Campbell's - 10-Q quarterly report FY

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 January 29, 2006		Commission File Number 1-3822


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

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

Telephone Number: (856) 342-4800

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

Yes þ No o

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


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

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

Yeso No þ

There were 409,521,554 shares of Capital Stock outstanding as of March 1, 2006.

TABLE OF CONTENTS


PART I.
	ITEM 1. FINANCIAL INFORMATION
	Statements of Earnings
	Balance Sheets
	Statements of Cash Flows
	Statements of Shareowners’ Equity
	Notes to Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS
SIGNATURES
INDEX TO EXHIBITS
Campbell Soup Company Severance Pay Plan for Salaried Employees
Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees
Certification of Douglas R. Conant pursuant to Rule 13a-14(a)
Certification of Robert A. Schiffner pursuant to Rule 13a-14(a)
Certification of Douglas R. Conant pursuant to Rule 18 U.S.C. Section 1350
Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350


	Three Months Ended					Six Months Ended
	January 29,		January 30,			January 29,			January 30,
	2006		2005			2006			2005
Net sales	$	2,281	$	2,223		$	4,391		$	4,314


Costs and expenses
Cost of products sold		1,334		1,321			2,562			2,566
Marketing and selling expenses		364		362			684			676
Administrative expenses		156		129			294			258
Research and development expenses		24		24			48			44
Other income		—		(2	)		(1	)		—

Total costs and expenses		1,878		1,834			3,587			3,544

Earnings before interest and taxes		403		389			804			770
Interest, net		43		45			69			89

Earnings before taxes		360		344			735			681
Taxes on earnings		106		109			179			216


Net earnings	$	254	$	235		$	556		$	465


Per share — basic
Net earnings	$	.62	$	.57		$	1.36		$	1.14


Dividends	$	.18	$	.17		$	.36		$	.34


Weighted average shares outstanding — basic		408		409			409			409


Per share — assuming dilution
Net earnings	$	.61	$	.57		$	1.34		$	1.13


Weighted average shares outstanding — assuming dilution		414		414			414			413

See Notes to Consolidated Financial Statements.

2

CAMPBELL SOUP COMPANY CONSOLIDATED

Balance Sheets

(unaudited)
(millions, except per share amounts)


	January 29,			July 31,
	2006			2005
Current assets
Cash and cash equivalents	$	267		$	40
Accounts receivable		719			509
Inventories		755			782
Other current assets		173			181

Total current assets		1,914			1,512

Plant assets, net of depreciation		1,940			1,987
Goodwill		1,950			1,950
Other intangible assets, net of amortization		1,061			1,059
Other assets		281			268

Total assets	$	7,146		$	6,776


Current liabilities
Notes payable	$	687		$	451
Payable to suppliers and others		679			624
Accrued liabilities		627			606
Dividend payable		74			70
Accrued income taxes		236			251

Total current liabilities		2,303			2,002


Long-term debt		2,219			2,542
Nonpension postretirement benefits		277			278
Other liabilities, including deferred income taxes of $356 and $342		726			684

Total liabilities		5,525			5,506

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		341			236
Earnings retained in the business		6,477			6,069
Capital stock in treasury, at cost		(4,996	)		(4,832	)
Accumulated other comprehensive loss		(221	)		(223	)

Total shareowners’ equity		1,621			1,270

Total liabilities and shareowners’ equity	$	7,146		$	6,776

See Notes to Consolidated Financial Statements.

3

CAMPBELL SOUP COMPANY CONSOLIDATED

Statements of Cash Flows

(unaudited)
(millions)


	Six Months Ended
	January 29,			January 30,
	2006			2005
Cash flows from operating activities:
Net earnings	$	556		$	465
Non-cash charges to net earnings
Change in accounting method (Note g)		(8	)		—
Stock-based compensation		41			12
Resolution of tax contingency (Note k)		(60	)		—
Depreciation and amortization		137			136
Deferred income taxes		2			4
Other, net		43			34
Changes in working capital
Accounts receivable		(209	)		(203	)
Inventories		42			56
Prepaid assets		9			(2	)
Accounts payable and accrued liabilities		152			78
Pension fund contributions		(41	)		(47	)
Other		(15	)		(33	)

Net cash provided by operating activities		649			500

Cash flows from investing activities:
Purchases of plant assets		(85	)		(104	)
Sales of plant assets		1			8

Net cash used in investing activities		(84	)		(96	)

Cash flows from financing activities:
Net short-term repayments		(105	)		(273	)
Dividends paid		(144	)		(135	)
Treasury stock purchases		(127	)		(4	)
Treasury stock issuances		38			26
Other		1			—

Net cash used in financing activities		(337	)		(386	)

Effect of exchange rate changes on cash		(1	)		1

Net change in cash and cash equivalents		227			19
Cash and cash equivalents — beginning of period		40			32

Cash and cash equivalents — end of period	$	267		$	51

See Notes to Consolidated Financial Statements.

4

CAMPBELL SOUP COMPANY CONSOLIDATED

Statements of Shareowners’ Equity

(unaudited)
(millions, except per share amounts)


	Capital Stock													Earnings			Accumulated
	Issued				In Treasury						Additional			Retained			Other			Total
											Paid-in			in the			Comprehensive			Shareowners'
	Shares		Amount		Shares			Amount			Capital			Business			Income (Loss)			Equity

Balance at August 1, 2004		542	$	20		(134	)	$	(4,848	)	$	264		$	5,642		$	(204	)	$	874

Comprehensive income (loss)
Net earnings															465						465
Foreign currency translation adjustments																		118			118
Cash-flow hedges, net of tax																		(11	)		(11	)
Minimum pension liability, net of tax																		(1	)		(1	)

Other comprehensive income																		106			106

Total comprehensive income																					571

Dividends ($.34 per share)															(140	)					(140	)
Treasury stock purchased						—			(4	)											(4	)
Treasury stock issued under management incentive and stock option plans						1			72			(34	)								38

Balance at January 30, 2005		542	$	20		(133	)	$	(4,780	)	$	230		$	5,967		$	(98	)	$	1,339

Balance at July 31, 2005		542	$	20		(134	)	$	(4,832	)	$	236		$	6,069		$	(223	)	$	1,270

Comprehensive income (loss)
Net earnings															556						556
Foreign currency translation adjustments																		3			3
Cash-flow hedges, net of tax																		1			1
Minimum pension liability, net of tax																		(2	)		(2	)

Other comprehensive income																		2			2

Total comprehensive income																					558

Dividends ($.36 per share)															(148	)					(148	)
Treasury stock purchased						(4	)		(127	)											(127	)
Treasury stock issued under management incentive and stock option plans						1			(37	)		105									68

Balance at January 29, 2006		542	$	20		(137	)	$	(4,996	)	$	341		$	6,477		$	(221	)	$	1,621

See Notes to Consolidated Financial Statements.

5

CAMPBELL SOUP COMPANY CONSOLIDATED

Notes to Consolidated Financial Statements

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

(a)		Basis of Presentation / 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 July 31, 2005, except for the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS No. 123R) and a change in the method of accounting for certain U.S. inventories. See Note (b) for additional information on SFAS No. 123R and Note (g) for additional information on the change in method of accounting for inventory. Certain reclassifications were made to the prior year amounts to conform with current presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.

(b)		Stock-based Compensation

		In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, which requires 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 company adopted the provisions of SFAS No. 123R as of August 1, 2005. The company issues restricted stock, 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 the grant date. SFAS No. 123R was adopted using the modified prospective transition 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 recognized for any unvested stock option awards outstanding as of the date of adoption. Prior periods have not been restated. Total pre-tax stock-based compensation recognized in the Statements of Earnings was $27 and $7 for the second quarter ended January 29, 2006 and January 30, 2005, respectively. Tax related benefits of $10 and $3 were also recognized for the second quarter of 2006 and 2005, respectively. Total pre-tax stock-based compensation recognized in the Statements of Earnings was $41 and $12 for the six months ended January 29, 2006 and January 30, 2005, respectively. Tax related benefits of $15 and $5 were also recognized for the six months of 2006 and 2005, respectively. Amounts recorded in fiscal 2005 primarily represent expenses related to restricted stock awards since no expense was recognized for stock options. Cash received from the exercise of stock options was $38 and $26 for the six months ended January 29, 2006 and January 30, 2005, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.

6

		Stock Plans

		In 2003, shareowners approved the 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 performance 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 employees and directors. The term of a stock option granted under these plans may not exceed ten years from the date of grant. Options granted under these plans vest cumulatively over a three-year 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 2003 Long-Term Incentive Plan, in July 2005 the company adopted 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 program, awards of 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.

7

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.


	Three Months Ended			Six Months Ended
	Jan. 30, 2005			Jan. 30, 2005
Net earnings, as reported	$	235		$	465
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects¹		4			7
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(12	)		(21	)

Pro forma net earnings	$	227		$	451

Earnings per share:
Basic-as reported	$	.57		$	1.14

Basic-pro forma	$	.56		$	1.10

Diluted-as reported	$	.57		$	1.13

Diluted-pro forma	$	.55		$	1.09

¹ Represents restricted stock expense.

The following table summarizes stock option activity as of January 29, 2006:


						Weighted-Average		Aggregate
				Weighted-Average		Remaining		Intrinsic
(options in thousands)	Options			Exercise Price		Contractual Life		Value

Outstanding at July 31, 2005		39,548		$	27.85
Granted		212		$	29.82
Exercised		(1,457	)	$	25.94
Terminated		(490	)	$	27.91

Outstanding at January 29, 2006		37,813		$	28.01		6.0	$	75

Exercisable at January 29, 2006		28,778		$	28.43		5.3	$	45

8

		The total intrinsic value of options exercised during the six months ended January 29, 2006 was $6. As of January 29, 2006 total remaining unearned compensation related to unvested stock options was $35, which will be amortized over the weighted-average remaining service period of 1.1 years. The company measures the fair value of stock options using the Black-Scholes option pricing model. The Black-Scholes value of options granted in 2006 was $6.30.

		The following table summarizes time-lapse restricted stock and EPS performance restricted stock as of January 29, 2006:


				Weighted-Average
				Grant-Date
(restricted stock in thousands)	Shares			Fair Value

Nonvested at July 31, 2005		2,447		$	26.51
Granted		1,681		$	29.35
Vested		(44	)	$	24.57
Forfeited		(170	)	$	27.25

Nonvested at January 29, 2006		3,914		$	27.72

		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 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 January 29, 2006, total remaining unearned compensation related to nonvested time-lapse restricted stock and EPS performance restricted stock was $64, which will be amortized over the weighted-average remaining service period of 2.2 years. The fair value of restricted stock vested during the six months ended January 29, 2006 was $1.

		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 January 29, 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 January 29, 2006 total remaining unearned compensation related to TSR performance restricted stock was $38, which will be amortized over the weighted-average remaining service period of 2.7 years.

9

		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.

		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 the exercise of stock options to be presented as cash flows from financing activities. The excess tax benefits on the exercise of stock options presented as cash flows from financing activities in the six month period ended January 29, 2006 and as cash flows from operating activities in the six month period ended January 30, 2005 were not material.

(c)		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:


	January 29, 2006					July 31, 2005
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Intangible assets subject to amortization¹:
Trademarks	$	6	$	(5	)	$	6	$	(4	)
Other		17		(7	)		17		(7	)

Total	$	23	$	(12	)	$	23	$	(11	)

Intangible assets not subject to amortization:
Trademarks	$	1,044				$	1,042
Pension		3					3
Other		3					2

Total	$	1,050				$	1,047

¹ Amortization related to these assets was approximately $1 for the six-month periods ended January 29, 2006 and January 30, 2005. 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.

10

Changes in the carrying amount for goodwill for the period ended January 29, 2006 are as follows:


	U.S. Soup,
	Sauces and		Baking and			International
	Beverages		Snacking			Soup and Sauces		Other		Total
Balance at July 31, 2005	$	428	$	602		$	769	$	151	$	1,950
Foreign currency translation adjustment		—		(6	)		6		—		—

Balance at January 29, 2006	$	428	$	596		$	775	$	151	$	1,950

(d)		Comprehensive Income

		Total comprehensive income comprises net earnings, net foreign currency translation adjustments, minimum pension liability adjustments, and net unrealized gains (losses) on cash-flow hedges.

		Total comprehensive income for the three months ended January 29, 2006 and January 30, 2005, was $265 and $261, respectively. Total comprehensive income for the six months ended January 29, 2006 and January 30, 2005, was $558 and $571, respectively.

		The components of Accumulated other comprehensive loss consisted of the following:


	January 29,			January 30,
	2006			2005
Foreign currency translation adjustments	$	38		$	111
Cash-flow hedges, net of tax		(19	)		(12	)
Minimum pension liability, net of tax¹		(240	)		(197	)

Total Accumulated other comprehensive loss	$	(221	)	$	(98	)

¹ Includes a tax benefit of $141 as of January 29, 2006 and $112 as of January 30, 2005.

(e)		Earnings Per Share

		For the periods presented in the Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and restricted stock programs, except when such effect would be antidilutive. Stock options to purchase 6 million and 11 million shares of capital stock for the three-month periods ended January 29, 2006 and January 30, 2005, respectively, and 6 million and 17 million shares of capital stock for the six-month periods ended January 29, 2006 and January 30, 2005, respectively, were not included in the calculation of diluted earnings per share because the exercise price of the stock options exceeded the average market price of the capital stock and therefore, the effect would be antidilutive.

11


(f)		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 is organized and reports the results of operations in the following segments: U.S. Soup, Sauces and Beverages, Baking and Snacking, International Soup and Sauces, and Other.

		The U.S. Soup, Sauces and Beverages segment includes the following retail businesses:Campbell’s condensed and ready-to-serve soups; Swanson broth and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbell’s Chunky chili; Campbell’s canned pasta, gravies, and beans; Campbell’s Supper Bakes meal kits; V8 vegetable juice; V8 Splash juice beverages; andCampbell’s tomato juice.

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

		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 the company’s 2005 Annual Report on Form 10-K, except for the adoption of SFAS No. 123R described in Note (b) and the change in method of accounting for certain inventories described in Note (g). 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 Stockpot 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 Stockpot facility, plant assets are not allocated to the Away From Home operations. Depreciation, however, is allocated to Away From Home based on production hours.

12

January 29, 2006


			Earnings			Depreciation
			Before Interest			and		Capital
Three Months Ended	Net Sales		and Taxes			Amortization		Expenditures
U.S. Soup, Sauces and Beverages	$	1,018	$	242		$	22	$	10
Baking and Snacking		429		40			20		10
International Soup and Sauces		483		81			12		6
Other		351		69			7		14
Corporate¹		—		(29	)		7		7

Total	$	2,281	$	403		$	68	$	47


			Earnings			Depreciation
			Before Interest			and		Capital
Six Months Ended	Net Sales		and Taxes²			Amortization		Expenditures
U.S. Soup, Sauces and Beverages	$	1,988	$	530		$	43	$	19
Baking and Snacking		887		90			42		16
International Soup and Sauces		903		136			25		13
Other		613		95			14		22
Corporate ¹		—		(47	)		13		15

Total	$	4,391	$	804		$	137	$	85

13

January 30, 2005


			Earnings			Depreciation
			Before Interest			and		Capital
Three Months Ended	Net Sales		and Taxes			Amortization		Expenditures
U.S. Soup, Sauces and Beverages	$	956	$	216		$	22	$	21
Baking and Snacking		433		47			22		17
International Soup and Sauces		502		70			10		12
Other		332		72			8		2
Corporate ¹		—		(16	)		6		5

Total	$	2,223	$	389		$	68	$	57


			Earnings			Depreciation
			Before Interest			and		Capital
Six Months Ended	Net Sales		and Taxes			Amortization		Expenditures
U.S. Soup, Sauces and Beverages	$	1,950	$	491		$	42	$	38
Baking and Snacking		882		93			42		25
International Soup and Sauces		918		125			25		18
Other		564		94			14		7
Corporate ¹		—		(33	)		13		16

Total	$	4,314	$	770		$	136	$	104


¹		Represents unallocated corporate expenses.


²		Contributions to earnings before interest and taxes by segment include 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.

14

(g)

Inventories


	January 29, 2006		July 31, 2005
Raw materials, containers and supplies	$	254	$	297
Finished products		501		498
Less: Adjustment to LIFO valuation method		—		(13	)

	$	755	$	782

		As of August 1, 2005, the company changed the method of accounting for certain U.S. inventories from the last in, first out (LIFO) method to the average cost method. Approximately 55% of inventory in 2005 was accounted for on the LIFO method of determining cost.

		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 company does not use the LIFO valuation method for tax purposes. The impact of the change was a pre-tax $13 benefit ($8 after tax or $.02 per share) recorded in the first quarter. Prior periods were not restated since the impact of the change on previously issued financial statements was not considered material.

(h)		Accounting for Derivative Instruments

		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.

		All derivatives are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair-value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge), (3) a foreign-currency fair-value or cash-flow hedge (foreign-currency hedge), or (4) a hedge of a net investment in a foreign operation. Some derivatives may also be considered natural hedging instruments (changes in fair value are recognized to act as economic offsets to changes in fair value of the underlying hedged item and do not qualify for hedge accounting under SFAS No. 133).

		Interest Rate Swaps

		The company finances a portion of its operations through debt instruments primarily consisting of commercial paper, notes, debentures and bank loans. The company utilizes

15

		interest rate swap agreements to minimize worldwide financing costs and to achieve a targeted ratio of variable-rate versus fixed-rate debt.

		Fixed-to-variable interest rate swaps are accounted for as fair-value hedges. Gains and losses on these instruments are recorded in earnings as adjustments to interest expense, offsetting gains and losses on the hedged item. The notional amounts of all outstanding fair-value interest rate swaps at January 29, 2006 totaled $875 with a maximum maturity date of October 2013. The fair value of such instruments was a loss of $15 as of January 29, 2006.

		Foreign Currency Contracts

		The company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary financing transactions. The company utilizes foreign currency forward purchase and sale contracts, 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 a loss of $167 at January 29, 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. There were no such fair-value contracts at January 29, 2006.

		The company also enters into certain foreign exchange forward and variable-to-variable cross-currency swap contracts that are not designated as accounting hedges. These instruments are primarily intended to reduce volatility of certain intercompany financing transactions. Gains and losses on derivatives not designated as accounting hedges are typically recorded in Other expenses/(income), as an offset to gains (losses) on the underlying transactions. The fair value of these instruments was a loss of $13 at January 29, 2006.

		Foreign exchange forward contracts typically have maturities of less than eighteen months. Cross-currency swap contracts mature in 2006 through 2014. Principal currencies include the Australian dollar, British pound, Canadian dollar, euro, Japanese yen, Mexican peso and Swedish krona.

		As of January 29, 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 $19, net of tax. As of January 30, 2005, the accumulated derivative net loss in other comprehensive income was

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		$12, net of tax. Reclassifications from Accumulated other comprehensive income (loss) into the Statements of Earnings during the quarter ended January 29, 2006 were not material. Reclassifications during the remainder of fiscal year 2006 are not expected to be material. At January 29, 2006, the longest maturity date of any cash-flow hedge was August 2013.

		Other Contracts

		The company is exposed to equity price changes related to certain employee compensation obligations. Swap contracts are utilized to hedge exposures relating to certain employee compensation obligations linked to the total return of the Standard & 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, was $56 at January 29, 2006. These instruments are not designated as accounting hedges. Gains and losses are recorded in the Statements of Earnings. The fair value of these contracts at January 29, 2006 was not material.

(i)		Restructuring

		A restructuring charge of $32 ($22 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 sales 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. 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 2004.

		The sales and logistics realignment in Australia involves the conversion of a direct store delivery system to a central warehouse 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. A restructuring charge of $9 was recorded for this program. The majority of the terminations occurred in 2005.

		A summary of restructuring reserves at January 29, 2006 and related activity is as follows:


	Accrued					Accrued
	Balance at		Cash			Balance at
	July 31, 2005		Payments			January 29, 2006
Severance pay and benefits	$	4		(2	)	$	2

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(j)

Pension and Postretirement Medical 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	Pension						Postretirement
	Jan. 29, 2006			Jan. 30, 2005			Jan. 29, 2006		Jan. 30, 2005

Service cost	$	14		$	14		$	1	$	—
Interest cost		28			29			5		5
Expected return on plan assets		(40	)		(39	)		—		—
Amortization of prior service cost		—			2			—		(1	)
Recognized net actuarial loss		10			6			1		—

Net periodic benefit expense	$	12		$	12		$	7	$	4


Six Months Ended	Pension						Postretirement
	Jan. 29, 2006			Jan. 30, 2005			Jan. 29, 2006			Jan. 30, 2005

Service cost	$	28		$	28		$	2		$	1
Interest cost		56			57			10			10
Expected return on plan assets		(81	)		(78	)		—			—
Amortization of prior service cost		1			4			(1	)		(3	)
Recognized net actuarial loss		21			12			2			—

Net periodic benefit expense	$	25		$	23		$	13		$	8

		In the first quarter 2006, the company made a $35 voluntary contribution to a U.S. pension plan. Additional contributions to the U.S. pension plans are not expected this fiscal year. Contributions of $6 were made to the non-U.S. plans as of January 29, 2006.

(k)		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

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		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 appealed the decision to the United States Court of Appeals for the Third Circuit. While the ultimate disposition of complex litigation is inherently difficult to access, the company continues to believe this action is without merit and is defending the case vigorously.

		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 had been 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, 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 will not have a material impact on the company’s consolidated cash flow.

		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.

(l)		Supplemental Cash Flow Information

		Other cash used in operating activities for the six-month periods is comprised of the following:


	January 29, 2006			January 30, 2005
Receipts /(Payments) for hedging activities	$	1		$	(18	)
Benefit related payments		(16	)		(16	)
Other		—			1

	$	(15	)	$	(33	)

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(m)		Recently Issued Accounting Pronouncements

		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 was effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 did not have a material impact on the financial statements.

		In October 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA provides for a deduction of 85% of certain non-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 FAS 109-1 and 109-2 to address the accounting and disclosure requirements related to the AJCA. In the first half of 2006, the company finalized its plan to repatriate earnings from non-U.S. subsidiaries and as a result recorded incremental tax expense of $9 associated with $225 in dividends. The total amount expected to be repatriated under the AJCA is $425 and the related tax cost is $16. In 2005, the company recorded $7 in tax expense for $200 of the earnings to be repatriated.

		In March 2005, the FASB issued FASB Interpretation No. 47 (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. FIN 47 is effective no later than the end of the fiscal years ending after December 15, 2005. 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.

(n)		Share Repurchase Plan

		In November 2005, the company announced that the Board of Directors authorized the purchase of up to $600 of company stock through fiscal 2008. The company purchased 1.6 million shares at a cost of $50 under this program during the second quarter. In addition, the company announced that it will continue to purchase shares, under separate authorization, to offset the impact of dilution from shares issued under incentive compensation plans.

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ITEM 2.

CAMPBELL SOUP COMPANY CONSOLIDATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Results of Operations

Overview

The company reported net earnings of $254 million for the second quarter ended January 29, 2006, versus $235 million in the comparable quarter a year ago. Earnings per share were $.61 compared to $.57 a year ago. (All earnings per share amounts included in Management’s Discussion and Analysis are presented on a diluted basis.) Net sales increased 3% to $2.3 billion from $2.2 billion last year.

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 the year-ago quarter, net earnings would have been $227 million and earnings per share would have been $.55. (See Note (b) to the Consolidated Financial Statements.) The increase in earnings in 2006 was due to the increase in sales, an improvement in gross margin as a percentage of sales, and a lower effective tax rate, partially offset by higher administrative costs.

For the six months ended January 29, 2006, net earnings were $556 million compared to $465 million a year ago. Earnings per share were $1.34 compared to $1.13 a year ago. Net sales increased 2% to $4.4 billion. Net earnings and earnings per share were impacted by the following items:

	•		As noted above, the company adopted SFAS No. 123R in 2006. Had all stock-based compensation been expensed in the year-ago period, net earnings would have been $451 million and earnings per share would have been $1.09 (See Note (b) 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 net earnings was $60 million, or $.14 per share. (See Note (k) 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 net earnings was $8 million, or $.02 per share. Prior periods were not

21

			restated since the impact of the change on previously issued financial statements was not considered material. (See Note (g) to the Consolidated Financial Statements); and

	•		In the first quarter of 2006, incremental tax expense of $8 million, or $.02 per share, was recognized associated with one-time incremental dividends of $225 million as the company finalized its plan in the first quarter to repatriate earnings from non-U.S. subsidiaries under the provisions of the American Jobs Creation Act (the AJCA).

In addition, current year earnings were favorably impacted by the increase in sales and a higher gross margin as a percentage of sales, partially offset by an increase in administrative costs.

SECOND QUARTER

Sales

An analysis of net sales by reportable segment follows:


	(millions)
	2006		2005		% Change

U.S. Soup, Sauces and Beverages	$	1,018	$	956		6	%
Baking and Snacking		429		433		(1	)
International Soup and Sauces		483		502		(4	)
Other		351		332		6

	$	2,281	$	2,223		3	%

An analysis of percent change of net sales by reportable segment follows:


	U.S. Soup,			Baking			International
	Sauces and			and			Soup and
	Beverages			Snacking			Sauces			Other			Total
Volume and Mix		(1	)%		(1	)%		1	%		5	%		1	%
Price and Sales Allowances		6			2			—			2			4
Decreased/(Increased) Promotional Spending ¹		1			(1	)		—			—			—
Currency		—			(1	)		(5	)		(1	)		(2	)

		6	%		(1	)%		(4	)%		6	%		3	%


¹		Represents revenue reductions from trade promotion and consumer coupon redemption programs.

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In U.S. Soup, Sauces and Beverages, total U.S. soup sales increased 7%. Condensed soup sales increased 6%, ready-to-serve soup sales increased 9% and broth sales increased 6%. The condensed soup sales growth was primarily due to pricing, effective advertising and strong holiday sales performance. Condensed soup continued to benefit from an increase in gravity-feed shelving systems. The ready-to-serve soup sales increase was primarily due to pricing, the introduction ofCampbell’s Select Gold Label soups in aseptic packaging and higher sales of Campbell’s Chunkysoups, partially offset by the discontinuance of Campbell’s Kitchen Classics soups. The convenience platform achieved double-digit growth with Campbell’s Chunky and Campbell’s Selectsoups in microwaveable bowls and Campbell’s Soup at Hand sippable soups all contributing to the sales growth. The introduction of Campbell’s Chicken Noodle, Tomato and Vegetable soups in microwaveable bowls also added to sales growth. Swanson broth sales growth was due to increasing consumer preference for aseptically-packaged broth and successful holiday merchandising. Pregopasta sauces increased due to pricing and stronger advertising and additional promotional activity. Sales of Pace Mexican sauces also increased. In comparison to introductory marketing activity a year ago, sales of Campbell’s Chunky chili declined. V8 vegetable juice sales increased double digits as the brand benefited from increased distribution in non-grocery channels and increased sales of single-serve products. The introduction of V8 V-Fusion also contributed to beverage sales growth. Campbell’s SpaghettiOs pasta sales declined due to more aggressive competitive activity.

In Baking and Snacking, Pepperidge Farm reported sales increases across all its businesses: bakery, cookies and crackers, and frozen. Sales of bakery products increased due to the performance ofPepperidge Farm whole grain breads, muffins and bagels, and stuffing. Pepperidge Farm Goldfishsnack crackers drove growth of cookies and crackers, partially offset by declines in Pepperidge Farm Milano and Mini cookies. Frozen sales increased slightly due to the performance of pastries, garlic toast and the introduction of artisan breads. Arnott’s sales declined, primarily due to the unfavorable impact of currency and weak private label sales, which more than offset sales gains in the branded biscuit business.

In International Soup and Sauces, sales declined in Europe primarily due to the unfavorable impact of currency. Higher volumes of aseptically-packaged soup and instant dry soups in France and aseptically-packaged soup in Belgium were offset by weakness in the U.K. business. In addition, sales in Canada grew double digits driven by strong performances in ready-to-serve soup, including the introduction of Campbell’s Soup at Hand sippable soups, and by the favorable impact of currency.

In Other, Godiva Chocolatier sales increased primarily due to strong retail and direct sales channel performance in North America and volume growth in Europe and Asia, partially offset by the unfavorable impact of currency. Away From Home sales increased primarily due to the strong performance of refrigerated and frozen soups.

Gross Margin

Gross margin, defined as net sales less cost of products sold, increased $45 million. As a percent of sales, gross margin increased from 40.6% in 2005 to 41.5% in 2006. The percentage point increase was due to higher selling prices (approximately 2.1 percentage points) and productivity improvements (approximately 1.7 percentage points), partially offset by the impact of cost inflation and other factors (approximately 2.9 percentage points).

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Marketing and Selling Expenses

Marketing and selling expenses increased 1% in 2006 as a result of higher selling expenses (approximately 2 percentage points), partially offset by the impact of currency (approximately 1 percentage point). As a percent of sales, Marketing and selling expenses were 16% in both 2006 and 2005.

Administrative Expenses

Administrative expenses increased by $27 million, or 21%, due to a number of items, including higher stock-based compensation expense recognized under SFAS No. 123R (approximately 10 percentage points), higher employee benefit costs (approximately 4 percentage points) and costs associated with the ongoing implementation of the SAP enterprise-resource planning system in North America (approximately 2 percentage points).

Operating Earnings

Segment operating earnings increased 7% from the prior year.

An analysis of operating earnings by reportable segment follows:


	(millions)
	2006			2005			% Change

U.S. Soup, Sauces and Beverages	$	242		$	216			12	%
Baking and Snacking		40			47			(15	)
International Soup and Sauces		81			70			16
Other		69			72			(4	)

Subtotal		432			405			7
Corporate		(29	)		(16	)

	$	403		$	389			4	%

Earnings from U.S. Soup, Sauces and Beverages increased 12%. The 2005 results would have been $1 million lower had all stock-based compensation been expensed. The remaining increase in 2006 was primarily due to higher selling prices and improved productivity, which more than offset cost inflation.

Earnings from Baking and Snacking decreased 15%. The 2005 results would have been $2 million lower had all stock-based compensation been expensed. The decrease in 2006 was primarily due to declines in the biscuit business in Indonesia, resulting from a more challenging economic environment, and declines in the Snackfoods business in Australia due to a significant increase in competitive activity.

Earnings from International Soup and Sauces increased 16%. The 2005 results would have been $1 million lower had all stock-based compensation been expensed. The increase in earnings was

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primarily due to strong market performance in Canada and lower marketing spending in Europe, primarily the U.K. The higher earnings were partially offset by the unfavorable impact of currency.

Earnings from Other decreased 4%. The 2005 results would have been $2 million lower had all stock-based compensation been expensed. The decrease in earnings was primarily due to higher expenses and the unfavorable impact of currency at Godiva, which more than offset gains in the Away From Home business.

Corporate expenses increased $13 million to $29 million due to higher stock-based compensation expense recognized under SFAS No. 123R, higher employee benefit costs, and costs associated with the ongoing implementation of the SAP enterprise-resource planning system in North America. Corporate expenses would have been $6 million higher in 2005, had all stock-based awards been expensed.

Nonoperating Items

Net interest expense decreased to $43 million from $45 million in the prior year, primarily due to lower levels of debt and higher interest income, partially offset by higher interest rates.

The effective tax rate for the quarter was 29.4% in 2006. The effective rate for the year-ago quarter was 31.7%. The lower tax rate was due to the favorable resolution of the 1996-1999 U.S. federal income tax audit.

SIX MONTHS

Sales

An analysis of net sales by reportable segment follows:


	(millions)
	2006		2005		% Change

U.S. Soup, Sauces and Beverages	$	1,988	$	1,950		2	%
Baking and Snacking		887		882		1
International Soup and Sauces		903		918		(2	)
Other		613		564		9

	$	4,391	$	4,314		2	%

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An analysis of percent change of net sales by reportable segment follows:


	U.S. Soup,			Baking			International
	Sauces and			and			Soup and
	Beverages			Snacking			Sauces			Other			Total
Volume and Mix		(4	)%		(1	)%		—	%		7	%		(1	)%
Price and Sales Allowances		6			3			—			3			3
Increased Promotional Spending¹		—			(1	)		—			—			—
Currency		—			—			(2	)		(1	)		—

		2	%		1	%		(2	)%		9	%		2	%


¹		Represents revenue reductions from trade promotion and consumer coupon redemption programs.

In U.S. Soup, Sauces and Beverages, total U.S. soup sales increased 1%. Condensed soup sales increased 4%, ready-to-serve soup sales decreased 5% and broth sales increased 8%. The condensed performance was driven by higher prices, more effective advertising and a strong holiday sales performance. Condensed soup also benefited from the installation of additional gravity-feed shelving systems. In ready-to-serve soup, Campbell’s Chunky soups in cans were the primary driver of the decline reflecting a change in promotional activity in comparison to the year-ago period in which aggressive discounting drove significantly higher volume. In addition, the discontinuance ofCampbell’s Kitchen Classics soups contributed to the decline. Campbell’s Select soup sales increased driven by the introduction of Campbell’s Select Gold Label soups. Sales of convenience platform products increased double digits driven by the introduction of Campbell’s Chicken Noodle, Tomato and Vegetable varieties in microwaveable bowls. Campbell’s Chunky and Campbell’s Selectsoups in microwaveable bowls and Soup at Hand sippable soups also contributed to the sales growth of the convenience platform. Swanson broth sales increased, benefiting from a strong holiday season, continued growth of aseptically-packaged products and higher prices. Prego pasta sauces sales were flat, while Pace Mexican sauces sales increased. V8 vegetable juice sales increased double digits and the introduction of V8 V-Fusion also added to sales in the beverage business.Campbell’s SpaghettiOs grew slightly as competitive activity increased in this category.Campbell’s Chunky chili sales declined in comparison to the year-ago period when the product was launched.

In Baking and Snacking, Pepperidge Farm sales increased as a result of gains in the bakery and cookies and crackers businesses. The bakery business growth was driven by gains in Pepperidge Farmwhole grain breads. The cookies and crackers business growth was primarily due to Pepperidge Farm Goldfish snack crackers and new chocolate dipped cookies. Arnott’s sales increased due to growth in branded biscuits, primarily chocolate biscuits. Sales gains at Pepperidge Farm and Arnott’s were partially offset by weakness in the Indonesian biscuits, Australian Snackfoods and Australian private label businesses.

In International Soup and Sauces, sales declined in Europe primarily due to the unfavorable impact of currency. Sales growth in France and Belgium was offset by declines in the U.K. business. Sales in Asia Pacific increased driven by growth in the Australian soup business. In Canada, sales increased due to growth in ready-to-serve soups and the favorable impact of currency.

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In Other, Godiva Chocolatier delivered volume growth in all regions, partially offset by the unfavorable impact of currency. Away From Home sales increased primarily due to the strong performance of refrigerated soups and gains in both frozen and canned soups.

Gross Margin

Gross margin, defined as net sales less cost of products sold, increased $81 million. As a percent of sales, gross margin increased from 40.5% in 2005 to 41.7% in 2006. The percentage point increase was due to higher selling prices (approximately 2.1 percentage points), productivity improvements (approximately 1.8 percentage points) and a change in the method of accounting for inventory (approximately 0.3 percentage points), partially offset by the impact of cost inflation and other factors (approximately 2.8 percentage points), unfavorable product mix (approximately 0.1 percentage points) and increased trade promotion (approximately 0.1 percentage points).

Marketing and Selling Expenses

Marketing and selling expenses increased 1% in 2006 primarily as a result of higher selling expenses (approximately 2 percentage points), partially offset by the impact of currency (approximately 1 percentage point). As a percent of sales, Marketing and selling expenses were 16% in both 2006 and 2005.

Administrative Expenses

Administrative expenses increased by $36 million, or 14%, primarily due to higher stock-based compensation expense recognized under SFAS No. 123R (approximately 7 percentage points), higher employee benefit costs (approximately 3 percentage points), and costs associated with the ongoing implementation of the SAP enterprise-resource planning system in North America (approximately 2 percentage points).

Operating Earnings

Segment operating earnings increased 6% from the prior year.

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An analysis of operating earnings by reportable segment follows:


	(millions)
	2006			2005			% Change

U.S. Soup, Sauces and Beverages	$	530		$	491			8	%
Baking and Snacking		90			93			(3	)
International Soup and Sauces		136			125			9
Other		95			94			1

Subtotal		851			803			6
Corporate		(47	)		(33	)

	$	804		$	770			4	%

Earnings from U.S. Soup, Sauces and Beverages increased 8%. The 2005 results would have been $2 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 lower sales volume.

Earnings from Baking and Snacking decreased 3%. The 2005 results would have been $4 million lower had all stock-based compensation been expensed. The 2006 results included a $5 million benefit from the change in the method of accounting for inventories. The decrease in earnings was primarily from declines in the biscuit business in Indonesia due to a more challenging economic environment.

Earnings from International Soup and Sauces increased 9%. The 2005 results would have been $2 million lower had all stock-based compensation been expensed. The increase in earnings was primarily due to strong market performance in Canada and lower marketing spending in Europe, partially offset by the unfavorable impact of currency.

Earnings from Other increased 1%. The 2005 results would have been $3 million lower had all stock-based compensation been expensed. Earnings increased primarily due to the Away From Home sales growth, particularly in refrigerated soups, which was partially offset by the unfavorable impact of currency and increased expenses at Godiva.

Corporate expenses increased $14 million to $47 million. Corporate expenses would have been $11 million higher in 2005 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.

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Nonoperating Items

Net interest expense decreased to $69 million from $89 million in the prior year, primarily due to a non-cash reduction of $21 million related to the favorable settlement of a U.S. tax contingency and lower levels of debt, partially offset by higher interest rates.

The effective tax rate for the six months was 24.4% in 2006. The effective tax rate for the six months was 31.7% in 2005. The lower tax rate was due to a net non-cash benefit of $47 million recorded in the current year resulting from the favorable resolution of a U.S. tax contingency, the favorable resolution of the 1996-1999 U.S. federal tax audit and other audits, and tax planning strategies, partially offset by $9 million incremental expense associated with the repatriation of non-U.S. earnings under the AJCA.

Restructuring Program

A restructuring charge of $32 million ($22 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 sales 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. 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.

The sales and logistics realignment in Australia involves the conversion of a direct store delivery system to a central warehouse 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. The majority of the terminations occurred in 2005. Annual pre-tax benefits are expected to be approximately $10 — $15 million beginning in 2008. See Note (i) to the Consolidated Financial Statements for further discussion of these programs.

Liquidity and Capital Resources

The company generated cash from operations of $649 million compared to $500 million last year. The increase in cash flow reflects lower increases in working capital, an increase in earnings and lower cash settlements related to foreign currency hedging transactions that are reflected in Other.

Capital expenditures were $85 million compared to $104 million a year ago. Capital expenditures are expected to be approximately $330-340 million in 2006.

Excluding shares owned and tendered by employees to satisfy tax withholding requirements on vesting of restricted shares, the company repurchased 4.2 million shares in the six-month period ended January 29, 2006 at a cost of $127 million and repurchased 165,000 shares in the six-month period last year at a cost of $4 million. Of the 2006 repurchases, 1.6 million shares at a cost of $50 million were under the Board of Directors authorization to purchase up to $600 million of company

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stock through fiscal 2008 announced on November 21, 2005. Under a separate authorization, the company also expects to continue to repurchase sufficient shares over time to offset the impact of dilution from shares issued under the company’s stock compensation plans. See “Unregistered Sales of Equity Securities and Use of Proceeds” for more information.

At January 29, 2006, the company had approximately $687 million of notes payable due within one year and $33 million of standby letters of credit issued on behalf of the company. The company maintains $1.5 billion of committed revolving credit facilities, which remain unused at January 29, 2006, except for $1 million of standby letters of credit issued on behalf of the company. Another $32 million of standby letters of credit were issued on behalf of the company under a separate facility. The company is in compliance with the covenants contained in its revolving credit facilities and debt securities.

The company believes that foreseeable liquidity and capital resource requirements, including notes payable due within one year, are expected to be met through cash and cash equivalents, anticipated cash flows from operations, management of working capital, long-term borrowings, 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.

Significant Accounting Estimates

The consolidated financial statements of the company are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. The significant accounting policies of the company are described in Note 1 to the Consolidated Financial Statements and the significant accounting estimates are described in Management’s Discussion and Analysis included in the 2005 Annual Report on Form 10-K. The company adopted SFAS No. 123R as described in Note (b) and changed the method of accounting for certain inventories as described in Note (g). The impact of new accounting standards is discussed in the following section. There have been no other changes in the company’s accounting policies in the current period that had a material impact on the company’s consolidated financial condition or results of operation.

Recently Issued Accounting Pronouncements

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 was effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 did not have a material impact on the financial statements.

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In October 2004, the AJCA was signed into law. The AJCA provides for a deduction of 85% of certain non-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 Staff Position FAS 109-1 and 109-2 to address the accounting and disclosure requirements related to the AJCA. In the first half of 2006, the company finalized its plan to repatriate earnings from non-U.S. subsidiaries and as a result recorded incremental tax expense of $9 million associated with $225 million in dividends. The total amount expected to be repatriated under the AJCA is $425 million and the related tax cost is $16 million. In 2005, the company recorded $7 million in tax expense for $200 million of the earnings to be repatriated.

In March 2005, the FASB issued FASB Interpretation No. 47 (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. FIN 47 is effective no later than the end of the fiscal years ending after December 15, 2005. 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.

Recent Developments

On February 17, 2006, the company announced results for the second quarter 2006 and commented on the outlook for earnings per share for the full year.

Forward-Looking Statements

This quarterly report contains certain 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 other Securities and Exchange Commission filings of the company, or in the company’s 2005 Annual Report on Form 10-K, could affect the company’s actual results

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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;

	•		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, production 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 changes in customer inventory levels and access to shelf space;

	•		the impact of fluctuations in the supply and cost of energy and 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.

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 any forward-looking statements made by the company in order to reflect new information, events or circumstances after the date they are made.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the company’s exposure to certain market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the 2005 Annual Report on Form 10-K. There have been no significant changes in the company’s portfolio of financial instruments or market risk exposures from the fiscal 2005 year-end.

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ITEM 4. CONTROLS AND PROCEDURES

a.		Evaluation of Disclosure Controls and Procedures

		The company, under the supervision and with the participation of its management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the 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 January 29, 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.

b.		Changes in Internal Controls

		During the quarter ended January 29, 2006, 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.

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PART II

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities


									Approximate
									Dollar Value of
							Total Number of		Shares that May
	Total						Shares Purchased		Yet Be Purchased
	Number			Average			as Part of Publicly		Under the Plans
	of Shares			Price Paid			Announced Plans		or Programs
Period	Purchased⁽¹⁾			Per Share⁽²⁾			or Programs⁽³⁾		($ in millions)⁽³⁾
10/31/05 - 11/30/05		75,412	⁽⁴⁾	$	30.45	⁽⁴⁾		0	$	600
12/1/05 - 12/31/05		1,875,472	⁽⁵⁾	$	30.16	⁽⁵⁾		298,000	$	591
1/1/06 - 1/29/06		2,251,318	⁽⁶⁾	$	30.20	⁽⁶⁾		1,341,000	$	550

Total		4,202,202		$	30.19			1,639,000


⁽¹⁾		Includes (i) 2,561,000 shares repurchased in open-market transactions to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 2,202 shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted shares. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the company’s shares on the date of vesting.

⁽²⁾		Average price paid per share is calculated on a settlement basis and excludes commission.

⁽³⁾		On 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.

⁽⁴⁾		Includes 412 shares owned and tendered by employees at an average price per share of $30.00 to satisfy tax withholding requirements on the vesting of restricted shares.

⁽⁵⁾		Includes (i) 1,577,000 shares repurchased in open-market transactions at an average price of $30.18 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 472 shares owned and tendered by employees at an average price per share of $29.30 to satisfy tax withholding requirements on the vesting of restricted shares.

⁽⁶⁾		Includes (i) 909,000 shares repurchased in open-market transactions at an average price of $30.20 to offset the dilutive impact to existing shareowners of issuances under the company’s stock compensation plans, and (ii) 1,318 shares owned and tendered by employees at an average price per share of $30.45 to satisfy tax withholding requirements on the vesting of restricted shares.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

a.		The company’s Annual Meeting of Shareowners was held on November 18, 2005.

b.		The matters voted upon and the results of the vote are as follows:

Election of Directors


	Number of Shares
Name	For		Withheld
John F. Brock		374,385,798		1,997,879
Edmund M. Carpenter		372,630,993		3,752,684
Paul R. Charron		366,420,610		9,963,067
Douglas R. Conant		372,987,595		3,396,082
Bennett Dorrance		364,574,193		11,809,484
Kent B. Foster		366,162,070		10,221,607
Harvey Golub		374,543,407		1,840,220
Randall W. Larrimore		374,585,554		1,798,123
Philip E. Lippincott		364,597,602		11,786,075
Mary Alice D. Malone		372,806,130		3,577,547
Sara Mathew		374,536,638		1,847,039
David C. Patterson		374,579,834		1,803,843
Charles R. Perrin		366,455,212		9,928,465
A. Barry Rand		374,556,965		1,826,712
George Strawbridge, Jr.		372,762,409		3,621,268
Les C. Vinney		374,591,427		1,792,250
Charlotte C. Weber		364,658,890		11,724,787

Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm


							Broker Non-
	For		Against		Abstentions		Votes
Ratification of Appointment of Accountants		374,369,793		957,784		1,056,100		0

Approval of the Company’s 2005 Long-Term Incentive Plan


							Broker Non-
	For		Against		Abstentions		Votes
Approval of the Company’s 2005 Long-Term Incentive Plan		324,386,331		24,997,163		1,490,643		25,509,540

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ITEM 6. EXHIBITS


3(i)		Campbell’s By-Laws, as amended through January 26, 2006, were filed with a Form 8-K on January 31, 2006, and are incorporated herein by reference.

10(a)		Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2006.

10(b)		Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees, as amended and restated effective January 1, 2006.

10(c)		A special long-term incentive grant of 54,667 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 Form 8-K filed on November 22, 2005, and such description is incorporated herein by reference.

31(i)		Certification of Douglas R. Conant pursuant to Rule 13a-14(a).

31(ii)		Certification of Robert A. Schiffner pursuant to Rule 13a-14(a).

32(i)		Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350.

32(ii)		Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350.

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SIGNATURES

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


	CAMPBELL SOUP COMPANY
Date: March 8, 2006	By:	/s/ Robert A. Schiffner

		Robert A. Schiffner Senior Vice President and Chief Financial Officer


	By:	/s/ Ellen Oran Kaden

		Ellen Oran Kaden Senior Vice President — Law and Government Affairs

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INDEX TO EXHIBITS

Exhibits


3(i)		Campbell’s By-Laws, as amended through January 26, 2006, were filed with a Form 8-K on January 31, 2006, and are incorporated herein by reference.

10(a)		Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January 1, 2006.

10(b)		Campbell Soup Company Supplemental Severance Pay Plan for Exempt Salaried Employees, as amended and restated effective January 1, 2006.

10(c)		A special long-term incentive grant of 54,667 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 Form 8-K filed on November 22, 2005, and such description is incorporated herein by reference.

31(i)		Certification of Douglas R. Conant pursuant to Rule 13a-14(a).

31(ii)		Certification of Robert A. Schiffner pursuant to Rule 13a-14(a).

32(i)		Certification of Douglas R. Conant pursuant to 18 U.S.C. Section 1350.

32(ii)		Certification of Robert A. Schiffner pursuant to 18 U.S.C. Section 1350.

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