EXHIBIT 10(h)
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release ("Agreement"), between
Andrew K. Hughson ("Employee") and Campbell Soup Company ("Company"), is made
with respect to the following facts:
A. Company has decided to sever its employment relationship
with Employee effective September 30, 2002 ("Termination Date"). In
consideration of Employee's signing this Agreement and releasing Company from
any and all claims which he might have against it, Company will, upon the
termination of Employee's employment, provide Employee with the severance pay
and benefits set forth below.
B. In exchange for the promises, payments and benefits
described in this Agreement, the parties execute this Agreement in favor of and
for the benefit of the other as follows:
1. Severance.
a. 58 Week Period.
(i) Company agrees to continue Employee's
current base salary (less required payroll taxes and other withholdings) for a
period of fifty-eight (58) weeks ("58 Week Period") beginning subsequent to
Employee's Termination Date and following payment for Employee's vacation time
of four (4) weeks, as more fully set forth in paragraph B.1.b. (titled Periodic
Payments), provided that Employee does not in the 58 Week Period accept
employment or a consulting assignment, directly or indirectly, with or for a
Competitor of the Company, as that term is defined in this paragraph. If
Employee accepts employment or a consulting assignment with or for a Competitor,
directly or indirectly, or otherwise engages in competition with the Company, in
any manner during the 58 Week Period, all payments and benefits otherwise
provided under the terms of this Agreement to the extent yet unpaid will cease
and Company shall be entitled to exercise all rights and remedies available to
the Company under this Agreement, under the Non-Competition Agreement identified
in paragraph 7, and otherwise available to the Company at law or in equity. For
the purpose of this Agreement, a Competitor of the Company is defined to mean
any person, business, firm, corporation or other enterprise engaged in, or about
to become engaged in, the production, marketing or selling of any product or
service which resembles or competes with a product or service produced, marketed
or sold by the Company (or to Employee's knowledge was under development by the
Company), or any of the Company's corporate affiliates or subsidiaries.
(ii) During the 58 Week Period Employee's
coverage will be continued under the Company's group life and group medical
insurance plans (provided Employee makes required contributions); all other
benefits coverage shall cease. If Employee obtains employment at any time during
the 58 Week Period Company benefits coverage will cease at the time that
Employee becomes eligible for benefits coverage from the new employer. If the
Employee loses such benefits coverage from the new employer during the 58 Week
Period, Employee shall not be entitled to coverage under the Company's group
life and group medical insurance plans. During the 58 Week Period, Employee
agrees to notify Company's Senior Vice President - Law and Government Affairs in
writing within ten (10) business days of commencing alternate employment
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and to set forth in such notice (i) the full name of Employee's new employer;
(ii) Employee's title and a description of the areas of responsibility in his
position with the new employer; and (iii) Employee's commencement date and the
date when Employee will become eligible for benefits coverage from his new
employer.
b. Periodic Payments. Periodic Payments of Employee's current
base salary (less required payroll taxes and other withholdings) shall be made
at such times as Employee would have received salary payments had Employee
continued to be employed by the Company ("Periodic Payments"). Periodic Payments
will begin after the Effective Date of this Agreement, but in no event before
September 30, 2002.
c. The amount of Periodic Payments will count toward accrual
of benefits and vesting under Campbell Soup Company's Retirement and Pension
Plan for Salaried Employees and vesting under Campbell Soup Company's Savings
and 401(k) Plan for Salaried Employees.
d. Company agrees that, in the event of Employee's death, all
remaining severance pay due under this Agreement will be paid to Employee's
estate in a cash lump sum payment.
2. Release.
a. Employee hereby forever releases Company and its
officers, directors, shareholders, agents, employees, affiliates, subsidiaries,
parent company, predecessors, successors and assigns ("Releasees"), from any and
all complaints, charges, claims, liabilities, demands, debts, accounts,
obligations, promises, suits, actions, causes of action, demands in law or
equity, including claims for damages, attorney fees or costs, whether known or
unknown, which Employee now has, or claims to have, or which Employee at any
time may have had, or claimed to have, or which Employee at any time hereafter
may have, or claim to have, arising at any time in the past up to and including
the date of this Agreement, including, but without limiting the generality of
the foregoing, any matters relating in any way to Employee's employment
relationship or the termination of that employment relationship with the
Company, with the exception of any rights or claims arising out of this
Agreement.
b. The claims, rights and obligations that Employee
is releasing herein include, but are not limited to: (i) those for wrongful
discharge, breach of contract, breach of implied contract, breach of implied
covenant of good faith and fair dealing, and any other common law or statutory
claims now or hereafter recognized; and (ii) those for discrimination (including
but not limited to claims for discrimination, harassment or retaliation on
account of sex, age, handicap, medical condition or disability, national origin,
race, color, religion, sexual preference, or veteran status) which Employee
might have or might have had under the federal Age Discrimination in Employment
Act, Title VII of the Civil Rights Act, the New Jersey Law Against
Discrimination, the New Jersey Conscientious Employee Protection Act, The
Pennsylvania Human Relations Act and any other federal, state or local laws
prohibiting discrimination, harassment or retaliation in employment. BY SIGNING
THIS AGREEMENT, EMPLOYEE AGREES TO GIVE UP, OR WAIVE, ANY RIGHTS OR CLAIMS WHICH
HE MAY HAVE HAD UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, 29
U.S.C. SECTION 621 et. seq., OR ANY OTHER STATUTES OR OTHER LAWS, WHICH ARE
BASED ON ACTIONS OF CAMPBELL SOUP COMPANY OR ITS SUBSIDIARIES OR AFFILIATES OR
ANY OF THEIR EMPLOYEES OR AGENTS, WHICH OCCURRED UP THROUGH THE DATE THAT
EMPLOYEE SIGNS THIS AGREEMENT.
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c. Employee further acknowledges and agrees that this
Agreement shall operate as a complete bar to recovery in any and all litigation,
charges, complaints, grievances or demands of any kind whatsoever now pending or
now contemplated by Employee, or which might at any time be filed by Employee,
including, but without limiting the generality of the foregoing, any and all
matters arising out of or in any manner whatsoever connected with the matters
set forth in Paragraph 2a. above. Each and all of the said claims are hereby
fully and finally settled, compromised and released.
d. Employee further acknowledges and agrees that
neither Employee, nor any person, organization, or other entity on Employee's
behalf, will file, claim, sue or cause or permit to be filed or claimed, or join
in any claims, as an individual or as a class member, any action for legal or
equitable relief (including damages and injunctive, declaratory, monetary or
other relief), involving any matter or related in any way to Employee's
employment relationship or the termination of Employee's employment relationship
with the Company, or involving any continuing effects of any acts or practices
that may have arisen or occurred during Employee's employment relationship with
the Company.
e. Nothing in this paragraph 2 is intended
to operate as a release, waiver, or forfeiture of Employee's rights, and
Company's obligations, under
(i) any of the Company's employee benefit plans in
which the Employee has been a participant, including, but not
limited to, Campbell Soup Company's Retirement and Pension
Plan for Salaried Employees, and Campbell Soup Company's
Savings and 401(k) Plan for Salaried Employees,
(ii) any health and welfare benefits to which
Employee may in the future be entitled under "COBRA" or
comparable federal or state law or regulation, or
(iii) any state worker's compensation act or statute.
Subject to the terms of paragraph B.1.a. of this Agreement,
upon the termination of Employee's employment with the Company, Employee's
rights under the applicable employee benefit plans of the Company will be
determined in accordance with the terms of those plans.
3. Inquiries.
a. In the event that inquiries are made by
prospective employers concerning Employee's employment with the Company, the
Company will use its best efforts to refer those inquiries to the Company's
Senior Vice President - Law and Government Affairs, or her designate.
b. Employee will not take any action, or
make any statement, whether orally or in writing, which, in any manner,
disparages or impugns the reputation or goodwill of the Company, its Directors
or officers, or other Releasees.
4. Successors and Assigns. This Agreement shall bind
Company and Employee, and also all of their respective family members, heirs,
administrators, representatives, successors, assigns, officers, directors,
agents, employees, shareholders, affiliates, predecessors, and
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also all other persons, firms, corporations, associations, partnerships and
entities in privity with or related to or affiliated with any such person, firm,
corporation, association, partnership or entity.
5. Effect of Agreement. Employee acknowledges and agrees that
this Agreement is not and shall not be construed as an admission of any
violation of any federal, state, or local statute, ordinance or regulation, or
of any duty or obligation the Company owes or owed to Employee, and that
Employee's execution of this Agreement is a voluntary act to provide an amicable
conclusion to Employee's employment relationship with the Company.
6. Cooperation. Employee agrees to fully cooperate, in a
timely and good faith manner, subsequent to the Termination Date, with all
reasonable requests for assistance made by the Company, relating, directly or
indirectly, to any and all matters which occurred during the course of
Employee's Company employment, or with which Employee was involved prior to the
termination of his employment, or with which Employee became aware of during the
course of his employment. Employee agrees that, should he be contacted by any
third party regarding such matters, he will politely refuse to engage in any
substantive communication, discontinue such contact as soon as practicable, and
immediately advise the Company's Senior Vice President-Law and Government
Affairs of that contact. Employee agrees not to initiate any contact with any
third party regarding the aforementioned matters, unless specifically requested
to do so by the Company. Upon the submission of proper documentation, Company
will reimburse Employee for all reasonable expenses incurred by him as a result
of such requests for assistance.
7. Confidentiality of Proprietary Information. Employee
acknowledges and agrees that in the course of his employment with the Company
Employee has acquired confidential or proprietary information relating to the
business of the Company and/or its affiliates. Employee expressly agrees that he
will keep secret and safeguard all such information, and will not, at any time,
in any form or manner, directly or indirectly, divulge, disclose or communicate
to any person, firm, corporation, or other entity any such information without
the direct written authority of the Company. This Agreement incorporates by
reference all of the provisions of the Campbell Soup Company Non-Competition
Agreement between the Company and Employee executed as of June 27, 1997
("Non-Competition Agreement"). Employee agrees that Employee's obligations
relating to Non-Competition, No Business Diversion and No Employee Solicitation
under the provisions of the Non-Competition Agreement shall remain in effect
through December 8, 2003. The parties hereby stipulate that, as between them,
the matters addressed in this paragraph and in the Non-Competition Agreement are
material and gravely affect the effective and successful conduct of the business
of the Company, and its goodwill, and that notwithstanding anything to the
contrary set forth herein, the Company is entitled to an injunction by any
competent court to enjoin and restrain the unauthorized disclosure of such
confidential information or the breach or threatened breach of the
Non-Competition Agreement.
8. Return of Company Property.
a. Upon signing this Agreement, Employee agrees to
return to the Company any office, desk and file keys, Company identification
pass cards, Company-provided credit cards issued to Employee, and any other
Company property in the possession of Employee or his agents on or before
September 30, 2002. Employee acknowledges and represents that he has surrendered
and delivered to the Company all files, papers, data, documents, lists, charts,
photographs, computer records, discs or any other records, relating in any
manner to the business activities of the Company or its affiliates, which were
created, produced, reproduced or utilized by
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the Company, or any of the Releasees, or by Employee during the term of
Employee's employment relationship with the Company.
b. Employee also agrees to repay any monies owed to
the Company, including loans, advances, charges or debts incurred by the
Employee, or any other amounts owed to the Company, on or before the Effective
Date of the Agreement.
9. Competency of Employee. Employee acknowledges, warrants,
represents and agrees that in executing and delivering this Agreement, he does
so freely, knowingly and voluntarily and that he is fully aware of the contents
and effect thereof and that such execution and delivery is not the result of any
fraud, duress, mistake or undue influence whatsoever.
10. Unknown or Mistake in Facts. It is acknowledged and
understood by the parties that the facts with respect to this Agreement as given
may hereafter turn out to be other than or different from the facts in that
connection now known to them or believed by them to be true, and the parties
therefore expressly assume the risk of the facts being different and agree that
this Agreement shall be in all respects effective and not subject to termination
or rescission by any such difference in facts. In addition, it is acknowledged,
understood and agreed by Employee that should the Company discover that Employee
has breached his fiduciary obligations to the Company (or any affiliated
corporate entity), engaged in any unethical, dishonest or fraudulent act which
affects, or has affected the Company (or any affiliated corporate entity), or
committed any act previously unknown to the Company which would constitute
grounds for discharge for cause, that Company reserves the right, in its sole
discretion, to terminate or suspend all payments or benefits remaining to be
paid by the Company under this Agreement. In addition, the Company may seek all
other remedies and relief allowed by law.
11. Savings Clause. It is acknowledged and agreed by the
parties that should any provision of this Agreement be declared or be determined
to be illegal or invalid by final determination of any court of competent
jurisdiction, the validity of the remaining parts, terms or provisions of this
Agreement shall not be affected thereby, and the illegal or invalid part, term
or provision shall be deemed not to be a part of this Agreement.
12. Enforcement. The parties expressly agree that this
Agreement constitutes a binding contract. If Employee breaches any term of this
Agreement, or violates any of his obligations under this Agreement or the
Non-Competition Agreement, the Company may, at its option, terminate or suspend
all payments or benefits remaining to be paid by the Company under this
Agreement. In addition, the Company may seek all other remedies and relief
allowed by law.
13. Addendum. The Addendum attached to this Agreement, and
signed by the parties, is incorporated within and made a part of this Agreement.
14. Effective Date. It is acknowledged and agreed by the
parties that Employee has had twenty-one (21) days to consider this Agreement
before signing it. Further, Employee has the right to revoke this Agreement
within eight (8) days after signing and returning this Agreement to the Company.
This Agreement will not become effective or enforceable, and employee will not
receive any of the severance pay and benefits described in this Agreement, until
the eight (8) day revocation period has run, and Employee notifies the Company,
in writing, that he has elected not to revoke this Agreement (the "Effective
Date").
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15. Employee Rights. Employee acknowledges, represents and
agrees to the following:
a. HE HAS BEEN ADVISED, IN WRITING, TO READ THIS
ENTIRE AGREEMENT CAREFULLY, AND TO CONSULT WITH AN ATTORNEY OF HIS CHOICE PRIOR
TO SIGNING THIS AGREEMENT;
b. He was given at least twenty-one (21) days to
consider this Agreement before signing it;
c. He was advised, in writing, that he had a full
eight (8) days after he signed this Agreement to revoke it, and that this
Agreement would not become effective until that eight (8) day revocation period
had run and he had notified Company, in writing, that he has elected not to
revoke this Agreement;
d. He carefully read this Agreement prior to signing
it, and that he fully understands this Agreement;
e. He understands and agrees that he will receive
severance pay and benefits in exchange for signing this Agreement, and that he
would not have received severance pay and benefits if he had not signed this
Agreement;
f. EMPLOYEE UNDERSTANDS THAT, BY SIGNING THIS
AGREEMENT, HE WILL LOSE HIS RIGHT TO SUE CAMPBELL SOUP COMPANY AND ITS
SUBSIDIARIES AND AFFILIATES AND ANY OF THEIR EMPLOYEES OR AGENTS, FOR ANY
VIOLATION OF THE AGE DISCRIMINATION IN EMPLOYMENT ACT (THE FEDERAL LAW WHICH
PROHIBITS DISCRIMINATION ON THE BASIS OF AGE), OR ANY OTHER STATUTES OR OTHER
LAWS; and
g. He has signed this Agreement voluntarily.
16. Entirety of Agreement; Modifications. Employee
acknowledges and agrees that this Agreement, and the attached Addendum, contain
the entire agreement and understanding concerning the subject matter between
Employee and the Company, and that they supersede and replace all prior
agreements concerning the subject matter of this Agreement, whether written or
oral, except for the Non-Competition Agreement referred to in paragraph 7 of
this Agreement, which is incorporated by reference. Employee also represents
that he has not executed this instrument in reliance on any promise,
representation or statement not contained herein. This Agreement may not be
modified except by a writing signed by Employee and an authorized representative
of the Company.
17. Governing Law. The parties agree that this Agreement shall
be governed and construed in accordance with the laws of the State of New Jersey
without giving effect to the conflict of law principles. The parties further
irrevocably agree that any disputes or issues arising from or related to this
Agreement shall be brought only in the federal or state court in Camden, New
Jersey, and both parties irrevocably agree to personal jurisdiction and venue in
such New Jersey courts.
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18. Attorney's Fees. Employee agrees that if the Company
prevails in any suit or proceeding under this Agreement, Employee will pay
Company all of the Company's attorney's fees, costs and expenses incurred in
connection with such suit or proceeding or the enforcement of the Company's
rights under this Agreement.
This Agreement was entered into in the State of New Jersey.
Employee Company
/s/ Andrew K. Hughson
---------------------- -------------------------------
Date: 9/17/02 By: /s/ D. R. Conant
-------------------- ----------------------------
Title: President & CEO
------------------------
Date: September 30, 2002
------------------------
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EMPLOYEE: PLEASE SELECT AND COMPLETE ONE OF THE PARAGRAPHS BELOW.
I, Andrew K. Hughson , have read all of the terms of this Agreement. I
have been informed by the Company that I have the right to consult with an
attorney who is not associated with the Company. I have been given sufficient
time and opportunity to consult with an attorney, and I have voluntarily chosen
not to do so. I understand the terms of this Agreement, including the fact that
my employment relationship with the Company is permanently ended, and that the
Agreement releases the Company forever from any legal action arising from my
employment relationship with or my separation from the Company.
Employee /s/ Andrew K. Hughson
-----------------------------
Date: 9/17/02
--------------------------------
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Prior to signing this Agreement I, __________________, consulted
_____________________, at the law firm of ___________________ located at
_________________________, who reviewed the Severance Agreement and General
Release and provided advice to me. I understand the terms of this Agreement,
including the fact that my employment relationship with the Company is
permanently ended, and that the Agreement releases the Company forever from any
legal action arising from my employment relationship with or my separation from
the Company.
Employee _______________________________
Date: _______________________________
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ADDENDUM
SEVERANCE AGREEMENT AND GENERAL RELEASE
BETWEEN
CAMPBELL SOUP COMPANY
AND
ANDREW K. HUGHSON
1. Employee will be eligible for Annual Incentive Plan (AIP) participation
for all of fiscal 2002, as determined in accordance with the terms of
Campbell Soup Company's Management Worldwide Incentive Plan. Employee
understands and agrees that any award of compensation which is payable
under this Plan will be at the sole discretion of the Compensation and
Organization Committee of the Company's Board of Directors
("Compensation Committee") which is permitted to make performance
related reductions in bonus payments. Decisions regarding bonus awards
are normally made at the end of September.
2. Pursuant to the Agreement to Irrevocably Exchange Stock Options for
Time-Lapse Restricted Stock dated as of January 12, 2001, after the
Employee's Termination Date (SEPTEMBER 30, 2002) the Employee shall
immediately be entitled to the elimination of the restrictions on 3,362
time-lapse restricted shares and the remaining 2,105 time-lapse
restricted shares shall be immediately forfeited.
3. Company will permit Employee to exercise, in accordance with the
relevant plan and related agreements, any previously-granted
unexercised stock options on or before the earlier of the expiration
date of the options or three years from Employee's Termination Date
(SEPTEMBER 30, 2005), provided that such options are, by their terms,
exercisable on Employee's Termination Date. Options not exercisable as
of the Termination Date will be forfeited. In the event of Employee's
death, the special rules set forth in the relevant plan shall govern.
In the event of any conflict between this Addendum and the relevant
plan and related agreements, the relevant plan and related agreements
will govern.
4. Employee was granted a Special FY'02 Long-Term Incentive Award of
$245,438 in cash and 27,000 stock options. Rights to the cash were to
vest without restriction, and the stock options were to vest, on
September 28, 2003. In accordance with the terms of this Award,
Employee will forfeit the 27,000 stock options as of the Termination
Date. Also in accordance with the terms of this Award, $122,719 in cash
shall vest and be payable to Employee on September 28, 2003, provided
Employee does not violate the terms of this Agreement. The other 50% of
the cash portion of the Award will be forfeited as of the Termination
Date.
5. Employee will not be eligible for any additional awards under the 1994
Long-Term Incentive Plan.
6. All fully vested investment account balances held for the account of
Employee in Campbell Soup Company's Deferred Compensation Program
("Program") will be distributed in accordance with Employee's
applicable Distribution Election form or, if Employee has not made a
valid election, in accordance with the default distribution provisions
in the Program.
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Applicable federal, state and local taxes will be withheld from the
payment of any installment amounts from Employee's deferral account.
7. Employee will be entitled to allowable benefits under the Company's
Personal Choice Program through SEPTEMBER 30, 2002.
8. Employee will be provided with outplacement assistance, at a level and
manner as determined by the Company.
Employee Company
/s/ Andrew K. Hughson
----------------------- -------------------------------
Date: 9/17/02 By: /s/ D. R. Conant
----------------- ----------------------------
Title: President & CEO
------------------------
Date: September 30, 2002
-------------------------
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22 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
OVERVIEW Net earnings for 2002 were $525 million ($1.28 per share). (All
earnings per share amounts included in Management's Discussion and Analysis are
presented on a diluted basis.) In 2002, net earnings declined 19% and earnings
per share declined 17%. The 2002 results included costs of $20 million pre-tax
($.03 per share) associated with the Australian manufacturing reconfiguration
which commenced in 2001. Pre-tax costs of $19 million were classified as Cost
of products sold and $1 million as a Restructuring charge. The 2001 results
included a restructuring charge and related costs of approximately $15 million
pre-tax ($.03 per share) associated with the manufacturing reconfiguration.
Pre-tax charges of $10 million were classified as a Restructuring charge and $5
million were classified as Cost of products sold. Net earnings in 2001 also
include an approximate $.03 per share dilutive impact from the European soup
and sauce brands acquisition. Excluding the impact of the costs associated with
the manufacturing reconfiguration, net earnings in 2002 declined 18% and
earnings per share declined 17%. The earnings decline was primarily related to
planned increases in marketing and infrastructure investments across major
businesses, partially offset by lower interest expense.
Certain reclassifications were made to the financial statements to comply with
new accounting standards. In the first quarter of 2002, the company adopted EITF
Issue No. 00-14 "Accounting for Certain Sales Incentives" and Issue No. 00-25
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," as codified by Issue No. 01-9 "Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products." Under these Issues, the EITF concluded that certain consumer and
trade promotion expenses, such as coupon redemption costs, cooperative
advertising programs, new product introduction fees, feature price discounts
and in-store display incentives, should be classified as a reduction of sales
rather than as marketing expenses. The adoption of these new accounting
standards in 2002 resulted in the following reclassifications to the annual
results for 2001 and 2000: Net sales were reduced by $893 million and $840
million, respectively; Cost of products sold was reduced by $14 million and $19
million, respectively; and Marketing and selling expenses were reduced by $879
million and $821 million, respectively. These reclassifications had no impact on
net earnings.
SALES Sales increased 6% in 2002 to $6.1 billion from $5.8 billion. The increase
in sales was due to a 4% increase from the European acquisition which was
completed in May 2001, a 2% increase due to volume and mix, a 1% increase due to
higher selling prices, offset by a 1% decline due to increased trade promotion
and consumer coupon redemption expenses. Worldwide wet soup volume increased 1%
from 2001.
Sales in 2001 increased 3% to $5.8 billion from $5.6 billion. The increase was
attributed to a 4% increase due to volume and mix, a 1% increase from higher
selling prices, a 1% increase from the acquisition, offset by a 1% decrease due
to increased trade promotion and consumer coupon redemption expenses and a 2%
decrease due to currency. Worldwide wet soup volume increased 5% from 2000.
An analysis of net sales by segment follows:
% Change
2002/ 2001/
(millions) 2002 2001 2000 2001 2000
---------------------------------------------------------------
North America Soup
and Away From Home $2,524 $2,532 $2,434 -- 4
North America Sauces
and Beverages 1,182 1,161 1,156 2 --
Biscuits and
Confectionery 1,507 1,446 1,391 4 4
International Soup
and Sauces 920 632 622 46 2
Other -- -- 23 -- --
---------------------------------------------------------------
$6,133 $5,771 $5,626 6 3
===============================================================
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Sales in 2002 from North America Soup and Away From Home were flat with 2001.
Volume and mix increased 1% from the prior year, offset by an increase in trade
promotion and consumer coupon redemption expenses. U.S. wet soup volume
increased 1%. Ready-to-serve volume increased 9% behind the double-digit volume
gains in Campbell's Chunky and Campbell's Select soups. This sales growth was
driven by new varieties, quality improvements, and increased advertising.
Swanson broth volume increased 4%. Condensed soup volume declined 5%. Canada
reported sales growth in all businesses, particularly soup, in response to
increased marketing. Away From Home sales slightly increased over the prior year
led by solid soup sales performance, which offset a decline in lower margin
bakery and frozen entree sales.
The 4% increase in sales from North America Soup and Away From Home in 2001
versus 2000 was due to the following: 6% increase from volume and mix, offset by
a 1% increase in trade promotion and consumer coupon redemption expenses, and a
1% decline due to currency. Soup volume in the U.S. increased 6% over the prior
year based on the performance of condensed Chicken Noodle, Tomato and Cream of
Mushroom, ready-to-serve varieties such as Campbell's Chunky and Campbell's
Select and the introduction of Campbell's ready-to-serve classics. Canada and
Away From Home also contributed to volume growth.
Campbell Soup Company Annual Report 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The 2% increase in sales from North America Sauces and Beverages in 2002 versus
2001 was due to a 3% increase in volume and mix, offset by a 1% reduction due to
higher trade promotion and consumer coupon redemption expenses. The volume
growth resulted from the performance of Prego pasta bake sauces, which were
introduced in the fourth quarter of 2001, Pace Mexican sauces, V8 vegetable
juices and the Mexican business. These volume gains were partially offset by
continued declines in Franco-American canned pasta and V8 Splash.
Sales from North America Sauces and Beverages were relatively flat in 2001
compared to 2000. Franco-American products and V8 Splash experienced sales
declines in highly competitive categories. Sales of Prego sauce and Pace salsa
increased modestly.
Sales from Biscuits and Confectionery increased 4% in 2002 due to a 4% increase
in volume and mix, a 1% increase from higher selling prices, offset by a 1%
decline from currency, primarily the Australian dollar. Pepperidge Farm
contributed to the sales growth with new products, including the introduction
of Dessert Bliss cookies and Goldfish Sandwich crackers, and increased
distribution. Arnotts in Australia reported volume gains due to increases in
value-added products in the snack foods category, such as Rix Rice chips and
Kettle chips. Tim Tams biscuit sales also increased significantly. Godiva sales
rose slightly, as new store openings worldwide offset lower same store sales in
North America in the aftermath of September 11th.
Sales from Biscuits and Confectionery increased 4% in 2001 versus 2000 due to a
9% increase from volume and mix, a 1% increase from higher selling prices,
offset by a 5% decline from currency, primarily the Australian dollar, and a 1%
decrease due to increased trade promotion and consumer coupon redemption
expenses. The entire portfolio contributed to the volume gains. Pepperidge Farm
cookies, crackers, fresh bread and frozen products all demonstrated improve-
ments in sales volume. Arnott's Tim Tams, Shapes and Kettle chips contributed to
the growth in sales. Godiva reported a double-digit increase in sales due to new
store openings and increased comparable store sales.
International Soup and Sauces reported a 46% increase in sales in 2002 due
primarily to a 44% increase from the European acquisition, which was completed
in the fourth quarter of 2001, and a 2% increase from currency. The base
business in Europe declined slightly as weakness in United Kingdom soup and
sauces was partially offset by gains in soup sales in Belgium and France. Asia
Pacific sales grew robustly due to continued growth in Australian soup and
broth.
International Soup and Sauces reported a 2% increase in sales in 2001 versus
2000 due primarily to the European acquisition, which was completed in the
fourth quarter 2001.
The decline in sales from Other in 2001 versus 2000 was due to the divestiture
of MacFarms in April 2000.
GROSS MARGIN Gross margin, defined as Net sales less Cost of products sold,
increased by $51 million in 2002 due to the increase in sales. As a percent of
sales, gross margin was 43.9% in 2002, 45.7% in 2001, and 45.1% in 2000. The
percentage decline in 2002 was due mainly to the continuing mix shift in U.S.
soup towards ready-to-serve products, the cost of quality improvements across a
number of products, and costs associated with the Australian manufacturing
reconfiguration. The improvement in gross margin percentage in 2001 from 2000
was due to cost productivity programs and favorable sales mix.
MARKETING AND SELLING EXPENSES Marketing and selling expenses as a percent of
sales were 17.4% in 2002, 15.4% in 2001, and 14.2% in 2000. In 2002, Marketing
and selling expenses increased approximately 21% from 2001, 16% excluding the
impact of the European acquisition. The increase in 2002 was due primarily to
the planned increases in advertising investments across the portfolio,
particularly in U.S. soup and sauces, and selling infrastructure investments.
The increase in 2001 was due to an increase in advertising behind core U.S.
brands, principally U.S. soup, and incremental selling costs associated with
new store openings in the Godiva Chocolatier business.
GENERAL AND ADMINISTRATIVE EXPENSES Administrative expenses as a percent of
sales increased to 6.9% in 2002 from 6.4% in 2001 due to costs associated with
infrastructure investments and higher compensation costs. In 2001,
Administrative expenses increased to 6.4% of Net sales from 5.7% in 2000 due to
higher compensation costs and costs associated with infrastructure enhancements.
Research and development expenses increased $14 million or 22% in 2002 from 2001
due to costs associated with quality improvement initiatives and new product
development.
Other expenses increased 21% in 2002 due primarily to increased amortization
expense associated with the European acquisition. Other expenses increased in
2001 as compared to 2000 primarily due to higher stock-based incentive
compensation costs and slightly higher amortization expense.
24 25
OPERATING EARNINGS Segment operating earnings, both as reported and excluding
the costs associated with the Australian manufacturing strategy, declined 14% in
2002 from 2001.
Segment operating earnings in 2001 were relatively flat as compared with 2000,
excluding the costs associated with the Australian manufacturing strategy and
before the impact of currency. Operating earnings as reported declined 2% in
2001 compared to 2000.
An analysis of operating earnings by segment follows:
% Change
2002/ 2001/
(millions) 2002(1) 2001(1) 2000 2001 2000
-----------------------------------------------------------------
North America Soup
and Away From Home $ 624 $ 774 $ 768 (19) 1
North America Sauces
and Beverages 236 295 309 (20) (5)
Biscuits and
Confectionery 175 197 206 (11) (4)
International Soup
and Sauces 92 51 64 80 (20)
-----------------------------------------------------------------
1,127 1,317 1,347 (14) (2)
Corporate (143) (123) (82)
-----------------------------------------------------------------
$ 984 $ 1,194 $1,265
=================================================================
(1) Contributions to earnings by the Biscuits and Confectionery segment
include the effect of pre-tax costs of $20 million in 2002 and $15 million
in 2001 associated with the Australian manufacturing reconfiguration
strategy.
|
Earnings from North America Soup and Away From Home decreased 19% in 2002 from
2001 due to planned increases in trade and consumer promotion expenses,
advertising expenses, infrastructure investments and costs of quality
improvements. The promotion and advertising investments were focused on
ready-to-serve products, including Campbell's Chunky and Campbell's Select, and
the new Campbell's Supper Bakes.
Earnings from North America Soup and Away From Home increased 1% in 2001 from
2000 due to sales volume growth partially offset by increased marketing
investments.
Earnings from North America Sauces and Beverages declined 20% in 2002 from 2001
primarily due to a significant increase in marketing investments, principally on
Prego pasta bake sauces, Pace and V8 vegetable juices.
Earnings from North America Sauces and Beverages declined 5% in 2001 from 2000
primarily due to increased marketing investments.
In 2002, earnings from Biscuits and Confectionery decreased 11% as reported, 8%
excluding the impact of the Australian manufacturing reconfiguration costs. The
decline was due to increased marketing investments across the portfolio and a
decline in earnings from Godiva, partially offset by increased sales in
Pepperidge Farm and Arnotts.
In 2001, earnings from Biscuits and Confectionery increased 8% before the impact
of currency and excluding the impact of the Australian manufacturing
reconfiguration costs. Reported earnings increased 3% before the impact of
Australian manufacturing reconfiguration costs. The increase was due to higher
sales volume across the portfolio.
The 80% increase in 2002 earnings from International Soup and Sauces was due to
the European acquisition. Excluding the acquisition, earnings declined
significantly due to lower sales in the United Kingdom soup and sauces business
and planned increases in marketing across the portfolio.
The 20% decline in 2001 earnings from International Soup and Sauces was
primarily due to costs associated with the integration of the European
acquisition.
Corporate expenses increased in 2002 due principally to planned infrastructure
investments and higher compensation costs.
Corporate expenses increased in 2001 primarily due to an increase in incentive
compensation costs and costs associated with infrastructure enhancements.
NONOPERATING ITEMS Interest expense decreased 13% in 2002 from 2001. Higher
interest expense due to increased average debt levels following the fourth
quarter 2001 European acquisition was more than offset by a steep decline in
short-term rates.
Interest expense increased 11% in 2001 from 2000 due to higher debt balances
resulting from the financing of the acquisition of European soup and sauce
brands and capital share repurchases, partially offset by lower average interest
rates.
The effective tax rate was 34.2% in both 2002 and 2001. The 2000 effective tax
rate was 33.7%. The 2000 rate was favorably impacted by a lower effective rate
on foreign earnings, primarily driven by a reduction in the Australian statutory
rate.
RESTRUCTURING PROGRAM A restructuring charge of $10 million ($7 million after
tax) was recorded in the fourth quarter 2001 for severance costs associated with
the reconfiguration of the manufacturing network of Arnotts in Australia. In the
second quarter of 2002, the company recorded an additional $1 million
restructuring charge related to planned severance actions. Related costs of
approximately $19 million ($13 million
Campbell Soup Company Annual Report 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
after tax) and $5 million ($4 million after tax) were recorded in 2002 and 2001,
respectively, as Cost of products sold, primarily representing accelerated
depreciation on assets to be taken out of service. This program was designed to
drive greater manufacturing efficiency resulting from the closure of the
Melbourne plant. Approximately 550 jobs were eliminated due to the plant
closure. Remaining spending under this program primarily relates to severance
payments. As a result of this reconfiguration, the company expects annual
pre-tax cost savings of approximately $10 million, a portion of which will be
realized in 2003.
See Note 4 to the Consolidated Financial Statements for further discussion of
this program.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities provided $1 billion in 2002, compared
to $1.1 billion in 2001. The decrease was primarily due to lower net earnings
resulting from planned increases in marketing and infrastructure investments.
Net cash flows from operations in 2001 decreased to $1.1 billion from $1.2
billion in 2000 due primarily to lower net earnings. Over the last three years,
operating cash flows totaled over $3 billion. This cash generating capability
provides the company with substantial financial flexibility in meeting its
operating and investing needs.
Capital expenditures were $269 million in 2002, $200 million in 2001 and 2000.
Capital expenditures are projected to be approximately $285 million in 2003. The
increase in 2002 was due to planned process improvements, product quality
enhancements, the Australian plant reconfiguration, and the construction of the
new Pepperidge Farm bakery in Connecticut.
Businesses acquired in 2001 represented the purchase of the European soup and
sauce brands in May 2001. The acquisition spending in 2002 represented a
purchase price adjustment related to the European acquisition.
In 2000, sale of businesses represented the divestiture of MacFarms.
Long-term borrowings in 2002 were the result of a series of debt issuances
throughout the year. In September 2001, the company issued $300 million
seven-year 5.875% fixed-rate notes. The proceeds were used to repay short-term
borrowings. While planning for the issuance of these notes, the company entered
into interest rate swaps with a notional value of approximately $138 million
that effectively fixed a portion of the interest rate on the debt prior to
issuance. These contracts were settled at a loss of approximately $4 million
upon issuance of the notes. This loss is being amortized over the life of the
notes. In conjunction with the issuance of these notes, the company also entered
into a $75 million seven-year interest rate swap that converts fixed-rate debt
to variable.
In October 2001, the company issued $300 million two-year variable-rate notes.
The proceeds were also used to repay short-term borrowings. In connection with
this issuance, the company entered into a $300 million two-year interest rate
swap that converts the variable-rate debt to fixed.
On November 23, 2001, the company redeemed $100 million 5.625% fixed-rate notes
due in September 2003. The notes were callable at par. This redemption was
financed with lower rate commercial paper.
On December 11, 2001, the company issued an additional $200 million of its
existing 6.75% fixed-rate notes due February 2011, originally issued in February
2001. These additional notes were priced at a premium to reflect market
conditions. The proceeds were used to repay short-term borrowings.
In January 2002, the company repaid $300 million of variable-rate notes due
December 2003. The notes were repaid with lower cost short-term borrowings.
On March 19, 2002, the company issued $300 million five-year 5.50% fixed-rate
notes. The proceeds were used to repay $228 million variable-rate notes due in
December 2003 and short-term borrowings. In connection with this issuance, the
company entered into a five-year interest rate swap that converts $100 million
of the fixed-rate debt to variable.
In June 2002, the company filed a $1 billion shelf registration statement with
the Securities and Exchange Commission to use for future offerings of debt
securities. Under the registration statement, the company may issue debt securi-
ties from time to time, depending on market conditions. The company intends to
use the proceeds to repay short-term debt, to reduce or retire other
indebtedness or for other general corporate purposes. In 2001, the company filed
a shelf registration statement with the Securities and Exchange Commission for
$1 billion of debt, bringing total capacity available under registration
statements to $1.1 billion. This shelf registration was depleted in 2002.
Long-term borrowings completed in 2001 included both a three-year floating rate
loan, which funded the purchase of 11 million shares under forward stock
purchase contracts for approximately $521 million in December 2000, and the
issuance of $500 million 6.75% fixed-rate notes due February 2011. The company
also entered into ten-year
26 27
interest rate swap contracts with a notional value of $250 million in connection
with the issuance of the 6.75% fixed-rate notes. The proceeds of the 6.75% notes
were used primarily to repay short-term borrowings. There were no new long-term
borrowings in 2000.
Dividend payments decreased to $286 million in 2002, compared to $374 million in
2001, due to the reduction of the dividend per share. Dividends declared in 2002
totaled $0.63 per share and in 2001 and 2000 totaled $0.90 per share. The 2002
fourth quarter rate was $0.1575 per share. The expected annual dividend rate for
2003 is $0.63.
Capital stock repurchases totaled two hundred thousand shares at a cost of $5
million during 2002, compared to 14.3 million shares at a cost of $618 million
during 2001 and repurchases of 10.7 million shares at a cost of $394 million in
2000. In 2001, the strategic share repurchase plan was suspended. The company
expects to continue to repurchase shares to offset the impact of dilution from
shares issued under incentive stock compensation plans.
Total shareowners' equity (deficit) on a book basis increased in 2002 to $(114)
million from $(247) million in 2001. In 2002, shareowners' equity (deficit)
includes a minimum liability of $208 million, net of tax, related to the
company's principal U.S. pension plan. Following the stock market declines in
June and July 2002, the fair value of the assets included in the pension fund
fell below the accumulated benefit obligation. As required under accounting
principles generally accepted in the United States, the company recognized the
additional minimum liability and reclassified an existing pension asset to
equity. Although this non-cash adjustment did not impact the 2002 operating
results, pension expense is expected to increase in 2003 primarily due to the
lower fair value of pension assets and a reduction in the estimated return on
plan assets. See also Note 8 to the Consolidated Financial Statements.
The company believes that foreseeable liquidity and capital resource
requirements are expected to be met through anticipated cash flows from
operations, management of working capital, long-term borrowings under its shelf
registration, and short-term borrowings, including commercial paper. The
company believes that its sources of financing are adequate to meet its
liquidity and capital resource requirements. The cost and terms of any future
financing arrangements depend on the market conditions and the company's
financial position at that time.
The following table represents significant long-term cash obligations:
Contractual Payments Due by Fiscal Year
---------------------------------------------------------------------------
2004- 2007-
(US$ equivalents in millions) Total 2003 2006 2008 Thereafter
---------------------------------------------------------------------------
Debt Obligations* $3,645 $1,196 $ 602 $ 605 $1,242
Purchase Commitments** 2,781 540 1,333 788 120
Operating Leases 251 54 109 53 35
---------------------------------------------------------------------------
Total Long-term
Cash Obligations $6,677 $1,790 $2,044 $1,446 $1,397
===========================================================================
* Includes capital lease obligations totaling $9 million
** Represents certain long-term supply and service agreements
|
At July 28, 2002, the company had $1,196 million of notes payable due within one
year and $45 million of standby letters of credit issued on behalf of the
company. The company maintains $1.8 billion of committed revolving credit
facilities, which remain unused at July 28, 2002, except for the $45 million of
standby letters of credit. The company is in compliance with the covenants
contained in its revolving credit facilities and debt securities.
The company enters into other commitments, such as operating lease
commitments, surety bonds, and long-term purchase arrangements, in the ordinary
course of business. Operating leases are primarily entered into for warehouse
and office facilities, retail store space, and certain equipment. Purchase
commitments relate to the procurement of ingredients, supplies, machinery and
equipment and services. These commitments are not expected to have a material
impact on liquidity.
The company guarantees approximately $74 million of bank loans to Pepperidge
Farm independent sales distributors, which are secured by their distribution
routes that are purchased from the company.
In September 2002, the company entered into a $900 million committed 364-day
revolving credit facility, which replaced an existing facility that matured in
September 2002. The company also has a $900 million revolving credit facility
that matures in September 2006. These agreements support the company's
commercial paper program.
The company has financial resources available, including lines of credit
totaling approximately $2 billion, and has ready access to financial markets
around the world. The pre-tax interest coverage ratio was 5.2 for 2002 compared
to 5.4 for 2001 and 6.2 for 2000.
INFLATION
Inflation during recent years has not had a significant effect on the company.
The company mitigates the effects of inflation by aggressively pursuing cost
productivity initiatives, including global procurement strategies and making
capital investments that improve the efficiency of operations.
Campbell Soup Company Annual Report 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MARKET RISK SENSITIVITY
The principal market risks to which the company is exposed are changes in
interest rates and foreign currency exchange rates. In addition, the company is
exposed to equity price changes related to certain employee compensation
obligations. The company manages its exposure to changes in interest rates by
optimizing the use of variable-rate and fixed-rate debt and by utilizing
interest rate swaps in order to maintain its variable-to-total debt ratio within
targeted guidelines. International operations, which accounted for approximately
29% of 2002 net sales, are concentrated principally in Australia, Canada,
France, Germany and the United Kingdom. The company manages its foreign currency
exposures by borrowing in various foreign currencies and utilizing
cross-currency swaps, forward contracts, and options. 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. On occasion,
the company may also enter into commodity futures contracts, as considered
appropriate, to reduce the volatility of price fluctuations for commodities such
as corn, soybean meal and cocoa. At July 28, 2002 and July 29, 2001, the
notional values and unrealized gains or losses on commodity futures contracts
held by the company were not material.
The information below summarizes the company's market risks associated with debt
obligations and other significant financial instruments as of July 28, 2002.
Fair values included herein have been determined based on quoted market prices.
The information presented below should be read in conjunction with Notes 16 and
18 to the Consolidated Financial Statements.
The table below presents principal cash flows and related interest rates by
fiscal year of maturity for debt obligations. Variable interest rates disclosed
represent the weighted-average rates of the portfolio at the period end.
Notional amounts and related interest rates of interest rate swaps are presented
by fiscal year of maturity. For the swaps, variable rates are the average
forward rates for the term of each contract.
EXPECTED FISCAL YEAR OF MATURITY
(US$ equivalents in millions) 2003 2004 2005 2006 2007 Thereafter Total Fair Value
------------------------------------------------------------------------------------------------------------------------------
DEBT
Fixed rate $ 301 $ 300 $ 1 $ 1 $ 605 $ 1,242 $ 2,450 $ 2,652
Weighted average
interest rate 6.16% 4.76% 9.00% 9.00% 6.20% 6.90% 6.37%
------------------------------------------------------------------------------------------------------------------------------
Variable rate $ 895 $ 300 $ 1,195 $ 1,195
Weighted average
interest rate 2.52% 2.29% 2.46%
------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
Fixed to variable $ 100(2) $ 325(3) $ 425 $ 31
Average pay rate 4.12% 5.39% 5.09%
Average receive rate 5.50% 6.55% 6.30%
------------------------------------------------------------------------------------------------------------------------------
Variable to fixed $ 300(1) $ 300 $ (4)
Average pay rate 3.74% 3.74%
Average receive rate 2.63% 2.63%
==============================================================================================================================
(1) Hedges variable-rate notes due in 2004.
(2) Hedges 5.50% notes due in 2007.
(3) Hedges $75 million of 5.875% notes and $250 million of 6.75% notes,
respectively, due in 2009 and 2011.
As of July 29, 2001, fixed-rate debt of approximately $1.7 billion with an
average interest rate of 6.51% and variable-rate debt of approximately $2.3
billion with an average interest rate of 4.43% were outstanding. At July 29,
2001, the company had swapped $250 million of fixed-rate debt to variable. The
average rate received on these swaps was 6.75% and the average rate paid was
6.47%.
|
28 29
The company is exposed to foreign exchange risk related to its international
operations, including non-functional currency intercompany debt and net
investments in subsidiaries.
The table below summarizes the cross-currency swaps outstanding as of July 28,
2002, which hedge such exposures. The notional amount of each currency and the
related weighted-average forward interest rate are presented in the
Cross-Currency Swaps table.
CROSS-CURRENCY SWAPS
Interest Notional Fair
(US$ equivalents in millions) Expiration Rate Value Value
------------------------------------------------------------------------
Pay fixed SEK 2003 5.72% $29 $ (2)
Receive fixed USD 4.03%
------------------------------------------------------------------------
Pay fixed SEK 2005 5.78% $47 $ (2)
Receive fixed USD 5.25%
------------------------------------------------------------------------
Pay fixed EUR 2007 5.46% $200 $ (19)
Receive fixed USD 5.75%
------------------------------------------------------------------------
Pay fixed GBP 2011 5.97% $200 $ (14)
Receive fixed USD 6.08%
------------------------------------------------------------------------
The cross-currency contract outstanding at July 29, 2001 represented a pay
variable FrF/receive variable US$ contract with a notional value of $110
million. This contract was canceled in 2002. The aggregate fair value of the
contract was $25 million as of July 29, 2001.
|
The company is also exposed to foreign exchange risk as a result of transactions
in currencies other than the functional currency of certain subsidiaries,
including subsidiary debt. The company utilizes foreign currency forward
purchase and sale contracts to hedge these exposures. The table below summarizes
the foreign currency forward contracts outstanding and the related
weighted-average contract exchange rates as of July 28, 2002.
FORWARD EXCHANGE CONTRACTS
Average
Contractual
Contract Exchange
(US$ equivalents in millions) Amount Rate
--------------------------------------------------------------
Receive USD / Pay GBP $229 0.67
Receive USD / Pay EUR $207 1.03
Receive CAD / Pay USD $ 74 0.63
Receive GBP / Pay USD $ 28 1.57
Receive USD / Pay SEK $ 20 9.24
Receive AUD / Pay NZD $ 18 1.20
Receive USD / Pay CAD $ 18 1.56
Receive JPY / Pay USD $ 9 0.01
Receive EUR / Pay GBP $ 9 0.62
Receive EUR / Pay USD $ 9 0.90
Receive USD / Pay JPY $ 6 124.67
Receive EUR / Pay SEK $ 5 9.44
--------------------------------------------------------------
The company had an additional $5 million in a number of smaller contracts to
purchase or sell various other currencies, such as the Australian dollar,
British pound, Canadian dollar, euro and New Zealand dollar, as of July 28,
2002. The aggregate fair value of all contracts was $(7) million as of July 28,
2002. Total forward exchange contracts outstanding as of July 29, 2001 were $880
million with a fair value of $(7) million.
|
The company had swap contracts outstanding as of July 28, 2002, which hedge a
portion of exposures relating to certain employee compensation liabilities
linked to the total return of the Standard & Poor's 500 Index or to the total
return of the company's capital stock. Under these contracts, the company pays
variable interest rates and receives from the counterparty either the Standard &
Poor's 500 Index total return or the total return on company capital stock. The
notional value of the contracts that are linked to the return on the Standard &
Poor's 500 Index was $21 million at July 28, 2002 and $28 million at July 29,
2001. The average forward interest rate applicable to the contract, which
expires in 2003, was 2.22% at July 28, 2002. The notional value of the contract
that is linked to the total return on company capital stock was $32 million at
both July 28, 2002 and July 29, 2001. The average forward interest rate
applicable to this contract, which expires in 2003, was 2.07% at July 28, 2002.
The net cost to settle these contracts was $22 million at July 28, 2002 and $17
million at July 29, 2001. Gains and losses on the contracts, which offset gains
and losses on the underlying employee compensation obligations, are recorded in
Other expenses.
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,
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 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 expenses - The company offers various sales
incentive programs to customers and consumers, such as cooperative advertising
programs, feature price discounts, in-store display incentives and coupons. The
recognition of expense for these programs involves use
Campbell Soup Company Annual Report 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
of judgment related to performance and redemption estimates. Estimates are made
based on historical experience and other factors. Actual expenses may differ if
the level of redemption rates and performance vary from estimates.
Valuation of long-lived assets - Long-lived assets, including fixed assets and
intangibles, are reviewed for impairment as events or changes in circumstances
occur indicating that the carrying amount of the asset may not be recoverable.
An estimate of undiscounted cash flows produced by the asset, or the appropriate
group of assets, is compared to the carrying value to determine whether
impairment exists. The estimates of future cash flows involve considerable
management judgment and are based upon assumptions about expected future
operating performance. Assumptions used in these forecasts are consistent with
internal planning. The actual cash flows could differ from management's
estimates due to changes in business conditions, operating performance, and
economic conditions.
Pension and postretirement medical benefits - The company provides certain
pension and postretirement benefits to employees and retirees. Determining the
cost associated with such benefits is dependent on various actuarial assump-
tions, 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.
Income taxes - The effective tax rate and the tax bases of assets and
liabilities reflect management's estimate of the ultimate outcome of various tax
audits and issues. In addition, valuation allowances are established for
deferred tax assets where the amount of expected future taxable income from
operations does not support the realization of the asset.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." In addition to requiring
that all business combinations be accounted for under the purchase method, SFAS
No. 141 requires intangible assets that meet certain criteria to be recognized
as assets apart from goodwill. The provisions of SFAS No. 142 indicate that
goodwill and indefinite life intangible assets should no longer be amortized,
but rather be tested for impairment annually. Intangible assets with a finite
life shall continue to be amortized over the estimated useful life. SFAS No. 141
was effective for business combinations initiated after June 30, 2001. The
company will adopt SFAS No. 142 in 2003. The elimination of amortization is to
be applied on a prospective basis and prior periods are not to be restated.
However, the impact of amortization of goodwill and indefinite life intangible
assets is to be disclosed for prior periods.
The company is currently evaluating the impact of SFAS No. 142. With the
adoption of SFAS No. 142, the company will use the new criteria to assess
whether goodwill and certain other intangible assets are impaired. Any
impairment charge resulting from the initial impairment assessment will be
recorded as a cumulative effect of an accounting change. The company estimates
that the cumulative effect of adopting this standard will result in a non-cash
charge of approximately $45 million on a pre-tax basis in 2003. In addition,
the adoption of this standard is expected to benefit net earnings by
approximately $55 million in reduced amortization of goodwill and
indefinite-lived intangible assets.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement is effective for fiscal years
beginning after June 15, 2002. The company is currently evaluating the impact of
this Statement, but does not expect the adoption to have a material impact on
the financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. The provisions of this Statement are
effective for fiscal years beginning after December 15, 2001. The company is
currently evaluating the impact of this Statement, but does not expect the
adoption to have a material impact on the financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Exit or Disposal
Activities." The provisions of this
30 31
Statement are effective for disposal activities initiated after December 31,
2002, with early application encouraged. The company is currently evaluating the
impact of this Statement.
RECENT DEVELOPMENTS
On June 4, 2002, the company announced that its Australian subsidiary, Arnott's
Biscuits Holdings Pty Ltd ("Arnott's Holdings"), had agreed to acquire all of
the shares of Snack Foods Limited, a leader in the Australian salty snack
category ("Snack Foods"), for approximately $145 million. In August 2002,
Arnott's Holdings completed the acquisition of approximately 98% of the
outstanding shares of Snack Foods. Arnott's Holdings completed the acquisition
of the remaining approximate 2% of Snack Foods shares on September 20, 2002.
On September 20, 2002, the company also completed the purchase of Erin Foods,
the number two dry soup manufacturer in Ireland.
EARNINGS OUTLOOK
On September 5, 2002, the company issued a press release announcing results for
2002 and commented on the outlook for earnings per share for the first quarter
and full year for 2003.
CAUTIONARY FACTORS THAT MAY AFFECT
FUTURE RESULTS
This 2002 Annual 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 in conjunction with, among other things, discussions of the
company's "Transformation Plan." 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 elsewhere in the commentary, or in the
Securities and Exchange Commission filings of the company, could affect the
company's actual results and could cause such results to vary materially from
those expressed in any forward-looking statements made by, or on behalf of, the
company:
- the company's ability to achieve the goals of its "Transformation Plan";
- 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 and new product introductions;
- the company's ability to achieve sales and earnings forecasts, which are
based on assumptions about sales volume and product mix and the impact of
increased marketing investments;
- the company's ability to realize forecasted cost savings, including the
projected outcome of global supply chain management programs;
- the difficulty of predicting the pattern of inventory movements by the
company's trade customers;
- the impact of unforeseen economic changes in currency exchange rates,
interest rates, equity markets, inflation rates, recession and other
external factors over which the company has no control, including the
possibility of increased pension expense and contributions resulting from
continued decline in stock market returns; and
- the impact of unforeseen business disruptions in one or more of the
company's markets due to political instability, civil disobedience, armed
hostilities or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to
highlight important factors that may impact the company's outlook. The company
disclaims any obligation or intent to update forward-looking statements made by
the company in order to reflect new information, events or circumstances after
the date they are made.
Campbell Soup Company Annual Report 2002
CONSOLIDATED STATEMENTS OF EARNINGS
(millions, except per share amounts)
2002 2001 2000
-------------------------------------------------------------------------------------------------------------------------------
NET SALES $ 6,133 $5,771 $5,626
-------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold 3,443 3,132 3,088
Marketing and selling expenses 1,069 886 801
Administrative expenses 421 372 319
Research and development expenses 77 63 64
Other expenses (Note 5) 138 114 89
Restructuring charges (Note 4) 1 10 --
-------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 5,149 4,577 4,361
-------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 984 1,194 1,265
Interest expense (Note 6) 190 219 198
Interest income 4 12 10
-------------------------------------------------------------------------------------------------------------------------------
Earnings before taxes 798 987 1,077
Taxes on earnings (Note 9) 273 338 363
-------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 525 $ 649 $ 714
===============================================================================================================================
PER SHARE - BASIC
NET EARNINGS $ 1.28 $ 1.57 $ 1.68
===============================================================================================================================
Weighted average shares outstanding - basic 410 414 425
===============================================================================================================================
PER SHARE - ASSUMING DILUTION
NET EARNINGS $ 1.28 $ 1.55 $ 1.65
===============================================================================================================================
Weighted average shares outstanding - assuming dilution 411 418 432
===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
32 33
CONSOLIDATED BALANCE SHEETS
(millions, except per share amounts)
JULY 28, 2002 July 29, 2001
---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 21 $ 24
Accounts receivable (Note 10) 417 442
Inventories (Note 11) 638 597
Other current assets (Note 12) 123 140
---------------------------------------------------------------------------------------------------------------
Total current assets 1,199 1,203
---------------------------------------------------------------------------------------------------------------
PLANT ASSETS, NET OF DEPRECIATION (Note 13) 1,684 1,637
INTANGIBLE ASSETS, NET OF AMORTIZATION (Note 14) 2,503 2,451
OTHER ASSETS (Note 15) 335 636
---------------------------------------------------------------------------------------------------------------
Total assets $5,721 $5,927
===============================================================================================================
CURRENT LIABILITIES
Notes payable (Note 16) $1,196 $1,806
Payable to suppliers and others 681 582
Accrued liabilities 503 450
Dividend payable 65 92
Accrued income taxes 233 190
---------------------------------------------------------------------------------------------------------------
Total current liabilities 2,678 3,120
---------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 16) 2,449 2,243
NONPENSION POSTRETIREMENT BENEFITS (Note 8) 319 336
OTHER LIABILITIES (Note 17) 389 475
---------------------------------------------------------------------------------------------------------------
Total liabilities 5,835 6,174
---------------------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY (DEFICIT) (Note 19)
Preferred stock; authorized 40 shares; none issued -- --
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares 20 20
Capital surplus 320 314
Earnings retained in the business 4,918 4,651
Capital stock in treasury, 132 shares in 2002 and 133 shares in 2001, at cost (4,891) (4,908)
Accumulated other comprehensive loss (481) (324)
---------------------------------------------------------------------------------------------------------------
Total shareowners' equity (deficit) (114) (247)
---------------------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity (deficit) $5,721 $5,927
===============================================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
Campbell Soup Company Annual Report 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
2002 2001 2000
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 525 $ 649 $ 714
Non-cash charges to net earnings
Restructuring charges -- 10 --
Depreciation and amortization 319 266 251
Deferred taxes 5 4 17
Other, net 53 38 20
Changes in working capital
Accounts receivable 40 (11) 90
Inventories (30) (1) 23
Other current assets and liabilities 105 151 50
-----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,017 1,106 1,165
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant assets (269) (200) (200)
Sales of plant assets 5 8 7
Businesses acquired (15) (911) --
Sales of businesses 3 -- 11
Other, net (12) (19) (22)
-----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (288) (1,122) (204)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 1,100 1,028 --
Repayments of long-term borrowings (628) -- (7)
Short-term borrowings 776 1,962 1,028
Repayments of short-term borrowings (1,691) (2,007) (1,206)
Dividends paid (286) (374) (384)
Treasury stock purchases (5) (618) (394)
Treasury stock issuances 14 24 20
Other, net (6) -- --
-----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (726) 15 (943)
-----------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6) (2) 3
-----------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3) (3) 21
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 24 27 6
-----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 21 $ 24 $ 27
===============================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
34 35
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (DEFICIT)
(millions, except per share amounts)
Capital Stock Total
------------------------------------------- Earnings Accumulated Share-
Issued In Treasury Retained Other Com- owners'
----------------- -------------------- Capital in the prehensive Equity
Shares Amount Shares Amount Surplus Business Income (Loss) (Deficit)
---------------------------------------------------------------------------------------------------------------------------------
Balance at August 1, 1999 542 $ 20 (113) $ (4,058) $ 382 $ 4,041 $ (150) $ 235
=================================================================================================================================
Comprehensive income (loss)
Net earnings 714 714
Foreign currency
translation adjustments (77) (77)
---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (77) (77)
-------------------
Total Comprehensive income 637
---------------------------------------------------------------------------------------------------------------------------------
Dividends ($.90 per share) (382) (382)
Treasury stock purchased (11) (394) (394)
Treasury stock issued under
management incentive and
stock option plans 3 79 (38) 41
---------------------------------------------------------------------------------------------------------------------------------
Balance at July 30, 2000 542 20 (121) (4,373) 344 4,373 (227) 137
=================================================================================================================================
Comprehensive income (loss)
Net earnings 649 649
Foreign currency
translation adjustments (97) (97)
---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (97) (97)
-------------------
Total Comprehensive income 552
---------------------------------------------------------------------------------------------------------------------------------
Dividends ($.90 per share) (371) (371)
Repurchase of shares
under forward stock
purchase contracts (11) (521) (521)
Treasury stock purchased (3) (97) (97)
Treasury stock issued under
management incentive and
stock option plans 2 83 (30) 53
---------------------------------------------------------------------------------------------------------------------------------
Balance at July 29, 2001 542 20 (133) (4,908) 314 4,651 (324) (247)
=================================================================================================================================
COMPREHENSIVE INCOME (LOSS)
NET EARNINGS 525 525
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS 49 49
CASH-FLOW HEDGES, NET OF TAX 2 2
MINIMUM PENSION LIABILITY,
NET OF TAX (208) (208)
---------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE LOSS (157) (157)
-------------------
TOTAL COMPREHENSIVE INCOME 368
---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS ($.63 PER SHARE) (258) (258)
TREASURY STOCK PURCHASED -- (5) (5)
TREASURY STOCK ISSUED UNDER
MANAGEMENT INCENTIVE AND
STOCK OPTION PLANS 1 22 6 28
---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JULY 28, 2002 542 $ 20 (132) $ (4,891) $ 320 $ 4,918 $ (481) $ (114)
=================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
|
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The consolidated financial statements include the accounts of the
company and its majority-owned subsidiaries. Significant intercompany
transactions are eliminated in consolidation. Investments of 20% or more in
affiliates are accounted for by the equity method.
FISCAL YEAR The company's fiscal year ends on the Sunday nearest July 31. There
were 52 weeks in 2002, 2001 and 2000. There will be 53 weeks in 2003.
REVENUE RECOGNITION Revenues are recognized when the earnings process is
complete. This occurs when products are shipped in accordance with terms of
agreements, title and risk of loss transfer to customers, collection is probable
and pricing is fixed or determinable.
CASH AND CASH EQUIVALENTS All highly liquid debt instruments purchased with a
maturity of three months or less are classified as cash equivalents.
INVENTORIES Substantially all U.S. inventories are priced at the lower of cost
or market, with cost determined by the last in, first out (LIFO) method. Other
inventories are priced at the lower of average cost or market.
PLANT ASSETS Plant assets are stated at historical cost. Alterations and major
overhauls, which extend the lives or increase the capacity of plant assets, are
capitalized. The amounts for property disposals are removed from plant asset and
accumulated depreciation accounts and any resultant gain or loss is included in
earnings. Ordinary repairs and maintenance are charged to operating costs.
DEPRECIATION Depreciation provided in Costs and expenses is calculated using the
straight-line method over the estimated useful lives of the assets. Buildings
and machinery and equipment are depreciated over periods not exceeding 45 years
and 15 years, respectively.
LONG-LIVED ASSETS Long-lived assets are comprised of intangible assets and
property, plant and equipment. Intangible assets consist principally of the
excess purchase price over net assets of businesses acquired and trademarks.
Intangibles are amortized on a straight-line basis over periods not exceeding 40
years. Long-lived assets are reviewed for impairment as events or changes in
circumstances occur indicating that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the
asset, or the appropriate grouping of assets, is compared to the carrying value
to determine whether an impairment exists. See Recently Issued Accounting
Pronouncements for the accounting for intangible assets in 2003.
DERIVATIVE FINANCIAL INSTRUMENTS The company uses derivative financial
instruments primarily for purposes of hedging exposures to fluctuations in
interest rates, foreign currency exchange rates and equity-linked employee
benefit obligations. Beginning in 2001, all derivatives are accounted for in
accordance with Statement of Financial Accounting Standards (SFAS) No. 133
"Accounting for Derivatives and Hedging Activities," as amended by SFAS No. 137
and No. 138. All derivatives are recognized on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded in earnings or other
comprehensive income, based on whether the instrument is designated as part of a
hedge transaction and, if so, the type of hedge transaction. Gains or losses on
derivative instruments reported in other comprehensive income are reclassified
to earnings in the period in which earnings are affected by the underlying
hedged item. The ineffective portion of all hedges is recognized in earnings in
the current period. The cumulative effect of adopting SFAS No. 133 was not
material to the company's consolidated financial statements.
USE OF ESTIMATES Generally accepted accounting principles require management to
make estimates and assumptions that affect assets and liabilities, contingent
assets and liabilities, and revenues and expenses. Actual results could differ
from those estimates.
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
RECLASSIFICATIONS Prior year financial statements and footnotes have been
reclassified to conform to the current year presentation.
In September 2000, the Financial Accounting Standards Board's Emerging Issues
Task Force (EITF) reached a final consensus on Issue No. 00-10 "Accounting for
Shipping and
36 37
Handling Fees and Costs" that such costs cannot be reported as a reduction of
revenue. The consensus was effective in the fourth quarter 2001. Shipping and
handling costs of approximately $207 in 2001 and $199 in 2000 were reclassified
from Net sales to Cost of products sold. The reclassifications had no impact on
net earnings or earnings per share.
In the first quarter 2002, the company adopted EITF Issue No. 00-14 "Accounting
for Certain Sales Incentives" and Issue No. 00-25 "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products,"
as codified by Issue No. 01-9 "Accounting for Consideration Given by a Vendor to
a Customer or Reseller of the Vendor's Products." Under these Issues, the EITF
concluded that certain consumer and trade sales promotion expenses, such as
coupon redemption costs, cooperative advertising programs, new product
introduction fees, feature price discounts and in-store display incentives,
should be classified as a reduction of sales rather than as marketing expenses.
The adoption of these new accounting standards in 2002 resulted in the following
reclassifications to the annual results for 2001 and 2000: Net sales were
reduced by $893 and $840, respectively; Cost of products sold was reduced by $14
and $19, respectively; and Marketing and selling expenses were reduced by $879
and $821, respectively. These reclassifications had no impact on net earnings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141 "Business Combinations" and SFAS No.
142 "Goodwill and Other Intangible Assets." In addition to requiring that all
business combinations be accounted for under the purchase method, SFAS No. 141
requires intangible assets that meet certain criteria to be recognized as assets
apart from goodwill. The provisions of SFAS No. 142 indicate that goodwill and
indefinite life intangible assets should no longer be amortized, but rather be
tested for impairment annually. Intangible assets with a finite life shall
continue to be amortized over the estimated useful life. SFAS No. 141 was
effective for business combinations initiated after June 30, 2001. The company
will adopt SFAS No. 142 in 2003. The elimination of amortization is to be
applied on a prospective basis and prior periods are not to be restated.
However, the impact of amortization of goodwill and indefinite life intangible
assets is to be disclosed for prior periods.
The company is currently evaluating the impact of SFAS No. 142. With the
adoption of SFAS No. 142, the company will use the new criteria to assess
whether goodwill and certain other intangible assets are impaired. Any
impairment charge resulting from the initial impairment assessment will be
recorded as a cumulative effect of an accounting change. The company estimates
that the cumulative effect of adopting this standard will result in a non-cash
charge of approximately $45 on a pre-tax basis in 2003. In addition, the
adoption of this standard is expected to benefit net earnings by approximately
$55 in reduced amortization of goodwill and indefinite-lived intangible assets.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement is effective for fiscal years
beginning after June 15, 2002. The company is currently evaluating the impact of
this Statement, but does not expect the adoption to have a material impact on
the financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. The provisions of this Statement are
effective for fiscal years beginning after December 15, 2001. The company is
currently evaluating the impact of this Statement, but does not expect the
adoption to have a material impact on the financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Exit or Disposal
Activities." The provisions of this Statement are effective for disposal
activities initiated after December 31, 2002, with early application encouraged.
The company is currently evaluating the impact of this Statement.
2. COMPREHENSIVE INCOME
Total comprehensive income is comprised of net earnings, net foreign currency
translation adjustments, minimum pension liability adjustments (see Note 8), and
net unrealized gains and losses on cash-flow hedges. Total comprehensive income
for the twelve months ended July 28, 2002, July 29, 2001 and July 30, 2000 was
$368, $552, and $637, respectively.
Campbell Soup Company Annual Report 2002
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
The components of Accumulated other comprehensive loss, as reflected in the
Statements of Shareowners' Equity (Deficit), consisted of the following:
2002 2001
-----------------------------------------------------------------
Foreign currency translation adjustments $(275) $(324)
Cash-flow hedges, net of tax 2 --
Minimum pension liability, net of tax* (208) --
-----------------------------------------------------------------
Total Accumulated other
comprehensive loss $(481) $(324)
-----------------------------------------------------------------
----------
* Includes a tax benefit of $119.
|
The net gain on cash-flow hedges was not material at July 29, 2001.
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
Campbell Soup Company, together with its consolidated subsidiaries, is a global
manufacturer and marketer of high quality, branded convenience food products.
Through 2001, the company was organized and reported the results of operations
in three business segments: Soup and Sauces, Biscuits and Confectionery, and
Away From Home.
Beginning in 2002, the company changed its organizational structure such that
operations are managed and reported in four segments: North America Soup and
Away From Home, North America Sauces and Beverages, Biscuits and Confectionery,
and International Soup and Sauces. Segment financial information has been
modified for all periods in order to conform to the new structure. In addition,
Net sales reflect the reclassifications related to the adoption of new
accounting standards as discussed in Note 1.
The North America Soup and Away From Home segment comprises the retail soup and
Away From Home business in the U.S. and Canada. The U.S. retail business
includes the Campbell's brand condensed and ready-to-serve soups and Swanson
broths. The segment includes the company's total business in Canada, which
comprises the Habitant and Campbell's soups, Prego pasta sauce and V8 juices.
The Away From Home operations represent the distribution of products such as
Campbell's soups, Campbell's specialty entrees, beverage products, other
prepared foods and Pepperidge Farm products through various food service
channels. The North America Sauces and Beverages segment includes Prego pasta
sauces, Pace Mexican sauces, Franco-American canned pastas and gravies, V8
vegetable juices, V8 Splash juice beverages, Campbell's tomato juice and the
total of all businesses in Mexico and other Latin American countries. The
Biscuits and Confectionery segment includes Pepperidge Farm cookies, crackers,
breads and frozen products in North America, Arnott's biscuits and crackers in
Australia and Asia Pacific and Godiva chocolates worldwide. The International
Soup and Sauces segment comprises operations outside of North America, including
Erasco and Heisse Tasse soups in Germany, Liebig and Royco soups and Lesieur
sauces in France, Campbell's and Batchelors soups, Oxo stock cubes and Homepride
sauces in the United Kingdom, Devos Lemmens mayonnaise and cold sauces, and
Campbell's and Royco soups in Belgium, and Bla Band and McDonnells soups in
Sweden and Ireland, respectively. In Asia Pacific, operations include Campbell's
soups and stock and Swanson broths across the region.
Accounting policies for measuring segment assets and earnings before interest
and taxes are substantially consistent with those described in Note 1. The
company evaluates segment performance before interest and taxes, excluding
certain non-recurring charges. The North America Soup and Away From Home and
North America Sauces and Beverages segments operate under an integrated supply
chain organization, sharing substantially all manufacturing, warehouse,
distribution and sales activities. Accordingly, assets have been allocated
between the two segments based on various measures, for example, budgeted
production hours for fixed assets and depreciation.
The company's largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for approximately 12% of consolidated net sales during 2002. All of
the company's segments sold products to Wal-Mart Stores, Inc. and its
affiliates.
Information about operations by business segment, reflecting the
reclassifications described in Note 1, is as follows:
BUSINESS SEGMENTS
EARNINGS
BEFORE DEPRECIATION CAPITAL
INTEREST AND EXPEN- SEGMENT
2002 NET SALES AND TAXES(3) AMORTIZATION DITURES ASSETS
---------------------------------------------------------------------------------------
NORTH AMERICA SOUP
AND AWAY FROM HOME $2,524 $ 624 $ 71 $ 75 $1,263
NORTH AMERICA SAUCES
AND BEVERAGES 1,182 236 60 47 1,228
BISCUITS AND
CONFECTIONERY 1,507 175 101 100 1,276
INTERNATIONAL SOUP
AND SAUCES 920 92 55 28 1,632
CORPORATE AND
ELIMINATIONS(1) -- (143) 32 19 322
---------------------------------------------------------------------------------------
TOTAL $6,133 $ 984 $319 $269 $5,721
=======================================================================================
|
38 39
Earnings
Before Depreciation Capital
Interest and Expen- Segment
2001 Net Sales(2) and Taxes(3) Amortization ditures Assets
-------------------------------------------------------------------------------------------
North America Soup
and Away From Home $ 2,532 $ 774 $ 67 $ 59 $ 1,248
North America Sauces
and Beverages 1,161 295 53 33 1,243
Biscuits and
Confectionery 1,446 197 87 77 1,249
International Soup
and Sauces 632 51 32 21 1,519
Corporate and
Eliminations(1) -- (123) 27 10 668
-------------------------------------------------------------------------------------------
Total $ 5,771 $ 1,194 $ 266 $ 200 $ 5,927
===========================================================================================
|
Earnings
Before Depreciation Capital
Interest and Expen- Segment
2000 Net Sales(2) and Taxes Amortization ditures Assets
-------------------------------------------------------------------------------------------
North America Soup
and Away From Home $ 2,434 $ 768 $ 67 $ 63 $ 1,302
North America Sauces
and Beverages 1,156 309 52 34 1,281
Biscuits and
Confectionery 1,391 206 83 63 1,366
International Soup
and Sauces 622 64 24 26 593
Other 23 -- -- -- --
Corporate and
Eliminations(1) -- (82) 25 14 654
-------------------------------------------------------------------------------------------
Total $ 5,626 $ 1,265 $ 251 $ 200 $ 5,196
===========================================================================================
----------
(1) Represents elimination of intersegment sales, unallocated corporate expenses
and unallocated assets, including corporate offices, deferred income taxes
and prepaid pension assets.
(2) In the fourth quarter of 2001, the company adopted new guidance on the
classification of shipping and handling costs. Shipping and handling costs
of $207 and $199 for 2001 and 2000, respectively, were reclassified from Net
sales to Cost of products sold. In the first quarter of 2002, the company
adopted new accounting standards related to the income statement
classification of certain consumer and trade sales promotion expenses, such
as coupon redemption costs, cooperative advertising programs and in-store
display incentives. As a result, the reclassifications, recorded in 2002,
reduced Net sales by $893 and $840 for 2001 and 2000, respectively. See Note
1 for further discussion.
(3) Contributions to earnings before interest and taxes by the Biscuits and
Confectionery segment include the effect of costs of $20 in 2002, and $15 in
2001 associated with the Australian manufacturing reconfiguration.
|
GEOGRAPHIC AREA INFORMATION
Information about operations in different geographic areas is as follows:
NET SALES(1) 2002 2001 2000
----------------------------------------------------------------------------------------
United States $ 4,339 $ 4,313 $ 4,179
Europe 843 558 526
Australia/Asia Pacific 554 517 561
Other countries 502 455 426
Adjustments and eliminations (105) (72) (66)
----------------------------------------------------------------------------------------
Consolidated $ 6,133 $ 5,771 $ 5,626
========================================================================================
|
EARNINGS BEFORE
INTEREST AND TAXES 2002 2001 2000
----------------------------------------------------------------------------------------
United States $ 913 $ 1,137 $ 1,135
Europe 92 53 55
Australia/Asia Pacific 41 46 72
Other countries 81 81 85
----------------------------------------------------------------------------------------
Segment earnings before
interest and taxes 1,127 1,317 1,347
Unallocated corporate
expenses (143) (123) (82)
----------------------------------------------------------------------------------------
Consolidated $ 984 $ 1,194 $ 1,265
========================================================================================
|
IDENTIFIABLE ASSETS 2002 2001 2000
----------------------------------------------------------------------------------------
United States $ 2,797 $ 2,737 $ 2,792
Europe 1,586 1,472 533
Australia/Asia Pacific 725 717 852
Other countries 288 293 315
Corporate 325 708 704
----------------------------------------------------------------------------------------
Consolidated $ 5,721 $ 5,927 $ 5,196
========================================================================================
(1) In the fourth quarter of 2001, the company adopted new guidance on the
classification of shipping and handling costs. Shipping and handling costs
of $207 and $199 for 2001 and 2000, respectively, were reclassified from Net
sales to Cost of products sold. In the first quarter of 2002, the company
adopted new accounting standards related to the income statement
classification of certain consumer and trade sales promotion expenses, such
as coupon redemption costs, cooperative advertising programs and in-store
display incentives. As a result, the reclassifications, recorded in 2002,
reduced Net sales by $893 and $840 for 2001 and 2000, respectively. See Note
1 for further discussion.
|
Transfers between geographic areas are recorded at cost plus markup or at
market. Identifiable assets are those assets, including goodwill, which are
identified with the operations in each geographic region. The restructuring
charges in 2002 and 2001 were allocated to Australia/Asia Pacific.
Campbell Soup Company Annual Report 2002
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
4. RESTRUCTURING PROGRAM
A restructuring charge of $10 ($7 after tax) was recorded in the fourth quarter
2001 for severance costs associated with the reconfiguration of the
manufacturing network of Arnotts in Australia. In the second quarter 2002, the
company recorded an additional $1 restructuring charge related to planned
severance actions. Related costs of approximately $19 ($13 after tax) in 2002
and $5 ($4 after tax) in 2001 were recorded as Cost of products sold, primarily
representing accelerated depreciation on assets to be taken out of service. This
program was designed to drive greater manufacturing efficiency resulting from
the closure of the Melbourne plant. Approximately 550 jobs were eliminated due
to the plant closure.
A summary of restructuring reserves at July 28, 2002 and related activity is as
follows:
ACCRUED ACCRUED
BALANCE AT 2002 BALANCE AT
JULY 29, 2001 CHARGE SPENDING JULY 28, 2002
-------------------------------------------------------------------------------------------------------
Severance pay
and benefits $ 10 1 (7) $ 4
=======================================================================================================
|
5. OTHER EXPENSES
2002 2001 2000
-------------------------------------------------------------------------------------------------------
Stock price related incentive programs $ 39 $ 36 $ 26
Amortization of intangible and other assets 78 57 55
Minority interest -- 3 1
Other, net 21 18 7
-------------------------------------------------------------------------------------------------------
$138 $114 $ 89
=======================================================================================================
|
6. INTEREST EXPENSE
2002 2001 2000
-------------------------------------------------------------------------------------------------------
Interest expense $191 $222 $204
Less: Interest capitalized 1 3 6
-------------------------------------------------------------------------------------------------------
$190 $219 $198
=======================================================================================================
|
7. ACQUISITIONS
In May 2001, the company acquired the assets of the European culinary brands
business, comprised of several soup and sauce businesses, from Unilever,
PLC/Unilever N.V. for approximately $920. The acquisition was financed with
available cash and commercial paper borrowings. This acquisition was accounted
for as a purchase transaction, and operations of the acquired business are
included in the financial statements from May 4, 2001, the date the acquisition
was consummated. The purchase price was allocated as follows: approximately $100
to fixed assets and inventory; approximately $490 to trademarks and other
identifiable intangible assets; and approximately $330 to the excess of the
purchase price over net assets acquired (goodwill). Goodwill and trademarks were
being amortized on a straight-line basis over 40 years. An additional purchase
price adjustment of $15 was paid in 2002 related to inventory.
Had the acquisition occurred at the beginning of 2000, based on unaudited data,
net sales for 2001 and 2000 would have increased approximately $300 and $400,
respectively, and net earnings would have decreased $2 in 2001 and $7 in 2000.
Basic and diluted earnings per share would have decreased $.01 and $.02 in 2001
and 2000, respectively. These pro forma estimates factor in certain adjustments,
including amortization of goodwill, additional depreciation expense, increased
interest expense on debt related to the acquisition, and related income tax
effects. The pro forma results do not include any synergies expected to result
from the acquisition.
8. PENSION AND POSTRETIREMENT BENEFITS
PENSION BENEFITS Substantially all of the company's U.S. and certain non-U.S.
employees are covered by noncontributory defined benefit pension plans. In 1999,
the company implemented significant amendments to certain U.S. plans. Under a
new formula, retirement benefits are determined based on percentages of annual
pay and age. To minimize the impact of converting to the new formula, service
and earnings credit will continue to accrue for active employees participating
in the plans under the formula prior to the amendments through the year 2014.
Employees will receive the benefit from either the new or old formula, whichever
is higher. Benefits become vested upon the completion of five years of service.
Benefits are paid from funds previously provided to trustees and insurance
companies or are paid directly by the company from general funds. Plan assets
consist primarily of investments in equities, fixed income securities, and real
estate.
Pension coverage for employees of certain non-U.S. subsidiaries are provided to
the extent determined appropriate through their respective plans. Obligations
under such plans are systematically provided for by depositing funds with trusts
or under insurance contracts. The assets and obligations of these plans are not
material.
POSTRETIREMENT BENEFITS The company provides postretirement benefits including
healthcare and life insurance to substantially all retired U.S. employees and
their dependents. In 1999, changes were made to the
40 41
postretirement benefits offered to certain U.S. employees. Participants who were
not receiving postretirement benefits as of May 1, 1999 will no longer be
eligible to receive such benefits in the future, but the company will provide
access to healthcare coverage for non-eligible future retirees on a group basis.
Costs will be paid by the participants. To preserve the economic benefits for
employees near retirement, participants who were at least age 55 and had at
least 10 years of continuous service remain eligible for postretirement
benefits.
Components of net periodic benefit cost:
PENSION 2002 2001 2000
-----------------------------------------------------------------
Service cost $ 36 $ 35 $ 37
Interest cost 109 106 103
Expected return
on plan assets (159) (158) (150)
Amortization of net
transition obligation -- (1) (3)
Amortization of prior
service cost 6 5 5
Recognized net
actuarial loss 4 1 6
Curtailment -- -- 1
-----------------------------------------------------------------
Net periodic pension income $ (4) $ (12) $ (1)
=================================================================
|
POSTRETIREMENT 2002 2001 2000
-----------------------------------------------------------------
Service cost $ 5 $ 3 $ 5
Interest cost 21 20 18
Amortization of prior
service cost (14) (12) (11)
Amortization of net gain -- (7) (12)
Settlement -- -- (3)
-----------------------------------------------------------------
Net periodic postretirement
(income) expense $ 12 $ 4 $ (3)
=================================================================
|
Change in benefit obligation:
PENSION POSTRETIREMENT
2002 2001 2002 2001
---------------------------------------------------------------------------------
Obligation at
beginning of year $ 1,522 $ 1,428 $ 338 $ 260
Acquisition adjustment -- 23 -- --
Service cost 36 35 5 3
Interest cost 109 106 21 20
Plan amendments 6 -- (16) --
Actuarial loss 117 60 21 86
Settlement -- -- -- (1)
Benefits paid (123) (122) (29) (30)
Foreign currency
adjustment 2 (8) -- --
---------------------------------------------------------------------------------
Benefit obligation at
end of year $ 1,669 $ 1,522 $ 340 $ 338
=================================================================================
|
Change in the fair value of pension plan assets:
2002 2001
------------------------------------------------------------
Fair value at beginning of year $ 1,644 $ 1,846
Acquisition adjustment -- 23
Actual return on plan assets (159) (97)
Employer contributions 8 --
Benefits paid (118) (118)
Foreign currency adjustment 2 (10)
------------------------------------------------------------
Fair value at end of year $ 1,377 $ 1,644
============================================================
|
Funded status as recognized in the Consolidated Balance Sheet:
PENSION POSTRETIREMENT
2002 2001 2002 2001
------------------------------------------------------------------------
Funded status at
end of year $(292) $ 122 $(340) $(338)
Unrecognized prior
service cost 57 54 (33) (32)
Unrecognized loss 644 220 36 15
------------------------------------------------------------------------
Net amount recognized $ 409 $ 396 $(337) $(355)
========================================================================
|
Amounts recognized in the Consolidated Balance Sheet:
PENSION 2002 2001
----------------------------------------------------------
Prepaid benefit cost $ 51 $396
Intangible asset 31 --
Accumulated other comprehensive loss 327 --
----------------------------------------------------------
Net amount recognized $409 $396
==========================================================
|
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $1,144, $1,048 and $864, respectively, as of July 28,
2002.
The current portion of nonpension postretirement benefits included in Accrued
liabilities was $19 at July 28, 2002 and July 29, 2001.
PENSION
Weighted-average assumptions at end of year:
2002 2001 2000
----------------------------------------------------------------
Discount rate for
benefit obligation 6.90% 7.25% 7.75%
Expected return on
plan assets 9.30% 10.00% 10.50%
Rate of compensation
increases 4.50% 4.50% 4.50%
----------------------------------------------------------------
|
Campbell Soup Company Annual Report 2002
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
POSTRETIREMENT
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.00% in 2002 and 7.25% in 2001. The assumed health care cost
trend rate used to measure the accumulated postretirement benefit obligation was
8%, declining to 4.50% in 2007 and continuing at 4.50% thereafter.
A one percentage point change in assumed health care costs would have the
following effects on 2002 reported amounts:
INCREASE DECREASE
--------------------------------------------------------------------------------
Effect on service and interest cost $ 2 $ (2)
Effect on the 2002 accumulated benefit obligation $ 12 $(12)
--------------------------------------------------------------------------------
|
Obligations related to non-U.S. postretirement benefit plans are not significant
since these benefits are generally provided through government-sponsored plans.
SAVINGS PLAN The company sponsors employee savings plans which cover
substantially all U.S. employees. After one year of continuous service, the
company generally matches 50% of employee contributions up to 5% of
compensation. Amounts charged to Costs and expenses were $13 in 2002, $11 in
2001, and $10 in 2000.
9. TAXES ON EARNINGS
The provision for income taxes on earnings consists of the following:
2002 2001 2000
-------------------------------------------------------------------------
Income taxes:
Currently payable
Federal $ 201 $ 254 $ 246
State 19 29 30
Non-U.S 48 51 70
-------------------------------------------------------------------------
268 334 346
-------------------------------------------------------------------------
Deferred
Federal 7 13 36
State -- (1) (4)
Non-U.S (2) (8) (15)
-------------------------------------------------------------------------
5 4 17
-------------------------------------------------------------------------
$ 273 $ 338 $ 363
=========================================================================
Earnings before income taxes:
United States $ 685 $ 835 $ 880
Non-U.S 113 152 197
-------------------------------------------------------------------------
$ 798 $ 987 $ 1,077
=========================================================================
|
The following is a reconciliation of the effective income tax rate on continuing
operations with the U.S. federal statutory income tax rate:
2002 2001 2000
-------------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal tax benefit) 1.6 1.5 1.5
Non-U.S. earnings taxed at other
than federal statutory rate (0.1) (0.9) (1.0)
Tax loss carryforwards (0.4) (0.3) (0.3)
Other (1.9) (1.1) (1.5)
-------------------------------------------------------------------------------
Effective income tax rate 34.2% 34.2% 33.7%
-------------------------------------------------------------------------------
|
Deferred tax liabilities and assets are comprised of the following:
2002 2001
---------------------------------------------------------------
Depreciation $ 154 $ 160
Pensions 10 125
Other 238 216
---------------------------------------------------------------
Deferred tax liabilities 402 501
---------------------------------------------------------------
Benefits and compensation 195 197
Tax loss carryforwards 12 12
Other 103 95
---------------------------------------------------------------
Gross deferred tax assets 310 304
Deferred tax asset valuation allowance (10) (12)
---------------------------------------------------------------
Net deferred tax assets 300 292
---------------------------------------------------------------
Net deferred tax liability $ 102 $ 209
===============================================================
|
At July 28, 2002, non-U.S. subsidiaries of the company have tax loss
carryforwards of approximately $34. Of these carryforwards, $2 expire through
2007 and $32 may be carried forward indefinitely. The current statutory tax
rates in these countries range from 28% to 40%.
U.S. income taxes have not been provided on undistributed earnings of non-U.S.
subsidiaries of approximately $578, which are deemed to be permanently invested.
If remitted, tax credits or planning strategies should substantially offset any
resulting tax liability.
10. ACCOUNTS RECEIVABLE
2002 2001
--------------------------------------------------------------------
Customers $ 431 $ 441
Allowances for cash discounts and bad debts (36) (28)
--------------------------------------------------------------------
395 413
Other 22 29
--------------------------------------------------------------------
$ 417 $ 442
====================================================================
|
42 43
11. INVENTORIES
2002 2001
------------------------------------------------------------
Raw materials, containers and supplies $231 $216
Finished products 407 381
------------------------------------------------------------
$638 $597
============================================================
|
Approximately 60% of inventory in 2002 and 61% in 2001 is accounted for on the
last in, first out method of determining cost. If the first in, first out
inventory valuation method had been used exclusively, inventories would not
differ materially from the amounts reported at July 28, 2002 and July 29, 2001.
12. OTHER CURRENT ASSETS
2002 2001
------------------------------------
Deferred taxes $ 86 $ 94
Other 37 46
------------------------------------
$123 $140
====================================
|
13. PLANT ASSETS
2002 2001
-----------------------------------------------------
Land $ 53 $ 50
Buildings 868 840
Machinery and equipment 2,482 2,354
Projects in progress 230 133
-----------------------------------------------------
3,633 3,377
Accumulated depreciation (1,949) (1,740)
-----------------------------------------------------
$ 1,684 $ 1,637
=====================================================
|
Depreciation expense provided in Costs and expenses was $241 in 2002, $209 in
2001, and $196 in 2000. Approximately $159 of capital expenditures are required
to complete projects in progress at July 28, 2002.
14. INTANGIBLE ASSETS
2002 2001
----------------------------------------------------------------------
Purchase price in excess of net assets of
businesses acquired (goodwill) $ 1,881 $ 1,856
Trademarks 993 890
Other intangibles 16 11
----------------------------------------------------------------------
2,890 2,757
Accumulated amortization (387) (306)
----------------------------------------------------------------------
$ 2,503 $ 2,451
======================================================================
|
15. OTHER ASSETS
2002 2001
--------------------------------------------------
Prepaid pension benefit cost $ 51 $396
Intangible pension asset 31 --
Investments 203 215
Other 50 25
--------------------------------------------------
$335 $636
==================================================
|
16. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consists of the following:
2002 2001
-------------------------------------------------------
Commercial paper $ 886 $1,789
Current portion of
Long-term Debt 301 6
Variable-rate bank borrowings 9 11
-------------------------------------------------------
$1,196 $1,806
=======================================================
|
Commercial paper had a weighted average interest rate of 2.54% and 4.38% at July
28, 2002 and July 29, 2001, respectively.
The current portion of Long-term Debt had a weighted average interest rate of
6.16% and 5.79% at July 28, 2002 and July 29, 2001, respectively.
The company has short-term lines of credit of approximately $1,982 at July 28,
2002. These lines of credit include two committed lines of credit totaling
$1,800 which support commercial paper borrowings and remain unused at July 28,
2002, except for $45 of standby letters of credit issued on behalf of the
company.
Long-term Debt consists of the following:
Fiscal Year
Type of Maturity Rate 2002 2001
---------------------------------------------------------------------
Notes 2003 6.15% $ -- $ 300
Notes 2004 4.75% 300 300
Notes 2004 5.63% -- 100
Notes 2004 2.29% 300 --
Notes 2004 5.72% -- 528
Notes 2007 6.90% 300 300
Notes 2007 5.50% 300 --
Notes 2009 5.88% 300 --
Notes 2011 6.75% 700 500
Debentures 2021 8.88% 200 200
Other 2004-2010 6.40%-9.00% 49 15
---------------------------------------------------------------------
$2,449 $2,243
=====================================================================
|
Campbell Soup Company Annual Report 2002
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
The fair value of the company's long-term debt including the current portion of
long-term debt in Notes payable was $2,952 at July 28, 2002, and $2,323 at July
29, 2001.
The company has $1,000 of long-term debt available to issue as of July 28, 2002
under a shelf registration statement filed with the Securities and Exchange
Commission.
Principal amounts of long-term debt mature as follows: 2003 - $301 (in current
liabilities); 2004 - $600; 2005 - $1; 2006 - $1; 2007 - $605 and beyond -
$1,242.
17. OTHER LIABILITIES
2002 2001
-------------------------------------------
Deferred taxes $188 $303
Deferred compensation 121 123
Postemployment benefits 15 13
Other 65 36
-------------------------------------------
$389 $475
===========================================
|
18. FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts and notes receivable,
accounts payable and short-term debt approximate fair value. The fair value of
long-term debt, as indicated in Note 16, and derivative financial instruments is
based on quoted market prices.
In 2001, the company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138. The standard
requires that all derivative instruments be recorded on the balance sheet at
fair value and establishes criteria for designation and effectiveness of the
hedging relationships.
The company utilizes certain derivative financial instruments to enhance its
ability to manage risk, including interest rate, foreign currency, commodity and
certain equity-linked employee compensation exposures which exist as part of
ongoing business operations. Derivative instruments 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, nor is it a party to any leveraged derivative instrument.
The company is exposed to credit loss in the event of nonperformance by the
counterparties on derivative contracts. The company minimizes its credit risk on
these transactions by dealing only with leading, credit-worthy financial
institutions having long-term credit ratings of "A" or better and, therefore,
does not anticipate non-performance. In addition, the contracts are distributed
among several financial institutions, thus minimizing credit risk concentration.
All derivatives are recognized on the balance sheet at fair value. On the date
the derivative contract is entered into, the company designates the derivative
as (1) a hedge of the fair value of a recognized asset or liability or of an
unrecognized firm commitment (fair-value hedge), (2) a hedge of a forecasted
transaction or of the variability of cash-flows to be received or paid related
to a recognized asset or liability (cash-flow hedge), (3) a foreign-currency
fair-value or cash flow hedge (foreign-currency hedge), or (4) a hedge of a net
investment in a foreign operation. Some derivatives may also be considered
natural hedging instruments (changes in fair value are recognized to act as
economic offsets to changes in fair value of the underlying hedged item and do
not qualify for hedge accounting under SFAS No. 133).
Changes in the fair value of a fair-value hedge, along with the loss or gain on
the hedged asset or liability that is attributable to the hedged risk (including
losses or gains on firm commitments), are recorded in current period earnings.
Changes in the fair value of a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows. Changes in the fair value of a foreign-currency hedge are recorded in
either current-period earnings or other comprehensive income, depending on
whether the hedge transaction is a fair-value hedge (e.g., a hedge of a firm
commitment that is to be settled in foreign currency) or a cash-flow hedge
(e.g., a hedge of a foreign-currency-denominated forecasted transaction). If,
however, a derivative is used as a hedge of a net investment in a foreign
operation, its changes in fair value, to the extent effective as a hedge, are
recorded in the cumulative translation adjustments account within Shareowners'
equity (deficit).
The company finances a portion of its operations through debt instruments
primarily consisting of commercial paper, notes, debentures and bank loans. The
company utilizes interest rate swap agreements to minimize worldwide financing
costs and to achieve a targeted ratio of variable versus fixed-rate debt. In
2002, the company entered into interest rate swaps that convert fixed-rate debt
(5.50% notes due in 2007 and 5.875% notes due in 2009) to variable. These swaps
mature in 2007 and 2009, respectively, and are accounted for as fair-value
hedges. The amounts paid or received on these hedges and adjustments to fair
value are recognized as adjustments to interest expense. In 2001, the company
entered into interest rate swaps that convert
44 45
fixed-rate debt (6.75% notes due in 2011) to variable. The swaps mature in 2011
and are accounted for as fair-value hedges. The notional amount of fair-value
interest rate swaps was $425 and $250, respectively, at July 28, 2002 and July
29, 2001. The swaps had a fair value of $31 and $5, respectively, at July 28,
2002 and July 29, 2001.
In 2002, the company entered into interest rate swaps with a notional value of
$300 that convert variable-rate debt to fixed. The swaps mature in 2004 and are
accounted for as cash-flow hedges. Consequently, the effective portion of
unrealized gains (losses) is deferred as a component of Accumulated other
comprehensive income/(loss) and is recognized in earnings at the time the hedged
item affects earnings. The amounts paid or received on the hedge are recognized
as adjustments to interest expense. The fair value of the swaps was $(4) as of
July 28, 2002.
In anticipation of the $300 seven-year notes issued in September 2001, the
company entered into forward-starting interest rate swap contracts with a
notional value of $138. Upon issuance of the notes, the contracts were settled
at a loss of approximately $4. This loss was recorded in other comprehensive
income/(loss) and is being amortized to interest expense over the life of the
notes.
The company is exposed to foreign currency exchange risk as a result of
transactions in currencies other than the functional currency of certain
subsidiaries. The company utilizes foreign currency forward purchase and sale
contracts, options and cross-currency swaps in order to manage the volatility
associated with foreign currency purchases and certain intercompany
transactions in the normal course of business.
Qualifying forward exchange contracts and cross-currency swap contracts are
accounted for as cash-flow hedges when the hedged item is a forecasted
transaction, or when future cash flows related to a recognized asset or
liability are expected to be received or paid. The effective portion of the
changes in fair value on these instruments is recorded in Accumulated other
comprehensive income/(loss) and is reclassified into the Statement of Earnings
on the same line item and in the same period or periods in which the hedged
transaction affects earnings. The fair value of these instruments was $(38) at
July 28, 2002.
Qualifying forward exchange contracts are accounted for as fair-value hedges
when the hedged item is a recognized asset, liability or firm commitment. The
fair-value of such contracts was not material at July 28, 2002.
The company also enters into certain foreign currency derivative instruments
that are not designated as accounting hedges. These instruments are primarily
intended to reduce volatility of certain intercompany financing transactions.
Gains and losses on derivatives not designated as accounting hedges are
typically recorded in Other expenses, as an offset to gains/(losses) on the
underlying transaction.
Foreign currency forward contracts typically have maturities of less than one
year. Principal currencies include the Australian dollar, British pound,
Canadian dollar, euro, Japanese yen and Swedish krona.
As of July 28, 2002, the accumulated derivative net gain in other comprehensive
income for cash-flow hedges, including the cross-currency swaps, variable to
fixed interest rate swaps and forward starting swap contracts was $2, net of
tax. At July 29, 2001, the accumulated net gain in other comprehensive income
was not material. Reclassifications from Accumulated other comprehensive
income/(loss) into the Statement of Earnings during the period ended July 28,
2002 were not material. There were no discontinued cash-flow hedges during the
year. At July 28, 2002, the maximum maturity date of any cash-flow hedge was
approximately nine years.
Other disclosures related to hedge ineffectiveness, gains/(losses) excluded from
the assessment of hedge effectiveness, gains/(losses) arising from effective
hedges of net investments, gains/(losses) resulting from the discontinuance of
hedge accounting and reclassifications from other comprehensive income to
earnings have been omitted due to the insignificance of these amounts.
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. On occasion,
the company may also enter into commodity futures contracts, as considered
appropriate, to reduce the volatility of price fluctuations for commodities such
as corn, soybean meal and cocoa. These instruments are designated as cash-flow
hedges. The fair value of the effective portion of the contracts is recorded in
Accumulated other comprehensive income/(loss) and reclassified into Cost of
products sold in the period in which the underlying transaction is recorded in
earnings. Commodity hedging activity is not material to the company's financial
statements.
The company is exposed to equity price changes related to certain employee
compensation obligations. Swap contracts are utilized to hedge exposures
relating to certain employee compensation obligations linked to the total return
of the Standard & Poor's 500 Index and the total return of the
Campbell Soup Company Annual Report 2002
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
company's capital stock. The company pays a variable interest rate and receives
the equity returns under these instruments. The notional value of the equity
swap contracts, which mature in 2003, was $53 at July 28, 2002. These
instruments are not designated as accounting hedges. Gains and losses are
recorded in Other expenses. The net liability recorded under these contracts at
July 28, 2002 was approximately $22.
19. SHAREOWNERS' EQUITY (DEFICIT)
The company has authorized 560 million shares of Capital stock with $.0375 par
value and 40 million shares of Preferred stock, issuable in one or more classes,
with or without par as may be authorized by the Board of Directors. No Preferred
stock has been issued.
The company sponsors a long-term incentive compensation plan. Under the plan,
restricted stock and options may be granted to certain officers and key
employees of the company. The plan provides for awards up to an aggregate of 50
million shares of Capital stock. Options are granted at a price not less than
the fair value of the shares on the date of grant and expire not later than ten
years after the date of grant. Options vest over a three-year period.
The company accounts for the stock option grants and restricted stock awards in
accordance with Accounting Principles Board Opinion No. 25 and related
Interpretations. Accordingly, no compensation expense has been recognized in the
Statements of Earnings for the options. In 1997, the company adopted the
disclosure provisions of SFAS No. 123 "Accounting for Stock-Based Compensation."
Had the company recorded compensation expense for the fair value of options
granted consistent with SFAS No. 123, earnings from continuing operations would
have been reduced by approximately $15, $14, and $13 in 2002, 2001 and 2000,
respectively. Earnings per share from continuing operations, both basic and
assuming dilution, would have been reduced by $.04 in 2002, and $.03 in both
2001 and 2000.
In 2001, the Board of Directors authorized the conversion of certain stock
options to shares of restricted stock based on specified conversion ratios. The
exchange, which was voluntary, replaced approximately 4.7 million options with
approximately one million restricted shares. Depending on the original grant
date of the options, the restricted shares vest in 2002, 2003 or 2004. The
company recognizes compensation expense throughout the vesting period of the
restricted stock. Compensation expense related to this award was $11 in 2002 and
$8 in 2001.
The weighted average fair value of options granted in 2002, 2001 and 2000 was
estimated as $8.09, $7.96 and $7.94, respectively. The fair value of each option
grant at grant date is estimated using the Black-Scholes option pricing model.
The following weighted average assumptions were used for grants in 2002, 2001
and 2000:
2002 2001 2000
---------------------------------------------------------
Risk-free interest rate 5.0% 5.1% 6.3%
Expected life (in years) 6 6 6
Expected volatility 31% 30% 29%
Expected dividend yield 2.2% 3.1% 3.0%
---------------------------------------------------------
|
Restricted shares granted are as follows:
(shares in thousands) 2002 2001 2000
-----------------------------------------------
Restricted Shares
Granted 94 184 573
-----------------------------------------------
|
Information about stock options and related activity is as follows:
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
(options in thousands) 2002 PRICE 2001 Price 2000 Price
-----------------------------------------------------------------------------------------------------------
Beginning of year 17,370 $ 30.30 24,024 $ 32.16 19,880 $ 32.37
Granted 15,176 25.53 1,361 31.95 6,105 29.84
Exercised (827) 17.52 (2,434) 16.82 (1,350) 17.81
Terminated (1,713) 31.16 (929) 40.36 (611) 45.40
Converted to
restricted stock -- -- (4,652) 46.13 -- --
-----------------------------------------------------------------------------------------------------------
End of year 30,006 $ 28.21 17,370 $ 30.30 24,024 $ 32.16
-----------------------------------------------------------------------------------------------------------
Exercisable at
end of year 12,595 12,160 14,850
===========================================================================================================
|
(options in thousands) Stock Options Outstanding Exercisable Options
------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
-------------------------------------------------------------------------------------------
$16.81 - $22.60 2,951 2.0 $ 20.14 2,951 $ 20.14
$22.61 - $31.91 23,745 8.3 $ 27.38 7,163 $ 30.76
$31.92 - $44.41 2,754 6.3 $ 38.78 1,926 $ 41.28
$44.42 - $56.50 556 3.8 $ 53.97 555 $ 53.99
-------------------------------------------------------------------------------------------
30,006 12,595
===========================================================================================
|
In 1999, the company entered into forward stock purchase contracts to partially
hedge the company's equity exposure from its stock option program. On December
12, 2000, the company purchased 11 million shares of common stock under the
existing forward contracts for approximately $521.
For the periods presented in the Consolidated Statements of Earnings, the
calculations of basic earnings per share and earnings per share assuming
dilution vary in that the
46 47
weighted average shares outstanding assuming dilution includes the incremental
effect of stock options, except when such effect would be antidilutive. In 2001
and 2000, the weighted average shares outstanding assuming dilution also
includes the incremental effect of approximately three million and four million
shares, respectively, under forward stock purchase contracts.
20. COMMITMENTS AND CONTINGENCIES
On March 30, 1998, the company effected a spinoff of several of its non-core
businesses to Vlasic Foods International Inc. ("VFI"). VFI and several of its
affiliates (collectively, "Vlasic") commenced cases under Chapter 11 of the
Bankruptcy Code on January 29, 2001 in the United States Bankruptcy Court for
the District of Delaware. Vlasic's Second Amended Joint Plan of Distribution
under Chapter 11 (the "Plan") was confirmed by an order of the Bankruptcy Court
dated November 16, 2001, and became effective on or about November 29, 2001. The
Plan provides for the assignment of various causes of action allegedly belonging
to the Vlasic estates, including claims against the company allegedly arising
from the spinoff, to VFB LLC, a limited liability company ("VFB") whose
membership interests are to be distributed under the Plan to Vlasic's general
unsecured creditors.
On February 19, 2002, VFB commenced a lawsuit against the company and several of
its subsidiaries in the United States District Court for the District of
Delaware alleging, among other things, fraudulent conveyance, illegal dividends
and breaches of fiduciary duty by Vlasic directors alleged to be under the
company's control. The lawsuit seeks to hold the company liable in an amount
necessary to satisfy all unpaid claims against Vlasic (which VFB estimates in
the complaint to be $250), plus unspecified exemplary and punitive damages.
While this case is still in its early stages and the ultimate disposition of
complex litigation is inherently difficult to assess, the company believes the
action is without merit and intends to defend the case vigorously.
The company is a party to other legal proceedings and claims, environmental
matters and tax issues arising out of the normal course of business. Although
the results of the pending claims and litigation cannot be predicted with
certainty, in management's opinion, the final outcome of these other legal
proceedings and claims, environmental matters and tax issues will not have a
material effect on the consolidated results of operations, financial position or
cash flows of the company.
The company has certain operating lease commitments, primarily related to
warehouse and office facilities, retail store space, and certain equipment.
Future minimum annual rental payments under these operating leases are as
follows:
2003 2004 2005 2006 2007 Thereafter
-------------------------------------------------------------------------------
$ 54 $ 45 $ 34 $ 30 $ 26 $ 62
================================================================================
|
The company guarantees approximately $74 of bank loans to Pepperidge Farm
independent sales distributors, which are secured by their distribution routes
that are purchased from the company.
21. STATEMENTS OF CASH FLOWS
2002 2001 2000
-----------------------------------------------------------------------------------------
Interest paid,
net of amounts capitalized $173 $208 $199
Interest received $ 4 $ 12 $ 10
Income taxes paid $222 $310 $253
|
22. QUARTERLY DATA (UNAUDITED)
2002 FIRST SECOND THIRD FOURTH
----------------------------------------------------------------------------------------------------
NET SALES(1) $ 1,729 $ 1,810 $ 1,371 $ 1,223
COST OF PRODUCTS SOLD(1) 971 1,004 782 686
NET EARNINGS 171 203 96 55
PER SHARE - BASIC
NET EARNINGS 0.42 0.49 0.23 0.13
DIVIDENDS 0.1575 0.1575 0.1575 0.1575
PER SHARE - ASSUMING
DILUTION
NET EARNINGS 0.42 0.49 0.23 0.13
MARKET PRICE
HIGH $ 29.27 $ 31.44 $ 28.85 $ 28.40
LOW $ 25.52 $ 27.81 $ 25.59 $ 21.00
====================================================================================================
|
2001 First Second Third Fourth
------------------------------------------------------------------------------------------------
Net sales(1) $ 1,581 $ 1,755 $ 1,271 $ 1,164
Cost of products sold(1) 856 918 712 646
Net earnings 204 271 122 52
Per share - basic
Net earnings 0.48 0.65 0.30 0.13
Dividends 0.225 0.225 0.225 0.225
Per share - assuming
dilution
Net earnings 0.47 0.65 0.30 0.13
Market price
High $ 28.81 $ 35.44 $ 33.05 $ 31.00
Low $ 23.75 $ 28.19 $ 28.25 $ 25.75
================================================================================================
(1) In the fourth quarter of 2001, the company adopted new guidance on the classification of
shipping and handling costs. Shipping and handling costs of $207 in 2001 were reclassified
from Net sales to Cost of products sold. In the first quarter of 2002, the company adopted
new accounting standards related to the income statement classification of certain consumer
and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising
programs and in-store display incentives. As a result, the reclassifications, recorded in
2002, reduced Net sales by $893 and reduced Cost of products sold by $14 for 2001. See Note
1 for further discussion.
|
Campbell Soup Company Annual Report 2002
Report of Management
The accompanying financial statements have been prepared by the management of
the company in conformity with generally accepted accounting principles to
reflect the financial position of the company and its operating results.
Financial information appearing throughout this Annual Report is consistent with
that in the financial statements. Management is responsible for the information
and representations in such financial statements, including the estimates and
judgments required for their preparation.
In order to meet its responsibility, management maintains a system of internal
controls designed to assure that assets are safeguarded and that financial
records properly reflect all transactions. The company also maintains a
worldwide auditing function to periodically evaluate the adequacy and
effectiveness of such internal controls, as well as the company's administrative
procedures and reporting practices. The company believes that its long-standing
emphasis on the highest standards of conduct and business ethics, set forth in
extensive written policy statements, serves to reinforce its system of internal
accounting controls.
The report of PricewaterhouseCoopers LLP, the company's independent accountants,
covering their audit of the financial statements, is included in this Annual
Report. Their independent audit of the company's financial statements includes a
review of the system of internal accounting controls to the extent they consider
necessary to evaluate the system as required by generally accepted auditing
standards.
The company's internal auditors report directly to the Audit Committee of the
Board of Directors, which is composed entirely of Directors who are not officers
or employees of the company. The Audit Committee meets regularly with the
internal auditors, other management personnel, and the independent accountants.
The independent accountants and the internal auditors have had, and continue to
have, direct access to the Audit Committee without the presence of other
management personnel, and have been directed to discuss the results of their
audit work and any matters they believe should be brought to the Committee's
attention.
/s/ Douglas R. Conant
----------------------------------------------------
Douglas R. Conant
President and Chief Executive Officer
/s/ Robert A. Schiffner
----------------------------------------------------
Robert A. Schiffner
Senior Vice President and Chief Financial Officer
/s/ Gerald S. Lord
----------------------------------------------------
Gerald S. Lord
Vice President - Controller
September 5, 2002
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Report of Independent Accountants
TO THE SHAREOWNERS AND DIRECTORS OF CAMPBELL SOUP COMPANY
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, shareowners' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of
Campbell Soup Company and its subsidiaries at July 28, 2002, and July 29, 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended July 28, 2002, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 5, 2002
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Campbell Soup Company Annual Report 2002
Five-Year Review - Consolidated
(millions, except per share amounts)
Fiscal Year 2002(1) 2001(2) 2000 1999(3) 1998(4)
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SUMMARY OF OPERATIONS
Net sales $ 6,133 $ 5,771 $ 5,626 $ 5,803 $ 6,220
Earnings before interest and taxes 984 1,194 1,265 1,270 1,248
Earnings before taxes 798 987 1,077 1,097 1,073
Earnings from continuing operations 525 649 714 724 689
Loss from discontinued operations -- -- -- -- (18)
Net earnings 525 649 714 724 660
FINANCIAL POSITION
Plant assets - net $ 1,684 $ 1,637 $ 1,644 $ 1,726 $ 1,723
Total assets 5,721 5,927 5,196 5,522 5,633
Total debt 3,645 4,049 3,091 3,317 2,570
Shareowners' equity (114) (247) 137 235 874
PER SHARE DATA
Earnings from continuing operations - basic $ 1.28 $ 1.57 $ 1.68 $ 1.64 $ 1.52
Earnings from continuing operations -
assuming dilution 1.28 1.55 1.65 1.63 1.50
Net earnings - basic 1.28 1.57 1.68 1.64 1.46
Net earnings - assuming dilution 1.28 1.55 1.65 1.63 1.44
Dividends declared 0.63 0.90 0.90 0.885 0.823
OTHER STATISTICS
Cash margin(5) 21.2% 25.4% 27.0% 26.3% 24.4%
Capital expenditures $ 269 $ 200 $ 200 $ 297 $ 256
Number of shareowners (in thousands) 47 48 51 51 51
Weighted average shares outstanding 410 414 425 441 454
Weighted average shares outstanding -
assuming dilution 411 418 432 445 460
(1) 2002 results include pre-tax costs of $20 ($14 after tax or $.03 per share basic and assuming dilution) related
to an Australian manufacturing reconfiguration. Of this amount, pre-tax costs of approximately $19 were recorded
in Cost of products sold.
(2) 2001 results include pre-tax costs of $15 ($11 after tax or $.03 per share basic and assuming dilution) related
to an Australian manufacturing reconfiguration. Of this amount, pre-tax costs of approximately $5 were recorded
in Cost of products sold.
(3) 1999 earnings from continuing operations include a net pre-tax restructuring charge of $36 ($27 after tax or $.06
per share basic and assuming dilution). Earnings from continuing operations also include the effect of certain
non-recurring costs of $22 ($15 after tax or $.03 per share basic and assuming dilution).
(4) 1998 earnings from continuing operations include a pre-tax restructuring charge of $262 ($193 after tax or $.42
per share basic and assuming dilution). Earnings from continuing operations also include a gain on divestiture
of $14 ($9 after tax or $.02 per share basic and assuming dilution). Net earnings include the cumulative effect
of a change in accounting for business process reengineering costs of $11 or $.02 per share (basic and assuming
dilution).
(5) Cash margin equals earnings before interest and taxes plus depreciation, amortization and minority interest
expense divided by net sales.
In 2002, financial results were restated to conform to the requirements of new accounting standards. Certain
consumer and trade promotional expenses have been reclassified from Marketing and selling expenses and Cost of
products sold to Net sales for 1998 to 2001.
The company spun off its Specialty Foods segment in 1998 and accounted for it as a discontinued operation.
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