EX-13 5 w53808ex13.txt PAGES 31-54 FROM CAMPBELL'S SOUP 2001 ANNUAL REP. 1 Exhibit 13 Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations OVERVIEW Net earnings for 2001 were $649 million ($1.55 per share). (All earnings per share amounts included in Management's Discussion and Analysis are presented on a diluted basis.) The 2001 results include a restructuring charge and related costs of approximately $15 million pre-tax ($.03 per share after tax) associated with the manufacturing reconfiguration of the Arnotts business. 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 included 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 declined 8% and earnings per share declined 4%. The decline in earnings was due to higher marketing expenses, interest expense and corporate expenses. Comparisons to 1999 earnings are impacted by a fourth quarter 1999 pre-tax restructuring charge of $36 million, net of a $5 million reversal of a 1998 charge ($27 million after tax or $.06 per share). In addition, the results for 1999 included certain fourth quarter non-recurring costs of $22 million ($15 million after tax or $.03 per share). The non-recurring costs were related to the restructuring program, unusual costs of terminated acquisition studies and expenses associated with certain supply chain initiatives. Excluding the impact of the restructuring charge, net earnings in 2000 declined 6% and earnings per share declined 2% as compared to 1999. Excluding both the restructuring charge and non-recurring costs, earnings per share declined 4%. The 2000 earnings performance was largely driven by a 3% decline in shipments of U.S. soups. In 2001, financial results for all reported periods were restated to conform to the requirements of the Emerging Issues Task Force (EITF) Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." Shipping and handling costs of $207 million in 2001, $199 million in 2000, and $202 million in 1999 were reclassified from a Net sales deduction to Cost of products sold. SALES Sales increased 3% in 2001 to $6.7 billion from $6.5 billion. The increase was attributed to a 5% increase due to volume and mix, 1% from the acquisition, offset by a 3% decrease due to currency. Sales in 2000 declined 2% to $6.5 billion from $6.6 billion. The decline was attributed to decreases of 2% due to volume and mix, 1% due to currency and 1% due to divestitures, offset by a 2% increase in selling prices. An analysis of net sales by segment follows:
% Change 2001/ 2000/ (millions) 2001 2000 1999 2000 1999 ---------- ---- ---- ---- ---- ---- Soup and Sauces $ 4,539 $ 4,393 $ 4,515 3 (3) Biscuits and Confectionery 1,613 1,542 1,505 5 2 Away From Home 573 565 535 1 6 Other 4 28 132 Intersegment (65) (62) (61) ------- ------- ------- ------- ------- $ 6,664 $ 6,466 $ 6,626 3 (2) ======= ======= ======= ======= =======
The 3% increase in sales from Soup and Sauces in 2001 versus 2000 was due to a 3% increase from volume and mix, 2% from the acquisition, offset by a 2% decline due to currency. In the U.S., soup volume increased 6% over the prior year. This performance was driven by a 5% increase in consumer purchases, led by condensed Chicken Noodle, Tomato, and Cream of Mushroom and ready-to-serve varieties including Campbell's Chunky, Select, and the new ready-to-serve Red and White line. Worldwide wet soup volume increased 5%, led by the U.S. performance and contributions from Canada, Germany, the United Kingdom, and Australia. Beyond soup, sales of prepared foods, including Franco-American products, and beverages, particularly V8 Splash, declined in highly competitive categories. Sales of Prego spaghetti sauce and Pace salsa increased modestly. The 3% decline in sales from Soup and Sauces in 2000 versus 1999 was primarily due to a 2% decrease in worldwide wet soup volume, driven by a 4% decline in U.S. soup consumer purchases. International shipments declined 1%, primarily due to under-performance in the United Kingdom and Canada, offset by growth in Australia, Germany, and France. Total beverage sales decreased due to consumer purchase declines for V8 Splash. Sales of U.S. sauces and prepared foods also declined over the prior year. Sales from Biscuits and Confectionery increased 5% in 2001 versus 2000 due to a 9% increase from volume and mix, 1% from higher selling prices, offset by a 5% decline from currency, primarily the Australian dollar. The entire portfolio contributed to the volume gains. Pepperidge Farm cookies, crackers, fresh bread and frozen products all demonstrated improvements 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. - 31 - 2 Management's Discussion and Analysis of Results of Operations and Financial Condition Sales from Biscuits and Confectionery increased 2% in 2000 compared to 1999 primarily due to the performance of the core cracker business of Arnotts in Australia and Godiva Chocolatier, offsetting softness of Pepperidge Farm bakery products. Godiva recorded double-digit sales growth, due in part to new store openings. Away From Home reported a 1% increase in sales in 2001 compared to 2000 driven by growth in frozen soup and sauces, offset by declines in lower margin bakery products and frozen entrees. Sales in 2000 grew 6% in Away From Home compared to 1999 behind growth in the core soup business through the expansion of Campbell's branded soup in university cafeterias, convenience stores and other outlets. The decline in sales from Other in 2001 versus 2000 was due to the divestiture of MacFarms in April 2000. The decline in 2000 as compared to 1999 was due to the divestiture of Fresh Start Bakeries, Inc. in May 1999 and MacFarms in April 2000. GROSS MARGIN Gross margin, defined as Net sales less Cost of products sold, increased by $159 million in 2001 due to the increase in sales. As a percent of sales, gross margin was 52.8% in 2001, 51.9% in 2000, and 50.9% in 1999. The improvement in gross margin percentage in 2001 was due to cost productivity programs and favorable sales mix. The increase in 2000 was due principally to higher selling prices, cost savings generated from global procurement initiatives and continued productivity gains in manufacturing facilities, which offset the adverse mix impact resulting from declines in U.S. wet soup volume. MARKETING AND SELLING EXPENSES Marketing and selling expenses as a percent of sales were 26.5% in 2001, 25.1% in 2000, and 24.7% in 1999. 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. The increase in 2000 was also primarily due to incremental selling costs associated with new stores in the Godiva Chocolatier business. GENERAL AND ADMINISTRATIVE EXPENSES Administrative expenses as a percent of sales increased to 5.6% in 2001 from 4.9% in 2000. The increase was due to higher compensation costs and costs associated with infrastructure enhancements. In 2000, Administrative expenses increased to 4.9% of Net sales from 4.6% in 1999 primarily due to higher compensation costs and costs associated with the Away From Home infrastructure. Research and development expenses as a percent of sales remained unchanged. Other expenses increased in 2001 as compared to 2000 primarily due to higher stock-based incentive compensation costs and slightly higher amortization expense. The increase from 1999 to 2000 was also due to higher incentive compensation costs. OPERATING EARNINGS Segment operating earnings were relatively flat with 2000, excluding the costs associated with the Australian manufacturing strategy and before the impact of currency. Operating earnings as reported in 2000 declined 2%. In 2000, segment operating earnings declined 3%, excluding the 1999 net restructuring charge. An analysis of operating earnings by segment follows:
% Change 2001/ 2000/ (millions) 2001(1) 2000 1999(2) 2000 1999 ---------- ---- ---- ---- ---- ---- Soup and Sauces $ 1,052 $ 1,081 $ 1,082 (3) - Biscuits and Confectionery 206 213 215 (3) (1) Away From Home 58 53 57 9 (7) Other 1 - (5) -------- -------- -------- -------- -------- 1,317 1,347 1,349 (2) - Corporate (123) (82) (79) -------- -------- -------- $ 1,194 $ 1,265 $ 1,270 ======== ======== ======== (1) Contributions to earnings by the Biscuits and Confectionery segment in 2001 included the effect of pre-tax costs of $15 associated with the Australian manufacturing reconfiguration strategy. (2) Contributions to earnings by segment included the effect of a fourth quarter 1999 pre-tax restructuring charge of $36, net of a $5 reversal of a prior period restructuring charge, as follows: Soup and Sauces - $22, Biscuits and Confectionery - $1, and Other - $13.
The following commentary on comparisons of segment operating earnings excludes the 2001 and 1999 restructuring related charges. Earnings from Soup and Sauces declined 3% in 2001 due to increased marketing investments, primarily in U.S. soup and beverage products, partially offset by sales volume growth. Earnings declined 2% before the impact of currency. Earnings from Soup and Sauces declined 2% in 2000, excluding the 1999 net restructuring charge, due primarily to the decline in U.S. wet soup sales, combined with declines in Pace, Franco-American, and beverages. - 32 - 3 Management's Discussion and Analysis of Results of Operations and Financial Condition In 2001, earnings from Biscuits and Confectionery increased 9% before the impact of currency and excluding the impact of the Australian manufacturing reconfiguration costs. Reported earnings increased 4% before the impact of Australian manufacturing reconfiguration costs. The increase was due to higher sales volume across the portfolio. In 2000, earnings from Biscuits and Confectionery declined 1% primarily due to increased marketing costs behind the Pepperidge Farm Goldfish brand, offset by an increase in earnings from Arnotts and Godiva. Earnings from Away From Home increased 9% in 2001 due to improved product mix, with increased sales in soup and sauces offset by declines in lower margin bakery and frozen entree products, and improved manufacturing costs, particularly at the Stockpot facility. Earnings from Away From Home declined 7% in 2000 due to higher costs associated with the new Stockpot manufacturing facility and increased investment in growth initiatives. Earnings from Other, excluding the 1999 net restructuring charge, declined in 2000 due to the divestitures of Fresh Start Bakeries, Inc. in May 1999 and MacFarms in April 2000. Corporate expenses increased in 2001 primarily due to an increase in incentive compensation costs and costs associated with infrastructure enhancements. The increase in corporate expenses in 2000 from 1999 was also due primarily to an increase in compensation costs. NON-OPERATING ITEMS Interest expense increased 11% in 2001 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. Interest expense increased 8% in 2000 versus 1999 due to an increase in interest rates during the period, primarily on commercial paper. The effective tax rate was 34.2% in 2001 versus 33.7% in 2000. The 2000 rate was favorably impacted by a lower effective rate on foreign earnings, primarily driven by a reduction in the Australian statutory rate. The 1999 effective tax rate was 34%. Excluding the restructuring charges, the effective tax rate was 33.7% in 1999. The 1999 rate was favorably impacted by a federal tax refund recorded during the year. RESTRUCTURING PROGRAMS 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. Costs of approximately $5 million ($4 million after tax) were also recorded in 2001 as Cost of products sold, representing accelerated depreciation on assets to be taken out of service. This program is designed to drive greater manufacturing efficiency and will result in the closure of the Melbourne plant. The company expects to incur an additional $20 - $25 million pre-tax costs during 2002 related to this program for accelerated depreciation, employee benefit costs and other one-time expenses. The expected net cash outflows related to this program will not have a material impact on the company's liquidity. As a result of this reconfiguration, the company expects annual pre-tax cost savings of approximately $10 million, beginning in fiscal 2003. Approximately 550 jobs will be eliminated due to the plant closure. A restructuring charge included in earnings from continuing operations of $41 million ($30 million after tax or $.07 per share) was recorded in the fourth quarter 1999 to cover the costs of a restructuring and divestiture program approved in July 1999 by the company's Board of Directors. This charge related to the streamlining of certain North American and European production and administrative facilities and the anticipated loss on a divestiture of a non-strategic business with annual sales of approximately $25 million. The restructuring charge included approximately $20 million in cash charges primarily related to severance and employee benefit costs. The remaining balance included non-cash charges related to the disposition of plant assets and the divestiture. The company has completed this restructuring and divestiture program. A $5 million ($3 million after tax or $.01 per share) reversal of the 1998 restructuring charge was also recorded in the fourth quarter of 1999. The reversal reflected the net impact of changes in estimates and modifications to the original program. The initial charge for the third quarter 1998 program was $262 million ($193 million after tax or $.42 per share). This program was designed to improve operational efficiency by rationalizing certain U.S., European and Australian production and administrative facilities and divesting non-strategic businesses. This program was completed by the second quarter 2000. See Note 4 to the Consolidated Financial Statements for further discussion of these programs. - 33 - 4 Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources Strong cash flows from operations and interest coverage demonstrate the company's financial strength. CASH FLOWS FROM OPERATIONS provided $1.1 billion in 2001, compared to $1.2 billion in 2000. The decrease was primarily due to lower net earnings. Net cash flows from operations in 2000 increased to $1.2 billion from $954 million in 1999 due primarily to improvements in working capital. 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 operating and investing needs. CAPITAL EXPENDITURES were $200 million in 2001 and 2000 and $297 million in 1999. Capital expenditures are projected to be approximately $300 million in 2002 due to planned process improvements, product quality enhancements and innovation. BUSINESSES ACQUIRED in 2001 represented the purchase of the European soup and sauce brands in May 2001. In 1999, the company acquired the Stockpot premium refrigerated soup business. SALE OF BUSINESSES represented the divestiture of MacFarms in 2000 and Fresh Start Bakeries, Inc. in 1999. LONG-TERM BORROWINGS 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% notes due February 2011. The company also entered into ten-year interest rate swap contracts with a notional value of $250 million in connection with this issuance. The proceeds of the 6.75% notes were used primarily to repay short-term borrowings. There were no new long-term borrowings in 2000. Long-term borrowings in 1999 represented the issuance of $300 million 4.75% notes due October 2003. The company filed a shelf registration statement with the Securities and Exchange Commission for $1.0 billion of debt, which was declared effective in May 2001, bringing total capacity available under registration statements to $1.1 billion. In September 2001, the company issued $300 million seven-year 5.875% fixed rate notes under the shelf. The proceeds were used to repay short-term borrowings. In conjunction with the issuance of these notes, the company also entered into a seven-year interest rate swap contract, which converted $75 million of the fixed-rate interest obligations to variable rate debt. The company has financial resources available, including committed lines of credit totaling approximately $2.3 billion, and has ready access to financial markets around the world. The pre-tax interest coverage ratio was 5.5 for 2001 compared to 6.2 for 2000 and 6.9 for 1999. The ratios exclude the impact of the Australian manufacturing reconfiguration costs in 2001 and the net restructuring charge in 1999. DIVIDEND PAYMENTS decreased 3% to $374 million in 2001, compared to $384 million in 2000, due to lower shares outstanding as a result of the share repurchase program. Dividends declared in 2001 and 2000 totaled $.90 per share and $.885 in 1999. The 2001 fourth quarter rate was $.225 per share. The expected annual dividend rate for 2002 is $.63. CAPITAL STOCK REPURCHASES totaled 14.3 million shares at a cost of $618 million during 2001, compared to 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 ASSETS increased 14% to $5.9 billion in 2001 primarily due to an increase in intangible assets as a result of the European soup and sauce brands acquisition. TOTAL LIABILITIES increased to $6.2 billion from $5.1 billion in 2000 principally due to higher debt levels. TOTAL SHAREOWNERS' EQUITY on a book basis declined from $137 million in 2000 to $(247) million in 2001 primarily due to continued share repurchases. 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 managing capital investments in its manufacturing and administrative facilities. 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 - 34 - 5 Management's Discussion and Analysis of Results of Operations and Financial Condition 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 25% of 2001 net sales, are concentrated principally in Germany, France, the United Kingdom, Canada and Australia. 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 29, 2001 and July 30, 2000, 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 29, 2001. 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
There- Fair (US$ equivalents in millions) 2002 2003 2004 2005 2006 after Total Value ----------------------------- ----- ----- ------- ----- ----- -------- -------- ----- DEBT Fixed rate $ 6 $ 300 $ 400(1) $ 1 $ 1 $ 1,013 $ 1,721 $1,795 Weighted average interest rate 5.79% 6.15% 4.97% 9.0% 9.0% 7.23% 6.51% --------- -------- ---------- -------- -------- ----------- ----------- ------ Variable rate $ 1,800 $ 528 $ 2,328 $2,328 Weighted average interest rate 4.35% 4.68% 4.43% --------- -------- ---------- -------- -------- ----------- ----------- ------ INTEREST RATE SWAPS Fixed to variable $ 250(2) $ 250(2) $ 5 Average pay rate 6.47% 6.47% Average receive rate 6.75% 6.75% --------- -------- ---------- -------- -------- ----------- ----------- ------ (1) $100 million callable in 2002. (2) Hedges 6.75% notes due 2011. As of July 30, 2000, fixed-rate debt of approximately $1.3 billion with an average interest rate of 6.47% and variable-rate debt of approximately $1.8 billion with an average interest rate of 6.57% were outstanding. There were no interest rate swaps outstanding at July 30, 2000.
The company is exposed to foreign currency exchange risk related to its international operations, including net investments in subsidiaries and subsidiary debt which is denominated in currencies other than the functional currency of those businesses. The following table summarizes the cross-currency swap outstanding as of July 29, 2001, which hedges such an exposure. The notional amount of the currency and the related weighted-average forward interest rate are presented in the Cross-Currency Swap table. CROSS-CURRENCY SWAP
(US$ equivalents Interest Notional Fair in millions) Expiration Rate Value Value ------------ ---------- ---- ----- ----- Pay variable FrF 4.88% Receive variable US$ 2003 4.21% $110 $ 25 The cross-currency contracts outstanding at July 30, 2000 also included a pay fixed DM/receive fixed US$ contract with a notional value of $107 million. This contract matured in 2001. The aggregate fair value of all contracts was $22 million as of July 30, 2000.
The company is also exposed to foreign exchange risk as a result of transactions in currencies other than the functional - 35 - 6 Management's Discussion and Analysis of Results of Operations and Financial Condition currency of certain subsidiaries, including subsidiary debt. The company utilizes foreign currency forward purchase and sale contracts in order to hedge these exposures. The table below summarizes the foreign currency forward contracts outstanding and the related weighted-average contract exchange rates as of July 29, 2001. FORWARD EXCHANGE CONTRACTS
Average (US$ equivalents Contract Contractual in millions) Amount Exchange Rate ------------ ------ ------------- Receive USD/Pay GBP $ 424 1.41 Receive USD/Pay Euro $ 292 0.86 Receive USD/Pay SEK $ 90 10.63 Receive CAD/Pay USD $ 35 0.65 Receive Euro/Pay GBP $ 17 0.62 Receive USD/Pay JPY $ 6 118 Receive AUD/Pay NZD $ 5 0.83 Receive GBP/Pay AUD $ 5 2.66 The company had an additional $6 million in a number of smaller contracts to purchase or sell various other currencies, such as the euro, Australian dollar, Japanese yen, and Swiss franc, as of July 29, 2001. The aggregate fair value of all contracts was $(7) million as of July 29, 2001. Total forward exchange contracts outstanding as of July 30, 2000 were $236 million with a fair value of $(3) million.
The company had swap contracts outstanding as of July 29, 2001, 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 include the return on the Standard & Poor's 500 Index was $28 million at July 29, 2001 and $29 million at July 30, 2000. The average forward interest rate applicable to the contract which expires in 2002 was 4.52% at July 29, 2001. The notional value of the contract that includes the total return on company capital stock was $32 million at July 29, 2001 and $50 million at July 30, 2000. The average forward interest rate applicable to this contract, which expires in 2003, was 4.37% at July 29, 2001. The net cost to settle these contracts was $17 million at July 29, 2001 and $25 million at July 30, 2000. Gains and losses on the contracts are recognized as adjustments to the carrying value of the underlying obligations. 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 and the company's acquisition and divestiture activities. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities." The company adopted this statement, as amended by SFAS No. 137 and No. 138, in the first quarter 2001. The cumulative effect of adoption was not material. The standard required that all derivative instruments be recorded 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. In September 2000, the Emerging Issues Task Force (EITF) reached a final consensus on Issue No. 00-10 "Accounting for Shipping and 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 $200 million were reclassified from Net sales to Cost of products sold for all periods presented. The reclassifications had no impact on net earnings or earnings per share. The EITF has recently addressed several topics related to the classification and recognition of certain promotional expenses. In May 2000, the EITF issued a consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives." This Issue addresses the recognition, measurement and income statement classification of certain sales incentives, including discounts, coupons, and free products. In April 2001, the EITF reached a consensus on Issue No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" and delayed the implementation date of Issue No. 00-14 to coincide with the effective date of Issue No. 00-25. 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 company will adopt this accounting guidance in the first quarter 2002. The company has historically classified certain costs covered by the provisions of Issues No. 00-14 and 00-25 as promotional expenses within Marketing and selling expenses. The company is continuing to evaluate the impact of the new accounting guidance and expects that certain costs historically - 36 - 7 Management's Discussion and Analysis of Results of Operations and Financial Condition recorded as Marketing and selling expenses will be reclassified as a reduction of sales. Based on historical information, annual net sales as currently reported could be reduced by approximately 12% to 13%. Prior period amounts will be restated upon adoption. As reclassifications, these changes will not affect the company's financial position or earnings. In July 2001, the Financial Accounting Standards Board 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 is effective for business combinations initiated after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Earlier adoption is permitted for companies with fiscal years beginning after March 15, 2001 provided that the first interim financial statements have not been issued. 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 these provisions and considering early adoption in 2002. The total after-tax amortization expense related to goodwill and other intangible assets was approximately $40 million in 2001. This amount includes amortization related to the European soup and sauce acquisition in May 2001. Earnings Outlook On September 6, 2001, the company issued a press release announcing results for fiscal 2001 and commented on analysts' expectations for the first quarter of fiscal 2002 and the outlook for earnings per share for the full year. Forward-Looking Statements This 2001 Annual Report contains "forward-looking" statements, which reflect the company's current expectations regarding future results of operations, economic performance, financial condition and achievements of the company. The company has tried, wherever possible, to identify these forward-looking statements by using words such as "anticipate," "believe," "estimate," "expect" and similar expressions. 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 and estimates which could be inaccurate and which are 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 impact of strong competitive response to the company's efforts to leverage its brand power with product innovation, promotional programs and new advertising; - the inherent 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; - the company's ability to achieve its cost savings objectives, including the projected outcome of supply chain management programs; - the company's ability to complete the successful post-acquisition integration of acquired businesses into existing operations; - the difficulty of predicting the pattern of inventory movements by the company's trade customers; and - 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. 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 in order to reflect events or circumstances after the date of this report. - 37 - 8 Consolidated Statements of Earnings (millions, except per share amounts)
2001 2000 1999 ---- ---- ---- NET SALES $6,664 $6,466 $6,626 ------ ------ ------ Costs and expenses Cost of products sold 3,146 3,107 3,252 Marketing and selling expenses 1,765 1,622 1,634 Administrative expenses 372 319 304 Research and development expenses 63 64 66 Other expenses (Note 5) 114 89 64 Restructuring charges (Note 4) 10 -- 36 ------ ------ ------ Total costs and expenses 5,470 5,201 5,356 ------ ------ ------ EARNINGS BEFORE INTEREST AND TAXES 1,194 1,265 1,270 Interest expense (Note 6) 219 198 184 Interest income 12 10 11 ------ ------ ------ Earnings before taxes 987 1,077 1,097 Taxes on earnings (Note 9) 338 363 373 ------ ------ ------ NET EARNINGS $ 649 $ 714 $ 724 ====== ====== ====== PER SHARE -- BASIC NET EARNINGS $ 1.57 $ 1.68 $ 1.64 ====== ====== ====== Weighted average shares outstanding - basic 414 425 441 ====== ====== ====== PER SHARE -- ASSUMING DILUTION NET EARNINGS $ 1.55 $ 1.65 $ 1.63 ====== ====== ====== Weighted average shares outstanding - assuming dilution 418 432 445 ====== ====== ====== See accompanying Notes to Consolidated Financial Statements.
- 38 - 9 Consolidated Balance Sheets (millions, except per share amounts)
JULY 29, July 30, 2001 2000 -------- -------- CURRENT ASSETS Cash and cash equivalents $ 24 $ 27 Accounts receivable (Note 10) 442 443 Inventories (Note 11) 597 571 Other current assets (Note 12) 158 127 -------- -------- Total current assets 1,221 1,168 -------- -------- PLANT ASSETS, NET OF DEPRECIATION (Note 13) 1,637 1,644 INTANGIBLE ASSETS, NET OF AMORTIZATION (Note 14) 2,451 1,767 OTHER ASSETS (Note 15) 618 617 -------- -------- Total assets $ 5,927 $ 5,196 ======== ======== CURRENT LIABILITIES Notes payable (Note 16) $ 1,806 $ 1,873 Payable to suppliers and others 582 509 Accrued liabilities 450 360 Dividend payable 92 95 Accrued income taxes 190 195 -------- -------- Total current liabilities 3,120 3,032 -------- -------- LONG-TERM DEBT (Note 16) 2,243 1,218 NONPENSION POSTRETIREMENT BENEFITS (Note 8) 336 364 OTHER LIABILITIES (Note 17) 475 445 -------- -------- Total liabilities 6,174 5,059 -------- -------- SHAREOWNERS' EQUITY (Note 19) Preferred stock; authorized 40 shares; none issued - - Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares 20 20 Capital surplus 314 344 Earnings retained in the business 4,651 4,373 Capital stock in treasury, 133 shares in 2001 and 121 shares in 2000, at cost (4,908) (4,373) Accumulated other comprehensive loss (324) (227) -------- -------- Total shareowners' equity (247) 137 -------- -------- Total liabilities and shareowners' equity $ 5,927 $ 5,196 ======== ======== See accompanying Notes to Consolidated Financial Statements.
- 39 - 10 Consolidated Statements of Cash Flows (millions)
2001 2000 1999 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 649 $ 714 $ 724 Non-cash charges to net earnings Restructuring charges 10 - 36 Depreciation and amortization 266 251 255 Deferred taxes 4 17 78 Other, net 38 20 5 Changes in working capital Accounts receivable (11) 90 108 Inventories (1) 23 (58) Other current assets and liabilities 151 50 (194) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,106 1,165 954 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant assets (200) (200) (297) Sales of plant assets 8 7 9 Businesses acquired (911) - (105) Sales of businesses - 11 103 Other, net (19) (22) (32) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,122) (204) (322) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 1,028 - 323 Repayments of long-term borrowings - (7) (8) Short-term borrowings 1,962 1,028 1,537 Repayments of short-term borrowings (2,007) (1,206) (1,111) Dividends paid (374) (384) (386) Treasury stock purchases (618) (394) (1,026) Treasury stock issuances 24 20 35 -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15 (943) (636) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) 3 (6) -------- -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (3) 21 (10) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 27 6 16 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 24 $ 27 $ 6 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements.
- 40 - 11 Consolidated Statements of Shareowners' Equity (millions, except per share amounts)
Capital Stock ------------------------------------------- Earnings Accumulated Total Issued In Treasury Retained Other Com- Share- ------------------ ------------------ Capital in the prehensive owners' Shares Amount Shares Amount Surplus Business Loss Equity ------ ------ ------ ------ ------- -------- ---- ------ Balance at August 2, 1998 542 $ 20 (94) $ (3,083) $ 395 $ 3,706 $ (164) $ 874 ------ ------ ------ -------- ------- ------- ------ ------- Comprehensive income (loss) Net earnings 724 724 Foreign currency translation adjustments 14 14 Dividends ($.885 per share) (389) (389) Treasury stock purchased (22) (1,026) (1,026) Treasury stock issued under management incentive and stock option plans 3 51 (13) 38 ------ ------ ------ -------- ------- ------- ------ ------- Balance at August 1, 1999 542 20 (113) (4,058) 382 4,041 (150) 235 ------ ------ ------ -------- ------- ------- ------ ------- Comprehensive income (loss) Net earnings 714 714 Foreign currency translation adjustments (77) (77) Dividends ($.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) 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) ====== ====== ====== ======== ======= ======= ====== ======= See accompanying Notes to Consolidated Financial Statements.
- 41 - 12 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) note 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 2001, 2000 and 1999. REVENUE RECOGNITION Revenues are recognized when the earnings process is complete. This generally 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. Buildings and machinery and equipment are depreciated over periods not exceeding 45 years and 15 years, respectively. INTANGIBLE ASSETS 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 Long-lived assets are comprised of intangible assets and property, plant and equipment. 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. 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. RECLASSIFICATIONS Prior year financial statements and footnotes have been reclassified to conform to the current year presentation. In September 2000, the Emerging Issues Task Force (EITF) reached a final consensus on Issue No. 00-10 "Accounting for Shipping and 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, $199 in 2000, and $202 in 1999 were reclassified from Net sales to Cost of products sold for all periods presented. The reclassifications had no impact on net earnings or earnings per share. NEW ACCOUNTING PRONOUNCEMENTS The EITF has recently addressed several topics related to the classification and recognition of certain promotional expenses. In May 2000, the EITF issued a consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives." This Issue addresses the recognition, measurement and income statement classification of - 42 - 13 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) certain sales incentives, including discounts, coupons, and free products. In April 2001, the EITF reached a consensus on Issue No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" and delayed the implementation date of Issue No. 00-14 to coincide with the effective date of Issue No. 00-25. 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 company will adopt this accounting guidance in the first quarter 2002. The company has historically classified certain costs covered by the provisions of Issues No. 00-14 and 00-25 as promotional expenses within Marketing and selling expenses. The company is continuing to evaluate the impact of the new accounting guidance and expects that certain costs historically recorded as Marketing and selling expenses will be reclassified as a reduction of sales. Based on historical information, annual net sales as currently reported could be reduced by approximately 12% to 13%. Prior period amounts will be restated upon adoption. As reclassifications, these changes will not affect the company's financial position or earnings. In July 2001, the Financial Accounting Standards Board 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 is effective for business combinations initiated after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Earlier adoption is permitted for companies with fiscal years beginning after March 15, 2001 provided that the first interim financial statements have not been issued. 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 these provisions and considering early adoption in 2002. The total after-tax amortization expense related to goodwill and other intangible assets was approximately $40 in 2001. This amount includes amortization related to the European soup and sauce acquisition in May 2001. note 2 comprehensive income Total comprehensive income is comprised of net earnings, net foreign currency translation adjustments, and net unrealized gains and losses on cash-flow hedges. Total comprehensive income for the twelve months ended July 29, 2001 and July 30, 2000 was $552 and $637, respectively. Accumulated other comprehensive loss, as reflected in the Statements of Shareowners' Equity, primarily consists of the cumulative foreign currency translation adjustment. The net gain on cash-flow hedges was not material at July 29, 2001. note 3 business and geographic segment information The company operates in three business segments: Soup and Sauces, Biscuits and Confectionery and Away From Home. The segments are managed as strategic units due to their distinct manufacturing processes, marketing strategies and distribution channels. The Soup and Sauces segment includes the worldwide soup businesses that are comprised of, among others, Campbell's soups worldwide, Erasco soups in Germany, Liebig soups in France, the European dry soup and sauce business under the Batchelors, Oxo, Lesieur, Royco, Liebig, Heisse Tasse, Bla Band and McDonnells brands, Prego spaghetti sauces, Pace Mexican sauces, Franco-American pastas and gravies, Swanson broths, and V8 and V8 Splash beverages. The Biscuits and Confectionery segment includes the Godiva Chocolatier, Pepperidge Farm and Arnotts businesses. Away From Home represents the distribution of products, including Campbell's soups and Campbell's Specialty Kitchen entrees, to the North American food service and home meal replacement markets. Accounting policies for measuring segment assets and earnings before interest and taxes are substantially consistent with those described in the summary of significant accounting policies included in Note 1. The company evaluates segment performance based on earnings before interest and taxes, excluding certain non-recurring charges. Away From Home products are principally produced by the tangible assets of the company's other segments, except for the Stockpot premium - 43 - 14 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) refrigerated soups, which are produced in a separate facility, and for certain frozen products which are produced under contract manufacturing agreements. Accordingly, with the exception of the designated Stockpot facility, plant assets have not been allocated to the Away From Home segment. Depreciation and amortization are allocated to Away From Home based on budgeted production hours. Transfers between segments are recorded at cost plus mark-up or at market. Information about operations by business segment is as follows: BUSINESS SEGMENTS
Biscuits & Away Corporate Soup & Confec- From & Elimi- 2001 Sauces tionery Home Other(1) nations(2) Total ------ ---------- ---- -------- ---------- ------ NET SALES(3) $4,539 1,613 573 4 (65) $6,664 EARNINGS BEFORE INTEREST AND TAXES(4) $1,052 206 58 1 (123) $1,194 DEPRECIATION AND AMORTIZATION $ 137 87 15 1 26 $ 266 CAPITAL EXPENDITURES $ 107 77 6 - 10 $ 200 SEGMENT ASSETS $3,613 1,250 352 4 708 $5,927
Biscuits & Away Corporate Soup & Confec- From & Elimi- 2000 Sauces tionery Home Other(1) nations(2) Total ------ ---------- ---- -------- ---------- ------ Net sales(3) $4,393 1,542 565 28 (62) $6,466 Earnings before interest and taxes $1,081 213 53 - (82) $1,265 Depreciation and amortization $ 126 83 16 1 25 $ 251 Capital expenditures $ 119 64 4 - 13 $ 200 Segment assets $2,750 1,364 371 7 704 $5,196
Biscuits & Away Corporate Soup & Confec- From & Elimi- 1999 Sauces tionery Home Other(1) nations(2) Total ------ ---------- ---- -------- ---------- ------ Net sales(3) $4,515 1,505 535 132 (61) $6,626 Earnings before interest and taxes(5) $1,082 215 57 (5) (79) $1,270 Depreciation and amortization $ 128 84 13 9 21 $ 255 Capital expenditures $ 164 70 32 10 21 $ 297 Segment assets $2,975 1,461 349 38 699 $5,522 (1) Represents financial information of certain prepared convenience food businesses not categorized as reportable segments. (2) Represents elimination of intersegment sales, unallocated corporate expenses and unallocated assets, including corporate offices, deferred income taxes and prepaid pension assets. (3) In 2001, shipping and handling costs of $207, $199 and $202 for fiscal 2001, 2000, and 1999, respectively, have been reclassified from Net sales to Cost of products sold to comply with a new accounting pronouncement. (4) Contributions to earnings before interest and taxes by the Biscuits and Confectionery segment include the effect of costs of $15 associated with the Australian manufacturing reconfiguration. (5) Contributions to earnings before interest and taxes by segment included the effects of a fourth quarter 1999 restructuring charge of $36, net of a $5 reversal of a prior period restructuring charge, as follows: Soup and Sauces - $22, Biscuits and Confectionery - $1, and Other - $13.
GEOGRAPHIC AREA INFORMATION Information about operations in different geographic areas is as follows:
Net sales(1) 2001 2000 1999 -------- -------- -------- United States $ 5,021 $ 4,820 $ 4,948 Europe 613 587 653 Australia/Asia Pacific 589 649 632 Other countries 513 483 456 Adjustments and eliminations (72) (73) (63) -------- -------- -------- Consolidated $ 6,664 $ 6,466 $ 6,626 ======== ======== ========
Earnings before interest and taxes 2001 2000 1999 -------- -------- -------- United States $ 1,137 $ 1,135 $ 1,208 Europe 53 55 20 Australia/Asia Pacific 46 72 49 Other countries 81 85 72 -------- -------- -------- Segment earnings before interest and taxes 1,317 1,347 1,349 Unallocated corporate expenses (123) (82) (79) -------- -------- -------- Consolidated $ 1,194 $ 1,265 $ 1,270 ======== ======== ========
Identifiable assets 2001 2000 1999 ------ ------ ------ United States $2,737 $2,792 $2,742 Europe 1,472 533 614 Australia/Asia Pacific 717 852 991 Other countries 293 315 476 Corporate 708 704 699 ------ ------ ------ Consolidated $5,927 $5,196 $5,522 ====== ====== ====== (1) In 2001, shipping and handling costs of $207, $199 and $202 for fiscal 2001, 2000 and 1999, respectively, have been reclassified from Net sales to Cost of products sold to comply with a new accounting pronouncement.
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 2001 restructuring charge of $10 is allocated to Australia/Asia Pacific. The 1999 net restructuring charge of $36 is allocated to geographic regions as follows: United States - $10, Europe - $14, and Australia/Asia Pacific - $12. note 4 restructuring programs 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. Costs of approximately $5 ($4 after tax) were also recorded in 2001 as Cost of products sold, representing accelerated depreciation on assets to be taken out of service. This - 44 - 15 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) program is designed to drive greater manufacturing efficiency and will result in the closure of the Melbourne plant. The company expects to incur an additional $20 - $25 pre-tax costs during 2002 related to this program for accelerated depreciation, employee benefit costs and other one-time expenses. The expected net cash outflows related to this program will not have a material impact on the company's liquidity. Approximately 550 jobs will be eliminated due to the plant closure. A restructuring charge included in earnings from continuing operations of $41 ($30 after tax or $.07 per share) was recorded in the fourth quarter 1999 to cover the costs of a restructuring and divestiture program approved in July 1999 by the company's Board of Directors. This charge related to the streamlining of certain North American and European production and administrative facilities and the anticipated loss on a divestiture of a non-strategic business with annual sales of approximately $25. The restructuring charge included approximately $20 in cash charges primarily related to severance and employee benefit costs. The remaining balance included non-cash charges related to the disposition of plant assets and the divestiture. The restructuring and divestiture program has been completed. A $5 ($3 after tax or $.01 per share) reversal of the 1998 restructuring charge was also recorded in the fourth quarter 1999. The reversal reflected the net impact of changes in estimates and modifications to the original program. Two manufacturing facilities scheduled for closure in 1999 were not taken out of service due to changes in business and economic conditions subsequent to the original charge, while additional asset rationalization and plant reconfiguration strategies were implemented which resulted in incremental headcount reductions. The initial charge for the third quarter 1998 program was $262 ($193 after tax or $.42 per share). This program was designed to improve operational efficiency by rationalizing certain U.S., European and Australian production and administrative facilities and divesting non-strategic businesses. This program was completed by the second quarter 2000. A summary of restructuring reserves at July 29, 2001 and related activity is as follows:
Accrued ACCRUED Balance at 2001 BALANCE AT July 30, 2000 Spending Charge JULY 29, 2001 ------------- -------- ------ ------------- Severance pay and benefits $11 (11) 10 $10
note 5 other expenses
2001 2000 1999 ---- ---- ---- Stock price related incentive programs $ 36 $ 26 $ 15 Amortization of intangible and other assets 57 55 58 Minority interest 3 1 1 Other, net 18 7 (10) ---- ---- ----- $114 $ 89 $ 64 ==== ==== =====
note 6 interest expense
2001 2000 1999 ---- ---- ---- Interest expense $222 $204 $190 Less: Interest capitalized 3 6 6 ---- ---- ---- $219 $198 $184 ==== ==== ====
note 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 $900. 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 $440 to trademarks and other identifiable intangible assets; and approximately $360 to the excess of the purchase price over net assets acquired (goodwill). Goodwill and trademarks are being amortized on a straight-line basis over 40 years. The allocation of the excess purchase price is based on preliminary estimates and assumptions and is subject to revision. Had the acquisition occurred at the beginning of 2000, based on unaudited data, net sales for 2001 and 2000 would have increased $303 and $403, respectively, and net earnings would have decreased $2 in 2001 and $7 in 2000. 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. - 45 - 16 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) In the first quarter of 1999, the company acquired the Stockpot premium refrigerated soup business, which is predominantly a U.S. food service business, for $105. This acquisition was accounted for using the purchase method. note 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 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 2001 2000 1999 ----- ----- ----- Service cost $ 35 $ 37 $ 29 Interest cost 106 103 91 Expected return on plan assets (158) (150) (142) Amortization of net transition obligation (1) (3) (3) Amortization of prior service cost 5 5 5 Recognized net actuarial loss 1 6 5 Curtailment -- 1 -- ----- ----- ----- Net periodic pension income $ (12) $ (1) $ (15) ===== ===== =====
Postretirement 2001 2000 1999 ---- ---- ---- Service cost $ 3 $ 5 $ 10 Interest cost 20 18 19 Amortization of prior service cost (12) (11) (6) Amortization of net gain (7) (12) (9) Settlement -- (3) -- ---- ---- ---- Net periodic postretirement (income) expense $ 4 $ (3) $ 14 ==== ==== ====
Change in benefit obligation:
Pension Postretirement --------------------- --------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Obligation at beginning of year $ 1,428 $ 1,405 $ 260 $ 246 Service cost 35 37 3 5 Interest cost 106 103 20 18 Plan amendments -- 7 -- (14) Actuarial (gain) loss 60 (7) 86 35 Settlement -- -- (1) (2) Curtailment -- (2) -- -- Benefits paid (122) (116) (30) (28) Foreign currency adjustment (8) 1 -- -- ------- ------- ------- ------- Benefit obligation at end of year $ 1,499 $ 1,428 $ 338 $ 260 ======= ======= ======= =======
Change in the fair value of pension plan assets:
2001 2000 ------- ------- Fair value at beginning of year $ 1,846 $ 1,740 Actual return on plan assets (97) 218 Employer contributions -- 2 Benefits paid (118) (112) Foreign currency adjustment (10) (2) ------- ------- Fair value at end of year $ 1,621 $ 1,846 ======= =======
- 46 - 17 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) Funded status as recognized in the Consolidated Balance Sheet:
Pension Postretirement ------------------- -------------------- 2001 2000 2001 2000 ----- ------ ------ ------ Funded status at end of year $ 122 $ 418 $(338) $(260) Unrecognized prior service cost 54 60 (32) (44) Unrecognized (gain) loss 220 (94) 15 (79) Unrecognized net transition obligation - (1) - - ----- ------ ------ ------ Net amount recognized $ 396 $ 383 $(355) $(383) ===== ====== ====== ======
The current portion of nonpension postretirement benefits included in Accrued liabilities was $19 at July 29, 2001 and July 30, 2000. PENSION Weighted-average assumptions at end of year:
2001 2000 1999 ------ ------ ------ Discount rate for benefit obligation 7.25% 7.75% 7.50% Expected return on plan assets 10.00% 10.50% 10.50% Rate of compensation increases 4.50% 4.50% 4.50%
POSTRETIREMENT The discount rate used to determine the accumulated postretirement benefit obligation was 7.25% in 2001 and 7.75% in 2000. The assumed healthcare cost trend rate used to measure the accumulated postretirement benefit obligation was 8%, declining to 4.50% in 2006 and continuing at 4.50% thereafter. A one percentage point change in assumed health care costs would have the following effects on 2001 reported amounts:
Increase Decrease -------- -------- Effect on service and interest cost $ 3 $ (3) Effect on the 2001 accumulated benefit obligation $20 $(21)
Obligations related to non-U.S. postretirement benefit plans are not significant since these benefits are generally provided through government-sponsored plans. SAVINGS PLANS 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 $11 in 2001, $10 in 2000, and $11 in 1999. note 9 taxes on earnings The provision for income taxes on earnings from continuing operations consists of the following:
2001 2000 1999 -------- -------- -------- Income taxes: Currently payable Federal $ 254 $ 246 $ 231 State 29 30 31 Non-U.S. 51 70 33 -------- -------- -------- 334 346 295 ======== ======== ======== Deferred Federal 13 36 64 State (1) (4) 2 Non-U.S. (8) (15) 12 -------- -------- -------- 4 17 78 -------- -------- -------- $ 338 $ 363 $ 373 ======== ======== ======== Earnings from continuing operations before income taxes: United States $ 835 $ 880 $ 954 Non-U.S. 152 197 143 -------- -------- -------- $ 987 $ 1,077 $ 1,097 ======== ======== ========
The following is a reconciliation of the effective income tax rate on continuing operations with the U.S. federal statutory income tax rate:
2001 2000 1999 ----- ----- ----- Federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes (net of federal tax benefit) 1.5 1.5 1.9 Nondeductible divestiture and restructuring charges - - 0.3 Non-U.S. earnings taxed at other than federal statutory rate (0.9) (1.0) (0.6) Tax loss carryforwards (0.3) (0.3) (0.3) Other (1.1) (1.5) (2.3) ----- ----- ----- Effective income tax rate 34.2% 33.7% 34.0% ===== ===== =====
- 47 - 18 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) Deferred tax liabilities and assets are comprised of the following:
2001 2000 ------ ------ Depreciation $ 160 $ 170 Pensions 125 118 Other 216 195 ------ ------ Deferred tax liabilities 501 483 ------ ------ Benefits and compensation 197 200 Tax loss carryforwards 12 17 Other 95 78 ------ ------ Gross deferred tax assets 304 295 Deferred tax asset valuation allowance (12) (17) ------ ------ Net deferred tax assets 292 278 ------ ------ Net deferred tax liability $ 209 $ 205 ====== ======
At July 29, 2001, non-U.S. subsidiaries of the company have tax loss carryforwards of approximately $32. Of these carryforwards, $9 expire through 2005 and $23 may be carried forward indefinitely. The current statutory tax rates in these countries range from 28% to 46%. Income taxes have not been provided on undistributed earnings of non-U.S. subsidiaries of approximately $525, which are deemed to be permanently invested. If remitted, tax credits or planning strategies should substantially offset any resulting tax liability. note 10 accounts receivable
2001 2000 ------ ------ Customers $ 441 $ 424 Allowances for cash discounts and bad debts (28) (19) ------ ------ 413 405 Other 29 38 ------ ------ $ 442 $ 443 ====== ======
note 11 inventories
2001 2000 ---- ---- Raw materials, containers and supplies $216 $213 Finished products 381 358 ---- ---- $597 $571 ==== ====
Approximately 61% of inventory in 2001 and 62% in 2000 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 29, 2001 and July 30, 2000. note 12 other current assets
2001 2000 ------- ------- Prepaid pensions $ 18 $ 18 Deferred taxes 94 80 Other 46 29 ------- ------- $ 158 $ 127 ======= =======
note 13 plant assets
2001 2000 ------- ------- Land $ 50 $ 43 Buildings 840 808 Machinery and equipment 2,354 2,283 Projects in progress 133 162 ------- ------- 3,377 3,296 Accumulated depreciation (1,740) (1,652) ------- ------- $1,637 $1,644 ======= =======
Depreciation expense provided in Costs and expenses was $209 in 2001, $196 in 2000, and $197 in 1999. Approximately $75 of capital expenditures are required to complete projects in progress at July 29, 2001. note 14 intangible assets
2001 2000 -------- -------- Purchase price in excess of net assets of businesses acquired (goodwill) $ 1,856 $ 1,570 Trademarks 890 456 Other intangibles 11 4 -------- -------- 2,757 2,030 Accumulated amortization (306) (263) -------- -------- $ 2,451 $ 1,767 ======== ========
note 15 other assets
2001 2000 ---- ---- Prepaid pensions $378 $365 Investments 215 234 Other 25 18 ---- ---- $618 $617 ==== ====
- 48 - 19 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) note 16 notes payable and long-term debt Notes payable consists of the following:
2001 2000 ------- ------- Commercial paper $ 1,789 $ 1,738 Current portion of Long-term Debt 6 119 Variable-rate bank borrowings 11 16 ------- ------- $ 1,806 $ 1,873 ======= =======
Commercial paper had a weighted average interest rate of 4.38% and 6.62% at July 29, 2001 and July 30, 2000, respectively. The current portion of Long-term Debt had a weighted average interest rate of 5.79% and 7.06% at July 29, 2001 and July 30, 2000, respectively. The company has short-term lines of credit of approximately $2,600 available at July 29, 2001. These lines of credit include three committed lines of credit totaling $2,300 which support commercial paper borrowings and remain unused at July 29, 2001. Long-term Debt consists of the following:
Fiscal Year Type of Maturity Rate 2001 2000 --------- ---------- ------ ------ Notes 2003 6.15% $ 300 $ 300 Notes 2004(1) 4.68%-5.63% 928 400 Notes 2007 6.90% 300 300 Notes 2011 6.75% 500 -- Debentures 2021 8.88% 200 200 Other 2003-2010 6.40%-9.00% 15 18 ------ ------ $2,243 $1,218 ====== ====== (1) $100 callable in 2002.
The fair value of the company's long-term debt including the current portion of long-term debt in Notes payable was $2,323 at July 29, 2001, and $1,330 at July 30, 2000. The company has $1,100 of capacity as of July 29, 2001 under a shelf registration statement filed with the Securities and Exchange Commission. Principal amounts of long-term debt mature as follows: 2002 - $6 (in current liabilities); 2003 - $300; 2004 - $928; 2005 - $1; 2006 - $1 and beyond - $1,013. note 17 other liabilities
2001 2000 ----- ----- Deferred taxes $ 303 $ 285 Deferred compensation 123 129 Postemployment benefits 13 11 Other 36 20 ----- ----- $ 475 $ 445 ===== =====
note 18 financial instruments The company utilizes certain derivative financial instruments to enhance its ability to manage risk, including interest rate, foreign currency 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. 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 - 49 - 20 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) 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. As of July 29, 2001, the accumulated derivative gain/(loss) in other comprehensive income was not material. At July 29, 2001, the maximum maturity date of any cash-flow hedge was approximately three months. 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 finances a portion of its operations through debt instruments primarily consisting of commercial paper, notes, debentures and bank loans. The company periodically utilizes interest rate swap agreements to minimize worldwide financing costs and to achieve a desired proportion of variable versus fixed-rate debt. In 2001, the company entered into interest rate swaps that convert fixed-rate debt (6.75% notes due in 2011) to variable. The swaps mature in fiscal 2011 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. The notional amount of interest rate swaps was $250 at July 29, 2001. The swaps had a fair value of $5 at July 29, 2001. There were no interest rate swaps outstanding at July 30, 2000. 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 in order to manage the volatility associated with foreign currency purchases and certain intercompany transactions in the normal course of business. Contracts typically have maturities of less than one year. Principal currencies include the euro, British pound, Australian dollar, Canadian dollar, Japanese yen, and Swedish krona. Qualifying forward exchange contracts are accounted for as cash-flow hedges when the hedged item is a forecasted transaction. The fair value of these instruments was not material at July 29, 2001. Gains and losses on these instruments are recorded in other comprehensive income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from Accumulated other comprehensive income to the Statement of Earnings on the same line item as the underlying transaction. The assessment of effectiveness for contracts is based on changes in the spot rates and the change in the time value of options is reported in earnings. 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. 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 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 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 2002 and 2003, was $60 at July 29, 2001. The net liability recorded under these contracts at July 29, 2001 was approximately $17. These instruments are not designated as accounting hedges. Gains and losses are recorded in Other expenses. All amounts in other comprehensive income for cash-flow hedges are expected to be reclassified into earnings in the - 50 - 21 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) fiscal year. The amount of discontinued cash-flow hedges during the year was not material. note 19 shareowners' equity The company has authorized 560 million shares of Capital stock with $.0375 par value and 40 million shares of Preferred stock, issuable in one or more classes, with or without par as may be authorized by the Board of Directors. No Preferred stock has been issued. 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 25 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 $14, $13 and $16 in 2001, 2000 and 1999, respectively. Earnings per share from continuing operations, both basic and assuming dilution, would have been reduced by $.03 in both 2001 and 2000, and $.04 in 1999. 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 $8 in 2001. The weighted average fair value of options granted in 2001, 2000 and 1999 was estimated as $7.96, $7.94 and $11.49, 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 2001, 2000 and 1999:
2001 2000 1999 ---- ---- ---- Risk-free interest rate 5.1% 6.3% 6.2% Expected life (in years) 6 6 6 Expected volatility 30% 29% 24% Expected dividend yield 3.1% 3.0% 2.0%
Restricted shares granted are as follows:
(shares in thousands) 2001 2000 1999 ---- ---- ---- Restricted Shares Granted 184 573 1,804
Information about stock options and related activity is as follows:
Weighted Weighted Weighted Average Average Average (options in Exercise Exercise Exercise thousands) 2001 Price 2000 Price 1999 Price ------- ---------- ------- ---------- ------- ---------- Beginning of year 24,024 $ 32.16 19,880 $ 32.37 18,366 $ 28.72 Granted 1,361 31.95 6,105 29.84 3,890 42.79 Exercised (2,434) 16.82 (1,350) 17.81 (2,122) 17.75 Terminated (929) 40.36 (611) 45.40 (254) 45.61 Converted to restricted stock (4,652) 46.13 - - - - ------- ---------- ------- ----- ------- ----- End of year 17,370 $ 30.30 24,024 $ 32.16 19,880 $ 32.37 ------- ------- Exercisable at end of year 12,160 14,850 14,019 ====== ====== =======
(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 --------------- ------ --- ------ ------ ------- $16.26 - $22.60 3,809 2.5 $19.54 3,809 $ 19.54 $23.18 - $31.91 9,871 6.9 $30.52 6,078 $ 31.12 $32.03 - $44.41 3,032 6.7 $39.16 1,627 $ 43.29 $44.61 - $56.50 658 3.9 $53.81 646 $ 53.83 ------ ------ 17,370 12,160 ====== ======
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 weighted average shares outstanding assuming dilution includes the - 51 - 22 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) incremental effect of stock options, except when such effect would be antidilutive. In 2001, 2000 and 1999, the weighted average shares outstanding assuming dilution also includes the incremental effect of approximately three million, four million and two hundred thousand shares, respectively, under forward stock purchase contracts. note 20 contingencies The company is a party to lawsuits and claims arising out of the normal course of business. In management's opinion, there are no pending claims or litigation, the outcome of which would have a material effect on the consolidated results of operations, financial position or cash flows of the company. note 21 statements of cash flows
2001 2000 1999 ---- ---- ---- Interest paid, net of amounts capitalized $208 $199 $181 Interest received $ 12 $ 10 $ 11 Income taxes paid $310 $253 $300
note 22 subsequent event (unaudited) On September 20, 2001, the company issued $300 seven-year fixed-rate notes at 5.875%. The proceeds were used to repay short-term borrowings. In conjunction with the issuance of these notes, the company also entered into a seven-year interest rate swap contract, which converted $75 of the fixed rate interest obligations to variable rate debt. note 23 quarterly data (unaudited)
2001 FIRST SECOND THIRD FOURTH ---------- ---------- ---------- ---------- NET SALES(1) $ 1,830 $ 2,017 $ 1,487 $ 1,330 COST OF PRODUCTS SOLD(1) 859 922 715 650 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
2000 First Second Third Fourth ---------- ---------- ---------- ---------- Net sales(1) $ 1,819 $ 1,972 $ 1,442 $ 1,233 Cost of products sold(1) 860 904 712 631 Net earnings 235 281 139 59 Per share - basic Net earnings 0.55 0.66 0.33 0.14 Dividends 0.225 0.225 0.225 0.225 Per share - assuming dilution Net earnings 0.54 0.65 0.32 0.14 Market price High $ 45.88 $ 47.00 $ 35.38 $ 33.31 Low $ 38.00 $ 29.25 $ 25.44 $ 25.44 (1) In 2001, financial results were restated to conform to the requirements of Emerging Issues Task Force Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." Shipping and handling costs of $207 in 2001 and $199 in 2000 were reclassified from Net sales to Cost of products sold.
- 52 - 23 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 periodically 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 6, 2001 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 and cash flows present fairly, in all material respects, the financial position of Campbell Soup Company and its subsidiaries at July 29, 2001 and July 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended July 29, 2001, 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 6, 2001 - 53 - 24 Five-Year Review - Consolidated (millions, except per share amounts)
Fiscal Year 2001(1) 2000 1999(2) 1998(3) 1997(4) -------- -------- -------- -------- -------- SUMMARY OF OPERATIONS Net sales $ 6,664 $ 6,466 $ 6,626 $ 6,944 $ 6,878 Earnings before interest and taxes 1,194 1,265 1,270 1,248 1,149 Earnings before taxes 987 1,077 1,097 1,073 991 Earnings from continuing operations 649 714 724 689 634 Earnings (loss) from discontinued operations - - - (18) 79 Net earnings 649 714 724 660 713 Cash margin(5) 22.0% 23.5% 23.0% 21.8% 20.9% FINANCIAL POSITION Net assets of discontinued operations $ - $ - $ - $ - $ 632 Plant assets - net 1,637 1,644 1,726 1,723 2,044 Total assets 5,927 5,196 5,522 5,633 6,196 Total debt 4,049 3,091 3,317 2,570 2,657 Shareowners' equity (247) 137 235 874 1,420 PER SHARE DATA Earnings from continuing operations - basic $ 1.57 $ 1.68 $ 1.64 $ 1.52 $ 1.34 Earnings from continuing operations - assuming dilution 1.55 1.65 1.63 1.50 1.33 Net earnings - basic 1.57 1.68 1.64 1.46 1.51 Net earnings - assuming dilution 1.55 1.65 1.63 1.44 1.49 Dividends declared 0.90 0.90 0.885 0.823 0.75 OTHER STATISTICS Capital expenditures $ 200 $ 200 $ 297 $ 256 $ 252 Number of shareowners (in thousands) 48 51 51 51 49 Weighted average shares outstanding 414 425 441 454 472 Weighted average shares outstanding - assuming dilution 418 432 445 460 478 (1) 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. {2} 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). (3) 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). (4) 1997 earnings from continuing operations include a pre-tax restructuring charge of $204; $152 after tax or $.31 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 2001, financial results were restated to conform to the requirements of a new accounting pronouncement. Shipping and handling costs have been reclassified from Net sales to Cost of products sold for all periods presented. The company spun off its Specialty Foods segment in 1998 and accounted for it as a discontinued operation. All information has been reclassified accordingly.
- 54 -