UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

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

For the Quarterly Period Ended May 2, 2010		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

     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. þ Yes o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that that the registrant was required to submit and post such files). þ Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

There were 339,531,815 shares of capital stock outstanding as of June 3, 2010.

 

 

Part I

Statements of Earnings

(unaudited)
(millions, except per share amounts)

		Three Months Ended								Nine Months Ended
		May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009
Net sales		$	1,802			$	1,686			$	6,158			$	6,058
Costs and expenses
Cost of products sold			1,059				1,001				3,621				3,665
Marketing and selling expenses			252				246				837				868
Administrative expenses			156				129				438				407
Research and development expenses			31				27				88				83
Other expenses / (income)			—				(3	)			1				(5	)
Restructuring charges			12				—				12				—
Total costs and expenses			1,510				1,400				4,997				5,018
Earnings before interest and taxes			292				286				1,161				1,040
Interest expense			29				26				84				85
Interest income			2				—				4				2
Earnings before taxes			265				260				1,081				957
Taxes on earnings			97				86				350				294
Earnings from continuing operations			168				174				731				663
Earnings from discontinued operations			—				—				—				4
Net earnings		$	168			$	174			$	731			$	667
Per share — basic
Earnings from continuing operations		$	.49			$	.49			$	2.11			$	1.84
Earnings from discontinued operations			—				—				—				.01
Net earnings		$	.49			$	.49			$	2.11			$	1.85
Dividends		$	.275			$	.25			$	.80			$	.75
Weighted average shares outstanding — basic			339				350				341				354
Per share — assuming dilution
Earnings from continuing operations		$	.49			$	.49			$	2.09			$	1.82
Earnings from discontinued operations			—				—				—				.01
Net earnings		$	.49			$	.49			$	2.09			$	1.83
Weighted average shares outstanding — assuming dilution			342				351				344				357

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY CONSOLIDATED

Balance Sheets

(unaudited)
(millions, except per share amounts)

		May 2,				August 2,
		2010				2009
Current assets
Cash and cash equivalents		$	80			$	51
Accounts receivable			543				528
Inventories			639				824
Other current assets			169				148
Total current assets			1,431				1,551
Plant assets, net of depreciation			1,995				1,977
Goodwill			1,945				1,901
Other intangible assets, net of amortization			512				522
Other assets			103				105
Total assets		$	5,986			$	6,056
Current liabilities
Short-term borrowings		$	945			$	378
Payable to suppliers and others			430				569
Accrued liabilities			568				579
Dividend payable			95				88
Accrued income taxes			76				14
Total current liabilities			2,114				1,628
Long-term debt			1,542				2,246
Deferred taxes			297				237
Other liabilities			937				1,214
Total liabilities			4,890				5,325
Campbell Soup Company shareowners’ equity
Preferred stock; authorized 40 shares; none issued			—				—
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares			20				20
Additional paid-in capital			328				332
Earnings retained in the business			8,742				8,288
Capital stock in treasury, at cost			(7,377	)			(7,194	)
Accumulated other comprehensive loss			(620	)			(718	)
Total Campbell Soup Company shareowners’ equity			1,093				728
Noncontrolling interest			3				3
Total equity			1,096				731
Total liabilities and equity		$	5,986			$	6,056

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY CONSOLIDATED

Statements of Cash Flows

(unaudited)
(millions)

		Nine Months Ended
		May 2,				May 3,
		2010				2009
Cash flows from operating activities:
Net earnings		$	731			$	667
Adjustments to reconcile net earnings to operating cash flow
Restructuring charges			12				—
Stock-based compensation			68				63
Depreciation and amortization			185				195
Deferred income taxes			44				137
Other, net			76				38
Changes in working capital
Accounts receivable			(6	)			10
Inventories			193				67
Prepaid assets			8				19
Accounts payable and accrued liabilities			(125	)			(302	)
Pension fund contributions			(281	)			(5	)
Receipts from (payments of) hedging activities			10				(50	)
Other			(56	)			(33	)
Net cash provided by operating activities			859				806
Cash flows from investing activities:
Purchases of plant assets			(177	)			(176	)
Sales of plant assets			5				1
Sale of business, net of cash divested			—				38
Other, net			3				(6	)
Net cash used in investing activities			(169	)			(143	)
Cash flows from financing activities:
Net short-term repayments			(161	)			(81	)
Long-term borrowings			—				300
Repayments of notes payable			—				(300	)
Dividends paid			(270	)			(261	)
Treasury stock purchases			(315	)			(409	)
Treasury stock issuances			75				69
Excess tax benefits on stock-based compensation			6				18
Other, net			—				(5	)
Net cash used in financing activities			(665	)			(669	)
Effect of exchange rate changes on cash			4				(14	)
Net change in cash and cash equivalents			29				(20	)
Cash and cash equivalents — beginning of period			51				81
Cash and cash equivalents — end of period		$	80			$	61

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY CONSOLIDATED

Statements of Equity

(unaudited)
(millions, except per share amounts)

		Campbell Soup Company Shareowners’ Equity
		Capital Stock																				Earnings				Accumulated
		Issued								In Treasury								Additional				Retained				Other
																		Paid-in				in the				Comprehensive				Noncontrolling				Total
		Shares				Amount				Shares				Amount				Capital				Business				Income (Loss)				Interest				Equity
Balance at August 3, 2008			542			$	20				(186	)		$	(6,812	)		$	337			$	7,909			$	(136	)		$	3			$	1,321
Comprehensive income (loss)
Net earnings																							667								—				667
Foreign currency translation adjustments, net of tax																											(303	)			—				(303	)
Cash-flow hedges, net of tax																											(17	)							(17	)
Pension and postretirement benefits, net of tax																											22								22
Other comprehensive income (loss)																											(298	)			—				(298	)
Total comprehensive income (loss)																																			369
Dividends ($.75 per share)																							(269	)											(269	)
Treasury stock purchased											(13	)			(409	)																			(409	)
Treasury stock issued under management incentive and stock option plans											4				142				(21	)															121
Balance at May 3, 2009			542			$	20				(195	)		$	(7,079	)		$	316			$	8,307			$	(434	)		$	3			$	1,133
Balance at August 2, 2009			542			$	20				(199	)		$	(7,194	)		$	332			$	8,288			$	(718	)		$	3			$	731
Comprehensive income (loss)
Net earnings																							731								—				731
Foreign currency translation adjustments, net of tax																											68				—				68
Cash-flow hedges, net of tax																											4								4
Pension and postretirement benefits, net of tax																											26								26
Other comprehensive income (loss)																											98				—				98
Total comprehensive income (loss)																																			829
Dividends ($.80 per share)																							(277	)											(277	)
Treasury stock purchased											(9	)			(315	)																			(315	)
Treasury stock issued under management incentive and stock option plans											4				132				(4	)															128
Balance at May 2, 2010			542			$	20				(204	)		$	(7,377	)		$	328			$	8,742			$	(620	)		$	3			$	1,096

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

(unaudited)
(currency in millions, except per share amounts)

1. Basis of Presentation and Significant Accounting Policies

     The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. All such adjustments are of a normal recurring nature. The accounting policies used in preparing these financial statements are consistent with those applied in the Annual Report on Form 10-K for the year ended August 2, 2009, except for the adoption of new financial accounting standards, as discussed in Note 2. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.

2. Recent Accounting Pronouncements

     In December 2007, the Financial Accounting Standards Board (FASB) issued authoritative guidance which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It requires a noncontrolling interest in a subsidiary, which was formerly known as minority interest, to be classified as a separate component of total equity in the consolidated financial statements. The company retrospectively adopted the new noncontrolling interest guidance in the first quarter of fiscal 2010. The adoption did not have a material impact on the financial statements. See Note 9 for additional information.

     In December 2007, the FASB issued authoritative guidance for business combinations, which establishes the principles and requirements for how an acquirer recognizes the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date with limited exceptions. The guidance requires acquisition-related transaction costs to be expensed as incurred rather than capitalized as a component of the business combination. The provisions as revised were effective as of the first quarter of fiscal 2010 and will be applied to any business combinations entered into in fiscal 2010 and thereafter.

     In September 2006, the FASB issued authoritative guidance for fair value measurements, which establishes a definition of fair value, provides a framework for measuring fair value and expands the disclosure requirements about fair value measurements. This guidance does not require any new fair value measurements but rather applies to all other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued authoritative guidance which delayed by a year the effective date for certain nonfinancial assets and liabilities. The company adopted the provisions of the guidance for financial assets and liabilities in the first quarter of fiscal 2009. The adoption did not have a material impact on the consolidated financial statements. The company adopted the remaining provisions in the first quarter of fiscal 2010 for nonfinancial assets and liabilities, including goodwill and intangible assets. The adoption likewise did not have a material impact on the consolidated financial statements. See Note 13 for additional information.

     In January 2010, the FASB issued additional authoritative guidance related to fair value measurements and disclosures. The guidance requires disclosure of details of significant transfers in and out of Level 1 and Level 2 fair value measurements. Level 1 fair value measurements are based on unadjusted quoted market prices. Level 2 fair value measurements are based on significant inputs, other than Level 1, that are observable for the asset/liability through corroboration with observable market data. The guidance also clarifies the existing disclosure requirements for the level of disaggregation of fair value measurements and the disclosures on inputs and valuation techniques. The company adopted these provisions in the third quarter of fiscal 2010. The adoption did not have a material impact on the consolidated financial statements. In addition, the guidance requires a gross presentation of the activity within the Level 3 roll forward, separately presenting information about purchases, sales, issuances and settlements. The roll forward information must be provided by the company for the first quarter of fiscal 2012, as the provision is effective for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years.

     In June 2008, the FASB issued authoritative guidance related to the calculation of earnings per share. The guidance provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the new provisions. The company adopted the new guidance in the first quarter of fiscal 2010. Prior periods have been restated. See Note 8 for additional information.

Notes to Consolidated Financial Statements — (Continued)

     In April 2009, the FASB issued authoritative guidance related to interim disclosures about fair value of financial instruments. The company prospectively adopted the interim fair value disclosure guidance in the first quarter of fiscal 2010. The adoption did not have a material impact on the consolidated financial statements. The additional disclosures are included in Note 12.

     In June 2009, the FASB Accounting Standards Codification (Codification) was issued to become the source of authoritative U.S. generally accepted accounting principles (GAAP) to be applied by nongovernmental entities and supersede all then-existing non-SEC accounting and reporting standards. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The company adopted the provisions in the first quarter of 2010. The adoption did not impact the company’s consolidated financial statements.

     In December 2008, the FASB issued additional authoritative guidance related to employers’ disclosures about the plan assets of defined benefit pension or other postretirement plans. The required disclosures include a description of how investment allocation decisions are made, major categories of plan assets, valuation techniques used to measure the fair value of plan assets, the impact of measurements using significant unobservable inputs and concentrations of risk within plan assets. The disclosures about plan assets required by this additional guidance must be provided for fiscal years ending after December 15, 2009, and will be effective for the company for fiscal year-end 2010.

3. Discontinued Operations

     On March 18, 2008, the company completed the sale of its Godiva Chocolatier business for $850. The purchase price was subject to certain post-closing adjustments, which resulted in an additional $20 of proceeds. The company reflected the results of this business as discontinued operations in the consolidated statements of earnings. The company used approximately $600 of the net proceeds to purchase company stock. The company recognized a $4 benefit in Earnings from discontinued operations during the three-month period ended February 1, 2009, as a result of an adjustment to the tax liability associated with the sale.

4. Comprehensive Income (Loss)

     Total comprehensive income (loss) is comprised of net earnings, net foreign currency translation adjustments, net unamortized pension and postretirement benefits adjustments and net unrealized gains and losses on cash-flow hedges. Total comprehensive income for the three-month periods ended May 2, 2010, and May 3, 2009, was $203 and $275, respectively. Total comprehensive income for the nine-month periods ended May 2, 2010, and May 3, 2009, was $829 and $369, respectively.

     The components of Accumulated other comprehensive income (loss) consisted of the following:

		May 2,				August 2,
		2010				2009
Foreign currency translation adjustments, net of tax (1)		$	161			$	93
Cash-flow hedges, net of tax (2)			(16	)			(20	)
Unamortized pension and postretirement benefits, net of tax (3):
Net actuarial loss			(762	)			(787	)
Prior service cost			(3	)			(4	)
Total Accumulated other comprehensive income (loss)		$	(620	)		$	(718	)

Notes to Consolidated Financial Statements — (Continued)

5. Goodwill and Intangible Assets

     The following table shows the changes in the carrying amount of goodwill by business segment:

										International
		U.S. Soup,				Baking				Soup, Sauces				North
		Sauces and				and				and				America
		Beverages				Snacking				Beverages				Foodservice				Total
Balance at August 2, 2009		$	434			$	700			$	621			$	146			$	1,901
Foreign currency translation adjustment			—				70				(26	)			—				44
Balance at May 2, 2010		$	434			$	770			$	595			$	146			$	1,945

     The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:

		May 2,				August 2,
		2010				2009
Intangible Assets:
Non-amortizable intangible assets		$	498			$	508
Amortizable intangible assets			21				21
			519				529
Accumulated amortization			(7	)			(7	)
Total net intangible assets		$	512			$	522

     Non-amortizable intangible assets consist of trademarks. Amortizable intangible assets consist substantially of process technology and customer intangibles.

     Amortization related to these assets was less than $1 for the nine-month periods ended May 2, 2010, and May 3, 2009. The estimated aggregated amortization expense for each of the five succeeding fiscal years is less than $1 per year. Asset useful lives range from 10 to 20 years.

6. Business and Geographic Segment Information

     Campbell Soup Company, together with its consolidated subsidiaries, is a global manufacturer and marketer of high-quality, branded convenience food products. The company manages and reports the results of operations in the following segments: U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup, Sauces and Beverages; and North America Foodservice.

     The U.S. Soup, Sauces and Beverages segment includes the following retail businesses: Campbell’s condensed and ready-to-serve soups; Swanson broth, stocks and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbell’s canned pasta, gravies, and beans; V8 juice and juice drinks; and Campbell’s tomato juice.

     The Baking and Snacking segment includes the following businesses: Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; and Arnott’s biscuits in Australia and Asia Pacific.

     The International Soup, Sauces and Beverages segment includes the soup, sauce and beverage businesses outside of the United States, including Europe, Latin America, the Asia Pacific region, as well as the emerging markets of Russia and China and the retail business in Canada.

     The North America Foodservice segment represents 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 the company’s 2009 Annual Report on Form 10-K. The company evaluates segment performance before interest and taxes. North America Foodservice products are principally produced by the tangible assets of the company’s other segments, except for refrigerated soups, which are produced in a separate facility, and certain other products, which are produced under contract

Notes to Consolidated Financial Statements — (Continued)

manufacturing agreements. Tangible assets of the company’s other segments are not allocated to the North America Foodservice operations. Depreciation, however, is allocated to North America Foodservice based on production hours.

		Three Months Ended								Nine Months Ended
		May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009
Net sales
U.S. Soup, Sauces and Beverages		$	848			$	808			$	3,056			$	3,134
Baking and Snacking			477				431				1,496				1,380
International Soup, Sauces and Beverages			331				297				1,142				1,068
North America Foodservice			146				150				464				476
Total		$	1,802			$	1,686			$	6,158			$	6,058

		Three Months Ended								Nine Months Ended
		May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009
Earnings before interest and taxes
U.S. Soup, Sauces and Beverages		$	214			$	195			$	804			$	779
Baking and Snacking(1)			76				57				249				193
International Soup, Sauces and Beverages			37				29				155				117
North America Foodservice(1)			(3	)			13				40				34
Corporate(2)			(32	)			(8	)			(87	)			(83	)
Total		$	292			$	286			$	1,161			$	1,040

7. Restructuring Charges

     On April 28, 2008, the company announced a series of initiatives to improve operational efficiency and long-term profitability, including selling certain salty snack food brands and assets in Australia, closing certain production facilities in Australia and Canada, and streamlining the company’s management structure. As a result of these initiatives, in 2008, the company recorded a restructuring charge of $175 ($102 after tax or $.27 per share). The charge consisted of a net loss of $120 ($64 after tax) on the sale of certain Australian salty snack food brands and assets; $45 ($31 after tax) of employee severance and benefit costs, including the estimated impact of curtailment and other pension charges; and $10 ($7 after tax) of property, plant and equipment impairment charges. In addition, approximately $7 ($5 after tax or $.01 per share) of costs related to these initiatives were recorded in Cost of products sold, primarily representing accelerated depreciation on property, plant and equipment. The aggregate after-tax impact of restructuring charges and related costs in 2008 was $107, or $.28 per share.

     In 2009, the company recorded approximately $22 ($15 after tax or $.04 per share) of costs related to the 2008 initiatives in Cost of products sold. Approximately $17 ($12 after tax) of the costs represented accelerated depreciation on property, plant and equipment; approximately $4 ($2 after tax) related to other exit costs; and approximately $1 related to employee severance and benefit costs, including other pension charges. Of the amount recorded in 2009, costs of $6 ($4 after tax or $.01 per share) were recorded in the third quarter, while costs of $21 ($14 after tax or $.04 per share) were recorded through the nine-month period ended May 3, 2009. Approximately $17 ($12 after tax) of the costs represented accelerated depreciation on property, plant and equipment, and approximately $4 ($2 after tax) related to other exit costs.

Notes to Consolidated Financial Statements — (Continued)

     In the third quarter of 2010, the company recorded a restructuring charge of $12 ($8 after tax or $.02 per share) for pension benefit costs, which represented the final costs associated with the 2008 initiatives. The pension benefit costs were included in the pension obligation on the Consolidated Balance Sheets. See Note 10 to the Consolidated Financial Statements.

     A summary of restructuring reserves at May 2, 2010, is as follows:

		Accrued								Accrued
		Balance at								Balance at
		August 2,				Cash				May 2,
		2009				Payments				2010
Severance pay and benefits		$	4				(3	)		$	1

     A summary of restructuring charges incurred in 2008 through 2010 by reportable segment is as follows:

										International
		U.S. Soup,				Baking				Soup, Sauces				North
		Sauces and				And				And				America
		Beverages				Snacking				Beverages				Foodservice				Total
Severance pay and benefits		$	—			$	14			$	9			$	35			$	58
Asset impairment/accelerated depreciation			—				131				—				23				154
Other exit costs			—				2				—				2				4
		$	—			$	147			$	9			$	60			$	216

8. Earnings per Share

     In June 2008, the FASB issued accounting guidance related to the calculation of earnings per share. The guidance provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The company adopted and retrospectively applied the new guidance in the first quarter of fiscal 2010. The retrospective application of the provisions resulted in a reduction of previously reported basic net earnings per share of $.01, for the three-month period ended May 3, 2009. There was no change to the previously reported diluted net earnings per share for the three-month period ended May 3, 2009. For the nine-month period ended May 3, 2009, the retrospective application resulted in a reduction of the previously reported basic earnings per share from continuing operations and net earnings of $.03 and of the previously reported diluted earnings per share from continuing operations and net earnings of $.02. There was no change to the previously reported basic and diluted earnings per share from discontinued operations for the nine-month period ended May 3, 2009.

     The computation of basic and diluted earnings per share attributable to common shareowners is as follows:

		Three Months Ended								Nine Months Ended
		May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009
Earnings from continuing operations		$	168			$	174			$	731			$	663
Less: Allocation to participating securities			(2	)			(3	)			(12	)			(12	)
Available to common shareowners		$	166			$	171			$	719			$	651
Earnings from discontinued operations		$	—			$	—			$	—			$	4
Less: Allocation to participating securities			—				—				—				—
Available to common shareowners		$	—			$	—			$	—			$	4
Net earnings		$	168			$	174			$	731			$	667
Less: Allocation to participating securities			(2	)			(3	)			(12	)			(12	)
Available to common shareowners		$	166			$	171			$	719			$	655
Weighted average shares outstanding — basic			339				350				341				354
Effect of dilutive securities: stock options			3				1				3				3
Weighted average shares outstanding — diluted			342				351				344				357

Notes to Consolidated Financial Statements — (Continued)

		Three Months Ended								Nine Months Ended
		May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009
Earnings from continuing operations per common share:
Basic		$	.49			$	.49			$	2.11			$	1.84
Diluted		$	.49			$	.49			$	2.09			$	1.82
Earnings from discontinued operations per common share:
Basic		$	—			$	—			$	—			$	.01
Diluted		$	—			$	—			$	—			$	.01
Net earnings per common share:
Basic		$	.49			$	.49			$	2.11			$	1.85
Diluted		$	.49			$	.49			$	2.09			$	1.83

     Stock options to purchase less than 1 million shares of capital stock for the nine-month period ended May 2, 2010, and stock options to purchase approximately 6 million and 3 million shares of capital stock for the three-month and nine-month periods ended May 3, 2009, respectively, were not included in the calculation of diluted earnings per share because the exercise price of the stock options exceeded the average market price of the capital stock and, therefore, would be antidilutive. There were no antidilutive stock options in the three-month period ended May 2, 2010.

     Additional historical information is as follows:

		Quarter Ended				Year-to-Date
		August 2,				August 2,				August 3,				July 29,
		2009				2009				2008				2007
Earnings from continuing operations		$	69			$	732			$	671			$	792
Less: Allocation to participating securities			(1	)			(12	)			(12	)			(13	)
Available to common shareowners — basic		$	68			$	720			$	659			$	779
Earnings from discontinued operations		$	—			$	4			$	494			$	62
Less: Allocation to participating securities			—				—				(10	)			(1	)
Available to common shareowners — basic		$	—			$	4			$	484			$	61
Net earnings		$	69			$	736			$	1,165			$	854
Less: Allocation to participating securities			(1	)			(12	)			(22	)			(14	)
Available to common shareowners — basic		$	68			$	724			$	1,143			$	840
Earnings from continuing operations		$	69			$	732			$	671			$	792
Less: Allocation to participating securities			(1	)			(12	)			(12	)			(12	)
Available to common shareowners — diluted		$	68			$	720			$	659			$	780
Earnings from discontinued operations		$	—			$	4			$	494			$	62
Less: Allocation to participating securities			—				—				(10	)			(2	)
Available to common shareowners — diluted		$	—			$	4			$	484			$	60
Net earnings		$	69			$	736			$	1,165			$	854
Less: Allocation to participating securities			(1	)			(12	)			(22	)			(14	)
Available to common shareowners — diluted		$	68			$	724			$	1,143			$	840
Weighted average shares outstanding — basic			346				352				373				386
Effect of dilutive securities: stock options			2				2				4				6
Weighted average shares outstanding — diluted			348				354				377				392
Earnings from continuing operations per common share:
Basic		$	.20			$	2.05			$	1.77			$	2.02
Diluted		$	.20			$	2.03			$	1.75			$	1.99

Notes to Consolidated Financial Statements — (Continued)

		Quarter Ended				Year-to-Date
		August 2,				August 2,				August 3,				July 29,
		2009				2009				2008				2007
Earnings from discontinued operations per common share:
Basic		$	—			$	.01			$	1.30			$	.16
Diluted		$	—			$	.01			$	1.28			$	.15
Net earnings per common share (1):
Basic		$	.20			$	2.06			$	3.06			$	2.18
Diluted		$	.20			$	2.05			$	3.03			$	2.14

9. Noncontrolling Interest

     The company owns a 70% controlling interest in a Malaysian manufacturing company. The noncontrolling interest in this entity is included in Total equity in the Consolidated Balance Sheets. The earnings attributable to the noncontrolling interest were less than $1 for the three- and nine-month periods ended May 2, 2010, and May 3, 2009, and were included in Other expenses/(income) in the Consolidated Statements of Earnings.

10. Pension and Postretirement Benefits

     The company sponsors certain defined benefit plans and postretirement medical benefit plans for employees. Components of benefit expense were as follows:

		Three Months Ended																Nine Months Ended
		Pension								Postretirement								Pension								Postretirement
		May 2,				May 3,				May 2,				May 3,				May 2,				May 3,				May 2,				May 3,
		2010				2009				2010				2009				2010				2009				2010				2009
Service cost		$	14			$	11			$	1			$	1			$	41			$	34			$	3			$	3
Interest cost			30				30				4				5				91				91				14				16
Expected return on plan assets			(43	)			(40	)			—				—				(128	)			(122	)			—				—
Settlement costs			12				—				—				—				12				—				—				—
Amortization of prior service cost			1				1				—				—				2				2				—				—
Recognized net actuarial loss			12				4				1				—				36				13				1				—
Net periodic benefit expense		$	26			$	6			$	6			$	6			$	54			$	18			$	18			$	19

     The settlement costs in 2010 are related to the closure of a plant in Canada. The settlement costs are included in Restructuring charges in the Consolidated Statements of Earnings. See Note 7 for additional information.

     As of May 2, 2010, a contribution of $260 was made to a U.S. pension plan and contributions of $21 were made to non-U.S. pension plans. No additional U.S. pension plan contributions are expected this fiscal year. Contributions to non-U.S. pension plans are expected to be approximately $5 during the remainder of the fiscal year.

11. Taxes on Earnings

     In the third quarter of 2010, the company recorded deferred tax expense of $10 due to the enactment of U.S. health care legislation in March 2010. The law changed the tax treatment of subsidies to companies that provide prescription drug benefits to retirees. Accordingly, the company recorded the non-cash charge to reduce the value of the deferred tax asset associated with the subsidy.

Notes to Consolidated Financial Statements — (Continued)

12. Financial Instruments

     The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value. The fair value of short-term borrowings and long-term debt as of May 2, 2010, was $979 and $1,661, respectively, and was based on quoted market prices or pricing models using current market rates.

     The principal market risks to which the company is exposed are changes in foreign currency exchange rates, interest rates, and commodity prices. In addition, the company is exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, the company follows established risk management policies and procedures, including the use of derivative contracts such as swaps, forwards, commodity futures and option contracts. These derivative contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into derivative contracts for speculative purposes and does not use leveraged instruments. The company’s derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.

     The company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. The company minimizes the counterparty credit risk on these transactions by dealing only with leading, credit-worthy financial institutions having long-term credit ratings of “A” or better. In addition, the contracts are distributed among several financial institutions, thus minimizing credit-risk concentration. The company does not have credit-risk-related contingent features in its derivative instruments as of May 2, 2010.

Foreign Currency Exchange Risk

     The company is exposed to foreign currency exchange risk related to its international operations, including non-functional currency, intercompany debt and net investments in subsidiaries. The company is also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The company utilizes foreign exchange forward purchase and sale contracts as well as cross-currency swaps to hedge these exposures. The contracts are designated as cash-flow hedging instruments or are undesignated. The company typically hedges portions of its forecasted foreign currency transaction exposure with foreign exchange forward contracts for up to 18 months. To hedge currency exposures related to intercompany debt, cross-currency swap contracts are entered into for periods consistent with the underlying debt. As of May 2, 2010, cross-currency swap contracts mature in 2010 through 2014. Principal currencies hedged include the Australian dollar, euro, Canadian dollar, Swedish krona, New Zealand dollar, British pound and Japanese yen. The notional amount of foreign exchange forward and cross-currency swap contracts accounted for as cash-flow hedges was $339 and $325 at May 2, 2010, and May 3, 2009, respectively. The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the Statements of Earnings on the same line item and same period in which the underlying hedge transaction affects earnings. The notional amount of foreign exchange forward and cross-currency swap contracts that are not designated as accounting hedges was $852 and $726 at May 2, 2010, and May 3, 2009, respectively.

Interest Rate Risk

     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. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. The notional amount of outstanding fair-value interest rate swaps totaled $500 at May 2, 2010, and May 3, 2009. These swaps mature in fiscal 2013 through fiscal 2014.

     During fiscal 2010, the company entered into forward starting interest rate swap contracts accounted for as cash-flow hedges with a combined notional value of $200 to hedge an anticipated debt offering.

     In June 2008, the company entered into two forward starting interest rate swap contracts accounted for as cash-flow hedges with a combined notional value of $200 to hedge an anticipated debt offering in fiscal 2009. These swaps were settled as of November 2, 2008, at a loss of $13, which was recorded in other comprehensive income (loss). In January 2009, the company issued $300 ten-year 4.50% notes. The loss on the swap contracts is being amortized over the life of the debt as additional interest expense.

Notes to Consolidated Financial Statements — (Continued)

Commodity Price Risk

     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 also enters into commodity futures and options contracts to reduce the volatility of price fluctuations of natural gas, diesel fuel, wheat, soybean oil, cocoa, aluminum and corn, which impact the cost of raw materials. Commodity futures and option contracts are accounted for as cash-flow hedges or are not designated as accounting hedges. Commodity futures and option contracts are typically entered into to hedge a portion of commodity requirements for periods up to 18 months. The notional amount of commodity contracts accounted for as cash-flow hedges was $13 and $23 at May 2, 2010, and May 3, 2009, respectively. The notional amount of commodity contracts that are not designated as accounting hedges was $46 and $64 at May 2, 2010, and May 3, 2009, respectively. As of May 2, 2010, all commodity contracts mature within 12 months.

Equity Price Risk

     The company hedges a portion of exposures relating to certain deferred 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. Under these contracts, the company pays variable interest rates and receives from the counterparty either the total return of the Standard & Poor’s 500 Index, the total return on company capital stock, or the total return of the Puritan Fund. These instruments are not designated as hedges for accounting purposes. The contracts are typically entered into for periods not exceeding 12 months. The notional amount of the company’s deferred compensation hedges as of May 2, 2010, and May 3, 2009, were $72 and $43, respectively.

     The following table summarizes the fair value of derivative instruments recorded in the Consolidated Balance Sheets as of May 2, 2010, and August 2, 2009:

				May 2,				August 2,
		Balance Sheet Classification		2010				2009
Asset Derivatives
Derivatives designated as hedges:
Foreign exchange forward contracts		Other current assets		$	1			$	1
Cross-currency swap contracts		Other current assets			—				3
Interest rate swaps		Other assets			41				38
Total derivatives designated as hedges				$	42			$	42
Derivatives not designated as hedges:
Foreign exchange forward contracts		Other current assets		$	—			$	3
Commodity contracts		Other current assets			4				6
Cross-currency swap contracts		Other current assets			11				—
Cross-currency swap contracts		Other assets			—				7
Deferred compensation contracts		Other current assets			2				4
Total derivatives not designated as hedges				$	17			$	20
Total asset derivatives				$	59			$	62

Notes to Consolidated Financial Statements — (Continued)

				May 2,				August 2,
		Balance Sheet Classification		2010				2009
Liability Derivatives
Derivatives designated as hedges:
Foreign exchange forward contracts		Accrued liabilities		$	3			$	3
Commodity contracts		Accrued liabilities			1				—
Cross-currency swap contracts		Accrued liabilities			2				1
Interest rate swaps		Accrued liabilities			5				—
Cross-currency swap contracts		Other liabilities			25				31
Total derivatives designated as hedges				$	36			$	35
Derivatives not designated as hedges:
Foreign exchange forward contracts		Accrued liabilities		$	4			$	11
Commodity contracts		Accrued liabilities			3				6
Cross-currency swap contracts		Accrued liabilities			30				5
Cross-currency swap contracts		Other liabilities			5				8
Total derivatives not designated as hedges				$	42			$	30
Total liability derivatives				$	78			$	65

     The derivative assets and liabilities are presented on a gross basis in the table. Certain derivative asset and liability balances, including cash collateral, are offset in the balance sheet when a legally enforceable right of offset exists.

     The following tables show the effect of the company’s derivative instruments designated as cash-flow hedges for the three- and nine-month periods ended May 2, 2010, and May 3, 2009, on other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:

Derivatives Designated as Cash-Flow Hedges

				Total
				Cash-Flow
				Hedge
				OCI Activity
Three Months Ended May 2, 2010, and May 3, 2009				2010				2009
OCI derivative gain/(loss) at beginning of quarter				$	(22	)		$	(14	)
Effective portion of changes in fair value recognized in OCI:
Foreign exchange forward contracts					(6	)			(4	)
Cross-currency swap contracts					1				(2	)
Forward starting interest rate swaps					(3	)			—
Commodity contracts					1				2
Amount of (gain) or loss reclassified from OCI to earnings:		Location in Earnings
Foreign exchange forward contracts		Other expenses/income			—				(1	)
Foreign exchange forward contracts		Cost of products sold			4				(3	)
Forward starting interest rate swaps		Interest expense			—				—
Commodity contracts		Cost of products sold			—				4
OCI derivative gain/(loss) at end of quarter				$	(25	)		$	(18	)