CAMPBELL'S Co - Interim / Quarterly Report 2004

10-Q 1 w98166e10vq.htm FORM 10-Q CAMPBELL SOUP COMPANY e10vq PAGEBREAK

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended	Commission File Number
May 2, 2004	1-3822

New Jersey	21-0419870
State of Incorporation	I.R.S. Employer Identification No.

Campbell Place Camden, New Jersey 08103-1799 Principal Executive Offices

Telephone Number: (856) 342-4800

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ] .

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b - 2 of the Securities Exchange Act of 1934).

Yes [X] No [ ] .

There were 410,487,750 shares of Capital Stock outstanding as of June 3, 2004.

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TABLE OF CONTENTS

PART I
ITEM 1. FINANCIAL INFORMATION
Statements of Earnings
Balance Sheets
Statements of Cash Flows
Statements of Shareowners Equity (Deficit)
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
LETTER AGREEMENT BETWEEN COMPANY & MARK A. SARVARY
CERTIFICATION OF DOUGLAS R. CONANT
CERTIFICATION OF ROBERT A. SCHIFFNER
CERTIFICATION OF DOUGLAS R. CONANT, SECTION 1350
CERTIFICATION OF ROBERT A. SCHIFFNER, SECTION 1350

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Table of Contents

link1 " PART I"

PART I. link2 " ITEM 1. FINANCIAL INFORMATION"

ITEM 1. FINANCIAL INFORMATION CAMPBELL SOUP COMPANY CONSOLIDATED link3 " Statements of Earnings"

Statements of Earnings

(unaudited) (millions, except per share amounts)

	Three Months Ended — May 2,	April 27,		Nine Months Ended — May 2,	April 27,
	2004	2003		2004	2003
Net sales	$ 1,667	$	1,600	$ 5,676	$	5,223
Costs and expenses
Cost of products sold	995		920	3,315		2,947
Marketing and selling expenses	278		264	911		867
Administrative expenses	141		143	400		379
Research and development expenses	23		23	65		63
Other expenses / (income)	(13	)	15	(1	)	17
Total costs and expenses	1,424		1,365	4,690		4,273
Earnings before interest and taxes	243		235	986		950
Interest, net	40		45	125		136
Earnings before taxes	203		190	861		814
Taxes on earnings	61		61	273		262
Earnings before cumulative effect of accounting change	142		129	588		552
Cumulative effect of change in accounting principle						(31	)
Net earnings	$ 142	$	129	$ 588	$	521
Per share - basic
Earnings before cumulative effect of accounting change	$ .35	$	.31	$ 1.43	$	1.34
Cumulative effect of change in accounting principle						(.08	)
Net earnings	$ .35	$	.31	$ 1.43	$	1.26
Dividends	$ .1575	$	.1575	$ .4725	$	.4725
Weighted average shares outstanding - basic	411		411	411		411
Per share - assuming dilution
Earnings before cumulative effect of accounting change	$ .34	$	.31	$ 1.43	$	1.34
Cumulative effect of change in accounting principle						(.08	)
Net earnings	$ .34	$	.31	$ 1.43	$	1.26
Weighted average shares outstanding - assuming dilution	413		411	412		411

See Notes to Consolidated Financial Statements.

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CAMPBELL SOUP COMPANY CONSOLIDATED link3 " Balance Sheets"

Balance Sheets

(unaudited) (millions, except per share amounts)

	May 2, — 2004	2003
Current assets
Cash and cash equivalents	$ 28	$	32
Accounts receivable	481		413
Inventories	686		709
Other current assets	145		136
Total current assets	1,340		1,290
Plant assets, net of depreciation	1,834		1,843
Goodwill	1,908		1,803
Other intangible assets, net of amortization	1,088		1,018
Other assets	273		251
Total assets	$ 6,443	$	6,205
Current liabilities
Notes payable	$ 769	$	1,279
Payable to suppliers and others	501		620
Accrued liabilities	551		602
Dividend payable	65		65
Accrued income taxes	301		217
Total current liabilities	2,187		2,783
Long-term debt	2,543		2,249
Nonpension postretirement benefits	301		304
Other liabilities, including deferred
income taxes of $262 and $245	536		482
Total liabilities	5,567		5,818
Shareowners equity
Preferred stock; authorized 40 shares;
none issued
Capital stock, $.0375 par value; authorized
560 shares; issued 542 shares	20		20
Additional paid-in capital	263		298
Earnings retained in the business	5,648		5,254
Capital stock in treasury, at cost	(4,839	)	(4,869	)
Accumulated other comprehensive loss	(216	)	(316	)
Total shareowners equity	876		387
Total liabilities and shareowners equity	$ 6,443	$	6,205

See Notes to Consolidated Financial Statements.

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CAMPBELL SOUP COMPANY CONSOLIDATED link3 " Statements of Cash Flows "

Statements of Cash Flows

(unaudited) (millions)

	Nine Months Ended — May 2,	April 27,
	2004	2003
Cash flows from operating activities:
Net earnings	$ 588	$	521
Non-cash charges to net earnings
Cumulative effect of accounting change			31
Depreciation and amortization	195		180
Deferred income taxes	16		(1	)
Other, net	67		41
Changes in working capital
Accounts receivable	(51	)	(24	)
Inventories	40		61
Prepaid assets	(8	)	(1	)
Accounts payable and accrued liabilities	(125	)	(26	)
Pension fund contributions	(54	)	(4	)
Other	(92	)	(72	)
Net cash provided by operating activities	576		706
Cash flows from investing activities:
Purchases of plant assets	(142	)	(158	)
Sales of plant assets	10		10
Businesses acquired	(9	)	(176	)
Sales of businesses			6
Other, net			(4	)
Net cash used in investing activities	(141	)	(322	)
Cash flows from financing activities:
Long-term borrowings	301		400
Net short-term repayments	(534	)	(589	)
Dividends paid	(194	)	(194	)
Treasury stock purchases	(38	)	(13	)
Treasury stock issuances	20		15
Net cash used in financing activities	(445	)	(381	)
Effect of exchange rate changes on cash	6		3
Net change in cash and cash equivalents	(4	)	6
Cash and cash equivalents - beginning of period	32		21
Cash and cash equivalents - end of period	$ 28	$	27

See Notes to Consolidated Financial Statements.

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CAMPBELL SOUP COMPANY CONSOLIDATED link3 " Statements of Shareowners’ Equity (Deficit)"

Statements of Shareowners Equity (Deficit)

(unaudited) (millions, except per share amounts)

Issued			In Treasury				Additional	Earnings Retained	Accumulated Other		Total
							Paid-in	in the	Comprehensive		Shareowners
Shares		Amount	Shares		Amount		Capital	Business	Income (Loss)		Equity (Deficit)
Balance at July 28, 2002	542	$ 20	(132	)	$ (4,891	)	$ 320	$ 4,918	$ (481	)	$ (114	)
Comprehensive income (loss)
Net earnings								521			521
Foreign currency
translation adjustments									133		133
Cash-flow hedges,
net of tax									(1	)	(1	)
Other comprehensive income									132		132
Total comprehensive income											653
Dividends ($.4725 per share)								(194	)		(194	)
Treasury stock purchased			(1	)	(13	)					(13	)
Treasury stock issued under
management incentive and
stock option plans			1		44		(24	)			20
Balance at April 27, 2003	542	$ 20	(132	)	$ (4,860	)	$ 296	$ 5,245	$ (349	)	$ 352
Balance at August 3, 2003	542	$ 20	(132	)	$ (4,869	)	$ 298	$ 5,254	$ (316	)	$ 387
Comprehensive income (loss)
Net earnings								588			588
Foreign currency
translation adjustments									100		100
Cash-flow hedges,
net of tax									3		3
Minimum pension liability,
net of tax									(3	)	(3	)
Other comprehensive income									100		100
Total comprehensive income											688
Dividends ($.4725 per share)								(194	)		(194	)
Treasury stock purchased			(1	)	(38	)					(38	)
Treasury stock issued under
management incentive and
stock option plans			1		68		(35	)			33
Balance at May 2, 2004	542	$ 20	(132	)	$ (4,839	)	$ 263	$ 5,648	$ (216	)	$ 876

See Notes to Consolidated Financial Statements.

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CAMPBELL SOUP COMPANY CONSOLIDATED link3 " Notes to Consolidated Financial Statements"

Notes to Consolidated Financial Statements (unaudited) (dollars in millions, except per share amounts)

| (a) |
| --- |
| The company accounts for stock option grants and restricted stock awards
in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Accordingly, no compensation expense has been recognized for stock
options since all options granted had an exercise price equal to the
market value of the underlying stock on the grant date. Restricted
stock awards are expensed. The following table illustrates the effect on
net earnings and earnings per share if the company had applied the fair
value recognition provisions of Statement of Financial Accounting
Standards (SFAS) No. 123 to stock-based employee compensation. |

	Three Months Ended — May 2, 2004	Apr. 27, 2003		May 2, 2004		Apr. 27, 2003
Net earnings, as reported	$ 142	$	129	$	588	$	521
Add: Stock-based employee
compensation expense included
in reported net earnings, net of
related tax effects 1	4		3		9		11
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects	(11	)	(10	)	(30	)	(30	)
Pro forma net earnings	$ 135	$	122	$	567	$	502
Earnings per share:
Basic-as reported	$ .35	$	.31	$	1.43	$	1.26
Basic-pro forma	$ .33	$	.30	$	1.38	$	1.22
Diluted-as reported	$ .34	$	.31	$	1.43	$	1.26
Diluted-pro forma	$ .33	$	.30	$	1.38	$	1.22

1 Represents restricted stock expense.

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| (b) | Cumulative Effect of Accounting Change The company adopted SFAS No. 142 Goodwill and Other Intangible Assets
as of July 29, 2002 and recognized a non-cash charge of $31 (net of $17
tax benefit), or $.08 per share, as a cumulative effect of accounting
change. This charge related to impaired goodwill associated with the
Stockpot business, a food service business included in the North America
Soup and Away From Home segment. |
| --- | --- |
| (c) | Acquisitions In the first quarter 2004, the company acquired certain chocolate biscuit
brands for approximately $9 from George Weston Foods Limited in
Australia. These brands are included in the Biscuits and Confectionery
segment. |
| | In the first quarter 2003, the company acquired two businesses for cash
consideration of approximately $170 and assumed debt of approximately
$20. The company acquired Snack Foods Limited, a leader in the
Australian salty snack category, and Erin Foods, the number two dry soup
manufacturer in Ireland. Snack Foods Limited is included in the Biscuits
and Confectionery segment. Erin Foods is included in the International
Soup and Sauces segment. The businesses have annual sales of
approximately $160. |
| (d) | New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB 51. This Interpretation addresses
consolidation by business enterprises of certain variable interest
entities (VIEs). The Interpretation as amended is effective immediately
for all enterprises with interests in VIEs created after January 31,
2003. In December 2003, the FASB issued a revised version of FIN 46 (FIN
46R), which clarified the provisions of FIN 46 by addressing
implementation issues. FIN 46R must be applied to all entities subject
to the Interpretation as of the first interim quarter ending after March
15, 2004. The company has investments of approximately $150 as of May 2,
2004 consisting of limited partnership interests in affordable housing
partnership funds. The companys ownership ranges from approximately
12% to 19%. The company evaluated the nature of these investments, which
were in existence before January 31, 2003, against the provisions of the
guidance and determined that such investments do not need to be
consolidated in the financial statements. The company will continue to
monitor modifications to the Interpretation. |
| | In May 2003, the FASB issued SFAS No. 150 Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 changes the accounting for certain financial
instruments that, under previous guidance, could be classified as equity
or mezzanine equity, by now requiring those instruments to be
classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, SFAS No. 150 requires
disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 is generally effective for
all financial instruments |

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| | entered into or modified after May 31, 2003 and is otherwise effective at
the beginning of the first interim period beginning after June 15, 2003.
The adoption of this standard did not impact the financial statements. |
| --- | --- |
| | In December 2003, the FASB issued a revised SFAS No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits, which
requires additional disclosures for benefit plans. The standard requires
quarterly disclosure of the various components of pension expense and
expanded annual disclosures, such as describing the types of plan assets,
investment strategy, and measurement dates. Interim disclosures required
under SFAS No. 132 are included in Note (l). Annual disclosures will be
provided in the 2004 Form 10-K. |
| | On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act
introduces a prescription drug benefit under Medicare Part D, as well as
a federal subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare
Part D. The company sponsors medical programs for certain of its U.S.
retirees and expects that this legislation will reduce the costs for some
of these programs. The company is continuing to evaluate the impact of
the legislation since guidance from various governmental and regulatory
agencies concerning the requirements that must be met to obtain these
cost reductions is still pending. In April 2004, the FASB issued Staff
Position (FSP) No. FAS 106 - 2 to address the accounting and disclosure
requirements related to the Act. The FSP is effective for interim or
annual periods beginning after June 15, 2004. The expected effects of
the Act will be factored into the companys fiscal 2004 year-end
measurement of postretirement medical obligations and related expense
calculation for fiscal 2005. |
| (e) | Goodwill and Intangible Assets The following table sets forth balance sheet information for intangible
assets, excluding goodwill, subject to amortization and intangible assets
not subject to amortization: |

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	May 2, 2004 — Carrying	Accumulated		August 3, 2003 — Carrying	Accumulated
	Amount	Amortization		Amount	Amortization
Intangible assets subject to amortization 1 :
Trademarks	$ 6	$ (3	)	$ 6	$ (2	)
Other	17	(7	)	16	(7	)
Total	$ 23	$ (10	)	$ 22	$ (9	)
Intangible assets not subject to amortization:
Trademarks	$ 1,045			$ 975
Pension	28			28
Other	2			2
Total	$ 1,075			$ 1,005

1 Amortization related to these assets was approximately $1 for the nine month periods ended May 2, 2004 and April 27, 2003. The estimated aggregated amortization expense for each of the five succeeding fiscal years is less than $2 per year. Asset useful lives range from five to thirty-four years.

Changes in the carrying amount for goodwill for the period ended May 2, 2004 are as follows:

	North America — Soup and	North America — Sauces and	Biscuits and	International
	Away From Home	Beverages	Confectionery	Soup and Sauces	Total
Balance at August 3, 2003	$ 298	$ 365	$ 524	$ 616	$ 1,803
Foreign currency
translation adjustment	2		56	47	105
Balance at May 2, 2004	$ 300	$ 365	$ 580	$ 663	$ 1,908

| (f) |
| --- |
| Total comprehensive income for the three months ended May 2, 2004 and
April 27, 2003, was $78 and $175, respectively. Total comprehensive
income for the nine months ended May 2, 2004 and April 27, 2003, was $688
and $653, respectively. |

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The components of Accumulated other comprehensive loss, as reflected in the Statements of Shareowners Equity (Deficit), consisted of the following:

	May 2, — 2004		April 27, — 2003
Foreign currency translation adjustments	$ (1	)	$ (142	)
Cash-flow hedges, net of tax	(2	)	1
Minimum pension liability, net of tax 1	(213	)	(208	)
Total Accumulated other comprehensive loss	$ (216	)	$ (349	)

1 Includes a tax benefit of $121 as of May 2, 2004 and $119 as of April 27, 2003.

| (g) | Earnings Per Share For the periods presented in the Statements of Earnings, the calculations
of basic EPS and EPS assuming dilution vary in that the weighted average
shares outstanding assuming dilution include the incremental effect of
stock options, except when such effect would be antidilutive. Stock
options to purchase 18 million and 28 million shares of capital stock for
the three-month periods ended May 2, 2004 and April 27, 2003,
respectively, and 26 million and 28 million shares of capital stock for
the nine-month periods ended May 2, 2004 and April 27, 2003,
respectively, were not included in the calculation of diluted earnings
per share because the exercise price of the stock options exceeded the
average market price of the capital stock and therefore, the effect would
be antidilutive. |
| --- | --- |
| (h) | Segment Information Campbell Soup Company, together with its consolidated subsidiaries, is a
global manufacturer and marketer of high quality, branded convenience
food products. The company operates in four segments: North America Soup
and Away From Home, North America Sauces and Beverages, Biscuits and
Confectionery, and International Soup and Sauces. |
| | The North America Soup and Away From Home segment comprises the retail
soup and Away From Home business in the U.S. and Canada. The U.S.
retail business includes the Campbells brand condensed and
ready-to-serve soups and Swanson broths. The segment includes the
companys total business in Canada, which comprises the Habitant and Campbells soups, Prego pasta sauce and V8 juices. The Away From Home
operations represent the distribution of products such as Campbells soups, Campbells specialty entrees, beverage products, other prepared
foods and Pepperidge Farm products through various food service channels
in North America. The North America Sauces and Beverages segment
includes U.S. retail sales for Prego pasta sauces, Pace Mexican sauces, Franco-American canned pastas and gravies, V8 vegetable juices, V8 Splash juice beverages, Campbells tomato juice, as well as the total of all
businesses in Mexico and other Latin American and Caribbean countries.
The Biscuits and Confectionery segment includes all retail sales of Pepperidge Farm cookies, |

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| crackers, breads and frozen products in the
United States, Arnotts biscuits and crackers in Australia and Asia
Pacific, Arnotts Snackfoods salty snacks in
Australia, and Godiva chocolates worldwide. The International Soup and
Sauces segment comprises operations outside of North America, including Erasco and Heisse Tasse soups in Germany, Liebig and Royco soups and Lesieur sauces in France , Campbells and Batchelors soups, Oxo stock
cubes and Homepride sauces in the United Kingdom, Devos Lemmens mayonnaise and cold sauces and Campbells and Royco soups in Belgium, Blå
Band soups and sauces in Sweden, and McDonnells and Erin soups in
Ireland. In Asia Pacific, operations include Campbells soups and stock
and Swanson broths across the region. |
| --- |
| Accounting policies for measuring segment assets and earnings before
interest and taxes are substantially consistent with those described in
the companys 2003 Annual Report on Form 10-K. The company evaluates
segment performance before interest and taxes. The North America Soup
and Away From Home and North America Sauces and Beverages segments
operate under an integrated supply chain organization, sharing
substantially all manufacturing, warehouse, distribution and sales
activities. Accordingly, assets have been allocated between the two
segments based on various measures, for example, budgeted production
hours for fixed assets and depreciation. |

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May 2, 2004

		Earnings — Before Interest	and		Capital
Nine Months Ended	Net Sales	and Taxes	Amortization		Expenditures
North America Soup and
Away From Home	$ 578	$ 113	$	16	$ 20
North America Sauces
and Beverages	301	66		8	10
Biscuits and Confectionery	481	37		24	21
International Soup and
Sauces	307	38		12	11
Corporate and Eliminations 1		(11	)	8	4
Total	$ 1,667	$ 243	$	68	$ 66

		Earnings — Before Interest	and		Capital	Segment
Nine Months Ended	Net Sales	and Taxes	Amortization		Expenditures	Assets
North America Soup and
Away From Home	$ 2,277	$ 554	$	47	$ 44	$ 1,221
North America Sauces
and Beverages	952	216		25	21	1,211
Biscuits and Confectionery	1,522	173		70	49	1,762
International Soup and
Sauces	925	112		32	19	1,919
Corporate and Eliminations 1		(69	)	21	9	330
Total	$ 5,676	$ 986	$	195	$ 142	$ 6,443

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April 27, 2003

		Earnings — Before Interest	and		Capital
Nine Months Ended	Net Sales	and Taxes	Amortization		Expenditures
North America Soup and
Away From Home	$ 600	$ 147	$	17	$ 15
North America Sauces
and Beverages	295	59		9	10
Biscuits and Confectionery	434	38		24	31
International Soup and Sauces	271	37		8	5
Corporate and Eliminations 1		(46	)	11	4
Total	$ 1,600	$ 235	$	69	$ 65

		Earnings — Before Interest	and		Capital	Segment
Nine Months Ended	Net Sales	and Taxes	Amortization		Expenditures	Assets
North America Soup and
Away From Home	$ 2,170	$ 561	$	46	$ 38	$ 1,193
North America Sauces
and Beverages	920	220		25	24	1,206
Biscuits and Confectionery	1,330	167		63	72	1,606
International Soup and
Sauces	803	97		24	14	1,776
Corporate and Eliminations 1		(95	)	22	10	334
Total	$ 5,223	$ 950	$	180	$ 158	$ 6,115

1 Represents unallocated corporate expenses and unallocated assets, including corporate offices, deferred income taxes and investments.

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(i) Inventories

	May 2, 2004	August 3, 2003
Raw materials, containers and supplies	$ 214	$ 264
Finished products	472	445
	$ 686	$ 709

| | Approximately 55% of inventory in 2004 and 57% in 2003 is accounted for
on the last in, first out (LIFO) 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 May
2, 2004 and August 3, 2003. |
| --- | --- |
| (j) | Notes Payable and Long-Term Debt On September 15, 2003, the company issued $300 ten-year 4.875% fixed-rate
notes. The proceeds were used to repay commercial paper borrowings and
for other general corporate purposes. In connection with this issuance,
the company entered into ten-year interest rate swaps that convert $200
of the fixed-rate debt to variable. |
| (k) | Accounting for Derivative Instruments The company utilizes certain derivative financial instruments to enhance
its ability to manage risks which exist as part of ongoing business
operations, including interest rate, foreign currency, commodity and
certain equity-linked employee compensation exposures. Derivative
instruments are entered into for periods consistent with related
underlying exposures and do not constitute positions independent of those
exposures. The company does not enter into contracts for speculative
purposes, nor is it a party to any leveraged derivative instrument. |
| | All derivatives are recognized on the balance sheet at fair value. On
the date the derivative contract is entered into, the company designates
the derivative as (1) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair-value hedge), (2) a
hedge of a forecasted transaction or of the variability of cash flows to
be received or paid related to a recognized asset or liability (cash-flow
hedge), (3) a foreign-currency fair-value or cash-flow hedge
(foreign-currency hedge), or (4) a hedge of a net investment in a foreign
operation. Some derivatives may also be considered natural hedging
instruments (changes in fair value are recognized to act as economic
offsets to changes in fair value of the underlying hedged item and do not
qualify for hedge accounting under SFAS No. 133). |
| | Interest Rate Swaps 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,
including forward- |

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| starting swaps, to minimize worldwide financing costs
and to achieve a targeted ratio of variable versus fixed-rate debt. |
| --- |
| Variable-to-fixed interest rate swaps are accounted for as cash-flow
hedges. Consequently, the effective portion of unrealized gains (losses)
is deferred as a component of Accumulated other comprehensive income
(loss) and is recognized in earnings at the time the hedged item affects
earnings. The amounts paid or received on the hedge are recognized as
adjustments to interest expense. Cash-flow interest rate swaps with a
notional value of $300 matured in October 2003. |
| Fixed-to-variable interest rate swaps are accounted for as fair-value
hedges. Gains and losses on these instruments are recorded in earnings
as adjustments to interest expense, offsetting gains and losses on the
hedged item. The notional amounts of all outstanding fair-value interest
rate swaps at May 2, 2004 totaled $825 with a maximum maturity date of
October 2013. The fair value of such instruments was $(1) as of May 2,
2004. |
| Foreign Currency Contracts The company is exposed to foreign currency exchange risk as a result of
transactions in currencies other than the functional currency of certain
subsidiaries, including subsidiary financing transactions. The company
utilizes foreign currency forward purchase and sale contracts, options
and cross-currency swaps in order to manage the volatility associated
with foreign currency purchases and certain intercompany transactions in
the normal course of business. |
| Qualifying foreign exchange forward and cross-currency swap contracts are
accounted for as cash-flow hedges when the hedged item is a forecasted
transaction, or when future cash flows related to a recognized asset or
liability are expected to be received or paid. The effective portion of
the changes in fair value on these instruments is recorded in Accumulated
other comprehensive income (loss) and is reclassified into the Statements
of Earnings on the same line item and in the same period or periods in
which the hedged transaction affects earnings.
The assessment of effectiveness for contracts is based on changes in the
spot rates. The fair value of these instruments was $(137) at May 2,
2004. |
| Qualifying foreign exchange forward contracts are accounted for as
fair-value hedges when the hedged item is a recognized asset, liability
or firm commitment. The fair value of such contracts was not material at
May 2, 2004. |
| The company also enters into certain foreign exchange forward and
variable-to-variable cross-currency swap contracts that are not
designated as accounting hedges. These instruments are primarily
intended to reduce volatility of certain intercompany financing
transactions. Gains and losses on derivatives not designated as
accounting hedges are typically recorded in Other expenses, as an offset
to gains (losses) on the underlying transaction. The fair value of such
contracts was $(3) at May 2, 2004. Foreign exchange forward contracts
typically have maturities of less than eighteen months. Cross-currency
contracts mature in |

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| | 2005 through 2007. Principal currencies include the
Australian dollar, British pound, Canadian dollar, euro, Japanese yen and
Swedish krona. |
| --- | --- |
| | As of May 2, 2004, the accumulated derivative net loss in other
comprehensive income for cash-flow hedges, including the foreign exchange
forward and cross-currency contracts, forward starting swap contracts,
and treasury lock agreements was $2, net of tax. At April 27, 2003, the
accumulated derivative net gain in other comprehensive income was $1, net
of tax. Reclassifications from Accumulated other comprehensive income
(loss) into the Statements of Earnings during the quarter ended May 2,
2004 were not material. Reclassifications during the remainder of fiscal
year 2004 are not expected to be material. There were no discontinued
cash-flow hedges during the quarter. At May 2, 2004, the maximum
maturity date of any cash-flow hedge was approximately 10 years. |
| | Other Contracts The company is exposed to equity price changes related to certain
employee compensation obligations. Swap contracts are utilized to hedge
exposures relating to certain employee compensation obligations linked to
the total return of the Standard & Poors 500 Index and the total return
of the companys capital stock. The company pays a variable interest
rate and receives the equity returns under these instruments. The
notional value of the equity swap contracts, which mature in 2004, was
$37 at May 2, 2004. These instruments are not designated as accounting
hedges. Gains and losses are recorded in the Statements of Earnings.
The net liability recorded under these contracts at May 2, 2004 was
approximately $1. |
| | Other disclosures related to hedge ineffectiveness and gains (losses)
excluded from the assessment of hedge effectiveness have been omitted due
to the insignificance of these amounts. |
| (l) | Components of Net Periodic Benefit Cost: |

Three Months Ended	Pension — May 2, 2004	Apr. 27, 2003		May 2, 2004		Apr. 27, 2003
Service cost	$ 12	$	11	$	1	$	1
Interest cost	28		28		6		5
Expected return on plan assets	(38	)	(38	)
Amortization of prior service
cost	2		1		(3	)	(2	)
Recognized net actuarial loss	6		4		1
Net periodic benefit expense	$ 10	$	6	$	5	$	4

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Nine Months Ended	Pension — May 2, 2004	Apr. 27, 2003		May 2, 2004		Apr. 27, 2003
Service cost	$ 37	$	34	$	3	$	3
Interest cost	84		83		17		16
Expected return on plan assets	(113	)	(114	)
Amortization of prior service
cost	6		4		(7	)	(8	)
Recognized net actuarial loss	16		11		3
Net periodic benefit expense	$ 30	$	18	$	16	$	11

| | In the first quarter 2004, the company made a $50 voluntary contribution
to a U.S. pension plan. Additional contributions to the U.S. pension
plans are not expected this fiscal year. Contributions of $4 were made
to the international plans as of May 2, 2004. |
| --- | --- |
| (m) | Contingencies On March 30, 1998, the company effected a spinoff of several of its
non-core businesses to Vlasic Foods International Inc. (VFI). VFI and
several of its affiliates (collectively, Vlasic) commenced cases under
Chapter 11 of the Bankruptcy Code on January 29, 2001 in the United
States Bankruptcy Court for the District of Delaware. Vlasics Second
Amended Joint Plan of Distribution under Chapter 11 (the Plan) was
confirmed by an order of the Bankruptcy Court dated November 16, 2001,
and became effective on or about November 29, 2001. The Plan provides
for the assignment of various causes of action allegedly belonging to the
Vlasic estates, including claims against the company allegedly arising
from the spinoff, to VFB L.L.C., a limited liability company (VFB) whose
membership interests are to be distributed under the Plan to Vlasics
general unsecured creditors. |
| | On February 19, 2002, VFB commenced a lawsuit against the company and
several of its subsidiaries in the United States District Court for the
District of Delaware alleging, among other things, fraudulent conveyance,
illegal dividends and breaches of fiduciary duty by Vlasic directors
alleged to be under the companys control. The lawsuit seeks to hold the
company liable in an amount necessary to satisfy all unpaid claims
against Vlasic (which VFB estimates in the amended complaint to be $200),
plus unspecified exemplary and punitive damages. While the ultimate
disposition of complex litigation is inherently difficult to assess, the
company believes the action is without merit and is defending the case
vigorously. |
| | The company received an Examination Report from the Internal Revenue
Service on December 23, 2002, which included a challenge to the treatment
of gains and interest deductions claimed in the companys fiscal 1995
federal income tax return, relating to transactions involving government
securities. If the proposed adjustment were upheld, it would require the
company to pay a net amount of approximately $100 in taxes, accumulated
interest to December 23, 2002, and penalties. Interest will continue to
accrue until the matter is resolved. The |

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| | company believes these
transactions were properly reported on its federal income tax return in
accordance with applicable tax laws and regulations in effect during the
period involved and is challenging these adjustments vigorously. While
the outcome of proceedings of this type cannot be predicted with
certainty, the company believes that the ultimate outcome of this matter
will not have a material impact on the consolidated financial condition
or results of operation of the company. |
| --- | --- |
| (n) | Guarantees In November 2002, FIN 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others was issued. FIN 45 clarifies the requirements
relating to a guarantors accounting for, and disclosure of, the issuance
of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of
the obligation it assumes under that guarantee. The initial recognition
and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. |
| | The company guarantees approximately 1,200 bank loans made to Pepperidge
Farm independent sales distributors by third party financial institutions
for the purchase of distribution routes. The maximum potential amount of
future payments the company could be required to make under the
guarantees is approximately $88. The companys guarantees are indirectly
secured by the distribution routes. The company does not believe it is
probable that it will be required to make guarantee payments as a result
of defaults on the bank loans guaranteed. Prior to the adoption of FIN
45, no amounts were recognized on the Consolidated Balance Sheets related to these guarantees. The amounts
recognized as of May 2, 2004 and April 27, 2003 are not material. |
| (o) | Supplemental Cash Flow Information Other cash used in operating activities for the nine month periods is
comprised of the following: |

Net Payments on Derivatives	May 2, 2004 — $ (56	)	April 27, 2003 — $ (29	)
Benefit Related Payments	(38	)	(36	)
Other	2		(7	)
	$ (92	)	$ (72	)

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link2 "ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition"

ITEM 2.

CAMPBELL SOUP COMPANY CONSOLIDATED MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Results of Operations

Overview

The company reported net earnings of $142 million for the third quarter ended May 2, 2004 versus $129 million in the comparable quarter a year ago. Earnings per share were $.34, compared to $.31 a year ago. (All earnings per share amounts included in Managements Discussion and Analysis are presented on a diluted basis.) The current year net earnings included a $10 million gain (net of $6 million in taxes) or $.02 per share from a settlement of a class action lawsuit involving ingredient suppliers. The gain was recorded in Other expenses/(income). Current year earnings were favorably impacted by lower interest expense, a lower tax rate and favorable currency translation.

For the nine months ended May 2, 2004, net earnings were $588 million, compared to $552 million a year ago before the cumulative effect of accounting change. Earnings per share were $1.43 compared to $1.34 a year ago before the cumulative effect of accounting change. The current year results include the gain from the settlement of the lawsuit previously noted. The remaining increase over the prior year is due to higher sales, lower interest expense and the favorable impact of currency, partially offset by a decrease in gross margin as a percentage of sales.

In connection with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 in fiscal 2003, the company recognized a non-cash charge of $31 million (net of a $17 million tax benefit) or $.08 per share, as a cumulative effect of accounting change. This charge related to impaired goodwill associated with the Stockpot business, a food service business acquired in August 1998.

In the fourth quarter of fiscal 2003, certain stock-based incentive compensation expenses were reclassified from Other expenses to reflect the costs by function on various lines of the Statements of Earnings. The prior period has been reclassified to conform to the current presentation.

THIRD QUARTER

Sales

Net sales in the quarter increased 4% to $1.7 billion from $1.6 billion last year. The growth was attributed to a 1% decrease from volume and mix, a 1% increase from higher

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selling prices, a 1% decrease due to higher revenue reductions from trade promotion and consumer coupon redemption programs and a 5% increase due to currency.

An analysis of net sales by reportable segment follows:

	(millions) — 2004	2003	% Change
North America Soup and
Away From Home	$ 578	$ 600	(4	)%
North America Sauces
and Beverages	301	295	2
Biscuits and Confectionery	481	434	11
International Soup and Sauces	307	271	13
	$ 1,667	$ 1,600	4	%

The 4% decrease in sales from North America Soup and Away From Home was due to a 4% decrease from volume and mix, a 3% increase from improved price realization, a 4% decrease attributable to higher revenue reductions from trade promotion and consumer coupon redemption programs, and a 1% increase from currency. In the U.S., ready-to-serve soup sales decreased 13% for the quarter on shipment declines of 9%. This performance follows a strong first half and compares with a strong year-ago quarter. The Mm! Mm! Good! To Go convenience platform, including Campbells Select and Chunky soups in microwaveable bowls and Campbells Soup at Hand, continues to perform well. Condensed soup sales and shipments declined 6%. Broth sales declined 7%, as 1% shipment growth was more than offset by increased promotional spending. Away From Home reported an increase in sales due to higher sales of refrigerated soup. The Canadian business reported a sales volume decline.

North America Sauces and Beverages reported a 2% increase in sales due to lower revenue reductions from trade promotion and consumer coupon redemption programs. Volume and mix were flat. V8 vegetable juice and Campbells tomato juice reported strong sales gains accompanied by improved sales of Pace Mexican sauces and Prego pasta sauces. The increases were partially offset by declines in Franco-American canned pasta and gravies and Swanson canned poultry sales.

Biscuits and Confectionery reported an 11% increase in sales due to a 2% increase from volume and mix, a 1% increase from higher price realization, a 1% decrease due to higher revenue reductions from trade promotion and consumer coupon redemption programs and a 9% increase from currency. The favorable currency impact principally reflects the strengthening of the Australian dollar. Pepperidge Farm sales increased slightly as growth in cookie and fresh bakery sales were partially offset by lower sales of frozen products and competitive pressures in cheese crackers. Arnotts reported a sales increase from gains in biscuit products and the introduction of new chocolate products. Godiva Chocolatiers worldwide sales also increased.

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International Soup and Sauces reported an increase in sales of 13%. The sales increase was due to a 14% increase from the favorable impact of currency and a 1% increase due to lower revenue reductions from trade promotion and consumer coupon redemption programs, offset by a 2% decline from volume and mix. In Europe, branded sales increased compared to the year-ago quarter, offsetting declines in sales of private label products. Liebig soups in France and Batchelors soup and Oxo stock cubes in the United Kingdom contributed to the increase in sales. Sales of Homepride sauces in the United Kingdom and both branded and non-branded products in Germany declined. In Asia Pacific, sales increased driven by Campbells broth and V8 beverages.

Gross Margin

Gross margin, defined as net sales less cost of products sold, decreased $8 million. As a percent of sales, gross margin decreased from 42.5% in 2003 to 40.3% in 2004. The percentage decrease was primarily due to costs associated with quality and packaging improvements (approximately 0.9 percentage points), higher promotional spending (approximately 0.7 percentage points), product mix and currency (approximately 0.7 percentage points), and the impact of inflation and other factors (approximately 2.6 percentage points) partially offset by higher selling prices (approximately 0.8 percentage points) and productivity improvements (approximately 1.9 percentage points).

Marketing and Selling Expenses

Marketing and selling expenses increased 5% in 2004 as a result of the impact of currency translation. As a percent of sales, Marketing and selling expenses were 17% in both 2004 and 2003.

Administrative Expenses

Administrative expenses decreased by $2 million, or 1%, primarily due to lower costs associated with ongoing litigation and a decrease in bad debt expense compared to the prior year.

Operating Earnings

Segment operating earnings decreased 10% from the prior year.

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An analysis of operating earnings by reportable segment follows:

	(millions) — 2004	2003		% Change
North America Soup and
Away From Home	$ 113	$	147	(23	)%
North America Sauces
and Beverages	66		59	12
Biscuits and Confectionery	37		38	(3	)
International Soup and
Sauces	38		37	3
Subtotal	254		281	(10	)
Corporate	(11	)	(46	)
	$ 243	$	235	3	%

Earnings from North America Soup and Away From Home decreased 23% primarily due to lower sales and increased promotional spending.

Earnings from North America Sauces and Beverages increased 12% due to improved sales mix and lower administrative expenses.

Earnings from Biscuits and Confectionery decreased 3% due to increased promotional spending in the Australian Snackfoods business, partially offset by the favorable impact of currency (approximately 8 percentage points).

Earnings from International Soup and Sauces increased 3% as the favorable impact of currency (approximately 14 percentage points) was offset by increased advertising spending in Europe.

Corporate expenses decreased to $11 million from $46 million primarily due to the gain from the companys share of a settlement from a class action lawsuit involving ingredient suppliers, lower expenses related to the carrying value of the companys investment in affordable housing, lower expenses from currency hedging related to the financing of international activities and lower legal expenses.

Nonoperating Items

Interest expense decreased to $40 million from $45 million in the prior year, primarily due to lower levels of debt.

The effective tax rate for the quarter was 30.0% for 2004 and 32.1% for 2003. The lower tax rate this year was due to a reduction in the fiscal 2003 tax liability following the filing of the fiscal 2003 U.S. tax return and the favorable resolution of certain state income tax audits.

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NINE MONTHS

Sales

Net sales for the nine months increased 9% to $5.7 billion from $5.2 billion last year. The change was attributed to a 2% increase from volume and mix, a 2% increase from higher selling prices, and a 5% increase due to currency.

An analysis of net sales by reportable segment follows:

	(millions) — 2004	2003	% Change
North America Soup and
Away From Home	$ 2,277	$ 2,170	5 %
North America Sauces
and Beverages	952	920	3
Biscuits and Confectionery	1,522	1,330	14
International Soup and Sauces	925	803	15
	$ 5,676	$ 5,223	9 %

North America Soup and Away From Home sales increased 5% due to a 1% increase from volume and mix, a 3% increase from higher price realization, a 1% decrease attributable to higher revenue reductions from trade promotion and consumer coupon redemption programs, and a 2% increase from currency. In the U.S., ready-to-serve soup sales increased 10% as shipments increased 7%. Condensed soup sales were down 2% reflecting shipment declines of 5%, partially offset by higher prices. Broth sales increased 8% reflecting shipment growth of 6%. The ready-to-serve increase was driven by the strong performance of the new Mm! Mm! Good! To Go convenience platform including Campbells Select and Chunky soups in microwaveable bowls, which were introduced this year, and Campbells Soup at Hand . Away From Home reported increased sales as sales of refrigerated soups and the favorable impact of currency were partially offset by declines in entrees. The Canadian business reported a sales increase versus prior year due to currency.

North America Sauces and Beverages reported a 3% increase in sales due to a 2% increase from volume and mix and a 1% increase due to lower revenue reductions from trade promotion and consumer coupon redemption programs. The sales increase was primarily due to the performance of beverages, with V8 vegetable juice reporting strong sales gains. V8 Splash Smoothies, introduced in the second-half of last year, and Campbells tomato juice also contributed to the sales growth. Pace Mexican sauce sales increased over the year-ago period on distribution gains. Prego pasta sauces experienced a decline in sales, attributable in part to weakness in the dry pasta category. Franco-American canned pasta and gravies and Swanson canned poultry sales declined.

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Biscuits and Confectionery reported a 14% increase in sales due to a 2% increase from the acquisition of Snack Foods Limited in Australia, a 3% increase from volume and mix, a 2% increase from higher price realization and an 8% increase from currency, partially offset by a 1% decrease due to higher revenue reductions from trade promotion and consumer coupon redemption programs. The favorable currency impact was attributable primarily to the strengthening of the Australian dollar. Pepperidge Farm contributed to the sales increase as a result of growth in cookies, crackers and fresh bread partially offset by a decline in frozen products. Arnotts reported a sales increase primarily due to growth in biscuits. Godiva Chocolatiers worldwide sales increased due to improving same store sales trends in North America and continued growth in the Asia Pacific region.

International Soup and Sauces reported an increase in sales of 15%. The favorable impact of currency accounted for a 14% increase, volume and mix added 2%, offset by a 1% decrease due to the divestiture of a private label business in the United Kingdom. The increase in volume and mix was driven primarily by sales gains in Belgium, France and Australia.

Gross Margin

Gross margin, defined as net sales less cost of products sold, increased $85 million. As a percent of sales, gross margin decreased from 43.6% in 2003 to 41.6% in 2004. The percentage decrease was primarily due to costs associated with quality and packaging improvements (approximately 1.0 percentage points), adverse product mix and currency (approximately 0.8 percentage points), higher pension expense and the impact of acquisitions (approximately 0.3 percentage points), and the impact of inflation and other factors (approximately 2.6 percentage points) partially offset by higher selling prices (approximately 0.9 percentage points) and productivity improvements (approximately 1.8 percentage points).

Marketing and Selling Expenses

Marketing and selling expenses increased 5% in 2004 primarily as a result of the impact of currency translation. As a percent of sales, Marketing and selling expenses were 16% in 2004 and 17% in 2003.

Administrative Expenses

Administrative expenses increased by $21 million, or 6%, primarily due to the impact of currency translation (approximately 5 percentage points) and expenses related to employee benefit costs.

Operating Earnings

Segment operating earnings increased 1% from the prior year.

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An analysis of operating earnings by reportable segment follows:

	(millions) — 2004	2003		% Change
North America Soup and
Away From Home	$ 554	$	561	(1	)%
North America Sauces
and Beverages	216		220	(2	)
Biscuits and Confectionery	173		167	4
International Soup and
Sauces	112		97	15
Subtotal	1,055		1,045	1
Corporate	(69	)	(95	)
	$ 986	$	950	4	%

Earnings from North America Soup and Away From Home decreased 1% as increased sales were offset by higher costs of packaging and ingredients, costs associated with quality improvements and product mix changes.

Earnings from North America Sauces and Beverages decreased 2% as increased sales were offset by higher costs of packaging and ingredients, costs associated with quality improvements, and higher marketing and selling expenses.

Earnings from Biscuits and Confectionery increased 4% due to the favorable impact of currency (approximately 8 percentage points) partially offset by increased promotional spending in the Australian Snackfoods business.

Earnings from International Soup and Sauces increased 15% primarily due to the impact of currency (approximately 15 percentage points).

Corporate expenses decreased to $69 million from $95 million primarily due to the gain from the companys share of a class action settlement involving ingredient suppliers, lower expenses related to the carrying value of the companys investment in affordable housing and lower expenses from currency hedging related to financing of international activities.

Nonoperating Items

Interest expense decreased to $125 million from $136 million in the prior year, primarily due to lower levels of debt.

The effective tax rate for the nine months was 31.7% for 2004 and 32.2% for 2003. The effective tax rate for the 2003 year was 32.2%. The lower tax rate this year was due to a lower tax liability following the filing of the fiscal 2003 U.S. tax return and the favorable resolution of certain state income tax audits.

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Liquidity and Capital Resources

The company generated cash from operations of $576 million compared to $706 million last year. This reduction in cash flow reflects a $50 million voluntary contribution to a U.S. pension plan, a higher increase in working capital than a year ago primarily due to a decrease in accrued liabilities, and cash settlements of currency hedging contracts related to the financing of foreign operations. These factors were partially offset by increased earnings.

Capital expenditures were $142 million compared to $158 million a year ago. Capital expenditures are expected to be approximately $290 million in fiscal 2004 compared to $283 million in fiscal 2003, with the increase driven by currency.

Businesses acquired, as presented in the Statements of Cash Flows, reflect the acquisitions of Snack Foods Limited and Erin Foods in Ireland in the first quarter of 2003 and the acquisition of certain brands from George Weston Foods Limited in Australia in the first quarter of 2004.

The company repurchased 700,000 shares in the quarter ended May 2, 2004 at the cost of $19 million. The company repurchased 1,410,000 shares in the nine month period ended May 2, 2004 at a cost of $38 million. The company repurchased 432,000 shares in the quarter ended April 27, 2003 at a cost of $9 million. The company repurchased 552,000 shares in the nine month period ended April 27, 2003 at a cost of $13 million. The company expects to repurchase sufficient shares over time to offset the impact of dilution from shares issued under the companys stock compensation plans. See Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities for more information.

In September 2003, the company issued $300 million ten-year 4.875% fixed-rate notes. The proceeds were used to repay commercial paper borrowings and for other general corporate purposes. While planning for the issuance of these notes, the company entered into treasury lock agreements with a notional value of $100 million that effectively fixed a portion of the interest rate on the debt prior to issuance. These agreements were settled at a minimal gain upon issuance of the notes, which will be amortized over the life of the notes. In connection with this issuance, the company entered into ten-year interest rate swaps that convert $200 million of the fixed-rate debt to variable.

In September 2003, the company also entered into $100 million five-year interest rate swaps that convert a portion of the 5.875% fixed-rate notes due October 2008 to variable.

At May 2, 2004, the company had approximately $769 million of notes payable due within one year and $36 million of standby letters of credit issued on behalf of the company. The company maintains $1.8 billion of committed revolving credit facilities, which remain unused at May 2, 2004, except for the $36 million of standby letters of credit issued on behalf of the company. In September 2003, the company entered into a $900 million committed 364-day revolving credit facility, which replaced an existing $900 million 364-day facility that matured in September 2003. The 364-day revolving

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credit facility contains a one-year term-out feature. The company also has a $900 million revolving credit facility that matures in September 2006. The credit facilities support the companys commercial paper program. The company is in compliance with the covenants contained in its revolving credit facilities and debt securities.

Shareowners equity includes a minimum liability, net of tax, of $213 million in 2004 and $208 million in 2003, principally related to a U.S. pension plan. Following stock market declines in July 2002, and continuing through 2003, the fair value of assets included in certain pension funds fell below the accumulated benefit obligation. As required under accounting principles generally accepted in the United States, the company recognized the additional minimum liability and reclassified an existing pension asset to equity. Pension expense is expected to increase in 2004 compared to 2003 primarily due to a lower discount rate and a reduction in the estimated return on plan assets. As previously noted, the company made a $50 million voluntary contribution to a U.S. pension plan in 2004. Additional contributions to the U.S. pension plans are not expected this fiscal year.

The company guarantees approximately 1,200 bank loans to Pepperidge Farm independent sales distributors by third party financial institutions used to purchase distribution routes. The maximum potential amount of the future payments the company could be required to make under the guarantees is approximately $88 million. The companys guarantees are indirectly secured by the distribution routes. The company does not believe that it is probable that it will be required to make guarantee payments as a result of defaults on the bank loans guaranteed. See also Note (n) to the Consolidated Financial Statements for information on guarantees.

The company believes that foreseeable liquidity, including the resolution of the contingencies described in Note (m) to the Consolidated Financial Statements, and capital resource requirements are expected to be met through anticipated cash flows from operations, management of working capital, long-term borrowings under its shelf registration, and short-term borrowings, including commercial paper. The company believes that its sources of financing are adequate to meet its future liquidity and capital resource requirements. The cost and terms of any future financing arrangements depend on the market conditions and the companys financial position at that time.

Significant Accounting Estimates

The consolidated financial statements of the company are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. The significant accounting policies of the company are described in Note 1 to the Consolidated Financial Statements and the significant accounting estimates are described in Managements Discussion and Analysis included in the 2003 Annual Report on Form 10-K. The impact of new accounting standards is discussed in the following section. There have been no other changes in the companys accounting policies in the current period that had a material impact on the companys consolidated financial condition or results of operation.

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Recently Issued Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB 51. This Interpretation addresses consolidation by business enterprises of certain variable interest entities (VIEs). The Interpretation as amended is effective immediately for all enterprises with interests in VIEs created after January 31, 2003. In December 2003, the FASB issued a revised version of FIN 46 (FIN 46R), which clarified the provisions of FIN 46 by addressing implementation issues. FIN 46R must be applied to all entities subject to the Interpretation as of the first interim quarter ending after March 15, 2004. The company has investments of approximately $150 million as of May 2, 2004 consisting of limited partnership interests in affordable housing partnership funds. The companys ownership ranges from approximately 12% to 19%. The company evaluated the nature of these investments, which were in existence before January 31, 2003, against the provisions of the guidance and determined that such investments do not need to be consolidated in the financial statements. The company will continue to monitor modifications to the Interpretation.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or mezzanine equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The guidance in SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not impact the financial statements.

In December 2003, the FASB issued a revised SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits, which requires additional disclosures for benefit plans. The standard requires quarterly disclosure of the various components of pension expense and expanded annual disclosures, such as describing the types of plan assets, investment strategy, and measurement dates. The required interim disclosures are included in Note (l) to the Consolidated Financial Statements. Annual disclosures will be provided in the 2004 Form 10-K.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The company sponsors medical programs for certain of its U.S. retirees and expects that this legislation will reduce the costs for some of these programs. The company is continuing to evaluate the impact of the legislation since guidance from various governmental and regulatory agencies concerning the requirements that must be met to obtain these cost reductions is still pending. In April 2004, the FASB issued Staff Position (FSP) No. FAS 106 - 2 to address the accounting and disclosure requirements

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related to the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. The expected effects of the Act will be factored into the companys fiscal 2004 year-end measurement of postretirement medical obligations and related expense calculation for fiscal 2005.

Recent Developments

On May 24, 2004, the company announced results for the third quarter 2004 and commented on the outlook for earnings per share for the full year. In that announcement, the company provided a full fiscal 2004 earnings estimate of approximately $1.60 per share, which includes $.02 per share related to the aforementioned litigation settlement. This compares to the 2003 reported amount of $1.52 before the cumulative effect of the accounting change. For the fourth quarter of 2004, the company expects diluted earnings per share to be approximately $.17.

Forward-Looking Statements

This quarterly report contains certain statements that reflect the companys current expectations regarding future results of operations, economic performance, financial condition and achievements of the company. The company tries, wherever possible, to identify these forward-looking statements by using words such as anticipate, believe, estimate, expect, will and similar expressions. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements reflect the companys current plans and expectations and are based on information currently available to it. They rely on a number of assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties.

The company wishes to caution the reader that the following important factors and those important factors described in other Securities and Exchange Commission filings of the company, or in the companys 2003 Annual Report, could affect the companys 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 companys ability to achieve the goals of its transformation
plan; |
| --- | --- |
| | the impact of strong competitive response to the companys efforts
to leverage its brand power with product innovation, promotional
programs and new advertising, and of changes in consumer demand for the
companys products; |
| | the risks in the marketplace associated with trade and consumer
acceptance of product improvements, shelving initiatives and new
product introductions; |
| | the companys ability to achieve sales and earnings forecasts,
which are based on assumptions about sales volume and product mix and
the impact of increased marketing investments; |
| | the companys ability to realize forecasted cost savings; |

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| | the companys ability to successfully manage changes to its
business processes, including selling, distribution, production
capacity and the integration of acquisitions; |
| --- | --- |
| | the increased significance of certain of the companys key trade
customers; |
| | the difficulty of predicting the pattern of inventory movements by
the companys trade customers and of predicting changes in the policies
of its customers, such as changes in customer inventory levels and
access to shelf space; |
| | the impact of fluctuations in the supply and cost of raw materials; |
| | the impact of unforeseen economic changes in currency exchange
rates, tax rates, interest rates, equity markets, inflation rates,
recession and other external factors over which the company has no
control, including the possibility of increased pension expense and
contributions resulting from lower interest rates and declines in stock
market returns; and |
| | the impact of unforeseen business disruptions in one or more of the
companys markets due to political instability, civil disobedience,
armed hostilities or other calamities. |

This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact the companys outlook. The company disclaims any obligation or intent to update any forward-looking statements made by the company in order to reflect new information, events or circumstances after the date they are made.

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link2 "ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK"

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the companys exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the 2003 Annual Report on Form 10-K. There have been no significant changes in the companys portfolio of financial instruments or market risk exposures from the fiscal 2003 year-end except as follows:

In August 2003, the company entered into a pay variable CAD/receive variable USD swap with a notional value of $53 million. The company also entered into two pay fixed CAD/receive fixed USD swaps with notional values of $61 million each.

In August 2003, a pay fixed SEK/receive fixed USD swap with a notional value of $31 million matured. The company entered into a pay variable SEK/receive variable USD swap with a notional value of $18 million which matures in 2005.

In October 2003, the company entered into a pay variable GBP/receive variable USD swap with a notional value of $125 million to replace a portion of a foreign exchange forward contract that matured.

In December 2003, the company entered into a pay fixed GBP/receive fixed USD swap with a notional value of $30 million to replace a portion of a foreign exchange forward contract that matured.

In January 2004, the company entered into two pay variable EUR/receive variable USD swaps with notional values of $32 million and $137 million. Both swaps replaced foreign exchange forward contracts that matured.

In February 2004, the company entered into a pay fixed GBP/receive fixed USD swap with a notional value of $40 million to replace a foreign exchange forward contract that matured.

In April 2004, the company entered into a $50 million interest rate swap that converted a portion of the 6.9% fixed rate notes due October 2006 to variable.

On May 11, 2004 the company entered into a $50 million interest rate swap that converted a portion of the 6.9% fixed rate notes due October 2006 to variable.

In addition, see the Liquidity and Capital Resources discussion in Part I, Item 2 for information on the interest rate swap activity in fiscal 2004.

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link2 "ITEM 4. CONTROLS AND PROCEDURES"

ITEM 4. CONTROLS AND PROCEDURES

a.	Evaluation of Disclosure Controls and Procedures
	The company, under the supervision and with the participation of its
management, including the President and Chief Executive Officer and the
Senior Vice President and Chief Financial Officer, has evaluated the
effectiveness of the companys disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of
May 2, 2004 (the Evaluation Date). Based on such evaluation, the
President and Chief Executive Officer and the Senior Vice President and
Chief Financial Officer have concluded that, as of the Evaluation Date,
the companys disclosure controls and procedures are effective, and are
reasonably designed to ensure that all material information relating to
the company (including its consolidated subsidiaries) required to be
included in the companys reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.
b.	Changes in Internal Controls
	During the quarter ended May 2, 2004, there were no changes in the
companys internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, such internal
control over financial reporting.

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link1 " PART II"

PART II link2 "ITEM 1. LEGAL PROCEEDINGS"

ITEM 1. LEGAL PROCEEDINGS

As previously reported, on March 30, 1998, the company effected a spinoff of several of its non-core businesses to Vlasic Foods International Inc. (VFI). VFI and several of its affiliates (collectively, Vlasic) commenced cases under Chapter 11 of the Bankruptcy Code on January 29, 2001 in the United States Bankruptcy Court for the District of Delaware. Vlasics Second Amended Joint Plan of Distribution under Chapter 11 (the Plan) was confirmed by an order of the Bankruptcy Court dated November 16, 2001, and became effective on or about November 29, 2001. The Plan provides for the assignment of various causes of action allegedly belonging to the Vlasic estates, including claims against the company allegedly arising from the spinoff, to VFB L.L.C., a limited liability company (VFB) whose membership interests are to be distributed under the Plan to Vlasics general unsecured creditors.

On February 19, 2002, VFB commenced a lawsuit against the company and several of its subsidiaries in the United States District Court for the District of Delaware alleging, among other things, fraudulent conveyance, illegal dividends and breaches of fiduciary duty by Vlasic directors alleged to be under the companys control. The lawsuit seeks to hold the company liable in an amount necessary to satisfy all unpaid claims against Vlasic (which VFB estimates in the amended complaint to be $200 million), plus unspecified exemplary and punitive damages. While the ultimate disposition of complex litigation is inherently difficult to assess, the company believes the action is without merit and is defending the case vigorously.

As also previously reported, the company received an Examination Report from the Internal Revenue Service on December 23, 2002, which included a challenge to the treatment of gains and interest deductions claimed in the companys fiscal 1995 federal income tax return, relating to transactions involving government securities. If the proposed adjustment were upheld, it would require the company to pay a net amount of approximately $100 million in taxes, accumulated interest to December 23, 2002, and penalties. Interest will continue to accrue until the matter is resolved. The company believes these transactions were properly reported on its federal income tax return in accordance with applicable tax laws and regulations in effect during the period involved and is challenging these adjustments vigorously. While the outcome of proceedings of this type cannot be predicted with certainty, the company believes that the ultimate outcome of this matter will not have a material impact on the consolidated financial condition or results of operation of the company.

As also previously reported, the company began discussions in April 2003 with the New Jersey Department of Environmental Protection (NJDEP) regarding certain air emissions from the companys South Plainfield, New Jersey flavoring and spice mix plant. On April 22, 2004, the company entered into an Administrative Consent Order (ACO) with the NJDEP to settle these alleged violations. Under the ACO, the company agreed to (i) modify existing process equipment and to install additional air emission control equipment by July 31, 2004, all at a cost of approximately $1.5 million,

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(ii) pay a $300 thousand penalty, (iii) pay $100 thousand for a supplemental environmental project, and (iv) pay approximately $185 thousand in outstanding air emission fees. These amounts are in addition to the approximately $285 thousand in evaluation costs incurred by the company. The ACO does not constitute an admission of liability by the company.

As also previously reported, in July 2003, the company began discussions with the Wisconsin Department of Natural Resources (WDNR) regarding certain air emissions from the companys Milwaukee, Wisconsin flavoring and spice mix plant. These emissions may exceed limits established pursuant to the Wisconsin Clean Air Act Program. The discussions are likely to result in the company installing air emission control equipment on an agreed upon schedule. The WDNR may require additional expenditures, which cannot be determined at this time. As of May 2, 2004, the company incurred costs of approximately $222 thousand related to the evaluation of this issue, and the company expects to spend up to $700 thousand (exclusive of any other amounts) on the installation of required air emissions control equipment. The company does not expect that the cost of installing the emission control equipment or any other expenditures required by the WDNR will have a material impact on the consolidated financial condition or results of operation of the company.

As also previously reported, on July 15, 2003, Pepperidge Farm, Incorporated, an indirect wholly-owned subsidiary of the company, made a submission to the United States Environmental Protection Agency (EPA) relating to its use and replacement of certain appliances containing ozone-depleting refrigerants. The submission was made pursuant to the terms of the Ozone-Depleting Substance Emission Reduction Bakery Partnership Agreement (the EPA Agreement) entered into by and between Pepperidge Farm and the EPA. Pepperidge Farm executed the EPA Agreement in April 2002 as part of a voluntary EPA-sponsored program relating to the reduction of ozone-depleting refrigerants used in the bakery industry. As a result of the EPA Agreement, as of May 2, 2004, Pepperidge Farm has incurred costs of approximately $4 million relating to the evaluation and replacement of certain of its refrigerant appliances. If the submission is approved by the EPA, in addition to the expenditures previously made, Pepperidge Farm will be required to (i) pay a penalty in the amount of approximately $370 thousand, and (ii) replace certain additional refrigerant appliances, which Pepperidge Farm expects to cost approximately $750 thousand. In December 2003, in anticipation of the EPAs approval of the submission, Pepperidge Farm began replacing the additional refrigerant appliances. The company does not expect that the cost of complying with the EPA Agreement will have a material impact on the consolidated financial condition or results of operation of the company.

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link2 "ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES"

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Issuer Purchases of Equity Securities


				Shares Purchased	of Shares that May
	Total Number		Average	as Part of Publicly	Yet Be Purchased
	of Shares		Price Paid	Announced Plans	Under the Plans
Period	Purchased (1)		Per Share (2)	or Programs	or Programs
2/2/04 - 2/29/04	160,100	(3)	$ 27.30	(3)	0	0
3/1/04 - 3/31/04	235,335	(4)	$ 27.40	(4)	0	0
4/1/04 - 5/2/04	450,453	(5)	$ 27.21	(5)	0	0

| (1) | The company repurchases shares of capital stock to offset the
dilutive impact to existing shareowners of issuances under the companys
stock compensation plans. The company also repurchases shares of
capital stock that are owned and tendered by employees to satisfy tax
withholding obligations on the vesting of restricted shares. All share
repurchases were made in open-market transactions, except for the shares
owned and tendered by employees to satisfy tax withholding obligations
(which were purchased at the closing price of the companys shares on
the date of tender). None of these transactions were made pursuant to a
publicly announced repurchase plan or program. |
| --- | --- |
| (2) | Average price paid per share is calculated on a settlement basis and
excludes commission. |
| (3) | Includes 100 shares owned and tendered by employees at an average
price per share of $27.07 to satisfy tax withholding requirements on the
vesting of restricted shares. |
| (4) | Includes 10,335 shares owned and tendered by employees at an average
price per share of $26.43 to satisfy tax withholding requirements on the
vesting of restricted shares. |
| (5) | Includes 135,453 shares owned and tendered by employees at an average
price per share of $27.27 to satisfy tax withholding requirements on the
vesting of restricted shares. |

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link2 "ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K"

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.
10(a) Letter Agreement between the company and Mark A. Sarvary,
effective as of February 9, 2004, regarding severance arrangements.
31(i) Certification of Douglas R. Conant pursuant to Rule 13a-14(a).
31(ii) Certification of Robert A. Schiffner pursuant to Rule 13a-14(a).
32(i) Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350.
32(ii) Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350.

| b. |
| --- |
| On February 12, 2004, the company furnished a report on Form 8-K
providing a copy of the press release dated that day updating the
companys earnings per share estimate for the fiscal 2004 second quarter
and maintaining its earnings guidance for the full fiscal year 2004. |
| On February 12, 2004, the company furnished a report on Form 8-K
providing a copy of the press release dated that day announcing a new
organizational structure for the companys North American businesses. |
| On February 23, 2004, the company furnished a report on Form 8-K
providing a copy of the press release dated that day announcing financial
results for the quarter ended February 1, 2004. |
| On March 26, 2004, the company furnished a report on Form 8-K providing a
copy of the press release dated that day announcing the appointment of
two of its senior financial executives to new positions. |

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link1 " SIGNATURES"

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CAMPBELL SOUP COMPANY — By:	/s/ Robert A. Schiffner
	Robert A. Schiffner
	Senior Vice President and
	Chief Financial Officer
By:	/s/ Ellen Oran Kaden
	Ellen Oran Kaden
	Senior Vice President
	Law and Government Affairs

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link1 " INDEX TO EXHIBITS"

INDEX TO EXHIBITS

Exhibits

| 10(a) | Letter Agreement between the company and Mark A. Sarvary, effective as
of February 9, 2004, regarding severance arrangements. |
| --- | --- |
| 31(i) | Certification of Douglas R. Conant pursuant to Rule 13a-14(a). |
| 31(ii) | Certification of Robert A. Schiffner pursuant to Rule 13a-14(a). |
| 32(i) | Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350. |
| 32(ii) | Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350. |

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