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 28, 2001 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 408,314,827 SHARES OF CAPITAL STOCK OUTSTANDING AS OF MARCH 7, 2001. ================================================================================
2 PART I. FINANCIAL INFORMATION CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (millions, except per share amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------------------------------- JANUARY January JANUARY January 28, 2001 30, 2000 28, 2001 30, 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net sales $1,957 $1,916 $3,735 $3,684 - ---------------------------------------------------------------------------------------------------------------------- Costs and expenses Cost of products sold 862 848 1,669 1,657 Marketing and selling expenses 503 464 982 892 Administrative expenses 85 87 171 170 Research and development expenses 15 15 29 31 Other expenses 32 29 61 50 - ---------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,497 1,443 2,912 2,800 - ---------------------------------------------------------------------------------------------------------------------- Earnings before interest and taxes 460 473 823 884 Interest, net 49 50 101 96 - ---------------------------------------------------------------------------------------------------------------------- Earnings before taxes 411 423 722 788 Taxes on earnings 140 142 247 272 - ---------------------------------------------------------------------------------------------------------------------- Net earnings $ 271 $ 281 $ 475 $ 516 ====================================================================================================================== Per share - basic Net earnings $ .65 $ .66 $ 1.14 $ 1.21 ====================================================================================================================== Dividends $ .225 $ .225 $ .450 $ .450 ====================================================================================================================== Weighted average shares outstanding - basic 415 427 418 428 ====================================================================================================================== Per share - assuming dilution Net earnings $ .65 $ .65 $ 1.12 $ 1.19 ====================================================================================================================== Weighted average shares outstanding - assuming dilution 419 431 425 432 ====================================================================================================================== See Notes to Financial Statements </TABLE> 2
3 CAMPBELL SOUP COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (millions, except per share amounts) <TABLE> <CAPTION> JANUARY July 28, 2001 30, 2000 ---------- ---------- <S> <C> <C> Current assets Cash and cash equivalents $ 38 $ 27 Accounts receivable 549 443 Inventories 494 571 Other current assets 148 127 - ----------------------------------------------------------------------------------- Total current assets 1,229 1,168 - ----------------------------------------------------------------------------------- Plant assets, net of depreciation 1,570 1,644 Intangible assets, net of amortization 1,704 1,767 Other assets 591 617 - ----------------------------------------------------------------------------------- Total assets $ 5,094 $ 5,196 =================================================================================== Current liabilities Notes payable $ 1,433 $ 1,873 Payable to suppliers and others 469 509 Accrued liabilities 480 360 Dividend payable 92 95 Accrued income taxes 258 195 - ----------------------------------------------------------------------------------- Total current liabilities 2,732 3,032 - ----------------------------------------------------------------------------------- Long-term debt 1,742 1,218 Nonpension postretirement benefits 350 364 Other liabilities, including deferred income taxes of $279 and $284 461 445 - ----------------------------------------------------------------------------------- Total liabilities 5,285 5,059 - ----------------------------------------------------------------------------------- Shareowners' equity Preferred stock; authorized 40 shares; none issued - - Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares 20 20 Capital surplus 310 344 Earnings retained in the business 4,661 4,373 Capital stock in treasury, at cost (4,903) (4,373) Accumulated other comprehensive loss (279) (227) - ----------------------------------------------------------------------------------- Total shareowners' equity (191) 137 - ----------------------------------------------------------------------------------- Total liabilities and shareowners' equity $ 5,094 $ 5,196 =================================================================================== See Notes to Financial Statements </TABLE> 3
4 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (millions) <TABLE> <CAPTION> Six Months Ended -------------------------- JANUARY January 28, 2001 30, 2000 ---------- ---------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 475 $ 516 Non-cash charges to net earnings Depreciation and amortization 124 123 Deferred income taxes (6) 1 Other, net 23 10 Changes in working capital Accounts receivable (112) (97) Inventories 69 30 Other current assets and liabilities 171 152 - --------------------------------------------------------------------------------- Net cash provided by operating activities 744 735 - --------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of plant assets (62) (73) Sales of plant assets 6 3 Other, net (3) (7) - --------------------------------------------------------------------------------- Net cash used in investing activities (59) (77) - --------------------------------------------------------------------------------- Cash flows from financing activities: Long-term borrowings 528 - Repayments of long-term borrowings - (5) Short-term borrowings 795 483 Repayments of short-term borrowings (1,223) (584) Dividends paid (189) (194) Treasury stock purchases (589) (283) Treasury stock issuances 9 7 - --------------------------------------------------------------------------------- Net cash used in financing activities (669) (576) - --------------------------------------------------------------------------------- Effect of exchange rate changes on cash (5) 4 - --------------------------------------------------------------------------------- Net change in cash and cash equivalents 11 86 Cash and cash equivalents - beginning of period 27 6 - --------------------------------------------------------------------------------- Cash and cash equivalents - end of period $ 38 $ 92 ================================================================================= See Notes to Financial Statements </TABLE> 4
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 loss equity - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at August 1, 1999 542 $20 (113) $(4,058) $382 $4,041 $(150) $235 Comprehensive income (loss) Net earnings 516 516 Foreign currency translation adjustments (30) (30) Dividends ($.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 ==================================================================================================================================== BALANCE AT JULY 30, 2000 542 $20 (121) $(4,373) $344 $4,373 $(227) $137 COMPREHENSIVE INCOME (LOSS) NET EARNINGS 475 475 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (52) (52) DIVIDENDS ($.450 PER SHARE) (187) (187) REPURCHASE OF SHARES UNDER FORWARD STOCK PURCHASE CONTRACTS (11) (521) (521) TREASURY STOCK PURCHASED (2) (68) (68) TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 2 59 (34) 25 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 28, 2001 542 $20 (132) $(4,903) $310 $4,661 $(279) $(191) ==================================================================================================================================== See Notes to Financial Statements </TABLE> 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 Total comprehensive income is comprised of net earnings, net foreign currency translation adjustments, and net unrealized gains and losses on cash flow hedges. Total comprehensive income for the three months ended January 28, 2001 and January 30, 2000 was $311 and $256, respectively. Accumulated other comprehensive income, as reflected in the Statements of Shareowner's Equity, primarily consists of the cumulative foreign currency translation adjustment. The net loss on cash flow hedges was not material at January 28, 2001. (c) 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 months ended January 28, 2001, the weighted average shares outstanding assuming dilution also include the incremental effect of approximately three million and six million shares, respectively, under forward stock purchase contracts. See note (f) for a description of the contracts which were settled on December 12, 2000. For the three and six month periods ended January 30, 2000, the weighted average shares outstanding assuming dilution include the incremental effect of approximately two million shares under the contracts. (d) 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, Homepride 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 home meal replacement markets. 6
7 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 2000 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 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. The following tables present information about the company's reportable segments. JANUARY 28, 2001 <TABLE> <CAPTION> AWAY CORPORATE THREE MONTHS SOUP AND BISCUITS AND FROM AND ENDED SAUCES CONFECTIONERY HOME OTHER(1) ELIMINATIONS(2) TOTAL - ----- ------ ------------- ---- -------- --------------- -------- <S> <C> <C> <C> <C> <C> <C> NET SALES $1,387 441 146 1 (18) $1,957 EARNINGS BEFORE INTEREST AND TAXES $ 382 91 18 - (31) $ 460 DEPRECIATION AND AMORTIZATION $ 33 20 4 - 5 $ 62 CAPITAL EXPENDITURES $ 17 17 1 - 3 $ 38 <CAPTION> AWAY CORPORATE SIX MONTHS SOUP AND BISCUITS AND FROM AND ENDED SAUCES CONFECTIONERY HOME OTHER(1) ELIMINATIONS(2) TOTAL - ----- ------ ------------- ---- -------- --------------- ------- <S> <C> <C> <C> <C> <C> <C> NET SALES $2,657 830 281 3 (36) $3,735 EARNINGS BEFORE INTEREST AND TAXES $ 707 139 34 1 (58) $ 823 DEPRECIATION AND AMORTIZATION $ 64 40 8 - 12 $ 124 CAPITAL EXPENDITURES $ 29 27 2 - 4 $ 62 SEGMENT ASSETS $2,769 1,290 347 7 681 $5,094 (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> 7
8 \JANUARY 30, 2000 <TABLE> <CAPTION> AWAY CORPORATE THREE MONTHS SOUP AND BISCUITS AND FROM AND ENDED SAUCES CONFECTIONERY HOME OTHER(1) ELIMINATIONS(2) TOTAL - ----- ------ ------------- ---- -------- --------------- ----- <S> <C> <C> <C> <C> <C> <C> 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 <CAPTION> AWAY CORPORATE SIX MONTHS SOUP AND BISCUITS AND FROM AND ENDED SAUCES CONFECTIONERY HOME OTHER(1) ELIMINATIONS(2) TOTAL - ----- ------ ------------- ---- -------- --------------- ------ <S> <C> <C> <C> <C> <C> <C> 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. </TABLE> (e) Inventories <TABLE> <CAPTION> JANUARY 28, 2001 JULY 30, 2000 ---------------- ------------- <S> <C> <C> Raw materials, containers and supplies $ 169 $ 213 Finished products 325 358 ----------------------------------- $ 494 $ 571 =================================== </TABLE> Approximately 62% of inventory in fiscal 2001 and 64% 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 January 28, 2001 and July 30, 2000. 8
9 (f) Forward Stock Purchase Program In 1999, the company entered into forward stock purchase contracts to partially hedge the company's equity exposure from its stock option program. On December 12, 2000, the company purchased 11 million shares of common stock under the forward stock purchase contracts for approximately $521. (g) Accounting for Derivative Instruments Effective July 31, 2000, the company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138. The standard requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships. The cumulative effect of adopting SFAS No. 133 was not material to the company's consolidated financial statements as of July 30, 2000. The company utilizes certain derivative financial instruments to enhance its ability to manage risk, including interest rate, foreign currency and certain equity-linked employee compensation exposures which exist as part of ongoing business operations. Derivative instruments are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into contracts for speculative purposes, nor is it a party to any leveraged derivative instrument. The company designates derivatives as either fair value hedges, cash flow hedges, hedges of net investment, or as a natural hedging instrument (changes in fair value are recognized to act as an economic offset to changes in fair value of the underlying hedged item and the derivatives do not qualify for hedge accounting in accordance with SFAS No. 133). Interest Rate Swaps The company finances a portion of its operations through debt instruments primarily consisting of commercial paper, notes, debentures and bank loans. The company periodically utilizes interest rate swap agreements to minimize worldwide financing costs and to achieve a desired proportion of variable versus fixed-rate debt. There were no interest rate swaps outstanding as of January 28, 2001 or July 30, 2000. Foreign Currency Forward Contracts The company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The company utilizes foreign currency forward purchase and sale contracts in order to manage the volatility associated with foreign currency purchases and certain intercompany transactions in the normal course of business. Contracts typically have maturities of less than one year. Principal currencies include the euro, British pound, Australian dollar, Canadian dollar, and Japanese yen. 9
10 Qualifying forward exchange contracts are accounted for as cash flow hedges when the hedged item is a forecasted transaction. The fair value of these instruments was not material at January 28, 2001. Gains and losses on these instruments are recorded in Other comprehensive income/loss until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from Accumulated other comprehensive income/loss to the Statement of Earnings on the same line item as the underlying transaction. The assessment of effectiveness for contracts is based on changes in the spot rates. The change in the time value of options is reported in earnings. Qualifying forward exchange contracts are accounted for as fair value hedges when the hedged item is a recognized asset, liability or firm commitment. The fair value of such contracts was not material at January 28, 2001. The company also enters into certain foreign currency derivative instruments that are not designated as accounting hedges. These instruments are primarily intended to reduce volatility of certain intercompany financing transactions. Gains and losses on derivatives not designated as accounting hedges are typically recorded in Other expense, as an offset to gains/losses on the underlying transaction. Commodity Future Contracts The company principally uses a combination of purchase orders and various short and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. On occasion, the company may also enter into commodity future contracts, as considered appropriate, to reduce the volatility of price fluctuations for commodities such as corn, soybean meal and cocoa. These instruments are designated as cash flow hedges. The fair value of the effective portion of the contracts is recorded in Accumulated other comprehensive income/loss and reclassified into Cost of products sold in the period in which the underlying transaction is recorded in earnings. Commodity hedging activity is not material to the company's financial statements. All amounts in Other comprehensive income/loss for cash flow hedges are expected to be reclassified into earnings in the fiscal year. The amount of discontinued cash flow hedges during the year was not material. Other Contracts The company is exposed to equity price changes related to certain employee compensation obligations. Swap contracts are utilized to hedge exposures relating to certain employee compensation obligations linked to the total return of the Standard & Poor's 500 Index and the total return of the company's capital stock. The company pays a variable interest rate and receives the equity returns under 10
11 these instruments. The notional value of the equity swap contracts, which mature in 2001 and 2003, was $71 at January 28, 2001. These instruments are not designated as accounting hedges. Gains and losses are recorded in Other expense. The net liability recorded under these contracts at January 28, 2001 was approximately $18. 11
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CAMPBELL SOUP COMPANY CONSOLIDATED RESULTS OF CONTINUING OPERATIONS OVERVIEW The company reported net earnings of $271 million for the second quarter ended January 28, 2001 compared to $281 million in the comparable quarter a year ago. Diluted earnings per share remained level at $.65 with a year ago. Net sales increased 2% to $1.96 billion from $1.92 billion. The increase in sales was primarily driven by an increase in U.S. soup shipments from the prior year partially offset by a decline due to currency exchange rates. The decline in earnings was attributed to an increase in marketing investments. For the six months ended January 28, 2001, net sales increased 1%. Excluding currency and divestitures, sales from ongoing businesses increased 4%. Net earnings declined to $475 million from $516 million due to increased marketing investments. SECOND QUARTER SALES Sales in the quarter increased 2% to $1.96 billion from $1.92 billion last year. The change in sales was due to a 5% increase in volume and mix, offset by 2% decline due to currency, and 1% decline from divestitures. An analysis of net sales by segment follows: <TABLE> <CAPTION> (MILLIONS) 2001 2000 % CHANGE ---------- ---- ---- -------- <S> <C> <C> <C> Soup and Sauces $ 1,387 $ 1,361 2% Biscuits and Confectionery 441 419 5% Away From Home 146 143 2% - -------------------------------------------------------------------------------- Subtotal 1,974 1,923 3% Other 1 9 Intersegment (18) (16) - -------------------------------------------------------------------------------- $ 1,957 $ 1,916 2% ================================================================================ </TABLE> Sales in Soup and Sauces increased 4% before currency, 2% as reported, primarily due to a worldwide wet soup volume increase of 4%. U.S. wet soup shipments increased 6% 12
13 over the prior period. The U.S. soup gains were led by Chunky and the introduction of easy-open tops on all ready-to-serve varieties, including new Campbell's Ready-to-Serve classics. International wet soup volume declined 1% primarily due to softness in Canada, France, and Germany offset by gains in the United Kingdom. The U.S. sauce businesses reported sales gains versus last year due to the performance of Prego. Franco-American volumes were down versus last year due to continued intense competition in the category. Total beverage sales increased during the quarter driven by gains in V8 and V8 Splash. Biscuits and Confectionery sales were up 10% before currency, 5% as reported, due to volume growth in all businesses. Godiva Chocolatier delivered double-digit sales growth enjoying all time record sales for the holiday season. Arnotts delivered sales growth from its core cracker business and success with new product introductions. Pepperidge Farm reported sales growth driven by the performance of Goldfish and new Giant Goldfish and the introduction of Spritzers cookies. Away From Home reported an increase of 2% versus the comparable quarter a year ago driven by increases in beverages, particularly V8 Splash, and Stockpot. The decline in Other is due to the divestiture of MacFarms in April 2000. GROSS MARGIN Gross margin, defined as net sales less cost of products sold, increased $27 million in the quarter. As a percent of sales, gross margin was 56% compared to 55.7% last year. The improvement in margin percentage was principally due to stronger unit volume in the U.S. and cost productivity programs. MARKETING AND SELLING EXPENSES Marketing and selling expenses as a percent of sales increased to 26% from 24% in the prior year. The increase is primarily due to higher planned marketing investments in U.S. soup, beverages, and the Biscuit and Confectionery portfolio. 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 decreased 2% for the second quarter versus the prior year. An analysis of operating earnings by segment follows: <TABLE> <CAPTION> (MILLIONS) 2001 2000 % CHANGE - ---------- ---- ---- -------- <S> <C> <C> <C> Soup and Sauces $ 382 $ 406 (6)% Biscuits and Confectionery 91 78 17% Away From Home 18 16 13% - -------------------------------------------------------------------------------- Subtotal 491 500 (2)% Other - 1 - -------------------------------------------------------------------------------- 491 501 Corporate (31) (28) - -------------------------------------------------------------------------------- $ 460 $ 473 (3)% ================================================================================ </TABLE> Earnings from Soup and Sauces decreased 6%, primarily due to increased marketing investments in U.S. soup and beverages. Earnings from Biscuits and Confectionery increased 20% before currency, 17% as reported, to $91 million. The increase was due to sales volume gains across the portfolio, improved mix and cost productivity. Away From Home earnings increased 13% due primarily to favorable product mix and improved cost productivity. NON-OPERATING ITEMS Net interest expense was $49 million, relatively flat versus the prior year. The effective tax rate was 34% compared to 33.6% last year. SIX MONTHS SALES Sales for the six months increased 1% to $3.74 billion from $3.68 billion last year. The change in sales was due to a 4% increase from volume and mix, offset by a 1% decline from divestitures and a 2% decline from currency. 14
15 An analysis of net sales by segment follows: <TABLE> <CAPTION> (MILLIONS) 2001 2000 % CHANGE - ---------- ---- ---- -------- <S> <C> <C> <C> Soup and Sauces $ 2,657 $ 2,625 1% Biscuits and Confectionery 830 793 5% Away From Home 281 278 1% - -------------------------------------------------------------------------------- Subtotal 3,768 3,696 2% Other 3 22 Intersegment (36) (34) - -------------------------------------------------------------------------------- $ 3,735 $ 3,684 1% ================================================================================ </TABLE> The sales increase reported by Soup and Sauces was due to a 3% increase in volume offset by a 2% decline due to currency. Worldwide wet soup volume increased 4%, driven primarily by an increase in U.S. wet soup volume. The U.S. performance was led by Chunky and the new Campbell's Ready-to-Serve soups. International wet soup volume increased 2%. Erasco, Canada, the United Kingdom and the Asia Pacific businesses contributed to the volume growth. Currency negatively impacted sales, primarily due to the depreciation of the Australian dollar, the euro, and the British pound. Beyond soup, Prego pasta sauces reported sales gains in a highly competitive category. Total beverage sales increased behind the performance of V8. Sales of prepared foods, including Franco-American, declined from the prior year. Biscuits and Confectionery sales increased 10% before currency, 5% as reported, versus last year due to volume growth across all businesses, particularly Pepperidge Farm Goldfish, Godiva worldwide and the Arnotts core cracker business. Away From Home reported a sales increase of 1% due to growth in Stockpot and Canada. The decline in Other is due to the divestiture of MacFarms in April 2000. GROSS MARGIN Gross margin, defined as net sales less cost of products sold, increased $39 million year-to-date. As a percent of sales, gross margin was 55.3% compared to 55% last year. The improvement in margin percentage was principally due to product mix with stronger volume in the U.S. and cost savings programs, partially offset by the costs of quality improvements in adding 20% more chicken in Chicken Noodle soup and easy-open `pop-top' lids on U.S. ready to serve soups. MARKETING AND SELLING EXPENSE Marketing and selling expenses as a percent of sales increased to 26% from 24% last year. The increase is due to higher marketing investments, particularly consumer advertising, in U.S. soup, beverages, and the Biscuits and Confectionery portfolio. 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 decreased 5% versus the prior year. An analysis of operating earnings by segment follows: <TABLE> <CAPTION> (MILLIONS) 2001 2000 % CHANGE - ---------- ---- ---- -------- <S> <C> <C> <C> Soup and Sauces $ 707 $ 763 (7)% Biscuits and Confectionery 139 136 2% Away From Home 34 31 10% - -------------------------------------------------------------------------------- Subtotal 880 930 (5)% Other 1 2 - -------------------------------------------------------------------------------- 881 932 Corporate (58) (48) - -------------------------------------------------------------------------------- $ 823 $ 884 (7)% ================================================================================ </TABLE> The decrease in earnings from Soup and Sauces is due to increased marketing investments in U.S. soup and beverages. Biscuits and Confectionery earnings increased 6% before currency, 2% as reported, driven by Godiva Chocolatier and Arnotts. Earnings from Pepperidge Farm remained relatively flat, as increased marketing investment was offset by volume growth. Earnings from Away From Home increased due principally to favorable product mix and improved cost productivity. Earnings from Other declined due to the divestiture of MacFarms in April 2000. Corporate expenses increased $10 million due principally to higher incentive compensation costs. NON-OPERATING ITEMS Net interest expense increased to $101 million from $96 million in the prior year due to higher interest rates during the period. 16
17 The effective tax rate was 34.2% compared to 34.5% last year. The rate was favorably impacted by a lower effective rate on foreign earnings. LIQUIDITY AND CAPITAL RESOURCES The company generated cash from operations of $744 million compared to $735 million last year. This increase was achieved, despite an earnings decline due to increased marketing investments, through significant improvements in working capital, particularly reductions in inventory. Capital expenditures were $62 million, a decrease from $73 million last year. The company continues to tightly manage its capital outlays and expects total expenditures to approximate $200 million in fiscal 2001, in line with fiscal 2000. In the first six months, the company repurchased 13.4 million shares versus 6.9 million last year. On November 15, 2000, the company announced that it would suspend the strategic share repurchase program and purchase 11 million shares under existing forward stock purchase contracts. On December 12, 2000, the company purchased the 11 million shares under the contracts for approximately $521 million. The purchase was funded with a three-year floating-rate loan. See also note (f) of the Notes to Financial Statements. On February 15, 2001, the company issued $500 million 6.75% notes due in 2011. The net proceeds were used to repay commercial paper borrowings and for other general corporate purposes. The company also entered into interest rate swap agreements with an aggregate notional value of $250 million. The swaps mature in 2011. The company pays a variable rate based on LIBOR and receives a fixed rate. RECENT DEVELOPMENTS The Emerging Issues Task Force (EITF) has recently addressed several topics related to the classification and recognition of certain promotional expenses. In January 2001, the EITF issued a consensus on Issue No. 00-22 "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future." This consensus, effective for the third quarter fiscal 2001, requires certain rebate offers to be classified as a reduction of revenue and to be recognized when incurred. In May 2000, the EITF issued a consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives", which addresses the recognition, measurement and income statement classification of various sales incentives. The EITF concluded that certain consumer and trade sales promotion expenses should be classified as a reduction of sales rather than as marketing expenses. This consensus is effective in the fourth quarter fiscal 2001. The adoption of Issues No. 00-22 and 00-14 will principally result in reclassifications of certain costs from marketing and selling expenses to reductions from sales. 17
18 In September 2000, the EITF reached a final consensus in Issue No. 00-10 on "Accounting for Shipping and Handling Costs" that such costs cannot be reported as a reduction of revenue. The company currently classifies certain shipping and handling costs as a reduction of sales. This Issue is required to be adopted in the fourth quarter fiscal 2001. Upon adoption of Issue No. 00-10, shipping and handling costs will be reclassified to cost of products sold. Upon adoption of Issues No. 00-22, 00-14 and 00-10, prior period amounts will be restated to conform with the new requirements. The company is continuing to evaluate the potential effect of the new pronouncements but currently expects the combined adoption of these Issues will not have a material impact on net sales. As reclassifications, these changes will not affect the company's financial position or earnings. The EITF continues to address a number of topics related to the recognition and classification of various promotional sales incentives, such as cooperative advertising programs, new product introduction fees, buy-downs and display aisle incentives, as discussed in Issue No. 00-25 "Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor's Products." Final consensus has not yet been reached on this Issue although further discussion is planned. The company is in the process of determining the potential impact of this Issue. Based on the ultimate resolution of this and other related Issues, certain costs historically recorded as marketing and selling expenses, which are expected to be material, will also be reclassified as a reduction of sales. As reclassifications, these changes will not affect the company's financial position or earnings. Prior period amounts will be restated to conform to the new requirements. On January 29, 2001, the company announced that it had entered into an agreement to purchase the European culinary brands business, including several soup and sauce businesses, from Unilever PLC/Unilever N.V. The businesses have combined annual sales of approximately $400 million with more than half in instant soups and bouillon. The acquisition will enable the company to achieve soup share leadership in six core European markets. The purchase price is estimated to be approximately 1 billion euros or 930 million U.S. dollars. The acquisition, which is expected to be completed by May 2001, is subject to European regulatory approval and other customary conditions. On February 14, 2001, the company issued a press release announcing results for the second quarter fiscal 2001 and commented on the outlook for earnings per share for the third quarter and the full year. 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 18
19 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 company's ability to complete successful post-acquisition integrations of acquired businesses into its existing operations; - the availability of new acquisition and alliance opportunities that build shareowner wealth; - the company's ability to achieve its cost savings objectives; - 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. 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 2000. In February 2001, the company entered into interest rate swap agreements with an aggregate notional value of $250 million. See also note (f) of the Notes to Financial Statements for a discussion of forward stock purchase contracts which were settled in December 2000. There have been no other 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 previously reported, ten purported class action lawsuits were commenced against the company and certain of its officers in the United States District Court for the District of New Jersey. The lawsuits were subsequently consolidated, and an amended consolidated complaint was filed alleging, among other things, that Campbell and certain of its officers misrepresented the company's financial condition between September 8, 1997 and January 8, 1999, 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 Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The actions seek compensation and other damages, and costs and expenses associated with the litigation. Campbell believes the action is without merit. As also previously reported, the United States Environmental Protection Agency (the "EPA") sent Campbell Soup Company a special notice letter dated September 28, 2000 relating to the Puente Valley Operable Unit of the San Gabriel Valley Superfund Sites, Los Angeles County, California (the "Superfund Site") for property located at 125 N. Orange Avenue, Industry, California, advising that the EPA considers Campbell to be a potentially responsible party due to the alleged release or threatened release of hazardous substances, and therefore, potentially responsible for the costs incurred in connection with contamination at the Superfund Site. Although the impact of this proceeding cannot be predicted at this time due to the large number of other potentially responsible parties and the uncertainty involved in estimating the cost of clean-up, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. Campbell's Annual Meeting of Shareowners was held on November 17, 2000. 21
22 b. The matters voted upon and the results of the vote are as follows: Election of Directors <TABLE> <CAPTION> Number of Shares Name For Withheld - ------------------------------------------------------- <S> <C> <C> Alva A. App 366,386,608 2,800,000 Edmund M. Carpenter 366,454,982 2,731,626 Bennett Dorrance 366,443,789 2,742,819 Thomas W. Field, Jr. 366,434,055 2,752,553 Kent B. Foster 365,083,242 4,103,366 Harvey Golub 366,431,723 2,754,885 David W. Johnson 366,389,024 2,797,584 David K. P. Li 363,205,123 5,981,485 Philip E. Lippincott 366,345,588 2,841,020 Mary Alice D. Malone 366,344,048 2,842,560 Charles H. Mott 366,427,498 2,759,110 Charles R. Perrin 366,408,307 2,778,301 George M. Sherman 366,443,343 2,743,265 Donald M. Stewart 366,468,157 2,718,451 George Strawbridge, Jr. 366,365,064 2,821,544 Charlotte C. Weber 366,340,943 2,845,665 </TABLE> Ratification of Appointment of Independent Accountants <TABLE> <CAPTION> Broker For Against Abstentions Non-Votes - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Ratification of 367,430,287 702,945 1,053,376 -0- Appointment of Accountants </TABLE> Approval of Amendments of the Campbell Soup Company Management Worldwide Incentive Plan <TABLE> <CAPTION> Broker For Against Abstentions Non-Votes - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Approval of Amendments 362,764,350 4,808,545 1,613,713 -0- of the Campbell Soup Company Management Worldwide Incentive Plan </TABLE> 22
23 Approval of Amendments of the Campbell Soup Company 1994 Long-Term Incentive Plan <TABLE> <CAPTION> Broker For Against Abstentions Non-Votes - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Approval of Amendments 359,707,839 7,752,224 1,726,545 -0- of the Campbell Soup Company 1994 Long-Term Incentive Plan </TABLE> Shareowner Proposal Concerning Global Workers Rights Standards <TABLE> <CAPTION> Broker For Against Abstentions Non-Votes - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Shareowner Proposal 12,963,885 325,413,323 8,359,619 22,449,781 Concerning Global Workers Rights Standards </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit 10(a) Employment agreement between the company and Douglas R. Conant dated January 8, 2001. b. Reports on Form 8-K There were no reports on Form 8-K filed by the company during the second quarter ended January 28, 2001. 23
24 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 14, 2001 By: /s/ Robert A. Schiffner ------------------------ Robert A. Schiffner Senior Vice President and Chief Financial Officer By: /s/ Ellen Oran Kaden -------------------- Ellen Oran Kaden Senior Vice President - Law and Government Affairs 24
25 INDEX TO EXHIBITS Exhibit 10(a) Employment agreement between the company and Douglas R. Conant dated January 8, 2001. 25