<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
NOVEMBER 1, 1998 1-3822
CAMPBELL SOUP COMPANY
NEW JERSEY 21-0419870
STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
CAMPBELL PLACE
CAMDEN, NEW JERSEY 08103-1799
PRINCIPAL EXECUTIVE OFFICES
TELEPHONE NUMBER: (609) 342-4800
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
THERE WERE 444,577,922 SHARES OF CAPITAL STOCK
OUTSTANDING AS OF DECEMBER 1, 1998.
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PART I. FINANCIAL INFORMATION
CAMPBELL SOUP COMPANY CONSOLIDATED
STATEMENTS OF EARNINGS
(unaudited)
(millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
NOVEMBER November
1, 1998 2, 1997
-------- --------
<S> <C> <C>
Net sales $1,804 $1,813
------ ------
Costs and expenses
Cost of products sold 830 893
Marketing and selling expenses 420 370
Administrative expenses 78 81
Research and development expenses 16 17
Other expenses 13 25
------ ------
Total costs and expenses 1,357 1,386
------ ------
Earnings before interest and taxes 447 427
Interest, net 44 43
------ ------
Earnings before taxes 403 384
Taxes on earnings 139 132
------ ------
Earnings from continuing operations 264 252
Earnings from discontinued operations -- 15
------ ------
Net earnings $ 264 $ 267
====== ======
Per share - basic
Earnings from continuing operations $ .59 $ .55
Earnings from discontinued operations -- .03
------ ------
Net earnings $ .59 $ .58
====== ======
Dividends $ .210 $ .193
====== ======
Weighted average shares outstanding - basic 448 458
====== ======
Per share - assuming dilution
Earnings from continuing operations $ .58 $ .54
Earnings from discontinued operations -- .03
------ ------
Net earnings $ .58 $ .57
====== ======
Weighted average shares outstanding - assuming dilution 454 464
====== ======
</TABLE>
See Notes to Financial Statements
2
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CAMPBELL SOUP COMPANY CONSOLIDATED
BALANCE SHEETS
(unaudited)
(millions)
<TABLE>
<CAPTION>
NOVEMBER August
1, 1998 2, 1998
------- -------
<S> <C> <C>
Current assets
Cash and cash equivalents
Accounts receivable $ 19 $ 16
Inventories 816 656
Other current assets 658 564
202 204
------- -------
Total current assets 1,695 1,440
------- -------
Plant assets, net of depreciation 1,707 1,723
Intangible assets, net of amortization 2,022 1,904
Other assets 571 566
------- -------
Total assets $ 5,995 $ 5,633
======= =======
Current liabilities
Notes payable $ 1,332 $ 1,401
Payable to suppliers and others 544 506
Accrued liabilities 590 638
Dividend payable 94 95
Accrued income taxes 278 163
------- -------
Total current liabilities 2,838 2,803
------- -------
Long-term debt 1,488 1,169
Nonpension postretirement benefits 403 405
Other liabilities, including deferred
income taxes of $246 414 382
------- -------
Total liabilities 5,143 4,759
------- -------
Shareowners' equity
Preferred stock; authorized 40 shares;
None issued -- --
Capital stock, $.0375 par value; authorized
560 shares; issued 542 shares 20 20
Capital surplus 394 395
Earnings retained in the business 3,876 3,706
Capital stock in treasury, at cost (3,282) (3,083)
Accumulated other comprehensive income (156) (164)
------- -------
Total shareowners' equity 852 874
------- -------
Total liabilities and shareowners' equity $ 5,995 $ 5,633
======= =======
</TABLE>
See Notes to Financial Statements
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CAMPBELL SOUP COMPANY CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(millions)
<TABLE>
<CAPTION>
Three Months Ended
------------------
NOVEMBER November
1, 1998 2, 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Earnings from continuing operations $ 264 $ 252
Non-cash charges to net earnings
Depreciation and amortization 59 68
Deferred taxes (3) (5)
Other, net 16 12
Changes in working capital
Accounts receivable (160) (240)
Inventories (97) (41)
Other current assets and liabilities 102 124
----- -----
Net cash provided by operating activities 181 170
----- -----
Cash flows from investing activities:
Purchases of plant assets (47) (44)
Sales of plant assets 8 6
Businesses acquired (105) --
Other, net (4) (5)
----- -----
Net cash used in investing activities (148) (43)
----- -----
Cash flows from financing activities:
Long-term borrowings 324 --
Repayments of long-term borrowings (1) (4)
Short-term borrowings 457 309
Repayments of short-term borrowings (551) (54)
Dividends paid (95) (176)
Treasury stock purchases (215) (119)
Treasury stock issuances 54 31
----- -----
Net cash used in financing activities (27) (13)
----- -----
Net cash used in discontinued operations -- (75)
----- -----
Effect of exchange rate changes on cash (3) (2)
----- -----
Net change in cash and cash equivalents 3 37
Cash and cash equivalents - beginning of period 16 17
----- -----
Cash and cash equivalents - end of period $ 19 $ 54
===== =====
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
CAMPBELL SOUP COMPANY CONSOLIDATED
STATEMENTS OF SHAREOWNERS' EQUITY
(unaudited)
(millions, except per share amounts)
<TABLE>
<CAPTION> Capital stock
------------------------------------ Earnings Accumulated
Issued In treasury retained other Total
---------------- ------------------ Capital in the comprehensive shareowners'
Shares Amount Shares Amount surplus business income equity
------- ------- ------- ------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 3, 1997 542 $20 (84) $(2,459) $338 $3,571 $(50) $1,420
Comprehensive income
Net earnings 267 267
Foreign currency translation adjustments (1) (1)
Dividends ($.193 per share) (87) (87)
Treasury stock purchased (2) (119) (119)
Treasury stock issued under
management incentive and
stock option plans 1 8 17 25
--- --- --- ------- ---- ------ ------ ------
Balance at November 2, 1997 542 $20 (85) $(2,570) $355 $3,751 $(51) $1,505
=== === === ======= ==== ====== ====== ======
BALANCE AT AUGUST 2, 1998 542 $20 (94) $(3,083) $395 $3,706 $(164) $874
Comprehensive income
Net earnings 264 264
Foreign currency translation adjustments 8 8
Dividends ($.210 per share) (94) (94)
Treasury stock purchased (4) (215) (215)
Treasury stock issued under
management incentive and
stock option plans 1 16 (1) 15
--- --- --- ------- ---- ------ ----- ------
542 $20 (97) $(3,282) $394 $3,876 $(156) $ 852
=== === === ======= ==== ====== ===== ======
</TABLE>
See Notes to Financial Statements
5
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CAMPBELL SOUP COMPANY CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(millions)
(a) The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results for the
indicated periods. All such adjustments are of a normal recurring nature.
Certain reclassifications were made to the prior year amounts to conform
with current presentation, including classifying the Specialty Foods
segment as a discontinued operation.
(b) New Accounting Pronouncement
As of August 3, 1998, the company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
issued in June 1997. SFAS 130 establishes a standard for reporting of
comprehensive income, which is comprised of net income and "other"
comprehensive income items, in the financial statements. "Other"
comprehensive income includes items recorded in shareowners' equity that
are not the result of transactions with shareowners, such as foreign
currency translation adjustments.
As of November 1, 1998 and November 2, 1997, accumulated other
comprehensive income, as reflected in the statements of shareowners'
equity, represents the cumulative translation adjustment.
(c) Discontinued Operations
On September 9, 1997, the company announced its intention to spin off the
Specialty Foods segment to its shareowners as an independent
publicly-traded company. The spin-off, which qualified as a tax-free
distribution to U.S. shareholders, was effective March 30, 1998. On this
date, shareowners of record as of March 9, 1998 received one share of the
common stock of the new company, Vlasic Foods International Inc.
(Vlasic), for every ten shares of Campbell Soup Company capital stock.
In March 1998, the company entered into a revolving credit facility and
borrowed $500 million. In connection with the spin-off, the revolving
credit facility and outstanding obligation of $500 million were assumed by
Vlasic. In addition, the company received approximately $75 million from
subsidiaries of Vlasic for repayment of certain advances.
Results of discontinued operations for the quarter ended November 2, 1997
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Net sales $ 348
=====
Earnings before taxes $ 23
Taxes on earnings $ (8)
-----
Earnings from discontinued operations $ 15
=====
</TABLE>
6
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(d) Restructuring Charge
A restructuring charge included in earnings from continuing operations of
$262 million ($193 million after-tax or $.42 per share), was recorded in
the third quarter fiscal 1998. This charge relates to the rationalization
of certain U.S., European and Australian production and administrative
facilities and anticipated losses on the divestitures of non-strategic
businesses with annual sales of approximately $170 million. The
restructuring program includes the elimination of approximately 750
employee positions.
The restructuring charge includes approximately $78 million in cash
charges primarily related to severance, employee benefit costs and lease
termination fees. The balance relates to non-cash charges for estimated
losses on the disposition of plant assets and divestitures of businesses.
The company expects to complete the restructuring program by the fourth
quarter fiscal 1999.
A summary of the original reserve and related activity through November 1,
1998 is as follows:
<TABLE>
<CAPTION>
Balance at Balance at
Original August November
Reserves Activity 2, 1998 Activity 1, 1998
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Loss on asset dispositions and
divestitures $209 $(58) $151 $(43) $108
Severance and benefits 41 (9) 32 (4) 28
Other 12 (2) 10 (3) 7
---- ---- ---- ---- ----
TOTAL $262 $(69) $193 $(50) $143
==== ==== ==== ==== ====
</TABLE>
(e) Earnings Per Share
The company adopted the provisions of SFAS No. 128, "Earnings per Share"
("EPS") as of the second quarter fiscal 1998. Prior periods have been
restated to conform with the provisions of SFAS 128. For the periods
presented in the Statements of Earnings, the calculations of basic EPS and
EPS assuming dilution vary in that the weighted average shares outstanding
assuming dilution includes the incremental effect of stock options, except
when such effect would be antidilutive.
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<PAGE> 8
(f) Segment Information
The company operates in three business segments: Soup and Sauces, Biscuits
and Confectionery, and Away From Home. The segments are managed as
strategic units due to their distinct manufacturing processes, marketing
strategies and distribution channels.
The Soup and Sauces segment includes the worldwide soup businesses, Prego
spaghetti sauces, Pace Mexican sauces, Franco-American pastas and gravies,
Swanson broths, and V8 beverages. The Biscuits and Confectionery segment
includes the Godiva Chocolatier, Pepperidge Farm, Arnotts Limited and
Delacre businesses. The Delacre business was sold in June 1998. Away From
Home represents products, including Campbell's Soups and Campbell's
Specialty Kitchen entrees, which are distributed to the food service and
home meal replacement markets. See note (c) regarding the Specialty Foods
segment, which has been reclassified as a discontinued operation.
Accounting policies for measuring segment assets and earnings before
interest and taxes are substantially consistent with those described in
the summary of significant accounting policies included in the fiscal 1998
Annual Report. The company evaluates segment performance based on earnings
before interest and taxes, excluding certain non-recurring charges. Away
From Home products are principally produced by the tangible assets of the
company's other segments. Accordingly, tangible assets have not been
allocated to the Away From Home segment. Depreciation and amortization are
allocated to Away From Home based on budgeted production hours. Transfers
between segments are recorded at cost plus mark-up or at market.
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November 1, 1998
<TABLE>
<CAPTION>
Away Corporate
Soup and Biscuits and From and
Sauces Confectionery Home Other(1) Eliminations(2) Total
------ ------------- ---- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,288 362 127 40 (13) $1,804
Earnings before
interest and taxes $ 390 58 16 3 (20) $ 447
Depreciation and
Amortization $ 31 20 3 2 3 $ 59
Capital expenditures $ 27 13 -- 3 4 $ 47
Segment assets $3,304 1,492 320 186 693 $5,995
</TABLE>
November 2, 1997
<TABLE>
<CAPTION>
Away Corporate
Soup and Biscuits and From and
Sauces Confectionery Home Other(1) Eliminations(2) Total
------ ------------- ---- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,215 408 107 104 (21) $1,813
Earnings before
interest and taxes $ 371 59 15 1 (19) $ 427
Depreciation and
amortization $ 36 22 3 4 3 $ 68
Capital expenditures $ 20 17 -- 5 2 $ 44
Segment assets(3) $3,035 1,565 225 388 665 $5,878
</TABLE>
(1) Represents financial information of certain prepared convenience food
businesses not categorized as reportable segments.
(2) Represents elimination of intersegment sales, unallocated corporate
expenses, and unallocated assets, including corporate offices, deferred
taxes and pension assets.
(3) Segment assets exclude net assets of discontinued operations of $729.
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(g) Inventories
<TABLE>
<CAPTION>
NOVEMBER August
1, 1998 2, 1998
------- -------
<S> <C> <C>
Raw materials, containers and supplies $223 $205
Finished products 435 359
--- ---
$658 $564
==== ====
</TABLE>
Approximately 62% of inventory is accounted for on the last in, first out
(LIFO) method of determining cost. If the first in, first out inventory
valuation method had been used exclusively, inventories would not differ
materially from the amounts reported at November 1, 1998 and August 2,
1998.
(h) Notes Payable and Long-Term Debt
In October 1998, the company issued $300 million of notes due October 2003
bearing interest at 4.75%. The issuance was the third draw down on the
company's $1 billion shelf registration filed with the Securities and
Exchange Commission in fiscal 1997. As of November 1, 1998, $100 million
remains available for issuance under the shelf registration.
(i) Forward Stock Purchase Program
In October 1998, the company entered into a forward stock purchase
contract to partially hedge the company's equity exposure from its stock
option program. The contract, which matures in fiscal 2004, allows the
company to repurchase 4.4 million shares at an average price of
approximately $52 per share. The company may elect to settle the contract
on a net share basis in lieu of physical settlement. The contract permits
early settlement and may be renewed for an additional five-year term.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CAMPBELL SOUP COMPANY
RESULTS OF CONTINUING OPERATIONS
OVERVIEW
The company reported earnings from continuing operations of $264 million for the
first quarter ended November 1, 1998, a 5% increase from the prior year. Diluted
earnings per share from continuing operations increased 7% to $.58. Net sales,
as reported, declined slightly primarily due to the impact of divestitures.
Overall, net sales from ongoing businesses increased 7% in the quarter.
SALES
Sales in the quarter declined 1% to $1.80 billion from $1.81 billion last year.
The change in sales was due to a 5% increase from volume and mix, 2% from higher
selling prices, 2% from acquisitions, offset by a 10% decline due to
divestitures and currency.
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
(millions) 1999 1998 % CHANGE
- ---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 1,288 $ 1,215 6
Biscuits and Confectionery 362 408 (11)
Away From Home 127 107 19
------- ------- ---
Subtotal 1,777 1,730 3
Other 40 104 (62)
Intersegment (13) (21)
------- ------- ---
$ 1,804 $ 1,813 (1)
======= ======= ===
</TABLE>
The Soup and Sauces increase was due to worldwide wet soup unit volume growth of
7%. U.S. soup unit volume increased 4% led by double-digit sales growth in
Chunky ready-to-serve soups and Simply Home premium soups in glass jars.
Campbell's condensed tomato soup and Swanson broths reported solid sales growth,
and new products such as Campbell's ready-to-serve tomato soup are showing
strong early acceptance.
Outside the U.S., new Campbell's Deliciously Good soups in the United Kingdom
and the Liebig business in France, acquired in December 1997, contributed to
soup sales growth. In Asia-Pacific, soup sales grew at a double-digit rate
primarily due to strong gains in Australia where the company continues to build
upon its market leadership.
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<PAGE> 12
In beverages, V8 Splash continued its stellar sales growth.
Biscuits and Confectionery reported a decline in sales compared to first quarter
1998. The decline was primarily due to the divestiture of Delacre, the company's
European biscuit business and adverse currency translation impact in Australia.
Excluding the impact of the divestiture and currency, sales increased
approximately 10%. This increase was led by Pepperidge Farm Goldfish crackers,
Milano and Chocolate Chunk Classic cookies and stuffing mixes. Godiva
Chocolatier contributed double-digit sales growth through expansion of its North
American and Japanese retail outlets. Arnotts Limited reported increased sales,
before the impact of currency, led by strong performance from its TimTams
biscuits.
Away From Home sales increased by 19% primarily due to Stockpot, a premium
refrigerated soup brand acquired during the quarter. In addition, U.S.
foodservice sales increased due to growth in soup and V8 Splash. New Kettle
merchandisers, which provide Campbell's brand soup in university cafeterias,
convenience stores and other outlets, continue to build volume.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, increased $54
million in the quarter. As a percent of sales, gross margin was 54% compared to
50.7% last year. The improvement was principally due to cost savings generated
from global procurement initiatives and continued productivity gains in
manufacturing facilities.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses as a percent of sales increased to 23.3% from
20.4% last year. The increase is attributable to a double-digit increase in
consumer and trade promotion driven by increased investment in the U.S. retail
soup business.
ADMINISTRATIVE EXPENSES
Administrative expenses were relatively flat as a percent of sales compared to
last year.
Other expenses declined as compared to last year primarily due to lower minority
interest expense, reflecting the buy-out of Arnotts Limited and lower long-term
incentive plan costs.
OPERATING EARNINGS
Segment operating earnings increased 5% for the first quarter versus the prior
year. Excluding the impact of currency, operating earnings in ongoing businesses
increased 6%.
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An analysis of operating earnings by segment follow:
<TABLE>
<CAPTION>
(millions) 1999 1998 % CHANGE
- ---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 390 $ 371 5
Biscuits and Confectionery 58 59 (2)
Away From Home 16 15 7
----- ----- ---
Subtotal 464 445 4
Other 3 1
----- ----- ---
467 446 5
Corporate (20) (19)
----- ----- ---
$ 447 $ 427
----- ----- ---
</TABLE>
Soup and Sauces earnings were up 5% due to sales growth in Chunky ready-to-serve
soups and V8 Splash beverages. In addition, our businesses in Europe and
Asia-Pacific delivered double-digit earnings performance. The primary
contributors were Liebig in France, Erasco in Germany and United Kingdom, South
Asia and Japanese businesses. Earnings were adversely impacted by currency in
Canada and heavy consumer and trade promotion spending for U.S. wet soup.
Biscuits and Confectionery earnings declined slightly to $58 million due to the
divestiture of Delacre and adverse currency impact in Australia. Excluding the
impact of the divestiture and currency, earnings increased 14%. Pepperidge
Farm's Goldfish crackers and Milano and Chocolate Chunk Classic cookies
delivered outstanding earnings performance and Godiva posted double-digit
earnings growth.
Away From Home reported modest earnings growth to $16 million versus last year.
Wet soup and V8 Splash in the U.S. foodservice channel were the primary
contributors to the earnings growth.
NON-OPERATING ITEMS
Interest expense was relatively flat at $44 million versus prior year.
The effective tax rate was 34.5% compared to 34.4% last year.
DISCONTINUED OPERATIONS
On September 9, 1997, the company announced its intention to spin off the
Specialty Foods segment to its shareowners as an independent publicly-traded
company. The spin-off, which qualified as a tax-free distribution to U.S.
shareholders, was effective March 30, 1998. On this date, shareowners of record
as of March 9, 1998 received one share of the common stock of the new company,
Vlasic Foods International Inc. (Vlasic), for every ten shares of Campbell Soup
Company capital stock.
13
<PAGE> 14
In March 1998, the company entered into a revolving credit facility and borrowed
$500 million. In connection with the spin-off, the revolving credit facility and
outstanding obligation of $500 million were assumed by Vlasic. In addition, the
company received approximately $75 million from subsidiaries of Vlasic for
repayment of certain advances. See Note (c) of the Notes to Financial Statements
for further discussion of the discontinued operations.
RESTRUCTURING CHARGE
A restructuring charge included in earnings from continuing operations of $262
million ($193 million after-tax or $.42 per share), was recorded in the third
quarter fiscal 1998. This charge relates to the rationalization of certain U.S.,
European and Australian production and administrative facilities and anticipated
losses on the divestitures of non-strategic businesses with annual sales of
approximately $170 million. The restructuring program includes the elimination
of approximately 750 positions.
The restructuring charge includes $78 million in cash charges primarily related
to severance, employee benefit costs and lease termination fees. The balance
relates to non-cash charges for estimated losses on the disposition of plant
assets and divestitures of businesses. The company expects to realize
approximately $74 million of ongoing annual pre-tax savings. Expected annual
savings are not necessarily indicative of future incremental earnings due to
management's commitment to fund investments to grow brands and drive volume
growth. The company expects to complete the restructuring program by the fourth
quarter fiscal 1999. See Note (d) of the Notes to Financial Statements for
further discussion of the program and the related activity analysis.
LIQUIDITY AND CAPITAL RESOURCES
The company generated cash from operations of $181 million compared to $170
million last year. This increase is principally due to increased earnings versus
prior year.
Capital expenditures were $47 million, an increase from $44 million last year.
The company continues to aggressively manage its capital outlays and expects
total expenditures to approximate $375 million in fiscal 1999.
In the quarter, the company acquired Stockpot, a premium refrigerated soup
brand, for approximately $105 million.
In October 1998, the company issued $300 million of notes due October 2003 and
bearing interest of 4.75%.
The company repurchased 4.2 million shares in the quarter versus 2.4 million
last year. In October 1998, the company entered into a forward stock purchase
contract to partially hedge the company's equity exposure from its stock option
program. See Note (i) of the Notes to Financial Statements for further
discussion of the contract.
YEAR 2000
Historically, certain computer programs were written using two digits rather
than four to define the applicable year. Accordingly, the company's software may
recognize a date using "00" as 1900 rather
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<PAGE> 15
than the year 2000, which could result in computer systems failures or
miscalculations, commonly referred to as the Year 2000 ("Y2K") issue. The Y2K
issue can arise at any point in the company's supply, manufacturing, processing,
distribution and financial chains. Incomplete or untimely resolution of the Y2K
issue by the company, key suppliers, customers and other parties could have a
material adverse effect on the company's results of operations, financial
condition and cash flows. To address the Y2K issue, the company has established
a Worldwide Year 2000 Business Action Council, led by an Executive Steering
Committee of the company's senior management, including representatives of each
of the company's business segments and corporate functions, to oversee and
regularly review the status of the readiness plan discussed below. In addition,
the company has established a Worldwide Project Office responsible for the
day-to-day oversight and coordination of the Y2K remediation, replacement and
testing of business systems. This project office reports to the company's Chief
Information Officer.
The company's plan for addressing the Y2K issue is divided into three major
phases: Business Systems Inventory and Assessment, Remediation and Replacement
and Testing.
- - Business Systems Inventory and Assessment - The internal inventory
portion of this phase, which commenced in 1997, was designed to
identify internal business systems that were susceptible to system
failure or processing errors as a result of the Y2K issue. This phase
is substantially complete. Approximately 700 worldwide information
technology business systems (IT) have been inventoried and
approximately 200 are Y2K compliant and 500 are non-compliant. It has
been determined that approximately 400 of the non-compliant systems
require remediation and the remaining 100 systems will be retired or
replaced. In addition, the company has substantially completed the
inventory and assessment of its non-information technology systems
(Non-IT). The remediation and replacement of these systems, which
include manufacturing production lines and equipment, elevators,
heating, ventilation and air conditioning systems and water treatment
systems, is included in the remediation and replacement plan discussed
below. As part of this phase, significant service providers, vendors,
suppliers, customers and governmental entities that are believed to be
critical to business operations after January 1, 2000, are being
identified and steps undertaken to ascertain their stage of Y2K
readiness through questionnaires, interviews, on-site visits and other
available means.
- - Remediation and Replacement - The company has developed and is in the
process of implementing its remediation and replacement plan for all
affected systems including IT and Non-IT systems. This phase, which
commenced in 1998, is approximately 45% complete. The company's plan
established priorities for remediation or replacement. The business
systems considered most critical to ongoing operations are being given
the highest priority. The company has prioritized its business systems
into "Mission Critical" and "All Other". "Mission Critical" systems are
defined as business systems such as Business Planning and Control
Process manufacturing, Sales Order Billing and Warehouse Management
systems, that, if shut down or interrupted, could have a material
adverse effect on the company's results of operations, financial
condition and cash flows. "All Other" systems are defined as business
systems such as Data Warehouse and Job Bidding systems that, if shut
down or interrupted, may have an adverse impact on the company. The
company is utilizing internal and external resources to execute the
plan and expects to substantially complete all remediation and
replacement of "Mission Critical" systems by third quarter 1999 and
"All Other" systems by fourth quarter fiscal 1999. The company is on
schedule to meet these objectives.
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<PAGE> 16
- - Testing - This phase is ongoing as systems are remediated and replaced.
The company's efforts in this phase include testing by users and
approval by appropriate local and Y2K project management that the
remediated or replaced systems are Y2K compliant. The company expects
to substantially complete testing of "Mission Critical" systems by
third quarter 1999 and "All Other" systems by first quarter fiscal
2000.
Because the company's Y2K compliance is dependent upon key third parties also
being Y2K compliant on a timely basis, there can be no guarantee that the
company's efforts will prevent a material adverse impact on its results of
operations, financial condition and cash flows. The possible consequences to the
company or its business partners not being fully Y2K compliant include,
temporary plant closings, delays in the delivery of finished products, delays in
the receipt of key ingredients, containers and packaging supplies, invoice and
collection errors and inventory and supply obsolescence. These consequences
could have a material adverse effect on the company's results of operations,
financial condition and cash flows if the company is unable to conduct its
business in the ordinary course as a result of the Y2K issue. The company
believes that its readiness program, including the contingency plans discussed
below, should significantly reduce the adverse effect any such disruptions may
have.
The company is developing contingency plans to mitigate the potential
disruptions that may result from the Y2K issue. These plans may include
identifying and securing alternate suppliers of ingredients, containers,
packaging materials and utilities, adjusting manufacturing facility production,
shutdown and start-up schedules, stockpiling of finished product inventories and
other measures considered appropriate by management. Once developed and
approved, contingency plans, and the related cost estimates, will be continually
refined, as additional information becomes available.
The company currently estimates that the aggregate cost of its Y2K efforts will
be approximately $50 million, of which $18 million has been incurred to date.
These costs, except for capital costs of approximately $4 million, are being
expensed as incurred and are being funded through operating cash flows. The
company expects to incur Y2K costs of approximately $30-35 million in 1999.
<TABLE>
<CAPTION>
(Millions)
- ----------
Current Costs Estimated Costs
Components Estimates Incurred to Complete
- ---------- --------- -------- ---------------
<S> <C> <C> <C>
External Consulting $ 27 (14) $ 13
Hardware/Software Upgrades 17 ( 4) 13
Other 6 -- 6
---- ---- ----
$ 50 (18) $ 32
==== ==== ====
</TABLE>
The company believes that such costs will not have a material impact on the
company's results of operations, financial condition or cash flows.
16
<PAGE> 17
RECENT DEVELOPMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. This standard is effective for fiscal years beginning
after June 15, 1999 and establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Changes in the fair value of
derivatives are recorded in earnings or other comprehensive income, based on
whether the instrument is designated as part of a hedge transaction and, if so,
the type of hedge transaction. The company is currently assessing the impact of
the adoption on the company's financial statements. Based on the company's
current portfolio, it is not expected that adoption of this statement will have
a material effect on the company's results of operations, financial condition or
cash flows.
17
<PAGE> 18
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain statements which reflect the company's
current expectations regarding future results of operations, economic
performance, financial condition and achievements of the company. The company
has tried, wherever possible, to identify these forward looking statements by
using words such as "anticipate," "believe," "estimate," "expect" and similar
expressions. These statements reflect the company's current plans and
expectations and are based on information currently available to it. They rely
on a number of assumptions and estimates which could be inaccurate and which are
subject to risks and uncertainties.
Campbell wishes to caution the reader that the following important factors and
those important factors described elsewhere in the commentary, or in other
Securities and Exchange Commission filings, could affect the company's actual
results and could cause such results to vary materially from those expressed in
any forward looking statements made by, or on behalf of, the company:
- - the impact of strong competitive response to the company's efforts to
leverage its brand power with product innovation and new advertising;
- - the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer
acceptance;
- - the company's ability to achieve sales and earnings forecasts, which
are based on assumptions about sales volume;
- - the continuation of the company's successful record of integrating
acquisitions into its existing operations and the availability of new
acquisition and alliance opportunities that build shareowner wealth;
- - the company's ability to achieve its cost savings and capacity
utilization objectives;
- - the impact of unforeseen economic and political changes in
international markets where the company competes such as currency
exchange rates, inflation rates, recession, foreign ownership
restrictions and other external factors over which the company has no
control; and
- - the ability of the company and its key service providers, vendors,
suppliers , customers and governmental entities to replace, modify or
upgrade computer systems in ways that adequately address the Y2K issue.
Specific factors that might cause actual results to vary materially
from the results anticipated include the ability to identify and
correct all relevant computer codes and embedded chips, unanticipated
difficulties or delays in the implementation of the company's
remediation plans and the ability of third parties to adequately
address their own Y2K issues.
This discussion of uncertainties is by no means exhaustive but is designed to
highlight important factors that may impact the company's outlook.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For information regarding the company's exposure to certain market risks, see
Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the
Annual Report on Form 10-K for Fiscal 1998. Except as described in note (i) to
the financial statements, there have been no significant changes in the
company's portfolio of financial instruments or market risk exposures which have
occurred since year-end.
19
<PAGE> 20
PART II
ITEM 1. LEGAL PROCEEDINGS
In management's opinion, there are no pending claims or litigation, the outcome
of which would have a material effect on the consolidated results of operations,
financial position or cash flows of the company.
As previously reported, in October 1995, at the request of the Environmental
Protection Agency (EPA), the United States of America (USA) instituted an action
in the United States District Court for the Eastern District of California,
alleging, inter alia, that the company violated the Clean Air Act by operating
certain can manufacturing equipment at its Sacramento, California facility
without a valid permit and by failing to apply control technology to reduce air
emissions. In August 1997, at the request of the EPA, the USA filed a second
complaint alleging that the company violated the Clean Air Act by modifying
certain can manufacturing equipment at the same facility without a permit, and
without installing control technology. The second complaint also alleged that
the company exceeded certain daily and quarterly emission limits. The USA
asserted in its complaints that it was seeking the imposition of civil
penalties, calculated on a per diem/per violation basis, for each of the alleged
violations. The company disputed liability for any and all of the violations
alleged and also disputed the application of the maximum statutory penalty to
any of the alleged violations and the USA's method of calculating applicable
penalties, if any. In or about late October 1998, the company, EPA and the
Department of Justice agreed to resolve the two cases amicably under the terms
of a proposed consent decree, which was published in the Federal Register on
November 13, 1998. Under the proposed consent decree, which the District Court
for the Eastern District of California is expected to consider for approval
thirty (30) days after it was published in the Federal Register, the company
admits no liability. Other significant terms of the proposed consent decree are
that the company will pay a civil penalty of $1,215,000, the three-piece can
line at the Sacramento facility will be shut down by August 1, 2000 and the
company will transfer certain emission reduction credits to the Environmental
Resource Trust, a non-profit organization. The proposed consent decree is not
expected to have a material effect on the consolidated results of operations,
financial position or cash flows of the company.
Communities for a Better Environment (CBE) sent a Clean Air Act Notice of Intent
to Sue letter dated April 6, 1998 to the company. CBE claimed that the company's
Sacramento facility has used certain solvents allegedly in violation of emission
limitations set by the Sacramento Metropolitan Air Quality Management District's
(Air District) Rules and has not complied with certain record-keeping
requirements. These are the same issues that were raised in notices of violation
issued to the company by the Air District which were settled in October 1997,
without admitting liability. CBE contends, however, that the settlement with the
Air District did not resolve the alleged violation arising from the use of
certain solvents on the grounds that the Air District's method of settling the
issue is not federally approved. The company disputes the alleged violation and
denies liability. The company and CBE have agreed to settle CBE's claim under
the terms of a proposed consent decree, which was submitted to the Department of
Justice and to the EPA for comment on November 20, 1998. These agencies have 45
days to comment on the proposed consent decree. Assuming that the EPA and the
Justice Department support the terms of the proposed settlement, the company
anticipates that CBE will ask the District Court for the Eastern District of
California to approve the proposed consent decree in early 1999. Under the
proposed consent decree, in which the company admits no liability, certain
equipment which used solvents that were the subject of CBE's claim will be shut
down at the Sacramento, California facility by
20
<PAGE> 21
August 1, 2000. Other significant provisions of the proposed consent decree are
that the company will donate certain emission reduction credits to the Air
District and will donate the total amount of $85,000 to two non-profit
organizations, in lieu of paying any civil penalty or CBE attorney's fee. The
terms of the proposed consent decree are not expected to have a material effect
on the consolidated results of operations, financial position or cash flows of
the company.
The company has also been named as a potentially responsible party in a number
of proceedings brought under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund. Although the impact
on these proceedings cannot be predicted at this time due to the large number of
other potentially responsible parties and the speculative nature of clean-up
cost estimates, the ultimate disposition is not expected to have a material
effect on the consolidated results of operations, financial position, or cash
flows of the company.
ITEM 5. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements which are based on
management's current views and assumptions regarding future events and financial
performance. These statements are qualified by reference to the section
"Forward-Looking Statements" in Item 1 of the registrant's Annual Report on Form
10-K for the fiscal year ended August 2, 1998. See Item 1 for a description of
important factors that could impact the company's strategic growth plan goals
and cause actual results to differ materially from those expressed or implied in
the forward-looking statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
No.
---
4 There is no instrument with respect to long-term debt of the
company that involves indebtedness or securities authorized
thereunder exceeding 10 percent of the total assets of the
company and its subsidiaries on a consolidated basis. The
company agrees to file a copy of any instrument or agreement
defining the rights of holders of long-term debt of the
company upon request of the Securities and Exchange
Commission.
27 Financial Data Schedules.
b. Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed by the company during
the first quarter of fiscal 1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMPBELL SOUP COMPANY
Date: December 16, 1998 By: /s/ Basil Anderson
-----------------------------------
Basil Anderson
Executive Vice President and
Chief Financial Officer
By: /s/ Ellen Oran Kaden
-----------------------------------
Ellen Oran Kaden
Senior Vice President
Law and Government Affairs
22
<PAGE> 23
INDEX TO EXHIBITS
Exhibit Number
27 Financial Data Schedule.
27.1 Financial Data Schedule.
23
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