<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
OVERVIEW
Net earnings were $714 million, or $1.65 per share, for 2000. (All earnings
per share amounts included in Management's Discussion and Analysis are presented
on a diluted basis.) Comparisons to 1999 earnings are impacted by a fourth
quarter 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 declined 6%
and earnings per share declined 2%. Excluding both the restructuring and
non-recurring costs, earnings per share declined 4%. The earnings performance
was largely driven by a 3% decline in shipments of U.S. soups.
SALES
Sales in 2000 declined 2% to $6.27 billion from $6.42 billion. The decline
was attributed to a 2% decrease due to volume and mix, 1% due to currency, 1%
due to divestitures, offset by a 2% increase in selling prices. Sales in 1999
decreased 4% as follows: 6% decrease due to divestitures, 1% due to currency,
offset by a 2% increase from higher selling prices and 1% growth from
acquisitions.
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
% Change
2000/ 1999/
(millions) 2000 1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Soup and Sauces $4,306 $4,423 $4,427 (3) -
Biscuits and
Confectionery 1,462 1,430 1,522 2 (6)
Away From Home 533 507 453 5 12
Other 28 126 343 (78) (63)
Intersegment (62) (62) (49)
---------------------------------------------------------------------------
$6,267 $6,424 $6,696 (2) (4)
===========================================================================
</TABLE>
The 3% decline in sales from Soup and Sauces versus 1999 was primarily due
to a 2% decrease in worldwide wet soup volume, driven by a 4.5% decline in U.S.
soup consumption. International shipments declined 1%, primarily due to
underperformance in the United Kingdom and Canada, offset by growth in
Australia, Germany, and France. Total beverage sales declined due to a
consumption decline for V8 Splash. Sales of U.S. sauces and prepared foods
declined over the prior year.
In 1999, sales from Soup and Sauces remained flat versus 1998. Sales were
impacted by a 4% decline in worldwide wet soup volume driven by an 8% decline in
U.S. wet soup volume resulting from the elimination of quarter-end promotions.
This decline was partially offset by strong consumer demand for ready to serve
Chunky soups and Swanson broths. International soup volume increased 7%,
primarily due to the fiscal 1998 acquisition of Liebig in France. Beverages,
driven by V8 Splash, continued to deliver strong sales growth in 1999. U.S.
sauces and prepared food sales were down versus 1998.
Sales from Biscuits and Confectionery increased 2% 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.
In 1999, Biscuits and Confectionery reported a decline in sales compared to
1998 primarily due to the divestiture of Delacre in June 1998. Excluding the
impact of divestitures and currency, sales increased 6% led by Godiva
Chocolatier with expansion of new retail outlets in North America, Japan, and
Europe. Arnotts in Australia reported sales growth due to increased sales of
higher value products.
Sales grew 5% 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.
Away From Home reported a 12% increase in sales in 1999 due in part to the
acquisition of the Stockpot premium refrigerated soup brand in the first quarter
of 1999.
The decline in sales from Other in 2000 was due to the divestiture of Fresh
Start Bakeries, Inc. in May 1999 and MacFarms in April 2000. The decline in
sales from Other in 1999 was attributed to the full-year impact of the 1998
portfolio reconfiguration and the partial impact of the divestiture of Fresh
Start Bakeries, Inc. In 1998, the company divested several non-strategic
businesses, including Continental Sweets, a European confectionery and
distribution business, Melbourne Mushrooms, an Australian mushroom business, and
Spring Valley, an Australian beverage business.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, decreased by
$15 million in 2000 due to lower sales. As a percent of sales, gross margin was
53.6% in 2000, 52.5% in 1999, and 51.7% in 1998. The improvements in gross
margin percentage in 2000 and 1999 were 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.
28
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
MARKETING AND SELLING EXPENSES
Marketing and selling expenses as a percent of sales were 25.9% in 2000,
25.4% in 1999, and 22.7% in 1998. The increase in 2000 was primarily due to
incremental selling costs associated with new stores in the Godiva Chocolatier
business. The increase in 1999 was driven by consumer and trade promotion for V8
Splash, Chunky soup and Pepperidge Farm products and the growth in retail stores
in the Godiva business.
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative expenses as a percent of sales increased to 5.1% from 4.7%
in 1999. The increase was primarily due to higher compensation costs and costs
associated with the Away From Home infrastructure. In 1999, administrative
expenses increased as a percent of sales to 4.7% from 4.5% in 1998. The increase
was primarily due to investments in information systems, including costs
associated with addressing the Year 2000 issue.
Research and development expenses as a percent of sales remained unchanged.
Other expenses increased as compared to the prior year primarily due to
higher incentive compensation costs. In 1999, other expenses remained flat with
1998 as a result of higher amortization expense offset by lower incentive
compensation costs and a non-recurring gain on a divestiture recorded in 1998.
OPERATING EARNINGS
Segment operating earnings were relatively unchanged in 2000 as compared to
the prior year. Excluding the 1999 net restructuring charge, segment earnings
declined 3%. Segment operating earnings in 1999 increased 5% compared to 1998.
Excluding the 1999 and 1998 restructuring charges of $36 million and $262
million, respectively, segment operating earnings decreased 10% in 1999.
An analysis of operating earnings by segment follows:
<TABLE>
<CAPTION>
% Change
2000/ 1999/
(millions) 2000 1999(1) 1998(2) 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Soup and Sauces $1,081 $1,082 $1,109 - (2)
Biscuits and
Confectionery 213 215 206 (1) 4
Away From Home 53 57 53 (7) 8
Other - (5) (85)
--------------------------------------------------------------------------------
1,347 1,349 1,283 - 5
Corporate (82) (79) (35)
--------------------------------------------------------------------------------
$1,265 $1,270 $1,248
================================================================================
(1) 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.
(2) Contributions to earnings by segment included the effect of a third quarter
1998 pre-tax restructuring charge of $262 as follows: Soup and Sauces -
$135, Biscuits and Confectionery - $25, Away From Home - $4, and Other -
$98.
</TABLE>
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 the declines in Pace, Franco-American, and beverages.
Earnings from Soup and Sauces, excluding the restructuring charges, were
down 11% in 1999, due to lower U.S. condensed soup shipments, increased
marketing spending behind new business development, and weakness in sauces and
prepared food categories.
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.
In 1999, earnings from Biscuits and Confectionery, excluding the
restructuring charges, were down 6% primarily due to increased marketing
spending at Pepperidge Farm driven by the competitive environment in the cheese
cracker category.
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.
In 1999, earnings from Away From Home remained flat versus 1998, excluding
the restructuring charges. The increase in sales was offset by costs associated
with supply chain initiatives and the expansion of Campbell branded products
beyond traditional markets.
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.
Earnings from Other, excluding the restructuring charges, declined 38% in
1999 due to the divestitures of several non-strategic businesses in 1998.
Corporate expenses increased in 2000 due to an increase in compensation
costs. The increase in corporate expenses in 1999 was primarily attributed to
increases in unallocated general and administrative costs, including costs
associated with addressing the Year 2000 issue and other information system
investments, and the costs of terminated acquisition studies. In 1998, corporate
expenses were partially offset by a gain from a divestiture.
NON-OPERATING ITEMS
Interest expense increased 8% in 2000 due to an increase in interest rates
during the period, primarily on commercial paper. Interest expense declined 3%
in 1999 primarily due to lower interest rates compared to 1998.
The effective tax rate was 33.7% in 2000. The rate was favorably impacted
by a lower effective rate on foreign earnings, primarily driven by a reduction
in the Australian
29
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
statutory rate. The 1999 effective tax rate was 34% compared to 35.8% in 1998.
Excluding the restructuring charges, the effective tax rate was 33.7% in 1999
and 34% in 1998. The 1999 rate was favorably impacted by a federal tax refund
recorded during the year.
DISCONTINUED OPERATIONS
On March 30, 1998, the company completed the spin-off of its Specialty
Foods segment to its shareowners as an independent publicly-traded company
(Vlasic Foods International Inc.). Accordingly, the company reported the net
operating results and net assets as a discontinued operation. The 1998 loss from
discontinued operations included eight months of operations, a third quarter
1998 restructuring charge of $22 million ($.05 per share) and spin-off costs of
$38 million ($.08 per share). The restructuring program was designed to improve
operational efficiency by closing certain U.S. and European administrative
offices and production facilities. The spin-off costs primarily consisted of
taxes and legal and advisory services incurred in connection with the
transaction. Earnings from discontinued operations, before restructuring charges
and spin-off costs, were $42 million in 1998. See Note 3 to the Consolidated
Financial Statements for further discussion of discontinued operations.
RESTRUCTURING CHARGES
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 cost of 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 substantially completed the restructuring and
divestiture program in 2000.
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 6 to the Consolidated Financial Statements for further discussion
of the programs.
LIQUIDITY AND CAPITAL RESOURCES
Strong cash flows from operations, a strong balance sheet and interest
coverage demonstrate the company's financial strength.
CASH FLOWS FROM OPERATIONS provided $1.2 billion in 2000, compared to $954
million in 1999. The increase was primarily due to improvements in working
capital. Over the last three years, operating cash flows totaled approximately
$3 billion. This strong cash generating capability provides the company with
substantial financial flexibility in meeting operating and investing objectives
and in executing the company's ongoing share repurchase program.
CAPITAL EXPENDITURES were $200 million in 2000, representing a decrease of
$97 million over 1999. Capital expenditures are projected to be approximately
$230 million in 2001.
SALE OF BUSINESSES represents the divestiture of MacFarms in 2000 and Fresh
Start Bakeries, Inc. in 1999.
LONG-TERM BORROWINGS in 1999 represented the issuance of $300 million 4.75%
notes due October 31, 2003. The proceeds of these notes were used primarily to
repay short-term borrowings. There were no new long-term borrowings in 2000. The
company has $600 million available under a shelf registration as of July 30,
2000.
SHORT-TERM BORROWINGS decreased over 1999 primarily due to the increase in
cash flows from operations.
The company has financial resources available, including unconditional
lines of credit totaling approximately $1.8 billion, and has ready access to
financial markets around the world. The pre-tax interest coverage ratio was 6.2
for 2000 compared to 6.9 for 1999, before the net restructuring charge.
DIVIDEND PAYMENTS decreased $2 million or 1% to $384 million in 2000,
compared to $386 million in 1999 due to lower shares outstanding as a result of
the share repurchase program. Dividends declared in 2000 totaled $.90 per share,
up from $.885 per share in 1999. The 2000 fourth quarter rate was $.225 per
share.
CAPITAL STOCK REPURCHASES totaled 10.7 million shares at a cost of $394
million during 2000, compared to repurchases of 21.8 million shares at a cost of
$1 billion in 1999. The company's Board of Directors approved a three-year $2
billion share repurchase program in 1998. By repurchasing shares, the company
expects to utilize existing cash and debt capacity to lower its cost of capital
and increase returns to shareowners. The company's long-term strategy is to
repurchase approximately 2% of its outstanding shares annually.
30
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
TOTAL ASSETS declined 6% to $5.2 billion primarily due to a decrease in
accounts receivable, inventory, plant assets and intangible assets.
TOTAL LIABILITIES decreased to $5.1 billion, versus $5.3 billion in 1999
principally due to lower debt levels.
TOTAL SHAREOWNERS' EQUITY on a book basis declined from $235 million in
1999 to $137 million in 2000 primarily due to the 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 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 account for approximately
25% of 2000 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 and forward contracts. Swaps and forward contracts are
entered into for periods consistent with related underlying exposures and do not
constitute positions independent of those exposures. The company does not enter
into contracts for speculative purposes and does not use leveraged instruments.
The company principally uses a combination of purchase orders and various
short and long-term supply arrangements in connection with the purchase of raw
materials, including certain commodities and agricultural products. On occasion,
the company may also enter into commodity future contracts, as considered
appropriate, to reduce the volatility of price fluctuations for commodities such
as corn, soybean meal and cocoa. At July 30, 2000 and August 1, 1999 the
notional values and unrealized gains or losses on commodity 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 30,
2000. Fair values included herein have been determined based on quoted market
prices. The information presented below should be read in conjunction with Notes
18 and 20 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.
The company also had certain interest rate swaps outstanding at August 1,
1999, which matured in 2000. With these instruments, $100 million of commercial
paper borrowings was converted to fixed (8.24%) and $150 million of fixed-rate
debt (5.76%) was converted to variable. The fair value of the swaps was $2
million at August 1, 1999.
EXPECTED FISCAL YEAR OF MATURITY
(US$ equivalents in millions)
<TABLE>
<CAPTION>
There- Fair
2001 2002 2003 2004 2005 after Total Value
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Fixed rate $119 $5 $300 $401(1) $1 $511 $1,337 $1,330
Weighted average interest rate 7.06% 5.71% 6.15% 4.97% 9.0% 7.70% 6.47%
----------------------------------------------------------------------------------------------------------------
Variable rate
$1,754 $1,754 $1,754
Weighted average interest rate 6.57% 6.57%
----------------------------------------------------------------------------------------------------------------
(1) $100 million callable in 2001
As of August 1, 1999, fixed-rate debt of approximately $1.5 billion with an
average interest rate of 6.36% and variable-rate debt of approximately $1.8
billion with an average interest rate of 5.09% was outstanding.
</TABLE>
31
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The company is exposed to foreign currency exchange risk related to its
international operations, including net investments in subsidiaries and
subsidiary debt which is denominated in currencies other than the functional
currency of those businesses. The table below summarizes the cross-currency
swaps outstanding as of July 30, 2000 which hedge these exposures. The notional
amounts of each currency and the related weighted average forward interest rates
are presented in the Cross-Currency Swaps table.
CROSS-CURRENCY SWAPS
(US$ equivalents in millions)
<TABLE>
<CAPTION>
Interest Notional
Expiration Rate Value
----------------------------------------------------------------
<S> <C> <C> <C>
Pay fixed DM 5.71%
Receive fixed US$ 2001 7.56% $107
----------------------------------------------------------------
Pay variable FrF 5.40%
Receive variable US$ 2003 7.38% $110
----------------------------------------------------------------
The aggregate fair value of the contracts was $22 million as of July 30, 2000.
The notional amount and fair value of cross-currency contracts outstanding at
August 1, 1999 were $333 million and $3 million, respectively. These contracts,
except for the variable French Franc contract included in the table above,
expired in 2000.
</TABLE>
The company is also exposed to foreign exchange risk as a result of
transactions in currencies other than the functional currency of particular
subsidiaries. The company utilizes foreign currency forward purchase and sale
contracts in order to hedge these exposures. The table below summarizes the
foreign currency forward contracts outstanding with the weighted average
contract exchange rates as of July 30, 2000.
FORWARD EXCHANGE CONTRACTS
(US$ equivalents in millions)
<TABLE>
<CAPTION>
Average
Contract Contractual
Amount Exchange Rate
------------------------------------------------------
<S> <C> <C>
Receive CAD/Pay US$ $145 1.47
Receive EUR/Pay US$ $ 63 0.94
Receive EUR/Pay GBP $ 15 0.61
Receive BEF/Pay JPY $ 3 2.61
Receive CHF/Pay US$ $ 3 1.65
------------------------------------------------------
The company has an additional $7 million in a number of smaller contracts to
purchase or sell various other currencies, principally Australian, as of July
30, 2000. The aggregate fair value of the contracts, which is not material to
any individual contract, was $(3) million as of July 30, 2000. Total forward
exchange contracts outstanding as of August 1, 1999 were $177 million.
</TABLE>
The company has swap contracts outstanding as of July 30, 2000 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 contract that includes the return on the Standard & Poor's
500 Index was $29 million at July 30, 2000 and $26 million at August 1, 1999.
The average forward interest rate applicable to this contract, which expires in
2001, is 6.96% at July 30, 2000. The notional value of the contract that
includes the total return on company capital stock was $50 million at July 30,
2000 and $76 million at August 1, 1999. The forward interest rate applicable to
this contract, which expires in 2003, is 7.06% at July 30, 2000. The net cost to
settle these contracts was $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
and market effects and the company's acquisition and divestiture activities.
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The standard
requires 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. The
company is required to adopt this statement in the first quarter of 2001. The
cumulative effect of adoption will not be material. The impact of SFAS No. 133
on the company's future results will be dependent upon the fair values of the
company's derivatives and related financial instruments and could result in
increased volatility.
In March 2000, the Emerging Issues Task Force (EITF) released Issue 00-07,
"Application of EITF Issue No. 96-13, 'Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,' to
Equity Derivative Transactions That Contain Certain Provisions That Require Cash
Settlement If Certain Events Outside the Control of the Issuer Occur." The EITF
reached a consensus that equity derivative contracts that include any provision
that could require net cash settlement can no longer be accounted for as equity.
Such contracts are initially recorded at fair value and must be accounted for as
an asset or
32
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
liability with subsequent changes in the fair value of the derivative included
in earnings. Similarly the EITF reached a consensus that equity derivative
contracts with any provisions that could require physical settlement by a cash
payment to the counterparty in exchange for the issuer's shares can no longer be
accounted for as permanent equity. Instead, the contracts should be classified
as temporary or mezzanine equity. Both of these conclusions do not allow for an
evaluation of the likelihood that otherwise unlikely or remote events would
trigger cash settlement.
In September 2000, the EITF reached a consensus clarifying instances when
it is appropriate to classify such contracts in shareowners' equity in Issue
00-19 "Determination of Whether Share Settlement is within the Control of the
Company for Purposes of Applying Issue No. 96-13, 'Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock'."
The company has a forward stock purchase contract outstanding that is
accounted for as permanent equity. See Note 21 to the Consolidated Financial
Statements. The company is evaluating the impact of the EITF Issues and possible
amendments to contract provisions with the counterparty. The EITF concluded that
the consensus should be applied to new contracts entered into after the date of
the final consensus and to existing contracts that remain outstanding on June
30, 2001. The ultimate resolution and impact of the accounting for the contract
will be dependent upon the results of the review of contract provisions with the
counterparty and fluctuations in the company's share price.
In May 2000, the EITF issued a consensus on Issue 00-14 "Accounting for
Certain Sales Incentives." The EITF concluded that certain consumer and trade
sales promotion expenses should be classified as a reduction of sales rather
than as marketing expenses. In September 2000, the EITF reached a final
consensus in Issue 00-10 on "Accounting for Shipping and Handling Costs" that
such costs cannot be reported as a reduction of revenue. The company currently
classifies certain shipping and handling costs as a reduction of sales. The
company is currently evaluating the impact of these Issues, which are expected
to become effective in the fourth quarter 2001. Upon adoption, prior period
amounts will be restated to conform with the new requirements. As
reclassifications, these changes will not have a material effect on the
company's financial position or earnings.
On September 7, 2000, the company issued a press release announcing results
for fiscal 2000 and commented on analysts' expectations for the first quarter of
fiscal 2001 and the outlook for earnings per share for the full year.
FORWARD-LOOKING STATEMENTS
This 2000 Annual Report contains certain 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
other Securities and Exchange Commission filings of the company, could affect
the company's actual results and could cause such results to vary materially
from those expressed in any forward-looking statements made by, or on behalf of,
the company:
- the impact of strong competitive response to the company's efforts to
leverage its brand power with product innovation, promotional programs
and new advertising;
- the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer
acceptance;
- the company's ability to achieve sales and earnings forecasts, which
are based on assumptions about sales volume and product mix;
- the availability of new acquisition and alliance opportunities that
build shareowner wealth;
- the company's ability to achieve its cost savings objectives, including
the projected outcome of supply chain management programs;
- the difficulty of predicting the pattern of inventory movements by the
company's trade customers; and
- the impact of unforeseen economic and political changes in
international markets where the company competes such as currency
exchange rates, inflation rates, recession, foreign ownership
restrictions 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.
33
<PAGE> 7
CONSOLIDATED STATEMENTS OF EARNINGS
(millions, except per share amounts)
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $6,267 $6,424 $6,696
----------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold 2,908 3,050 3,233
Marketing and selling expenses 1,622 1,634 1,518
Administrative expenses 319 304 300
Research and development expenses 64 66 71
Other expenses (Note 7) 89 64 64
Restructuring charges (Note 6) - 36 262
----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 5,002 5,154 5,448
----------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 1,265 1,270 1,248
Interest expense (Note 8) 198 184 189
Interest income 10 11 14
----------------------------------------------------------------------------------------------------------------------
Earnings before taxes 1,077 1,097 1,073
Taxes on earnings (Note 11) 363 373 384
----------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 714 724 689
LOSS FROM DISCONTINUED OPERATIONS (NOTE 3) - - (18)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NOTE 4) - - (11)
----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 714 $ 724 $ 660
======================================================================================================================
PER SHARE - BASIC
Earnings from continuing operations $ 1.68 $ 1.64 $ 1.52
Loss from discontinued operations - - (.04)
Cumulative effect of change in accounting principle - - (.02)
----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 1.68 $ 1.64 $ 1.46
======================================================================================================================
Weighted average shares outstanding - basic 425 441 454
======================================================================================================================
PER SHARE - ASSUMING DILUTION
Earnings from continuing operations $ 1.65 $ 1.63 $ 1.50
Loss from discontinued operations - - (.04)
Cumulative effect of change in accounting principle - - (.02)
----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 1.65 $ 1.63 $ 1.44
======================================================================================================================
Weighted average shares outstanding - assuming dilution 432 445 460
======================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
34
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
(millions, except per share amounts)
<TABLE>
<CAPTION>
JULY 30, 2000 August 1, 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 27 $ 6
Accounts receivable (Note 12) 443 541
Inventories (Note 13) 571 615
Other current assets (Note 14) 127 132
---------------------------------------------------------------------------------------------------------------------
Total current assets 1,168 1,294
---------------------------------------------------------------------------------------------------------------------
PLANT ASSETS, NET OF DEPRECIATION (NOTE 15) 1,644 1,726
INTANGIBLE ASSETS, NET OF AMORTIZATION (NOTE 16) 1,767 1,910
OTHER ASSETS (NOTE 17) 617 592
---------------------------------------------------------------------------------------------------------------------
Total assets $ 5,196 $ 5,522
=====================================================================================================================
CURRENT LIABILITIES
Notes payable (Note 18) $ 1,873 $ 1,987
Payable to suppliers and others 509 511
Accrued liabilities 360 415
Dividend payable 95 97
Accrued income taxes 195 136
---------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,032 3,146
---------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 18) 1,218 1,330
NONPENSION POSTRETIREMENT BENEFITS (NOTE 10) 364 394
OTHER LIABILITIES (NOTE 19) 445 417
---------------------------------------------------------------------------------------------------------------------
Total liabilities 5,059 5,287
---------------------------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY (NOTE 21)
Preferred stock; authorized 40 shares; none issued - -
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares 20 20
Capital surplus 344 382
Earnings retained in the business 4,373 4,041
Capital stock in treasury, 121 shares in 2000 and 113 shares in 1999, at cost (4,373) (4,058)
Accumulated other comprehensive income (227) (150)
---------------------------------------------------------------------------------------------------------------------
Total shareowners' equity 137 235
---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity $ 5,196 $ 5,522
=====================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
35
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 714 $ 724 $ 678
Non-cash charges to net earnings
Cumulative effect of accounting change - - 11
Restructuring charges - 36 262
Depreciation and amortization 251 255 261
Deferred taxes 17 78 (21)
Other, net 20 5 53
Changes in working capital
Accounts receivable 90 108 (159)
Inventories 23 (58) (29)
Other current assets and liabilities 50 (194) (116)
--------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,165 954 940
--------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant assets (200) (297) (256)
Sales of plant assets 7 9 148
Businesses acquired - (105) (478)
Sales of businesses 11 103 200
Other, net (22) (32) (5)
--------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (204) (322) (391)
--------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings - 323 305
Repayments of long-term borrowings (7) (8) (36)
Short-term borrowings 1,028 1,537 1,847
Repayments of short-term borrowings (1,206) (1,111) (2,187)
Dividends paid (384) (386) (367)
Treasury stock purchases (394) (1,026) (669)
Treasury stock issuances 20 35 64
--------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (943) (636) (1,043)
--------------------------------------------------------------------------------------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - - 511
--------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3 (6) (18)
--------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 21 (10) (1)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 6 16 17
--------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 27 $ 6 $ 16
======================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
36
<PAGE> 10
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(millions, except per share amounts)
<TABLE>
<CAPTION>
Capital Stock
-------------------------------------- Earnings Accumulated Total
Issued In Treasury Retained Other Com- Share-
---------------- ----------------- Capital in the prehensive owners'
Shares Amount Shares Amount Surplus Business Income Equity
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 3, 1997 542 $20 (84) $(2,459) $338 $3,571 $ (50) $1,420
----------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net earnings 660 660
Foreign currency
translation adjustments (114) (114)
Dividends ($.823 per share) (375) (375)
Treasury stock purchased (13) (669) (669)
Treasury stock issued under
management incentive and
stock option plans 3 45 57 102
Spin-off of Specialty Foods
segment (150) (150)
----------------------------------------------------------------------------------------------------------------------------
Balance at August 2, 1998 542 20 (94) (3,083) 395 3,706 (164) 874
----------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net earnings 724 724
Foreign currency
translation adjustments 14 14
Dividends ($.885 per share) (389) (389)
Treasury stock purchased (22) (1,026) (1,026)
Treasury stock issued under
management incentive and
stock option plans 3 51 (13) 38
----------------------------------------------------------------------------------------------------------------------------
Balance at August 1, 1999 542 20 (113) (4,058) 382 4,041 (150) 235
----------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET EARNINGS 714 714
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS (77) (77)
DIVIDENDS ($.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
============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
37
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts
of the company and its majority-owned subsidiaries. Significant intercompany
transactions are eliminated in consolidation. Investments of 20% or more in
affiliates are accounted for by the equity method.
FISCAL YEAR - The company's fiscal year ends on the Sunday nearest July 31.
There were 52 weeks in 2000, 1999 and 1998.
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 domestic 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.
Accelerated methods of depreciation are used for income tax purposes in certain
jurisdictions.
INTANGIBLE ASSETS - Intangible assets consist principally of 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.
ASSET VALUATION - The company periodically reviews the recoverability of
plant assets and intangibles based principally on an analysis of undiscounted
cash flows.
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. The differential to be paid or received on interest rate
swaps is recognized as an adjustment to interest expense. Gains and losses on
hedges of existing assets or liabilities are included in the carrying amounts of
those assets or liabilities and ultimately recognized in earnings. Gains and
losses related to qualifying hedges of firm commitments or anticipated
transactions are deferred and are recognized in earnings or as adjustments of
carrying amounts when the hedged transaction occurs.
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.
NEW ACCOUNTING STANDARDS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 138, is effective for fiscal years beginning after June 15,
2000. The standard requires 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. The company is required to adopt this statement in the first
quarter of 2001. The cumulative effect of adoption will not be material. The
impact of SFAS No. 133 on the company's future results will be dependent upon
the fair values of the company's derivatives and related financial instruments
and could result in increased volatility.
In March 2000, the Emerging Issues Task Force (EITF) released Issue 00-07,
"Application of EITF Issue No. 96-13, 'Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,' to
Equity Derivative Transactions That Contain Certain Provisions That Require Cash
Settlement If Certain Events Outside the Control of the Issuer Occur." The EITF
reached a consensus that equity derivative contracts that include any provision
that could require net cash settlement can no longer be accounted for as equity.
Such contracts are initially recorded at fair value and must be accounted for as
an asset or liability with subsequent changes in the fair value of the
derivative included in earnings. Similarly the EITF reached a consensus that
equity derivative contracts with any provisions that could require physical
settlement by a cash payment to the counterparty in exchange for the issuer's
shares can no longer be accounted for as permanent equity. Instead, the
contracts should be classified as temporary or mezzanine equity. Both of these
conclusions do not allow for an evaluation of the likelihood that otherwise
unlikely or remote events would trigger cash settlement.
38
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
In September 2000, the EITF reached a consensus clarifying instances when
it is appropriate to classify such contracts in shareowners' equity in Issue
00-19 "Determination of Whether Share Settlement is within the Control of the
Company for Purposes of Applying Issue No. 96-13, 'Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock'."
The company has a forward stock purchase contract outstanding that is
accounted for as permanent equity. See Note 21. The company is evaluating the
impact of the EITF Issues and possible amendments to contract provisions with
the counterparty. The EITF concluded that the consensus should be applied to new
contracts entered into after the date of the final consensus and to existing
contracts that remain outstanding on June 30, 2001. The ultimate resolution and
impact of the accounting for the contract will be dependent upon the results of
the review of contract provisions with the counterparty and fluctuations in the
company's share price.
In May 2000, the EITF issued a consensus on Issue 00-14 "Accounting for
Certain Sales Incentives." The EITF concluded that certain consumer and trade
sales promotion expenses should be classified as a reduction of sales rather
than as marketing expenses. In September 2000, the EITF reached a final
consensus in Issue 00-10 on "Accounting for Shipping and Handling Costs" that
such costs cannot be reported as a reduction of revenue. The company currently
classifies certain shipping and handling costs as a reduction of sales. The
company is currently evaluating the impact of these Issues, which are expected
to become effective in the fourth quarter 2001. Upon adoption, prior period
amounts will be restated to conform with the new requirements. As
reclassifications, these changes will not have a material effect on the
company's financial position or earnings.
2. COMPREHENSIVE INCOME
In 1999, the company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," issued in June 1997. SFAS No.
130 establishes a standard for reporting of comprehensive income, which is
comprised of net income and other comprehensive income items, in the financial
statements. Other comprehensive income includes items recorded in shareowners'
equity that are not the result of transactions with shareowners, such as foreign
currency translation adjustments. As of July 30, 2000 and August 1, 1999,
accumulated other comprehensive income, as reflected in the statements of
shareowners' equity, represents the cumulative translation adjustment.
3. DISCONTINUED OPERATIONS
Effective March 30, 1998, the company spun off its Specialty Foods segment
to its shareowners as an independent publicly traded company. The spin-off
qualified as a tax-free distribution to U.S. shareholders. Shareowners of record
as of March 9, 1998 received one share of common stock of the new company,
Vlasic Foods International Inc. (Vlasic), for every ten shares of Campbell Soup
Company capital stock.
Results of discontinued operations for the eight-month period ended March
29, 1998 were as follows:
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
Net sales $809
=================================================================================
Earnings before taxes $ 41
Taxes on earnings 21
---------------------------------------------------------------------------------
Earnings from operations 20
Spin-off costs 38
---------------------------------------------------------------------------------
Loss from discontinued operations $(18)
=================================================================================
</TABLE>
4. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In 1998, the company adopted the provisions of the Emerging Issues Task
Force consensus ruling on Issue 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract that Combines Business Process
Reengineering and Information Technology Transformation." The unamortized
balance of previously capitalized business process reengineering costs was
written off as a cumulative effect of change in accounting principle of $11 or
$.02 per share, net of an income tax benefit of approximately $7.
5. 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, 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.
The Delacre business, which was divested in June 1998, was also included in this
segment. Away From Home represents the distribution of products, including
Campbell's soups and Campbell's Specialty Kitchen entrees, to the 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
39
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
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 refrigerated soups, which are produced in a separate facility,
and 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
<TABLE>
<CAPTION>
BISCUITS & AWAY CORPORATE
SOUP & CONFEC- FROM & ELIMI-
2000 SAUCES TIONERY HOME OTHER(1) NATIONS(2) TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $4,306 1,462 533 28 (62) $6,267
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
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Biscuits & Away Corporate
Soup & Confec- From & Elimi-
1999 Sauces tionery Home Other(1) nations(2) Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $4,423 1,430 507 126 (62) $6,424
Earnings before
interest and taxes(3) $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
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Biscuits & Away Corporate
Soup & Confec- From & Elimi-
1998 Sauces tionery Home Other(1) nations(2) Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $4,427 1,522 453 343 (49) $6,696
Earnings before
interest and taxes(4) $1,109 206 53 (85) (35) $1,248
Depreciation and
amortization $ 132 86 11 15 17 $ 261
Capital
expenditures $ 135 87 - 14 20 $ 256
Segment assets $3,105 1,402 202 208 716 $5,633
---------------------------------------------------------------------------------
</TABLE>
(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) 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.
(4) Contributions to earnings before interest and taxes by segment included the
effects of a third quarter 1998 restructuring charge of $262 as follows:
Soup and Sauces - $135, Biscuits and Confectionery - $25, Away From Home -
$4, and Other - $98.
GEOGRAPHIC AREA INFORMATION
Information about operations in different geographic areas is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $4,668 $4,804 $4,850
Europe 568 630 859
Australia/Asia Pacific 637 616 627
Other countries 467 438 417
Adjustments and eliminations (73) (64) (57)
--------------------------------------------------------------------------------
Consolidated $6,267 $6,424 $6,696
================================================================================
</TABLE>
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before interest and taxes
United States $1,112 $1,163 $1,124
Europe 60 45 36
Australia/Asia Pacific 89 63 50
Other countries 86 78 73
--------------------------------------------------------------------------------
Segment earnings before
interest and taxes 1,347 1,349 1,283
Unallocated corporate
expenses (82) (79) (35)
--------------------------------------------------------------------------------
Consolidated $1,265 $1,270 $1,248
================================================================================
</TABLE>
40
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
GEOGRAPHIC AREA INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets
United States $2,616 $2,742 $2,820
Europe 533 614 679
Australia/Asia Pacific 852 991 925
Other countries 491 476 493
Corporate 704 699 716
--------------------------------------------------------------------------------
Consolidated $5,196 $5,522 $5,633
================================================================================
</TABLE>
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 1999 net
restructuring charge of $36 is allocated to geographic regions as follows:
United States - $10, Europe - $14, and Australia/Asia Pacific - $12. The 1998
restructuring charge of $262 is allocated to geographic regions as follows:
United States - $200, Europe - $36, Australia/Asia Pacific - $21, and Other -
$5.
6. RESTRUCTURING PROGRAM
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 cost of 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 was substantially
completed in 2000.
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 recon-
figuration 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 30, 2000, and related activity
described above is as follows:
<TABLE>
<CAPTION>
Balance at BALANCE AT
August 1, JULY 30,
1999 Spending 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Losses on asset dispositions
and divestitures $19 (19) $ -
Severance and benefits 38 (27) 11
Other exit costs 3 (3) -
--------------------------------------------------------------------------------
Total $60 (49) $11
================================================================================
</TABLE>
7. OTHER EXPENSES
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock price related
incentive programs $ 26 $ 15 $ 27
Amortization of intangible
and other assets 55 58 53
Minority interests 1 1 6
Other, net 7 (10) (22)
--------------------------------------------------------------------------------
$ 89 $ 64 $ 64
================================================================================
</TABLE>
8. INTEREST EXPENSE
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $204 $190 $194
Less: Interest capitalized 6 6 5
--------------------------------------------------------------------------------
$198 $184 $189
================================================================================
</TABLE>
9. ACQUISITIONS
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.
During 1998, the company acquired the Liebig soup business in France for
approximately $180. Also, in 1998 Arnotts purchased the remaining outstanding
ordinary shares held by its minority shareholders for an aggregate purchase
price of approximately $290. Prior to the transaction, the company owned
approximately 70% of Arnotts.
Acquisitions were accounted for using the purchase method of accounting and
accordingly, results of operations of the acquired companies are included in the
consolidated financial statements from the dates the acquisitions were
consummated. Proforma financial information of the acquisitions would not have
had a material effect on net sales, net earnings or earnings per share for 1999
and 1998.
41
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The allocation of the purchase price to assets acquired and liabilities
assumed was based upon fair value estimates as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ 1 $ 32
Fixed assets 5 19
Intangibles 105 360
Other liabilities (6) -
Minority interests - 67
--------------------------------------------------------------------------------
$105 $478
================================================================================
</TABLE>
10. 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 percentage 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 close to
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:
<TABLE>
<CAPTION>
Pension
----------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 37 $ 29 $ 31
Interest cost 103 91 94
Expected return
on plan assets (150) (142) (135)
Amortization of net
transition obligation (3) (3) (3)
Amortization of prior
service cost 5 5 5
Recognized net
actuarial (gain) loss 6 5 4
Curtailment 1 - -
--------------------------------------------------------------------------------
Net periodic pension
income $ (1) $ (15) $ (4)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Postretirement
--------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5 $ 10 $ 11
Interest cost 18 19 22
Amortization of prior
service cost (11) (6) (4)
Amortization of net
(gain) loss (12) (9) (11)
Settlement (3) - -
--------------------------------------------------------------------------------
Net periodic
postretirement
(income) expense $ (3) $ 14 $ 18
================================================================================
</TABLE>
Change in benefit obligation:
<TABLE>
<CAPTION>
Pension Postretirement
-------------------- --------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligation at
beginning of year $1,405 $1,332 $246 $313
Service cost 37 29 5 10
Interest cost 103 91 18 19
Plan amendments 7 3 (14) (33)
Actuarial (gain) loss (7) 62 35 (38)
Special termination
benefits - 6 - -
Settlement - - (2) -
Curtailment (2) - - -
Benefits paid (116) (119) (28) (25)
Foreign currency
adjustment 1 1 - -
--------------------------------------------------------------------------------
Benefit obligation at
end of year $1,428 $1,405 $260 $246
================================================================================
</TABLE>
42
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Change in the fair value of pension plan assets:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Fair value at beginning of year $1,740 $1,674
Actual return on plan assets 218 177
Employer contributions 2 2
Benefits paid (112) (115)
Foreign currency adjustment (2) 2
--------------------------------------------------------------------------------
Fair value at end of year $1,846 $1,740
================================================================================
</TABLE>
Funded status as recognized in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
Pension Postretirement
---------------- -----------------
2000 1999 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status at
end of year $418 $335 $(260) $(246)
Unrecognized prior
service cost 60 61 (44) (43)
Unrecognized
(gain) loss (94) (14) (79) (124)
Unrecognized net
transition obligation (1) (4) - -
--------------------------------------------------------------------------------
Net amount
recognized $383 $378 $(383) $(413)
================================================================================
</TABLE>
The current portion of nonpension postretirement benefits included in Accrued
liabilities was $19 at July 30, 2000 and August 1, 1999.
Weighted-average assumptions at end of year:
<TABLE>
<CAPTION>
Pension
------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for
benefit obligation 7.75% 7.50% 7.00%
Expected return
on plan assets 10.50% 10.50% 10.25%
Rate of compensation
increases 4.50% 4.50% 4.50%
--------------------------------------------------------------------------------
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.75% in 2000 and 7.50% in 1999. The assumed healthcare cost
trend rate used to measure the accumulated postretirement benefit obligation was
5%, declining to 4.50% in 2001 and continuing at 4.50% thereafter.
A one percentage point change in assumed health care costs would have the
following effects on 2000 reported amounts:
<TABLE>
<CAPTION>
% Increase % Decrease
--------------------------------------------------------------------------------
<S> <C> <C>
Effect on service and
interest cost $ 2 $ (2)
Effect on the 2000 accumulated
benefit obligation $16 $(17)
--------------------------------------------------------------------------------
</TABLE>
Obligations related to non-U.S. postretirement benefit plans are not
significant since these benefits are generally provided through
government-sponsored plans.
SAVINGS PLAN - The company sponsors employee savings plans which cover
substantially all U.S. employees. After one year of continuous service, the
company generally matches 50% of employee contributions up to 5% of
compensation. Amounts charged to Costs and expenses were $10 in 2000, $11 in
1999, and $13 in 1998.
11. TAXES ON EARNINGS
The provision for income taxes on earnings from continuing operations
consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes:
Currently payable
Federal $ 246 $ 231 $ 311
State 30 31 44
Non-U.S 70 33 50
--------------------------------------------------------------------------------
346 295 405
--------------------------------------------------------------------------------
Deferred
Federal 36 64 (1)
State (4) 2 (7)
Non-U.S (15) 12 (13)
--------------------------------------------------------------------------------
17 78 (21)
--------------------------------------------------------------------------------
$ 363 $ 373 $ 384
================================================================================
Earnings from continuing
operations before
income taxes:
United States $ 880 $ 954 $ 980
Non-U.S 197 143 93
--------------------------------------------------------------------------------
$1,077 $1,097 $1,073
================================================================================
</TABLE>
43
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The following is a reconciliation of the effective income tax rate on
continuing operations with the U.S. federal statutory income tax rate:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal tax benefit) 1.5 1.9 2.0
Nondeductible divestiture and
restructuring charges - 0.3 1.8
Non-U.S. earnings taxed at other
than federal statutory rate (1.0) (0.6) (0.4)
Tax loss carryforwards (0.3) (0.3) (0.8)
Other (1.5) (2.3) (1.8)
--------------------------------------------------------------------------------
Effective income tax rate 33.7% 34.0% 35.8%
================================================================================
</TABLE>
Deferred tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $170 $176
Pensions 118 122
Other 195 179
--------------------------------------------------------------------------------
Deferred tax liabilities 483 477
--------------------------------------------------------------------------------
Benefits and compensation 200 209
Restructuring accruals 4 31
Tax loss carryforwards 17 17
Other 74 50
--------------------------------------------------------------------------------
Gross deferred tax assets 295 307
Deferred tax asset valuation allowance (17) (17)
--------------------------------------------------------------------------------
Net deferred tax assets 278 290
--------------------------------------------------------------------------------
Net deferred tax liability $205 $187
================================================================================
</TABLE>
On July 30, 2000, subsidiaries of the company have tax loss carryforwards
of approximately $38. Of these carryforwards, $19 expire through 2005 and $19
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 $556, which are deemed to be permanently invested.
If remitted, tax credits are available to substantially offset any resulting tax
liability.
12. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Customers $424 $507
Allowances for cash
discounts and bad debts (19) (18)
--------------------------------------------------------------------------------
405 489
Other 38 52
--------------------------------------------------------------------------------
$443 $541
================================================================================
</TABLE>
13. INVENTORIES
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Raw materials, containers and supplies $213 $207
Finished products 358 408
--------------------------------------------------------------------------------
$571 $615
================================================================================
</TABLE>
Approximately 62% of inventory in 2000 and 70% in 1999 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 30, 2000 and August 1, 1999.
14. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Prepaid pensions $ 18 $ 18
Deferred taxes 80 76
Other 29 38
--------------------------------------------------------------------------------
$127 $132
================================================================================
</TABLE>
15. PLANT ASSETS
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Land $ 43 $ 50
Buildings 808 798
Machinery and equipment 2,283 2,185
Projects in progress 162 184
--------------------------------------------------------------------------------
3,296 3,217
Accumulated depreciation (1,652) (1,491)
--------------------------------------------------------------------------------
$ 1,644 $ 1,726
================================================================================
</TABLE>
Depreciation expense provided in Costs and expenses was $196 in 2000, $197
in 1999 and $208 in 1998. Approximately $70 of capital expenditures are required
to complete projects in progress at July 30, 2000.
16. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Purchase price in excess of net assets
of businesses acquired (goodwill) $1,603 $1,697
Trademarks 423 429
Other intangibles 4 4
--------------------------------------------------------------------------------
2,030 2,130
Accumulated amortization (263) (220)
--------------------------------------------------------------------------------
$1,767 $1,910
================================================================================
</TABLE>
17. OTHER ASSETS
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Prepaid pensions $365 $360
Investments 234 211
Other 18 21
--------------------------------------------------------------------------------
$617 $592
================================================================================
</TABLE>
44
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
18. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consists of the following:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $1,738 $1,778
Current portion of Long-term Debt 119 157
Variable-rate bank borrowings 16 52
--------------------------------------------------------------------------------
$1,873 $1,987
================================================================================
</TABLE>
Commercial paper had a weighted average interest rate of 6.62% and 5.11% at
July 30, 2000 and August 1, 1999, respectively.
The current portion of Long-term Debt had a weighted average interest rate
of 7.06% and 5.74% at July 30, 2000 and August 1, 1999, respectively.
The company has total short-term lines of credit of $1,800 at July 30,
2000. These lines of credit remain unused at July 30, 2000 and include a $1,500
facility which supports commercial paper borrowings. These lines of credit are
unconditional for a period of one to two years.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Fiscal Year
Type Maturity Rate 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes 2001 5.75%-8.58% $ - $ 115
Notes 2003 6.15% 300 300
Notes 2004(1) 4.75%-5.63% 400 400
Notes 2007 6.90% 300 300
Debentures 2021 8.88% 200 200
Other 2002-2010 3.00%-9.00% 18 15
--------------------------------------------------------------------------------
$1,218 $1,330
================================================================================
(1) $100 callable in 2001
</TABLE>
The fair value of the company's long-term debt including the current
portion of long-term debt in Notes payable was $1,330 at July 30, 2000, and
$1,512 at August 1, 1999.
The company's credit facilities include $600 remaining as of July 30, 2000
under a shelf registration statement filed with the Securities and Exchange
Commission.
Principal amounts of long-term debt mature as follows: 2001 - $119 (in
current liabilities); 2002 - $5; 2003 - $300; 2004 - $401; 2005 - $1 and beyond
- $511.
19. OTHER LIABILITIES
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Deferred taxes $285 $263
Deferred compensation 129 131
Postemployment benefits 11 11
Other 20 12
--------------------------------------------------------------------------------
$445 $417
================================================================================
</TABLE>
20. 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. The company does not enter into contracts for
speculative purposes, nor is it a party to any leveraged derivative instrument.
The use of derivative financial instruments is monitored through regular
communication with senior management and the utilization of written guidelines.
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. The amounts paid or received on swaps related to debt are
recognized as an adjustment to interest expense. There were no interest rate
swaps outstanding at July 30, 2000. The notional amounts of interest rate swaps
were $250 at August 1, 1999. The swaps had a fair value of $2 at August 1, 1999.
The company utilizes foreign currency exchange contracts, including swap
and forward contracts, to hedge foreign currency exposures. Foreign exchange
gains and losses on derivative financial instruments are recognized and offset
foreign exchange gains and losses on the underlying exposures.
A mix of equity, intercompany debt and local currency borrowing is used to
finance foreign operations. Gains and losses, both realized and unrealized, on
financial instruments that hedge the company's investments in foreign operations
are recognized in Accumulated other comprehensive income in Shareowners' Equity.
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 equity swap contracts have maturities in 2001 and 2003. At July 30, 2000,
the notional principal amount of the contracts was $79, and the net cost to
settle the contracts was $25. Gains or losses are recognized as adjustments to
the carrying value of the underlying obligations.
The company also has cross-currency swap agreements with financial
institutions to hedge certain European currency exposures. The notional amounts
of these swaps were $217 at July 30, 2000 and $333 at August 1, 1999. The swaps
mature as follows: $107 in 2001, and $110 in 2003. The fair value of the swaps
was $22 at July 30, 2000.
45
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
At July 30, 2000, the company also had contracts to purchase or sell
approximately $236 in foreign currency versus $177 at August 1, 1999. The
contracts are primarily for European and Australian currencies and have
maturities through 2001. The fair value of the contracts was $(3) at July 30,
2000.
The company is exposed to credit loss in the event of nonperformance by the
counterparties in swap and forward contracts. The company minimizes its credit
risk on these transactions by only dealing with leading, credit-worthy financial
institutions having long-term credit ratings of "A" or better and, therefore,
does not anticipate nonperformance. In addition, the contracts are distributed
among several financial institutions, thus minimizing credit risk concentration.
The carrying values of cash and cash equivalents, accounts and notes
receivable, accounts payable and short-term debt approximate fair value. The
fair values of long-term debt, as indicated in Note 18, and derivative financial
instruments are generally based on quoted market prices.
21. SHAREOWNERS' EQUITY
The company has authorized 560 million shares of Capital Stock of $.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.
In October 1998, the company entered into a forward stock purchase contract
to partially hedge the company's equity exposure from its stock option program.
The contract, which matures in fiscal 2004, provides that the company repurchase
approximately 11 million shares at an average price of approximately $47 per
share. The company may elect to settle the contract on a net share basis in lieu
of physical settlement. The contract permits early settlement and may be
extended for an additional five-year term. If the forward purchase contract had
been settled on a net share basis as of July 30, 2000, the company would have
provided the counterparty with approximately nine million shares of its capital
stock.
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 $20, $22 and $15 in 2000,
1999 and 1998, respectively. Earnings per share from continuing operations, both
basic and assuming dilution, would have been reduced by $.03, $.04 and $.02 in
2000, 1999 and 1998, respectively.
The weighted average fair value of options granted in 2000, 1999 and 1998
were estimated as $7.94, $11.49 and $13.59, 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 2000,
1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.3% 6.2% 5.5%
Expected life 6 YEARS 6 Years 6 Years
Expected volatility 29% 24% 20%
Expected dividend yield 3.0% 2.0% 1.4%
--------------------------------------------------------------------------------
</TABLE>
Restricted shares granted are as follows:
<TABLE>
<CAPTION>
(shares in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Restricted Shares
Granted 573 1,804 127
================================================================================
</TABLE>
Information about stock options and related activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED Weighted Weighted
AVERAGE Average Average
(options in EXERCISE Exercise Exercise
thousands) 2000 PRICE 1999 Price 1998 Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning
of year 19,880 $32.37 18,366 $28.72 20,066 $26.94
Granted 6,105 29.84 3,890 42.79 2,303 54.38
Exercised (1,350) 17.81 (2,122) 17.75 (3,272) 17.99
Terminated (611) 45.40 (254) 45.61 (2,212) 33.04
Spin-off related
modifications(1) - - - - 1,481 -
-----------------------------------------------------------------------------------
End of year 24,024 $32.16 19,880 $32.37 18,366 $28.72
-----------------------------------------------------------------------------------
Exercisable at
end of year 14,850 14,019 13,123
===================================================================================
(1) When the Specialty Foods segment was spun off, the number and exercise
price of options outstanding were adjusted to preserve the economic value
of the options that existed prior to the spin-off.
</TABLE>
46
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
(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
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.74-$22.60 6,158 2.6 $18.28 6,158 $18.28
$23.18-$31.91 10,366 8.0 $30.49 4,430 $31.70
$32.03-$44.41 5,528 7.6 $42.97 3,026 $43.55
$44.61-$56.50 1,972 6.9 $54.06 1,236 $54.11
--------------------------------------------------------------------------------
24,024 14,850
================================================================================
</TABLE>
The company adopted the provisions of SFAS No. 128, "Earnings per Share,"
as of the second quarter 1998. SFAS No. 128 revised the standards for
computation and presentation of earnings per share ("EPS"), requiring the
presentation of both basic EPS and EPS assuming dilution. Basic EPS is
calculated using the weighted average shares outstanding during the applicable
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. For the periods presented in the Consolidated Statements of
Earnings, the calculations of basic EPS and EPS assuming dilution vary in that
the weighted average shares outstanding assuming dilution includes the
incremental effect of stock options, except when such effect would be
antidilutive. In 2000 and 1999, the weighted average shares outstanding assuming
dilution also includes the incremental effect of approximately four million and
two hundred thousand shares, respectively, under the forward stock purchase
contract.
22. 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.
23. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid, net of
amounts capitalized $199 $181 $187
Interest received $ 10 $ 11 $ 15
Income taxes paid $253 $300 $370
--------------------------------------------------------------------------------
</TABLE>
24. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
2000 FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $1,768 $1,916 $1,394 $1,189
COST OF PRODUCT SOLD 809 848 664 587
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
================================================================================
</TABLE>
<TABLE>
<CAPTION>
1999 First Second Third Fourth
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,804 $1,832 $1,492 $1,296
Cost of products sold 830 856 730 634
Net earnings 264 219 162 79
Per share - basic
Net earnings 0.59 0.49 0.37 0.18
Dividends 0.210 0.225 0.225 0.225
Per share - assuming
dilution
Net earnings 0.58 0.49 0.37 0.18
Market price
High $59.94 $59.19 $46.94 $46.50
Low $46.69 $43.38 $38.06 $39.38
================================================================================
</TABLE>
47
<PAGE> 21
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/ David W. Johnson
David W. Johnson
President and Chief Executive Officer
/s/ Basil L. Anderson
Basil L. Anderson
Executive Vice President and Chief Financial Officer
/s/ Gerald S. Lord
Gerald S. Lord
Vice President - Controller
September 6, 2000
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 30, 2000 and August 1, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended July 30, 2000, 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, 2000
48
<PAGE> 22
SEVEN-YEAR REVIEW - CONSOLIDATED
(millions, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year 2000 1999(1) 1998(2) 1997(3) 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $6,267 $6,424 $6,696 $6,614 $6,324 $5,881 $5,495
Earnings before interest and taxes 1,265 1,270 1,248 1,149 1,191 1,039 947
Earnings before taxes 1,077 1,097 1,073 991 1,072 936 884
Earnings from continuing operations 714 724 689 634 718 627 578
Earnings (loss) from discontinued operations - - (18) 79 84 71 52
Net earnings 714 724 660 713 802 698 630
Cash margin(4) 24.2% 23.7% 22.6% 21.8% 23.5% 22.3% 21.6%
FINANCIAL POSITION
Net assets of discontinued operations $ - $ - $ - $ 632 $ 659 $ 697 $ 615
Plant assets - net 1,644 1,726 1,723 2,044 2,179 2,093 1,938
Total assets 5,196 5,522 5,633 6,196 6,368 6,088 4,752
Total debt 3,091 3,317 2,570 2,657 1,606 1,719 981
Shareowners' equity 137 235 874 1,420 2,742 2,468 1,989
PER SHARE DATA
Earnings from continuing operations - basic $ 1.68 $ 1.64 $ 1.52 $ 1.34 $ 1.44 $ 1.26 $ 1.15
Earnings from continuing operations -
assuming dilution 1.65 1.63 1.50 1.33 1.43 1.25 1.14
Net earnings - basic 1.68 1.64 1.46 1.51 1.61 1.40 1.26
Net earnings - assuming dilution 1.65 1.63 1.44 1.49 1.59 1.39 1.24
Dividends declared 0.90 0.885 0.823 0.75 0.67 0.61 0.55
OTHER STATISTICS
Capital expenditures $ 200 $ 297 $ 256 $ 252 $ 357 $ 340 $ 354
Number of shareowners (in thousands) 51 51 51 49 43 43 43
Weighted average shares outstanding 425 441 454 472 498 498 501
Weighted average shares outstanding -
assuming dilution 432 445 460 478 503 503 507
==================================================================================================================================
(1) 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).
(2) 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).
(3) 1997 earnings from continuing operations include a pre-tax restructuring
charge of $204; $152 after tax or $.31 per share (basic and assuming
dilution).
(4) Cash margin equals earnings before interest and taxes plus depreciation,
amortization and minority interest expense divided by net sales.
The company spun off its Specialty Foods segment in 1998 and accounted for
it as a discontinued operation. (See Note 3 to the Consolidated Financial
Statements). All information has been reclassified accordingly.
All shares and per share data reflect a 1997 two-for-one stock split.
</TABLE>
49
