-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A6ZoWH1x0l5W8YReVdxqjTyLAEpCwQyqiWrIVJjCy1wWjDetyXY6sA/1pZ82MYgP 2BTSEhoI6b3SKn9O7IiHcQ== 0000893220-00-000279.txt : 20000316 0000893220-00-000279.hdr.sgml : 20000316 ACCESSION NUMBER: 0000893220-00-000279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000130 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMPBELL SOUP CO CENTRAL INDEX KEY: 0000016732 STANDARD INDUSTRIAL CLASSIFICATION: FOOD & KINDRED PRODUCTS [2000] IRS NUMBER: 210419870 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0729 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03822 FILM NUMBER: 570325 BUSINESS ADDRESS: STREET 1: CAMPBELL PL CITY: CAMDEN STATE: NJ ZIP: 08103 BUSINESS PHONE: 6093424800 MAIL ADDRESS: STREET 1: CAMPBELL PL CITY: CAMDEN STATE: NJ ZIP: 08103 10-Q 1 FORM 10-Q CAMPBELL SOUP COMPANY 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 JANUARY 30, 2000 1-3822 CAMPBELL SOUP COMPANY NEW JERSEY 21-0419870 STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO. CAMPBELL PLACE CAMDEN, NEW JERSEY 08103-1799 PRINCIPAL EXECUTIVE OFFICES TELEPHONE NUMBER: (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 422,502,096 SHARES OF CAPITAL STOCK OUTSTANDING AS OF MARCH 7, 2000. 2 PART I. FINANCIAL INFORMATION CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (millions, except per share amounts)
Three Months Ended Six Months Ended JANUARY January JANUARY January 30, 2000 31, 1999 30, 2000 31, 1999 -------- -------- -------- -------- Net sales $1,916 $1,832 $3,684 $3,636 ------ ------ ------ ------ Costs and expenses Cost of products sold 848 856 1,657 1,686 Marketing and selling expenses 464 511 892 931 Administrative expenses 87 74 170 152 Research and development expenses 15 17 31 33 Other expenses 29 3 50 16 ------ ------ ------ ------ Total costs and expenses 1,443 1,461 2,800 2,818 ------ ------ ------ ------ Earnings before interest and taxes 473 371 884 818 Interest, net 50 42 96 86 ------ ------ ------ ------ Earnings before taxes 423 329 788 732 Taxes on earnings 142 110 272 249 ------ ------ ------ ------ Net earnings $ 281 $ 219 $ 516 $ 483 ====== ====== ====== ====== Per share - basic Net earnings $ .66 $ .49 $ 1.21 $ 1.08 ====== ====== ====== ====== Dividends $ .225 $ .225 $ .450 $ .435 ====== ====== ====== ====== Weighted average shares outstanding - basic 427 444 428 446 ====== ====== ====== ====== Per share - assuming dilution Net earnings $ .65 $ .49 $ 1.19 $ 1.07 ====== ====== ====== ====== Weighted average shares outstanding - assuming dilution 431 449 432 451 ====== ====== ====== ====== See Notes to Financial Statements
2 3 CAMPBELL SOUP COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (millions, except per share amounts)
JANUARY August 30, 2000 1, 1999 -------- ------- Current assets Cash and cash equivalents $ 92 $ 6 Accounts receivable 638 541 Inventories 583 615 Other current assets 126 132 ------- ------- Total current assets 1,439 1,294 ------- ------- Plant assets, net of depreciation 1,678 1,726 Intangible assets, net of amortization 1,844 1,910 Other assets 603 592 ------- ------- Total assets $ 5,564 $ 5,522 ======= ======= Current liabilities Notes payable $ 1,874 $ 1,987 Payable to suppliers and others 446 511 Accrued liabilities 484 415 Dividend payable 96 97 Accrued income taxes 249 136 ------- ------- Total current liabilities 3,149 3,146 ------- ------- Long-term debt 1,336 1,330 Nonpension postretirement benefits 384 394 Other liabilities, including deferred income taxes of $260 and $263 430 417 ------- ------- Total liabilities 5,299 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 326 382 Earnings retained in the business 4,365 4,041 Capital stock in treasury, at cost (4,266) (4,058) Accumulated other comprehensive income (180) (150) ------- ------- Total shareowners' equity 265 235 ------- ------- Total liabilities and shareowners' equity $ 5,564 $ 5,522 ======= ======= See Notes to Financial Statements
3 4 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (millions)
Six Months Ended JANUARY January 30, 2000 31, 1999 -------- -------- Cash flows from operating activities: Net earnings $ 516 $ 483 Non-cash charges to net earnings Depreciation and amortization 123 123 Deferred taxes 1 (3) Other, net 10 (1) Changes in working capital Accounts receivable (97) (47) Inventories 30 (62) Other current assets and liabilities 143 (104) ----- ----- Net cash provided by operating activities 726 389 ----- ----- Cash flows from investing activities: Purchases of plant assets (73) (126) Sales of plant assets 3 8 Businesses acquired - (105) Other, net (7) (8) ----- ----- Net cash used in investing activities (77) (231) ----- ----- Cash flows from financing activities: Long-term borrowings - 325 Repayments of long-term borrowings (5) (2) Short-term borrowings 483 737 Repayments of short-term borrowings (584) (588) Dividends paid (194) (188) Treasury stock purchases (283) (489) Treasury stock issuances 16 64 ----- ----- Net cash used in financing activities (567) (141) ----- ----- Effect of exchange rate changes on cash 4 (3) ----- ----- Net change in cash and cash equivalents 86 14 Cash and cash equivalents - beginning of period 6 16 ----- ----- Cash and cash equivalents - end of period $ 92 $ 30 ===== ===== See Notes to Financial Statements
4 5 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (unaudited) (millions, except per share amounts)
Capital stock --------------------------------------- Earnings Accumulated Issued In treasury retained other Total ---------------- ------------------ Capital in the comprehensive shareowners' Shares Amount Shares Amount surplus business income equity ------ ------ ------ ------ ------- -------- ------ ------ Balance at August 2, 1998 542 $ 20 (94) $ (3,083) $ 395 $ 3,706 $ (164) $ 874 Comprehensive income Net earnings 483 483 Foreign currency translation adjustments (6) (6) Dividends ($.435 per share) (193) (193) Treasury stock purchased (9) (489) (489) Treasury stock issued under management incentive and stock option plans 2 31 (9) 22 --- ---- ----- --------- ------ -------- ------- ------ Balance at January 31, 1999 542 $ 20 (101) $ (3,541) $ 386 $ 3,996 $ (170) $ 691 === ==== ===== ========= ====== ======== ======= ====== BALANCE AT AUGUST 1, 1999 542 $ 20 (113) $ (4,058) $ 382 $ 4,041 $ (150) $ 235 COMPREHENSIVE INCOME NET EARNINGS 516 516 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (30) (30) DIVIDENDS ($.450 PER SHARE) (192) (192) TREASURY STOCK PURCHASED (7) (283) (283) TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 2 75 (56) 19 --- ---- ----- --------- ------ -------- ------- ------ BALANCE AT JANUARY 30, 2000 542 $ 20 (118) $ (4,266) $ 326 $ 4,365 $ (180) $ 265 === ==== ===== ========= ====== ======== ======= ====== See Notes to Financial Statements
5 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 January 30, 2000 and January 31, 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 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 company expects to complete the restructuring and divestiture program in 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 7 A summary of restructuring reserves at January 30, 2000, and related activity is as follows:
Losses on Asset Dispositions Severance and Other Exit and Divestitures Benefits Costs Total ---------------- -------- ----- ----- Balance at August 1, 1999 $ 19 38 3 $ 60 SPENDING $ (3) (17) (2) $(22) BALANCE AT ------ ---- --- ----- JANUARY 30, 2000 $ 16 21 1 $ 38 ====== ==== === =====
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 six month periods ended January 30, 2000, the weighted average shares outstanding assuming dilution also includes the incremental effect of approximately two million shares under the forward stock purchase contract. See Note (g) for a description of 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 the 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 home meal replacement markets. 7 8 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 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 the Stockpot premium refrigerated soups, which are produced in a separate facility. 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 9 The following tables present information about the company's reportable segments. JANUARY 30, 2000
Corporate Soup and Biscuits and Away From and THREE MONTHS ENDED Sauces Confectionery Home Other(1) Eliminations(2) Total ------ ------------- ---- -------- --------------- ----- Net sales $1,361 419 143 9 (16) $1,916 Earnings before interest and taxes $ 406 78 16 1 (28) $ 473 Depreciation and amortization $ 31 21 4 - 5 $ 61 Capital expenditures $ 22 11 3 - 1 $ 37
Corporate Soup and Biscuits and Away From and SIX MONTHS ENDED Sauces Confectionery Home Other(1) Eliminations(2) Total ------ ------------- ---- -------- --------------- ----- Net sales $2,625 793 278 22 (34) $3,684 Earnings before interest and taxes $ 763 136 31 2 (48) $ 884 Depreciation and amortization $ 63 41 8 - 11 $ 123 Capital expenditures $ 43 23 3 - 4 $ 73 Segment assets $3,026 1,428 372 41 697 $5,564
(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. 9 10 JANUARY 31, 1999
Corporate Soup and Biscuits and Away From and THREE MONTHS ENDED Sauces Confectionery Home Other(1) Eliminations(2) Total ------ ------------- ---- -------- --------------- ----- Net sales $1,278 407 135 36 (24) $1,832 Earnings before interest and taxes $ 290 71 17 4 (11) $ 371 Depreciation and amortization $ 33 21 3 2 5 $ 64 Capital expenditures $ 53 14 - 6 6 $ 79
Corporate Soup and Biscuits and Away From and SIX MONTHS ENDED Sauces Confectionery Home Other(1) Eliminations(2) Total ------ ------------- ---- -------- --------------- ----- Net sales $2,567 769 262 75 (37) $3,636 Earnings before interest and taxes $ 680 129 33 7 (31) $ 818 Depreciation and amortization $ 64 41 6 4 8 $ 123 Capital expenditures $ 80 27 - 9 10 $ 126 Segment assets $3,210 1,466 318 172 708 $5,874
(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 11 (f) Inventories JANUARY August 30, 2000 1, 1999 -------- ------- Raw materials, containers and supplies $212 $207 Finished products 371 408 ---- ---- $583 $615 ==== ==== Approximately 64% of inventory in fiscal 2000 and 70% in fiscal 1999 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 January 30, 2000 and August 1, 1999. (g) 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 renewed for an additional five-year term. If the forward purchase contract had been settled on a net share basis as of January 30, 2000, the company would have provided the counterparty with approximately six million shares of its capital stock. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CAMPBELL SOUP COMPANY RESULTS OF CONTINUING OPERATIONS OVERVIEW The company reported net earnings of $281 million for the quarter ended January 30, 2000 compared to $219 million in the comparable quarter a year ago. Diluted earnings per share increased to $.65 from $.49 a year ago. Net sales increased 5% to $1.92 billion from $1.83 billion. The increase in sales and earnings was primarily driven by the rebound in U.S. soup shipments from the prior year. In January 1999, the company initiated certain modifications in its supply chain operation that resulted in lower shipments during that quarter. For the six months ended January 30, 2000, net sales increased 1%. Excluding currency and divestitures, sales from ongoing businesses increased 3%. Net earnings and diluted earnings per share increased 7% and 11%, respectively. SECOND QUARTER SALES Sales in the quarter increased 5% to $1.92 billion from $1.83 billion last year. The change in sales was due to a 5% increase from volume and mix, a 2% increase from higher selling prices, offset by 1% decline due to divestitures and 1% decline due to currency. An analysis of net sales by segment follows:
(millions) 2000 1999 % CHANGE ---------- ---- ---- -------- Soup and Sauces $1,361 $1,278 6% Biscuits and Confectionery 419 407 3% Away From Home 143 135 6% ------ ------ -- Subtotal 1,923 1,820 6% Other 9 36 Intersegment (16) (24) ------ ------ -- Total $1,916 $1,832 5% ====== ======
12 13 The sales increase in Soup and Sauces was due to a worldwide wet soup volume increase of 9%. U.S. wet soup shipments increased 12% over the prior period. The comparison to the prior period is impacted by the initiatives implemented in January 1999 that resulted in lower shipments in that period. During the quarter, ready-to-serve soups delivered solid volume gains, led by Swanson broths and new products that were introduced nationally earlier in the year, such as Campbell's ready-to-serve Tomato soup in a resealable plastic container and Campbell's Soup-To-Go! In addition, Campbell's Chunky soups posted solid gains, as did Campbell's Simply Home soups. International soup volume increased 1% primarily due to volume gains in France, Germany and Australia offset by lower shipments in Canada and the United Kingdom. Sales of prepared foods improved versus last year. Sales of Prego increased due to the introduction of new products and packaging. In the United Kingdom, Homepride cooking sauces contributed to the positive change in sales. Franco-American volumes were down versus last year due to continued intense competition in the category. The increase in sales reported by Biscuits and Confectionery compared to last year was primarily due to continued growth in Godiva Chocolatier and the core cracker business at Arnotts. Pepperidge Farm sales declined due to continued competitive pressure in the cheese cracker category. Away From Home reported an increase of 6% versus the comparable quarter a year ago driven by double-digit growth in soup sales in traditional food service outlets. The decline in 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, increased $92 million in the quarter. As a percent of sales, gross margin was 55.7% compared to 53.3% last year. The improvement in margin percentage was principally due to stronger unit volume in the U.S., higher selling prices, and productivity programs. MARKETING AND SELLING EXPENSES Marketing and selling expenses as a percent of sales declined to 24% from 28% last year. The decrease is attributable to a shift in the timing of certain programs and reductions in programs to match marketplace performance. ADMINISTRATIVE EXPENSES Administrative expenses were relatively flat as a percent of sales compared to last year. OTHER EXPENSES Other expenses increased as compared to last year primarily due to higher incentive compensation costs. 13 14 OPERATING EARNINGS Segment operating earnings increased 32% for the second quarter versus the prior year. An analysis of operating earnings by segment follows:
(millions) 2000 1999 % CHANGE - ---------- ---- ----- -------- Soup and Sauces $ 406 $ 290 40% Biscuits and Confectionery 78 71 10% Away From Home 16 17 (6)% ----- ----- ----- Subtotal 500 378 32% Other 1 4 ----- ----- ----- 501 382 Corporate (28) (11) ----- ----- ----- Total $ 473 $ 371 27% ===== =====
Earnings from Soup and Sauces increased 40% due to higher U.S. wet soup sales and lower marketing and selling spending. The ready-to-serve category showed continued growth behind Campbell's Chunky. Prego, Pace and Franco-American pasta also contributed to the earnings growth. Earnings from Biscuits and Confectionery increased 10% to $78 million. The increase was due to strong performance by Godiva Chocolatier and the increase in sales at Arnotts. Pepperidge Farm results continued to be adversely impacted by competition in the cheese cracker business. Away From Home earnings were relatively flat versus last year. NON-OPERATING ITEMS Net interest expense was $50 million versus $42 million in the prior year due to higher debt levels. The effective tax rate was 33.6% compared to 33.4% last year. SIX MONTHS SALES Sales for the six months increased 1% to $3.68 billion from $3.64 billion last year. The change in sales was due to a 1% increase from volume and mix, a 2% increase from higher selling prices, offset by a 2% decline from divestitures. 14 15 An analysis of net sales by segment follows:
(millions) 2000 1999 % CHANGE - ---------- ---- ---- -------- Soup and Sauces $ 2,625 $ 2,567 2% Biscuits and Confectionery 793 769 3% Away From Home 278 262 6% ------- ------- --- Subtotal 3,696 3,598 3% Other 22 75 Intersegment (34) (37) ------- ------- --- Total $ 3,684 $ 3,636 1% ======= =======
The sales increase reported by Soup and Sauces was due to a 2% increase in worldwide wet soup volume, driven primarily by the second quarter U.S. soup shipment recovery. Outside the U.S., wet soup sales in Germany, France, and Australia contributed to this growth. Beverage sales were flat versus last year, while Pace and Franco-American experienced declines in sales. Biscuits and Confectionery reported a 3% increase versus 1999 due to continued gains in the Godiva business and the Arnotts biscuit business. Pepperidge Farm sales declined due to continued competitive pressure in the cheese cracker category. Away From Home reported a sales increase of 6% due to a 9% increase in soup volume. The decline in 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, increased $77 million year-to-date. As a percent of sales, gross margin was 55% compared to 53.6% last year. The improvement in margin percentage was principally due to product mix with stronger volume in the U.S., selling price increases, and cost savings programs. MARKETING AND SELLING EXPENSE Marketing and selling expenses as a percent of sales decreased to 24% from 26% last year. The decrease is attributable to a shift in the timing of certain programs and reductions in programs to match marketplace performance. 15 16 ADMINISTRATIVE EXPENSES Administrative expenses were relatively flat as a percent of sales compared to last year. OTHER EXPENSES Other expenses increased as compared to last year primarily due to increases in incentive compensation costs. OPERATING EARNINGS Segment operating earnings increased 10% versus the prior year. An analysis of operating earnings by segment follows:
(millions) 2000 1999 % CHANGE - ---------- ---- ---- -------- Soup and Sauces $ 763 $ 680 12% Biscuits and Confectionery 136 129 5% Away From Home 31 33 (6)% ----- ----- ----- Subtotal 930 842 10% Other 2 7 ----- ----- ----- 932 849 Corporate (48) (31) ----- ----- ----- Total $ 884 $ 818 8% ===== =====
The increase in earnings from Soup and Sauces is primarily due to the recovery in U.S. soup shipments from last year and improved earnings performance by Prego, Pace and Franco-American. Erasco and Liebig also contributed to operating margin gains. Biscuits and Confectionery reported an increase in earnings driven by Godiva Chocolatier and Arnotts. Earnings from Pepperidge Farm remained flat. Earnings from Away From Home declined due to increases in investments behind growth initiatives and costs associated with the new Stockpot facility. Earnings from Other declined due to the divestiture of Fresh Start Bakeries, Inc. in May 1999. 16 17 NON-OPERATING ITEMS Net interest expense increased to $96 million from $86 million in the prior year due to the higher debt levels. The effective tax rate was 34.5% compared to 34.0% last year. 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 restructuring 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 company expects to complete the restructuring and divestiture program in 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. LIQUIDITY AND CAPITAL RESOURCES The company generated cash from operations of $726 million compared to $389 million last year. This increase is primarily due to higher earnings and improvement in working capital management. Capital expenditures were $73 million, a decrease from $126 million last year. The company continues to aggressively manage its capital outlays and expects total expenditures to approximate $270 million in fiscal 2000. In the first six months, the company repurchased 6.9 million shares versus 9.3 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 (g) of the Notes to Financial Statements for further discussion of the contract. 17 18 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. The aggregate cost of the company's Year 2000 efforts was approximately $42 million. These costs, except for capital costs of approximately $3 million, were expensed as incurred and funded through operating cash flows. The company incurred Year 2000-related costs of approximately $23 million in fiscal 1999 and $5 million in fiscal 2000. No significant future expenses are expected to be incurred. An analysis of costs incurred is as follows:
(millions) External consulting $23 Hardware/software upgrades 13 Other 6 --- Total $42 ===
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. 18 19 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 of the company, 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, promotional programs 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; - - 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; - - the impact of unforeseen economic and political changes in international markets where the company competes such as currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which the company has no control; and - - the ability of the company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address any remaining Year 2000-related risks. This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact the company's outlook. 19 20 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. 20 21 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 of March 9, 2000, ten lawsuits had been commenced since January 2000 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 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 second quarter of fiscal 2000. 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMPBELL SOUP COMPANY Date: March 15, 2000 By: /s/ Basil Anderson ----------------------------- Basil Anderson Executive Vice President and Chief Financial Officer By: /s/ Ellen Oran Kaden ----------------------------- Ellen Oran Kaden Senior Vice President - Law and Government Affairs 22 23 INDEX TO EXHIBITS
Exhibit Number - -------------- 27 Financial Data Schedule.
23 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000,000 6-MOS JUL-30-2000 AUG-02-1999 JAN-30-2000 92 0 684 46 583 1,439 3,247 1,569 5,564 3,149 1,336 0 0 20 245 5,564 3,684 3,684 1,657 1,657 50 0 101 788 272 516 0 0 0 516 $1.21 $1.19
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