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 27, 1996 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: (609) 342-4800 INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO . --------- -------- THERE WERE 233,643,861 SHARES OF CAPITAL STOCK OUTSTANDING AS OF DECEMBER 2, 1996. ================================================================================ -1-
2 PART I. FINANCIAL INFORMATION CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (million dollars except per share amounts) <TABLE> <CAPTION> Three Months Ended ---------------------- OCTOBER October 27, 1996 29, 1995 -------- -------- <S> <C> <C> Net sales $2,052 $1,990 - ---------------------------------------------------------------------------- Costs and expenses Cost of products sold 1,112 1,143 Marketing and selling expenses 396 358 Administrative expenses 83 83 Research and development expenses 18 20 Other expense 38 24 Restructuring charges 216 - - ---------------------------------------------------------------------------- Total costs and expenses 1,863 1,628 - ---------------------------------------------------------------------------- Earnings before interest and taxes 189 362 Interest, net 29 35 - ---------------------------------------------------------------------------- Earnings before taxes 160 327 Taxes on earnings 72 108 - ---------------------------------------------------------------------------- Net earnings $ 88 $ 219 ============================================================================ Per share Net earnings $ .36 $ .88 ============================================================================ Dividends $ .345 $ .31 ============================================================================ Weighted average shares outstanding 246 249 ============================================================================ </TABLE> See Notes To Financial Statements -2-
3 CAMPBELL SOUP COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (million dollars) <TABLE> <CAPTION> OCTOBER July 27, 1996 28, 1996 -------- -------- <S> <C> <C> Current assets Cash and cash equivalents $ 52 $ 34 Accounts receivable 888 618 Inventories 852 739 Other current assets 218 227 - ---------------------------------------------------------------------------------------------------------------- Total current assets 2,010 1,618 - ---------------------------------------------------------------------------------------------------------------- Plant assets, net of depreciation 2,717 2,681 Intangible assets, net of amortization 1,967 1,808 Other assets 521 525 - ---------------------------------------------------------------------------------------------------------------- Total assets $ 7,215 $6,632 ================================================================================================================ Current liabilities Notes payable $ 1,832 $ 865 Payable to suppliers and others 552 568 Accrued liabilities 893 593 Dividend payable 86 86 Accrued income taxes 227 117 - ---------------------------------------------------------------------------------------------------------------- Total current liabilities 3,590 2,229 - ---------------------------------------------------------------------------------------------------------------- Long-term debt 1,041 744 Nonpension postretirement benefits 454 452 Other liabilities, including deferred income taxes of $269 and $274 482 465 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 5,567 3,890 - ---------------------------------------------------------------------------------------------------------------- Shareowners' equity Preferred stock; authorized 40 shares; none issued - - Capital stock, $.075 par value; authorized 280 shares; issued 271 shares 20 20 Capital surplus 235 228 Earnings retained in the business 3,213 3,211 Capital stock in treasury, at cost (1,879) (779) Cumulative translation adjustments 59 62 - ---------------------------------------------------------------------------------------------------------------- Total shareowners' equity 1,648 2,742 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and shareowners' equity $ 7,215 $6,632 ================================================================================================================ </TABLE> See Notes to Financial Statements -3-
4 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (million dollars) <TABLE> <CAPTION> Three Months Ended ----------------------------- OCTOBER October 27, 1996 29, 1995 -------- --------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 88 $ 219 Non-cash charges to net earnings Restructuring charges 216 - Depreciation and amortization 79 78 Deferred taxes (61) 6 Other, net 46 26 Changes in working capital Accounts receivable (237) (226) Inventories (79) (147) Other current assets and liabilities 115 134 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 167 90 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of plant assets (69) (79) Sales of plant assets 16 6 Businesses acquired (227) (107) Sales of businesses 73 - Net change in other assets and liabilities (1) (6) - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (208) (186) - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Long-term borrowings 300 - Repayments of long-term borrowings (3) (5) Short-term borrowings 979 322 Repayments of short-term borrowings (19) (104) Dividends paid (86) (77) Treasury stock purchased (1,101) (40) Treasury stock issued 1 11 Other, net (4) - - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 67 107 - ------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (8) 5 - ------------------------------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 18 16 Cash and cash equivalents - beginning of period 34 53 - ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents - end of period $ 52 $ 69 ================================================================================================================== </TABLE> See Notes to Financial Statements -4-
5 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (unaudited) (million dollars) <TABLE> <CAPTION> Earnings Capital Retained Stock Cumulative Total Preferred Capital Capital in the in Translation Shareowners' Stock Stock Surplus Business Treasury Adjustments Equity ------- ------- ------- --------------- --------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at July 30, 1995 $ - $20 $165 $2,755 $ (550) $78 $2,468 Net earnings 219 219 Cash dividends ($.31 per share) (77) (77) Treasury stock purchased (38) (38) Treasury stock issued under Management incentive and Stock option plans 6 7 13 Translation adjustments (1) (1) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at October 29, 1995 $ - $20 $171 $2,897 $ (581) $77 $2,584 ================================================================================================================================== BALANCE AT JULY 28, 1996 $ - $20 $228 $3,211 $ (779) $62 $2,742 NET EARNINGS 88 88 CASH DIVIDENDS ($.345 PER SHARE) (86) (86) TREASURY STOCK PURCHASED (1,101) (1,101) TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 7 1 8 TRANSLATION ADJUSTMENTS (3) (3) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT OCTOBER 27, 1996 $ - $20 $235 $3,213 $(1,879) $59 $1,648 ================================================================================================================================== </TABLE> Changes in Number of Shares (unaudited) (thousands of shares) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Issued Outstanding In Treasury ------ ----------- ----------- <S> <C> <C> <C> Balance at July 30, 1995 271,245 249,231 22,014 Treasury stock purchased (833) 833 Treasury stock issued under Management incentive and Stock option plans 540 (540) - --------------------------------------------------------------------------------------------------------------------------------- Balance at October 29,1995 271,245 248,938 22,307 ================================================================================================================================= BALANCE AT JULY 28, 1996 271,245 247,228 24,017 TREASURY STOCK PURCHASED (13,805) 13,805 TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 353 (353) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT OCTOBER 27, 1996 271,245 233,776 37,469 ================================================================================================================================= </TABLE> See Notes to Financial Statements -5-
6 CAMPBELL SOUP COMPANY CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (unaudited) (millions) (a) The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the indicated periods. All such adjustments are of a normal recurring nature. (b) Net earnings per share are based on the weighted average shares outstanding during the applicable periods. The potential dilution from the exercise of stock options is not material. (c) Inventories <TABLE> <CAPTION> OCTOBER July 27, 1996 28, 1996 -------- -------- <S> <C> <C> Raw materials, containers and supplies $349 $323 Finished products 547 461 - -------------------------------------------------------------------------------------------------------------- 896 784 Less - Adjustment of certain inventories to LIFO basis 44 45 - -------------------------------------------------------------------------------------------------------------- $852 $739 ============================================================================================================== </TABLE> (d) Restructuring Program A special charge of $216 million, $160 million after tax or $.65 per share, was recorded in the first quarter of fiscal 1997 to cover the costs of the restructuring program approved September 4, 1996 by the company's Board of Directors. The restructuring program is designed to provide funding for the company's strategic growth plan by reconfiguring or closing various plants to improve operational efficiency, reducing administrative and operational staff functions and divesting non-strategic, under-performing businesses with sales of approximately $275 million. The restructuring includes the elimination of approximately 2,100 administrative and operational positions from the company's worldwide workforce. Restructuring charges include approximately $113 million in cash charges primarily related to severance and employee benefit costs, substantially all of which will be paid in fiscal 1997. The balance of the restructuring charge relates to non-cash charges for the estimated losses on the disposition of plant assets and business divestitures. The company plans to complete the program in fiscal 1998. -6-
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CAMPBELL SOUP COMPANY RESULTS OF OPERATIONS OVERVIEW Campbell achieved record sales for the first quarter ended October 27, 1996. Net sales of $2.05 billion were up 3% over $1.99 billion for the same period last year. Net earnings of $88 million were down from $219 million last year and earnings per share declined to $.36 from $.88 due to a special charge recorded in the quarter to cover the costs of a restructuring program. The restructuring program, which resulted in a pre-tax charge of $216 million ($160 million after-tax or $.65 per share), is designed to provide funding for the company's strategic growth plan by reconfiguring or closing plants to improve operational efficiency, reducing administrative and operational staff functions and divesting non-strategic, under-performing businesses. Before the special charge, net earnings increased 14% and earnings per share increased 15% versus the prior year. RESULTS BY DIVISION U.S.A. - U.S. sales for the quarter were $1.24 billion, up 4% over $1.19 billion for the comparable period last year. The sales increase was primarily driven by an 11% growth in wet soup sales and a 4% growth in wet soup volume. Operating earnings after the special charge were $189 million versus $288 million last year. Before the charge, operating earnings grew 19% to $341 million. Wet soup volume was led by the traditional Red & White icons, Chicken Noodle, Tomato and Cream of Mushroom, and the successful launch of 98% fat-free cream soups. Strong sales and volume performances were also achieved by "Prego" spaghetti sauces and "Swanson" traditional frozen dinners. "Pace" retail Mexican sauce volume declined, due primarily to the timing of promotional programs. New "Prego" lasagna and frozen soups helped Food Service achieve double-digit earnings growth. BAKERY & CONFECTIONERY - Bakery & Confectionery sales increased 7% to $466 million from $435 million last year. The sales increase was driven by Pepperidge Farm cracker and cookie volume and Godiva Chocolatier volume. Operating earnings after the special charge were $.5 million versus $53 million last year. Before the special charge, operating earnings grew 7% to $57 million. Pepperidge Farm's "Goldfish" crackers volume continued its strong growth through new packaging initiatives, expansion into the grocery store snack aisle and new channels such as club stores. "Milano" cookies reported excellent volume growth fueled by increased marketing and -7-
8 advertising. Godiva reported strong volume growth from continued expansion in the U.S. and Asia. Arnotts' earnings were down due to start-up costs associated with the new Huntingwood manufacturing facility and increased marketing investment in the core Australian market. INTERNATIONAL GROCERY - International Grocery reported sales of $375 million, down 2% from last year's sales of $383 million. The decline is primarily attributable to lower sales of beef products. Operating earnings after the special charge were $22 million, down 40% versus $37 million last year. Before the special charge, operating earnings were down 20% to $29 million. Argentina experienced a sales decrease versus prior year due to the continued decline in the demand for beef products in Europe. The grocery business in Germany was down significantly versus the prior year due to a sluggish German economy and lower demand for gourmet food products. Wet soup volume outside the U.S. was up 9% led by Canada, the United Kingdom and Asia. The acquisition of the Erasco Group of Companies, Germany's leading soup company, was completed in the last month of the quarter with minimal impact on sales and earnings. STATEMENTS OF EARNINGS Net sales increased 3% over the prior year, with sales of ongoing businesses up 6%, driven principally by a 4% increase in worldwide soup volume based on strength of U.S. condensed soup and growth in Canada, the United Kingdom and Asia. Gross margins improved 3.1 percentage points to 45.8% compared to the first quarter last year. Improvements resulted primarily from higher selling prices and cost productivity programs. Marketing and selling expenses increased 10.3%, compared to the prior year, reflecting the launch of the 98% fat-free cream soups in the U.S. and increased marketing efforts at Arnotts and Pepperidge Farm. Overall, these expenses increased 1.3 percentage points as a percent of sales from 18% last year. Administrative expenses were flat versus last year and as a percent of sales. Other expense rose 58% due to the effect of the increase in Campbell's share price on the company's long-term incentive plan obligations. The effective tax rate was 45% compared to 33% last year due to the timing of the restructuring charges. Before the special charge, the company expects its effective tax rate for fiscal 1997 to approximate 34% due to tax planning strategies, including utilization of tax loss carryforwards. SPECIAL CHARGE On September 4, 1996 the company's Board of Directors approved a special charge of $216 million ($160 million after-tax or $.65 per share) to cover the costs of a restructuring program. The restructuring program is designed to provide funding for the company's strategic growth plan -8-
9 by reconfiguring or closing various plants to improve operational efficiency, reducing administrative and operational staff functions and divesting non-strategic, under-performing businesses with sales of approximately $275 million. The program includes the elimination of approximately 2,100 administrative and operational positions from the company's worldwide workforce. Restructuring charges include approximately $113 million in cash charges primarily related to severance and employee benefits, substantially all of which will be paid in fiscal 1997. The balance of the charge relates to non-cash charges for the estimated losses on the disposition of assets and business divestitures. The restructuring program is expected to generate approximately $200 million in savings over the next two years. These savings are from reductions in employee salaries and benefits, plant overhead, depreciation and amortization. The company plans to complete the program in fiscal 1998. Cash outflows do not adversely affect the company's liquidity. LIQUIDITY AND CAPITAL RESOURCES The company generated cash from operations of $167 million compared to $90 million last year. Continued tight management of working capital has been instrumental in improving the company's cash generation performance. Capital expenditures were $69 million, a decrease of $10 million from fiscal 1996. The decline is due primarily to the start-up of the new Huntingwood manufacturing facility by Arnotts in the first quarter of 1997. Capital expenditures are projected to be approximately $400 million in fiscal 1997. In the first quarter the company acquired the Erasco Group of Companies, Germany's leading soup company, for approximately $210 million. In addition, Arnotts acquired the assets of Kettle Chip Company, a Sydney, Australia based potato chip concern. In the first quarter the company repurchased 300,000 shares in the open market and completed its "Dutch auction" tender offer by repurchasing 13.5 million shares at $80 per share. The total shares repurchased were 13.8 million versus 833,000 shares during the same period of fiscal 1996. The repurchases were funded by short-term borrowings of approximately $800 million and a long-term debt issuance of $300 million at 6.9% due in fiscal 2007. 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 financial position of the company. In October 1995, the United States of America filed a complaint against Campbell at the request of the Environmental Protection Agency in the United States District Court for the Eastern District of -9-
10 California relating to certain air emission permits at the company's Sacramento, CA facility. The suit seeks monetary and injunctive relief for alleged violations of the Clean Air Act claiming that the Sacramento Metropolitan Air Quality Management District, the responsible state agency, allowed plant modifications without the appropriate permits and pollution control equipment. Campbell has also received a notice of violation from the United States Environmental Protection Agency relating to air emissions from the can-making operations at its Sacramento, CA facility. Campbell is disputing these alleged violations. The company has also been named as a potentially responsible party in a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. The ultimate 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, but it is not expected to be material either individually or in the aggregate. ITEM 5. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements which are based on management's current views and assumptions regarding future events and financial performance. These statements are qualified by reference to the section "Cautionary Statement on Forward-Looking Statements" in Item 1 of the registrant's Annual Report on Form 10-K for the fiscal year ended July 28, 1996. See Item 1 for a description of important factors that could impact the company's strategic growth plan goals and cause actual results to differ materially from those expressed or implied in the forward-looking statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits No. 3(ii) Campbell Soup Company's By-Laws, effective November 21, 1996. 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 (the "SEC"). 27 Financial Data Schedule. -10-
11 b. Reports on Form 8-K (1) A Form 8-K containing the Financial Statements of Pace Foods Ltd. for the years ended December 31, 1994 and 1993 and Report of Independent Auditors was filed with the SEC on September 3, 1996. (2) A Form 8-K containing copies of press releases announcing Campbell's Strategic Growth Plan initiatives including the acquisition of the Erasco Group of Companies, the authorization of a share repurchase program, brand building initiatives and reconfigured operations was filed with the SEC on September 5, 1996. 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 11, 1996 By: /s/JOHN M. COLEMAN ----------------------------------------- John M. Coleman, Senior Vice President - Law and Public Affairs Date: December 11, 1996 By: /s/BASIL L. ANDERSON ----------------------------------------- Basil L. Anderson Senior Vice President - Finance, Chief Financial Officer and Treasurer -11-
12 INDEX TO EXHIBITS Exhibit Number 3(ii) Campbell Soup Company's By-Laws, effective November 21, 1996 27 Financial Data Schedule -12-