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| CPB > SEC Filings for CPB > Form 10-K on 30-Sep-2009 | All Recent SEC Filings |
30-Sep-2009
Annual Report
Overview
Description of the Company
Campbell Soup Company is a global manufacturer and marketer of high-quality, branded convenience food products. The company is organized and reports in the following segments: U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup, Sauces and Beverages; and North America Foodservice. See Note 6 to the Consolidated Financial Statements for additional information on segments.
The company's well-known brands are sold in approximately 120 countries. Its principal geographies are North America, Australia, France, Germany and Belgium.
Key Strategies
To achieve its goals of consistent and sustainable sales and earnings growth to deliver superior long-term total shareowner returns, the company is focused on executing seven strategies:
1. expand its icon brands within simple meals, baked snacks and healthy beverages;
2. drive higher levels of consumer satisfaction by offering superior value and focusing on wellness, quality and convenience;
3. make its products more broadly available in existing and new markets;
4. strengthen its business through outside partnerships and acquisitions;
5. increase margins by improving price realization and company-wide productivity;
6. improve overall organizational excellence, diversity, engagement, and innovation; and
7. advance a powerful commitment to sustainability and corporate social responsibility.
Expand the company's icon brands within simple meals, baked snacks and healthy beverages. The company's overarching business strategy is to drive profitable growth by focusing on three large, global categories - simple meals, baked snacks, and healthy beverages - that are well aligned with consumer trends, and are growing in most of the markets in which the company does business. Principal brands in these core categories include Campbell's, Swanson, Pace, Prego, Liebig, Erasco, Pepperidge Farm, Goldfish, Arnott's, and V8. The company has strong market positions in the segments within these categories in the geographies in which it competes, and its businesses in these categories respond well to product innovation and consumer marketing.
Drive higher levels of consumer satisfaction by offering superior value and focusing on wellness, quality and convenience. The company continues to pursue initiatives designed to meet the growing consumer interest in
health and nutrition. In fiscal 2010, the sodium level in the company's iconic Campbell's condensed tomato soup, and in Campbell's V8 and Campbell's Healthy Request product lines, will be reduced. Campbell's Chunky soups will be restaged with "better for you" credentials, including a number of varieties with lean meat and/or a full serving of vegetables, and Swanson chicken broth will be reformulated to be 100% natural. Responding to consumer concerns regarding weight management, the company will launch five new or restaged varieties of "light" condensed soup in fiscal 2010. In the baked snacks category, Pepperidge Farm will introduce Goldfish Garden Cheddar crackers containing one-third of a serving of vegetables, Flavor Blasted Goldfish crackers with reduced sodium, and Goldfish Grahams with reduced saturated fat. Arnott's has introduced new varieties of its Vita-weat crackers with whole-grain goodness. The company continues to emphasize the health credentials of many of its other products, such as Prego sauces and V8 beverages. In fiscal 2009, the company also highlighted the value proposition offered by many of its products, especially those in its soup portfolio. The company expects to continue to emphasize value in its marketing and merchandising efforts in fiscal 2010.
Make the company's products more broadly available in existing and new markets. The company is pursuing strategies designed to expand the availability of its products in existing markets and to capitalize on opportunities in emerging channels and markets around the globe. To further its efforts in emerging markets, on May 26, 2009, the company announced the entry into an agreement with Coca-Cola Hellenic Bottling Company S.A. for the distribution of Campbell's Domashnaya Klassika (Campbell's Home Classics) concentrated broth and other soup products in Russia. This arrangement is expected to significantly expand distribution of the company's products in Russia.
Strengthen the company's business through outside partnerships and acquisitions. The company continues to explore opportunities to enhance sales and earnings growth through value-creating external development. On May 4, 2009, the company completed the acquisition of Ecce Panis, Inc., a manufacturer of artisan breads, which has been integrated into the company's Pepperidge Farm bakery operations. This acquisition gives the Pepperidge Farm business an entry into the fast-growing artisan bread market.
Increase margins by improving price realization and company-wide productivity. The company remains focused on increasing margins though a combination of pricing and productivity improvements. As part of a series of initiatives to improve operational efficiency and long-term profitability announced in fiscal 2008, the company completed the closures of its facilities in Listowel, Canada, and Miranda, Australia in fiscal 2009. The company also completed the implementation of its SAP enterprise-resource planning system in most of its North American facilities and has begun to realize cost reductions. Finally, the company increased the prices of many of its products to offset the impact of significantly higher cost inflation, while continuing to generate significant cost-savings through ongoing supply chain initiatives and control over general and administrative costs.
Improve overall organizational excellence, diversity, engagement and innovation. The company is committed to building a diverse, inclusive and engaged workforce that is focused on excellence and innovation. In building employee engagement, the company emphasizes: (1) capabilities, including improving skills, innovation capabilities, and manager and team effectiveness; and (2) culture, including leadership behavior, workplace flexibility and employee wellness. Key focus areas include diversity and inclusion, flexible work schedules, and enhanced workplace safety.
Advance a powerful commitment to sustainability and corporate social responsibility (CSR). The company has developed a comprehensive strategy to advance its commitment to corporate social responsibility and sustainability, rooted in four key pillars relating to environmental sustainability, community outreach, workplace excellence, and consumer concerns about wellness and nutrition. Building on a strong heritage of corporate citizenship outlined in the company's first CSR Report, "Nourishing People's Lives," the company is now defining enterprise-wide goals and targets that address environmental performance, workplace excellence, social impact in its communities, and the nutrition and wellness attributes of its product portfolio. The company has established an internal governance structure to manage and direct these commitments as core business disciplines and is working with its customers and suppliers to identify common CSR and environmental sustainability priorities. In fiscal 2009, the company also joined the United Nations Global Compact and issued formal policies in the areas of human rights and political accountability.
Basis of Presentation
There were 52 weeks in fiscal 2009, 53 weeks in fiscal 2008 and 52 weeks in fiscal 2007.
In May 2009, the company completed the acquisition of Ecce Panis, Inc., an artisan bread maker, for $66 million. The business is included in the Baking and Snacking segment. See Note 8 to the Consolidated Financial Statements for additional information.
In June 2008, the company acquired the Wolfgang Puck soup business for approximately $10 million, of which approximately $1 million will be paid in 2010. The company also entered into a master licensing agreement with Wolfgang Puck Worldwide, Inc. for the use of the Wolfgang Puck brand on soup, stock, and broth products in North America retail locations. This business is included in the U.S. Soup, Sauces and Beverages segment. See Note 8 to the Consolidated Financial Statements for additional information.
In July 2008, the company entered into an agreement to sell its sauce and mayonnaise business comprised of products sold under the Lesieur brand in France. The business had annual net sales of approximately $70 million. The assets and liabilities of this business were reflected as assets and liabilities held for sale in the consolidated balance sheet as of August 3, 2008. The sale was completed on September 29, 2008 and generated $36 million of proceeds. The purchase price was subject to working capital and other post-closing adjustments, which resulted in an additional $6 million of proceeds. See Note 3 to the Consolidated Financial Statements for additional information.
In the third quarter of 2008, the company entered into an agreement to sell certain Australian salty snack food brands and assets. The transaction, which was completed on May 12, 2008, included salty snack brands such as Cheezels, Thins, Tasty Jacks, French Fries, and Kettle Chips, certain other assets and the assumption of liabilities. Proceeds of the sale were nominal. The business had annual net sales of approximately $150 million. This transaction is included in the restructuring initiatives described in Note 7.
In March 2008, the company completed the sale of its Godiva Chocolatier business for $850 million, pursuant to a Sale and Purchase Agreement dated December 20, 2007. The purchase price was subject to certain post-closing adjustments, which resulted in an additional $20 million of proceeds. The company has reflected the results of this business as discontinued operations in the consolidated statements of earnings. The company used approximately $600 million of the net proceeds to purchase company stock. See Note 3 to the Consolidated Financial Statements for additional information.
In June 2007, the company completed the sale of its ownership interest in Papua New Guinea operations for approximately $23 million. This business had annual sales of approximately $20 million.
In August 2006, the company completed the sale of its businesses in the United Kingdom and Ireland for £460 million, or approximately $870 million, pursuant to a Sale and Purchase Agreement dated July 12, 2006. The United Kingdom and Ireland businesses included Homepride sauces, OXO stock cubes, Batchelors soups and McDonnells and Erin soups. The purchase price was subject to certain post-closing adjustments, which resulted in an additional $19 million of proceeds. The company has reflected the results of these businesses as discontinued operations in the consolidated statements of earnings. The company used approximately $620 million of the net proceeds to purchase company stock. See Note 3 to the Consolidated Financial Statements for additional information.
Results of Operations
2009
Net earnings were $736 million in 2009, versus $1,165 million in 2008. The prior year included a $462 million ($1.21 per share) gain from the sale of the Godiva Chocolatier business. Net earnings per share were $2.06 compared to $3.06 a year ago. (All earnings per share amounts included in Management's Discussion and Analysis are presented on a diluted basis.)
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
• In fiscal 2009, the company recorded pre-tax restructuring related costs of $22 million ($15 million after tax or $.04 per share) in Cost of products sold associated with the previously announced initiatives to improve operational efficiency and long-term profitability. These initiatives included selling certain salty snack food brands and assets in Australia, closing certain production facilities in Australia and Canada, and streamlining the company's management structure. In fiscal 2008, the company recorded a pre-tax restructuring charge of $175 million ($102 million after tax or $.27 per share) and $7 million ($5 million after tax or $.01 per share) of accelerated depreciation in Cost of products sold. The aggregate impact was $182 million ($107 million after tax or $.28 per share) related to the initiatives. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges" for additional information;
• In the fourth quarter of fiscal 2009, as part of the company's annual review of intangible assets, an impairment charge of $67 million ($47 million after tax or $.13 per share) was recorded in Other expense/(income) related to certain European trademarks, primarily in Germany and the Nordic region, used in the International Soup, Sauces and Beverages segment. See Note 5 to the Consolidated Financial Statements for additional information; and
• In the second quarter of fiscal 2008, the company recognized a non-cash tax benefit of $13 million ($.03 per share) from the favorable resolution of a state tax contingency in the United States.
Discontinued Operations
• In the second quarter of fiscal 2009, the company recorded a $4 million tax benefit ($.01 per share) related to the sale of the Godiva Chocolatier business; and
• In 2008, the company recognized a pre-tax gain of $698 million ($462 million after tax or $1.21 per share) from the sale of the Godiva Chocolatier business.
The items impacting comparability are summarized below:
2009 2008
Earnings EPS Earnings EPS
Impact Impact Impact Impact
(Millions, except per share amounts)
Earnings from continuing operations $ 732 $ 2.04 $ 671 $ 1.76
Earnings from discontinued operations $ 4 $ .01 $ 494 $ 1.30
Net earnings(1) $ 736 $ 2.06 $ 1,165 $ 3.06
Continuing operations:
Impairment charge $ (47 ) $ (.13 ) $ - $ -
Restructuring charges and related costs (15 ) (.04 ) (107 ) (.28 )
Benefit from resolution of state tax contingency - - 13 .03
Discontinued operations:
Tax benefit from the sale of Godiva Chocolatier business $ 4 $ .01 $ - $ -
Gain on sale of Godiva Chocolatier business - - 462 1.21
Impact of significant items on net earnings(1) $ (58 ) $ (.16 ) $ 368 $ .97
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(1) The sum of the individual per share amounts does not equal due to rounding.
Earnings from continuing operations were $732 million in 2009 ($2.04 per share) and $671 million ($1.76 per share) in 2008. After factoring in the items impacting comparability, Earnings from continuing operations increased primarily due to lower interest expense, lower marketing and selling expenses, partially offset by the negative
impact of currency translation. After factoring in the items impacting comparability, Earnings per share from continuing operations increased due in part to the benefit from a reduction in the weighted average diluted shares outstanding. The reduction was primarily due to share repurchases utilizing the net proceeds from the divestiture of the Godiva Chocolatier business and the company's strategic share repurchase programs. Earnings per share from continuing operations were negatively impacted by $.09 from currency translation in 2009.
Earnings from discontinued operations of $4 million in 2009 represented an adjustment to the tax liability associated with the sale of the Godiva Chocolatier business. Earnings from discontinued operations were $494 million in 2008 and included the $462 million gain from the sale of the Godiva Chocolatier business. Earnings per share from discontinued operations were $.01 in 2009 and $1.30 in 2008. The operations of Godiva contributed to earnings of $.08 per share in 2008.
2008
Net earnings were $1,165 million in 2008 ($3.06 per share) and $854 million ($2.16 per share) in 2007.
In addition to the 2008 items that impacted the comparability of net earnings and net earnings per share, the following items also impacted comparability:
Continuing Operations
• In the third quarter of fiscal 2007, the company recorded a pre-tax non-cash benefit of $20 million ($13 million after tax or $.03 per share) from the reversal of legal reserves due to favorable results in litigation;
• In the third quarter of fiscal 2007, the company recorded a tax benefit of $22 million resulting from the settlement of bilateral advance pricing agreements ("APA") among the company, the United States, and Canada related to royalties. In addition, the company reduced net interest expense by $4 million ($3 million after tax). The aggregate impact was $25 million or $.06 per share; and
• In the second quarter of 2007, the company recorded a pre-tax gain of $23 million ($14 million after tax or $.04 per share) from the sale of an idle manufacturing facility.
Discontinued Operations
• In 2007, the company recognized a pre-tax gain of $39 million ($24 million after tax or $.06 per share) from the sale of the businesses in the United Kingdom and Ireland. In addition, a tax benefit of $7 million ($.02 per share) was recognized from the favorable resolution of tax audits in the United Kingdom.
The items impacting comparability are summarized below:
2008 2007
Earnings EPS Earnings EPS
Impact Impact Impact Impact
(Millions, except per share amounts)
Earnings from continuing operations $ 671 $ 1.76 $ 792 $ 2.00
Earnings from discontinued operations $ 494 $ 1.30 $ 62 $ .16
Net earnings $ 1,165 $ 3.06 $ 854 $ 2.16
Continuing operations:
Restructuring charges and related costs $ (107 ) $ (.28 ) $ - $ -
Benefit from resolution of state tax contingency 13 .03 - -
Reversal of legal reserves - - 13 .03
Benefit from settlement of the APA - - 25 .06
Gain on the sale of the facility - - 14 .04
Discontinued operations:
Gain on sale of Godiva Chocolatier business $ 462 $ 1.21 $ - $ -
Gain on sale of U.K./Ireland businesses - - 24 .06
Benefit from settlement of tax audits - - 7 .02
Impact of significant items on net earnings(1) $ 368 $ .97 $ 83 $ .21
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(1) The sum of the individual per share amounts does not equal due to rounding.
Earnings from continuing operations were $671 million in 2008 ($1.76 per share) and $792 million ($2.00 per share) in 2007.
After factoring in the items impacting comparability, Earnings from continuing operations increased primarily due to higher sales, the impact of currency and the benefit of the 53rd week, partially offset by a reduction of gross margin as a percentage of sales and a higher effective tax rate. The additional week contributed approximately $.02 per share to Earnings from continuing operations in 2008. Earnings per share from continuing operations in 2008 also benefited from a reduction in weighted average diluted shares outstanding.
Earnings from discontinued operations were $494 million in 2008 ($1.30 per share) and $62 million ($.16 per share) in 2007. After factoring items impacting comparability, earnings at Godiva increased slightly.
Sales
An analysis of net sales by reportable segment follows:
% Change
2009 2008 2007 2009/2008 2008/2007
(Millions)
U.S. Soup, Sauces and Beverages $ 3,784 $ 3,674 $ 3,495 3 5
Baking and Snacking 1,846 2,058 1,850 (10 ) 11
International Soup, Sauces and Beverages 1,357 1,610 1,402 (16 ) 15
North America Foodservice 599 656 638 (9 ) 3
$ 7,586 $ 7,998 $ 7,385 (5 ) 8
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An analysis of percent change of net sales by reportable segment follows:
International
U.S. Soup, Baking Soup, North
Sauces and and Sauces America
Beverages Snacking Beverages Foodservice Total
2009/2008
Volume and Mix (2 )% (1 )% (3 )% (8 )% (2 )%
Price and Sales Allowances 8 7 5 6 7
Increased Promotional Spending(1) (2 ) (2 ) (1 ) (3 ) (2 )
Impact of 53rd Week (1 ) (2 ) (2 ) (2 ) (2 )
Divestitures/Acquisitions - (6 ) (4 ) - (2 )
Currency - (6 ) (11 ) (2 ) (4 )
3 % (10 )% (16 )% (9 )% (5 )%
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International
U.S. Soup, Baking Soup, North
Sauces and and Sauces and America
Beverages Snacking Beverages Foodservice Total
2008/2007
Volume and Mix 3 % 2 % 2 % (2 )% 2 %
Price and Sales Allowances 2 6 - 2 2
Increased Promotional Spending(1) (1 ) (1 ) - (1 ) (1 )
Impact of 53rd week 1 2 2 2 2
Divestitures - (3 ) - - (1 )
Currency - 5 11 2 4
5 % 11 % 15 % 3 % 8 %
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(1) Represents revenue reductions from trade promotion and consumer coupon redemption programs.
In 2009, U.S. Soup, Sauces and Beverages sales increased 3%. U.S. soup sales increased 5% as ready-to-serve soup sales increased 4%, condensed soup sales increased 5% and broth sales increased 9%. The ready-to-serve soup sales increase was primarily due to the successful launches of Campbell's Select Harvest soups and Campbell's V8 soups, partially offset by declines in Campbell's Chunky soups. Within ready-to-serve, sales declined in the convenience platform, which includes soups in microwavable bowls and cups. In condensed, sales increased with growth in cooking and in eating varieties. The increase in broth sales was due to growth in aseptic varieties and the introduction of Swanson stock products. The Wolfgang Puck soup, stock and broth business acquired in June 2008 contributed modestly to U.S. soup sales growth. Beverage sales decreased due to declines in V8 vegetable juice, partially offset by gains in V8 V-Fusion vegetable and fruit juice. Prego pasta sauce sales increased double digits and sales of Pace Mexican sauces increased as consumers increased at-home eating.
In 2008, U.S. Soup, Sauces and Beverages sales increased 5%. U.S. soup sales increased 2% as condensed soup sales increased 1%, ready-to-serve soup sales increased 1%, and broth sales increased 12%. The benefit of the 53rd week contributed 1% to the U.S. soup sales increase, the condensed soup sales increase and the broth sales increase. Within condensed soup, gains in cooking varieties were offset by declines in eating varieties. In ready-to-serve, sales gains in Campbell's Chunky and Campbell's Select canned soups were partially offset by a decline in the convenience platform, which includes soups in microwavable bowls and cups. Condensed and ready-to-serve soups benefited from the lower sodium varieties. Swanson broth sales increased due to continued growth of aseptically-packaged varieties. Excluding the impact of the 53rd week, beverage sales increased double digits, primarily due to consumer demand for healthy beverages. V8 vegetable juice, V8 V-Fusion vegetable and fruit juice, and V8 Splash juice drinks contributed to the sales growth. Sales of Campbell's tomato juice declined. Beverage sales benefited from expanded distribution of single-serve beverages due to the distribution agreement for refrigerated single-serve
beverages with The Coca-Cola Company and Coca-Cola Enterprises Inc. Sales of Prego pasta sauces and Pace Mexican sauces increased.
In 2009, Baking and Snacking sales decreased 10%. Pepperidge Farm achieved sales . . .
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