-----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, AxOkxdvYupcofqGWjhq8q9oZPF8PnsGk773iHkFKsSlvI7L/1+yaWjaeXrWfcXOk swPMpK1+LG3cvDU4IkuKKQ== 0000893220-99-001356.txt : 19991215 0000893220-99-001356.hdr.sgml : 19991215 ACCESSION NUMBER: 0000893220-99-001356 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991214 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: 99774183 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 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 OCTOBER 31, 1999 1-3822 [CAMPBELL SOUP 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 426,424,376 SHARES OF CAPITAL STOCK OUTSTANDING AS OF DECEMBER 1, 1999. - -------------------------------------------------------------------------------- 2 PART I. FINANCIAL INFORMATION ----------------------------- CAMPBELL SOUP COMPANY CONSOLIDATED ---------------------------------- STATEMENTS OF EARNINGS ---------------------- (unaudited) (millions, except per share amounts)
Three Months Ended ------------------ OCTOBER November 31, 1999 1, 1998 -------- ------- Net sales $1,768 $1,804 ------ ------ Costs and expenses Cost of products sold 809 830 Marketing and selling expenses 428 420 Administrative expenses 83 78 Research and development expenses 16 16 Other expenses 21 13 ------ ------ Total costs and expenses 1,357 1,357 ------ ------ Earnings before interest and taxes 411 447 Interest, net 46 44 ------ ------ Earnings before taxes 365 403 Taxes on earnings 130 139 ------ ------ Net earnings $ 235 $ 264 ====== ====== Per share - basic Net earnings $ .55 $ .59 ====== ====== Dividends $ .225 $ .210 ====== ====== Weighted average shares outstanding - basic 429 448 ====== ====== Per share - assuming dilution Net earnings $ .54 $ .58 ====== ====== Weighted average shares outstanding - assuming dilution 433 454 ====== ====== See Notes to Financial Statements
3 CAMPBELL SOUP COMPANY CONSOLIDATED ---------------------------------- BALANCE SHEETS -------------- (unaudited) (millions)
OCTOBER August 31, 1999 1, 1999 -------- ------- Current assets Cash and cash equivalents $ 34 $ 6 Accounts receivable 683 541 Inventories 690 615 Other current assets 140 132 ------- ------- Total current assets 1,547 1,294 ------- ------- Plant assets, net of depreciation 1,713 1,726 Intangible assets, net of amortization 1,888 1,910 Other assets 594 592 ------- ------- Total assets $ 5,742 $ 5,522 ======= ======= Current liabilities Notes payable $ 2,031 $ 1,987 Payable to suppliers and others 495 511 Accrued liabilities 514 415 Dividend payable 96 97 Accrued income taxes 237 136 ------- ------- Total current liabilities 3,373 3,146 ------- ------- Long-term debt 1,328 1,330 Nonpension postretirement benefits 390 394 Other liabilities, including deferred income taxes of $263 and $263 423 417 ------- ------- Total liabilities 5,514 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 339 382 Earnings retained in the business 4,180 4,041 Capital stock in treasury, at cost (4,156) (4,058) Accumulated other comprehensive income (155) (150) ------- ------- Total shareowners' equity 228 235 ------- ------- Total liabilities and shareowners' equity $ 5,742 $ 5,522 ======= ======= See Notes to Financial Statements
4 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------ (unaudited) (millions)
Three Months Ended ------------------ OCTOBER November 31, 1999 1, 1998 -------- ------- Cash flows from operating activities: Net earnings $ 235 $ 264 Non-cash charges to net earnings Depreciation and amortization 62 59 Deferred taxes (1) (3) Other, net 1 16 Changes in working capital Accounts receivable (142) (160) Inventories (73) (97) Other current assets and liabilities 179 102 ------ ------ Net cash provided by operating activities 261 181 ------ ------ Cash flows from investing activities: Purchases of plant assets (36) (47) Sales of plant assets 1 8 Businesses acquired - (105) Other, net (1) (4) ------ ------ Net cash used in investing activities (36) (148) ------ ------ Cash flows from financing activities: Long-term borrowings - 324 Repayments of long-term borrowings (3) (1) Short-term borrowings 282 457 Repayments of short-term borrowings (239) (551) Dividends paid (97) (95) Treasury stock purchases (155) (215) Treasury stock issuances 12 54 ------ ------ Net cash used in financing activities (200) (27) ------ ------ Effect of exchange rate changes on cash 3 (3) ------ ------ Net change in cash and cash equivalents 28 3 Cash and cash equivalents - beginning of period 6 16 ------ ------ Cash and cash equivalents - end of period $ 34 $ 19 ====== ======
See Notes to Financial Statements 5 CAMPBELL SOUP COMPANY CONSOLIDATED ---------------------------------- STATEMENTS OF SHAREOWNERS' EQUITY --------------------------------- (unaudited) (millions, except per share amounts)
Capital stock ------------- Issued In treasury Earnings Accumulated ------ ----------- 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 264 264 Foreign currency translation adjustments 8 8 Dividends ($.210 per share) (94) (94) Treasury stock purchased (4) (215) (215) Treasury stock issued under management incentive and stock option plans 1 16 (1) 15 --- ---- ----- -------- ----- ------- ------- ----- Balance at November 1, 1998 542 $ 20 (97) $(3,282) $ 394 $ 3,876 $ (156) $ 852 === ==== ===== ======== ===== ======= ======= ===== BALANCE AT AUGUST 1, 1999 542 $ 20 (113) $(4,058) $ 382 $ 4,041 $ (150) $ 235 COMPREHENSIVE INCOME NET EARNINGS 235 235 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (5) (5) DIVIDENDS ($.225 PER SHARE) (96) (96) TREASURY STOCK PURCHASED (3) (155) (155) TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 1 57 (43) 14 --- ---- ----- -------- ----- ------- ------- ----- BALANCE AT OCTOBER 31, 1999 542 $ 20 (115) $(4,156) $ 339 $ 4,180 $ (155) $ 228 === ==== ===== ======== ===== ======= ======= ===== See Notes to Financial Statements
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 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 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 October 31, 1999 and November 1, 1998, 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. A $5 ($3 after tax or $.01 per share) reversal of the third quarter fiscal 1998 restructuring charge was also recorded in the fourth quarter fiscal 1999. The reversal reflects the net impact of changes in estimates and modifications to the original program. Two manufacturing facilities scheduled for closure in fiscal 1999 were not taken out of service due to changes in business and economic conditions subsequent to the original charge, while additional asset rationalization and plant reconfiguration strategies were implemented which resulted in incremental headcount reductions. The initial charge for the third quarter fiscal 1998 program was $262 ($193 after tax or $.42 per share). This program was designed to improve operational efficiency by rationalizing certain U.S., European and Australian production and administrative facilities and divesting non-strategic businesses. Remaining spending under the program, which is primarily associated with employee benefit costs, is expected to be completed by the second quarter fiscal 2000. 6 7 A summary of restructuring reserves at October 31, 1999 and related activity described above is as follows:
Losses on Asset Dispositions Severance and Other Exit and Divestitures Benefits Costs Total ---------------- -------- ----- ----- Balance at August 2, 1998 $ 151 32 10 $ 193 Spending (132) (28) (9) (169) Modifications and changes in estimates (21) 16 - (5) 1999 Provision 21 18 2 41 ---- ---- ---- ---- Balance at August 1, 1999 $ 19 38 3 $ 60 SPENDING (1) (9) (1) (11) ---- ---- ---- ---- BALANCE AT OCTOBER 31, 1999 $ 18 29 2 $ 49 ==== ==== ==== ====
(d) 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. For the three month period ended October 31, 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 (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. 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 7 8 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. OCTOBER 31, 1999
AWAY CORPORATE SOUP AND BISCUITS AND FROM AND SAUCES CONFECTIONERY HOME OTHER(1) ELIMINATIONS(2) Total ------ ------------- ---- -------- --------------- ----- NET SALES $ 1,263 374 135 13 (17) $ 1,768 EARNINGS BEFORE INTEREST AND TAXES $ 358 58 14 1 (20) $ 411 DEPRECIATION AND AMORTIZATION $ 32 20 4 - 6 $ 62 CAPITAL EXPENDITURES $ 21 11 1 - 3 $ 36 SEGMENT ASSETS $ 3,137 1,491 378 42 694 $ 5,742
November 1, 1998
Away Corporate Soup and Biscuits and From and Sauces Confectionery Home Other(1) Eliminations(2) Total ------ ------------- ---- -------- --------------- ----- Net sales $ 1,289 362 126 40 (13) $ 1,804 Earnings before interest and taxes $ 390 58 16 3 (20) $ 447 Depreciation and amortization $ 31 20 3 2 3 $ 59 Capital expenditures $ 27 13 - 3 4 $ 47 Segment assets $ 3,304 1,492 320 186 693 $ 5,995
(1) Represents financial information of certain prepared convenience food businesses not categorized as reportable segments. (2) Represents elimination of intersegment sales, unallocated corporate expenses and unallocated assets, including corporate offices, deferred taxes and pension assets. 8 9 (f) Inventories
OCTOBER 31, August 1, 1999 1999 ---- ---- Raw materials, containers and supplies $244 $207 Finished products 446 408 ---- ---- $690 $615 ==== ====
Approximately 65% 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 October 31, 1999 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 October 31, 1999, the company would have provided the counterparty with approximately 570,000 shares of its capital stock. 9 10 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 $235 million for the first quarter ended October 31, 1999 versus $264 million in the comparable quarter a year ago, reflecting the decision last January to eliminate inefficient quarter-end promotions for U.S. retail customers. Diluted earnings per share decreased 7% to $.54 per share from $.58. Net sales declined 2% as compared to last year primarily due to the impact of divestitures. SALES - ----- Net sales declined 2% to $1.77 billion from $1.80 billion last year. The variance was due primarily to the impact of divestitures since volume and mix fluctuations offset higher selling prices during the quarter. An analysis of net sales by segment follows:
(millions) 2000 1999 % CHANGE - ---------- ---- ---- -------- Soup and Sauces $ 1,263 $ 1,289 (2) Biscuits and Confectionery 374 362 3 Away From Home 135 126 7 ------- ------- --- Subtotal 1,772 1,777 - Other 13 40 Intersegment (17) (13) ------- ------- --- $ 1,768 $ 1,804 (2) ======= ======= ===
The decline in Soup and Sauces was due to a worldwide wet soup volume decline of 6%. U.S. wet soup volume declined 6% due to the elimination of quarter-end promotions. This decline was partially offset by the beverage business with continued strong demand for V8 Splash. Sales of U.S. sauces and prepared foods declined from the prior year due to increased competition against Franco-American products and a shift in the timing of promotional programs for Pace products. International soup volume declined 2% mainly due to the performance of Canada and the UK. The Canadian business was adversely affected by the timing of trade promotions in fiscal 2000 versus the prior year. Australia experienced strong volume gains in both ready to serve and condensed soup. 10 11 The increase in sales reported by Biscuits and Confectionery compared to the first quarter fiscal 1999 was primarily due to double-digit growth in Godiva Chocolatier. Arnotts also reported modest growth, due in part to the strengthening of the Australian dollar. Pepperidge Farm sales were impacted by a decline in Goldfish. Away From Home reported an increase of 7% versus the comparable quarter a year ago with strong sales of core products. New kettle merchandisers, self-serve kettles containing high quality Campbell branded soups, continued to build volume. GROSS MARGIN - ------------ Gross margin, defined as net sales less cost of products sold, declined $15 million in the quarter. As a percent of sales, gross margin was relatively flat at approximately 54%. MARKETING AND SELLING EXPENSES - ------------------------------ Marketing and selling expenses as a percent of sales increased to 24% from 23% last year. The increase is principally due to higher selling expenses from the growth in retail stores in the Godiva business. ADMINISTRATIVE EXPENSES - ----------------------- Administrative expenses were relatively flat as a percent of sales compared to last year. OPERATING EARNINGS - ------------------ Segment operating earnings declined 7% for the first quarter versus the prior year. 11 12 An analysis of operating earnings by segment follows:
(millions) 2000 1999 % CHANGE - ---------- ---- ----- -------- Soup and Sauces $ 358 $ 390 (8) Biscuits and Confectionery 58 58 - Away From Home 14 16 (13) ---- ---- ---- Subtotal 430 464 (7) Other 1 3 ---- ---- ---- 431 467 (8) Corporate (20) (20) ---- ---- ---- $ 411 $ 447 (8) ==== ==== ====
Earnings from Soup and Sauces declined 8% due to lower U.S. wet soup sales, increased investments in new business development, and weakness in the sauces and prepared food categories. Earnings from Biscuits and Confectionery remained flat at $58 million. Arnotts delivered strong earnings from an increase in sales. However, Godiva Chocolatier earnings declined due to the investment in new store openings, and earnings from Pepperidge Farm were adversely impacted by intense competition in the cheese cracker business. Away From Home reported an earnings decline of $2 million to $14 million. Earnings were negatively impacted by the start up of a new Stockpot facility and continued costs associated with the integration of the Stockpot business, which was acquired in fiscal 1999. NON-OPERATING ITEMS - ------------------- Interest expense increased slightly to $46 million from $44 million in the prior year due to higher debt levels. The effective tax rate increased to 35.6% compared to 34.5% last year, due to the increasing concentration of earnings from U.S. businesses. 12 13 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. See Note (c) to the Consolidated Financial Statements for further discussion. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The company generated cash from operations of $261 million compared to $181 million last year. This increase is principally due to improved working capital versus prior year. Capital expenditures were $36 million, a decrease from $47 million last year. The company continues to aggressively manage its capital outlays and expects total expenditures to approximate $300 million in fiscal 2000. The company repurchased 3.6 million shares in the quarter versus 4.2 million last year. 13 14 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 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 established a Worldwide Project Office responsible for the day-to-day oversight and coordination of the Y2K remediation, replacement and testing of business systems. This project office reports to the company's Chief Information Officer. The company's plan for addressing the Y2K issue was 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 (IT) business systems 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 required remediation and the remaining 100 systems would be retired or replaced. In addition, the company has completed the inventory and assessment of its non-information technology (Non-IT) systems. 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 developed a remediation and replacement plan for all affected systems including IT and Non-IT systems. The company's plan established priorities for remediation or replacement. The business systems considered most critical to ongoing operations were given the highest priority. The company 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, Sales Order Billing and Warehouse Management systems, that, if shut down or interrupted, 14 15 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. Internal and external resources were used to execute the plan. Remediation and replacement of "Mission Critical" systems and "All Other" systems were substantially completed on schedule by the fourth quarter 1999. - - Testing - Testing was performed in conjunction with remediation and replacement. 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 has substantially completed testing and all systems have been returned to production. Because the company's Y2K compliance is dependent upon key third parties also being Y2K compliant on a timely basis, there can be no guarantee that the company's efforts will prevent a material adverse impact on its results of operations, financial condition and cash flows. The possible consequences to the company or its business partners not being fully Y2K compliant include temporary plant closings, delays in the delivery of finished products, delays in the receipt of key ingredients, containers and packaging supplies, invoice and collection errors and inventory and supply obsolescence. These consequences could have a material adverse effect on the company's results of operations, financial condition and cash flows if the company is unable to conduct its business in the ordinary course as a result of the Y2K issue. The company believes that its readiness program, including the contingency plans discussed below, should significantly reduce the adverse effect any such disruptions may have. The company has developed contingency plans to mitigate the potential disruptions that may result from the Y2K issue. These plans 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 certain other measures considered appropriate by management. These contingency plans, and the related cost estimates, will be continually monitored and refined as additional information becomes available. The company currently estimates that the aggregate cost of its Y2K efforts will be approximately $44 million, of which $39 million has been incurred to date. These costs, except for capital costs of approximately $3 million, are being expensed as incurred and are being funded through operating cash flows. The company incurred Y2K costs of approximately $23 million in fiscal 1999 and expects to incur Y2K costs of approximately $7 million in fiscal 2000. 15 16
(millions) - ---------- Current Cost Costs Estimated Costs Components Estimates Incurred to Complete - ---------- --------- -------- ----------- External Consulting $ 23 (21) $ 2 Hardware/Software Upgrades 13 (12) 1 Other 8 (6) 2 ---------- --------- --------- $ 44 (39) $ 5 ========== ========= =========
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. 16 17 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 17 18 - - the ability of the company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Y2K issue. Specific factors that might cause actual results to vary materially from the results anticipated include the ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of the company's remediation plans and the ability of third parties to adequately address their own Y2K issues. This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact the company's outlook. 18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. For information regarding the company's exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Annual Report on Form 10-K for Fiscal 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. 19 20 PART II ITEM 1. LEGAL PROCEEDINGS In management's opinion, there are no pending claims or litigation, the outcome of which would have a material effect on the consolidated results of operations, financial position or cash flows of the company. The company has 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 of these proceedings cannot be predicted at this time due to the large number of other potentially responsible parties and the speculative nature of clean-up cost estimates, the ultimate disposition is not expected to have a material effect on the consolidated results of operations, financial position, or cash flows of the company. ITEM 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 first quarter of fiscal 2000. 20 21 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMPBELL SOUP COMPANY Date: December 14, 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 21 22 INDEX TO EXHIBITS Exhibit Number - -------------- 27 Financial Data Schedule. 22 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS JUL-30-2000 AUG-02-1999 OCT-31-1999 34 0 724 41 690 1,547 3,247 1,534 5,742 3,373 1,328 0 0 20 208 5,742 1,768 1,768 809 809 21 0 54 365 130 235 0 0 0 235 $.55 $.54
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