in April of
$500 million of 4.25% notes which mature on
April 15, 2021. 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.
Dividend payments were $378 million in 2011,
$365 million in 2010, and $350 million in 2009. Annual
dividends declared in 2011 were $1.145 per share, $1.075 per
share in 2010, and $1.00 per share in 2009. The 2011 fourth
quarter rate was $0.29 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
21 million shares at a cost of $728 million during
2011. Approximately 16 million of the shares repurchased in
2011 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. This program was completed in fiscal 2011. In June
2011, the company’s Board of Directors authorized the
purchase of up to $1 billion of company stock. This program
has no expiration date. In addition to these 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. 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 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. 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 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.
At July 31, 2011, the company had $657 million of
short-term borrowings due within one year and $45 million
of standby letters of credit issued on behalf of the company.
The company had a $975 million committed revolving credit
facility that matured in September 2011, and a $975 million
revolving credit facility that was due to mature in September
2013. The facilities were unused at July 31, 2011, except
for $3 million of standby letters of credit issued
24
on behalf of the company. In September 2011, the company entered
into committed revolving credit facilities totaling
$2.0 billion. The facilities are comprised of a
$1.5 billion facility that matures in September 2016, and a
$500 million,
364-day
facility that contains a one-year term-out feature. These
facilities replaced the two $975 million revolving credit
facilities. These revolving credit agreements support the
company’s commercial paper programs and other general
corporate purposes.
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 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 | ||||||||||||||||||||
|
2013 -
|
2015 -
|
|||||||||||||||||||
| Total | 2012 | 2014 | 2016 | Thereafter | ||||||||||||||||
| (Millions) | ||||||||||||||||||||
|
Debt obligations(1)
|
$ | 3,057 | $ | 657 | $ | 700 | $ | 300 | $ | 1,400 | ||||||||||
|
Interest payments(2)
|
645 | 110 | 174 | 130 | 231 | |||||||||||||||
|
Purchase commitments
|
1,043 | 695 | 146 | 73 | 129 | |||||||||||||||
|
Operating leases
|
206 | 45 | 63 | 46 | 52 | |||||||||||||||
|
Derivative payments(3)
|
149 | 60 | 75 | 14 | — | |||||||||||||||
|
Other long-term liabilities(4)
|
168 | 48 | 29 | 23 | 68 | |||||||||||||||
|
Total long-term cash obligations
|
$ | 5,268 | $ | 1,615 | $ | 1,187 | $ | 586 | $ | 1,880 | ||||||||||
| (1) | Excludes unamortized net discount/premium on debt issuances 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 are calculated based on par values and rates of contractually obligated issuances at fiscal year end. Interest payments on long-term debt are based on principal amounts and fixed coupon rates at fiscal year end. | |
| (3) | Represents payments of cross-currency swaps, forward exchange contracts, commodity contracts, and deferred compensation hedges. Contractual payments for cross-currency swaps represent future undiscounted cash payments based on forward interest and foreign exchange rates. | |
| (4) | Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to pension plans. For additional information on pension and postretirement benefits, see Note 11 to the Consolidated Financial Statements. |
25
Off-Balance
Sheet Arrangements and Other Commitments
The company guarantees approximately 2,000 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
$162 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 $10 million. The facility was drawn down in AUD
$5 million increments in 2009. Borrowings under the
facility are to be repaid in 2013. See also Note 18 to the
Consolidated Financial Statements for information on off-balance
sheet arrangements.
Inflation
In fiscal 2011, inflation was higher than fiscal 2010 and
primarily impacted Cost of products sold, although it did not
increase at percentages similar to fiscal 2009. Inflation, on
average, was higher in fiscal 2009 and primarily impacted Cost
of products sold. In fiscal 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, commodity hedging and pursuing cost
productivity initiatives such as global procurement strategies
and making capital investments that improve the efficiency of
operations.
Market
Risk Sensitivity
The principal market risks to which the company is exposed are
changes in 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 31% of 2011 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.
Cross-currency 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 July 31, 2011. 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.
26
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 2011
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 | ||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
| (Millions) | ||||||||||||||||||||||||||||||||
|
Debt
(1)
|
||||||||||||||||||||||||||||||||
|
Fixed rate
|
$ | 2 | $ | 400 | $ | 300 | $ | 300 | $ | — | $ | 1,400 | $ | 2,402 | $ | 2,603 | ||||||||||||||||
|
Weighted-average interest rate
|
3.29 | % | 5.00 | % | 4.88 | % | 3.38 | % | — | 4.62 | % | 4.56 | % | |||||||||||||||||||
|
Variable rate
|
$ | 655 | (2) | $ | 655 | $ | 655 | |||||||||||||||||||||||||
|
Weighted-average interest rate
|
1.19 | % | 1.19 | % | ||||||||||||||||||||||||||||
|
Interest Rate Swaps
|
||||||||||||||||||||||||||||||||
|
Fixed to variable
|
$ | 300 | (3) | $ | 200 | (4) | $ | 500 | $ | 33 | ||||||||||||||||||||||
|
Average pay rate
|
1.00 | % | 0.94 | % | 0.97 | % | ||||||||||||||||||||||||||
|
Average receive rate
|
5.00 | % | 4.88 | % | 4.95 | % | ||||||||||||||||||||||||||
| (1) | Excludes unamortized net premium/discount on debt issuances and amounts related to interest rate swaps designated as fair-value hedges. | |
| (2) | Represents $563 million of USD borrowings and $92 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 1, 2010, fixed-rate debt of approximately
$2.6 billion with an average interest rate of 5.21% and
variable-rate debt of approximately $130 million with an
average interest rate of 1.47% were outstanding. As of
August 1, 2010, the company had swapped $500 million
of fixed-rate debt to variable. The average rate to be received
on these swaps was 4.95% and the average rate paid was estimated
to be 1.38% 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 July 31, 2011, 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.
27
Cross-Currency
Swaps
|
Fiscal Year of
|
Interest
|
Notional
|
Fair
|
|||||||||||||
| Expiration | Rate | Value | Value | |||||||||||||
| (Millions) | ||||||||||||||||
|
Pay variable EUR
|
2012 | 1.46 | % | $ | 69 | $ | (1 | ) | ||||||||
|
Receive variable USD
|
0.37 | % | ||||||||||||||
|
Pay variable EUR
|
2012 | 1.48 | % | $ | 61 | $ | (1 | ) | ||||||||
|
Receive variable USD
|
0.37 | % | ||||||||||||||
|
Pay fixed EUR
|
2012 | 4.33 | % | $ | 102 | $ | (8 | ) | ||||||||
|
Receive fixed USD
|
5.11 | % | ||||||||||||||
|
Pay variable CAD
|
2012 | 1.71 | % | $ | 82 | $ | (7 | ) | ||||||||
|
Receive variable USD
|
0.62 | % | ||||||||||||||
|
Pay variable CAD
|
2012 | 1.75 | % | $ | 37 | $ | (8 | ) | ||||||||
|
Receive variable USD
|
0.52 | % | ||||||||||||||
|
Pay variable EUR
|
2013 | 2.24 | % | $ | 21 | $ | (1 | ) | ||||||||
|
Receive variable USD
|
1.24 | % | ||||||||||||||
|
Pay variable AUD
|
2013 | 5.68 | % | $ | 133 | $ | (33 | ) | ||||||||
|
Receive variable USD
|
1.11 | % | ||||||||||||||
|
Pay variable EUR
|
2013 | 2.17 | % | $ | 41 | $ | (5 | ) | ||||||||
|
Receive variable USD
|
1.26 | % | ||||||||||||||
|
Pay fixed CAD
|
2013 | 0.82 | % | $ | 158 | $ | 1 | |||||||||
|
Receive fixed USD
|
0.33 | % | ||||||||||||||
|
Pay fixed CAD
|
2014 | 6.24 | % | $ | 60 | $ | (30 | ) | ||||||||
|
Receive fixed USD
|
5.66 | % | ||||||||||||||
|
Pay variable AUD
|
2015 | 6.13 | % | $ | 133 | $ | (35 | ) | ||||||||
|
Receive variable USD
|
1.94 | % | ||||||||||||||
|
Total
|
$ | 897 | $ | (128 | ) | |||||||||||
The cross-currency swap contracts outstanding at August 1,
2010 represented four pay variable EUR/receive variable USD
swaps with notional values totaling $200 million, one pay
fixed EUR/receive fixed USD swap with a notional value of
$102 million, two pay variable CAD/receive variable USD
swaps with notional values totaling $119 million, two pay
variable AUD/receive variable USD swaps with notional values
totaling $266 million, and one pay fixed CAD/receive fixed
USD swap with a notional value of $60 million. The
aggregate notional value of these swap contracts was
$747 million as of August 1, 2010, and the aggregate
fair value of these swap contracts was a loss of
$21 million as of August 1, 2010.
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 July 31,
2011.
Forward
Exchange Contracts
|
Average Contractual
|
||||||||
|
Exchange Rate
|
||||||||
|
Contract
|
(currency paid/
|
|||||||
| Amount | currency received) | |||||||
| (Millions) | ||||||||
|
Receive USD/Pay CAD
|
$ | 139 | 0.98 | |||||
|
Receive AUD/Pay NZD
|
$ | 44 | 1.30 | |||||
|
Receive USD/Pay AUD
|
$ | 30 | 1.02 | |||||
|
Receive EUR/Pay SEK
|
$ | 16 | 9.12 | |||||
28
The company had an additional $22 million in a number of
smaller contracts to purchase or sell various other currencies,
such as the Australian dollar, British Pound, euro, and Japanese
yen, as of July 31, 2011. The aggregate fair value of all
contracts was a loss of $9 million as of July 31,
2011. The total forward exchange contracts outstanding were
$271 million and the aggregate fair value was not material
as of August 1, 2010.
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 $87 million and
the aggregate fair value of these contracts was a gain of
$1 million as of July 31, 2011. 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 company enters into swap contracts 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, or
beginning in January 2011, the total return of the Vanguard
International Stock Index. 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 on company capital stock, the total
return of the Puritan Fund, or the total return of the iShares
MSCI EAFE Index, which is expected to approximate the total
return of the Vanguard International Stock Index. The notional
value of the contract that is linked to the return on the
Standard & Poor’s 500 Index was $16 million
at July 31, 2011 and $12 million at August 1,
2010. The average forward interest rate applicable to the
contract, which expires in 2012, was 0.59% at July 31,
2011. The notional value of the contract that is linked to the
total return on company capital stock was $51 million at
July 31, 2011 and $54 million at August 1, 2010.
The average forward interest rate applicable to this contract,
which expires in 2012, was 0.99% at July 31, 2011. The
notional value of the contract that was linked to the return on
the Puritan Fund was $9 million at August 1, 2010. The
contract related to the Puritan Fund matured in January 2011.
The notional value of the contract that is linked to the total
return of the iShares MSCI EAFE Index was $4 million at
July 31, 2011. The average forward interest rate applicable
to this contract, which expires in 2012, was 0.74% at
July 31, 2011. The fair value of these contracts was a
$3 million loss at July 31, 2011 and a $2 million
loss at August 1, 2010.
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 feature price discounts, in-store display
incentives, cooperative advertising programs, new product
introduction fees, and coupons. The mix between promotion
programs, which are classified as reductions in revenue, and
advertising or other marketing activities, which are classified
as marketing and selling expenses, fluctuates between periods
based on the company’s overall marketing plans, and such
fluctuations have an impact on revenues. The measurement and
recognition of the costs for trade and consumer promotion
programs involves the use of judgment related to performance and
redemption estimates. Estimates are made based on historical
experience and other factors. Typically, programs that are
offered have a very short duration. Historically, the difference
between actual experience compared to estimated redemptions and
performance has not been significant to the quarterly or annual
financial statements. However, actual expenses may differ if the
level of redemption rates and performance were to vary from
estimates.
29
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. A
reporting unit represents an operating segment or a component of
an operating segment. 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 July 31,
2011, the carrying value of goodwill was $2.133 billion.
The company has not recognized any impairment of goodwill as a
result of annual testing, which began in 2003. As of the 2011
measurement, the fair value of each reporting unit exceeded the
carrying value by at least 80%. Holding all other assumptions
used in the 2011 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, 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 July 31,
2011, the carrying value of trademarks was $515 million. In
2011, as part of the company’s annual review of intangible
assets, an impairment charge of $3 million was recognized
related to the
Heisse Tasse
trademark used in the
International Simple Meals and Beverages segment. The trademark
was determined to be impaired as a result of a decrease in the
fair value of the brand, resulting from reduced expectations for
future sales and discounted cash flows in comparison to the
prior year. As of July 31, 2011, certain European
trademarks have a carrying value of approximately
$100 million, which approximates fair value. Holding all
other assumptions used in the 2011 measurement constant, a
100-basis-point increase in the weighted average cost of capital
would reduce the fair value of all trademarks and result in an
impairment charge of approximately $21 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 used in the International Simple
Meals and Beverages segment, including
Heisse Tasse
,
Blå Band
and
Royco
. 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. 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
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
$98 million in 2011, $92 million in 2010, and
$53 million in 2009. The 2010 expense included
$12 million of pension settlement costs related to the
closure of a plant in Canada. Significant weighted-average
assumptions as of the end of the year are as follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Pension
|
||||||||||||
|
Discount rate for benefit obligations
|
5.41 | % | 5.46 | % | 6.00 | % | ||||||
|
Expected return on plan assets
|
7.90 | % | 8.15 | % | 8.13 | % | ||||||
|
Postretirement
|
||||||||||||
|
Discount rate for obligations
|
5.00 | % | 5.25 | % | 6.00 | % | ||||||
|
Initial health care trend rate
|
8.25 | % | 8.25 | % | 8.25 | % | ||||||
|
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 $14 million; a
50-basis-point reduction in the estimated return on assets
assumption would increase expense by approximately
$12 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 $103 million in 2012 primarily
due to increased amortization of unrecognized losses.
The company contributed $100 million to U.S. pension
plans in 2011. 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.
Contributions to
non-U.S.
plans were $44 million in 2011, $24 million in 2010,
and $13 million in 2009. The company contributed
$55 million to U.S. plans in the first quarter of
2012. Additional contributions to U.S. plans are not
expected in 2012. Contributions to
non-U.S. plans
are expected to be approximately $10 million in 2012.
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.
See also Notes 1 and 12 to the Consolidated Financial
Statements for further discussion on income taxes.
31
Recent
Accounting Pronouncements
In addition to the guidance related to the calculation of
earnings per share described in Note 9 to the Consolidated
Financial Statements, recent accounting pronouncements are as
follows:
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 to the
Consolidated Financial Statements for additional information.
In June 2009, the FASB issued authoritative guidance that
changed the consolidation model for variable interest entities.
The provisions were effective for the first quarter of fiscal
2011. The adoption did not have a material impact on the
company’s consolidated financial statements.
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 November 2010, the FASB issued additional authoritative
guidance clarifying the required disclosures of supplementary
pro forma information for business combinations. The guidance is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010.
In December 2010, the FASB issued additional authoritative
guidance on accounting for goodwill. The guidance clarifies the
impairment test for reporting units with zero or negative
carrying amounts. The guidance is effective for fiscal years and
interim periods within those years beginning after
December 15, 2011. The company does not expect the adoption
to have a material impact on the consolidated financial
statements.
In May 2011, the FASB issued further additional authoritative
guidance related to fair value measurements and disclosures. The
new guidance results in a consistent definition of fair value
and common requirements for measurement of and disclosure about
fair value between accounting principles generally accepted in
the United States (U.S. GAAP) and International Financial
Reporting Standards (IFRS). The guidance is effective for fiscal
years and interim reporting periods within those years beginning
after December 15, 2011. The company is assessing the
impact of the guidance.
In June 2011, the FASB issued authoritative guidance requiring
entities to present net income and other comprehensive income
(OCI) in one continuous statement or two separate, but
consecutive, statements of net income and comprehensive income.
The option to present items of OCI in the statement of changes
in equity has been eliminated. The new requirements are
effective for annual reporting periods beginning after
December 15, 2011 and for interim reporting periods within
those years.
See also Note 2 to the Consolidated Financial Statements
for further discussion on new accounting standards.
32
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 I, Item 1A and elsewhere in the commentary, or in
other Securities and Exchange Commission filings of the company,
could affect the company’s actual results and could cause
such results to vary materially from those expressed in any
forward-looking statements made by, or on behalf of, the company:
| • | the impact of strong competitive response to the company’s efforts to leverage its brand power with product innovation, promotional programs and new advertising, and of changes in consumer demand for the company’s products; | |
| • | the risks in the marketplace associated with trade and consumer acceptance of product improvements, shelving initiatives, 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, promotional 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 Financial
Condition and Results of Operations — Market Risk
Sensitivity” is incorporated herein by reference.
33
| Item 8. | Financial Statements and Supplementary Data |
CAMPBELL
SOUP COMPANY
Consolidated
Statements of Earnings
| 2011 | 2010 | 2009 | ||||||||||
| (Millions, except per share amounts) | ||||||||||||
|
Net sales
|
$ | 7,719 | $ | 7,676 | $ | 7,586 | ||||||
|
Costs and expenses
|
||||||||||||
|
Cost of products sold
|
4,616 | 4,526 | 4,558 | |||||||||
|
Marketing and selling expenses
|
1,007 | 1,058 | 1,077 | |||||||||
|
Administrative expenses
|
612 | 605 | 591 | |||||||||
|
Research and development expenses
|
129 | 123 | 114 | |||||||||
|
Other expenses / (income)
|
13 | 4 | 61 | |||||||||
|
Restructuring charges
|
63 | 12 | — | |||||||||
|
Total costs and expenses
|
6,440 | 6,328 | 6,401 | |||||||||
|
Earnings before interest and taxes
|
1,279 | 1,348 | 1,185 | |||||||||
|
Interest expense
|
122 | 112 | 110 | |||||||||
|
Interest income
|
11 | 6 | 4 | |||||||||
|
Earnings before taxes
|
1,168 | 1,242 | 1,079 | |||||||||
|
Taxes on earnings
|
366 | 398 | 347 | |||||||||
|
Earnings from continuing operations
|
802 | 844 | 732 | |||||||||
|
Earnings from discontinued operations
|
— | — | 4 | |||||||||
|
Net earnings
|
802 | 844 | 736 | |||||||||
|
Less: Net earnings (loss) attributable to noncontrolling
interests
|
(3 | ) | — | — | ||||||||
|
Net earnings attributable to Campbell Soup Company
|
$ | 805 | $ | 844 | $ | 736 | ||||||
|
Per Share — Basic
|
||||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company
|
$ | 2.44 | $ | 2.44 | $ | 2.05 | ||||||
|
Earnings from discontinued operations attributable to Campbell
Soup Company
|
— | — | 0.01 | |||||||||
|
Net earnings attributable to Campbell Soup Company
|
$ | 2.44 | $ | 2.44 | $ | 2.06 | ||||||
|
Weighted average shares outstanding — basic
|
326 | 340 | 352 | |||||||||
|
Per Share — Assuming Dilution
|
||||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company
|
$ | 2.42 | $ | 2.42 | $ | 2.03 | ||||||
|
Earnings from discontinued operations attributable to Campbell
Soup Company
|
— | — | 0.01 | |||||||||
|
Net earnings attributable to Campbell Soup Company
|
$ | 2.42 | $ | 2.42 | $ | 2.05 | ||||||
|
Weighted average shares outstanding — assuming dilution
|
329 | 343 | 354 | |||||||||
The sum of individual per share amounts does not equal due to
rounding.
See accompanying Notes to Consolidated Financial Statements.
34
CAMPBELL
SOUP COMPANY
Consolidated
Balance Sheets
|
July 31,
|
August 1,
|
|||||||
| 2011 | 2010 | |||||||
| (Millions, except per share amounts) | ||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$ | 484 | $ | 254 | ||||
|
Accounts receivable
|
560 | 512 | ||||||
|
Inventories
|
767 | 724 | ||||||
|
Other current assets
|
152 | 197 | ||||||
|
Total current assets
|
1,963 | 1,687 | ||||||
|
Plant assets, net of depreciation
|
2,103 | 2,051 | ||||||
|
Goodwill
|
2,133 | 1,919 | ||||||
|
Other intangible assets, net of amortization
|
527 | 509 | ||||||
|
Other assets
|
136 | 110 | ||||||
|
Total assets
|
$ | 6,862 | $ | 6,276 | ||||
|
Current liabilities
|
||||||||
|
Short-term borrowings
|
$ | 657 | $ | 835 | ||||
|
Payable to suppliers and others
|
585 | 545 | ||||||
|
Accrued liabilities
|
619 | 560 | ||||||
|
Dividend payable
|
95 | 95 | ||||||
|
Accrued income taxes
|
33 | 30 | ||||||
|
Total current liabilities
|
1,989 | 2,065 | ||||||
|
Long-term debt
|
2,427 | 1,945 | ||||||
|
Deferred taxes
|
367 | 258 | ||||||
|
Other liabilities
|
983 | 1,079 | ||||||
|
Total liabilities
|
5,766 | 5,347 | ||||||
|
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
|
331 | 341 | ||||||
|
Earnings retained in the business
|
9,185 | 8,760 | ||||||
|
Capital stock in treasury, at cost
|
(8,021 | ) | (7,459 | ) | ||||
|
Accumulated other comprehensive loss
|
(427 | ) | (736 | ) | ||||
|
Total Campbell Soup Company shareowners’ equity
|
1,088 | 926 | ||||||
|
Noncontrolling interests
|
8 | 3 | ||||||
|
Total equity
|
1,096 | 929 | ||||||
|
Total liabilities and equity
|
$ | 6,862 | $ | 6,276 | ||||
See accompanying Notes to Consolidated Financial Statements.
35
CAMPBELL
SOUP COMPANY
Consolidated
Statements of Cash Flows
| 2011 | 2010 | 2009 | ||||||||||
| (Millions) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net earnings
|
$ | 802 | $ | 844 | $ | 736 | ||||||
|
Adjustments to reconcile net earnings to operating cash flow
|
||||||||||||
|
Impairment charge
|
— | — | 67 | |||||||||
|
Restructuring charges
|
63 | 12 | — | |||||||||
|
Stock-based compensation
|
87 | 88 | 84 | |||||||||
|
Depreciation and amortization
|
268 | 251 | 264 | |||||||||
|
Deferred income taxes
|
46 | 54 | 144 | |||||||||
|
Other, net
|
108 | 99 | 57 | |||||||||
|
Changes in working capital
|
||||||||||||
|
Accounts receivable
|
(15 | ) | 21 | 27 | ||||||||
|
Inventories
|
(14 | ) | 105 | (14 | ) | |||||||
|
Prepaid assets
|
19 | (9 | ) | 28 | ||||||||
|
Accounts payable and accrued liabilities
|
(26 | ) | (34 | ) | (125 | ) | ||||||
|
Pension fund contributions
|
(144 | ) | (284 | ) | (13 | ) | ||||||
|
Receipts from/(payments of) hedging activities
|
3 | (20 | ) | (44 | ) | |||||||
|
Other
|
(55 | ) | (70 | ) | (45 | ) | ||||||
|
Net cash provided by operating activities
|
1,142 | 1,057 | 1,166 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchases of plant assets
|
(272 | ) | (315 | ) | (345 | ) | ||||||
|
Sales of plant assets
|
9 | 13 | 1 | |||||||||
|
Business acquired
|
— | — | (66 | ) | ||||||||
|
Sale of business, net of cash divested
|
— | — | 38 | |||||||||
|
Other, net
|
2 | 2 | (6 | ) | ||||||||
|
Net cash used in investing activities
|
(261 | ) | (300 | ) | (378 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Net short-term borrowings (repayments)
|
495 | (265 | ) | (320 | ) | |||||||
|
Long-term borrowings
|
500 | 400 | 600 | |||||||||
|
Repayments of notes payable
|
(700 | ) | — | (300 | ) | |||||||
|
Dividends paid
|
(378 | ) | (365 | ) | (350 | ) | ||||||
|
Treasury stock purchases
|
(728 | ) | (472 | ) | (527 | ) | ||||||
|
Treasury stock issuances
|
96 | 139 | 72 | |||||||||
|
Excess tax benefits on stock-based compensation
|
11 | 11 | 18 | |||||||||
|
Contribution from noncontrolling interest
|
10 | — | — | |||||||||
|
Other, net
|
(6 | ) | (4 | ) | (7 | ) | ||||||
|
Net cash used in financing activities
|
(700 | ) | (556 | ) | (814 | ) | ||||||
|
Effect of exchange rate changes on cash
|
49 | 2 | (4 | ) | ||||||||
|
Net change in cash and cash equivalents
|
230 | 203 | (30 | ) | ||||||||
|
Cash and cash equivalents — beginning of period
|
254 | 51 | 81 | |||||||||
|
Cash and cash equivalents — end of period
|
$ | 484 | $ | 254 | $ | 51 | ||||||
See accompanying Notes to Consolidated Financial Statements.
36
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 the
|
Comprehensive
|
Noncontrolling
|
Total
|
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Business | Income (Loss) | Interests | Equity | ||||||||||||||||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||||||||||||||||||
|
Balance at August 3, 2008
|
542 | $ | 20 | (186 | ) | $ | (6,812 | ) | $ | 337 | $ | 7,909 | $ | (136 | ) | $ | 3 | $ | 1,321 | |||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||||
|
Net earnings (loss)
|
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 (loss)
|
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 | ||||||||||||||||||||||||
|
Contribution from noncontrolling interest
|
8 | 8 | ||||||||||||||||||||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||||||||||
|
Net earnings (loss)
|
805 | (3 | ) | 802 | ||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments, net of tax
|
264 | — | 264 | |||||||||||||||||||||||||||||||||
|
Cash-flow hedges, net of tax
|
(2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||
|
Pension and postretirement benefits, net of tax
|
47 | 47 | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income (loss)
|
309 | — | 309 | |||||||||||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
1,111 | |||||||||||||||||||||||||||||||||||
|
Dividends ($1.145 per share)
|
(380 | ) | (380 | ) | ||||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(21 | ) | (728 | ) | (728 | ) | ||||||||||||||||||||||||||||||
|
Treasury stock issued under management incentive and stock
option plans
|
5 | 166 | (10 | ) | 156 | |||||||||||||||||||||||||||||||
|
Balance at July 31, 2011
|
542 | $ | 20 | (222 | ) | $ | (8,021 | ) | $ | 331 | $ | 9,185 | $ | (427 | ) | $ | 8 | $ | 1,096 | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(currency in millions, except per share amounts)
| 1. | Summary of Significant Accounting Policies |
Campbell Soup Company, together with its subsidiaries (the
company), is a global manufacturer and marketer of high-quality,
branded convenience food products.
Basis of Presentation
— The consolidated
financial statements include the accounts of the company and
entities in which the company maintains a controlling financial
interest. 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 2011, 2010 and
2009.
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.
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 feature price discounts, in-store
display incentives, cooperative advertising programs, new
product introduction fees and coupon redemption costs, are
classified as a reduction of sales. The recognition of costs for
promotion programs involves the use of judgment related to
performance and redemption estimates. Estimates are made based
on historical experience and other factors. Costs are recognized
either upon sale or when the incentive is offered, based on the
program.
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. Repairs and
maintenance are charged to expense.
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 are also reviewed when appropriate for
possible impairment. Goodwill impairment testing first requires
a comparison of the fair value of each reporting unit to the
carrying value. A reporting unit is an operating segment or a
component of an operating segment. 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. To
38
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
qualify for hedge accounting, the hedging relationship, both at
inception of the hedge and on an ongoing basis, shall be
expected to be highly effective in achieving offsetting changes
in the fair value of the hedged risk during the period that the
hedge is designated.
All derivatives are recognized on the balance sheet at fair
value. For derivatives that qualify for hedge accounting, 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 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 the underlying hedged item ceases to exist, all
changes in the fair value of the derivative are included in
earnings each period until the instrument matures. 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.
Advertising Production Costs
— Advertising
production costs are expensed in the period that the
advertisement first takes place.
Research and Development Costs
— The costs of
research and development are expensed as incurred. Costs include
expenditures for new product and manufacturing process
innovation, and improvements to existing products and processes.
Costs primarily consist of salaries, wages, consulting, and
depreciation and maintenance of research facilities and
equipment.
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.
39
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 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 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 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 were effective for the first quarter of fiscal
2011. The adoption did not have a material impact on the
company’s consolidated financial statements.
In November 2010, the FASB issued additional authoritative
guidance clarifying the required disclosures of supplementary
pro forma information for business combinations. The guidance is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010.
In December 2010, the FASB issued additional authoritative
guidance on accounting for goodwill. The guidance clarifies the
impairment test for reporting units with zero or negative
carrying amounts. The guidance is effective for fiscal years and
interim periods within those years beginning after
December 15, 2011. The company does not expect the adoption
to have a material impact on the company’s consolidated
financial statements.
40
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In May 2011, the FASB issued further additional authoritative
guidance related to fair value measurements and disclosures. The
new guidance results in a consistent definition of fair value
and common requirements for measurement of and disclosure about
fair value between accounting principles generally accepted in
the United States (U.S. GAAP) and International Financial
Reporting Standards (IFRS). The guidance is effective for fiscal
years and interim reporting periods within those years beginning
after December 15, 2011. The company is assessing the
impact of the guidance.
In June 2011, the FASB issued authoritative guidance requiring
entities to present net income and other comprehensive income
(OCI) in one continuous statement or two separate, but
consecutive, statements of net income and comprehensive income.
The option to present items of OCI in the statement of changes
in equity has been eliminated. The new requirements are
effective for annual reporting periods beginning after
December 15, 2011 and for interim reporting periods within
those years.
| 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 company recognized a $4 benefit in 2009 as a result
of an adjustment to the tax liability associated with the sale.
Other
Divestitures
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 Simple Meals and Beverages segment.
The company has provided certain indemnifications in connection
with the divestitures. 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 July 31, 2011, August 1, 2010, and
August 2, 2009 was $1,111, $826, and $154, respectively.
The components of Accumulated other comprehensive income (loss),
as reflected in the Statements of Equity, consisted of the
following:
| 2011 | 2010 | |||||||
|
Foreign currency translation adjustments, net of tax(1)
|
$ | 396 | $ | 132 | ||||
|
Cash-flow hedges, net of tax(2)
|
(20 | ) | (18 | ) | ||||
|
Unamortized pension and postretirement benefits, net of tax(3):
|
||||||||
|
Net actuarial loss
|
(809 | ) | (856 | ) | ||||
|
Prior service credit
|
6 | 6 | ||||||
|
Total Accumulated other comprehensive loss
|
$ | (427 | ) | $ | (736 | ) | ||
41
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (1) | Includes a tax expense of $4 in 2011 and a tax benefit of $1 in 2010. The amount related to noncontrolling interests was not material. | |
| (2) | Includes a tax benefit of $11 in 2011 and $10 in 2010. | |
| (3) | Includes a tax benefit of $459 in 2011 and $489 in 2010. |
| 5. | Goodwill and Intangible Assets |
The following table shows the changes in the carrying amount of
goodwill by business segment:
|
U.S.
|
Global
|
International
|
North
|
|||||||||||||||||||||
|
Simple
|
U.S.
|
Baking and
|
Simple Meals
|
America
|
||||||||||||||||||||
| Meals | Beverages | Snacking | and Beverages | Foodservice | Total | |||||||||||||||||||
|
Balance at August 2, 2009
|
$ | 322 | $ | 112 | $ | 700 | $ | 621 | $ | 146 | $ | 1,901 | ||||||||||||
|
Foreign currency translation adjustment
|
— | — | 54 | (36 | ) | — | 18 | |||||||||||||||||
|
Balance at August 1, 2010
|
$ | 322 | $ | 112 | $ | 754 | $ | 585 | $ | 146 | $ | 1,919 | ||||||||||||
|
Foreign currency translation adjustment
|
— | — | 160 | 54 | — | 214 | ||||||||||||||||||
|
Balance at July 31, 2011
|
$ | 322 | $ | 112 | $ | 914 | $ | 639 | $ | 146 | $ | 2,133 | ||||||||||||
The following table sets forth balance sheet information for
intangible assets, excluding goodwill, subject to amortization
and intangible assets not subject to amortization:
| 2011 | 2010 | |||||||
|
Intangible Assets:
|
||||||||
|
Non-amortizable
intangible assets
|
$ | 515 | $ | 496 | ||||
|
Amortizable intangible assets
|
21 | 21 | ||||||
| 536 | 517 | |||||||
|
Accumulated amortization
|
(9 | ) | (8 | ) | ||||
|
Total net intangible assets
|
$ | 527 | $ | 509 | ||||
Non-amortizable
intangible assets consist of trademarks, which mainly include
Pace, Royco, Liebig, Blå Band
and
Touch of
Taste
. Amortizable intangible assets consist substantially
of process technology and customer intangibles.
Amortization was less than $1 in 2011, 2010, and 2009. 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 2011, as part of the company’s annual review of
intangible assets, an impairment charge of $3 was recognized
related to the
Heisse Tasse
trademark used in the
International Simple Meals and Beverages segment. The trademark
was determined to be impaired as a result of a decrease in the
fair value of the brand, resulting from reduced expectations for
future sales and discounted cash flows. The impairment charge
was recorded in Other expenses/(income) in the Consolidated
Statements of Earnings. As of July 2011, certain European
trademarks have a carrying value of approximately $100, which
approximates fair value. Fair value is determined based on
discounted cash flow analyses that include significant
management assumptions such as revenue growth rates, weighted
average cost of capital, and assumed royalty rates. Actual cash
flows could differ from management’s estimates due to
changes in business performance, operating performance, and
economic conditions. Holding all other assumptions constant, a
100-basis-point increase in the weighted average cost of capital
would reduce fair value of all trademarks and result in
impairment charges of approximately $21.
42
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 used in the International
Simple Meals and Beverages segment, including
Heisse
Tasse
,
Blå Band
and
Royco
. 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. The reduction was due in part to a
deterioration in market conditions and an increase in the
weighted average cost of capital. The impairment charge was
recorded in Other expenses/(income) in the Consolidated
Statements of Earnings.
In May 2009, the company acquired Ecce Panis, Inc. Intangible
assets from the acquisition totaled $16. See Note 8 for
additional information.
| 6. | Business and Geographic Segment Information |
Commencing with the fourth quarter of fiscal 2011, the company
reports the results of operations in the following reportable
segments: U.S. Simple Meals; U.S. Beverages; Global
Baking and Snacking; International Simple Meals and Beverages;
and North America Foodservice. Segment results of prior periods
were modified to conform to the current presentation. The
company has ten operating segments based on product type and
geographic location and has aggregated the operating segments
into the appropriate reportable segment based on similar
economic characteristics; products; production processes; types
or classes of customers; distribution methods; and regulatory
environment. The segments are discussed in greater detail below.
The U.S. Simple Meals segment aggregates the following
operating segments: U.S. Soup and U.S. Sauces. The
U.S. Soup retail business includes the following products:
Campbell’s
condensed and
ready-to-serve
soups; and
Swanson
broth and stocks. The U.S. Sauces
retail business includes the following products:
Prego
pasta sauce;
Pace
Mexican sauce;
Swanson
canned poultry; and
Campbell’s
canned gravies,
pasta and beans.
The U.S. Beverages segment represents the U.S. retail
beverages business, including the following products:
V8
juices and beverages; and
Campbell’s
tomato
juice.
The Global Baking and Snacking segment aggregates the following
operating segments:
Pepperidge Farm
cookies, crackers,
bakery and frozen products in U.S. retail; and
Arnott’s
biscuits in Australia and Asia Pacific.
The International Simple Meals and Beverages segment aggregates
the simple meals and beverages operating segments outside of the
United States, including Europe, Latin America, the Asia Pacific
region 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.
The company’s 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, taxes, and
beginning in fiscal 2011, costs associated with restructuring
activities. Segment operating earnings of prior periods were
modified to conform to the current presentation. The
manufacturing, warehousing, distribution and selling activities
of the company’s U.S. retail business are operated as
an integrated platform in order to maximize efficiency and
productivity. As a result, assets and capital expenditures of
the U.S. Simple Meals and U.S. Beverages are not
discretely maintained. Depreciation expense associated with the
integrated operations, however, is allocated to the
U.S. Simple Meals and U.S. Beverages segments based on
production hours. 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.
43
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company’s largest customer, Wal-Mart Stores, Inc. and
its affiliates, accounted for approximately 17% of consolidated
net sales in 2011 and 18% in 2010 and 2009. All of the
company’s segments sold products to Wal-Mart Stores, Inc.
or its affiliates.
Business
Segments
| 2011 | 2010 | 2009 | ||||||||||
|
Net sales
|
||||||||||||
|
U.S. Simple Meals
|
$ | 2,751 | $ | 2,938 | $ | 3,049 | ||||||
|
U.S. Beverages
|
759 | 762 | 735 | |||||||||
|
Global Baking and Snacking
|
2,156 | 1,975 | 1,846 | |||||||||
|
International Simple Meals and Beverages
|
1,463 | 1,423 | 1,357 | |||||||||
|
North America Foodservice
|
590 | 578 | 599 | |||||||||
|
Total
|
$ | 7,719 | $ | 7,676 | $ | 7,586 | ||||||
| 2011 | 2010 | 2009(3) | ||||||||||
|
Earnings before interest and taxes
|
||||||||||||
|
U.S. Simple Meals
|
$ | 657 | $ | 737 | $ | 749 | ||||||
|
U.S. Beverages
|
182 | 206 | 178 | |||||||||
|
Global Baking and Snacking
|
355 | 322 | 265 | |||||||||
|
International Simple Meals and Beverages
|
185 | 161 | 69 | |||||||||
|
North America Foodservice
|
82 | 55 | 53 | |||||||||
|
Corporate(1)
|
(119 | ) | (121 | ) | (107 | ) | ||||||
|
Restructuring charges and related costs(2)
|
(63 | ) | (12 | ) | (22 | ) | ||||||
|
Total
|
$ | 1,279 | $ | 1,348 | $ | 1,185 | ||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Depreciation and Amortization
|
||||||||||||
|
U.S. Simple Meals
|
$ | 87 | $ | 86 | $ | 86 | ||||||
|
U.S. Beverages
|
20 | 21 | 15 | |||||||||
|
Global Baking and Snacking
|
82 | 75 | 71 | |||||||||
|
International Simple Meals and Beverages
|
42 | 35 | 41 | |||||||||
|
North America Foodservice
|
13 | 13 | 28 | |||||||||
|
Corporate(1)
|
24 | 21 | 23 | |||||||||
|
Total
|
$ | 268 | $ | 251 | $ | 264 | ||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Capital Expenditures
|
||||||||||||
|
U.S. Simple Meals and U.S. Beverages
|
$ | 126 | $ | 139 | $ | 177 | ||||||
|
Global Baking and Snacking
|
73 | 81 | 58 | |||||||||
|
International Simple Meals and Beverages
|
36 | 26 | 34 | |||||||||
|
North America Foodservice
|
3 | 3 | 17 | |||||||||
|
Corporate(1)
|
34 | 66 | 59 | |||||||||
|
Total
|
$ | 272 | $ | 315 | $ | 345 | ||||||
44
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2011 | 2010 | 2009 | ||||||||||
|
Segment Assets
|
||||||||||||
|
U.S. Simple Meals and U.S. Beverages
|
$ | 2,129 | $ | 2,146 | $ | 2,168 | ||||||
|
Global Baking and Snacking
|
1,982 | 1,710 | 1,628 | |||||||||
|
International Simple Meals and Beverages
|
1,539 | 1,396 | 1,474 | |||||||||
|
North America Foodservice
|
350 | 360 | 377 | |||||||||
|
Corporate(1)
|
862 | 664 | 409 | |||||||||
|
Total
|
$ | 6,862 | $ | 6,276 | $ | 6,056 | ||||||
| (1) | Represents unallocated corporate expenses and unallocated assets. | |
| (2) | See Note 7 for additional information. | |
| (3) | Earnings before interest and taxes of the International Simple Meals and Beverages segment included a $67 impairment charge on certain European trademarks. See Note 5 for additional information. |
The company’s global net sales based on product categories
are as follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Net sales
|
||||||||||||
|
Simple Meals
|
$ | 4,437 | $ | 4,594 | $ | 4,674 | ||||||
|
Baked Snacks
|
2,321 | 2,129 | 1,995 | |||||||||
|
Beverages
|
961 | 953 | 917 | |||||||||
|
Total
|
$ | 7,719 | $ | 7,676 | $ | 7,586 | ||||||
Simple meals include condensed and
ready-to-serve
soups, broths and sauces. Baked snacks include cookies,
crackers, biscuits and other baked products.
Geographic
Area Information
Information about operations in different geographic areas is as
follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Net sales
|
||||||||||||
|
United States
|
$ | 5,309 | $ | 5,436 | $ | 5,548 | ||||||
|
Europe
|
596 | 601 | 608 | |||||||||
|
Australia/Asia Pacific
|
1,138 | 978 | 816 | |||||||||
|
Other countries
|
676 | 661 | 614 | |||||||||
|
Total
|
$ | 7,719 | $ | 7,676 | $ | 7,586 | ||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Long-lived assets
|
||||||||||||
|
United States
|
$ | 1,281 | $ | 1,279 | $ | 1,388 | ||||||
|
Europe
|
102 | 104 | 119 | |||||||||
|
Australia/Asia Pacific
|
384 | 326 | 283 | |||||||||
|
Other countries
|
109 | 105 | 108 | |||||||||
|
Corporate(1)
|
227 | 237 | 79 | |||||||||
|
Total
|
$ | 2,103 | $ | 2,051 | $ | 1,977 | ||||||
| (1) | Represents primarily corporate offices. |
45
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 7. | Restructuring Charges |
2011
Initiatives
On June 28, 2011, the company announced a series of
initiatives to improve supply chain efficiency and reduce
overhead costs across the organization to help fund plans to
drive the growth of the business. The company also announced its
intent to exit the Russian market. The company expects to
eliminate approximately 750 positions in connection with these
initiatives. Details of the plans include:
| • | In Australia, the company will invest in a new system to automate packing operations at its biscuit plant in Virginia. This investment will occur over an 18-month period and will result in the elimination of approximately 190 positions, subject to union and employee consultations. Further, the company will improve asset utilization in the U.S. by shifting production of ready-to-serve soups from Paris, Texas, to other facilities in 2012. In addition, the manufacturing facility in Marshall, Michigan, was closed in 2011, and manufacturing of Campbell’s Soup at Hand microwavable products will be consolidated at the Maxton, North Carolina, plant in 2012. | |
| • | The company streamlined its salaried workforce by approximately 510 positions around the world, including approximately 130 positions at its world headquarters in Camden, New Jersey. These actions were substantially completed in 2011. As part of this initiative, the company outsourced a larger portion of its U.S. retail merchandising activities to its current retail sales agent, Acosta Sales and Marketing, and eliminated approximately 190 positions. The company expects that this action will enhance merchandising effectiveness and coverage for its U.S. customers. | |
| • | In connection with exiting the Russian market, the company will eliminate approximately 50 positions. The exit process commenced in 2011 and is expected to be completed in fiscal 2012. |
In 2011, the company recorded a restructuring charge of $63 ($41
after tax or $.12 per share) related to these initiatives. A
summary of the pre-tax charge and remaining costs associated
with the initiatives is as follows:
|
Recognized
|
Remaining
|
|||||||||||
|
Total
|
as of
|
Costs to be
|
||||||||||
| Program | July 31, 2011 | Recognized | ||||||||||
|
Severance pay and benefits
|
$ | 40 | $ | (37 | ) | $ | 3 | |||||
|
Asset impairment/accelerated depreciation
|
25 | (22 | ) | 3 | ||||||||
|
Other exit costs
|
10 | (4 | ) | 6 | ||||||||
|
Total
|
$ | 75 | $ | (63 | ) | $ | 12 | |||||
Of the aggregate $75 of pre-tax costs, the company expects
approximately $50 will be cash expenditures, the majority of
which will be spent in 2012. In addition, the company expects to
invest approximately $40 in capital expenditures in connection
with the actions. The initiatives are expected to be completed
by the end of fiscal 2013.
A summary of restructuring activity and related reserves
associated with these initiatives at July 31, 2011 is as
follows:
|
Accrued
|
2011
|
Accrued
|
||||||||||||||
|
Balance at
|
2011
|
Cash
|
Balance at
|
|||||||||||||
| August 1, 2010 | Charges | Payments | July 31, 2011 | |||||||||||||
|
Severance pay and benefits
|
$ | — | $ | 37 | $ | (2 | ) | $ | 35 | |||||||
|
Asset impairment/accelerated depreciation
|
— | 22 | ||||||||||||||
|
Other exit costs
|
— | 4 | — | 4 | ||||||||||||
|
Total
|
$ | — | $ | 63 | $ | (2 | ) | $ | 39 | |||||||
46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of restructuring charges associated with each segment
is as follows:
|
U.S.
|
Global
|
International
|
North
|
|||||||||||||||||||||||||
|
Simple
|
U.S.
|
Baking and
|
Simple Meals
|
America
|
||||||||||||||||||||||||
| Meals | Beverages | Snacking | and Beverages | Foodservice | Corporate | Total | ||||||||||||||||||||||
|
Severance pay and benefits
|
$ | 10 | $ | 3 | $ | 12 | $ | 10 | $ | 1 | $ | 1 | $ | 37 | ||||||||||||||
|
Asset impairment/accelerated depreciation
|
20 | — | — | 2 | — | — | 22 | |||||||||||||||||||||
|
Other exit costs
|
1 | — | — | — | — | 3 | 4 | |||||||||||||||||||||
| $ | 31 | $ | 3 | $ | 12 | $ | 12 | $ | 1 | $ | 4 | $ | 63 | |||||||||||||||
The company expects to incur additional pre-tax costs of
approximately $12 by segment as follows: U.S. Simple
Meals — $2, Global Baking and Snacking — $3,
International Simple Meals and Beverages — $6 and
Corporate — $1. Segment operating results do not
include restructuring charges as segment performance is
evaluated excluding such charges.
2008
Initiatives
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 2009, the company recorded
approximately $22 ($15 after tax or $.04 per share) of costs 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.
As a result of these initiatives, 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.
In the aggregate, the company incurred $216 of pre-tax costs for
the total program in 2008 through 2010. Approximately $40 of the
costs were cash expenditures, the majority of which was spent in
2009.
A summary of the pre-tax costs is as follows:
|
Change
|
||||||||||||
|
Total
|
in
|
Recognized
|
||||||||||
| Program | Estimate(1) | 2008-2010 | ||||||||||
|
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 impact of the initiatives on fiscal 2010 and 2009
results are as follows:
| • | 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 for North America Foodservice. 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. In connection with this action, 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 |
47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 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, which was part of Global Baking and Snacking. The company closed the Miranda facility, which employed approximately 150 people, in the second quarter of 2009. In connection with this action, in 2009, the company recorded $1 in accelerated depreciation of property, plant, and equipment, and $2 ($1 after tax) in other exit costs. |
A summary of restructuring activity and related reserves of the
2008 initiatives is as follows:
|
Severance Pay
|
Asset Impairment/
|
Other Exit
|
||||||||||||||
| and Benefits | Accelerated Depreciation | Costs | Total | |||||||||||||
|
Accrued balance at July 29, 2007
|
$ | — | ||||||||||||||
|
2008 charge(1)
|
45 | 137 | — | $ | 182 | |||||||||||
|
Cash payments
|
(4 | ) | ||||||||||||||
|
Pension termination benefits(2)
|
(4 | ) | ||||||||||||||
|
Accrued balance at August 3, 2008
|
37 | |||||||||||||||
|
2009 charge
|
1 | 17 | 4 | $ | 22 | |||||||||||
|
Cash payments
|
(26 | ) | ||||||||||||||
|
Pension termination benefits(2)
|
(2 | ) | ||||||||||||||
|
Foreign currency translation adjustment
|
(6 | ) | ||||||||||||||
|
Accrued balance at August 2, 2009
|
4 | |||||||||||||||
|
2010 charge
|
12 | — | — | $ | 12 | |||||||||||
|
Cash payments
|
(3 | ) | ||||||||||||||
|
Pension termination benefits(2)
|
(12 | ) | ||||||||||||||
|
Accrued balance at August 1, 2010
|
1 | |||||||||||||||
|
Cash payments
|
( 1 | ) | ||||||||||||||
|
Accrued balance at July 31, 2011
|
$ | — | ||||||||||||||
| (1) | In 2008, as part of the initiatives, the company sold certain Australian salty snack food brands and assets, which were part of Global Baking and Snacking, and recorded a pre-tax net loss of $120 on the sale. 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 in employee severance and benefit costs in 2008. The company also recognized $45 in costs associated with the closures of the Listowel, Canada, and Miranda, Australia, facilities. | |
| (2) | Pension termination benefits are recognized in Other Liabilities and Accumulated Other Compensation Income/(Loss). See Note 11. |
A summary of restructuring charges incurred in 2008 through 2010
by segment follows:
|
Global
|
International
|
North
|
||||||||||||||
|
Baking and
|
Simple Meals
|
America
|
||||||||||||||
| 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 | |||||||||
48
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 Global 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 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 | ||
| 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. Share-based payment awards granted prior to fiscal 2011
contained non-forfeitable rights to dividends or dividend
equivalents. 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 | ||||||||
| Basic | Diluted | |||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company
|
$ | (.03 | ) | $ | (.01 | ) | ||
|
Net earnings attributable to Campbell Soup Company
|
$ | (.03 | ) | $ | (.01 | ) | ||
49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The computation of basic and diluted earnings per share
attributable to common shareowners is as follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company
|
$ | 805 | $ | 844 | $ | 732 | ||||||
|
Less: Allocation of earnings to participating securities
|
(9 | ) | (14 | ) | (12 | ) | ||||||
|
Available to Campbell Soup Company common shareowners
|
$ | 796 | $ | 830 | $ | 720 | ||||||
|
Earnings from discontinued operations attributable to Campbell
Soup Company
|
$ | — | $ | — | $ | 4 | ||||||
|
Less: Allocation of earnings to participating securities
|
— | — | — | |||||||||
|
Available to Campbell Soup Company common shareowners
|
$ | — | $ | — | $ | 4 | ||||||
|
Net earnings attributable to Campbell Soup Company
|
$ | 805 | $ | 844 | $ | 736 | ||||||
|
Less: Allocation of earnings to participating securities
|
(9 | ) | (14 | ) | (12 | ) | ||||||
|
Available to Campbell Soup Company common shareowners
|
$ | 796 | $ | 830 | $ | 724 | ||||||
|
Weighted average shares outstanding — basic
|
326 | 340 | 352 | |||||||||
|
Effect of dilutive securities: stock options and other
share-based payment awards
|
3 | 3 | 2 | |||||||||
|
Weighted average shares outstanding — diluted
|
329 | 343 | 354 | |||||||||
|
Earnings from continuing operations attributable to Campbell
Soup Company per common share:
|
||||||||||||
|
Basic
|
$ | 2.44 | $ | 2.44 | $ | 2.05 | ||||||
|
Diluted
|
$ | 2.42 | $ | 2.42 | $ | 2.03 | ||||||
|
Earnings from discontinued operations attributable to Campbell
Soup Company per common share:
|
||||||||||||
|
Basic
|
$ | — | $ | — | $ | .01 | ||||||
|
Diluted
|
$ | — | $ | — | $ | .01 | ||||||
|
Net earnings attributable to Campbell Soup Company per common
share(1):
|
||||||||||||
|
Basic
|
$ | 2.44 | $ | 2.44 | $ | 2.06 | ||||||
|
Diluted
|
$ | 2.42 | $ | 2.42 | $ | 2.05 | ||||||
| (1) | The sum of the individual per share amounts does not equal due to rounding. |
There were no antidilutive stock options in 2011. Stock options
to purchase less than 1 million shares of capital stock in
2010, and 3 million shares of capital stock in 2009 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 Interests |
The company owns a 60% controlling interest in a joint venture
formed with Swire Pacific Limited to support the development of
the company’s business in China. The joint venture began
operations on January 31, 2011, the beginning of the third
fiscal quarter. At the inception of the joint venture, the joint
venture partner contributed net assets of $7, including $9 of
cash contributions, and the company made an $11 cash
contribution. In July 2011, the
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
company and joint venture partner contributed additional cash of
$2 and $1, respectively. The noncontrolling interest’s
share in the net loss was included in Net earnings (loss)
attributable to noncontrolling interests in the Consolidated
Statements of Earnings.
The company owns a 70% controlling interest in a Malaysian
manufacturing company. The earnings attributable to the
noncontrolling interest have historically been less than $1
annually and were previously included in Other expense/(income)
in the Consolidated Statements of Earnings. Beginning in the
third quarter of fiscal 2011, the earnings attributable to the
noncontrolling interest were included in Net earnings (loss)
attributable to noncontrolling interests in the Consolidated
Statements of Earnings. The earnings were not material in 2011.
The noncontrolling interests in these entities were included in
Total equity in the Consolidated Balance Sheets and Consolidated
Statements of Equity.
| 11. | Pension and Postretirement Benefits |
Pension Benefits
— The company sponsors a
number of noncontributory defined benefit pension plans to
provide retirement benefits to all eligible U.S. and
non-U.S. employees.
The benefits provided under these plans are based primarily on
years of service and compensation levels. In 1999, the company
implemented significant amendments to certain U.S. pension
plans. Under a new formula, retirement benefits are determined
based on percentages of annual pay and age. To minimize the
impact of converting to the new formula, service and earnings
credit continues to accrue for active employees participating in
the plans under the old 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. Effective as of January 1, 2011, the
company’s U.S. pension plans were amended so that
employees hired or rehired on or after that date 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. The company established retiree medical account
benefits for eligible U.S. retirees. The accounts were
intended to provide reimbursement for eligible health care
expenses on a tax-favored basis. Effective as of January 1,
2011, the retirement medical program was amended to eliminate
the retiree medical account benefit for employees not covered by
collective bargaining agreements. To preserve the benefit for
employees close to retirement age, the retiree medical account
will be available to employees who were at least age 50
with at least 10 years of service as of December 31,
2010, and who satisfy the other eligibility requirements for the
retiree medical program.
The company uses the fiscal year end as the measurement date for
the benefit plans.
Components of net periodic benefit cost:
| Pension | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Service cost
|
$ | 58 | $ | 55 | $ | 46 | ||||||
|
Interest cost
|
121 | 121 | 122 | |||||||||
|
Expected return on plan assets
|
(178 | ) | (170 | ) | (163 | ) | ||||||
|
Amortization of prior service cost
|
1 | 1 | 1 | |||||||||
|
Recognized net actuarial loss
|
70 | 49 | 19 | |||||||||
|
Settlement (gains)/costs
|
(1 | ) | 12 | — | ||||||||
|
Special termination benefits
|
— | — | 2 | |||||||||
|
Net periodic pension expense
|
$ | 71 | $ | 68 | $ | 27 | ||||||
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
The estimated net actuarial loss that will be amortized from
Accumulated other comprehensive loss into net periodic pension
cost during 2012 is $75.
| Postretirement | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Service cost
|
$ | 3 | $ | 3 | $ | 3 | ||||||
|
Interest cost
|
18 | 19 | 22 | |||||||||
|
Amortization of prior service cost/(credit)
|
(1 | ) | 1 | 1 | ||||||||
|
Recognized net actuarial loss
|
7 | 1 | — | |||||||||
|
Net periodic postretirement expense
|
$ | 27 | $ | 24 | $ | 26 | ||||||
The estimated prior service credit and net actuarial loss that
will be amortized from Accumulated other comprehensive loss into
net periodic postretirement expense during 2012 are $1 and $9,
respectively.
Change
in benefit obligation:
| Pension | Postretirement | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Obligation at beginning of year
|
$ | 2,275 | $ | 2,077 | $ | 362 | $ | 340 | ||||||||
|
Service cost
|
58 | 55 | 3 | 3 | ||||||||||||
|
Interest cost
|
121 | 121 | 18 | 19 | ||||||||||||
|
Actuarial loss
|
61 | 181 | 15 | 50 | ||||||||||||
|
Participant contributions
|
— | — | 5 | 4 | ||||||||||||
|
Benefits paid
|
(146 | ) | (148 | ) | (34 | ) | (39 | ) | ||||||||
|
Medicare subsidies
|
— | — | 5 | 3 | ||||||||||||
|
Other
|
(4 | ) | (2 | ) | — | — | ||||||||||
|
Plan amendments
|
(1 | ) | — | — | (18 | ) | ||||||||||
|
Settlement
|
(8 | ) | (21 | ) | — | — | ||||||||||
|
Foreign currency adjustment
|
32 | 12 | — | — | ||||||||||||
|
Benefit obligation at end of year
|
$ | 2,388 | $ | 2,275 | $ | 374 | $ | 362 | ||||||||
Change
in the fair value of pension plan assets:
| 2011 | 2010 | |||||||
|
Fair value at beginning of year
|
$ | 1,767 | $ | 1,415 | ||||
|
Actual return on plan assets
|
266 | 222 | ||||||
|
Employer contributions
|
144 | 284 | ||||||
|
Benefits paid
|
(139 | ) | (142 | ) | ||||
|
Settlement
|
(6 | ) | (21 | ) | ||||
|
Foreign currency adjustment
|
27 | 9 | ||||||
|
Fair value at end of year
|
$ | 2,059 | $ | 1,767 | ||||
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts
recognized in the Consolidated Balance Sheets:
| Pension | Postretirement | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Accrued liabilities
|
$ | (10 | ) | $ | (8 | ) | $ | (30 | ) | $ | (30 | ) | ||||
|
Other liabilities
|
(319 | ) | (500 | ) | (344 | ) | (332 | ) | ||||||||
|
Net amount recognized
|
$ | (329 | ) | $ | (508 | ) | $ | (374 | ) | $ | (362 | ) | ||||
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
||||||||||||||||
|
Net actuarial loss
|
$ | 1,179 | $ | 1,263 | $ | 95 | $ | 87 | ||||||||
|
Prior service credit
|
(3 | ) | (1 | ) | (9 | ) | (10 | ) | ||||||||
|
Total
|
$ | 1,176 | $ | 1,262 | $ | 86 | $ | 77 | ||||||||
The changes in other comprehensive loss associated with pension
benefits included the reclassification of actuarial losses into
earnings of $70 and $49 in 2011 and 2010, respectively. The
remaining changes in other comprehensive loss associated with
pension benefits were primarily due to net actuarial losses
arising during the period and the impact of foreign currency.
The change in other comprehensive loss associated with
postretirement benefits in 2011 was primarily due to net
actuarial losses arising during the period. The change in other
comprehensive loss associated with postretirement benefits in
2010 included $50 of net actuarial losses arising during the
period and $18 of prior service credit.
The following table provides information for pension plans with
accumulated benefit obligations in excess of plan assets:
| 2011 | 2010 | |||||||
|
Projected benefit obligation
|
$ | 2,194 | $ | 2,261 | ||||
|
Accumulated benefit obligation
|
$ | 2,131 | $ | 2,140 | ||||
|
Fair value of plan assets
|
$ | 1,891 | $ | 1,757 | ||||
The accumulated benefit obligation for all pension plans was
$2,299 at July 31, 2011 and $2,148 at August 1, 2010.
Weighted-average
assumptions used to determine benefit obligations at the end of
the year:
| Pension | Postretirement | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
Discount rate
|
5.41 | % | 5.46 | % | 5.00 | % | 5.25 | % | ||||||||
|
Rate of compensation increase
|
3.31 | % | 3.29 | % | 3.25 | % | 3.25 | % | ||||||||
Weighted-average
assumptions used to determine net periodic benefit cost for the
years ended:
|
Pension
|
2011 | 2010 | 2009 | |||||||||
|
Discount rate
|
5.46 | % | 6.00 | % | 6.87 | % | ||||||
|
Expected return on plan assets
|
8.15 | % | 8.13 | % | 8.60 | % | ||||||
|
Rate of compensation increase
|
3.29 | % | 3.29 | % | 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.
53
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 5.25% in 2011, 6.00% in 2010, and 7.00% in 2009.
Assumed
health care cost trend rates at the end of the
year:
| 2011 | 2010 | |||||||
|
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
|
2019 | 2018 | ||||||
A one-percentage-point change in assumed health care costs would
have the following effects on 2011 reported amounts:
| Increase | Decrease | |||||||
|
Effect on service and interest cost
|
$ | 1 | $ | (1 | ) | |||
|
Effect on the 2011 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 | 2011 | 2010 | ||||||||||
|
Equity securities
|
51 | % | 50 | % | 49 | % | ||||||
|
Debt securities
|
35 | % | 35 | % | 34 | % | ||||||
|
Real estate and other
|
14 | % | 15 | % | 17 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
54
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 by asset category at July 31, 2011 and
August 1, 2010:
|
Fair Value
|
Fair Value Measurements at
|
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||||||||||||||||
|
as of
|
July 31, 2011 Using
|
as of
|
August 1, 2010 Using
|
|||||||||||||||||||||||||||||
|
July 31,
|
Fair Value Hierarchy |
August 1,
|
Fair Value Hierarchy | |||||||||||||||||||||||||||||
| 2011 | Level 1 | Level 2 | Level 3 | 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
|
Asset category
|
||||||||||||||||||||||||||||||||
|
Short-term investments
|
$ | 65 | $ | 5 | $ | 60 | $ | — | $ | 60 | $ | 5 | $ | 55 | $ | — | ||||||||||||||||
|
Equities:
|
||||||||||||||||||||||||||||||||
|
U.S.
|
396 | 396 | — | — | 308 | 308 | — | — | ||||||||||||||||||||||||
|
Non-U.S.
|
267 | 267 | — | — | 245 | 245 | — | — | ||||||||||||||||||||||||
|
Corporate bonds:
|
||||||||||||||||||||||||||||||||
|
U.S.
|
414 | — | 414 | — | 357 | — | 357 | — | ||||||||||||||||||||||||
|
Non-U.S.
|
88 | — | 88 | — | 89 | — | 89 | — | ||||||||||||||||||||||||
|
Government and agency bonds:
|
||||||||||||||||||||||||||||||||
|
U.S.
|
9 | — | 9 | — | 21 | — | 21 | — | ||||||||||||||||||||||||
|
Non-U.S.
|
31 | — | 31 | — | 21 | — | 21 | — | ||||||||||||||||||||||||
|
Municipal Bonds
|
42 | — | 42 | — | 17 | — | 17 | — | ||||||||||||||||||||||||
|
Commingled funds:
|
||||||||||||||||||||||||||||||||
|
Equities
|
366 | — | 366 | — | 298 | — | 298 | — | ||||||||||||||||||||||||
|
Fixed Income
|
73 | — | 73 | — | 46 | — | 46 | — | ||||||||||||||||||||||||
|
Mortgage and asset backed securities
|
27 | — | 27 | — | 26 | — | 26 | — | ||||||||||||||||||||||||
|
Real estate
|
70 | 7 | 44 | 19 | 60 | 4 | 38 | 18 | ||||||||||||||||||||||||
|
Limited partnerships
|
20 | — | — | 20 | 24 | — | — | 24 | ||||||||||||||||||||||||
|
Hedge funds
|
196 | — | 196 | — | 174 | — | 174 | — | ||||||||||||||||||||||||
|
Guaranteed insurance contracts
|
— | — | — | — | 8 | — | — | 8 | ||||||||||||||||||||||||
|
Total
|
$ | 2,064 | $ | 675 | $ | 1,350 | $ | 39 | $ | 1,754 | $ | 562 | $ | 1,142 | $ | 50 | ||||||||||||||||
|
Other items to reconcile to fair value of plan assets
|
(5 | ) | 13 | |||||||||||||||||||||||||||||
|
Total pension assets at fair value
|
$ | 2,059 | $ | 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.
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
Municipal bonds
— These investments are valued
based on quoted market prices, yield curves and pricing models
using current market rates.
Commingled funds
— 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.
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.
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the changes in fair value of
Level 3 investments for the years ended July 31, 2011
and August 1, 2010:
|
Real
|
Limited
|
Guaranteed Insurance
|
||||||||||||||
| Estate | Partnerships | Contracts | Total | |||||||||||||
|
Fair value at August 1, 2010
|
$ | 18 | $ | 24 | $ | 8 | $ | 50 | ||||||||
|
Actual return on plan assets
|
4 | 4 | (2 | ) | 6 | |||||||||||
|
Purchases
|
— | — | — | — | ||||||||||||
|
Sales
|
(3 | ) | (8 | ) | — | (11 | ) | |||||||||
|
Settlements
|
— | — | (6 | ) | (6 | ) | ||||||||||
|
Transfers out of Level 3
|
— | — | — | — | ||||||||||||
|
Fair value at July 31, 2011
|
$ | 19 | $ | 20 | $ | — | $ | 39 | ||||||||
|
Real
|
Limited
|
Guaranteed Insurance
|
||||||||||||||
| Estate | Partnerships | Contracts | Total | |||||||||||||
|
Fair value at August 2, 2009
|
$ | 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 August 1, 2010
|
$ | 18 | $ | 24 | $ | 8 | $ | 50 | ||||||||
The company contributed $55 to U.S. plans in the first
quarter of 2012. Additional contributions to U.S. plans are
not expected in 2012. Contributions to
non-U.S. plans
are expected to be approximately $10 in 2012.
Estimated
future benefit payments are as follows:
| Pension | Postretirement | |||||||
|
2012
|
$ | 147 | $ | 30 | ||||
|
2013
|
$ | 150 | $ | 31 | ||||
|
2014
|
$ | 150 | $ | 31 | ||||
|
2015
|
$ | 154 | $ | 32 | ||||
|
2016
|
$ | 158 | $ | 32 | ||||
|
2017-2021
|
$ | 856 | $ | 163 | ||||
The benefit payments include payments from funded and unfunded
plans.
Estimated future Medicare subsidy receipts are approximately $3
annually from 2012 through 2016, and $15 cumulatively for the
period 2017 through 2021.
Savings Plan
— The company sponsors employee
savings plans which cover substantially all U.S. employees.
Effective January 1, 2011, the company provides 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 receive a contribution equal to 3% of
compensation regardless of their participation in the Savings
Plan. Prior to January 1, 2011, the company provided 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
$20 in 2011, $17 in 2010, and $18 in 2009.
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 12. | Taxes on Earnings |
The provision for income taxes on earnings from continuing
operations consists of the following:
| 2011 | 2010 | 2009 | ||||||||||
|
Income taxes:
|
||||||||||||
|
Currently payable
|
||||||||||||
|
Federal
|
$ | 215 | $ | 253 | $ | 145 | ||||||
|
State
|
27 | 46 | 12 | |||||||||
|
Non-U.S.
|
78 | 45 | 46 | |||||||||
| 320 | 344 | 203 | ||||||||||
|
Deferred
|
||||||||||||
|
Federal
|
47 | 38 | 142 | |||||||||
|
State
|
(2 | ) | 1 | 9 | ||||||||
|
Non-U.S.
|
1 | 15 | (7 | ) | ||||||||
| 46 | 54 | 144 | ||||||||||
| $ | 366 | $ | 398 | $ | 347 | |||||||
|
Earnings from continuing operations before income taxes:
|
||||||||||||
|
United States
|
$ | 944 | $ | 1,051 | $ | 976 | ||||||
|
Non-U.S.
|
224 | 191 | 103 | |||||||||
| $ | 1,168 | $ | 1,242 | $ | 1,079 | |||||||
The following is a reconciliation of the effective income tax
rate on continuing operations with the U.S. federal
statutory income tax rate:
| 2011 | 2010 | 2009 | ||||||||||
|
Federal statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes (net of federal tax benefit)
|
1.4 | 2.5 | 1.7 | |||||||||
|
Tax effect of international items
|
(2.1 | ) | (2.5 | ) | (0.8 | ) | ||||||
|
Settlement of tax contingencies
|
(0.5 | ) | (0.7 | ) | (1.0 | ) | ||||||
|
Federal manufacturing deduction
|
(1.8 | ) | (1.3 | ) | (1.0 | ) | ||||||
|
Other
|
(0.7 | ) | (1.0 | ) | (1.7 | ) | ||||||
|
Effective income tax rate
|
31.3 | % | 32.0 | % | 32.2 | % | ||||||
During 2011, the company recorded a tax benefit of $8 following
the finalization of tax audits.
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 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 2009, the company recorded a tax benefit of $11 following the
finalization of tax audits.
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred tax liabilities and assets are comprised of the
following:
| 2011 | 2010 | |||||||
|
Depreciation
|
$ | 253 | $ | 221 | ||||
|
Amortization
|
474 | 449 | ||||||
|
Other
|
14 | 13 | ||||||
|
Deferred tax liabilities
|
741 | 683 | ||||||
|
Benefits and compensation
|
307 | 319 | ||||||
|
Pension benefits
|
93 | 134 | ||||||
|
Tax loss carryforwards
|
84 | 67 | ||||||
|
Capital loss carryforwards
|
122 | 101 | ||||||
|
Other
|
83 | 76 | ||||||
|
Gross deferred tax assets
|
689 | 697 | ||||||
|
Deferred tax asset valuation allowance
|
(156 | ) | (123 | ) | ||||
|
Net deferred tax assets
|
533 | 574 | ||||||
|
Net deferred tax liability
|
$ | 208 | $ | 109 | ||||
At July 31, 2011, U.S. and
non-U.S. subsidiaries
of the company have tax loss carryforwards of approximately
$395. Of these carryforwards, $163 expire between 2012 and 2028,
and $232 may be carried forward indefinitely. The current
statutory tax rates in these countries range from 20% to 35%. At
July 31, 2011, deferred tax asset valuation allowances have
been established to offset $132 of these tax loss carryforwards.
Additionally, at July 31, 2011,
non-U.S. subsidiaries
of the company have capital loss carryforwards of approximately
$406, which are fully offset by deferred tax asset valuation
allowances.
The net change in the deferred tax asset valuation allowance in
2011 was an increase of $33. The increase was primarily due to
the impact of currency and recognition of additional valuation
allowances on foreign loss carryforwards. 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.
As of July 31, 2011, U.S. income taxes have not been
provided on approximately $420 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.
A reconciliation of the activity related to unrecognized tax
benefits follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Balance at beginning of year
|
$ | 36 | $ | 42 | $ | 54 | ||||||
|
Increases related to prior-year tax positions
|
6 | 14 | — | |||||||||
|
Decreases related to prior-year tax positions
|
(4 | ) | (11 | ) | (11 | ) | ||||||
|
Increases related to current-year tax positions
|
9 | 4 | 4 | |||||||||
|
Settlements
|
— | (11 | ) | (2 | ) | |||||||
|
Lapse of statute
|
(4 | ) | (2 | ) | (3 | ) | ||||||
|
Balance at end of year
|
$ | 43 | $ | 36 | $ | 42 | ||||||
As of July 31, 2011, August 1, 2010, and
August 2, 2009, there were $17, $22, and $28, 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
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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
Consolidated Statements of Earnings was a benefit of $1 in 2011,
an expense of $2 in 2010 and a benefit of $1 in 2009. The total
amount of interest and penalties recognized in the Consolidated
Balance Sheets as of July 31, 2011, and August 1,
2010, was $8 and $9, respectively.
None of the unrecognized tax benefit liabilities, including
interest and penalties, are expected to be settled within the
next twelve months. The $51 and $45 of unrecognized tax benefit
liabilities, including interest and penalties, were reported as
other non-current liabilities in the Consolidated Balance Sheets
as of July 31, 2011, and August 1, 2010, respectively.
The company does business globally and, as a result, files
income tax returns in the U.S. federal jurisdiction and
various state and
non-U.S. 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 2011 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.
With limited exceptions, the company has been audited for income
tax purposes in Canada and France through fiscal year 2005, in
Germany through fiscal year 2007, and in Belgium and Australia
through fiscal year 2009.
| 13. | Short-term Borrowings and Long-term Debt |
Short-term borrowings consist of the following:
| 2011 | 2010 | |||||||
|
Commercial paper
|
$ | 563 | $ | 96 | ||||
|
Current portion of long-term debt
|
— | 700 | ||||||
|
Variable-rate bank borrowings
|
92 | 34 | ||||||
|
Fixed-rate borrowings
|
1 | 1 | ||||||
|
Capital leases
|
1 | 1 | ||||||
|
Other(1)
|
— | 3 | ||||||
| $ | 657 | $ | 835 | |||||
| (1) | Other includes unamortized net premium/discount on debt issuances and unamortized gain on a terminated interest rate swap. |
As of July 31, 2011, the weighted-average interest rate of
commercial paper, which consisted of U.S. borrowings, was
0.33%. As of August 1, 2010, the weighted-average interest
rate of commercial paper, which consisted of
U.S. borrowings, was 0.24%.
At July 31, 2011, the company had $45 of standby letters of
credit issued on behalf of the company. The company had a $975
committed
364-day
revolving credit facility that matured in September 2011, and a
$975 revolving credit facility that was due to mature in
September 2013. In September 2011, the company entered into
committed revolving credit facilities totaling $2,000. The
facilities are comprised of a $1,500 facility that matures in
September 2016, and a $500,
364-day
facility that contains a one-year term-out feature. These
facilities replaced the two $975 revolving credit facilities.
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Long-term Debt consists of the following:
|
Type
|
Fiscal Year of Maturity | Rate | 2011 | 2010 | ||||||||||||
|
Notes
|
2011 | 6.75 | % | $ | — | $ | 700 | |||||||||
|
Notes
|
2013 | 5.00 | % | 400 | 400 | |||||||||||
|
Notes
|
2014 | 4.88 | % | 300 | 300 | |||||||||||
|
Notes
|
2015 | 3.38 | % | 300 | 300 | |||||||||||
|
Notes
|
2017 | 3.05 | % | 400 | 400 | |||||||||||
|
Notes
|
2019 | 4.50 | % | 300 | 300 | |||||||||||
|
Notes
|
2021 | 4.25 | % | 500 | — | |||||||||||
|
Debentures
|
2021 | 8.88 | % | 200 | 200 | |||||||||||
|
Fixed-rate borrowings
|
— | 1 | ||||||||||||||
|
Capital leases
|
— | 1 | ||||||||||||||
|
Other(1)
|
27 | 43 | ||||||||||||||
|
Total
|
2,427 | 2,645 | ||||||||||||||
|
Less current portion
|
— | 700 | ||||||||||||||
|
Total long-term debt
|
$ | 2,427 | $ | 1,945 | ||||||||||||
| (1) | Other includes unamortized net premium/discount on debt issuances 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 April 2011, the company issued $500 of 4.25% notes which
mature on April 15, 2021. Interest on the notes is due
semi-annually on April 15 and October 15, commencing on
October 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 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.
The fair value of the company’s long-term debt, including
the current portion of long-term debt in Short-term borrowings,
was $2,603 at July 31, 2011 and $2,829 at August 1,
2010.
Principal amounts of debt mature as follows: none in 2012; $400
in 2013; $300 in 2014; $300 in 2015; none in 2016; and beyond a
total of $1,400.
| 14. | Financial Instruments |
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings,
excluding the current portion of long-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.
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company is exposed to the risk that counterparties to
derivative contracts will fail to meet their contractual
obligations. The company minimizes 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 July 31, 2011.
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 subsidiaries. Principal currencies hedged include the
Australian dollar, Canadian dollar, euro, Swedish krona, New
Zealand dollar, British pound and Japanese yen. 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, the
company enters into cross-currency swap contracts for periods
consistent with the underlying debt. As of July 31, 2011,
cross-currency swap contracts mature in fiscal 2012 through
fiscal 2015. The notional amount of foreign exchange forward and
cross-currency swap contracts accounted for as cash-flow hedges
was $287 and $261 at July 31, 2011 and August 1, 2010,
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 Consolidated 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 $861
and $757 at July 31, 2011 and August 1, 2010,
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 totaled $500 at July 31, 2011 and at
August 1, 2010.
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. The company enters into
commodity futures and option contracts to hedge a portion of
commodity requirements for periods typically up to
12 months. The notional amount of commodity contracts
accounted for as cash-
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
flow hedges was $6 at July 31, 2011 and $7 at
August 1, 2010. The notional amount of commodity contracts
that were not designated as accounting hedges was $81 at
July 31, 2011 and $43 at August 1, 2010.
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, or beginning in January 2011, the total return of
the Vanguard International Stock Index. 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 on company capital
stock, the total return of the Puritan Fund, or the total return
of the iShares MSCI EAFE Index, which is expected to approximate
the total return of the Vanguard International Index. The
contracts related to the Puritan Fund matured in January 2011.
The contracts were not designated as hedges for accounting
purposes and are typically entered into for periods not
exceeding 12 months. The notional amounts of the contracts
were $71 as of July 31, 2011 and $75 as of August 1,
2010.
The following table summarizes the fair value of derivative
instruments recorded in the Consolidated Balance Sheets as of
July 31, 2011 and August 1, 2010:
| Balance Sheet Classification | 2011 | 2010 | ||||||||
|
Asset Derivatives
|
||||||||||
|
Derivatives designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Other current assets | $ | — | $ | 1 | |||||
|
Commodity derivative contracts
|
Other current assets | — | 1 | |||||||
|
Cross-currency swap contracts
|
Other assets | — | 3 | |||||||
|
Interest rate swaps
|
Other assets | 33 | 46 | |||||||
|
Total derivatives designated as hedges
|
$ | 33 | $ | 51 | ||||||
|
Derivatives not designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Other current assets | $ | — | $ | 1 | |||||
|
Commodity derivative contracts
|
Other current assets | 3 | 3 | |||||||
|
Cross-currency swap contracts
|
Other current assets | — | 13 | |||||||
|
Cross-currency swap contracts
|
Other assets | 1 | 1 | |||||||
|
Total derivatives not designated as hedges
|
$ | 4 | $ | 18 | ||||||
|
Total asset derivatives
|
$ | 37 | $ | 69 | ||||||
|
Liability Derivatives
|
||||||||||
|
Derivatives designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Accrued liabilities | $ | 7 | $ | 1 | |||||
|
Commodity derivative contracts
|
Accrued liabilities | — | 1 | |||||||
|
Cross-currency swap contracts
|
Accrued liabilities | 8 | — | |||||||
|
Cross-currency swap contracts
|
Other liabilities | 30 | 24 | |||||||
|
Total derivatives designated as hedges
|
$ | 45 | $ | 26 | ||||||
|
Derivatives not designated as hedges:
|
||||||||||
|
Foreign exchange forward contracts
|
Accrued liabilities | $ | 2 | $ | 1 | |||||
|
Commodity derivative contracts
|
Accrued liabilities | 2 | — | |||||||
|
Cross-currency swap contracts
|
Accrued liabilities | 17 | — | |||||||
|
Deferred compensation derivative contracts
|
Accrued liabilities | 3 | 2 | |||||||
|
Cross-currency swap contracts
|
Other liabilities | 74 | 14 | |||||||
|
Total derivatives not designated as hedges
|
$ | 98 | $ | 17 | ||||||
|
Total liability derivatives
|
$ | 143 | $ | 43 | ||||||
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
The following table shows the effect of the company’s
derivative instruments designated as cash-flow hedges for the
years ended July 31, 2011 and August 1, 2010 on other
comprehensive income (loss) (OCI) and the Consolidated
Statements of Earnings:
Derivatives
Designated as Cash-Flow Hedges
|
Total
|
||||||||||
|
Cash-Flow
|
||||||||||
|
Hedge
|
||||||||||
| OCI Activity | ||||||||||
| 2011 | 2010 | |||||||||
|
OCI derivative gain/(loss) at beginning of year
|
$ | (28 | ) | $ | (31 | ) | ||||
|
Effective portion of changes in fair value recognized in OCI:
|
||||||||||
|
Foreign exchange forward contracts
|
(12 | ) | (5 | ) | ||||||
|
Cross-currency swap contracts
|
— | 4 | ||||||||
|
Forward starting interest rate swaps
|
— | (14 | ) | |||||||
|
Commodity derivative contracts
|
— | 1 | ||||||||
|
Amount of (gain) or loss reclassified from OCI to earnings:
|
Location in Earnings | |||||||||
|
Foreign exchange forward contracts
|
Other expenses/income | 2 | (1 | ) | ||||||
|
Foreign exchange forward contracts
|
Cost of products sold | 4 | 17 | |||||||
|
Forward starting interest rate swaps
|
Interest expense | 3 | 1 | |||||||
|
OCI derivative gain/(loss) at end of year
|
$ | (31 | ) | $ | (28 | ) | ||||
The amount expected to be reclassified from other comprehensive
income into earnings within the next 12 months is a loss of
$11. 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 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
|
Interest rate swaps
|
Interest expense | $ | (13 | ) | $ | 8 | $ | 13 | $ | (8 | ) | |||||||||||
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 | 2011 | 2010 | |||||||
|
Foreign exchange forward contracts
|
Other expenses/income | $ | — | $ | (8 | ) | ||||
|
Foreign exchange forward contracts
|
Cost of products sold | (1 | ) | — | ||||||
|
Cross-currency swap contracts
|
Other expenses/income | (88 | ) | (12 | ) | |||||
|
Commodity derivative contracts
|
Cost of products sold | 7 | — | |||||||
|
Deferred compensation derivative contracts
|
Administrative expenses | 1 | 9 | |||||||
|
Total
|
$ | (81 | ) | $ | (11 | ) | ||||
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 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.
Financial
Assets and Financial Liabilities Measured at Fair Value on a
Recurring Basis
The following table presents the company’s financial assets
and liabilities that are measured at fair value on a recurring
basis at July 31, 2011 and August 1, 2010, consistent
with the fair value hierarchy:
|
Fair Value
|
Fair Value Measurements at
|
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||||||||||||||||
|
as of
|
July 31, 2011 Using
|
as of
|
August 1, 2010 Using
|
|||||||||||||||||||||||||||||
|
July 31,
|
Fair Value Hierarchy |
August 1,
|
Fair Value Hierarchy | |||||||||||||||||||||||||||||
| 2011 | Level 1 | Level 2 | Level 3 | 2010 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Interest rate swaps(1)
|
$ | 33 | $ | — | $ | 33 | $ | — | $ | 46 | $ | — | $ | 46 | $ | — | ||||||||||||||||
|
Foreign exchange forward contracts(2)
|
— | — | — | — | 2 | — | 2 | — | ||||||||||||||||||||||||
|
Cross-currency swap contracts(3)
|
1 | — | 1 | — | 17 | — | 17 | — | ||||||||||||||||||||||||
|
Commodity derivative contracts(5)
|
3 | 3 | — | — | 4 | 4 | — | — | ||||||||||||||||||||||||
|
Total assets at fair value
|
$ | 37 | $ | 3 | $ | 34 | $ | — | $ | 69 | $ | 4 | $ | 65 | $ | — | ||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Foreign exchange forward contracts(2)
|
$ | 9 | $ | — | $ | 9 | $ | — | $ | 2 | $ | — | $ | 2 | $ | — | ||||||||||||||||
|
Cross-currency swap contracts(3)
|
129 | — | 129 | — | 38 | — | 38 | — | ||||||||||||||||||||||||
|
Deferred compensation derivative contracts(4)
|
3 | — | 3 | — | 2 | — | 2 | — | ||||||||||||||||||||||||
|
Commodity derivative contracts(5)
|
2 | 2 | — | — | 1 | 1 | — | — | ||||||||||||||||||||||||
|
Deferred compensation obligation(6)
|
144 | 97 | 47 | — | 149 | 95 | 54 | — | ||||||||||||||||||||||||
|
Total liabilities at fair value
|
$ | 287 | $ | 99 | $ | 188 | $ | — | $ | 192 | $ | 96 | $ | 96 | $ | — | ||||||||||||||||
| (1) | Based on LIBOR swap rates. | |
| (2) | Based on observable market transactions of spot currency rates and forward rates. |
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (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. |
Items Measured
at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities measured at fair value on
a recurring basis, the company is required to measure certain
assets at fair value on a nonrecurring basis, generally as a
result of an impairment charge. In 2011, as part of the
company’s annual review of intangible assets, an impairment
charge of $3 was recognized related to the
Heisse Tasse
trademark used in the International Simple Meals and
Beverages segment. The fair value of the trademark was $11 at
July 31, 2011 based on Level 3 inputs. Fair value was
determined based on discounted cash flow analyses that include
significant management assumptions such as revenue growth rates,
weighted average cost of capital, and assumed royalty rates.
| 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 June 2008, 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 and was completed in
fiscal 2011. In June 2011, the Board authorized the purchase of
up to $1,000 of company stock. This program has no expiration
date. 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 2011, the company repurchased 21 million shares at a
cost of $728. Of the 2011 repurchases, approximately
16 million shares at a cost of $550 were made pursuant to
the company’s June 2008 publicly announced share repurchase
program, which was completed in the fourth quarter of fiscal
2011.
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.
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.
| 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
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
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. In addition, the company may issue special
grants of time-lapse restricted stock/units to attract and
retain executives which vest ratably over various periods.
Awards are generally granted annually in October. Annual stock
option grants are not part of the long-term incentive
compensation program for 2009, 2010, and 2011. 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 expense recognized in
Earnings from continuing operations was $87 for 2011, $88 for
2010, and $84 for 2009. Tax related benefits of $32 were
recognized for 2011, $33 were recognized for 2010 and $31 were
recognized for 2009.
Information about stock options and related activity is as
follows:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
| 2011 | Price | Life | Value | |||||||||||||
|
(Options in
|
(In years) | |||||||||||||||
| thousands) | ||||||||||||||||
|
Beginning of year
|
12,473 | $ | 26.47 | |||||||||||||
|
Granted
|
— | $ | — | |||||||||||||
|
Exercised
|
(3,737 | ) | $ | 26.97 | ||||||||||||
|
Terminated
|
(30 | ) | $ | 33.82 | ||||||||||||
|
End of year
|
8,706 | $ | 26.23 | 2.2 | $ | 59 | ||||||||||
|
Exercisable at end of year
|
8,706 | $ | 26.23 | 2.2 | $ | 59 | ||||||||||
The total intrinsic value of options exercised during 2011,
2010, and 2009 was $29, $33, and $30, 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.
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 1, 2010
|
2,395 | $ | 35.05 | |||||
|
Granted
|
1,585 | $ | 35.64 | |||||
|
Vested
|
(1,113 | ) | $ | 35.74 | ||||
|
Forfeited
|
(157 | ) | $ | 35.11 | ||||
|
Nonvested at July 31, 2011
|
2,710 | $ | 35.11 | |||||
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 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.
On July 1, 2011, the company issued approximately 400,000
special retention time-lapse restricted stock units to certain
executives to support the successful execution of the
company’s shift in strategic direction and leadership
transition. The awards vest over a two-year period. The
grant-date fair value was $34.65 and is included in the table
above.
As of July 31, 2011, total remaining unearned compensation
related to nonvested time-lapse restricted stock/units and EPS
performance restricted stock/units was $46, which will be
amortized over the weighted-average remaining service period of
1.7 years. The fair value of restricted stock/units vested
during 2011, 2010, and 2009 was $40, $32, and $47, respectively.
The weighted-average grant-date fair value of restricted
stock/units granted during 2010 and 2009 was $32.25 and $39.50,
respectively.
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 1, 2010
|
3,581 | $ | 38.02 | |||||
|
Granted
|
1,255 | $ | 43.18 | |||||
|
Vested
|
(1,062 | ) | $ | 34.65 | ||||
|
Forfeited
|
(343 | ) | $ | 39.74 | ||||
|
Nonvested at July 31, 2011
|
3,431 | $ | 40.78 | |||||
The company estimates the fair value of TSR performance
restricted stock/units at the grant date using a Monte Carlo
simulation. Assumptions used in the Monte Carlo simulation were
as follows:
| 2011 | 2010 | 2009 | ||||||||||
|
Risk-free interest rate
|
0.59 | % | 1.27 | % | 2.06 | % | ||||||
|
Expected dividend yield
|
3.00 | % | 3.06 | % | 2.46 | % | ||||||
|
Expected volatility
|
23.71 | % | 24.83 | % | 18.57 | % | ||||||
|
Expected term
|
3 yrs. | 3 yrs. | 3 yrs. | |||||||||
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Compensation expense is recognized on a straight-line basis over
the service period. As of July 31, 2011, total remaining
unearned compensation related to TSR performance restricted
stock/units was $53, which will be amortized over the
weighted-average remaining service period of 1.7 years. In
the first quarter of fiscal 2011, recipients of TSR performance
restricted stock/units earned 100% of their initial grants based
upon the company’s TSR ranking in a performance peer group
during a three-year period ended July 30, 2010. The total
fair value of TSR performance restricted stock/units vested
during 2011, 2010 and 2009 was $38, $31 and $58, respectively.
The grant-date fair value of TSR performance restricted
stock/units granted during 2010 and 2009 was $33.84 and $47.20,
respectively. In the first quarter of 2012, recipients of TSR
performance restricted stock/units will receive 0% of the
initial grant based upon the company’s TSR ranking in a
performance peer group during the three-year period ended
July 31, 2011.
Prior to fiscal 2009, employees could elect to defer all types
of restricted stock awards. These awards were classified as
liabilities because of the possibility that they may be settled
in cash. The fair value was adjusted quarterly. As of October
2010, these awards were fully vested. The total cash paid to
settle the liabilities in 2011, 2010, and 2009 was not material.
The excess tax benefits on the exercise of stock options and
vested restricted stock presented as cash flows from financing
activities were $11 in 2011 and 2010 and $18 in 2009. Cash
received from the exercise of stock options was $96, $139, and
$72, for 2011, 2010, and 2009, 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 $50 in 2011, $48 in 2010, and $47 in 2009.
Future minimum annual rental payments under these operating
leases are as follows:
| 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | |||||||||||||||||
| $45 | $34 | $29 | $24 | $22 | $52 | |||||||||||||||||
The company guarantees approximately 2,000 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 $162. The
company’s guarantees are indirectly secured by the
distribution routes. The company does not believe it is probable
that it will be required to make guarantee payments as a result
of defaults on the bank loans guaranteed. The amounts recognized
as of July 31, 2011 and August 1, 2010 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 $10. The
facility was drawn down in AUD $5 increments in 2009. Borrowings
under the facility are to be repaid in 2013.
The company has provided certain standard indemnifications in
connection with divestitures, contracts and other transactions.
Certain indemnifications have finite expiration dates.
Liabilities recognized based on known exposures related to such
matters were not material at July 31, 2011.
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 19. | Supplemental Financial Statement Data |
Balance
Sheets
| 2011 | 2010 | |||||||
|
Accounts receivable
|
||||||||
|
Customer accounts receivable
|
$ | 530 | $ | 483 | ||||
|
Allowances
|
(11 | ) | (17 | ) | ||||
|
Subtotal
|
519 | 466 | ||||||
|
Other
|
41 | 46 | ||||||
| $ | 560 | $ | 512 | |||||
|
Inventories
|
||||||||
|
Raw materials, containers, and supplies
|
$ | 261 | $ | 261 | ||||
|
Finished products
|
506 | 463 | ||||||
| $ | 767 | $ | 724 | |||||
|
Other current assets
|
||||||||
|
Deferred taxes
|
$ | 112 | $ | 128 | ||||
|
Fair value of derivatives
|
1 | 16 | ||||||
|
Other
|
39 | 53 | ||||||
| $ | 152 | $ | 197 | |||||
|
Plant assets
|
||||||||
|
Land
|
$ | 64 | $ | 61 | ||||
|
Buildings
|
1,224 | 1,182 | ||||||
|
Machinery and equipment
|
3,896 | 3,651 | ||||||
|
Projects in progress
|
179 | 149 | ||||||
|
Total cost
|
5,363 | 5,043 | ||||||
|
Accumulated depreciation(1)
|
(3,260 | ) | (2,992 | ) | ||||
| $ | 2,103 | $ | 2,051 | |||||
|
Other assets
|
||||||||
|
Fair value of derivatives
|
$ | 20 | $ | 34 | ||||
|
Deferred taxes
|
47 | 21 | ||||||
|
Other
|
69 | 55 | ||||||
| $ | 136 | $ | 110 | |||||
|
Accrued liabilities
|
||||||||
|
Accrued compensation and benefits
|
$ | 231 | $ | 229 | ||||
|
Fair value of derivatives
|
37 | 2 | ||||||
|
Accrued trade and consumer promotion programs
|
132 | 129 | ||||||
|
Accrued interest
|
32 | 47 | ||||||
|
Restructuring
|
39 | 1 | ||||||
|
Other
|
148 | 152 | ||||||
| $ | 619 | $ | 560 | |||||
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2011 | 2010 | |||||||
|
Other liabilities
|
||||||||
|
Pension benefits
|
$ | 319 | $ | 500 | ||||
|
Deferred compensation(2)
|
144 | 149 | ||||||
|
Postretirement benefits
|
344 | 332 | ||||||
|
Fair value of derivatives
|
90 | 22 | ||||||
|
Unrecognized tax benefits
|
51 | 45 | ||||||
|
Other
|
35 | 31 | ||||||
| $ | 983 | $ | 1,079 | |||||
| (1) | Depreciation expense was $265 in 2011, $251 in 2010, and $264 in 2009. 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. Deferrals and company contributions are credited to an investment account in the participant’s name, although no funds are actually contributed to the investment account and no investments 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 the performance of the Vanguard Institutional Index; (3) a book account that tracks the performance of the Vanguard Extended Market Index; (4) a book account that tracks the performance of the Vanguard Total International Stock Fund; (5) a book account that tracks the performance of the Vanguard Total Bond Market Index; and (6) a book account that tracks the performance of Charles Schwab Stable Value Fund. Participants can reallocate investments daily and are entitled to the gains and losses on investment funds. The company recognizes an amount in the Consolidated Statements of Earnings for the market appreciation/depreciation of each fund. |
Statements
of Earnings
| 2011 | 2010 | 2009 | ||||||||||
|
Other Expenses/(Income)
|
||||||||||||
|
Foreign exchange (gains)/losses
|
$ | 5 | $ | 1 | $ | (7 | ) | |||||
|
Amortization/impairment of intangible and other assets(1)
|
3 | — | 67 | |||||||||
|
Other
|
5 | 3 | 1 | |||||||||
| $ | 13 | $ | 4 | $ | 61 | |||||||
|
Interest expense
|
||||||||||||
|
Interest expense
|
$ | 123 | $ | 116 | $ | 114 | ||||||
|
Less: Interest capitalized
|
1 | 4 | 4 | |||||||||
| $ | 122 | $ | 112 | $ | 110 | |||||||
| (1) | In 2011, a $3 impairment charge was recognized related to a trademark. In 2009, a $67 impairment charge was recognized on certain trademarks. See also Note 5. |
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Statements
of Cash Flows
|
Cash Flows From Operating Activities
|
2011 | 2010 | 2009 | |||||||||
|
Other non-cash charges to net earnings
|
||||||||||||
|
Non-cash compensation/benefit related expense
|
$ | 104 | $ | 90 | $ | 59 | ||||||
|
Other
|
4 | 9 | (2 | ) | ||||||||
| $ | 108 | $ | 99 | $ | 57 | |||||||
|
Other
|
||||||||||||
|
Benefit related payments
|
$ | (48 | ) | $ | (58 | ) | $ | (52 | ) | |||
|
Other
|
(7 | ) | (12 | ) | 7 | |||||||
| $ | (55 | ) | $ | (70 | ) | $ | (45 | ) | ||||
|
Other Cash Flow Information
|
||||||||||||
|
Interest paid
|
$ | 142 | $ | 118 | $ | 120 | ||||||
|
Interest received
|
$ | 11 | $ | 6 | $ | 4 | ||||||
|
Income taxes paid
|
$ | 304 | $ | 333 | $ | 144 | ||||||
| 20. | Quarterly Data (unaudited) |
| 2011 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
|
Net sales
|
$ | 2,172 | $ | 2,127 | $ | 1,813 | $ | 1,607 | ||||||||
|
Gross profit
|
894 | 838 | 732 | 639 | ||||||||||||
|
Net earnings attributable to Campbell Soup Company(1)
|
279 | 239 | 187 | 100 | ||||||||||||
|
Per share — basic
|
||||||||||||||||
|
Net earnings attributable to Campbell Soup Company
|
0.82 | 0.72 | 0.58 | 0.31 | ||||||||||||
|
Dividends
|
0.275 | 0.29 | 0.29 | 0.29 | ||||||||||||
|
Per share — assuming dilution
|
||||||||||||||||
|
Net earnings attributable to Campbell Soup Company(1)
|
0.82 | 0.71 | 0.57 | 0.31 | ||||||||||||
|
Market price
|
||||||||||||||||
|
High
|
$ | 37.59 | $ | 36.99 | $ | 35.00 | $ | 35.66 | ||||||||
|
Low
|
$ | 35.32 | $ | 33.44 | $ | 32.66 | $ | 32.80 | ||||||||
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2010 | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
|
Net sales
|
$ | 2,203 | $ | 2,153 | $ | 1,802 | $ | 1,518 | ||||||||
|
Gross profit
|
923 | 871 | 743 | 613 | ||||||||||||
|
Net earnings attributable to Campbell Soup Company(2)
|
304 | 259 | 168 | 113 | ||||||||||||
|
Per share — basic
|
||||||||||||||||
|
Net earnings attributable to Campbell Soup Company
|
0.87 | 0.74 | 0.49 | 0.33 | ||||||||||||
|
Dividends
|
0.25 | 0.275 | 0.275 | 0.275 | ||||||||||||
|
Per share — assuming dilution
|
||||||||||||||||
|
Net earnings attributable to Campbell Soup Company(2)
|
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 | ||||||||
| (1) | Includes a $41 ($.12 per diluted share) restructuring charge in the fourth quarter related to the 2011 initiatives to improve supply chain efficiency, reduce overhead costs, and exit the Russian market. See also Note 7. | |
| (2) | 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. |
73
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 registered public accounting firm. The
independent registered public accounting firm 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 registered public
accounting firm 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
July 31, 2011. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal
Control — Integrated Framework
. Based on this
assessment using those criteria, management concluded that the
company’s internal control over financial reporting was
effective as of July 31, 2011.
74
The effectiveness of the company’s internal control over
financial reporting as of July 31, 2011 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which appears herein.
/s/ Denise
M. Morrison
Denise M. Morrison
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 28, 2011
75
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 July 31, 2011 and August 1, 2010, and the results
of their operations and their cash flows for each of the three
fiscal years in the period ended July 31, 2011 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
July 31, 2011, 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 and financial statement schedule, 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, on the financial statement schedule, 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 that our audits
provide a reasonable basis for our opinions.
As discussed in Note 9 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.
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 28, 2011
76
| 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 July 31, 2011. 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
July 31, 2011, 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
pages 74-75.
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.
There were no 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.
| 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 17, 2011 (the 2011 Proxy) are incorporated herein
by reference. The information presented in the section entitled
“Corporate Governance — Board Committee
Structure” in the 2011 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,
Principal Accounting Officer, Controller and members of the
Chief Financial Officer’s financial leadership team. The
Code of Ethics for the Chief Executive Officer and Senior
Financial Officers is posted on the company’s website,
www.campbellsoupcompany.com
(under the
“Governance” caption). The company intends to satisfy
the disclosure requirement regarding any amendment to, or a
waiver of, a provision of the Code of Ethics for the Chief
Executive Officer and Senior Financial Officers by posting such
information on its website.
The company has also adopted a separate Code of Business Conduct
and Ethics applicable to the Board of Directors, the
company’s officers and all of the company’s employees.
The Code of Business Conduct and Ethics is posted on the
company’s website,
www.campbellsoupcompany.com
(under the “Governance” caption). The company’s
Corporate Governance Standards and the charters of the
company’s four standing committees of the Board of
Directors can also be found at this website. Printed copies of
the foregoing are available to any shareowner requesting a copy
by:
| • | writing to 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. |
77
| Item 11. | Executive Compensation |
The information presented in the sections entitled
“Compensation Discussion and Analysis,” “Fiscal
2011 Summary Compensation Table,” “Grants of
Plan-Based Awards in Fiscal 2011,” “Outstanding Equity
Awards at 2011 Fiscal Year-End,” “Option Exercises and
Stock Vested in Fiscal 2011,” “Pension
Benefits — Fiscal 2011,” “Nonqualified
Deferred Compensation — Fiscal 2011,”
“Potential Payments Upon Termination or Change in
Control,” “Fiscal 2011 Director
Compensation,” “Corporate Governance —
Compensation and Organization Committee Interlocks and Insider
Participation” and “Compensation and Organization
Committee Report” in the 2011 Proxy is incorporated herein
by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters |
The information presented in the sections entitled
“Security Ownership of Directors and Executive
Officers” and “Security Ownership of Certain
Beneficial Owners” in the 2011 Proxy is incorporated herein
by reference.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table provides information about the
company’s stock that could have been issued under the
company’s equity compensation plans as of July 31,
2011:
|
Number of Securities
|
||||||||||||
|
Number of
|
Weighted-
|
Remaining Available
|
||||||||||
|
Securities to be
|
Average
|
For
|
||||||||||
|
Issued Upon
|
Exercise Price
|
Future Issuance Under
|
||||||||||
|
Exercise of
|
of
|
Equity Compensation
|
||||||||||
|
Outstanding
|
Outstanding
|
Plans
|
||||||||||
|
Options,
|
Options,
|
(Excluding Securities
|
||||||||||
|
Warrants
|
Warrants and
|
Reflected in the First
|
||||||||||
|
Plan Category
|
and Rights(a) | Rights(b) | Column)(c) | |||||||||
|
Equity Compensation Plans Approved by Security Holders(1)
|
14,842,965 | $ | 26.23 | 12,099,132 | ||||||||
|
Equity Compensation Plans Not Approved by Security Holders
|
N/A | N/A | N/A | |||||||||
|
Total
|
14,842,965 | $ | 26.23 | 12,099,132 | ||||||||
| (1) | Column (a) represents stock options and restricted stock units outstanding under the 2005 Long-Term Plan, the 2003 Long-Term Plan and the 1994 Long-Term Plan. No additional awards can be made under the 1994 Long-Term Plan. Future equity awards under the 2005 Long-Term Plan and the 2003 Long-Term Plan may take the form of stock options, SARs, performance unit awards, restricted stock, restricted performance stock, restricted stock units or stock awards. Column (b) represents the weighted-average exercise price of the outstanding stock options only; the outstanding restricted stock and restricted stock units are not included in this calculation. Column (c) represents the maximum aggregate number of future equity awards that can be made under the 2005 Long-Term Plan and the 2003 Long-Term Plan as of July 31, 2011. The maximum number of future equity awards that can be made under the 2005 Long-Term Plan as of July 31, 2011 is 10,500,021. The maximum number of future equity awards that can be made under the 2003 Long-Term Plan as of July 31, 2011 is 1,599,111 (the 2003 Plan Limit). Each stock option or SAR awarded under the 2003 Long-Term Plan reduces the 2003 Plan Limit by one share. Each restricted stock unit, restricted stock, restricted performance stock unit, restricted performance stock or stock award under the 2003 Long-Term Plan reduces the 2003 Plan Limit by four shares. In the event any award (or portion thereof) under the 1994 Long-Term Plan lapses, expires or is otherwise terminated without the issuance of any company stock or is settled by delivery of consideration other than company stock, the maximum number of future equity awards that can be made under the 2003 Long-Term Plan automatically increases by the number of such shares. |
78
| 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 2011 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 2011 Proxy is incorporated herein by
reference.
| 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 2011, 2010 and 2009 | |
| • | Consolidated Balance Sheets as of July 31, 2011 and August 1, 2010 | |
| • | Consolidated Statements of Cash Flows for 2011, 2010 and 2009 | |
| • | Consolidated Statements of Equity for 2011, 2010 and 2009 | |
| • | Notes to Consolidated Financial Statements | |
| • | Management’s Report on Internal Control Over Financial Reporting | |
| • | Report of Independent Registered Public Accounting Firm |
| 2. | Financial Statement Schedule |
| • | II — Valuation and Qualifying Accounts for 2011, 2010, and 2009 |
| 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 August 1, 2011, were filed with the SEC on a Form 8-K (SEC file number 1-3822) on June 24, 2011, and are incorporated herein by reference. | |
|
4(a)
|
With respect to Campbell’s 5.000% notes due 2012 and 4.875% notes 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, 4.500% notes due 2019, and 4.250% notes due 2021, 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. |
79
|
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, as amended and restated on November 18, 2010, was filed with the SEC with Campbell’s 2010 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 Plan, 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)
|
First Amendment to the Campbell Soup Company Mid-Career Hire Pension Plan, effective as of December 31, 2010, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended January 30, 2011, and is incorporated herein by reference. | |
|
10(g)
|
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(h)
|
Campbell Soup Company Supplemental Retirement Plan (formerly known as Deferred Compensation Plan II), as amended and restated effective as of January 1, 2011. | |
|
10(i)
|
Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant, President and Chief Executive Officer through fiscal 2011, 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(j)
|
Amendment to the Severance Protection Agreement dated February 26, 2008, with Douglas R. Conant, President and Chief Executive Officer through fiscal 2011, 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(k)
|
Form of U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 and before August 1, 2011 (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(l)
|
Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 and before August 1, 2011, 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(m)
|
Form of U.S. Severance Protection Agreement, which is applicable to executives hired on or after August 1, 2011. | |
|
10(n)
|
Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired on or after August 1, 2011. |
80
|
10(o)
|
Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2011, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended May 1, 2011, and is incorporated herein by reference. | |
|
10(p)
|
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(q)
|
First Amendment to the Campbell Soup Company Supplemental Employees’ Retirement Plan, effective as of December 31, 2010, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended January 30, 2011, and is incorporated herein by reference. | |
|
10(r)
|
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. | |
|
10(s)
|
Form of 2005 Long-Term Incentive Plan Time-Lapse Restricted Stock Unit Agreement, which is applicable to the July 1, 2011 restricted stock unit grants to each of B. Craig Owens and Ellen O. Kaden, was filed with the SEC on a Form 8-K (SEC file number 1-3822) on July 1, 2011, 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 Denise M. Morrison pursuant to Rule 13a-14(a). | |
|
31(b)
|
Certification of B. Craig Owens pursuant to Rule 13a-14(a). | |
|
32(a)
|
Certification of Denise M. Morrison 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 | |
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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 |
81
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 28, 2011
CAMPBELL SOUP COMPANY
| By: |
/s/ B.
Craig Owens
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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 28, 2011
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/s/ B.
Craig Owens
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/s/ Anthony
P. DiSilvestro
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B. Craig Owens
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Anthony P. DiSilvestro | |
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Senior Vice President — Chief Financial
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Senior Vice President — Finance | |
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Officer and Chief Administrative Officer
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(Principal Accounting Officer) |
| Paul R. Charron | Chairman and Director | } | ||||
| Denise M. Morrsion | 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
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| 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 | } |
82
Schedule II
CAMPBELL
SOUP COMPANY
Valuation and Qualifying Accounts
For the Fiscal Years ended July 31, 2011, August 1, 2010, and August 2, 2009
Valuation and Qualifying Accounts
For the Fiscal Years ended July 31, 2011, August 1, 2010, and August 2, 2009
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Charged to/
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||||||||||||||||
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(Reduction in)
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||||||||||||||||
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Balance at
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Costs
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Balance at
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||||||||||||||
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Beginning of
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and
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End of
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||||||||||||||
| Period | Expenses | Deductions | Period | |||||||||||||
| (Dollars in millions) | ||||||||||||||||
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Fiscal year ended July 31, 2011
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||||||||||||||||
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Cash discount
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$ | 5 | $ | 113 | $ | (113 | ) | $ | 5 | |||||||
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Bad debt reserve
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4 | 2 | (4 | ) | 2 | |||||||||||
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Returns reserve(1)
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8 | (2 | ) | (2 | ) | 4 | ||||||||||
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Total Accounts receivable allowances
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$ | 17 | $ | 113 | $ | (119 | ) | $ | 11 | |||||||
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Fiscal year ended August 1, 2010
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||||||||||||||||
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Cash discount
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$ | 5 | $ | 116 | $ | (116 | ) | $ | 5 | |||||||
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Bad debt reserve
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3 | 2 | (1 | ) | 4 | |||||||||||
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Returns reserve(1)
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11 | (3 | ) | — | 8 | |||||||||||
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Total Accounts receivable allowances
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$ | 19 | $ | 115 | $ | (117 | ) | $ | 17 | |||||||
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Fiscal year ended August 2, 2009
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Cash discount
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$ | 5 | $ | 116 | $ | (116 | ) | $ | 5 | |||||||
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Bad debt reserve
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5 | 1 | (3 | ) | 3 | |||||||||||
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Returns reserve(1)
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11 | — | — | 11 | ||||||||||||
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Total Accounts receivable allowances
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$ | 21 | $ | 117 | $ | (119 | ) | $ | 19 | |||||||
| (1) | The returns reserve is evaluated quarterly and adjusted accordingly. During each period, returns are charged to net sales in the Consolidated Statements of Earnings as incurred. Actual returns were approximately $145 in 2011, $130 in 2010, and $140 in 2009, or less than 2% of net sales. |
83
INDEX OF EXHIBITS
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3(i)
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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. | |
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3(ii)
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Campbell’s By-Laws, effective August 1, 2011, were filed with the SEC on a Form 8-K (SEC file number 1-3822) on June 24, 2011, and are incorporated herein by reference. | |
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4(a)
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With respect to Campbell’s 5.000% notes due 2012 and 4.875% notes 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. | |
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4(b)
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With respect to Campbell’s 3.375% notes due 2014, 3.050% notes due 2014, 4.500% notes due 2019, and 4.250% notes due 2021, 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. | |
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4(c)
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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. | |
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9
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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. | |
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10(a)
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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. | |
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10(b)
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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. | |
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10(c)
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Campbell Soup Company 2005 Long-Term Incentive Plan, as amended and restated on November 18, 2010, was filed with the SEC with Campbell’s 2010 Proxy Statement (SEC file number 1-3822), and is incorporated herein by reference. | |
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10(d)
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Campbell Soup Company Annual Incentive Plan, as amended on November 18, 2004, |
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was filed with the SEC with Campbell’s 2004 Proxy Statement (SEC file number 1-3822), and is incorporated herein by reference. | |
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10(e)
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Campbell Soup Company Mid-Career Hire Pension Plan, 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. | |
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10(f)
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First Amendment to the Campbell Soup Company Mid-Career Hire Pension Plan, effective as of December 31, 2010, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended January 30, 2011, and is incorporated herein by reference. | |
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10(g)
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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. | |
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10(h)
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Campbell Soup Company Supplemental Retirement Plan (formerly known as Deferred Compensation Plan II), as amended and restated effective as of January 1, 2011. | |
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10(i)
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Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant, President and Chief Executive Officer through fiscal 2011, 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(j)
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Amendment to the Severance Protection Agreement dated February 26, 2008, with Douglas R. Conant, President and Chief Executive Officer through fiscal 2011, 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(k)
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Form of U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 and before August 1, 2011 (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(l)
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Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired after March 1, 2008 and before August 1, 2011, 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(m)
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Form of U.S. Severance Protection Agreement, which is applicable to executives hired on or after August 1, 2011. | |
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10(n)
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Form of Non-U.S. Severance Protection Agreement, which is applicable to executives hired on or after August 1, 2011. | |
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10(o)
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Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2011, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended May 1, 2011, and is |
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incorporated herein by reference. | |
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10(p)
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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. | |
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10(q)
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First Amendment to the Campbell Soup Company Supplemental Employees’ Retirement Plan, effective as of December 31, 2010, was filed with the SEC with Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended January 30, 2011, and is incorporated herein by reference. | |
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10(r)
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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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10(s)
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Form of 2005 Long-Term Incentive Plan Time-Lapse Restricted Stock Unit Agreement, which is applicable to the July 1, 2011 restricted stock unit grants to each of B. Craig Owens and Ellen O. Kaden, was filed with the SEC on a Form 8-K (SEC file number 1-3822) on July 1, 2011, 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 Denise M. Morrison 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 Denise M. Morrison 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 Financial Condition and Results Of OperationsprintItem 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