For the Quarterly Period Ended October 29, 2006 |
Commission File Number 1-3822 |
New Jersey State of Incorporation |
21-0419870 I.R.S. Employer Identification No. |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
Three Months Ended | ||||||||
October 29, | October 30, | |||||||
2006 | 2005 | |||||||
Net sales |
$ | 2,153 | $ | 2,002 | ||||
Costs and expenses |
||||||||
Cost of products sold |
1,236 | 1,156 | ||||||
Marketing and selling expenses |
316 | 318 | ||||||
Administrative expenses |
135 | 125 | ||||||
Research and development expenses |
26 | 24 | ||||||
Other expenses / (income) |
2 | (2 | ) | |||||
Total costs and expenses |
1,715 | 1,621 | ||||||
Earnings before interest and taxes |
438 | 381 | ||||||
Interest, net |
41 | 26 | ||||||
Earnings before taxes |
397 | 355 | ||||||
Taxes on earnings |
128 | 69 | ||||||
Earnings from continuing operations |
269 | 286 | ||||||
Earnings from discontinued operations |
22 | 16 | ||||||
Net earnings |
$ | 291 | $ | 302 | ||||
Per share basic |
||||||||
Earnings from continuing operations |
$ | .68 | $ | .70 | ||||
Earnings from discontinued operations |
.06 | .04 | ||||||
Net earnings |
$ | .74 | $ | .74 | ||||
Dividends |
$ | .20 | $ | .18 | ||||
Weighted average shares outstanding basic |
395 | 409 | ||||||
Per share assuming dilution |
||||||||
Earnings from continuing operations |
$ | .66 | $ | .69 | ||||
Earnings from discontinued operations |
.05 | .04 | ||||||
Net earnings |
$ | .72 | $ | .73 | ||||
Weighted average shares outstanding assuming dilution |
405 | 414 | ||||||
2
October 29, | July 30, | |||||||
2006 | 2006 | |||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 230 | $ | 657 | ||||
Accounts receivable |
802 | 494 | ||||||
Inventories |
859 | 728 | ||||||
Other current assets |
201 | 133 | ||||||
Current assets of discontinued operations held for sale |
| 100 | ||||||
Total current assets |
2,092 | 2,112 | ||||||
Plant assets, net of depreciation |
1,939 | 1,954 | ||||||
Goodwill |
1,767 | 1,765 | ||||||
Other intangible assets, net of amortization |
595 | 596 | ||||||
Other assets |
631 | 605 | ||||||
Non-current assets of discontinued operations held for sale |
| 838 | ||||||
Total assets |
$ | 7,024 | $ | 7,870 | ||||
Current liabilities |
||||||||
Notes payable |
$ | 747 | $ | 1,097 | ||||
Payable to suppliers and others |
741 | 691 | ||||||
Accrued liabilities |
694 | 820 | ||||||
Dividend payable |
78 | 74 | ||||||
Accrued income taxes |
377 | 202 | ||||||
Current liabilities of discontinued operations held for sale |
| 78 | ||||||
Total current liabilities |
2,637 | 2,962 | ||||||
Long-term debt |
2,116 | 2,116 | ||||||
Nonpension postretirement benefits |
275 | 278 | ||||||
Other liabilities, including deferred
income taxes of $473 and $463 |
728 | 721 | ||||||
Non-current liabilities of discontinued operations held for sale |
| 25 | ||||||
Total liabilities |
5,756 | 6,102 | ||||||
Shareowners equity |
||||||||
Preferred stock; authorized 40 shares;
none issued |
| | ||||||
Capital stock, $.0375 par value; authorized
560 shares; issued 542 shares |
20 | 20 | ||||||
Additional paid-in capital |
319 | 352 | ||||||
Earnings retained in the business |
6,752 | 6,539 | ||||||
Capital stock in treasury, at cost |
(5,813 | ) | (5,147 | ) | ||||
Accumulated other comprehensive income (loss) |
(10 | ) | 4 | |||||
Total shareowners equity |
1,268 | 1,768 | ||||||
Total liabilities and shareowners equity |
$ | 7,024 | $ | 7,870 | ||||
3
Three Months Ended | ||||||||
October 29, | October 30, | |||||||
2006 | 2005 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 291 | $ | 302 | ||||
Non-cash charges to net earnings |
||||||||
Change in accounting method (Note h) |
| (8 | ) | |||||
Stock-based compensation |
17 | 14 | ||||||
Resolution of tax contingency (Note k) |
| (60 | ) | |||||
Depreciation and amortization |
64 | 69 | ||||||
Deferred income taxes |
(51 | ) | (5 | ) | ||||
Other, net |
17 | 21 | ||||||
Changes in working capital |
||||||||
Accounts receivable |
(300 | ) | (280 | ) | ||||
Inventories |
(132 | ) | (100 | ) | ||||
Prepaid assets |
(10 | ) | (1 | ) | ||||
Accounts payable and accrued liabilities |
180 | 207 | ||||||
Pension fund contributions |
(25 | ) | (38 | ) | ||||
Gain on sale of businesses (Note b) |
(36 | ) | | |||||
Payments of hedging activities related to divested businesses (Note b) |
(83 | ) | | |||||
Other |
(20 | ) | (8 | ) | ||||
Net cash provided by (used in) operating activities |
(88 | ) | 113 | |||||
Cash flows from investing activities: |
||||||||
Purchases of plant assets |
(46 | ) | (38 | ) | ||||
Sales of businesses, net of cash divested (Note b) |
866 | | ||||||
Net cash provided by (used in) investing activities |
820 | (38 | ) | |||||
Cash flows from financing activities: |
||||||||
Long-term repayments |
(8 | ) | | |||||
Repayments of notes payable |
(300 | ) | | |||||
Net short-term repayments |
(69 | ) | (18 | ) | ||||
Dividends paid |
(74 | ) | (70 | ) | ||||
Treasury stock purchases |
(751 | ) | | |||||
Treasury stock issuances |
37 | 18 | ||||||
Excess tax benefits on stock-based compensation |
5 | 1 | ||||||
Net cash used in financing activities |
(1,160 | ) | (69 | ) | ||||
Effect of exchange rate changes on cash |
1 | (1 | ) | |||||
Net change in cash and cash equivalents |
(427 | ) | 5 | |||||
Cash and cash equivalents beginning of period |
657 | 40 | ||||||
Cash and cash equivalents end of period |
$ | 230 | $ | 45 | ||||
4
Capital Stock | Earnings | Accumulated | ||||||||||||||||||||||||||||||
Issued | In Treasury | Additional | Retained | Other | Total | |||||||||||||||||||||||||||
Paid-in | in the | Comprehensive | Shareowners | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Business | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance at July 31, 2005 |
542 | $ | 20 | (134 | ) | $ | (4,832 | ) | $ | 236 | $ | 6,069 | $ | (223 | ) | $ | 1,270 | |||||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||||||||||
Net earnings |
302 | 302 | ||||||||||||||||||||||||||||||
Foreign currency
translation adjustments |
(6 | ) | (6 | ) | ||||||||||||||||||||||||||||
Cash-flow hedges,
net of tax |
(2 | ) | (2 | ) | ||||||||||||||||||||||||||||
Minimum pension liability,
net of tax |
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss |
(9 | ) | (9 | ) | ||||||||||||||||||||||||||||
Total comprehensive income |
293 | |||||||||||||||||||||||||||||||
Dividends ($.18 per share) |
(74 | ) | (74 | ) | ||||||||||||||||||||||||||||
Treasury stock purchased |
| | | |||||||||||||||||||||||||||||
Treasury stock issued under
management incentive and
stock option plans |
1 | (29 | ) | 53 | 24 | |||||||||||||||||||||||||||
Balance at October 30, 2005 |
542 | $ | 20 | (133 | ) | $ | (4,861 | ) | $ | 289 | $ | 6,297 | $ | (232 | ) | $ | 1,513 | |||||||||||||||
Balance at July 30, 2006 |
542 | $ | 20 | (140 | ) | $ | (5,147 | ) | $ | 352 | $ | 6,539 | $ | 4 | $ | 1,768 | ||||||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||||||||||
Net earnings |
291 | 291 | ||||||||||||||||||||||||||||||
Foreign currency
translation adjustments |
(40 | ) | (40 | ) | ||||||||||||||||||||||||||||
Cash-flow hedges,
net of tax |
10 | 10 | ||||||||||||||||||||||||||||||
Minimum pension liability,
net of tax |
16 | 16 | ||||||||||||||||||||||||||||||
Other comprehensive loss |
(14 | ) | (14 | ) | ||||||||||||||||||||||||||||
Total comprehensive income |
277 | |||||||||||||||||||||||||||||||
Dividends ($.20 per share) |
(78 | ) | (78 | ) | ||||||||||||||||||||||||||||
Treasury stock purchased |
(20 | ) | (723 | ) | (28 | ) | (751 | ) | ||||||||||||||||||||||||
Treasury stock issued under
management incentive and
stock option plans |
2 | 57 | (5 | ) | 52 | |||||||||||||||||||||||||||
Balance at October 29, 2006 |
542 | $ | 20 | (158 | ) | $ | (5,813 | ) | $ | 319 | $ | 6,752 | $ | (10 | ) | $ | 1,268 | |||||||||||||||
5
(a) | Basis of Presentation / Accounting Policies | |
The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. All such adjustments are of a normal recurring nature. The accounting policies used in preparing these financial statements are consistent with those applied in the Annual Report on Form 10-K for the year ended July 30, 2006. Certain reclassifications were made to the prior year amounts to conform with current presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year. | ||
(b) | Discontinued Operations | |
On August 15, 2006, the company completed the sale of its businesses in the United Kingdom and Ireland for £460, or approximately $870, pursuant to a Sale and Purchase Agreement dated July 12, 2006. The United Kingdom and Ireland businesses include Homepride sauces, OXO stock cubes, Batchelors soups and McDonnells and Erin soups. The Sale and Purchase Agreement provides for working capital and other post-closing adjustments. The company has reflected the results of these businesses as discontinued operations in the consolidated statements of earnings for all periods presented. In the first quarter 2007, the company recorded a pre-tax gain of $36 ($22 after tax) on the sale of the businesses. The final resolution of the post-closing adjustments may impact the gain recognized. | ||
In connection with the sale, the company recorded deferred tax expense of $56 in the fourth quarter 2006, which was recognized in accordance with Emerging Issues Task Force Issue No. 93-17 Recognition of Deferred Tax Assets for a Parent Companys Excess Tax Basis in the Stock of a Subsidiary That is Accounted for as a Discontinued Operation due to book/tax basis differences of these businesses. In addition, the company recorded $7 pre-tax ($5 after tax) of costs associated with the sale, for a total net after-tax cost of $61 recognized in the fourth quarter 2006. |
6
Results of discontinued operations were as follows: |
October 29, | October 30, | |||||||
2006 | 2005 | |||||||
Net sales |
$ | 16 | $ | 108 | ||||
Earnings from operations before taxes |
$ | | $ | 20 | ||||
Pre-tax gain on sale |
36 | | ||||||
Taxes on earnings operations |
| 4 | ||||||
Tax impact of gain on sale |
14 | | ||||||
Earnings from discontinued operations |
$ | 22 | $ | 16 | ||||
The company used approximately $620 of the net proceeds to repurchase shares. On September 28, 2006, the company entered into accelerated share repurchase agreements with a financial institution to repurchase approximately $600 of stock. See Note (m) to the Consolidated Financial Statements for additional information. | ||
Upon completion of the sale, the company paid $83 to settle cross-currency swap contracts and foreign exchange forward contracts which hedged exposures related to the businesses. | ||
(c) | Stock-based Compensation | |
The company provides compensation benefits by issuing stock options, stock appreciation rights, unrestricted stock, restricted stock (including EPS performance restricted stock and total shareowner return (TSR) performance restricted stock) and restricted stock units. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) Share-Based Payment (SFAS No. 123R), which requires stock-based compensation to be measured based on the grant-date fair value of the awards and the cost to be recognized over the period during which an employee is required to provide service in exchange for the award. The company adopted the provisions of SFAS No. 123R as of August 1, 2005. SFAS No. 123R was adopted using the modified prospective transition method. | ||
Total pre-tax stock-based compensation recognized in the Statements of Earnings was $17 and $14 for the first quarter ended October 29, 2006 and October 30, 2005, respectively. Tax related benefits of $6 and $5 were also recognized for the first quarter of 2007 and 2006, respectively. Stock-based compensation associated with discontinued operations was not material. Cash received from the exercise of stock options was $37 and $18 for the first quarter of 2007 and 2006, |
7
respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows. | ||
The following table summarizes stock option activity as of October 29, 2006: |
Weighted-Average | Aggregate | |||||||||||||||
Weighted-Average | Remaining | Intrinsic | ||||||||||||||
(options in thousands) | Options | Exercise Price | Contractual Life | Value | ||||||||||||
Outstanding at July 30, 2006 |
30,607 | $ | 27.77 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
(1,372 | ) | $ | 26.69 | ||||||||||||
Terminated |
(392 | ) | $ | 27.53 | ||||||||||||
Outstanding at October 29, 2006 |
28,843 | $ | 27.81 | 5.8 | $ | 250 | ||||||||||
Exercisable at October 29, 2006 |
25,655 | $ | 27.94 | 5.6 | $ | 219 | ||||||||||
The total intrinsic value of options exercised during the three months ended October 29, 2006 and October 30, 2005 was $14 and $3, respectively. As of October 29, 2006, total remaining unearned compensation related to unvested stock options was $13, which will be amortized over the weighted-average remaining service period of 1 year. The company measures the fair value of stock options using the Black-Scholes option pricing model. |
The following table summarizes time-lapse restricted stock and EPS performance restricted stock as of October 29, 2006: |
Weighted-Average | ||||||||
Grant-Date | ||||||||
(restricted stock in thousands) | Shares | Fair Value | ||||||
Nonvested at July 30, 2006 |
3,397 | $ | 27.92 | |||||
Granted |
1,206 | $ | 35.95 | |||||
Vested |
(576 | ) | $ | 29.02 | ||||
Forfeited |
(76 | ) | $ | 28.38 | ||||
Nonvested at October 29, 2006 |
3,951 | $ | 30.21 | |||||
The fair value of time-lapse restricted stock and EPS performance restricted stock is determined based on the number of shares granted and the quoted price of the companys stock at the date of grant. Time-lapse restricted stock granted in fiscal 2004 and 2005 is expensed on a graded-vesting basis. Time-lapse restricted stock granted in fiscal 2006 and 2007 is expensed on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. EPS restricted stock is expensed on a graded-vesting basis, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. |
As of October 29, 2006, total remaining unearned compensation related to nonvested time-lapse restricted stock and EPS performance restricted stock was |
8
$74, which will be amortized over the weighted-average remaining service period of 2.1 years. The fair value of restricted stock vested during the three months ended October 29, 2006 and October 30, 2005 was $21 and $1, respectively. The weighted-average grant-date fair value of the restricted stock granted during the three months ended October 30, 2005 was $29.32. | ||
The following table summarizes TSR performance restricted stock as of October 29, 2006: |
Weighted-Average | ||||||||
Grant-Date | ||||||||
(restricted stock in thousands) | Shares | Fair Value | ||||||
Nonvested at July 30, 2006 |
1,564 | $ | 28.73 | |||||
Granted |
1,337 | $ | 26.30 | |||||
Vested |
(2 | ) | $ | 28.73 | ||||
Forfeited |
(50 | ) | $ | 28.64 | ||||
Nonvested at October 29, 2006 |
2,849 | $ | 27.59 | |||||
The fair value of TSR performance restricted stock is estimated at the grant date using a Monte Carlo simulation. Expense is recognized on a straight-line basis over the service period. As of October 29, 2006, total remaining unearned compensation related to TSR performance restricted stock was $60, which will be amortized over the weighted-average remaining service period of 2.4 years. The grant-date fair value of TSR performance restricted stock granted during the three months ended October 30, 2005 was $28.73. | ||
Employees can elect to defer all types of restricted stock awards. These awards are classified as liabilities because of the possibility that they may be settled in cash. The fair value is adjusted quarterly. The total cash paid to settle the liabilities in the three months ended October 29, 2006 and October 30, 2005 was not material. The liability for deferred awards was $16 at October 29, 2006. | ||
(d) | Goodwill and Intangible Assets | |
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization: |
9
October 29, 2006 | July 30, 2006 | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Intangible assets subject to amortization1: |
||||||||||||||||
Other |
$ | 15 | $ | (7 | ) | $ | 15 | $ | (7 | ) | ||||||
Intangible assets not subject to amortization: |
||||||||||||||||
Trademarks |
$ | 585 | $ | 586 | ||||||||||||
Pension |
2 | 2 | ||||||||||||||
Total |
$ | 587 | $ | 588 | ||||||||||||
1 | Amortization related to these assets was less than $1 for the three month periods ended October 29, 2006 and October 30, 2005. The estimated aggregated amortization expense for each of the five succeeding fiscal years is less than $1 per year. Asset useful lives range from twelve to thirty-four years. |
U.S. Soup, | ||||||||||||||||||||
Sauces and | Baking and | International | ||||||||||||||||||
Beverages | Snacking | Soup and Sauces | Other | Total | ||||||||||||||||
Balance at July 30,
2006 |
$ | 428 | $ | 617 | $ | 569 | $ | 151 | $ | 1,765 | ||||||||||
Foreign currency
translation
adjustment |
| 1 | 1 | | 2 | |||||||||||||||
Balance at October
29, 2006 |
$ | 428 | $ | 618 | $ | 570 | $ | 151 | $ | 1,767 | ||||||||||
(e) | Comprehensive Income | |
Total comprehensive income comprises net earnings, net foreign currency translation adjustments, minimum pension liability adjustments, and net unrealized gains (losses) on cash-flow hedges. | ||
Total comprehensive income for the three months ended October 29, 2006 and October 30, 2005, was $277 and $293, respectively. |
10
The components of Accumulated other comprehensive loss consisted of the following: |
October 29, | October 30, | |||||||
2006 | 2005 | |||||||
Foreign currency translation adjustments |
$ | 46 | $ | 29 | ||||
Cash-flow hedges, net of tax |
(5 | ) | (22 | ) | ||||
Minimum pension liability, net of tax1 |
(51 | ) | (239 | ) | ||||
Total Accumulated other comprehensive loss |
$ | (10 | ) | $ | (232 | ) | ||
1 | Includes a tax benefit of $26 as of October 29, 2006 and $140 as of October 30, 2005. |
(f) | Earnings Per Share | |
For the periods presented in the Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and restricted stock programs, except when such effect would be antidilutive. Stock options to purchase 1 million and 6 million shares of capital stock for the three-month periods ended October 29, 2006 and October 30, 2005, respectively, were not included in the calculation of diluted earnings per share because the exercise price of the stock options exceeded the average market price of the capital stock and therefore, the effect would be antidilutive. | ||
(g) | Segment Information | |
Campbell Soup Company, together with its consolidated subsidiaries, is a global manufacturer and marketer of high-quality, branded convenience food products. The company manages and reports the results of operations in the following segments: U.S. Soup, Sauces and Beverages, Baking and Snacking, International Soup and Sauces, and Other. | ||
The U.S. Soup, Sauces and Beverages segment includes the following retail businesses: Campbells condensed and ready-to-serve soups; Swanson broth and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbells Chunky chili; Campbells canned pasta, gravies, and beans; Campbells Supper Bakes meal kits; V8 juice and juice drinks; and Campbells tomato juice. | ||
The Baking and Snacking segment includes the following businesses: Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; Arnotts biscuits in Australia and Asia Pacific; and Arnotts salty snacks in Australia. | ||
The International Soup and Sauces segment includes the soup, sauce and beverage businesses outside of the United States, including Europe, Mexico, Latin America, the Asia Pacific region and the retail business in Canada. Also, see Note (b) to the Consolidated Financial Statements for additional information on the sale of the businesses in the United Kingdom and Ireland. These businesses |
11
were historically included in this segment. The results of operations of these businesses have been reflected as discontinued operations for all periods presented. | ||
The balance of the portfolio reported in Other includes Godiva Chocolatier worldwide and the companys Away From Home operations, which represent the distribution of products such as soup, specialty entrees, beverage products, other prepared foods and Pepperidge Farm products through various food service channels in the United States and Canada. | ||
Accounting policies for measuring segment assets and earnings before interest and taxes are substantially consistent with those described in the companys 2006 Annual Report on Form 10-K. The company evaluates segment performance before interest and taxes. Away From Home products are principally produced by the tangible assets of the companys other segments, except for refrigerated soups, which are produced in a separate facility, and certain other products, which are produced under contract manufacturing agreements. Accordingly, with the exception of the designated refrigerated soup facility, plant assets are not allocated to the Away From Home operations. Depreciation, however, is allocated to Away From Home based on production hours. |
12
Earnings | Depreciation | |||||||||||||||
Before Interest | and | Capital | ||||||||||||||
Three Months Ended | Net Sales | and Taxes | Amoritzation3 | Expenditures4 | ||||||||||||
U.S. Soup, Sauces and
Beverages |
$ | 1,052 | $ | 322 | $ | 20 | $ | 14 | ||||||||
Baking and Snacking |
484 | 68 | 21 | 9 | ||||||||||||
International Soup and
Sauces |
346 | 48 | 8 | 2 | ||||||||||||
Other |
271 | 26 | 7 | 11 | ||||||||||||
Corporate1 |
| (26 | ) | 7 | 10 | |||||||||||
Total |
$ | 2,153 | $ | 438 | $ | 63 | $ | 46 |
Earnings | Depreciation | |||||||||||||||
Before Interest | and | Capital | ||||||||||||||
Three Months Ended | Net Sales | and Taxes2 | Amortization3 | Expenditures4 | ||||||||||||
U.S. Soup, Sauces and
Beverages |
$ | 970 | $ | 288 | $ | 21 | $ | 9 | ||||||||
Baking and Snacking |
458 | 50 | 22 | 6 | ||||||||||||
International Soup and
Sauces |
312 | 35 | 9 | 6 | ||||||||||||
Other |
262 | 26 | 7 | 8 | ||||||||||||
Corporate1 |
| (18 | ) | 6 | 8 | |||||||||||
Total |
$ | 2,002 | $ | 381 | $ | 65 | $ | 37 |
1 | Represents unallocated corporate expenses. | |
2 | Contributions to earnings before interest and taxes by segment include the effect of a $13 benefit due to a change in the method of accounting for certain U.S. inventories from the LIFO method to the average cost method as follows: U.S. Soup, Sauces and Beverages $8 and Baking and Snacking $5. | |
3 | Depreciation and amortization from discontinued operations was $1 and $4 for the three months ended October 29, 2006 and October 30, 2005, respectively. | |
4 | Capital expenditures from discontinued operations were $0 and $1 for the three months ended October 29, 2006 and October 30, 2005, respectively. |
13
Quarter Ended | Year to Date | |||||||||||||||||||||||
January 29, | April 30, | July 30, | January 29, | April 30, | July 30, | |||||||||||||||||||
2006 | 2006 | 2006 | 2006 | 2006 | 2006 | |||||||||||||||||||
U.S. Soup, Sauces and Beverages |
$ | 1,018 | $ | 713 | $ | 556 | $ | 1,988 | $ | 2,701 | $ | 3,257 | ||||||||||||
Baking and Snacking |
429 | 422 | 438 | 887 | 1,309 | 1,747 | ||||||||||||||||||
International Soup and Sauces |
361 | 322 | 260 | 673 | 995 | 1,255 | ||||||||||||||||||
Other |
351 | 271 | 200 | 613 | 884 | 1,084 | ||||||||||||||||||
Total |
$ | 2,159 | $ | 1,728 | $ | 1,454 | $ | 4,161 | $ | 5,889 | $ | 7,343 | ||||||||||||
Quarter Ended | Year to Date | |||||||||||||||||||||||
January 29, | April 30, | July 30, | January 29, | April 30, | July 30, | |||||||||||||||||||
2006 | 2006 | 2006 | 2006 | 2006 | 2006 | |||||||||||||||||||
U.S. Soup, Sauces and Beverages |
$ | 242 | $ | 171 | $ | 114 | $ | 530 | $ | 701 | $ | 815 | ||||||||||||
Baking and Snacking |
40 | 35 | 62 | 90 | 125 | 187 | ||||||||||||||||||
International Soup and Sauces |
61 | 43 | 5 | 96 | 139 | 144 | ||||||||||||||||||
Other |
69 | 27 | (12 | ) | 95 | 122 | 110 | |||||||||||||||||
Corporate |
(29 | ) | (28 | ) | (30 | ) | (47 | ) | (75 | ) | (105 | ) | ||||||||||||
Total |
$ | 383 | $ | 248 | $ | 139 | $ | 764 | $ | 1,012 | $ | 1,151 | ||||||||||||
14
Quarter Ended | Year to Date | |||||||||||||||||||||||||||
October 31, | January 30, | May 1, | July 31, | January 30, | May 1, | July 31, | ||||||||||||||||||||||
2004 | 2005 | 2005 | 2005 | 2005 | 2005 | 2005 | ||||||||||||||||||||||
U.S. Soup, Sauces and Beverages |
$ | 994 | $ | 956 | $ | 627 | $ | 521 | $ | 1,950 | $ | 2,577 | $ | 3,098 | ||||||||||||||
Baking and Snacking |
449 | 433 | 421 | 439 | 882 | 1,303 | 1,742 | |||||||||||||||||||||
International Soup and Sauces |
294 | 364 | 313 | 256 | 658 | 971 | 1,227 | |||||||||||||||||||||
Other |
232 | 332 | 253 | 188 | 564 | 817 | 1,005 | |||||||||||||||||||||
Total |
$ | 1,969 | $ | 2,085 | $ | 1,614 | $ | 1,404 | $ | 4,054 | $ | 5,668 | $ | 7,072 | ||||||||||||||
Quarter Ended | Year to Date | |||||||||||||||||||||||||||
October 31, | January 30, | May 1, | July 31, | January 30, | May 1, | July 31, | ||||||||||||||||||||||
2004 | 2005 | 2005 | 2005 | 2005 | 2005 | 2005 | ||||||||||||||||||||||
U.S. Soup, Sauces and Beverages |
$ | 275 | $ | 216 | $ | 152 | $ | 104 | $ | 491 | $ | 643 | $ | 747 | ||||||||||||||
Baking and Snacking |
46 | 47 | 36 | 69 | 93 | 129 | 198 | |||||||||||||||||||||
International Soup and Sauces |
36 | 50 | 40 | 17 | 86 | 126 | 143 | |||||||||||||||||||||
Other |
22 | 72 | 27 | (11 | ) | 94 | 121 | 110 | ||||||||||||||||||||
Corporate |
(17 | ) | (16 | ) | (15 | ) | (18 | ) | (33 | ) | (48 | ) | (66 | ) | ||||||||||||||
Total |
$ | 362 | $ | 369 | $ | 240 | $ | 161 | $ | 731 | $ | 971 | $ | 1,132 | ||||||||||||||
(h) | Inventories |
October 29, | July 30, | |||||||
2006 | 2006 | |||||||
Raw materials, containers and supplies |
$ | 305 | $ | 252 | ||||
Finished products |
554 | 476 | ||||||
$ | 859 | $ | 728 | |||||
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The impact of the change was a pre-tax $13 benefit ($8 after tax or $.02 per share) recorded in the first quarter 2006. Prior periods were not restated since the impact of the change on previously issued financial statements was not considered material. | ||
(i) | Accounting for Derivative Instruments | |
The company utilizes certain derivative financial instruments to enhance its ability to manage risk including interest rate, foreign currency, commodity and certain equity-linked employee compensation exposures that exist as part of ongoing business operations. A description of the companys use of derivative instruments is included in the Annual Report on Form 10-K for the year ended July 30, 2006. | ||
Interest Rate Swaps | ||
The notional amounts of outstanding fair-value interest rate swaps at October 29, 2006 totaled $775 with a maximum maturity date of October 2013. The fair value of such instruments was a loss of $18 as of October 29, 2006. | ||
The notional amounts of outstanding variable-to-fixed interest rate swaps accounted for as cash-flow hedges was $154 as of October 29, 2006. The fair value of the swaps was not material as of October 29, 2006. | ||
Foreign Currency Contracts | ||
The fair value of foreign exchange forward and cross-currency swap contracts accounted for as cash-flow hedges was a loss of $130 at October 29, 2006. The notional amount was $511 at October 29, 2006. | ||
The company also enters into certain foreign exchange forward and variable-to-variable cross-currency swap contracts that are not designated as accounting hedges. These instruments are primarily intended to reduce volatility of certain intercompany financing transactions. The fair value of these instruments was a loss of $5 at October 29, 2006. The notional amount was $218 at October 29, 2006. | ||
Foreign exchange forward contracts typically have maturities of less than eighteen months. Cross-currency swap contracts mature in 2007 through 2014. Principal currencies include the Australian dollar, Canadian dollar, euro, Japanese yen, Mexican peso and Swedish krona. | ||
As of October 29, 2006, the accumulated derivative net loss in other comprehensive income for cash-flow hedges, including the foreign exchange forward and cross-currency contracts, forward starting swap contracts, and treasury lock agreements was $5, net of tax. As of October 30, 2005, the accumulated derivative net loss in other comprehensive income was $22, net of tax. Reclassifications from Accumulated other comprehensive income (loss) into the Statements of Earnings during the quarter ended October 29, 2006 were losses of $6, primarily for derivatives which hedged exposures related to the businesses |
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in the United Kingdom and Ireland sold in August 2006. Reclassifications during the remainder of 2007 are not expected to be material. At October 29, 2006, the maximum maturity date of any cash-flow hedge was August 2013. | ||
(j) | Pension and Postretirement Medical Benefits: | |
The company sponsors certain defined benefit plans and postretirement medical benefit plans for employees. Components of benefit expense were as follows: |
Three Months Ended | Pension | Postretirement | ||||||||||||||
Oct. 29, 2006 | Oct. 30, 2005 | Oct. 29, 2006 | Oct. 30, 2005 | |||||||||||||
Service cost |
$ | 12 | $ | 14 | $ | 1 | $ | 1 | ||||||||
Interest cost |
28 | 28 | 5 | 5 | ||||||||||||
Expected return on plan assets |
(39 | ) | (41 | ) | | | ||||||||||
Amortization of prior service
cost |
| 1 | | (1 | ) | |||||||||||
Recognized net actuarial loss |
7 | 11 | | 1 | ||||||||||||
Net periodic benefit expense |
$ | 8 | $ | 13 | $ | 6 | $ | 6 | ||||||||
Pension expense of $2 was recorded by the United Kingdom and Ireland businesses in first quarter 2006 and is included in Earnings from discontinued operations. See Note (b) to the Consolidated Financial Statements for additional information. | ||
In the first quarter 2007, the company made a $22 voluntary contribution to a U.S. pension plan. Additional contributions to the U.S. pension plans are not expected this fiscal year. Contributions of $3 were made to the non-U.S. plans as of October 29, 2006. | ||
(k) | 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. Vlasics Second Amended Joint Plan of Distribution under Chapter 11 (the Plan) was confirmed by an order of the Bankruptcy Court dated November 16, 2001, and became effective on or about November 29, 2001. The Plan provides for the assignment of various causes of action allegedly belonging to the Vlasic estates, including claims against the company allegedly arising from the spinoff, to VFB L.L.C., a limited liability company (VFB) whose membership interests are to be distributed under the Plan to Vlasics 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 |
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(l) | Supplemental Cash Flow Information | |
Other cash used in operating activities for the three month periods is comprised of the following: |
October 29, 2006 | October 30, 2005 | |||||||
Payments for hedging activities |
$ | (7 | ) | $ | (1 | ) | ||
Benefit related payments |
(11 | ) | (8 | ) | ||||
Other |
(2 | ) | 1 | |||||
$ | (20 | ) | $ | (8 | ) | |||
(m) | Accelerated Share Repurchase Agreements | |
On September 28, 2006, the company entered into two accelerated share repurchase agreements (Agreements) with Lehman Brothers Finance S.A. (Lehman), an affiliate of Lehman Brothers Inc. Under the first Agreement (the Fixed Share ASR), the company purchased approximately 8.3 million shares of its stock from Lehman for $300, or $35.95 per share. Lehman is expected to purchase an equivalent number of shares under the Fixed Share ASR. At the end of the Fixed Share ASRs term, the company may receive from, or be required to pay to, Lehman a price adjustment based upon the volume weighted-average price of the companys common stock during the period Lehman purchases the equivalent number of shares. The price adjustment may be settled at the companys option in shares of the companys stock or cash. The price adjustment is accounted for as an equity instrument and changes in its fair value are not recorded. Upon settlement, which is expected to occur in the fourth quarter of 2007, the price adjustment will be recorded as equity. | ||
Under the second Agreement (the Fixed Dollar ASR), the company purchased approximately $300 of its common stock from Lehman. Lehman made an initial delivery of 6.3 million shares on September 29, 2006 at $35.95 per share, and a second delivery of 1.3 million shares on October 25, 2006 at $36.72 per share. The $273 purchase price for these initial deliveries has been recorded as capital stock in treasury, at cost. The remaining $28 has been recorded as a reduction of additional paid-in capital and will be reclassified to capital stock in treasury upon settlement of the Fixed Dollar ASR. The exact number of additional shares (if any) to be delivered to the company at settlement under the Fixed Dollar ASR will be based on the volume weighted-average price of company stock during the term of the Fixed Dollar ASR, subject to a minimum and maximum price for the purchased shares. Lehman is expected to purchase a number of shares equivalent to the number delivered to the company under the Fixed Dollar ASR. The Fixed Dollar ASR is expected to be completed in the fourth quarter of fiscal 2007. | ||
(n) | Recently Issued Accounting Pronouncements | |
In October 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA provides for a deduction of 85% of certain non-U.S. earnings that are repatriated, as defined by the AJCA, and a phased-in tax deduction related to profits from domestic manufacturing activities. In December 2004, the FASB |
19
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| The company recorded a non-cash tax benefit of $47 million resulting from the favorable resolution of a U.S. tax contingency related to a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 million and adjusted deferred tax expense by $8 million ($13 million after tax). The aggregate non-cash impact of the settlement on earnings was $60 million, or $.14 per share. | ||
| The company changed the method of determining the cost of certain U.S. inventories from the LIFO method to the average cost method. As a result, the company recorded a $13 million pre-tax gain ($8 million after tax) from the change in accounting method. | ||
| The company recorded incremental tax expense of $8 million, or $.02 per share, associated with the repatriation of earnings under the American Jobs Creation Act (the AJCA). |
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2006 | ||||||||
Earnings | EPS | |||||||
(millions, except per share amounts) | Impact | Impact | ||||||
Earnings from continuing operations |
$ | 286 | $ | 0.69 | ||||
Favorable resolution of a U.S.
tax contingency |
$ | 60 | $ | 0.14 | ||||
Impact of change in inventory
method |
8 | 0.02 | ||||||
Tax expense on repatriation of
earnings under the AJCA |
(8 | ) | (0.02 | ) | ||||
Impact of significant items on
continuing operations |
$ | 60 | $ | 0.14 | ||||
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(millions) | ||||||||||||
2007 | 2006 | % Change | ||||||||||
U.S. Soup, Sauces and Beverages |
$ | 1,052 | $ | 970 | 8 | % | ||||||
Baking and Snacking |
484 | 458 | 6 | |||||||||
International Soup and Sauces |
346 | 312 | 11 | |||||||||
Other |
271 | 262 | 3 | |||||||||
$ | 2,153 | $ | 2,002 | 8 | % | |||||||
U.S. Soup, | Baking | International | ||||||||||||||||||
Sauces and | and | Soup and | ||||||||||||||||||
Beverages | Snacking | Sauces | Other | Total | ||||||||||||||||
Volume and Mix |
4 | % | 4 | % | 6 | % | | % | 4 | % | ||||||||||
Price and Sales Allowances |
3 | 2 | 1 | 4 | 2 | |||||||||||||||
(Increased)/Decreased
Promotional Spending 1 |
1 | | | (1 | ) | 1 | ||||||||||||||
Currency |
| | 4 | | 1 | |||||||||||||||
8 | % | 6 | % | 11 | % | 3 | % | 8 | % | |||||||||||
1 | Represents revenue reductions from trade promotion and consumer coupon redemption programs. |
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(millions) | ||||||||||||
2007 | 20061 | % Change | ||||||||||
U.S. Soup, Sauces and
Beverages |
$ | 322 | $ | 288 | 12 | % | ||||||
Baking and Snacking |
68 | 50 | 36 | |||||||||
International Soup
and Sauces |
48 | 35 | 37 | |||||||||
Other |
26 | 26 | | |||||||||
464 | 399 | 16 | ||||||||||
Corporate |
(26 | ) | (18 | ) | ||||||||
$ | 438 | $ | 381 | 15 | % | |||||||
1 | Includes one-time benefit from change in method of accounting for certain U.S. inventories. |
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October 29, | October 30, | |||||||
(millions) | 2006 | 2005 | ||||||
Net sales |
$ | 16 | $ | 108 | ||||
Earnings from operations before taxes |
$ | | $ | 20 | ||||
Pre-tax gain on sale |
36 | | ||||||
Taxes on earnings operations |
| 4 | ||||||
Tax impact of gain on sale |
14 | | ||||||
Earnings from discontinued operations |
$ | 22 | $ | 16 | ||||
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27
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| the impact of strong competitive response to the companys efforts to leverage its brand power with product innovation, promotional programs and new advertising, and of changes in consumer demand for the companys products; | ||
| the risks in the marketplace associated with trade and consumer acceptance of product improvements, shelving initiatives and new product introductions; |
29
| the companys ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume and product mix, and the impact of marketing and pricing actions; | ||
| the companys ability to realize projected cost savings and benefits, including those contemplated by restructuring programs and other cost-savings initiatives; | ||
| the companys ability to successfully manage changes to its business processes, including selling, distribution, production capacity, information management systems and the integration of acquisitions; | ||
| the increased significance of certain of the companys key trade customers; | ||
| the impact of fluctuations in the supply and cost of energy and raw materials; | ||
| the risks associated with portfolio changes and completion of acquisitions and divestitures; | ||
| the uncertainties of litigation described from time to time in the companys Securities and Exchange Commission filings; | ||
| the impact of changes in currency exchange rates, tax rates, interest rates, equity markets, inflation rates, economic conditions and other external factors; and | ||
| the impact of unforeseen business disruptions in one or more of the companys markets due to political instability, civil disobedience, armed hostilities, natural disasters or other calamities. |
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31
a. | Evaluation of Disclosure Controls and Procedures | ||
The company, under the supervision and with the participation of its management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of October 29, 2006 (the Evaluation Date). Based on such evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, the companys disclosure controls and procedures are effective, and are reasonably designed to ensure that all material information relating to the company (including its consolidated subsidiaries) required to be included in the companys reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. | |||
b. | Changes in Internal Controls | ||
During the quarter ended October 29, 2006, there were no changes in the companys internal control over financial reporting that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. |
32
Approximate | ||||||||||||||||
Dollar Value of | ||||||||||||||||
Total Number of | Shares that May | |||||||||||||||
Total | Shares Purchased | Yet Be Purchased | ||||||||||||||
Number | Average | as Part of Publicly | Under the Plans | |||||||||||||
of Shares | Price Paid | Announced Plans | or Programs | |||||||||||||
Period | Purchased(1) | Per Share(2) | or Programs(3) | ($ in millions)(3) | ||||||||||||
7/31/06 - 8/31/06 |
2,403,611 | (4) | $ | 37.42 | (4) | 912,000 | $ | 986 | ||||||||
9/1/06 - 9/30/06 |
15,907,737 | (5) | $ | 36.04 | (5) | 15,097,616 | $ | 443 | ||||||||
10/1/06 - 10/29/06 |
1,764,430 | (6) | $ | 36.68 | (6) | 1,431,659 | $ | 390 | ||||||||
Total |
20,075,778 | $ | 36.26 | 17,441,275 |
(1) | Includes (i) 2,489,486 shares repurchased in open-market transactions to offset the dilutive impact to existing shareowners of issuances under the companys stock compensation plans, and (ii) 145,017 shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted shares. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the companys shares on the date of vesting. | |
(2) | Average price paid per share is calculated on a settlement basis and excludes commission. | |
(3) | The company has two publicly announced share repurchase programs. Under the first program, which was announced on November 21, 2005, the companys Board of Directors authorized the purchase of up to $600 million of company capital stock on the open market or through privately negotiated transactions through the end of fiscal 2008. Under the second program, which was announced on August 15, 2006 and is expected to be completed in fiscal 2007, the companys Board of Directors authorized the purchase of up to an additional $620 million of company capital stock. Pursuant to the August 2006 program, the company entered into two accelerated share repurchase agreements on September 28, 2006 with a financial institution to repurchase approximately $600 million of stock. The above table reflects $573 million of purchases under the accelerated share repurchase agreements, which is the cost of the shares delivered to date under such agreements. The remaining $28 million has been recorded as additional paid-in capital and will be reclassified to capital stock in treasury upon settlement of the accelerated share repurchase agreements, which is expected to occur in the fourth quarter of fiscal 2007. Upon such settlement, the purchase price for the shares and/or the number of shares purchased under such agreements will be adjusted. For additional information on the accelerated share repurchase agreements, see Note (m) to the Consolidated Financial Statements. In addition to the two publicly announced share repurchase programs, the company will continue to purchase shares, under separate authorization, as part of its practice of buying back shares sufficient to offset shares issued under incentive compensation plans. | |
(4) | Includes (i) 1,488,000 shares repurchased in open-market transactions at an average price of $37.42 to offset the dilutive impact to existing shareowners of issuances under the companys stock |
33
compensation plans, and (ii) 3,611 shares owned and tendered by employees at an average price per share of $36.76 to satisfy tax withholding requirements on the vesting of restricted shares. | ||
(5) | Includes (i) 806,000 shares repurchased in open-market transactions at an average price of $37.08 to offset the dilutive impact to existing shareowners of issuances under the companys stock compensation plans, and (ii) 4,121 shares owned and tendered by employees at an average price per share of $36.35 to satisfy tax withholding requirements on the vesting of restricted shares. | |
(6) | Includes (i) 195,486 shares repurchased in open-market transactions at an average price of $36.57 to offset the dilutive impact to existing shareowners of issuances under the companys stock compensation plans, and (ii) 137,285 shares owned and tendered by employees at an average price per share of $36.55 to satisfy tax withholding requirements on the vesting of restricted shares. |
34
10(a) | Compensation arrangements relating to the companys named executive officers and the companys non-executive Chairman of the Board of Directors were described in a company Form 8-K filed on October 4, 2006, and such description is incorporated herein by reference. | |
10(b) | Confirmation Agreement dated as of September 28, 2006, between Lehman Brothers Finance S.A. and the company relating to the companys fixed share accelerated stock repurchase transaction. | |
10(c) | Confirmation Agreement dated as of September 28, 2006, between Lehman Brothers Finance S.A. and the company relating to the companys fixed dollar accelerated stock repurchase transaction. | |
31(i) | Certification of Douglas R. Conant pursuant to Rule 13a-14(a). | |
31(ii) | Certification of Robert A. Schiffner pursuant to Rule 13a-14(a). | |
32(i) | Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350. | |
32(ii) | Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350. |
35
CAMPBELL SOUP COMPANY |
||||
Date: December 5, 2006 | By: | /s/ Anthony P. DiSilvestro | ||
Anthony P. DiSilvestro |
||||
Vice President Controller |
By: | /s/ Ellen Oran Kaden | |||
Ellen Oran Kaden |
||||
Senior Vice President Law and Government Affairs |
10(a) | Compensation arrangements relating to the companys named executive officers and the companys non-executive Chairman of the Board of Directors were described in a company Form 8-K filed on October 4, 2006, and such description is incorporated herein by reference. | |
10(b) | Confirmation Agreement dated as of September 28, 2006, between Lehman Brothers Finance S.A. and the company relating to the companys fixed share accelerated stock repurchase transaction. | |
10(c) | Confirmation Agreement dated as of September 28, 2006, between Lehman Brothers Finance S.A. and the company relating to the companys fixed dollar accelerated stock repurchase transaction. | |
31(i) | Certification of Douglas R. Conant pursuant to Rule 13a-14(a). | |
31(ii) | Certification of Robert A. Schiffner pursuant to Rule 13a-14(a). | |
32(i) | Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350. | |
32(ii) | Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350. |