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 26, 1997 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 232,489,098 SHARES OF CAPITAL STOCK OUTSTANDING AS OF MARCH 7, 1997. ================================================================================
2 PART I. FINANCIAL INFORMATION CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (million dollars except per share amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended ---------------------- ---------------------- JANUARY January JANUARY January 26, 1997 28, 1996 26, 1997 28, 1996 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net sales $2,317 $2,217 $4,369 $4,207 - ------------------------------------------------------------------------------------------ Costs and expenses Cost of products sold 1,227 1,245 2,339 2,388 Marketing and selling expenses 486 438 882 797 Administrative expenses 93 78 176 159 Research and development expenses 19 21 37 41 Other expense 29 20 67 45 Restructuring charges -- -- 216 -- - ------------------------------------------------------------------------------------------ Total costs and expenses 1,854 1,802 3,717 3,430 - ------------------------------------------------------------------------------------------ Earnings before interest and taxes 463 415 652 777 Interest, net 45 31 74 66 - ------------------------------------------------------------------------------------------ Earnings before taxes 418 384 578 711 Taxes on earnings 142 127 214 235 - ------------------------------------------------------------------------------------------ Net earnings $ 276 $ 257 $ 364 $ 476 ========================================================================================== Per share Net earnings $ 1.18 $ 1.03 $ 1.51 $ 1.91 ========================================================================================== Dividends $ .385 $ .345 $ .730 $ .655 ========================================================================================== Weighted average shares outstanding 233 249 241 249 ========================================================================================== See Notes To Financial Statements </TABLE> -2-
3 CAMPBELL SOUP COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (million dollars) <TABLE> <CAPTION> JANUARY July 26, 1997 28, 1996 -------- -------- <S> <C> <C> Current assets Cash and cash equivalents $ 31 $ 34 Accounts receivable 930 618 Inventories 695 739 Other current assets 219 227 - ------------------------------------------------------------------------------- Total current assets 1,875 1,618 - ------------------------------------------------------------------------------- Plant assets, net of depreciation 2,667 2,681 Intangible assets, net of amortization 1,932 1,808 Other assets 531 525 - ------------------------------------------------------------------------------- Total assets $ 7,005 $ 6,632 =============================================================================== Current liabilities Notes payable $ 1,791 $ 865 Payable to suppliers and others 511 568 Accrued liabilities 847 593 Dividend payable 90 86 Accrued income taxes 200 117 - ------------------------------------------------------------------------------- Total current liabilities 3,439 2,229 - ------------------------------------------------------------------------------- Long-term debt 938 744 Nonpension postretirement benefits 459 452 Other liabilities, including deferred income taxes of $266 and $274 481 465 - ------------------------------------------------------------------------------- Total liabilities 5,317 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 267 228 Earnings retained in the business 3,400 3,211 Capital stock in treasury, at cost (2,021) (779) Cumulative translation adjustments 22 62 - ------------------------------------------------------------------------------- Total shareowners' equity 1,688 2,742 - ------------------------------------------------------------------------------- Total liabilities and shareowners' equity $ 7,005 $ 6,632 =============================================================================== See Notes to Financial Statements </TABLE> -3-
4 CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (million dollars) <TABLE> <CAPTION> Six Months Ended ---------------------- JANUARY January 26, 1997 28, 1996 -------- -------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 364 $ 476 Non-cash charges to net earnings Restructuring charges 216 -- Depreciation and amortization 160 159 Deferred taxes (64) 4 Other, net 65 49 Changes in working capital Accounts receivable (289) (195) Inventories 74 (8) Other current assets and liabilities 51 41 - --------------------------------------------------------------------------------- Net cash provided by operating activities 577 526 - --------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of plant assets (133) (165) Sales of plant assets 21 7 Businesses acquired (238) (142) Sales of businesses 73 45 Net change in other assets and liabilities (19) (5) - --------------------------------------------------------------------------------- Net cash used in investing activities (296) (260) - --------------------------------------------------------------------------------- Cash flows from financing activities: Long-term borrowings 300 221 Repayments of long-term borrowings (4) (27) Short-term borrowings 1,019 58 Repayments of short-term borrowings (196) (347) Dividends paid (175) (155) Treasury stock purchased (1,235) (40) Treasury stock issued 20 34 - --------------------------------------------------------------------------------- Net cash used in financing activities (271) (256) - --------------------------------------------------------------------------------- Effect of exchange rate changes on cash (13) (7) - --------------------------------------------------------------------------------- Net change in cash and cash equivalents (3) 3 Cash and cash equivalents - beginning of period 34 53 - --------------------------------------------------------------------------------- Cash and cash equivalents - end of period $ 31 $ 56 ================================================================================= See Notes to Financial Statements </TABLE> -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 $2,468 Net earnings 476 476 Cash dividends ($.655 per share) (163) (163) Treasury stock purchased (38) (38) Treasury stock issued under Management incentive and Stock option plans 32 11 43 Translation adjustments (53) (53) - ------------------------------------------------------------------------------------------------------------------------- Balance at January 28, 1996 $ - $20 $197 $3,068 $(577) $25 $2,733 ========================================================================================================================= BALANCE AT JULY 28, 1996 $ - $20 $228 $3,211 $(779) $62 $2,742 NET EARNINGS 364 364 CASH DIVIDENDS ($.730 PER SHARE) (175) (175) TREASURY STOCK PURCHASED (1,235) (1,235) TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 39 (7) 32 TRANSLATION ADJUSTMENTS (40) (40) - ------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 26, 1997 $ - $20 $267 $3,400 $(2,021) $22 $1,688 ========================================================================================================================= </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 1,281 (1,281) - --------------------------------------------------------------------------------------------------------------------------- Balance at January 28, 1996 271,245 249,679 21,566 =========================================================================================================================== BALANCE AT JULY 28, 1996 271,245 247,228 24,017 TREASURY STOCK PURCHASED (15,445) 15,445 TREASURY STOCK ISSUED UNDER MANAGEMENT INCENTIVE AND STOCK OPTION PLANS 759 (759) - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 26, 1997 271,245 232,542 38,703 =========================================================================================================================== See Notes to Financial Statements </TABLE> -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> JANUARY July 26, 1997 28, 1996 -------- -------- <S> <C> <C> Raw materials, containers and supplies $292 $323 Finished products 446 461 - ------------------------------------------------------------------------------- 738 784 Less - Adjustment of certain inventories to LIFO basis 43 45 - ------------------------------------------------------------------------------- $695 $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 write down of plant assets and estimated losses on the disposition of plant assets and business divestitures. The company plans to complete the program in fiscal 1998. A summary of the original reserves and activity through January 26, 1997 follows: -6-
7 <TABLE> <CAPTION> BALANCE Original JANUARY Reserves Activity 26, 1997 -------- -------- -------- <S> <C> <C> <C> Loss on asset dispositions and divestitures $108 $ (9) $ 99 Severance and benefits 93 (14) 79 Other 15 -- 15 - ------------------------------------------------------------------------------------------ Total $216 $(23) $193 ========================================================================================== </TABLE> (e) Subsequent Event The Executive Committee of the Board of Directors of Campbell Soup Company authorized a 2-for-1 split of Capital Stock, effective February 24, 1997, to be distributed to shareowners on March 17, 1997. After giving effect to the split, earnings per share would have been reported as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ---------------- January January January January 26, 1997 28, 1996 26, 1997 28, 1996 -------- -------- -------- -------- <S> <C> <C> <C> $.59 $.51 $.76 $.96 </TABLE> In addition, as of January 26, 1997, the par value of Capital Stock would have been $.0375, authorized shares 560 and issued shares 542. -7-
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CAMPBELL SOUP COMPANY RESULTS OF OPERATIONS OVERVIEW Campbell achieved record sales and earnings for the second quarter ended January 26, 1997. Net sales for the quarter were $2.32 billion, up 5% from the comparable period last year. Earnings per share increased 15% to a quarterly record of $1.18, up from $1.03 in the second quarter last year. Net earnings rose 7% to $276 million from $257 million a year ago. Sales for the six months increased 4% to $4.37 billion, versus $4.21 billion for the comparable period last year. Net earnings for the six months of $364 million were down from $476 million last year and earnings per share declined to $1.51 from $1.91 due to a special charge recorded in the first quarter to cover the costs of a restructuring program. Before the special charge, net earnings increased 10% and earnings per share increased 14% versus the prior year. RESULTS BY DIVISION SECOND QUARTER U.S.A. - U.S. sales for the quarter increased 1% to $1.38 billion from $1.36 billion last year. The sales increase was primarily driven by 4% growth in wet soup volume. Operating earnings rose 14% to $364 million. Wet soup volume was led by traditional Red & White icons, Chicken Noodle, Tomato and Cream of Mushroom, the continued success of 98% fat-free cream soups and the new Joseph A. Campbell premium soup in glass. Strong sales and volume performances were also achieved by "V-8", "Swanson" broth and "Franco-American" pasta featuring new "Superiore" for the adult market. Food Service continued its growth behind the new frozen Campbell's Restaurant Soups, "Prego" lasagna for the home-meal replacement category and "Pace" Mexican sauces. BAKERY & CONFECTIONERY - Bakery & Confectionery sales increased 5% to $490 million from $466 million in the second quarter of last year. The sales increase was driven by Pepperidge Farm cracker and cookie volume and Godiva Chocolatier volume. Operating earnings rose 10% to $73 million versus $67 million last year. Pepperidge Farm's "Goldfish" crackers continued their phenomenal growth with a more than 50% sales volume increase, responding to expansion into the grocery store snack aisle and new channels such as club stores. "Milano" cookies reported substantial new growth, fueled by increased marketing and advertising. Godiva, boosted by excellent holiday season and Valentine's Day sales, also reported strong volume growth and increased profitability. -8-
9 INTERNATIONAL GROCERY - International Grocery reported sales of $470 million, a 13% increase from last year. The sales increase was primarily due to the first quarter acquisition of Erasco, Germany's leading soup company. Operating earnings were $42 million, unchanged from the prior year. Strong soup volume gains in Asia, Canada and Japan were driven by consumer marketing investments, a key element of the company's growth plan for international businesses. Earnings were impacted by those marketing investments and by weak performance of specialty distribution companies in Europe. SIX MONTHS U.S.A. - U.S. sales for the six months were $2.62 billion versus $2.55 billion last year. The sales increase was primarily driven by 4% growth in wet soup volume. Operating earnings after the special charge were $553 million versus $608 million last year. Before the charge, operating earnings grew 16% to $705 million. Red & White condensed soup, led by icons Chicken Noodle, Tomato and Cream of Mushroom, continued its strong volume growth. Other strong sales and volume performers included "Swanson" broth, "V-8", "Franco-American" pasta, "Superiore," Food Service's frozen Campbell's Restaurant Soups and "Prego" lasagna for the home-meal replacement category. BAKERY & CONFECTIONERY - Bakery & Confectionery sales grew 6% to $955 million from $901 million in the first six months. The sales increase was driven by Pepperidge Farm and Godiva. Operating earnings after the special charge were $74 million versus $120 million last year. Before the charge, operating earnings increased 9% to $130 million. Pepperidge Farm's "Goldfish" crackers and "Milano" cookies volume and Godiva's holiday season and Valentine's Day record sales have led the way for the first six months. INTERNATIONAL GROCERY - International Grocery reported sales of $845 million in the first six months, a 6% increase over the prior year. The sales increase was primarily due to the acquisition of Erasco. Operating earnings after the special charge declined to $64 million from $79 million last year. Before the charge, operating earnings were $72 million down 9% from last year. Wet soup volume outside the U.S. was up 13% led by Erasco, Asia, Canada and Japan. Although the German grocery business sales and earnings trends have improved over the prior quarter, sales and earnings still reflect a decline versus the prior year. In addition, earnings were impacted by consumer marketing investments and by weak performance of the specialty distribution companies. -9-
10 STATEMENTS OF EARNINGS Net sales increased 5% for the second quarter and 4% for the six months, compared to the same periods last year. Sales of ongoing businesses are up 8% for the quarter and 7% for the six months. The gains were driven principally by worldwide wet soup volume gains of 7% for the quarter and 6% for the first six months. Strong volume gains were achieved in U.S. condensed soup, Asia, Japan and Canada. Gross margins improved 3.2 percentage points to 47.1% in the second quarter and 46.5% for the six month period. Improvements resulted primarily from higher selling prices and on-going cost productivity programs. Marketing and selling expenses increased 11% for the second quarter and six month period, over similar periods a year ago. The increases are attributable to the launch of 98% fat-free cream soups and premium soup in glass in the U.S., marketing efforts at Arnotts and Pepperidge Farm and advertising for "Franco-American" pasta "Superiore". Overall these expenses have increased 1.2 and 1.3 percentage points for the quarter and first half, respectively, as a percentage of sales versus last year. Administrative expenses were up 19% for the quarter and 11% for the six month period versus last year. The increases are attributable principally to incentive compensation and consulting accruals. Other expense is up due to the effect of the increase in Campbell's share price on the company's long-term incentive plan obligations. The increase in interest expense is primarily due to financing costs associated with the company's share repurchase program. The effective tax rate for the first six months was 37% compared to 33% last year, principally due to the tax effect 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 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. -10-
11 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 write down of plant assets and the estimated losses on the disposition of assets and 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 and cash outflows are not expected to adversely affect the company's liquidity. See Note (d) of the Consolidated Financial Statements for further discussion of the restructuring program. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was up 10% to $577 million due to the strong underlying operating earnings growth and continued tight management of inventory levels. Capital expenditures were $133 million, a decline of $32 million from the prior year, due to the completion of the Arnotts Huntingwood manufacturing facility. Capital expenditures are projected to approximate $375 million in fiscal 1997. During the year, the company acquired Erasco, Germany's leading soup company, for approximately $205 million. In addition, Arnotts acquired the assets of Kettle Chip Company, a Sydney, Australia based potato chip concern. During the first six months, the company completed its "Dutch Auction" tender offer by repurchasing 13.5 million shares at $80 per share. In addition, the company repurchased approximately 1.9 million shares in the open market bringing the total shares repurchased to 15.4 million versus 833,000 shares during the same period in fiscal 1996. The repurchases were funded by short-term borrowings of approximately $900 million and a long-term debt issuance of $300 million at 6.9% due in fiscal 2007. RECENT DEVELOPMENTS In fiscal 1996, the Financial Accounting Standards Board issued FAS 123 -- "Accounting for Stock-Based Compensation". The standard allows the option of recording an expense for the fair market value of stock options and similar equity instruments issued to employees or disclosing the "proforma" impact on net earnings and earnings per share. The company will comply with the disclosure requirements for the fiscal year ending August 3, 1997. There will be no effect on reported net earnings and earnings per share. -11-
12 PART II ITEM 1. LEGAL PROCEEDINGS There have been no material developments in the legal proceedings as reported in Campbell's Form 10-Q for the quarter ended October 27, 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. Campbell's Annual Meeting of Shareowners was held on November 21, 1996. c. 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 202,599,008 398,579 Edmund M. Carpenter 202,614,818 382,769 Bennett Dorrance 202,617,764 379,823 Thomas W. Field, Jr. 202,608,854 388,733 Kent B. Foster 202,506,827 490,760 Harvey Golub 202,598,891 398,696 David W. Johnson 202,583,691 413,896 David K. P. Li 195,171,760 7,825,827 Philip E. Lippincott 202,577,037 420,550 Mary Alice Malone 202,612,618 384,969 Charles H. Mott 202,611,903 385,684 George M. Sherman 202,599,289 398,298 Donald M. Stewart 202,591,041 406,546 George Strawbridge, Jr. 202,600,241 397,346 Charlotte C. Weber 202,609,720 387,867 ================================================================= </TABLE> -12-
13 Ratification of Appointment of Auditors <TABLE> <CAPTION> =============================================================================================== Broker For Against Abstentions Non-Votes - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Ratification of Appointment of Auditors 202,461,615 195,157 340,815 -0- =============================================================================================== </TABLE> ITEM 5. OTHER INFORMATION a. Stock Split On February 11, 1997, the Executive Committee of the Board of Directors of Campbell Soup Company adopted resolutions amending the Restated Certificate of Incorporation to increase the number of authorized shares of capital stock from 280 million, $0.075 par value per share, to 560 million, $0.0375 par value per share, and authorized a 2-for-1 stock split. The additional shares will be distributed on March 17, 1997, to shareowners of record at the close of business on February 24, 1997, the record date for the stock split. Those shareowners will receive an account statement evidencing one additional share for each share already held. Outstanding stock certificates do not have to be surrendered or exchanged. b. 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 company'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 Campbell Soup Company's Restated Certificate of Incorporation, amended through February 24, 1997. -13-
14 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 Campbell during the quarter for which this report is filed. 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 10, 1997 By:/s/JOHN M. COLEMAN ------------------------------------ John M. Coleman, Senior Vice President Law and Public Affairs Date: March 10, 1997 By:/s/BASIL L. ANDERSON ------------------------------------ Basil L. Anderson Senior Vice President - Finance Chief Financial Officer and Treasurer -14-
15 INDEX TO EXHIBITS Exhibit Number - -------------- 3(i) Campbell Soup Company's Restated Certificate of Incorporation, amended through February 24, 1997. 27 Financial Data Schedule. -15-