Registration of Securities (General Form) — Form 10
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-12B Form 10 100 444K
2: EX-2.1 Form of Separation and Distribution Agreement 38 170K
3: EX-3.1 Form of Certificate of Incorporation 7 27K
4: EX-3.2 Form of By-Laws of Vlasic Foods International, 12 56K
Inc.
5: EX-9.1 Major Stockholders' Voting Trust Agreement 29 57K
6: EX-10.1 Form of Transition Services Agreement 7 26K
15: EX-10.10 Annual Incentive Plan 11 42K
16: EX-10.11 Director Compensation Plan 14 52K
7: EX-10.2 Form of Benefits Sharing Agreement 27 115K
8: EX-10.3 Form of Swanson Trademark License Agreement 26 94K
9: EX-10.4 Form of Technology Sharing Agreement 13 44K
10: EX-10.5 Form of Tax Sharing and Indemnification Agreement 22 69K
11: EX-10.6 Credit Agreement Dated 2/20/98 99 323K
12: EX-10.7 Personal Choice Plan 5 16K
13: EX-10.8 Deferred Compensation Plan 12 43K
14: EX-10.9 1998 Long-Term Incentive Plan 20 71K
17: EX-21 Subsidiaries of Vlasic Foods International Inc. 1 8K
18: EX-27 Selected Financial Data Schedule 2 12K
| Page | (sequential) | | | | (alphabetic) | Top |
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| | |
- Alternative Formats (Word, et al.)
- Absence of Dividends
- Agricultural Products
- Arrangements Between Campbell and Vlasic Relating to the Spin-Off
- Availability and Prices of Ingredients
- Benefits Sharing Agreement
- Business
- Business Strategy
- Cautionary Statement
- Certain Other Provisions
- Certain Special Considerations
- Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
- Combined Balance Sheets
- Combined Statement of Earnings
- Combined Statements of Cash Flows
- Combined Statements of Earnings
- Combined Statements of Shareowner's Equity
- Competition
- Conditions; Termination
- Costs of Governmental Regulation/Environmental Matters
- Description of Capital Stock
- Directors
- Distribution Agreement
- Dividend Policy
- Earnings per Share
- Employees
- Environmental Matters
- Executive Officers and Senior Operating Management
- Financial Statements and Exhibits
- Financing
- Fiscal years ended August 3, 1997, July 28, 1996 and July 30, 1995
- Frozen Foods
- General
- Governmental Regulation
- Grocery Products
- Index to Financial Statements
- Ingredients
- Legal Proceedings
- Liability and Indemnification of Officers and Directors of Vlasic
- License of Trademarks
- Listing and Trading of Vlasic Common Stock
- Management
- Management's Discussion and Analysis of Results of Operations and Financial Condition
- Manner of Effecting the Spin-Off
- Marketing, Sales and Distribution
- Notes to Combined Financial Statements
- Overview of Vlasic Businesses
- Possible Anti-Takeover Effects
- Potential Federal Income Tax Liabilities
- Production and Facilities
- Products and Markets
- Pro Forma Condensed Combined Financial Information
- Reasons for the Spin-Off
- Recent Sales of Unregistered Securities
- Research and Development
- Restructuring Program
- Results of the Spin-Off
- Robert F. Bernstock
- Seasonality
- Second quarters and six months ended February 1, 1998 and January 26, 1997
- Security Ownership By Certain Beneficial Owners, Directors and Executive Officers of Vlasic
- Selected Financial Data
- Six months ended February 1, 1998 and January 26, 1997
- Spin-Off, The
- Summary
- Summary of Executive Compensation
- Supply Agreements; Co-Pack Agreements
- Tax Consequences of the Spin-Off
- Tax Sharing and Indemnification Agreement
- The Spin-Off
- Trademark License Agreements
- Trademarks and Patents
- Treatment of Outstanding Campbell Stock Awards
- Vlasic Bylaws
- Vlasic Charter
- Vlasic Common Stock
- Vlasic Incentive Plans
- Vlasic Preferred Stock
- Who Can Help Answer Your Questions
|
| 1 | 1st Page - Filing Submission
|
| 3 | Item 10. Recent Sales of Unregistered Securities
|
| " | Item 14. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
| " | Item 15. Financial Statements and Exhibits
|
| 7 | Robert F. Bernstock
|
| 10 | Summary
|
| " | Overview of Vlasic Businesses
|
| " | Frozen Foods
|
| " | Grocery Products
|
| " | Agricultural Products
|
| 15 | Who Can Help Answer Your Questions
|
| 16 | Cautionary Statement
|
| " | The Spin-Off
|
| " | Reasons for the Spin-Off
|
| 17 | Manner of Effecting the Spin-Off
|
| 18 | Results of the Spin-Off
|
| " | Tax Consequences of the Spin-Off
|
| 19 | Listing and Trading of Vlasic Common Stock
|
| 20 | Conditions; Termination
|
| " | Certain Special Considerations
|
| " | Potential Federal Income Tax Liabilities
|
| 22 | Absence of Dividends
|
| " | Possible Anti-Takeover Effects
|
| " | Competition
|
| 23 | License of Trademarks
|
| " | Availability and Prices of Ingredients
|
| " | Costs of Governmental Regulation/Environmental Matters
|
| 24 | Business
|
| 25 | Business Strategy
|
| " | Products and Markets
|
| 27 | Marketing, Sales and Distribution
|
| 28 | Ingredients
|
| " | Seasonality
|
| " | Production and Facilities
|
| 29 | Trademarks and Patents
|
| " | Research and Development
|
| 30 | Governmental Regulation
|
| " | Environmental Matters
|
| " | Legal Proceedings
|
| " | Employees
|
| 31 | Pro Forma Condensed Combined Financial Information
|
| 36 | Selected Financial Data
|
| 37 | Management's Discussion and Analysis of Results of Operations and Financial Condition
|
| " | General
|
| 40 | Restructuring Program
|
| 45 | Combined Statement of Earnings
|
| 50 | Financing
|
| " | Dividend Policy
|
| 51 | Management
|
| " | Directors
|
| 53 | Executive Officers and Senior Operating Management
|
| 56 | Summary of Executive Compensation
|
| 58 | Treatment of Outstanding Campbell Stock Awards
|
| 59 | Vlasic Incentive Plans
|
| 62 | Security Ownership By Certain Beneficial Owners, Directors and Executive Officers of Vlasic
|
| 64 | Arrangements Between Campbell and Vlasic Relating to the Spin-Off
|
| " | Distribution Agreement
|
| 65 | Benefits Sharing Agreement
|
| 66 | Tax Sharing and Indemnification Agreement
|
| 67 | Trademark License Agreements
|
| 68 | Supply Agreements; Co-Pack Agreements
|
| " | Description of Capital Stock
|
| " | Vlasic Common Stock
|
| 69 | Vlasic Preferred Stock
|
| " | Certain Other Provisions
|
| " | Vlasic Charter
|
| " | Vlasic Bylaws
|
| 70 | Liability and Indemnification of Officers and Directors of Vlasic
|
| 73 | Index to Financial Statements
|
| 75 | Combined Statements of Earnings
|
| " | Fiscal years ended August 3, 1997, July 28, 1996 and July 30, 1995
|
| 76 | Combined Balance Sheets
|
| 77 | Combined Statements of Cash Flows
|
| 78 | Combined Statements of Shareowner's Equity
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| 79 | Notes to Combined Financial Statements
|
| 80 | Earnings per Share
|
| 93 | Second quarters and six months ended February 1, 1998 and January 26, 1997
|
| 95 | Six months ended February 1, 1998 and January 26, 1997
|
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
FILED PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
VLASIC FOODS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
NEW JERSEY 52-2067518
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
----------------
CAMPBELL PLACE 08103-1799
CAMDEN, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 342-4800
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS TO BE SO NAME OF EACH EXCHANGE ON WHICH EACH
REGISTERED: CLASS IS TO BE REGISTERED:
COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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VLASIC FOODS INTERNATIONAL INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
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ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
-------- ------------ ---------------------------------
1. Business.................... "Summary," "Business" and "Management's Discussion
and Analysis of Results of Operations and Financial
Condition."
2. Financial Information....... "Summary," "Pro Forma Condensed Combined Financial
Information," "Selected Financial Data" and
"Management's Discussion and Analysis of Results of
Operations and Financial Condition."
3. Properties.................. "Business."
4. Security Ownership of
Certain Beneficial Owners
and Management.............. "Security Ownership By Certain Beneficial Owners,
Directors and Executive Officers of Vlasic."
5. Directors and Executive
Officers.................... "Management" and "Liability and Indemnification of
Officers and Directors of Vlasic."
6. Executive Compensation...... "Management."
7. Certain Relationships and
Related Transactions........ "Summary," "The Spin-Off" and "Arrangements Between
Campbell and Vlasic Relating to the Spin-Off."
8. Legal Proceedings........... "Business."
9. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Stockholder
Matters..................... "Summary," "The Spin-Off" and "Dividend Policy."
11. Description of Registrant's
Securities to be
Registered.................. "Description of Capital Stock."
12. Indemnification of Directors
and Officers................ "Liability and Indemnification of Officers and
Directors of Vlasic."
13. Financial Statements and
Supplementary Data.......... "Summary," "Pro Forma Condensed Combined Financial
Information," "Selected Financial Data,"
"Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Index to
Financial Statements."
15. Financial Statements and
Exhibits.................... "Index to Financial Statements."
I
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Vlasic Foods International Inc. ("Vlasic") was incorporated under the laws of
the State of New Jersey on November 26, 1997. Vlasic issued 100 shares of its
Common Stock, no par value, to Campbell Soup Company, a New Jersey corporation
("Campbell"), as of December 2, 1997 in consideration of Campbell's capital
contribution of $10.00. Such issuance was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof because
such issuance did not involve any public offering of securities.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statement Schedules:
Schedules are omitted because of the absence of the conditions under which
they are required or because the information required by such omitted schedules
is set forth in the financial statements or the notes thereto.
(b) Exhibits:
[Download Table]
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Form of Separation and Distribution Agreement between Campbell Soup
Company and Vlasic Foods International Inc.
3.1 Form of Certificate of Incorporation of Vlasic Foods International
Inc., to be in effect upon the effectiveness of the Spin-Off.
3.2 Form of Bylaws of Vlasic Foods International Inc., to be in effect
upon the effectiveness of the Spin-Off.
9.1 Major Stockholders' Voting Agreement dated June 2, 1990 among Dorrance
H. Hamilton, Charles H. Mott and John A. van Beuren, as Voting
Trustees, and certain related persons.
10.1 Form of Transition Services Agreement between Campbell Soup Company
and Vlasic Foods International Inc.
10.2 Form of Benefits Sharing Agreement between Campbell Soup Company and
Vlasic Foods International Inc.
10.3 Form of Swanson Trademark License Agreement between Campbell Soup
Company and Vlasic Foods International Inc.
10.4 Form of Technology Sharing Agreement between Campbell Soup Company and
Vlasic Foods International Inc.
10.5 Form of Tax Sharing and Indemnification Agreement between Campbell
Soup Company and Vlasic Foods International Inc. and certain of its
subsidiaries.
10.6 Credit Agreement dated February 20, 1998 among Campbell Soup Company
and The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, as Agents, to be assigned to and assumed by Vlasic Foods
International Inc. upon the effectiveness of the Spin-Off.
10.7 Personal Choice Plan
10.8 Deferred Compensation Plan
10.9 1998 Long-Term Incentive Plan
10.10 Annual Incentive Plan
10.11 Director Compensation Plan
21 Subsidiaries of Vlasic Foods International Inc.
27 Selected Financial Data Schedule
II
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Vlasic Foods International Inc.
By: /s/ Robert F. Bernstock
----------------------------------
Robert F. Bernstock
President and Chief Executive
Officer
Date: March 3, 1998
[LOGO OF CAMPBELL APPEARS HERE]
Fellow Campbell Shareowners:
These are exciting times at Campbell Soup Company.
As you may know, in September we announced our plans to spin off our Specialty
Foods businesses into an independent public company--Vlasic Foods International
Inc. This spin-off is a watershed event in the history of our great company.
Focus is a powerful idea for both companies. The spin-off allows Campbell to
focus on our most profitable businesses with the highest growth potential--soup
and sauces, biscuits and confectionery, and foodservice. At the same time it
gives great businesses like Vlasic pickles and Swanson frozen foods tremendous
opportunities for growth under a dedicated management team.
The spin-off will be completed on March 30, 1998. For every ten shares of
Campbell stock that you own as of March 9, 1998, you will become owner of one
share of Vlasic common stock. The spin-off will be tax-free to U.S.
shareowners.
The enclosed information provides you with more detail about the spin-off. We
encourage you to read these materials carefully to learn more about Vlasic
Foods International and its future plans.
What about our future plans? In the nineties Campbell Soup has risen to the top
of the food industry. Our aspirations, however, are much higher. We are
determined to be among the best consumer products companies in the world. It's
an ambitious goal--and with good reason. We have an outstanding financial
foundation and enormous growth potential. We have the brands, like Campbell's,
Godiva and Pepperidge Farm, the strategy, and most of all, a talented team of
people to get there.
We look forward to our growth journey as the New Campbell Soup Company.
Best Regards,
/s/ David W. Johnson /s/ Dale F. Morrison
David W. Johnson Dale F. Morrison
Chairman of the Board President and Chief Executive Officer
[LOGO AND PHOTO TO APPEAR ON INSIDE FRONT COVER.]
[VLASIC LOGO]
Fellow Shareowners:
Welcome to Vlasic Foods International, for now a part of Campbell Soup
Company and soon to be an independent public company. Vlasic Foods
International will become publicly-owned on March 30, 1998 and at that time you
will be credited with one share of Vlasic common stock for every ten shares of
Campbell stock that you own as of the close of business on March 9, 1998.
Vlasic common stock will trade on the New York Stock Exchange under the ticker
symbol "VL."
Vlasic Foods International starts public life with an incredibly strong
portfolio of businesses, having icon brand names such as Swanson, Vlasic,
Freshbake and Swift. Moreover, nearly three quarters of our sales come from
businesses in which we occupy the number one market share position,
representing a wonderful and continuing consumer vote of confidence. Our brands
and market positions are a superb foundation for building a lean, growth-
oriented company, committed to delivering superior earnings performance and to
seeking superior shareowner returns.
Vlasic Foods International also has a strong, proven leadership team with
whom I am excited to be working. That team and I have spent the past several
months building the strategies and prioritizing the tactical plans to
accomplish our goals. While there are many challenges, we are focused, and we
will work continuously to accomplish the most important objectives and
continuously raise the performance bar. From this vantage point, the business
building opportunities seem almost unlimited.
This is a wonderful time in our history! I look forward to working on your
behalf to make Vlasic Foods International a company about whose performance we
can all feel very proud.
Sincerely yours,
/s/ Robert F. Bernstock
Robert F. Bernstock
President and Chief Executive
Officer
INFORMATION STATEMENT
CAMPBELL SOUP COMPANY'S SPIN-OFF
OF
VLASIC FOODS INTERNATIONAL INC.
THROUGH A 100% COMMON STOCK DISTRIBUTION
TO
SHAREOWNERS OF CAMPBELL STOCK
We are furnishing you with this Information Statement in connection with
Campbell Soup Company's spin-off of 100% of the outstanding common stock of
Vlasic Foods International Inc. to shareowners of Campbell stock.
Campbell will effect the spin-off by distributing all issued and outstanding
Vlasic shares to the holders of record of Campbell shares. Campbell will spin
off one Vlasic share for every ten Campbell shares held as of the close of
business on March 9, 1998. The actual total number of Vlasic shares to be
distributed will depend on the number of Campbell shares outstanding on that
date.
NO VOTE OF SHAREOWNERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. WE ARE
NOT SOLICITING PROXIES, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
----------------
THE DATE OF THIS INFORMATION STATEMENT IS MARCH , 1998.
TABLE OF CONTENTS
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PAGE PAGE
---- ----
SUMMARY.............................. 1 SELECTED FINANCIAL DATA.............. 27
Overview of Vlasic Businesses....... 1
Questions and Answers about the MANAGEMENT'S DISCUSSION AND
Spin-Off and Vlasic................ 2 ANALYSIS OF RESULTS OF OPERATIONS
What We Have Already Accomplished to AND FINANCIAL CONDITION............. 28
Prepare for the Spin-Off........... 5
Who Can Help Answer Your Questions.. 6 FINANCING............................ 41
CAUTIONARY STATEMENT................. 7 DIVIDEND POLICY...................... 41
THE SPIN-OFF......................... 7 MANAGEMENT........................... 42
Reasons for the Spin-Off............ 7 Directors........................... 42
Manner of Effecting the Spin-Off.... 8 Committees of the Vlasic Board...... 42
Results of the Spin-Off............. 9 Directors' Compensation............. 44
Tax Consequences of the Spin-Off.... 9 Executive Officers and Senior
Listing and Trading of Vlasic Common Operating Management............... 44
Stock.............................. 10 Summary of Executive
Conditions; Termination............. 11 Compensation....................... 47
Treatment of Outstanding Campbell
CERTAIN SPECIAL CONSIDERATIONS....... 11 Stock Awards....................... 49
No Operating History as an Vlasic Incentive Plans.............. 50
Independent Company................ 11 Pension and Other Plans............. 51
Potential Federal Income Tax
Liabilities........................ 11 SECURITY OWNERSHIP BY CERTAIN
Absence of Funding; Increased BENEFICIAL OWNERS, DIRECTORS AND
Leverage........................... 12 EXECUTIVE OFFICERS OF VLASIC....... 53
Absence of Dividends................ 13
No Prior Market for Vlasic Common ARRANGEMENTS BETWEEN CAMPBELL AND
Stock; Shares Available for Future VLASIC RELATING TO THE SPIN-OFF.... 55
Sale............................... 13 Distribution Agreement.............. 55
Possible Anti-Takeover Effects...... 13 Benefits Sharing Agreement.......... 56
Competition......................... 13 Tax Sharing and Indemnification
Risks Relating to International Agreement.......................... 57
Operations and Currency Trademark License Agreements........ 58
Fluctuations....................... 14 Technology Sharing Agreement........ 58
License of Trademarks............... 14 Transition Services Agreement....... 59
Availability and Prices of Supply Agreements; Co-Pack
Ingredients........................ 14 Agreements......................... 59
Costs of Governmental
Regulation/Environmental Matters... 14 DESCRIPTION OF CAPITAL STOCK......... 59
Fluctuations in Agricultural Authorized Capital Stock............ 59
Prices............................. 14 Vlasic Common Stock................. 59
Vlasic Preferred Stock.............. 60
BUSINESS............................. 15 Certain Other Provisions............ 60
Business Strategy................... 16
Products and Markets................ 16 LIABILITY AND INDEMNIFICATION OF
Marketing, Sales and Distribution... 18 OFFICERS AND DIRECTORS OF VLASIC.... 61
Competition......................... 18 Limitation of Liability............. 61
Ingredients......................... 19 Indemnification of Officers and
Seasonality......................... 19 Directors.......................... 61
Production and Facilities........... 19
Trademarks and Patents.............. 20 AVAILABLE INFORMATION................ 62
Research and Development............ 20
Governmental Regulation............. 21 INDEX TO DEFINED TERMS............... 63
Environmental Matters............... 21
Legal Proceedings................... 21 INDEX TO FINANCIAL STATEMENTS........ F-1
Employees........................... 21
PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION............... 22
ii
SUMMARY
This summary highlights selected information from this document, but does not
contain all details concerning the spin-off or Vlasic, including information
that may be important to you. To better understand the spin-off and Vlasic, you
should carefully review this entire document.
References to "we," "us," "our" or "Vlasic" mean Vlasic Foods International
Inc. and its subsidiaries and divisions. References to "Campbell" mean Campbell
Soup Company and its subsidiaries and divisions. References to "fiscal years"
are to the fiscal years of Vlasic and Campbel1 which end on the Sunday nearest
to July 31 in the calendar year. Certain market data used in this document
reflect management estimates and independently-published market-share reports;
while we believe such estimates and reports are reliable, no assurance can be
given that they are accurate in all material respects.
OVERVIEW OF VLASIC BUSINESSES
After the spin-off, Vlasic will be an independent manufacturer and marketer
of high quality, branded convenience food products in the frozen food, grocery
product and agricultural product segments. Campbell will retain its core global
businesses: soup and sauces, biscuits and confectionery, and foodservice.
After the spin-off, Vlasic will own:
Frozen Foods
. Swanson frozen foods in the U.S. and Canada--including Swanson frozen
dinners and pot pies, the leading national brand in the U.S.
. Freshbake frozen foods in the U.K.--a leading brand for retail customers
in that country.
Grocery Products
. Vlasic retail and foodservice pickles and condiments in the U.S.--the
leading national brand in the retail category for pickles in the U.S.
. Open Pit barbecue sauce in the U.S.--the leading brand in the Midwest
U.S., with three of its varieties in the top ten in that regional market.
. SonA and Rowats pickles, canned beans and vegetables in the U.K.--which
management believes are leading brands for both retail and foodservice
customers in that country.
. Kattus specialty foods in Germany--which management believes is a leading
specialty foods distributor in that country.
. Swift canned meat pates and other grocery products in Argentina--where
Swift is the leading brand of canned meat pates.
Agricultural Products
. The largest fresh mushroom operation in the U.S.
. One of Argentina's largest exporters of processed beef products.
On a pro forma basis after giving effect to the spin-off, Vlasic would have
had net sales of approximately $1.5 billion in fiscal 1997 and $723.2 million
in the first six months of fiscal 1998, and net earnings of approximately $50.6
million in fiscal 1997 and $21.2 million in the first six months of fiscal
1998.
The Campbell Board believes that the spin-off is in the best interest of
shareowners.
1
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND VLASIC
Why is Campbell spinning . The spin-off should allow the management of
off Vlasic? each company to focus on the strategic
objectives of each company.
. Vlasic management will be able to consider
acquisitions that previously have not met
Campbell's acquisition criteria.
. The spin-off will enable each company to
develop an operating structure and
corporate culture appropriate to it without
being encumbered by approaches and
philosophies attributable to the different
businesses operated by the other company.
. Campbell and Vlasic expect that the spin-
off will produce significant cost savings
for both companies as they streamline
operations and rationalize administrative
and support functions.
. Although neither Campbell nor Vlasic has
recently experienced any notable
difficulties attracting or retaining key
employees, the spin-off will enhance each
company's ability to attract and retain the
best management personnel available for its
portfolio of businesses.
. Vlasic and its shareowners should benefit
from the positive effects of a direct link
between the incentive compensation
arrangements for key employees and the
performance of Vlasic common stock.
. The spin-off will enable each company to
devote capital to the most effective use
for that company, and the Vlasic businesses
will not have to compete for resources
within the Campbell group.
. The spin-off will give Vlasic direct access
to debt and equity capital markets to
finance growth opportunities.
. Following the spin-off, investors will be
able to assess the individual strengths of
each company and more accurately evaluate
its performance compared to companies in
the same or similar businesses.
What do I have to do to Nothing. No shareowner vote or other action
participate in the spin- is required. You do not need to surrender any
off? shares of Campbell stock to receive shares of
Vlasic common stock in the spin-off.
What will I receive in the Campbell will distribute one share of Vlasic
spin-off? common stock for every ten shares of Campbell
stock owned as of March 9, 1998. For example,
if you own 100 shares of Campbell stock, you
will receive ten shares of Vlasic common
stock. You will continue to own your Campbell
stock.
2
How will Campbell If you own Campbell stock on the record date,
distribute Vlasic common the distribution agent will automatically
stock to me? credit your shares of Vlasic common stock to
a book-entry account established to hold your
Vlasic common stock on March 30, 1998 and
will mail you a statement of your Vlasic
common stock ownership. Following the spin-
off you may retain your shares of Vlasic
common stock in your book-entry account, sell
them, transfer them to a brokerage or other
account, or request a physical certificate
for whole shares.
You will not receive new Campbell stock
certificates.
What is the record date? The record date is March 9, 1998.
What if I hold my shares of If you hold your shares of Campbell stock
Campbell stock through my through your stockbroker, bank or other
stockbroker, bank or other nominee, you are probably not a shareowner of
nominee? record and your receipt of Vlasic common
stock depends on your arrangements with the
nominee that holds your shares of Campbell
stock for you. We anticipate that
stockbrokers and banks generally will credit
their customers' accounts with Vlasic common
stock on or about March 30, 1998, but you
should check with your stockbroker, bank or
other nominee. Following the spin-off you may
instruct your stockbroker, bank or other
nominee to transfer your shares of Vlasic
common stock into your own name to be held in
book-entry form through the direct
registration system operated by the
distribution agent.
What about fractional If you own fewer than ten shares of Campbell
shares? stock, you will receive cash instead of your
fractional share of Vlasic common stock. If
you own ten or more shares of Campbell stock,
your book-entry account will be credited with
all whole and fractional shares of Vlasic
common stock you should receive unless you
request physical certificates (in which case
you will receive physical certificates for
all whole shares of Vlasic common stock you
should receive and cash instead of any
fractional share interest). Fractional shares
to be cashed out will be aggregated and sold
by the distribution agent, which will
distribute to you your portion of the cash
proceeds promptly after the spin-off. No
interest will be paid on any cash distributed
in lieu of fractional shares.
What is Vlasic's dividend Vlasic currently anticipates that no cash
policy? dividends will be paid on Vlasic common stock
in the foreseeable future in order to
conserve cash for the repayment of debt,
future acquisitions and capital expenditures.
We expect that Vlasic's Board will
periodically re-evaluate this dividend policy
taking into account the company's operating
results, capital needs and other factors.
3
How will Vlasic common We have applied to list Vlasic common stock
stock trade? on the New York Stock Exchange under the
symbol "VL" and expect that regular trading
will begin on March 31, 1998. A temporary
form of interim trading called "when-issued
trading" may occur for Vlasic common stock on
or before March 9, 1998 and continue through
March 30, 1998. A when-issued listing can be
identified by the "wi" letters next to Vlasic
common stock on the New York Stock Exchange.
If when-issued trading develops, you may buy
Vlasic common stock in advance of the March
30, 1998 spin-off. You may also sell Vlasic
common stock in advance of such date on a
when-issued basis. When-issued trading occurs
in order to develop an orderly market and
trading price for Vlasic common stock after
the spin-off. See pages 10 and 11.
Campbell stock will continue to trade on a
regular basis and may also trade on a when-
issued basis, reflecting an assumed post-
spin-off value for Campbell stock. Campbell
stock when-issued trading, if available,
could last from on or before March 9, 1998
through March 30, 1998. If this occurs, an
additional listing for Campbell stock,
followed by the "wi" letters, will appear on
the New York Stock Exchange.
Is the spin-off taxable for No. The Internal Revenue Service has ruled
U.S. tax purposes? that the spin-off will be tax-free for U.S.
tax purposes, except for taxes on any cash
received instead of a fractional share. To
review tax consequences in detail, see pages
9 and 10.
What are the risks involved The separation of Vlasic from Campbell
in owning Vlasic common presents certain risks. For example, Vlasic
stock? has no prior history of operating as an
independent company. Certain other risks are
associated with owning Vlasic common stock
due to the nature of its business and the
markets in which it competes. You are
encouraged to carefully consider these risks,
which are described in greater detail on
pages 11 to 14.
Will Campbell and Vlasic be Campbell will not own any Vlasic common stock
related in any way after after the spin-off. No director or executive
the spin-off? officer of Campbell will serve on the Vlasic
Board of Directors or as an executive officer
of Vlasic, and no director or executive
officer of Vlasic will serve on the Campbell
Board of Directors or as an executive officer
of Campbell. Campbell will, however, enter
into agreements with Vlasic to allocate
responsibility for liabilities (including
tax, employee, product and other contingent
liabilities associated with their respective
businesses or otherwise to be assumed by
Vlasic or Campbell), to separate their
businesses, to license rights to use certain
intellectual property, to provide for the
treatment of pension and other employee
benefit obligations and to provide for the
sharing of certain physical facilities,
services or products on a
4
transitional basis. These agreements are
described in greater detail on pages 55 to
59.
WHAT WE HAVE ALREADY ACCOMPLISHED TO PREPARE FOR THE SPIN-OFF
Board Appointments The Campbell Board has appointed Donald J.
Keller as Chairman of the Board of Vlasic.
Mr. Keller is the Chairman of B. Manischewitz
Company, the former Chairman of Prestone
Products Corporation, a director of Dan River
Inc., Colorado Prime Corp. and Air Express
International and a former director of Sysco
Corp., General Foods Corp. and WestPoint
Pepperell Inc. The Campbell Board has also
appointed two additional directors to the
Vlasic Board. See page 42.
Senior Management The Campbell Board has enthusiastically
Appointments appointed Robert F. Bernstock as President
and Chief Executive Officer of Vlasic. Mr.
Bernstock has been a senior executive at
Campbell for more than seven years, most
recently serving as President of Campbell's
$3.5 billion U.S. Grocery Division. Mr.
Bernstock will be supported by a management
group consisting principally of senior
executives previously responsible for the
Vlasic businesses. See pages 44 to 46.
New Credit Facility On a historical basis, Vlasic was not
allocated any amount of Campbell's debt. A
five-year, $750 million unsecured revolving
credit facility has recently been established
by Campbell, and $500 million of borrowings
under this credit facility will be used by
Campbell prior to the spin-off to repay
certain of Campbell's debt obligations.
Vlasic will assume the repayment obligations
for Campbell's $500 million of borrowings in
connection with the spin-off. It is not
possible to determine what portion of the
debt obligations to be repaid by Campbell
with borrowings under this credit facility
was historically associated with the present
operations of Vlasic. Following its
assumption of Campbell's repayment
obligations under this credit facility,
Vlasic will have $250 million of borrowing
availability thereunder, approximately $58.7
million of which is expected to be used by
Vlasic for working capital purposes shortly
after the spin-off. Vlasic expects to use the
rest of the available credit for general
corporate purposes. See page 41.
U.S. Tax Ruling Campbell received a tax ruling from the IRS
stating that you will not recognize any U.S.
federal tax as a result of receiving Vlasic
common stock in the spin-off. If you receive
cash for a fractional share, you may have to
pay some federal tax if any gain is
recognized. The tax ruling also addresses how
to allocate your tax basis in the stock. See
pages 9 and 10.
5
WHO CAN HELP ANSWER YOUR QUESTIONS
Shareowners of Campbell with questions relating to the spin-off should
contact:
Campbell Investor Relations
Campbell Soup Company
Campbell Place
Camden, NJ 08103-1799
(609) 342-6428
The distribution agent for Vlasic common stock in the spin-off and the
transfer agent and registrar for Vlasic common stock after the spin-off is:
First Chicago Trust Company of New York
P.O. Box 2569
Suite 4660-CSC
Jersey City, NJ 07303-2569
(800) 446-2617
6
CAUTIONARY STATEMENT
We caution you that this document contains disclosures which are forward-
looking statements. All statements regarding Vlasic's or Campbell's expected
future financial position, results of operations, cash flows, dividends,
financing plans, business strategy, budgets, projected costs or cost savings,
capital expenditures, competitive positions, growth opportunities or existing
products, benefits from new technology, plans and objectives of management for
future operations and markets for stock are forward-looking statements. In
addition, forward-looking statements include statements in which we use words
such as "expect," "believe," "anticipate," "intend," or similar expressions.
These statements are included under the headings "Summary," "The Spin-Off--
Reasons for the Spin-Off," "Management's Discussion and Analysis of Results of
Operations and Financial Condition," "Business" and other headings in this
document. Although we believe the expectations reflected in such forward-
looking statements are based on reasonable assumptions, no assurance can be
given that such expectations will prove to have been correct, and actual
results may differ materially from those reflected in the forward-looking
statements.
Factors that could cause the actual results of Vlasic to differ from the
expectations reflected in the forward-looking statements in this document
include those set forth in "Certain Special Considerations" as well as those
risks relating to conducting operations in a competitive environment;
acquisition activities (including uncertainties associated with the
availability of financing to complete acquisitions); leverage and debt service
requirements (including sensitivity to fluctuations in interest rates);
general business and economic conditions; and the timing of restructuring and
other cost savings initiatives following the spin-off. Factors that could
cause the actual results of Campbell to differ from the expectations reflected
in the forward-looking statements in this document include uncertainties
associated with industry performance, general business and economic
conditions, raw material and product pricing levels, the timing of
restructuring and other cost savings initiatives, and the other factors
discussed in Campbell's filings under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and its 1997 Annual Report.
Neither Vlasic nor Campbell has any intention of or obligation to update
forward-looking statements, even if new information, future events or other
circumstances make them incorrect or misleading.
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
The Campbell Board has determined that the distribution (the "Spin-Off") of
100% of the outstanding common stock, no par value, of Vlasic ("Vlasic Common
Stock") to owners of the capital stock, par value $.0375 per share, of
Campbell ("Campbell Stock") will enable the management of each of Campbell and
Vlasic to focus on the operational strategies appropriate for its businesses
so that each can accelerate growth, decrease overall costs and maximize wealth
for its shareowners. The Campbell Board believes that the Spin-Off is in the
best interest of shareowners.
Campbell believes that the Spin-Off will result in the following specific
benefits for the retained and distributed businesses:
. Appropriate Management Focus. Currently, Campbell's senior management
spends a disproportionate amount of time addressing issues relating to
the businesses (the "Vlasic Businesses") described under the heading
"Summary--Overview of Vlasic Businesses." As a consequence, Campbell
management is distracted from devoting full attention to its core
businesses, which have higher operating profit margins and significant
potential for worldwide growth. The Spin-Off should allow those core
businesses to achieve a higher rate of growth as the efforts of
Campbell's management are focused exclusively on
7
these operations. At the same time, the management of Vlasic will be able
to devote its energies to the development of the Vlasic Businesses and the
pursuit of Vlasic's strategic objectives, including acquisitions that
previously have not met Campbell's acquisition criteria.
. Operating Structure and Cost Savings. The Spin-Off will enable each
company to develop an operating structure and corporate culture
appropriate to it without being encumbered by policies, approaches and
philosophies attributable to the different businesses operated by the
other company. Campbell and Vlasic expect that the Spin-Off will produce
significant cost savings for both companies. For Campbell, the cost
savings are expected to result from a reduction of selling, general and
administrative expenses presently incurred in managing and coordinating
the businesses of Campbell and Vlasic. For Vlasic, the cost savings are
expected to result from operating and selling, general and administrative
changes which will be facilitated by the Spin-Off and which are necessary
to achieve a leaner and more aggressive organization as Vlasic shifts to
a more suitable entrepreneurial operating model with lower costs within
its individual businesses.
. Key Personnel. Although neither Campbell nor Vlasic has recently
experienced any notable difficulties in attracting or retaining key
employees, the Spin-Off will enhance each company's ability to attract
and retain the best management personnel available for its portfolio of
businesses. Following the Spin-Off, Vlasic will be able to more closely
tie compensation incentives for its key employees to the performance of
Vlasic Common Stock, and the value of Vlasic Common Stock will more
closely correspond to the performance of the employees of Vlasic. Vlasic
and its shareowners should benefit from the positive effects of a direct
link between the incentive compensation arrangements for key employees
and the performance of Vlasic Common Stock.
. Access to Capital and Resources. The Spin-Off will enable each company to
devote capital to the most effective use for that company, and the Vlasic
Businesses will not have to compete for resources within the Campbell
group. The Spin-Off will give Vlasic direct access to debt and equity
capital markets to finance expansion and growth opportunities.
. Profile with Investors. Following the Spin-Off, investors will be able to
assess the individual strengths of each company and more accurately
evaluate its performance compared to companies in the same or similar
businesses. Further, investors will be able to more easily determine
whether each company has a management focus and approach to operations
and products suitable for achieving its strategic objectives.
MANNER OF EFFECTING THE SPIN-OFF
Campbell will effect the Spin-Off by distributing all issued and outstanding
shares of Vlasic Common Stock to holders of record of Campbell Stock as of the
close of business on March 9, 1998. The Spin-Off will be made on the basis of
one share of Vlasic Common Stock for every ten shares of Campbell Stock (the
"Distribution Ratio") held as of the close of business on March 9, 1998.
Since Vlasic will use a direct registration system to implement the Spin-
Off, First Chicago Trust Company of New York, as distribution agent (the
"Distribution Agent"), will credit the shares of Vlasic Common Stock
distributed on the date of the Spin-Off (the "Distribution Date"), including
fractional interests for those shareowners who receive at least one whole
share of Vlasic Common Stock, to book-entry accounts established for all
Vlasic shareowners and will mail an account statement to each shareowner
stating the number of shares of Vlasic Common Stock, including such fractional
interests, received by such shareowner in the Spin-Off. Following the Spin-
Off, shareowners may request transfer to a brokerage or other account or
physical stock certificates for their shares of Vlasic Common Stock.
8
If a shareowner owns fewer than ten shares of Campbell Stock and therefore is
entitled to receive less than one whole share of Vlasic Common Stock, such
shareowner will receive cash instead of a fractional share of Vlasic Common
Stock. If a shareowner requests physical certificates for shares of Vlasic
Common Stock, such shareowner will receive physical certificates for all whole
shares of Vlasic Common Stock and cash instead of any fractional share
interest. The Distribution Agent will, promptly after the Distribution Date,
aggregate all such fractional share interests in Vlasic Common Stock with those
of other similarly situated shareowners and sell such fractional share
interests in Vlasic Common Stock at then-prevailing prices. The Distribution
Agent will distribute the cash proceeds to shareowners entitled to such
proceeds pro rata based upon their fractional interests in Vlasic Common Stock.
No interest will be paid on any cash distributed in lieu of fractional shares.
No owner of Campbell Stock will be required to pay any cash or other
consideration for shares of Vlasic Common Stock received in the Spin-Off or to
surrender or exchange any shares of Campbell Stock to receive shares of Vlasic
Common Stock. The actual total number of shares of Vlasic Common Stock to be
distributed will depend on the number of shares of Campbell Stock outstanding
on March 9, 1998. The shares of Vlasic Common Stock distributed in the Spin-Off
will be fully paid and nonassessable. The shares of Vlasic Common Stock will
not be entitled to preemptive rights. See "Description of Capital Stock."
RESULTS OF THE SPIN-OFF
After the Spin-Off, Vlasic will be a separate public company. The number and
identity of shareowners of Vlasic immediately after the Spin-Off will be the
same as the number and identity of shareowners of Campbell on March 9, 1998.
Immediately after the Spin-Off, Vlasic expects to have approximately 35,400
holders of record of Vlasic Common Stock and approximately 45,413,000 shares of
Vlasic Common Stock outstanding, based on the number of record shareowners and
issued and outstanding shares of Campbell Stock as of the close of business on
February 9, 1998 and the Distribution Ratio. The actual number of shares of
Vlasic Common Stock to be distributed will be determined as of March 9, 1998
and could be affected by, among other things, the exercise of Campbell stock
options, which as of February 9, 1998 could have been exercised for
approximately 13,000,000 shares of Campbell Stock. The Spin-Off will not affect
the number of outstanding shares of Campbell Stock or the rights of Campbell
shareowners.
TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary description of the material U.S. and Canadian tax
consequences associated with the Spin-Off, and is not intended to address every
shareowner's tax consequences. In particular, this summary description does not
cover state, local, municipal, provincial or non-U.S. (other than Canadian) tax
consequences. Shareowners are strongly encouraged to consult their own tax
advisors concerning the tax consequences of the Spin-Off applicable to them. In
addition, shareowners residing outside of the U.S. or Canada are encouraged to
seek tax advice regarding tax implications of the Spin-Off.
U.S. Tax Consequences to Campbell Shareowners. Campbell has received a ruling
(the "Tax Ruling") from the Internal Revenue Service (the "IRS"). The Tax
Ruling was issued based upon the accuracy of factual representations made by
Campbell and Vlasic and states, among other things, that the Spin-Off will
qualify as a tax-free spin-off under Section 355 of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), for federal income tax purposes. No gain
or loss will be recognized by Campbell shareowners as a result of their receipt
of Vlasic Common Stock in the Spin-Off except for any cash received in lieu of
a fractional share received by a shareowner owning less than one share of
Vlasic Common Stock or requesting physical certificates for his or her Vlasic
Common Stock. See "--Manner of Effecting the Spin-Off."
In connection with the Spin-Off, a shareowner's tax basis in Campbell Stock
will be apportioned between Campbell Stock and Vlasic Common Stock received in
the Spin-Off in accordance with the relative fair market
9
values of such shares at the time of the Spin-Off. In April 1998, Campbell will
send a letter to shareowners that will explain the way to allocate tax basis
between Campbell Stock and Vlasic Common Stock distributed in the Spin-Off. The
holding period of the Vlasic Common Stock received in the Spin-Off will include
the holding period of the Campbell Stock with respect to which the Vlasic
Common Stock will be distributed, provided the Campbell Stock is held as a
capital asset on March 30, 1998.
Canadian Tax Consequences to Campbell Shareowners. The Spin-Off will be
considered to be a dividend for Canadian income tax purposes. The Income Tax
Act requires a Canadian resident shareowner to include in income the amount of
a dividend received. The amount of the dividend will be the fair market value
of the shares of Vlasic received on the date those shares are received by the
shareowner. This dividend will be subject to the rules in the Income Tax Act
applicable to dividends received from a foreign corporation and will not be
eligible for the gross-up and credit rules applicable to a dividend from a
taxable Canadian corporation. The Vlasic Common Stock received through the
Spin-Off will have a cost to a Canadian shareowner equal to the fair market
value of the shares on the date those shares are received. The cost and
adjusted cost basis of a Canadian shareowner's Campbell shares will not change
as a consequence of the Spin-Off.
LISTING AND TRADING OF VLASIC COMMON STOCK
There is not currently a public market for the Vlasic Common Stock. We have
applied to list the Vlasic Common Stock on the New York Stock Exchange, and we
expect that a when-issued trading market for Vlasic Common Stock will develop
on or before March 9, 1998.
The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the Vlasic
Common Stock may trade on a when-issued basis cannot be predicted. Until the
Vlasic Common Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly and
may be lower or higher than the price that would be expected for a fully-
distributed issue.
The prices at which the Vlasic Common Stock will trade following the Spin-Off
will be determined by the marketplace and may be influenced by many factors,
including the depth and liquidity of the market for Vlasic Common Stock,
investor perceptions of Vlasic and its businesses, Vlasic's results, and
general economic and market conditions.
Prior to the Spin-Off, Campbell Stock will continue to trade on a regular
basis and may also trade on a when-issued basis, reflecting an assumed post-
Spin-Off value for Campbell Stock. Campbell Stock when-issued trading, if
available, could last from on or before March 9, 1998 through March 30, 1998.
If Campbell Stock when-issued trading is not available, the New York Stock
Exchange will require that shares of Campbell Stock that are sold or purchased
during the period beginning on March 9, 1998 and ending on March 30, 1998 be
accompanied by due bills representing the Vlasic Common Stock distributable
with respect to such shares and that during such period neither the Campbell
Stock nor the due bills may be purchased or sold separately.
The Transfer Agent and Registrar for the Vlasic Common Stock will be First
Chicago Trust Company of New York, P.O. Box 2569, Suite 4660-CSC, Jersey City,
New Jersey 07303-2569. As of February 9, 1998, there were approximately 35,400
record holders of Campbell Stock, which number approximates the number of
prospective record holders of Vlasic Common Stock immediately after the Spin-
Off.
Vlasic Common Stock distributed in the Spin-Off generally will be freely
transferable under the Securities Act of 1933, as amended (the "Securities
Act"), except for securities received by persons who may be deemed to be
affiliates of Vlasic pursuant to Rule 405 under the Securities Act. Persons who
may be deemed to be affiliates of Vlasic after the Spin-Off generally include
individuals or entities that control, are controlled by, or
10
are under common control with Vlasic, including directors of Vlasic. Persons
who are affiliates of Vlasic will be permitted to sell their shares of Vlasic
Common Stock received in the Spin-Off pursuant to Rule 144 under the Securities
Act but without regard to its holding period requirements.
CONDITIONS; TERMINATION
It is expected that the Spin-Off will occur on March 30, 1998, provided that
certain conditions set forth in the Separation and Distribution Agreement
Campbell and Vlasic will enter into prior to the Spin-Off (the "Distribution
Agreement") shall have been satisfied or waived by the Campbell Board. These
include, among other customary conditions, the following:
. The Tax Ruling shall continue to be in effect.
. All material regulatory approvals necessary to consummate the Spin-Off
shall have been received and be in full force and effect.
. The Vlasic Common Stock shall have been accepted for listing on the New
York Stock Exchange, subject to official notice of issuance.
. The Vlasic Board of Directors, as named under "Management--Directors,"
shall have been elected, and Vlasic's Amended and Restated Certificate of
Incorporation and Bylaws (the "Vlasic Charter" and the "Vlasic Bylaws,"
respectively) shall be in effect.
Satisfaction of such conditions will not create any obligation on the part of
Campbell, Vlasic or any other person to effect or seek to effect the Spin-Off
or alter the consequences of any termination of the Distribution Agreement from
those set forth in the Distribution Agreement. See "Arrangements Between
Campbell and Vlasic Relating to the Spin-Off--Distribution Agreement."
CERTAIN SPECIAL CONSIDERATIONS
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
We do not have an operating history as an independent company. Our businesses
have historically relied on Campbell for various financial, managerial and
administrative services and have been able to benefit from the earnings, assets
and cash flows of Campbell's other businesses. Campbell will not be obligated
to provide assistance or services to Vlasic after the Spin-Off, except as
described in the Distribution Agreement, the Transition Services Agreement and
the other agreements entered into by the companies in connection with the Spin-
Off. See "Arrangements Between Campbell and Vlasic Relating to the Spin-Off."
Following the Spin-Off, we will incur the costs and expenses associated with
the management of a public company and will incur interest expense
significantly in excess of that incurred historically. While we have been
profitable as part of Campbell, there can be no assurance that, as a stand-
alone company, our future profits will be comparable to historical combined
results before the Spin-Off. The Spin-Off may result in some temporary
dislocation to the business operations, as well as to the organization and
personnel structure, of Vlasic.
POTENTIAL FEDERAL INCOME TAX LIABILITIES
The IRS has issued a Tax Ruling to the effect that, among other things, the
Spin-Off would be tax free to Campbell and Campbell shareowners under Section
355 of the Code except to the extent that cash is received in lieu of
fractional shares. The Tax Ruling, while generally binding upon the IRS, is
based upon certain factual representations and assumptions. If such factual
representations and assumptions were incomplete or untrue in a
11
material respect, or the facts upon which the Tax Ruling is based are
materially different from the facts at the time of the Spin-Off, the IRS could
modify or revoke the Tax Ruling retroactively.
If the Spin-Off failed to qualify under Section 355 of the Code, a corporate
tax would be payable by the consolidated group of which Campbell is the common
parent based upon the difference between the aggregate fair market value of the
Vlasic Businesses and the adjusted tax bases of such businesses to Campbell
prior to the Spin-Off. The corporate level tax would be payable by Campbell. We
have agreed to indemnify Campbell for this and other tax liabilities if they
result from certain actions taken by, or the acquisition of, Vlasic. See
"Arrangements Between Campbell and Vlasic Relating to the Spin-Off--Tax Sharing
and Indemnification Agreement." In addition, under the Code's consolidated
return regulations, each member of Campbell's consolidated group (including
Vlasic) is severally liable for these tax liabilities. If Vlasic is required to
indemnify Campbell for these liabilities or otherwise is found liable to the
IRS for such liabilities, the resulting obligation could exceed the net worth
of Vlasic.
If the Spin-Off were not to qualify under Section 355 of the Code, then each
owner of Campbell Stock who receives shares of Vlasic Common Stock in the Spin-
Off would be treated as if such shareowner received a taxable distribution in
an amount equal to the fair market value of Vlasic Common Stock received, which
would result in tax treatment as a dividend.
ABSENCE OF FUNDING; INCREASED LEVERAGE
In the past, our working capital needs have been satisfied under Campbell's
corporate-wide cash management policies. Following the Spin-Off, however,
Campbell will no longer provide funds to finance our operations. We believe
that our cash flow from operations, together with availability under the credit
facility referred to below, will be sufficient to satisfy our future working
capital, capital expenditure and debt service requirements. However, there can
be no assurance that this will prove to be the case.
On a historical basis, Vlasic was not allocated any amount of Campbell's
debt. A five-year, $750 million unsecured revolving credit facility has
recently been established by Campbell, and $500 million of borrowings under
this credit facility will be used by Campbell prior to the Spin-Off to repay
certain of Campbell's debt obligations. Vlasic will assume the repayment
obligations for Campbell's $500 million of borrowings in connection with the
Spin-Off. It is not possible to determine what portion of the debt obligations
to be repaid by Campbell with borrowings under this credit facility was
historically associated with the present operations of Vlasic. Following its
assumption of Campbell's repayment obligations under this credit facility,
Vlasic will have $250 million of borrowing availability thereunder,
approximately $58.7 million of which is expected to be used by Vlasic for
working capital purposes shortly after the Spin-Off. Vlasic expects to use the
rest of the available credit for general corporate purposes. See "Financing."
The $500 million of indebtedness to be incurred by Vlasic in connection with
the Spin-Off, the $58.7 million of debt that Vlasic will incur under this
credit facility shortly after the Spin-Off and the associated interest expense
are not reflected in Vlasic's historical financial statements. Assuming that
the transactions contemplated by the Spin-Off had been consummated on February
1, 1998, Vlasic's pro forma debt at February 1, 1998 would have been
approximately $572.6 million (consisting of $502 million of long-term debt, the
$58.7 million payable to Campbell from subsidiaries of Vlasic and $11.9 million
of notes payable). Vlasic's pro forma interest expense would have been
approximately $40.7 million in fiscal 1997 and $20.5 million in the first six
months of fiscal 1998 had the Spin-Off been consummated as of the beginning of
fiscal 1997. See "Pro Forma Condensed Combined Financial Information."
Vlasic's increased debt will have important implications. We will need to
generate a minimum level of cash flow from operations in order to meet required
repayments of interest and principal under the credit
12
facility. In addition, the credit facility will impose certain restrictions on
the conduct of the Vlasic Businesses following the Spin-Off.
ABSENCE OF DIVIDENDS
Although Campbell has historically paid dividends to its shareowners on a
regular basis, we will not be adopting such a policy. We currently anticipate
that no cash dividends will be paid on the Vlasic Common Stock in the
foreseeable future in order to conserve cash for the repayment of debt, future
acquisitions and capital expenditures. It is expected that Vlasic's Board will
periodically re-evaluate this dividend policy taking into account the company's
operating results, capital needs and other factors.
NO PRIOR MARKET FOR VLASIC COMMON STOCK; SHARES AVAILABLE FOR FUTURE SALE
There has been no prior trading market for Vlasic Common Stock, and it is
impossible to predict, estimate or give assurances about what its trading price
will be after the Spin-Off. Until the Vlasic Common Stock is fully distributed
and an orderly market develops, the trading prices for Vlasic Common Stock may
fluctuate significantly. Prices for the Vlasic Common Stock will be determined
in the trading markets and may be influenced by many factors, including, among
others, the depth and liquidity of the market for Vlasic Common Stock, investor
perceptions of Vlasic and its businesses, Vlasic's results, and general
economic and market conditions.
The shares of Vlasic Common Stock distributed to Campbell shareowners in the
Spin-Off will be freely transferable under the Securities Act, except for
securities received by persons who may be deemed affiliates of Vlasic. See "The
Spin-Off--Listing and Trading of Vlasic Common Stock" and "Security Ownership
By Certain Beneficial Owners, Directors and Executive Officers of Vlasic." The
sale of a substantial number of shares of Vlasic Common Stock after the Spin-
Off could adversely affect the market price of Vlasic Common Stock.
POSSIBLE ANTI-TAKEOVER EFFECTS
We have agreed to certain restrictions on our future actions to assure that
the Spin-Off will be tax-free, including restrictions with respect to an
acquisition of shares of Vlasic Common Stock. If we fail to abide by such
restrictions and, as a result, the Spin-Off fails to qualify as a tax-free
reorganization, then Vlasic will be obligated to indemnify Campbell for any
resulting tax liability. The tax liability that potentially could arise from an
acquisition of shares of Vlasic Common Stock, together with our related
indemnification obligations, could have the effect of delaying, deferring or
preventing a change of control of Vlasic. See "Arrangements Between Campbell
and Vlasic Related to the Spin-Off--Tax Sharing and Indemnification Agreement."
Under the Vlasic charter, certain actions, including mergers and the sale of
all or substantially all of Vlasic's assets, require the affirmative vote of
two-thirds of the outstanding shares of Vlasic Common Stock. See "Description
of Capital Stock--Certain Other Provisions." In addition, the substantial
ownership interest of certain descendants of Dr. John T. Dorrance, a founder of
Campbell, could also have the effect of delaying or preventing a change in
control of Vlasic if such shareowners did not support the change in control.
COMPETITION
The food industry is highly competitive. We compete with a significant number
of companies of varying sizes, including divisions or subsidiaries of larger
companies in each of our product lines. Many of these companies have multiple
product lines and well-known brand names, and have significant financial
resources available to them. Vlasic's ability to grow its businesses could be
impacted by strong competitive response to its efforts to leverage its brand
power with new products, product innovation and new advertising.
13
In addition, from time to time we experience price pressure in certain
markets as a result of competitors' pricing practices. There can be no
assurance that we will be able to compete successfully as an entity independent
from Campbell or that actions taken by other companies will not have a material
adverse effect on our businesses, financial condition or results of operations.
See "Business--Competition."
RISKS RELATING TO INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS
Our operations in Canada, the U.K., Germany and Argentina accounted for
approximately 35% of fiscal 1997 net sales. We are subject to risks associated
with operating in foreign countries, primarily risks of fluctuating currency
exchange rates. Other risks may include possible limitations on conversion of
foreign currencies into dollars or payments by foreign subsidiaries, imposition
of withholding or other taxes, other restrictions by foreign governments and
hyperinflation. There can be no assurance that these risks will not have a
material adverse effect on our businesses, financial condition or results of
operations.
LICENSE OF TRADEMARKS
We will license the Swanson trademark and related logos, symbols and marks
from Campbell for use on frozen food products on a perpetual, royalty-free
basis after the Spin-Off. Campbell will continue to own these rights and use
them in its core business. Because Campbell will continue to use the rights
with respect to its products, adverse developments with respect to Campbell or
those products could adversely impact the value of the rights to Vlasic. See
"Arrangements Between Campbell and Vlasic Relating to the Spin-Off--Trademark
License Agreements" for a description of the terms and conditions of this
arrangement.
AVAILABILITY AND PRICES OF INGREDIENTS
We purchase agricultural products, other raw materials and ingredients from
growers, commodity processors and other food companies. While all such
materials are available from numerous independent suppliers, raw materials are
subject to fluctuations in price attributable to a number of factors, including
changes in crop size, cattle cycles, government-sponsored agricultural programs
and weather conditions during the growing and harvesting seasons. Recent
adverse weather conditions in Argentina, coupled with a rebuilding cattle
cycle, have resulted in a decrease in the availability of beef used in our
agricultural products segment and higher cattle costs. Although we enter into
advance commodity purchase agreements from time to time, increases in raw
material costs could have a material adverse effect on our businesses,
financial condition or results of operations. See "Business--Ingredients."
COSTS OF GOVERNMENTAL REGULATION/ENVIRONMENTAL MATTERS
We are subject to numerous federal, state and local environmental laws and
regulations of the U.S. and other countries in which we have operations. Our
operations are also governed by laws and regulations relating to the
preparation and marketing of food products and worker health and workplace
safety. Based on Campbell's experience to date, we believe that liability for
environmental conditions and the future cost of compliance with existing
environmental, food safety or occupational health and safety laws and
regulations will not have a material adverse effect on our businesses,
financial condition or results of operations. However, the impact of any future
changes in laws and regulations cannot be predicted. See "Business--
Governmental Regulation" and "--Environmental Matters."
FLUCTUATIONS IN AGRICULTURAL PRICES
We are actively engaged in the production of mushrooms and processing of
beef. These products are subject to significant price fluctuations. There can
be no assurance that the existing price levels for the agricultural products
that we produce or process will be maintained in the future.
14
BUSINESS
The Vlasic Businesses manufacture and market high-quality, branded
convenience food products. We group the Vlasic Businesses into three operating
segments: frozen foods, grocery products and agricultural products. On a pro
forma basis after giving effect to the Spin-Off, the Vlasic Businesses had net
sales of approximately $1.5 billion in fiscal 1997 and $723.2 million in the
first six months of fiscal 1998, and net earnings of approximately $50.6
million in fiscal 1997 and $21.2 million in the first six months of fiscal
1998.
Frozen Foods. The frozen foods segment manufactures frozen dinners and other
frozen products and accounted for approximately 40%, 39% and 40% of our net
sales in fiscal 1997, 1996 and 1995. The frozen foods segment derives the
largest portion of its earnings from manufacturing frozen dinners and pot pies
marketed in the U.S. and Canada under the Swanson brand name. The products of
this segment include:
. Swanson frozen foods in the U.S.--including Swanson frozen dinners and
pot pies, the leading national brand in the U.S.
. Freshbake frozen foods in the U.K.--a leading brand for retail customers
in that country.
Grocery Products. The grocery products segment manufactures and distributes a
diverse portfolio of food products in the U.S., the U.K., Germany and
Argentina, most of which have leading national or regional market positions.
The grocery products segment accounted for approximately 36%, 37% and 36% of
our net sales in fiscal 1997, 1996 and 1995, most of which were from sales of
pickles, relishes and other products marketed under the Vlasic brand. The
products of this segment include:
. Vlasic retail and foodservice pickles and condiments in the U.S.--the
leading national brand in the retail category for pickles in the U.S.
. Open Pit barbecue sauce in the U.S.--the leading brand in the Midwest
U.S., with three of its varieties in the top ten in that regional market.
. SonA and Rowats pickles, canned beans and vegetables in the U.K.--which
management believes are leading brands for both retail and foodservice
customers in that country.
. Kattus specialty foods in Germany--which management believes is a leading
specialty foods distributor in that country.
. Swift canned meat pates and other grocery products in Argentina--where
Swift is the leading brand of canned meat pates.
Agricultural Products. Our agricultural products consist mainly of fresh
mushrooms and frozen cooked beef. We also perform certain contract
manufacturing services. Our agricultural products segment accounted for
approximately 24% of our net sales in each of fiscal 1997, 1996 and 1995. The
major operations of this segment include:
. The largest fresh mushroom operation in the U.S.
. One of Argentina's largest exporters of processed beef products.
Vlasic was incorporated under the laws of the State of New Jersey in November
1997. For a transitional period following the Spin-Off, we will lease office
space at Campbell's corporate headquarters located at Campbell Place, Camden,
New Jersey 08103. We expect to relocate our corporate headquarters to Cherry
Hill, New Jersey in the near future.
15
BUSINESS STRATEGY
Vlasic's objective is to enhance revenue growth and profitability by
delivering quality products to its customers, expanding its strong market
positions and maximizing operating efficiencies. Vlasic plans to achieve its
objective through the following key strategies:
. Improve Performance of Low Margin Businesses. Vlasic recognizes that
certain of its businesses are not now achieving the profitability that it
believes they could. Vlasic believes that this is at least partially due
to the complex operating and reporting requirements placed upon the
businesses as a part of Campbell, and the relative lack of management
focus that was devoted to improving the businesses prior to the formation
of Vlasic. This impacts all aspects of the business, including
manufacturing efficiency, sales force effectiveness and administrative
costs. Vlasic believes that with focused management it will be able to
operate these businesses more productively. Further, Vlasic management
believes that such productivity improvements will provide funds which
will enable it to invest in brand development and marketing across all
businesses without unduly risking financial performance.
. Invest in Consumer Marketing and Product Development to Profitably Grow
Branded Businesses. Vlasic management believes that Vlasic's sales have
historically not grown due to a lack of innovation and relatively low
consumer marketing investment. The selective innovation which has
occurred, such as horizontally sliced pickles introduced by Vlasic under
its Sandwich Stackers brand, have shown the potential to increase growth
and profitability. However, while a part of Campbell the Vlasic
Businesses were viewed as relatively low margin, non-strategic businesses
and therefore did not gain sufficient attention to sustain top-line
growth. Vlasic management, in contrast, has significant experience in
profitably accelerating growth of other branded consumer food products
and believes there are significant growth opportunities within the Vlasic
portfolio.
. Pursue Selective Acquisitions. A third strategy will be to carefully
select additional businesses which can be acquired at attractive prices
that fit with our existing portfolio or which extend our breadth in other
branded food products. Vlasic expects that it will be able to acquire
businesses profitably due to its existing positions and due to the broad
range of skills and experience that it has in senior management.
PRODUCTS AND MARKETS
Frozen Foods. We manufacture and market frozen food products in the U.S. and
Canada, primarily frozen dinners and pot pies, under the Swanson, Hungry Man,
Lunch and More, Great Starts and Fun Feast brands. We also manufacture and
distribute a variety of frozen food products in the U.K. under our Freshbake
brand.
The Swanson brand is the leading national brand of frozen dinners, with
approximately 31% of the $1.3 billion frozen dinner market. In addition,
Swanson frozen pot pies are the market leader in their product category with
approximately 30% of the $290 million frozen pot pie market. Overall, we are
the nation's third largest producer of frozen dinners and entrees, pot pies and
breakfasts, with 13% of this $4.6 billion market.
Swanson introduced frozen beef and chicken pot pies in 1951. Shortly
thereafter, the first frozen dinner was introduced under the Swanson brand
name. The original line of frozen dinners, which consisted of sliced turkey and
gravy with dressing and potatoes, has expanded to include 20 varieties of
frozen dinners marketed with an updated line of contemporary packaging. Swanson
also markets frozen dinners under the Hungry Man brand, which targets consumers
who desire larger portions, and the Fun Feasts brand, which are frozen dinners
designed to appeal to children. We market a line of frozen breakfasts under our
Great Starts brand and a line of smaller dinner or lunch portions under our
Lunch and More brand.
16
Our U.K. operations manufacture and distribute frozen food products such as
sausages, meat pies, pastries and pies under our Freshbake brand as well as the
private label brands of certain of our customers. Our primary customers are
retail grocery chains and foodservice customers such as restaurants and
cafeterias.
Grocery Products. Our grocery products businesses consist of three main
product offerings: pickles and relishes, barbecue sauce and international
grocery products.
Pickles and Relishes. Our Vlasic brand is the leading national retail brand
of bottled, shelf-stable pickles with approximately 34% of the $717 million
national retail market. We also manufacture and sell bottled, shelf-stable
relishes, peppers and sauerkraut under the Vlasic and Milwaukee's brand names.
We sell shelf-stable pickles and other condiments to foodservice customers in
the U.S., including restaurants such as McDonald's.
Campbell acquired the Vlasic brand in 1978. By that time, Vlasic was already
a leading national brand due in large part to its successful marketing campaign
featuring the Vlasic stork, which has consumer awareness of 93%. Since then,
Vlasic has become the industry leader in introducing innovative products that
have expanded the national pickle market as a whole. Approximately 35% of
Vlasic's sales come from products introduced during the past five years. For
example, in 1994 we introduced horizontally sliced pickles under our Sandwich
Stackers brand. We estimate that more than half of all pickles are consumed
with sandwiches but that only 6% of all sandwiches are eaten with pickles.
Sandwich Stackers is an ideal product for sandwich making because it makes it
easier for consumers to add pickles to their sandwiches. Consumer sales of
shelf-stable pickles rose 8%, or $50 million, as a result of the Sandwich
Stackers innovation, with Sandwich Stackers capturing approximately 65% of
these new sales.
Barbecue Sauce. Our Open Pit barbecue sauce is the leading retail brand of
barbecue sauce in the Midwest U.S., with a 29% market share in this region. We
plan to grow this brand through packaging and product innovation.
International Grocery Products. We operate consumer foods businesses in the
U.K., Germany and Argentina. In the U.K., we manufacture pickles, canned beans
and vegetables under our SonA and Rowats brands, which we distribute through
the retail and foodservice channels. We also manufacture private label brand
grocery products for large supermarket chains.
In Germany, we do not manufacture foods but instead distribute a variety of
branded consumer food products under our Kattus and other brands. We believe
that we are one of the largest distributors of specialty foods in Germany. Our
customers include most German grocery chains, where we actively manage and
maintain shelf space. Products distributed under the Kattus brand name include
pasta, canned vegetables, exotic fruit products, condiments and other specialty
foods imported from other European countries, the U.S. and the Far East. Other
products include vegetables, olives, spices, canned fish products, vinegars and
fine vegetable oils distributed under the United Oceans and Probare brands and
Asian specialty foods distributed under the Bamboo Garden brand. We also
distribute a number of Campbell products, including soup and salsa, as well as
third party branded food products.
We manufacture and distribute a broad array of consumer goods in Argentina
under our Swift brand. Sales of these grocery products have benefited from the
recent economic growth in Argentina. The well-known Swift brand is the leading
brand of canned meat pate products in Argentina. Other products include hot
dogs, hamburgers, cold cuts and edible oils. Although Swift products are sold
primarily to grocery chains and other retail customers in Argentina, we export
limited quantities to other countries in South America.
17
Agricultural Products. We believe that we are the largest producer of fresh
mushrooms in the U.S. In Argentina, we are one of the leading exporters of
processed beef products.
Mushrooms. We own and operate eight mushroom farms across the U.S. Our
mushroom sales account for approximately 15% of the U.S. mushroom market, which
makes us the largest fresh mushroom operation in the U.S. Approximately 85% of
the mushrooms we grow are traditional white button mushrooms. The remaining
mushrooms we grow are fancy mushrooms such as portobellos, oyster and cremini
mushrooms. Consumer demand for fancy mushrooms has grown in recent years, and
the margins on these products are higher than on the white button type.
Processed Beef Products. Our Swift-Armour operations in Argentina produce
chilled and frozen beef, frozen cooked beef and canned corned beef, which is
sold mainly to wholesale customers such as manufacturers and foodservice
customers. We are among the largest exporters of frozen cooked beef and canned
corned beef in Argentina, selling to more than 60 countries around the world.
Campbell is a major customer of our mushrooms and beef. Sales to Campbell of
mushrooms accounted for approximately 25% of our total mushroom sales in fiscal
1997 and sales to Campbell of frozen cooked beef accounted for approximately
16% of Swift-Armour's fiscal 1997 net sales. Campbell uses our mushrooms and
frozen beef in soups and sauces. In connection with the Spin-Off, we will enter
into supply agreements with Campbell under which we will continue to supply
Campbell with mushrooms and beef. See "Arrangements Between Campbell and Vlasic
Relating to the Spin-Off--Supply Agreements; Co-Pack Agreements."
MARKETING, SALES AND DISTRIBUTION
We manage the sales and distribution of our products based on the channels
through which they are sold. Except for Campbell, none of our customers
accounted for 10% or more of Vlasic's net sales in fiscal 1997.
We use an independent broker sales force to sell frozen foods and grocery
products directly to large grocery chains, mass merchandisers and club stores
in the U.S. and Canada. We use independent commercial carriers to distribute
these products from our manufacturing facilities directly to our customers.
Historically, our frozen foods and grocery products have been sold through the
same brokers. While the delivery of all of the domestic retail grocery products
has been integrated into a single system, frozen foods are delivered separately
because of the special need for refrigeration during shipping. Brokers also
sell frozen foods to frozen food distributors and grocery products to grocery
distributors, both of whom in turn sell and deliver the products to smaller
grocery chains and retailers.
In the U.K., we distribute frozen foods marketed under the Freshbake brand in
the same manner as our frozen foods are distributed in the U.S. and Canada. We
sell grocery products marketed under the SonA and Rowats brands directly to
foodservice customers or through grocery wholesalers. Our distribution business
in Germany uses a direct store distribution system that delivers products to
the stores and physically stocks their shelves.
COMPETITION
We face intense competition in each of our product lines. We compete with
other producers of similar products on the basis of product quality, price,
customer service, effective promotional activities and the ability to identify
and satisfy emerging consumer preferences. Our ability to grow our business
could be impacted by strong competitive response to our efforts to leverage our
brand power with new products, product innovation and new advertising. In
addition, from time to time we experience price pressure in certain markets as
a result of competitors' pricing practices. Although we compete in a highly
competitive industry for representation in
18
the retail food and foodservice channels, we believe that our brand strength
has resulted in a strong competitive position in the food products industry.
INGREDIENTS
We believe that sources of raw materials used in the frozen foods businesses
are readily available. Our frozen foods business uses beef produced by our
Swift-Armour operations in Argentina as well as beef and poultry which we
obtain from third party suppliers. In addition, we purchase packaging
materials, including aluminum containers and cardboard boxes, from a variety of
suppliers.
Our grocery products businesses rely primarily on cucumbers, peppers and
other produce which are supplied by third party growers. We purchase many of
these ingredients during the warmer growing seasons, when they are readily
available and are of top quality. We buy from a variety of growers, and
alternate sources of supply are readily available. However, factors beyond our
control such as weather and general growing conditions may cause prices and
quality to fluctuate. We use a large quantity of glass bottles and cans to
package our grocery products, which we believe are readily available from a
number of suppliers.
We purchase beef and mushrooms from third parties to fulfill seasonal
requirements of the agricultural products segment. Packaging materials used in
the processing of our agricultural products are purchased on an as-needed basis
and are readily obtainable in the local markets from a number of suppliers.
For additional discussion of the availability of raw materials for our
operations, see "Certain Special Considerations--Availability and Prices of
Ingredients."
SEASONALITY
Sales of frozen foods tend to be marginally higher during the cold weather
months. Sales of grocery products, particularly pickles, relishes and barbecue
sauce, tend to be higher in the summer months.
PRODUCTION AND FACILITIES
We currently own or lease 18 production facilities in the U.S., the U.K. and
Argentina. We believe that these facilities are suitable for our operations and
provide sufficient capacity to meet our requirements for the foreseeable
future. The chart below lists the location and principal products produced at
our key production facilities.
[Download Table]
FACILITY LOCATION PRINCIPAL PRODUCTS
----------------- ------------------
FROZEN FOODS
Fayetteville, Arkansas Frozen Foods
Omaha, Nebraska Frozen Foods
Salford, England Frozen Foods
Peterlee, England Frozen Foods
Glasgow, Scotland Frozen Foods
GROCERY PRODUCTS
Bridgeport, Michigan Pickles and Condiments
Imlay City, Michigan Pickles and Condiments
Millsboro, Delaware Pickles and Condiments
Stratford, England Pickles, Canned Beans and Vegetables
19
[Download Table]
FACILITY LOCATION PRINCIPAL PRODUCTS
----------------- ------------------
AGRICULTURAL PRODUCTS
Blandon, Pennsylvania Mushrooms
West Chicago, Illinois Mushrooms
Brighton, Indiana Mushrooms
Dublin, Georgia Mushrooms
Fennville, Michigan Mushrooms
Hillsboro, Texas Mushrooms
Jackson, Ohio Mushrooms
Pescadero, California Mushrooms
Rosario, Argentina Processed Beef
Historically, Campbell operated the Vlasic Businesses from its corporate
headquarters in Camden, New Jersey. Following the Spin-Off, we will lease
office space in the Campbell corporate headquarters for a transition period. We
expect to relocate our corporate headquarters to Cherry Hill, New Jersey in the
near future.
In the Spin-Off, we will acquire ownership of or the right to use all of the
facilities used to manufacture our products except the facilities that house
our Canadian frozen foods production and our Open Pit barbecue sauce
production. Vlasic will enter into a co-packing arrangement with Campbell under
which Campbell will continue to manufacture these products for an interim
period. See "Arrangements Between Campbell and Vlasic Relating to the Spin-
Off--Supply Agreements; Co-Pack Agreements."
TRADEMARKS AND PATENTS
We own numerous popular trademarks registered in various countries, including
Vlasic, Hungry Man, Sandwich Stackers, Great Starts, Freshbake, SonA, Rowats,
Kattus and Swift. All of our trademarks are very important to the Vlasic
Businesses. We protect our trademarks by obtaining registrations where
appropriate and aggressively opposing any infringement.
In connection with the Spin-Off, Campbell will grant us a perpetual, royalty-
free license to use the Swanson trademark for certain products. See
"Arrangements Between Campbell and Vlasic Relating to the Spin-Off--Trademark
License Agreements." In addition, Vlasic will have the right to continue to
sell fresh mushrooms under the Campbell's brand for a transition period of up
to three years following the Spin-Off.
Although we own a number of patents covering certain manufacturing processes,
we do not believe the Vlasic Businesses depend on any of these patents to a
material extent.
RESEARCH AND DEVELOPMENT
Historically, Campbell conducted research and development for the Vlasic
Businesses at its headquarters in Camden, New Jersey and at other locations in
the U.S. and foreign countries. Research and development expenditures relating
to the Vlasic Businesses totaled approximately $8.6 million in fiscal 1997,
$8.1 million in fiscal 1996 and $8.8 million in fiscal 1995.
Vlasic's research and development will initially be conducted at multiple
sites within and outside the U.S. The research and development organization is
expected to consist of approximately 75 people, 49 of whom will be located in
the U.S. and 26 of whom will be located outside the U.S.
20
GOVERNMENTAL REGULATION
Our operations are subject to extensive regulation by the federal Food and
Drug Administration, the U.S. Department of Agriculture and other federal,
state and local authorities of the U.S. and other countries in which we have
operations. Such authorities regulate the processing, packaging, storage,
distribution and labeling of our products and periodically inspect our
processing facilities and products. We believe that we are in substantial
compliance with all governmental laws and regulations.
ENVIRONMENTAL MATTERS
We are subject to numerous federal, state and local environmental laws and
regulations of the U.S. and other countries in which we have operations. Our
operations are also governed by laws and regulations relating to worker health
and workplace safety. We believe that our operations are in substantial
compliance with such environmental and occupational health and safety laws and
regulations.
As is the case with many companies, we face exposure to actual or potential
claims or lawsuits involving environmental matters. We believe that any
liabilities resulting therefrom, after taking into consideration amounts
already provided for, should not have a material adverse effect on our
businesses, financial position or results of operations. Of course, we cannot
predict what environmental or occupational health and safety laws and
regulations will be enacted in the future or the amount of future expenditures
we may be required to make in order to comply with such new laws.
LEGAL PROCEEDINGS
We are not aware of any pending claims or litigation the outcome of which
would have a material adverse effect on our businesses, financial position or
results of operations.
EMPLOYEES
Our work force consists of approximately 9,200 employees. Of the total number
of employees, approximately 8,600 are engaged in manufacturing, approximately
150 are engaged in marketing and sales and approximately 450 are engaged in
administration.
Our U.S. work force consists of approximately 5,500 employees, approximately
3,600 of whom are represented by collective bargaining agreements with various
unions. Such collective bargaining agreements expire on various dates on and
after October 4, 1998. Outside of the U.S., our work force consists of
approximately 3,700 employees, the substantial majority of whom are represented
by unions. A prolonged work stoppage or strike at any facility with union
employees could have a material adverse effect on our businesses, financial
condition or results of operations. In addition, there can be no assurance that
upon the expiration of existing collective bargaining or similar agreements new
agreements will be reached without union action or that any such new agreements
will be on terms satisfactory to us.
We consider our employee relations to be good.
21
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited Pro Forma Condensed Combined Statements of Earnings
for the fiscal year ended August 3, 1997 and for the first six months ended
February 1, 1998 and the unaudited Pro Forma Condensed Combined Balance Sheet
as of February 1, 1998 present the combined results of operations and financial
position of Vlasic assuming that the transactions contemplated by the Spin-Off
had been completed as of the beginning of fiscal 1997 with respect to the Pro
Forma Condensed Combined Statements of Earnings and as of February 1, 1998 with
respect to the Pro Forma Condensed Combined Balance Sheet. In the opinion of
management, they include all material adjustments necessary to reflect, on a
pro forma basis, the impact of transactions contemplated by the Spin-Off on
Vlasic's historical financial information. The adjustments are described in the
Notes to the Pro Forma Condensed Combined Financial Information and are set
forth in the "Pro Forma Adjustments" columns.
The unaudited Pro Forma Condensed Combined Financial Information of Vlasic
should be read in conjunction with the historical financial statements of
Vlasic and the notes thereto (beginning on page F-1 in the latter portion of
this document). We have presented the pro forma financial information to give
you a better picture of what our financial statements might have looked like if
Vlasic had been operated independently during fiscal 1997 and the first six
months of fiscal 1998. Actual results may have differed from pro forma results
if we had operated independently. You should not rely on the pro forma
financial information as being indicative of results we would have had or of
future results after the Spin-Off.
22
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FISCAL YEAR ENDED AUGUST 3, 1997
(000 OMITTED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
[Download Table]
HISTORICAL PRO FORMA PRO FORMA
1997(1) ADJUSTMENTS(2) 1997
---------- -------------- ----------
NET SALES............................... $1,508,285 $1,508,285
---------- ----------
Costs and expenses
Cost of products sold................. 1,048,433 1,048,433
Marketing and selling expenses........ 266,475 266,475
Administrative expenses............... 53,050 53,050
Research and development expenses..... 8,620 8,620
Other expense......................... 2,446 2,446
Restructuring charge.................. 12,634 12,634
---------- ----------
Total costs and expenses............ 1,391,658 1,391,658
---------- ----------
EARNINGS BEFORE INTEREST AND TAXES...... 116,627 116,627
Interest expense........................ 1,600 $ 39,108 (a) 40,708
Interest income......................... 588 588
---------- -------- ----------
Earnings before taxes................... 115,615 76,507
Taxes on earnings....................... 37,475 (11,615)(b) 25,860
---------- -------- ----------
NET EARNINGS............................ $ 78,140 $(27,493) $ 50,647
========== ======== ==========
PRO FORMA EARNINGS PER SHARE--BASIC(4).. $ 1.12
Pro Forma Shares Outstanding--Basic..... 45,413
==========
PRO FORMA EARNINGS PER SHARE--ASSUMING
DILUTION............................... $ 1.10
Pro Forma Shares Outstanding--Assuming
Dilution............................... 45,941
==========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information on page 26.
23
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
SIX MONTHS ENDED FEBRUARY 1, 1998
(000 OMITTED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
[Download Table]
HISTORICAL PRO FORMA
SIX MONTHS PRO FORMA SIX MONTHS
1998(1) ADJUSTMENTS(3) 1998
---------- -------------- ----------
NET SALES............................... $723,169 $723,169
-------- --------
Costs and expenses
Cost of products sold................. 519,224 519,224
Marketing and selling expenses........ 114,821 114,821
Administrative expenses............... 28,732 28,732
Research and development expenses..... 3,948 3,948
Other (income) expense................ (91) (91)
-------- --------
Total costs and expenses............ 666,634 666,634
-------- --------
EARNINGS BEFORE INTEREST AND TAXES...... 56,535 56,535
Interest expense........................ 911 $ 19,554 (a) 20,465
Interest income......................... 145 145
-------- -------- --------
Earnings before taxes................... 55,769 36,215
Taxes on earnings....................... 20,858 (5,807)(b) 15,051
-------- -------- --------
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE...................... $ 34,911 $(13,747) $ 21,164
======== ======== ========
PRO FORMA EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE PER SHARE--
BASIC(4)............................... $ .47
Pro Forma Shares Outstanding--Basic..... 45,413
========
PRO FORMA EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE PER SHARE--
ASSUMING DILUTION...................... $ .46
Pro Forma Shares Outstanding--Assuming
Dilution............................... 45,941
========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information on page 26.
24
VLASIC FOODS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(000 OMITTED)
(UNAUDITED)
[Download Table]
HISTORICAL PRO FORMA
FEBRUARY 1, PRO FORMA FEBRUARY 1,
1998(1) ADJUSTMENTS(5) 1998
----------- -------------- -----------
CURRENT ASSETS
Cash and cash equivalents............ $ 1,456 $ 1,456
Accounts receivable.................. 160,119 160,119
Inventories.......................... 163,689 163,689
Other current assets................. 15,070 15,070
-------- --------
Total current assets............... 340,334 340,334
-------- --------
Plant assets, net of depreciation.... 507,532 507,532
Other assets, principally intangible
assets, net of amortization......... 89,221 89,221
-------- --------
Total assets....................... $937,087 $937,087
======== ========
CURRENT LIABILITIES
Notes payable........................ $ 11,944 $ 11,944
Payable to suppliers and others...... 82,470 82,470
Overdrafts........................... 9,058 9,058
Accrued liabilities.................. 63,024 63,024
Payable to Campbell.................. 0 $ 58,681 (c) 58,681
-------- --------- --------
Total current liabilities.......... 166,496 58,681 225,177
-------- --------- --------
Long-term debt....................... 2,018 500,000 (a) 502,018
Deferred income taxes................ 36,892 (14,000)(b) 22,892
Other liabilities.................... 12,293 36,000 (b) 48,293
-------- --------- --------
Total liabilities.................. 217,699 580,681 798,380
-------- --------- --------
SHAREOWNERS' EQUITY
Campbell net investment.............. 719,660 (500,000)(a)
(22,000)(b)
(58,681)(c)
(138,979)(d)
Preferred Stock; no par value;
authorized 4,000 shares; none issued
Common stock; no par value;
authorized 56,000 shares;
issued 45,413 shares................ 138,979 (d) 138,979
Cumulative translation adjustments... (272) (272)
-------- --------- --------
Total shareowners' equity.......... 719,388 (580,681) 138,707
-------- --------- --------
Total liabilities and shareowners'
equity............................ $937,087 $937,087
======== ========= ========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Information on page 26.
25
VLASIC FOODS INTERNATIONAL INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(000 OMITTED)
(UNAUDITED)
NOTE 1--The historical financial statements of Vlasic reflect periods during
which Vlasic did not operate as a separate, independent company; certain
estimates, assumptions and allocations were made in preparing such financial
statements. Therefore, such historical financial statements do not necessarily
reflect the results of operations or financial position that would have existed
had Vlasic been a separate, independent company.
NOTE 2--The pro forma adjustments to the accompanying historical combined
statement of earnings for the fiscal year ended August 3, 1997 were:
(a) To record interest expense (at 7%) on incremental debt of $558,681
consisting of $500,000 to be assumed by Vlasic at the Distribution Date and
$58,681 to be used for working capital purposes shortly after the Spin-Off.
A 1/8 percentage point change in the assumed interest rate would change
interest expense by $698 (changing net earnings by $490) annually.
(b) To record the tax effect of the pro forma interest expense adjustment
at a tax rate of 29.7%, which gives effect to non-deductibility of a
portion of the interest expense.
NOTE 3--The pro forma adjustments to the accompanying historical combined
statement of earnings for the six months ended February 1, 1998 were:
(a) To record interest expense (at 7%) on incremental debt of $558,681
consisting of $500,000 to be assumed by Vlasic at the Distribution Date and
$58,681 to be used for working capital purposes shortly after the Spin-Off.
A 1/8 percentage point change in the assumed interest rate would change
interest expense by $349 (changing net earnings by $246) for the six months
ended February 1, 1998.
(b) To record the tax effect of the pro forma interest expense adjustment
at a tax rate of 29.7%, which gives effect to non-deductibility of a
portion of the interest expense.
NOTE 4--In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)--"Earnings per
Share." The standard requires dual presentation of "basic" and "diluted"
earnings per share. Vlasic will adopt SFAS 128 in its first quarterly earnings
statement issued after the effective date of the Spin-Off. The earnings per
share information included in the Pro Forma Condensed Combined Statements of
Earnings on pages 23 and 24 has been calculated in accordance with SFAS 128.
SFAS 128 revised the standards for the computation and presentation of earnings
per share ("EPS"), requiring the presentation of both basic EPS and EPS
assuming dilution. Basic EPS is based on the weighted average shares
outstanding during the applicable period. EPS assuming dilution reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. For the periods
presented in the Pro Forma Condensed Combined Statements of Earnings, the
calculations of basic EPS and EPS assuming dilution vary in that the pro forma
shares outstanding assuming dilution include the incremental effect of stock
options.
NOTE 5--The pro forma adjustments to the accompanying historical combined
balance sheet at February 1, 1998 were:
(a) To record incremental debt of $500,000 to be assumed by Vlasic at the
Distribution Date.
(b) To record the transfer of pension and postretirement obligations and
the related deferred tax impact.
(c) To reclassify intercompany payables of Vlasic subsidiaries to
Campbell which will remain outstanding obligations of such subsidiaries of
Vlasic to Campbell after Spin-Off.
(d) To record the planned liquidation of the remaining investment by
Campbell and the issuance of Vlasic Common Stock.
26
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of Vlasic. The
Summary of Operations historical data set forth below for each of the three
years in the period ended August 3, 1997 and the Balance Sheet Data at August
3, 1997 and July 28, 1996 are derived from audited combined financial
statements of Vlasic. The Summary of Operations historical data set forth below
for each of the six month periods ended February 1, 1998 and January 26, 1997
and the two years in the period ended July 31, 1994 and the Balance Sheet Data
at February 1, 1998 and January 26, 1997 and at July 30, 1995, July 31, 1994
and August 1, 1993 are derived from unaudited combined financial statements of
Vlasic. The historical selected financial data may not necessarily be
indicative of Vlasic's past or future performance as an independent company.
Such historical data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Vlasic's Combined Financial Statements and notes thereto included elsewhere in
this document. Per share data has not been presented because Vlasic was not a
publicly held company during the periods presented.
[Enlarge/Download Table]
FISCAL YEAR SIX MONTHS ENDED
------------------------------------------------------------ --------------------------
FEBRUARY 1, JANUARY 26,
1997(1) 1996 1995 1994 1993 1998 1997
---------- ---------- ---------- ---------- ---------- ----------- -----------
(000 OMITTED)
SUMMARY OF OPERATIONS
Net sales............... $1,508,285 $1,498,967 $1,504,318 $1,320,632 $1,340,531 $ 723,169 $ 750,176
Earnings before
cumulative effect of
accounting changes..... $ 78,140(2) $ 60,867(3) $ 70,982 $ 53,277 $ 2,188 (4) $ 34,911 $ 29,515(2)
Cumulative effect of
accounting changes..... $ (39,500)(4) $ (600)(5)
Net earnings (loss)..... $ 78,140 $ 60,867 $ 70,982 $ 53,277 $ (37,312) $ 34,311 $ 29,515
BALANCE SHEET DATA
Total assets............ $ 895,108 $ 923,331 $ 923,659 $ 855,411 $ 854,391 $ 937,087 $ 974,885
Long-term debt.......... $ 2,252 $ 3,166 $ 3,591 $ 12,226 $ 15,648 $ 2,018 $ 2,633
Shareowner's equity..... $ 632,298 $ 659,866 $ 693,736 $ 615,267 $ 559,496 $ 719,388 $ 722,573
--------
(1) Fiscal 1997 includes 53 weeks compared to 52 weeks in fiscal 1993 through
fiscal 1996.
(2) Includes after-tax restructuring charges of $7,757.
(3) Includes after-tax restructuring charges of $22,842.
(4) Includes after-tax restructuring charges of $56,358. Also includes the
cumulative effect of changes of $39,500 in accounting for postemployment
costs, postretirement costs and income taxes.
(5) Includes the cumulative effect of an accounting principle for business
process reengineering costs of $600.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE FISCAL YEARS ENDED AUGUST 3, 1997, JULY 28, 1996 AND JULY 30, 1995
The following discussion is based upon and should be read in conjunction with
the unaudited Pro Forma Condensed Combined Financial Information, Selected
Financial Data and the audited Combined Financial Statements, including the
notes thereto, included elsewhere in this document.
GENERAL
The following discussion addresses the Vlasic Businesses to be spun off by
Campbell. The businesses operate in three operating segments: frozen foods,
grocery products and agricultural products. These operating segments are
managed as strategic units due to their distinct manufacturing processes,
marketing strategies and distribution channels. The frozen foods segment
consists of Swanson frozen foods in the U.S. and Canada and Freshbake frozen
foods in the U.K. The grocery products segment includes Vlasic retail and
foodservice pickles and condiments in the U.S., Open Pit barbecue sauce in the
U.S., SonA and Rowats pickles, canned beans and vegetables in the U.K., Kattus
specialty foods distribution in Germany and Swift canned meat pates and other
grocery products in Argentina. The agricultural products segment includes the
fresh mushroom business in the U.S., chilled and frozen beef, frozen cooked
beef and canned corned beef exported from Argentina and short-term contract
manufacturing of frozen foodservice finished product for Campbell's Foodservice
in the U.S.
On a historical basis, Vlasic's interest income and interest expense reflect
minor levels of local subsidiary temporary investments or borrowings. Most of
the capital for the Vlasic Businesses was provided by Campbell's net investment
in these businesses, for which no interest was charged. Furthermore, Vlasic was
not allocated any amount of Campbell's debt. A five-year, $750 million
unsecured revolving credit facility (the "New Credit Facility") has recently
been established by Campbell, and $500 million of borrowings thereunder will be
used by Campbell prior to the Spin-Off to repay certain of Campbell's debt
obligations. Vlasic will assume the repayment obligations for Campbell's $500
million of borrowings in connection with the Spin-Off. It is not possible to
determine what portion of the debt obligations to be repaid by Campbell with
borrowings under the New Credit Facility was historically associated with the
present operations of Vlasic. Following its assumption of Campbell's repayment
obligations under the New Credit Facility, Vlasic will have $250 million of
borrowing availability thereunder, approximately $58.7 million of which is
expected to be used by Vlasic for working capital purposes shortly after the
Spin-Off. Vlasic expects to use the rest of the available credit for general
corporate purposes. See "Financing." The $500 million of indebtedness to be
incurred by Vlasic in connection with the Spin-Off, the $58.7 million of debt
that Vlasic will incur under the New Credit Facility shortly after the Spin-Off
and the associated interest expense are not reflected in Vlasic's historical
financial statements. Assuming that the transactions contemplated by the Spin-
Off had been consummated on February 1, 1998, Vlasic's pro forma debt and
shareowners' equity at February 1, 1998 would have been approximately $572.6
million (consisting of $502 million of long-term debt, the $58.7 million
payable to Campbell from subsidiaries of Vlasic and $11.9 million of notes
payable) and $138.7 million, respectively. Vlasic's pro forma interest expense
would have been approximately $40.7 million in fiscal 1997 and $20.5 million in
the first six months of fiscal 1998 had the Spin-Off been consummated as of the
beginning of fiscal 1997. See "Pro Forma Condensed Combined Financial
Information."
Vlasic and Campbell will enter into a number of agreements providing for the
separation of the companies and governing various relationships between Vlasic
and Campbell, including a Separation and Distribution Agreement, a Benefits
Sharing Agreement (regarding employee benefits), a Tax Sharing and
Indemnification
28
Agreement, a Trademark License Agreement, a Technology Sharing Agreement, a
Transition Services Agreement and various Supply Agreements. See "Arrangements
Between Campbell and Vlasic Relating to the Spin-Off."
The audited Combined Financial Statements may not necessarily be indicative
of the results of operations, financial position and cash flows of Vlasic in
the future or had it operated as a separate, independent company during the
periods presented. The audited Combined Financial Statements do not reflect any
changes that may occur in the financing and operations of Vlasic as a result of
the Spin-Off.
RESULTS OF OPERATIONS
Overview
Net sales in fiscal 1997 were $1.508 billion, an increase of 0.6% from fiscal
1996 (down 1.3% from fiscal 1996 on a comparable 52 week basis). Net earnings
were $78.1 million, an increase of 28% from fiscal 1996. Both years included
restructuring charges, as discussed below. Excluding the restructuring charges
from both years, net earnings increased 2.6% in fiscal 1997. Fiscal 1997 was a
53-week year compared to 52 weeks in fiscal 1996 and fiscal 1995.
Net sales in fiscal 1996 were $1.499 billion, a decrease of 0.4% from fiscal
1995. Net earnings were $60.9 million, a decrease of 14% from fiscal 1995 due
to restructuring charges. Excluding the fiscal 1996 restructuring charges, net
earnings increased 18% in fiscal 1996.
Assuming that the transactions contemplated by the Spin-Off had been
consummated as of the beginning of fiscal 1997, Vlasic's pro forma interest
expense would have been approximately $40.7 million and its pro forma net
earnings would have been approximately $50.6 million in fiscal 1997. See "Pro
Forma Condensed Combined Financial Information."
Combined Statement of Earnings
The following table sets forth certain items in Vlasic's combined statements
of earnings as percentages of its net sales for the fiscal years indicated:
[Download Table]
1997 1996 1995
------ ------ ------
Net sales............................................. 100.0% 100.0% 100.0%
Cost of products sold................................. 69.5% 70.3% 71.4%
Marketing and selling expenses........................ 17.7% 17.1% 17.2%
Administrative expenses............................... 3.5% 3.6% 3.6%
Research and development expenses..................... 0.6% 0.6% 0.6%
Other expense......................................... 0.2% 0.0% 0.0%
Restructuring charges................................. 0.8% 2.5% 0.0%
------ ------ ------
Total costs and expenses............................ 92.3% 94.1% 92.8%
Earnings before interest and taxes.................... 7.7% 5.9% 7.2%
Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
Net sales of $1.508 billion in fiscal 1997 increased 0.6% from fiscal 1996
(down 1.3% from fiscal 1996 on a comparable 52 week basis). Volume declines
offset higher selling prices, and changes in foreign currency rates had no
impact. Overall volume was flat (down 1.9% on a comparable 52 week basis) as
strong growth in Swanson U.S. (particularly frozen dinners), contract
manufacturing for Campbell Foodservice and fresh
29
mushrooms was more than offset by declines in the German foods distribution
business, Argentine frozen cooked beef and Vlasic pickles.
Cost of products sold as a percentage of net sales improved in fiscal 1997 by
0.8 points from 70.3% to 69.5%. Productivity gains in Swanson, Freshbake in the
U.K. and Vlasic pickles as well as the benefit of higher selling prices were
mitigated by higher mushroom and beef costs and lower margins in Germany.
Marketing and selling expenses increased in fiscal 1997 to 17.7% of net sales
from 17.1% in fiscal 1996. The principal cause was higher trade spending for
Swanson U.S.
Administrative and research and development expenses, as a percentage of net
sales, were down 0.1 points in fiscal 1997 to 3.5% and 0.6%, respectively.
Other expense, net, increased by $2.0 million in fiscal 1997 due to higher
accruals for long-term incentive plan charges related to the increase in the
market price of Campbell Stock.
See the discussion below for restructuring charges.
The effective income tax rate was 32.4% in fiscal 1997 compared to 31.0% in
fiscal 1996. Excluding restructuring charges, the rate was 33.0% in fiscal 1997
and 33.3% in fiscal 1996.
Vlasic has a full valuation allowance against its estimate of the amount of
deferred tax assets relating to tax loss carryforwards due to the uncertainty
of the ultimate realization of future benefits from such assets. These deferred
tax assets pertain to Vlasic's operations in Argentina and to its frozen foods
business in the U.K. The uncertainty surrounding the use of U.K. tax loss
carryforwards stems from significant tax law restrictions regarding their use.
Moreover, the limited tax loss carryforward periods and exclusion from current
taxable income of export rebates create uncertainty about whether Vlasic will
be able to utilize its tax loss carryforwards from operations in Argentina.
Fiscal 1996 Compared to Fiscal 1995
-----------------------------------
Net sales of $1.499 billion in fiscal 1996 were 0.4% below those for fiscal
1995. The effect of higher selling prices was offset by changes in foreign
exchange rates and a decline in volume. The volume decline was principally
attributable to lower Swanson U.S. net sales due to the timing of fiscal 1995
year-end marketing programs. Swanson Canada and Vlasic pickles, led by Sandwich
Stackers, showed volume increases.
Cost of products sold as a percentage of net sales improved in fiscal 1996 by
1.1 points to 70.3% from 71.4% in fiscal 1995, principally driven by higher
selling prices and manufacturing cost improvements offset by slightly weaker
product mix.
Marketing and sales expenses, as a percentage of net sales, were virtually
unchanged at 17.1% in fiscal 1996 compared to 17.2% in fiscal 1995.
Administrative and research and development expenses were approximately the
same percentage of net sales in fiscal 1996 as fiscal 1995.
Other expense, net, was essentially unchanged in fiscal 1996 compared to
fiscal 1995.
The effective income tax rate was 31.0% in fiscal 1996 compared to 33.5% in
fiscal 1995. Excluding restructuring charges, the rate was 33.3% in fiscal 1996
compared to 33.5% in fiscal 1995.
30
Restructuring Program
A special charge of $12.6 million ($7.8 million after tax) was recorded in
the first quarter of fiscal 1997 to cover the costs of a restructuring program.
The restructuring program was designed to improve operational efficiency by
closing various pickle facilities and reducing approximately 50 administrative
and operational positions from the worldwide workforce. The restructuring
charge includes approximately $4.6 million in cash charges, primarily related
to severance and employee benefit costs, substantially all of which was paid by
the end of the first quarter of fiscal 1998. The balance of the restructuring
charge, amounting to $8.0 million, relates to non-cash charges for losses on
the disposition of plant assets. Vlasic substantially completed the program
during the first quarter of fiscal 1998.
A special charge of $37.2 million ($22.8 million after tax) was recorded in
the fourth quarter of fiscal 1996 to cover the costs of a restructuring program
designed to improve operational efficiency in the U.S. frozen foods segment (by
closing the former Modesto plant, with a reduction of approximately 500
employees, and increasing production at the Omaha and Fayetteville plants) and
in the foods distribution business in Germany (by combining certain sales
functions from two locations into the unit's headquarters). The restructuring
charge includes approximately $22.1 million in cash charges, primarily related
to severance and employee benefit costs, and $15.1 million in non-cash charges
for losses on disposition of plant assets. The program was completed in fiscal
1997.
The combination of the fiscal 1997 and fiscal 1996 restructurings are
expected to result in approximately $22 million in aggregate savings in fiscal
1997 and fiscal 1998 from reductions in employee salaries and benefits, plant
overhead and depreciation. The expected cash outflows should not adversely
affect Vlasic's liquidity. See Note 5 to the Combined Financial Statements for
the components of the restructuring liability and the related activity.
Results by Segment
The following table sets forth certain segment information for the fiscal
periods indicated:
[Download Table]
1997 1996 1995
---------- ---------- ----------
(000 OMITTED)
NET SALES
Frozen Foods......................... $ 614,467 $ 583,384 $ 609,275
Grocery Products..................... 538,684 561,154 542,106
Agricultural Products................ 366,113 369,088 363,346
Eliminations......................... (10,979) (14,659) (10,409)
---------- ---------- ----------
Total.............................. $1,508,285 $1,498,967 $1,504,318
========== ========== ==========
EARNINGS BEFORE INTEREST AND TAXES
Frozen Foods......................... $ 56,268 $ 15,885 $ 46,757
Grocery Products..................... 49,513 53,748 38,747
Agricultural Products................ 10,846 19,337 23,000
---------- ---------- ----------
Total.............................. $ 116,627 $ 88,970 $ 108,504
========== ========== ==========
Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
The net sales of the frozen foods segment increased 5% in fiscal 1997 (up
3.5% on a comparable 52 week basis) to $614.5 million mainly due to increases
in Swanson U.S. and Freshbake in the U.K., which contributed equally to the
increase. Also, Swanson Canada registered a double-digit increase. This
segment's earnings
31
before interest and taxes more than doubled in fiscal 1997 to $56.3 million.
Excluding restructuring charges from fiscal 1997 and fiscal 1996, earnings
before interest and taxes increased 20%, led by a double-digit gain in Swanson
U.S. (driven by improved productivity and lower manufacturing costs resulting
from prior-year restructuring programs) and by continued improvement in
manufacturing costs for Freshbake in the U.K.
The net sales of the grocery products segment decreased 4% in fiscal 1997
(down 6.3% on a comparable 52 week basis) to $538.7 million, driven principally
by weakness in the German foods distribution business. This weakness was
principally caused by difficulties in the transition to a new management
information system. These difficulties caused the unit to be unable to receive,
process and deliver a substantial number of orders for a period of time.
Management believes the difficulties have been corrected and that the business
is working to regain lost distribution. The fiscal 1997 net sales of most other
businesses included in this segment approximated those for fiscal 1996 (down
2.3% on a comparable 52 week basis). This segment's earnings before interest
and taxes decreased 8% in fiscal 1997 to $49.5 million. Excluding restructuring
charges from fiscal 1997 and fiscal 1996, earnings before interest and taxes
increased 3% as a 25% increase in Vlasic pickle earnings was largely offset by
the poor volume performance of the German foods distribution business, which
went from a profit in fiscal 1996 to a loss in fiscal 1997. Open Pit barbecue
sauce, Argentine retail and the U.K. pickle, canned bean and vegetable
businesses lagged in fiscal 1997.
The net sales of the agricultural products segment declined 1% in fiscal 1997
(down 2.9% on a comparable 52 week basis) to $366.1 million. Reduced overall
demand for beef products in Europe and reduced shipments to Campbell were
offset by increased contract manufacturing for Campbell Foodservice and
increased fresh mushroom sales. This segment's earnings before interest and
taxes declined 44% in fiscal 1997 to $10.8 million from $19.3 million in fiscal
1996. The decline was due in approximately equal parts from reduced sales of
frozen cooked beef and unfavorable mushroom costs.
Fiscal 1996 Compared to Fiscal 1995
-----------------------------------
The $583.4 million of net sales for the frozen foods segment in fiscal 1996
represented a decrease of 4% principally due to a decline in Swanson U.S.
attributable to the timing of marketing programs at the end of fiscal 1995. A
double-digit gain in Swanson Canada was offset by a 6% volume decline in
Freshbake in the U.K. which was principally due to reduced overall demand for
beef products in Europe. This segment's earnings before interest and taxes in
fiscal 1996 decreased 66% to $15.9 million due to restructuring charges.
Excluding the restructuring charges, earnings before interest and taxes
increased 5%. This was driven by Swanson Canada net sales increases and higher
relative earnings at Freshbake in the U.K. stemming from improved operating
efficiencies. Swanson U.S. was flat as cost improvements offset the sales
decline.
The net sales of the grocery products segment in fiscal 1996 were $561.2
million, an increase of 3.5% driven by a 9% increase in net sales of Vlasic
pickles resulting from the successful introduction of Sandwich Stackers. This
segment's earnings before interest and taxes increased 39% in fiscal 1996.
Excluding the fiscal 1996 restructuring charges, earnings before interest and
taxes increased 49% driven by higher net sales, improved manufacturing costs
and controlled marketing expenditures for Vlasic pickles. SonA weakened during
fiscal 1996 while Open Pit barbecue sauce and Argentine retail improved.
The net sales of the agricultural products segment increased 1.6% in fiscal
1996 to $369.1 million due principally to double-digit gains in contract
manufacturing for Campbell Foodservice. Fresh mushroom sales weakened in fiscal
1996 but Argentine beef sales increased slightly as higher sales to Campbell
offset export weaknesses related to overall reduced demand for beef products in
Europe. This segment's earnings before interest and taxes declined 16%
principally due to higher mushroom costs.
32
LIQUIDITY AND CAPITAL RESOURCES
Vlasic's principal capital requirements are to fund working capital needs and
capital expenditures and to meet required debt payments. Vlasic anticipates
that its operating cash flow, together with available borrowings under the New
Credit Facility, will be sufficient to meet its working capital requirements,
capital expenditure requirements and interest service requirements on its debt
obligations. Assuming that the transactions contemplated by the Spin-Off had
been consummated on February 1, 1998, Vlasic's pro forma debt and shareowners'
equity at February 1, 1998 would have been approximately $572.6 million
(consisting of $502 million of long-term debt, the $58.7 million payable to
Campbell from subsidiaries of Vlasic and $11.9 million of notes payable) and
$138.7 million, respectively. Vlasic's pro forma interest expense would have
been approximately $40.7 million in fiscal 1997 had the Spin-Off been
consummated as of the beginning of fiscal 1997. See "Pro Forma Condensed
Combined Financial Information."
Cash Flows
Net cash provided by operating activities was $178.4 million in fiscal 1997,
$152.2 million in fiscal 1996, and $111.2 million in fiscal 1995--a total cash
flow of $441.8 million over the three-year period. Cash flows from operations
are principally and consistently driven by net earnings before depreciation and
amortization and restructuring charges. However, strong working capital
management, particularly in the last two years, has added over $52 million to
cash flows from operations.
Vlasic's cash flows from operations provided adequate funding for capital
expenditures in all years and provided for substantial reductions in Campbell's
net investment in Vlasic of $104 million in fiscal 1997 and $94.6 million in
fiscal 1996. In fiscal 1995, the acquisition of Stratford-upon-Avon was funded
principally from cash flows from operations in excess of capital expenditures
and an increase in Campbell's net investment in Vlasic of $8.6 million.
Cash flows used in investing activities are principally for capital
expenditures, which were $79.3 million in fiscal 1997, $59.1 million in fiscal
1996 and $51 million in fiscal 1995. Capital expenditures have been somewhat
higher than normal ($50 million) in fiscal 1996 and fiscal 1997 due to
restructuring programs in the Swanson U.S. and Vlasic pickle businesses. Older,
inefficient plants were closed and new capacity added to newer, more modern
facilities as discussed under "--Restructuring Program" above. In addition to
capital expenditures, fiscal 1995 cash flows used in investing activities
included the $60 million acquisition of the SonA pickle, canned beans and
vegetables business in the U.K.
Financial Position
Vlasic's financial position has been relatively stable over the years.
Accounts receivable and inventories declined and accounts payable increased as
working capital levels were managed aggressively. Accrued liabilities declined
due principally to charges against the restructuring reserve.
Fixed assets reflect the excess of capital expenditures over depreciation and
asset sales.
MARKET RISK SENSITIVITY; DERIVATIVE FINANCIAL INSTRUMENTS
Vlasic does not enter into derivative financial instruments for trading
purposes, nor is it party to any leveraged derivative instrument. The use of
derivative financial instruments is monitored through regular communication
with senior management and the utilization of written guidelines.
Vlasic's use of derivative financial instruments is currently limited to
forward foreign exchange contracts, which are used to hedge firm sale and
purchase commitments denominated in foreign currencies. At August 3,
33
1997 and July 28, 1996, open contracts and related deferred gains or losses
were not significant. All open contracts mature in fiscal 1998.
INFLATION
Inflation during recent years has not had a significant effect on Vlasic.
RECENT DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)--"Earnings per
Share." The standard requires dual presentation of "basic" and "diluted"
earnings per share. Vlasic will adopt SFAS 128 in its first quarterly earnings
statement issued after the effective date of the Spin-Off. The earnings per
share information included in the Pro Forma Condensed Combined Statements of
Earnings on pages 23 and 24 have been calculated in accordance with SFAS 128.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130)--"Reporting Comprehensive Income." This standard requires the
reporting and display of comprehensive income in a full set of general purpose
financial statements. The provisions of the statement are effective for fiscal
years beginning after December 15, 1997.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE SECOND QUARTERS AND SIX MONTH PERIODS ENDED
FEBRUARY 1, 1998 AND JANUARY 26, 1997
The following discussion is based upon and should be read in conjunction with
the Unaudited Interim Combined Financial Statements, including the notes
thereto, included elsewhere in this document.
GENERAL
See the "General" section of the Management's Discussion and Analysis of the
audited annual financial statements on pages 28 and 29 for a description of
businesses included, impact of assumption of debt by Vlasic under the New
Credit Facility and other arrangements between Campbell and Vlasic relating to
the Spin-Off.
The unaudited Interim Combined Financial Statements may not necessarily be
indicative of the results of operations, financial position and cash flows of
Vlasic in the future or had it operated as a separate, independent company
during the periods presented. The unaudited Interim Combined Financial
Statements do not reflect any changes that may occur in the financing and
operations of Vlasic as a result of the Spin-Off.
RESULTS OF OPERATIONS
Overview
Net sales in the second quarter of fiscal 1998 were $375.3 million, a
decrease of 2.5% from the second quarter of fiscal 1997. Comparability in net
earnings with the second quarter last year was impacted by the adoption of a
one-time accounting change. On November 20, 1997, the Emerging Issues Task
Force (EITF) released Issue 97-13 "Accounting for Costs Incurred in Connection
with a Consulting Contract that Combines Business Process Reengineering and
Information Technology Transformation." The impact of this required accounting
change was a charge of $0.6 million after-tax. Excluding the accounting change,
earnings before cumulative effect of accounting change in the second quarter
were $18.8 million, a decrease of 4.4% from last year. Including the accounting
change, net earnings in the second quarter were $18.2 million, a decrease of
7.5% from last year.
Net sales for the first six months of fiscal 1998 were $723.2 million, a
decrease of 3.6% compared to the first six months of fiscal 1997. Net earnings
for the first six months of fiscal 1998 were $34.3 million, an increase of
16.2% compared to the first six months of fiscal 1997, the latter of which was
impacted by a first quarter fiscal 1997 restructuring charge. Excluding the
accounting change discussed above from fiscal 1998 and the after-tax
restructuring charge of $7.8 million from fiscal 1997, net earnings declined
6.3% in the first six months of fiscal 1998.
Assuming that the transactions contemplated by the Spin-Off had been
consummated as of the beginning of fiscal 1997, Vlasic's pro forma interest
expense would have been approximately $20.5 million and its pro forma net
earnings before cumulative effect of accounting change would have been
approximately $21.2 million in the first six months of fiscal 1998. See "Pro
Forma Condensed Combined Financial Information."
35
Combined Statement of Earnings
The following table sets forth certain items in Vlasic's combined statements
of earnings as percentages of its net sales for the fiscal quarters indicated:
[Download Table]
SECOND QUARTER SIX MONTHS
----------------------- -----------------------
FISCAL 1998 FISCAL 1997 FISCAL 1998 FISCAL 1997
----------- ----------- ----------- -----------
Net sales..................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold......... 71.4% 70.8% 71.8% 70.8%
Marketing and selling ex-
penses....................... 15.5% 16.8% 15.9% 17.0%
Administrative expenses....... 3.7% 3.4% 4.0% 3.6%
Research and development ex-
penses....................... 0.5% 0.5% 0.5% 0.5%
Other (income) expense........ 0.4% 0.7% 0.0% 0.5%
Restructuring charge.......... 0.0% 0.0% 0.0% 1.8%
------ ------ ------ ------
Total costs and expenses.... 91.5% 92.2% 92.2% 94.2%
Earnings before interest and
taxes........................ 8.5% 7.8% 7.8% 5.8%
Second Quarters
---------------
Net sales of $375.3 million in the second quarter of fiscal 1998 decreased
2.5% from the second quarter of fiscal 1997. Changes in selling prices
increased net sales 1.0% and changes in foreign currency rates reduced net
sales by 1.2%. Volume declines in Vlasic pickles, the German foods distribution
business and the edible oils business in Argentina resulted in a 2.3% decline
in net sales. Although the German foods distribution business continued to
experience a period-to-period decline in net sales as a result of the fiscal
1997 systems difficulties, the rate of the decline is moderating.
Cost of products sold as a percentage of net sales increased by 0.6 points to
71.4% in the second quarter of fiscal 1998, up from 70.8% in the second quarter
of fiscal 1997, as the highest cattle costs in over a decade in Argentina
offset improvements in other manufacturing operations, principally Swanson
frozen foods and Vlasic pickles which benefited from the fiscal 1996 and fiscal
1997 restructuring programs.
Marketing and selling expenses as a percentage of net sales declined in the
second quarter of fiscal 1998 to 15.5% from 16.8% in the second quarter of
fiscal 1997, principally due to lower couponing and advertising in Swanson U.S.
and Vlasic pickles.
Administrative expenses, as a percentage of net sales, increased 0.3 points
in the second quarter of fiscal 1998 to 3.7% from 3.4% in the second quarter of
fiscal 1997, as a result of increased service fees from Campbell.
Research and development expenses, as a percentage of net sales, were
unchanged in the second quarter of fiscal 1998 compared to the second quarter
of fiscal 1997.
Other expense in the second quarter of fiscal 1998 was $1.4 million compared
to $2.3 million in the second quarter of fiscal 1997. The decline is
attributable to reduced expense associated with Campbell's long-term incentive
plan.
Earnings before interest and taxes as a percentage of net sales were 8.5% in
the second quarter of fiscal 1998 compared to 7.8% in the second quarter of
fiscal 1997. The increased margin was driven by reduced marketing expenses and
improved manufacturing efficiencies in the U.S., offset by the higher cattle
costs in Argentina.
The effective income tax rate was 40.7% in the second quarter of fiscal 1998
compared to 33.0% in the second quarter of fiscal 1997. The higher tax rate in
fiscal 1998 is driven by lower earnings in Argentina where the tax rate is
lower due to export rebates which are excludable from taxable income.
36
Six Months
----------
Net sales of $723.2 million in the first six months of fiscal 1998 decreased
3.6% from the first six months of fiscal 1997. Changes in selling prices
increased net sales 0.5% and changes in foreign currency rates reduced net
sales by 1.0%. Volume declines in Vlasic pickles, the German foods distribution
business and the edible oils business in Argentina resulted in a 3.1% decline
in net sales. Although the German foods distribution business continued to
experience a period-to-period decline in net sales as a result of the fiscal
1997 systems difficulties, the rate of the decline is moderating.
Cost of products sold as a percentage of net sales increased by 1.0 points to
71.8% in the first six months of fiscal 1998, up from 70.8% in the first six
months of fiscal 1997, as the highest cattle costs in over a decade in
Argentina offset improvements in other manufacturing operations, principally
Swanson frozen foods and Vlasic pickles which benefited from the fiscal 1996
and fiscal 1997 restructuring programs.
Marketing and selling expenses as a percentage of net sales declined in the
first six months of fiscal 1998 to 15.9% from 17.0% in the first six months of
fiscal 1997, principally due to lower couponing and advertising in Swanson U.S.
and Vlasic pickles.
Administrative expenses, as a percentage of net sales, increased 0.4 points
in the first six months of fiscal 1998 to 4.0% from 3.6% in the first six
months of fiscal 1997, as a result of increased service fees from Campbell.
Research and development expenses, as a percentage of net sales, were
unchanged in the first six months of fiscal 1998 compared to the first six
months of fiscal 1997.
Other (income) expense in the first six months of fiscal 1998 was $0.1
million income compared to $4.0 million expense in the first six months of
fiscal 1997. The variance is attributable to a gain on a fire insurance
settlement in the first quarter of fiscal 1998 as well as reduced expense
associated with Campbell's long-term incentive plan.
Earnings before interest and taxes as a percentage of net sales were 7.8% in
the first six months of fiscal 1998 compared to 5.8% in the first six months of
fiscal 1997. Excluding the first quarter fiscal 1997 restructuring charge,
earnings before interest and taxes would have been 7.4% of net sales. The
increased margin was driven by reduced marketing expenses and improved
manufacturing efficiencies in the U.S., offset by the higher cattle costs in
Argentina.
The effective income tax rate was 37.4% in the first six months of fiscal
1998 compared to 31.3% in the first six months of fiscal 1997. Excluding 1997's
restructuring charge, the tax rate would have been 33.0%. The higher tax rate
in fiscal 1998 is driven by lower earnings in Argentina where the tax rate is
lower due to export rebates which are excludable from taxable income.
Restructuring Program
A special charge of $12.6 million ($7.8 million after tax) was recorded in
the first quarter of fiscal 1997 to cover the costs of a restructuring program.
The restructuring program was designed to improve operational efficiency by
closing various U.S. pickle facilities and reducing approximately 50
administrative and operational positions from the worldwide workforce. The
restructuring charge included approximately $4.6 million in cash charges,
primarily related to severance and employee benefit costs. The balance of the
restructuring charge, amounting to $8.0 million, relates to non-cash charges
for losses on the disposition of plant assets. The program is now substantially
completed.
37
The fiscal 1997 restructuring program is expected to result in approximately
$10 million in aggregate savings in fiscal 1997 and fiscal 1998 from reductions
in employee salaries and benefits, plant overhead and depreciation. See Note 6
to the Unaudited Interim Combined Financial Statements for the components of
the restructuring liability and the related activity.
Results by Segment
The following table sets forth certain segment information for the fiscal
periods indicated:
[Download Table]
SECOND QUARTER SIX MONTHS
----------------------- -----------------------
FISCAL 1998 FISCAL 1997 FISCAL 1998 FISCAL 1997
----------- ----------- ----------- -----------
(000 OMITTED)
NET SALES
Frozen Foods................ $161,939 $160,508 $319,593 $319,189
Grocery Products............ 122,088 137,698 224,283 250,134
Agricultural Products....... 93,811 88,917 185,480 186,146
Eliminations................ (2,521) (2,263) (6,187) (5,293)
-------- -------- -------- --------
Total..................... $375,317 $384,860 $723,169 $750,176
======== ======== ======== ========
EARNINGS BEFORE INTEREST AND
TAXES
Frozen Foods................ $ 19,336 $ 14,847 $ 38,138 $ 27,130
Grocery Products............ 14,101 13,324 19,087 12,122
Agricultural Products....... (1,430) 1,800 (690) 4,281
-------- -------- -------- --------
Total..................... $ 32,007 $ 29,971 $ 56,535 $ 43,533
======== ======== ======== ========
Second Quarters
---------------
The net sales of the frozen foods segment increased 0.9% in the second
quarter of fiscal 1998 compared to the second quarter of fiscal 1997. Swanson
U.S. sales increased 3.4% due to the timing of marketing programs. Swanson
Canada was up slightly, excluding the impact of foreign exchange rates.
Freshbake declined due to lower donut and private label sales. This segment's
earnings before interest and taxes increased 30% in the second quarter,
principally due to higher sales, to improved manufacturing costs and reduced
marketing expense in Swanson U.S. and to improved manufacturing costs at
Freshbake.
The net sales of the grocery products segment declined 11.3% in the second
quarter of fiscal 1998 compared to the second quarter of fiscal 1997, due to
lower volume in the German foods distribution business, softness in the U.S.
pickle category and lower sales of edible oils in Argentina. Although the
German foods distribution business continued to experience a period-to-period
decline in net sales as a result of the fiscal 1997 systems difficulties, the
rate of the decline is moderating. This segment's earnings before interest and
taxes increased 5.8% in the second quarter driven by improved manufacturing
costs and reduced marketing in Vlasic pickles.
The net sales of the agricultural products segment increased 5.5% in the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997,
due to higher beef exports from Argentina and contract manufacturing sales to
Campbell Foodservice. This segment incurred a loss of $1.4 million in the
second quarter of fiscal 1998 compared to earnings of $1.8 million in the
second quarter of fiscal 1997 due to the highest cattle costs in over a decade
in Argentina.
Six Months
----------
The net sales of the frozen foods segment increased 0.1% in the first six
months of fiscal 1998 compared to the first six months of fiscal 1997. Swanson
U.S. increased 1.4% as second quarter marketing programs
38
offset the decline in the first quarter. Swanson Canada had a double digit
increase driven by a strong first quarter. Freshbake declined due to lower
donut and private label sales. This segment's earnings before interest and
taxes increased 41% in the first six months. Excluding fiscal 1997's
restructuring charge, the increase was 28%, driven by improved manufacturing
costs and reduced marketing in Swanson U.S., increased Swanson Canada sales,
and improved manufacturing costs at Freshbake.
The net sales of the grocery products segment decreased 10% in the first six
months of fiscal 1998 compared to the first six months of fiscal 1997, due to
lower volume in the German foods distribution business, softness in the U.S.
pickle category and lower sales of edible oils in Argentina. Although the
German foods distribution business continued to experience a period-to-period
decline in net sales as a result of the fiscal 1997 systems difficulties, the
rate of the decline is moderating. This segment's earnings before interest and
taxes increased 57% in the first six months of fiscal 1998. Excluding fiscal
1997's restructuring charge, the earnings before interest and taxes declined
13.5%. The majority of the decline was in the German foods distribution
business and in Argentina due to the higher cattle prices. Vlasic pickle
earnings improved due to improved manufacturing costs and reduced marketing.
The net sales of the agricultural products segment declined 0.4% in the first
six months of fiscal 1998 compared to the first six months of fiscal 1997, as
declines in contract manufacturing sales to Campbell Foodservice in the first
quarter and lower fresh mushroom sales were not fully offset by higher sales of
beef exported from Argentina. This segment incurred a loss of $0.7 million in
the first six months of fiscal 1998 compared to earnings before interest and
taxes of $4.3 million in the first six months of fiscal 1997 due to the higher
cattle prices in Argentina. Mushroom costs improved in the six month period.
LIQUIDITY AND CAPITAL RESOURCES
Vlasic's principal capital requirements are to fund working capital needs and
capital expenditures and to meet required debt payments. Vlasic anticipates
that its operating cash flow, together with available borrowings under the New
Credit Facility, will be sufficient to meet its working capital requirements,
capital expenditure requirements and interest service requirements on its debt
obligations. Assuming that the transactions contemplated by the Spin-Off had
been consummated on February 1, 1998, Vlasic's pro forma debt and shareowners'
equity at February 1, 1998 would have been approximately $572.6 million
(consisting of $502.0 million of long-term debt, the $58.7 million payable to
Campbell from subsidiaries of Vlasic and $11.9 million of notes payable) and
$138.7 million, respectively. Vlasic's pro forma interest expense would have
been approximately $20.5 million in the first six months of fiscal 1998 had the
Spin-Off been consummated as of the beginning of fiscal 1998. See "Pro Forma
Condensed Combined Financial Information."
Cash Flows
Net cash used in operating activities was $46.8 million in the first six
months of fiscal 1998 compared to net cash provided of $0.2 million in the
first six months of fiscal 1997. The variance in cash flow from operations was
driven by changes in working capital. The increase in working capital was
higher in the first six months of fiscal 1998 compared to the first six months
of fiscal 1997 due to a larger increase in receivables resulting from the
timing of sales and a larger decrease in accounts payable.
Cash used in investing activities principally results from capital
expenditures. Capital expenditures were $23.3 million in the first six months
of fiscal 1998 compared to $35.4 million in the first six months of fiscal
1997. Capital expenditures were higher in the prior year due to new capacity
added to newer, modern facilities related to the fiscal 1996 and fiscal 1997
restructuring programs. Capital expenditures for the fiscal year 1998 are
expected to be $45 million compared to $79 million in fiscal 1997.
Cash provided by financing activities was principally funded from Campbell
and was used primarily for seasonal working capital requirements.
39
Financial Position
Vlasic's financial position has been relatively stable over the years.
However, seasonality drives working capital increases in the first six months.
The increase in the first six months of fiscal 1998 was higher than that of the
first six months of fiscal 1997 due to higher receivables resulting from the
timing of sales and lower accounts payable, as well as lower accrued
liabilities due to the completion of the fiscal 1996 and fiscal 1997
restructuring programs.
YEAR 2000
The year 2000 issue results from computer systems which process dates based
on two digits for the year of a transaction rather than a full four digits.
Accordingly, these systems are unable to properly process transactions with
dates in the year 2000 and beyond. Vlasic has developed and is currently
executing an implementation plan to address this issue by replacing or
modifying its key financial information and operational computer systems.
Vlasic believes that all systems necessary to manage the business effectively
will be implemented, modified or upgraded before the year 2000 dating issue
impacts these systems. The anticipated costs associated with modifying current
systems to be year 2000 compliant will be expensed as incurred and are not
expected to be significant to Vlasic's financial results. In addition, Vlasic
has assessed its relationships with customers and vendors and does not
anticipate any significant problems to occur as a result of the year 2000
issue.
RECENT DEVELOPMENTS
In the second quarter of fiscal 1998, Vlasic adopted the provisions of
Emerging Issues Task Force Bulletin 97-13 (EITF 97-13)--"Accounting for Costs
Incurred in Connection with a Consulting Contract That Combines Business
Process Reengineering and Information Technology Transformation." The
transition provisions of EITF 97-13 require that companies that previously
capitalized business process reengineering costs incurred in connection with an
overall information technology project identify remaining unamortized costs.
These unamortized costs were charged off to the statement of earnings as a
cumulative effect of a change in accounting principle in the second quarter of
fiscal 1998. The cumulative effect of this change in accounting principle is
$0.6 million, net of an income tax benefit of approximately $0.4 million. See
Note 2 to the Unaudited Interim Combined Financial Statements.
Vlasic is currently reviewing opportunities to streamline certain operational
and administrative staff functions which, if approved, would result in special
charges in the range of approximately $25 to $30 million before taxes.
40
FINANCING
Prior to the Spin-Off, the Vlasic Businesses will continue to be financed
through Campbell. In connection with the Spin-Off, a portion of Campbell's
outstanding indebtedness will effectively be transferred to Vlasic as of the
Distribution Date in the following manner:
(i) Campbell will borrow approximately $500 million under a new five-year
$750 million unsecured revolving credit facility. The New Credit Facility
will provide that, upon effectiveness of the Spin-Off, the repayment
obligations of Campbell thereunder will be assumed by Vlasic with the
effect that Campbell will have no further such obligations thereunder;
(ii) The amount borrowed by Campbell will be used to repay outstanding
third-party indebtedness of Campbell;
(iii) Vlasic will indemnify Campbell against all liabilities under the
New Credit Facility, including the obligation to repay the amounts
initially borrowed by Campbell;
(iv) All intercompany receivables, payables, loans or advances between
Campbell and Vlasic will be deemed contributed to capital and canceled
without the payment of any cash by either Campbell or Vlasic to the other,
except for certain intercompany payables representing advances from
Campbell to subsidiaries of Vlasic which will remain outstanding
obligations of such subsidiaries of Vlasic to Campbell (approximately $58.7
million);
(v) Vlasic will have the sole right to make further borrowings under the
New Credit Facility; and
(vi) Campbell will not be obligated with respect to, and will have no
right to make, any such further borrowings under the New Credit Facility.
The New Credit Facility has been filed as an exhibit to the Exchange Act
registration statement of which this Information Statement is a part (the
"Registration Statement"). The following summary is qualified in its entirety
by reference to the New Credit Facility as filed.
The interest rate applicable to borrowings under the New Credit Facility will
be, at Vlasic's option, indexed to (i) the Base Rate (as defined in the New
Credit Facility), or (ii) the adjusted London Interbank Offering Rate, plus an
appropriate spread over such rate during the period of the New Credit Facility.
The New Credit Facility also provides for a facility fee on the $750 million
commitment. Such spread and fee may change should Vlasic's debt ratings change.
There is also an annual administration fee.
Vlasic may enter into interest rate swap agreements with a selected number of
creditworthy financial institutions in order to reduce its interest rate
exposure. Vlasic would likely use interest rate swaps to fix the interest rate
on a portion of the amounts outstanding under the New Credit Facility.
The New Credit Facility contains certain restrictive covenants applicable to
Vlasic that will limit its ability or the ability of its subsidiaries to create
or allow to exist certain liens. The New Credit Facility also contains
restrictive covenants that will restrict Vlasic's ability to merge or dispose
of all or a substantial portion of its assets. The covenants of the New Credit
Facility also require Vlasic to maintain a minimum fixed charge coverage ratio
of 3.00 : 1.00 and a maximum leverage ratio declining from 4.50 : 1.00 in the
first three quarters of fiscal 1998 to 3.75 : 1.00 in fiscal 2001.
DIVIDEND POLICY
Although Campbell has historically paid dividends to its shareowners on a
regular basis, Vlasic will not be adopting such a policy. Vlasic currently
anticipates that no cash dividends will be paid on the Vlasic Common Stock in
the foreseeable future in order to conserve cash for the repayment of debt,
future acquisitions and capital expenditures. We expect that Vlasic's Board
will periodically re-evaluate this dividend policy taking into account
operating results, capital needs and other factors.
41
MANAGEMENT
DIRECTORS
It is contemplated that the Vlasic Board of Directors will consist of seven
directors. The three initial directors named below will be elected by Campbell,
as sole shareowner of Vlasic, prior to the Distribution Date. The remaining
four directors will be either elected by the Vlasic Board of Directors
following the Spin-Off pursuant to the provisions of the Vlasic Bylaws
governing the filling of vacancies or nominated for election at Vlasic's first
annual meeting of shareowners.
Donald J. Keller, Chairman
Shaun F. O'Malley
Robert F. Bernstock
Biographies of those members of the Vlasic Board of Directors who will be
elected prior to the Distribution Date follow.
DONALD J. KELLER, age 65, will be elected Chairman. Mr. Keller is currently
the Chairman of B. Manischewitz Company, the former Chairman of Prestone
Products Corporation, a director of Dan River Inc., Colorado Prime Corp. and
Air Express International and a former director of Sysco Corp., General Foods
Corp. and WestPoint Pepperell Inc. Immediately prior to his retirement in 1986
after 23 years, Mr. Keller was Executive Vice President of General Foods
Corporation in addition to being a director.
SHAUN F. O'MALLEY, age 62, will be elected a Director. Mr. O'Malley is
Chairman Emeritus of Price Waterhouse LLP and serves on a number of corporate,
civic, educational and cultural boards, including The Wharton School at the
University of Pennsylvania, Horace Mann Educators Corporation, Coty, Inc., the
Curtis Institute of Music and the World Affairs Council of Philadelphia. During
his tenure at Price Waterhouse, Mr. O'Malley was named U.S. Senior Partner
(1988) and the World Firm Co-CEO (1990). In 1992, he was appointed Joint
Chairman of Price Waterhouse and became Chairman in 1993. Mr. O'Malley retired
in 1995.
For biographical information concerning ROBERT F. BERNSTOCK, see "--Executive
Officers and Senior Operating Management."
The role of the Board is to provide independent corporate governance and
company oversight. Areas of emphasis include
. Selection, motivation and evaluation of the Chief Executive Officer;
. Corporate and Board organization, staffing and succession planning;
. Compensation programs and personnel evaluation;
. Long-range goals, strategies and plans;
. Business reviews, financial performance and reporting;
. Significant investment or disinvestment; and
. Optimization of shareowner wealth.
COMMITTEES OF THE VLASIC BOARD
Vlasic will have an Audit Committee, a Compensation and Organization
Committee and a Governance Committee of the Board of Directors. The membership
of each of such committees will be determined following the Spin-Off.
42
Audit Committee
The Audit Committee will
. Recommend the appointment of Vlasic's independent accountants;
. Review the scope and results of the audit plans of the internal auditors
and the independent accountants;
. Oversee the scope and adequacy of Vlasic's internal accounting control
and record-keeping systems;
. Review compliance with Vlasic's Conflict of Interest Program;
. Review the objectivity, effectiveness and resources of the internal audit
function, which will report directly to the Committee;
. Confer independently with the internal auditors and the independent
accountants;
. Review non-audit services to be performed by the independent accountants;
and
. Determine the appropriateness of fees for audit and non-audit services
performed by the independent accountants.
Compensation and Organization Committee
The Compensation and Organization Committee will
. Be responsible for the Chief Executive Officer evaluation process;
. Review and recommend to the Board salary and incentive compensation,
including bonus and stock options, for the Chief Executive Officer;
. Review and approve the salaries and incentive compensation for all
corporate officers and senior executives whose annual salary is $150,000
or more;
. Review and approve the short-term and long-term incentive compensation
programs, including the performance goals thereunder;
. Review the salary structure and apportionment of compensation among
salary and short-term and long-term incentive compensation;
. Review and approve the incentive compensation to be allocated to
employees; and
. Review, prior to becoming effective, any major organization change that
the Chief Executive Officer intends to implement.
Governance Committee
The Governance Committee will review and make recommendations to the Board
regarding
. Organization and structure of the Board;
. Qualifications for director candidates;
. Candidates for election to the Board;
. Candidates for the position of Chairperson of the Board;
. Chairpersons and members for appointment to Board Committees;
. The role and effectiveness of the Board and each Committee in Vlasic's
corporate governance process;
. Evaluations of the Board and each of the directors; and
. Remuneration for non-employee directors.
43
DIRECTORS' COMPENSATION
Donald J. Keller will receive a retainer of $100,000 and a grant of options
valued at $150,000 for his first year of service as Chairman, and it is
presently contemplated that Mr. Keller will receive similar compensation for
subsequent years of service. Mr. Keller will also receive a special grant of
options valued at approximately $80,000 to compensate him for the loss of
certain options to acquire Sysco Corp. stock, which he will forfeit as a result
of becoming Chairman of Vlasic. Other non-employee directors will receive an
annual grant of options valued at $40,000, a fee of $2,000 for each regular
meeting of the Board of Directors attended and a fee of $1,500 for each
committee meeting attended. Employee directors of Vlasic will not receive
additional compensation for serving on the Board of Directors. Directors will
be reimbursed for actual travel costs.
EXECUTIVE OFFICERS AND SENIOR OPERATING MANAGEMENT
The following persons are expected to serve as the executive officers of
Vlasic as of the Distribution Date: Robert F. Bernstock, Norma B. Carter, James
M. Dorsch, Carlos Oliva Funes, Murray S. Kessler, William R. Lewis, Mark I.
McCallum and Rolf B. Richter.
Biographies of the executive officers and the other members of senior
operating management of Vlasic as of the Distribution Date follow.
ROBERT F. BERNSTOCK, age 47, has been elected President and Chief Executive
Officer. Mr. Bernstock was most recently an Executive Vice President of
Campbell. He joined Campbell in March 1985 and was elected Corporate Vice
President and President for U.S. Soup (1990), then was promoted to President of
Campbell Soup Company, Ltd. in Canada (1992), President of International Soup
(1993), President of International Grocery (1994) and President of U.S. Grocery
(1996). Prior to joining Campbell, Mr. Bernstock was Vice President of
Marketing for Multimate International Inc., one of the largest computer
software companies in the nation, and Vice President of Marketing for United
Satellite Communications Inc., overseeing the launch of the first direct
broadcast satellite service. From 1974 to 1983 he held several positions with
General Foods' Main Meal Division, concluding as Group Product Manager. Mr.
Bernstock graduated with Honors from Hamilton College (1972) and received an
MBA from Harvard University (1974).
NORMA B. CARTER, age 50, will be elected Vice President, General Counsel and
Corporate Secretary. Ms. Carter has served in the Legal Department of Campbell
since January 1981, most recently as Vice President-Legal. As a member of
Campbell's legal department she has had full legal generalist responsibilities,
while specializing in antitrust and global strategic alliances. Ms. Carter
joined Campbell after six years as a trial lawyer for the Antitrust Division of
the U.S. Department of Justice. She received her undergraduate degree from
William Smith College and her law degree from Rutgers University.
JAMES M. DORSCH, age 52, will be elected Vice President and General Manager--
Vlasic. Mr. Dorsch currently serves as the General Manager for the Vlasic
division of Campbell. Prior to that, Mr. Dorsch served as the Vice President of
Condiments for the Frozen and Specialty division of Campbell. He joined
Campbell in October 1977 and was promoted through director positions in
Marketing, including major brands such as Prego and V8, and marketing
responsibility for Europe and Asia. Mr. Dorsch received his undergraduate
degree from Northwestern University and his MBA from the University of
Wisconsin.
CARLOS OLIVA FUNES, age 55, will be elected Vice President and will continue
to serve as President of Swift-Armour in Argentina. Mr. Oliva Funes was named
President of Swift-Armour in 1983 and in 1989 was appointed President of
Campbell South America, also holding the additional title of Corporate Vice
President of Campbell. Mr. Oliva Funes served as Chairman for the Argentine
Meat Packers Association from 1992-
44
1995, and is now the Vice Chairman. He is a member of the Argentine Chamber of
Commerce and the Argentine Management Council. Before joining Swift-Armour in
1977 as Executive Vice President, Mr. Oliva Funes was Vice President of the
Huancayo Group from 1971 to 1977. Mr. Oliva Funes received his undergraduate
degree from the Catholic University of Cordoba Province and completed one year
of postgraduate education in Business Administration at the University of
California.
MURRAY S. KESSLER, age 38, will be elected Vice President and General
Manager--Swanson. Mr. Kessler currently serves as General Manager for the
Swanson division of Campbell. Prior to that, he served as the Vice President of
Sales and Marketing for the Pace Foods division of Campbell. He joined Campbell
in December 1986 and was promoted through various positions, including Vice
President of Sauces and Vice President--National Sales Manager for the Meal
Enhancement Group of Campbell. Prior to that, Mr. Kessler spent three years in
brand management with The Clorox Company. He received his undergraduate degree
from Villanova University and earned his MBA from New York University.
WILLIAM R. LEWIS, age 56, will be elected Chief Financial Officer. Most
recently, Mr. Lewis served as the Chief Financial Officer of 3D Ultrasound,
Inc., Air & Water Technologies Corporation, and other similar assignments in
association with Allen & Company. Prior to that, Mr. Lewis was Chief Financial
Officer of Simplicity Holdings, Inc. and the Culbro Corporation. He has also
served as Vice President and Treasurer for Columbia Pictures, Inc. and in
various financial positions with PepsiCo Inc. Prior to January 22, 1993, Mr.
Lewis was Chief Financial Officer of Nutri/System, Inc., a privately-held
company which filed a petition under Chapter 11 of the United States Bankruptcy
Code in May 1993. Mr. Lewis earned his undergraduate degree at Dartmouth
College and his MBA in Finance from Columbia University.
MARK I. MCCALLUM, age 43, will be elected Vice President and General
Manager--Grocery. Mr. McCallum currently serves Campbell as General Manager for
the same grocery products businesses for which he will be responsible at
Vlasic. Prior to that, he served as Vice President and General Manager for the
Sanwa, Campbell Fresh and the Prepared Foods divisions of Campbell. He joined
Campbell in January 1993 as the General Manager for Campbell Australia and
progressed to become the Managing Director for Campbell Asia in Hong Kong. For
fifteen years prior, he worked in production, sales and marketing positions in
his native Australia with Cadbury Schweppes and General Foods. Mr. McCallum
earned his undergraduate degree at Western Sydney University in Australia.
ROLF B. RICHTER, age 44, will be elected Vice President and General Manager--
Europe. Mr. Richter currently serves Campbell as the Managing Director for the
same set of businesses in Europe for which he will be responsible at Vlasic.
Prior to that, he served in various positions with Campbell including Managing
Director of the Frozen Division in the United Kingdom; General Manager for the
Ramen Division; Vice President and General Manager at Campbell Canada for
Frozen Foods and Foodservice; and General Manager--Grocery Group. Mr. Richter
joined Campbell in 1985. He earned his undergraduate degree from the Ryerson
Polytechnical Institute in Canada.
JOSEPH ADLER, age 43, will be elected Vice President--Controller. He
currently serves as the Controller for the Specialty Foods division of
Campbell. Prior to that, he was Vice President--Finance and Controller for the
Meal Enhancement Group of Campbell's U.S. Grocery division, and served as the
interim controller of the U.S. Grocery division. Previous to that, Mr. Adler
was Campbell's Assistant Corporate Controller--Business Planning and Assistant
Corporate Controller--Financial Reporting. Before joining Campbell in February
1982, Mr. Adler was responsible for financial reporting for SPS Technologies,
Inc. and was senior auditor with Deloitte & Touche. A Certified Public
Accountant, Mr. Adler received both a Bachelor of Science and an MBA from Rider
University.
45
LYNNE A. ALVAREZ, age 41, will be elected Vice President--Marketing Services.
Currently, Ms. Alvarez serves as Vice President of Customer Marketing, Planning
and Promotion with Campbell which she joined in May 1996. Previous to that, Ms.
Alvarez served six years as the principal in the management consulting firm
L.A. Associates, following five years at American Consulting Corporation where
she was Executive Vice President and a member of the Operating Committee. She
has an undergraduate degree from Yale University and an MBA from Harvard
University.
MITCHELL GOLDSTEIN, age 37, will be elected Vice President--Strategic
Planning and Corporate Development. Currently, Mr. Goldstein serves as the head
of Strategic Planning for the Specialty Foods division of Campbell. Prior to
that, Mr. Goldstein served as the Director of Strategic Planning for the U.S.
Grocery Division of Campbell. He joined Campbell in March 1995 as Director of
Strategic Planning at the corporate level, where he helped develop the
company's strategic growth plan. Prior to that, Mr. Goldstein worked with
Mercer Management Consulting for eleven years, most recently as a Vice
President and Partner. He earned his undergraduate degree from The Wharton
School of the University of Pennsylvania and his MBA from Harvard University.
MAURICE J. LANE, age 41, will be elected Vice President--Sales. Currently,
Mr. Lane serves as the Vice President of National Sales for the Frozen and
Specialty Foods Division of Campbell. Mr. Lane joined Campbell in January 1979
and held various field sales positions in New York, the Southeast and Mid-
Central areas, followed by headquarters sales planning and customer development
positions. Mr. Lane earned his undergraduate degree from the State University
of New York.
ELIZABETH SHUTTLEWORTH, age 46, will be elected Vice President--Information
Technology. Currently, Ms. Shuttleworth serves as the Director of MIS for the
Specialty Foods division of Campbell. Previous to that, she served as the
Director of Business Systems for the U.S. Grocery Division of Campbell. She
joined Campbell in November 1994. Previous to that, for twelve years Ms.
Shuttleworth worked in software development of business process applications in
South Africa, before moving to the United States where she served as a business
analyst and in large project management for Bell Atlantic and as a strategic
consultant for SmithKline Beecham. She earned her undergraduate degree at the
University of South Africa.
RICHARD M. VOSBURGH, age 44, will be elected Vice President--Human Resources.
He currently serves as the Vice President of Human Resources for the Specialty
Foods division. Prior to that, he was the corporate Director of Management
Development and Training for Campbell. Previous to joining Campbell in January
1996, Mr. Vosburgh was Vice President-Human Resources for Hyatt Hotels and
Resorts and Vice President Human Resources for Mervyn's retail stores, a
division of Dayton Hudson Corporation. He was Vice President of The Gallup
Organization and Chief of Organizational Development for Volkswagen AG in
Germany. For eight years, Mr. Vosburgh was in human resources with Pizza Hut
and Taco Bell, divisions of PepsiCo. He earned an undergraduate degree from New
College (Sarasota, Florida) and a Masters and Ph.D. in
Industrial/Organizational Psychology from the University of South Florida.
GREGORY L. WADE, age 49, will be elected Vice President--Technology,
responsible for Research and Development, Quality Assurance and Engineering
Services. He currently serves as the Group Director-Research and Development
and Quality Assurance for the International Grocery Division of Campbell.
Previous to that, he served as the Senior Director-Research and Development for
Canada. Dr. Wade joined Campbell in November 1974. He earned an undergraduate
chemistry degree from Rutgers University, a Masters degree in chemistry from
Saint Joseph's University and a Doctorate in Food Science from Rutgers
University.
46
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the compensation received by Vlasic's
President and Chief Executive Officer and the four other executive officers of
Vlasic who, based on employment with Campbell, were the most highly compensated
for fiscal 1997. William R. Lewis was recently elected Chief Financial Officer
of Vlasic and was not employed by Campbell during fiscal 1997. Accordingly, he
does not appear in the following table.
SUMMARY COMPENSATION
[Enlarge/Download Table]
ANNUAL COMPENSATION LONG-TERM AWARDS
------------------------ -------------------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND FISCAL STOCK OPTIONS(3) ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY BONUS AWARDS(2) (#) COMPENSATION(4)
--------------------- ------ -------- -------- ---------- ---------- ---------------
Robert F. Bernstock..... 1997 $336,875 $282,093 $1,880,177 100,000 $18,352
President and Chief 1996 $304,167 $237,751 $ 181,236 91,200 $16,257
Executive Officer 1995 $275,000 $228,800 $ 853,600 31,800 $15,114
Carlos Oliva Funes...... 1997 $430,500 $ 95,696 $ 468,988 10,700 $30,000
Vice President and
President--Swift-Armour
Rolf B. Richter......... 1997 $168,920 $ 87,599 $ 201,856 5,625 $ 0
Vice President and
General Manager--Europe
Murray S. Kessler....... 1997 $165,958 $ 61,696 $ 189,606 4,500 $ 6,830
Vice President and
General Manager--
Swanson
Norma B. Carter......... 1997 $151,667 $ 75,172 $ 231,488 6,750 $ 6,805
Vice President, General
Counsel and Corporate
Secretary
--------
(1) The principal position set forth for each named executive officer reflects
his or her anticipated position with Vlasic as of the Distribution Date.
(2) Dollar values of stock awards are based on market price at the time of
grant. The stock awards listed in this column represent awards of Campbell
Stock and do not reflect the adjustments described in "--Treatment of
Outstanding Campbell Stock Awards." As discussed under that heading,
earnouts of stock awards listed in the above table depend entirely upon the
attainment by Campbell of financial goals for cash return on assets and
earnings per share. The aggregate number of restricted stock or units held
and their value as of the end of the fiscal year for the named executive
officers were as follows: Robert F. Bernstock, 65,316 shares/$3,355,610;
Carlos Oliva Funes, 23,800 shares/$1,222,725, Rolf B. Richter, 10,900
shares/$559,988; Murray S. Kessler, 10,900 shares/$559,988 and Norma B.
Carter, 7,500 shares/$408,123. Campbell pays regular quarterly cash
dividends on restricted stock.
(3) The options listed in this column are options to purchase Campbell Stock
and do not reflect the adjustments discussed in "--Treatment of Outstanding
Campbell Stock Awards." See also "Arrangements Between Campbell and Vlasic
Relating to the Spin-Off--Benefits Sharing Agreement."
(4) "All Other Compensation" consists of Campbell contributions or allocations
to savings plans (tax-qualified and supplemental) or, in the case of Mr.
Oliva Funes, consulting fees for services rendered to other Campbell
businesses in Latin America.
47
The following table shows option grants by Campbell to the named executive
officers during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR(1)
[Enlarge/Download Table]
GRANT DATE
INDIVIDUAL GRANTS VALUE(2)
---------------------------------------------- -------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR GRANT DATE
GRANTED(3) EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#) FISCAL YEAR ($/SH) DATE ($)
---- ---------- ------------ ----------- ---------- -------------
Robert F. Bernstock..... 100,000 3.8% $48.31 6/26/07 $1,565,000
Carlos Oliva Funes...... 10,700 0.4% $48.31 6/26/07 $ 167,455
Rolf B. Richter......... 5,625 0.3% $48.31 6/26/07 $ 88,031
Murray S. Kessler....... 4,500 0.2% $48.31 6/26/07 $ 70,425
Norma B. Carter......... 6,750 0.3% $48.31 6/26/07 $ 105,638
--------
(1) The options shown in this table are options to purchase Campbell Stock
(such options generally, "Campbell Options"). See "--Treatment of
Outstanding Campbell Stock Awards" for a discussion of the treatment in the
Spin-Off of Campbell Options. The Campbell Options listed above do not
reflect the adjustments discussed under that heading.
(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the Black-Scholes option pricing model was chosen to
estimate the grant date present value of the options set forth in this
table. The use of this model should not be construed as an endorsement of
its accuracy at valuing options. All stock option pricing models require a
prediction about the future movement of stock price. The following
assumptions were made for purposes of calculating the grant date present
value: option term of 10 years, volatility of 17.5% (calculated monthly
over the three preceding calendar years), dividend yield of 1.9%,
forfeiture risk rate of 9% and interest rate of 6.8% (ten-year Treasury
note rate at January 2, 1997). The real value of options in this table
depends upon the actual performance of Campbell Stock and, as described in
"--Treatment of Outstanding Campbell Stock Awards," the actual performance
of Vlasic Common Stock during the applicable period and upon when they are
exercised. See also "Arrangements Between Campbell and Vlasic Relating to
the Spin-Off--Benefits Agreement."
(3) Campbell Options have a ten-year term and vest cumulatively over three
years at the rate of 30%, 60% and 100%, respectively, on the first three
anniversaries following the date of grant. Unvested options to purchase
Campbell Stock will be converted into options to purchase Vlasic Common
Stock ("Vlasic Options"), as discussed in "--Treatment of Outstanding
Campbell Stock Awards." Under the terms of the long-term incentive plan
that Vlasic will adopt on or prior to the Distribution Date, such options
will be subject to the same vesting schedule as provided at the time of
grant with the holder receiving full credit for service at Campbell prior
to the Spin-Off. Vlasic Options will vest immediately in the event of a
change in control of Vlasic.
48
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
[Enlarge/Download Table]
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END ($)(2)
----------------------- ---------------------
SHARES VALUE
ACQUIRED ON REALIZED EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE (#) ($)(3) CISABLE CISABLE CISABLE CISABLE
---- ------------ -------- ----------- ----------- ---------- ----------
Robert F. Bernstock..... 4,000 $156,437 176,940 176,560 $5,585,409 $1,710,231
Carlos Oliva Funes...... 20,000 $471,600 44,460 35,940 $1,242,044 $ 515,943
Rolf B. Richter......... -- $ 0 41,340 39,685 $1,319,739 $ 657,094
Murray S. Kessler....... 3,500 $ 98,890 15,245 39,505 $ 403,668 $ 669,389
Norma B. Carter......... 5,600 $209,104 39,100 18,700 $1,253,668 $ 245,025
--------
(1) See "--Treatment of Outstanding Campbell Stock Awards" for a description of
the effect of the Spin-Off on unexercised Campbell Options.
(2) Value of unexercised options equals fair market value of a share into which
the option could have been converted at August 3, 1997 (market price
$51.375), less exercise price, times the number of options outstanding.
(3) Value realized equals pretax market value of the stock on date of exercise,
less the exercise price, times the number of shares acquired. Shares may be
used to pay withholding taxes under Campbell's existing long-term incentive
plan and the long-term incentive plan to be adopted by Vlasic prior to the
Distribution Date.
TREATMENT OF OUTSTANDING CAMPBELL STOCK AWARDS
Effective on the Distribution Date, holders of outstanding options to
purchase Campbell Stock and grantees of restricted stock awards under
Campbell's existing long-term incentive plan will have their interests
adjusted. The purpose of these adjustments is to maintain the value of the
outstanding Campbell Options and restricted stock awards taking into account
the Spin-Off. The Compensation and Organization Committee of Campbell's Board
of Directors has approved formulae to adjust the exercise price and award size
of Campbell Options and restricted stock awards pursuant to the terms and
provisions of each such grant and the Campbell long-term incentive plan.
Stock Options. Employees of Vlasic who hold Campbell Options under the
Campbell long-term incentive plan that have not become exercisable on or prior
to the Distribution Date will have such Campbell Options entirely converted
into Vlasic Options. For these converted options, the exercise price of each
such Vlasic Option will equal the exercise price of the corresponding Campbell
Option prior to the Spin-Off, multiplied by a fraction (the "Vlasic Conversion
Ratio") where the numerator is the composite volume-weighted average price of
Vlasic Common Stock for the trading days during a pricing period to be
determined at a future date (the "Per Share Vlasic Common Stock Price") and the
denominator is the composite volume-weighted average price of Campbell Stock
trading with Vlasic for the trading days during the pricing period to be
determined at a future date (the "Per Share Pre-Spin-Off Campbell Stock
Price"). The number of shares of Vlasic Common Stock subject to each such
Vlasic Option will equal the number of shares subject to the corresponding
Campbell Option prior to the Spin-Off divided by the Vlasic Conversion Ratio.
All other terms of such Vlasic Options shall be the same as the terms of the
Campbell Options from which they were converted.
While the precise number of shares is yet to be determined, it is expected
that Vlasic will grant non-qualified stock options on up to 3,000,000 shares
contemporaneously with the Spin-Off to provide for the
49
conversion of Campbell Options into Vlasic Options. For information on
anticipated additional grants of Vlasic Options in connection with the Spin-
Off, see "--Vlasic Incentive Plans" below.
Employees of Vlasic who hold Campbell Options that are exercisable as of the
Distribution Date will retain the Campbell Options, subject to the following
adjustments to the exercise price and number of shares subject to each such
option (each, an "Adjusted Campbell Option"). The exercise price of each
Adjusted Campbell Option shall be determined by multiplying the Campbell Option
exercise price prior to the Spin-Off by a fraction, which shall be no greater
than 1.0 (the "Campbell Conversion Ratio"), where the numerator is the
composite volume weighted average price of Campbell Stock trading without
Vlasic for the trading days during the pricing period to be determined at a
future date (the "Per Share Post-Spin-Off Campbell Stock Price") and the
denominator is the Per Share Pre-Spin-Off Campbell Stock Price. The number of
shares of Campbell Stock subject to each Adjusted Campbell Option will equal
the number of shares subject to such Campbell Option prior to the Spin-Off
divided by the Campbell Conversion Ratio. All other terms of the Adjusted
Campbell Options shall be the same as the terms of the pre-adjustment Campbell
Options.
Employees of Campbell who will continue to be employed by Campbell after the
Distribution Date and hold any Campbell Options, and holders of any Campbell
Options who retire or who have retired from Campbell on or prior to the
Distribution Date, will retain such options, subject to the adjustments to the
exercise price and number of shares described in the previous paragraph. All
other terms of such Adjusted Campbell Options will remain the same.
Performance-Based Restricted Stock Awards. Performance-based restricted stock
awards under the fiscal 1996 through fiscal 1998 program will be payable in
Campbell restricted stock and will be adjusted by dividing the number of
Campbell restricted shares held on the Distribution Date by the Campbell
Conversion Ratio. In addition, the performance goals under such awards for
periods following the Spin-Off will be adjusted to reflect the Spin-Off. If the
adjusted earning per share goal for Campbell for fiscal 1998 is met, adjusted
awards will be paid to employees of Vlasic and are expected to be paid out on
schedule in October 1998. If the adjusted earnings per share goal for Campbell
for fiscal 1998 is not met, the adjusted awards to employees who will be
employed by Vlasic after the Distribution Date will be pro-rated, based on the
number of completed months in the performance period that such employees were
employees of Campbell. All such pro-rated awards will be paid out in October
1998.
Restricted stock awards granted by Campbell under the fiscal 1998 through
fiscal 2000 program to employees who will be employed by Vlasic after the Spin-
Off will be forfeited. Awards to employees who remain with Campbell following
the Spin-Off will be adjusted by dividing the number of Campbell restricted
shares held on the Distribution Date by the Campbell Conversion Ratio. The
performance goals under such awards for periods following the Spin-Off will be
adjusted to reflect the Spin-Off.
VLASIC INCENTIVE PLANS
On or prior to the Distribution Date, the Vlasic Board will adopt, and
Campbell, as sole shareowner of Vlasic will approve, the following incentive
compensation plans.
Long-Term Incentive Plan
The Vlasic long-term incentive plan is expected to provide for the grant of
various types of long-term incentive awards to selected employees of Vlasic,
consistent with the objectives and restrictions of the plan. Although these
awards may include non-qualified stock options, incentive stock options under
the Code, stock appreciation rights, and restricted and unrestricted share
awards, it is expected that only stock options will be granted under the plan
initially. The term of the plan is expected to be ten years.
50
The plan will vest broad powers in the Compensation and Organization
Committee of Vlasic's Board of Directors to administer and interpret the plan.
This power will include the authority to select the persons to be granted
awards, to determine the terms, goals and conditions of awards, and to
determine whether such goals and conditions have been met.
While the precise number of shares is yet to be determined, it is anticipated
that Vlasic will grant options for up to 1,800,000 shares of Vlasic Common
Stock to senior management of Vlasic following the Spin-Off in addition to
those options granted in connection with the conversion of Campbell Options
described above in "--Treatment of Outstanding Campbell Stock Awards." A total
of 5,800,000 shares of Vlasic Common Stock will be available for issuance under
Vlasic's long-term incentive plan.
Annual Incentive Plan
The Vlasic annual incentive plan is expected to give the Compensation and
Organization Committee of the Vlasic Board the discretion to determine the
aggregate amount of money to be used for awards based upon competitive
compensation practices and such measures of Vlasic's performance as the
Committee selects from time to time. Individual awards will be determined
annually by the Committee in accordance with performance goals established by
the Committee at the beginning of the fiscal year.
Deferred Compensation Plan
It is anticipated that Vlasic will implement a deferred compensation plan
that will allow certain Vlasic executives to defer all or a portion of their
annual salary and annual incentive plan awards, as well as amounts due under
certain other plans or programs maintained by Vlasic. A participant's deferred
benefit will be credited with earnings based on one or more hypothetical
investments available under the plan.
PENSION AND OTHER PLANS
Pension Plans
Many of Vlasic's salaried employees will have been participants in the
Campbell Soup Company Retirement and Pension Plan for Salaried Employees. On or
prior to the Distribution Date, Vlasic intends to adopt the Vlasic Salaried
Pension Plan on terms substantially similar to the Campbell salaried plan, as
well as similar pension plans for non-salaried employees and employees covered
by collective bargaining agreements. The annual benefits payable under these
Vlasic pension plans to most participating employees retiring at or after age
65 will be calculated under the following formulas:
. For those employees who were employees of Campbell on March 1, 1988, and
retire subsequently from Vlasic (i) with 30 years of service, an annual
benefit that, when added to one-half of primary Social Security, equals
50% of "final pay," i.e., the average annual earnings in the five
calendar years of highest earnings during the last ten calendar years of
employment, (ii) with less than 30 years service, an annual benefit equal
to the benefit for 30 years service reduced pro rata for years less than
30, and (iii) with more than 30 years service, an annual benefit equal to
the benefit for 30 years service, supplemented at the rate of 1/2 of 1%
of final pay for each year of service over 30. Alternatively, such
employees are entitled to an annual benefit calculated in accordance with
the formula below if that benefit would be greater than the one
calculated under the foregoing formula.
. For those employees who became employees of Campbell after March 1, 1988,
and retire subsequently from Vlasic, an annual benefit equal to 1% of
final pay up to the Social Security covered compensation amount plus 1
1/2% of final pay in excess of the Social Security covered compensation
amount for each year of service up to 30 years, and 1/2 of 1% of final
pay for each year of service over 30.
51
The following table illustrates the approximate annual pension that may
become payable to an employee of Vlasic in the higher salary classifications
under Vlasic's regular and supplemental pension plans.
[Download Table]
AVERAGE PAY IN ESTIMATED ANNUAL PENSIONS(1)
HIGHEST 5 YEARS OF
LAST 10 YEARS OF
EMPLOYMENT(2) YEARS OF SERVICE
------------------ --------------------------------------------------------------
20 25 30 35 40
-------- -------- -------- -------- --------
$ 200,000 $ 57,070 $ 71,337 $ 85,604 $ 90,604 $ 95,604
300,000 87,070 108,837 130,604 138,104 145,604
400,000 117,070 146,337 175,604 185,604 195,604
500,000 147,070 183,837 220,604 233,104 245,604
600,000 177,070 221,337 265,604 280,604 295,604
700,000 207,070 258,837 310,604 328,104 345,604
800,000 237,070 296,337 355,604 375,604 395,604
900,000 267,070 333,837 400,604 423,104 445,604
1,000,000 297,070 371,337 445,604 470,604 495,604
--------
(1) The estimated amounts assume retirement at age 65 (normal retirement age)
with a straight-life annuity without reduction for a survivor annuity or
for optional benefits. They are not subject to deduction for Social
Security benefits.
(2) Includes annual salary and bonus awards under the Campbell Management
Worldwide Incentive Plan. The portion of any pension attributable to
deferred bonus awards under that Plan will be paid as supplementary pension
benefits from Campbell's (or, following the Spin-Off, Vlasic's) general
funds and not from the pension plan.
The pay covered by the pension plan referred to above is based on the salary
and bonus shown in the Summary Compensation Table above for each of the named
executive officers of Vlasic. The years of credited service as of December 31,
1997 for the following named executive officers are: Robert F. Bernstock, 21
years; Rolf B. Richter, five years; Murray S. Kessler, 11 years; and Norma B.
Carter, 17 years. Carlos Oliva Funes does not participate in the Campbell
pension plan. The years of service for Mr. Bernstock include additional years
of service pursuant to Campbell's (or, following the Spin-Off, Vlasic's) mid-
career hire arrangement.
Savings Plus Plans
It is anticipated that Vlasic will establish a defined contribution 401(k)
program for its employees on terms substantially similar to the Campbell
Savings Plus Plans and that account balances of affected employees under each
Campbell Plan will be transferred directly to the applicable Vlasic Plan. After
the Spin-Off, both the Campbell Plans and the Vlasic Plans will offer, along
with mutual funds, two common stock funds as investment alternatives: (i) a
Vlasic common stock fund and (ii) a Campbell common stock fund. Vlasic Plan
participants will not be able to increase their holdings in the Campbell stock
fund but will be allowed to transfer their account balances out of that fund.
To the extent that the plan fiduciaries have not already done so, on December
31, 1999, all remaining investments in the Campbell stock fund under the Vlasic
Plans will be automatically liquidated and the proceeds transferred to another
investment fund available under the applicable Vlasic Plan. A similar
investment restriction and automatic liquidation will apply to the Vlasic stock
fund available under the Campbell Plans.
52
Other Benefit Plans
It is expected that Vlasic will adopt a number of plans to provide certain
employee welfare benefits to active employees of Vlasic as well as retirees of
Vlasic after the Distribution Date, including medical, dental, vision,
prescription drug, short and long-term disability, life insurance, severance
and other benefits, and the Vlasic Board will reserve the right to amend,
suspend or terminate any of these welfare plans.
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS OF VLASIC
None of the present executive officers or directors of Vlasic currently owns
any shares of Vlasic Common Stock. All such shares are currently owned by
Campbell. However, the executive officers and directors of Vlasic will, by
virtue of their ownership of Campbell stock, receive shares of Vlasic Common
Stock in the Spin-Off. In addition, as discussed under "Management," certain
existing options to purchase shares of Campbell Stock awarded under Campbell
incentive plans will be converted into comparable options to purchase shares of
Vlasic Common Stock, and it is anticipated that additional grants of options to
purchase Vlasic Common Stock will be granted to senior management of Vlasic.
The following table sets forth the number of shares of Campbell Stock
beneficially owned on September 22, 1997 by each of the persons expected to
serve as directors of Vlasic after the Spin-Off, the executive officers of
Vlasic listed in the Summary Compensation Table in "Management--Summary of
Executive Compensation" and all directors and executive officers of Vlasic as a
group. The table does not reflect the adjustments to Campbell Options referred
to in the preceding paragraph.
[Download Table]
AGGREGATE TOTAL NUMBER OF
NUMBER OF SHARES CAMPBELL STOCK SHARES AND DEFERRED
NAME BENEFICIALLY OWNED(1) DEFERRED(2) STOCK(3)
---- --------------------- -------------- -------------------
Donald J. Keller........ -- -- --
Shaun F. O' Malley...... -- -- --
Robert F. Bernstock..... 227,812 68,439 296,251
Carlos Oliva Funes...... 136,900 4,790 141,690
Rolf B. Richter......... 60,175 160 60,335
Murray S. Kessler....... 28,206 48 28,254
Norma B. Carter......... 52,162 3,637 55,799
All directors and
executive officers as a
group (10 persons)..... 551,948 82,808 634,756
--------
(1) Amounts in this column reflect any shares of Campbell Stock that could have
been acquired within 60 days of September 22, 1997 under Campbell Options.
No individual director or named executive officer of Vlasic beneficially
owns 1% or more of the outstanding Campbell Stock, nor do the directors and
executive officers as a group.
(2) Deferred stock units were awarded at the election of the individuals to
defer previously earned compensation and pending awards of restricted
performance stock. The individuals are fully at risk as to the price of
Campbell Stock in their deferred stock accounts. Additional stock units are
credited to the accounts to reflect accrual of dividends. The stock units
do not carry any voting rights.
(3) None of the amounts in this column exceeds 1% of the outstanding Campbell
Stock.
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The following table sets forth the owners of more than 5% of the outstanding
Campbell Stock as of September 22, 1997.
[Download Table]
AMOUNT/NATURE OF PERCENT OF
NAME/ADDRESS BENEFICIAL OWNERSHIP OUTSTANDING STOCK
------------ -------------------- -----------------
Bennett Dorrance 52,350,272(1) 11.4%
DMB Associates
4201 North 24th Street
Suite 120
Phoenix, AZ 85016
Mary Alice Malone 54,119,028(2) 11.8%
Iron Spring Farm
R.D. #3
Coatesville, PA 19320
Dorrance H. Hamilton, Charles H. Mott 62,880,525(4) 13.7%
and John A. van Beuren, Voting Trustees
under the Major Stockholders' Voting
Trust dated as of June 2, 1990 and
related persons
P.O. Box 4098
Middletown, RI 02842(3)
--------
(1) Bennett Dorrance is a member of the Campbell Board of Directors. He is a
grandson of Dr. John T. Dorrance, the brother of Mary Alice Malone, and a
cousin of George Strawbridge and Charlotte C. Weber, who are also directors
of Campbell. Share ownership shown does not include 306,944 shares held by
the Estate of his father, John T. Dorrance, Jr., of which he is an
Executor, and as to which shares he disclaims beneficial ownership. Does
not include 491,188 shares held as guardian for one of his children nor
491,232 shares held as trustee for one of his children, as to which shares
he disclaims beneficial ownership. Does not include 450,700 shares held by
the Dorrance Family Foundation.
(2) Mary Alice Malone is a member of the Campbell Board of Directors. She is a
granddaughter of Dr. John T. Dorrance. Share ownership shown does not
include 306,944 shares held by the Estate of her father, John T. Dorrance,
Jr., of which she is an Executor and as to which shares she disclaims
beneficial ownership. Does not include 29,108 shares held by her cousin as
trustee of a trust for her children, as to which shares she disclaims
beneficial ownership.
(3) The June 2, 1990 Voting Trust (the "Voting Trust") was formed by certain
descendants (and spouses, fiduciaries and a related foundation) of the late
Dr. John T. Dorrance. The participants have indicated that they formed the
Voting Trust as a vehicle for acting together as to matters which may arise
affecting Campbell's business, in order to attain their objective of
maximizing the value of their shares.
The Trustees act for participants in communications with the Campbell Board
of Directors. Participants believe the Voting Trust may also facilitate
communications between the Campbell Board and the participants. Under the
Voting Trust, all shares held by the trust will be voted by the Trustees
whose decision must be approved by at least two Trustees if there are three
Trustees then acting. In the event of a disagreement among the Trustees
designated by the family groups participating in the trust, the shares of
the minority may be withdrawn. The Voting Trust continues for ten years
from June 2, 1990, unless it is sooner terminated or extended.
In September 1990, the Trustees of the Voting Trust requested the
Governance Committee of Campbell's Board to nominate Charles Mott as a
candidate for election as a director. Mr. Mott currently serves as a
director of Campbell.
54
The terms of the Voting Trust provide that the shares of Vlasic Common
Stock distributed in the Spin-Off in respect of the shares of Campbell
Stock subject to the trust will also be subject to the terms of, and will
be held by, the Voting Trust following the Spin-Off.
(4) Includes 60,870,900 shares (13.3% of the outstanding shares) held by the
Trustees under the Voting Trust with sole voting power and 2,009,625 shares
held by participants outside the trust or by persons related to them, for a
total of 62,880,525 shares (13.7% of the outstanding shares). Includes
29,551,970 shares (6.5% of the outstanding shares) with sole dispositive
power held by the Dorrance H. Hamilton Trust (Mrs. Hamilton is the sole
Trustee of the Dorrance H. Hamilton Trust), 200 Eagle Road, Suite 316,
Wayne, PA 19087. Also includes 13,476,788 shares with sole dispositive
power and 987,568 shares with shared dispositive power held by Hope H. van
Beuren, wife of John A. van Beuren, P.O. Box 4098, Middletown, RI 02842.
John A. van Beuren also has shared dispositive power over the same 987,568
shares, and holds 13,440,000 shares with sole dispositive power. Also
includes 2,010,768 shares held by John A. van Beuren with shared
dispositive power. Participants in the Voting Trust have certain rights to
withdraw shares deposited with the Trustees including the right to withdraw
these shares prior to any annual or special meeting of Campbell
shareowners. Dispositive power as used above means the power to direct the
sale of the shares; in some cases it does not include the power to direct
how the proceeds of sale can be used.
The foregoing information relating to owners of Campbell Stock is based upon
Campbell's existing stock records and data supplied to Campbell by such owners
as of September 22, 1997.
ARRANGEMENTS BETWEEN CAMPBELL AND
VLASIC RELATING TO THE SPIN-OFF
To govern certain of the ongoing relationships between Campbell and Vlasic
after the Spin-Off and to provide mechanisms for an orderly transition,
Campbell and Vlasic, or their respective subsidiaries, as applicable, will
enter into the various agreements described below. Certain of the agreements
summarized below will be included as exhibits to the Registration Statement,
and the following summaries are qualified in their entirety by reference to the
agreements as filed.
DISTRIBUTION AGREEMENT
The Distribution Agreement will provide for, among other things, the
principal corporate transactions required to effect the Spin-Off and certain
other matters governing the relationship between Vlasic and Campbell with
respect to or in consequence of the Spin-Off.
The Distribution Agreement contains provisions designed principally to place
with Vlasic, on an "as is, where is" basis, the assets currently related to the
Vlasic Businesses and financial responsibility for known and contingent or
unknown liabilities of the Vlasic Businesses. In addition, certain other assets
and liabilities of Campbell described in the Distribution Agreement will be
contributed to, or assumed by, Vlasic. These additional liabilities include,
among others, liabilities associated with the New Credit Facility to be assumed
by Vlasic on or prior to the Distribution Date, as described under "Financing."
The Distribution Agreement further provides that all intercompany
receivables, payables and loans between Campbell and Vlasic will be released
and discharged effective on the Distribution Date, except for certain
intercompany payables representing advances from Campbell to subsidiaries of
Vlasic which will remain outstanding obligations of such subsidiaries of Vlasic
to Campbell following the Spin-Off (approximately $58.7 million). Each of
Vlasic and Campbell will release the other from all other obligations
55
and liabilities owed to such party existing on the Distribution Date, other
than liabilities and obligations arising under the Distribution Agreement and
the other agreements entered into in connection with the Spin-Off and certain
other specified liabilities. Likewise, each of Campbell and Vlasic will
indemnify the other for liabilities arising from a breach of such agreements or
the failure to pay or discharge the liabilities assumed by such party under the
Distribution Agreement.
The Distribution Agreement will contain a non-competition covenant that will
prohibit Vlasic from engaging in certain of Campbell's core businesses in the
U.S. for a period of three years following the Distribution Date. This covenant
has been negotiated to protect the interests of Campbell shareowners in view of
the close familiarity of Vlasic's senior management with the proprietary
business and marketing plans and strategies (and other confidential
information) associated with Campbell's U.S. Grocery operations, as well as the
transfer to Vlasic pursuant to the Distribution Agreement of assets and
resources which could be used in such businesses. Under the terms of the
covenant, for a period of three years after the Distribution Date Vlasic will,
in general, be prohibited from manufacturing, distributing, marketing or
selling the following products in the U.S. to the extent such products are
substantially similar to those products manufactured or sold by Campbell in the
U.S. as of the Distribution Date: soups, broths, vegetable juices, salsa and
picante and other Mexican sauces or dips, Italian sauces, heat processed
prepared pasta and gravies.
Under the Distribution Agreement and other related agreements, Campbell and
Vlasic will agree that Vlasic will have the right to use a portion of
Campbell's headquarters in Camden, New Jersey for a transition period. Vlasic
will be obligated to pay its share of the costs and expenses associated with
the operation and maintenance of the facility.
Vlasic is currently an additional named insured under all applicable Campbell
insurance policies and claim service agreements. Under the Distribution
Agreement, Vlasic will be entitled to the benefit of coverage from Campbell's
property and liability insurance policies to the extent coverage is applicable
or potentially available and where limits of liability have not been exhausted,
either on a per occurrence or aggregate basis. To the extent that these
policies feature a deductible or self-insured retention, Vlasic will assume
legal and financial responsibility for such deductibles or retentions.
Applicable insurance policies include, but are not limited to, Workers'
Compensation, Commercial General Liability (including product liability),
Commercial Automobile Liability, Commercial Excess/Umbrella Liability,
Directors' and Officers' Liability, Fiduciary Liability, Commercial
Comprehensive Crime, Property, and Ocean Marine Insurance. The terms and
conditions of these policies, including limits of liability, will not be
amended as a consequence of the Spin-Off.
Vlasic is expected to collateralize or secure financial obligations to other
parties reflecting deductibles or self-insured retentions. This may be in the
form of either an irrevocable letter of credit or surety bond, or a combination
of both. It is not anticipated that the amount of these obligations will be
material.
The Distribution Agreement will provide that the Spin-Off is subject to a
number of conditions which are described under "The Spin-Off--Conditions;
Termination." The Distribution Agreement may be amended or terminated, and the
Spin-Off may be canceled, or certain conditions to the Spin-Off may be waived,
at any time prior to the Distribution Date, in the sole discretion of the
Campbell Board.
BENEFITS SHARING AGREEMENT
Prior to the date of the Spin-Off, Campbell and Vlasic will enter into a
Benefits Sharing Agreement (the "Benefits Agreement") to set forth the manner
in which assets and liabilities under employee benefit plans and other
employment-related liabilities will be divided between them, and to help ensure
a smooth transition for
56
employees' benefits in the Spin-Off. In general, Vlasic will be responsible for
compensation and employee benefits relating to its employees. It is intended
that Vlasic will receive corresponding plan assets under the plans that are
qualified under the Code, but will receive no assets with respect to
liabilities under non-qualified plans. In addition, Campbell will generally
remain responsible for liabilities relating to retired employees of the Vlasic
Businesses (along with, in certain cases, any corresponding plan assets),
including (i) liabilities and assets for pension and savings plan benefits,
(ii) unfunded liabilities for medical plan benefits, and (iii) unfunded
deferred compensation liabilities.
The Benefits Agreement will also provide for the treatment of outstanding
Campbell Options. At the time of the Spin-Off, vested Campbell Options held by
employees who will be employed by Vlasic after the Spin-Off will be unaffected
by the Spin-Off and will be retained by such employees, except that the terms
of such options will be adjusted in the manner described in "Management--
Treatment of Outstanding Campbell Stock Awards." Unvested Campbell Options held
by such employees will be canceled and replaced by a new grant of options to
purchase Vlasic Common Stock at a number of shares and an exercise price
designed to preserve, but not increase, the intrinsic value of the canceled
Campbell Options based upon the relative trading values of Campbell Common
Stock before giving effect to the Spin-Off and Vlasic Common Stock after giving
effect to the Spin-Off. Campbell Options held by employees who will be employed
by Campbell after the Spin-Off will be unaffected by the Spin-Off and will be
retained by such employees, except that the terms of such options will be
adjusted in the same manner as the vested Campbell Options held by Vlasic
employees. For additional information with respect to the treatment of Campbell
Options in the Spin-Off, see "Management--Treatment of Outstanding Campbell
Stock Awards." Following the Spin-Off, Vlasic will be responsible for
delivering shares of Vlasic Common Stock upon exercise of Vlasic Options, and
Campbell will be responsible for the delivery of shares of Campbell Stock upon
exercise of Campbell Options.
In general, as a result of the Spin-Off, holders of restricted shares of
Campbell Stock (whether employed by Campbell or Vlasic after the Spin-Off) will
be entitled to receive additional shares of restricted Campbell Stock with
respect to their restricted shares in lieu of receiving shares of Vlasic Common
Stock in the Spin-Off. See "Management--Treatment of Outstanding Campbell Stock
Awards" for a more detailed description of the effect of the Spin-Off on
unexercised Campbell Options.
TAX SHARING AND INDEMNIFICATION AGREEMENT
On or prior to the Distribution Date, Vlasic and Campbell will enter into a
Tax Sharing and Indemnification Agreement that will set forth each party's
rights and obligations with respect to payment and refunds, if any, with
respect to taxes for periods before and after the Distribution Date and related
matters such as the filing of tax returns and the conduct of audits or other
proceedings involving claims made by taxing authorities.
In general, Campbell will be responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the Distribution Date, and for paying the taxes relating to such
returns including any subsequent adjustments resulting from the redetermination
of such tax liability by the applicable taxing authorities. The Tax Sharing and
Indemnification Agreement will also allocate liability between Campbell and
Vlasic for property taxes and for any taxes which may arise in connection with
separating the Vlasic Businesses from Campbell businesses.
Pursuant to the Tax Sharing and Indemnification Agreement, Vlasic will agree
that for a two-year period following the Distribution Date (i) Vlasic will
continue to engage in the Vlasic Businesses, (ii) Vlasic will continue to own
and manage at least 50% of the assets which it owns directly or indirectly
immediately after the Distribution Date and (iii) Vlasic will not, unless it
obtains an IRS tax ruling or a legal opinion reasonably
57
satisfactory to Campbell that such transaction will not cause the Spin-Off to
be taxable for U.S. federal income tax purposes, engage in a number of
specified transactions. Transactions subject to these restrictions will
include, among other things, issuances of Vlasic Common Stock (or certain
derivatives thereof) in amounts which would equal or exceed 20% of the
outstanding Vlasic Common Stock immediately after the Distribution Date,
issuances of instruments other than Vlasic Common Stock (or derivatives
thereof) constituting equity for U.S. federal tax purposes, certain redemptions
and other acquisitions of capital stock or equity securities of Vlasic, or the
merger, dissolution or liquidation of Vlasic.
In addition, under the Tax Sharing and Indemnification Agreement, Vlasic will
agree to indemnify Campbell for tax liabilities arising from a breach of the
foregoing provisions, as well as tax liabilities (including the tax liabilities
of Campbell's shareowners to the extent such liability is imposed upon or
assumed by Campbell) arising from acquisitions of Vlasic Common Stock, or
commencement of any tender or exchange offers for Vlasic Common Stock, during
the two-year period following the Spin-Off, the consummation of which result in
the Spin-Off being taxable for U.S. federal income tax purposes.
If the obligations of Vlasic under the Tax Sharing and Indemnification
Agreement were breached and the Spin-Off were to fail to qualify as tax-free
for U.S. federal income tax purposes as a result of such breach, Vlasic would
be required to indemnify Campbell for the tax liabilities described above. This
indemnification obligation could exceed the net worth of Vlasic at such time.
Though valid as between the parties thereto, the Tax Sharing and
Indemnification Agreement is not binding on the IRS and does not affect the
several liability of Campbell, Vlasic and their respective subsidiaries to the
IRS for all U.S. federal taxes of the consolidated group relating to periods
prior to the Distribution Date.
TRADEMARK LICENSE AGREEMENTS
On or prior to the Distribution Date, Campbell and Vlasic will enter into a
number of intellectual property license agreements, including a license
agreement pursuant to which Campbell will grant Vlasic a perpetual, royalty-
free license to use the Swanson trademark and related logos, symbols and marks
(collectively, "Swanson Marks") in connection with Vlasic's operations after
the Spin-Off. Under the terms of this license agreement, Vlasic will have the
right to use the Swanson Marks anywhere in the world in connection with the
manufacture, distribution, marketing, advertising, promotion and sale of
certain foods in the frozen food category.
Campbell will also grant Vlasic a license to use the Campbell's trademark for
up to three years in connection with Vlasic's U.S. retail mushroom business.
The license will be on royalty-free terms for its initial 18 months.
Thereafter, Vlasic will be obligated to pay a royalty on 1% of Vlasic's retail
net sales of mushrooms using the Campbell's trademark.
These license agreements will contain standard provisions, including those
dealing with quality control and termination upon, among other things, material
breach and bankruptcy.
TECHNOLOGY SHARING AGREEMENT
On or prior to the Distribution Date, Vlasic and Campbell will enter into a
Technology Sharing Agreement. Under the Technology Sharing Agreement, Campbell
will assign certain patents and patent applications relating to the Vlasic
Businesses to Vlasic. In addition, Campbell will grant Vlasic a license to use
certain patents, patent applications and proprietary manufacturing processes
used in the Vlasic Businesses, and to use certain technical information and
know-how relating to the Vlasic Businesses.
58
TRANSITION SERVICES AGREEMENT
On or prior to the Distribution Date, Campbell and Vlasic will enter into a
Transition Services Agreement pursuant to which Campbell and Vlasic will
provide each other with transitional administrative and support services for a
period of time not expected to exceed 12 months. The Transition Services
Agreement will provide that Vlasic will pay a fee to Campbell intended to
approximate Campbell's cost for such services.
The Transition Services Agreement will provide that Vlasic will indemnify
Campbell for all claims, losses, damages, liabilities and costs incurred by
Campbell to a third party arising in connection with the provision of a service
under the agreement, other than those costs resulting from Campbell's willful
misconduct or gross negligence. In general, Vlasic can terminate a transition
service after an agreed notice period.
SUPPLY AGREEMENTS; CO-PACK AGREEMENTS
On or prior to the Distribution Date, Campbell and Vlasic will enter into a
series of supply agreements whereby Vlasic will provide processed beef and
mushrooms to Campbell for the continued manufacture of Campbell's products.
The raw material supply agreements are anticipated to have a term of two
years. Vlasic will sell these materials under mutually agreed pricing
mechanisms designed to approximate arm's-length terms.
Campbell and Vlasic will also enter into a series of contract manufacturing
agreements whereby one party will manufacture and pack certain products for the
other party for a transition period pending transfer of the production
operations associated with such products. It is expected these agreements will
be for a term not to exceed two years and will otherwise reflect arm's-length
terms and conditions.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Vlasic's authorized capital stock presently consists of 100 shares of Vlasic
Common Stock, no par value. All of such shares are issued and outstanding and
are owned by Campbell. Under the Vlasic Charter, as amended and restated prior
to the Spin-Off by the Vlasic Board and by Campbell as sole shareowner of
Vlasic substantially in the form set forth as an exhibit to the Registration
Statement, the total number of shares of all classes of stock that Vlasic will
have authority to issue will be 60,000,000, of which 4,000,000 will be
Preferred Stock, without par value ("Vlasic Preferred Stock"), and 56,000,000
will be shares of Vlasic Common Stock. No shares of Vlasic Preferred Stock will
be issued in connection with the Spin-Off. Based on the number of shares of
Campbell Common Stock outstanding at February 9, 1998, approximately 45,413,000
shares of Vlasic Common Stock, constituting approximately 81.1% of the
authorized Vlasic Common Stock, will be issued to shareowners of Campbell in
the Spin-Off. All of the shares of Vlasic Common Stock issued in the Spin-Off
will be validly issued, fully paid and nonassessable. No holder of any capital
stock of Vlasic authorized as of the Distribution Date will have any preemptive
right to subscribe to any securities of Vlasic of any kind or class.
VLASIC COMMON STOCK
The owners of Vlasic Common Stock will be entitled to one vote for each share
on all matters voted on by shareowners, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Vlasic Board with respect to any class or series of Vlasic Preferred Stock,
the holders of Vlasic Common Stock will exclusively possess all voting power.
The Vlasic Charter does not provide for cumulative voting for the election of
directors. Subject to any preferential rights of any outstanding class or
59
series of Vlasic Preferred Stock designated by the Vlasic Board from time to
time, the holders of Vlasic Common Stock will be entitled to such dividends as
may be declared from time to time by the Vlasic Board from funds available
therefor, and, upon liquidation, will be entitled to receive pro rata all
assets of Vlasic available for distribution to such holders. Vlasic, however
does not currently anticipate that any cash dividends will be paid on the
Vlasic Common Stock. See "Certain Special Considerations--Absence of
Dividends."
VLASIC PREFERRED STOCK
The Vlasic Board will be authorized to provide for the issuance of shares of
Vlasic Preferred Stock in one or more classes or series, and to fix for each
such class or series such voting powers, designations, preferences and
relative, participating, optional and other special rights, and such
qualifications, limitations or restrictions, as are stated in the resolutions
adopted by the Vlasic Board providing for the issue of such series and as are
permitted by the New Jersey Business Corporation Act (as amended, the "NJBCA").
Although Vlasic has no intention at the present time of doing so, it could
issue a series of Preferred Stock that could, subject to certain limitations
imposed by the securities laws and stock exchange rules, impede the completion
of a merger, tender offer or other takeover attempt.
CERTAIN OTHER PROVISIONS
Vlasic Charter. Under the Vlasic Charter, the following actions require the
affirmative vote of two-thirds of the votes cast by the holders of all
outstanding shares of stock entitled to vote thereon, and, in addition, if any
class or series is entitled to vote thereon as a class, the affirmative vote of
two-thirds of all of the votes which the holders of each such class or series
are entitled to cast thereon: (i) the adoption by the shareowners of a proposed
amendment of the Vlasic Charter; (ii) the adoption by the shareowners of a
proposed plan of merger or consolidation involving Vlasic; (iii) the approval
by the shareowners of a sale, lease, exchange, or other disposition of all, or
substantially all, of Vlasic's assets otherwise than in the usual and regular
course of business as conducted by Vlasic; and (iv) the dissolution of Vlasic.
Vlasic Bylaws. The Vlasic Bylaws will establish an advance notice procedure
with regard to the nomination, other than by or at the direction of the Vlasic
Board of Directors, of candidates for election as directors (the "Nomination
Procedure") and for certain matters to be brought before an annual meeting of
shareowners (the "Business Procedure"). Pursuant to the Vlasic Bylaws, the
Nomination Procedure provides that only persons who are nominated by the Board
of Directors or by a shareowner of record who has given timely written notice
to the Secretary of Vlasic prior to the meeting at which directors are to be
elected will be eligible for election as directors. The Business Procedure
provides that at an annual meeting only such business can be conducted as has
been brought before the meeting pursuant to the notice of the meeting, by the
Board of Directors or by a shareowner of record who has given timely prior
written notice to the Secretary of such shareowner's intention to bring such
business before the meeting. To be timely, notice must generally be received by
Vlasic not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting. Notice of a shareowner
nomination to be made at a special meeting at which directors are to be elected
must be received not earlier than the 90th day before such meeting and not
later than the later of (i) the 60th day prior to such meeting and (ii) the
tenth day after public announcement of the date of such meeting is first made.
Under the Nomination Procedure, notice to Vlasic from a shareowner who proposes
to nominate a person at a meeting for election as director must contain certain
information about that person, including such person's consent to be nominated
and such information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and certain
information about the shareowner proposing to nominate that person or the
beneficial owner, if any, on whose behalf the nomination is made. Under the
Business Procedure, notice relating to the conduct of business must contain
certain
60
information about such business and about the shareowner who proposes to bring
the business before the meeting.
New Jersey Business Corporation Act. Vlasic is subject to Section 14A:6-1 of
the NJBCA dealing with the fiduciary duties of directors of New Jersey business
corporations. Among other things, Section 14A:6-1 provides that directors of
such corporations may, in discharging their fiduciary duties, consider, among
other things, the effects of any action upon employees, suppliers, creditors
and customers of the corporation, and upon communities in which the corporation
operates, and also may consider the long-term as well as short-term interests
of the corporation and its shareholders, including the possibility that those
interests may best be served by the continued independence of the corporation.
Section 14A:6-1 further provides that if, on the basis of the foregoing
factors, the directors of a New Jersey corporation determine that any offer to
acquire the corporation is not in the best interests of the corporation, the
directors shall have no obligation to facilitate, to remove barriers (such as a
rights plan) to, or to refrain from impeding, the offer.
Vlasic is also subject to Sections 14A:10A-1 to 14A:10A-6 of the NJBCA, which
generally prohibit certain transactions between the corporation and any
"interested stockholder" (including generally shareowners beneficially owning
10% or more of the voting power of the corporation) for a period of five years
following the shareowner's attainment of such status, unless the Board approved
the transaction prior to the shareowner attaining the status of "interested
stockholder," and provide for limitations on such transactions at any other
time.
LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS OF VLASIC
LIMITATION OF LIABILITY
The Vlasic Charter will provide that a director of Vlasic will not be
personally liable to Vlasic or its shareowners for monetary damages for breach
of any duty owed to Vlasic or its shareowners, except that such provision shall
not relieve a director from liability for any breach of duty based upon an act
or omission (i) in breach of such person's duty of loyalty to Vlasic or its
shareowners, (ii) not in good faith or involving a violation of law or (iii)
resulting in receipt by such director of an improper personal benefit. As used
in the Vlasic Charter, an act or omission in breach of a person's duty of
loyalty means an act or omission which that director knows or believes to be
contrary to the best interests of Vlasic or its shareowners in connection with
a matter in which such director has a material conflict of interest.
While the Vlasic Charter will provide directors with protection from awards
for monetary damages for certain breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Vlasic Charter will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care. The provisions of the Vlasic
Charter described above apply to an officer of Vlasic only if he or she is a
director of Vlasic and is acting in his or her capacity as director, and do not
apply to officers of Vlasic who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Vlasic Bylaws will provide that each person who is or was or has agreed
to become a director or officer of Vlasic, or each such person who is or was
serving or has agreed to serve at the request of Vlasic as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, will be indemnified by Vlasic in accordance with the
procedures set forth in the Vlasic Bylaws, to the fullest extent permitted from
time to time by the NJBCA, as the same exists or may hereafter be amended or
any other applicable laws as currently or hereafter in effect. Vlasic will be
required to indemnify any person seeking
61
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Vlasic Board or is an appropriate proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by the Vlasic Bylaws or
otherwise by Vlasic's Board. In addition, Vlasic may enter into one or more
agreements with any person providing for indemnification greater than or
different from that provided in the Vlasic Bylaws.
AVAILABLE INFORMATION
Vlasic has filed the Registration Statement with the Commission concerning
the shares of Vlasic Common Stock being received by Campbell shareowners in the
Spin-Off. This document does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Statements
made in this document concerning the contents of any contract, agreement or
other document referred to herein are summaries of certain provisions thereof.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto filed by
Vlasic may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such material can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 or accessed electronically
by means of the Commission's home page on the Internet (http://www.sec.gov).
Following the Spin-Off, Vlasic will be required to comply with the reporting
requirements of the Exchange Act and will file annual, quarterly and other
reports with the Commission. Vlasic will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its shareowners in connection with its annual
meetings of shareowners.
No person is authorized by Campbell or Vlasic to give any information or to
make any representations other than those contained in this document, and if
given or made, such information or representations must not be relied upon as
having been authorized.
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INDEX TO DEFINED TERMS
[Download Table]
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Adjusted Campbell Option... 50
Benefits Agreement......... 56
Business Procedure......... 60
Campbell................... 1
Campbell Conversion Ratio.. 50
Campbell Options........... 48
Campbell Stock............. 7
Code....................... 9
Commission................. 48
Distribution Agent......... 8
Distribution Agreement..... 11
Distribution Date.......... 8
Distribution Ratio......... 8
Exchange Act............... 7
IRS........................ 9
New Credit Facility........ 28
NJBCA...................... 60
Nomination Procedure....... 60
[Download Table]
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Per Share Post-Spin-Off Campbell
Stock Price...................... 50
Per Share Pre-Spin-Off Campbell
Stock Price...................... 49
Per Share Vlasic Common Stock
Price............................ 49
Registration Statement............ 41
Securities Act.................... 10
Spin-Off.......................... 7
Swanson Marks..................... 58
Tax Ruling........................ 9
Vlasic............................ 1
Vlasic Businesses................. 7
Vlasic Bylaws..................... 11
Vlasic Charter.................... 11
Vlasic Common Stock............... 7
Vlasic Conversion Ratio........... 49
Vlasic Options.................... 48
Vlasic Preferred Stock............ 59
Voting Trust...................... 54
63
INDEX TO FINANCIAL STATEMENTS
[Download Table]
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ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Combined Statements of Earnings--fiscal years ended August 3, 1997, July
28, 1996 and July 30, 1995.............................................. F-3
Combined Balance Sheets--August 3, 1997 and July 28, 1996................ F-4
Combined Statements of Cash Flows--fiscal years ended August 3, 1997,
July 28, 1996 and July 30, 1995......................................... F-5
Combined Statements of Shareowner's Equity--fiscal years ended August 3,
1997, July 28, 1996 and July 30, 1995................................... F-6
Notes to Combined Financial Statements................................... F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Combined Statements of Earnings (unaudited)--second quarters and six
months ended February 1, 1998 and January 26, 1997...................... F-21
Combined Balance Sheets--February 1, 1998 (unaudited) and August 3, 1997
(audited)............................................................... F-22
Combined Statements of Cash Flows (unaudited)--six months ended February
1, 1998 and January 26, 1997............................................ F-23
Combined Statements of Shareowner's Equity (unaudited)--six months ended
February 1, 1998 and January 26, 1997................................... F-24
Notes to Combined Financial Statements (unaudited)....................... F-25
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareowner of Vlasic Foods International Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of earnings, of cash flows and of changes in shareowner's
equity present fairly, in all material respects, the financial position of
Vlasic Foods International Inc. at August 3, 1997 and at July 28, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended August 3, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Philadelphia, Pennsylvania
November 21, 1997
F-2
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED AUGUST 3, 1997, JULY 28, 1996 AND JULY 30, 1995
(000 OMITTED)
[Download Table]
1997 1996 1995
53 WEEKS 52 WEEKS 52 WEEKS
---------- ---------- ----------
NET SALES (including $155,563, $144,902 and
$135,001 to related parties)............... $1,508,285 $1,498,967 $1,504,318
---------- ---------- ----------
Costs and expenses
Cost of products sold..................... 1,048,433 1,053,348 1,074,321
Marketing and selling expenses............ 266,475 256,666 258,236
Administrative expenses................... 53,050 54,558 54,517
Research and development expenses......... 8,620 8,064 8,767
Other expense............................. 2,446 159 (27)
Restructuring charges..................... 12,634 37,202
---------- ---------- ----------
Total costs and expenses................ 1,391,658 1,409,997 1,395,814
---------- ---------- ----------
EARNINGS BEFORE INTEREST AND TAXES.......... 116,627 88,970 108,504
Interest expense............................ 1,600 1,071 2,016
Interest income............................. 588 329 205
---------- ---------- ----------
Earnings before taxes....................... 115,615 88,228 106,693
Taxes on earnings........................... 37,475 27,361 35,711
---------- ---------- ----------
NET EARNINGS................................ $ 78,140 $ 60,867 $ 70,982
========== ========== ==========
The accompanying Notes to Combined Financial Statements on pages F-7 to F-20
are an integral part of the financial statements.
F-3
VLASIC FOODS INTERNATIONAL INC.
COMBINED BALANCE SHEETS
(000 OMITTED)
[Download Table]
AUGUST 3, JULY 28,
1997 1996
--------- --------
CURRENT ASSETS
Cash and cash equivalents................................. $ 9,409 $ 5,553
Accounts receivable....................................... 109,676 123,154
Inventories............................................... 163,852 181,947
Other current assets...................................... 12,339 20,935
-------- --------
Total current assets.................................. 295,276 331,589
-------- --------
Plant assets, net of depreciation......................... 515,646 502,161
Other assets, principally intangible assets, net of
amortization............................................. 84,186 89,581
-------- --------
Total assets.......................................... $895,108 $923,331
======== ========
CURRENT LIABILITIES
Notes payable............................................. $ 191 $ 257
Payable to suppliers and others........................... 95,684 91,513
Overdrafts................................................ 27,417 14,869
Accrued liabilities....................................... 88,914 108,071
-------- --------
Total current liabilities............................. 212,206 214,710
-------- --------
Long-term debt............................................ 2,252 3,166
Deferred income taxes..................................... 36,815 35,567
Other liabilities......................................... 11,537 10,022
-------- --------
Total liabilities..................................... 262,810 263,465
-------- --------
SHAREOWNER'S EQUITY
Campbell net investment................................... 633,168 659,057
Cumulative translation adjustments........................ (870) 809
-------- --------
Total shareowner's equity............................. 632,298 659,866
-------- --------
Total liabilities and shareowner's equity............. $895,108 $923,331
======== ========
The accompanying Notes to Combined Financial Statements on pages F-7 to F-20
are an integral part of the financial statements.
F-4
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED AUGUST 3, 1997, JULY 28, 1996 AND JULY 30, 1995
(000 OMITTED)
[Download Table]
1997 1996 1995
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................... $ 78,140 $ 60,867 $ 70,982
Non-cash charges to net earnings
Restructuring charges........................ 12,634 37,202
Depreciation and amortization................ 44,808 45,585 45,464
Deferred income taxes........................ 9,199 (12,730) 2,454
Other, net................................... 1,515 1,220 (1,127)
Changes in working capital
Accounts receivable.......................... 11,016 19,540 (14,728)
Inventories.................................. 16,858 (1,422) 18,708
Other current assets and liabilities......... 4,269 1,905 (10,577)
--------- -------- ---------
Net cash provided by operating activities.. 178,439 152,167 111,176
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant assets...................... (79,301) (59,053) (50,969)
Sales of plant assets.......................... 8,431 4,318 1,219
Business acquired.............................. (60,100)
Other, net..................................... 846 2,631 (5,191)
--------- -------- ---------
Net cash used in investing activities...... (70,024) (52,104) (115,041)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term borrowings............. (427) (425) (8,635)
Short-term borrowings.......................... 425
Repayments of short-term borrowings............ (17) (1,431)
Net transactions with Campbell................. (104,029) (94,555) 8,577
--------- -------- ---------
Net cash (used in) provided by financing
activities................................ (104,473) (96,411) 367
--------- -------- ---------
Effect of exchange rate changes on cash........ (86) 59 344
--------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.... 3,856 3,711 (3,154)
Cash and cash equivalents at beginning of
year.......................................... 5,553 1,842 4,996
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ 9,409 $ 5,553 $ 1,842
========= ======== =========
The accompanying Notes to Combined Financial Statements on pages F-7 to F-20
are an integral part of the financial statements.
F-5
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF SHAREOWNER'S EQUITY
FISCAL YEARS ENDED AUGUST 3, 1997, JULY 28, 1996 AND JULY 30, 1995
(000 OMITTED)
[Download Table]
CUMULATIVE
CAMPBELL NET TRANSLATION
INVESTMENT ADJUSTMENTS TOTAL
------------ ----------- ---------
SHAREOWNER'S EQUITY, JULY 31, 1994......... $ 613,186 $ 2,081 $ 615,267
1995 Net earnings.......................... 70,982 70,982
Translation adjustments.................... (1,090) (1,090)
Net transactions with Campbell............. 8,577 8,577
--------- -------- ---------
SHAREOWNER'S EQUITY, JULY 30, 1995......... 692,745 991 693,736
--------- -------- ---------
1996 Net earnings.......................... 60,867 60,867
Translation adjustments.................... (182) (182)
Net transactions with Campbell............. (94,555) (94,555)
--------- -------- ---------
SHAREOWNER'S EQUITY, JULY 28, 1996......... 659,057 809 659,866
--------- -------- ---------
1997 Net earnings.......................... 78,140 78,140
Translation adjustments.................... (1,679) (1,679)
Net transactions with Campbell............. (104,029) (104,029)
--------- -------- ---------
SHAREOWNER'S EQUITY, AUGUST 3, 1997........ $ 633,168 $ (870) $ 632,298
========= ======== =========
The accompanying Notes to Combined Financial Statements on pages F-7 to F-20
are an integral part of the financial statements.
F-6
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(000 OMITTED)
1. CAMPBELL SOUP COMPANY SPIN-OFF OF VLASIC FOODS INTERNATIONAL INC.
In September, 1997, the Board of Directors of Campbell Soup Company
("Campbell") approved the spin-off of Vlasic Foods International Inc.
("Vlasic") to Campbell shareowners as an independent, publicly-traded company
(the "Spin-Off"). The Spin-Off is subject to a tax ruling by the Internal
Revenue Service that would allow it to be tax-free to Campbell, Vlasic and
Campbell shareowners subject to U.S. federal income taxes, various regulatory
approvals, and the approval of a definitive plan by Campbell's Board of
Directors. Immediately following the Spin-Off, Campbell will no longer have a
financial investment in Vlasic.
Vlasic consists of Swanson frozen foods in the U.S. and Canada, Vlasic
pickles, Open Pit barbecue sauce, and Campbell's mushrooms businesses in the
U.S., Freshbake frozen foods and SonA and Rowats pickle and beans businesses in
the U.K., the Swift processed beef business in Argentina, and the Kattus
specialty foods distribution business in Germany.
A five-year $750 million unsecured revolving credit facility will be
established by Campbell, and $500 million of borrowings under the facility will
be used by Campbell prior to the Spin-Off to repay certain of Campbell's debt
obligations. Vlasic will assume this credit facility, including the repayment
obligations for Campbell's $500 million of borrowings, in connection with the
Spin-Off. Following the Spin-Off, Vlasic will have $250 million of borrowing
availability remaining, approximately $58.7 million of which is expected to be
used for working capital purposes shortly after the Spin-Off. In addition,
Vlasic and Campbell will enter into a number of agreements providing for the
separation of the companies and governing various relationships between Vlasic
and Campbell, including a Separation and Distribution Agreement, a Benefits
Sharing Agreement (regarding employee benefits), a Tax Sharing and
Indemnification Agreement, a Trademark License Agreement, a Technology Sharing
Agreement, a Transition Services Agreement and Supply Agreements.
The financial statements of Vlasic include the combined financial position,
results of operations and cash flows of the businesses described above.
Campbell's historical cost basis of assets and liabilities has been reflected
in the Vlasic financial statements. The financial information in these
financial statements are not necessarily indicative of results of operations,
financial position and cash flows that would have occurred if Vlasic had been a
separate stand-alone entity during the periods presented or of future results.
The combined financial statements included herein do not reflect any changes
that may occur in the financing and operations of Vlasic as a result of the
Spin-Off.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination. The combined financial statements include the accounts of the
businesses contributed by Campbell. See Note 1. Significant intercompany
transactions are eliminated in combination.
Fiscal Year. Vlasic's fiscal year ends on the Sunday nearest July 31. There
were 53 weeks in fiscal 1997 and 52 weeks in fiscal 1996 and 1995.
Cash and Cash Equivalents. All highly liquid debt instruments purchased with
an initial maturity of three months or less are classified as cash equivalents.
Inventories. Substantially all domestic inventories are priced at the lower
of cost or market, with cost determined by the last-in, first-out (LIFO)
method. Other inventories are priced at the lower of average cost or market.
F-7
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
Plant Assets. Plant assets are stated at historical cost. Alterations and
major overhauls which extend the lives or increase the capacity of plant assets
are capitalized. The amounts for property disposals are removed from plant
asset and accumulated depreciation accounts and any resultant gain or loss is
included in earnings. Ordinary repairs and maintenance are charged to operating
costs.
Depreciation. Depreciation provided in costs and expenses is calculated using
the straight-line method. Buildings and machinery and equipment are depreciated
over periods not exceeding 45 years and 15 years, respectively. Accelerated
methods of depreciation are used for income tax purposes in certain
jurisdictions.
Intangibles. Intangible assets consist principally of excess purchase price
over net assets of businesses acquired and trademarks. Intangibles are
amortized on a straight-line basis over periods not exceeding 40 years.
Asset Valuation. The recoverability of plant assets and intangibles is
periodically reviewed based principally on an analysis of cash flows.
Income Taxes. Deferred taxes are provided in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109.
Use of Estimates. Generally accepted accounting principles require management
to make estimates and assumptions that affect assets and liabilities,
contingent assets and liabilities, and revenues and expenses. Actual results
could differ from those estimates.
Advertising. Advertising costs include the cost of working media (running
advertising on television, radio or in print), the cost of producing
advertising, and the cost of coupon insertion and distribution. Working media
and coupon insertion and distribution costs are expensed in the period the
advertising is run or the coupons are distributed. The cost of producing
advertising is expensed as of the first date the advertisements take place.
Advertising included in Marketing and selling expenses was $21,125 in 1997,
$19,303 in 1996, and $20,253 in 1995. At August 3, 1997 and July 28, 1996,
there were no amounts of advertising included in assets in the balance sheets.
Earnings per share. Historical earnings per share are not presented since
Vlasic common stock was not part of the capital structure of Campbell for the
periods presented. See the Unaudited Pro Forma Combined Financial Information.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128)--"Earnings per Share." The
standard requires dual presentation of "basic" and "diluted" earnings per
share. Vlasic will adopt SFAS 128 in its first quarterly earnings statement
issued after the effective date of the Spin-Off.
3. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Vlasic groups its businesses in three operating segments: frozen foods,
grocery products and agricultural products. These operating segments are
managed as strategic units due to their distinct manufacturing processes,
marketing strategies and distribution channels. The frozen foods segment
consists of Swanson frozen foods in the U.S. and Canada and Freshbake frozen
foods in the U.K. The grocery products segment includes Vlasic retail and
foodservice pickles and condiments in the U.S., Open Pit barbecue sauce in the
U.S., SonA
F-8
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
and Rowats pickles, canned beans and vegetables in the U.K., Kattus specialty
foods distribution in Germany and Swift canned meat pates and other grocery
products in Argentina. The agricultural products segment includes the U.S.
fresh mushroom business, chilled and frozen beef, frozen cooked beef and canned
corned beef exported from Argentina and contract manufacturing of frozen
foodservice finished product for Campbell's Foodservice in the U.S.
Segment Information:
[Download Table]
1997 1996 1995
---------- ---------- ----------
NET SALES
Frozen Foods.............................. $ 614,467 $ 583,384 $ 609,275
Grocery Products.......................... 538,684 561,154 542,106
Agricultural Products..................... 366,113 369,088 363,346
Eliminations.............................. (10,979) (14,659) (10,409)
---------- ---------- ----------
Total................................... $1,508,285 $1,498,967 $1,504,318
========== ========== ==========
EARNINGS BEFORE INTEREST AND TAXES
Frozen Foods.............................. $ 56,268 $ 15,885 $ 46,757
Grocery Products.......................... 49,513 53,748 38,747
Agricultural Products..................... 10,846 19,337 23,000
---------- ---------- ----------
Total................................... $ 116,627 $ 88,970 $ 108,504
========== ========== ==========
TOTAL ASSETS
Frozen Foods.............................. $ 259,132 $ 258,320 $ 245,141
Grocery Products.......................... 369,922 373,793 392,494
Agricultural Products..................... 266,054 291,218 286,024
---------- ---------- ----------
Total................................... $ 895,108 $ 923,331 $ 923,659
========== ========== ==========
DEPRECIATION AND AMORTIZATION
Frozen Foods.............................. $ 13,614 $ 14,017 $ 14,600
Grocery Products.......................... 16,061 16,255 15,992
Agricultural Products..................... 15,133 15,313 14,872
---------- ---------- ----------
Total................................... $ 44,808 $ 45,585 $ 45,464
========== ========== ==========
CAPITAL EXPENDITURES
Frozen Foods.............................. $ 35,576 $ 25,494 $ 19,435
Grocery Products.......................... 29,399 16,381 15,483
Agricultural Products..................... 14,326 17,178 16,051
---------- ---------- ----------
Total................................... $ 79,301 $ 59,053 $ 50,969
========== ========== ==========
F-9
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
The following presents information about operations in different geographic
areas:
Geographic Information:
[Download Table]
1997 1996 1995
---------- ---------- ----------
NET SALES
United States............................. $ 991,523 $ 963,896 $ 965,118
Europe.................................... 306,210 305,274 304,781
South America............................. 221,531 244,456 244,828
Eliminations.............................. (10,979) (14,659) (10,409)
---------- ---------- ----------
Total................................... $1,508,285 $1,498,967 $1,504,318
========== ========== ==========
EARNINGS BEFORE INTEREST AND TAXES
United States............................. $ 85,965 $ 48,979 $ 67,693
Europe.................................... 10,424 15,568 17,307
South America............................. 20,238 24,423 23,504
---------- ---------- ----------
Total................................... $ 116,627 $ 88,970 $ 108,504
========== ========== ==========
TOTAL ASSETS
United States............................. $ 453,935 $ 448,080 $ 431,438
Europe.................................... 205,496 212,961 226,647
South America............................. 235,677 262,290 265,574
---------- ---------- ----------
Total................................... $ 895,108 $ 923,331 $ 923,659
========== ========== ==========
Transfers between segments and geographic areas are recorded at cost plus
markup or at market. Identifiable assets are those assets, including goodwill,
which are identified with the operations in each segment or geographic region.
The 1997 restructuring charge of $12,634 is allocated to segments as follows:
frozen foods $2,697 and grocery products $9,937, and to geographic areas as
follows: U.S. $11,334 and Europe $1,300. The 1996 restructuring charge of
$37,202 is allocated to segments as follows: frozen foods $33,202 and grocery
products $4,000, and to geographic areas as follows: U.S. $33,202 and Europe
$4,000.
4. RELATED PARTY TRANSACTIONS
Certain Vlasic businesses participate in Campbell's centralized cash
management system to finance operations. Cash deposits from Vlasic are
transferred to Campbell on a daily basis, and Campbell funds Vlasic
disbursement bank accounts as required. Unpaid balances of checks are included
in accounts payable. No interest has been charged on transactions with
Campbell.
Campbell provided certain selling, general and administrative services to
Vlasic including finance, legal, systems, research and development, benefits,
facilities and shared sales and distribution support. These expenses were
allocated to Vlasic based on net sales, utilization or other methods which
management believes to be reasonable. These allocations were $51,288 in 1997,
$43,878 in 1996 and $45,263 in 1995 and are included in the appropriate lines
of the Combined Statements of Earnings.
The expenses allocated to Vlasic for these services are not necessarily
indicative of the expenses that would have been incurred if Vlasic had been a
separate, independent entity and had managed these functions.
F-10
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
Subsequent to the Spin-Off, Vlasic will be required to manage these functions
and will be responsible for the expenses associated with the management of a
public company.
Vlasic is included in the combined federal and certain state income tax
returns of Campbell. Income tax expense was calculated as if Vlasic had filed
separate income tax returns.
Vlasic sells to Campbell beef and mushrooms for use as ingredients in
Campbell's finished products and frozen foodservice finished product from its
agricultural products segment. Vlasic purchases from Campbell retail frozen
food finished product in Canada and Open Pit barbecue sauce in the U.S. These
transactions are at negotiated prices. Included in the Combined Statements of
Earnings are sales to Campbell of $155,563 in 1997, $144,902 in 1996 and
$135,001 in 1995. Included in the Combined Statements of Earnings are purchases
from Campbell of $26,255 in 1997, $27,310 in 1996 and $25,129 in 1995.
As discussed in Note 1 above, Campbell and Vlasic will enter into a multi-
year agreement for the continued (i) supply of beef and mushrooms, and
production of frozen foodservice products in the U.S. by Vlasic and (ii)
production of frozen retail products in Canada and Open Pit barbecue sauce in
the U.S. by Campbell.
5. RESTRUCTURING PROGRAMS
A special charge of $12,634 ($7,757 after tax) was recorded in the first
quarter of 1997 to cover the costs of a restructuring program. The
restructuring program is designed to improve operational efficiency by closing
various pickle facilities and reducing approximately 50 administrative and
operational positions from the worldwide workforce.
The restructuring charge includes approximately $4,643 in cash charges
primarily related to severance and employee benefit costs, substantially all of
which will be paid by the end of the first quarter of 1998. The balance of the
restructuring charge, amounting to $7,991, relates to non-cash charges for
losses on the disposition of plant assets. Vlasic plans to substantially
complete the program in the first quarter of 1998.
A summary of the original reserves and activity through August 3, 1997
follows:
[Download Table]
BALANCE
ORIGINAL 1997 AUG. 3,
RESERVES ACTIVITY 1997
-------- -------- -------
Loss on asset dispositions........................ $ 7,991 $(2,467) $5,524
Severance and benefits............................ 3,253 (333) 2,920
Other............................................. 1,390 0 1,390
------- ------- ------
Total........................................... $12,634 $(2,800) $9,834
======= ======= ======
A special charge of $37,202 ($22,842 after tax) was recorded in the fourth
quarter of 1996 to cover the costs of a restructuring program designed to
improve operational efficiency in the U.S. frozen food system by closing the
Modesto plant (a reduction of approximately 500 employees) and increasing
production at Omaha and Fayetteville and improve operational efficiency in the
specialty foods distribution business in Germany.
F-11
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
The restructuring charge includes approximately $22,077 in cash charges
primarily related to severance and employee benefit costs and $15,125 in non-
cash charges for losses on disposition of plant assets. The program was
completed in fiscal 1997.
A summary of the original reserves and activity through August 3, 1997
follows:
[Download Table]
BALANCE BALANCE
ORIGINAL 1996 JULY 28, 1997 AUG. 3,
RESERVES ACTIVITY 1996 ACTIVITY 1997
-------- -------- -------- -------- -------
Loss on asset dispositions... $15,125 $ (782) $14,343 $(14,343) 0
Severance and benefits....... 13,354 (4,202) 9,152 (9,152) 0
Other........................ 8,723 (2,674) 6,049 (6,049) 0
------- ------- ------- -------- ---
Total...................... $37,202 $(7,658) $29,544 $(29,544) 0
======= ======= ======= ======== ===
6. OTHER EXPENSE
[Download Table]
1997 1996 1995
------- ------- -------
Campbell stock price related incentive
programs...................................... $ 8,628 $ 3,288 $ 2,597
Amortization of intangible and other assets.... 2,764 2,691 2,620
Gains on asset sales........................... (8,179) (5,496) (5,489)
Other, net..................................... (767) (324) 245
------- ------- -------
Total........................................ $ 2,446 $ 159 $ (27)
======= ======= =======
7. ACQUISITIONS
During the first quarter of 1995, Vlasic acquired Stratford-upon-Avon Foods,
a pickle and bean business in the U.K. for $60,100. The acquisition was
accounted for as a purchase transaction and operations are included in the
financial statements from the date of acquisition. Pro forma financial
information would not have a material effect on Vlasic's net sales or net
earnings in 1995. The allocation of the purchase price to assets acquired and
liabilities assumed was based upon fair value estimates as follows:
[Download Table]
1995
-------
Working capital...................................................... $16,900
Fixed assets......................................................... 21,500
Intangibles (goodwill)............................................... 21,700
-------
Total.............................................................. $60,100
=======
8. PENSION PLANS AND RETIREMENT BENEFITS
Pension Plans. Substantially all U.S. employees of Vlasic participate in
Campbell sponsored non-contributory defined benefit pension plans. Benefits are
generally based on years of service and employees' compensation during the last
years of employment. All plans are funded and contributions are made in amounts
not less than minimum statutory funding requirements nor more than the maximum
amount that can be deducted for U.S. income tax purposes.
F-12
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
It is intended that Vlasic will adopt funded and unfunded defined benefit
pension plans with terms that are identical in all material respects to those
of Campbell for active Vlasic U.S. employees as of the Distribution Date and
that Campbell will transfer certain trust assets, as described below, from its
funded plans to Vlasic's plans based upon actuarial determinations consistent
with regulatory requirements.
Net periodic U.S. pension expense allocated to Vlasic was $2,140 in 1997,
$3,428 in 1996 and $3,824 in 1995.
Pension benefits for Vlasic's operations outside the U.S. are provided
principally through government plans and also to a lesser extent by company
sponsored plans. Vlasic will assume company sponsored defined benefit plans and
any related assets will be transferred in accordance with regulatory
requirements. Pension expense for operations outside the U.S. was $5,089 in
1997, $5,993 in 1996 and $6,649 in 1995.
Retiree Benefits. Campbell provides postretirement benefits, including health
care and life insurance, to substantially all retired U.S. employees and their
dependents. Employees who have 10 years of service after the age of 45 and
retire from Vlasic are eligible to participate in the postretirement benefit
plans. Vlasic U.S. employees participate in these plans. Postretirement benefit
expense allocated to Vlasic was $2,667 in 1997, $8,383 in 1996 and $10,426 in
1995.
Pension Plans and Retiree Benefits. The related benefit assets and
liabilities have not been included in the combined financial statements.
Campbell will transfer liabilities for its unfunded pension plans and
postretirement health care and life insurance benefits for active Vlasic
employees. With respect to funded pension plans, Campbell intends to transfer
assets and liabilities to Vlasic's plans approximately equal to projected
benefit obligations accrued prior to the Distribution Date, consistent with
regulatory requirements.
Savings Plans. Vlasic U.S. employees participate in Campbell's savings plans.
After one year of continuous service, Vlasic matches 50% of employee
contributions up to five percent of compensation. In 1997, 1996 and 1995
Campbell increased its contribution to 60% because earnings goals were
achieved. Amounts charged to costs and expenses were $2,671 in 1997, $2,168 in
1996 and $2,079 in 1995.
F-13
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
9. TAXES ON EARNINGS
The provision for income taxes consists of the following:
[Download Table]
1997 1996 1995
-------- ------- --------
Income taxes:
Currently payable
Federal........................................ $ 22,229 $29,457 $ 22,699
State.......................................... 3,521 4,371 3,397
Non-U.S........................................ 2,526 6,263 7,161
-------- ------- --------
28,276 40,091 33,257
-------- ------- --------
Deferred
Federal........................................ 7,258 (10,086) 1,939
State.......................................... 1,207 (1,677) 326
Non-U.S........................................ 734 (967) 189
-------- ------- --------
9,199 (12,730) 2,454
-------- ------- --------
Total........................................ $ 37,475 $27,361 $ 35,711
======== ======= ========
Earnings before income taxes:
United States.................................. $ 85,965 $48,979 $ 67,693
Non-U.S........................................ 29,650 39,249 39,000
-------- ------- --------
Total........................................ $115,615 $88,228 $106,693
======== ======= ========
The following is a reconciliation of effective income tax rates with the U.S.
Federal statutory income tax rate:
[Download Table]
1997 1996 1995
---- ---- ----
Federal statutory income tax rate.......................... 35.0% 35.0% 35.0%
State income taxes (net of federal tax benefit)............ 2.6 2.0 2.3
Tax effect resulting from other foreign activities......... (1.1) (1.7) .5
Tax loss carryforwards..................................... (1.6) -- (.3)
Nontaxable export rebate................................... (2.7) (4.9) (4.3)
Other...................................................... .2 .6 .3
---- ---- ----
Effective income tax rate................................ 32.4% 31.0% 33.5%
==== ==== ====
F-14
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
Deferred tax liabilities and assets are comprised of the following:
[Download Table]
AUGUST 3, JULY 28,
1997 1996
--------- --------
Depreciation............................................. $30,992 $29,556
Capitalized interest..................................... 7,459 7,724
Other.................................................... 5,496 5,633
------- -------
Deferred tax liabilities............................... 43,947 42,913
------- -------
Benefits and compensation................................ 6,353 6,292
Restructuring accruals................................... 3,717 12,165
Tax loss carryforwards................................... 13,100 14,800
Other.................................................... 4,409 4,187
------- -------
Gross deferred tax assets................................ 27,579 37,444
Deferred tax asset valuation allowance................... (13,100) (14,800)
------- -------
Net deferred tax assets................................ 14,479 22,644
------- -------
Net deferred tax liability............................. $29,468 $20,269
======= =======
For income tax purposes, certain non-U.S. subsidiaries of Vlasic have tax
loss carryforwards of approximately $41 million. Of these carryforwards, $19
million expire through 2001 and $22 million may be carried forward
indefinitely. The current statutory tax rates in these countries range from 31%
to 33%.
A full valuation allowance is recorded as a reduction to Vlasic's estimate of
the deferred tax assets relating to tax loss carryforwards due to the
uncertainty of the ultimate realization of future benefits from such assets.
These deferred tax assets pertain to Vlasic's operations in Argentina and to
its frozen business in the U.K. The uncertainty surrounding the use of U.K. tax
loss carryforwards stems from significant tax law restrictions regarding their
use. Moreover, the limited tax loss carryforward periods and exclusion from
current taxable income of export rebates create uncertainty about whether
Vlasic will be able to utilize its tax loss carryforwards from operations in
Argentina.
Income taxes have not been accrued on undistributed earnings of non-U.S.
subsidiaries of $6,502 which are invested in operating assets and are not
expected to be remitted. If remitted, tax credits are available to
substantially reduce any additional taxes.
10. ACCOUNTS RECEIVABLE
[Download Table]
1997 1996
-------- --------
Customers................................................ $ 99,407 $106,272
Allowances for cash discounts and bad debts.............. (5,241) (5,166)
-------- --------
94,166 101,106
Other.................................................... 15,510 22,048
-------- --------
Total.................................................. $109,676 $123,154
======== ========
F-15
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
11. INVENTORIES
[Download Table]
1997 1996
--------- ---------
Raw materials, containers and supplies................. $ 54,828 $ 74,116
Finished products...................................... 129,088 135,105
--------- ---------
183,916 209,221
Less: Adjustment to LIFO basis......................... (20,064) (27,274)
--------- ---------
Total................................................ $ 163,852 $ 181,947
========= =========
Inventories for which the LIFO method of determining cost is used represented
approximately 62% of combined inventories in 1997 and 58% in 1996.
12. OTHER CURRENT ASSETS
1997 1996
--------- ---------
Prepaid expenses....................................... $ 4,448 $ 4,584
Deferred taxes......................................... 7,347 15,298
Other.................................................. 544 1,053
--------- ---------
Total................................................ $ 12,339 $ 20,935
========= =========
13. PLANT ASSETS
1997 1996
--------- ---------
Land................................................... $ 19,715 $ 23,882
Buildings.............................................. 291,127 291,988
Machinery and equipment................................ 510,283 504,108
Projects in progress................................... 43,961 35,594
--------- ---------
865,086 855,572
Accumulated depreciation............................... (349,440) (353,411)
--------- ---------
Total................................................ $ 515,646 $ 502,161
========= =========
Depreciation provided in costs and expenses was $42,044 in 1997, $42,894 in
1996 and $42,844 in 1995. Approximately $22 million of capital expenditures are
required to complete projects in progress at August 3, 1997.
F-16
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
14. OTHER ASSETS, PRINCIPALLY INTANGIBLE ASSETS
[Download Table]
1997 1996
-------- --------
Purchase price in excess of net assets of businesses
acquired (goodwill).................................. $ 53,977 $ 56,194
Trademarks............................................ 14,000 14,000
Other intangibles..................................... 36,920 36,920
-------- --------
104,897 107,114
Accumulated amortization.............................. (21,522) (18,624)
-------- --------
Total intangible assets............................... 83,375 88,490
Other assets.......................................... 811 1,091
-------- --------
Total............................................... $ 84,186 $ 89,581
======== ========
15. ACCRUED LIABILITIES
1997 1996
-------- --------
Employee compensation and benefits.................... $ 23,788 $ 29,960
Marketing............................................. 32,105 22,597
Restructuring......................................... 9,834 29,544
Other................................................. 23,187 25,970
-------- --------
Total............................................... $ 88,914 $108,071
======== ========
16. OTHER LIABILITIES
1997 1996
-------- --------
Deferred compensation................................. $ 8,137 $ 6,622
Postemployment benefits............................... 3,400 3,400
-------- --------
Total............................................... $ 11,537 $ 10,022
======== ========
17. FINANCIAL INSTRUMENTS
Vlasic does not enter into derivative financial instruments for trading
purposes, nor is it party to any leveraged derivative instruments. The use of
derivative financial instruments is monitored through regular communication
with senior management and the utilization of written guidelines.
Vlasic's use of derivative financial instruments is currently limited to
forward foreign exchange contracts, which are used to hedge firm sale and
purchase commitments denominated in foreign currencies. At August 3, 1997 and
July 28, 1996, open contracts and related deferred gains or losses were not
significant. All open contracts mature in 1998. Gains and losses on the
currency contracts are recognized and offset against exchange gains and losses
on the underlying exposure.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and short-term and long-term debt approximate fair value.
F-17
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
18. CAMPBELL LONG-TERM INCENTIVE PLAN
Campbell sponsors a long-term incentive compensation plan. Under the plan,
restricted stock and stock options may be granted to certain officers and key
employees. Options are granted at a price not less than the fair value of the
shares on the date of grant and expire not later than ten years after the date
of grant. Options vest over a three-year period. Vlasic's officers and key
employees participate in this plan.
Vlasic accounts for the stock option grants and restricted stock awards in
accordance with Accounting Principles Board Opinion No. 25 and related
interpretations. Accordingly, no compensation expense has been recognized in
the Combined Statements of Earnings for the options as all options are granted
at a price not less than the fair value of the shares on the date of the grant.
In 1997, Vlasic adopted the disclosure provisions of FASB Statement of
Financial Accounting Standards No.123 (SFAS 123)--"Accounting for Stock-Based
Compensation."
Had the compensation cost for the stock option plans been determined based on
the fair value at the grant dates for awards under the plans, consistent with
the alternative method set forth under SFAS 123, Vlasic's net earnings would
have been changed to the pro forma amounts set forth below:
[Download Table]
1997 1996
------- -------
Net Earnings
Reported................................................... $78,140 $60,867
Pro Forma.................................................. 77,106 60,785
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997 and 1996:
1997 1996
------- -------
Expected dividend yield...................................... 1.9% 2.2%
Expected volatility.......................................... 17.5% 16.0%
Risk-free interest rate...................................... 6.4% 6.6%
Expected life................................................ 6 years 6 years
The weighted-average value of an option granted during the year was $12.90
and $8.43 for the years ended August 3, 1997 and July 28, 1996 respectively.
The pro forma amounts above are not necessarily representative of the effects
of stock-based awards on future pro forma net earnings because (1) future
grants of employee stock options by Vlasic management may not be comparable to
awards made to employees while Vlasic was a part of Campbell, (2) the
assumptions used to compute the fair value of any stock option awards will be
specific to Vlasic and therefore may not be comparable to the Campbell
assumptions used and (3) the pro forma net earnings were determined based upon
stock option grants in 1997 and 1996 only. Accordingly, since compensation
expense associated with such grants would be recognized over a three-year
vesting period, the initial impact of applying SFAS 123 on pro forma net
earnings may not be representative of the potential impact on pro forma net
earnings in future years.
F-18
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
Information about Campbell stock options held by Vlasic employees and related
activity is as follows:
[Download Table]
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
STOCK OPTION PLANS 1997 PRICE 1996 PRICE 1995 PRICE
------------------ ----- -------- ----- -------- ----- --------
Beginning of year.............. 2,344 $22.53 2,069 $15.20 2,124 $12.63
Granted........................ 306 48.02 683 34.63 295 24.60
Exercised...................... (363) 16.10 (367) 14.13 (321) 11.68
Terminated..................... (32) 24.45 (41) 20.32 (29) 19.82
----- ------ ----- ------ ----- ------
End of year.................. 2,255 $26.94 2,344 $22.53 2,069 $15.20
----- ----- -----
Exercisable at end of year... 1,200 1,156 1,270
===== ===== =====
[Download Table]
STOCK OPTIONS OUTSTANDING EXERCISABLE OPTIONS
--------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EERCISE PRICESX SHARES LIFE PRICE SHARES PRICE
--------------- ------ ----------- -------- --------- ----------
$ 7.59-$14.95................ 412 2.81 $13.07 338 $ 13.07
$17.69-$34.84................ 1,547 7.37 $26.60 862 $ 20.31
$38.06-$48.31................ 296 9.90 $48.10 -- --
----- ---------
2,255 1,200
===== =========
In connection with the separation of Vlasic from Campbell, the following with
respect to restricted stock and stock options will occur:
Restricted stock. Restricted stock which vests by July 31, 1998, or on which
the earnings-based restriction period ends in 1998 will be issued in the form
of Campbell Stock. Restricted stock for Vlasic's employees with an earnings-
based restriction period ending in 2000 will be canceled.
Stock options. Vlasic's employees who hold stock options which are vested as
of the effective date of the Spin-Off will retain those options which will be
exercisable for Campbell Stock in accordance with the grants' original terms
and conditions as long as they remain employees of Vlasic, except that the
number of options and exercise price will be adjusted to preserve the inherent
economic value of the options taking into account the Spin-Off. Stock options
held by Vlasic's employees which are not vested as of the effective date of the
Spin-Off will be converted into options for Vlasic stock. The number of shares
subject to, and the exercise price of, each Campbell option that is converted
to a Vlasic option will be converted based upon a formula that preserves the
inherent economic value and vesting and term provisions of such Campbell
options. The exchange ratio and fair market value of the Vlasic common stock,
upon active trading, will also impact the number of options issued to Vlasic
employees. The number of Campbell stock options held by option holders expected
to become Vlasic employees at August 3, 1997 was 2.4 million with a range of
exercise price from $7.59 to $48.31. The ultimate number of Campbell stock
options to be held by Vlasic employees and the number and exercise price of the
Vlasic stock options to be issued, subject to the above calculation, cannot yet
be determined.
F-19
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
Vlasic intends to establish its own long-term incentive plan which will
provide its Board of Directors the flexibility to grant restricted stock,
incentive stock options, stock appreciation rights and non-qualified stock
options to officers, employees and directors of Vlasic.
19. STATEMENTS OF CASH FLOWS
[Download Table]
1997 1996 1995
------- ------- -------
Interest Paid........................................ $ 1,600 $ 1,071 $ 2,016
Interest Received.................................... $ 588 $ 329 $ 205
Income Taxes Paid.................................... $28,276 $40,091 $33,257
20. QUARTERLY DATA (UNAUDITED)
[Download Table]
1997
-----------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net Sales................................ $365,316 $384,860 $357,152 $400,957
Cost of Products Sold.................... $258,518 $272,478 $248,967 $268,470
Net Earnings............................. $ 9,807 $ 19,708 $ 16,560 $ 32,065
First quarter 1997 includes after-tax restructuring charges of $7,757. Fourth
quarter 1997 includes 14 weeks. See Note 2.
[Download Table]
1996
-----------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net Sales................................ $352,483 $394,205 $380,847 $371,432
Cost of Products Sold.................... $256,165 $281,266 $269,680 $246,237
Net Earnings............................. $ 17,180 $ 16,686 $ 19,157 $ 7,844
Fourth quarter 1996 includes after-tax restructuring charges of $22,842.
F-20
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF EARNINGS
SECOND QUARTERS AND SIX MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(000 OMITTED)
(UNAUDITED)
[Download Table]
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
FEBRUARY 1, JANUARY 26, FEBRUARY 1, JANUARY 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
NET SALES (including $43,815
and $39,669 to related parties
in the second quarters and
$83,632 and $83,831 to related
parties in the six month
periods)...................... $375,317 $384,860 $723,169 $750,176
-------- -------- -------- --------
Costs and expenses
Cost of products sold........ 267,884 272,478 519,224 530,996
Marketing and selling
expenses.................... 58,296 64,841 114,821 127,799
Administrative expenses...... 13,848 13,239 28,732 27,327
Research and development
expenses.................... 1,930 2,063 3,948 3,925
Other (income) expense....... 1,352 2,268 (91) 3,962
Restructuring charge......... 0 0 0 12,634
-------- -------- -------- --------
Total costs and expenses... 343,310 354,889 666,634 706,643
-------- -------- -------- --------
EARNINGS BEFORE INTEREST AND
TAXES......................... 32,007 29,971 56,535 43,533
Interest expense............... 286 735 911 901
Interest income................ 59 179 145 330
-------- -------- -------- --------
Earnings before taxes.......... 31,780 29,415 55,769 42,962
Taxes on earnings.............. 12,942 9,707 20,858 13,447
-------- -------- -------- --------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE... 18,838 19,708 34,911 29,515
Cumulative Effect of Accounting
Change........................ (600) 0 (600) 0
-------- -------- -------- --------
NET EARNINGS................... $ 18,238 $ 19,708 $ 34,311 $ 29,515
======== ======== ======== ========
The accompanying Notes to Combined Financial Statements on pages F-25 to F-27
are an integral part of the financial statements.
F-21
VLASIC FOODS INTERNATIONAL INC.
COMBINED BALANCE SHEETS
(000 OMITTED)
[Download Table]
FEBRUARY 1, AUGUST 3,
1998 1997
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT ASSETS
Cash and cash equivalents............................... $ 1,456 $ 9,409
Accounts receivable..................................... 160,119 109,676
Inventories............................................. 163,689 163,852
Other current assets.................................... 15,070 12,339
-------- --------
Total current assets................................ 340,334 295,276
-------- --------
Plant assets, net of depreciation....................... 507,532 515,646
Other assets, principally intangible assets, net of
amortization........................................... 89,221 84,186
-------- --------
Total assets........................................ $937,087 $895,108
======== ========
CURRENT LIABILITIES
Notes payable........................................... $ 11,944 $ 191
Payable to suppliers and others......................... 82,470 95,684
Overdrafts.............................................. 9,058 27,417
Accrued liabilities..................................... 63,024 88,914
-------- --------
Total current liabilities........................... 166,496 212,206
-------- --------
Long-term debt.......................................... 2,018 2,252
Deferred income taxes................................... 36,892 36,815
Other liabilities....................................... 12,293 11,537
-------- --------
Total liabilities................................... 217,699 262,810
-------- --------
SHAREOWNER'S EQUITY
Campbell net investment................................. 719,660 633,168
Cumulative translation adjustments...................... (272) (870)
-------- --------
Total shareowner's equity........................... 719,388 632,298
-------- --------
Total liabilities and shareowner's equity........... $937,087 $895,108
======== ========
The accompanying Notes to Combined Financial Statements on pages F-25 to F-27
are an integral part of the financial statements.
F-22
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(000 OMITTED)
(UNAUDITED)
[Download Table]
SIX MONTHS ENDED
-----------------------
FEBRUARY 1, JANUARY 26,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................... $ 34,311 $ 29,515
Non-cash charges to net earnings
Cumulative effect of accounting change............... 600
Restructuring charge................................. 12,634
Depreciation and amortization........................ 23,059 20,232
Deferred income taxes................................ 627 941
Other, net........................................... 756 427
Changes in working capital
Accounts receivable.................................. (50,159) (38,020)
Inventories.......................................... 368 1,673
Other current assets and liabilities................. (56,369) (27,153)
-------- --------
Net cash (used in) provided by operating
activities........................................ (46,807) 249
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant assets.............................. (23,270) (35,385)
Sales of plant assets.................................. 4,635 1,058
Business acquired...................................... (6,350)
Other, net............................................. 146 249
-------- --------
Net cash used in investing activities.............. (24,839) (34,078)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term borrowings..................... (234) (319)
Short-term borrowings.................................. 11,753
Repayments of short-term borrowings.................... (23)
Net transactions with Campbell......................... 52,181 33,576
-------- --------
Net cash provided by financing activities.......... 63,700 33,234
-------- --------
Effect of exchange rate changes on cash................ (7) (38)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS............ (7,953) (633)
Cash and cash equivalents at beginning of six months... 9,409 5,553
-------- --------
CASH AND CASH EQUIVALENTS AT END OF SIX MONTHS......... $ 1,456 $ 4,920
======== ========
The accompanying Notes to Combined Financial Statements on pages F-25 to F-27
are an integral part of the financial statements.
F-23
VLASIC FOODS INTERNATIONAL INC.
COMBINED STATEMENTS OF SHAREOWNER'S EQUITY
SIX MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(000 OMITTED)
(UNAUDITED)
[Download Table]
CUMULATIVE
CAMPBELL TRANSLATION
NET INVESTMENT ADJUSTMENTS TOTAL
-------------- ----------- --------
SHAREOWNER'S EQUITY, JULY 28, 1996........ $659,057 $ 809 $659,866
First six months 1997 net earnings........ 29,515 29,515
Translation adjustments................... (384) (384)
Net transactions with Campbell............ 33,576 33,576
-------- ----- --------
SHAREOWNER'S EQUITY, JANUARY 26, 1997..... $722,148 $ 425 $722,573
======== ===== ========
SHAREOWNER'S EQUITY, AUGUST 3, 1997....... $633,168 $(870) $632,298
First six months 1998 net earnings........ 34,311 34,311
Translation adjustments................... 598 598
Net transactions with Campbell............ 52,181 52,181
-------- ----- --------
SHAREOWNER'S EQUITY, FEBRUARY 1, 1998..... $719,660 $(272) $719,388
======== ===== ========
The accompanying Notes to Combined Financial Statements on pages F-25 to F-27
are an integral part of the financial statements.
F-24
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(000 OMITTED)
(UNAUDITED)
1. ADJUSTMENTS
The combined financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
indicated periods. Except for the Cumulative Effect of Change in Accounting
Principle discussed in Note 2, all such adjustments are of a normal recurring
nature.
2. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In the second quarter of fiscal 1998, the company adopted the provisions of
the Emerging Issues Task Force (EITF) consensus resulting on Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." The EITF, a sub-committee of the Financial Accounting
Standards Board, reached a consensus that costs of business process
reengineering activities that are part of a systems development project are to
be expensed as incurred. Furthermore, the consensus ruling stipulates that the
unamortized balance of such previously capitalized business process
reengineering costs are to be written off as a cumulative effect of accounting
change as of the beginning of the quarter which includes November 20, 1997. The
company previously capitalized certain consulting costs related to the purchase
and implementation of software for internal use. The cumulative effect of this
change in accounting principle is $600, net of an income tax benefit of
approximately $370.
3. ACQUISITION
During the second quarter of 1998, Vlasic acquired the trademark and certain
equipment for the SAFRA canned spreadable meats business in Argentina for
$6,350. The acquisition was accounted for as a purchase transaction and
operations are included in the financial statements from the date of
acquisition. The trademark will be amortized over the period of expected
benefit -- 40 years. Pro forma financial information would not have a material
effect on Vlasic's net sales or net earnings in 1998. The allocation of the
purchase price to assets acquired and liabilities assumed was based upon fair
value estimates as follows:
[Download Table]
Fixed Assets...................................... $ 500
Intangibles (trademark)........................... 5,850
------
TOTAL........................................... $6,350
======
F-25
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
(UNAUDITED)
4. SEGMENT INFORMATION
See note 3 to the Combined Financial Statements on Pages F-8 to F-10 for a
description of the segments.
[Download Table]
SECOND QUARTERS ENDED SIX MONTHS ENDED
----------------------- -----------------------
FEBRUARY 1, JANUARY 26, FEBRUARY 1, JANUARY 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net Sales
Frozen Foods............. $161,939 $160,508 $319,593 $319,189
Grocery Products......... 122,088 137,698 224,283 250,134
Agricultural Products.... 93,811 88,917 185,480 186,146
Eliminations............. (2,521) (2,263) (6,187) (5,293)
-------- -------- -------- --------
Total.................. $375,317 $384,860 $723,169 $750,176
======== ======== ======== ========
Earnings Before Interest
and Taxes
Frozen Foods............. $ 19,336 $ 14,847 $ 38,138 $ 27,130
Grocery Products......... 14,101 13,324 19,087 12,122
Agricultural Products.... (1,430) 1,800 (690) 4,281
-------- -------- -------- --------
Total.................. $ 32,007 $ 29,971 $ 56,535 $ 43,533
======== ======== ======== ========
[Download Table]
FEBRUARY 1, AUGUST 3,
1998 1997
----------- ---------
Total Assets
Frozen Foods......................................... $286,456 $259,132
Grocery Products..................................... 356,489 369,922
Agricultural Products................................ 294,142 266,054
-------- --------
Total.............................................. $937,087 $895,108
======== ========
5. INVENTORIES
[Download Table]
FEBRUARY 1, AUGUST 3,
1998 1997
----------- ---------
Raw materials, containers and supplies................ $ 61,099 $ 54,828
Finished products..................................... 119,365 129,088
-------- --------
180,464 183,916
Less: Adjustment to LIFO basis........................ (16,775) (20,064)
-------- --------
Total............................................... $163,689 $163,852
======== ========
6. RESTRUCTURING PROGRAM
A special charge of $12,634 ($7,757 after tax) was recorded in the first
quarter of 1997 to cover the costs of a restructuring program. The
restructuring program was designed to improve operational efficiency by closing
various pickle facilities and reducing approximately 50 administrative and
operational positions from the worldwide workforce.
F-26
VLASIC FOODS INTERNATIONAL INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(000 OMITTED)
(UNAUDITED)
The restructuring charge included approximately $4,643 in cash charges
primarily related to severance and employee benefit costs. The balance of the
restructuring charge, amounting to $7,991, related to non-cash charges for
losses on the disposition of plant assets. The program is now substantially
completed.
A summary of the original reserves and activity through November 2, 1997
follows:
[Download Table]
LOSS ON SEVERANCE
ASSET AND
DISPOSITIONS BENEFITS OTHER TOTAL
------------ --------- ------- -------
Original reserves and Balance
October 27, 1996................ $ 7,991 $ 3,253 $ 1,390 $12,634
Second quarter fiscal 1997
activity........................ (252) (252)
------- ------- ------- -------
Balance January 26, 1997......... 7,991 3,001 1,390 12,382
Remainder fiscal 1997 activity... (2,467) (81) 0 (2,548)
------- ------- ------- -------
Balance August 3, 1997........... 5,524 2,920 1,390 9,834
First quarter fiscal 1998
activity........................ (5,524) (2,920) (1,390) (9,834)
------- ------- ------- -------
Balance November 2, 1997......... $ 0 $ 0 $ 0 $ 0
======= ======= ======= =======
7. OTHER (INCOME) EXPENSE
[Download Table]
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
FEBRUARY 1, JANUARY 26, FEBRUARY 1, JANUARY 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Gain on fire insurance
settlement................ $ 0 $ 0 $(3,357) $ 0
Campbell stock price
related incentive
programs.................. 961 1,391 2,038 2,348
Amortization of intangible
and other assets.......... 685 703 1,351 1,375
Other, net................. (294) 174 (123) 239
------ ------ ------- ------
Total.................... $1,352 $2,268 $ (91) $3,962
====== ====== ======= ======
F-27
EXHIBIT INDEX
[Download Table]
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Form of Separation and Distribution Agreement between Campbell Soup
Company and Vlasic Foods International Inc.
3.1 Form of Certificate of Incorporation of Vlasic Foods International
Inc., to be in effect upon the effectiveness of the Spin-Off
3.2 Form of Bylaws of Vlasic Foods International Inc., to be in effect
upon the effectiveness of the
Spin-Off
9.1 Major Stockholders' Voting Agreement dated June 2, 1990 among Dorrance
H. Hamilton, Charles H. Mott and John A. van Beuren, as Voting
Trustees, and certain related persons
10.1 Form of Transition Services Agreement between Campbell Soup Company
and Vlasic Foods International Inc.
10.2 Form of Benefits Sharing Agreement between Campbell Soup Company and
Vlasic Foods International Inc.
10.3 Form of Swanson Trademark License Agreement between Campbell Soup
Company and Vlasic Foods International Inc.
10.4 Form of Technology Sharing Agreement between Campbell Soup Company and
Vlasic Foods International Inc.
10.5 Form of Tax Sharing and Indemnification Agreement between Campbell
Soup Company and Vlasic Foods International Inc. and certain of its
subsidiaries
10.6 Credit Agreement dated February 20, 1998 among Campbell Soup Company
and The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, as Agents, to be assigned to and assumed by Vlasic Foods
International Inc. upon the effectiveness of the Spin-Off
10.7 Personal Choice Plan
10.8 Deferred Compensation Plan
10.9 1998 Long-Term Incentive Plan
10.10 Annual Incentive Plan
10.11 Director Compensation Plan
21 Subsidiaries of Vlasic Foods International Inc.
27 Selected Financial Data Schedule
Dates Referenced Herein and Documents Incorporated by Reference
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