<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 2, 1999 1-3822
[CAMPBELL SOUP COMPANY LOGO]
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 434,170,301 SHARES OF CAPITAL STOCK OUTSTANDING AS OF JUNE 10, 1999.
-1-
<PAGE> 2
PART I. FINANCIAL INFORMATION
CAMPBELL SOUP COMPANY CONSOLIDATED
STATEMENTS OF EARNINGS
(unaudited)
(millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- --------------------
MAY May MAY May
2, 1999 3, 1998 2, 1999 3, 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 1,492 $ 1,572 $ 5,128 $ 5,397
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold 730 775 2,416 2,623
Marketing and selling expenses 370 397 1,301 1,226
Administrative expenses 69 84 221 244
Research and development expenses 15 18 48 52
Other expenses 24 20 40 61
Restructuring charge -- 262 -- 262
- ------------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,208 1,556 4,026 4,468
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes 284 16 1,102 929
Interest, net 43 45 129 131
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes 241 (29) 973 798
Taxes on earnings 79 7 328 291
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 162 (36) 645 507
Loss from discontinued operations -- (54) -- (18)
Cumulative effect of change in accounting principle -- -- -- (11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 162 $ (90) $ 645 $ 478
====================================================================================================================================
Per share - basic
Earnings (loss) from continuing operations $ .37 $ (.08) $ 1.46 $ 1.11
Loss from discontinued operations -- (.12) -- (.04)
Cumulative effect of change in accounting principle -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .37 $ (.20) $ 1.46 $ 1.05
====================================================================================================================================
Dividends $ .225 $ .210 $ .660 $ .613
====================================================================================================================================
Weighted average shares outstanding - basic 438 453 443 456
====================================================================================================================================
Per share - assuming dilution
Earnings (loss) from continuing operations $ .37 $ (.08) $ 1.44 $ 1.10
Loss from discontinued operations -- (.12) -- (.04)
Cumulative effect of change in accounting principle -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .37 $ (.20) $ 1.44 $ 1.04
====================================================================================================================================
Weighted average shares outstanding - assuming dilution 443 453 448 462
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
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<PAGE> 3
CAMPBELL SOUP COMPANY CONSOLIDATED
BALANCE SHEETS
(unaudited)
(millions)
<TABLE>
<CAPTION>
MAY August
2, 1999 2, 1998
------- -------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 24 $ 16
Accounts receivable 530 656
Inventories 587 564
Other current assets 230 204
- --------------------------------------------------------------------------------
Total current assets 1,371 1,440
- --------------------------------------------------------------------------------
Plant assets, net of depreciation 1,743 1,723
Intangible assets, net of amortization 1,988 1,904
Other assets 601 566
- --------------------------------------------------------------------------------
Total assets $ 5,703 $ 5,633
================================================================================
Current liabilities
Notes payable $ 1,859 $ 1,401
Payable to suppliers and others 403 506
Accrued liabilities 440 638
Dividend payable 98 95
Accrued income taxes 234 163
- --------------------------------------------------------------------------------
Total current liabilities 3,034 2,803
- --------------------------------------------------------------------------------
Long-term debt 1,338 1,169
Nonpension postretirement benefits 398 405
Other liabilities, including deferred
income taxes of $251 and $246 434 382
- --------------------------------------------------------------------------------
Total liabilities 5,204 4,759
- --------------------------------------------------------------------------------
Shareowners' equity
Preferred stock; authorized 40 shares;
none issued -- --
Capital stock, $.0375 par value; authorized 20 20
560 shares; issued 542 shares 379 395
Capital surplus 4,060 3,706
Earnings retained in the business (3,820) (3,083)
Capital stock in treasury, at cost (140) (164)
Accumulated other comprehensive income
- --------------------------------------------------------------------------------
Total shareowners' equity 499 874
================================================================================
Total liabilities and shareowners' equity $ 5,703 $ 5,633
================================================================================
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 4
CAMPBELL SOUP COMPANY CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(millions)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------
MAY May
2, 1999 3, 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings, excluding discontinued operations $ 645 $ 496
Non-cash charges to net earnings
Cumulative effect of accounting change -- 11
Restructuring charge -- 262
Depreciation and amortization 191 201
Deferred income taxes (6) (61)
Other, net 19 60
Changes in working capital
Accounts receivable 128 (145)
Inventories (25) 40
Other current assets and liabilities (207) (107)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 745 757
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of plant assets (198) (151)
Sales of plant assets 8 20
Businesses acquired (105) (472)
Sales of businesses -- 21
Other, net (27) (1)
- --------------------------------------------------------------------------------
Net cash used in investing activities (322) (583)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings 325 300
Repayments of long-term borrowings (5) (20)
Short-term borrowings 1,315 1,179
Repayments of short-term borrowings (1,036) (1,283)
Dividends paid (288) (272)
Treasury stock purchases (774) (545)
Treasury stock issuances 42 76
Other, net (2) --
- --------------------------------------------------------------------------------
Net cash used in financing activities (423) (565)
- --------------------------------------------------------------------------------
Net cash provided by discontinued operations -- 436
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash 8 (16)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents 8 29
Cash and cash equivalents - beginning of period 16 17
- --------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 24 $ 46
================================================================================
</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) $1,420
Comprehensive income
Net earnings 478 478
Foreign currency translation adjustments (64) (64)
Dividends ($.613 per share) (281) (281)
Treasury stock purchased (10) (545) (545)
Treasury stock issued under
management incentive and
stock option plans 2 33 45 78
Spinoff of Specialty Foods segment (150) (150)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 3, 1998 542 $20 (92) $(2,971) $383 $3,618 $(114) $ 936
====================================================================================================================================
BALANCE AT AUGUST 2, 1998 542 $20 (94) $(3,083) $395 $3,706 $(164) $ 874
COMPREHENSIVE INCOME
NET EARNINGS 645 645
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 24 24
DIVIDENDS ($.660 PER SHARE) (291) (291)
TREASURY STOCK PURCHASED (16) (774) (774)
TREASURY STOCK ISSUED UNDER
MANAGEMENT INCENTIVE AND
STOCK OPTION PLANS 2 37 (16) 21
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 2, 1999 542 $20 (108) $(3,820) $379 $4,060 $(140) $ 499
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 6
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.
(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. Prior year financial
statements have been reclassified to conform to SFAS 130.
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May May May May
2, 1999 3, 1998 2, 1999 3, 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 162 $ (90) $ 645 $ 478
Foreign currency
translation adjustments 30 (2) 24 (64)
------ ------ ------- -------
Comprehensive income $ 192 $ (92) $ 669 $ 414
====== ====== ======= =======
</TABLE>
As of May 2, 1999 and May 3, 1998, accumulated other comprehensive
income is comprised entirely of the cumulative translation adjustment.
(c) Discontinued Operations
Effective March 30, 1998, the company spun off the Specialty Foods
segment to its shareowners as an independent publicly-traded company.
The spin-off qualified as a tax-free distribution to U.S. shareholders.
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.
-6-
<PAGE> 7
Results of discontinued operations were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 3, 1998(1) May 3, 1998(1)
<S> <C> <C>
Net sales $ 169 $ 809
===== =====
Earnings (loss) before taxes $ (17) $ 41
Taxes on earnings (1) 21
----- -----
Earnings (loss) from (16) 20
operations
Spin-off costs (38) (38)
----- -----
Loss from discontinued
operations, net $ (54) $ (18)
===== =====
</TABLE>
(1) Results of Vlasic are included through March 29, 1998.
(d) Restructuring Charge
A restructuring charge included in earnings from continuing operations
of $262 million ($193 million after-tax or $.42 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. See also note (k) regarding the sale of Fresh Start Bakeries,
Inc. 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.
-7-
<PAGE> 8
A summary of the original reserve and related activity through May 2,
1999 is as follows:
<TABLE>
<CAPTION>
Balance at Balance at
Original August May
Reserves Activity 2, 1998 Activity 2, 1999
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Loss on asset dispositions and
divestitures $ 209 $ (58) $ 151 $(104) $ 47
Severance and benefits 41 (9) 32 (7) 25
Other 12 (2) 10 (9) 1
----- ----- ----- ----- -----
TOTAL $ 262 $ (69) $ 193 $(120) $ 73
===== ===== ===== ===== =====
</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. 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. For the nine
month period ended May 2, 1999, the weighted average shares outstanding
assuming dilution also includes the incremental effect of approximately
one million shares under the forward stock purchase contract. See note
(j) for a description of the contract.
(f) 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 ruling on
Issue 97-13, "Accounting for Costs Incurred in Connection with a
Consulting Contract that Combines Business Process Reengineering and
Information Technology Transformation". The unamortized balance of
previously capitalized business process reengineering costs was written
off as a cumulative effect of change in accounting principle of $11
million or $.02 per share, net of an income tax benefit of
approximately $7 million.
-8-
<PAGE> 9
(g) 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 meal replacement markets.
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 is allocated to Away From Home based on
budgeted production hours. Transfers between segments are recorded at
cost plus mark-up or at market.
-9-
<PAGE> 10
<TABLE>
<CAPTION>
MAY 2, 1999
Away Corporate
Soup and Biscuits and From And
Sauces Confectionery Home Other(1) Eliminations(2) Total
-------- ------------- ---- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
Net sales $1,010 340 122 34 (14) $1,492
Earnings before interest
and taxes $ 249 44 13 (1) (21) $ 284
Depreciation and
amortization $ 31 21 4 3 5 $ 64
Capital expenditures $ 47 17 4 1 3 $ 72
NINE MONTHS ENDED
Net sales $3,578 1,109 382 110 (51) $5,128
Earnings before interest
and taxes $ 929 173 46 6 (52) $1,102
Depreciation and $ 96 62 10 8 15 $ 191
amortization
Capital expenditures $ 124 45 7 9 13 $ 198
Segment assets $2,994 1,494 314 159 742 $5,703
</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 income taxes and
prepaid pension assets.
-10-
<PAGE> 11
<TABLE>
<CAPTION>
MAY 3, 1998
Away Corporate
Soup and Biscuits and From And
Sauces Confectionery Home Other(1) Eliminations(2) Total
-------- ------------- ---- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
Net sales $1,007 361 115 94 (5) $1,572
Earnings before interest
and taxes(3) $ 109 15 8 (95) (21) $ 16
Depreciation and
amortization $ 34 23 2 5 4 $ 68
Capital expenditures $ 32 23 -- 2 4 $ 61
NINE MONTHS ENDED
Net sales $3,605 1,197 340 302 (47) $5,397
Earnings before interest
and taxes(3) $ 876 150 39 (89) (47) $ 929
Depreciation and $ 100 67 6 14 14 $ 201
amortization
Capital expenditures $ 77 53 -- 10 11 $ 151
Segment assets $3,402 1,625 90 351 583 $6,051
</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 income taxes and
prepaid pension assets.
(3) Contributions to earnings before interest and taxes by segment include the
effects of a third quarter restructuring charge of $262 as follows: Soup and
Sauces $135, Biscuits and Confectionery $25, Away From Home $4, and Other $98.
-11-
<PAGE> 12
(h) Inventories
<TABLE>
<CAPTION>
MAY August
2, 1999 2, 1998
------- -------
<S> <C> <C>
Raw materials, containers and supplies $213 $205
Finished products 374 359
- --------------------------------------------------------------------------------
$587 $564
================================================================================
</TABLE>
Approximately 70% 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 May 2, 1999 and
August 2, 1998.
(i) 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 May 2, 1999, $100 million
remains available for issuance under the shelf registration.
(j) 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 approximately 11 million shares at an
average price of approximately $47 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 extended
for an additional five-year term. If the forward purchase contract had
been settled on a net share basis as of May 2, 1999, the company would
provide the counterparty with approximately 1.7 million shares of its
capital stock.
(k) Subsequent Event
On May 28, 1999, the company completed the sale of Fresh Start
Bakeries, Inc., a global provider of bakery products to the food
service industry.
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CAMPBELL SOUP COMPANY
RESULTS OF CONTINUING OPERATIONS
OVERVIEW
Net sales, as reported, in the third quarter ended May 2, 1999 declined 5% due
to lower worldwide wet soup shipments. Worldwide wet soup shipments decreased 6%
as a result of a 9% decline in the U.S. The decline in U.S. shipments was
primarily attributable to the company's January 1999 decision to eliminate
quarter-end promotions for U.S. retail customers. Outside the U.S., wet soup
shipments increased 4%. Net sales excluding currency and divestitures increased
2% in the quarter.
In the third quarter of fiscal 1998, the company recorded a restructuring charge
of $262 million ($193 million after-tax or $.42 per share). Excluding the
restructuring charge, earnings from continuing operations increased 3% to $162
million and diluted earnings per share increased 9% to $.37.
For the nine months ended May 2, 1999 net sales, as reported, declined 5%;
however, excluding currency and divestitures, sales from ongoing businesses
increased 2%. Excluding the restructuring charge, earnings from continuing
operations declined 8% to $645 million and diluted earnings per share decreased
5% to $1.46.
THIRD QUARTER
SALES
Sales in the quarter declined 5% to $1.49 billion from $1.57 billion last year.
The change in sales was due to flat volume and mix, a 7% decline due to
divestitures and currency, offset by 1% from higher selling prices and 1% from
acquisitions.
-13-
<PAGE> 14
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
(millions) 1999 1998 % CHANGE
- ---------- ------- ------- --------
<S> <C> <C> <C>
Soup and Sauces $ 1,010 $ 1,007 --
Biscuits and Confectionery 340 361 (6)
Away From Home 122 115 6
- --------------------------------------------------------------------------------
Subtotal 1,472 1,483 (1)
Other 34 94 (64)
Intersegment (14) (5)
- --------------------------------------------------------------------------------
$ 1,492 $ 1,572 (5)
================================================================================
</TABLE>
Soup and Sauces sales were flat with lower U.S. wet soup shipments offset by
growth in international wet soup and beverage sales. As previously discussed,
the U.S. wet soup volume declined primarily as a result of the company's January
1999 decision to eliminate quarter-end promotions for U.S. retail customers,
which primarily impacted shipments of condensed soup. This worldwide wet soup
volume decline was in contrast to increased consumer demand for U.S. soups
driven by ready-to-serve products including Chunky and Simply Home and Swanson
broths.
Outside the U.S., wet soup volume and sales increased 4% and 6%, respectively.
Solid sales gains in Canada, Germany, France and Australia were partially offset
by weak sales in the U.K. and Japan.
Beyond soup, beverages led by V8 Splash delivered double-digit sales growth.
Sales of U.S. sauces and prepared foods declined in the quarter.
Biscuits and Confectionery reported a decline in sales compared to third 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 6%. This increase was led by sales of Pepperidge Farm Goldfish
crackers and Chocolate Chunk classic cookies. Godiva Chocolatier contributed
double-digit sales growth through expansion of its North American, European and
Japanese retail outlets. Arnotts Limited (Arnotts) reported increased sales led
by strong performance from its market leading TimTams biscuits and Kettle chips
as well as the introduction of Goldfish crackers in Australia.
-14-
<PAGE> 15
Away From Home sales increased by 6% reflecting the acquisition of Stockpot, a
premium refrigerated soup brand acquired in the first quarter of fiscal 1999.
New Campbell soup kettles, which provide Campbell's branded soup in university
cafeterias, convenience stores and other outlets, continued to build volume.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, decreased $35
million in the quarter. As a percent of sales, gross margin was 51.0% compared
to 50.7% last year. The improvement in margin percentage was principally due to
higher selling prices, cost savings generated from global procurement
initiatives and continued productivity gains in manufacturing facilities, which
offset the adverse mix impact resulting from declines in U.S. wet soup volume.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses as a percent of sales decreased to 24.8% from
25.3% last year. The decrease is primarily due to a shift in the timing of U.S.
wet soup advertising versus the prior year.
ADMINISTRATIVE EXPENSES
Administrative expenses declined as a percent of sales to 4.6% from 5.3% last
year. The decline is primarily attributable to lower annual incentive
compensation costs.
OTHER EXPENSES
Other expenses increased slightly principally due to losses recorded on
contracts that hedge long-term compensation liabilities.
OPERATING EARNINGS
Segment operating earnings, as reported, increased significantly versus the
prior year due to the restructuring charge recorded in the third quarter of
fiscal 1998. Excluding the restructuring charge, operating earnings increased 2%
compared to last year.
-15-
<PAGE> 16
An analysis of operating earnings by segment follows:
<TABLE>
<CAPTION>
(millions) 1999 1998(1)
- ---------- ----- -----
<S> <C> <C>
Soup and Sauces $ 249 $ 109
Biscuits and Confectionery 44 15
Away From Home 13 8
- --------------------------------------------------------------------------------
Subtotal 306 132
Other (1) (95)
- --------------------------------------------------------------------------------
305 37
Corporate (21) (21)
- --------------------------------------------------------------------------------
$ 284 $ 16
================================================================================
</TABLE>
(1) Contributions to earnings by segment included the effect of a third
quarter fiscal 1998 restructuring charge of $262 million as follows:
Soup and Sauces $135 million, Biscuits and Confectionery $25 million,
Away From Home $4 million and Other $98 million.
Soup and Sauces earnings, excluding the restructuring charge, were up 2% despite
lower U.S. condensed soup shipments. Strong earnings performance by U.S.
ready-to-serve soups and several international wet soup businesses including
Erasco in Germany, Campbell's in Australia and Cheong Chan in Malaysia were
partially offset by the U.S. condensed soup and the U.K. businesses.
Beverages reported double-digit earnings growth and U.S. sauces and prepared
foods were flat versus a year ago.
Biscuits and Confectionery earnings, excluding the restructuring charge,
increased 13%. Earnings growth was driven by Pepperidge Farm bakery and frozen
products and Arnotts biscuits in Australia, more than offsetting the impact of
the Delacre divestiture. Godiva earnings were flat primarily due to new store
openings.
Away From Home earnings, excluding the restructuring charge, were flat versus
last year.
-16-
<PAGE> 17
NON-OPERATING ITEMS
Net interest expense declined due to favorable rates versus prior year.
The effective tax rate of 32.8% was favorably impacted by a federal tax refund
recorded in the quarter. Excluding the restructuring charge, the comparable
fiscal 1998 tax rate was 32.7%.
NINE MONTHS
SALES
Sales for the nine months declined 5% to $5.13 billion from $5.40 billion last
year. The change in sales was due to a 1% decrease from volume and mix, a 7%
decline due to divestitures and currency, offset by 2% from higher selling
prices and 1% from acquisitions.
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
(millions) 1999 1998 % CHANGE
- ---------- ------- ------- -------
<S> <C> <C> <C>
Soup and Sauces $ 3,578 $ 3,605 (1)
Biscuits and Confectionery 1,109 1,197 (7)
Away From Home 382 340 12
- --------------------------------------------------------------------------------
Subtotal 5,069 5,142 (1)
Other 110 302 (64)
Intersegment (51) (47)
- --------------------------------------------------------------------------------
$ 5,128 $ 5,397 (5)
================================================================================
</TABLE>
The Soup and Sauces decline was due to worldwide wet soup volume decline of 5%,
including U.S. wet soup volume decrease of 9%. This worldwide wet soup volume
decline was offset by continued strong consumer demand for U.S. ready-to-serve
soups including Chunky and Simply Home and Swanson broths.
Outside the U.S., wet soup volume and sales increased 9% and 13%, respectively.
Sales gains in Canada, Germany, France and Australia were partially offset by
weak sales in the U.K. and Japan.
Beyond soup, beverages led by V8 Splash delivered double-digit sales growth.
U.S. sauces and prepared food sales were down versus the prior year.
-17-
<PAGE> 18
Biscuits and Confectionery reported a decline in sales compared to 1998. The
decline was primarily due to the divestiture of Delacre and adverse currency
translation impact in Australia. Excluding the impact of the divestiture and
currency, sales increased approximately 8%. This increase was led by sales of
Pepperidge Farm Goldfish crackers and Chocolate Chunk classic cookies. Godiva
Chocolatier contributed double-digit sales growth through expansion of its North
American, European and Japanese retail outlets. Arnotts Limited reported
increased sales, before the impact of currency, led by strong performance from
its TimTams biscuits and Kettle chips and the introduction of Goldfish in
Australia.
Away From Home sales increased by 13% primarily due to Stockpot, a premium
refrigerated soup brand acquired during the first quarter of fiscal 1999. In
addition, U.S. foodservice sales increased due to growth in soup and V8 Splash.
New Campbell soup kettles increased branded soup sales in university cafeterias,
convenience stores and other outlets, and continued to expand the Campbell's
brand presence in the away-from-home market.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, decreased $62
million year-to-date. As a percent of sales, gross margin was 52.9% compared to
51.4% last year. The improvement in margin percentage was principally due to
selling price increases, cost savings generated from global procurement
initiatives and continued productivity gains in manufacturing facilities, which
offset the adverse mix impact resulting from declines in U.S. wet soup volume.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses as a percent of sales increased to 25.4% from
22.7% last year. The increase is attributable to a double-digit increase in
trade marketing spending driven by increased investment in the U.S. retail wet
soup business and competitive pressures on the Pepperidge Farm and Arnotts'
businesses.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percent of sales declined to 4.3% from 4.5% last
year. The decline was due to lower annual incentive compensation costs and
productivity initiatives.
OTHER EXPENSES
Other expenses declined as compared to last year primarily due to lower minority
interest expense, reflecting the buy-out of Arnotts Limited in fiscal 1998, and
lower long-term incentive plan costs.
-18-
<PAGE> 19
OPERATING EARNINGS
Segment operating earnings, as reported, increased 18% versus the prior year due
to the restructuring charge recorded in the third quarter of fiscal 1998.
Excluding the restructuring charge, operating earnings decreased 7%.
An analysis of operating earnings by segment follows:
<TABLE>
<CAPTION>
(millions) 1999 1998(1)
- ---------- ------- -------
<S> <C> <C>
Soup and Sauces $ 929 $ 876
Biscuits and Confectionery 173 150
Away From Home 46 39
- --------------------------------------------------------------------------------
Subtotal 1,148 1,065
Other 6 (89)
- --------------------------------------------------------------------------------
1,154 976
Corporate (52) (47)
- --------------------------------------------------------------------------------
$ 1,102 $ 929
================================================================================
</TABLE>
(1) Contributions to earnings by segment included the effect of a third
quarter fiscal 1998 restructuring charge of $262 million as follows: Soup
and Sauces $135 million, Biscuits and Confectionery $25 million, Away From
Home $4 million and Other $98 million.
Soup and Sauces earnings, excluding the restructuring charge, were down 8% due
to lower U.S. condensed soup shipments and increased marketing spending. This
earnings shortfall was slightly offset by strong earnings performance by U.S.
ready-to-serve soups and several international wet soup businesses including
Erasco in Germany, Liebig in France, Campbell's in Australia and Cheong Chan in
Malaysia. Beverages reported double-digit earnings growth and U.S. sauces and
prepared foods earnings were flat.
Biscuits and Confectionery earnings, excluding the restructuring charge,
declined slightly due to the divestiture of Delacre in June 1998 and adverse
currency impact in Australia. Excluding the impact of the divestiture and
currency, earnings increased 6%. Pepperidge Farm's fresh breads, Goldfish
crackers and Chocolate Chunk classic cookies delivered solid earnings
performance and Godiva posted double-digit earnings growth. This earnings growth
was partially offset by competitive pressures on the Arnotts' business.
Away From Home earnings, excluding the restructuring charge, increased to $46
million versus
-19-
<PAGE> 20
last year. Wet soup and V8 Splash in the U.S. foodservice channel were the
primary contributors to the earnings growth.
NON-OPERATING ITEMS
Net interest expense declined slightly to $129 million due to favorable rates
versus the prior year.
The effective tax rate was 33.7% compared to 36.5% last year. Excluding the
restructuring charge, the fiscal 1998 effective tax rate was 34.0%.
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. 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 from this plan.
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. 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 $745 million compared to $757
million last
-20-
<PAGE> 21
year. This decline is primarily due to lower non-cash charges partially offset
by higher earnings and improved working capital due to the elimination of
quarter-end promotions for U.S. retail customers.
Capital expenditures were $198 million, an increase from $151 million last year.
The company continues to aggressively manage its capital outlays and expects
total expenditures to approximate $310 million in fiscal 1999.
In the first 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%.
In the first nine months, the company repurchased 16.1 million shares versus
10.2 million last year. By repurchasing shares, the company expects to utilize
existing cash and debt capacity to lower its cost of capital and increase
returns to shareowners. The company's long-term strategy is to repurchase
approximately two percent of its outstanding shares annually.
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 (j) 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 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.
-21-
<PAGE> 22
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 complete. Approximately 700 worldwide information technology
business systems (IT) were inventoried and approximately 200 were Y2K
compliant and 500 were identified as non-compliant. It was 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 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, were identified and steps were
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 85% 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 substantially completed all remediation and replacement of
"Mission Critical" systems by third quarter fiscal 1999. "All Other"
systems are expected to be substantially completed by fourth quarter
fiscal 1999.
- - Testing - This phase is ongoing as systems are remediated and replaced.
The company's efforts in this phase include testing by users and
confirmation by appropriate local and Y2K project management that the
remediated or replaced systems are Y2K compliant. The company
substantially completed testing of "Mission Critical" systems by third
quarter fiscal 1999. "All Other" systems are expected to be
substantially complete by first quarter fiscal 2000.
-22-
<PAGE> 23
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
on the company.
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.
-23-
<PAGE> 24
The company estimates that the aggregate cost of its Y2K efforts will
be approximately $50 million, of which $29 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 fiscal 1999.
<TABLE>
<CAPTION>
(millions)
Original Costs Estimated Costs
Components Estimates Incurred to Complete
- ---------- --------- -------- ---------------
<S> <C> <C> <C>
External Consulting $ 27 (16) $ 11
Hardware/Software Upgrades 17 (11) 6
Other 6 (2) 4
---- ---- ----
$ 50 (29) $ 21
==== ==== ====
</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.
RECENT DEVELOPMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued
and is expected to be effective for fiscal years beginning after June 15,
2000. The standard requires that all derivative instruments be recorded on
the balance sheet at fair value. Changes in the fair value of derivatives
are recorded in earnings or other comprehensive income, based on whether
the instrument is designated as part of a hedge transaction and, if so, the
type of hedge transaction. 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.
The existing currencies of certain member countries of the European Union
are being phased out and have been effectively replaced with the European
Union's common currency, the euro, as of January 1, 1999. On this date, a
fixed conversion rate was established between the existing currencies and
the euro. National currencies will be eliminated over a period ending
January 1, 2002. The company does not believe that the conversion to the
euro will have a material impact on its results of operations, financial
condition or cash flows.
On May 28, 1999, the company completed the sale of Fresh Start Bakeries,
Inc. See note (k), in the Notes to Financial Statements.
-24-
<PAGE> 25
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.
The company 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
-25-
<PAGE> 26
- - 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.
-26-
<PAGE> 27
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 (j) of
the Notes to 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.
-27-
<PAGE> 28
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, Communities for a Better Environment (CBE) sent a Clean
Air Act Notice of Intent to Sue letter dated April 6, 1998 to the company. The
company and CBE have agreed to settle CBE's claim under the terms of a consent
decree, which was approved by the District Court for the Eastern District of
California on February 16, 1999. Under the 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
August 1, 2000. Other significant provisions of the consent decree are that the
company will donate certain emission reduction credits to the Air District and
has donated the total amount of $85,000 to two non-profit organizations, in lieu
of paying any civil penalty or CBE attorney's fees. The terms of the 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.
-28-
<PAGE> 29
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 Schedule.
b. Reports on Form 8-K
There were no reports on Form 8-K filed by the company during the
third quarter of fiscal 1999.
-29-
<PAGE> 30
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: June 16, 1999 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
-30-
<PAGE> 31
INDEX TO EXHIBITS
Exhibit Number
27 Financial Data Schedule.
-31-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-01-1999
<PERIOD-START> AUG-03-1998
<PERIOD-END> MAY-02-1999
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 558
<ALLOWANCES> 28
<INVENTORY> 587
<CURRENT-ASSETS> 1,371
<PP&E> 3,284
<DEPRECIATION> 1,541
<TOTAL-ASSETS> 5,703
<CURRENT-LIABILITIES> 3,034
<BONDS> 1,338
0
0
<COMMON> 20
<OTHER-SE> 479
<TOTAL-LIABILITY-AND-EQUITY> 5,703
<SALES> 5,128
<TOTAL-REVENUES> 5,128
<CGS> 2,416
<TOTAL-COSTS> 2,416
<OTHER-EXPENSES> 40
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 973
<INCOME-TAX> 328
<INCOME-CONTINUING> 645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.44
</TABLE>
