<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
April 30, 2000 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: (856) 342-4800
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
There were 421,115,848 shares of Capital Stock outstanding as of June 6, 2000.
<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
------------------ -----------------
APRIL May APRIL May
30, 2000 2, 1999 30, 2000 2, 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $1,394 $1,492 $5,078 $5,128
----------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products sold 664 730 2,321 2,416
Marketing and selling expenses 389 370 1,281 1,301
Administrative expenses 68 69 238 221
Research and development expenses 14 15 45 48
Other expenses 15 24 65 40
----------------------------------------------------------------------------------------------------------
Total costs and expenses 1,150 1,208 3,950 4,026
----------------------------------------------------------------------------------------------------------
Earnings before interest and taxes 244 284 1,128 1,102
Interest, net 44 43 140 129
----------------------------------------------------------------------------------------------------------
Earnings before taxes 200 241 988 973
Taxes on earnings 61 79 333 328
----------------------------------------------------------------------------------------------------------
Net earnings $ 139 $ 162 $ 655 $ 645
==========================================================================================================
Per share - basic
Net earnings $ .33 $ .37 $ 1.54 $ 1.46
==========================================================================================================
Dividends $ .225 $ .225 $ .675 $ .660
==========================================================================================================
Weighted average shares outstanding - basic 423 438 426 443
==========================================================================================================
Per share - assuming dilution
Net earnings $ .32 $ .37 $ 1.52 $ 1.44
==========================================================================================================
Weighted average shares outstanding - assuming dilution 432 443 432 448
==========================================================================================================
See Notes to Financial Statements
</TABLE>
2
<PAGE> 3
CAMPBELL SOUP COMPANY CONSOLIDATED
Balance Sheets
(unaudited)
(millions, except per share amounts)
<TABLE>
<CAPTION>
APRIL August
30, 2000 1, 1999
-------- -------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 34 $ 6
Accounts receivable 470 541
Inventories 560 615
Other current assets 122 132
-----------------------------------------------------------------------------------------------------
Total current assets 1,186 1,294
-----------------------------------------------------------------------------------------------------
Plant assets, net of depreciation 1,622 1,726
Intangible assets, net of amortization 1,772 1,910
Other assets 615 592
-----------------------------------------------------------------------------------------------------
Total assets $ 5,195 $ 5,522
=====================================================================================================
Current liabilities
Notes payable $ 1,887 $ 1,987
Payable to suppliers and others 351 511
Accrued liabilities 422 415
Dividend payable 95 97
Accrued income taxes 228 136
-----------------------------------------------------------------------------------------------------
Total current liabilities 2,983 3,146
-----------------------------------------------------------------------------------------------------
Long-term debt 1,270 1,330
Nonpension postretirement benefits 375 394
Other liabilities, including deferred
income taxes of $249 and $263 404 417
-----------------------------------------------------------------------------------------------------
Total liabilities 5,032 5,287
-----------------------------------------------------------------------------------------------------
Shareowners' equity
Preferred stock; authorized 40 shares;
none issued - -
Capital stock, $.0375 par value; authorized
560 shares; issued 542 shares 20 20
Capital surplus 318 382
Earnings retained in the business 4,409 4,041
Capital stock in treasury, at cost (4,348) (4,058)
Accumulated other comprehensive income (236) (150)
-----------------------------------------------------------------------------------------------------
Total shareowners' equity 163 235
-----------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity $ 5,195 $ 5,522
=====================================================================================================
See Notes to Financial Statements
</TABLE>
3
<PAGE> 4
CAMPBELL SOUP COMPANY CONSOLIDATED
Statements of Cash Flows
(unaudited)
(millions)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
APRIL May
30, 2000 2, 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $655 $645
Non-cash charges to net earnings
Depreciation and amortization 189 191
Deferred income taxes 1 (6)
Other, net 21 19
Changes in working capital
Accounts receivable 61 128
Inventories 35 (25)
Other current assets and liabilities (28) (207)
--------------------------------------------------------------------
Net cash provided by operating activities 934 745
--------------------------------------------------------------------
Cash flows from investing activities:
Purchases of plant assets (120) (198)
Sales of plant assets 4 8
Businesses acquired - (105)
Sales of businesses 10 -
Other, net (25) (27)
--------------------------------------------------------------------
Net cash used in investing activities (131) (322)
--------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings - 325
Repayments of long-term borrowings (7) (5)
Short-term borrowings 686 1,315
Repayments of short-term borrowings (809) (1,036)
Dividends paid (289) (288)
Treasury stock purchases (374) (774)
Treasury stock issuances 12 42
Other, net - (2)
--------------------------------------------------------------------
Net cash used in financing activities (781) (423)
--------------------------------------------------------------------
Effect of exchange rate changes on cash 6 8
--------------------------------------------------------------------
Net change in cash and cash equivalents 28 8
Cash and cash equivalents - beginning of period 6 16
--------------------------------------------------------------------
Cash and cash equivalents - end of period $ 34 $ 24
====================================================================
See Notes to Financial Statements
</TABLE>
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 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
====================================================================================================================================
BALANCE AT AUGUST 1, 1999 542 $20 (113) $(4,058) $382 $4,041 $(150) $ 235
COMPREHENSIVE INCOME
NET EARNINGS 655 655
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (86) (86)
DIVIDENDS ($.675 PER SHARE) (287) (287)
TREASURY STOCK PURCHASED (10) (373) (373)
TREASURY STOCK ISSUED UNDER
MANAGEMENT INCENTIVE AND
STOCK OPTION PLANS 2 83 (64) 19
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 30, 2000 542 $20 (121) $(4,348) $319 $4,409 $(236) $ 163
====================================================================================================================================
See Notes to Financial Statements
</TABLE>
5
<PAGE> 6
CAMPBELL SOUP COMPANY CONSOLIDATED
Notes to Financial Statements
(unaudited)
(dollars in millions, except per share amounts)
(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) Comprehensive Income
In 1999, 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 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 April 30, 2000 and May 2, 1999, accumulated other comprehensive
income, as reflected in the statements of shareowners' equity,
represents the cumulative translation adjustment.
(c) Restructuring Program
A restructuring charge of $41 ($30 after tax or $.07 per share) was
recorded in the fourth quarter fiscal 1999 to cover the costs of a
restructuring and divestiture program approved in July 1999 by the
company's Board of Directors. This charge relates to the streamlining
of certain North American and European production and administrative
facilities and the anticipated cost of a divestiture of a non-strategic
business with annual sales of approximately $25. The divestiture was
completed in April 2000.
The restructuring charge includes approximately $20 in cash charges
primarily related to severance and employee benefit costs. The balance
of the restructuring charge includes non-cash charges related to the
disposition of plant assets and the divestiture. The restructuring and
divestiture program will be substantially completed by the end of
fiscal 2000. The expected net cash outflows will not have a material
impact on the company's liquidity. From this program, the company
expects to realize annual pre-tax savings of approximately $21.
6
<PAGE> 7
A summary of restructuring reserves at April 30, 2000, and related activity is
as follows:
<TABLE>
<CAPTION>
Losses on Asset
Dispositions Severance and Other Exit
and Divestitures Benefits Costs Total
---------------- ------------- ---------- -----
<S> <C> <C> <C> <C>
Balance at
August 1, 1999 $ 19 38 3 $ 60
SPENDING $(19) (21) (2) $(42)
------ ------ ------ ------
BALANCE AT
APRIL 30, 2000 $ 0 17 1 $ 18
====== ====== ====== ======
</TABLE>
The reserve balances as of August 1, 1999 also include amounts related
to a fiscal 1998 program. The program was substantially completed by
the second quarter fiscal 2000.
(d) Earnings Per Share
For the periods presented in the Statements of Earnings, the
calculations of basic EPS and EPS assuming dilution vary in that the
weighted average shares outstanding assuming dilution includes the
incremental effect of stock options. For the three and nine month
periods ended April 30, 2000, the weighted average shares outstanding
assuming dilution also includes the incremental effect of approximately
seven million and three million shares, respectively, under a forward
stock purchase contract. See note (g) for a description of the
contract. 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
contract.
(e) 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 and V8 Splash beverages. The Biscuits and
Confectionery segment includes the Godiva Chocolatier, Pepperidge Farm,
and Arnotts Limited businesses. 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
company's fiscal 1999 Annual Report on Form 10-K. The company evaluates
segment performance based on earnings before interest
7
<PAGE> 8
and taxes, excluding certain non-recurring charges. Away From Home
products are principally produced by the tangible assets of the
company's other segments, except for Stockpot premium refrigerated
soups, which are produced in a separate facility, and for certain
frozen products which are produced under contract manufacturing
agreements. Accordingly, with the exception of the designated Stockpot
facility, tangible assets have not been allocated to the Away From Home
segment. For products produced by the assets of other segments,
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.
8
<PAGE> 9
The following tables present information about the company's reportable
segments:
APRIL 30, 2000
<TABLE>
<CAPTION>
Away
Soup and Biscuits and From Corporate and
Sauces Confectionery Home Other(1) Eliminations(2) Total
-------- ------------- ---- -------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
Net sales $ 927 347 132 5 (17) $1,394
Earnings before interest
and taxes $ 204 42 13 (1) (14) $ 244
Depreciation and
amortization $ 31 24 6 - 5 $ 66
Capital expenditures $ 27 14 1 - 5 $ 47
NINE MONTHS ENDED
Net sales $3,552 1,140 410 27 (51) $5,078
Earnings before interest
and taxes $ 968 178 44 - (62) $1,128
Depreciation and
amortization $ 94 65 14 - 16 $ 189
Capital expenditures $ 70 37 4 - 9 $ 120
Segment assets $2,769 1,344 362 7 713 $5,195
(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.
</TABLE>
9
<PAGE> 10
May 2, 1999
<TABLE>
<CAPTION>
Away
Soup and Biscuits and From Corporate 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
amortization $ 96 62 10 8 15 $ 191
Capital expenditures $ 124 45 7 9 13 $ 198
Segment assets $2,994 1,494 314 159 742 $5,703
(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.
</TABLE>
10
<PAGE> 11
(f) Inventories
<TABLE>
<CAPTION>
APRIL August
30, 2000 1, 1999
-------- -------
<S> <C> <C>
Raw materials, containers and supplies $204 $207
Finished products 356 408
-------- -------
$560 $615
</TABLE>
Approximately 65% of inventory in fiscal 2000 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
April 30, 2000 and August 1, 1999.
(g) Forward Stock Purchase Program
In October 1998, the company entered into a forward stock purchase
contract in connection with the company's equity exposure from its
stock option program. The contract, which matures in fiscal 2004,
provides for 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 April 30, 2000, the company would have provided the counterparty
with approximately nine million shares of its capital stock.
In March 2000, the Emerging Issues Task Force (EITF) released Issue
Number 00-07, "Application of EITF Issue No. 96-13, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Company's Own Stock," to Equity Derivative Transactions That
Contain Certain Provisions That Require Cash Settlement if Certain
Events Outside the Control of the Issuer Occur." The EITF reached a
consensus that equity derivative contracts that include any provision
that could require net cash settlement can no longer be accounted for
as equity. Such contracts are initially recorded at fair value and must
be accounted for as an asset or liability with subsequent changes in
the fair value of the derivative included in earnings. Similarly the
EITF reached a consensus that equity derivative contracts with any
provisions that could require physical settlement by a cash payment to
the counterparty in exchange for the issuer's shares can no longer be
accounted for as permanent equity. Instead, the contracts should be
classified as temporary or mezzanine equity. Both of these conclusions
do not allow for an evaluation of the likelihood that otherwise
unlikely or remote events would trigger cash settlement.
11
<PAGE> 12
For contracts that existed before March 16, 2000, the provisions of the
consensus are to be applied on December 31, 2000 to those contracts
that remain outstanding at that date, based on the contract terms then
in place. The effect of the application that requires asset/liability
treatment for contracts with net cash settlement provisions should be
calculated as of December 31, 2000, and presented on that date as a
cumulative effect of change in accounting principle. Any
reclassification of amounts from permanent equity to temporary equity
as a result of settlement provisions that require physical cash
settlement should be made for balance sheets as of and subsequent to
December 31, 2000.
The company's forward stock contract is currently accounted for as
permanent equity. The company is evaluating the impact of the consensus
and possible amendments to contract provisions with the counterparty.
Further discussions related to the accounting for such contracts
continue by the EITF and other accounting and regulatory bodies. The
company expects to adopt the provisions of the consensus in the second
quarter fiscal 2001. However, the ultimate resolution and impact of the
accounting for the contract will be dependent upon the results of the
review of contract provisions with the counterparty, possible future
changes in authoritative guidance and fluctuations in the company's
share price.
12
<PAGE> 13
CAMPBELL SOUP COMPANY CONSOLIDATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
OVERVIEW
Net sales in the third quarter ended April 30, 2000 declined 7% primarily
due to lower worldwide wet soup shipments. Worldwide wet soup shipments
decreased 5% as a result of an 8% decline in the U.S. Outside the U.S., wet
soup shipments increased 1%. Net sales excluding currency and divestitures
decreased 4% in the quarter.
For the nine months ended April 30, 2000, net sales declined 1%. Net
earnings increased 2% to $655 million and diluted earnings per share
increased 6% to $1.52.
THIRD QUARTER
SALES
Sales in the quarter declined 7% to $1.39 billion from $1.49 billion last
year. The change in sales was due to a 5% decline in volume and mix, a 3%
decline due to divestitures and currency, offset by 1% from higher selling
prices.
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
(millions) 2000 1999 % CHANGE
---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 927 $ 1,010 (8)%
Biscuits and Confectionery 347 340 2
Away From Home 132 122 8
--------------------------------------------------------------------------
Subtotal 1,406 1,472 (4)
Other 5 34
Intersegment (17) (14)
--------------------------------------------------------------------------
Total $ 1,394 $ 1,492 (7)%
</TABLE>
13
<PAGE> 14
The sales decline in Soup and Sauces was due primarily to a 5% decrease in
worldwide wet soup volume, driven by an 8% decline in U.S. soup volume.
Outside the U.S., wet soup volume increased 1%. Volume gains in France,
Germany and Asia/Pacific were partially offset by declines in the United
Kingdom, Canada and Japan.
Beverage sales were lower than the prior year due to competitive pressure in
the category. Sales of U.S. sauces and prepared foods also declined in the
quarter in response to aggressive competitive activity in their respective
categories.
Biscuits and Confectionery reported an increase in sales compared to third
quarter 1999. The increase was primarily driven by the performance of Godiva
Chocolatier and the Arnotts biscuit business. Godiva Chocolatier contributed
double-digit sales growth due to record Valentine's Day results and strong
Easter sales. Pepperidge Farm reported lower sales as a result of continued
competitive activity in the cheese cracker category although sales of frozen
products increased over the prior year behind new product initiatives.
Away From Home sales increased by 8% over the prior year due primarily to
the expansion of the Campbell's branded soup in university cafeterias,
convenience stores and other outlets.
The decline on Other is due to the divestiture of Fresh Start Bakeries, Inc.
in May 1999.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, decreased $32
million in the quarter due to lower sales volumes. As a percent of sales,
gross margin was 52.4% compared to 51.0% 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 increased to 27.9% from
24.8% last year. The increase was primarily due to an increase in selling
costs associated with new stores in Godiva Chocolatier, an increase in
marketing costs in the Pepperidge Farm business, and a shift in the timing
of certain U.S. soup programs and reductions in programs to match
marketplace performance.
ADMINISTRATIVE EXPENSES
Administrative expenses were relatively flat at approximately 5% of sales.
14
<PAGE> 15
OTHER EXPENSES
Other expenses decreased principally due to lower expenses in recognition of
long-term compensation liabilities and related contracts that hedge the
programs.
OPERATING EARNINGS
Segment operating earnings, defined as earnings before interest and taxes,
decreased 15% versus the prior year due primarily to the decline in U.S.
soup sales.
An analysis of operating earnings by segment follows:
<TABLE>
<CAPTION>
(millions) 2000 1999 % CHANGE
---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 204 $ 249 (18)%
Biscuits and Confectionery 42 44 (5)
Away From Home 13 13 -
------------------------------------------------------------------------------
Subtotal 259 306 (15)
Other (1) (1)
------------------------------------------------------------------------------
258 305 (15)
Corporate (14) (21)
------------------------------------------------------------------------------
Total $ 244 $ 284 (14)%
</TABLE>
Earnings from Soup and Sauces declined 18% due primarily to lower sales of
U.S. soup. Beverages reported a decline in earnings primarily due to a
decline in V8 Splash versus record sales a year ago. U.S. sauces and
prepared foods reported a decline in earnings due to competition against
pasta and gravy.
Earnings from Biscuits and Confectionery declined by $2 million due in part
to marketing investments in Pepperidge Farm products. Godiva Chocolatier
reported double-digit growth in earnings due to record Valentine's Day
results and strong Easter sales.
Away From Home earnings were flat versus last year.
15
<PAGE> 16
NON-OPERATING ITEMS
Interest expense was consistent with the prior year.
The effective tax rate was 30.5% compared to 32.7% in fiscal 1999. The
decrease was due to a lower effective rate on foreign earnings primarily
driven by a reduction in the Australian statutory rate.
NINE MONTHS
SALES
Sales for the nine months declined 1% to $5.08 billion from $5.13 billion
last year. The change in sales was due to a 1% decrease from volume and mix,
a 2% decline due to divestitures, offset by 2% from higher selling prices.
An analysis of net sales by segment follows:
<TABLE>
<CAPTION>
(millions) 2000 1999 % CHANGE
---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 3,552 $ 3,578 (1)%
Biscuits and Confectionery 1,140 1,109 3
Away From Home 410 382 7
--------------------------------------------------------------------------
Subtotal 5,102 5,069 1
Other 27 110
Intersegment (51) (51)
--------------------------------------------------------------------------
Total $ 5,078 $ 5,128 (1)%
</TABLE>
The decline in Soup and Sauces was due to declines in U.S. sauces, prepared
foods and beverages and the United Kingdom business. U.S. soup sales were
relatively flat versus the prior year. Germany, France and Asia/Pacific
reported sales gains.
Biscuits and Confectionery reported an increase in sales compared to 1999
due primarily to a double-digit increase in Godiva Chocolatier and an
increase in the Australian biscuit business. The increase in Godiva
Chocolatier sales was due to new retail store openings, improved comparable
store sales and product innovation. Pepperidge Farm reported lower sales due
to a decline in Goldfish volume.
16
<PAGE> 17
Away From Home reported a 7% increase in sales primarily due to an increase
in soup volume and improved performance in the Canadian and Pepperidge Farm
businesses.
GROSS MARGIN
Gross margin, defined as net sales less cost of products sold, increased
$45 million year-to-date. As a percent of sales, gross margin was 54.3%
compared to 52.9% 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 the
manufacturing facilities.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses as a percent of sales were relatively flat
at 25.2% versus 25.4% last year. The slight decline is due to reductions in
certain programs to match marketplace performance, offset by increased
selling costs in Godiva Chocolatier.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percent of sales increased to 4.6% from 4.3%
last year. The increase is due to higher costs associated with the Away
From Home infrastructure and higher compensation costs.
OTHER EXPENSES
Other expenses increased as compared to last year primarily due to
increases in incentive compensation costs.
17
<PAGE> 18
OPERATING EARNINGS
Segment operating earnings, defined as earnings before interest and taxes,
increased 4% versus the prior year.
An analysis of operating earnings by segment follows:
<TABLE>
<CAPTION>
(millions) 2000 1999 % CHANGE
---------- ---- ---- --------
<S> <C> <C> <C>
Soup and Sauces $ 968 $ 929 4%
Biscuits and Confectionery 178 173 3
Away From Home 44 46 (4)
-------------------------------------------------------------------------------
Subtotal 1,190 1,148 4
Other - 6
-------------------------------------------------------------------------------
1,190 1,154 3
Corporate (62) (52)
-------------------------------------------------------------------------------
Total $ 1,128 $ 1,102 2%
</TABLE>
The increase in earnings from Soup and Sauces is due primarily to lower
marketing expenses and improvements in gross margin from cost productivity
programs. Several international wet soup businesses including Erasco in
Germany, Liebig in France, and Asia/Pacific contributed to the earnings
performance. Beverages and U.S. sauces and prepared foods reported improved
earnings due to lower marketing.
Biscuits and Confectionery reported an increase in earnings driven by the
performance of Godiva Chocolatier and Arnotts. Pepperidge Farm reported a
decline in earnings.
Earnings from Away From Home declined $2 million to $44 million due to
increased investment behind growth initiatives and higher costs associated
with the new Stockpot manufacturing facility.
The decline in Other is due to the sale of Fresh Start Bakeries, Inc. in May
1999.
18
<PAGE> 19
NON-OPERATING ITEMS
Net interest expense increased to $140 million from $129 million in 1999
due to higher debt levels and interest rates.
The effective tax rate was flat at 33.7%.
RESTRUCTURING CHARGE
A restructuring charge of $41 million ($30 million after tax or $.07 per
share) was recorded in the fourth quarter fiscal 1999 to cover the costs
of a restructuring and divestiture program approved in July 1999 by the
company's Board of Directors. This charge relates to the streamlining of
certain North American and European production and administrative
facilities and the anticipated cost of a divestiture of a non-strategic
business with annual sales of approximately $25 million. The divestiture
was completed in April 2000.
The restructuring charge includes approximately $20 million in cash
charges primarily related to severance and employee benefit costs. The
balance of the restructuring charge includes non-cash charges related to
the disposition of plant assets and the divestiture. The program will be
substantially completed by the end of fiscal 2000. The expected net cash
outflows will not have a material impact on the company's liquidity.
From this program, the company expects to realize annual pre-tax savings
of approximately $21 million. See note (c) 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 $934 million compared to
$745 million last year. This increase is primarily due to higher
earnings and improved working capital.
Capital expenditures were $120 million, a decrease from $198 million
last year. The company continues to aggressively manage its capital
outlays and expects total expenditures to approximate $215 million in
fiscal 2000.
In the first nine months, the company repurchased approximately 10
million shares versus approximately 16 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.
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YEAR 2000
The company recognized the material nature of the business issues
related to the computer processing of dates into and beyond the Year
2000 and effected a readiness plan that was divided into three major
phases: Business Systems Inventory and Assessment, Remediation and
Replacement, and Testing. Management believes the company has completed
all of the activities within its control to ensure that the company's
systems are Year 2000 compliant. The company has not experienced any
disruption or material adverse impacts in its operations, business
systems or supply chain as a result of the Year 2000 date transition.
The company is not aware that any of its major business partners have
experienced significant Year 2000 issues. However, the company has
developed contingency plans to mitigate any remaining Year 2000-related
risks.
RECENT DEVELOPMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was
issued. This standard, effective for fiscal years beginning after June
15, 2000, 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.
In March 2000, the Emerging Issues Task Force (EITF) released Issue
Number 00-07, "Application of EITF Issue No. 96-13, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in,
a Company's Own Stock," to Equity Derivative Transactions That Contain
Certain Provisions That Require Cash Settlement If Certain Events
Outside the Control of the Issuer Occur." The EITF reached a consensus
that equity derivative contracts that include any provision that could
require net cash settlement can no longer be accounted for as equity.
Such contracts are initially recorded at fair value and must be
accounted for as an asset or liability with subsequent changes in the
fair value of the derivative included in earnings. Similarly the EITF
reached a consensus that equity derivative contracts with any provisions
that could require physical settlement by a cash payment to the
counterparty in exchange for the issuer's shares can no longer be
accounted for as permanent equity. Instead, the contracts should be
classified as temporary or mezzanine equity. Both of these conclusions
do not allow for an evaluation of the likelihood that otherwise unlikely
or remote events would trigger cash settlement.
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For contracts that existed before March 16, 2000, the provisions of the
consensus are to be applied on December 31, 2000 to those contracts that remain
outstanding at that date, based on the contract terms then in place.
The company has a forward stock purchase contract outstanding that is accounted
for as permanent equity. See note (g) of the Notes to Financial Statements. The
company is evaluating the impact of the consensus and possible amendments to
contract provisions with the counterparty. Further discussions related to the
accounting for such contracts continue by the EITF and other accounting and
regulatory bodies. The company expects to adopt the provisions of the consensus
in the second quarter fiscal 2001. However, the ultimate resolution and impact
of the accounting for the contract will be dependent upon the results of the
review of contract provisions with the counterparty, possible future changes in
authoritative guidance and fluctuations in the company's share price.
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 and product mix;
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- 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 objectives, including the
projected outcome of supply chain management programs;
- the difficulty of predicting the pattern of inventory movements by the
company's trade customers; and
- 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.
This discussion of uncertainties is by no means exhaustive but is designed to
highlight important factors that may impact the company's outlook.
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 1999. There have been no significant
changes in the company's portfolio of financial instruments or market risk
exposures which have occurred since year-end.
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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, ten lawsuits have been commenced against
Campbell Soup Company and certain of its officers in the United States
District Court for the District of New Jersey, on behalf of persons who
allegedly purchased the company's stock between November 18, 1997 and
January 8, 1999. Specifically, the actions allege, among other things,
that during this period, Campbell and certain of its officers
misrepresented the company's financial condition by failing to disclose
alleged shipping and revenue recognition practices in connection with
the sale of certain company products at the end of the company's fiscal
quarters in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder. The actions seek compensatory and other damages, and costs
and expenses associated with the litigation. Campbell believes the
complaints are without merit and intends to defend the actions
vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
Exhibit 3 (ii) Campbell's By-laws, effective March 23, 2000.
Exhibit 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.
Exhibit 10 (i) Agreement between the company and Dale F.
Morrison dated April 20, 2000.
10 (j) Agreement between the company and David W.
Johnson dated May 23, 2000.
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Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the company
during the quarter ended April 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMPBELL SOUP COMPANY
Date: June 13, 2000 By: /s/ Basil L. Anderson
----------------------------
Basil L. Anderson
Executive Vice President and
Chief Financial Officer
By: /s/ Ellen Oran Kaden
----------------------------
Ellen Oran Kaden
Senior Vice President -
Law and Government Affairs
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INDEX TO EXHIBITS
Exhibit Number
--------------
3 (ii) Campbell's By-laws, effective March 23, 2000.
10 (i) Agreement between the company and Dale F. Morrison dated
April 20, 2000.
10 (j) Agreement between the company and David W. Johnson dated
May 23, 2000.
27 Financial Data Schedule.
26
