<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
MAY 3, 1998 1-13933
[VLASIC FOODS INTERNATIONAL LOGO]
NEW JERSEY 52-2067518
STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
VLASIC PLAZA
SIX EXECUTIVE CAMPUS
CHERRY HILL, NEW JERSEY 08002-4112
TELEPHONE NUMBER: 609-969-7100
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
THERE WERE 45,455,146 SHARES OF COMMON STOCK OUTSTANDING AS OF JUNE 1, 1998.
<PAGE> 2
VLASIC FOODS INTERNATIONAL INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Consolidated Statements of Earnings (unaudited) for the
three and nine month periods ended May 3, 1998 and
April 27, 1997 2
Consolidated Balance Sheets as of May 3, 1998 (unaudited)
and August 3, 1997 (audited) 3
Consolidated Statements of Cash Flows (unaudited) for the nine
month periods ended May 3, 1998 and April 27, 1997 4
Consolidated Statements of Shareowners' Equity (unaudited)
for the nine month periods ended May 3, 1998 and April 27, 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Pro Forma Condensed Consolidated Financial Information (unaudited) 10
Management's Discussion and Analysis of Results of
Operations and Financial Condition 12
Part II. Other Information
Legal Proceedings 20
Other Information 20
Exhibits and Reports on Form 8-K 21
</TABLE>
1
<PAGE> 3
VLASIC FOODS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ------------------------------
May 3, April 27, May 3, April 27,
1998 1997 1998 1997
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales (including to related parties of $39,997 and
$34,866 in the third quarters and $123,629 and
$118,697 in the nine month periods) $ 320,694 $ 357,152 $ 1,043,863 $1,107,328
--------- --------- ----------- ----------
Costs and expenses
Cost of products sold 231,457 248,967 750,681 779,963
Marketing and selling expenses 55,947 67,606 170,768 195,405
Administrative expenses 17,315 13,004 46,047 40,331
Research and development expenses 1,895 2,211 5,843 6,136
Other (income) expense (123) 382 (214) 4,344
Restructuring charges 28,050 -- 28,050 12,634
--------- --------- ----------- ----------
Total costs and expenses 334,541 332,170 1,001,175 1,038,813
--------- --------- ----------- ----------
Earnings (loss) before interest and taxes (13,847) 24,982 42,688 68,515
Interest expense 3,374 320 4,285 1,221
Interest income 171 54 316 384
--------- --------- ----------- ----------
Earnings (loss) before taxes (17,050) 24,716 38,719 67,678
Taxes on earnings (452) 8,156 20,406 21,603
--------- --------- ----------- ----------
Earnings (loss) before cumulative effect of (16,598) 16,560 18,313 46,075
accounting change
Cumulative effect of accounting change -- -- (600) --
--------- --------- ----------- ----------
Net earnings (loss) $ (16,598) $ 16,560 $ 17,713 $ 46,075
========= ========= =========== ==========
Earnings per share - historical
Per share - basic
Earnings (loss) before cumulative effect
of accounting change $ (0.37) $ 0.40
Cumulative effect of accounting change -- $ (0.01)
Net earnings (loss) $ (0.37) $ 0.39
Weighted average shares outstanding - basic 45,455 45,455
Per share - assuming dilution
Earnings (loss) before cumulative effect
of accounting change $ (0.37) $ 0.40
Cumulative effect of accounting change -- $ (0.01)
Net earnings (loss) $ (0.37) $ 0.39
Weighted average shares outstanding
- assuming dilution 45,455 * 46,001
Pro Forma Earnings Per Share:**
Per share - basic $ (0.46) $ 0.21 $ 0.01 $ 0.56
Per share - assuming dilution $ (0.46)* $ 0.21 $ 0.01 $ 0.55
</TABLE>
* Excludes potentially dilutive shares as the result would be antidilutive.
** PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION appears on pages 10
and 11.
See Pro Forma Condensed Consolidated Statements of Earnings and Notes to
Consolidated Financial Statements.
2
<PAGE> 4
VLASIC FOODS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
May 3, August 3,
1998 1997
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,551 $ 9,409
Accounts receivable 146,996 109,676
Inventories 172,508 163,852
Other current assets 13,377 12,339
--------- ---------
Total current assets 346,432 295,276
--------- ---------
Plant assets, net 511,832 515,646
Other assets, principally intangible assets, net 91,638 84,186
--------- ---------
Total assets $ 949,902 $ 895,108
========= =========
Current liabilities
Notes payable $ 16,425 $ 191
Payable to suppliers and others 105,315 123,101
Amounts due Campbell at Spin-off, payable May 13, 1998 75,438 --
Accrued liabilities 74,748 88,914
--------- ---------
Total current liabilities 271,926 212,206
--------- ---------
Long-term debt 487,290 2,252
Deferred income taxes 13,154 36,815
Other liabilities 44,611 11,537
--------- ---------
Total liabilities 816,981 262,810
--------- ---------
Shareowners' equity
Preferred stock, no par value, authorized 4,000 shares; -- --
none issued
Common stock; no par value; authorized 56,000 shares;
issued 45,455 shares 136,954 --
Campbell net investment -- 633,168
Retained earnings (1,003) --
Cumulative translation adjustments (3,030) (870)
--------- ---------
Total shareowners' equity 132,921 632,298
--------- ---------
Total liabilities and shareowners' equity $ 949,902 $ 895,108
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
VLASIC FOODS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
May 3, April 27,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,713 $ 46,075
Non-cash charges to net earnings
Cumulative effect of accounting change 600 --
Restructuring charges 28,050 12,634
Depreciation and amortization 34,701 30,707
Deferred income taxes (2,383) 3,028
Deferred compensation 1,125 2,422
Changes in working capital
Accounts receivable (36,209) (27,878)
Inventories (7,273) 4,226
Other current assets and liabilities (62,012) (34,788)
-------- --------
Net cash (used in) provided by operating activities (25,688) 36,426
-------- --------
Cash flows from investing activities:
Purchases of plant assets (39,489) (50,788)
Sales of plant assets 5,085 1,968
Business acquired (6,350) --
Other, net 465 233
-------- --------
Net cash used in investing activities (40,289) (48,587)
-------- --------
Cash flows from financing activities:
Long-term borrowings 10,000 --
Repayment of long-term borrowings (25,000) (1,027)
Short-term borrowings (repayments) 16,199 (52)
Transactions with Campbell 68,938 19,045
-------- --------
Net cash provided by financing activities 70,137 17,966
-------- --------
Effect of exchange rate changes on cash (18) 60
-------- --------
Net change in cash and cash equivalents 4,142 5,865
Cash and cash equivalents - beginning of period 9,409 5,553
-------- --------
Cash and cash equivalents - end of period $ 13,551 $ 11,418
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 6
VLASIC FOODS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Issued
Common Stock Campbell Cumulative Total
-------------------- Accumulated Net Translation Shareowners'
Shares Amount Deficit Investment Adjustment Equity
------- --------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 28, 1996 $ 659,057 $ 809 $ 659,866
Net earnings 11,418 11,418
Translation adjustments 1,917 1,917
Net transactions with Campbell 53,702 53,702
--------- ------- ---------
Balance at April 27, 1997 $ 724,177 $ 2,726 $ 726,903
========= ======= =========
Balance at August 3, 1997 $ 633,168 $ (870) $ 632,298
Net earnings prior to spin-off 18,716 18,716
Net transactions with Campbell as of
the spin-off date:
Assumption of debt, pension and
postretirement obligations (514,930) (514,930)
and net deferred tax liabilities*
Contribution to capital of remaining
Campbell net investment $ 136,954 (136,954)
Issuance of shares of common stock, no
par value, in connection
with the spin-off 45,455
Net loss after the spin-off $(1,003) (1,003)
Translation adjustments (2,160) (2,160)
------- --------- ------- --------- ------- ---------
Balance at May 3, 1998 45,455 $ 136,954 $(1,003) $ - $(3,030) $ 132,921
======= ========= ======= ========= ======= =========
</TABLE>
* Noncash transaction
See Notes to Consolidated Financial Statements
5
<PAGE> 7
VLASIC FOODS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
NOTE 1 - ADJUSTMENTS
The consolidated financial statements reflect all adjustments that are, in the
opinion of management, necessary for a fair presentation of the historical
results for the indicated periods. Except for the Cumulative Effect of Change in
Accounting Principle discussed in Note 10, all such adjustments are of a normal
recurring nature.
NOTE 2 - VLASIC FOODS INTERNATIONAL INC. SPIN-OFF FROM CAMPBELL SOUP COMPANY
On March 30, 1998, one share of Vlasic Foods International Inc. (the Company or
Vlasic), no par value common stock, was distributed to shareowners of Campbell
Soup Company (Campbell) for every ten shares of Campbell capital stock held by
such shareowners at the record date in a tax-free distribution (the Spin-off).
At the time of distribution, the Company began operations as a separate publicly
owned company.
NOTE 3 - EARNINGS PER SHARE
Earnings per share have been calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
Pro Forma Earnings Per Share assumes common shares outstanding of 45.455 million
as of the Spin-off date were outstanding for the entire period. Weighted average
shares outstanding assuming dilution reflects outstanding stock option grants
during the periods. Historical earnings per share are not presented since Vlasic
common stock was not part of the capital structure of Campbell for the periods
presented.
NOTE 4 - LONG-TERM DEBT
As of the Spin-off, Vlasic assumed $500 million of borrowings outstanding under
a five-year $750 million unsecured revolving credit facility. At May 3, 1998,
$485 million was outstanding under the credit facility. The Company's policy is
to classify borrowings under the revolving credit facility as long-term debt
since the Company has the ability under its credit agreement, and the intent, to
maintain these obligations for longer than one year. The credit facility
contains restrictive covenants including certain financial ratios. As of May 3,
1998, the Company was in compliance with all covenants. As a result of
accelerated and higher than anticipated transition charges and lower than
anticipated projected earnings, it is expected that Vlasic will not be in
compliance with the financial ratio requirements as of the fiscal year ending
August 2, 1998 which could allow the banks to demand repayment of the debt. The
Company is currently in discussion with its lenders to renegotiate the financial
ratio requirements of the credit facility and is confident the agreement will be
amended during the fourth quarter of fiscal 1998 so that the Company will be in
compliance with amended financial ratio requirements, although no assurances can
be given. Although the amended terms are expected to result in a higher interest
rate, the Company does not believe they will have a material impact on its
results of operations, financial position or cash flows.
6
<PAGE> 8
NOTE 5 - RESTRUCTURING CHARGES
A special charge of $28,050 ($21,815 after tax) was recorded in the third
quarter of 1998 to cover the costs of a restructuring program. The restructuring
program was designed to improve operational efficiency by closing certain U.S.
and European administrative offices and production facilities. The worldwide
workforce will be reduced by approximately 425 administrative and operational
positions.
The restructuring charge included approximately $11.6 million primarily related
to severance and employee benefit costs which will be paid in cash. The balance
of the restructuring charge, amounting to $16.5 million, related to non-cash
charges for losses on the disposition of plant assets. A summary of the original
reserves and activity through May 3, 1998 follows:
<TABLE>
<CAPTION>
Loss on Severance
Asset and
Disposition Benefits Other Total
----------- -------- ----- -----
<S> <C> <C> <C> <C>
Original reserve $16,500 $8,200 $3,350 $28,050
Third quarter fiscal 1998 activity (500) (201) (701)
------- ------ ------ -------
Balance at May 3, 1998 $16,500 $7,700 $3,149 $27,349
======= ====== ====== =======
</TABLE>
A special charge of $12,634 ($7,757 after tax) was recorded in the first quarter
of 1997 to cover the costs of a restructuring program. The restructuring program
was designed to improve operational efficiency by closing various pickle
facilities and reducing approximately 50 administrative and operational
positions from the worldwide workforce.
The 1997 restructuring charge included approximately $4,643 in cash charges
primarily related to severance and employee benefit costs. The balance of the
restructuring charge, amounting to $7,991, related to non-cash charges for
losses on the disposition of plant assets. The program was completed during the
first quarter of fiscal 1998.
NOTE 6 - SEGMENT INFORMATION
Vlasic groups its businesses in three operating segments: frozen foods, grocery
products and agricultural products. These operating segments are managed as
strategic units due to their distinct manufacturing processes, marketing
strategies and distribution channels. The FROZEN FOODS SEGMENT consists of
Swanson frozen foods in the U.S. and Canada and Freshbake frozen foods in the
U.K. The GROCERY PRODUCTS SEGMENT includes Vlasic retail and foodservice pickles
and condiments in the U.S., Open Pit barbecue sauce in the U.S., SonA and Rowats
pickles, canned beans and vegetables in the U.K., Kattus gourmet foods
distribution in Germany and Swift canned meat pates and other grocery products
in Argentina. The AGRICULTURAL PRODUCTS SEGMENT includes the U.S. fresh mushroom
business, chilled and frozen beef, frozen cooked beef and canned corned beef
exported from Argentina and contract manufacturing of frozen foodservice product
for Campbell's Foodservice in the U.S.
7
<PAGE> 9
NOTE 6 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ------------------------------
May 3, April 27, May 3, April 27,
1998 1997 1998 1997
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $ 117,024 $ 147,133 $ 436,617 $ 466,322
Grocery Products 118,098 127,327 342,381 377,461
Agricultural Products 86,951 85,159 272,431 271,305
Eliminations (1,379) (2,467) (7,566) (7,760)
--------- --------- ----------- -----------
TOTAL $ 320,694 $ 357,152 $ 1,043,863 $ 1,107,328
========= ========= =========== ===========
</TABLE>
Earnings (loss) before interest and taxes (a)
<TABLE>
<S> <C> <C> <C> <C>
Frozen Foods $ (3,887) $ 8,644 $ 34,251 $ 35,774
Grocery Products (6,208) 15,639 12,879 27,761
Agricultural Products (3,752) 699 (4,442) 4,980
--------- --------- ----------- -----------
TOTAL $ (13,847) $ 24,982 $ 42,688 $ 68,515
========= ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
May 3, August 3,
1998 1997
---------- ----------
<S> <C> <C>
Total Assets
Frozen Foods $ 289,462 $ 259,132
Grocery Products 356,500 369,922
Agricultural Products 303,940 266,054
---------- ----------
TOTAL $ 949,902 $ 895,108
========== ==========
</TABLE>
(a) Contributions to earnings by segment include the effects of the third
quarter fiscal 1998 and first quarter fiscal 1997 restructuring charges
as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
---------- ----------
<S> <C> <C>
Frozen Foods $ 9,700 $ 2,697
Grocery Products 17,950 9,937
Agricultural Products 400 --
------- -------
$28,050 $12,634
------- -------
</TABLE>
NOTE 7 - INVENTORIES
<TABLE>
<CAPTION>
May 3, August 3,
1998 1997
--------- ---------
<S> <C> <C>
Raw materials, containers and supplies $ 68,315 $ 54,828
Finished products 118,862 129,088
--------- ---------
187,177 183,916
Less: Adjustments to LIFO basis (14,669) (20,064)
--------- ---------
TOTAL $ 172,508 $ 163,852
========= =========
</TABLE>
8
<PAGE> 10
NOTE 8 - PAYABLES TO SUPPLIERS AND OTHERS
<TABLE>
<CAPTION>
May 3, August 3,
1998 1997
-------- --------
<S> <C> <C>
Trade payables $ 73,921 $ 95,684
Payables to Campbell 31,394 --
Book overdrafts -- 27,417
-------- --------
TOTAL $105,315 $123,101
======== ========
</TABLE>
Book overdrafts represent outstanding checks in excess of funds on deposit. As
of May 3, 1998, book overdrafts of $6,012 were reclassified against cash and
cash equivalents as the right of offset existed. On a temporary transition
basis, Campbell pays certain bills for Vlasic and is subsequently reimbursed by
Vlasic. The $31,394 payable to Campbell represents payments made by Campbell
during April 1998.
NOTE 9 - ACQUISITION
During the second quarter of fiscal 1998, Vlasic acquired the SAFRA trademark
and certain equipment for the canned spreadable meats business in Argentina for
$6,350. The acquisition was accounted for as a purchase transaction and
operations are included in the financial statements from the date of
acquisition. The trademark will be amortized over the period of expected benefit
- - 40 years. Pro forma financial information would not have a material effect on
Vlasic's net sales or net earnings in 1998. The allocation of the purchase price
to assets acquired and liabilities assumed was based upon fair value estimates
as follows:
<TABLE>
<S> <C>
Fixed Assets $ 500
Intangibles (trademark) 5,850
------
TOTAL $6,350
======
</TABLE>
NOTE 10 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In the second quarter of fiscal 1998, the company adopted the provisions of the
Emerging Issues Task Force (EITF) consensus resulting on Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." The EITF, a sub-committee of the Financial Accounting Standards
Board, reached a consensus that costs of business process reengineering
activities that are part of a systems development project are to be expensed as
incurred. Furthermore, the consensus ruling stipulates that the unamortized
balance of such previously capitalized business process reengineering costs are
to be written off as a cumulative effect of accounting change as of the
beginning of the quarter which includes November 20, 1997. The company
previously capitalized certain consulting costs related to the purchase and
implementation of software for internal use. The cumulative effect of this
change in accounting principle is $600, net of an income tax benefit of
approximately $370.
9
<PAGE> 11
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The Pro Forma Condensed Consolidated Statements of Earnings for the
three and nine months ended May 3, 1998 and April 27, 1997 present the
consolidated results of operations of Vlasic assuming that the Spin-off
transactions had been completed as of the beginning of fiscal 1997. In the
opinion of management, they include all material adjustments necessary to
reflect, on a pro forma basis, the impact of the Spin-off on Vlasic's historical
financial information.
The historical financial statements of Vlasic reflect periods during
which Vlasic did not operate as a separate, independent company; certain
estimates, assumptions and allocations were made in preparing such financial
statements. Therefore, such historical financial statements do not necessarily
reflect the results of operations that would have existed had Vlasic been a
separate, independent company. A May 3, 1998 pro forma condensed consolidated
balance sheet has not been presented, as the historical consolidated balance
sheet of the Company as of May 3, 1998 reflects the effects of the Spin-off.
The unaudited Pro Forma Condensed Consolidated Financial Information of
Vlasic should be read in conjunction with the historical financial statements of
Vlasic and the notes thereto. Actual results may have differed from pro forma
results if Vlasic had operated independently from Campbell. Pro forma condensed
consolidated financial information may not be indicative of results Vlasic would
have had or of future results after the Spin-off.
10
<PAGE> 12
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
May 3, April 27, May 3, April 27,
1998 1997 1998 1997
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 320,694 $ 357,152 $1,043,863 $1,107,328
--------- ---------- ---------- ----------
Costs and expenses
Cost of products sold 231,457 248,967 750,681 779,963
Marketing and selling expenses 55,947 67,606 170,768 195,405
Administrative and other expenses 19,087 15,597 51,676 50,811
Restructuring charges 28,050 -- 28,050 12,634
--------- ---------- ---------- ----------
334,541 332,170 1,001,175 1,038,813
--------- ---------- ---------- ----------
Pro Forma Earnings:
Earnings (loss) before interest and taxes (13,847) 24,982 42,688 68,515
Interest expense, net(1) 9,204 10,100 29,524 30,300
--------- ---------- ---------- ----------
Earnings (loss) before taxes (23,051) 14,882 13,164 38,215
Provision for income taxes (2,273) 5,200 12,778 12,837
--------- ---------- ---------- ----------
Pro forma earnings (loss) $ (20,778) $ 9,682 $ 386 $ 25,378
========= ========== ========== ==========
Pro Forma Earnings Per Share:(2)
Per share - basic $ (0.46) $ 0.21 $ 0.01 $ 0.56
Weighted average shares outstanding - basic 45,455 45,455 45,455 45,455
Per share - assuming dilution $ (0.46) $ 0.21 $ 0.01 $ 0.55
Weighted average shares outstanding
- assuming dilution(3) 45,455 * 45,901 46,001 45,910
</TABLE>
Pro forma and historical earnings include the impact of the restructuring charge
of $28.1 million before tax, $21.8 million after tax or $.48 per share, in the
third quarter and nine months of fiscal 1998 and $12.6 million before tax, $7.8
million after tax or $.17 per share in the nine months of fiscal 1997.
(1) Pro Forma Earnings gives effect for interest expense on debt assumed as of
the Spin-Off Date as if it were outstanding for the entire period. The related
tax impact of the pro forma interest expense is included within the provision
for income taxes. Pro Forma Earnings excludes the cumulative effect of
accounting change of $600 charge recorded during the three months ended February
1, 1998.
(2) Pro Forma Earnings Per Share assumes common shares outstanding as of the
Spin-Off Date were outstanding for the entire period.
(3) Weighted average shares outstanding assuming dilution reflects outstanding
stock option grants during the periods.
* Excludes potentially dilutive shares as the result would be antidilutive.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
Effective March 30, 1998, one share of Vlasic common stock was
distributed to Campbell shareowners for every ten shares of Campbell common
stock in a tax-free distribution. At the time of the distribution, Vlasic began
operations as a separate publicly owned company.
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity of Vlasic for
the three and nine months ended May 3, 1998 compared to the three and nine
months ended April 27, 1997. Results of the periods presented may not
necessarily be indicative of the results of operations that would have occurred
if the Company had operated independently during the periods shown or of the
Company's future performance as an independent company.
RESULTS OF OPERATIONS
Overview
Net sales in the third quarter of fiscal 1998 were $320.7 million, a
decrease of 10.2% from the third quarter of fiscal 1997. The net loss of $16.6
million for the third quarter of fiscal 1998 represents a $33.2 million decrease
from the third quarter of fiscal 1997. The third quarter fiscal 1998 net loss
includes:
- the 1998 third quarter restructuring charge of $28.1 million
($21.8 million after tax or $0.48 per share); and
- several, unusual, non-recurring charges totaling $5.5 million
($3.8 million after tax or $0.08 per share) including start-up
costs associated with new technology at the pickle production
facilities, increased marketing activities in the German
gourmet foods business and the beginning of transitional MIS
development charges .
Net sales for the nine months of fiscal 1998 were $1.0 billion, a
decrease of 5.7% compared to the nine months of fiscal 1997. Net earnings for
the nine months of fiscal 1998 were $17.7 million, a decrease of $28.4 million
as compared to the nine months of fiscal 1997. The nine months of fiscal 1998
was impacted by the third quarter fiscal 1998 restructuring charge and the first
quarter fiscal 1998 cumulative effect of an accounting change of $0.6 million
after tax for the adoption of Emerging Issues Task Force (EITF) Issue 97-13,
"Accounting for Costs Incurred in Connection with Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." The nine months of fiscal 1997 was impacted by a first quarter
fiscal 1997 restructuring charge of $12.6 million ($7.8 million after tax).
Excluding the accounting change and the after-tax restructuring charges of $21.8
million and $7.8 million from fiscal 1998 and 1997, respectively, net earnings
declined $13.8 million or 25.6% in the nine months of fiscal 1998.
The historical financial statements reflect minimal interest expense
prior to the Spin-off as there was no allocation of interest expense on
Campbell's net investment. Subsequent to the Spin-off, interest expense includes
interest accrued on the $500 million of debt assumed from Campbell. Management
believes the pro forma condensed consolidated financial information appearing on
pages 10 and 11 provides more meaningful comparisons.
12
<PAGE> 14
Assuming that the transactions contemplated by the Spin-off had been
consummated as of the beginning of fiscal 1997, pro forma net interest expense
would have been approximately $9.2 million and pro forma net loss would have
been approximately $20.8 million or $0.46 per share for the third quarter of
fiscal 1998. For comparison, pro forma net interest expense would have been
$10.1 million and pro forma net earnings would have been $9.7 million or $0.21
per share assuming dilution for the third quarter of fiscal 1997. Pro forma net
earnings for the third quarter of fiscal 1998 includes a restructuring charge
after tax of $21.8 million or $0.48 a share. See "Pro Forma Condensed
Consolidated Financial Information."
Assuming that the transactions contemplated by the Spin-off had been
consummated as of the beginning of fiscal 1997, pro forma net interest expense
would have been approximately $29.5 million and pro forma net earnings would
have been approximately $0.4 million or $0.01 per share assuming dilution in the
nine months of fiscal 1998. For comparison, pro forma net interest expense would
have been $30.3 million and pro forma net earnings would have been $25.4 million
or $0.55 per share assuming dilution in the nine months of fiscal 1997. Pro
forma net earnings for the nine months ended 1998 and 1997 include restructuring
charges after tax of $21.8 million or $0.48 a share and $7.8 million or $0.17
per share, respectively. See "Pro Forma Condensed Consolidated Financial
Information."
Combined Statement of Earnings
The following table sets forth certain items in Vlasic's combined
statements of earnings as percentages of its net sales for the fiscal periods
indicated:
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------------- -------------------------
Fiscal 1998 Fiscal 1997 Fiscal 1998 Fiscal 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 72.2% 69.7% 71.9% 70.4%
Marketing and selling expenses 17.4% 18.9% 16.3% 17.6%
Administrative expenses 5.4% 3.7% 4.4% 3.6%
Research and development expenses 0.6% 0.6% 0.6% 0.6%
Other (income) expense 0.0% 0.1% 0.0% 0.4%
Restructuring charges 8.7% 0.0% 2.7% 1.2%
----- ----- ----- -----
Total costs and expenses 104.3% 93.0% 95.9% 93.8%
Earnings (loss) before interest and taxes (4.3%) 7.0% 4.1% 6.2%
</TABLE>
Third Quarters
Net sales of $320.7 million in the third quarter of fiscal 1998
decreased 10.2% from the third quarter of fiscal 1997. The sales decrease was
primarily due to lower sales in the U.S. frozen food and pickle businesses. The
decreases were driven about equally by a reduction of retail inventories in
connection with the Company's efforts to align inventories and shipments with
consumption and by a reduced consumption linked to a lack of product innovation
and a lack of advertising support. Third quarter sales were also adversely
impacted by lower exports of beef from the Company's Swift-Armour unit in
Argentina.
Cost of products sold as a percentage of net sales increased by 2.5
points to 72.2% in the third quarter of fiscal 1998, up from 69.7% in the third
quarter of fiscal 1997, as a result of the highest cattle costs in over a decade
in Argentina and start up costs associated with new technology at the pickle
plants.
13
<PAGE> 15
Marketing and selling expenses as a percentage of net sales declined in
the third quarter of fiscal 1998 to 17.4% from 18.9% in the third quarter of
fiscal 1997, principally due to lower couponing and advertising in Swanson U.S.
and Vlasic pickles offset by an increase in the German marketing activities.
Administrative expenses, as a percentage of net sales, increased 1.7
points in the third quarter of fiscal 1998 to 5.4% from 3.7% in the third
quarter of fiscal 1997, as a result of duplicate transition related costs and
initial costs related to development of the Company's MIS infrastructure.
Research and development expenses, as a percentage of net sales, were
unchanged in the third quarter of fiscal 1998 compared to the third quarter of
fiscal 1997.
Other (income) expense in the third quarter of fiscal 1998 was $0.1
million of income compared to $0.4 million of expense in the third quarter of
fiscal 1997. The decline is attributable to reduced expense associated with
Campbell's long-term incentive plan.
Earnings (loss) before interest and taxes was $13.8 million of loss in
the third quarter of fiscal 1998 compared to $25.0 million of income in the
third quarter of fiscal 1997. The $38.8 million decrease was driven by:
- - the alignment of shipments with consumption;
- - higher cattle costs in Argentina;
- - the third quarter of fiscal 1998 restructuring charge;
- - transition charges including overlapping payroll and benefits
administrative costs and duplication of MIS, research and development,
customer service and accounting services;
- - costs incurred in the development of an independent MIS system;
- - start-up costs associated with new technology at Vlasic's pickle
plants, and
- - increased marketing activities in the German gourmet foods distribution
business.
The historical financial statements reflect minimal interest expense
prior to the Spin-off as there was no allocation of interest expense on
Campbell's net investment. Subsequent to the Spin-off, interest expense includes
interest accrued on the $500 million of debt assumed from Campbell. Management
believes the pro forma condensed consolidated financial information appearing on
pages 10 and 11 provides more meaningful comparisons.
Excluding the impact of the 1998 third quarter restructuring charge,
the pro forma tax rate was 79% reflecting the year to date adjustment related to
the higher projected pro forma tax rate of 50% for the year versus the pro forma
projected 41.6% used at the end of the first six months of fiscal 1998.
Nine Months
Net sales of $1.0 billion in the nine month period of fiscal 1998
decreased 5.7% from the nine month period of fiscal 1997. The sales decrease was
primarily due to lower sales in the U.S. frozen food and pickle businesses. The
decreased volumes were driven about equally by a reduction of retail inventories
in connection with the Company's efforts to align shipments with consumption and
by a reduced consumption linked to a lack of product innovation and a lack of
advertising support. The German gourmet foods business and exports from
Argentina also contributed to the decline in net sales.
Cost of products sold as a percentage of net sales increased by 1.5
points to 71.9% in the nine month period of fiscal 1998, up form 70.4% in the
nine month period of fiscal 1997, as a result of the highest cattle costs in
over a decade in Argentina and start up costs associated with new technology at
the pickle plants.
14
<PAGE> 16
Marketing and selling expenses as a percentage of net sales declined in
the nine month period of fiscal 1998 to 16.3% from 17.6% in the nine month
period of fiscal 1997, principally due to lower couponing and advertising in
Swanson U.S. and Vlasic pickles.
Administrative expenses, as a percentage of net sales, increased 0.8
points in the nine month period of fiscal 1998 to 4.4% from 3.6% in the nine
month period of fiscal 1997, as a result of duplicate transition related costs
and initial costs related to the development of the Company's MIS
infrastructure.
Research and development expenses, as a percentage of net sales, were
unchanged in the nine month period of fiscal 1998 compared to the nine month
period of fiscal 1997.
Other (income) expense in the nine month period of fiscal 1998 was $0.2
million income compared to $4.3 million expenses in the nine month period of
fiscal 1997. The variance is attributable to a gain on a fire insurance
settlement in the first quarter of fiscal 1998, as well as, reduced expense
associated with Campbell's long-term incentive plan.
Earnings before interest and taxes as a percentage of net sales were
4.1% in the nine month period of fiscal 1998 compared to 6.2% in the nine month
period of fiscal 1997. Excluding the third quarter fiscal 1998 and the first
quarter fiscal 1997 restructuring charge, earnings before interest and taxes
would have been 6.8% of net sales in the nine month period of fiscal 1998
compared to 7.3% of net sales in the nine month period of fiscal 1997. The
decreased margin was driven by sales decrease, higher cattle costs, transition
charges, costs incurred in the development of an independent MIS system,
start-up costs associated with new technology at Vlasic's pickle plants, and
increased marketing activities in the German gourmet foods business offset by a
reduction of domestic marketing expenses.
The historical financial statements reflect minimal interest expense
prior to the Spin-off as there was no allocation of interest expense on
Campbell's net investment. Subsequent to the Spin-off, interest expense includes
interest accrued on the $500 million debt assumed from Campbell. Management
believes the pro forma condensed consolidated financial information appearing on
pages 10 and 11 provides more meaningful comparisons.
The effective income tax rate was 52.7% in the nine month period of
fiscal 1998 compared to 31.9% in the nine month period of 1997. Excluding 1998
and 1997's restructuring charges, the tax rates would have been 40.0% and 32.9%,
respectively. The higher tax rate in fiscal 1998 is driven by losses in Germany
which generate no tax benefit and lower earnings in Argentina where the tax
rates benefit from export rebates and other tax incentives which are excludable
from taxable income.
Restructuring Program
A special charge of $28,050 ($21,815 after tax) was recorded in the
third quarter of fiscal 1998 to cover the costs of a restructuring program. The
restructuring program was designed to improve operational efficiency by closing
certain U.S. and European administrative offices and production facilities. The
worldwide workforce will be reduced by approximately 425 administrative and
operational positions. The restructuring charge included approximately $11.6
million primarily related to severance and employee benefit costs that will be
paid in cash. The balance of the restructuring charge, amounting to $16.5
million, related to non-cash charges for losses on the disposition of plant
assets.
15
<PAGE> 17
The fiscal 1998 restructuring program is expected to result in
approximately $9 million in aggregate savings in fiscal 1999 primarily from
reductions in plant overhead and depreciation and employee salaries and
benefits.
A special charge of $12.6 million ($7.8 million after tax) was recorded
in the first quarter of fiscal 1997 to cover the costs of a restructuring
program. The restructuring program was designed to improve operational
efficiency by closing various U.S. pickle facilities and reducing approximately
50 administrative and operational positions from the worldwide workforce. The
restructuring charge included approximately $4.6 million in cash charges,
primarily related to severance and employee benefit costs. The balance of the
restructuring charge, amounting to $8.0 million, related to non-cash charges for
losses on the disposition of plant assets. The program was substantially
completed during the first quarter of fiscal 1998.
The fiscal 1997 restructuring program is expected to result in
approximately $10 million in aggregate savings in fiscal 1997 and fiscal 1998
from reductions in employee salaries and benefits, plant overhead and
depreciation.
16
<PAGE> 18
Results by Segment
The following table sets forth certain segment information for the
fiscal periods indicated (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -------------------------------
May 3, April 27, May 3, April 27,
1998 1997 1998 1997
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $ 117,024 $ 147,133 $ 436,617 $ 466,322
Grocery Products 118,098 127,327 342,381 377,461
Agricultural Products 86,951 85,159 272,431 271,305
Eliminations (1,379) (2,467) (7,566) (7,760)
--------- --------- ----------- -----------
Total $ 320,694 $ 357,152 $ 1,043,863 $ 1,107,328
========= ========= =========== ===========
Earnings Before Interest and Taxes
Frozen Foods ($ 3,887) $ 8,644 $ 34,251 $ 35,774
Grocery Products (6,208) 15,639 12,879 27,761
Agricultural Products (3,752) 699 (4,442) 4,980
--------- --------- ----------- -----------
Total ($ 13,847) $ 24,982 $ 42,688 $ 68,515
========= ========= =========== ===========
</TABLE>
Third Quarters
The net sales of the frozen foods segment decreased 20.5% in the third
quarter of fiscal 1998 compared to the third quarter of fiscal 1997. The
Company's drive to align shipments with consumption as well as consumption
declines resulting from the lack of new product innovation and lower levels of
advertising contributed to a $27.3 million decline in Swanson U.S. Excluding
fiscal 1998's restructuring charge the decrease in this segment's earnings
before interest and taxes was $2.8 million or 32.8% which was driven by the
decline in sales and the transition costs allocated to the segment.
The net sales of the grocery products segment declined 7.2% in the
third quarter of fiscal 1998 compared to the third quarter of fiscal 1997
primarily relating to Vlasic pickles and the Company's drive to align shipments
with consumption as well as consumption declines resulting from the lack of
product innovation. The decline in net sales is also attributed to lower volume
in the German gourmet foods distribution business partially offset by an
increase in Open Pit barbecue sauce. Excluding fiscal 1998's restructuring
charge, this segment's earnings before interest and taxes decreased $3.9 million
or 24.9% in the third quarter driven by the decline in sales, start-up costs
associated with new technology at the pickle plants and an increase in German
marketing activities.
The net sales of the agricultural products segment increased 2.1% in
the third quarter of fiscal 1998 compared to the third quarter of fiscal 1997,
due to higher contract manufacturing sales to Campbell Foodservice offset by
lower exports of beef from Argentina. Excluding fiscal 1998's restructuring
charge, this segment incurred a loss of $3.4 million in the third quarter of
fiscal 1998 compared to earnings of $0.7 million in the third quarter of fiscal
1997 due to the highest cattle costs in over a decade in Argentina.
17
<PAGE> 19
Nine Months
The net sales of the frozen foods segment decreased 6.4% in the nine
month period of fiscal 1998 compared to the nine month period of fiscal 1997.
The decrease was driven by the lower Swanson U.S volume related to decreased
consumption driven by lack of product innovation and lower advertising.
Excluding the fiscal 1998 and 1997's restructuring charges, this segment's
earnings before interest and taxes increased 14.2%, driven by improved
manufacturing costs and reduced marketing in Swanson U.S.
The net sales of the grocery products segment decreased 9.3% in the
nine month period of fiscal 1998 compared to the nine month period of fiscal
1997. The decrease was primarily driven by Vlasic pickles and the Company's
efforts to align shipments with consumption as well as consumption declines
resulting from the lack of product innovation. This segment also experienced
lower volume in the German gourmet foods business and Argentina. Excluding the
fiscal 1998 and 1997's restructuring charges, this segment's earnings before
interest and taxes decreased 18.2% in the nine month period of fiscal 1998
driven by the decline in sales, start-up costs associated with new technology at
the pickle plants and an increase in German marketing activities.
The net sales of the agricultural products segment increased 0.4% in
the nine month period of fiscal 1998 compared to the nine month period of fiscal
1997, as a result of higher contract manufacturing sales to Campbell Foodservice
offsetting the lower volumes experienced during the first quarter. This segment
incurred a loss of $4.4 million in the nine month period of fiscal 1998 compared
to earnings before interest and taxes of $5.0 million in the nine month period
of fiscal 1997 due to the higher cattle costs in Argentina.
LIQUIDITY AND CAPITAL RESOURCES
Vlasic assumed as of the Spin-off $500 million of borrowings outstanding under a
five-year $750 million unsecured revolving credit facility. At May 3, 1998, $485
million was outstanding under the credit facility with $265 million available to
support the Company's capital requirements including working capital needs and
capital expenditures. Vlasic anticipates that its operating cash flow, together
with available borrowings under its credit facility, will be sufficient to meet
its working capital requirements, capital expenditure requirements and interest
service requirements on its debt obligations. The credit facility contains
restrictive covenants including certain financial ratios. As of May 3, 1998, the
Company was in compliance with these covenants. As a result of accelerated and
higher than anticipated transition charges and lower than anticipated projected
earnings, it is expected that Vlasic will not be in compliance with the
financial ratio requirements as of the fiscal year ending August 2, 1998 which
could allow the banks to demand repayment of the debt. The Company is currently
in discussion with its lenders to renegotiate the financial ratio requirements
of the credit facility and is confident the agreements will be amended during
the fourth quarter of fiscal 1998 so that the Company will be in compliance with
amended financial ratio requirements, although no assurances can be given.
Although the amended terms are expected to result in a higher interest rate, the
Company does not believe they will have a material impact on its results of
operations, financial position or cash flows.
Net cash used in operating activities was $25.7 million in the nine
month period of fiscal 1998 compared to net cash provided of $36.4 million in
the nine month period of fiscal 1997. The variance in cash flow from operations
was driven by changes in working capital as well as lower net earnings. The
increase in working capital was attributed to a larger increase in receivables
resulting from the timing of sales and extended payment terms of certain
receivables in Argentina coupled with a larger decrease in domestic accounts
payable and marketing accruals.
18
<PAGE> 20
Cash used in investing activities was principally for capital
expenditures. Capital expenditures were $39.5 million in the nine month period
of fiscal 1998 compared to $50.8 million in the nine month period of fiscal
1997. Capital expenditures were higher in the prior year due to new capacity
added to certain Vlasic and Swanson production facilities. Capital expenditures
for the fiscal years 1998 and 1999 are expected to be $65 million and $55
million, respectively, as compared to $79 million in fiscal 1997. During the
second quarter of fiscal 1998, Vlasic acquired the SAFRA trademark and certain
equipment for the canned spreadable meats business in Argentina for $6.4
million.
Cash provided by financing activities was principally funded from $68.9
million received from Campbell. Such financing activities were used primarily
for seasonal working capital requirements and increased spending in support of
transitional programs and development of an independent infrastructure including
the implementation of information systems. Under the distribution agreement with
Campbell, this amount plus $6.5 million was payable to Campbell on May 15, 1998.
During the fourth quarter of fiscal 1998, the Company will make an additional
payment of $31.4 million to Campbell for the reimbursement for trade payables
paid by Campbell on a temporary transition basis. The payments will be funded
through operating cash flow and funds available under the credit facility.
YEAR 2000
The year 2000 issue results from computer systems which process dates
based on two digits for the year of a transaction rather than a full four
digits. Accordingly, these systems are unable to properly process transactions
with dates in the year 2000 and beyond. Vlasic has developed and is currently
executing an implementation plan to address this issue by replacing or modifying
its key financial and operational computer systems and imbedded technology.
Vlasic believes that all systems necessary to manage the business effectively
will be implemented, modified or upgraded before the year 2000 dating issue
impacts these systems. The anticipated costs associated with modifying current
systems to be year 2000 compliant will be expensed as incurred. Such costs are
estimated to be $3 million. In addition, Vlasic has assessed its relationships
with customers and vendors and does not anticipate any significant problems to
occur as a result of the year 2000 issue.
19
<PAGE> 21
PART II
ITEM 1. LEGAL PROCEEDINGS
As previously reported in Vlasic's Form 10, dated March 5, 1998, we are not
aware of any pending claims or litigation the outcome of which would have a
material adverse effect on our business, financial position or results of
operations.
ITEM 5. OTHER INFORMATION
a. VLASIC FOODS INTERNATIONAL COMMENTS ON FISCAL YEAR 1998 EXPECTATIONS
The information included in this item is set forth in a press release
issued by the Company dated May 21, 1998, attached hereto as Exhibit
99.1 and is incorporated herein by reference.
b. VLASIC ANNOUNCES 1998 THIRD QUARTER RESULTS
The information included in this item is set forth in a press release
issued by the Company dated May 27, 1998, attached hereto as Exhibit
99.2 and is incorporated herein by reference.
c. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. This information is based on management's current views and
assumptions regarding future events and financial performance and is
subject to risks and uncertainties that could cause actual results to
differ materially from those expressed in this report. Important facts
that could cause such differences include, but are not limited to, the
renegotiation of the Company's credit facility.
20
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
No.
---
<S> <C>
10.1 Mid-Career Hire Pension Agreement dated March 30, 1998 with
Robert F. Bernstock, President and Chief Executive Officer.
27 Financial Data Schedule.
99.1 Press Release issued May 21, 1998 announcing Vlasic's comments
on fiscal year 1998 expectations.
99.2 Press release issued May 27, 1998 announcing 1998 third
quarter results.
b. Reports on Form 8-K
A Form 8-K reporting a press release announcing special
charges covering transaction and restructuring costs to
Campbell Soup Company in connection with the spin-off of
Vlasic Foods International Inc. as a separate publicly-owned
company was filed with the Securities and Exchange Commission
on March 27, 1998.
</TABLE>
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.
VLASIC FOODS INTERNATIONAL INC.
Date: June 16, 1998 By:______________________________________
William R. Lewis
Vice President and
Chief Financial Officer
21
<PAGE> 1
Exhibit 10.1
MID-CAREER HIRE PENSION AGREEMENT
This is an AGREEMENT dated March 30, 1998 ("Agreement"), by
and between VLASIC FOODS INTERNATIONAL INC. ("Company") and ROBERT F. BERNSTOCK
("Bernstock").
SECTION 1. PURPOSE
The purpose of the Agreement is to provide Bernstock with retirement
benefits that supplement the retirement income that he is to receive from
designated Company sources, including the Qualified Plan and the Nonqualified
Plans.
SECTION 2. DEFINITIONS
The following words and phrases, as used in this Agreement, shall have
these meanings:
(a) "Adjusted Final Pay" means Bernstock's Final Pay, as that term is
defined in the Qualified Plan, but for this Agreement including in "Annualized
Earnings," as that term is defined in the Qualified Plan, and contingent awards
of incentive compensation awarded under the Vlasic Foods International Inc.
Annual Incentive Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Campbell Group" means Campbell Soup Company and all of its
Subsidiaries.
(d) "Committee" means the Compensation and Organization Committee of
the Board.
(e) "Company" means Vlasic Foods International Inc. and its successors
and assigns.
<PAGE> 2
(f) "Effective Retirement Date" means Bernstock's Effective Retirement
Date, as that term is defined in the Qualified Plan.
(g) "Normal Retirement Date" means Bernstock's Normal Retirement Date,
as that term is defined in the Qualified Plan.
(h) "Nonqualified Plans" means the Company's excess benefit pension
arrangements as in effect from time to time on and after the date of this
Agreement, but not including the arrangement under this Agreement or any other
supplemental pension arrangement adopted on or after the date of this Agreement.
(i) "Qualified Plan" means the Vlasic Foods International Inc.
Retirement and Pension Plan for Salaried Employees as in effect on and after the
date of this Agreement.
(j) "Social Security Covered Compensation" means the average annual
amount of compensation on which the old age benefits for an individual age 65
would be computed under the Federal Social Security Act in effect at the time of
termination of his or her employment, assuming such individual had always earned
compensation at least equal to the wage base subject to tax under the Federal
Insurance Contributions Act.
(k) "Subsidiary" means a corporation, the majority of the voting stock
of which is owned directly or indirectly by the Company.
(l) "Vlasic Group" means the Company and all of its Subsidiaries.
(m) "Years of Service" means all Bernstock's Years of Service, as that
term is defined in the Qualified Plan, in the employ of the Company, any
Subsidiary and the Campbell Group.
- 2 -
<PAGE> 3
SECTION 3. ELIGIBILITY
Bernstock shall be eligible for benefits under this Agreement in
accordance with its terms.
SECTION 4. VESTING AND BENEFITS
(a) Voluntary Resignation Before Age 55. If Bernstock voluntarily
resigns without the consent of the Company before attaining age 55, he shall
automatically forfeit all benefits under this Agreement.
(b) Termination by the Company Before Age 55. If Bernstock is
terminated by the Company prior to attaining age 55, for other than Cause, as
defined in Section 13(c), he shall be vested in the Accelerated Benefit only
(see Section 7).
(c) Retirement On or After Age 55. If Bernstock retires on or after age
55, he shall be vested in the Income Replacement Benefit only (see Section 7).
SECTION 5. DEATH AND DISABILITY BENEFITS
(a) If Bernstock's employment terminates prior to his attaining age 55,
due to death or Total Disability, as defined in the Qualified Plan, Bernstock or
his beneficiary shall be immediately vested in and entitled to the Accelerated
Benefit (see Section 7) based upon his Years of Service to the date of his death
or total disability.
(b) If Bernstock's employment terminates due to death or Total
Disability after he has attained age 55, Bernstock or his beneficiary shall be
entitled to the Income Replacement Benefit (see Section 7) based on Years of
Service to the date of the death or total disability.
- 3 -
<PAGE> 4
SECTION 6. CONDITIONS TO BENEFIT ENTITLEMENT
Subject to the provisions of Section 10(d), each payment of benefits
under this Agreement shall be subject to the conditions that:
(a) Bernstock's employment with the Vlasic Group shall not have been
terminated for Cause; and
(b) prior to such payment, Bernstock shall not have engaged in conduct
materially detrimental to the interests of the Company or any Subsidiary,
including, without limitation, engaging in any business competitive with a
business in which the Company or a Subsidiary (i) was engaged at any time during
Bernstock's employment with the Vlasic Group, and (ii) is engaged at the time
Bernstock is engaged in the competitive business.
SECTION 7. BENEFIT FORMULAS
A. Accelerated Benefit Formula
A straight life annuity, payable in monthly installments commencing on
Bernstock's Normal Retirement Date and with 60 monthly installments guaranteed,
equal to the excess, if any, of (a) over (b) where:
(a) is the sum of:
(i) two and four-tenths percent (2.4%) of his Adjusted Final Pay up to
the Social Security Covered Compensation multiplied by his Years of Service not
in excess of five (5), plus one and two tenths percent (1.2%) of his Adjusted
Final Pay up to the Social Security Covered Compensation multiplied by his Years
of Service in excess of five (5) but not in excess of twenty (20), plus
- 4 -
<PAGE> 5
(ii) three and six tenths percent (3.6%) of his Adjusted Final Pay in
excess of the Social Security Covered Compensation multiplied by his Years of
Service not in excess of five (5) plus one and eight tenths percent (1.8%) of
his Adjusted Final Pay in excess of the Social Security Covered Compensation
multiplied by his Years of Service in excess of five (5) but not in excess of
twenty (20); and
(b) is the sum of:
(i) the straight life annuity payable to Bernstock in monthly
installments, commencing on his Normal Retirement Date and with 60 monthly
installments guaranteed, under the Qualified Plan;
(ii) the annual retirement benefit payable to Bernstock on a five-year
certain and life annuity basis commencing on his Normal Retirement Date under
the Nonqualified Plans; and
(iii) an imputed benefit calculated using a straight life annuity as if
payable in monthly installments, commencing on Bernstock's Normal Retirement
Date and with 60 monthly installments guaranteed, under the Qualified Plan based
upon the following assumptions:
(A) Final Average Pay equals Bernstock's annual salary on the date he
was employed by the Campbell Group, and
(B) Years of Service equal the number of whole years between
Bernstock's age at date of hire by the Campbell Group and 32, but such imputed
Years of Service shall be limited to the lesser of (1) actual Years of Service
under the Qualified Plan or (2) 10 years.
- 5 -
<PAGE> 6
B. Income Replacement Benefit Formula
A straight life annuity, payable in monthly installments commencing on
Bernstock's Normal Retirement Date and with 60 monthly installments guaranteed,
equal to the excess, if any, of (a) over (b) where:
(a) equals 45% of Adjusted Final Pay reduced by one and eight tenths
percent (1.8%) for each year Bernstock's age is below age 62 at date of
retirement; and
(b) is the sum of
(i) the straight life annuity payable to Bernstock in monthly
installments, commencing on his Normal Retirement Date and with 60 monthly
installments guaranteed, under the Qualified Plan;
(ii) the annual retirement benefit payable to Bernstock on a five-year
certain and life annuity basis commencing on his Normal Retirement Date under
the Nonqualified Plans; and
(iii) an imputed benefit calculated using a straight life annuity as if
payable in monthly installments, commencing on Bernstock's Normal Retirement
Date and with 60 monthly installments guaranteed, under the Qualified Plan based
upon the following assumptions:
(A) Final Average Pay equals the annual salary of Bernstock on the
date he was employed by the Campbell Group, and
(B) Years of Service equal the number of whole years between
Bernstock's age at date of hire by the Campbell Group and 32, but such imputed
Years of Service shall be limited to the lesser of (1) actual Years of Service
under the Qualified Plan or (2) 10 years.
- 6 -
<PAGE> 7
SECTION 8. TIME AND FORM OF PAYMENT; BENEFICIARY.
(a) The annual retirement benefit payable under this Agreement shall
be paid commencing at the same time and with the same reductions, if any, for
commencement of benefits before Normal Retirement Date, and in the same optional
form, and shall be provided with the same death benefits after retirement, if
any, as Bernstock's retirement benefits under the Qualified Plan. Any
adjustments and reductions shall be made using the same actuarial factors as
apply under the Qualified Plan.
(b) If no retirement benefits are payable to Bernstock under the
Qualified Plan, then he:
(i) may elect a joint and survivor or any other optional form of
payment provided under the Qualified Plan for payment of his benefits under this
Agreement;
(ii) may elect to receive his benefits under this Agreement commencing
at the same time as he would be permitted to receive retirement benefits under
the Qualified Plan if he were fully vested thereunder; and
(iii) shall be provided the same death benefits after retirement and
optional forms of payment with respect to his benefits under this Agreement as
would be provided under the Qualified Plan if Bernstock were fully vested
thereunder. In clauses (i), (ii) and (iii) above, the same terms and conditions
(including without limitation actuarial adjustments, early retirement reduction
factors, coverage charges, and election requirements) shall apply as would apply
under the Qualified Plan.
- 7 -
<PAGE> 8
(c) Bernstock's beneficiary under the Qualified Plan shall
automatically be deemed to be designated as the recipient of the retirement
benefits, if any, payable under this Agreement in the event of Bernstock's
death. If no benefits are payable to Bernstock under the Qualified Plan, he may
designate a beneficiary to receive the portion, if any, of the benefits payable
under this Agreement in the event of his death, on the same terms and conditions
as apply to the designation of a beneficiary under the Qualified Plan.
SECTION 9. RETIREE MEDICAL BENEFITS
If Bernstock is not eligible to participate in the Vlasic Foods
International Inc. Retiree Medical Plan because he does not have the requisite
period of service, then he shall be eligible to receive under this Agreement the
same benefits as provided under the Vlasic Foods International Inc. Retiree
Medical Plan. If Bernstock is receiving retiree medical benefits under this
Agreement because of total disability and is no longer totally disabled and is
under age 55, such benefits will cease.
SECTION 10. GENERAL PROVISIONS
(a) Construction. This Agreement (i) is not intended to be a qualified
plan under section 401(a) of the Internal Revenue Code of 1986, as amended, and
(ii) is intended to meet the requirements of sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended.
This Agreement shall be administered, interpreted and construed to carry out
such intentions, and any provision hereof that cannot be so administered,
interpreted and construed shall to that extent be disregarded.
- 8 -
<PAGE> 9
(b) Qualified and Nonqualified Plans not Affected. Any benefits payable
pursuant to this Agreement are intended to be in excess of those, if any,
payable under the Qualified Plan and the Nonqualified Plans.
(c) Administration; Finality of Decisions. The Agreement shall be
administered by the Committee. The Committee shall have all necessary powers to
administer and interpret it. The Committee shall have full power and authority
to adopt such rules, regulations and instruments for the administration of the
Agreement, as it deems necessary or advisable. The Committee's interpretations
of the Agreement, as well as all actions taken and determinations made by the
Committee pursuant to the powers vested in it hereunder, shall be conclusive and
binding on Bernstock and the Company.
(d) Failure to Satisfy Conditions. If Bernstock shall fail to satisfy
any of the conditions set forth in Section 6, the Company shall not be obligated
after such failure to pay any benefits remaining to be paid to or on behalf of
Bernstock, provided that, in the case of any alleged failure to satisfy the
conditions set forth in Section 6(a) or Section 6(b), all of the following shall
have taken place:
(i) the Secretary of the Company, at the direction of the
Committee, shall have given written notice to Bernstock (hereafter
referred to as the "Notice") setting forth with reasonable specificity
(A) the alleged failure, and (B) the loss of rights to benefits that
will occur unless Bernstock rectifies such failure to the satisfaction
of the Committee within 30 days after his receipt of the Notice;
- 9 -
<PAGE> 10
(ii) Bernstock shall not have rectified such failure to the
reasonable satisfaction of the Committee within thirty (30) days after
his receipt of the Notice; and
(iii) the Secretary of the Company at the direction of the
Committee and after the expiration of the thirty (30) day period
referred to in clause (ii) above, shall have given written notice to
the Bernstock that, in the opinion of the Committee, he has not
rectified the failure.
(e) Acceleration on Default. If the Company fails to pay in a timely
manner the benefits due Bernstock or his beneficiary under this Plan and if the
Company neglects to remedy such failure within thirty (30) days after having
received written notice of it from Bernstock or his beneficiary, then the
Company shall thereupon pay to Bernstock or his beneficiary as the case may be
in full discharge of its obligations the lump-sum actuarial equivalent of all
benefits remaining to be paid.
(f) Actuarial Calculations. Whenever it shall be necessary or
appropriate to make an actuarial calculation under this Agreement the same
actuarial factors, assumptions and procedures shall be followed as are used
under the Qualified Plan.
(g) Withholding. The Company may withhold from any benefits to be paid
under this Agreement such amounts as it determines are required to be withheld
under the laws or regulations of any governmental authority.
(h) Claims Procedure. Any claim for benefits under this Agreement shall
be delivered in writing by Bernstock or his representative to the Committee in
accordance with such rules as the Committee may from time to time establish.
Within a reasonable time after receiving any
- 10 -
<PAGE> 11
claim for benefits under this Agreement, the Committee shall inform the claimant
in writing whether such claim is allowed or denied. Any denial by the Committee
of any claim for benefits under this Agreement shall be stated in writing by the
Committee and delivered or mailed to the claimant and such notice shall be
written in a manner calculated to be understood by the claimant and shall
include (i) the specific reasons for the denial, including where appropriate,
references to this Agreement, (ii) any additional information necessary to
perfect the claim with an explanation of why the information is necessary and
(iii) an explanation of the procedure for perfecting the claim. The claimant
shall have sixty (60) days after receipt of written notification of denial of
his claim in which to file a written appeal with the Committee. As a part of any
such appeal, the claimant may submit issues and comments in writing and shall,
on request, be afforded an opportunity to review any documents pertinent to the
perfection of his claim. The Committee shall render a written decision on the
claimant's appeal ordinarily within sixty (60) days of receipt thereof but, in
no case, later than one hundred twenty (120) days.
(i) No Employment Rights. Neither the action of the Company in entering
into this Agreement, nor any action taken by it or by the Board or the Committee
under this Agreement, nor any provision of this Agreement, shall be construed as
giving to Bernstock the right to be retained in the employ of the Vlasic Group.
(j) Unfunded Obligation. Bernstock and his beneficiary shall not have
any right, title or interest whatsoever in any investments that the Vlasic Group
may make to aid it in meeting its obligations under this Agreement. All benefits
under this Agreement represent an unsecured promise to pay by the Company. The
Company's obligations hereunder shall be unfunded and the
- 11 -
<PAGE> 12
benefits hereunder shall be paid only from the general assets of the Vlasic
Group resulting in Bernstock's having no greater rights than the Company's
general creditors; provided, however, nothing herein shall prevent or prohibit
the Company from establishing a trust or other arrangement for the purpose of
providing for the payment of the benefits payable under this Agreement.
(k) Rights Non-Transferable. To the extent permitted by law, no benefit
under this Plan shall be transferable, alienable or assignable by Bernstock or
his beneficiary, nor shall any such right, interest or benefit be subject to
anticipation, encumbrance, garnishment, attachment, execution or levy of any
kind, voluntary or involuntary. Any attempt, voluntary or otherwise, to effect
any such action shall, to the full extent permitted by law, be null and void.
If, by reason of any attempt of Bernstock or his beneficiary to alienate,
charge, encumber or otherwise dispose of any benefit under this Agreement, or by
reason of bankruptcy or insolvency, or because of any attachment, garnishment or
other judicial or administrative proceedings, such benefit of Bernstock or his
beneficiary would (except for this paragraph) be payable to some person other
than Bernstock or his beneficiary, then the Committee may (in its sole
discretion) terminate such benefit. Thereafter, the Committee may, in its sole
discretion, apply all or any portion of the benefits that would otherwise have
been payable, but for such termination, to the support and maintenance of
Bernstock or his beneficiary, as the case may be, or of a dependent family
member.
(l) Facility of Payment. If the Committee finds that Bernstock or any
beneficiary to whom a benefit is payable hereunder is unable to care for his
affairs because of physical, mental or
- 12 -
<PAGE> 13
legal incompetence, the Committee, in its sole discretion, may cause any payment
due to him hereunder for which prior claim has not been made by a duly qualified
guardian or other legal representative to be paid to the person deemed by the
Committee to be maintaining or responsible for the maintenance of Bernstock or
his beneficiary; and any such payment shall be deemed a payment for the account
of Bernstock or his beneficiary and shall constitute a complete discharge of any
liability therefor under this Agreement. If Bernstock dies before receiving all
the payments due him and without having a designated beneficiary, such payments
shall be made to his estate.
(m) Severability. In the event that any provision of this Agreement,
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions shall be unaffected thereby and shall remain in full force and
effect.
(n) Notices.
(i) Any instrument to be delivered under this Agreement to the
Committee shall be deemed to have been properly delivered if and when
received by the Secretary of the Company at the Company's principal
place of business.
(ii) Any instrument to be delivered under this Agreement to
Bernstock or his beneficiary shall be deemed to have been properly
delivered in each case if and when received by Bernstock or his
beneficiary or upon deposit thereof, in a post office box regularly
maintained by the United States Government, in an envelope, with first
class mail postage, addressed to Bernstock or his beneficiary at his or
her address as it appears from time to time on the books of the
Company.
- 13 -
<PAGE> 14
SECTION 11. AMENDMENT, SUSPENSION OR TERMINATION
The Board or its delegate may amend, suspend or terminate this
Agreement in whole or part; but no such amendment, suspension or termination may
adversely affect benefits accrued by Bernstock based upon his Years of Service
to the date of such amendment, suspension or termination.
SECTION 12. GOVERNING LAW
The provisions of this Agreement shall be construed, administered and
enforced in accordance with the laws of the State of New Jersey.
SECTION 13. CHANGE IN CONTROL
(a) Contrary Provisions. Notwithstanding anything contained in this
Agreement to the contrary, the provisions of this Section 13 shall govern and
supersede any inconsistent terms or provisions of this Agreement.
(b) Definition of Change in Control. For purposes of this Agreement
"Change in Control" means any of the following events:
(A) The acquisition in one or more transactions by any
"Person" (as the term person is used for purposes of Section 13(d)
or Section 14(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act")) of "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of twenty-five percent
(25%) or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"); provided,
however, that for purposes of this Section 13(b)(A), the Voting
Securities
- 14 -
<PAGE> 15
acquired directly from the Company by any Person shall be excluded
from the determination of such Person's Beneficial Ownership of
Voting Securities (but such Voting Securities shall be included in
the calculation of the total number of Voting Securities then
outstanding); or
(B) The individuals who, as of the later of April 1, 1998 or
the first date that the membership of the Board reaches seven (7),
are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least two-thirds of the Board; provided,
however, that if the election, or nomination for election by the
Company's shareowners, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of
the Incumbent Board; or
(C) Approval by the Company's shareowners of (1) a merger or
consolidation involving the Company if the shareowners of the
Company, immediately before such merger or consolidation, do not
own, directly or indirectly immediately following such merger or
consolidation, more than eighty percent (80%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or (2) a
complete liquidation or dissolution of the Company or an agreement
for the sale or other disposition of all or substantially all
- 15 -
<PAGE> 16
of the assets of the Company; or
(D) Acceptance by shareowners of the Company of shares in a
share exchange if the shareowners of the Company, immediately
before such share exchange, do not own, directly or indirectly
immediately following such share exchange, more than eighty percent
(80%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such share exchange in
substantially the same proportion as their ownership of the Voting
Securities outstanding immediately before such share exchange.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because twenty-five percent (25%) or more of the then
outstanding Voting Securities is acquired by (i) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained by the Company or any of its Subsidiaries, (ii) any
corporation that, immediately prior to such acquisition, is owned
directly or indirectly by the shareowners of the Company in the same
proportion as their ownership of stock in the Company immediately prior
to such acquisition, (iii) any "Grandfathered Dorrance Family
Shareowner" (as hereinafter defined) or (iv) any Person who has
acquired such Voting Securities directly from any Grandfathered
Dorrance Family Shareowner but only if such Person has executed an
agreement that is approved by two-thirds of the Board and pursuant to
which such Person has agreed that he (or they) will not increase his
(or their) Beneficial Ownership (directly or indirectly) to thirty
percent (30%) or more of the
- 16 -
<PAGE> 17
outstanding Voting Securities (the "Standstill Agreement") and only for
the period during which the Standstill Agreement is effective and fully
honored by such Person. For purposes of this Section, "Grandfathered
Dorrance Family Shareowner" means at any time a "Dorrance Family
Shareowner" (as hereinafter defined) who or which is at the time in
question the Beneficial Owner solely of (v) Voting Securities
Beneficially Owned by such individual on April 1, 1998, (w) Voting
Securities acquired directly from the Company, (x) Voting Securities
acquired directly from another Grandfathered Dorrance Family
Shareowner, (y) Voting Securities that are also Beneficially Owned by
other Grandfathered Dorrance Family Shareowners at the time in
question, and (z) Voting Securities acquired after April 1, 1998 other
than directly from the Company or from another Grandfathered Dorrance
Family Shareowner by any "Dorrance Grandchild" (as hereinafter
defined); provided that the aggregate amount of Voting Securities so
acquired by each such Dorrance Grandchild shall not exceed five percent
(5%) of the Voting Securities outstanding at the time of such
acquisition. A "Dorrance Family Shareowner" who or which is at the time
in question the Beneficial Owner of Voting Securities that are not
specified in clauses (v), (w), (x), (y) and (z) of the immediately
preceding sentence shall not be a Grandfathered Dorrance Family
Shareowner at the time in question. For purposes of this Section,
"Dorrance Family Shareowners" means individuals who are descendants of
the late Dr. John T. Dorrance, Sr. and/or the spouses, fiduciaries and
foundations of such descendants. A "Dorrance Grandchild" means, as to
each particular grandchild of the late Dr. John T. Dorrance, Sr., all
of the following taken collectively:
- 17 -
<PAGE> 18
such grandchild, such grandchild's descendants and/or the spouses,
fiduciaries and foundations of such grandchild and such grandchild's
descendants.
Moreover, notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company that, by reducing the number of Voting
Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person; provided that if a Change in
Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and
after such share acquisition by the Company, the Subject Person becomes
the Beneficial Owner of any additional Voting Securities that increases
the percentage of the then outstanding Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
(c) Definition of Cause. For purposes of this Agreement, "Cause" means
the termination of Bernstock's employment by reason of his engaging in conduct
that constitutes willful gross misconduct that is demonstrably and materially
injurious to the Company, monetarily otherwise, misappropriation of funds,
willful and material misrepresentation to the directors of the Company, gross
negligence in the performance of Bernstock's duties having a material adverse
effect on the business, operations, assets, properties or financial condition of
the Company or a Subsidiary, or entering into competition with the Company or a
Subsidiary. No act, nor failure to
- 18 -
<PAGE> 19
act, on Bernstock's part shall be considered "willful" unless he has acted, or
failed to act, with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of the Company and
its Subsidiaries.
(d) Definition of Termination Following a Change in Control. For
purposes of this Agreement, "Termination Following a Change in Control" means a
termination of employment:
(i) initiated by the Company, other than for Cause; or
(ii) initiated by Bernstock following one or more of the following
events:
(A) an assignment to Bernstock of any duties materially
inconsistent with, or a reduction or change by the Company in the nature or
scope of the authority, duties or responsibilities of Bernstock from those
assigned to or held by Bernstock immediately prior to the Change in Control;
(B) any removal of Bernstock from the positions held
immediately prior to the Change in Control, except in connection with promotions
to positions of greater responsibility and prestige;
(C) any reduction by the Company in Bernstock's compensation
as in effect immediately prior to the Change in Control or as the same may be
increased thereafter;
(D) revocation or any modification of any employee benefit
plan, or any action taken pursuant to the terms of any such plan, that
materially reduces Bernstock's opportunity to receive benefits under such plan;
(E) a transfer or relocation of the site of Bernstock's
employment immediately preceding the Change in Control, without his express
written consent, to a location
- 19 -
<PAGE> 20
more than fifty (50) miles distant therefrom, or that is otherwise an
unacceptable commuting distance from Bernstock's principal residence at the date
of the Change in Control; or
(F) a requirement that Bernstock undertake business travel to
an extent substantially greater than his business travel obligations immediately
prior to the Change in Control.
(e) Termination of Employment. If Bernstock has a Termination following
a Change in Control within two (2) years following a Change in Control, the
Company shall, within thirty (30) days, pay to him a lump sum cash payment equal
to the lump sum Actuarial Equivalent of his accrued benefit as of the date of
his Termination Following a Change in Control; provided, however, that for this
purpose, the term Actuarial Equivalent shall have the same meaning as such term
is used in the Qualified Plan as in effect at the date of termination.
(f) Amendment or Termination.
(i) This Section 13 shall not be amended or terminated at any time.
(ii) For a period of two (2) years following a Change in Control,
this Agreement shall not be terminated or amended in any way, nor
shall the manner in which this Agreement is administered be changed
in a way that adversely affects Bernstock's right to existing or
future Company-provided benefits or contributions provided
hereunder, including, but not limited to, any change in, or to, the
eligibility requirements, benefit formulae and manner and optional
forms of payments.
(iii) Any amendment or termination of this Agreement prior to a
Change in Control that (A) was at the request of a third party who
has indicated an intention
- 20 -
<PAGE> 21
or taken steps reasonably calculated to effect a Change in Control
or (B) otherwise arose in connection with, or in anticipation of, a
Change in Control, shall be null and void and shall have no effect
whatsoever.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
VLASIC FOODS INTERNATIONAL INC.
By:_________________________________
Name:
Title:
____________________________________
Robert F. Bernstock
- 21 -
<PAGE> 1
Exhibit 99.1
[VLASIC FOODS INTERNATIONAL LETTERHEAD]
VLASIC FOODS INTERNATIONAL COMMENTS ON FISCAL YEAR 1998 EXPECTATIONS
CHERRY HILL, NJ -- May 21, 1998 -- Vlasic Foods International (NYSE:VL), the
$1.5 billion food company spun off from Campbell Soup on March 30, today
announced that it anticipates its earnings before restructuring and one-time
charges for the recently-completed third quarter of fiscal year 1998 (ended May
3, 1998) and for the fourth quarter of fiscal year 1998 (ending August 2, 1998)
will be below analysts' expectations. The Company is scheduled to announce its
third quarter and year-to-date results on May 27.
"We remain fully confident in our ability to achieve previously-discussed goals
for fiscal year 1999. Our plans and programs are coming along extremely well,"
said Vlasic Foods International President and Chief Executive Officer Robert F.
Bernstock.
The shortfall in fiscal year 1998 earnings will be driven by four primary
factors:
- - Higher than anticipated transition costs, including acceleration of
one-time MIS development from fiscal 1999 into fiscal 1998, and other
impacts related to its spin off;
- - A significantly higher effective tax rate for the year due to weaker
foreign earnings, which will have a disproportionate impact on the tax rate
in the second half of fiscal year 1998. The effective tax rate for the full
fiscal year 1998 is expected to be nearly 50 percent versus the 41 percent
applied to the first half of the year;
- - Weaker consumption and sales on "Swanson" frozen food and "Vlasic" pickle
businesses, caused in large part by significantly lower advertising. In
total, media advertising spending is down over 50 percent from prior year
levels, reflecting the continuing legacy of inattention to these brands
prior to the spin off; and
- - The Company's determination to align shipments with consumption data. This
impact is expected to be felt in the second half of fiscal 1998, especially
in the fourth quarter, as the Company expects to exit the year with
shipments and consumption more in balance.
The Company noted that the bulk of the earnings shortfall will occur in the
fourth quarter, which, as a result, will be at or near break-even, before
one-time charges.
"We are very excited by progress on our major brand-building and cost reduction
initiatives. There is absolutely and unequivocably no change in our expectations
for fiscal year 1999 earnings per share performance," Bernstock further added.
"We are revving the engines for accelerating growth in 1999 and beyond."
FORWARD LOOKING STATEMENT
This release contains certain forward-looking statements. The Company believes
the assumptions underlying the forward-looking statements, including sales and
operating costs, are reasonable. However, any of the assumptions could be
inaccurate, and therefore there can be no assurance that the forward-looking
statements contained in the release will prove to be accurate.
###
<PAGE> 1
Exhibit 99.2
CONTACT: Kevin G. Lowery (media)
(609) 342-8533
Mitch Goldstein (analysts)
(609) 342-4879
- - Vlasic Announces 1998 Third Quarter Results; On-Track With EPS Growth
Goals For FY99 and Beyond.
- - 3Q Pro Forma EPS $0.10 per Share Before Restructuring, One-Time, &
Transition Charges of $0.56 Per Share.
- - Alignment of Shipments with Consumption Impacts 3Q Operating Earnings
$0.05; Larger Impact Expected in 4Q98.
- - Announces it Will Launch Major New Product and Sales Channel Expansion
Programs To Grow Core 'Vlasic' and 'Swanson' Businesses in FY99.
CHERRY HILL, NJ -- May 27, 1998 -- Vlasic Foods International (NYSE:VL), the
$1.4 billion food company recently spun off by Campbell Soup Company, today
announced its 1998 third quarter sales and earnings for the period ending May 3.
Vlasic also said it is on-track with its previously announced financial goals
and that it will launch two new product lines and a major sales channel
expansion program in fiscal 1999. These programs will reverse trends and
generate positive volume and consumption growth behind its core "Vlasic" and
"Swanson" businesses in fiscal 1999.
In addition, Vlasic said it is determined to continue to align
shipments with consumption levels in its 1998 fourth quarter as it did in the
third quarter of 1998. As a result, the company said it expects its fourth
quarter to be at or near break-even before one-time charges. Depending on the
level of accomplishment of this alignment objective, the result for the fourth
quarter could be within a range of break-even to a loss of $0.05 per share
before one-time charges. Vlasic also said it is ahead of schedule in the
development of its independent infrastructure, including the implementation of a
state-of-the-art MIS system.
Vlasic Foods International President and Chief Executive Officer Robert
F. Bernstock, said, "Fiscal 1998 is a transition year on our road to becoming a
truly great food company. We are now even more confident of delivering our
fiscal 1999 financial goals which have never changed. We have made conscious
decisions to do the right things in the short term, such as
<PAGE> 2
investing in brand building and aligning shipments with consumption, because
they are necessary for the long-term health and growth of the business.
"We're making the investments now and will ramp-up support next year
using funds from cost savings programs. We will invest as we deliver on our
financial goals," Bernstock added.
FISCAL 1998 THIRD QUARTER RESULTS
Excluding restructuring, one-time and transition charges, pro forma
diluted earnings per share for the third quarter were $0.10 per share. The
realignment of shipments to consumption, which impacted earnings in the quarter
by $0.05 per share, is not included in one-time charges.
Pro forma earnings per share for the 1998 third quarter including
restructuring, one-time, and transitional charges, which totaled $0.56 per share
for the quarter, resulted in a pro forma net loss of $20.8 million or $0.46 per
share, driven by:
- a previously announced $28 million pre-tax
restructuring charge ($21.8 million after tax or
$0.48 per share); and
- several unusual, non-recurring charges including
start-up costs associated with new technology at its
pickle plants, increased marketing accruals in its
German gourmet foods business and the beginning of
transitional MIS development charges totaling $4
million or $0.08 per share.
Sales for the third quarter were $320 million, a 10 percent decline
versus a year ago. The sales decrease was primarily due to lower sales in the
U.S. frozen foods and pickle businesses. The decreases were driven about equally
by both a reduction of retail inventories and by reduced consumption, linked to
a lack of product innovation and a lack of advertising support. Third quarter
sales were also adversely impacted by lower exports of beef from the company's
Swift Armour unit in Argentina.
<PAGE> 3
FISCAL 1999 BRAND BUILDING INITIATIVES
The Company announced it will launch a series of marketing initiatives
in fiscal 1999 that will result in modest volume growth for both its core
"Vlasic" and "Swanson" businesses, a reversal of current trends. These
initiatives include:
- Major new product line launches for its "Vlasic" and "Swanson"
businesses.
- Sales expansion programs into alternate channels. This
includes an estimated $25 million in programs that will begin
shipping in June 1998.
- New and bigger advertising campaigns for its "Vlasic" and
"Swanson" brands.
Bernstock said the Company will triple advertising spending on "Vlasic"
and "Swanson" over the next two years. The Swanson campaign will mark the first
television advertising for the brand in 5 years.
"We are committed to growing our core 'Vlasic' and 'Swanson' businesses
beginning next year," said Bernstock. "We will begin to announce details on
these initiatives in August."
FISCAL 1998 NINE MONTH RESULTS
Sales for the first nine months were $1.04 billion versus $1.10 billion
a year ago. Pro forma diluted earnings per share before restructuring, one-time
and transitional charges for the nine months were $0.56 versus $0.72 a year ago.
Including the restructuring, one-time and transition charges, diluted earnings
per share for the first nine months of fiscal 1998 were $0.01.
On a pro forma basis, Vlasic Foods International earned $0.20 per
diluted share in the first quarter of 1998 and $0.26 per diluted share in the
second quarter.
The $28 million pre-tax restructuring charge, announced by Campbell
Soup prior to the spin off, provides for manufacturing efficiency and capacity
utilization initiatives in Europe and the United States.
<PAGE> 4
FORWARD LOOKING STATEMENT
This release contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company believes the
assumptions underlying the forward-looking statements, including sales,
operating costs, new product introductions and productivity gains are
reasonable. However, any of the assumptions could be inaccurate, and therefore
there can be no assurance that the forward-looking statements contained in the
release will prove to be accurate.
###
<PAGE> 5
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA STATEMENTS OF EARNINGS (unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- -------------------------
May 3, April 27, May 3, April 27,
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $320,694 $357,152 $1,043,863 $1,107,328
-------- -------- ---------- ----------
Costs and expenses
Cost of products sold..................... 231,457 248,967 750,681 779,963
Marketing and selling expenses............ 55,947 67,606 170,768 195,405
Administrative and other expenses......... 19,087 15,597 51,676 50,811
Restructuring charge...................... 28,050 -- 28,050 12,634
-------- -------- ---------- ----------
334,541 332,170 1,001,175 1,038,813
-------- -------- ---------- ----------
Pro Forma Earnings:
Earnings (loss) before interest and taxes.... (13,847) 24,982 42,688 68,515
Interest expense, net..................... 9,204 10,100 29,524 30,300
-------- -------- ---------- ----------
Earnings (loss) before taxes................. (23,051) 14,882 13,164 38,215
Provision for income taxes................... (2,273) 5,200 12,778 12,837
-------- -------- ---------- ----------
Pro forma earnings (loss).................... $(20,778) $ 9,682 $ 386 $ 25,378
======== ======== ========== ==========
Pro Forma Earnings Per Share:
Per share - basic............................ $ (0.46) $ 0.21 $ 0.01 $ 0.56
Weighted average shares outstanding - basic.. 45,455 45,455 45,455 45,455
Per share - assuming dilution................ $ (0.46) $ 0.21 $ 0.01 $ 0.55
Weighted average shares outstanding
- assuming dilution....................... 45,455* 45,901 46,001 45,910
</TABLE>
- --------------------
* Excludes potentially dilutive shares as the result would be antidilutive.
<PAGE> 6
VLASIC FOODS INTERNATIONAL INC.
SUPPLEMENTAL SCHEDULE OF SALES AND EARNINGS (unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Percent
THREE MONTHS ENDED Change
------------------- Excluding
May 3, April 27, Percent Restructuring
1998 1997 Change Charge
-------- -------- ------- -------------
<S> <C> <C> <C> <C>
Sales
- -----------------------------------------
Contributions:
Frozen Foods $117,024 $147,133 -20%
Grocery Products 118,098 127,327 -7%
Agricultural Products 86,951 85,159 2%
Eliminations (1,379) (2,467) -44%
-------- --------
Total sales $320,694 $357,152 -10%
======== ========
Earnings(1)
- -----------------------------------------
Contributions:
Frozen Foods $ (3,887) $ 8,644 -145% -33%
Grocery Products (6,208) 15,639 -140% -25%
Agricultural Products (3,752) 699 -637% -580%
-------- --------
Earnings (loss) before interest and taxes (13,847) 24,982 -155% -43%
Pro Forma Earnings and Earnings Per Share
- -----------------------------------------
Interest, net 9,204 10,100 -9%
-------- --------
Earnings (loss) before taxes (23,051) 14,882 -255%
Provision for income taxes (2,273) 5,200 -144%
-------- --------
Pro forma earnings (loss) $(20,778) $ 9,682 -315%
======== ========
Earnings (loss) per share - basic $ (0.46) $ 0.21
Earnings (loss) per share - assuming dilution $ (0.46)(2) $ 0.21
</TABLE>
- ---------------------
(1) Contributions to earnings by segment include the effects of the third
quarter fiscal 1998 restructuring charge of $28.1 million before tax,
$21.8 million after tax or $.48 per share, as follows:
<TABLE>
<S> <C>
Frozen Foods $ 9,700
Grocery Products 17,950
Agricultural Products 400
-------
$28,050
=======
</TABLE>
(2) Excludes potentially dilutive shares as the result would be antidilutive.
<PAGE> 7
VLASIC FOODS INTERNATIONAL INC.
SUPPLEMENTAL SCHEDULE OF SALES AND EARNINGS (unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Percent
NINE MONTHS ENDED Change
------------------- Excluding
May 3, April 27, Percent Restructuring
1998 1997 Change Charges
---------- ---------- ------- -------------
<S> <C> <C> <C> <C>
Sales
- -----------------------------------------
Contributions:
Frozen Foods $ 436,617 $ 466,322 -6%
Grocery Products 342,381 377,461 -9%
Agricultural Products 272,431 271,305 0%
Eliminations (7,566) (7,760) -3%
---------- ----------
Total sales $1,043,863 $1,107,328 -6%
========== ==========
Earnings(1)
- -----------------------------------------
Contributions:
Frozen Foods $ 34,251 35,774 -4% 14%
Grocery Products 12,879 27,761 -54% -18%
Agricultural Products (4,442) 4,980 -189% -181%
---------- ----------
Earnings before interest and taxes 42,688 68,515 -38% -13%
Pro Earnings and Earnings Per Share
- -----------------------------------------
Interest, net 29,524 30,300 -3%
---------- ----------
Earnings before taxes 13,164 38,215
Provision for income taxes 12,778 12,837 0%
---------- ----------
Pro forma earnings $ 386 25,378 -98%
========== ==========
Earnings per share - basic $ 0.01 $ 0.56
Earnings per share - assuming dilution $ 0.01 $ 0.55
</TABLE>
- ---------------------
(1) Contributions to earnings by segment include the effects of restructuring
charges in the third quarter fiscal 1998 of $28.1 million before tax, $21.8
million after tax or $.48 per share, and first quarter fiscal 1997 of $12.6
million before tax, $7.8 million after tax or $.17 per share, as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
<S> <C> <C>
Frozen Foods $ 9,700 $ 2,697
Grocery Products 17,950 9,937
Agricultural Products 400 --
------- -------
$28,050 $12,634
------- -------
</TABLE>
<PAGE> 8
VLASIC FOODS INTERNATIONAL INC.
BALANCE SHEET (unaudited)
(in thousands)
<TABLE>
<CAPTION>
May 3, August 3,
1998 1997
-------- --------
<S> <C> <C>
Current assets $346,432 $295,276
Plant assets 511,832 515,646
Other assets, principally intangibles, net 91,638 84,186
-------- --------
$949,902 $895,108
======== ========
Current liabilities, excluding payable to Campbell Soup Company $165,094 $212,206
Payable to Campbell Soup Company 106,832 --
Long-term debt 487,290 2,252
Nonpension postretirement benefits 31,562 --
Other liabilities 26,203 48,352
Shareowners' equity 132,921 632,298
-------- --------
$949,902 $895,108
======== ========
Total debt $503,715 $ 2,252
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED MAY 3, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-02-1998
<PERIOD-START> AUG-04-1998
<PERIOD-END> MAY-03-1998
<CASH> 13,551
<SECURITIES> 0
<RECEIVABLES> 153,815
<ALLOWANCES> 6,819
<INVENTORY> 172,508
<CURRENT-ASSETS> 346,432
<PP&E> 861,855
<DEPRECIATION> 350,023
<TOTAL-ASSETS> 949,902
<CURRENT-LIABILITIES> 271,926
<BONDS> 487,290
0
0
<COMMON> 136,954
<OTHER-SE> (4,033)
<TOTAL-LIABILITY-AND-EQUITY> 949,902
<SALES> 1,043,863
<TOTAL-REVENUES> 1,043,863
<CGS> 750,681
<TOTAL-COSTS> 1,001,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 4,285
<INCOME-PRETAX> 38,719
<INCOME-TAX> 20,406
<INCOME-CONTINUING> 18,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (600)
<NET-INCOME> 17,713
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
