UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the Fiscal Year Ended
July 31, 200530, 2006
 Commission File Number
1-3822

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

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

Telephone Number: (856) 342-4800



Securities registered pursuant to Section 12(b) of the Act:
   
Title of Each Class
Capital Stock, par value $.0375
 Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ Noo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yeso Noþ
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. Yesþ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). Yesþ Noo

Act. (Check one):

Large accelerated filerþAccelerated fileroNon-accelerated filero
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of January 28, 200527, 2006 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of capital stock held by non-affiliates of the registrant was approximately $6,908,285,404.$7,208,804,190. There were 410,636,363403,417,924 shares of capital stock outstanding as of September 21, 2005.

19, 2006.

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareowners to be held on November 18, 2005,16, 2006, are incorporated by reference into Part III.


Campbell Soup Company
Form 10-K
Index
Table of Contents
       
      
   1 
   3 
   4 
Properties4
Legal Proceedings5
   56 
   56 
       
      
 6
Item 6.  7 
Selected Financial Data8
   89 
   1921 
   2022 
   4244 
   4244 
   4244 
       
      
   4344 
   4345 
   4345 
   4346 
   4346 
       
      
   4447 
    4649 
DEED OF RELEASE, DATED MAY 27, 2005
 SUBSIDIARIES (DIRECT AND& INDIRECT) OF THE COMPANY
 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 POWER OF ATTORNEY
 CERTIFICATION OF DOUGLAS R. CONANT
 CERTIFICATION OF ROBERT A. SCHIFFNER
 CERTIFICATION OF DOUGLAS R. CONANT PURSUANT TO 18 U.S.C. SECTION 1350906 SARBANES-OXLEY ACT OF 2002
 CERTIFICATION OF ROBERT A. SCHIFFNER PURSUANT TO 18 U.S.C. SECTION 1350906 SARBANES-OXLEY ACT OF 2002


PAGE 1

Part I

Item 1. Business

The CompanyCampbell Soup Company (“Campbell” or the “company”), together with its consolidated subsidiaries, is a global manufacturer and marketer of high-quality, branded convenience food products. Campbell was incorporated as a business corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, it traces its heritage in the food business back to 1869. The company’s principal executive offices are in Camden, New Jersey 08103-1799.

On June 24, 2004,

Throughout fiscal 2006, the company continued its focus on the five previously announced a series of initiativesstrategies designed to improve the company’s sales growth and the quality and growth of its earnings. BeginningThe five strategies include:
Expanding the company’s well-known brands within the simple meal and baked snack categories;
Trading consumers up to higher levels of satisfaction centering on convenience, wellness and quality;
Making the company’s products more broadly available in existing and new markets;
Increasing margins by improving price realization and company-wide productivity; and
Improving overall organizational diversity, engagement, excellence and agility.
Consistent with fiscalthese strategies, on July 12, 2006, the company updatedannounced the strategies it is usingsale of its United Kingdom and Irish businesses to continue this effort.Premier Foods plc. The five strategies include:

Expandingsale, which was completed on August 15, 2006, better enables Campbell to focus on building its businesses within the simple meals and baked snacks categories in markets with the greatest potential for growth.
The company’s well-known brands within the simple meal and baked snack categories;
Trading consumers up to higher levels of satisfaction centering on convenience, wellness and quality;
Making the company’s products more broadly available in existing and new markets;
Increasing margins by improving price realization and company-wide productivity; and
Improve overall organizational diversity, engagement, excellence and agility.

Through fiscal 2004, the company’s operations were organized and reported in four segments: North America Soup and Away From Home; North America Sauces and Beverages; Biscuits and Confectionery; and International Soup and Sauces. Beginning with fiscal 2005, the company changed its organizational structure and as a result its operations are organized and reported in the following segments: U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup and Sauces; and Other. The new segments are discussed in greater detail below.

U.S. Soup, Sauces and BeveragesThe U.S. Soup, Sauces and Beverages segment includes the following retail businesses:Campbell’scondensed and ready-to-serve soups;Swansonbroth and canned poultry;Pregopasta sauce;PaceMexican sauce;Campbell’s Chunkychili;Campbell’scanned pasta, gravies, and beans;Campbell’s Supper Bakesmeal kits;V8vegetable juice;V8 Splashjuice beverages;and juice drinks; andCampbell’stomato juice.

Baking and SnackingThe Baking and Snacking segment includes the following businesses:Pepperidge Farmcookies, crackers, bakery and frozen products in U.S. retail;Arnott’sbiscuits in Australia and Asia Pacific; andArnott’ssalty snacks in Australia.

International Soup and SaucesThe International Soup and Sauces segment includes the soup, sauce and beverage businesses
outside of the United States, including Europe, Mexico,

Latin America, the Asia Pacific region and the retail business in Canada. The segment’s operations includeErascoandHeisse Tassesoups in Germany,LiebigandRoycosoups andLesieursauces in France,Campbell’sandBatchelorssoups,OXOstock cubes andHomepridesauces in the United Kingdom,Devos Lemmensmayonnaise and cold sauces andCampbell’sandRoycosoups in Belgium, andBlå Bandsoups and sauces in Sweden, andMcDonnellsandErin soups in Ireland.Sweden. In Asia Pacific, operations includeCampbell’ssoup and stock, andSwansonbroths across the region.andV8beverages. In Canada, operations includeHabitantandCampbell’ssoups,Pregopasta sauce andV8juices.

beverages. As previously discussed, on August 15, 2006, the company completed the sale of its United Kingdom and Irish businesses, which includedHomepridesauces,OXOstock cubes, andBatchelors, McDonnellsandErin soups. The results of these divested businesses have been reflected as discontinued operations in the consolidated statements of earnings.

OtherThe balance of the portfolio reported in Other includes Godiva Chocolatier worldwide and the company’s Away From Home operations, which represent the distribution of products such as soup, specialty entrees, beverage products, other prepared foods and Pepperidge Farm products through various food service channels in the United States and Canada.

IngredientsThe ingredients required for the manufacture of the company’s food products are purchased from various suppliers. While all such ingredients are available from numerous independent suppliers, raw materials are subject to fluctuations in price attributable to a number of factors, including changes in crop size, cattle cycles, government-sponsored agricultural programs, import and export requirements and weather conditions during the growing and harvesting seasons. To help reduce some of this volatility, the company uses commodity futures contracts for a number of its ingredients, such as corn, cocoa, soybean meal, soybean oil, wheat and wheat.dairy. Ingredient inventories are at a peak during the late fall and decline during the winter and spring. Since many ingredients of suitable quality are available in sufficient quantities only at certain seasons, the company makes commitments for the purchase of such ingredients during their respective seasons. At this time, the company does not anticipate any material restrictions on availability or shortages of ingredients that would have a significant impact on the company’s businesses. For additional information on the company’s ingredient management and for information relating to the impact of inflation on the company, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and Note 1820 to the Consolidated Financial Statements.

CustomersIn most of the company’s markets, sales activities are conducted by the company’s own sales force and through broker and distributor arrangements. In the United States, Canada and Latin America, the company’s products are generally resold to consumers in retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores and other retail establishments. In Europe, the company’s products are generally



PAGE 2

resold to consumers in retail food chains, mass discounters and other retail establishments. In Mexico, the company’s products are generally resold to consumers in retail food chains, club stores, convenience stores drug stores




2

and other retail establishments. In the Asia Pacific region, the company’s products are generally resold to consumers through retail food chains, convenience stores and other retail establishments. Godiva Chocolatier’s products are sold generally through a network of company-owned retail boutiques in North America, Europe, and Asia, franchised third-party retail boutique operators primarily in Europe, third-party distributors in Europe and Asia, and major retailers, including finer department stores and duty-free shops, worldwide. Godiva Chocolatier’s products are also sold through catalogs and on the Internet, although these sales are primarily limited to North America and Japan. The company makes shipments promptly after receipt and acceptance of orders.

The company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 14% of the company’s consolidated net sales during fiscal 20052006 and 12% during fiscal 2004.2005. All of the company’s segments sold products to Wal-Mart Stores, Inc. or its affiliates. No other customer accounted for 10% or more of the company’s consolidated net sales.

Trademarks and TechnologyTheAs of October 1, 2006, the company owns over 6,9007,100 trademark registrations and applications in over 160 countries and believes that its trademarks are of material importance to its business. Although the laws vary by jurisdiction, trademarks generally are valid as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic. Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. The company believes that its principal brands, includingCampbell’s, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson, Batchelors, Arnott’s,andGodiva,are protected by trademark law in the company’s relevant major markets. In addition, some of the company’s products are sold under brands that have been licensed from third parties.

Although the company owns a number of valuable patents, it does not regard any segment of its business as being dependent upon any single patent or group of related patents. In addition, the company owns copyrights, both registered and unregistered, and proprietary trade secrets, technology, know-how processes, and other intellectual property rights that are not registered.

CompetitionThe company experiences worldwide competition in all of its principal products. This competition arises from numerous competitors of varying sizes, including producers of generic and private label products, as well as from manufacturers of other branded food products, which compete for trade merchandising support and consumer dollars. As such, the number of competitors cannot be reliably estimated. The principal areas of competition are brand recognition, quality, price, advertising, promotion, convenience and service.

Working CapitalFor information relating to the company’s cash and working capital items, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

Capital ExpendituresDuring fiscal 2005,2006, the company’s aggregate capital expenditures were $332$309 million. The company expects to spend approximately $360$325 to $350 million for capital projects in fiscal 2006.2007. The majorsingle largest planned fiscal 20062007 capital projects includeproject is the ongoing implementation of the SAP enterprise-resource planning system in North America and the construction of a new facility in Everett, Washington, for the company’s Stockpot subsidiary.

America.

Research and DevelopmentDuring the last three fiscal years, the company’s expenditures on research activities relating to new products and the improvement and maintenance of existing products for continuing operations were $95$99 million in 2005, $932006, $90 million in 20042005 and $88 million in 2003.2004. The increase during the last two fiscal years in researchfrom 2005 to 2006 was primarily due to higher stock-based compensation expense recognized under SFAS No. 123R and development spendingexpenses related to new product development. The increase from 2004 to 2005 was primarily due to currency fluctuations. The company conducts this research primarily at its headquarters in Camden, New Jersey, although important research is undertaken at various other locations inside and outside the United States.

Environmental MattersThe company has requirements for the operation and design of its facilities that meet or exceed applicable environmental rules and regulations. Of the company’s $332$309 million in capital expenditures made during fiscal 2005,2006, approximately $5.8$8 million was for compliance with environmental laws and regulations in the United States. The company further estimates that approximately $6.4$9 million of the capital expenditures anticipated during fiscal 20062007 will be for compliance with such environmental laws and regulations. The company believes that continued compliance with existing environmental laws and regulations will not have a material effect on capital expenditures, earnings or the competitive position of the company. Additional information regarding the company’s environmental matters is set forth in “Legal Proceedings.”

SeasonalityDemand for the company’s products is somewhat seasonal, with the fall and winter months usually accounting for the highest sales volume due primarily to demand for the company’s soup and sauce products. Godiva Chocolatier sales are also strongest during the fall and winter months. Demand for the company’s beverage, baking and snacking products, however, is generally evenly distributed throughout the year.

RegulationThe manufacture and marketing of food products is highly regulated. In the United States, the company is subject to regulation by various government agencies, including the Food and Drug Administration, the U.S. Department of Agriculture and the Federal Trade Commission, as well as various state and local agencies. The company is also regulated by similar agencies outside the United States and by voluntary organizations such as the National Advertising Division of the Council of Better Business Bureau.Bureaus.



PAGE 3

EmployeesOn July 31, 2005,30, 2006, there were approximately 24,000 full-time employees of the company.

Following the sale of the company’s United Kingdom and Irish businesses on August 15, 2006, the company had approximately 23,000 full-time employees.



3

Financial InformationFor information with respect to revenue, operating profitability and identifiable assets attributable to the company’s business segments and geographic areas, see Note 45 to the Consolidated Financial Statements.

Company WebsiteThe company’s primary corporate website can be found at www.campbellsoupcompany.com. The company

makes available free of charge at this website (under the “Investor Center Financial Reports SEC Filings” caption) all of its reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including its annual report on Form 10-K, its quarterly reports on Form10-Q and its current reportsCurrent Reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.

Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely affect the company’s business, financial condition and results of operations. Additional risks and uncertainties not presently known to the company or that the company currently deems immaterial also may impair the company’s business operations and financial condition.
The company operates in a highly competitive industryThe company operates in the highly competitive food industry and experiences worldwide competition in all of its principal products. A number of the company’s primary competitors have substantial financial, marketing and other resources. A strong competitive response from one or more of these competitors to the company’s marketplace efforts could result in the company reducing pricing, increasing capital, marketing or other expenditures, or losing market share. These changes may have a material adverse effect on the business and financial results of the company.
The company’s long-term results are dependent on successful marketplace initiativesThe company’s long-term results are dependent on successful marketplace initiatives. The company’s product introductions and product improvements, along with its other marketplace initiatives, are designed to capitalize on new customer or consumer trends. In order to remain successful, the company must anticipate and react to these new trends and develop new products or processes to address them. While the company devotes significant resources to meeting this goal, the company may not be successful in developing new products or processes, or its new products or processes may not be accepted by customers or consumers. These results could have a material adverse effect on the business and financial results of the company.
The company may not properly execute, or realize anticipated cost savings or benefits from, its ongoing supply chain, information technology or other initiativesThe company’s success is partly dependent upon properly executing, and realizing cost savings or other benefits from, its ongoing supply chain, information technology and other initiatives. These initiatives are primarily designed to make the company more efficient in the manufacture and distribution of its products, which is necessary in the company’s highly competitive industry. These initiatives are often complex, and a failure to implement them properly may, in addition to not meeting projected cost savings or benefits, result in an interruption to the company’s sales, manufacturing, logistics, customer service or accounting functions. Furthermore, the company has invested a significant amount of capital into a number of these initiatives, which may have been more efficiently used if the full cost savings or benefits are not realized. Finally, the company may not meet expected cost savings from publicly-announced restructuring programs. Any of these results could have a material adverse effect on the business and financial results of the company.
The company may be adversely impacted by the increased significance of some of its customersThe loss of any of the company’s large customers, such as Wal-Mart Stores, Inc., for an extended period of time could adversely affect the company’s business or financial results. In addition, the retail grocery trade continues to consolidate and mass market retailers continue to become larger. In such an environment, a large retail customer may attempt to increase its profitability by improving efficiency, lowering its costs or increasing promotional programs. If the company is unable to use its scale, marketing expertise, product innovation and category leadership positions to respond to these customer demands, the company’s business or financial results could be negatively impacted.
The company’s long-term results may be adversely impacted by increases in the price of raw materialsThe raw materials used in the company’s business include tomato paste, beef, poultry, vegetables, metal containers, glass, paper, resin and energy. Many of these materials are subject to price fluctuations from a number of factors, including product scarcity, commodity market speculation, currency fluctuations, weather conditions, import and export requirements and changes in government-sponsored agricultural programs. To the extent any of these factors result in an unforeseen increase in raw material prices, the company may not be able to offset such increases through productivity or price increases. In such case, the company’s business or financial results could be negatively impacted.
The company may be adversely impacted by the failure to successfully identify and execute acquisitions and divestituresFrom time to time, the company undertakes acquisitions or divestitures. The success of any such acquisition or divestiture depends, in part, upon the company’s ability to identify suitable buyers or sellers,



PAGE 4

negotiate favorable contractual terms and, in many cases, obtain governmental approval. For acquisitions, success is also dependent upon efficiently integrating the acquired business into the company’s existing operations. In cases where acquisitions or divestitures are not successfully implemented or completed, the company’s business or financial results could be negatively impacted.
The company’s long-term results may be impacted negatively by political and/or economic conditions in the United States or other nationsThe company is a global manufacturer and marketer of high-quality, branded convenience food products. Because of its global reach, the company’s performance may be impacted negatively by political and/or economic conditions in the United States as well as other nations. A change in any one or more of the following factors in the United States, or in other nations, could impact the company: currency exchange rates, tax rates, interest rates, legal or regulatory requirements, tariffs, export and import restrictions or equity markets. The company may also be impacted by recession, political instability, civil disobedience, armed hostilities, natural disasters and terrorist acts in the United States or throughout the world. Any one of the foregoing could have a material adverse effect on the business and financial results of the company.
If the company’s food products become adulterated or are mislabeled, the company might need to recall those items and may experience product liability claims if consumers are injuredThe company may need to recall some of its products if they become adulterated or if they are mislabeled. The company may also be liable if the consumption of any of its products causes injury. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time. The company could also suffer losses from a significant product liability judgment against it. A significant product recall or product liability case could also result in adverse publicity, damage to the company’s reputation and a loss of consumer confidence in the company’s food products, which could have a material adverse effect on the business and financial results of the company.
Item 1B. Unresolved Staff Comments
None.


Item 2. Properties

The company’s principal executive offices and main research facilities are company-owned and located in Camden, New Jersey.

The following table sets forth the company’s principal manufacturing facilities and the business segment that primarily uses each of the facilities:



Principal Manufacturing Facilities
        
Principal Manufacturing Facilities
Inside the U.S.  Outside the U.S.
California
OhioAustralia
Indonesia
Dixon (SSB)
Sacramento (SSB/OT)
Stockton (SSB)

Connecticut
Bloomfield (BS)

Florida
Lakeland (BS)

Illinois
Downers Grove (BS)

Michigan
Marshall (SSB)

New Jersey
South Plainfield (SSB)

North Carolina
Maxton (SSB/OT)


SSB — U.S. Soup, Sauces and Beverages
BS — Baking and Snacking
ISS — International Soup and Sauces
OT — Other
 Ohio
Napoleon (SSB/OT)
Wauseon (SSB)(SSB/ISS)
Willard (BS)

Pennsylvania
Denver (BS)
Downingtown (BS)
Reading (OT)

South Carolina
Aiken (BS)

Texas
Paris (SSB/OT)

Utah
Richmond (BS)

Washington
Woodinville (OT)

Wisconsin
Milwaukee (SSB)
  Australia
Huntingwood (BS)
Marleston (BS)
Shepparton (ISS)
Virginia (BS)
Miranda (BS)
Smithfield (BS)
Scoresby (BS)

Belgium
Puurs (ISS)
Brussels (OT)

Canada
Listowel (ISS/OT)
Toronto (ISS/OT)


France

Le Pontet LePontet (ISS)
Dunkirk (ISS)

Germany
• Luebeck (ISS)
• Gerwisch (ISS)
 Germany
Luebeck (ISS)
Gerwisch (ISS)

Indonesia
Jawa Barat (BS)

Ireland
• Thurles (ISS)

Malaysia

Selangor Darul Ehsan (ISS)

Mexico
Villagran (ISS)
Guasave (ISS)(SSB)

Netherlands
Utrecht (ISS)

Papua New Guinea
Port Moresby (BS)
Malahang Lae (BS)

Sweden
Kristianstadt (ISS)

United Kingdom

• Ashford (ISS)
• King’s Lynn (ISS)
• Worksop (ISS)
SSB – U.S. Soup, Sauces and Beverages
BS – Baking and Snacking
ISS – International Soup and Sauces
OT – Other
    


4PAGE 5

Each of the foregoing manufacturing facilities is company-owned, except that the Woodinville, Washington facility;facility, the Scoresby, Australia facility;facility, and the Selangor Darul Ehsan, Malaysia, facility; and portions of the Ashford, United Kingdom, facility are leased. The Utrecht, Netherlands, facility is subject to a ground lease. The company also operates retail confectionery shops in the United States, Canada, Europe and Asia; retail bakery thrift stores in the United States; and other plants, facilities and offices at various locations in the United States and abroad, including additional

executive offices in Norwalk, Connecticut; Paris, France;Connecticut, New York, New York, and Homebush, Australia. On July 15, 2005, theThe company announced plans to buildis constructing a new facility in Everett, Washington, to replace the existing Woodinville, Washington, facility. This new facility for thewill manufacture of refrigerated soups by its Stockpot subsidiary.

and sauces. On August 15, 2006, as part of the divestiture of the United Kingdom and Irish businesses, the following facilities were sold: Ashford, King’s Lynn and Worksop in the United Kingdom and Thurles in Ireland.

Management believes that the company’s manufacturing and processing plants are well maintained and are generally adequate to support the current operations of the businesses.



Item 3. 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. Vlasic’s 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 Vlasic’s 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 company’s 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.

Following a trial on the merits, on September 13, 2005, the District Court issued Post-Trial Findings of Fact and Conclusions of Law, ruling in favor of the company and against VFB on all claims. The Court ruled that VFB failed to prove that the spinoff was a constructive or actual fraudulent transfer. The Court also rejected VFB’s claim of breach of fiduciary duty, VFB’s claim that VFI was an alter ego of the company, and VFB’s claim that the spinoff should be deemed an illegal dividend. On November 1, 2005, VFB will have 30 days followingappealed the entry of the judgment of the District Court to appeal the decision.

As 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 company’s 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. The company expects a final resolution of this matter in fiscal 2006.

As previously reported, on July 15, 2003, Pepperidge Farm, Incorporated, an indirect wholly-owned subsidiary of the company, made a submissiondecision to the United States Environmental Protection Agency (“EPA”) relatingCourt of Appeals for the Third Circuit.

The company continues to its usebelieve this action is without merit and replacement of certain appliances containing ozone-depleting refrigerants. The submission was made pursuant tois defending 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 July 31, 2005, Pepperidge Farm has incurred costs of approximately $4.75 million relating to the evaluation and replacement of certain of its refrigerant appliances. Of this amount, $4 million was incurred in fiscal 2003; the remainder was incurred in fiscal 2004. If the submission is approved by the EPA, incase vigorously. In addition, to the expenditures previously made, Pepperidge Farm will be required to pay a penalty in the amount of approximately $370 thousand.

Althoughalthough the results of these mattersthis matter cannot be predicted with certainty, in management’s opinion, the final outcome of these legal proceedings, tax issues and environmental mattersthis proceeding will not have a material adverse effect on the consolidated results of operations or financial condition of the company.




5PAGE 6

Item 4. Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Company

The following list of executive officers as of October 1, 2005,2006, is included as an item in Part III of this Form 10-K:
      
          
 Year First Appointed Year First Appointed
Name Present Title Age Executive Officer Present Title Age Executive Officer
Douglas R. Conant
 President and Chief Executive Officer 54 2001 President and Chief Executive Officer 55  2001 
Anthony P. DiSilvestro
 Vice President — Controller 46 2004 Vice President – Controller 47  2004 
M. Carl Johnson, III
 Senior Vice President 57 2001 Senior Vice President 58  2001 
Ellen Oran Kaden
 Senior Vice President — Law and Government Affairs 54 1998 Senior Vice President – Law and Government Affairs 55  1998 
Larry S. McWilliams
 Senior Vice President 49 2001 Senior Vice President 50  2001 
Denise M. Morrison
 Senior Vice President 51 2003 Senior Vice President 52  2003 
Nancy A. Reardon
 Senior Vice President 53 2004 Senior Vice President 54  2004 
Mark A. Sarvary
 Executive Vice President 46 2002 Executive Vice President 47  2002 
Robert A. Schiffner
 Senior Vice President and Chief Financial Officer 55 2001 Senior Vice President and Chief Financial Officer 56  2001 
David R. White
 Senior Vice President 50 2004 Senior Vice President 51  2004 
Doreen A. Wright
 Senior Vice President and Chief Information Officer 48 2001 Senior Vice President and Chief Information Officer 49  2001 

Douglas R. Conantserved as President of Nabisco Foods Company (1995–2001) prior to joining Campbell in 2001.

M. Carl Johnson, III,served as Executive Vice President and President, New Meals Division, Kraft Foods, N.A. (1997–2001) and Member of Kraft Foods Operating Committee (1995–2001) prior to joining Campbell in 2001.

Larry S. McWilliamsserved as Senior Vice President and General Manager, U.S. Business (1998–2001) of the Minute Maid Company prior to joining Campbell in 2001.

Denise M. Morrisonserved as Executive Vice President and General Manager, Kraft Snacks Division (2001–division (2001 – 2003) of Kraft Foods, Inc., and Executive Vice President and General Manager, Kraft Confection Divisiondivision (2001) of Kraft Foods, Inc., Senior Vice President, Nabisco DTS (2000) of Nabisco, Inc. and Senior Vice President, Nabisco Food and Sales & Integrated Logistics (1998–2000) of Nabisco, Inc. prior to joining Campbell in 2003.

Nancy A. Reardonserved as Executive Vice President of Human Resources, Comcast Cable Communications (2002–(2002 – 2004) and Executive Vice President Human Resources/Corporate Affairs (1997–(1997 – 2002) of Borden Capital Management Partners prior to joining Campbell in 2004.

Mark A. Sarvaryserved as Chief Executive Officer, of J. Crew Group (1999–(1999 – 2002) prior to joining Campbell in 2002.

Robert A. Schiffnerserved as Senior Vice President and Treasurer (1998–2001) of Nabisco Holdings Corporation prior to joining Campbell in 2001.

David R. Whiteserved as Vice President, Product Supply Global Family Care

Business (1999–(1999 – 2004) of The Procter & Gamble Company prior to joining Campbell in 2004.

Doreen A. Wrightserved as Executive Vice President and Chief Information Officer of Nabisco, Inc. (1999–2001) prior to joining Campbell in 2001.

The company has employed Douglas R. Conant, Anthony P. DiSilvestro, M. Carl Johnson, III, Ellen Oran Kaden, Larry S. McWilliams, Robert A. Schiffner and Anthony P. DiSilvestroDoreen A. Wright in an executive or managerial capacity for at least five years.

There is no family relationship among any of the company’s executive officers or between any such officer and any director of Campbell. All of the executive officers were elected at the JuneNovember 2005 meeting of the Board of Directors.




6PAGE 7

Part II

Item 5. Market for Registrant’s Capital Stock, Related Shareowner Matters and Issuer Purchases of Equity Securities

Market for Registrant’s Capital Stock

The company’s capital stock is listed and principally traded on the New York Stock Exchange. The company’s capital stock

is also listed on the SWX Swiss Exchange. On September 21, 2005,19,

2006, there were 31,18629,889 holders of record of the company’s capital stock. Market price and dividend information with respect to the company’s capital stock are set forth in Note 2224 to the Consolidated Financial Statements. In September 2005,2006, the company increased the quarterly dividend to be paid in the first quarter of fiscal 20062007 to $0.18$0.20 per share. Future dividends will be dependent upon future earnings, financial requirements and other factors.



Issuer Purchases of Equity Securities
         
      Total Number Maximum Number
      of Shares of Shares that
  Total   Purchased as May Yet Be
  Number of Average Part of Publicly Purchased
  Shares Price Paid Announced Plans Under the Plans
Period Purchased1 Per Share2 or Programs or Programs
 
5/2/05–5/31/05 5293 $29.933 0 0
6/1/05–6/30/05 588,000   $31.06   0 0
7/1/05–7/31/05 841,2664 $30.644 0 0
 
Total 1,429,795   $30.81   0 0
 
                 
          Total Number  Approximate Dollar 
          of Shares  Value of Shares 
  Total      Purchased as  that May Yet Be 
  Number of  Average  Part of Publicly  Purchased Under the 
  Shares  Price Paid  Announced Plans  Plans or Programs 
Period Purchased1 Per Share2 or Programs3 ($ in millions)3
 
5/1/06 – 5/31/06  1,142,6984 $34.644  408,120  $492 
6/1/06 – 6/30/06  4,180,0005 $35.905  1,496,440  $438 
7/1/06 – 7/30/06  3,627,2546 $36.926  1,016,140  $400 
 
Total  8,949,952  $36.15   2,920,700  $400 
 
1 The company repurchasesIncludes (i) 6,009,300 shares of capital stockrepurchased in open-market transactions to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans. The company also repurchasesplans, and (ii) 19,952 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 theUnless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations (which, unless otherwise indicated, were purchased at the closing price of the company’s shares on the date of vesting). None of these transactions were made pursuant to a publicly announced repurchase plan or program.vesting.
 
2 Average price paid per share is calculated on a settlement basis and excludes commission.
 
3 RepresentsOn November 21, 2005, the company announced that its Board of Directors authorized the purchase of up to $600 million of company capital stock on the open market or through privately negotiated transactions through the end of fiscal 2008. As previously disclosed on August 15, 2006, subsequent to the end of the fourth quarter of fiscal 2006, the company announced that its Board of Directors authorized the purchase of an additional $620 million of company capital stock, which is expected to be completed in fiscal 2007. This new authorization is in addition to the November 21, 2005 plan described above. Pursuant to this new authorization, the company entered into accelerated repurchase agreements on September 28, 2006, with a financial institution to repurchase approximately $600 million of stock.
4Includes (i) 731,880 shares repurchased in open-market transactions at an average price of $34.64 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 2,698 shares owned and tendered by employees at an average price per share of $32.16 to satisfy tax withholding requirements on the vesting of restricted shares.
 
45 Includes 1,2662,683,560 shares repurchased in open-market transactions at an average price of $35.90 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans.
6Includes (i) 2,593,860 shares repurchased in open-market transactions at an average price of $36.87 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 17,254 shares owned and tendered by employees at an average price per share of $30.97$37.61 to satisfy tax withholding requirements on the vesting of restricted shares.


7PAGE 8

Item 6. Selected Financial Data

Five-Year Review Consolidated
                     
(millions, except per share amounts)               
 
Fiscal Year 20061 2005  20042 20033 20024
 
 
Summary of Operations
                    
Net sales $7,343  $7,072  $6,660  $6,271  $5,771 
Earnings before interest and taxes  1,151   1,132   1,038   1,030   923 
Earnings before taxes  1,001   952   870   849   737 
Earnings from continuing operations  755   644   582   568   477 
Earnings from discontinued operations  11   63   65   58   48 
Cumulative effect of accounting change           (31)   
Net earnings  766   707   647   595   525 
 
Financial Position
                    
Plant assets – net $1,954  $1,987  $1,901  $1,843  $1,684 
Total assets  7,870   6,776   6,662   6,205   5,721 
Total debt  3,213   2,993   3,353   3,528   3,645 
Shareowners’ equity (deficit)  1,768   1,270   874   387   (114)
 
Per Share Data
                    
Earnings from continuing operations – basic $1.86  $1.57  $1.42  $1.38  $1.16 
Earnings from continuing operations – assuming dilution  1.82   1.56   1.41   1.38   1.16 
Net earnings – basic  1.88   1.73   1.58   1.45   1.28 
Net earnings – assuming dilution  1.85   1.71   1.57   1.45   1.28 
Dividends declared  0.72   0.68   0.63   0.63   0.63 
 
Other Statistics
                    
Capital expenditures $309  $332  $288  $283  $269 
Weighted average shares outstanding  407   409   409   411   410 
Weighted average shares outstanding – assuming dilution  414   413   412   411   411 
(millions, exceptAll per share amounts)amounts below are on a diluted basis.)
                     
Fiscal Year 2005  20041  2003  20022  20013 
 
Summary of Operations
                    
Net sales $7,548  $7,109  $6,678  $6,133  $5,771 
Earnings before interest and taxes  1,210   1,115   1,105   984   1,194 
Earnings before taxes  1,030   947   924   798   987 
Earnings before cumulative effect of accounting change  707   647   626   525   649 
Cumulative effect of accounting change        (31)      
Net earnings  707   647   595   525   649 
 
Financial Position
                    
Plant assets — net $1,987  $1,901  $1,843  $1,684  $1,637 
Total assets  6,776   6,662   6,205   5,721   5,927 
Total debt  2,993   3,353   3,528   3,645   4,049 
Shareowners’ equity (deficit)  1,270   874   387   (114)  (247)
 
Per Share Data
                    
Earnings before cumulative effect of accounting change — basic $1.73  $1.58  $1.52  $1.28  $1.57 
Earnings before cumulative effect of accounting change — assuming dilution  1.71   1.57   1.52   1.28   1.55 
Net earnings — basic  1.73   1.58   1.45   1.28   1.57 
Net earnings — assuming dilution  1.71   1.57   1.45   1.28   1.55 
Dividends declared  0.68   0.63   0.63   0.63   0.90 
 
Other Statistics
                    
Capital expenditures $332  $288  $283  $269  $200 
Number of shareowners (in thousands)  43   45   46   47   48 
Weighted average shares outstanding  409   409   411   410   414 
Weighted average shares outstanding — assuming dilution  413   412   411   411   418 
In 2006, the company entered into an agreement to sell its United Kingdom and Irish businesses. The sale was completed in August 2006. The results of operations of the businesses have been reflected as discontinued operations for all periods presented.

As of August 1, 2005, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS No. 123R). Under SFAS No. 123R, compensation expense is to be recognized for all stock-based awards, including stock options. Had all stock-based compensation been expensed in 2005, Earnings from continuing operations would have been $616 and earnings per share would have been $1.49. Net earnings would have been $678 and earnings per share would have been $1.64. The pro forma reduction on earnings from continuing operations in prior years would have been as follows: 2004 – $28 or $.07 per share; 2003 – $24 or $.06 per share; 2002 – $15 or $.04 per share.
In 2003, the company adopted SFAS No. 142 resulting in the elimination of amortization of goodwill and other indefinite-lived intangible assets. Prior periodsThe 2002 results have not been restated. See Note 3 to the Consolidated Financial Statements for additional information.

The 2003 fiscal year consisted of fifty-three weeks compared to fifty-two weeks in all other periods. The additional week contributed 2 percentage points of the sales increase compared to 2002, and approximately $.02 per share to net earnings.

1 The 2006 earnings from continuing operations were impacted by the following: a $60 ($.14 per share) benefit from the favorable resolution of a U.S. tax contingency; an $8 ($.02 per share) benefit from a change in inventory accounting method; incremental tax expense of $13 ($.03 per share) associated with the repatriation of non-U.S. earnings under the American Jobs Creation Act; and a $14 ($.03 per share) tax benefit related to higher levels of foreign tax credits, which can be utilized as a result of the sale of the businesses in the United Kingdom and Ireland. The 2006 results of discontinued operations included $56 of deferred tax expense due to book/tax basis differences and $5 of after-tax costs associated with the sale of the businesses (aggregate impact of $.15 per share).
22004 results includefrom continuing operations included a pre-tax restructuring charge of $32$26 ($2218 after tax or $.05$.04 per share basic and assuming dilution)share) related to a reduction in workforce and the implementation of a distribution and logistics realignment in Australia. Results from discontinued operations included an after-tax effect of $4 ($.01 per share) associated with a reduction in workforce.
 
3The 2003 fiscal year consisted of fifty-three weeks compared to fifty-two weeks in all other periods. The additional week contributed 2 percentage points of the sales increase compared to 2002, and approximately $.02 per share to net earnings.
4 2002 results includeincluded pre-tax costs of $20 ($14 after tax or $.03 per share basic and assuming dilution)share) related to an Australian manufacturing reconfiguration.
32001 results include pre-tax costs of $15 ($11 after tax or $.03 per share basic and assuming dilution) related to an Australian manufacturing reconfiguration.
Five-Year Review should be read in conjunction with the Notes to Consolidated Financial Statements.


8PAGE 9

Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Overview
Campbell Soup Company is a global manufacturer and marketer of high-quality, branded convenience food products. The company is organized and reports operating results as follows: U.S. Soup, Sauces and Beverages, Baking and Snacking and International Soup and Sauces, with the balance of the portfolio, which includes Godiva Chocolatier worldwide and the Away From Home operations, reported as Other. See also Note 5 to the Consolidated Financial Statements for additional information on segments.
On August 15, 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 Irish businesses includeHomepridesauces,OXOstock cubes,Batchelorssoups andMcDonnellsandErinsoups. The purchase price is subject to certain post-closing adjustments. The company has reflected the results of these businesses as discontinued operations in the consolidated statements of earnings for all years presented. The assets and liabilities of these businesses were reflected as assets and liabilities of discontinued operations held for sale in the consolidated balance sheet as of July 30, 2006. The company will use approximately $620 million of the net proceeds to purchase company stock. These purchases are expected to be completed in 2007. See Note 2 to the Consolidated Financial Statements for additional information.
Results of Operations

Overview
20052006Net earnings were $766 million ($1.85 per share) in 2006 compared to $707 million ($1.71 per share) in 2005 compared to $6472005. Earnings from continuing operations were $755 million ($1.571.82 per share) in 2004.2006 and $644 million ($1.56 per share) in 2005. (All earnings per share amounts included in Management’s Discussion and Analysis are presented on a diluted basis.)
There were several items that impacted the comparability of earnings:
As of August 1, 2005, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS No. 123R). Under SFAS No. 123R,
compensation expense is to be recognized for all stock-based awards, including stock options. Had all stock-based compensation been expensed in 2005, Earnings from continuing operations would have been $616 million and earnings per share would have been $1.49. Net earnings would have been $678 million and earnings per share would have been $1.64 (See Notes 1 and 21 to the Consolidated Financial Statements);
In the first quarter of 2006, the company recorded a non-cash tax benefit of $47 million resulting from the favorable resolution of a U.S. tax contingency related to transactions in government securities in a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 million and adjusted deferred tax expense by $8 million ($13 million after tax). The aggregate non-cash impact of the settlement on Earnings from continuing operations was $60 million, or $.14 per share. (See Note 11 to the Consolidated Financial Statements);
In the first quarter of 2006, a $13 million pre-tax gain was recognized due to a change in the method of accounting for certain U.S. inventories from the LIFO method to the average cost method. The impact on Earnings from continuing operations was $8 million, or $.02 per share. Prior periods were not restated since the impact of the change on previously issued financial statements was not considered material. (See Note 13 to the Consolidated Financial Statements);
In 2006, incremental tax expense of $13 million, or $.03 per share, was recognized associated with incremental dividends of $294 million as the company finalized its plan to repatriate earnings from non-U.S. subsidiaries under the provisions of the American Jobs Creation Act (the AJCA);
In the fourth quarter of 2006, the company recorded a non-cash tax benefit of $14 million, or $.03 per share, from the anticipated use of higher levels of foreign tax credits, which can be utilized as a result of the sale of the company’s United Kingdom and Irish businesses in August 2006; and
The 2006 results of discontinued operations included $56 million of deferred tax expense due to book/tax basis differences and $7 million pre-tax costs ($5 million after tax) associated with the sale of the businesses. The aggregate impact of these items was $.15 per share.



PAGE 10

The items impacting comparability are summarized below:
                 
  2006  2005 
(millions, except per share amounts) Earnings
Impact
  EPS Impact  Earnings
Impact
  EPS Impact 
 
Earnings from continuing operations $755  $1.82  $644  $1.56 
 
Net earnings $766  $1.85  $707  $1.71 
 
Pro forma impact of SFAS No. 123R $  $  $(28) $(0.07)
Impact of change in inventory accounting method  (8)  (0.02)      
Favorable resolution of a U.S. tax contingency  (60)  (0.14)      
Tax expense on repatriation of earnings under the AJCA  13   0.03       
Tax benefit related to the use of foreign tax credits  (14)  (0.03)      
 
Impact of significant items on continuing operations1
 $(69) $(0.17) $(28) $(0.07)
 
Deferred taxes and after-tax costs associated with the sale of discontinued operations  61   0.15       
Pro forma impact of SFAS No. 123R        (1)   
 
Impact of significant items on net earnings $(8) $(0.02) $(29) $(0.07)
 
1The sum of the individual per share amounts does not equal due to rounding.
The remaining improvement in 2006 earnings from 2005 was due to an increase in sales, an improvement in gross margin as a percentage of sales, a lower effective tax rate, and higher interest income, partially offset by higher administrative and marketing and selling costs.
2005Earnings from continuing operations were $644 million ($1.56 per share) in 2005 compared to $582 million ($1.41 per share) in 2004. Earnings from continuing operations between 2005 and 2004 were impacted by an increase in sales, lower corporate expenses and the favorable impact of currency, partially offset by a decline in gross margin as a percentage of sales and an increase in interest expense. The 2004 results were also impacted by the following:

A pre-tax restructuring charge of $32$26 million ($2218 million after tax or $.05$.04 per share) related to a reduction in workforce and the implementation of a distribution and logistics realignment in Australia. (See also the section entitled Restructuring Program and Note 56 to the Consolidated Financial Statements);

A pre-tax gain of $16 million ($10 million after tax or $.02 per share) from a settlement of a class action lawsuit involving ingredient suppliers; and

A pre-tax gain of $10 million ($6 million after tax or $.02 per share) from a sale of a manufacturing site in California.

The gains were recorded in Other expenses/(income).

2004In 2004, net

Had all stock-based compensation been expensed, Net earnings increased 3% to $647would have been $678 million from $626 million before the cumulative effect of accounting change and earnings per share increased 3% to $1.57 from $1.52would have been $1.64 in 2003.

In addition to the 2004 restructuring charge2005; Net earnings would have been $618 million and gains, earnings between 2004 and 2003 before the cumulative effect of accounting change were also impacted by an increase in sales, favorable currency translation, lower interest expense and a lower tax rate, partially offset by a decline in gross margin as a percentage of sales and higher administrative expenses. In addition, there were 52 weeks in 2004 and 53 weeks in 2003. The additional week contributed approximately $.02 per share to earnings.

In connection with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, the company recognized a non-cash charge of $31would have been $1.50 in 2004. Earnings from continuing operations would have been $616 million (net of a $17($1.49 per share) in 2005 and $554 million tax benefit), or $.08($1.34 per share,share) in the first quarter of 2003 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. See also Note 3 to the Consolidated Financial Statements.

2004.

In the first quarter 2004, the company acquired certain Australian chocolate biscuit brands for approximately $9 million. These brands are included in the Baking and Snacking segment.

During the first quarter of 2003, the company acquired two businesses for cash consideration of approximately $170 million and assumed debt of approximately $20 million. 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 Baking and Snacking segment. Erin Foods is included in the International Soup and Sauces segment. The businesses have annual sales of approximately $160 million.

Sales

An analysis of net sales by reportable segment follows:
                                        
 % Change  % Change 
 2005/ 2004/  2006/ 2005/ 
(millions) 2005 2004 2003 2004 2003  2006 2005 2004 2005 2004 
U.S. Soup, Sauces and
Beverages
 $3,098 $2,998 $2,944 3 2  $3,257 $3,098 $2,998 5 3 
Baking and Snacking 1,742 1,613 1,428 8 13  1,747 1,742 1,613  8 
International Soup
and Sauces
 1,703 1,595 1,438 7 11  1,255 1,227 1,146 2 7 
Other 1,005 903 868 11 4  1,084 1,005 903 8 11 
 $7,548 $7,109 $6,678 6 6  $7,343 $7,072 $6,660 4 6 

An analysis of percent change of net sales by reportable segment follows:
                     
  U.S. Soup,  Baking  International       
  Sauces and  and  Soup and       
2005/2004 Beverages  Snacking  Sauces  Other  Total 
 
Volume and Mix  2%  4%  2%  7%  3%
Price and Sales Allowances  1   3      3   2 
Increased Promotional Spending1
     (1)  (1)     (1)
Currency     2   6   1   2 
 
   3%  8%  7%  11%  6%
 
                     
  U.S. Soup,  Baking  International       
  Sauces and  and  Soup and       
2004/2003 Beverages  Snacking  Sauces  Other  Total 
 
Volume and Mix  %  4%  2%  1%  2%
53rd Week  (1)  (2)  (2)  (1)  (2)
Price and Sales Allowances  2   2      2   2 
Decreased/(Increased) Promotional Spending1
  1   (1)         
Acquisitions     2          
Currency     8   11   2   4 
 
   2%  13%  11%  4%  6%
 
                     
  U.S. Soup,  Baking  International       
  Sauces and  and  Soup and       
2006/2005 Beverages  Snacking  Sauces  Other  Total 
 
Volume and Mix  (1)%  %  3%  6%  1%
Price and Sales Allowances  6   3      3   3 
Increased Promotional Spending1
     (2)     (1)   
Currency     (1)  (1)      
 
   5%  %  2%  8%  4%
 
                     
  U.S. Soup,  Baking  International       
  Sauces and  and  Soup and       
2005/2004 Beverages  Snacking  Sauces  Other  Total 
 
Volume and Mix  2%  4%  2%  7%  3%
Price and Sales Allowances  1   3   1   3   2 
Increased Promotional Spending1
     (1)  (2)     (1)
Currency     2   6   1   2 
 
   3%  8%  7%  11%  6%
 
1 RevenueRepresents revenue reductions from trade promotion and consumer coupon redemption programs.
In 2006, U.S. Soup, Sauces and Beverages sales increased 5%. U.S. soup sales increased 4% as condensed soup sales increased 5%, ready-to-serve soup sales increased 1% and broth sales increased 11%. The U.S. Soup sales growth was primarily driven by higher prices across the portfolio. Condensed soup




9PAGE 11

also benefited from the additional installation of gravity-feed shelving systems and increased advertising. The ready-to-serve sales performance was positively impacted by the introductions ofCampbell’s Select Gold Labelsoups in aseptic packaging andCampbell’sChicken Noodle, Tomato and Vegetable soups in microwavable bowls, which were partially offset by the discontinuance ofCampbell’s Kitchen Classicssoups and a decline inCampbell’s Chunkysoups. The introduction ofCampbell’sChicken Noodle, Tomato and Vegetable soups in microwavable bowls, combined with sales gains fromCampbell’s ChunkyandCampbell’s Selectsoups in microwavable bowls andCampbell’s Soup at Handsippable soups, drove significant growth in the convenience platform.Swansonbroth sales growth was primarily due to volume gains of aseptically-packaged products and successful holiday merchandising. In other parts of the business,Pregopasta sauces andPaceMexican sauces delivered solid sales growth. Beverage sales increased double digits driven byV8vegetable juices, which had strong volume growth. The introduction ofV8 V-Fusionjuice beverages also contributed to sales growth, while sales ofV8 Splashjuice beverages declined.
In 2005, U.S. Soup, Sauces and Beverages sales increased 3%. U.S. soup sales increased 5%, driven by an 8% gain in condensed soup and a 12% increase in broth, partially offset by a 1% decline in ready-to-serve soup. The U.S. condensed soup increase was driven by a double-digit increase in eating soups, due in part to the combination of successful merchandising and kids promotional marketing programs, increased advertising and higher prices. Cooking varieties of condensed soup also achieved sales growth behind strong performance during the holiday season. Condensed soup sales also benefited from gravity-feed shelving systems installed in retail stores. Broth sales increased, driven by gains achieved through its expanded use in cooking and strong consumer response to two new organic varieties in aseptic containers introduced earlier in 2005. In ready-to-serve soup,Campbell’s Chunkysoup sales increased 7%. These gains were offset by declines in sales ofCampbell’s Selectsoups andCampbell’s Kitchen Classicssoups. TheCampbell’s Select soups decline of 15% was due to volume losses resulting from competitive activity. Sales of microwaveablemicrowavable soups were flat for the year, as double-digit growth ofCampbell’s ChunkyandCampbell’s Selectsoups in microwaveablemicrowavable bowls was offset by declines inCampbell’s Soup at Handsippable soups. In other parts of the business, the launch ofCampbell’s Chunkychili in 2005 added to sales gains.Campbell’s SpaghettiOspasta sales rose as consumers responded to the transition from theFranco-Americanbrand to theCampbell’sbrand and to new advertising. Sales ofPregopasta sauces declined slightly, while sales ofPaceMexican sauces were flat for the year.V8vegetable juice sales increased due to higher prices and improved volume, while sales ofV8 Splashjuice beverages andCampbell’stomato juice declined.

In 2004, U.S. Soup, Sauces2006, Baking and BeveragesSnacking sales increased 2%. U.S. soup sales increased 2%, driven by an 8% gain in ready-to-serve soup, partiallywere flat versus 2005 as growth at Pepperidge Farm was offset by a 2% declinedeclines in condensed soup. The ready-to-servethe Arnott’s business. Pepperidge Farm reported sales performance was driven byincreases in its bakery and cookies and crackers businesses. Sales of bakery products increased due to the strong performance from microwaveable soups, includingofCampbell’s SelectPepperidge Farmwhole grain breads. Sales gains in cookies andCampbell’s Chunky soups, which crackers were introduced in 2004, andCampbell’s Soup at Handsippable soups. Broth sales increased 6%. Beverage sales increased, led byprimarily due to double-digit growth ofV8Pepperidge Farm Goldfishvegetable juice. Sales ofPaceMexican sauces were equalsnack crackers. Arnott’s sales declined, primarily due to 2003, andPregopasta sauces experienced a decline in sales, attributable in part to weakness in the dry pasta category.

Australian snack foods business and the unfavorable impact of currency.

Baking and Snacking sales increased 8% in 2005 versus 2004. Pepperidge Farm contributed significantly to the sales increase as a result of sales gains across bakery, cookies and crackers and frozen, primarily due to higher volume and increased prices. The fresh bakery business experienced double-digit growth as

a result of expanded distribution and product improvements on bagels and English muffins along with strong results fromPepperidge Farm Farmhousebreads andPepperidge FarmCarb Stylebreads and rolls. In cookies and crackers, sales growth was driven byPepperidge FarmChocolate Chunk cookies, four new soft-baked varieties of cookies, and the introduction of sugar-free cookies andWhimspoppable snacks. In addition,Pepperidge Farm Goldfish snack crackers delivered sales growth. Pepperidge Farm frozen product sales increased behind the strong performance of pot pies, breads and pastry. Arnott’s sales grew primarily due to currency and volume gains. Arnott’s achieved sales growth in each of its three businesses: sweet biscuits, savory biscuits and salty snacks.

Baking

International Soup and SnackingSauces sales increased 13%2% in 20042006 versus 2003. The favorable currency impact was2005. In Canada, sales increased due primarily to the strengtheningfavorable impact of currency and a strong performance in ready-to-serve soup, which grew double digits, aided by the introduction ofCampbell’s Soup at Handsippable soups. Sales from the Australian dollar. Pepperidge Farm contributedsoup business increased double digits, primarily due to the performance of ready-to-serve soup and broth. In Europe, sales increase as a resultdeclined primarily due to currency. Excluding the impact of growth inGoldfishcrackers and fresh bread. Arnott’s achieved an increase incurrency, sales grew slightly driven by innovation on theTim Tam, ShapesandJatzproducts business in Belgium and new product offerings in thehigher sales ofSnack RightV8andSaladabrands.

vegetable juice.

International Soup and Sauces sales increased 7% in 2005 versus 2004, driven primarily by currency. In Europe, strong sales gains of wet and dry soups in France andCampbell’swet soups in Belgium also contributed to growth. In Asia Pacific, Australian beverages and broth delivered volume gains, while sales increased in Asia, in part, from the launch of a new dry soup product targeting breakfast consumption. Canada achieved volume growth due in part to its ready-to-serve soup business which includes a new aseptic variety,Campbell’s Gardennaysoup.

International Soup and Sauces

In Other, sales increased 11%8% in 20042006 versus 2003,2005. Godiva Chocolatier sales increased primarily due to currency. The same-store sales growth in all regions, new product introductions in the U.S., an



PAGE 12

increase in volumeduty-free sales in Europe and mix was drivennew stores in Asia. Away From Home sales increased primarily bydue to sales gainsgrowth in France, Australia, Belgiumsoup, including refrigerated soups, and Asia, partially offset by sales declines in the United Kingdom and Germany. In Australia, soup had strong sales and volume growth driven byCampbell’s Country LadleandChunkysoup.

beverages.

In Other, sales increased 11% in 2005 versus 2004. Away From Home delivered strong sales growth, led by premium refrigerated soups. Godiva Chocolatier’s worldwide sales increased double-digitsdouble digits with North America, Europe and Asia all contributing to growth. In North America, Godiva achieved double-digit same-store sales results driven by successful new products, including sugar-free chocolates and the relaunch of truffles.

In Other, sales increased 4% in 2004 versus 2003. Away From Home sales grew slightly, primarily due to strong sales of premium refrigerated soups. Godiva Chocolatier’s worldwide sales increased due to improving same-store sales trends in North America and increased sales in duty free stores.




10

Gross MarginProfitGross margin,profit, defined as Net sales less Cost of products sold, increased by $135$178 million in 2005.2006. As a percent of sales, gross marginprofit was 40.5%41.9% in 2006, 41.0% in 2005 41.1%and 41.4% in 20042004. The percentage point increase in 2006 was due to higher selling prices (approximately 2.0 percentage points), productivity improvements (approximately 1.8 percentage points), and 43.0%a change in 2003.the method of accounting for inventory (approximately 0.2 percentage points), partially offset by a higher level of promotional spending (approximately 0.1 percentage points), mix (approximately 0.2 percentage points) and inflation and other factors (approximately 2.8 percentage points). The percentage point decrease in 2005 was due to the impact of inflation and other factors (approximately 3.03.1 percentage points), and a higher level of promotional spending (approximately 0.3 percentage points) and mix (approximately 0.1 percentage points), partially offset by mix (approximately 0.2 percentage points), productivity improvements (approximately 2.01.9 percentage points) and higher selling prices (approximately 0.80.9 percentage points). The percentage point decrease

Gross profit would have been $4 million lower in 2005 and 2004 was due to costs associated with quality and packaging improvements (approximately 1.0 percentage point), mix (approximately 0.7 percentage points), higher pension expense and the impact of acquisitions (approximately 0.3 percentage points), and the impact of inflation and other factors (approximately 2.7 percentage points), partially offset by higher selling prices (approximately 0.9 percentage points) and productivity improvements (approximately 1.9 percentage points).

had all stock-based compensation been expensed.

Marketing and Selling ExpensesMarketing and selling expenses as a percent of sales were 15.7%16.4% in 2006, 16.0% in 2005 16.2%and 16.5% in 20042004. Marketing and 17.1%selling expenses increased 6% in 2003.2006. The increase was driven primarily by higher advertising (approximately 3 percentage points), higher selling expenses (approximately 2 percentage points) and increased stock-based compensation recognized under SFAS No. 123R (approximately 1 percentage point). In 2005, Marketing and selling expenses increased 3% in 2005.from 2004. The increase was driven by higher levels of advertising and currency. In 2004,
Marketing and selling expenses increased 1% from 2003. The increase was driven by currency, partially offset by reductionswould have been $12 million higher in marketing expenses related to consumer promotion activity2005 and lower media production costs.

$11 million higher in 2004 had all stock-based compensation been expensed.

Administrative ExpensesAdministrative expenses as a percent of sales were 7.6%8.4% in 2006 and 7.8% in 2005 2004, and 2003.2004. Administrative expenses increased 12% in 2006 from 2005. The increase was due to higher stock-based compensation recognized under SFAS No. 123R (approximately 5 percentage points), higher compensation and benefit expenses (approximately 5 percentage
points), and an increase in costs associated with the ongoing implementation of the SAP enterprise-resource planning system in North America (approximately 2 percentage points). Administrative expenses increased by 5% in 2005 from 2004. Currency accounted for approximately 21 percentage pointspoint of the increase and costs associated with the implementation of the SAP enterprise-resource planning system in North America and higher general administrative expenses each accounted for 2 percentage points of the increase.
Administrative expenses increased by 7%would have been $25 million higher in 2005 and $26 million higher in 2004 from 2003. Currency accounted for approximately 4 percentage points of the increase, with the balance due to general inflationary increases and costs associated with litigation.

had all stock-based compensation been expensed.

Research and Development ExpensesResearch and development expenses increased $9 million or 10% in 2006 from 2005 primarily due to higher stock-based compensation recognized under SFAS No. 123R and expenses related to new product development. Research and development expenses increased $2 million or 2% in 2005 from 2004 primarily due to currency.
Research and development expenses increasedwould have been $4 million higher in 2005 and 2004 had all stock-based compensation been expensed.
Other Expenses / (Income)Other expense of $5 million or 6% in 2004 from 2003, primarily due2006 included the cost of acquiring the rights to currency, which accounted for approximately 4 percentage pointsthePepperidge Farm Goldfishtrademark in certain non-U.S. countries and a write-down of a trademark used in the increase.

Other Expenses/(Income)Australian snack foods market.

Other income in 2005 of $4$5 million was primarily royalty income related to the company’s brands.

Other income in 2004 of $13 million included a $16 million gain from the company’s share of a class action settlement involving ingredient suppliers, a $10 million gain on a sale of a manu-

facturingmanufacturing site, other net income of $4 million, partially offset by a $10 million adjustment to the carrying value of long-term investments in affordable housing partnerships and $7 million in expenses from currency hedging related to the financing of international activities.

Other expenses of $28 million in 2003 included a $36 million adjustment to the carrying value of long-term investments in affordable housing partnerships, $15 million in expenses from currency hedging related to the financing of international activities, partially offset by $16 million of gains on the sales of land and buildings, a $5 million one-time payment for the transfer of the Godiva Chocolatier ice cream license, and other net income of $2 million. The sales of land and buildings relate to the closures of a dry soup plant in Ireland ($8 million) and an Arnott’s plant in Melbourne, Australia ($8 million).

Operating EarningsSegment operating earnings increased 5% in 2006 from 2005. Segment operating earnings increased 6% in 2005 from 2004. Operating earnings would have been $45 million lower in 2005 and 2004 had all stock-based compensation been expensed.


Segment operating earnings declined 3% in 2004 from 2003. The restructuring charge accounted for 2 percentage points of the decline.


PAGE 13

An analysis of operating earnings by reportable segment follows:
                                        
 % Change  % Change 
 2005/ 2004/  2006/ 2005/ 
(millions) 2005 20041 2003 2004 2003  2006 2005 20041 2005 2004 
U.S. Soup, Sauces and Beverages $747 $730 $772 2  (5) $815 $747 $730 9 2 
Baking and Snacking 198 166 161 19 3  187 198 166  (6) 19 
International Soup and Sauces 221 205 201 8 2  144 143 128 1 12 
Other 110 101 100 9 1  110 110 101  9 
 1,276 1,202 1,234 6  (3) 1,256 1,198 1,125 5 6 
Corporate  (66)  (87)  (129)   (105)  (66)  (87) 
 $1,210 $1,115 $1,105  $1,151 $1,132 $1,038 
1 Contributions to earnings by segment includeincluded the effect of a pre-tax fourth quarter 2004 restructuring charge of $32$26 million as follows: U.S. Soup, Sauces and Beverages — $8—$8 million, Baking and Snacking — $10 million, International Soup and Sauces — $10$4 million, Other — $3 million and Corporate — $1 million.

Earnings from U.S. Soup, Sauces and Beverages increased 9% in 2006 from 2005. The 2005 earnings would have been $4 million lower had all stock-based compensation been expensed. The 2006 results included an $8 million benefit from the change in the method of accounting for inventories. The remaining increase in earnings was primarily due to higher selling prices and productivity gains, which were partially offset by cost inflation and higher advertising.
Earnings from U.S. Soup, Sauces and Beverages increased 2% in 2005 versus 2004. The 2004 results included an $8 million restructuring charge. The remaining increase in 2005 was due to productivity improvements and higher sales volume and prices, partially offset by cost inflation and increased marketing.

Earnings in 2005 and 2004 would have been $4 million and $6 million lower, respectively, had all stock-based compensation been expensed.

Earnings from U.S. Soup, SaucesBaking and BeveragesSnacking decreased 5%6% in 2004 versus 2003.2006 from 2005. The 20042005 earnings would have been $8 million lower had all stock-based compensation been expensed. The 2006 results included an $8a $5 million restructuring charge, which accountedbenefit from the change in the method of accounting for 1 percentage pointinventories. The earnings results were driven by declines in the Indonesian biscuit business and the Australian snack foods business, and the unfavorable impact of the earnings decline. The remainder of the earnings decline was due to quality improvements, higher inflation and product mix,currency, partially offset by an increase in sales and productivity improvements.

higher earnings at Pepperidge Farm.



11

Earnings from Baking and Snacking increased 19% in 2005 versus 2004. The 2004 results included a $10 million restructuring charge. Currency accounted for 3 percentage points of the earnings increase. The remaining increase in earnings was due to sales growth in Pepperidge Farm and improvement in the Snackfoodssnack foods business in Australia, partially offset by expenses associated with the implementation of a new sales and distribution system in Australia.

Earnings from Bakingin 2005 and Snacking increased 3% in 2004 versus 2003. The 2004 results included a $10would have been $8 million restructuring charge, which reduced earnings by 6 percentage points. Currency accounted for 9 percentage points of growth.

lower had all stock-based awards been expensed.

Earnings from International Soup and Sauces increased 8%1% in 2006 from 2005. The 2005 earnings would have been $3 million lower had all stock-based compensation been expensed. The increase in earnings was primarily due to strong market performance in Canada, partially offset by expenses associated with improving the cost structure of the supply chain in Europe and an organizational realignment in Europe due to the sale of the United Kingdom and Irish businesses.
Earnings from International Soup and Sauces increased 12% in 2005 versus 2004. The 2004 results included a $10$4 million restructuring charge. The remaining increase in earnings was due to the favorable impact of currency (6(8 percentage points) and operating earnings growth in Canada, partially offset by declinesa decline in EuropeLatin America. Earnings in 2005 and Latin America.

2004 would have been $3 million lower had all stock-based compensation been expensed.

Earnings from International SoupOther were $110 million in both 2006 and Sauces increased 2%2005. Prior year earnings would have been $6 million lower had all stock-based awards been expensed. The increase was primarily due to earnings growth in 2004 versus 2003. Currency accounted for 11 percentage points of growth, partially offset by a $10 million restructuring charge (approximately 5 percentage points) and declines in earnings in Canada and Europe.

Godiva Chocolatier.

Earnings from Other increased 9% in 2005 fromversus 2004. The 2004 results included a $3 million restructuring charge. Currency accounted for 2 percentage points of the increase. The remainder of the increase was due to the strong sales growth in Godiva Chocolatier and Away From Home.

Earnings in 2005 and 2004 would have been $6 million lower had all stock-based compensation been expensed.

Corporate expenses increased $39 million from Other increased 1%$66 million in 2005 to $105 million in 2006. The 2005 expenses would have been $24 million higher had all stock-based compensation been expensed. The remaining increase was primarily due to costs associated with the ongoing implementation of the SAP enterprise-resource planning system in North America.
Corporate expenses decreased $21 million from $87 million in 2004 from 2003. The 2004 results included a $3to $66 million restructuring charge, which negatively impacted earnings by 3 percentage points. Currency accounted for 4 percentage points of growth.

Corporate expenses decreased in 2005 due to lower costs associated with ongoing litigation, lower adjustments related to the carrying value of long-term investments in affordable housing partnerships, and lower expenses from currency hedging related to the financing of international activities, partially offset by the gains in 2004 related to the company’s share of a class action lawsuit involving ingredient suppliers and the sale of a manufacturing site in California.

Corporate expenses decreasedwould have been $24 million higher in 2005 and $22 million higher in 2004 had all stock-based compensation been expensed.

Interest Expense/IncomeInterest expense decreased 10% in 2006 from 2005, primarily due to lower adjustments related toa non-cash reduction of $21 million associated with the carrying value of long-term investments in affordable housing partnerships, the gain from the company’s sharefavorable settlement of a class action lawsuit involving ingredient suppliers, the

gain on saleU.S. tax contingency and lower levels of a manufacturing site in California, lower expenses from currency hedging related to the financing of international activities,debt, partially offset by increaseshigher interest rates. Interest income increased to $15 million in costs associated with ongoing litigation.2006 from $4 million in 2005 due to higher levels of cash and cash equivalents.



Nonoperating Items


PAGE 14

Interest expense increased 6% in 2005 from 2004 primarily due to higher interest rates, partially offset by lower levels of debt.

Interest expense declined 6% in 2004 from 2003, primarily due to lower levels of debt.

Taxes on EarningsThe effective tax rate was 31.4%24.6% in 2006, 32.4% in 2005, 31.7%and 33.1% in 20042004. The reduction in rate from 2005 to 2006 was attributable primarily to the favorable resolution of federal income tax audits of $68 million, including $47 million related to transactions involving government securities, an increased deduction related to U.S. manufacturing activities under the AJCA of $10 million, and 32.2% in 2003.higher levels of foreign tax credits of $14 million, partially offset by incremental tax expense associated with the repatriation of non-U.S. earnings under the AJCA of $13 million. The reduction in the rate in 2005 from 2004 was due to lower international taxes, which reflected a one-time benefit in Australia related to a change in tax law.
Discontinued OperationsThe reductionresults of the company’s businesses in the rate from 2003 to 2004 reflectedUnited Kingdom and Ireland are classified as discontinued operations. Results of the businesses are summarized below:
             
(millions) 2006  2005  2004 
 
Net sales $435  $476  $449 
 
Earnings before taxes $83  $78  $77 
Taxes on earnings  72   15   12 
 
Earnings from discontinued operations $11  $63  $65 
 
The 2006 results included $56 million of deferred tax expense, which was recognized in accordance with Emerging Issues Task Force Issue No. 93-17 “Recognition of Deferred Tax Assets for a lower U.S. tax liability which resulted from anParent Company’s Excess Tax Basis in the Stock of a Subsidiary That is Accounted for as a Discontinued Operation.” Results also included $7 million pre-tax ($5 million after tax) of costs associated with the sale of the businesses. The remaining increase in charitable contribution deductionsearnings was primarily due to lower marketing and researchadministrative expenses, partially offset by the decline in sales, the unfavorable impact of currency, and development credits,a higher tax rate.
The decline in earnings from $65 million in 2004 to $63 million in 2005 was primarily due to lower gross margins and the favorable resolution of certain incomea higher effective tax audits.

rate. The 2004 results included a $6 million pre-tax restructuring charge ($4 million after tax).

Restructuring ProgramA restructuring charge included in Earnings from continuing operations of $32$26 million ($2218 million after tax) was recorded in the fourth quarter 2004 for severance and employee benefit costs associated with a worldwide reduction in workforce and with the implementation of a distributionsales and logistics realignment in Australia. These programs are part of cost savings initiatives designed to improve the company’s operating margins and asset utilization. Approximately 400 positions were eliminated under the reduction in workforce program, resulting in a restructuring charge of $23 million.$17 million in Earnings from continuing operations. The reductions represented the elimination of layers of management,
elimination of redundant positions due to the realignment of operations in North America, and reorganization of the U.S. sales force. The majority of the terminations occurred in the fourth quarter of 2004. Annual pre-tax savings from the reduction are expected to be approximately $40 million beginning in 2005.

$37 million. The distributionsales and logistics realignment in Australia involves the conversion of a direct store delivery system to a central warehouse system.system, outsourcing of warehouse operations, and the consolidation of the field sales organization. A restructuring charge of $9 million was recorded for this program. As a result of this program, over 200 positions will be eliminated due to the outsourcing of the infrastructure.eliminated. The majority of the terminations occurred in 2005. Annual pre-tax benefits are expected to be approximately $10-$15$12 million beginning in 2008. The cash outflows related to these programs are not expected to have a material adverse effect on the company’s liquidity.

See Note 56 to the Consolidated Financial Statements for further discussion of these programs.



A restructuring charge of $6 million ($4 million after tax) was recorded by the United Kingdom and Irish businesses associated with a reduction in workforce and is included in Earnings from discontinued operations. See also Note 2 to the Consolidated Financial Statements.


12

Liquidity and Capital Resources

Net cash flows from operating activities provided $1,226 million in 2006, compared to $990 million in 2005. The increase was due primarily to a reduction in working capital and an increase in earnings. Net cash flows from operating activities provided $990 million in 2005, compared to $744 million in 2004. The increase was due primarily to a lower increase in working capital, an increase in earnings, and lower cash settlements related to foreign currency hedging transactions. Net cash flows from operating activities provided $744 million in 2004, compared to $873 million in 2003. The reduction was due to higher working capital requirements and an increase in pension fund contributions, partially offset by an increase in earnings. Over the last three years, operating cash flows totaled approximately $2.6$3 billion. This cash generating capability provides the company with substantial financial flexibility in meeting its operating and investing needs.

Capital expenditures were $309 million in 2006, $332 million in 2005 and $288 million in 2004 and $283 million in 2003.2004. Capital expenditures are projected to be approximately $360$325 to $350 million in 2006.2007. Capital expenditures in 2006 included investments to increase the manufacturing capacity for refrigerated soups, implement the SAP enterprise-resource planning system in North America, and implement certain quality and productivity projects in U.S. manufacturing facilities. The increase in 2005 was primarily driven by investments to increase manufacturing capacity for microwaveablemicrowavable products, implement the SAP enterprise-resource planning system in North America, increase manufacturing capacity for refrigerated soups, and implement a new sales and distribution system in Australia. The increase in 2004 was primarily driven by currency. Capital expenditures in 2004 included projects to increase manufacturing capacity for soup, beverages andGoldfish Sandwich Snackerscrackers, as well as investments in U.S. sales systems.



PAGE 15

Businesses acquired, as presented in the Statements of Cash Flows, represents the acquisition of certain brands from George Weston Foods Limited in Australia in the first quarter of 20042004.
Long-term borrowings in 2006 included the issuance of $202 million of five-year variable-rate debt in Australia due July 2011. The proceeds were used to repatriate earnings pursuant to the AJCA. While planning for the issuance of the debt, the company entered into interest rate swap agreements to effectively fix the interest rate on $149 million of the debt prior to its issuance.
As of July 30, 2006, the company had $300 million available for issuance under a $1 billion shelf registration statement filed with the Securities and Exchange Commission in June 2002. Under the acquisitions of Snack Foods Limited and Erin Foods inregistration statement, the first quarter of 2003.

company may issue debt securities, depending on market conditions.

There were no new long-term borrowings in 2005. Long-term borrowings in 2004 included the issuance of $300 million of ten-year 4.875% fixed-rate notes due October 2013. 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 of the notes. 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 converted $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 converted a portion of the 5.875% fixed-rate notes due October 2008 to variable.

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.

In May 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.

Long-term borrowings in 2003 included the issuance of $400 million of ten-year 5% fixed-rate notes due December 2012. The proceeds were used to retire $300 million 6.15% notes and to repay commercial paper borrowings. In connection with this issuance, the company entered into ten-year interest rate swaps that converted $300 million of the fixed-rate debt to variable.

In November 2002, the company terminated interest rate swap contracts with a notional value of $250 million that converted fixed-rate debt (6.75% notes due 2011) to variable and received $37 million. Of this amount, $3 million represented accrued interest earned on the swap prior to the termination date. The remainder will be amortized over the remaining life of the notes as a reduction to interest expense.

In June 2002, the company filed a $1 billion shelf registration statement with the Securities and Exchange Commission to use for future offerings of debt securities. Under the registration statement, the company may issue debt securities from time to time, depending on market conditions. The company intends to use the proceeds to repay short-term debt, to reduce or retire other indebtedness or for other general corporate purposes. As of July 31, 2005, the company had $300 million available for issuance under this registration statement.

Dividend payments were $292 million in 2006, $275 million in 2005 and $259 million in 2004 and 2003.2004. Annual dividends declared in 20052006 were $.72 per share, $.68 per share in 2005 and $.63 per share in 2004 and 2003.2004. The 20052006 fourth quarter rate was $.17$.18 per share.

The

Excluding shares owned and tendered by employees to satisfy tax withholding requirements on vesting of restricted shares, the company repurchased 15 million shares at a cost of $506 million during 2006, compared to 4 million shares at a cost of $110 million during 2005 compared toand 2 million shares at a cost of $56 million during 2004 and 12004. Of the 2006 repurchases, 6 million shares at a cost of $24$200 million during 2003.were under the Board of Directors authorization announced on November 21, 2005 to purchase up to $600 million
of company stock through fiscal 2008. The company expects to repurchase sufficientremaining shares over timewere repurchased to offset the impact of dilution from shares issued under the company’s stock compensation plans. See “Market Forfor Registrant’s Capital Stock, Related Shareowner Matters and Issuer Purchases of Equity Securities” for more information.

At July 31, 2005,30, 2006, the company had $451$1,097 million of notes payable due within one year and $35$33 million of standby letters of credit issued on behalf of the company. The company maintained committed revolving credit facilities totaling $1.5 billion, which were unused at July 31, 200530, 2006 except for $5$1 million of




13

standby letters of credit. Another $30$32 million of standby letters of credit was issued under a separate facility. In September 2005,2006, the company entered into a $500 million committed 364-day$1.5 billion, 5-year revolving credit facility whichthat will mature in September 2011. This facility replaced the existing $500 million 364-day revolving credit facility that matured in September 2005. The 364-day revolving credit facility contains a one-year term-out feature. The company also has a2006 and the $1 billion revolving multi-year credit facility. Infacility that would have matured in September 2005, the maturity of this facility was extended from 2009 to 2010. These agreements support the company’s commercial paper program.

programs.

The company is in compliance with the covenants contained in its revolving credit facilities and debt securities.

Cash and cash equivalents were $657 million at July 30, 2006 and $40 million at July 31, 2005. The company expects to maintain higher cash balances until $600 million of notes payable that matures in 2007 are repaid.
The company believes that foreseeable liquidity including the resolution of the contingencies described in Note 20 to the Consolidated Financial Statements, and capital resource requirements, including notes payable due within one year and cash outflows to repurchase shares and pay dividends, are expected to be met through cash and cash equivalents, 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 company’s financial position at that time.
On August 15, 2006, the company completed the sale of its United Kingdom and Irish businesses for £460 million or approximately $870 million. The company also announced that its Board of Directors authorized using approximately $620 million of the net proceeds of the sales to purchase company stock. These purchases are expected to be completed in 2007. On September 28, 2006, the company entered into accelerated share repurchase agreements with a financial institution to repurchase approximately $600 million of stock. This share repurchase authority is in addition to the three-year $600 million share repurchase plan announced in November 2005 and the company’s ongoing practice of buying back shares sufficient to offset shares issued under incentive



PAGE 16

compensation plans. The remaining net proceeds will be used to pay taxes and expenses associated with the sale, to settle foreign currency hedging contracts associated with intercompany financing transactions of the businesses, and to repay debt.
Contractual Obligations and Other Commitments

Contractual ObligationsThe following table summarizes the company’s obligations and commitments to make future payments under certain contractual obligations. For additional information on debt, see Note 1618 to the Consolidated Financial Statements. Operating leases are primarily entered into for warehouse and office facilities, retail store space, and certain equipment. Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. These commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily represent payments related to deferred compensation obligations and postemployment benefits. For additional information on other long-term liabilities, see Note 1719 to the Consolidated Financial Statements.

                                        
 Contractual Payments Due by Fiscal Year  Contractual Payments Due by Fiscal Year 
 2007- 2009-    2008- 2010-   
(millions) Total 2006 2008 2010 Thereafter  Total 2007 2009 2011 Thereafter 
Debt obligations1
 $2,993 $451 $614  $304  $1,624  $3,213 $1,097 $308 $912 $896 
Interest payments2
 951 161 260 212 318  884 175 263 216 230 
Purchase commitments 1,251 1,008 208 22 13  1,484 997 441 31 15 
Operating leases 297 68 107 71 51  335 77 114 80 64 
Derivative payments 183 7 98 15 63 
Other long-term liabilities3
 149 24 30 23 72 
Derivative payments3
 197 167 14 1 15 
Other long-term liabilities4
 152 14 29 24 85 
Total long-term cash obligations $5,824 $1,719 $1,317  $647  $2,141  $6,265 $2,527 $1,169 $1,264 $1,305 
1 Includes capital lease obligations totaling $13$18 million, unamortized net premium on debt issuances, unamortized gain on ana terminated interest rate swap and a gainloss on fair-value interest rate swaps. For additional information on debt obligations, see Note 1618 to the Consolidated Financial Statements.
 
2 Interest payments for notes payable, long-term debt and derivative instruments are calculated as follows. For notes payable, interest is based on par values and coupon rates of contractually obligated issuances at fiscal year end. For fixed-rate long-term debt, interest is based on principal amounts and fixed coupon rates at fiscal year end. For variable-rate long-term debt, interest is based on principal amounts and rates estimated over the life of the instrument using forward interest rates and applicable spreads. Interest on fixed-rate derivative instruments is based on notional amounts and fixed interest rates contractually obligated at fiscal year end. Interest on variable-rate derivative instruments is based on notional amounts contractually obligated at fiscal year end and weighted-average rates estimated over the instrument’s life using forward interest rates plus applicable spreads.
 
3 Represents payments of cross-currency swaps and forward exchange contracts. Includes payments of derivatives settled in 2007 associated with the sale of the businesses in the United Kingdom and Ireland.
4Represents other long-term liabilities, excluding deferred taxes and minority interest. This table does not include postretirement medical benefits, or payments related to pension plans.plans or unvested stock-based compensation. The company made a $35$22 million voluntary contribution to a U.S. plan subsequent to July 31, 2005.30, 2006.

Off-Balance Sheet Arrangements and Other Commitments
The company guarantees approximately 1,4001,500 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 $112$122 million. The company’s 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 2022 to the Consolidated Financial Statements for information on off-balance sheet arrangements.

Inflation

During the past twothree years, inflation, on average, has been higher than previous years but has not had a significant effect on the company. The company uses a number of strategies to mitigate the effects of cost inflation. These strategies include increasing prices, pursuing cost productivity initiatives such as global procurement strategies, and making capital investments that improve the efficiency of operations.




14

Market Risk Sensitivity

The principal market risks to which the company is exposed are changes in commodity prices, interest rates and foreign currency exchange rates. In addition, the company is exposed to equity price changes related to certain employee compensation obligations. The company manages its exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain its variable-to-total debt ratio within targeted guidelines. International operations, which accounted for over 35%approximately 30% of 20052006 net sales, are concentrated principally in Australia, Canada, France Germany and Germany. The company sold its operations in the United Kingdom.Kingdom and Ireland on August 15, 2006 as discussed in Note 2 to the Consolidated Financial Statements. The company manages its foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps and forward contracts. Swaps and forward contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into contracts for speculative purposes and does not use leveraged instruments.

The company principally uses a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain

commodities and agricultural products. The company may also enter into commodity futures contracts, as considered appropriate, to reduce the volatility of price fluctuations for commodities such as corn, cocoa, soybean meal, soybean oil, wheat and wheat.dairy. At




PAGE 17

July 30, 2006 and July 31, 2005, and August 1, 2004, the notional values and unrealized gains or losses on commodity futures contracts held by the company were not material.

The information below summarizes the company’s market risks associated with debt obligations and other significant financial instruments as of July 31, 2005.30, 2006. Fair values included herein have been determined based on quoted market prices. The information presented below should be read in conjunction with Notes 1618 and 1820 to the Consolidated Financial Statements.

The table below presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations. Variable interestInterest rates disclosed on variable-rate debt maturing in 2007 represent the weighted-average rates of the portfolio at the period end. Interest rates disclosed on variable-rate debt maturing in 2011 represent the weighted-average forward rates for the term. Notional amounts and related interest rates of interest rate swaps are presented by fiscal year of maturity. For the swaps, variable rates are the weighted-average forward rates for the term of each contract.



Expected Fiscal Year of Maturity
                                                                
(millions) 2006 2007 2008 2009 2010 Thereafter Total Fair Value  2007 2008 2009 2010 2011 Thereafter Total Fair Value 
Debt
  
Fixed rate $5 $610 $4 $302 $2 $1,624 $2,547 $2,727 
Fixed Rate $611 $5 $303 $3 $702 $896 $2,520 $2,579 
Weighted-average interest rate  4.27%  6.19%  3.74%  5.87%  4.40%  6.23%  6.17%   6.19%  4.17%  5.87%  5.10%  6.75%  5.86%  6.18% 
Variable rate $446 $446 $446  $4861 $2072 $693 $693 
Weighted-average interest rate  5.44%  5.44%   5.92%  6.81%  6.18% 
Interest Rate Swaps
  
Fixed to variable $2002 $1753 $5004 $875 $(2) $2003 $1754 $5005 $875 $(29)
Average pay rate1
  6.45%  5.82%  4.63%  5.28% 
Average pay rate  7.33%  6.94%  5.66%  6.27% 
Average receive rate  6.20%  5.88%  4.95%  5.42%   6.20%  5.88%  4.95%  5.39% 
Variable to fixed $776 $506 $276 $154 $ 
Average pay rate  6.74%  6.67%  6.83%  6.73% 
Average receive rate  6.71%  6.77%  6.80%  6.74% 
1 Weighted-average pay rates estimated over lifeRepresents $419 million equivalent of swap by using forward LIBOR interest rates plus applicable spread.AUD borrowing, $55 million equivalent of CAD borrowing, and $12 million equivalent of borrowings in other currencies.
 
2Represents $207 million equivalent of AUD borrowing.
3 Hedges $100 million of 5.50% notes and $100 million of 6.90% notes due in 2007.
 
34 Hedges $175 million of 5.875% notes due in 2009.
 
45 Hedges $300 million of 5.00% notes and $200 million of 4.875% notes due in 2013 and 2014, respectively.
6Hedges a portion of $207 million equivalent of AUD borrowing.


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As of August 1, 2004,July 31, 2005, fixed-rate debt of approximately $2.5 billion with an average interest rate of 6.17% and variable-rate debt of approximately $1 billion$446 million with an average interest rate of 3.30%5.44% were outstanding. As of August 1, 2004,July 31, 2005, the company had also swapped $875 million of fixed-rate debt to variable. The average rate received on these swaps was 5.42% and the average rate paid was estimated to be 5.21%5.28% over the remaining life of the swaps.


15

The company is exposed to foreign exchange risk related to its international operations, including non-functional currency intercompanyinter-company debt and net investments in subsidiaries.

The table below summarizes the cross-currency swaps outstanding as of July 31, 2005,30, 2006, which hedge such exposures.exposures, excluding contracts related to the divested United Kingdom and Irish businesses. The notional amount of each currency and the related weighted-average forward interest rate are presented in the Cross-Currency Swaps table.

Cross-Currency Swaps
                                
 Interest Notional Fair  Interest Notional Fair 
(millions) Expiration Rate Value Value  Expiration Rate Value Value 
Pay variable EUR 2006  2.68% $20 $1  2007  3.44% $11 $ 
Receive variable USD  4.41%   5.43% 
Pay variable EUR 2006  2.68% $69 $4  2007  3.48% $69 $(4)
Receive variable USD  3.95%   5.46% 
Pay variable GBP 2006  5.57% $125 $(7)
Receive variable USD  5.01% 
Pay fixed EUR 2007  5.46% $200 $(92)
Receive fixed USD  5.75% 
Pay variable CAD 2007  4.69% $53 $(8) 2007  5.92% $31 $(7)
Receive variable USD  5.48%   6.78% 
Pay fixed EUR 2007  5.46% $200 $(84)
Receive fixed USD  5.75% 
Pay variable SEK 2008  3.74% $16 $(1)
Receive variable USD  5.97% 
Pay fixed EUR 2008  2.92% $69 $4  2008  2.92% $69 $1 
Receive fixed USD  4.47%   4.47% 
Pay variable SEK 2008  2.72% $32 $1 
Receive variable USD  4.62% 
Pay fixed CAD 2009  5.13% $60 $(13) 2009  5.13% $60 $(17)
Receive fixed USD  4.22%   4.22% 
Pay fixed SEK 2010  4.53% $32 $(2) 2010  4.53% $32 $(3)
Receive fixed USD  4.29%   4.29% 
Pay fixed GBP 2011  5.97% $200 $(49)
Receive fixed USD  6.08% 
Pay fixed GBP 2011  5.97% $30 $(1)
Receive fixed USD  5.01% 
Pay fixed GBP 2011  5.97% $40 $1 
Receive fixed USD  4.76% 
Pay fixed CAD 2014  6.24% $60 $(15) 2014  6.24% $60 $(21)
Receive fixed USD  5.66%   5.66% 
Total $990 $(168) $548 $(144)

The cross-currency swap contracts outstanding at August 1, 2004July 31, 2005 represented one pay fixed SEK/receive fixed USD swap with a notional value of $47$32 million, a pay variable SEK/receive variable USD swap with a notional value of $18$32 million, a pay variable CAD/receive variable USD swap with a notional value of $53 million, two pay fixed CAD/receive fixed USD swaps with notional values of $122$120 million, two pay variable EUR/receive variable USD swaps with notional values of $169$89 million, atwo pay fixed EUR/receive fixed USD swapswaps with a notional valuevalues of $200$269 million, a pay variable GBP/receive variable USD swap with a notional value of $125 million, and three pay fixed GBP/receive fixed USD swaps with notional values
of $270 million. The notional value of these swap contracts was $1 billion$990 million as of August 1, 2004July 31, 2005 and the aggregate fair value of these swap contracts was $(154)$(168) million as of July 31, 2005.
The following contracts were outstanding at July 30, 2006 related to intercompany financing of the divested United Kingdom and Irish businesses. These instruments were settled in August 1, 2004.

2006 in connection with the sale of the business.

Cross-Currency Swaps

             
  Interest  Notional  Fair 
(millions) Rate  Value  Value 
 
Pay variable GBP  5.67% $138  $(2)
Receive variable USD  6.37%        
 
Pay fixed GBP  5.97% $200  $(66)
Receive fixed USD  6.08%        
 
Pay fixed GBP  5.97% $30  $(3)
Receive fixed USD  5.01%        
 
Pay fixed GBP  5.97% $40  $(2)
Receive fixed USD  4.76%        
 
Total     $408  $(73)
 
The company is also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary debt. The company utilizes foreign exchange forward purchase and sale contracts to hedge these exposures. The table below summarizes the foreign exchange forward contracts outstanding and the related weighted-average contract exchange rates as of July 31, 2005.

30, 2006. The table excludes forward contracts used to hedge the investment in and intercompany transactions associated with the United Kingdom and Irish businesses sold in August 2006.

Forward Exchange Contracts
                
 Contract Average Contractual  Contract Average Contractual 
(millions) Amount Exchange Rate  Amount Exchange Rate 
Receive EUR / Pay USD $97 1.29 
Receive USD / Pay CAD $33 1.15 
Receive AUD / Pay NZD $18 1.13 
Receive GBP / Pay USD $46 1.74  $9 1.85 
Receive EUR / Pay GBP $39 0.71  $8 0.70 
Receive CAD / Pay EUR $37 0.63 
Receive AUD / Pay NZD $32 1.08 
Receive USD / Pay CAD $28 1.24 
Receive EUR / Pay USD $8 1.24 
Receive USD / Pay EUR $24 0.82  $7 0.79 
Receive USD / Pay MXN $17 11.3 
Receive EUR / Pay JPY $5 137.00 
Receive GBP / Pay EUR $5 1.46 
Receive JPY / Pay EUR $15 0.01  $4 0.01 
Receive CAD / Pay USD $11 0.81 
Receive USD / Pay AUD $11 1.34 
Receive USD / Pay GBP $9 0.53 
Receive EUR / Pay JPY $8 130.70 
Receive GBP / Pay AUD $7 2.41 
Receive AUD / Pay USD $5 0.76 
Receive USD / Pay JPY $4 104.8 
Receive SEK / Pay USD $4 0.13 

The company had an additional $8$13 million in a number of smaller contracts to purchase or sell various other currencies, such as the Australian dollar, euro, New Zealand dollar,Mexican peso, Japanese yen, Swedish krona and Swiss francCanadian dollar as of July 31, 2005.30, 2006. The aggregate fair value of all contracts was $3$2 million as of July 31, 2005.30, 2006. Total forward exchange contracts outstanding as of August 1, 2004July 31, 2005 were $255$402 million with a fair value of $2$3 million.




16PAGE 19

The following forward contracts, which hedge exposures related to the United Kingdom and Irish businesses, were outstanding as of July 30, 2006 and settled in August 2006 in connection with the sale. The fair value of these contracts was $(5) million at July 30, 2006.
GBP Forward Exchange Contracts
         
  Contract  Average Contractual 
(millions) Amount  Exchange Rate 
 
Receive USD / Pay GBP $347   0.54 
 
Receive GBP / Pay EUR $54   1.46 
 
Receive EUR / Pay GBP $12   0.71 
 
The company had swap contracts outstanding as of July 31, 2005,30, 2006, which hedge a portion of exposures relating to certain employee compensation obligations linked to the total return of the Standard & Poor’s 500 Index, the total return of the company’s capital stock and beginning in February 2005, the total return of the Puritan Fund. Under these contracts, the company pays variable interest rates and receives from the counterparty either the Standard & Poor’s 500 Index total return, the Puritan Fund total return, or the total return on company capital stock. The notional value of the contractscontract that areis linked to the return on the Standard & Poor’s 500 Index was $18 million at July 30, 2006 and $20 million at July 31, 2005 and $21 million at August 1, 2004.2005. The average forward interest rate applicable to the contract, which expires in 2006,2007, was 4.02%5.00% at July 31, 2005.30, 2006. The notional value of the contract that is linked to the return on the Puritan Fund was $10 million at July 30, 2006 and $9 million at July 31, 2005. The average forward interest rate applicable to the contract, which expires in 2006,2007, was 4.38%5.24% at July 31, 2005.30, 2006. The notional value of the contract that is linked to the total return on company capital stock was $27 million at July 30, 2006 and $20 million at July 31, 2005 and $13 million at August 1, 2004.2005. The average forward interest rate applicable to this contract, which expires in 2006,2007, was 4.43%5.13% at July 31, 2005.30, 2006. The fair value of these contracts was a $2 million gain at July 30, 2006 and a $1 million gain at both July 31, 2005 and August 1, 2004.

2005.

The company’s utilization of financial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances, market effects on debt and foreign currency, and the company’s acquisition and divestiture activities.

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. See Note 1 to the
Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions:

Trade and consumer promotion programsThe company offers various sales incentive programs to customers and consumers, such as cooperative advertising programs, feature price discounts, in-store display incentives and coupons. The recognition of the costs for these programs, which are classified as a reduction of revenue, involves use of judgment related to performance and

redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from estimates.

Valuation of long-lived assetsLong-lived assets, including fixed assets and intangibles, are reviewed for impairment as events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable. Discounted cash flow analyses are used to assess nonamortizable intangible asset impairment, while undiscounted cash flow analyses are used to assess other long-lived asset impairment. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance. Assumptions used in these forecasts are consistent with internal planning. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance, and economic conditions.

Pension and postretirement medical benefitsThe company provides certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted in the United States, perform the required calculations to determine expense. Actual results that differ from the actuarial assumptions are generally accumulated and amortized over future periods.

The discount rate is established as of the company’s fiscal year-end measurement date. In establishing the discount rate, the company reviews published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent financial consultants apply high-quality bond yield curves to the expected benefit payments of the plans. The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering the company’s current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and a premium for active management. Within any given fiscal period, significant differences may arise between the actual return and the expected return on plan assets. The value of plan assets, used in the calculation of pension expense, is determined on a calculated method that recognizes 20% of the difference between the actual fair value of assets and the expected



PAGE 20

calculated method. Gains and losses resulting from differences between actual experience and the assumptions are determined at each measurement date. If the net gain or loss exceeds 10% of the greater of plan assets or liabilities, a portion is amortized into earnings in the following year.




17

When the fair value of pension plan assets is less than the accumulated benefit obligation, an additional minimum liability is recorded in Other comprehensive income within Shareowners’ Equity. As of July 30, 2006 and July 31, 2005, and August 1, 2004, Shareowners’ Equity includes a minimum liability, net of tax, of $67 million and $238 million, and $196 million, respectively.

Net periodic pension and postretirement medical expense was $77 million in 2006, $67 million in 2005 and $65 million in 2004, and $43 million in 2003. The increase in 2004 was primarily due to a lower discount rate and a reduction in the expected return on assets, partially offset by the expected returns associated with a $50 million voluntary contribution to a U.S. plan.2004. Significant weighted-average assumptions as of the end of the year are as follows:
             
Pension 2005  2004  2003 
 
Discount rate for benefit obligations  5.44%  6.19%  6.39%
Expected return on plan assets  8.76%  8.76%  8.80%
 
             
Postretirement 2005  2004  2003 
 
Discount rate for obligations  5.50%  6.25%  6.50%
Initial health care trend rate  9.00%  9.00%  9.00%
Ultimate health care trend rate  4.50%  4.50%  4.50%
 
             
Pension 2006  2005  2004 
 
Discount rate for benefit obligations  6.05%  5.44%  6.19%
Expected return on plan assets  8.71%  8.76%  8.76%
 

             
Postretirement            
 
Discount rate for obligations  6.25%  5.50%  6.25%
Initial health care trend rate  9.00%  9.00%  9.00%
Ultimate health care trend rate  4.50%  4.50%  4.50%
 
Estimated sensitivities to theannual net periodic pension cost are as follows: a 50 basis point reduction in the discount rate would increase expense by approximately $12 million; a 50 basis point reduction in the estimated return on assets assumption would increase expense by approximately $8$10 million. A one percentage point changeincrease in assumed health care costs would increase postretirement service and interest cost by approximately $2 million.

Although there were no mandatory funding requirements to the U.S. plans in 2006, 2005 and 2004, the company made a $35 million contribution in 2006 and 2005 and a $50 million contributions, respectively,contribution in 2004 to a U.S. plan based on expected future funding requirements. Contributions to international plans were $17 million in 2006, $26 million in 2005 and $15 million in 2004. In 2003, there were no contributions to the U.S. plans and contributions to international plans were $19 million. Subsequent to July 31, 2005,30, 2006, the company made a $35$22 million voluntary contribution to a U.S. plan in anticipation of future funding requirements.

Contributions to non-U.S. plans are expected to be approximately $10 million in 2007.

See also Note 910 to the Consolidated Financial Statements for additional information on pension and postretirement medical expenses.

Income taxesThe effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions in which the company operates and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Tax reserves are established when,

despite the company’s belief that tax return positions are fully supportable, certain positions are subject to challenge and the company may not successfully defend its position. These reserves, as well as the related interest, are adjusted in light of changing facts and circumstances, such as the progress of a tax audit. While it is difficult to predict the final outcome or timing of resolution of any particular tax matter, the company believes that the reserves reflect the probable outcome of known tax contingencies. Income taxes are recorded based on amounts refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, andas well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized. See also the section entitled Recently Issued Accounting Pronouncements and Notes 1 and 1011 to the Consolidated Financial Statements for further discussion on income taxes, including the impact of the American Jobs Creation Act (the AJCA).

AJCA, and FASB Interpretation No. (FIN) 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.”

Recently Issued Accounting Pronouncements

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position (FSP) FAS 106-1, the company elected in January 2004 to defer recognizing the effects of the Act on accounting for postretirement health care plans until the FASB guidance was finalized.

In May 2004, the Financial Accounting Standards Board (FASB) issued FSP FAS 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. The company believes that certain drug benefits offered under postretirement health care plans will qualify for the subsidy under Medicare Part D. The effects of the subsidy were factored into the 2004 annual year-end valuation. The reduction in the benefit obligation attributable to past service cost was approximately $32 million and has been reflected as an actuarial gain. The reduction in benefit cost for 2005 related to the Act was approximately $5 million.




18

In November 2004, SFAS No. 151 “Inventory Costs an amendment of ARB No. 43, Chapter 4” was issued. SFAS No. 151 is the result of efforts to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs and spoilage to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will bewas effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The company doesadoption of SFAS No. 151 in 2006 did not expect the adoption to have a material impact on the financial statements.

In December 2004, the FASB issued SFAS No. 123R (revised 2004) “Share-Based Payment.” SFAS No. 123R requires employee stock-based compensation to be measured based on the grant-date fair value of the awards and the cost to be recognized over the period during which an employee is required to provide service in exchange for the award. The Statement eliminates the alternative use of Accounting Principles Board (APB) No. 25’s intrinsic value method of accounting for awards, which is the company’s accounting policy for stock options. See Note 1 to the Consolidated Financial Statements for the pro forma impact of compensation expense from stock options on net earnings and earnings per share. SFAS No. 123R is effective for the beginning of fiscal 2006. The company will adopt the provisions of SFAS No. 123R on a prospective basis. The financial statement impact will be dependent on future stock-based awards and any unvested stock options outstanding at the date of adoption.

In October 2004, the AJCA was signed into law. The AJCA provides for a deduction of 85% of certain foreignnon-U.S. earnings that are repatriated, as defined by the AJCA, and a phased-in tax deduction related to profits from domestic manufacturing activities. In December 2004, the Financial Accounting Standards Board (FASB) issued FASB issued FSPStaff Position FAS 109-1 and 109-2 to address the accounting and disclosure requirements related to the AJCA. The company is currently evaluating the impact oftotal amount repatriated in 2006 under the AJCA along with the additional technical guidance issued by the U.S. Treasury Department. The company will complete its evaluation in fiscal 2006. The company estimates the range of possible amounts considered for repatriation to be between $200 and $425was $494 million and the related impact on income tax cost was $20 million. In 2005, the company recorded $7 million in tax expense for $200 million of anticipated earnings to be between $7 and $16 million. Based onrepatriated. In 2006, the company’s plans related tocompany finalized its plan under the AJCA as of 2005,and recorded tax expense of $7$13 million has been recorded for amounts expected to be$294 million of earnings repatriated.



PAGE 21

In March 2005, the FASB issued FASB Interpretation No.FIN 47 (FIN 47) “Accounting for Conditional Asset Retirement Obligations an Interpretationinterpretation of FASB Statement No. 143.” This Interpretation clarifies that a conditional retirement obligation refers to a legal

obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset. The company adopted FIN 47 in 2006. The adoption did not have a material impact on the financial statements.

In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.” FIN 48 clarifies the criteria that must be met for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. This Interpretation also addresses derecognition, recognition of related penalties and interest, classification of liabilities and disclosures of unrecognized tax benefits. FIN 48 is effective no later than the end of thefor fiscal years endingbeginning after December 15, 2005.2006. The company is in the process of evaluating the impact of FIN 47 but does not expect the adoption to have a material impact on the financial statements.

48.

Earnings Outlook

On September 12, 2005,11, 2006, the company issued a press release announcing results for 20052006 and commented on the outlook for earnings per share for 2006.

2007.

Cautionary Factors That May Affect Future Results

This Report contains “forward-looking” statements that reflect the company’s 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 company’s 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
Part 1, Item 1A and elsewhere in the commentary, or in the Securities and Exchange Commission filings of the company, could affect the company’s actual results and could cause such results to vary
materially from those expressed in any forward-looking statements made by, or on behalf of, the company:

the impact of strong competitive response to the company’s efforts to leverage its brand power with product innovation, promotional programs and new advertising, and of changes in consumer demand for the company’s products;



the risks in the marketplace associated with trade and consumer acceptance of product improvements, shelving initiatives and new product introductions;


19

the risks in the marketplace associated with trade and consumer acceptance of product improvements, shelving initiatives, and new product introductions;
the company’s ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume and product mix, and the impact of marketing and pricing actions;
the company’s ability to realize projected cost savings and benefits, including those contemplated by restructuring programs and other cost-savings initiatives;
the company’s ability to successfully manage changes to its business processes, including selling, distribution, product capacity, information management systems and the integration of acquisitions;
the increased significance of certain of the company’s key trade customers;
the difficulty of predicting the pattern of inventory movements by the company’s 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 uncertainties of litigation described from time to time in the company’s Securities and Exchange Commission filings;
the impact of changes in currency exchange rates, tax rates, interest rates, equity markets, inflation rates, recession and other external factors; and
the impact of unforeseen business disruptions in one or more of the company’s markets due to political instability, civil disobedience, armed hostilities, natural disasters or other calamities.

the company’s ability to achieve sales and earnings forecasts, which are based on assumptions about sales volume and product mix, and the impact of marketing and pricing actions;

the company’s ability to realize projected cost savings and benefits, including those contemplated by restructuring programs and other cost-savings initiatives;
the company’s ability to successfully manage changes to its business processes, including selling, distribution, product capacity, information management systems and the integration of acquisitions;
the increased significance of certain of the company’s key trade customers;
the impact of fluctuations in the supply and cost of energy and raw materials;
the risks associated with portfolio changes and completion of acquisitions and divestitures;
the uncertainties of litigation described from time to time in the company’s Securities and Exchange Commission filings;
the impact of changes in currency exchange rates, tax rates, interest rates, equity markets, inflation rates, recession and other external factors; and
the impact of unforeseen business disruptions in one or more of the company’s markets due to political instability, civil disobedience, armed hostilities, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact the company’s outlook. The company disclaims any obligation or intent to update forward-looking statements made by the company in order to reflect new information, events or circumstances after the date they are made.

Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

The information presented in the section entitled “Management’s Discussion and Analysis of Results of Operations and Financial Condition — Market Risk Sensitivity” is incorporated herein by reference.




20PAGE 22

Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Earnings

(millions, except per share amounts)
             
  2005  2004  2003 
  52 weeks  52 weeks  53 weeks 
 
Net Sales
 $7,548  $7,109  $6,678 
 
Costs and expenses            
Cost of products sold  4,491   4,187   3,805 
Marketing and selling expenses  1,185   1,153   1,145 
Administrative expenses  571   542   507 
Research and development expenses  95   93   88 
Other expenses / (income) (Note 6)  (4)  (13)  28 
Restructuring charge (Note 5)     32    
 
Total costs and expenses  6,338   5,994   5,573 
 
Earnings Before Interest and Taxes
  1,210   1,115   1,105 
Interest expense (Note 7)  184   174   186 
Interest income  4   6   5 
 
Earnings before taxes  1,030   947   924 
Taxes on earnings (Note 10)  323   300   298 
 
Earnings before cumulative effect of accounting change  707   647   626 
Cumulative effect of change in accounting principle        (31)
 
Net Earnings
 $707  $647  $595 
 
Per Share — Basic
            
Earnings before cumulative effect of accounting change $1.73  $1.58  $1.52 
Cumulative effect of change in accounting principle        (.08)
 
Net Earnings
 $1.73  $1.58  $1.45 
 
Weighted average shares outstanding — basic  409   409   411 
 
Per Share — Assuming Dilution
            
Earnings before cumulative effect of accounting change $1.71  $1.57  $1.52 
Cumulative effect of change in accounting principle        (.08)
 
Net Earnings
 $1.71  $1.57  $1.45 
 
Weighted average shares outstanding — assuming dilution  413   412   411 
 
             
  2006  2005  2004 
 
Net Sales
 $7,343  $7,072  $6,660 
 
Costs and expenses            
Cost of products sold  4,268   4,175   3,902 
Marketing and selling expenses  1,203   1,131   1,097 
Administrative expenses  617   549   522 
Research and development expenses  99   90   88 
Other expenses / (income) (Note 7)  5   (5)  (13)
Restructuring charge (Note 6)        26 
 
Total costs and expenses  6,192   5,940   5,622 
 
Earnings Before Interest and Taxes
  1,151   1,132   1,038 
Interest expense (Note 8)  165   184   174 
Interest income  15   4   6 
 
Earnings before taxes  1,001   952   870 
Taxes on earnings (Note 11)  246   308   288 
 
Earnings from continuing operations  755   644   582 
Earnings from discontinued operations  11   63   65 
 
Net Earnings
 $766  $707  $647 
 
Per Share – Basic
            
Earnings from continuing operations $1.86  $1.57  $1.42 
Earnings from discontinued operations  .03   .15   .16 
 
Net Earnings
 $1.88  $1.73  $1.58 
 
Weighted average shares outstanding – basic  407   409   409 
 
Per Share – Assuming Dilution
            
Earnings from continuing operations $1.82  $1.56  $1.41 
Earnings from discontinued operations  .03   .15   .16 
 
Net Earnings
 $1.85  $1.71  $1.57 
 
Weighted average shares outstanding – assuming dilution  414   413   412 
 

See accompanying Notes to Consolidated Financial Statements.

The sum of the individual per share amounts does not equal net earnings per share due to rounding.


21

PAGE 23

Consolidated Balance Sheets

(millions, except per share amounts)
         
  July 31, 2005  August 1, 2004 
 
Current Assets
        
Cash and cash equivalents $40  $32 
Accounts receivable (Note 11)  509   490 
Inventories (Note 12)  782   782 
Other current assets (Note 13)  181   164 
 
Total current assets  1,512   1,468 
 
Plant Assets, Net of Depreciation(Note 14)
  1,987   1,901 
Goodwill(Note 3)
  1,950   1,900 
Other Intangible Assets, Net of Amortization(Note 3)
  1,059   1,095 
Other Assets(Note 15)
  268   298 
 
Total assets $6,776  $6,662 
 
Current Liabilities
        
Notes payable (Note 16) $451  $810 
Payable to suppliers and others  624   607 
Accrued liabilities  606   594 
Dividend payable  70   65 
Accrued income taxes  251   250 
 
Total current liabilities  2,002   2,326 
 
Long-term Debt(Note 16)
  2,542   2,543 
Nonpension Postretirement Benefits(Note 9)
  278   298 
Other Liabilities(Note 17)
  684   621 
 
Total liabilities  5,506   5,788 
 
Shareowners’ Equity(Note 19)
        
Preferred stock; authorized 40 shares; none issued      
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares  20   20 
Additional paid-in capital  236   264 
Earnings retained in the business  6,069   5,642 
Capital stock in treasury, 134 shares in 2005 and 2004, at cost  (4,832)  (4,848)
Accumulated other comprehensive loss  (223)  (204)
 
Total shareowners’ equity  1,270   874 
 
Total liabilities and shareowners’ equity $6,776  $6,662 
 
         
  July 30, 2006  July 31, 2005 
 
Current Assets
        
Cash and cash equivalents $657  $40 
Accounts receivable (Note 12)  494   509 
Inventories (Note 13)  728   753 
Other current assets (Note 14)  133   181 
Current assets of discontinued operations held for sale  100    
 
Total current assets  2,112   1,483 
 
Plant Assets, Net of Depreciation(Note 15)
  1,954   1,987 
Goodwill(Note 4)
  1,765   1,950 
Other Intangible Assets, Net of Amortization(Note 4)
  596   1,059 
Other Assets(Note 16)
  605   297 
Non-current assets of discontinued operations held for sale
  838    
 
Total assets $7,870  $6,776 
 
Current Liabilities
        
Notes payable (Note 18) $1,097  $451 
Payable to suppliers and others  691   624 
Accrued liabilities (Note 17)  820   606 
Dividend payable  74   70 
Accrued income taxes  202   251 
Current liabilities of discontinued operations held for sale  78    
 
Total current liabilities  2,962   2,002 
 
Long-term Debt(Note 18)
  2,116   2,542 
Nonpension Postretirement Benefits(Note 10)
  278   278 
Other Liabilities(Note 19)
  721   684 
Non-current liabilities of discontinued operations held for sale
  25    
 
Total liabilities  6,102   5,506 
 
Shareowners’ Equity(Note 21)
        
Preferred stock; authorized 40 shares; none issued      
Capital stock, $ .0375 par value; authorized 560 shares; issued 542 shares  20   20 
Additional paid-in capital  352   236 
Earnings retained in the business  6,539   6,069 
Capital stock in treasury, 140 shares in 2006 and 134 shares in 2005, at cost  (5,147)  (4,832)
Accumulated other comprehensive income (loss)  4   (223)
 
Total shareowners’ equity  1,768   1,270 
 
Total liabilities and shareowners’ equity $7,870  $6,776 
 

See accompanying Notes to Consolidated Financial Statements.


22

PAGE 24

Consolidated Statements of Cash Flows

(millions)
                  
 2005 2004 2003  2006 2005 2004 
Cash Flows from Operating Activities:
  
Net earnings $707 $647 $595  $766 $707 $647 
Non-cash charges to net earnings  
Restructuring charges  32  
Cumulative effect of accounting change   31 
Change in accounting method (Note 13)  (8)   
Restructuring charge   32 
Stock-based compensation 85 28 18 
Resolution of tax contingency (Note 11)  (60)   
Depreciation and amortization 279 260 243  289 279 260 
Deferred taxes 47 51 72 �� 29 47 51 
Other, net (Note 21) 122 97 93 
Other, net (Note 23) 82 81 68 
Changes in working capital  
Accounts receivable  (10)  (61) 46   (18)  (10)  (61)
Inventories 6  (54)  (33)  (2) 21  (43)
Prepaid assets  (17) 2 1    (17) 2 
Accounts payable and accrued liabilities  (24)  (62)  (38) 168  (26)  (62)
Pension fund contributions  (61)  (65)  (19)  (52)  (61)  (65)
Other (Note 21)  (59)  (103)  (118)
Other (Note 23)  (53)  (59)  (103)
Net Cash Provided by Operating Activities
 990 744 873  1,226 990 744 
Cash Flows from Investing Activities:
  
Purchases of plant assets  (332)  (288)  (283)  (309)  (332)  (288)
Sales of plant assets 11 22 22  2 11 22 
Businesses acquired   (9)  (177)    (9)
Sales of businesses   10 
Other, net 7   (4) 13 7  
Net Cash Used in Investing Activities
  (314)  (275)  (432)  (294)  (314)  (275)
Cash Flows from Financing Activities:
  
Long-term borrowings  301 400  202  301 
Net repayments of short-term borrowings  (354)  (486)  (566)
Net short-term borrowings (repayments) 31  (354)  (486)
Dividends paid  (275)  (259)  (259)  (292)  (275)  (259)
Treasury stock purchases  (110)  (56)  (24)  (506)  (110)  (56)
Treasury stock issuances 71 25 17  236 71 25 
Excess tax benefits on stock-based compensation 11   
Net Cash Used in Financing Activities
  (668)  (475)  (432)  (318)  (668)  (475)
Effect of Exchange Rate Changes on Cash
  6 2  3  6 
Net Change in Cash and Cash Equivalents
 8  11  617 8  
Cash and Cash Equivalents — Beginning of Year
 32 32 21 
Cash and Cash Equivalents – Beginning of Period
 40 32 32 
Cash and Cash Equivalents — End of Year
 $40 $32 $32 
Cash and Cash Equivalents – End of Period
 $657 $40 $32 

See accompanying Notes to Consolidated Financial Statements.


23

PAGE 25
Consolidated Statements of Shareowners’ Equity (Deficit)

(millions, except per share amounts)
                                                        
 Earnings Accumulated    Earnings Accumulated   
 Capital Stock Additional Retained Other Total  Capital Stock Additional Retained Other Total 
 Issued In Treasury Paid-in in the Comprehensive Shareowners’  Issued In Treasury Paid-in in the Comprehensive Shareowners’ 
 Shares Amount Shares Amount Capital Business Income (Loss) Equity (Deficit)  Shares Amount Shares Amount Capital Business Income (Loss) Equity 
Balance at July 28, 2002 542 $20  (132) $(4,891) $320 $4,918 $(481) $(114)
Comprehensive income (loss) 
Net earnings 595 595 
Foreign currency translation adjustments 174 174 
Cash-flow hedges, net of tax  (7)  (7)
Minimum pension liability, net of tax  (2)  (2)
Other comprehensive income 165 165 
  
Total Comprehensive income 760 
Dividends ($.63 per share)  (259)  (259)
Treasury stock purchased  (1)  (24)  (24)
Treasury stock issued under management incentive and stock option plans 1 46  (22) 24 
Balance at August 3, 2003 542 20  (132)  (4,869) 298 5,254  (316) 387  542 $20  (132) $(4,869) $298 $5,254 $(316) $387 
Comprehensive income (loss)  
Net earnings 647 647  647 647 
Foreign currency translation adjustments 94 94  94 94 
Cash-flow hedges, net of tax 4 4  4 4 
Minimum pension liability, net of tax 14 14  14 14 
Other comprehensive income 112 112  112 112 
    
Total Comprehensive income 759  759 
Dividends ($.63 per share)  (259)  (259)  (259)  (259)
Treasury stock purchased  (2)  (56)  (56) ��  (2)  (56)  (56)
Treasury stock issued under management incentive and stock option plans  77  (34) 43   77  (34) 43 
Balance at August 1, 2004 542 20  (134)  (4,848) 264 5,642  (204) 874  542 20  (134)  (4,848) 264 5,642  (204) 874 
Comprehensive income (loss)
  
Net earnings
 707 707  707 707 
Foreign currency translation adjustments
 42 42  42 42 
Cash-flow hedges, net of tax
  (19)  (19)  (19)  (19)
Minimum pension liability, net of tax
  (42)  (42)  (42)  (42)
Other comprehensive loss
  (19)  (19)  (19)  (19)
    
Total Comprehensive income
 688  688 
Dividends ($.68 per share)
  (280)  (280)  (280)  (280)
Treasury stock purchased
  (4)  (110)  (110)  (4)  (110)  (110)
Treasury stock issued under management incentive and stock option plans
 4 126  (28) 98  4 126  (28) 98 
Balance at July 31, 2005
 542 $20  (134) $(4,832) $236 $6,069 $(223) $1,270  542 20  (134)  (4,832) 236 6,069  (223) 1,270 
Comprehensive income (loss)
 
Net earnings
 766 766 
Foreign currency translation adjustments
 51 51 
Cash-flow hedges, net of tax
 5 5 
Minimum pension liability, net of tax
 171 171 
Other comprehensive income
 227 227 
  
Total Comprehensive income
 993 
Dividends ($.72 per share)
  (296)  (296)
Treasury stock purchased
  (15)  (506)  (506)
Treasury stock issued under management incentive and stock option plans
 9 191 116 307 
Balance at July 30, 2006
 542 $20  (140) $(5,147) $352 $6,539 $4 $1,768 

See accompanying Notes to Consolidated Financial Statements.


24PAGE 26

Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
1Summary of Significant Accounting Policies
1 Summary of Significant Accounting Policies

Basis of PresentationThe consolidated financial statements include the accounts of the company and its majority-owned subsidiaries. Intercompany transactions are eliminated in consolidation. Certain amounts in prior year financial statements were reclassified to conform to the currentcurrent-year presentation.

The company’s fiscal year ends on the Sunday nearest July 31. There were 52 weeks in 2006, 2005, and 2004,2004.

On August 15, 2006, the company completed the sale of its United Kingdom and 53 weeksIrish businesses to Premier Foods Investments Limited, HL Foods Limited and Premier Foods plc for £460, or approximately $870, pursuant to a Sale and Purchase Agreement dated July 12, 2006. The company has reflected the results of these businesses as discontinued operations in 2003.

the consolidated statements of earnings for all years presented. The assets and liabilities of these businesses were reflected as assets and liabilities of discontinued operations held for sale in the consolidated balance sheet as of July 30, 2006. See Note 2 for additional information on the sale.

Revenue RecognitionRevenues are recognized when the earnings process is complete. This occurs when products are shipped in accordance with terms of agreements, title and risk of loss transfer to customers, collection is probable and pricing is fixed or determinable. Revenues are recognized net of provisions for returns, discounts and allowances. Certain sales promotion expenses, such as coupon redemption costs, cooperative advertising programs, new product introduction fees, feature price discounts and in-store display incentives are classified as a reduction of sales.

Cash and Cash EquivalentsAll highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents.

InventoriesSubstantiallyIn 2006, all U.S. inventories are pricedvalued at the lower of average cost or market, with cost determined bymarket. Prior to 2006, substantially all U.S. inventories were valued based on the last in, first out (LIFO) method. Other inventories are priced at the lower of average cost or market.

See also Note 13.

In November 2004, Statement of Financial Accounting Standards (SFAS) No. 151 “Inventory Costs an amendment of ARB No. 43, Chapter 4” was issued. SFAS No. 151 is the result of efforts to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs and spoilage to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will bewas effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The company doesadoption of SFAS No. 151 in 2006 did not expect the adoption to have a material impact on the financial statements.

Property, Plant and EquipmentProperty, plant and equipment are recorded at historical cost and are depreciated over estimated useful lives using the straight-line method. Buildings and machinery and equipment are depreciated over periods not exceeding 45 years and 15 years, respectively. Assets are evaluated for impairment when triggering events occur.

conditions indicate that the carrying value may not be recoverable. Such conditions include significant adverse changes in business climate or a plan of disposal.

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 47 “Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143.” This Interpretation clarifies that a conditional retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset. The company adopted FIN 47 in 2006. The adoption did not have a material impact on the financial statements.
Goodwill and Intangible AssetsGoodwill and indefinite-lived intangible assets are not amortized but rather are tested at least annually for impairment in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” Intangible assets with finite lives are amortized over the estimated useful life and reviewed for impairment in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-lived Assets.” Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value exceeds fair value, goodwill is considered impaired. The amount of impairment is the difference between the carrying value of goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination. Impairment testing for indefinite-lived intangible assets requires a comparison between the fair value and carrying value of the asset. If carrying value exceeds the fair value, the asset is reduced to fair value. Fair values are primarily determined using discounted cash flow analyses. See Note 3 of the Notes to Consolidated Financial Statements4 for information on goodwill and other intangible assets.



PAGE 27

Derivative Financial InstrumentsThe company uses derivative financial instruments primarily for purposes of hedging exposures to fluctuations in interest rates, foreign currency exchange rates, commodities and equity-linked employee benefit obligations. All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income are reclassified to earnings in the period in which earnings are affected by the underlying hedged item. The ineffective portion of all hedges is recognized in earnings in the current period. See Note 18 of the Notes to Consolidated Financial Statements20 for additional information.




25

Stock-Based CompensationThe company accounts for stock option grants and restricted stock awards in accordance with Accounting Principles Board (APB) 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. See also Note 19 of the Notes to Consolidated Financial Statements. The following table illustrates the effect on net earnings and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

             
  2005  2004  2003 
 
Net earnings, as reported $707  $647  $595 
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects1
  16   11   13 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (45)  (40)  (37)
 
Pro forma net earnings $678  $618  $571 
 
Earnings per share:            
 
Basic – as reported $1.73  $1.58  $1.45 
 
Basic – pro forma $1.66  $1.51  $1.39 
 
Diluted – as reported $1.71  $1.57  $1.45 
 
Diluted – pro forma $1.64  $1.50  $1.39 
 
1Represents restricted stock expense.

The weighted average fair value of options granted in 2005, 2004 and 2003 was estimated as $4.74, $5.73 and $5.91, respectively. The fair value of each option grant at grant date is estimated using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in 2005, 2004 and 2003:

             
  2005  2004  2003 
 
Risk-free interest rate  3.2%  4.1%  4.0%
Expected life (in years)  6   6   6 
Expected volatility  21%  24%  26%
Expected dividend yield  2.4%  2.4%  2.8%
 

In December 2004, the Financial Accounting Standards Board (FASB)FASB issued SFAS No. 123R123 (revised 2004) “Share-Based Payment.” SFASPayment” (SFAS No. 123R123R), which requires employee stock-based

compensation to be measured based on the grant-date fair value of the awards and the cost to be recognized over the period during which an employee is required to provide service in exchange for the award. The Statement eliminates the alternative use of APB No. 25’s intrinsic value method of accounting for awards. SFAS No. 123R is effective for the beginning of fiscal 2006. The company will adoptadopted the provisions of SFAS No. 123R as of August 1, 2005. The company issues restricted stock, restricted stock units, stock options, and beginning in fiscal 2006, performance restricted stock.

Prior to August 1, 2005, the company accounted for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and related Interpretations. Accordingly, no compensation expense had been recognized for stock options since all options granted had an exercise price equal to the market value of the underlying stock on athe grant date. SFAS No. 123R was adopted using the modified prospective basis. The financial statement impact willtransition method. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be dependent on future stock-based awards andrecognized for any unvested stock optionsoption awards outstanding atas of the date of adoption.

Prior periods have not been restated. See also Note 21. Total pre-tax stock-based compensation recognized in the Statements of Earnings was $85, $26, and $18 for 2006, 2005 and 2004, respectively. Tax related benefits of $31, $10, and $7 were also recognized for 2006, 2005, and 2004, respectively. Amounts recorded in 2005 and 2004 primarily represent expenses related to restricted stock awards since no expense was recognized for stock options. Stock-based compensation associated with discontinued operations was not material.

SFAS No. 123R requires disclosure of pro forma information for periods prior to the adoption. The pro forma disclosures are based on the fair value of awards at the grant date, amortized to expense over the service period. The following table illustrates the
effect on net earnings and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123R to stock-based employee compensation.
         
  2005  2004 
 
Net earnings, as reported $707  $647 
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects1
  16   11 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (45)  (40)
 
Pro forma net earnings $678  $618 
 
Earnings per share:        
 
Basic – as reported $1.73  $1.58 
 
Basic – pro forma $1.66  $1.51 
 
Diluted – as reported $1.71  $1.57 
 
Diluted – pro forma $1.64  $1.50 
 
1Represents restricted stock expense.
The pro forma expense impact on Earnings from continuing operations in 2005 and 2004 was $28, or $.07 per share.
Use of EstimatesGenerally accepted accounting principles require management to make estimates and assumptions that affect assets and liabilities, contingent assets and liabilities, and revenues and expenses. Actual results could differ from those estimates.

Income TaxesIncome taxes are accounted for in accordance with SFAS No. 109 “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, andas well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

In October 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA provides for a deduction of 85% of certain foreignnon-U.S. earnings that are repatriated, as defined by the AJCA, and a phased-in tax deduction related to profits from domestic manufacturing activities. In December 2004, the FASB issued FASB Staff Position (FSP) FAS 109-1 and 109-2 to address the accounting and disclosure requirements related to the AJCA. The company is currently evaluating the impact of the AJCA along with the additional technical guidance issued by the U.S. Treasury Department. The company will complete its evaluation in fiscal 2006. The company estimates the range of possible amounts considered for repatriation to be between $200 and $425 and the related impact on income tax to be between $7 and $16. Based on the company’s plans related to the AJCA as of 2005, tax expense of $7 has been recorded for amounts expected to be repatriated.




26PAGE 28

Recently Issued Accounting Pronouncements

AJCA. The total amount repatriated in 2006 under the AJCA was $494 and the related tax cost was $20. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FSP FAS 106-1,2005, the company electedrecorded $7 in January 2004tax expense for $200 of anticipated earnings to defer recognizingbe repatriated. In 2006, the effectscompany finalized its plan under the AJCA and recorded tax expense of the Act on accounting$13 for postretirement health care plans until the FASB guidance was finalized.

$294 of earnings repatriated.

In May 2004,July 2006, the FASB issued FSP FAS 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. The company believes that certain drug benefits offered under postretirement health care plans will qualify for the subsidy under Medicare Part D. The effects of the subsidy were factored into the 2004 annual year-end valuation. The reduction in the benefit obligation attributable to past service cost was approximately $32 and was reflected as an actuarial gain. The reduction in benefit cost for 2005 related to the Act was approximately $5.

In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47)FIN 48 “Accounting for Conditional Asset Retirement Obligations,Uncertainty in Income Taxes – an Interpretationinterpretation of FASB Statement No. 143.109. FIN 48 clarifies the criteria that must be met for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. This Interpretation clarifies that a conditional retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timingalso addresses derecognition, recognition of related penalties and (or) methodinterest, classification of settlement are conditional on a future event that may or may not be within the controlliabilities and disclosures of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset.unrecognized tax benefits. FIN 4748 is effective no later than the end of thefor fiscal years endingbeginning after December 15, 2005.2006. The company is in the process of evaluating the impact of FIN 47 but does not expect48.

2 Discontinued Operations
On August 15, 2006, the adoptioncompany completed the sale of its businesses in the United Kingdom and Ireland for £460, or approximately $870, pursuant to have a material impact onSale and Purchase Agreement dated July 12, 2006. The United Kingdom and Irish businesses includeHomepridesauces,OXOstock cubes,Batchelorssoups andMcDonnellsandErinsoups. The purchase price is subject to certain post-closing adjustments. The company has reflected the financial statements.

results of these businesses as discontinued operations in the consolidated statements of earnings for all years presented. The businesses were historically included in the International Soup and Sauces segment.
Results of discontinued operations were as follows:
             
  2006  2005  2004 
 
Net sales $435  $476  $449 
 
Earnings before taxes $83  $78  $77 
Taxes on earnings  72   15   12 
 
Earnings from discontinued operations $11  $63  $65 
 
The 2006 results included deferred tax expense of $56, which was recognized in accordance with Emerging Issues Task Force Issue No. 93-17 “Recognition of Deferred Tax Assets for a Parent Company’s Excess Tax Basis in the Stock of a Subsidiary That is Accounted for as a Discontinued Operation” due to book/tax basis differences of these businesses as of July 30, 2006. The 2006 results also included $7 pre-tax ($5 after tax) of costs associated with the sale. The company expects to recognize an estimated pretax gain of approximately $20 in 2007, subject to certain purchase price adjustments, including an adjustment for working capital.
In 2004, the earnings from discontinued operations included the after-tax effect of a restructuring charge of $4 associated with a worldwide reduction in workforce.
2Comprehensive Income
The assets and liabilities of the United Kingdom and Irish businesses are reflected as discontinued operations in the consolidated balance sheet as of July 30, 2006 and are comprised of the following:

     
  2006 
 
Cash $2 
Accounts receivable  43 
Inventories  53 
Prepaid expenses  2 
 
Current assets $100 
 
Property, plant and equipment, net $90 
Deferred taxes  2 
Goodwill  244 
Other intangible assets, net of amortization  502 
 
Non-current assets $838 
 
Accounts payable  61 
Accrued liabilities  12 
Accrued income taxes  5 
 
Current liabilities $78 
 
Non-current pension obligation $25 
 
The company expects to use $620 of the net proceeds to repurchase shares. On September 28, 2006, the company entered into accelerated share repurchase agreements with a financial institution to repurchase approximately $600 of stock.
3 Comprehensive Income
Total comprehensive income is comprised of net earnings, net foreign currency translation adjustments, minimum pension liability adjustments (see Note 9)10), and net unrealized gains and losses on cash-flow hedges. Total comprehensive income for the twelve months ended July 30, 2006, July 31, 2005 and August 1, 2004 was $993, $688 and August 3, 2003 was $688, $759, and $760, respectively.

The components of Accumulated other comprehensive loss,income (loss), as reflected in the Statements of Shareowners’ Equity, (Deficit), consisted of the following:
                
 2005 2004  2006 2005 
Foreign currency translation adjustments $35 $(7) $86 $35 
Cash-flow hedges, net of tax  (20)  (1)  (15)  (20)
Minimum pension liability, net of tax1
  (238)  (196)  (67)  (238)
Total Accumulated other comprehensive loss $(223) $(204)
Total Accumulated other comprehensive income (loss) $4 $(223)
1 Includes a tax benefit of $32 in 2006 and $139 in 2005 and $111 in 2004.2005.
3Goodwill and Intangible Assets

In 2003, the company adopted SFAS No. 142 “Goodwill and Other Intangible Assets.” In connection with the adoption, the company recorded a cumulative effect of accounting change of $31 (net of a $17 tax benefit), or $.08 per share in 2003, for impaired goodwill associated with the Stockpot business, a food service business acquired in August 1998. Stockpot is a reporting unit within Other in the segment reporting. The impairment of Stockpot goodwill was the result of a reduction in actual sales attained and forecasted future sales growth relative to projections made at the time of the acquisition.




27PAGE 29

4 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:
                 
  July 31, 2005  August 1, 2004 
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
 
Intangible assets subject to amortization1:
                
Trademarks $6  $(4) $6  $(3)
Other  17   (7)  17   (7)
 
Total $23  $(11) $23  $(10)
 
Intangible assets not subject to amortization:                
Trademarks $1,042      $1,053     
Pension  3       27     
Other  2       2     
 
Total $1,047      $1,082     
 
1Amortization related to these assets was approximately $2 for 2005 and 2004. 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.
                 
  July 30, 2006  July 31, 2005 
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
 
Intangible assets subject to amortization:                
Trademarks $  $  $6  $(4)
Other  15   (7)  17   (7)
 
Total $15  $(7) $23  $(11)
 
Intangible assets not subject to amortization:                
Trademarks $586      $1,042     
Pension  2       3     
Other         2     
 
Total $588      $1,047     
 

Amortization was approximately $1 in 2006 and $2 in 2005 and primarily related to intangible assets of discontinued operations. The estimated aggregated amortization expense for each of the five succeeding fiscal years is less than $1 per year. Asset useful lives range from twelve to thirty-four years.
The company recognized an impairment loss of approximately $2 in 2006 due to the business performance of an Australian trademark used in the Baking and Snacking segment.
Changes in the carrying amount for goodwill for the period are as follows:
                     
  U.S. Soup,      International       
  Sauces  Baking and  Soup and       
  and Beverages  Snacking  Sauces  Other  Total 
 
Balance at August 3, 2003 $428  $518  $706  $151  $1,803 
Foreign currency translation adjustment     40   57      97 
 
Balance at August 1, 2004  428   558   763   151   1,900 
Foreign currency translation adjustment     44   6      50 
 
Balance at July 31, 2005
 $428  $602  $769  $151  $1,950 
 
4Business and Geographic Segment Information
                     
  U.S. Soup,      International       
  Sauces  Baking and  Soup and       
  and Beverages  Snacking  Sauces  Other  Total 
 
Balance at August 1, 2004 $428  $558  $763  $151  $1,900 
Foreign currency translation adjustment     44   6      50 
 
Balance at July 31, 2005  428   602   769   151   1,950 
Reclassification to assets held for sale
        (244)     (244)
Foreign currency translation adjustment
     8   44      52 
Other
     7         7 
 
Balance at July 30, 2006
 $428  $617  $569  $151  $1,765 
 

5 Business and Geographic Segment Information
Campbell Soup Company, together with its consolidated subsidiaries, is a global manufacturer and marketer of high quality,high-quality, branded convenience food products. Through fiscal 2004, theThe company was organizedmanages and reportedreports the results of operations in four segments: North America Soup and Away From Home, North America Sauces and Beverages, Biscuits and Confectionery, and International Soup and Sauces.

As of fiscal 2005, the company changed its organizational structure and as a result reports the following segments: U.S. Soup,

Sauces and Beverages, Baking and Snacking, International Soup and Sauces, and Other. Comparative periods have been restated to conform to the current year presentation. The restatements also reflect a reallocation of certain expenses between corporate and the operating segments.

The U.S. Soup, Sauces and Beverages segment includes the following retail businesses:Campbell’scondensed and ready-to-serve soups;Swansonbroth and canned poultry;Pregopasta sauce;PaceMexican sauce;Campbell’s Chunky chili;Campbell’scanned pasta, gravies, and beans;Campbell’s Supper Bakesmeal kits;V8vegetable juice;V8 Splashjuice beverages;and juice drinks; andCampbell’stomato juice.

The Baking and Snacking segment includes the following businesses:Pepperidge Farmcookies, crackers, bakery and frozen products in U.S. retail;Arnott’sbiscuits in Australia and Asia Pacific; andArnott’ssalty snacks in Australia.

The International Soup and Sauces segment includes the soup, sauce and beverage businesses outside of the United States, including Europe, Mexico, Latin America, the Asia Pacific region and the retail business in Canada.

See also Note 2 for information on the sale of the businesses in the United Kingdom and Ireland. These businesses were historically included in this segment. The assets of these businesses were reflected as discontinued operations as of July 30, 2006. The results of operations of these businesses have been reflected as discontinued operations for all years presented.

The balance of the portfolio reported in Other includes Godiva Chocolatier worldwide and the company’s Away From Home operations, which represent the distribution of products such as soup, specialty entrees, beverage products, other prepared foods and Pepperidge Farm products through various food service channels in the United States and Canada.

Accounting policies for measuring segment assets and earnings before interest and taxes are substantially consistent with those described in Note 1. The company evaluates segment performance before interest and taxes. Away From Home products are principally produced by the tangible assets of the company’s other segments, except for Stockpotrefrigerated soups, which are produced in a separate facility, and certain other products, which are produced under contract manufacturing agreements. Accordingly, with the exception of the designated Stockpotrefrigerated soup facility, plant assets are not allocated to the Away From Home operations. Depreciation, however, is allocated to Away From Home based on production hours.

The company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 14% of consolidated net sales in 2006 and 2005 and 12% during 2004 and 2003.in 2004. All of the company’s segments sold products to Wal-Mart Stores, Inc. or its affiliates.




28PAGE 30

Business Segments
                     
      Earnings          
      Before  Depreciation  Capital    
      Interest  and  Expen-  Segment 
2005 Net Sales  and Taxes  Amortization  ditures  Assets 
 
U.S. Soup, Sauces and Beverages
 $3,098  $747  $89  $124  $2,070 
Baking and Snacking
  1,742   198   84   80   1,687 
International Soup and Sauces
  1,703   221   52   63   2,309 
Other
  1,005   110   26   33   380 
Corporate1
     (66)  28   32   330 
 
Total
 $7,548  $1,210  $279  $332  $6,776 
 
                              
 Earnings       
 Before Depreciation Capital   
 Interest and Expen- Segment 
2004 Net Sales and Taxes2 Amortization ditures Assets 
Net sales 2006 2005 2004 
U.S. Soup, Sauces and Beverages $2,998 $730 $80 $123 $2,051  $3,257 $3,098 $2,998 
Baking and Snacking 1,613 166 74 73 1,613  1,747 1,742 1,613 
International Soup and Sauces 1,595 205 52 63 2,311  1,255 1,227 1,146 
Other 903 101 24 14 341  1,084 1,005 903 
Corporate1
   (87) 30 15 346 
Total $7,109 $1,115 $260 $288 $6,662  $7,343 $7,072 $6,660 
                              
 Earnings       
 Before Depreciation Capital   
 Interest and Expen- Segment 
2003 Net Sales and Taxes Amortization ditures Assets 
Earnings before interest and taxes 20062 2005 20043
U.S. Soup, Sauces and Beverages $2,944 $772 $78 $96 $1,971  $815 $747 $730 
Baking and Snacking 1,428 161 68 102 1,513  187 198 166 
International Soup and Sauces 1,438 201 41 49 2,089  144 143 128 
Other 868 100 25 16 339  110 110 101 
Corporate1
   (129) 31 20 293   (105)  (66)  (87)
Total $6,678 $1,105 $243 $283 $6,205  $1,151 $1,132 $1,038 
             
Depreciation and Amortization 2006  2005  2004 
 
U.S. Soup, Sauces and Beverages $91  $89  $80 
Baking and Snacking  94   84   74 
International Soup and Sauces  35   35   30 
Other  28   26   24 
Corporate1
  26   28   30 
Discontinued Operations  15   17   22 
 
Total $289  $279  $260 
 
             
Capital Expenditures 2006  2005  2004 
 
U.S. Soup, Sauces and Beverages $91  $124  $123 
Baking and Snacking  60   80   73 
International Soup and Sauces  29   49   51 
Other  80   33   14 
Corporate1
  43   32   15 
Discontinued Operations  6   14   12 
 
Total $309  $332  $288 
 
             
Segment Assets 2006  2005  2004 
 
U.S. Soup, Sauces and Beverages $2,110  $2,070  $2,051 
Baking and Snacking  1,676   1,687   1,613 
International Soup and Sauces  1,522   2,309   2,311 
Other  461   380   341 
Corporate1
  1,163   330   346 
Discontinued Operations  938       
 
Total $7,870  $6,776  $6,662 
 
1 Represents unallocated corporate expenses and unallocated assets, including corporate offices, deferred income taxes, prepaid pension assets and investments.
 
2 Contributions to earnings before interest and taxes by segment includeincluded the effect of a $13 benefit due to a change in the method of accounting for certain U.S. inventories from the LIFO method to the average cost method as follows: U.S. Soup, Sauces and Beverages – $8 and Baking and Snacking – $5.
3Contributions to earnings before interest and taxes by segment included the effect of a fourth quarter 2004 restructuring charge of $32$26 as follows: U.S. Soup, Sauces and Beverages $8, Baking and Snacking $10, International Soup and Sauces — $10,– $4, Other $3 and Corporate $1.

Geographic Area Information

Information about operations in different geographic areas is as follows:
             
Net sales 2005  2004  2003 
 
United States $4,832  $4,581  $4,549 
Europe  1,164   1,090   969 
Australia/Asia Pacific  1,038   965   779 
Other countries  637   570   492 
Adjustments and eliminations  (123)  (97)  (111)
 
Consolidated $7,548  $7,109  $6,678 
 
                        
Earnings before interest and taxes 2005 2004 2003 
Net sales 2006 2005 2004 
United States $931 $890 $942  $5,120 $4,842 $4,590 
Europe 142 133 126  660 677 632 
Australia/Asia Pacific 112 99 88  988 1,028 952 
Other countries 91 80 78  575 525 486 
Segment earnings before interest and taxes 1,276 1,202 1,234 
Corporate  (66)  (87)  (129)
Consolidated $1,210 $1,115 $1,105  $7,343 $7,072 $6,660 
                        
Identifiable assets 2005 2004 2003 
Earnings before interest and taxes 2006 2005 2004 
United States $2,939 $2,885 $2,774  $1,003 $931 $890 
Europe 1,883 1,890 1,718  52 64 56 
Australia/Asia Pacific 1,274 1,184 1,100  94 112 99 
Other countries 350 357 313  107 91 80 
Segment earnings before interest and taxes 1,256 1,198 1,125 
Corporate 330 346 300   (105)  (66)  (87)
Consolidated $6,776 $6,662 $6,205  $1,151 $1,132 $1,038 

             
Identifiable assets 2006  2005  2004 
 
United States $2,907  $2,939  $2,885 
Europe  1,186   1,883   1,890 
Australia/Asia Pacific  1,296   1,274   1,184 
Other countries  380   350   357 
Corporate  1,163   330   346 
Discontinued operations  938       
 
Consolidated $7,870  $6,776  $6,662 
 
Transfers between geographic areas are recorded at cost plus markup or at market. Identifiable assets are those assets, including goodwill, which are identified with the operations in each geographic region. The restructuring charge of $32$26 in 2004 was allocated to the geographic regions as follows: United States $12, Europe — $9,– $3, Australia/Asia Pacific $10, and Other countries $1.



6 Restructuring Program


29

5Restructuring Program

A restructuring charge included in Earnings from continuing operations of $32$26 ($2218 after tax) was recorded in the fourth quarter 2004 for severance and employee benefit costs associated with a worldwide reduction in workforce and with the implementation of a distributionsales and logistics realignment in Australia. These programs are part of cost savings initiatives designed to improve the company’s operating margins and asset utilization. Approximately 400 positions were eliminated under the reduction in workforce program, resulting in a restructuring charge of $23.$17 in Earnings from continuing operations. The reductions represented the elimination of layers of management, elimination of redundant positions due to the realignment of operations in North America,




PAGE 31

and reorganization of the U.S. sales force. The majority of the terminations occurred in the fourth quarter of 2004.

The distributionsales and logistics realignment in Australia involves the conversion of a direct store delivery system to a central warehouse system.system, outsourcing of warehouse operations, and the consolidation of the field sales organization. As a result of this program, over 200 positions will be eliminated due to the outsourcing of the infrastructure.eliminated. A restructuring charge of $9 was recorded for this program. The majority of the terminations occurred in 2005.

A restructuring charge of $6 ($4 after tax) was recorded by the United Kingdom and Irish businesses associated with a reduction in workforce and is included in Earnings from discontinued operations. See also Note 2.
A summary of restructuring reserves at July 31, 200530, 2006 and related activity is as follows:
                             
  Accrued              Accrued      Accrued 
  Balance at          Pension  Balance at      Balance at 
  August 3,  2004  Cash  Termination  August 1,  Cash  July 31, 
  2003  Charge  Payments  Benefits1  2004  Payments  2005 
 
Severance pay and benefits $   32   (1)  (3)  $28   (24)  $4 
1Pension termination benefits are recognized as a reduction of the prepaid pension asset. See Note 9 to the Consolidated Financial Statements.
                     
  Accrued      Accrued      Accrued 
  Balance at      Balance at      Balance at 
  August 1,  Cash  July 31,  Cash  July 30, 
  2004  Payments  2005  Payments  2006 
 
Severance pay and benefits $28   (24) $4   (2) $2 
 
6Other Expenses/(Income)
7 Other Expenses/(Income)
             
  2005  2004  2003 
 
Foreign exchange losses $  $7  $15 
Amortization of intangible and other assets  2   2   2 
Gain on asset sales     (10)  (16)
Adjustments to long-term investments     10   36 
Gain from settlement of a lawsuit     (16)   
Other  (6)  (6)  (9)
 
  $(4) $(13) $28 
 

             
  2006  2005  2004 
 
Foreign exchange (gains)/losses $  $(1) $7 
Amortization/impairment of intangible and other assets  2      1 
Gain on asset sales        (10)
Adjustments to long-term investments        10 
Gain from settlement of lawsuits     (2)  (16)
Other  3   (2)  (5)
 
  $5  $(5) $(13)
 


Adjustments to long-term investments represent a non-cash write-down to estimated fair market value of investments in affordable housing partnerships.

7Interest Expense
             
  2005  2004  2003 
 
Interest expense $188  $177  $188 
Less: Interest capitalized  4   3 �� 2 
 
  $184  $174  $186 
 
8 Interest Expense
8Acquisitions
             
  2006  2005  2004 
 
Interest expense $170  $188  $177 
Less: Interest capitalized  5   4   3 
 
  $165  $184  $174 
 

In 2006, a non-cash reduction of $21 was recognized in connection with the favorable settlement of a U.S. tax contingency.
9 Acquisitions
In the first quarter 2004, the company acquired certain Australian chocolate biscuit brands for approximately $9. These brands are included in the Baking and Snacking segment.

In the first quarter 2003, the company acquired two businesses for cash consideration of approximately $170

10 Pension 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 Baking and Snacking segment. Erin Foods is included in the International Soup and Sauces segment. The businesses have annual sales of approximately $160.Postretirement Benefits
9Pension and Postretirement Benefits

Pension BenefitsSubstantially all of the company’s U.S. and certain non-U.S. employees are covered by noncontributory defined benefit pension plans. In 1999, the company implemented significant amendments to certain U.S. plans. Under a new formula, retirement benefits are determined based on percentages of annual pay and age. To minimize the impact of converting to the new formula, service and earnings credit continues to accrue for active employees participating in the plans under the formula prior to the amendments through the year 2014. Employees will receive the benefit from either the new or old formula, whichever is higher. Benefits become vested upon the completion of five years of service. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly by the




30

company from general funds. Plan assets consist primarily of investments in equities, fixed income securities, and real estate.

Postretirement BenefitsThe company provides postretirement benefits including health care and life insurance to substantially all retired U.S. employees and their dependents. In 1999, changes were made to the postretirement benefits offered to certain U.S. employees. Participants who were not receiving postretirement benefits as of May 1, 1999 will no longer be eligible to receive such benefits in the future, but the company will provide access to health care coverage for non-eligible future retirees on a group basis. Costs will be paid by the participants. To preserve the economic benefits for employees near retirement as of May 1, 1999, participants who were at least age 55 and had at least 10 years of continuous service remain eligible for postretirement benefits.

In 2005, the company established retiree medical account benefits for eligible U.S. retirees, intended to provide reimbursement for eligible health care expenses.

The company uses the fiscal year end as the measurement date for the benefit plans.



PAGE 32

Components of net periodic benefit cost:
                        
Pension 2005 2004 2003  2006 2005 2004 
Service cost $56 $50 $46  $57 $56 $50 
Interest cost 113 111 112  113 113 111 
Expected return on plan assets  (155)  (150)  (153)  (163)  (155)  (150)
Amortization of prior service cost 6 6 6  1 6 6 
Recognized net actuarial loss 30 23 14  43 30 23 
Special termination benefits 2 3 4   2 3 
Net periodic pension expense $52 $43 $29  $51 $52 $43 

Pension expense of $8, $11 and $12 for 2006, 2005 and 2004, respectively, was recorded by the United Kingdom and Irish businesses and is included in Earnings from discontinued operations. See also Note 2. The special termination benefits relate to reductions in workforce in Europe. The 2004 amount was recognized as a component of the restructuring charges described in Note 5 to the Consolidated Financial Statements.
             
Postretirement 2005  2004  2003 
 
Service cost $1  $4  $4 
Interest cost  20   23   21 
Amortization of prior service cost  (7)  (10)  (11)
Recognized net actuarial loss  1   5    
 
Net periodic postretirement expense $15  $22  $14 
 

discontinued operations.

             
Postretirement 2006  2005  2004 
 
Service cost $4  $1  $4 
Interest cost  21   20   23 
Amortization of prior service cost  (3)  (7)  (10)
Recognized net actuarial loss  4   1   5 
 
Net periodic postretirement expense $26  $15  $22 
 

Change in benefit obligation:
                                
 Pension Postretirement  Pension Postretirement 
 2005 2004 2005 2004  2006 2005 2006 2005 
Obligation at beginning of year $1,893 $1,798 $333 $373  $2,136 $1,893 $397 $333 
Service cost 56 50 1 4  57 56 4 1 
Interest cost 113 111 20 23  113 113 21 20 
Plan amendments  (37)  (3) 33  (21)   (37)  33 
Actuarial loss (gain) 230 23 37  (19)  (86) 230  (31) 37 
Participant contributions 2 3    3 2 4  
Special termination benefits 2 3     2   
Benefits paid  (128)  (119)  (27)  (27)  (128)  (128)  (32)  (27)
Medicare subsidies   2  
Foreign currency adjustment 5 27    24 5   
Benefit obligation at end of year $2,136 $1,893 $397 $333  $2,119 $2,136 $365 $397 

Change in the fair value of pension plan assets:
                
 2005 2004  2006 2005 
Fair value at beginning of year $1,627 $1,472  $1,847 $1,627 
Actual return on plan assets 273 184  206 273 
Employer contributions 61 65  52 61 
Participants contributions 2 3  3 2 
Benefits paid  (123)  (115)  (124)  (123)
Foreign currency adjustment 7 18  19 7 
Fair value at end of year $1,847 $1,627  $2,003 $1,847 

Funded status as recognized in the
Consolidated Balance Sheets:
                                
 Pension Postretirement  Pension Postretirement 
 2005 2004 2005 2004  2006 2005 2006 2005 
Funded status at end of year $(289) $(266) $(397) $(333) $(116) $(289) $(365) $(397)
Unrecognized prior service cost  (1) 42 7  (33)  (1)  (1) 9 7 
Unrecognized loss 745 661 85 49  581 745 51 85 
Net amount recognized $455 $437 $(305) $(317)
Net asset (liability) recognized $464 $455 $(305) $(305)

Amounts recognized in the Consolidated Balance Sheets:
                
Pension 2005 2004 
 Pension 
 2006 2005 
Prepaid benefit cost $75 $103  $388 $75 
Intangible asset 3 27  2 3 
Accumulated other comprehensive loss 377 307 
Accumulated other comprehensive income (loss) 99 377 
Noncurrent liabilities of discontinued operations  (25)  
Net amount recognized $455 $437  $464 $455 




31

The accumulated benefit obligation for all pension plans was $1,961 at July 30, 2006 and $1,945 at July 31, 2005 and $1,336 at August 1, 2004.2005. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $455, $392 and $278, respectively, as of July 30, 2006 and $1,598, $1,444 and $1,292, respectively, as of July 31, 2005 and $1,340, $1,204, and $1,046, respectively, as of August 1, 2004.

2005. The balance in Accumulated other comprehensive income (loss) included $22 in 2006 related to the discontinued operations.

The current portion of nonpension postretirement benefits included in Accrued liabilities was $27 at July 30, 2006 and July 31, 2005 and $19 at August 1, 2004.

2005.

Increase (decrease) in minimum pension liability included in other comprehensive income:
         
  2005  2004 
 
 
 $70  $(23)
 
         
  2006  2005 
 
  $(278) $70 
 

Weighted-average assumptions used to determine benefit obligations at the end of the year:
                                
 Pension Postretirement  Pension Postretirement 
 2005 2004 2005 2004  2006 2005 2006 2005 
Discount rate  5.44%  6.19%  5.50%  6.25%  6.05%  5.44%  6.25%  5.50%
Rate of compensation increases  3.93%  4.21%   
Rate of compensation increase  3.95%  3.93%   

Weighted-average assumptions used to determine net periodic benefit cost for the years ended:
                        
Pension 2005 2004 2003  2006 2005 2004 
Discount rate  6.19%  6.39%  6.90%  5.44%  6.19%  6.39%
Expected return on plan assets  8.76%  8.78%  9.30%  8.71%  8.76%  8.78%
Rate of compensation increase  4.21%  4.43%  4.50%  3.93%  4.21%  4.43%

The discount rate used to determine net periodic postretirement expense was 5.5% in 2006, 6.25% in 2005 and 6.5% in 2004 and 7.00% in 2003.2004.



PAGE 33

The expected rate of return on assets for the company’s global plans is a weighted average of the expected rates of return selected for the various countries where the company has funded pension plans. These rates of return are set annually and are based upon the long-term historical investment performance of the plans and an estimate of future long-term investment returns for the currentprojected asset allocation.

Assumed health care cost trend rates at the end of the year:

                
 2005 2004  2006 2005 
Health care cost trend rate assumed for next year  9.00%  9.00%  9.00%  9.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)  4.50%  4.50%  4.50%  4.50%
Year that the rate reaches the ultimate trend rate 2010 2009  2011 2010 

A one-percentage-point change in assumed health care costs would have the following effects on 20052006 reported amounts:
                
 Increase Decrease  Increase Decrease 
Effect on service and interest cost $2 $(2) $2 $(1)
Effect on the 2005 accumulated benefit obligation $29 $(25)
Effect on the 2006 accumulated benefit obligation $25 $(22)

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The effects of the Act were reflected in the 2004 valuation. See also Note 1 to Consolidated Financial Statements for additional information.

Obligations related to non-U.S. postretirement benefit plans are not significant, since these benefits are generally provided through government-sponsored plans.

Plan Assets

The company’s year-end pension plan weighted-average asset allocations by category were:
                        
 Strategic      Strategic     
 Target 2005 2004  Target 2006 2005 
Equity securities  68%  68%  68%  68%  67%  68%
Debt securities  22%  21%  21%  22%  20%  21%
Real estate and other  10%  11%  11%  10%  13%  11%
Total  100%  100%  100%  100%  100%  100%

The fundamental goal underlying the pension plans’ investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. Investment practices must comply with applicable laws and regulations.




32

The company’s investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, in order to maximize the return on assets, a majority of assets are invested in equities. Additional asset classes with dissimilar expected rates of return, return volatility, and correlations of returns are utilized to reduce risk by providing diversification relative to equities. Investments within each asset

class are also diversified to further reduce the impact of losses in single investments. The use of derivative instruments is permitted where appropriate and necessary to achieve overall investment policy objectives and asset class targets.

The company establishes strategic asset allocation percentage targets and appropriate benchmarks for each significant asset class to obtain a prudent balance between return and risk. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets.

Estimated future benefit payments are as follows:
                
 Pension Postretirement  Pension Postretirement 
2006  $146  $  31 
2007  $142  $  31  $140 $33 
2008  $146  $  30  $141 $32 
2009  $150  $  29  $141 $32 
2010  $155  $  29  $148 $32 
2011-2015  $831  $144 
2011 $148 $31 
2012-2016 $820 $157 

The benefit payments include payments from funded and unfunded plans.

Estimated future Medicare subsidy receipts are $1-$2$3 – $4 annually from 20062007 through 2010,2011, and $14$21 for the period 20112012 through 2015.

2016.

The company made a voluntary contribution of $35$22 to a U.S. pension plan subsequent to July 31, 2005.30, 2006. The company is not required to make additional contributions to the U.S. plans in 2006.2007. Contributions to non-U.S. plans are expected to be approximately $17$10 in 2006.

2007.

Savings PlanThe company sponsors employee savings plans which cover substantially all U.S. employees. After one year of continuous service, the company historically matched 50% of employee contributions up to 5% of compensation. Effective January 1, 2004, the company increased the amount of matching contribution from 50% to 60% of the employee contributions. Amounts charged to Costs and expenses were $16 in 2006 and $14 in 2005 and 2004 and $11 in 2003.2004.



PAGE 34

10Taxes on Earnings
11 Taxes on Earnings

The provision for income taxes on earnings from continuing operations consists of the following:
                        
 2005 2004 2003  2006 2005 2004 
Income taxes:  
Currently payable  
Federal $214 $184 $178  $187 $224 $195 
State 6 13 13  17 6 13 
Non-U.S. 56 52 35  56 31 29 
 276 249 226  260 261 237 
Deferred  
Federal 38 47 62   (6) 38 47 
State 3 2 1  4 3 2 
Non-U.S. 6 2 9   (12) 6 2 
 47 51 72   (14) 47 51 
 $323 $300 $298  $246 $308 $288 
Earnings before income taxes: 
Earnings from continuing operations before income taxes: 
United States $753 $691 $686  $763 $753 $691 
Non-U.S. 277 256 238  238 199 179 
 $1,030 $947 $924  $1,001 $952 $870 

The following is a reconciliation of the effective income tax rate on continuing operations with the U.S. federal statutory income tax rate:
                        
 2005 2004 2003  2006 2005 2004 
Federal statutory income tax rate  35.0%  35.0%  35.0%  35.0%  35.0%  35.0%
State income taxes (net of federal tax benefit) 0.6 1.0 1.0  1.4 0.6 1.0 
Tax effect of international items  (3.5)  (2.9)  (2.3)  (4.4)  (2.6)  (1.5)
Tax loss carryforwards   (0.2)  (0.1)
Settlement of U.S. tax contingencies  (6.8)   
Taxes on AJCA repatriation 1.3 0.7  
Federal manufacturing deduction  (1.0)   
Other  (0.7)  (1.2)  (1.4)  (0.9)  (1.3)  (1.4)
Effective income tax rate  31.4%  31.7%  32.2%  24.6%  32.4%  33.1%

The tax effect of international items included a $14 deferred tax benefit related to foreign tax credits, which can be utilized as a result of the sale of the United Kingdom and Irish businesses. See also Note 2 for information on the divestiture.
The company received an Examination Report from the Internal Revenue Service (IRS) on December 23, 2002, which included a challenge to the treatment of gains and interest deductions claimed in the company’s fiscal 1995 federal income tax return, relating to transactions involving government securities. If the proposed adjustment were upheld, it would have required the company to pay a net amount of over $100 in taxes, accumulated interest and penalties. The company had maintained a reserve for a portion of this contingency. In November 2005, the company negotiated a settlement of this matter with the IRS. As a result of
the settlement, in the first quarter of 2006 the company adjusted tax reserves and recorded a $47 tax benefit. In addition, the company reduced interest expense and accrued interest payable by $21 and adjusted deferred tax expense by $8 ($13 after tax). The aggregate non-cash impact of the settlement on net earnings was $60, or $.14 per share. The settlement did not have a material impact on the company’s consolidated cash flow. In 2006, the company also recognized an additional tax benefit of $21 related to the resolution of certain U.S. tax issues for open tax years through 2001.
See also Note 1 for additional information on the tax impact of the repatriation of earnings under the AJCA.
Deferred tax liabilities and assets are comprised of the following:
                
 2005 2004  2006 2005 
Depreciation $198 $177  $184 $198 
Pensions 30 47  133 30 
Amortization 252 210  298 252 
Deferred taxes attributable to the divestiture 56  
Other 80 102  79 80 
Deferred tax liabilities 560 536  750 560 
Benefits and compensation 195 189  218 195 
Tax loss carryforwards 23 26  25 23 
Other 125 112  125 125 
Gross deferred tax assets 343 327  368 343 
Deferred tax asset valuation allowance  (5)  (6)   (5)
Net deferred tax assets 338 321  368 338 
Net deferred tax liability $222 $215  $382 $222 




33


At July 31, 2005,30, 2006, non-U.S. subsidiaries of the company have tax loss carryforwards of approximately $75.$80. Of these carryforwards, $3carryfor-wards, $5 expire through 20102011 and $72$75 may be carried forward indefinitely. The current statutory tax rates in these countries range from 13%18% to 39%.

The company has undistributed earnings of non-U.S. subsidiaries of approximately $590. Of this amount, the company intends to repatriate approximately $200 in 2006 under the AJCA and has provided tax expense of $7. See also Note 1 to the Consolidated Financial Statements for additional information on the AJCA.$549. U.S. income taxes have not been provided on the remaining $390 of undistributed earnings, which are deemed to be permanently reinvested. IfIt is not practical to estimate the tax liability that might be incurred if such earnings were remitted tax credits or planning strategies should substantially offset any resulting tax liability.
11Accounts Receivable
to the U.S.
         
  2005  2004 
 
Customers $509  $503 
Allowances  (36)  (39)
 
   473   464 
Other  36   26 
 
  $509  $490 
 
12 Accounts Receivable
12Inventories
         
  2006  2005 
 
Customers $489  $509 
Allowances  (24)  (36)
 
   465   473 
Other  29   36 
 
  $494  $509 
 


         
  2005  2004 
 
Raw materials, containers and supplies $297  $292 
Finished products  498   497 
Less: Adjustment to LIFO valuation method  (13)  (7)
 
  $782  $782 
 


PAGE 35

13 Inventories
         
  2006  2005 
 
Raw materials, containers and supplies $252  $278 
Finished products  476   488 
Less: Adjustment to LIFO valuation method     (13)
 
  $728  $753 
 
As of August 1, 2005, the company changed the method of accounting for certain U.S. inventories from the LIFO method to the average cost method. Approximately 54%55% of inventory in 2005 and 55% of inventory in 2004 iswas accounted for on the last in, first outLIFO method of determining cost.

13Other Current Assets
The company believes that the average cost method of accounting for U.S. inventories is preferable and will improve financial reporting by better matching revenues and expenses as average cost reflects the physical flow of inventory and current cost. In addition, the change from LIFO to average cost will enhance the comparability of the company’s financial statements with peer companies since the average cost method is consistent with methods used in the industry. The impact of the change was a pre-tax $13 benefit ($8 after tax or $.02 per share). Prior periods were not restated since the impact of the change on previously issued financial statements was not considered material.
         
  2005  2004 
 
Deferred taxes $114  $117 
Other  67   47 
 
  $181  $164 
 
14 Other Current Assets
14Plant Assets
         
  2006  2005 
 
Deferred taxes $78  $114 
Other  55   67 
 
  $133  $181 
 
         
  2005  2004 
 
Land $69  $70 
Buildings  1,062   1,009 
Machinery and equipment  3,172   2,977 
Projects in progress  208   192 
 
   4,511   4,248 
Accumulated depreciation  (2,524)  (2,347)
 
  $1,987  $1,901 
 
15 Plant Assets

         
  2006  2005 
 
Land $56  $69 
Buildings  1,052   1,062 
Machinery and equipment  3,144   3,172 
Projects in progress  245   208 
 
   4,497   4,511 
Accumulated depreciation  (2,543)  (2,524)
 
  $1,954  $1,987 
 
Depreciation expense providedwas $286 in Costs and expenses was2006, $277 in 2005 and $258 in 20042004. Depreciation expense of continuing operations was $272 in 2006, $261 in 2005 and $241$237 in 2003.2004. Buildings are depreciated over periods ranging from 10 to 45 years. Machinery and equipment are depreciated over periods generally ranging
from 2 to 15 years. Approximately $212$152 of capital expenditures is required to complete projects in progress at July 31, 2005.
15Other Assets
30, 2006.
         
  2005  2004 
 
Prepaid pension benefit cost $75  $103 
Investments  150   150 
Deferred taxes  6    
Other  37   45 
 
  $268  $298 
 
16 Other Assets

         
  2006  2005 
 
Prepaid pension benefit cost $388  $75 
Investments  147   150 
Deferred taxes  1   6 
Other  69   66 
 
  $605  $297 
 
Investments consist of several limited partnership interests in affordable housing partnership funds. These investments generatehave generated significant tax credits. The company’s ownership primarily ranges from approximately 12% to 19%.



17 Accrued Liabilities


34

         
  2006  2005 
 
Accrued compensation and benefits $204  $187 
Fair value of derivatives  184   12 
Accrued trade and consumer promotion programs  117   96 
Accrued interest  76   94 
Other  239   217 
 
  $820  $606 
 

The fair value of derivatives included $78 related to hedging intercompany financing of the United Kingdom and Irish businesses. These instruments were settled upon completion of the sale of the businesses in August 2006.
16Notes Payable and Long-term Debt
18 Notes Payable and Long-term Debt

Notes payable consists of the following:
                
 2005 2004  2006 2005 
Commercial paper $428 $790  $419 $428 
Current portion of long-term debt 606  
Variable-rate bank borrowings 18 14  67 18 
Fixed-rate bank borrowings 5 6 
Fixed-rate borrowings 5 5 
 $451 $810  $1,097 $451 

Commercial paper had a weighted-average interest rate of 6.00% and 5.34% at July 30, 2006 and 3.23% at July 31, 2005, and August 1, 2004, respectively.



PAGE 36

The company has two committed lines ofrevolving credit facilities totaling $1,500 that support commercial paper borrowings and remain unused at July 31, 2005,30, 2006, except for $5$1 of standby letters of credit. Another $30$32 of standby letters of credit remain unusedwas issued under a separate facility.

Long-term Debt consists of the following:
                                
Type Fiscal Year of Maturity Rate 2005 2004  Fiscal Year of Maturity Rate 2006 2005 
Notes 2007  6.90% $300 $300  2007  6.90% $ $300 
Notes 2007  5.50% 300 300  2007  5.50%  300 
Notes 2009  5.88% 300 300  2009  5.88% 300 300 
Notes 2011  6.75% 700 700  2011  6.75% 700 700 
Notes 2013  5.00% 400 400  2013  5.00% 400 400 
Notes 2014  4.88% 300 300  2014  4.88% 300 300 
Debentures 2021  8.88% 200 200  2021  8.88% 200 200 
Australian dollar loan facility 2011  6.81% 207  
Other 42 43  9 42 
 $2,542 $2,543  $2,116 $2,542 

The fair value of the company’s long-term debt including the current portion of long-term debt in Notes payable was $2,786 at July 30, 2006 and $2,727 at July 31, 2005 and $2,736 at August 1, 2004.

2005.

The company has $300 of long-term debt available to issue as of July 31, 200530, 2006 under a shelf registration statement filed with the Securities and Exchange Commission.

Principal amounts of debt mature as follows: 2006 – $4512007–$1,097 (in current liabilities); 2007 – $610; 2008 – $4; 2009 - $302; 2010 – $22008–$5; 2009–$303; 2010–$3; 2011–$909 and beyond – $1,624.

beyond–$896.
17Other Liabilities
19 Other Liabilities
                
 2005 2004  2006 2005 
Deferred taxes $342 $332  $463 $342 
Deferred compensation 116 108  137 116 
Postemployment benefits 22 15  28 22 
Fair value of derivatives 174 151  70 174 
Other 30 15  23 30 
 $684 $621  $721 $684 

The deferred compensation plan is an unfunded plan maintained for the purpose of providing the company’s directors and certain of its executives the opportunity to defer a portion of their compensation. All forms of compensation contributed to the deferred compensation plan are accounted for in accordance with the underlying program. Contributions are credited to an investment account in the participant’s name, although no funds are actually contributed to the investment account and no investment choices are actually purchased. Four investment choices are available, including: (1) a book account which tracks the total return on company stock; (2) a book account that
tracks performance of Fidelity’s Spartan U.S. Equity Index Fund; (3) a book account which tracks the performance of Fidelity’s Puritan Fund; and (4) a book account that credits interest based on the Wall Street Journal indexed prime rate. Participants can reallocate investments daily and are entitled to the gains and losses on investment funds. The company recognizes an amount in the Statements of Earnings for the market appreciation/depreciation of each fund, as appropriate.
18Financial Instruments
20 Financial Instruments

The carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term debt approximate fair value. The fair values of long-term debt, as indicated in Note 16,18, and derivative financial instruments are based on quoted market prices.

In 2001, the company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138 and SFAS No. 149. The standard requires that all




35

derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships.

The company utilizes certain derivative financial instruments to enhance its ability to manage risk, including interest rate, foreign currency, commodity and certain equity-linked employee compensation exposures that exist as part of ongoing business operations. 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.

The company is exposed to credit loss in the event of nonperformance by the counterparties on derivative contracts. The company minimizes its credit risk on these transactions by dealing only with leading, credit-worthy financial institutions having long-term credit ratings of “A” or better and, therefore, does not anticipate nonperformance. In addition, the contracts are distributed among several financial institutions, thus minimizing credit risk concentration.

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



PAGE 37

(changes in fair value are recognized to act as economic offsets to changes in fair value of the underlying hedged item and do not qualify for hedge accounting under SFAS No. 133).

Changes in the fair value of a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current period earnings. Changes in the fair value of a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of a foreign-currency hedge are recorded in either current periodcurrent-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value hedge (e.g., a hedge of a firm commitment that is to be

settled in foreign currency) or a cash-flow hedge (e.g., a hedge of a foreign-currency-denominated forecasted transaction). If, however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within Shareowners’ equity (deficit).

equity.

The company finances a portion of its operations through debt instruments primarily consisting of commercial paper, notes, debentures and bank loans. The company utilizes interest rate swap agreements to minimize worldwide financing costs and to achieve a targeted ratio of variable-rate versus fixed-rate debt.

In July 2006, the company entered into three interest rate swaps that converted $154 of the $207 Australian variable-rate debt to a weighted-average fixed rate of 6.73%.
There were no changes made to the company’s interest rate swap portfolio in 2005.

In September 2003, the company entered into ten-year interest rate swaps that converted $200 of the 4.875% fixed-rate notes issued during that month to variable. The company also entered into $100 of five-year interest rate swaps that converted a portion of the 5.875% fixed-rate notes due October 2008 to variable.

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

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

In November 2002, the company terminated interest rate swap contracts with a notional value of $250 that converted fixed-rate debt (6.75% notes due 2011) to variable and received $37. Of this amount, $3 represented accrued interest earned on the swap prior to the termination date. The remainder of $34 is being amortized over the remaining life of the notes as a reduction to interest expense. The company also entered into ten-year interest rate swaps that converted $300 of ten-year 5% fixed-rate notes issued in November 2002 to variable.

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 amount of fair-value interest rate swaps was $875 at both July 30, 2006 and July 31, 2005 and August 1, 2004.2005. The swaps had a fair value of $(29) at July 30, 2006 and $(2) at July 31, 20052005.
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 a minimalis 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. The fair value at August 1, 2004.

of the swaps was not material as of July 30, 2006. The notional amount was $154 as of July 30, 2006.



36

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 sales 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 $(157)$(202) at July 31, 2005.

30, 2006. The notional amount was $756 as of July 30, 2006. Of these amounts, fair value of $(71) was related to $270 notional value of pay fixed GBP/receive fixed USD swaps settled upon completion of the sale of the United Kingdom and Irish businesses in August 2006.

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 ofNo such contracts was not materialwere outstanding at July 31, 2005.

30, 2006.

The company also enters into certain foreign exchange forward contracts 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/(income), as an offset to gains (losses) on the underlying transactions. Cross-currency contracts mature in 2007 through 2014. The fair value of these instruments was $(8)$(18) at July 31, 2005.30, 2006. Of this amount, $(6) was related to forward contracts to hedge the company’s investment in the United Kingdom and Irish businesses and a cross-currency swap associated with intercompany financing, which were settled upon completion of the sale in August 2006. The notional amount of all instruments was $723 at July 30, 2006.



PAGE 38

Foreign exchange forward contracts typically have maturities of less than eighteen months. Principal currencies include the Australian dollar, British pound, Canadian dollar, euro, Japanese yen, Mexican peso and Swedish krona.

As of July 31, 2005,30, 2006, the accumulated derivative net loss in other comprehensive income for cash-flow hedges, including the foreign exchange forward and cross-currency contracts, forward-starting swap contracts and treasury lock agreements, was $20,$15, net of tax. As of August 1, 2004,July 31, 2005 the accumulated derivative net loss in other comprehensive income for cash-flow hedges was $1,$20, net of tax. Reclassifications from Accumulated other comprehensive income (loss) into the Statements of Earnings during the period ended July 31, 200530, 2006 were not material. There were no discontinued cash-flow hedges during the year. At July 31, 2005,30, 2006, the maximum maturity date of any cash-flow hedge was approximately eightseven years.

Other disclosures related The amount expected to hedge ineffectiveness, gains (losses) excluded frombe reclassified into the assessmentStatements of hedge effectiveness, gains (losses) arising from effective hedges of net investments, gains (losses) resulting from the discontinuance of hedge accounting and reclassifications from other comprehensive income to earnings have been omitted due to the insignificance of these amounts.

Earnings in 2007 is approximately $(8).

The company principally uses a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. The company may also enter into commodity futures contracts, as considered appropriate, to reduce the volatility of price fluctuations for commodities such as corn, cocoa, soybean meal, soybean oil, wheat and wheat.dairy. As of July 31, 2005,30, 2006 the notional values and the fair values of open contracts related to commodity hedging activity were not material.

The company is exposed to equity price changes related to certain employee compensation obligations. Swap contracts are utilized to hedge exposures relating to certain employee compensation obligations linked to the total return of the Standard & Poor’s 500 Index, the total return of the company’s capital stock and the total return of the Puritan Fund. 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 2006,2007, was $49$55 at July 31, 2005.30, 2006. These instruments are not designated as accounting hedges. Gains and losses are recorded in the Statements of Earnings. The net asset recorded under these contracts at July 31, 200530, 2006 was approximately $1.

$2.


21 Shareowners’ Equity


37

19Shareowners’ Equity (Deficit)

The company has authorized 560 million shares of Capital stock with $.0375 par value and 40 million shares of Preferred stock, issuable in one or more classes, with or without par as may be authorized by the Board of Directors. No Preferred stock has been issued.

The company sponsors a long-term incentive compensation plan. Under

Stock Plans
In 2003, shareowners approved the plan,2003 Long-Term Incentive Plan, which authorized the issuance of 28 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock (including performance restricted stock) and optionsperformance units. Approximately 3.2 million shares available under a previous long-term plan were rolled into the 2003 Long-Term Incentive Plan, making the total number of available shares approximately 31.2 million. In November 2005, shareowners approved the 2005 Long-Term Incentive Plan, which authorized the issuance of an additional 6 million shares to satisfy the same types of awards.
Awards under the 2003 and 2005 Long-Term Incentive Plans may be granted to certain officersemployees and key employeesdirectors. The term of the company. The plan provides for future awards of approximately 20 million shares of Capitala stock although this amountoption granted under these plans may increase upon the lapse, expiration or termination of previously issued awards. Options are granted at a price not less than the fair value of the shares on the date of grant and expire not later thanexceed ten years afterfrom the date of grant. Options granted under these plans vest cumulatively over a three-year period. See also Note period at a rate of 30%, 60% and 100%, respectively. The option price may not be less than the fair market value of a share of common stock on the date of the grant. Restricted stock granted in fiscal 2004 and 2005 vests in three annual installments of 1/3 each, beginning 21/2 years from the date of grant.
Pursuant to the Consolidated Financial Statements for additional information on accounting for stock-based compensation, including the pro forma impact if2003 Long-Term Incentive Plan, in July 2005 the company appliedadopted a long-term incentive compensation program for fiscal 2006 which provides for grants of total shareowner return (TSR) performance restricted stock, EPS performance restricted stock, and time-lapse restricted stock. Initial grants made in accordance with this program were approved in September 2005. Under the fair value recognition provisionsprogram, awards of SFAS No. 123.

TSR performance restricted stock will be earned by comparing the company’s total shareowner return during the period 2006 to 2008 to the respective total shareowner returns of companies in a performance peer group. Based upon the company’s ranking in the performance peer group, a recipient of TSR performance restricted stock may earn a total award ranging from 0% to 200% of the initial grant. Awards of EPS performance restricted stock will be earned based upon the company’s achievement of annual earnings per share goals. During the period 2006 to 2008, a recipient of EPS performance restricted stock may earn a total award ranging from 0% to 100% of the initial grant. Awards of time-lapse restricted stock will vest ratably over the three-year period. Annual stock option grants are not part of the long-term incentive compensation program for 2006. However, stock options may still be granted on a selective basis under the 2003 and 2005 Long-Term Incentive Plans.

In 2001, the Board of Directors authorized the conversion of certain stock options to shares of restricted stock based on specified conversion ratios. The exchange, which was voluntary, replaced approximately 4.7 million options with approximately one



PAGE 39

million restricted shares. Depending on the original grant date of the options, the restricted shares vested in 2002, 2003 or 2004. The company recognized compensation expense throughout the vesting period of the restricted stock. Compensation expense related to this award was $3 in 2004 and $6 in 2003.

Restricted shares granted are as follows:

             
(shares in thousands) 2005  2004  2003 
 
Restricted Shares
            
Granted  1,399   1,324   900 
 

2004.

Information about stock options and related activity is as follows:

                         
      Weighted      Weighted      Weighted 
      Average      Average      Average 
      Exercise      Exercise      Exercise 
(options in thousands) 2005  Price  2004  Price  2003  Price 
 
Beginning of year  35,775  $28.18   28,862  $28.29   30,006  $28.21 
Granted  8,624  $26.44   10,471  $26.85   577  $22.89 
Exercised  (2,916) $24.52   (1,325) $19.08   (847) $19.66 
Terminated  (1,935) $32.72   (2,233) $28.69   (874) $28.67 
 
End of year  39,548  $27.85   35,775  $28.18   28,862  $28.29 
 
Exercisable at end of year  25,147       21,234       17,665     
 
                     
(options in thousands) Stock Options Outstanding  Exercisable Options 
      Weighted           
      Average  Weighted      Weighted 
Range of     Remaining  Average      Average 
Exercise     Contractual  Exercise      Exercise 
Prices Shares  Life  Price  Shares  Price 
 
$16.81-$22.60  185   7.3  $21.88   122  $21.93 
$22.61-$31.91  36,831   6.7  $27.08   22,493  $27.40 
$31.92-$44.41  2,271   4.1  $37.74   2,271  $37.74 
$44.42-$56.50  261   2.9  $53.99   261  $53.99 
 
   39,548           25,147     
 
                 
          Weighted-    
      Weighted-  Average    
      Average  Remaining  Aggregate 
      Exercise  Contractual  Intrinsic 
(options in thousands) 2006  Price  Life  Value 
 
Beginning of year  39,548  $27.85         
Granted  212  $29.82         
Exercised  (8,296) $28.49         
Terminated  (857) $28.32         
 
End of year  30,607  $27.77   6.1  $274 
 
Exercisable at end of year  21,971  $28.20   5.4  $187 
 
The total intrinsic value of options exercised during 2006, 2005, and 2004 was $35, $15, and $10, respectively. As of July 30, 2006, total remaining unearned compensation related to unvested stock options was $19, which will be amortized over the weighted-average remaining service period of 1 year. The weighted-average fair value of options granted in 2006, 2005, and 2004 was estimated as $6.85, $4.74, and $5.73, respectively. The fair value of each option grant at grant date is estimated using the Black-Scholes option pricing model. The following weighted-average assumptions were used for grants in 2006, 2005 and 2004:
             
  2006  2005  2004 
 
Risk-free interest rate  4.3%  3.2%  4.1%
Expected life (in years)  6   6   6 
Expected volatility  23%  21%  24%
Expected dividend yield  2.4%�� 2.4%  2.4%
 
The following table summarizes time-lapse restricted stock and EPS performance restricted stock as of July 30, 2006:
         
      Weighted- 
      Average 
      Grant-Date 
(restricted stock in thousands) Shares  Fair Value 
 
Nonvested at July 31, 2005  2,447  $26.51 
Granted  1,746  $29.48 
Vested  (498) $26.69 
Forfeited  (298) $27.51 
 
Nonvested at July 30, 2006  3,397  $27.92 
 
The fair value of time-lapse restricted stock and EPS performance restricted stock is determined based on the number of shares granted and the quoted price of the company’s stock at the date of grant. Time-lapse restricted stock granted in fiscal 2004 and
2005 is expensed on a graded-vesting basis. Time-lapse restricted stock granted in fiscal 2006 is expensed on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. EPS performance restricted stock is expensed on a graded-vesting basis, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis.
As of July 30, 2006, total remaining unearned compensation related to nonvested time-lapse restricted stock and EPS performance restricted stock was $44, which will be amortized over the weighted-average remaining service period of 1.9 years. The fair value of restricted stock vested during 2006, 2005, and 2004 was $16, $24, and $14, respectively. The weighted-average grant-date fair value of restricted stock granted during 2005 and 2004 was $26.32 and $26.78, respectively.
In 2006, the company granted approximately 1.7 million shares of TSR performance restricted stock with a grant-date fair value of $28.73. Approximately 1.6 million shares were outstanding at July 30, 2006. The fair value of TSR performance restricted stock is estimated at the grant date using a Monte Carlo simulation. Expense is recognized on a straight-line basis over the service period. As of July 30, 2006, total remaining unearned compensation related to TSR performance restricted stock was $34, which will be amortized over the weighted-average remaining service period of 2.2 years.
Employees can elect to defer all types of restricted stock awards. These awards are classified as liabilities because of the possibility that they may be settled in cash. The fair value is adjusted quarterly. The total cash paid to settle the liabilities in 2006, 2005 and 2004 was not material. The liability for deferred awards was $16 at July 30, 2006.
Prior to the adoption of SFAS No. 123R, the company presented the tax benefits of deductions resulting from the exercise of stock options as cash flows from operating activities in the Consolidated Statements of Cash Flows. SFAS No. 123R requires the cash flows from the excess tax benefits the company realizes on stock-based compensation to be presented as cash flows from financing activities. The excess tax benefits on the exercise of stock options and vested restricted stock presented as cash flows from financing activities in 2006 were $11 and presented as cash flows from operating activities in 2005 were $6 and in 2004 were $3. Cash received from the exercise of stock options was $236, $71, and $25 for 2006, 2005, and 2004, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.



PAGE 40

For the periods presented in the Consolidated Statements of Earnings, the calculations of basic earnings per share and earnings per share assuming dilution vary in that the weighted average shares outstanding assuming dilution includesinclude the incremental effect of stock options and restricted stock programs, except when such effect would be antidilutive. Stock options to purchase 3 million shares of capital stock for 2006, 10 million shares of capital stock for 2005 and 26 million shares of capital stock for 2004 and 2003 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, would be antidilutive.



22 Commitments and Contingencies


38

20Commitments and 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. Vlasic’s 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 Vlasic’s 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 company’s 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.

Following a trial on the merits, on September 13, 2005, the District Court issued Post-Trial Findings of Fact and Conclusions of Law, ruling in favor of the company and against VFB on all claims. The Court ruled that VFB failed to prove that the spinoff was a constructive or actual fraudulent transfer. The Court also rejected VFB’s claim of breach of fiduciary duty, VFB’s claim that
VFI was an alter ego of the company, and VFB’s claim that the spinoff should be deemed an illegal dividend. On November 1, 2005, VFB will have 30 days followingappealed the entrydecision to the United States Court of Appeals for the judgment of the District Court to appeal the decision.

Third Circuit. The company received an Examination Report from the Internal Revenue Service on December 23, 2002, which included a challengecontinues to the treatment of gains and interest deductions claimed in the company’s 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 as of December 23, 2002, and penalties. Interest will continue to accrue until the matterbelieve this action 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 involvedwithout merit and is challenging these adjustmentsdefending the case vigorously. The company expects a final resolution of this matter in 2006.

The company is a party to other legal proceedings and claims, tax issues and environmental matters arising out of the normal course of business.

Management assesses the probability of loss for all legal proceedings and claims, tax issues and environmental matters and has recognized liabilities for such contingencies, as appropriate. Although the results of these matters cannot be predicted with certainty, in management’s opinion, the final outcome of legal proceedings and claims, tax issues and environmental matters will not have a material adverse effect on the consolidated results of operations or financial condition of the company.

The company has certain operating lease commitments, primarily related to warehouse and office facilities, retail store space and certain equipment. Rent expense under operating lease commitments was $82 in 2006, $84 in 2005 and $79 in 2004 and $66 in 2003.2004. Future minimum annual rental payments under these operating leases are as follows:
                         
  2006  2007  2008  2009  2010  Thereafter 
 
   $68   $59   $48   $37   $34   $51 
 
                       
2007  2008  2009  2010  2011  Thereafter 
 
$77  $65  $49  $44  $36  $64 
 

The company guarantees approximately 1,4001,500 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 $112.$122. The company’s 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. The amounts recognized as of July 30, 2006 and July 31, 2005 and August 1, 2004 were not material.

The company has provided certain standard indemnifications in connection with divestitures, contracts and other transactions. Certain indemnifications have finite expiration dates. Liabilities recognized based on known exposures related to such matters were not material at July 31, 2005.

30, 2006.



39PAGE 41

21Statements of Cash Flows
23 Statements of Cash Flows
                        
 2005 2004 2003  2006 2005 2004 
Cash Flows from Operating Activities: 
Cash Flows From Operating Activities: 
Other non-cash charges to net earnings:  
Non-cash compensation/benefit related expense $109 $91 $60  $87 $83 $73 
Adjustments to long-term investments, other assets, minority interest 9 11 33 
Other 4  (5)    (5)  (2)  (5)
Total $122 $97 $93  $82 $81 $68 
Other:  
Benefit related payments $(47) $(46) $(44) $(44) $(47) $(46)
Payments for hedging activities  (19)  (59)  (67)  (9)  (19)  (59)
Other 7 2  (7)  7 2 
Total $(59) $(103) $(118) $(53) $(59) $(103)
                        
 2005 2004 2003  2006 2005 2004 
Interest paid $176 $168 $173  $173 $176 $168 
Interest received $4 $6 $5  $15 $4 $6 
Income taxes paid $258 $249 $225  $303 $258 $249 
24 Quarterly Data (unaudited)
                 
2006 First1 Second  Third  Fourth2
 
Net sales
 $2,002  $2,159  $1,728  $1,454 
Gross profit
  847   909   708   611 
Earnings from continuing operations
  286   239   146   84 
Earnings (loss) from discontinued operations
  16   15   20   (40)
Net earnings
  302   254   166   44 
Per share – basic
                
Earnings from continuing operations
  0.70   0.59   0.36   0.21 
Earnings (loss) from discontinued operations
  0.04   0.04   0.05   (0.10)
Net earnings
  0.74   0.62   0.41   0.11 
Dividends
  0.18   0.18   0.18   0.18 
Per share – assuming dilution
                
Earnings from continuing operations
  0.69   0.58   0.35   0.20 
Earnings (loss) from discontinued operations
  0.04   0.04   0.05   (0.10)
Net earnings
  0.73   0.61   0.40   0.11 
Market price
                
High
 $31.46  $31.30  $32.74  $38.02 
Low
 $28.29  $28.30  $28.88  $32.12 
 
22Quarterly Data (unaudited)
                 
2005 First  Second  Third  Fourth 
 
Net sales $1,969  $2,085  $1,614  $1,404 
Gross profit  808   853   661   575 
Earnings from continuing operations3
  215   218   130   81 
Earnings from discontinued operations3
  15   17   16   15 
Net earnings3
  230   235   146   96 
Per share – basic                
Earnings from continuing operations3
  0.53   0.53   0.32   0.20 
Earnings from discontinued operations3
  0.04   0.04   0.04   0.04 
Net earnings3
  0.56   0.57   0.36   0.23 
Dividends  0.17   0.17   0.17   0.17 
Per share – assuming dilution                
Earnings from continuing operations3
  0.52   0.53   0.31   0.20 
Earnings from discontinued operations3
  0.04   0.04   0.04   0.04 
Net earnings3
  0.56   0.57   0.35   0.23 
Market price                
High $27.13  $30.52  $29.74  $31.60 
Low $25.21  $26.68  $27.35  $29.53 
 
                 
2005 First  Second  Third  Fourth 
 
Net sales
 $2,091  $2,223  $1,736  $1,498 
Cost of products sold
  1,245   1,321   1,035   890 
Net earnings
  230   235   146   96 
Per share — basic
                
Net earnings
  0.56   0.57   0.36   0.23 
Dividends
  0.17   0.17   0.17   0.17 
Per share — assuming dilution
                
Net earnings
  0.56   0.57   0.35   0.23 
Market price
                
High
 $   27.13  $ 30.52  $  29.74  $  31.60 
Low
 $25.21  $26.68  $27.35  $29.53 
 
                 
2004 First  Second  Third  Fourth 
 
Net sales $1,909  $2,100  $1,667  $1,433 
Cost of products sold  1,108   1,212   995   872 
Net earnings1
  211   235   142   59 
Per share — basic                
Net earnings1
  0.51   0.57   0.35   0.14 
Dividends  0.1575   0.1575   0.1575   0.1575 
Per share — assuming dilution                
Net earnings1
  0.51   0.57   0.34   0.14 
Market price                
High $27.90  $27.39  $28.70  $28.13 
Low $23.26  $24.92  $26.15  $25.03 
 
1 Net earningsIncludes a $13 ($8 after tax or $.02 per share) benefit from a change in inventory accounting method (see also Note 13) and a $60 ($.14 per share) benefit from the fourth quarter includefavorable resolution of a restructuring chargeU.S. tax contingency. (See also Note 11.)
2The results of $22 or $.05discontinued operations included $56 of deferred tax expense due to book/ tax basis differences and $5 of after-tax costs associated with the sale of the businesses (aggregate impact of $.15 per share.share).
3As of August 1, 2005, the company adopted SFAS No. 123R using the modified prospective method. Prior periods were not restated. (See also Note 5 to the Consolidated Financial Statements.1.)



40

PAGE 42

Reports of Management

Management’s Report on Financial Statements

The accompanying financial statements have been prepared by the company’s management in conformity with generally accepted accounting principles to reflect the financial position of the company and its operating results. The financial information appearing throughout this Annual Report is consistent with the financial statements. Management is responsible for the information and representations in such financial statements, including the estimates and judgments required for their preparation. The financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.

The Audit Committee of the Board of Directors, which is composed entirely of Directors who are not officers or employees of the company, meets regularly with the company’s worldwide internal auditing department, other management personnel, and the independent auditors. The independent auditors and the internal auditing department have had, and continue to have, direct access to the Audit Committee without the presence of other management personnel, and have been directed to discuss the results of their audit work and any matters they believe should be brought to the Committee’s attention. The internal auditing department and the independent auditors report directly to the Audit Committee.

Management’s Report on Internal Control Over
Financial Reporting

The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The company’s internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and Directors of the company; and

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and Directors of the company; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of July 31, 2005.30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control Integrated Framework. Based on this assessment using those criteria, management concluded that the company’s internal control over financial reporting was effective as of July 31, 2005.

30, 2006.

Management’s assessment of the effectiveness of the company’s internal control over financial reporting as of July 31, 200530, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.


Douglas R. Conant
President and Chief Executive Officer


Robert A. Schiffner
Senior Vice President and Chief Financial Officer


Anthony P. DiSilvestro
Vice President Controller

September 21, 2005

28, 2006



41

PAGE 43
Report of Independent Registered Public
Accounting Firm
To the Shareowners and
Directors of Campbell Soup Company

We have completed an integrated auditaudits of Campbell Soup Company’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of July 31, 200530, 2006 and auditsan audit of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of shareowners’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Campbell Soup Company and its subsidiaries at July 30, 2006 and July 31, 2005, and August 1, 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 200530, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to1, the consolidatedcompany adopted a new financial statements, effective July 29, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets.”

accounting standard for share-based compensation during 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of July 31, 200530, 2006 based on criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2005,30, 2006, based on criteria established inInternal Control — Integrated

Frameworkissued by the COSO. The Company’s management is responsible

for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Philadelphia, Pennsylvania
September 21, 2005

28, 2006



42PAGE 44

Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure

None.

Item 9A. 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 company’s 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 July 31, 200530, 2006 (the “Evaluation Date”). Based on such evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, the company’s 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 company’s 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.

The annual report of management on the company’s internal control over financial reporting is provided under “Financial Statements and Supplementary Data” on page 40.42. The attestation report of PricewaterhouseCoopers LLP, the company’s independent registered public accounting firm, regarding the company’s internal control over financial reporting is provided under “Financial Statements and Supplementary Data” on page 41.

43.

During the quarter ended July 31, 2005,30, 2006, except as described below, there were no changes in the company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. During the quarter, the company implemented a new enterprise resource planning system in its Canadian business as part of the previously announced North American implementation of SAP. In conjunction with this implementation, changes were made in the company’s internal control over financial reporting in order to adapt to the new system.

Item 9B. Other Information

None.




43

PART

Part III

Item 10. Directors and Executive Officers of
the Registrant

The sections entitled “Election of Directors”Directors,” “Security Ownership of Directors and Executive Officers” and “Directors and Executive Officers Stock Ownership Reports” in the company’s Proxy Statement for the Annual Meeting of Shareowners to be held on November 18, 200516, 2006 (the “2005 Proxy Statement”“2006 Proxy”) are incorporated herein by reference. The information presented in the section entitled “Board Committees” in the 20052006 Proxy Statement relating to the members of the company’s Audit Committee is incorporated herein by reference. The information presented in the section entitled “Audit Committee Report” in the 20052006 Proxy Statement relating to the Audit Committee’s financial experts is incorporated herein by reference.

Certain of the information required by this Item relating to the executive officers of Campbellthe company is set forth in the heading “Executive Officers of the Company.”

The company has adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to the company’s Chief Executive Officer, Chief Financial Officer, Controller and members of the Chief Financial Officer’s financial leadership team. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is posted on the company’s website, www.campbellsoupcompany.com (under the “Governance” caption). The company intends to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers by posting such information on its website.

The company has also adopted a separate Code of Business Conduct and Ethics applicable to the Board of Directors, the company’s officers and all of the company’s employees. The Code of Business Conduct and Ethics is posted on the company’s website, www.campbellsoupcompany.com (under the “Governance” caption). The



PAGE 45

company’s Corporate Governance Standards and the charters of the company’s four standing committees of the Board of Directors can also be found at this website. Printed copies of the foregoing are available to any shareowner requesting a copy by writing to: Corporate Secretary, Campbell Soup Company, 1 Campbell Place, Camden, NJ 08103. On November 23, 2004, the New York Stock Exchange Annual CEO Certification was submitted without any qualification.

Item 11. Executive Compensation

The information presented in the sections entitled “Summary Compensation,” “Option Grants in Last Fiscal Year,” “Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,” “Fiscal 2006 Long-Term Incentive Grants,” “Pension Plans,” “Director Compensation,” “Employment Agreements“Termination of Employment and TerminationChange in Control Arrangements” and “Compensation and Organization Committee Interlocks and Insider Participation” in the 20052006 Proxy is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters

Security Ownership of Certain Beneficial Owners and Management
The information presented in the sections entitled “Security Ownership of Directors and Executive Officers,”Officers” and “Security Ownership of Certain Beneficial Owners,” “Securities Authorized for Issuance under Equity Compensation Plans” and “Deferred Compensation Plans”Owners” in the 20052006 Proxy is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the company’s stock that may be issued under the company’s equity compensation plans as of July 30, 2006:


             
          Number of Securities Remaining 
  Number of Securities to  Weighted-Average  Available For Future Issuance 
  be Issued Upon Exercise  Exercise Price of  Under Equity Compensation 
  of Outstanding Options,  Outstanding Options,  Plans (Excluding Securities 
Plan Category Warrants and Rights (a)  Warrants and Rights (b)  Reflected in the First Column) (c) 
 
Equity Compensation Plans Approved by Security Holders1
  31,655,167  $27.77   15,117,452 
Equity Compensation Plans Not Approved by Security Holders2
  1,544,822   N/A   N/A 
Total  33,199,989   N/A   15,117,452 
 
1Column (a) represents stock options and restricted stock units outstanding under the 2005 Long-Term Incentive Plan, the 2003 Long-Term Incentive Plan and the 1994 Long-Term Incentive Plan. No additional awards can be made under the 1994 Long-Term Incentive Plan. Future equity awards under the 2005 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan may take the form of stock options, stock appreciation rights, performance unit awards, restricted stock, restricted performance stock, restricted stock units or stock awards. Column (b) represents the weighted-average exercise price of the outstanding stock options only; the outstanding restricted stock units are not included in this calculation. Column (c) represents the maximum aggregate number of future equity awards that can be made under the 2005 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan as of July 30, 2006. The maximum number of future equity awards that can be made under the 2005 Long-Term Incentive Plan as of July 30, 2006 is 5,980,870. The maximum number of future equity awards that can be made under the 2003 Long-Term Incentive Plan as of July 30, 2006 is 9,136,582 (the “2003 Plan Limit”). Each stock option or stock appreciation right awarded under the 2003 Long-Term Incentive Plan reduces the 2003 Plan Limit by one share. Each restricted stock unit, restricted stock, restricted performance stock or stock award under the 2003 Long-Term Incentive Plan reduces the 2003 Plan Limit by four shares. In the event any award (or portion thereof) under the 1994 Long-Term Incentive Plan lapses, expires or is otherwise terminated without the issuance of any company stock or is settled by delivery of consideration other than company stock, the maximum number of future equity awards that can be made under the 2003 Long-Term Incentive Plan automatically increases by the number of such shares.
2The company’s Deferred Compensation Plans (the “Plans”) allow participants the opportunity to invest in various book accounts, including a book account that tracks the performance of the company’s stock (the “Stock Account”). Upon distribution, participants may receive the amounts invested in the Stock Account in the form of shares of company stock. Column (a) represents the maximum number of shares that could be issued upon a complete distribution of all amounts in the Stock Account. This calculation is based upon the amount of funds in the Stock Account as of July 30, 2006 and a $36.77 share price, which was the closing price of a share of company stock on July 28, 2006 (the last business day before July 30, 2006). 853,796 of the total number of shares that could be issued upon a complete distribution of the Plans are fully vested, and 691,026 of the shares are subject to restrictions.


PAGE 46

Deferred Compensation Plans
The Plans are unfunded and maintained for the purpose of providing the company’s directors and U.S.-based executives and key managers the opportunity to defer a portion of their earned compensation. Participants may defer a portion of their base salaries and all or a portion of their annual incentive compensation, long-term incentive awards, and director retainers and fees. The Plans were not submitted for security holder approval because they do not provide additional compensation to participants. They are vehicles for participants to defer earned compensation.
Each participant’s contributions to the Plans are credited to an investment account in the participant’s name. Gains and losses in the participant’s account are based on the performance of the investment choices the participant has selected. Four investment choices are available, including the Stock Account. In addition to the Stock Account, participants also generally have the opportunity to invest in (i) a book account that tracks the performance of Fidelity’s Spartan U.S. Equity Index Fund, (ii) a book account that tracks the performance of Fidelity’s Puritan Fund, and (iii) a book account that credits interest at the Wall Street Journal indexed prime rate (determined on November 1 for the subsequent calendar year).
A participant may reallocate his or her investment account at any time among the four investment choices, except that (i) restricted stock awards must be invested in the Stock Account during the restriction period, and (ii) reallocations of the Stock Account must be made in compliance with the company’s policies on trading company stock. Dividends on amounts invested in the Stock Account may be reallocated among the four investment accounts. The company credits a participant’s account with an amount equal to the matching contribution that the company would have made to the participant’s 401(k) Plan account if the participant had not deferred compensation under the Plan. In addition, for those individuals whose base salary and annual incentive compensation exceed the Internal Revenue Service indexed compensation limit for the 401(k) Plan, the company credits such individual’s account with an amount equal to the contribution the company would have made to the 401(k) Plan but for the compensation limit. These company contributions vest in 20% increments over the participant’s first five (5) years of credited service; after the participant’s first five (5) years of service, the company contributions vest immediately. Except as described above, there is no company match on deferred compensation.
For terminations and retirements, a participant’s account is generally paid out in accordance with the last valid distribution election made by the participant. The applicable elections include: (i) a lump sum, (ii) 5 annual installments, (iii) 10 annual installments, (iv) 15 annual installments (not available to participants terminated prior to their 55th birthday), and (v) 20 annual installments (not available to participants terminated prior to their 55th birthday). For distributions upon death, if a participant’s beneficiary is his or her spouse, the account is generally paid out in accordance with the last valid death distribution election (or, if there is no death distribution election, the regular distribution election). If a participant’s beneficiary is not his or her spouse, then the account is generally paid out in a lump sum. The administrator of the Plans has also established procedures for hardship withdrawals and, for amounts vested prior to January 1, 2005, unplanned withdrawals. In the event of a change in control of the company, the Stock Account is automatically converted into cash based upon a formula provided in the Plan.

Item 13. Certain Relationships and Related Transactions

The information presented in the section entitled “Certain Relationships and Related Transactions” in the 20052006 Proxy is incorporated herein by reference.

Item 14. Principal Accounting Fees
and Services

The information presented in the section entitled “Independent Registered Public Accounting Firm Fees and Services” in the 20052006 Proxy is incorporated herein by reference.




44PAGE 47

PART

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a)The following documents are filed as part of this report:

(a) The following documents are filed as part of this report:
 1. 
Financial Statements

  Consolidated Statements of Earnings for 2006, 2005 2004 and 20032004
 
  Consolidated Balance Sheets as of July 30, 2006 and July 31, 2005 and August 1, 2004
 
  Consolidated Statements of Cash Flows for 2006, 2005 2004 and 20032004
 
  Consolidated Statements of Shareowners’ Equity (Deficit) for 2006, 2005 2004 and 20032004
 
  Notes to Consolidated Financial Statements
 
  Management’s Report on Internal Control Over Financial Reporting
 
  Report of Independent Registered Public Accounting Firm

 2. 
Financial Statement Schedules
 
   None.
 
 3. 
Exhibits

 3(i)3 (i) Campbell’s Restated Certificate of Incorporation as amended through February 24, 1997 was filed with the Securities and Exchange Commission (“SEC”) with Campbell’s Form 10-K for the fiscal year ended July 28, 2002, and is incorporated herein by reference.
 
 3(ii)3 (ii) Campbell’s By-Laws, as amended through July 22, 2004May 25, 2006, were filed with the SEC with Campbell’son a Form 10-K for the fiscal year ended August 1, 2004,8-K on May 26, 2006, and isare incorporated herein by reference.
 
 4(i)4 
With respect to Campbell’s 6.75% notes due 2011, the form of Indenture between Campbell and Bankers Trust Company, as Trustee, and the associated form of security were filed with Campbell’s Registration Statement No. 333-11497, and are incorporated herein by reference.
4(ii)Except as described in 4(i) above, there is no instrument with respect to long-term debt of the company that involves indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the company upon request of the SEC.
 
 9 Major Stockholders’ Voting Trust Agreement dated June 2, 1990, as amended, was filed with the SEC by (i) Campbell as Exhibit 99.C to Campbell’s Schedule 13E-4 filed on September 12, 1996, and (ii) with respect to certain subsequent amendments, the Trustees of the Major Stockholders’ Voting Trust as Exhibit 99.G to Amendment No. 7 to their Schedule 13D dated March 3, 2000, and as Exhibit 99.M to Amendment No. 8 to their Schedule 13D dated January 26, 2001, and as Exhibit 99.P to Amendment No. 9 to their Schedule 13D dated September 30, 2002, and is incorporated herein by reference.
 
 10(a) Campbell Soup Company 1994 Long-Term Incentive Plan, as amended on November 17, 2000, was filed with the SEC with Campbell’s 2000 Proxy Statement, and is incorporated herein by reference.
 
 10(b) Campbell Soup Company 2003 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2003 Proxy Statement, and is incorporated herein by reference.


45

 10(c)Campbell Soup Company 2005 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2005 Proxy Statement, and is incorporated herein by reference.
10(d) Campbell Soup Company Annual Incentive Plan, as amended on November 18, 2004, was filed with the SEC with Campbell’s 2004 Proxy Statement, and is incorporated herein by reference.
 
 10(d)10(e) Campbell Soup Company Mid-Career Hire Pension Program, amended effective as of January 25, 2001, was filed with the SEC with Campbell’s Form 10-K for the fiscal year ended July 29, 2001, and is incorporated herein by reference.
 
 10(e)10(f) Deferred Compensation Plan, effective November 18, 1999, was filed with the SEC with Campbell’s Form 10-K for the fiscal year ended July 30, 2000, and is incorporated herein by reference.
 
 10(f)10(g) Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant, President and Chief Executive Officer, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated herein by reference. Agreements with the other executive officers listed under the heading “Executive Officers of the Company” are in all material respects the same as Mr. Conant’s agreement.
10(g)Employment agreement between the company and Douglas R. Conant dated January 8, 2001, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated herein by reference.


PAGE 48

 10(h) Letter Agreement between the company and Mark A. Sarvary, effective as of February 9, 2004, regarding severance arrangements was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended May 2, 2004, and is incorporated herein by reference.
 
 10(i) Performance goals for the fiscal 2005 awards under the Campbell Soup Company Annual Incentive Plan were described in a Campbell Form 8-K filed on November 5, 2004, and such description is incorporated herein by reference.
10(j)Form of Stock Option Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004, and is incorporated herein by reference.
 
 10(k)10(j) Form of Restricted Stock Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004, and is incorporated herein by reference.
 
 10(k)Compensation arrangements relating to the company’s executive officers and members of the company’s Board of Directors were described in a company Form 8-K filed on September 27, 2005, and such description is incorporated herein by reference.
10(l) BoardA special long-term incentive grant of Director compensation for calendar year 200554,667 performance-restricted shares made to the Senior Vice President and Chief Information Officer, in lieu of grants under the company’s regular long-term incentive program, was described in a Campbell Form 8-K filed on January 7,November 22, 2005, and such description is incorporated herein by reference.
 
 10(m) Long-term incentive compensation programs adopted pursuant to the Campbell Soup Company 2003 Long-Term IncentiveSeverance Pay Plan werefor Salaried Employees, as amended and restated effective January 1, 2006, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29, 2006, and is incorporated herein by reference.
10(n)Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees, as amended and restated effective January 1, 2006, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29, 2006, and is incorporated herein by reference.
10(o)Board of Director compensation for calendar year 2007 was described in a Campbell Form 8-K filed on July 12, 2005,June 27, 2006, and such description is incorporated herein by reference.
 
 10(n)10(p) Deed of Release,Agreement between Campbell’s UK Limited, Campbell Soup UK Limited, Campbell Netherlands Holdings B.V., Campbell Investment Company, Campbell Soup Company, Premier Foods Investments Limited, HL Foods Limited and Premier Foods plc dated May 27, 2005, between John Doumani, Arnott’s Biscuits LtdJuly 12, 2006, was filed with the SEC with a Campbell Form 8-K filed on July 14, 2006, and the company.is incorporated herein by reference.
 
 21 Subsidiaries (Direct and Indirect) of the company.
 
 23 Consent of Independent Registered Public Accounting Firm.
 
 24 Power of Attorney.
 
 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.


PAGE 49

46Signatures

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Campbell has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 11, 2006
Date: October 11, 2005CAMPBELL SOUP COMPANY
     
 CAMPBELL SOUP COMPANY
 
By:
By:  /s/ Robert A. Schiffner
  
  Robert A. Schiffner
 
  Senior Vice President

and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Campbell and in the capacity and on the date indicated.
Date: October 11, 2006
   
Date: October 11, 2005 
   
/s/ Robert A. Schiffner /s/ Anthony P. DiSilvestro
  
Robert A. Schiffner
 
Anthony P. DiSilvestro
Senior Vice President Vice President – Controller
and Chief Financial Officer  
         
Harvey Golub Chairman and Director }    
Douglas R. Conant President, Chief Executive }    
  Officer and Director }    
John F. BrockDirector}  
Edmund M. Carpenter Director }    
Paul R. Charron Director }    
Bennett Dorrance Director }    
Kent B. FosterDirector}  
Kent B. Foster
Randall W. Larrimore
 Director
Director
 }
}
 By: /s/ Ellen Oran Kaden
Ellen Oran Kaden
  
Philip E. Lippincott Director }   Ellen Oran KadenSenior Vice President –
Mary Alice D. Malone Director }   Senior Vice President –Law and Government
Sara MathewDirector}Affairs
David C. Patterson Director }   Law and Government Affairs
Charles R. Perrin Director }    
Donald M. StewartA. Barry Rand Director }    
George Strawbridge, Jr. Director }    
Les C. Vinney Director }    
Charlotte C. Weber Director }    


INDEX OF EXHIBITS
   
Document
  
3 (i) Campbell’s Restated Certificate of Incorporation as amended through February 24, 1997 was filed with the SEC with Campbell’s Form 10-K for the fiscal year ended July 28, 2002, and is incorporated herein by reference.
   
3 (ii) Campbell’s By-Laws, as amended through July 22, 2004May 25, 2006, were filed with the SEC with Campbell’son a Form 10-K for the fiscal year ended August 1, 2004, and is incorporated herein by reference.
4(i)With respect to Campbell’s 6.75% notes due 2011, the form of Indenture between Campbell and Bankers Trust Company, as Trustee, and the associated form of security were filed with Campbell’s Registration Statement No. 333-11497,8-K on May 26, 2006, and are incorporated herein by reference.
   
4(ii)4 Except as described in 4(i) above, there is no instrument with respect to long-term debt of the company that involves indebtedness or securities authorized thereunder exceeding 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to file a copy of any instrument or agreement defining the rights of holders of long-term debt of the company upon request of the SEC.
   
9 Major Stockholders’ Voting Trust Agreement dated June 2, 1990, as amended, was filed with the SEC by (i) Campbell as Exhibit 99.C to Campbell’s Schedule 13E-4 filed on September 12, 1996, and (ii) with respect to certain subsequent amendments, the Trustees of the Major Stockholders’ Voting Trust as Exhibit 99.G to Amendment No. 7 to their Schedule 13D dated March 3, 2000, and as Exhibit 99.M to Amendment No. 8 to their Schedule 13D dated January 26, 2001, and as Exhibit 99.P to Amendment No. 9 to their Schedule 13D dated September 30, 2002, and is incorporated herein by reference.
   
10 (a) Campbell Soup Company 1994 Long-Term Incentive Plan, as amended on November 17, 2000, was filed with the SEC with Campbell’s 2000 Proxy Statement, and is incorporated herein by reference.
   
10 (b) Campbell Soup Company 2003 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2003 Proxy Statement, and is incorporated herein by reference.
   
10 (c) Campbell Soup Company 2005 Long-Term Incentive Plan was filed with the SEC with Campbell’s 2005 Proxy Statement, and is incorporated herein by reference.
10 (d)Campbell Soup Company Annual Incentive Plan, as amended on November 18, 2004, was filed with the SEC with Campbell’s 2004 Proxy Statement, and is incorporated herein by reference.
   
10 (d)(e) Campbell Soup Company Mid-Career Hire Pension Program, as amended effective as of January 25, 2001, was filed with the SEC with Campbell’s Form 10-K for the fiscal year ended July 29, 2001, and is incorporated herein by reference.


Document
   
10 (e)(f) Deferred Compensation Plan, effective November 18, 1999, was filed with the SEC with Campbell’s Form 10-K for the fiscal year ended July 30, 2000, and is incorporated herein by reference.
   
10 (f)(g) Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant,


Document
President and Chief Executive Officer, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated herein by reference. Agreements with the other executive officers listed under the heading “Executive Officers of the Company” are in all material respects the same as Mr. Conant’s agreement.
10 (g)Employment agreement between the company and Douglas R. Conant dated January 8, 2001, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 28, 2001, and is incorporated herein by reference.
   
10 (h) Letter Agreement between the company and Mark A. Sarvary, effective as of February 9, 2004, regarding severance arrangements was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended May 2, 2004, and is incorporated herein by reference.
   
10 (i) Performance goals for the fiscal 2005 awards under the Campbell Soup Company Annual Incentive Plan were described in a Campbell Form 8-K filed on November 5, 2004, and such description is incorporated herein by reference.
10 (j)Form of Stock Option Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004, and is incorporated herein by reference.
   
10 (k)(j) Form of Restricted Stock Award Statement was filed with the SEC on a Campbell Form 8-K filed on September 28, 2004, and is incorporated herein by reference.
   
10 (k)Compensation arrangements relating to the company’s executive officers and members of the company’s Board of Directors were described in a company Form 8-K filed on September 27, 2005, and such description is incorporated herein by reference.
10 (l) BoardA special long-term incentive grant of Director compensation for calendar year 200554,667 performance-restricted shares made to the Senior Vice President and Chief Information Officer, in lieu of grants under the company’s regular long-term incentive program, was described in a Campbell Form 8-K filed on January 7,November 22, 2005, and such description is incorporated herein by reference.
   
10 (m) Long-term incentive compensation program adopted pursuant to the Campbell Soup Company 2003 Long-Term IncentiveSeverance Pay Plan werefor Salaried Employees, as amended and restated effective January 1, 2006, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29, 2006, and is incorporated herein by reference.
10 (n)Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees, as amended and restated effective January 1, 2006, was filed with the SEC with Campbell’s Form 10-Q for the fiscal quarter ended January 29, 2006, and is incorporated herein by reference.
10 (o)Board of Director compensation for calendar year 2007 was described in a Campbell Form 8-K filed on July 12, 2005,June 27, 2006, and such description is incorporated herein by reference.
   
10 (n)(p) Deed of Release,Agreement between Campbell’s UK Limited, Campbell Soup UK Limited, Campbell Netherlands Holdings B.V., Campbell Investment Company, Campbell Soup Company, Premier Foods Investments Limited, HL Foods Limited and Premier Foods plc dated May 27, 2005, between John Doumani, Arnott’s Biscuits LtdJuly 12, 2006, was filed with the SEC with a Campbell Form 8-K filed on July 14, 2006, and the company.is incorporated herein by reference.
   
21 Subsidiaries (Direct and Indirect) of the company.


 
Document  
23 Consent of Independent Registered Public Accounting Firm.
   
24 Power of Attorney.


Document
   
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.