UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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| For the Fiscal Year Ended | | | | Commission File Number |
July 30, 201731, 2022 | | | | 1-3822 |
CAMPBELL SOUP COMPANY
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| New Jersey | 21-0419870 |
| State of Incorporation | I.R.S. Employer Identification No. |
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
| Capital Stock, par value $.0375 | | CPB | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.þYes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerþ | ☑ | Accelerated filer | ☐ |
| Non-accelerated filer ☐ (Do not check if a smaller reporting company) | ☐ | Smaller reporting company | ☐ |
| Emerging growth company ☐ | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
As ofBased on the closing price on the New York Stock Exchange on January 27, 201728, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of capital stock held by non-affiliates of the registrant was approximately $11,934,667,846.$8,597,234,004. There were 300,528,501299,364,411 shares of capital stock outstanding as of September 20, 2017.14, 2022.
Portions of the Registrant’s Proxy Statement for the 2022 Annual Meeting of Shareholders to be held on November 15, 2017, are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "will,"intend," "goal,"plan," "pursue," "strategy," "target," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties. Risks and uncertainties include, but are not limited to, those discussed in "Risk Factors" and in the "Cautionary Factors That May Affect Future Results" in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Report. Our consolidated financial statements and the accompanying notes to the consolidated financial statements are presented in "Financial Statements and Supplementary Data."
Item 1. Business
The Company
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products. We organized as a business corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, we trace our heritage in the food business back to 1869. Our principal executive offices are in Camden, New Jersey 08103-1799.
In 2013,Business Divestitures
We completed the sale of our Kelsen business on September 23, 2019.On December 23, 2019, we acquired BF Bolthouse Holdco LLC (Bolthouse Farms)completed the sale of our Arnott’s business and Plum, PBC (formerly Plum Inc.) (Plum)certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott’s and other international operations). In 2014,addition, on October 11, 2019, we acquired Kelsen Group A/S (Kelsen) and divestedcompleted the sale of our European simple mealschips business.
We used the net proceeds from the sales to reduce debt as described below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Beginning in the fourth quarter of 2019, we have reflected the results of operations of our Kelsen business and the Arnott’s and other international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment. The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment.
In 2015,the fourth quarter of 2021, we acquiredcompleted the assetssale of Garden Fresh Gourmet. In 2017, we entered into an agreement to acquire Pacific Foodsour Plum baby food and snacks business. The results of Oregon, Inc. for $700 million. For additional information on this pending acquisition, see our Form 8-K filed with the U.S. SecuritiesPlum baby food and Exchange Commission on July 6, 2017. snacks business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.
See also Note 3 to the Consolidated Financial Statements for additional information on our recent acquisitions.divestitures.
Reportable Segments
We manage our businesses in three segments focused mainly on product categories. TheOur reportable segments are:
The Americas Simple •Meals & Beverages, which consists of our soup, simple meals and Beverages segment, which includes thebeverages products in retail and food service businessesfoodservice in the U.S., Canada and Latin America.Canada. The segment includes the following products: Campbell’scondensed and ready-to-serve soups; Swansonbroth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell’sCampbell’s tomato juice;
juice. The segment also includes snacking products in foodservice and Canada. The segment included the results of our Plum baby food and snacks business, which was sold on May 3, 2021; andThe Global Biscuits and •Snacks, segment, which includes:consists of Pepperidge Farm cookies,cookies*, crackers,fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*,Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*,Pop Secret popcorn, Emerald nuts, and other snacking products in retail in the U.S. retail; Arnott’s biscuitsBeginning in Australia and Asia Pacific; and Kelsen cookies globally.2022, we refer to the * brands as our "power brands." The segment includes the retail business in Latin America. The segment also includesincluded the simple meals and shelf-stable beveragesresults of our European chips business, in Australia and Asia Pacific; andwhich was sold on October 11, 2019.
The Campbell Fresh segment, which includes: Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated soup business.
Beginning in 2018,2022, the foodservice and Canadian business formerly included in Latin America will beour Snacks segment is now managed as part of the Global Biscuits and Snacks segment.Meals & Beverages segment. Segment results have been adjusted retrospectively to reflect this change. See Note 6 to
the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our reportable segments.
Ingredients and Packaging
The ingredients and packaging materials required for the manufacture of our food and beverage products are purchased from various suppliers. Thesesuppliers, substantially all of which are located in North America. During 2022, we experienced significantly elevated commodity and supply chain costs including the costs of labor, raw materials, energy, fuel, packaging materials and other inputs necessary for the production and distribution of our products. In addition, many of these items are subject to price fluctuations from a number of factors, including but not limited to climate change, changes in crop size, cattle cycles, herd and flock disease, crop disease, and/or crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, supplier capacities, government-sponsored agricultural programs and other government policy, import and export requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, pandemic illness (such as the COVID-19 pandemic), armed hostilities (including the ongoing conflict between Russia and Ukraine) and other factors that may be beyond our control during the growing and harvesting seasons.control. To help reduce some of this price volatility, we use a combination of purchase orders, short- and long-term contracts, inventory management practices and various commodity risk management tools for most of our ingredients and packaging. Ingredient inventories are generally at a peak during the late fall and decline during the winter and spring. Since many ingredients of suitable quality are available in sufficient quantities only during certain seasons, we make commitments for the purchase of such ingredients in their respective seasons. At this time,Although we do not anticipate any material restrictions on the availability of ingredients or packaging that would have a significant impact on our businesses. For information onare unable to predict the impact of our ability to source these ingredients and packaging materials in the future, we expect these supply pressures to continue throughout 2023. We also expect the pressures of input cost inflation see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
to continue into 2023.
Customers
In most of our markets, sales and merchandising activities are conducted through our own sales force and/or third-party brokers and distribution partners. In the U.S., Canada and Latin America, ourOur products are generally resold to consumers through retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, dollar stores, e-commerce and other retail, commercial and non-commercial establishments. Pepperidge Farm alsoOur Snacks segment has a direct-store-delivery distribution model that uses independent contractor distributors. In the Asia Pacific region, our products are generally resold to consumers through retail food chains, convenience stores and other retail, commercial and non-commercial establishments. We make shipments promptly after acceptance of orders.
Our five largest customers accounted for approximately 39%47% of our consolidated net sales from continuing operations in 2017, 40%2022, 46% in 20162021 and 38%44% in 2015.2020. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20%22% of our consolidated net sales from continuing operations in 2017, 20162022 and 2015. All21% in 2021 and 2020. Both of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates. No other customer accounted for 10% or more of our consolidated net sales. For additional information on our customers, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Trademarks and Technology
As of September 20, 2017,14, 2022, we owned over 3,7002,800 trademark registrations and applications in over 160150 countries. We believe our trademarks are of material importance to our business. Although the laws vary by jurisdiction, trademarks generally are valid as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic. Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. We believe that our principal brands, including Arnott'sCampbell's, Bolthouse Farms, Campbell's, Garden Fresh Gourmet, Goldfish, Kjeldsens, Milano Cape Cod, Chunky, Emerald, Goldfish, Kettle Brand, Lance, Late July, Milano, Pace, Pacific Foods, Pepperidge Farm, Plum Pop Secret,Prego,Snack Factory,Snyder's of Hanover, Spaghettios, Swanson,and V8,are protected by trademark law in the major markets where they are used.
Although we own a number of valuable patents, we do not regard any segment of our business as being dependent upon any single patent or group of related patents. In addition, we own copyrights, both registered and unregistered, proprietary trade secrets, technology, know-how, processes and other intellectual property rights that are not registered.
Competition
We operate in a highly competitive industry and experience competition in all of our categories. This competition arises from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of generic and store brandprivate label products, as well as other branded food and beverage manufacturers. Private label products are generally sold at lower prices than branded products. Competitors market and sell their products through traditional retailers and e-commerce. All of these competitors vie for trade merchandising support and consumer dollars. The number of competitors cannot be reliably estimated. TheOur principal areas of competition are brand recognition, taste, quality, nutritional value, price, advertising, promotion, convenienceinnovation, shelf space and customer service.
Working Capital
For information relating to our cash flows from operations and working capital items, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Capital Expenditures
During 2017,2022, our aggregate capital expenditures were $338$242 million. We expect to spend approximately $400$325 million for capital projects in 2018.2023. Major capital projects based on planned spend in 20182023 include a U.S. warehouse optimization project, insourcing ofcracker capacity expansion for our Snacks business and a new manufacturing line for certain simple meal products, and ongoing refrigeration system replacement projects.our Meals & Beverages business.
During the last three fiscal years, our expenditures on research and development activities relating to new products and the improvement and maintenance of existing products were $98 million in 2017, $124 million in 2016, and $117 million in 2015. The decrease from 2016 to 2017 was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year; increased benefits from cost savings initiatives; and lower incentive compensation costs, partially offset by inflation and other factors, and investments in long-term innovation. The increase from 2015 to 2016 was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments and increased costs to support long-term innovation, partially offset by benefits from cost savings initiatives.
Government Regulation
The manufacture and sale of consumer food products is highly regulated. In the U.S., our activities are subject to regulation by various federal government agencies, including the Food and Drug Administration, U.S.the Department of Agriculture, the Federal Trade Commission, the Department of Labor, the Department of Commerce, the Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local agencies. Our business is also regulated by similar agencies outside of the U.S. Additionally, we are subject to data privacy and security regulations, tax and securities regulations, accounting and reporting standards, and other financial laws and regulations. We believe that we are in compliance with current laws and regulations in all material respects and do not expect that continued compliance with such laws and regulations will have a material effect on capital expenditures, earnings or our competitive position.
Environmental Matters
We have requirements for the operation and design of our facilities that meet or exceed applicable environmental rules and regulations. Of our $338$242 million in capital expenditures made during 2017,2022, approximately $14$9 million waswere for compliance with environmental laws and regulations in the U.S. We further estimate that approximately $13 million of the capital expenditures anticipated during 20182023 will be for compliance with U.S. environmental laws and regulations. We believe that the continued compliance with existing environmental laws and regulations (both within the U.S. and elsewhere) will not have a material effect on capital expenditures, earnings or our competitive position. In addition, we continue to monitor existing and pending environmental laws and regulations within the U.S. and elsewhere relating to climate change and greenhouse gas emissions. While the impact of these laws and regulations cannot be predicted with certainty, we do not believe that compliance with these laws and regulations will have a material effect on capital expenditures, earnings or our competitive position.
Seasonality
Demand for soup products is seasonal, with the fall and winter months usually accounting for the highest sales volume. Sales of Kelsen products are also highest in the fall and winter months due primarily to holiday gift giving, including the Chinese New Year. Demand for our other products is generally evenly distributed throughout the year.
EmployeesHuman Capital Management
A core pillar of our strategic plan is to build a winning team and culture. To do this, we are committed to building a company where everyone can be real, and feel safe, valued and supported to do their best work. We believe that our employees are the driving force behind our success and prioritize attracting, developing and retaining diverse, world-class talent and creating an inclusive culture that embodies our purpose: Connecting people through food they love. On July 30, 2017,31, 2022, we had approximately 18,00014,700 employees.
Training, Development and Engagement
We invest in our employees through training and development programs. We have partnered with leading online content experts and have recently increased internal learning development to expand our catalog of courses and support our culture of continuous learning. A suite of training and education programs are available to employees ranging from role-specific training to education on soft skills to assist them with enhancing their careers through continuous learning. Through objective-setting, individual development plans, learning opportunities, feedback and coaching, employees are encouraged to continue their professional growth. Our education programs allow employees to focus on timely and topical development areas including leadership, management excellence, functional capabilities and inclusion and diversity. We communicate frequently and transparently with our employees through regular company-wide and business unit check-ins, and we conduct employee engagement surveys that provide our employees with an opportunity to share anonymous feedback with management in a variety of areas including confidence in leadership, growth and career opportunities, available resources, compensation and overall engagement. These surveys allow our leaders to develop action plans for their business units as well as the broader organization.
Our Campbell Employee Experience Framework enhances the foundational moments that are key to an employee's career at our company - from the candidate experience and onboarding through career advancement - to help our employees thrive at work, with the goal of building an inclusive, engaging and high-performing culture.
Inclusion and Diversity
We believe that having an inclusive and diverse culture strengthens our ability to recruit and develop talent and allows all employees to thrive and succeed. Diversity of input and perspectives is an essential part of our strategic plan to build a winning team and culture, and we believe one key to success is attracting and retaining a diverse workforce that reflects our consumers of today and tomorrow. Our commitment to inclusion and diversity ("I&D") is based on three guiding pillars:
•Capabilities - providing resources and tools to employees to build capabilities to build a winning team and culture and to drive systemic change;
•Advocacy - strengthening ally networks by supporting our employees, our partners and the communities where we live and work; and
•Accountability - having individual, management and organizational accountability and transparency about our progress on building an inclusive culture.
We also continue to provide I&D learning experiences and foster employee resource groups to highlight issues that impact underrepresented communities. Throughout 2022 the board of directors (Board) received regular updates from management on our inclusion and diversity efforts.
Wellness and Safety
Our employees' health, safety and well-being are our top priorities. We have maintained an unwavering commitment to supporting the health and well-being of our employees during the COVID-19 pandemic and we implemented an enterprise-wise response to ensure safety. We have implemented safety and sanitation measures to help ensure employees' health and well-being, embraced remote work for those who were able, and introduced enhanced sanitation, mask use and other protective equipment protocols and social distancing measures for our front-line employees.
Financial Information
FinancialIn addition, our Resources for Living program provides information, education tools and resources to help support our employees' physical, financial, social and emotional well-being. As part of this focus on well-being, we emphasize the need for our reportable segmentsemployees to embrace healthy lifestyles and geographic areaswe offer a variety of wellness education opportunities for our employees. We continue to modernize our workspaces and in 2022 announced a hybrid work policy to allow office-based employees to work remotely several days per week.
Total Rewards
We provide market-based competitive compensation through our salary, annual incentive and long-term incentive programs, and a robust benefits package that promotes the overall well-being of our employees. We provide a variety of resources and services to help our employees plan for retirement and provide a 401(k) plan with immediate vesting. We benchmark and establish compensation structures based on competitive market data. Individual pay is foundbased on various factors such as an employee's role, experience, job location and contributions. Performance discussions for salaried employees are conducted throughout the year to assess contributions and inform individual development plans. We have enhanced our focus on the employee experience by highlighting key moments in Note 6 to the Consolidated Financial Statements. For risks attendant toemployment life-cycle and providing enhanced communications about our foreign operations, see "Risk Factors."comprehensive offerings.
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at the Investor portion of this website (under the "Investor Center — Financial Information — "About Us—Investors—Financials—SEC Filings" caption) all of our reports (including amendments) filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual reportreports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with the Securities and Exchange Commission.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations. Although the risks are organized and described separately, many of the risks are interrelated. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.
Business and Operational Risk FactorsRisks
We operate inmay not be able to increase prices to fully offset inflationary pressures on costs, such as raw andpackaging materials, labor and distribution costs
As a highly competitive industry
We operate in the highly competitivemanufacturer of food and beverage industryproducts, we rely on plant labor, distribution resources and experience competition in allraw and packaging materials including tomato paste, grains, beef, poultry, dairy, vegetable oil, wheat, potatoes and other vegetables, steel, aluminum, glass, paper and resin. During 2022, we experienced significantly elevated commodity and supply chain costs including the costs of labor, raw materials, energy, fuel, packaging materials and other inputs necessary for the production and distribution of our categories. The principal areasproducts, and we expect elevated levels of competitioninflation to continue in 2023. In addition, many of these materials are brand recognition, taste, quality, nutritional value,subject to price advertising, promotion, convenience and service. Afluctuations from a number of our primary competitors are larger than usfactors, including but not limited to changes in crop size, cattle cycles, herd and have substantial financial, marketingflock disease, crop disease, crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, supplier capacities, government-sponsored agricultural programs and other resources. In addition, reduced barriers to entrygovernment policy, import and easier access to funding are creating new competition. A strong competitive response from one or moreexport requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, scarcity of these competitors to our marketplace efforts, or a continued shift towards store brand offerings, could result in us reducing prices, increasing marketing orsuitable agricultural land, scarcity of organic ingredients, pandemic illness (such as the
COVID-19 pandemic), armed hostilities (including the ongoing conflict between Russia and Ukraine) and other expenditures, and/or losing market share.
Our results are dependent on strengthening our core businesses while diversifying into faster-growing spaces
Our strategy is focused on strengthening our core businesses while diversifying our portfolio into faster-growing spaces. Our core businesses are concentrated in slower-growing center-store categories in traditional retail grocery channels. Factorsfactors that may impactbe beyond our success include our ability to:control.
•identify and capture market share in faster-growing spaces;
identify and capitalize on customerWe try to mitigate some or consumer trends, including those related to fresh or organic products;
•design and implement effective retail execution plans;
•design and implement effective advertising and marketing programs, including digital programs; and
•secure or maintain sufficient shelf space at retailers.
If we are not successful in addressing these factors, or if there are changesall cost increases through increases in the underlying growth ratesselling prices of, or decreases in the categories in which we compete, our strategy may not be successful and/or our business or financial results may be adversely impacted.
We may be adversely impacted by a changing customer landscape and the increased significancepackaging sizes of, some of our customers
Our businesses are largely concentratedproducts. Higher product prices or smaller packaging sizes may result in reductions in sales volume. Consumers may be less willing to pay a price differential for our branded products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn or times of increased inflationary pressure. To the traditional retail grocery trade, which has experienced slower growth than alternative retail channels, such as dollar stores, drug stores, club stores, Internet-based retailers and meal-delivery services. This trend towards alternative channels is expected to continue in the future. If weextent that price increases or packaging size decreases are not successfulsufficient to offset these increased costs adequately or in expandinga timely manner, and/or if they result in significant decreases in sales in alternative retail channels,volume, our business orresults and financial resultscondition may be adversely impacted. In addition, retailers with increased buying power and negotiating strength are seeking more favorable terms, including increased promotional programs funded by their suppliers. These customers may use more of their shelf space for their store brand products. Ifaffected. Furthermore, we are unable to use our scale, marketing expertise, product innovation and category leadership positions to respond to these customer dynamics, our business or financial results could be adversely impacted.
In 2017, our five largest customers accounted for approximately 39% of our consolidated net sales, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 20% of our consolidated net sales. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely affect our business or financial results.
We may not realize the anticipated benefits frombe able to fully offset any cost increases through productivity initiatives or through our cost reduction, organizational design or other initiatives
We are pursuing a multi-year cost savings initiative with targeted annualized cost savings of $450 million by the end of 2020. In addition, we are making other organizational changes, including changes to our sales and supply chain functions. These initiatives will require a substantial amount of management and operational resources. Our management team must successfully execute the administrative and operational changes necessary to achieve the anticipated benefits of the initiatives. These and related demands on our resources may divert the organization's attention from other business issues, have adverse effects on existing business relationships with suppliers and customers and impact employee morale. From time-to-time, we may also implement other information technology or related initiatives. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often complex initiatives. Any failure to implement our initiatives could adversely affect our business or financial results.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions, divestitures and other strategic transactions
We expect to continue to seek acquisitions and other strategic transactions. Our ability to meet our objectives with respect to acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those transactions. Potential risks also include:
•the inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner;
•diversion of management's attention from other business concerns;
•potential loss of key employees, suppliers and/or customers of acquired businesses;
•assumption of unknown risks and liabilities;
•the inability to achieve anticipated benefits, including revenues or other operating results;
•operating costs of acquired businesses may be greater than expected;
•the inability to promptly implement an effective control environment; and
•the risks inherent in entering markets or lines of business with which we have limited or no prior experience.
Acquisitions outside the U.S. may present added unique challenges and increase our exposure to risks associated with foreign operations, including foreign currency risks and risks associated with local regulatory regimes.
For divestitures, our ability to meet our objectives may depend in part on our ability to identify suitable buyers, negotiate favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include the inability to separate divested businesses or business units effectively and efficiently from our existing business operations and to reduce or eliminate associated overhead costs.commodity hedging activity.
Disruption to our supply chain could adversely affect our business
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, or contract manufacturers, due tologistics service providers or independent distributors. This damage or disruption could result from execution issues, as well as factors that are hard to predict or beyond our control such as increased temperatures due to climate change, water stress, extreme weather events, natural disasters, product or raw material scarcity, adverse weather conditions, natural disasters, fire, terrorism, pandemics (such as the COVID-19 pandemic), armed hostilities (including the ongoing conflict between Russia and Ukraine), strikes, labor shortages, cybersecurity breaches, government shutdowns, disruptions in logistics, supplier capacity constraints or other events. Commodity prices continue to be volatile and generally increased due to the COVID-19 pandemic, supply chain disruptions and labor and transportation shortages.Production of the agricultural commodities used in our business may also be adversely affected
by drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size, cattle cycles, herd and flock disease, crop disease and/orand crop pests. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, may adversely affect our business or financial results, particularly in circumstances when a product is sourced from a single supplier or location. Disputes with significant suppliers, or contract manufacturers, logistics service providers or independent distributors, including disputes regarding pricing or performance, may also adversely affect our ability to manufacture and/or sell our products, as well as our business or financial results.
We have experienced temporary workforce disruptions in our supply chain as a result of the COVID-19 pandemic. We have implemented employee safety measures, which exceed guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities. Even with these measures, and the availability of vaccines, given the emergence and spread of COVID-19 variants, there is continued risk that COVID-19 may spread through our workforce. Illness, labor shortages, absenteeism, or other workforce disruptions could negatively affect our supply chain, manufacturing, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to produce products in a timely manner or may increase our costs.
Short-term or sustained increases in consumer demand at our retail customers may exceed our production capacity or otherwise strain our supply chain. Our non-U.S. operations pose additional risksfailure to meet the demand for our products could adversely affect our business and results of operations.
In 2017, approximately 19%The COVID-19 pandemic and related ongoing implications could adversely impact our business and results of operations
The COVID-19 pandemic has had, and could continue to have, a negative impact on financial markets, economic conditions, and portions of our consolidated netindustry as a result of changes in consumer behavior, retailer inventory levels, cost inflation, manufacturing and supply chain disruption, vaccination rates and effectiveness, and overall macroeconomic conditions. Although our business has benefited from increased at-home consumption due to COVID-19, our ability to sustain heightened sales were generated outsideis dependent on consumer purchasing behavior. The continued availability and effectiveness of vaccines may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of the U.S. Sales outsideCOVID-19 variants, the U.S. are expected to continue to represent a significant portion of consolidated net sales. Our business or financial condition may be adversely affected due to the risks of doing business in markets outsideongoing implications of the U.S.,COVID-19 pandemic could adversely impact our business and results of operations in a number of ways, including but not limited to:
•a shutdown of one or more of our manufacturing, warehousing or distribution facilities, or disruption in our supply chain, including but not limited to, the following:
•unfavorable changes in tariffs, quotas, trade barriersas a result of illness, labor shortages, government restrictions or other exportworkforce disruptions;
•the failure of third parties on which we rely, including but not limited to, those that supply our packaging, ingredients, equipment and import restrictions;
the difficulty and/other necessary operating materials, co-manufacturers and independent contractors, to meet their obligations to us, or costs of complying with a wide variety of laws, treaties and regulations, including anti-corruption laws and regulations such as the U.S. Foreign Corrupt Practices Act;
the difficulty and/or costs of designing and implementing an effective control environment across diverse regions and employee bases;
the adverse impact of foreign tax treaties and policies;
political or economic instability, including the possibility of civil unrest, public corruption, armed hostilities or terrorist acts;
the possible nationalization of operations;
the difficulty of enforcing remedies and protecting intellectual property in various jurisdictions; and
restrictions on the transfer of funds to and from countries outside of the U.S., including potential adverse tax consequences.
In addition, we hold assets and incur liabilities, generate revenue, and pay expenses in a variety of currencies other than the U.S. dollar, primarily the Australian dollar and the Canadian dollar. Our consolidated financial statements are presented in U.S. dollars, and we must translate our assets, liabilities, sales and expenses into U.S. dollars for external reporting purposes. As a result, changes in the value of the U.S. dollar due to fluctuations in currency exchange rates or currency exchange controls may materially and adversely affect the value of these items in our consolidated financial statements, even if their value has not changedsignificant disruptions in their local currency.ability to do so;
Our results may be adversely impacted by increases
•a strain on our supply chain, which could result from short-term or sustained changes and volatility in the price of rawconsumer purchasing andpackaging materials consumption patterns that increase demand at our retail customers and exceed our production capacity for our products;
The raw and packaging materials used•continued volatility in our business include tomato paste, grains, beef, poultry, dairy, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including changes in crop size, cattle cycles, crop disease and/or crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs, import and export requirements, drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control. To the extent any of these factors result in an increase in raw and packaging material prices, we may not be able to offset such increases through productivity or price increases or through our commodity hedging activity.
Price increases may not be sufficient to cover increased costs, or may result in declines in sales volume due to pricing elasticity in the marketplace
We expect to pass along to customers some or all cost increases in raw and packaging materials and other inputs through increases in the selling prices of, or decreases in the packaging sizes of, some of our products. Higher product prices or smaller packaging sizes may result in reductions in sales volume. To the extent the price increases or packaging size decreases are not sufficient to offset increased raw and packaging materials and other input costs, and/which may not be sufficiently offset by our commodity hedging activities;
•a disruption to our distribution capabilities or if they resultto our distribution channels, including those of our suppliers, contract manufacturers, logistics service providers or independent distributors;
•new or escalated government or regulatory responses in significant decreasesmarkets where we manufacture, sell or distribute our products, or in sales volume,the markets of third parties on which we rely, could prevent or disrupt our business resultsoperations;
•a significant portion of our workforce, including our management team, could become unable to work as a result of illness, or the attention of our management team could be diverted if key employees become ill and financial condition may be adversely affected.become unable to work;
If our food products become adulterated•a change in demand for or are mislabeled, we might need to recall those items, and we may experience product liability claims and damage to our reputation
We have in the past and we may, in the future, need to recall someavailability of our products if they become adulteratedas a result of retailers, distributors, or if they are mislabeled,carriers modifying their inventory, fulfillment or shipping practices;
•an inability to effectively modify our trade promotion and we may also be liable if the consumptionadvertising activities to reflect changing consumer shopping habits due to, among other things, reduced in-store visits and travel restrictions;
•a shift in consumer spending during periods of any of our products causes injury to consumers. A widespread product recalleconomic uncertainty or inflation could result in significant losses dueconsumers moving to private label or lower price products; and
•additional business disruptions and uncertainties related to the costsCOVID-19 pandemic could result in additional delays or modifications to our strategic plans and other initiatives.
These and other impacts of a recall, the destructionCOVID-19 pandemic could also have the effect of product inventory,heightening many of the other risk factors included in this Item 1A. The ultimate impact depends on the severity and lost sales dueduration of the COVID-19 pandemic, including the emergence and spread of COVID-19 variants, the continued availability and effectiveness of vaccines and actions taken by governmental authorities and other third parties in response to the unavailabilitypandemic, each of product for a periodwhich is uncertain, rapidly changing and difficult to predict. Any of time. Wethese disruptions could also suffer losses from a significant adverse product liability judgment. A significant product recall or product liability claim could also result in adverse publicity, damage toadversely impact our reputation,business and a lossresults of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in this category.
operations.
Our results mayof operations can be adversely impacted if consumers do not maintain their favorable perceptionaffected by labor shortages, turnover and labor cost increases
Labor is a primary component of operating our brands
We have abusiness. A number of iconic brands with significant value. Maintainingfactors may adversely affect the labor force available to us or increase labor costs, including high employment levels, federal unemployment subsidies, and continually enhancingother government regulations. During 2022, we observed an overall tightening and increasingly competitive labor market. A sustained labor shortage or increased turnover rates within our employee base, caused by the valuecontinued spread of these brands is criticalCOVID-19 or as a result of general macroeconomic factors, could lead to the success of our business. Brand value is based in large part on consumer perceptions. Success in promotingincreased costs, such as increased overtime to meet demand and enhancing brand value depends in large part onincreased wage rates to attract and retain employees, and could negatively affect our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity aboutefficiently operate our products, packaging and/or ingredients (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of socialmanufacturing and digital media by consumers increases the speeddistribution facilities and extent that information and opinions can be shared. Negative posts or comments about us, our brands, products or packaging on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our results could be adversely impacted.
We may be adversely impacted by inadequacies in, or security breaches of, ourinformation technology systems
Our information technology systems are critically important to our operations. We rely on our information technology systems (some of which are outsourced to third parties) to manage the data, communications and business processes for all of our functions, including our marketing, sales, manufacturing, logistics, customer service, accounting and administrative functions. If we do not allocate and effectively manage the resources necessary to build, sustain and protect an appropriate technology infrastructure, our business or financial results could be adversely impacted. Furthermore, our information technology systems may be vulnerable to material security breaches (including the access to or acquisition of customer, consumer or other confidential data), cyber-based attacks or other material system failures. We periodically test our systems to attempt to detect vulnerabilities.overall business. If we are unable to preventhire and retain employees capable of performing at a high-level, or adequatelyif mitigation measures we may take to respond to and resolve these events, our operations may be impacted, and we may suffer other adverse consequencesa decrease in labor availability, such as reputational damage, litigation, remediation costs and/overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. In addition, we distribute our products and receive raw materials primarily by truck. Reduced availability of trucking capacity due to shortages of drivers has caused an increase in the cost of transportation for us and our suppliers.An overall labor shortage, lack of skilled labor, increased turnover or penalties under various data privacy laws and regulations. Although unauthorized userslabor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have attempted and continue to attempt to infiltrate our information technology systems, we are not aware of a material security breach and all immaterial security breaches we have detected have been successfully remediated.
An impairmentadverse impact on the company’s operations, results of the carrying value of goodwilloperations, liquidity or other indefinite-lived intangible assets could adversely affect our financial results and net worth
As of July 30, 2017, we had goodwill of $2.115 billion and other indefinite-lived intangible assets of $912 million. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to fair value. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions or assumed royalty rates. See "Significant Accounting Estimates" for additional information on past impairments. We may be required in the future to record additional impairment of the carrying value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.flows.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands
We consider our intellectual property rights, particularly our trademarks, to be a significant and valuable aspect of our business. We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results.
Competing intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch and sale of certain products. Any of these occurrences may harm our business and financial results.
Our results may be adversely impacted if consumers do not maintain their favorable perception of our brands
We have a number of iconic brands with significant value. Maintaining and continually enhancing the value of these brands is critical to the success of our business. Brand value is primarily based on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, packaging or ingredients (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us, our brands, products or packaging on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our results could be adversely impacted.
We may be adversely impacted by increased liabilities and costs related toour defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and various non-U.S. locations. The major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in regulatory requirementsdisruption, failure or the market value of plan assets, investment returns, interest rates and mortality rates may affect the funded statussecurity breach of our defined benefit pension plansinformation technology systems
Our information technology systems are critically important to our operations. We rely on our information technology systems (some of which are outsourced to third parties) to manage our data, communications and cause volatility in the net periodic benefit cost, future funding requirements of the plansbusiness processes, including our marketing, sales, manufacturing, procurement, logistics, customer service, accounting and administrative functions and the funded status as recorded on the balance sheet. A significantimportance of such networks and systems has increased due to an increase in our obligationsemployees working remotely. If we do not obtain and effectively manage the resources and materials necessary to build, sustain and protect appropriate information technology systems, our business or future funding requirementsfinancial results could be adversely impacted. Furthermore, our information technology systems are subject to attack or other security breaches (including the access to or acquisition of customer, consumer, employee or other confidential information), service disruptions or other system failures. If we are unable to prevent or adequately respond to and resolve these breaches, disruptions or failures, our operations may be impacted, and we may suffer other adverse consequences such as reputational damage, litigation, remediation costs, ransomware payments and/or penalties under various data protection laws and regulations.
To address the risks to our information technology systems and the associated costs, we maintain an information security program that includes updating technology and security policies, cyber insurance, employee awareness training, and monitoring and routine testing of our information technology systems. We believe that these preventative actions provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks, however, cyber threats are constantly evolving, are becoming more frequent and more sophisticated and are being made by groups of individuals with a wide range of expertise and motives, which increases the difficulty of detecting and successfully defending against them. Additionally, continued geopolitical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of cyberattacks. We have experienced threats to our data and systems and although we have not experienced a material adverse effect onincident to date, there can be no assurance that these measures will prevent or limit the impact of a future incident. We may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.
In addition, in the event our suppliers or customers experience a breach or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business and financial results.
We have also outsourced several information technology support services and administrative functions to third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. Our information security program includes capabilities designed to evaluate and mitigate cyber risks arising from third-party service providers. We believe that these capabilities provide insights and visibility to the security posture of our third-party service providers, however, cyber threats to those organizations are beyond our control. If these service providers do not perform effectively due to breach or system failure, we may not be able to achieve the expected benefits and our business may be disrupted.
We may not be able to attract and retain the highly skilled people we need to support our business
We depend on the skills and continued service of key personnel, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to identify, hire, train and retain qualified individuals. We also compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure may adversely affect our business or financial results. In addition, activities related to identifying, recruiting, hiring and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Market ConditionsIf we do not fully realize the expected cost savings and/or operating efficiencies associated with our strategic initiatives, our profitability could suffer
Our future success and Other General Riskearnings growth depend in part on our ability to achieve the appropriate cost structure and operate efficiently in the highly competitive food industry, particularly in an environment of volatile cost inputs. We continuously
pursue initiatives to reduce costs and increase effectiveness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives. We also regularly pursue cost productivity initiatives in procurement, manufacturing and logistics. Any failure or delay in implementing our initiatives in accordance with our plans could adversely affect our ability to meet our long-term growth and profitability expectations and could adversely affect our business. If we do not continue to effectively manage costs and achieve additional efficiencies, our competitiveness and our profitability could decrease.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions, divestitures and other strategic transactions
We have historically made strategic acquisitions of brands and businesses and we may undertake additional acquisitions or other strategic transactions in the future. Our ability to meet our objectives with respect to acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those transactions. Potential risks also include:
•the inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner, including implementation of enterprise-resource planning systems;
•diversion of management's attention from other business concerns;
•potential loss of key employees, suppliers and/or customers of acquired businesses;
•assumption of unknown risks and liabilities;
•the inability to achieve anticipated benefits, including revenues or other operating results;
•operating costs of acquired businesses may be greater than expected;
•the inability to promptly implement an effective control environment; and
•the risks inherent in entering markets or lines of business with which we have limited or no prior experience.
In addition, we have previously made strategic divestitures and may do so in the future.Any businesses we decide to divest in the future may depend in part on our ability to identify suitable buyers, negotiate favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include:
•diversion of management's attention from other business concerns;
•loss of key suppliers and/or customers of divested businesses;
•the inability to separate divested businesses or business units effectively and efficiently from our existing business operations; and
•the inability to reduce or eliminate associated overhead costs.
If we are unable to complete or realize the projected benefits of future acquisitions, divestitures or other strategic transactions, our business or financial results may be adversely impacted.
Competitive and Industry Risks
We face significant competition in all our product categories, which may result in lower sales and margins
We operate in the highly competitive food and beverage industry mainly in the North American market and experience competition in all of our categories. The principal areas of competition are brand recognition, taste, nutritional value, price, promotion, innovation, shelf space and customer service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources, and some of our competitors may spend more aggressively on advertising and promotional activities than we do. In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a continued shift towards private label offerings, particularly during periods of economic uncertainty or significant inflation, could result in us reducing prices, increasing marketing or other expenditures, and/or losing market share, each of which may result in lower sales and margins.
Our ability to compete also depends upon our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to those preferences. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. If we do not succeed in offering products that consumers want to buy, our sales and market share will decrease, resulting in reduced profitability. If we are unable to accurately predict which shifts in consumer preferences will be long-lasting, or are unable to introduce new and improved products to satisfy those preferences, our sales will decline. Weak economic conditions, recessions, significant inflation and other factors, such as pandemics, could effect consumer preferences and demand. In addition, given the variety of backgrounds and identities of consumers in our consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, we must be successful in developing innovative products across a multitude of product categories. In addition, the COVID-19 pandemic has altered, and in some cases, delayed product innovation efforts. Finally, if we fail to rapidly develop products in faster-growing and more profitable categories, we could experience reduced demand for our products, or fail to expand margins.
We may be adversely impacted by a changing customer landscape and the increased significance of some of our customers
Our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than other retail channels, such as dollar stores, drug stores, club stores and e-commerce retailers. We expect this trend away from traditional retail grocery to alternate channels to continue in the future. These alternative retail channels may also create consumer price deflation, affecting our retail customer relationships and presenting additional challenges to increasing prices in response to commodity or other cost increases. In addition, retailers with increased buying power and negotiating strength are seeking more favorable terms, including increased promotional programs and customized products funded by their suppliers. These customers may also use more of their shelf space for their private label products, which are generally sold at lower prices than branded products. If we are unable to use our scale, marketing, product innovation and category leadership positions to respond to these customer dynamics, our business or financial results could be adversely impacted.
In 2022, our five largest customers accounted for approximately 47% of our consolidated net sales from continuing operations, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 22% of our consolidated net sales from continuing operations. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities, or on the same terms as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely affect our business or financial results.
Financial and Economic Risks
An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could adversely affect our financial results and net worth
As of July 31, 2022, we had goodwill of $3.979 billion and other indefinite-lived intangible assets of $2.549 billion. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least annually in the fourth quarter or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions or assumed royalty rates. If current expectations for growth rates for sales and profits are not met, or other market factors and macroeconomic conditions that could be affected by the COVID-19 pandemic or otherwise were to change, we may be required in the future to record impairment of the carrying value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.
We may be adversely impacted by increased liabilities and costs related toour defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and certain non-U.S. locations. The major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in regulatory requirements or the market value of plan assets, investment returns, interest rates and mortality rates may affect the funded status of our defined benefit pension plans and cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status as recorded on the balance sheet. A significant increase in our obligations, future funding requirements, or net periodic benefit costs could have a material adverse effect on our financial results.
We face risks related to heightened inflation, recession, financial and credit market disruptionsand other economic conditions
Customer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market volatility or other negative economic factors in the U.S. or other nations. For instance in 2022, the U.S. experienced significantly heightened inflationary pressures which we expect to continue into 2023. We may not be able to fully mitigate the impact of inflation through price increases, productivity initiatives and cost savings, which could have a material adverse effect on our financial results. In addition, if the U.S. economy enters a recession in 2023, we may experience sales declines and may have to decrease prices, all of which could have a material adverse impact on our financial results.
Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors.creditors andmight cause us to not be able to continue to have access to preferred sources of liquidity when needed or on terms we find acceptable, and our borrowing costs could increase. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. A disruption in the financial markets may have a negative effect on our derivative counterparties and could impair our banking or other business partners, on whom we rely for access to capital and as counterparties to our derivative contracts. In addition, changes in tax or interest rates in the U.S. or other nations, whether due to recession, financial and credit marketeconomic disruptions or other reasons, may adversely impact us.
Adverse changes in the global climate or extreme weather conditions could adversely affect our business or operations
Our business or financial results could be adversely affected by changing global temperatures or weather patterns or by extreme or unusual weather conditions. Adverse changes in the global climate or extreme or unusual weather conditions could:
unfavorably impact the cost or availability of raw or packaging materials, especially if such events have an adverse impact on agricultural productivity or on the supply of water;
disrupt our ability, or the ability of our suppliers or contract manufacturers, to manufacture or distribute our products;
disrupt the retail operations of our customers; or
unfavorably impact the demand for, or the consumer's ability to purchase, our products.
In addition, there is growing concern that the release of carbon dioxide and other greenhouse gases into the atmosphere may be impacting global temperatures and weather patterns and contributing to extreme or unusual weather conditions. This growing concern may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. Adoption of such additional regulation may result in increased compliance costs, capital expenditures and other financial obligations that could adversely affect our business or financial results.
Legal and Regulatory Risk FactorsRisks
We may be adversely impacted by legal and regulatory proceedings or claims
We are a party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. See Note 18 to the Consolidated Financial Statements for information regarding reportable legal proceedings. Since these actions are inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such proceedings or claims, or that our assessment of the materiality or immateriality of these matters, including any reserves taken in connection with such matters, will be consistent with the ultimate outcome of such proceedings or claims. TheIn particular, the marketing of food products has come under increased regulatory scrutiny in recent years, and the food industry has been subject to an increasing number of proceedings and claims relating to alleged false or deceptive marketing under federal, state and foreign laws or regulations. In addition,regulations, including claims relating to the presence of heavy metals in food products. Additionally, the independent contractor distribution model, which is used by Pepperidge Farm,in our Snacks segment, has also come under increased legalregulatory scrutiny. Our independent contractor distribution model has also been the subject of various class and regulatory scrutinyindividual lawsuits in recent years. We are a defendant in state law class action litigation challenging the independent contractor classification of a small percentage of the total Pepperidge Farm distribution network. We are contesting class certification and the merits as appropriate and plan to defend against these claims vigorously. In the event we are unable to successfully defend ourselves against these proceedings or claims, or if our assessment of the materiality of these proceedings or claims proves inaccurate, our business or financial results may be adversely affected. In addition, our reputation could be damaged by allegations made in proceedings or claims (even if untrue).
Increased regulation or changes in law could adversely affect our business or financial results
The manufacture and marketing of food products is extensively regulated. Various laws and regulations govern the processing, packaging, storage, distribution, marketing, advertising, labeling, quality and safety of our food products, as well as the health and safety of our employees and the protection of the environment. In the U.S., we are subject to regulation by various federal government agencies, including but not limited to the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Department of Labor, the Department of Commerce, the Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local agencies. We are also regulated by similar agencies outside the U.S.
Governmental and administrative bodies within the U.S. are considering a variety of tax, trade and other regulatory reforms. Trade reforms include tariffs on certain materials used in the manufacture of our products and tariffs on certain finished products. We regularly move data across national and state borders to conduct our operations and, consequently, are subject to a variety of laws and regulations in the U.S. and other jurisdictions regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. There is significant uncertainty with respect to compliance with such privacy and data protection laws and regulations because they are continuously evolving and developing and may be interpreted and applied differently from country to country and state to state and may create inconsistent or conflicting requirements.
Changes in legal or regulatory requirements (such as new food safety requirements and revised regulatory requirements for the labeling of nutrition facts, labelingserving sizes and serving
size regulations)genetically modified ingredients), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business orand financial results.
If our food products become adulterated or are mislabeled, we might need to recall those items, and we may experience product liability claims and damage to our reputation We have in the past and we may, in the future, need to recall some of our products if they become adulterated or if they are mislabeled, and we may also be liable if the consumption of any of our products causes sickness or injury to consumers. A
widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant adverse product liability judgment. A significant product recall or product liability claim could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in that category.
Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business and operations
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as wheat, tomatoes, potatoes, cashews and almonds. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of storing and transporting our raw materials, or disrupt production schedules. We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain.
There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies, and sustainability. Increased compliance costs and expenses due to the impacts of climate change and additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment may cause disruptions in, or an increase in the costs associated with, the running of our manufacturing facilities and our business, as well as increase distribution and supply chain costs. Moreover, compliance with any such legal or regulatory requirements may require us to make significant changes in our business operations and strategy, which will likely require us to devote substantial time and attention to these matters and cause us to incur additional costs. Even if we make changes to align ourselves with such legal or regulatory requirements, we may still be subject to significant penalties or potential litigation if such laws and regulations are interpreted and applied in a manner inconsistent with our practices. The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations.
Additionally, we might fail to effectively address increased attention from the media, stockholders, activists and other stakeholders on climate change and related environmental sustainability matters. Such failure, or the perception that we have failed to act responsibly regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation. Moreover, from time to time we establish and publicly announce goals and commitments, including to reduce our impact on the environment. For example, in 2022, we established science-based targets for Scope 1, 2 and 3 greenhouse gas emissions. Our ability to achieve any stated goal, target or objective is subject to numerous factors and conditions, many of which are outside of our control. Examples of such factors include evolving regulatory requirements affecting sustainability standards or disclosures or imposing different requirements, the pace of changes in technology, the availability of requisite financing and the availability of suppliers that can meet our sustainability and other standards. If we fail to achieve, or are perceived to have failed or been delayed in achieving, or improperly report our progress toward achieving these goals and commitments, it could negatively affect consumer preference for our products or investor confidence in our stock, as well as expose us to enforcement actions and litigation.
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources and have an adverse effect on our business
We were the target of activist shareholder activities in 2019. If a new activist investor purchased our stock, our business could be adversely affected because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time consuming, disruptive to our operations and divert the attention of management and our employees. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, employees, suppliers and strategic partners, and cause our share price to experience periods of volatility or stagnation.
Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.
The global economy has been negatively impacted by the military conflict between Russia and Ukraine. Furthermore, governments in the U.S., United Kingdom, and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Although we have no operations in Russia or
Ukraine, we have experienced shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. The scope and duration of the military conflict in Ukraine is uncertain, rapidly changing and hard to predict. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are company-owned and located in Camden, New Jersey. The following table sets forth our principal manufacturing facilities and the businessreportable segment that primarily uses each of the facilities:
Principal Manufacturing Facilities
Inside the U.S. | | | | | | | | | | | | | | |
| Arizona | | Massachusetts | | Pennsylvania |
| Goodyear (S) | | Hyannis (S) | | Denver (S) |
| California | | North Carolina | | Downingtown (S) |
| Dixon (MB) | | Charlotte (S) | | Hanover (S) |
| Stockton (MB) | | Maxton (MB) | | Texas |
| Connecticut | | Ohio | | Paris (MB) |
| Bloomfield (S) | | Ashland (S) | | Utah |
| Florida | | Napoleon (MB) | | Richmond (S) |
| Lakeland (S) | | Willard (S) | | Wisconsin |
| Illinois | | Oregon | | Beloit (S) |
| Downers Grove (S) | | Salem (S) | | Franklin (S) |
| Indiana | | Tualatin (MB) | | Milwaukee (MB) |
| Jeffersonville (S) | | | | |
| | | | |
Inside the U.S. | | | | |
California | | Michigan | | Texas |
Bakersfield (CF) | | Ferndale (CF) | | Paris (ASMB) |
Dixon (ASMB) | | Grand Rapids (CF) | | Utah |
Stockton (ASMB) | | New Jersey | | Richmond (GBS) |
Connecticut | | East Brunswick (GBS) | | Washington |
Bloomfield (GBS) | | North Carolina | | Everett (CF) |
Florida | | Maxton (ASMB) | | Prosser (CF) |
Lakeland (GBS) | | Ohio | | Wisconsin |
Illinois | | Napoleon (ASMB) | | Milwaukee (ASMB) |
Downers Grove (GBS) | | Willard (GBS) | | |
| | Pennsylvania | | |
| | Denver (GBS) | | |
| | Downingtown (GBS) | | |
|
| | | | |
Outside the U.S. | | | | |
Australia | | Canada | | Indonesia |
Huntingwood (GBS) | | Toronto (ASMB) | | Jawa Barat (GBS) |
Marleston (GBS) | | Denmark | | Malaysia |
Shepparton (GBS) | | Nørre Snede (GBS) | | Selangor Darul Ehsan (GBS) |
Virginia (GBS) | | Ribe (GBS) | | |
ASMBMB - Americas Simple Meals and& Beverages
GBSS - Global Biscuits and Snacks
CF - Campbell Fresh
Each of the foregoing manufacturing facilities is company-owned, except the Selangor Darul Ehsan, Malaysia, and the East Brunswick, New Jersey, facilities,Tualatin, Oregon facility, which areis leased. We also maintain principal business unit offices in Charlotte, North Carolina; Doral, Florida; Hanover, Pennsylvania; Norwalk, Connecticut; Santa Monica, California; Emeryville, California; Toronto, Canada; Nørre Snede, Denmark;Tualatin, Oregon; and North Strathfield, Australia.Mississauga, Canada.
We also own and lease distribution centers across the U.S. We believe that our manufacturing and processing plants and distribution centers are well maintained and, together with facilities operated by our contract manufacturers, are generally adequate to support the current operations of the businesses.
Item3. Legal Proceedings
None.Information regarding reportable legal proceedings is contained in Note 18 to the Consolidated Financial Statements and incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
Information about our Executive Officers of the Company
The following is a list ofsection below provides information regarding our executive officers as of September 20, 2017:14, 2022:
| | | | | | | | |
| Name, Present Title & Business Experience | Age | Year First Appointed Executive Officer |
| Mick J. Beekhuizen, Executive Vice President and Chief Financial Officer. Executive Vice President and Chief Financial Officer, Chobani LLC (2016-2019). Executive Vice President and Chief Financial Officer, Education Management Corporation (2013-2016). | 46 | 2020 |
| Adam G. Ciongoli, Executive Vice President, General Counsel and Chief Sustainability, Corporate Responsibility and Governance Officer. Executive Vice President and General Counsel, Lincoln Financial Group (2012-2015). | 54 | 2015 |
| Mark A. Clouse, President and Chief Executive Officer. Chief Executive Officer, Pinnacle Foods, Inc. (2016-2018). Chief Commercial Officer (2016) and Executive Vice President and Chief Growth Officer (2014-2016), Mondelez International, Inc. | 54 | 2019 |
| Christopher D. Foley, Executive Vice President and President, Meals & Beverages. We have employed Mr. Foley in an executive or managerial capacity for at least five years. | 50 | 2019 |
| Diane Johnson May, Executive Vice President and Chief Human Resources Officer. Senior Vice President, People and Culture, Manpower Group (2020-2021). Executive Vice President, Chief Human Resources Officer, Brookdale Senior Living (2019-2020). Managing Vice President, The Deli Source, Inc. (2017-2019). | 64 | 2022 |
| Valerie J. Oswalt, Executive Vice President and President, Snacks. Chief Executive Officer, Century Snacks (2018-2020). President, Mondelez North America Confections (2017-2018). President, Mondelez North America Sales (2015-2017). | 49 | 2020 |
| Daniel L. Poland, Executive Vice President and Chief Supply Chain Officer. Chief Operating Officer, KIND Snacks (2019-2021). Executive Vice President and Chief Supply Chain Officer, Pinnacle Foods, Inc. (2018-2019). Chief Supply Chain Officer - North American Operations, Danone (2016-2017). | 59 | 2022 |
| Anthony J. Sanzio, Executive Vice President and Chief Communications Officer. We have employed Mr. Sanzio in an executive or managerial capacity for at least five years. | 55 | 2022 |
| Craig S. Slavtcheff, Executive Vice President, Chief R&D and Innovation Officer. We have employed Mr. Slavtcheff in an executive or managerial capacity for at least five years. | 55 | 2019 |
|
| | | |
| Name | Present Title & Business Experience | Age | Year First Appointed Executive Officer |
| Mark R. Alexander | Senior Vice President. We have employed Mr. Alexander in an executive or managerial capacity for at least five years. | 53 | 2009 |
| Carlos J. Barroso | Senior Vice President. President and Founder of CJB and Associates, LLC, an R&D consulting firm (2009 - 2013). | 58 | 2013 |
| Edward L. Carolan | Senior Vice President. We have employed Mr. Carolan in an executive or managerial capacity for at least five years. | 48 | 2015 |
| Adam G. Ciongoli | Senior Vice President and General Counsel. Executive Vice President and General Counsel of Lincoln Financial Group (2012 - 2015) and Group General Counsel and Secretary of Willis Group Holdings, PLC (2007 - 2012). | 49 | 2015 |
| Anthony P. DiSilvestro | Senior Vice President and Chief Financial Officer. We have employed Mr. DiSilvestro in an executive or managerial capacity for at least five years. | 58 | 2004 |
| Robert J. Furbee | Senior Vice President. We have employed Mr. Furbee in an executive or managerial capacity for at least five years. | 55 | 2017 |
| Bethmara Kessler | Senior Vice President. Vice President of Campbell Soup Company (2014 - 2016), Senior Vice President of Warner Music Group (2013 - 2014) and Managing Director of The Fraud and Risk Advisory Group (2008 - 2013). | 53 | 2016 |
| Luca Mignini | Senior Vice President. Chief Executive Officer of the Findus Italy division of IGLO Group (2010 - 2012). | 55 | 2013 |
| Denise M. Morrison | President and Chief Executive Officer. We have employed Ms. Morrison in an executive or managerial capacity for at least five years. | 63 | 2003 |
| Robert W. Morrissey | Senior Vice President and Chief Human Resources Officer. We have employed Mr. Morrissey in an executive or managerial capacity for at least five years. | 59 | 2012 |
All of the executive officers were appointed at the November 2016 meeting of the Board of Directors, except Mr. Furbee was appointed at the May 2017 meeting with this appointment being effective as of June 1, 2017.
PART II
| |
Item 5. | Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Capital Stock
Our capital stock is listed and principally traded on the New York Stock Exchange.Exchange under the symbol "CPB." On September 20, 2017,14, 2022, there were 19,235299,364,411 holders of record of our capital stock. Market price and dividend information with respect to our capital stock are set forth in Note 20 to the Consolidated Financial Statements. Future dividends will be dependent upon future earnings, financial requirements and other factors.
Return to Shareholders* Performance Graph
The information contained in this Return to Shareholders Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent we specifically incorporate it by reference into a document filed under the Securities Exchange Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total shareholder return (TSR) on our stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (the S&P 500) and the Standard & Poor’s Packaged Foods Index (the S&P Packaged Foods Group). The graph assumes that $100 was invested on July 27, 2012,28, 2017, in each of our stock, the S&P 500 and the S&P Packaged Foods Group, and that all dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on July 28, 2017.31, 2022.
* Stock appreciation plus dividend reinvestment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Campbell | | 100 | | 80 | | 83 | | 103 | | 94 | | 110 |
| S&P 500 | | 100 | | 116 | | 127 | | 140 | | 192 | | 183 |
| S&P Packaged Foods Group | | 100 | | 93 | | 102 | | 111 | | 119 | | 135 |
|
| | | | | | | | | | | | |
| | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| Campbell | | 100 | | 147 | | 134 | | 162 | | 210 | | 182 |
| S&P 500 | | 100 | | 125 | | 145 | | 162 | | 171 | | 198 |
| S&P Packaged Foods Group | | 100 | | 136 | | 144 | | 180 | | 211 | | 199 |
Issuer Purchases of Equity Securities | | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ($ in Millions) (3) |
| 5/2/22 - 5/31/22 | — | |
| $ | — | |
| — | | | $ | 598 | |
| 6/1/22 - 6/30/22 | 1,117,289 | | | $ | 46.05 | | | 1,117,289 | | | $ | 547 | |
| 7/1/22 - 7/29/22 | — | | | $ | — | | | — | | | $ | 547 | |
| Total | 1,117,289 | |
| $46.05 |
| 1,117,289 | | | $ | 547 | |
____________________________________
(1)Shares purchased are as of the trade date.
(2)Average price paid per share is calculated on a settlement basis and excludes commission.
(3)In June 2021, our Board of Directors authorized an anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs. The June 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the June 2021 program may be made in open-market or privately negotiated transactions. In September 2021, the Board approved a strategic share repurchase program of up to $500 million (September 2021 program). The September 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions.
|
| | | | | | | | | |
| Period | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ($ in Millions) (3) |
| 5/1/17 - 5/31/17 | 840,649 |
| (4) | $58.25 | (4) | 783,564 |
| | $1,454 |
| 6/1/17 - 6/30/17 | 305,694 |
| | $55.29 | | 305,694 |
| | $1,437 |
| 7/3/17 - 7/28/17 | 1,289,997 |
| | $51.69 | | 1,289,997 |
| | $1,371 |
| Total | 2,436,340 |
| (4) | $54.40 | (4) | 2,379,255 |
| | $1,371 |
| |
(1)
| Shares purchased are as of the trade date. |
| |
(2)
| Average price paid per share is calculated on a settlement basis and excludes commission. |
| |
(3)
| During the fourth quarter of 2017, we had a publicly announced strategic share repurchase program. Under this program, which was announced on March 22, 2017 and effective May 1, 2017, our Board of Directors authorized the purchase of up to $1.5 billion of our stock. The program has no expiration date. Pursuant to our longstanding practice, under a separate 2017 authorization, we expect to continue purchasing shares sufficient to offset the impact of dilution from shares issued under our incentive compensation plans. |
| |
(4)
| Includes 57,085 shares repurchased in open-market transactions at an average price of $57.61 primarily to offset the dilutive impact to existing shareholders of issuances under stock compensation plans. |
Item 6. Selected Financial DataReserved
|
| | | | | | | | | | | | | | | | | | | |
| Fiscal Year | 2017(1) | | 2016(2) | | 2015(3) | | 2014(4) | | 2013(5) |
| (Millions, except per share amounts) | |
| Summary of Operations | | | | | | | | | |
| Net sales | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| | $ | 8,052 |
|
| Earnings before interest and taxes | 1,400 |
| | 960 |
| | 1,054 |
| | 1,267 |
| | 1,474 |
|
| Earnings before taxes | 1,293 |
| | 849 |
| | 949 |
| | 1,148 |
| | 1,349 |
|
| Earnings from continuing operations | 887 |
| | 563 |
| | 666 |
| | 774 |
| | 934 |
|
| Earnings (loss) from discontinued operations | — |
| | — |
| | — |
| | 81 |
| | (231 | ) |
| Net earnings | 887 |
| | 563 |
| | 666 |
| | 855 |
| | 703 |
|
| Net earnings attributable to Campbell Soup Company | 887 |
| | 563 |
| | 666 |
| | 866 |
| | 712 |
|
| Financial Position | | | | | | | | | |
| Plant assets - net | $ | 2,454 |
| | $ | 2,407 |
| | $ | 2,347 |
| | $ | 2,318 |
| | $ | 2,260 |
|
| Total assets | 7,726 |
| | 7,837 |
| | 8,077 |
| | 8,100 |
| | 8,290 |
|
| Total debt | 3,536 |
| | 3,533 |
| | 4,082 |
| | 4,003 |
| | 4,438 |
|
| Total equity | 1,645 |
| | 1,533 |
| | 1,377 |
| | 1,602 |
| | 1,192 |
|
| Per Share Data | | | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company - basic | $ | 2.91 |
| | $ | 1.82 |
| | $ | 2.13 |
| | $ | 2.50 |
| | $ | 3.00 |
|
| Earnings from continuing operations attributable to Campbell Soup Company - assuming dilution | 2.89 |
| | 1.81 |
| | 2.13 |
| | 2.48 |
| | 2.97 |
|
| Net earnings attributable to Campbell Soup Company - basic | 2.91 |
| | 1.82 |
| | 2.13 |
| | 2.76 |
| | 2.27 |
|
| Net earnings attributable to Campbell Soup Company - assuming dilution | 2.89 |
| | 1.81 |
| | 2.13 |
| | 2.74 |
| | 2.25 |
|
| Dividends declared | 1.40 |
| | 1.248 |
| | 1.248 |
| | 1.248 |
| | 1.16 |
|
| Other Statistics | | | | | | | | | |
| Capital expenditures | $ | 338 |
| | $ | 341 |
| | $ | 380 |
| | $ | 347 |
| | $ | 336 |
|
| Weighted average shares outstanding - basic | 305 |
| | 309 |
| | 312 |
| | 314 |
| | 314 |
|
| Weighted average shares outstanding - assuming dilution | 307 |
| | 311 |
| | 313 |
| | 316 |
| | 317 |
|
(All per share amounts below are on a diluted basis)
In March 2016, the Financial Accounting Standards Board (FASB) issued guidance that amends accounting for share-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. We adopted the guidance in 2017. In accordance with the prospective adoption of the recognition of excess tax benefits and deficiencies in the Consolidated Statements of Earnings, we recognized a $6 million tax benefit in Taxes on earnings in 2017.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted the guidance in 2016 and retrospectively adjusted all prior periods.
In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the Consolidated Balance Sheet as of July 31, 2016.
The 2014 fiscal year consisted of 53 weeks. All other periods had 52 weeks.
| |
(1)
| The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge, related costs and administrative expenses of $37 million ($.12 per share) associated with restructuring and cost savings initiatives; gains of $116 million ($.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 million ($.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 million ($.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. |
| |
(2)
| The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $49 million ($.16 per share) associated with restructuring and cost savings initiatives; losses of $200 million ($.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen acquisition; and an impairment charge of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. |
| |
(3)
| The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $78 million ($.25 per share) associated with restructuring and cost savings initiatives and losses of $87 million ($.28 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. |
| |
(4)
| The 2014 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and related costs of $36 million ($.11 per share) associated with restructuring initiatives; losses of $19 million ($.06 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a loss of $6 million ($.02 per share) on foreign exchange forward contracts used to hedge the proceeds from the sale of the European simple meals business; $7 million ($.02 per share) tax expense associated with the sale of the European simple meals business; and the estimated impact of the additional week of $25 million ($.08 per share). Earnings from discontinued operations included a gain of $72 million ($.23 per share) on the sale of the European simple meals business. |
| |
(5)
| The 2013 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and related costs of $87 million ($.27 per share) associated with restructuring initiatives; gains of $183 million ($.58 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and $7 million ($.02 per share) of transaction costs related to the acquisition of Bolthouse Farms. Earnings from discontinued operations were impacted by an impairment charge on the intangible assets of the simple meals business in Europe of $263 million ($.83 per share)and tax expense of $18 million ($.06 per share) representing taxes on the difference between the book value and tax basis of the business.
|
Selected Financial Data should be read in conjunction with the Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in "Financial Statements and Supplementary Data," as well as the information contained in "Risk Factors."
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories.
In 2022, we delivered solid full-year results while advancing our strategic plan in a volatile macroeconomic environment. During 2022, we navigated through a challenging environment marked by supply chain pressures, particularly around labor and high inflation. We manageenhanced and accelerated our businessesrecruiting efforts and hiring and onboarding processes, which improved our ability to meet sustained consumer demand. Our improved supply chain execution combined with inflation-driven pricing, continued supply chain productivity improvements and cost savings initiatives partially mitigated ongoing inflationary pressures experienced in three divisions focused mainly on product categories. The divisions, which represent our operating2022. We expect that inflation will continue to be a headwind in 2023. In addition, we expect a pre-tax headwind of approximately $35 million in 2023 related to lower net periodic pension and reportable segments, are: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. See "Business - Reportable Segments" for a description of the products included in each segment.postretirement benefit income.
Strategy
Our goalstrategy is to beunlock our full growth potential by focusing on our core brands in two divisions within North America while delivering on the leading health and well-being food company. Guided bypromise of our purpose - RealConnecting people through food they love. Our strategic plan is based on four pillars:build a winning team and culture; accelerate profitable growth; fuel investments and margins with targeted cost savings; and deliver on the promise of our purpose all as further discussed below.
We plan to continue our focus on building a winning team and culture by investing in our employee experience and improving employee engagement, prioritizing our inclusion and diversity strategy and investing in strategic capabilities and digitization that matters for life’s moments,support our core brands in North America. In addition, we are pursuing this goal through a dual strategyplan to continue to deliver on the promise of our purpose with consumer transparency initiatives, progress on our sustainability goals and strengthening our core businesses while expanding into faster-growing spaces. connection to the communities in which we operate.
We believe that we can accelerate our profitable growth model by growing market share and driving integrated business planning programming throughout the company. We expect to grow market share through the development of more consumer-
oriented product quality, marketing and innovation plans and prioritizing growth channels and retailers within our defined portfolio roles. In addition, we expect to continue to focus on accelerating the growth of our Snacks brands while also sustaining the growth in U.S. soup and our other core brands. We expect that changes in consumer behavior driven by the COVID-19 pandemic will continue to support ongoing elevated consumer demand for food at home, relative to pre-pandemic levels. We plan to capitalize on this commitmentopportunity by addressing evolving consumer needs through our unique and differentiated portfolio.
We also expect to healthfuel investments and well-being will build shareholder valuemargins by driving sustainable, profitable net sales growth.continuing to focus on mitigating the effects of inflation. We implemented price increases beginning in 2022 and continue to pursue our multi-year cost savings initiatives with targeted annualized cost savings of $1 billion for continuing operations by the end of 2025, with $850 million in synergies and run-rate cost savings achieved through 2022. See "Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives.
IndustryBusiness Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: shifting demographics;cost inflation; changing consumer preferences; and a competitive and dynamic retail environment.
Our strategy is designed, in part, to capture growing consumer preferences for food; technologicalsnacking and digital advancementsconvenience. For example, we believe that are reshaping the retailer landscape and the consumer shopping experience; and socioeconomic shifts.
We believe Millennials and Generation Z are replacing Baby Boomers as the key influencers of societal and cultural norms in the U.S. and are increasingly focused on health and well-being. We expect consumers to continue to seek products that they associate with health and well-being, including fresh, naturally functional and organic foods. While demanding products with these qualities, consumers also continue to gravitate toward store brands and value offerings. Consumers are also changing their eating habits by increasing the type and frequency of snacks consumed.
Digital mediathey consume and technology are changingcontinuing in-home eating behaviors that were driven by the way consumers purchase food. Although e-commerce represents only a small percent of total food sales, we anticipate it will accelerate rapidly through the growth of pure-play e-tailers, increased focus of brick and mortar retailers on e-commerce and the continued growth of meal delivery services. Consumers are also increasingly using technology to customize their diets for their individual lifestyle, physiology and health goals.COVID-19 pandemic.
Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms. We expectterms, including customized products funded by their suppliers. Any consolidations among retailers willwould continue to create large and sophisticated customers that may further this trend. In addition, new and existing retailersRetailers also continue to grow and promote store brands that compete with branded products.products, especially on price.
Strategic ImperativesThroughout 2022 we experienced elevated demand for our retail products versus pre-pandemic levels, but volumes were lower than fiscal 2021. In the first half of the year we experienced lower net sales due primarily to supply constraints based on materials availability and in the second half of the year, although supply significantly improved volumes declined due to inflation-driven pricing actions. We anticipate that demand related to at-home food consumption will remain elevated through 2023.
We are responding to the above-described industry trends by continuing to focus on four strategic imperatives:
Building greater trust with consumers through real food, transparency and sustainability;
Accelerating digital marketing and e-commerce efforts;
Continuing to diversify our portfolio in fresh foods and health and well-being; and
Increasing our presence in the faster-growing snacking category.
Building Greater Trust with Consumers through Real Food, Transparency and Sustainability
Our goal is to strengthen the trust of our consumers and customers through real food. For example, we are in the process of removing artificial flavors and colors from certain of our products, increasing the use of vegetables and whole grains and transitioning to chicken with no antibiotics. We have also removed Bisphenol A (BPA) from the lining of our U.S. and Canadian soup cans. In addition, we recently entered into an agreement with the Sage Project to partner on customizable and digital labels for our productsanticipate that include nutrition facts and product attributes. We also support and remain committed to mandatory national genetically modified organism labeling and implementation of the Food and Drug Administration's nutrition facts panel. Our www.whatsinmyfood.com website promotes transparency by providing consumers with a wide range of details about how certain of our foods and beverages are made and the choices behind the ingredients we use in those products.
Accelerating Digital Marketing and E-Commerce Efforts
We are responding to the growing consumer shift to digital and mobile technologies by investing in digital and e-commerce across our company with a goal of building industry-leading capabilities. We are working to increase the scale of our digital marketing capabilities using content, marketing technology and data analytics. We are building an experienced business team in North America to pursue these initiatives. We are also pursuing digital and e-commerce innovation with new business models and development of cross-portfolio e-commerce solutions. To support these efforts, we are developing a more flexible and cost effective
distribution system that we believe will position us well to grow with the expanding e-commerce market. We also plan to continue partnering with leading e-commerce companies, such as our recently announced partnership with a meal-delivery service.
Continuing to Diversify our Portfolio in Fresh Foods and Health and Well-Being
Capitalizing on recent consumer and retailer trends, we are continuing to increase our portfolio's commitment to fresh food and health and well-being through internal innovation, changes to recipes and our recent acquisitions. We expect to continue expanding our product offerings in key growth areas, such as in the packaged fresh category and with organic and clean label products. We are focusing on naturally functional foods by leveraging our vegetable and whole grain capabilities. While we are working to develop brands and innovate these products, we are developing increased distribution capabilities in new channels that also support this commitment.
Increasing our Presence in the Faster-Growing Snacking Category
Through a company-wide approach, we plan to expand our brand footprint by driving our existing snacking portfolio, pursuing expansion in promising emerging markets, building global brands and leveraging global capabilities to build sustainable business models. We are pursuing this goal with a plan to reach new consumers and existing consumers more frequently, including new snacking products that are premium snacks and focused on health and well-being. We also intend to broaden our snacking business beyond cookies and baked snacks to include soup, mini meals and fresh snacks. In addition, we expect to introduce snack products with new packaging formats.
To support these four imperatives, we2023 will continue to pursue different modelsbe a dynamic macroeconomic environment, and expect input cost inflation to continue. We will continue to take actions to mitigate a portion of innovation, including internalthis inflationary pressure, but we do not expect such benefits will fully offset the incremental costs in 2023. Based on benefit obligations and external development, disciplined mergersplan assets as of July 31, 2022, net periodic pension and acquisitions, strategic partnershipspostretirement benefit income excluding any actuarial losses or gains is estimated to be approximately $35 million lower in 2023, subject to the impact of interim remeasurements. The decrease in 2023 is due to increases in discount rates used to determine the benefit obligations and venture investing.a decline in the market value of plan assets.
Cost Savings InitiativeBusiness Divestitures
We are pursuing a multi-year cost savings initiative with targeted annualized cost savingscompleted the sale of $450 million byour Kelsen business on September 23, 2019. On December 23, 2019, we completed the endsale of 2020.our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott's and other international operations). Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These savings are abovebusinesses were historically included in the Snacks reportable segment. In addition, on October 11, 2019, we completed the sale of our European chips business. The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment.
In the fourth quarter of 2021, we completed the sale of our Plum baby food and beyond our existing supply-chain productivity initiatives. snacks business. The results of the Plum baby food and snacks business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.
See "Restructuring ChargesNotes 3 and Cost Savings Initiatives"6 to the Consolidated Financial Statements for additional information on these initiatives. We expect to reinvest a portion of these savings into the businesses that we have identified as high growthdivestitures and that are consistent with our strategic imperatives.reportable segments.
Summary of Results
This Summary of Results provides significant highlights from the discussion and analysis that follows.
There were 52 weeks in 2022 and 2021. There were 53 weeks in 2020.
•Net sales decreasedincreased 1% in 20172022 to $7.890$8.562 billion as inflation-driven pricing and sales allowances were partially offset by volume declines, the impact from the divestiture of the Plum baby food and snack business and increased
promotional spending. Volumes declined primarily due to lower volumesupply constraints driven by labor and increased promotional spending.materials availability and price elasticities.
•Gross profit, as a percent of sales, increaseddecreased to 38.8%30.7% in 2022 from 34.9% a year ago. The increase was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year, productivity improvements and increased benefits from cost savings initiatives, partially offset by higher supply chain costs and cost inflation, and higher promotional spending.
Administrative expenses decreased 24% to $488 million from $641 million33.2% a year ago. The decrease was primarily due to gains on pension and postretirement benefithigher cost inflation, mark-to-market adjustments in the current year compared to losses in the prior year, increased benefits from cost savings initiatives, lower incentive compensation costson outstanding undesignated commodity hedges and lower costs related to the implementation of the new organizational structure and cost savings initiatives,unfavorable volume/mix, partially offset by inflationinflation-driven pricing actions and investments in long-term innovation.supply chain productivity improvements.
Other expenses increased to $238 million in 2017 from $131 million in 2016, primarily due to non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit in 2017. In 2016, we recorded a $141 million non-cash impairment charge on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, partially offset by a gain from the settlement of a claim related to the Kelsen acquisition.
The effective tax rate was 31.4% in 2017, compared to 33.7% in 2016. In 2017, the effective rate reflected a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes.
•Earnings per share from continuing operations were $2.89$2.51 in 2017,2022, compared to $1.81$3.30 a year ago. The current and prior year included expenses of $.15$.34 and $1.13the prior year included gains of $.45 per share respectively, from items impacting comparability as discussed below.
Cash flow from operations was $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline was primarily due to lapping significant reductions in working capital in the prior year, as well as lower cash earnings and lower receipts from hedging activities in the current year.
Net Earnings attributable to Campbell Soup Company - 20172022 Compared with 20162021
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
•In 2017,2022, we recognized gainsactuarial losses on our pension and postretirement plans in Other expenses / (income) of $178$44 million in Costs and expenses ($11633 million after tax, or $.38$.11 per share). In 2021, we recognized actuarial gains in Other expenses / (income) of $203 million ($155 million after tax, or $.51 per share);
•In 2022, we recognized losses in Cost of products sold of $59 million ($44 million after tax, or $.15 per share) associated with unrealized mark-to-market adjustments for defined benefit pension and postretirement plans.on outstanding undesignated commodity hedges. In 2016,2021, we recognized lossesgains in Cost of $313products sold of $50 million in Costs and expenses ($20038 million after tax, or $.64$.12 per share) associated with unrealized mark-to-market adjustments for defined benefit pension and postretirement plans;on outstanding undesignated commodity hedges;
In 2015, we•We implemented a new enterprise design and initiatives to reduce costs and to streamline our organizational structure. In 2017, we expanded theseseveral cost savings initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions.years. In 2017,2022, we recorded a pre-tax restructuring chargeRestructuring charges of $18$5 million and implementation costs and other related costs of $36$20 million in Administrative expenses, and $4$5 million in Cost of products sold and $1 million in Marketing and selling expenses (aggregate impact of $37$24 million after tax, or $.12$.08 per share) related to these initiatives. In 2016,2021, we recorded a pre-tax restructuring chargeRestructuring charges of $35$21 million and implementation costs and other related costs of $47$28 million in Administrative expenses, $3 million in Cost of products sold and $1 million in Marketing and selling expenses (aggregate impact of $40 million after tax, or $.13 per share) related to these initiatives. In 2016, we also recorded a reduction to pre-tax restructuring charges of $4 million related to the 2014 initiatives. The aggregate after-tax impact in 2016 of restructuring charges, implementation costs and other related costs was $49 million, or $.16 per share. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
•In the second quarter of 2017,2022, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit as operating performance was well below expectations and a new leadership team of the Campbell Fresh division initiated a strategic review which led to a revised outlook for future sales, earnings, and cash flow. We recorded a non-cash impairment chargeloss in Interest expense of $147$4 million ($1393 million after tax, or $.45$.01 per share) related to intangible assetson the extinguishment of the Bolthouse Farms carrot and carrot ingredients reporting unit and a non-cash impairment charge of $65 million ($41 million after tax, or $.13 per share) related to the intangible assets of the Garden Fresh Gourmet reporting unit (aggregate pre-tax impact of $212 million, $180 million after tax, or $.59 per share). debt;
•In the fourth quarter of 2016, as part of the annual review of intangible assets,2021, we recorded a non-cash impairment charge of $141 million ($127 million after tax, or $.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The charges are included in Other expenses / (income). See Note 5 to the Consolidated Financial Statements for additional information;
In 2017, we recorded a tax benefit of $52 million in Taxes on earnings primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes. In addition, we recorded a $6 million reduction to interest expense ($4 million after tax) related to premiums and fees received on the sale of the notes. The aggregate impact was $56 million after tax, or $.18 per share. See Note 11 to the Consolidated Financial Statements for additional information; and
In 2016, we recorded a gain of $25 million ($.08 per share)loss in Other expenses / (income) fromof $11 million (and a settlementgain of $3 million after tax, or $.01 per share) on the sale of our Plum baby food and snacks business; and
•In 2021, we recorded a claim related to$19 million ($.06 per share) deferred tax charge in connection with a legal entity reorganization as part of the Kelsen acquisition. The claim was for a warranty breach and has no meaningful ongoing impact on Kelsen.continued integration of Snyder's-Lance, Inc. (Snyder's-Lance).
The items impacting comparability are summarized below:
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| 2022 | | 2021 |
| (Millions, except per share amounts) | Earnings
Impact | | EPS
Impact | | Earnings
Impact | | EPS
Impact |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 757 | | | $ | 2.51 | | | $ | 1,008 | | | $ | 3.30 | |
| Loss from discontinued operations | $ | — | | | $ | — | | | $ | (6) | | | $ | (.02) | |
Net earnings attributable to Campbell Soup Company(1) | $ | 757 | | | $ | 2.51 | | | $ | 1,002 | | | $ | 3.29 | |
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| Continuing operations: | | | | | | | |
| Pension and postretirement actuarial gains (losses) | $ | (33) | | | $ | (.11) | | | $ | 155 | | | $ | .51 | |
| Commodity mark-to-market gains (losses) | (44) | | | (.15) | | | 38 | | | .12 | |
| Restructuring charges, implementation costs and other related costs | (24) | | | (.08) | | | (40) | | | (.13) | |
| Loss on debt extinguishment | (3) | | | (.01) | | | — | | | — | |
| Gain associated with divestiture | — | | | — | | | 3 | | | .01 | |
| Deferred tax charge | — | | | — | | | (19) | | | (.06) | |
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Impact of items on Earnings from continuing operations(1) | $ | (104) | | | $ | (.34) | | | $ | 137 | | | $ | .45 | |
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(1)Sum of the individual amounts may not add due to rounding.
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| | 2017 | | 2016 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Net earnings attributable to Campbell Soup Company | $ | 887 |
| | $ | 2.89 |
| | $ | 563 |
| | $ | 1.81 |
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| Pension and postretirement benefit mark-to-market adjustments | $ | 116 |
| | $ | .38 |
| | $ | (200 | ) | | $ | (.64 | ) |
| Restructuring charges, implementation costs and other related costs | (37 | ) | | (.12 | ) | | (49 | ) | | (.16 | ) |
| Impairment charges | (180 | ) | | (.59 | ) | | (127 | ) | | (.41 | ) |
| Sale of notes | 56 |
| | .18 |
| | — |
| | — |
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| Claim settlement | — |
| | — |
| | 25 |
| | .08 |
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| Impact of items on Net earnings | $ | (45 | ) | | $ | (.15 | ) | | $ | (351 | ) | | $ | (1.13 | ) |
Net earnings attributable to Campbell Soup CompanyEarnings from continuing operations were $887$757 million ($2.892.51 per share) in 2017,2022, compared to $563 million$1.008 billion ($1.813.30 per share) in 2016.2021. After adjusting for items impacting comparability, earnings increased primarily due to an improvedfrom continuing operations decreased reflecting lower gross profit, performancelower other income and lowerhigher administrative expenses, partiallymostly offset by lower sales.marketing and selling expenses, lower interest expense and a lower effective tax rate. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, primarily due to share repurchases under our strategic share repurchase program.outstanding.
See "Discontinued Operations" for additional information.
Net Earnings attributable to Campbell Soup Company - 20162021 Compared with 20152020
In addition to the 20162021 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
•In 2015,2020, we recognized actuarial losses on our pension and postretirement plans in Other expenses / (income) of $138$164 million in Costs and expenses ($87125 million after tax, or $.28$.41 per share);
•In 2020, we recognized gains in Cost of products sold of $2 million ($2 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments for defined benefit pension and postretirement plans; andon outstanding undesignated commodity hedges;
•In 2015,2020, we recorded a pre-tax restructuring chargeRestructuring charges of $102$9 million and implementation costs and other related costs of $22$48 million recorded in Administrative expenses, related to the 2015 initiatives$9 million in Cost of products sold, $2 million in Marketing and selling expenses and $1 million in Research and development expenses (aggregate impact of $78$52 million after tax, or $.25$.17 per share). related to the cost savings initiatives discussed above. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information.information;
The items impacting comparability are summarized below:
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| | 2016 | | 2015 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Net earnings attributable to Campbell Soup Company | $ | 563 |
| | $ | 1.81 |
| | $ | 666 |
| | $ | 2.13 |
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| Pension and postretirement benefit mark-to-market adjustments | $ | (200 | ) | | $ | (.64 | ) | | $ | (87 | ) | | $ | (.28 | ) |
| Restructuring charges, implementation costs and other related costs | (49 | ) | | (.16 | ) | | (78 | ) | | (.25 | ) |
| Impairment charge | (127 | ) | | (.41 | ) | | — |
| | — |
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| Claim settlement | 25 |
| | .08 |
| | — |
| | — |
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| Impact of items on Net earnings | $ | (351 | ) | | $ | (1.13 | ) | | $ | (165 | ) | | $ | (.53 | ) |
Net earnings were $563•In 2020, we recorded a loss in Other expenses / (income) of $64 million ($1.8137 million after tax, or $.12 per share) in 2016, comparedon the sale of our European chips business;
•On April 26, 2020, we entered into an agreement to $666 million ($2.13 per share) in 2015. After adjusting for items impacting comparability, earnings increased primarily due to an improved gross profit performance, lower administrative expenses and lower marketing and selling expenses, partially offset by the negative impact of currency translation and a higher effective tax rate.
Net earnings (loss) attributable to noncontrolling interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to supportsell our soup and broth business in China.
We own a 70% controlling interest in a Malaysian food products manufacturing company.
In addition, beginning in 2016, we own a 99.8%limited partnership interest in Acre Venture Partners, L.P., (Acre). The transaction closed on May 8, 2020. In the third quarter of 2020, we recorded a limited partnership formed to make venture capital investmentsloss in innovative new companies in food and food-related industries.Other expenses / (income) of $45 million ($35 million after tax, or $.12 per share) as a result of the pending sale. See Note 14 to the Consolidated Financial Statements for additional information; and
•In 2020, we recorded a loss in Interest expense of $75 million ($57 million after tax, or $.19 per share) on the extinguishment of debt.
Discontinued Operations
•In 2020, we recognized net gains of $1.039 billion ($1 billion after tax, or $3.29 per share) associated with the sale of Campbell International.
The items impacting comparability are summarized below: | | | | | | | | | | | | | | | | | | | | | | | |
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| 2021 | | 2020 |
| (Millions, except per share amounts) | Earnings
Impact | | EPS
Impact | | Earnings
Impact | | EPS
Impact |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 1,008 | | | $ | 3.30 | | | $ | 592 | | | $ | 1.95 | |
| Earnings (loss) from discontinued operations | $ | (6) | | | $ | (.02) | | | $ | 1,036 | | | $ | 3.41 | |
Net earnings attributable to Campbell Soup Company(1) | $ | 1,002 | | | $ | 3.29 | | | $ | 1,628 | | | $ | 5.36 | |
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| Continuing operations: | | | | | | | |
| Pension and postretirement actuarial gains (losses) | $ | 155 | | | $ | .51 | | | $ | (125) | | | $ | (.41) | |
| Commodity mark-to-market gains | 38 | | | .12 | | | 2 | | | .01 | |
| Restructuring charges, implementation costs and other related costs | (40) | | | (.13) | | | (52) | | | (.17) | |
| Gains (charges) associated with divestitures | 3 | | | .01 | | | (37) | | | (.12) | |
| Deferred tax charge | (19) | | | (.06) | | | — | | | — | |
| Investment losses | — | | | — | | | (35) | | | (.12) | |
| Loss on debt extinguishment | — | | | — | | | (57) | | | (.19) | |
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| Impact of items on Earnings from continuing operations | $ | 137 | | | $ | .45 | | | $ | (304) | | | $ | (1.00) | |
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| Discontinued operations: | | | | | | | |
| Gains associated with divestitures | $ | — | | | $ | — | | | $ | 1,000 | | | $ | 3.29 | |
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| Impact of items on Earnings (loss) from discontinued operations | $ | — | | | $ | — | | | $ | 1,000 | | | $ | 3.29 | |
__________________________________________ (1)Sum of the individual amounts may not add due to rounding.
Earnings from continuing operations were $1.008 billion ($3.30 per share) in 2021, compared to $592 million ($1.95 per share) in 2020. After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting a lower gross profit margin and sales volume declines, partially offset by lower marketing and selling expenses, lower interest expense and higher other income. The additional week contributed approximately $.04 per share to Earnings from continuing operations in 2020.
See "Discontinued Operations" for additional information.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
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| | | | | | | % Change |
| (Millions) | 2022 | | 2021 | | 2020 | | 2022/2021 | | 2021/2020 |
| Meals & Beverages | $ | 4,607 | | | $ | 4,621 | | | $ | 4,747 | | | — | | (3) |
| Snacks | 3,955 | | | 3,855 | | | 3,944 | | | 3 | | (2) |
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| $ | 8,562 | | | $ | 8,476 | | | $ | 8,691 | | | 1 | | (2) |
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| | | | | | | | % Change |
| (Millions) | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 |
| Americas Simple Meals and Beverages | $ | 4,325 |
| | $ | 4,380 |
| | $ | 4,483 |
| | (1)% | | (2)% |
| Global Biscuits and Snacks | 2,598 |
| | 2,564 |
| | 2,631 |
| | 1 | | (3) |
| Campbell Fresh | 967 |
| | 1,017 |
| | 968 |
| | (5) | | 5 |
| | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
| | (1)% | | (1)% |
An analysis of percent change of net sales by reportable segment follows:
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| 2022 versus 2021 | Meals & Beverages(2) | | Snacks(2) | | | | Total(2) |
| Volume and mix | (6)% | | (6)% | | | | (6)% |
| Price and sales allowances | 8 | | 8 | | | | 8 |
Decreased/(increased) promotional spending(1) | (2) | | — | | | | (1) |
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| Divestiture | (1) | | — | | | | (1) |
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| —% | | 3% | | | | 1% |
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| 2017 versus 2016 | Americas Simple Meals and Beverages(2) | | Global Biscuits and Snacks(2) | | Campbell Fresh(2) | | Total(2) |
| Volume and Mix | (1)% | | 1% | | (5)% | | (1)% |
(Increased)/Decreased Promotional Spending(1) | (1) | | — | | 1 | | (1) |
| Currency | — | | 1 | | — | | — |
| | (1)% | | 1% | | (5)% | | (1)% |
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| 2016 versus 2015 | Americas Simple Meals and Beverages | | Global Biscuits and Snacks(2) | | Campbell Fresh(2) | | Total |
| Volume and Mix | (2)% | | 1% | | (3)% | | (1)% |
| Price and Sales Allowances | 1 | | 1 | | — | | 1 |
Increased Promotional Spending(1) | — | | — | | (1) | | — |
| Currency | (1) | | (4) | | — | | (2) |
| Acquisitions | — | | — | | 10 | | 1 |
| | (2)% | | (3)% | | 5% | | (1)% |
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| 2021 versus 2020 | Meals & Beverages | | Snacks(2) | | | | Total(2) |
| Volume and mix | (2)% | | (1)% | | | | (2)% |
| Price and sales allowances | — | | — | | | | — |
Decreased/(increased) promotional spending(1) | 1 | | 1 | | | | 1 |
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| Divestiture | — | | (1) | | | | — |
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Estimated impact of 53rd week | (2) | | (2) | | | | (2) |
| (3)% | | (2)% | | | | (2)% |
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(1)
| Represents revenue reductions from trade promotion and consumer coupon redemption programs. |
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(2)
| Sum of the individual amounts does not add due to rounding. |
(1)Represents revenue reductions from trade promotion and consumer coupon redemption programs.
(2)Sum of the individual amounts does not add due to rounding.
In 2017, Americas Simple2022, Meals & Beverages sales were comparable with prior year. Excluding the impact from the divestiture of the Plum baby food and snacks business, sales increased primarily due to increases in U.S. soup and foodservice, partially offset by declines in V8 beverages. Inflation-driven pricing and sales allowances were partially offset by increased promotional spending. Volume decreased primarily due to supply constraints driven by labor and materials availability and price elasticities. Sales of U.S. soup increased 3%, due to increases in ready-to-serve soups, condensed soups and broth.
In 2021, Meals & Beverages sales decreased 1%3%. Excluding the impact of the 53rd week, sales decreased primarily due to declines in V8 beverages and soup, partlyfoodservice, partially offset by gains in Prego pasta saucesV8 beverages. Foodservice sales were negatively impacted by shifts in consumer behavior and Campbell's pasta.continued COVID-19 related restrictions. Including a 1-point impact from the additional week, sales of U.S. soup sales decreased 1% due to declines in condensed soups and broth, partly offset by gains in ready-to-serve soups. Gains in ready-to-serve soups, were primarily driven by Campbell’s Chunky soups due to improved execution, including merchandising and dedicated advertising, as well as new items, and the launch of Well Yes! soups. Promotional spending had a negative impact of 1% on sales, with increases on broth, in Canada and on V8 beverages. We increased promotional spending on broth and V8 beverages to remain competitive, and in Canada to hold certain promoted prices following list price increases. For 2018, we were unable to reach an agreement with a large customer on a promotional program for U.S. soup. As a result, we expect our U.S. soup sales to decline in 2018.
In 2016, Americas Simple Meals and Beverages sales decreased 2%. Sales decreased primarily due to declines in soup and V8 beverages, partially offset by gains in Prego pasta sauces, Plum products and Pace Mexican sauces. U.S. soup sales decreased 4% primarily as a result of the impact of our net price realization actions and category declines, which were partly related to warmer weather. Further details of U.S. soup include:broth.
Sales of condensed soups were comparable to the prior year.
Sales of ready-to-serve soups declined 13%. The sales decrease in ready-to-serve soups was also due to marketing execution issues on Campbell'sChunky soups.
Broth sales increased 1%.
V8 beverages continued to be under pressure from competition from specialty and packaged fresh beverages.
In 2017, Global Biscuits and2022, Snacks sales increased 1% reflecting a 1% favorable impact from currency translation. Excluding the favorable impact3% driven by sales of currency translation, segment sales were comparable to the prior year as gains in Pepperidge Farm were offset by declines in Kelsen, mostly in the U.S., and in Arnott's in Indonesia. Pepperidge Farm salesour power brands which increased 7%. Sales increased due to gainsincreases in cookies and crackers, primarily Goldfish crackers, and in cookies, benefiting from new items, partlysalty snacks, primarily Snyder’s of Hanover pretzels and Kettle Brand potato chips which more than offset by declines in fresh bakery and frozen products.
In 2016, Global Biscuits and Snacks sales decreased 3% reflecting a 4% negative impact from currency translation. Excluding the negative impact of currency translation, segment sales increased primarily due to gains in Goldfish crackers and Arnott's biscuits in Australia,Late July snacks, partially offset by declines in Kelsen.non-core businesses. Inflation-driven pricing and sales allowances were partly offset by volume declines. Volumes declined driven by supply constraints due to labor and materials availability and price elasticities.
In 2017, Campbell Fresh2021, Snacks sales decreased 5% primarily due to2%. Excluding the impact of the 53rd week and the divestiture of the European chips business, sales were comparable driven by volume declines mostly offset by lower saleslevels of refrigerated beveragespromotional spending. Declines in partner brands and carrots, partlyLance sandwich crackers were mostly offset by gains in refrigerated soup. The decreasesalty snacks, including Late July snacks and Snyder's of Hanover pretzels, and in refrigerated beverages reflects the adverse impactGoldfish crackers. Partner brands consist of supply constraints related to enhanced quality processes following the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. The carrot sales performance reflects the market share impact of quality and execution issues experienced in 2016, as well as the adverse impact of weather conditions in the second quarter of 2017.third-party branded products that we sell.
In 2016, Campbell Fresh sales increased 5% primarily due to the acquisition of Garden Fresh Gourmet, which was acquired on June 29, 2015. Excluding the acquisition, sales declined reflecting lower sales in carrots and carrot ingredients, partially offset by gains in refrigerated beverages and salad dressings. In 2016, carrot sales performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction and a loss of business in the second half of the year. The increase in refrigerated beverages was primarily due to new product launches, partially offset by the impact of the voluntary recall of Bolthouse FarmsProtein PLUS drinks in June 2016. In 2016, promotional spending was increased to remain competitive and to support new product launches.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, increaseddecreased by $279$184 million in 20172022 from 20162021 and decreased by $2$188 million in 20162021 from 2015.2020. As a percent of sales, gross profit was 38.8%30.7% in 2017, 34.9%2022, 33.2% in 20162021 and 34.4%34.5% in 2015.2020.
The 3.9 percentage-point increase250 basis-point decrease and the 130 basis-point decrease in gross profit percentagemargin in 20172022 and 0.5 percentage-point increase in gross profit percentage in 20162021, respectively, were due to the following factors:
|
| | | |
| | Margin Impact |
| | 2017 | | 2016 |
Pension and postretirement benefit mark-to-market adjustments(1) | 3.3% | | (1.2)% |
| Productivity improvements | 1.8 | | 2.0 |
| Higher selling prices | 0.1 | | 0.6 |
| Mix | 0.1 | | 0.4 |
| Higher level of promotional spending | (0.4) | | (0.2) |
Cost inflation, supply chain costs and other factors(2) | (1.0) | | (0.8) |
| Impact of acquisitions | — | | (0.3) |
| | 3.9% | | 0.5% |
| | | | | | | | | | | |
| Margin Impact |
| | 2022 | | 2021 |
| | | |
Cost inflation, supply chain costs and other factors(1) | (810) | | (320) |
Volume/mix(2) | (130) | | (40) |
| Lower/(higher) level of promotional spending | (50) | | 80 |
| Productivity improvements | 130 | | 150 |
| Price and sales allowances | 610 | | (10) |
| Lower restructuring-related costs | — | | 10 |
| | | |
| (250) | | (130) |
| |
(1)(1)2022 includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors, including a 130 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. 2021 includes an estimated positive margin impact of a 60 basis-point benefit from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges and 50 basis points from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors. (2)Includes the impact of operating leverage. | Pension and postretirement benefit mark-to-market gains were $85 in 2017 and losses were $176 million in 2016. |
| |
(2)
| 2017 includes a positive margin impact of 1 point from cost savings initiatives. 2016 includes a positive margin impact of 0.6 points from cost savings initiatives. |
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 10.4%8.6% in 2017, 11.2%2022, 9.6% in 20162021 and 10.9% in 2015.2020. Marketing and selling expenses decreased 9%10% in 20172022 from 2016.2021. The decrease was primarily due to gains on pensionlower advertising and postretirement benefit mark-to-market adjustmentsconsumer promotion expense (approximately 10 points). The reduction in the current year comparedadvertising and consumer promotion expense was primarily due to lossessupply constraints.
Marketing and selling expenses decreased 14% in the prior year2021 from 2020. The decrease was primarily due to lower advertising and consumer promotion expense (approximately 8 percentage7 points); increased benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costs (approximately 1 percentage point), partially offset by higher selling expenses (approximately 1 percentage point) and inflation (approximately 1 percentage point).
Marketing and selling expenses increased 1% in 2016 from 2015. The increase was due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 3 percentage points); higher advertising and consumer promotion expenses (approximately 2 percentage points); lower marketing overhead expenses and lower selling expenses (approximately 1 percentage point); and inflationlower costs related to marketing overhead (approximately 1 percentage point), partially offset by benefits from cost savings initiatives (approximately 4 percentage points) and the impact of currency translation (approximately 2 percentage points). The increasedecrease in advertising and consumer promotion expenses in 2016expense was primarily due to elevated levels in Global Biscuits and Snacks.2020.
Administrative Expenses
Administrative expenses as a percent of sales were 6.2%7.2% in 2017, 8.1%2022, 7.1% in 20162021 and 7.4%7.2% in 2015.2020. Administrative expenses decreased 24%increased 3% in 20172022 from 2016.2021. The decreaseincrease was primarily due to gains on pensionexpenses related to the settlement of certain legal claims (approximately 3 points) and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior yearhigher general administrative costs (approximately 19 percentage3 points);, partially offset by increased benefits from cost savings initiatives (approximately 3 percentage points); lower incentive compensation costs (approximately 3 percentage points); and lower costs related to the implementation of the new organizational structure and cost savings initiatives (approximately 2 percentage points), partially offset by inflation (approximately 2 percentage points) and investments in long-term innovation (approximately 1 percentage point).
Administrative expenses increased 7%decreased 4% in 20162021 from 2015. The increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 7 percentage points); higher costs related to the implementation of the new organizational structure and cost savings initiatives (approximately 4 percentage points); inflation (approximately 2 percentage points); and higher incentive compensation costs (approximately 1 percentage point), partially offset by benefits from
cost savings initiatives (approximately 6 percentage points) and the impact of currency translation (approximately 1 percentage point).
Research and Development Expenses
Research and development expenses decreased $26 million, or 21%, in 2017 from 2016.2020. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior yearlower incentive compensation (approximately 25 percentage4 points); lower costs associated with cost savings initiatives (approximately 3 points); increased benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costshigher charitable contributions in 2020 (approximately 2 percentage points), partially offset by higher information technology costs (approximately 4 points); higher inflation and other factors (approximately 7 percentage2 points) and investments in long-term innovationhigher benefit-related costs (approximately 1 percentage point).
Research and development expenses increased $7 million, or 6%, in 2016 from 2015. The increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 9 percentage points) and increased costs to support long-term innovation (approximately 3 percentage points), partially offset by benefits from cost savings initiatives (approximately 6 percentage points).
Other Expenses / (Income)
Other expenses in 20172022 included non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, and the Garden Fresh Gourmet reporting unit, which are part of the Campbell Fresh segment. The impairment charges were recorded as a result of an interim impairment assessment on the intangible assets of these reporting units in the second quarter. In addition, 2017 included $19following:
•$41 million of amortization of intangible assets.assets; and
•$23 million of net periodic benefit income, including pension and postretirement actuarial losses of $44 million.
Other expensesincome in 20162021 included a non-cash impairment chargethe following:
•$285 million of $141net periodic benefit income, including pension and postretirement actuarial gains of $203 million;
•$27 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The impairment charge was recorded as a result of our annual review of intangible assets. In addition, 2016 included $20income from transition services fees;
•$42 million of amortization of intangible assetsassets; and a $25
•$11 million gain from a settlementloss on the sale of a claim related to the Kelsen acquisition.Plum baby food and snacks business.
Other expenses in 20152020 included $17the following:
•$73 million of net periodic benefit expense, including pension and postretirement actuarial losses of $164 million;
•$64 million loss on the sale of the European chips business;
•$45 million loss on Acre;
•$43 million of amortization of intangible assetsassets; and an impairment charge
•$10 million of $6 million related to minor trademarks used in the Global Biscuits and Snacks segment.
See Note 5 to the Consolidated Financial Statements for additional information on the impairment charges.income from transition services fees.
Operating Earnings
Segment operating earnings increased 1%decreased 3% in 20172022 from 20162021 and increased 11%decreased 6% in 20162021 from 2015.2020.
An analysis of operating earnings by segment follows:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | % Change(2) |
| (Millions) | | 2017 | | 2016 | | 2015 | | 2017/2016 | | 2016/2015 |
| Americas Simple Meals and Beverages | | $ | 1,120 |
| | $ | 1,069 |
| | $ | 948 |
| | 5% | | 13 | % |
| Global Biscuits and Snacks | | 454 |
| | 422 |
| | 383 |
| | 8 | | 10 |
|
| Campbell Fresh | | (9 | ) | | 60 |
| | 61 |
| | n/m | | (2 | ) |
| | | 1,565 |
| | 1,551 |
| | 1,392 |
| | 1% | | 11 | % |
| Corporate | | (147 | ) | | (560 | ) | | (236 | ) | | | | |
Restructuring charges(1) | | (18 | ) | | (31 | ) | | (102 | ) | | | | |
| Earnings before interest and taxes | | $ | 1,400 |
| | $ | 960 |
| | $ | 1,054 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | % Change |
| (Millions) | | 2022 | | 2021 | | 2020 | | 2022/2021 | | 2021/2020 |
| Meals & Beverages | | $ | 874 | | | $ | 922 | | | $ | 1,009 | | | (5) | | (9) |
| Snacks | | 517 | | | 514 | | | 525 | | | 1 | | (2) |
| | | | | | | | | | |
| | 1,391 | | | 1,436 | | | 1,534 | | | (3) | | (6) |
| Corporate income (expense) | | (223) | | | 130 | | | (418) | | | | | |
Restructuring charges(1) | | (5) | | | (21) | | | (9) | | | | | |
| Earnings before interest and taxes | | $ | 1,163 | | | $ | 1,545 | | | $ | 1,107 | | | | | |
| |
(1)(1)See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. | See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. |
Operating earnings from Americas Simple Meals and& Beverages increaseddecreased 5% in 20172022 versus 2016.2021. The increasedecrease was primarily due to lower gross profit and higher administrative expenses, partially offset by lower marketing and selling expenses. Gross profit margin declined driven by higher cost inflation and other supply chain costs as well as higher levels of promotional spending and unfavorable volume/mix, partially offset by the impact of pricing actions and supply chain productivity improvements.
Operating earnings from Meals & Beverages decreased 9% in 2021 versus 2020. The decrease was primarily due to a higherlower gross profit percentage, benefiting from productivity improvements,margin and lower administrative expenses, partlysales volume declines, partially offset by volume declines.
Operating earnings from Americas Simple Meals and Beverages increased 13% in 2016 versus 2015. The increase was primarily due to a higher gross profit percentage, benefiting from productivity improvements and increased net price realization, as well as lower marketing and selling expenses and administrative expenses. Gross profit performance was impacted by higher cost inflation and other supply chain costs, as well as unfavorable volume/mix, partially offset by volume declines.supply chain productivity improvements and lower levels of promotional activity.
Operating earnings from Global Biscuits and Snacks increased 8%1% in 20172022 versus 2016.2021. The increase was primarily due to lower administrative expenses, lower marketing and selling expenses and slightly higher gross profit, partially offset by higher administrative expenses due to the favorable impactsettlement of currency translation.
certain legal claims.
Operating earnings from Global Biscuits and Snacks increased 10%decreased 2% in 20162021 versus 2015.2020. The increase wasdecrease primarily due to a higherlower gross profit percentage,margin and sales volume gains, lower selling expenses and lower administrative expenses, partlydeclines, partially offset by the negative impact of currency translationlower marketing and selling expenses. Gross profit performance was impacted by higher advertisingcost inflation and consumer promotion expenses.
Operating earnings from Campbell Fresh decreased from $60 million in 2016 to a loss of $9 million in 2017. The decrease was primarily due to lower volume and unfavorable mix; higher carrotother supply chain costs, which were partly associated with the adverse impact on crop yields of heavy rains in December and January of this fiscal year, as well as excess organic carrots; the cost impact of both lower beverage operating efficiencies and enhanced quality processes; and higher administrative expenses.
Operating earnings from Campbell Fresh decreased 2% in 2016 versus 2015. The decrease was primarily due to higher carrot costs, and the impact of the voluntary recall of Bolthouse FarmsProtein PLUS drinks and the related production outages,unfavorable volume/mix, partially offset by supply chain productivity improvements and cost savings initiatives as well as lower administrative expenses.levels of promotional spending.
Corporate expense in 20172022 included a $178the following:
•$59 million gain associated withof unrealized mark-to-market losses on outstanding undesignated commodity hedges;
•$44 million of pension and postretirement benefit mark-to-market adjustments, non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrotactuarial losses; and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit, and
•costs of $40$26 million related to cost savings initiatives.
Corporate income in 2021 included the following:
•$203 million of pension and postretirement actuarial gains;
•$50 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges;
•costs of $32 million related to the implementation of our new organizational structure and cost savings initiatives. initiatives; and
•a loss of $11 million from the sale of the Plum baby food and snacks business.
Corporate expense in 20162020 included a $313the following:
•$164 million loss associated withof pension and postretirement benefit mark-to-market adjustments, actuarial losses;
•a non-cash impairment chargeloss of $141$64 million onfrom the intangible assetssale of the Bolthouse Farms carrot and carrot ingredients reporting unit, European chips business;
•costs of $47$60 million related to the implementation of our new organizational structure and cost savings initiatives,initiatives;
•a loss of $45 million on Acre; and a $25
•$2 million gain from a settlement of a claim related to the Kelsen acquisition. The remaining decrease in 2017 was primarily due to lower postretirement benefit costs as a result of amortization of prior service credit, partially offset by investments in long-term innovation.
Corporate in 2015 included a $138 million loss associated with pension and postretirement benefitunrealized mark-to-market adjustments and costs of $22 million related to the implementation of our new organizational structure and cost savings initiatives. The remaining increase in 2016 was primarily due to an increase in pension benefit cost, resulting from a reduction in expected returngains on assets partially offset by lower interest cost.outstanding undesignated commodity hedges.
Interest Expense
Interest expense decreased to $112$189 million in 20172022 from $115$210 million in 2016. In 2017, we recorded a $6 million reduction to2021. The decrease in interest expense relatedwas primarily due to premiums and fees received from the salelower levels of intercompany notes receivable to a financial institution. Excluding the premium and fees, interest expense increased reflecting higher average interest rates on the debt, portfolio, partially offset by lower average levelsa loss on extinguishment of debt.debt of $4 million in 2022.
Interest expense increaseddecreased to $115$210 million in 20162021 from $108$345 million in 2015, reflecting higher average2020. The decrease in interest ratesexpense was due to a loss on theextinguishment of debt portfolio, partially offset byof $75 million in 2020 and lower average levels of debt.
Taxes on Earnings
The effective tax rate was 31.4%22.4% in 2017, 33.7%2022, 24.6% in 20162021 and 29.8%22.7% in 2015.2020.
The following items impacted the tax rate in 2017 and 2016:
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes;
In 2017, we recognized tax expense of $62 million on $178 million of pension and postretirement benefit mark-to-market gains. In 2016, we recognized a tax benefit of $113 million on $313 million of pension and postretirement benefit mark-to-market losses;
In 2017, we recognized a $32 million tax benefit on the $212 million impairment charges on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit. In 2016, we recognized a $14 million tax benefit on the $141 million impairment charge on the trademark and goodwill associated with the Bolthouse Farms carrot and carrot ingredients reporting unit;
In 2017, we recognized a $21 million tax benefit on $58 million of restructuring charges, implementation costs and other related costs. In 2016, we recognized a $29 million tax benefit on $78 million of restructuring charges, implementation costs and other related costs; and
In 2016, the $25 million gain from a settlement of a claim related to the Kelsen acquisition was not subject to tax.
In addition, in 2017 the effective rate was favorably impacted by the recognition of $6 million of excess tax benefits in connection with the adoption of new accounting guidance on stock-based compensation in the first quarter. See Note 2 to the Consolidated Financial Statements for additional information on the adoption of the new accounting guidance.
In 2015, we recognized a tax benefit of $51 million on $138 million of pension and postretirement benefit mark-to-market losses and a $46 million tax benefit on $124 million of restructuring charges and implementation costs. After adjusting for the
items above, the remaining increasedecrease in the effective tax rate in 20162022 from 2021 was primarily due to lappinga $19 million deferred tax charge recognized in the favorable resolutionsecond quarter of an intercompany pricing agreement between2021 in connection with a legal entity reorganization as part of the U.S.continued integration of Snyder's-Lance and Canadastate income tax law changes.
The increase in 2015.the effective rate in 2021 from 2020 was primarily due to the $19 million deferred tax charge recognized in the second quarter of 2021 and a $27 million tax benefit on the $64 million loss on the sale of the European chips business in 2020.
Restructuring Charges and Cost Savings Initiatives
2015Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
On January 29,Beginning in fiscal 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under the new structure, which we fully implemented at the beginning of 2016, our businesses are organized in the following divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
In support of the new structure, we designed and implemented a new Integrated Global Services organization to deliver shared services across the company. We also streamlined our organizational structure, implemented an initiative to reduce overhead across the organization and are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time. As part ofto streamline our organizational structure.
Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, including closing our manufacturing facility in Toronto, Ontario, as well as our information technology infrastructure.
On March 26, 2018, we commencedcompleted the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a voluntary employee separationcost transformation program availablefollowing a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to certain U.S.-based salaried employees nearing retirement who met age, length-of-serviceimplement this program and business unit/function criteria. A total of 471 employees elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond that date.identified opportunities for additional cost synergies as we integrated Snyder's-Lance.
In February 2017,2022, we announced thatexpanded these initiatives as we are expanding thesecontinue to pursue cost savings initiatives by further optimizing our supply chain and manufacturing network primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. We have extended the time horizon for the initiatives from 2018 to 2020.through effective cost management. Cost estimates for these expanded initiatives, as well as timing for certain activities, are beingcontinuing to be developed.
A summary of the restructuring charges we recorded and charges incurred in Administrative expenses and Cost of products soldEarnings from continuing operations related to the implementation of the new organizational structure and costs savingsthese initiatives is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(Millions, except per share amounts) | 2022 | | 2021 | | 2020 | | Recognized as of July 31, 2022 |
| Restructuring charges | $ | 5 | | | $ | 21 | | | $ | 9 | | | $ | 264 | |
| Administrative expenses | 20 | | | 28 | | | 48 | | | 359 | |
| Cost of products sold | 5 | | | 3 | | | 9 | | | 84 | |
| Marketing and selling expenses | 1 | | | 1 | | | 2 | | | 14 | |
| Research and development expenses | — | | | — | | | 1 | | | 4 | |
| Total pre-tax charges | $ | 31 | | | $ | 53 | | | $ | 69 | | | $ | 725 | |
| | | | | | | |
| Aggregate after-tax impact | $ | 24 | | | $ | 40 | | | $ | 52 | | | |
| Per share impact | $ | .08 | | | $ | .13 | | | $ | .17 | | | |
|
| | | | | | | | | | | |
(Millions, except per share amounts) | 2017 | | 2016 | | 2015 |
| Restructuring charges | 18 |
| | 35 |
| | 102 |
|
| Administrative expenses | 36 |
| | 47 |
| | 22 |
|
| Cost of products sold | 4 |
| | — |
| | — |
|
| Total pre-tax charges | $ | 58 |
| | $ | 82 |
| | $ | 124 |
|
| | | | | | |
| Aggregate after-tax impact | $ | 37 |
| | $ | 52 |
| | $ | 78 |
|
| Per share impact | $ | .12 |
| | $ | .17 |
| | $ | .25 |
|
A summary of the pre-tax costs in Earnings from continuing operations associated with the initiatives is as follows:
|
| | | |
| (Millions) | Recognized as of July 30, 2017 |
| Severance pay and benefits | $ | 135 |
|
| Asset impairment/accelerated depreciation | 12 |
|
| Implementation costs and other related costs | 117 |
|
| Total | $ | 264 |
|
| | | | | |
| (Millions) | Recognized as of July 31, 2022 |
| Severance pay and benefits | $ | 227 | |
| Asset impairment/accelerated depreciation | 82 | |
| Implementation costs and other related costs | 416 | |
| Total | $ | 725 | |
The total estimated pre-tax costs for actions associated with continuing operations that have been identified to date are approximately $380$735 million to $420 million. This estimate$740 million and we expect to incur the costs through 2023. These estimates will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following: approximately $135$230 million in severance pay and benefits; approximately $20$85 million in asset impairment and accelerated depreciation; and approximately $225$420 million to $265$425 million in implementation costs and other related costs.Wecosts. We expect these pre-tax costs to be associated with our segments as follows: Americas Simple Meals and& Beverages - approximately 30%31%; Global Biscuits and Snacks - approximately 38%; Campbell Fresh - approximately 4%44%; and Corporate - approximately 28%25%.
Of the aggregate $380$735 million to $420$740 million of pre-tax costs associated with continuing operations identified to date, we expect approximately $350$635 million to $390$640 million will be cash expenditures. In addition, we expect to invest approximately $180$445 million in capital expenditures through 20192023, of which we invested $440 million as of July 31, 2022. The capital expenditures primarily relatedrelate to a U.S. warehouse optimization project, improvement of quality, safety and cost structure across the constructionSnyder’s-Lance manufacturing network, implementation of a networkour existing SAP enterprise-resource planning system for Snyder's-Lance, transition of distribution centers forproduction of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and insourcingapplications and optimization of manufacturing for certain simple meal products, of which we invested approximately $10 million as of July 30, 2017.the Snyder’s-Lance warehouse and distribution network.
We expect to incur substantially all of the costs through 2019 and to fund the costs through cash flows from operations and short-term borrowings.
We expect the initiatives for actions that have been identified to date to generate pre-tax savings of $390 million in 2018, andassociated with continuing operations, once all phases are implemented, to generate annual ongoing savings of approximately $450 million beginning in 2020. The annual$1 billion by the end of 2025. As of July 31, 2022, we have generated total program-to-date pre-tax savings generated by the initiatives were as follows:
|
| | | | | | | | | | | |
| (Millions) | 2017 | | 2016 | | 2015 |
| Total pre-tax savings | $ | 325 |
| | $ | 215 |
| | $ | 85 |
|
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs incurred to datein Earnings from continuing operations associated with segments is as follows:
| | | | | | | | | | | |
| (Millions) | 2022 | | Costs Incurred to Date |
| Meals & Beverages | $ | 2 | | | $ | 225 | |
| Snacks | 22 | | | 321 | |
| Corporate | 7 | | | 179 | |
| Total | $ | 31 | | | $ | 725 | |
|
| | | | | | | |
| (Millions) | 2017 | | Costs Incurred to Date |
| Americas Simple Meals and Beverages | $ | 21 |
| | $ | 92 |
|
| Global Biscuits and Snacks | 12 |
| | 78 |
|
| Campbell Fresh | 4 |
| | 6 |
|
| Corporate | 21 |
| | 88 |
|
| Total | $ | 58 |
| | $ | 264 |
|
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016, we recorded a reduction to restructuring charges of $4 million ($3 million after tax, or $.01 per share) related to the 2014 initiatives. As of July 31, 2016, we incurred substantially all of the costs related to the 2014 initiatives.
A summary of the pre-tax costs associated with the 2014 initiatives is as follows:
|
| | | | | | | | | | | |
| (Millions) | Total Program(1) | | Change in Estimate | | Recognized as of July 31, 2016 |
| Severance pay and benefits | $ | 41 |
| | $ | (4 | ) | | $ | 37 |
|
| Asset impairment | 12 |
| | — |
| | 12 |
|
| Other exit costs | 1 |
| | — |
| | 1 |
|
| Total | $ | 54 |
| | $ | (4 | ) | | $ | 50 |
|
| |
(1)
| Recognized as of August 2, 2015. |
See Note 7 to the Consolidated Financial Statements for additional information.
We completed the sale of our Kelsen business on September 23, 2019, for $322 million. We also completed the sale of the Arnott’s and other international operations on December 23, 2019, for $2.286 billion. The purchase price was subject to certain post-closing adjustments, which resulted in $4 million of additional proceeds in the third quarter of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment.
Results of discontinued operations were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| (Millions) | | | | | | 2020 | | | | |
| Net sales | | | | | | $ | 359 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Earnings before taxes from operations | | | | | | $ | 53 | | | | | |
| Taxes on earnings from operations | | | | | | 17 | | | | | |
| Gain on sales of businesses / costs associated with selling the businesses | | | | | | 1,039 | | | | | |
| Tax expense on sales / costs associated with selling the businesses | | | | | | 39 | | | | | |
| Earnings from discontinued operations | | | | | | $ | 1,036 | | | | | |
In addition, in the third quarter of 2021, we recognized a $6 million loss due to tax expense from return-to-provision adjustments related to the sale of Campbell International.
The sale of the Arnott's and other international operations resulted in a substantial capital gain for tax purposes. We were able to utilize capital losses in 2020, which were offset with valuation allowances as of July 28, 2019, to offset the capital gain.
LIQUIDITY AND CAPITAL RESOURCES
We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, includingwhich may include commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements.
We generated cash flows from operations of $1.291$1.181 billion in 2017,2022, compared to $1.491$1.035 billion in 2016.2021. The declineincrease in 20172022 was primarily due to lapping significant reductionschanges in working capital, in the prior year, as well aspartially offset by lower cash earnings and lower receipts from hedging activities in the current year.earnings.
We generated cash flows from operations of $1.491$1.035 billion in 2016,2021, compared to $1.206$1.396 billion in 2015.2020. The increasedecline in 20162021 was primarily due to higher cash earningschanges in working capital, mostly from a significant increase in accounts payable in the prior year and lower working capital requirements, primarily inventories.accrued liabilities in the current year.
Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements by reducing trade receivables and inventories while extending payment terms for accounts payables.requirements. We had negative working capital of $495 million as of July 30, 2017, and $647$923 million as of July 31, 2016. Debt2022, and $119 million as of August 1, 2021. Total debt maturing within one year was $1.037 billion as of July 30, 2017, and $1.219 billion$814 million as of July 31, 2016.2022, and $48 million as of August 1, 2021.
Capital expenditures were $338$242 million in 2017, $3412022, $275 million in 20162021 and $380$299 million in 2015.2020. Capital expenditures are expected to total approximately $400$325 million in 2018.2023. Capital expenditures in 20172022 included projects to expand: Australian multi-pack biscuit capacity (approximately $15 million); beverageimprovement of the quality and salad dressing capacity at Bolthouse Farms (approximately $8 million); and capacity at Garden Fresh (approximately $3 million); as well ascost structure of the Snyder's-Lance manufacturing network, the continued enhancementimplementation of our corporate
headquarters (approximately $11 million); replacement of a Pepperidge Farm refrigerationexisting SAP enterprise-resource planning system (approximately $12 million);for Snyder's-Lance and a U.S. warehouse optimization project (approximately $10 million).cookie and cracker capacity expansion for our Snacks business. Capital expenditures in 20162021 included the continued implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, chip capacity expansion projects, to expand: beveragea Milano cookie capacity expansion project and salad dressing capacity at Bolthouse Farms (approximately $22 million); biscuit capacity in Indonesia (approximately $11 million); warehouse capacity in North America (approximately $11 million);a Goldfish cracker capacity at Pepperidge Farm (approximately $9 million); and capacity in Malaysia (approximately $6 million); as well as the continued enhancement of our corporate headquarters (approximately $15 million) and the ongoing initiative to simplify the soup-making process in North America (also known as the soup common platform initiative) (approximately $5 million).expansion project. Capital expenditures in 20152020 included implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, a Milano cookie capacity expansion project, chip capacity expansion projects to expand:and a Goldfish cracker capacity at Pepperidge Farm (approximately $36 million); beverageexpansion project.
In Snacks, we have a direct-store-delivery distribution model that uses independent contractor distributors. In order to maintain and salad dressing capacity at Bolthouse Farms (approximately $33 million); warehouse capacity at Bolthouse Farms (approximately $13 million); biscuit capacityexpand this model, we routinely purchase and sell routes. The purchase and sale proceeds of the routes are reflected in Indonesia (approximately $13 million); and aseptic broth capacity (approximately $6 million); as well asinvesting activities.
We completed the ongoing soup common platform initiative in North America (approximately $30 million); and continued enhancementsale of our corporate headquarters (approximately $12 million).
Kelsen business on September 23, 2019, for $322 million. On June 29, 2015,September 30, 2019, we repaid $399 million of our senior unsecured term loan facility using net proceeds from the Kelsen sale and the issuance of commercial paper. In addition, on October 11, 2019, we completed the acquisitionsale of our European chips business for £63 million, or $77 million.
We completed the sale of the assets of Garden Fresh Gourmet.Arnott’s and other international operations on December 23, 2019, for $2.286 billion. The purchase price was $232 million, and was funded through the issuance of commercial paper.
On July 6, 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. (Pacific Foods) for $700 million, subject to customary purchase pricecertain post-closing adjustments, relatedwhich resulted in $4 million of additional proceeds in the third quarter of 2020. We used the net proceeds from the sale to reduce our debt through a series of actions. On December 31, 2019, we repaid the $100 million outstanding balance on our senior unsecured term loan facility. On January 22, 2020, we completed the redemption of all $500 million outstanding aggregate principal amount of Pacific Foods' cash,our 4.25% Senior Notes due 2021. On January 24, 2020, we settled tender offers to purchase $1.2 billion in aggregate principal amount of certain unsecured debt, working capital and transaction expenses. We expect to fund the acquisition through debt. The closing of the transaction is subject to customary closing conditions and termination rights. The agreement provides that if we fail to close the transaction when all conditions to closing have been satisfied or if we are in breach of the agreement, we will be required to pay Pacific Foods a $50 million termination fee. On August 21, 2017, the estate of aformer Pacific Foodsshareholder, Edward C. Lynch, filed a lawsuit against Pacific Foods and certain of its directors, among others, seeking in excess of $250 million in damages. Because of the impediment that the lawsuit creates to closing, on September 27, 2017, we noticed Pacific Foodsthat it has 60 days under the terms of the agreement to resolve the issues arising from thesuit if the transaction is to close. After the 60-day period, we may in our sole discretion extend the cure period or terminate the agreement. We do not believe a termination of the agreement under these circumstances will result in any termination fee payable by us. For additional information on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017.
In June 2017, we sold intercompany notes to a financial institution, including an AUD $280 million, or $224 million, note with an interest rate of 4.88% that matures on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest rate of 6.98% that matures on March 29, 2021, but is payable upon demand. Interest on both notes is due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes.
In March 2015, we issued $300comprising $329 million of 3.30% notes that mature on March 19, 2025.Senior Notes due 2021, $634 million of 3.65% Senior Notes due 2023, and $237 million of 3.80% Senior Notes due 2043. Except for the $237 million of 3.80% Senior Notes due 2043, the Senior Notes settled under the tender offer were issued in connection with our acquisition of Snyder’s-Lance. The consideration for the redemption and the tender offers was $1.765 billion, including $65 million of premium. We recognized a loss of $75 million (including $65 million
of premium, fees and other costs paid with the tender offers and unamortized debt issuance costs), which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the purchased notes is due semi-annually on March 19 and September 19, commencing on September 19, 2015.through the dates of settlement. The notes may be redeemed in whole, or in part, at our option at any time atnet divestiture proceeds remaining after these debt reduction activities were used to reduce commercial paper borrowings.
On May 3, 2021, we completed the applicable redemption price. In certain circumstances, we may be required to repurchase some or all of the notes upon a change in controlsale of our companyPlum baby food and a downgrade of the notes below investment grade. The net proceeds were usedsnacks business for general corporate purposes.$101 million.
Dividend payments were $420 million in 2017, $390 million in 2016 and $394$451 million in 2015.2022, $439 million in 2021 and $426 million in 2020. Annual dividends declared were $1.48 per share in 2022, $1.46 per share in 2021 and $1.40 per share in 2017, and $1.248 per share in 2016 and 2015.2020. The 20172022 fourth quarter dividend was $.35$.37 per share. The declaration of dividends is subject to the discretion of our Board and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board deems relevant to its analysis and decision making.
WeIn June 2021, the Board authorized an anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs. The June 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the anti-dilutive program may be made in open-market or privately negotiated transactions. In September 2021, the Board approved a strategic share repurchase program of up to $500 million (September 2021 program). The September 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions. In 2022, we repurchased approximately 83.8 million shares at a cost of $437$167 million. Of this amount, $42 million in 2017,was used to repurchase shares pursuant to our June 2021 program and $125 million was used to repurchase share pursuant to our September 2021 program. As of July 31, 2022, approximately 3$172 million remained available under the June 2021 program and approximately $375 million remained under the September 2021 program. In 2021, we repurchased approximately 1 million shares at a cost of $143 million in 2016, and approximately 5 million shares at a cost of $244 million in 2015.$36 million. See Note 16 to the Consolidated Financial Statements and "Market for Registrant's Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities" for moreadditional information.
On March 4, 2022, we completed the redemption of all $450 million outstanding aggregate principal amount of our 2.50% Senior Notes due August 2, 2022. The consideration for the redemption was $453 million, including $3 million of premium. We recognized a loss of $4 million (including the $3 million of premium and other costs), which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the redeemed notes through the date of settlement. We used a combination of cash on hand and short-term debt to fund the redemption.
In March 2021, we repaid our 3.30% $321 million notes and floating rate $400 million notes, and in May 2021, we repaid our 8.875% $200 million notes. The repayments were funded with available cash and commercial paper issuances.
On April 24, 2020, we issued senior unsecured notes in an aggregate principal amount of $1 billion, consisting of $500 million aggregate principal amount of notes bearing interest at a fixed rate of 2.375% per annum, due April 24, 2030, and $500 million aggregate principal amount of notes bearing interest at a fixed rate of 3.125% per annum, due April 24, 2050. On May 1, 2020, we used $300 million of the net proceeds to repay $300 million of borrowings outstanding under a revolving credit facility.
As of July 30, 2017,31, 2022, we had $1.037 billion$814 million of short-term borrowings due within one year, of which $874$235 million was comprised of commercial paper borrowings. As of July 30, 2017,31, 2022, we issued $48$32 million of standby letters of credit. We haveOn November 2, 2020, we entered into a committed revolving credit facility totaling $1.85 billion scheduled to mature on November 2, 2023. On September 27, 2021, we replaced the facility with a new $1.85 billion committed revolving facility that matures in December 2021.on September 27, 2026. This U.S. facility remained unused at July 30, 2017,31, 2022, except for $1 million of standby letters of credit that we issued under it. The U.S.facility contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the credit facility) of not less than 3.25:1.00, measured quarterly, and customary events of default for credit facilities of this type. Loans under this facility will bear interest at the rates specified in the facility, which vary based on the type of loan and certain other customary conditions. The facility supports our commercial paper programsprogram and other general corporate purposes. In July 2016, we entered into a Canadian committed revolvingWe expect to continue to access the commercial paper markets, bank credit facility that matureslines and utilize cash flows from operations to support our short-term liquidity requirements.
We are in July 2019. As of July 30, 2017,compliance with the total commitment under the Canadian facility was CAD $170 million, or $137 million,covenants contained in our credit facilities and we had borrowings of CAD $162 million, or $130 million, at a rate of 2.09% under this facility. The Canadian facility supports general corporate purposes.debt securities.
In July 2017,September 2020, we filed a shelf registration statement with the Securities and Exchange Commission that registered an indeterminate amount of debt securities. Under the registration statement we may issue debt securities from time to time, depending on market conditions.
We are in compliance with the covenants contained in our revolving credit facilities and debt securities.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Obligations
The following table summarizesWe have short- and long-term material cash requirements related to our obligations and commitments to make future payments under certain contractual obligations asthat arise in the normal course of July 30, 2017. For additional informationbusiness. In addition to principal and interest payments on our outstanding debt seeobligations, our contractual obligations primarily consist of purchase commitments, lease payments and pension and postretirement benefits.
See Note 12 to the Consolidated Financial Statements. Operating leasesStatements for a summary of our principal payments for short-term borrowings and long-term debt obligations as of July 31, 2022. Interest payments for short-term borrowings and long-term debt as of July 31, 2022 are primarily entered into for warehouseapproximately as follows: $165 million in 2023; $290 million in 2024 through 2025; $220 million in 2026 through 2027; and office facilities and certain equipment. $1.2 billion from 2028 through maturity.
Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. TheseAs of July 31, 2022, purchase commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily represent payments related to deferred compensation obligations. For additional information on other long-term liabilities, seetotaled approximately $1.535 billion. Approximately $1.27 billion of these purchase commitments will be settled in the ordinary course of business in the next 12 months and the balance of $265 million from 2024 through 2027.
See Note 1910 to the Consolidated Financial Statements.Statements for a summary of our lease obligations as of July 31, 2022.
|
| | | | | | | | | | | | | | | | | | | |
| | Contractual Payments Due by Fiscal Year |
| (Millions) | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter |
Debt obligations(1) | $ | 3,548 |
| | $ | 1,037 |
| | $ | 655 |
| | $ | 701 |
| | $ | 1,155 |
|
Interest payments(2) | 710 |
| | 113 |
| | 164 |
| | 101 |
| | 332 |
|
Derivative payments(3) | 44 |
| | 43 |
| | 1 |
| | — |
| | — |
|
| Purchase commitments | 1,125 |
| | 813 |
| | 211 |
| | 66 |
| | 35 |
|
| Operating leases | 163 |
| | 38 |
| | 64 |
| | 40 |
| | 21 |
|
Other long-term payments(4) | 145 |
| | — |
| | 58 |
| | 32 |
| | 55 |
|
| Total long-term cash obligations | $ | 5,735 |
| | $ | 2,044 |
| | $ | 1,153 |
| | $ | 940 |
| | $ | 1,598 |
|
| |
(1)
| Excludes unamortized net discount/premium on debt issuances and debt issuance costs. For additional information on debt obligations, see Note 12 to the Consolidated Financial Statements. |
| |
(2)
| Interest payments for short- and long-term borrowings are based on principal amounts and coupons or contractual rates at fiscal year end. |
| |
(3)
| Represents paymentsAs of foreign exchange forward contracts, commodity contracts and forward starting interest rate swaps. |
| |
(4)
| Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to pension plans. For additional information on pension and postretirement benefits, see Note 10 to the Consolidated Financial Statements. For additional information on unrecognized tax benefits, see Note 11 to the Consolidated Financial Statements. |
In July 2017,31, 2022, we entered into an agreement to acquire Pacific Foods for $700recognized a pension liability of $120 million and a postretirement benefit obligation of $172 million. For additional informationAs of July 31, 2022, we also recognized a pension asset of $146 million based on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017, andfunded status of certain plans. See Note 39 to the Consolidated Financial Statements.Statements and "Significant Accounting Estimates"for further discussion of our pension and postretirement benefit obligations.
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 2,0004,800 bank loans made to Pepperidge Farm independent contractor distributors by third-party financial institutions used tofor the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $204 million.$500 million as of July 31, 2022. Our guarantees are indirectly secured by the distribution routes. We do not believe that it is probableexpect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed. See also Note 18 to the Consolidated Financial Statements for information on off-balance sheet arrangements.
INFLATION
We are exposed to theThese obligations and commitments impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects of cost inflation including increasing prices, commodity hedging and pursuing cost productivity initiatives such as global procurement strategiesliquidity and capital investmentsresource needs. We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, which may include commercial paper; credit facilities; and cash and cash equivalents. We believe that improve the efficiencyour sources of operations.financing will be adequate to meet our future requirements.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. International operations, which accounted for 19% of 2017 net sales, are concentrated principally in Australia and Canada. We manage our foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps and foreign exchange forward contracts. We enter into cross-currency swaps and foreign exchange forward contracts for periods consistent with related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposesmanage our exposure to changes in interest rates by optimizing the use of variable-rate and do not use leveraged instruments.
fixed-rate debt and we may utilize interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, natural gas,aluminum, cocoa, aluminum, butter, corn, soybean meal and cheese, which impact the cost of raw materials.butter. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments.
The information below summarizes our market risks associated with debt obligations and other significant financial instruments as of July 30, 2017.31, 2022. Fair values included herein have been determined based on quoted market prices or pricing models using current market rates. The information presented below should be read in conjunction with Notes 12, 13 and 15 to the Consolidated Financial Statements.
The following table presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations. Interest rates disclosed on variable-rate debt represent the weighted-average rates at July 30, 2017. Notional amounts and related interest rates of interest rate swaps are presented by fiscal year of maturity. For the swaps, variable rates are the weighted-average forward rates for the term of each contract.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Fiscal Year of Maturity | | | | Fair Value of Liabilities |
| (Millions) | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | |
Debt(1) | | | | | | | | | | | | | | | |
Fixed rate(2) | $ | 153 |
| | $ | 524 |
| | $ | 1 |
| | $ | 700 |
| | $ | 1 |
| | $ | 1,155 |
| | $ | 2,534 |
| | $ | 2,620 |
|
| Weighted-average interest rate | 6.97 | % | | 4.66 | % | | 5.00 | % | | 5.57 | % | | 5.00 | % | | 3.17 | % | | 4.37 | % | | |
Variable rate(3) | $ | 884 |
| | $ | 130 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,014 |
| | $ | 1,015 |
|
| Weighted-average interest rate | 1.34 | % | | 2.09 | % | | — | % | | — | % | | — | % | | — | % | | 1.44 | % | | |
| Interest Rate Swaps | | | | | | | | | | | | | | | |
| Cash-flow swaps | | | | | | | | | | | | | | | |
| Variable to fixed | $ | 300 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300 |
| | $ | 22 |
|
| Average pay rate | 3.09 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 3.09 | % | | |
| Average receive rate | 2.27 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 2.27 | % | | |
| |
(1)
| Expected maturities exclude unamortized net discount/premium on debt issuances and debt issuance costs. |
| |
(2)
| Represents $2.150 billion of USD borrowings, $376 million equivalent of AUD borrowings and $8 million equivalent of borrowings in other currencies. |
| |
(3)
| Represents $874 million of USD borrowings, $130 million equivalent of CAD borrowings and $10 million equivalent of borrowings in other currencies. |
As of July 31, 2016, fixed-rate debt of approximately $2.56 billion with an average interest rate of 3.97% and variable-rate debt of approximately $991 million with an average interest rate of 1.02% were outstanding. As of July 31, 2016, forward starting interest rate swaps with a notional amount of $300 million were outstanding. The average rate to be received on these swaps was 1.47%, and the average rate to be paid was estimated to be 3.09% over the remaining life of the swaps.
We are exposed to foreign currency exchange risk, primarily the Canadian dollar, related to our international operations, including non-functional currencythird-party transactions and intercompany debt and net investments in subsidiaries.
We did not have any cross-currency swap contracts outstanding as of July 30, 2017, or July 31, 2016.
We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary debt.transactions. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The following table summarizesnotional amounts of the foreign exchange forward contracts outstanding and the related weighted-average contract exchange rates as of July 30, 2017.
|
| | | | | |
| (Millions) | Notional Value | | Average Contractual Exchange Rate (currency paid/ currency received) |
| Foreign Exchange Forward Contracts | |
| Receive USD/Pay AUD | $ | 192 |
| | 1.3292 |
| Receive USD/Pay CAD | $ | 150 |
| | 1.3167 |
| Receive AUD/Pay NZD | $ | 35 |
| | 1.0556 |
| Receive DKK/Pay USD | $ | 31 |
| | 0.1482 |
We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $1231, 2022, and August 1, 2021, were $153 million as of July 30, 2017.and $147 million, respectively. The aggregate fair value of all contracts was a lossgain of $18 million as of July 30, 2017. The total notional value of foreign exchange forward contracts outstanding was $266 million, and the aggregate fair value was a loss of $10$2 million as of July 31, 2016.2022, and a loss of $2 million as of August 1, 2021. A hypothetical 10% fluctuation in exchange rates would impact the fair value of our outstanding foreign exchange contracts by $17 million as of July 31, 2022, and as of August 1, 2021, which would generally be offset by inverse changes on the underlying hedged items.
As of July 31, 2022, we had outstanding variable-rate debt of $235 million with an average interest rate of 2.63%. As of August 1, 2021, we had outstanding variable-rate debt of $37 million with an average interest rate of 0.22%. A hypothetical
100-basis-point increase in average interest rates applied to our variable-rate debt balances throughout 2022 and 2021 would have increased annual interest expense in those years by approximately $1 million and $3 million, respectively.
As of July 31, 2022, we had outstanding fixed-rate debt of $4.609 billion with a weighted average interest rate of 3.76%. As of August 1, 2021, we had outstanding fixed-rate debt of $5.059 billion with an average interest rate of 3.65%. The fair value of fixed-rate debt was $4.402 billion as of July 31, 2022 and $5.576 billion as of August 1, 2021. As of July 31, 2022, and August 1, 2021, a hypothetical 100-basis-point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $274 million and $399 million, respectively, while a hypothetical 100-basis-point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $318 million and $463 million, respectively. The impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.
We enter into commodity futures, options and swap contracts, and a supply contract under which prices for certain raw materials are established based on anticipated volume requirements to reduce the volatility of price fluctuations for commodities. TheAs of July 31, 2022, the total notional valueamount of thesethe contracts was $90 million, and the aggregate fair value of these contracts was a gain of $5 million as of July 30, 2017. The notional value of these contracts was $88$296 million, and the aggregate fair value of these contracts was a loss of $1$7 million. As of August 1, 2021, the total notional amount of these contracts was $246 million, and the aggregate fair value of these contracts was a gain of $53 million. A hypothetical 10% fluctuation in commodity prices would impact the fair value of our outstanding commodity contracts by approximately $30 million as of July 31, 2016.2022, and as of August 1, 2021, which would generally be offset by inverse changes on the underlying hedged items.
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return ofVanguard Extended Market Index Plus Fund, the Vanguard Institutional Index andInstitutional Plus Fund, the total return ofVanguard Short-Term Bond Index Fund and the Vanguard Total International Stock Index. Under theseIndex Fund. Prior to 2022, we had entered into swap contracts we pay variable interest rates and receive from the counterparty either: the total return on our capital stock; the total returnwhich hedged a portion of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. The notional value of the contract that is linked to the total return on our capital stock was $9 million at July 30, 2017, and $15 million at July 31, 2016. The average forward interest rate applicable to this contract, which expires in April 2018, was 1.82% at July 30, 2017. The notional value of the contract that is linked to the return on the Standard & Poor's 500 Index was $26 million at July 30, 2017, and $22 million at July 31, 2016. The average forward interest rate applicable to this contract, which expires in March 2018, was 1.66% at July 30, 2017. The notional value of the contract that isexposures linked to the total return of the iShares MSCI EAFE Index was $8 million at July 30, 2017, and $7 million atour capital stock. As of July 31, 2016.2022, and August 1, 2021, we no longer hedge our exposure linked to the total return of our capital stock. The average forward interest rate applicable to this contract, which expires in March 2018,notional amount of the contracts was 1.41% at$50 million as of July 30, 2017.31, 2022, and $29 million as of August 1, 2021. The fair value of these contracts was not material at July 30, 2017, anda loss of $4 million as of July 31, 2016.2022, and a gain of $3 million as of August 1, 2021. A hypothetical 10% fluctuation in equity price changes would impact the fair value of our outstanding swap contracts by $5 million as of July 31, 2022, and $3 million as of August 1, 2021, which would generally be offset by inverse changes on the underlying hedged items.
Our utilization of financial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances, market effects on debt and foreign currency, and our acquisition and divestiture activities.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions:
Trade and consumer promotion programs — We offer various sales incentive programs to customers and consumers, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupons. The mix between promotion programs,these forms of variable consideration, which are classified as reductions in revenue and recognized upon sale, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, and such fluctuations have an impact on revenues.plans. The measurement and recognition of the costs for trade and consumer promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors.factors, including expected volume. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized as a change in estimate in a subsequent period. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates. Accrued trade and consumer promotion liabilities as of July 31, 2022 and August 1, 2021 were $141 million and $121 million, respectively.
Valuation of long-lived assets — Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually in the fourth quarter for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable.
Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average costcosts of capital and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the FASB issued revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption
permitted. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, anAn impairment charge will be recorded to reduce the reporting unit to fair value. Prior to the revised guidance,is recognized for the amount of the impairment was the difference betweenby which the carrying value of the goodwill and the "implied"reporting unit exceeds fair value, which was calculated as iflimited to the amount of goodwill in the reporting unit had just been acquired and accounted for as a business combination.unit.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined using a relief from royalty valuation method based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costcosts of capital and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value.
InAs of July 31, 2022, the fourth quartercarrying value of 2015, as partgoodwill was $3.979 billion. Based on our assessments, all of our annual reviewreporting units had fair values that significantly exceeded carrying values.
As of intangible assets, we recognizedJuly 31, 2022, the carrying value of indefinite-lived trademarks was $2.549 billion as detailed below:
| | | | | | | |
| (Millions) | | | |
| Snyder's of Hanover | $ | 620 | | | |
| Lance | 350 | | | |
| Kettle Brand | 318 | | | |
| Pace | 292 | | | |
| Pacific Foods | 280 | | | |
Various other Snacks(1) | 689 | | | |
| Total | $ | 2,549 | | | |
(1)Associated with the acquisition of Snyder's-Lance.
As of the 2022 impairment testing, indefinite-lived trademarks with 10% or less of excess coverage of fair value over carrying value had an aggregate carrying value of $434 million and included Pacific Foods andcertain other Snacks trademarks. Although assumptions are generally interdependent and do not change in isolation, sensitivities to changes are provided below. Holding all other assumptions in our 2022 impairment charge of $6 million on minor trademarks usedtesting constant, changes in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as a result of a decrease in theassumptions below would reduce fair value of trademarks and result in impairment charges of approximately:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Snyder's of Hanover | | Lance | | Kettle Brand | | Pace | | Pacific Foods | | Various Other Snacks | | |
| 1% increase in the weighted-average cost of capital | | $ | — | | | $ | — | | | $ | (15) | | | $ | — | | | $ | (30) | | | $ | (25) | | | |
| 1% reduction in revenue growth | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (5) | | | $ | (15) | | | |
| 1% decrease in royalty rate | | $ | — | | | $ | — | | | $ | (5) | | | $ | — | | | $ | (30) | | | $ | (60) | | | |
While the brands, resulting from reduced expectations for future sales and discounted cash flows.
In1% changes in assumptions would not result in impairment charges on certain trademarks as indicated above, some changes would reduce the fourth quarterexcess coverage of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106 million on goodwill and $35 million on a trademark within the Bolthouse Farms carrot and carrot ingredients reporting unit, which is included in the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in responsefair value over carrying value to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second half of the year. The impairment was attributable to a decline in profitability in the second half of 2016 and a revised outlookless than 10% for the business, with reduced expectations for sales, operating margins,Lance and discounted cash flows.
During the second quarter of 2017, sales and operating profit performance for Bolthouse Farms carrot and carrot ingredients were well below our revised expectations due to difficulty with regaining market share lost during 2016 and higher carrot costs from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and earnings for the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing effect of unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of current-year performance and the strategic review, we lowered our sales outlook for future fiscal years.We also lowered our average margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance in the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment as of December 31, 2016, which resulted in a $127 million impairment charge on goodwill and $20 million on a trademark in the reporting unit. The updated cash flow projections include expectations that operating margins will improve from reduced levels in 2016 and 2017. We performed our annual review of intangible assets in the fourth quarter. Our long-term outlook for the business is consistent with the second quarter assessment. We will continue to monitor the performance of the business.
We acquired Garden Fresh Gourmet on June 29, 2015. During 2017, sales and operating profit performance for Garden Fresh Gourmet, which is a reporting unit within the Campbell Fresh segment, were well below expectations, and we lowered our outlook for the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore, future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment as of December 31, 2016, which resulted in a $64 million impairment charge on goodwill and $1 million on a trademark in the reporting unit. The updated cash flow projections include expectations that we will build distribution in the U.S., operating margins will expand partly driven by the benefits from further integration, and sales growth rates will exceed the company's overall sales growth rates. We performed our annual review of intangible assets in the fourth quarter. Our long-term outlook for the business is consistent with the second quarter assessment. We will continue to monitor the performance of the business.
During the third quarter of 2017, we reduced our expectations for 2017 Bolthouse Farms refrigerated beverages and salad dressings sales performance, principally due to constrained production capacity related to the voluntary recall of Bolthouse Farms Protein PLUS drinks in the fourth quarter of 2016. Consistent with the strategic review conducted during the second quarter, we expect that the rate of future sales growth will be above the company's overall sales growth but from a lower base in 2017. We continue to focus on improving profitability by pursuing various supply chain initiatives. While we did not believe that an interim impairment assessment was required, we performed a sensitivity analysis for the Bolthouse Farms refrigerated beverages and salad dressings trademark and goodwill as of the third quarter. We concluded that the trademark and reporting unit had risk of decreasing coverage. We performed our annual review of intangible assets in the fourth quarter, which indicated the fair value of the reporting unit and the trademark exceeded the respective carrying values by less than 10%. The carrying value of the goodwill in the reporting unit was $384 million at July 30, 2017. The carrying value of the trademark related to the Bolthouse Farms
refrigerated beverages and salad dressings reporting unit was $280 million at July 30, 2017. We will continue to monitor the performance of the business.Pace trademarks.
The estimates of future cash flows used in impairment testing are made at a point in time, involve considerable management judgment, and are based upon assumptions about expected future operating performance, assumed royalty rates, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions.
As of July 30, 2017, the carrying value of goodwill was $2.115 billion, of which $75 million related to the Bolthouse Farms carrot and carrot ingredients reporting unit and $52 million related to the Garden Fresh Gourmet reporting unit, each of which approximates fair value as a result of the impairment charges in 2017. Goodwill related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit was $384 million as of July 30, 2017. For the reporting units which comprised substantially all of the remaining goodwill, the estimated fair value of each reporting unit exceeded the carrying value by at least 30% as of the 2017 measurement. Excluding the Bolthouse Farms carrot and carrot ingredients reporting unit, the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, and the Garden Fresh Gourmet reporting unit, holding all other assumptions used in the 2017 fair value measurement constant, a 1% increase in the weighted-average cost of capital assumption for our other reporting units would not result in any material impairment.
Holding all other assumptions used in the 2017 fair value measurement constant, changes in the assumptions below would reduce fair value of the three reporting units and result in impairment charges of approximately:
|
| | | | | | | | | | | | |
| (Millions) | | Bolthouse Farms Carrot and Carrot Ingredients | | Bolthouse Farms Refrigerated Beverages and Salad Dressings | | Garden Fresh Gourmet |
| 1% increase in the weighted-average cost of capital | | $ | (50 | ) | | $ | (110 | ) | | $ | (25 | ) |
| 1% reduction in revenue growth | | $ | (25 | ) | | $ | (30 | ) | | $ | (10 | ) |
1% reduction in EBITDA* margin | | $ | (40 | ) | | $ | (20 | ) | | $ | (5 | ) |
| |
*
| Earnings before interest, taxes, depreciation and amortization. |
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
As of July 30, 2017, We will continue to monitor the carrying value of indefinite-lived trademarks was $912 million, of which $48 million related to the Bolthouse Farms carrot and carrot ingredients reporting unit, $280 million related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, and $37 million related to the Garden Fresh Gourmet reporting unit. Holding all other assumptions used in the 2017 fair value measurement constant, changes in the weighted-average cost of capital assumption would reduce fair value of the trademarks and result in impairment charges of approximately:
|
| | | | | | | | | | | | |
| (Millions) | | Bolthouse Farms Carrot and Carrot Ingredients | | Bolthouse Farms Refrigerated Beverages and Salad Dressings | | Garden Fresh Gourmet |
| 1% increase in the weighted-average cost of capital | | $ | (5 | ) | | $ | (30 | ) | | $ | (5 | ) |
Holding all other assumptions used in the 2017 fair value measurement constant, a 1% reduction in the revenue growth assumption would not result in any material impairment on these trademarks.
The carrying value of the Pace trademark was $292 million as of July 30, 2017, and the estimated fair value exceeded the carrying value by less than 10%. Holding all other assumptions used in the 2017 fair value measurement of the Pace trademark constant, a 1% increase in the weighted-average cost of capital assumption would result in an impairment charge of approximately $30 million, and a 1% reduction in the revenue growth assumption would result in an impairment charge of approximately $10 million.
For allvaluation of our other trademarks, holding all other assumptions used in the 2017 fair value measurement constant, neither a 1% increase in the weighted-average cost of capital assumption nor a 1% reduction in the revenue growth assumption would result in any material impairment.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.long-lived assets.
See also Note 5 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted in the United States, perform the required calculations to determine expense. Actuarial gains and losses are recognized immediately in Other expenses / (income) in the Consolidated Statements of
The discount rate is established
Earnings as of the measurement date, which is our fiscal year-end measurement date. year end, or more frequently if an interim remeasurement is required. We use the fair value of plan assets to calculate the expected return on plan assets.
In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. Beginning in 2018, we will change the method we use to estimate the service and interest cost components of the net periodic benefit expense. We will use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation of the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. This change will not affect the measurement of our benefit obligations. We will account for this change prospectively in 2018 as a change in accounting estimate.
The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class and a premium for active management. Within any given fiscal period, significant differences may arise between the actual return and the expected return on plan assets. Gains and losses resulting from differences between actual experience and the assumptions are determined at each measurement date.
As of July 31, 2022, we recognized a pension liability of $120 million and a postretirement benefit obligation of $172 million. As of July 31, 2022, we also recognized a pension asset of $146 million based on the funded status of certain plans.
Net periodic pension and postretirement benefit expense (income) was $(258)and actuarial losses (gains) included within net periodic pension and benefit expense (income) were as follows:
| | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Total net periodic pension and postretirement benefit expense (income) | $ | (7) | | | $ | (267) | | | $ | 93 | |
| Actuarial losses (gains) | $ | 44 | | | $ | (203) | | | $ | 164 | |
The actuarial losses recognized in 2022 were primarily due to losses on plan assets, partially offset by increases in discount rates used to determine the benefit obligation. The actuarial gains recognized in 2021 were primarily due to higher than anticipated investment gains on plan assets and increases in discount rates used to determine the benefit obligation. The actuarial losses recognized in 2020 were primarily due to decreases in discount rates used to determine the benefit obligation, partially offset by higher than anticipated investment gains on plan assets.
Based on benefit obligations and plan assets as of July 31, 2022, net periodic pension and postretirement benefit income excluding any actuarial losses or gains is estimated to be approximately $35 million lower in 2017, $317 million2023, subject to the impact of interim remeasurements. The decrease in 20162023 is due to increases in discount rates used to determine the benefit obligations and $125 milliona decline in 2015.the market value of plan assets.
Significant weighted-average assumptions as of the end of the year were as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Pension | | | | | |
| Discount rate for benefit obligations | 4.58% | | 2.69% | | 2.47% |
| Expected return on plan assets | 6.40% | | 5.82% | | 6.01% |
| Postretirement | | | | | |
| Discount rate for obligations | 4.48% | | 2.37% | | 2.15% |
| | | | | |
| | | | | |
|
| | | | | |
| | 2017 | | 2016 | | 2015 |
| Pension | | | | | |
| Discount rate for benefit obligations | 3.74% | | 3.39% | | 4.19% |
| Expected return on plan assets | 6.84% | | 7.09% | | 7.35% |
| Postretirement | | | | | |
| Discount rate for obligations | 3.45% | | 3.20% | | 4.00% |
| Initial health care trend rate | 7.25% | | 7.25% | | 7.75% |
| Ultimate health care trend rate | 4.50% | | 4.50% | | 4.50% |
EstimatedBased on benefit obligations and plan assets as of July 31, 2022, estimated sensitivities to 2023 annual net periodic pension and postretirement cost are as follows:
•a 50-basis-point increase in the discount rate would result in expense of approximately $6 million and would result in an immediate actuarial gain recognition of approximately $69 million;
•a 50-basis-point decline in the discount rate would decrease expense byresult in income of approximately $7$6 million and would result in an immediate actuarial loss recognition of approximately $135 million. A$76 million; and
•a 50-basis-point reduction in the estimated return on assets assumption would increase expense by approximately $11 million. A one-percentage-point increase in assumed health care costs would have no impact on postretirement service and interest cost and would result in an immediate loss recognitionexpense of $3approximately $8 million.
NoThere were no contributions were made to U.S. pension plans in 2017, 20162022, and 2015. Contributions to non-U.S. plans were $5 million in 2017, $2 million in 20162021 and $5 million in 2015. We do not expect2020. Contributions to contribute to the U.S. pension plans in 2018. Contributions to non-U.S. plans are not expected to be approximately $5 millionmaterial in 2018.2023.
See also Note 109 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes — The effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Income taxes are recorded based on amounts refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.
See also Notes 1 and 11 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "will,"intend," "goal,"plan," "pursue," "strategy," "target," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties.
We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A and elsewhere in this Report, or in our other Securities and Exchange Commission filings, could affect our actual results and could cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:
changes•impacts of, and associated responses to the COVID-19 pandemic on our business, suppliers, customers, consumers and employees;
•our ability to execute on and realize the expected benefits from our strategy, including growing sales in consumer demand forsnacks and growing/maintaining our productsmarket share position in soup;
•the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and favorable perception of our brands;new advertising;
•the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
•our ability to realize projected cost savings and benefits from cost savings initiatives and the impactintegration of strong competitive responserecent acquisitions;
•disruptions in or inefficiencies to our effortssupply chain and/or operations including the impacts of the COVID-19 pandemic;
•the risks related to leveragethe availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;
•risks related to the effectiveness of our brand power with product innovation, promotional programshedging activities and new advertising;our ability to respond to volatility in commodity prices;
•our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;
•changes in consumer demand for our products and favorable perception of our brands;
•changing inventory management practices by certain of our key customers;
•a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers continue to increase theirmaintain significance to our business;
our ability to realize projected cost savings and benefits from our efficiency and/or restructuring initiatives;
our ability to manage changes to our organizational structure and/or business processes, including our selling, distribution, manufacturing and information management systems or processes;
•product quality and safety issues, including recalls and product liabilities;
the ability to complete and to realize the projected benefits of acquisitions, divestitures and other business portfolio changes;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost;
the uncertainties of litigation and regulatory actions against us;
•the possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification;
•the impactuncertainties of non-U.S. operations,litigation and regulatory actions against us;
•the costs, disruption and diversion of management's attention associated with activist investors;
•a disruption, failure or security breach of our or our vendors' information technology systems, including export and import restrictions, public corruption and compliance with foreign laws and regulations;ransomware attacks;
•impairment to goodwill or other intangible assets;
•our ability to protect our intellectual property rights;
•increased liabilities and costs related to our defined benefit pension plans;
a material failure in or breach of our information technology systems;
•our ability to attract and retain key talent;
•goals and initiatives related to, and the impacts of, climate change, including from weather-related events;
•negative changes and volatility in currency exchange rates, tax rates, interest rates, debtfinancial and equitycredit markets, inflation rates,deteriorating economic conditions law, regulation and other external factors;factors, including changes in laws and regulations; and
•unforeseen business disruptions in one or more of our marketsother impacts due to political instability, civil disobedience, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), extreme weather conditions, natural disasters, other pandemics or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Sensitivity" is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | 2020 |
| | 52 weeks | | 52 weeks | | 53 weeks |
| Net sales | | $ | 8,562 | | | $ | 8,476 | | | $ | 8,691 | |
| Costs and expenses | | | | | | |
| Cost of products sold | | 5,935 | | | 5,665 | | | 5,692 | |
| Marketing and selling expenses | | 734 | | | 817 | | | 947 | |
| Administrative expenses | | 617 | | | 598 | | | 622 | |
| Research and development expenses | | 87 | | | 84 | | | 93 | |
| Other expenses / (income) | | 21 | | | (254) | | | 221 | |
| Restructuring charges | | 5 | | | 21 | | | 9 | |
| Total costs and expenses | | 7,399 | | | 6,931 | | | 7,584 | |
| Earnings before interest and taxes | | 1,163 | | | 1,545 | | | 1,107 | |
| Interest expense | | 189 | | | 210 | | | 345 | |
| Interest income | | 1 | | | 1 | | | 4 | |
| Earnings before taxes | | 975 | | | 1,336 | | | 766 | |
| Taxes on earnings | | 218 | | | 328 | | | 174 | |
| Earnings from continuing operations | | 757 | | | 1,008 | | | 592 | |
| Earnings (loss) from discontinued operations | | — | | | (6) | | | 1,036 | |
| Net earnings | | 757 | | | 1,002 | | | 1,628 | |
| Less: Net earnings (loss) attributable to noncontrolling interests | | — | | | — | | | — | |
| Net earnings attributable to Campbell Soup Company | | $ | 757 | | | $ | 1,002 | | | $ | 1,628 | |
| Per Share — Basic | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | | $ | 2.51 | | | $ | 3.33 | | | $ | 1.96 | |
| Earnings (loss) from discontinued operations | | — | | | (.02) | | | 3.43 | |
| Net earnings attributable to Campbell Soup Company | | $ | 2.51 | | | $ | 3.31 | | | $ | 5.39 | |
| | | | | | |
| Weighted average shares outstanding — basic | | 301 | | | 303 | | | 302 | |
| Per Share — Assuming Dilution | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | | $ | 2.51 | | | $ | 3.30 | | | $ | 1.95 | |
| Earnings (loss) from discontinued operations | | — | | | (.02) | | | 3.41 | |
Net earnings attributable to Campbell Soup Company(1) | | $ | 2.51 | | | $ | 3.29 | | | $ | 5.36 | |
| Weighted average shares outstanding — assuming dilution | | 302 | | | 305 | | | 304 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net sales | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
|
| Costs and expenses | | | | | |
| Cost of products sold | 4,831 |
| | 5,181 |
| | 5,300 |
|
| Marketing and selling expenses | 817 |
| | 893 |
| | 884 |
|
| Administrative expenses | 488 |
| | 641 |
| | 601 |
|
| Research and development expenses | 98 |
| | 124 |
| | 117 |
|
| Other expenses / (income) | 238 |
| | 131 |
| | 24 |
|
| Restructuring charges | 18 |
| | 31 |
| | 102 |
|
| Total costs and expenses | 6,490 |
| | 7,001 |
| | 7,028 |
|
| Earnings before interest and taxes | 1,400 |
| | 960 |
| | 1,054 |
|
| Interest expense | 112 |
| | 115 |
| | 108 |
|
| Interest income | 5 |
| | 4 |
| | 3 |
|
| Earnings before taxes | 1,293 |
| | 849 |
| | 949 |
|
| Taxes on earnings | 406 |
| | 286 |
| | 283 |
|
| Net earnings | 887 |
| | 563 |
| | 666 |
|
| Less: Net earnings (loss) attributable to noncontrolling interests | — |
| | — |
| | — |
|
| Net earnings attributable to Campbell Soup Company | $ | 887 |
| | $ | 563 |
| | $ | 666 |
|
| Per Share — Basic | | | | | |
| Net earnings attributable to Campbell Soup Company | $ | 2.91 |
| | $ | 1.82 |
| | $ | 2.13 |
|
| Weighted average shares outstanding — basic | 305 |
| | 309 |
| | 312 |
|
| Per Share — Assuming Dilution | | | | | |
| Net earnings attributable to Campbell Soup Company | $ | 2.89 |
| | $ | 1.81 |
| | $ | 2.13 |
|
| Weighted average shares outstanding — assuming dilution | 307 |
| | 311 |
| | 313 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
| Net earnings | | | | | $ | 887 |
| | | | | | $ | 563 |
| | | | | | $ | 666 |
|
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
| Foreign currency translation: | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | 40 |
| | $ | — |
| | 40 |
| | $ | 45 |
| | $ | — |
| | 45 |
| | $ | (312 | ) | | $ | 1 |
| | (311 | ) |
| Cash-flow hedges: | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) arising during period | 19 |
| | (7 | ) | | 12 |
| | (45 | ) | | 16 |
| | (29 | ) | | (5 | ) | | 3 |
| | (2 | ) |
| Reclassification adjustment for (gains) losses included in net earnings | 11 |
| | (4 | ) | | 7 |
| | (9 | ) | | 2 |
| | (7 | ) | | (1 | ) | | 1 |
| | — |
|
| Pension and other postretirement benefits: | | | | | | | | | | | | | | | | | |
| Prior service credit arising during the period | 12 |
| | (4 | ) | | 8 |
| | 93 |
| | (34 | ) | | 59 |
| | — |
| | — |
| | — |
|
| Reclassification of prior service credit included in net earnings | (25 | ) | | 9 |
| | (16 | ) | | (1 | ) | | — |
| | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) |
| Other comprehensive income (loss) | $ | 57 |
| | $ | (6 | ) | | 51 |
| | $ | 83 |
| | $ | (16 | ) | | 67 |
| | $ | (320 | ) | | $ | 6 |
| | (314 | ) |
| Total comprehensive income (loss) | | | | | $ | 938 |
| | | | | | $ | 630 |
| | | | | | $ | 352 |
|
| Total comprehensive income (loss) attributable to noncontrolling interests | | | | | — |
| | | | | | 3 |
| | | | | | (1 | ) |
| Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 938 |
| | | | | | $ | 627 |
| | | | | | $ | 353 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts)
|
| | | | | | | |
| | July 30,
2017 | | July 31,
2016 |
| Current assets | | | |
| Cash and cash equivalents | $ | 319 |
| | $ | 296 |
|
| Accounts receivable, net | 605 |
| | 626 |
|
| Inventories | 902 |
| | 940 |
|
| Other current assets | 74 |
| | 46 |
|
| Total current assets | 1,900 |
| | 1,908 |
|
| Plant assets, net of depreciation | 2,454 |
| | 2,407 |
|
| Goodwill | 2,115 |
| | 2,263 |
|
| Other intangible assets, net of amortization | 1,118 |
| | 1,152 |
|
| Other assets ($51 as of 2017 and $34 as of 2016 attributable to variable interest entity) | 139 |
| | 107 |
|
| Total assets | $ | 7,726 |
| | $ | 7,837 |
|
| Current liabilities | | | |
| Short-term borrowings | $ | 1,037 |
| | $ | 1,219 |
|
| Payable to suppliers and others | 666 |
| | 610 |
|
| Accrued liabilities | 561 |
| | 604 |
|
| Dividends payable | 111 |
| | 100 |
|
| Accrued income taxes | 20 |
| | 22 |
|
| Total current liabilities | 2,395 |
| | 2,555 |
|
| Long-term debt | 2,499 |
| | 2,314 |
|
| Deferred taxes | 490 |
| | 396 |
|
| Other liabilities | 697 |
| | 1,039 |
|
| Total liabilities | 6,081 |
| | 6,304 |
|
| Commitments and contingencies |
| |
|
| Campbell Soup Company shareholders' equity | | | |
| Preferred stock; authorized 40 shares; none issued | — |
| | — |
|
| Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares | 12 |
| | 12 |
|
| Additional paid-in capital | 359 |
| | 354 |
|
| Earnings retained in the business | 2,385 |
| | 1,927 |
|
| Capital stock in treasury, at cost | (1,066 | ) | | (664 | ) |
| Accumulated other comprehensive loss | (53 | ) | | (104 | ) |
| Total Campbell Soup Company shareholders' equity | 1,637 |
| | 1,525 |
|
| Noncontrolling interests | 8 |
| | 8 |
|
| Total equity | 1,645 |
| | 1,533 |
|
| Total liabilities and equity | $ | 7,726 |
| | $ | 7,837 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| 52 weeks | | 52 weeks | | 53 weeks |
| Pre-tax amount | | Tax benefit (expense) | | After-tax amount | | Pre-tax amount | | Tax benefit (expense) | | After-tax amount | | Pre-tax amount | | Tax benefit (expense) | | After-tax amount |
| Net earnings | | | | | $ | 757 | | | | | | | $ | 1,002 | | | | | | | $ | 1,628 | |
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
| Foreign currency translation: | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | (6) | | | $ | — | | | (6) | | | $ | 12 | | | $ | — | | | 12 | | | $ | (1) | | | $ | — | | | (1) | |
| Reclassification of currency translation adjustments realized upon disposal of business | — | | | — | | | — | | | — | | | — | | | — | | | 206 | | | 4 | | | 210 | |
| Cash-flow hedges: | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) arising during period | 17 | | | (3) | | | 14 | | | (5) | | | 1 | | | (4) | | | 3 | | | (1) | | | 2 | |
| Reclassification adjustment for losses (gains) included in net earnings | (12) | | | 2 | | | (10) | | | 8 | | | (1) | | | 7 | | | — | | | — | | | — | |
| Pension and other postretirement benefits: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Reclassification of prior service credit included in net earnings | (1) | | | — | | | (1) | | | (5) | | | 1 | | | (4) | | | (28) | | | 6 | | | (22) | |
| Other comprehensive income (loss) | $ | (2) | | | $ | (1) | | | (3) | | | $ | 10 | | | $ | 1 | | | 11 | | | $ | 180 | | | $ | 9 | | | 189 | |
| Total comprehensive income (loss) | | | | | $ | 754 | | | | | | | $ | 1,013 | | | | | | | $ | 1,817 | |
| Total comprehensive income (loss) attributable to noncontrolling interests | | | | | — | | | | | | | (4) | | | | | | | 1 | |
| Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 754 | | | | | | | $ | 1,017 | | | | | | | $ | 1,816 | |
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts) | | | | | | | | | | | |
| July 31,
2022 | | August 1,
2021 |
| Current assets | | | |
| Cash and cash equivalents | $ | 109 | | | $ | 69 | |
| Accounts receivable, net | 541 | | | 595 | |
| Inventories | 1,246 | | | 933 | |
| Other current assets | 67 | | | 98 | |
| | | |
| | | |
| Total current assets | 1,963 | | | 1,695 | |
| Plant assets, net of depreciation | 2,343 | | | 2,370 | |
| Goodwill | 3,979 | | | 3,981 | |
| Other intangible assets, net of amortization | 3,198 | | | 3,239 | |
| Other assets | 409 | | | 449 | |
| | | |
| | | |
| Total assets | $ | 11,892 | | | $ | 11,734 | |
| Current liabilities | | | |
| Short-term borrowings | $ | 814 | | | $ | 48 | |
| Payable to suppliers and others | 1,334 | | | 1,070 | |
| Accrued liabilities | 621 | | | 576 | |
| Dividends payable | 114 | | | 115 | |
| Accrued income taxes | 3 | | | 5 | |
| | | |
| | | |
| Total current liabilities | 2,886 | | | 1,814 | |
| Long-term debt | 3,996 | | | 5,010 | |
| Deferred taxes | 1,074 | | | 1,051 | |
| Other liabilities | 603 | | | 705 | |
| | | |
| | | |
| Total liabilities | 8,559 | | | 8,580 | |
| Commitments and contingencies | | | |
| Campbell Soup Company shareholders' equity | | | |
| Preferred stock; authorized 40 shares; none issued | — | | | — | |
| Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares | 12 | | | 12 | |
| Additional paid-in capital | 415 | | | 414 | |
| Earnings retained in the business | 4,040 | | | 3,742 | |
| Capital stock in treasury, at cost | (1,138) | | | (1,021) | |
| Accumulated other comprehensive income (loss) | 2 | | | 5 | |
| Total Campbell Soup Company shareholders' equity | 3,331 | | | 3,152 | |
| Noncontrolling interests | 2 | | | 2 | |
| Total equity | 3,333 | | | 3,154 | |
| Total liabilities and equity | $ | 11,892 | | | $ | 11,734 | |
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(millions)
| | | | | | | | | | 2022 | | 2021 | | 2020 |
| | 2017 | | 2016 | | 2015 | | 52 weeks | | 52 weeks | | 53 weeks |
| Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | |
| Net earnings | $ | 887 |
| | $ | 563 |
| | $ | 666 |
| Net earnings | $ | 757 | | | $ | 1,002 | | | $ | 1,628 | |
| Adjustments to reconcile net earnings to operating cash flow | | | | | | Adjustments to reconcile net earnings to operating cash flow | |
| Impairment charges | 212 |
| | 141 |
| | 6 |
| |
| | Restructuring charges | 18 |
| | 31 |
| | 102 |
| Restructuring charges | 5 | | | 21 | | | 9 | |
| Stock-based compensation | 60 |
| | 64 |
| | 57 |
| Stock-based compensation | 59 | | | 64 | | | 61 | |
| | Pension and postretirement benefit expense (income) | (258 | ) | | 317 |
| | 118 |
| Pension and postretirement benefit expense (income) | (7) | | | (267) | | | 93 | |
| Depreciation and amortization | 318 |
| | 308 |
| | 303 |
| Depreciation and amortization | 337 | | | 317 | | | 328 | |
| Deferred income taxes | 93 |
| | (30 | ) | | (49 | ) | Deferred income taxes | 21 | | | 137 | | | (6) | |
| Other, net | 18 |
| | 6 |
| | 15 |
| |
| Changes in working capital, net of acquisitions | | | | | | |
| Net loss (gain) on sales of businesses | | Net loss (gain) on sales of businesses | — | | | 11 | | | (975) | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | 4 | | | — | | | 75 | |
| Investment losses | | Investment losses | — | | | — | | | 49 | |
| Other | | Other | 88 | | | 86 | | | 101 | |
| Changes in working capital, net of divestitures | | Changes in working capital, net of divestitures | |
| Accounts receivable | 28 |
| | 24 |
| | 12 |
| Accounts receivable | 48 | | | (20) | | | (30) | |
| Inventories | 46 |
| | 59 |
| | (18 | ) | Inventories | (314) | | | (77) | | | (20) | |
| Prepaid assets | (27 | ) | | 9 |
| | 10 |
| |
| Other current assets | | Other current assets | 25 | | | (28) | | | (3) | |
| Accounts payable and accrued liabilities | (48 | ) | | 15 |
| | 30 |
| Accounts payable and accrued liabilities | 200 | | | (164) | | | 145 | |
| Pension fund contributions | (5 | ) | | (2 | ) | | (5 | ) | |
| Net receipts from hedging activities | 2 |
| | 44 |
| | 11 |
| |
| | Other | (53 | ) | | (58 | ) | | (52 | ) | Other | (42) | | | (47) | | | (59) | |
| Net cash provided by operating activities | 1,291 |
| | 1,491 |
| | 1,206 |
| Net cash provided by operating activities | 1,181 | | | 1,035 | | | 1,396 | |
| Cash flows from investing activities: | | | | | | Cash flows from investing activities: | |
| Purchases of plant assets | (338 | ) | | (341 | ) | | (380 | ) | Purchases of plant assets | (242) | | | (275) | | | (299) | |
| Sales of plant assets | — |
| | 5 |
| | 15 |
| |
| Business acquired, net of cash acquired | — |
| | — |
| | (232 | ) | |
| Other, net | (30 | ) | | (18 | ) | | (6 | ) | |
| Net cash used in investing activities | (368 | ) | | (354 | ) | | (603 | ) | |
| | Purchases of route businesses | | Purchases of route businesses | (1) | | | (2) | | | (11) | |
| Sales of route businesses | | Sales of route businesses | 2 | | | 10 | | | 11 | |
| | Sales of businesses, net of cash divested | | Sales of businesses, net of cash divested | — | | | 101 | | | 2,537 | |
| Proceeds from sale of investment | | Proceeds from sale of investment | — | | | — | | | 30 | |
| Other | | Other | 11 | | | 8 | | | 4 | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | (230) | | | (158) | | | 2,272 | |
| Cash flows from financing activities: | | | | | | Cash flows from financing activities: | |
| Net short-term borrowings (repayments) | 245 |
| | (762 | ) | | 100 |
| |
| Short-term borrowings, including commercial paper and revolving line of credit | | Short-term borrowings, including commercial paper and revolving line of credit | 1,173 | | | 320 | | | 5,617 | |
| Short-term repayments, including commercial paper and revolving line of credit | | Short-term repayments, including commercial paper and revolving line of credit | (997) | | | (580) | | | (6,909) | |
| Long-term borrowings | 211 |
| | 215 |
| | 300 |
| Long-term borrowings | — | | | — | | | 1,000 | |
| Long-term repayments | (90 | ) | | — |
| | — |
| Long-term repayments | — | | | (921) | | | (499) | |
| Repayments of notes payable | (400 | ) | | — |
| | (309 | ) | |
| | Dividends paid | (420 | ) | | (390 | ) | | (394 | ) | Dividends paid | (451) | | | (439) | | | (426) | |
| Treasury stock purchases | (437 | ) | | (143 | ) | | (244 | ) | Treasury stock purchases | (167) | | | (36) | | | — | |
| Treasury stock issuances | 2 |
| | 2 |
| | 9 |
| Treasury stock issuances | 3 | | | 2 | | | 23 | |
| Contributions from noncontrolling interest | — |
| | — |
| | 9 |
| |
| | Payments related to tax withholding for stock-based compensation | (22 | ) | | (21 | ) | | (18 | ) | Payments related to tax withholding for stock-based compensation | (18) | | | (15) | | | (12) | |
| Other, net | — |
| | — |
| | (3 | ) | |
| Payments related to extinguishment of debt | | Payments related to extinguishment of debt | (453) | | | — | | | (1,769) | |
| | Payments of debt issuance costs | | Payments of debt issuance costs | — | | | — | | | (12) | |
| | Net cash used in financing activities | (911 | ) | | (1,099 | ) | | (550 | ) | Net cash used in financing activities | (910) | | | (1,669) | | | (2,987) | |
| Effect of exchange rate changes on cash | 11 |
| | 5 |
| | (32 | ) | Effect of exchange rate changes on cash | (1) | | | 2 | | | (1) | |
| Net change in cash and cash equivalents | 23 |
| | 43 |
| | 21 |
| Net change in cash and cash equivalents | 40 | | | (790) | | | 680 | |
| Cash and cash equivalents — beginning of period | 296 |
| | 253 |
| | 232 |
| |
| Cash and cash equivalents — beginning of period (including discontinued operations) | | Cash and cash equivalents — beginning of period (including discontinued operations) | 69 | | | 859 | | | 179 | |
| Less cash and cash equivalents discontinued operations - end of period | | Less cash and cash equivalents discontinued operations - end of period | — | | | — | | | — | |
| Cash and cash equivalents — end of period | $ | 319 |
| | $ | 296 |
| | $ | 253 |
| Cash and cash equivalents — end of period | $ | 109 | | | $ | 69 | | | $ | 859 | |
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Campbell Soup Company Shareholders’ Equity | | | | |
| | Capital Stock | | Additional Paid-in
Capital | | Earnings Retained in the
Business | | Accumulated Other Comprehensive
Income (Loss) | | Noncontrolling Interests | | |
| | Issued | | In Treasury | | | | | | Total Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at August 3, 2014 | 323 |
| | $ | 12 |
| | (10 | ) | | $ | (356 | ) | | $ | 330 |
| | $ | 1,483 |
| | $ | 145 |
| | $ | (12 | ) | | $ | 1,602 |
|
| Contribution from noncontrolling interest | | | | | | | | | | | | | | | 9 |
| | 9 |
|
| Net earnings (loss) | | | | | | | | | | | 666 |
| | | | — |
| | 666 |
|
| Other comprehensive income (loss) | | | | | | | | | | | | | (313 | ) | | (1 | ) | | (314 | ) |
| Dividends ($1.248 per share) | | | | | | | | | | | (395 | ) | | | | | | (395 | ) |
| Treasury stock purchased | | | | | (5 | ) | | (244 | ) | | | | | | | | | | (244 | ) |
| Treasury stock issued under management incentive and stock option plans | |
| | |
| | 2 |
| | 44 |
| | 9 |
| | | | | | | | 53 |
|
| Balance at August 2, 2015 | 323 |
| | 12 |
| | (13 | ) | | (556 | ) | | 339 |
| | 1,754 |
| | (168 | ) | | (4 | ) | | 1,377 |
|
| Contribution from noncontrolling interest | | | | | | | | | | | | | | | 9 |
| | 9 |
|
| Net earnings (loss) |
| |
| |
| |
| |
| | 563 |
| |
| | — |
| | 563 |
|
| Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | 64 |
| | 3 |
| | 67 |
|
| Dividends ($1.248 per share) |
| |
| |
| |
| |
| | (390 | ) | |
| |
| | (390 | ) |
| Treasury stock purchased |
| |
| | (3 | ) | | (143 | ) | |
| |
| |
| |
| | (143 | ) |
| Treasury stock issued under management incentive and stock option plans | | | | | 1 |
| | 35 |
| | 15 |
| | | | | | | | 50 |
|
| Balance at July 31, 2016 | 323 |
| | 12 |
| | (15 | ) | | (664 | ) | | 354 |
| | 1,927 |
| | (104 | ) | | 8 |
| | 1,533 |
|
| Net earnings (loss) |
| |
| |
| |
| |
| | 887 |
| |
| | — |
| | 887 |
|
| Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | 51 |
| | — |
| | 51 |
|
| Dividends ($1.40 per share) |
| |
| |
| |
| |
| | (429 | ) | |
| |
| | (429 | ) |
| Treasury stock purchased |
| |
| | (8 | ) | | (437 | ) | |
| |
| |
| |
| | (437 | ) |
| Treasury stock issued under management incentive and stock option plans |
|
| |
|
| | 1 |
| | 35 |
| | 5 |
| |
|
| |
|
| |
| | 40 |
|
| Balance at July 30, 2017 | 323 |
| | $ | 12 |
| | (22 | ) | | $ | (1,066 | ) | | $ | 359 |
| | $ | 2,385 |
| | $ | (53 | ) | | $ | 8 |
| | $ | 1,645 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Campbell Soup Company Shareholders’ Equity | | | | |
| | Capital Stock | | Additional Paid-in
Capital | | Earnings Retained in the
Business | | Accumulated Other Comprehensive
Income (Loss) | | Noncontrolling
Interests | | |
| | Issued | | In Treasury | | | | | | Total
Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at July 28, 2019 | 323 | | | $ | 12 | | | (22) | | | $ | (1,076) | | | $ | 372 | | | $ | 1,993 | | | $ | (198) | | | $ | 9 | | | $ | 1,112 | |
| Net earnings (loss) | | | | | | | | | | | 1,628 | | | | | — | | | 1,628 | |
| Divestiture | | | | | | | | | | | | | | | (4) | | | (4) | |
| Other comprehensive income (loss) | | | | | | | | | | | | | 188 | | | 1 | | | 189 | |
| Dividends ($1.40 per share) | | | | | | | | | | | (428) | | | | | | | (428) | |
| Treasury stock purchased | | | | | — | | | — | | | | | | | | | | | — | |
| Treasury stock issued under management incentive and stock option plans | | | | | 1 | | | 53 | | | 22 | | | (3) | | | | | | | 72 | |
| Balance at August 2, 2020 | 323 | | | 12 | | | (21) | | | (1,023) | | | 394 | | | 3,190 | | | (10) | | | 6 | | | 2,569 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net earnings (loss) | | | | | | | | | | | 1,002 | | | | | — | | | 1,002 | |
| Other comprehensive income (loss) | | | | | | | | | | | | | 15 | | | (4) | | | 11 | |
| Dividends ($1.46 per share) | | | | | | | | | | | (444) | | | | | | | (444) | |
| Treasury stock purchased | | | | | (1) | | | (36) | | | | | | | | | | | (36) | |
| Treasury stock issued under management incentive and stock option plans | | | | | 1 | | | 38 | | | 20 | | | (6) | | | | | | | 52 | |
| Balance at August 1, 2021 | 323 | | | 12 | | | (21) | | | (1,021) | | | 414 | | | 3,742 | | | 5 | | | 2 | | | 3,154 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net earnings (loss) | | | | | | | | | | | 757 | | | | | — | | | 757 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | | | (3) | | | — | | | (3) | |
| Dividends ($1.48 per share) | | | | | | | | | | | (451) | | | | | | | (451) | |
| Treasury stock purchased | | | | | (4) | | | (167) | | | | | | | | | | | (167) | |
| Treasury stock issued under management incentive and stock option plans | | | | | 1 | | | 50 | | | 1 | | | (8) | | | | | | | 43 | |
| Balance at July 31, 2022 | 323 | | | $ | 12 | | | (24) | | | $ | (1,138) | | | $ | 415 | | | $ | 4,040 | | | $ | 2 | | | $ | 2 | | | $ | 3,333 | |
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(currency in millions, except per share amounts)
1.Summary of Significant Accounting Policies | |
1. | Summary of Significant Accounting Policies |
In this Report, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products.
Basis of Presentation — The consolidated financial statements include our accounts and entities in which we maintain a controlling financial interest and a variable interest entity (VIE) for which we arewere the primary beneficiary. Intercompany transactions are eliminated in consolidation. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. See Note 2. Our fiscal year ends on the Sunday nearest July 31. There were 52 weeks in 2017, 2016,2022 and 2015.2021, and 53 weeks in 2020.
Discontinued Operations — We present discontinued operations when there is a disposal of a component or a group of components that in our judgment represents a strategic shift that will have a major effect on our operations and financial results. We aggregate the results of operations for discontinued operations into a single line item in the Consolidated Statements of Earnings for all periods presented. General corporate overhead is not allocated to discontinued operations. See Note 3 for additional information.
Use of Estimates — Generally accepted accounting principles require management to make estimates and assumptions that affect assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition — Our revenues primarily consist of the sale of food and beverage products through our own sales force and/or third-party brokers and distribution partners. Revenues are recognized when our performance obligation has been satisfied and control of the earnings process is complete. Thisproduct passes to our customers, which typically occurs when products are shippeddelivered or accepted by customers in accordance with terms of agreements, titleagreements. Shipping and riskhandling costs incurred to deliver the product are recorded within Cost of loss transfer toproducts sold. Amounts billed and due from our customers collection is probableare classified as Accounts receivable in the Consolidated Balance Sheets and pricing is fixed or determinable.require payment on a short-term basis. Revenues are recognized net of provisions for returns, discounts and allowances. Certaincertain sales promotion expenses, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupon redemption costs,costs. These forms of variable consideration are classified as a reduction of sales.recognized upon sale. The recognition of costs for promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Costsfactors, including expected volume. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized either upon sale or when the incentive is offered, based on the program.as a change in estimate in a subsequent period. Revenues are presented on a net basis for arrangements under which suppliers perform certain additional services. See Note 6 for additional information on disaggregation of revenue.
Cash and Cash Equivalents — All highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents.
Inventories — All inventories are valued at the lower of average cost or net realizable value.
Property, Plant and Equipment — Property, plant and equipment are recorded at historical cost and are depreciated over estimated useful lives using the straight-line method. Buildings and machinery and equipment are depreciated over periods not exceeding 45 years and 20 years, respectively. Assets are evaluated for impairment when conditions indicate that the carrying value may not be recoverable. Such conditions include significant adverse changes in business climate or a plan of disposal. Repairs and maintenance are charged to expense as incurred.
Goodwill and Intangible Assets — Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually in the fourth quarter for impairment, or whenmore often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable.
Goodwill is tested for impairment at the reporting unit level. A reporting unit isrepresents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average costcosts of capital and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the Financial Accounting Standards Board (FASB) issued revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, anAn impairment charge will be recorded to reduce the reporting unit to fair value. Prior to the revised guidance,is recognized for the amount of the impairment was the difference betweenby which the carrying value of the goodwill and the "implied"reporting unit exceeds fair value, which was calculated as iflimited to the amount of goodwill in the reporting unit had just been acquired and accounted for as a business combination.unit.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined using a relief from royalty valuation method based on discounted cash flow analyses that include
significant management assumptions such as revenue growth rates, weighted average costcosts of capital and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value.
See Note 5 for informationmore information.
Leases — We determine if an agreement is or contains a lease at inception by evaluating if an identified asset exists that we control for a period of time. When a lease exists, we record a right-of-use (ROU) asset and a corresponding lease liability on intangibleour Consolidated Balance Sheet. ROU assets represent our right to use an underlying asset for the lease term and the corresponding liabilities represent an obligation to make lease payments during the term. We have elected not to record leases with a term of 12 months or less on our Consolidated Balance Sheet.
ROU assets are recorded on our Consolidated Balance Sheet at lease commencement based on the present value of the corresponding liabilities and are adjusted for any prepayments, lease incentives received, or initial direct costs incurred. To calculate the present value of our lease liabilities, we use a country-specific collateralized incremental borrowing rate based on the lease term at commencement. The measurement of our ROU assets and impairment charges.liabilities includes all fixed payments and any variable payments based on an index or rate.
Our leases generally include options to extend or terminate use of the underlying assets. These options are included in the lease term used to determine ROU assets and corresponding liabilities when we are reasonably certain we will exercise.
Our lease arrangements typically include non-lease components, such as common area maintenance and labor. We account for each lease and any non-lease components associated with that lease as a single lease component for all underlying asset classes with the exception of certain production assets. Accordingly, all costs associated with a lease contract are disclosed as lease costs. This includes any variable payments that are not dependent on an index or a rate and which are expensed as incurred.
Operating leases expense is recognized on a straight-line basis over the lease term with the expense recorded in Cost of products sold, Marketing and selling expenses, or Administrative expenses depending on the nature of the leased item.
For finance leases, the amortization of ROU lease assets is recognized on a straight-line basis over the shorter of the estimated useful life of the underlying asset or the lease term in Cost of products sold, Marketing and selling expenses, or Administrative expenses depending on the nature of the leased item. Interest expense on finance lease obligations is recorded using the effective interest method over the lease term and is recorded in Interest expense.
All operating lease cash payments and interest on finance leases are recorded within Net cash provided by operating activities and all finance lease principal payments are recorded within Net cash used in financing activities in our Consolidated Statements of Cash Flows.
See Note 10 for more information.
Derivative Financial Instruments — We use derivative financial instruments primarily for purposes of hedging exposures to fluctuations in foreign currency exchange rates, interest rates, commodities and equity-linked employee benefit obligations. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include strategies that qualify and strategies that do not qualify for hedge accounting
treatment. To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, is expected to be highly effective in achieving offsetting changes in the fair value of the hedged risk during the period that the hedge is designated.
All derivatives are recognized on the balance sheet at fair value. For derivatives that qualify for hedge accounting, on the date the derivative contract is entered into, we designate the derivative as a hedge of the fair value of a recognized asset or liability or a firm commitment (fair-value hedge), or a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge), or a hedge of a net investment in a foreign operation.. Some derivatives may also be considered natural hedging instruments (changes in fair value act as economic offsets to changes in fair value of the underlying hedged item) and are not designated for hedge accounting.
Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of a fair-value hedge, along with the gain or loss on the underlying hedged asset or liability (including losses or gains on firm commitments), are recorded in current-period earnings. The effectiveChanges in the fair value on the portion of gains and losses onthe derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. IfFor derivatives that are designated and qualify as hedging instruments, the initial fair value of hedge components excluded from the assessment of effectiveness is no longer effective, all changesrecognized in earnings under a systematic and rational method over the life of the hedging instrument and is presented in the same statement of earnings line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the derivative are includedhedge components excluded from the assessment of effectiveness and the amounts recognized in earnings each period until the instrument matures. If a derivative is usedrecorded as a hedgecomponent of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in other comprehensive income (loss). Any ineffective portion of designated hedges is recognized in current-period earnings. Changes in the fair value of derivatives that are not designated for hedge accounting are recognized in current-period earnings.
Cash flows from derivative contracts are included in Net cash provided by operating activities.
Advertising Production Costs — Advertising production costs are expensed in the period that the advertisement first takes place or when a decision is made not to use an advertisement.
Research and Development Costs — The costs of research and development are expensed as incurred. Costs include expenditures for new product and manufacturing process innovation, and improvements to existing products and processes. Costs primarily consist of salaries, wages, consulting, and depreciation and maintenance of research facilities and equipment.
Income Taxes — Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Changes in
2. Recent AccountingPolicy — In the first quarter of 2016, we elected to change our method of accounting for the recognition of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension plan assets. Historically, actuarial gains and losses associated with benefit obligations were recognized in Accumulated other comprehensive loss in the Consolidated Balance Sheets and were amortized into earnings over the remaining service life of participants to the extent that the amounts were in excess of a corridor. Under the new policy, actuarial gains and losses will be recognized immediately in our Consolidated Statements of Earnings as of the measurement date, which is our fiscal year end, or more frequently if an interim remeasurement is required. In addition, we no longer use a market-related value of plan assets, which is an average value, to determine the expected return on assets but rather will use the fair value of plan assets. We believe the new policies will provide greater transparency to ongoing operating results and better reflect the impact of current market conditions on the obligations and assets. Results have been adjusted retrospectively to reflect these revisions. Pronouncements
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2. | Recent Accounting Pronouncements |
In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also requires enhanced disclosures. The guidance was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In July 2015, the FASB decided to delay the effective date of the new revenue guidance by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. The guidance permits the use of either a full retrospective or modified retrospective transition method. We are currently performing a diagnostic review of our arrangements with customers across our significant businesses, including our practices of offering rebates, refunds, discounts and other price allowances, and trade and consumer promotion programs. We are evaluating our methods of estimating the amount and timing of these various forms of variable consideration. We are continuing to evaluate the impact that the new guidance will have on our consolidated financial statements, as well as which transition method we will use. We will adopt the new guidance in 2019.Recently Adopted
In April 2015,August 2018, the FASB issued guidance to clarify the accounting for fees paid by a customer in a cloud computing arrangement. The guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption is permitted. The new guidance should be applied either prospectively to all arrangements entered into or materially modified after
the effective date or retrospectively. In 2017, we prospectively adopted the guidance. The adoption did not have a material impact on our consolidated financial statements.
In January 2016, the FASBFinancial Accounting Standards Board (FASB) issued guidance that amends the recognitioneliminates, adds and measurement of financial instruments. The changes primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation andmodifies certain disclosure requirements for financial instruments. Under the new guidance, equity investments in unconsolidated entities that are not accounted for under the equity method will generally be measured at fair value through earnings. When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities for most leases but will recognize expenses similar to current lease accounting. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In March 2016, the FASB issued guidance that amends accounting for share-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. We adopted the guidance in 2017. In accordance with the prospective adoption of the recognition of excess tax benefits and deficiencies in the Consolidated Statements of Earnings, we recognized a $6 tax benefit in Taxes on earnings in 2017. We elected to continue to estimate forfeitures expected to occur. In addition, we elected to adopt retrospectively the amendment to present excess tax benefits on share-based compensation as an operating activity, which resulted in a reclassification of $7 and $6 from Net cash used in financing activities to Net cash provided by operating activities in the Consolidated Statements of Cash Flows for 2016, and 2015, respectively. We also adopted retrospectively the amendment to present cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements as a financing activity. As a result, there was a reclassification of $21 and $18 from Net cash provided by operating activities to Net cash used in financing activities in the Consolidated Statements of Cash Flows for 2016, and 2015, respectively.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In October 2016, the FASB issued guidance on tax accounting for intra-entity asset transfers. Under current guidance, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recognized. The new guidance requires companies to account for the income tax effects on intercompany transfers of assets other than inventory when the transfer occurs. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted in the first interim period of a fiscal year. The modified retrospective approach is required upon adoption, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In January 2017, the FASB issued guidance that revises the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. We will prospectively apply the guidance to applicable transactions.
In January 2017, the FASB issued guidance that simplifies the test for goodwill impairment. Under the revised guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge to reduce the reporting unit to fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The revised guidance eliminates the current requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment.measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. Early adoption is permitted. We electedadopted the guidance on a prospective basis in the first quarter of 2021. The adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance that changes the disclosure requirements related to early adoptdefined benefit pension and postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020. The guidance is to be applied on a retrospective basis. We adopted the guidance in 2021. The adoption did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued guidance on simplifying the accounting for income taxes. The guidance removes certain exceptions to the general principles of accounting for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance. We adopted the guidance in the fourthfirst quarter 2017.of 2022. The adoption did not have an impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In March 2017,2020, the FASB issued guidance that improvesprovides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships and other transactions affected by the presentationLondon Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. Optional expedients can be applied from March 12, 2020, through December 31, 2022. The adoption is not expected to have a material impact on our consolidated financial statements.
3. Divestitures
Discontinued Operations
We completed the sale of net periodic pension costour Kelsen business on September 23, 2019, for $322 million. We also completed the sale of our Arnott’s business and net periodic postretirement benefit cost. certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott's and other international operations), on December 23, 2019, for $2.286 billion. The purchase price was subject to certain post-closing adjustments, which resulted in $4 million of additional proceeds in the third quarter of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment.
Results of discontinued operations were as follows:
| | | | | | | | | | | | |
| | | | | | |
| (Millions) | | | | 2020 | | |
| Net sales | | | | $ | 359 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Earnings before taxes from operations | | | | $ | 53 | | | |
| Taxes on earnings from operations | | | | 17 | | | |
| Gain on sales of businesses / costs associated with selling the businesses | | | | 1,039 | | | |
| Tax expense on sales / costs associated with selling the businesses | | | | 39 | | | |
| Earnings from discontinued operations | | | | $ | 1,036 | | | |
In addition, in the third quarter of 2021, we recognized a $6 million loss due to tax expense from return-to-provision adjustments related to the sale of Campbell International.
The sale of the Arnott's and other international operations resulted in a substantial capital gain for tax purposes. We were able to utilize capital losses in 2020, which were offset with valuation allowances as of July 28, 2019, to offset the capital gain.
Under the revised guidance,terms of the service cost componentsale of benefit cost is classified in the same line
item or items asArnott's and other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost (such as interest expense, return on assets, amortization of prior service credit, actuarial gains and losses, settlements and curtailments) are required to be presented in the income statement separately from the service cost component. The guidance also allows only the service cost component to be eligible for capitalization when applicable (for example, asinternational operations, we entered into a cost of internally manufactured inventory). The guidance should be applied retrospectivelylong-term licensing arrangement for the presentationexclusive rights to certain Campbell brands in certain non-U.S. markets. We provided certain transition services to support the divested businesses.
The significant operating non-cash items, capital expenditures and sale proceeds of discontinued operations were as follows:
| | | | | | | | | | |
| (Millions) | | | | 2020 |
| Cash flows from discontinued operating activities: | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Net gain on sales of discontinued operations businesses | | | | $ | (1,039) | |
| | | | |
| Cash flows from discontinued investing activities: | | | | |
| Capital expenditures | | | | $ | 30 | |
| Sales of discontinued operations businesses, net of cash divested | | | | 2,466 | |
Other Divestitures
On October 11, 2019, we completed the service cost component and the other componentssale of benefit cost in the income statement, and applied prospectively on and after the effective dateour European chips business for the capitalization of the service cost component.£63 million, or $77 million. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. We plan to adopt the new guidancepre-tax loss recognized in the first quarter of 2018. If net periodic benefit cost2020 on the sale was presented in accordance with$64 million, which included the new guidance,impact of allocated goodwill and foreign currency translation adjustments. For tax purposes, we were able to use the estimated impactcapital loss on classification of expense is as follows:
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| | | | | | | | | | | | |
| Increase / (decrease) in expense | | 2017 | | 2016 | | 2015 |
| Cost of products sold | | $ | 134 |
| | $ | (148 | ) | | $ | (42 | ) |
| Marketing and selling expenses | | $ | 38 |
| | $ | (41 | ) | | $ | (12 | ) |
| Administrative expenses | | $ | 62 |
| | $ | (66 | ) | | $ | (21 | ) |
| Research and development expenses | | $ | 13 |
| | $ | (19 | ) | | $ | (8 | ) |
| Other expenses / (income) | | $ | (247 | ) | | $ | 274 |
| | $ | 83 |
|
In May 2017, the FASB issued guidance that clarifies when changesthis sale to the terms or conditions ofoffset a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the value, the vesting conditions, or the classificationportion of the award (as equity or liability) changes as a resultcapital gain from the sale of the changeArnott's and other international operations. The after-tax loss was $37 million. The European chips business had net sales of $25 million in terms or conditions.2020. Earnings from the business were not material. The guidance is effective prospectivelyresults of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment.
On May 3, 2021, we completed the sale of our Plum baby food and snacks business for fiscal years beginning after December 15, 2017. Early adoption is permitted. We will apply the guidance in evaluating future changes to terms or conditions of share-based payment awards.
In August 2017, the FASB issued guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting$101 million. The purchase agreement contained customary representations, warranties, indemnifications and other obligations between us and the applicationbuyer. In addition, we have agreed to indemnify the buyer for certain claims against the Plum baby food and snacks business alleging the presence of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. We are currently evaluatingheavy metals in the impactproducts manufactured or sold on or prior to May 2, 2021, that were pending at the new guidance will have on our consolidated financial statements.
On July 6, 2017, we entered into an agreement to acquire Pacific Foodstime of Oregon, Inc. (Pacific Foods) for $700, subject to customary purchase price adjustments related to the amount of Pacific Foods' cash, debt, working capital and transaction expenses. The closing of the transaction is subject to customary closing conditionsor are asserted within two years thereafter. We recognized a pre-tax loss of $11 million and termination rights.an after-tax gain on the sale of $3 million. The agreement provides that if we fail to closebusiness had net sales of $68 million in 2021 and $104 million in 2020. Earnings were not material in the transaction when all conditions to closing have been satisfied or if we are in breachperiods. The results of the agreement, we will be required to pay Pacific Foods a $50 termination fee. On August 21, 2017,business through the estatedate of aformer Pacific Foodsshareholder, Edward C. Lynch, filed a lawsuit against Pacific Foods and certain of its directors, among others, seekingsale were reflected in excess of $250 in damages. Because ofcontinuing operations within the impediment that the lawsuit creates to closing, on September 27, 2017, we noticed Pacific Foodsthat it has 60 days under the terms of the agreement to resolve the issues arising from thesuit if the transaction is to close. After the 60-day period, we may in our sole discretion extend the cure period or terminate the agreement. We do not believe a termination of the agreement under these circumstances will result in any termination fee payable by us.
On June 29, 2015, we completed the acquisition of the assets of Garden Fresh Gourmet for $232. Garden Fresh Gourmet is a provider of refrigerated salsa, hummus, dips and tortilla chips.
The contribution of the Garden Fresh Gourmet acquisition to Net sales and Net earnings from June 29, 2015, through August 2, 2015 was not material.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Garden Fresh Gourmet acquisition had occurred on July 29, 2013:Meals & Beverages reportable segment.
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| | | | |
| | | 2015 |
| Net sales | | $ | 8,174 |
|
| Net earnings attributable to Campbell Soup Company | | $ | 668 |
|
| Net earnings per share attributable to Campbell Soup Company - assuming dilution | | $ | 2.13 |
|
The pro forma amounts include additional interest expense on the debt issued to finance the purchase, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the Garden Fresh Gourmet acquisition been completed on July 29, 2013, nor are they indicative of future combined results.
4. Accumulated Other Comprehensive Income (Loss)
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4. | Accumulated Other Comprehensive Income (Loss) |
The components of Accumulated other comprehensive income (loss) consisted of the following:
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| | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustments(1) | | Gains (Losses) on Cash Flow Hedges(2) | | Pension and Postretirement Benefit Plan Adjustments(3) | | Total Accumulated Comprehensive Income (Loss) |
| Balance at August 3, 2014 | | $ | 144 |
| | $ | (3 | ) | | $ | 4 |
| | $ | 145 |
|
| Other comprehensive income (loss) before reclassifications | | (310 | ) | | (2 | ) | | — |
| | (312 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | — |
| | (1 | ) | | (1 | ) |
| Net current-period other comprehensive income (loss) | | (310 | ) | | (2 | ) | | (1 | ) | | (313 | ) |
| Balance at August 2, 2015 | | $ | (166 | ) | | $ | (5 | ) | | $ | 3 |
| | $ | (168 | ) |
| Other comprehensive income (loss) before reclassifications | | 42 |
| | (29 | ) | | 59 |
| | 72 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | (7 | ) | | (1 | ) | | (8 | ) |
| Net current-period other comprehensive income (loss) | | 42 |
| | (36 | ) | | 58 |
| | 64 |
|
| Balance at July 31, 2016 | | $ | (124 | ) | | $ | (41 | ) | | $ | 61 |
| | $ | (104 | ) |
| Other comprehensive income (loss) before reclassifications | | 40 |
| | 12 |
| | 8 |
| | 60 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | 7 |
| | (16 | ) | | (9 | ) |
| Net current-period other comprehensive income (loss) | | 40 |
| | 19 |
| | (8 | ) | | 51 |
|
| Balance at July 30, 2017 | | $ | (84 | ) | | $ | (22 | ) | | $ | 53 |
| | $ | (53 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Foreign Currency Translation Adjustments(1) | | Cash-Flow Hedges(2) | | Pension and Postretirement Benefit Plan Adjustments(3) | | Total Accumulated Comprehensive Income (Loss) | |
| Balance at July 28, 2019 | | $ | (218) | | | $ | (9) | | | $ | 29 | | | $ | (198) | | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | (2) | | | 2 | | | — | | | — | | |
Losses (gains) reclassified from accumulated other comprehensive income (loss)(4) | | 210 | | | — | | | (22) | | | 188 | | |
| Net current-period other comprehensive income (loss) | | 208 | | | 2 | | | (22) | | | 188 | | |
| Balance at August 2, 2020 | | $ | (10) | | | $ | (7) | | | $ | 7 | | | $ | (10) | | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | 16 | | | (4) | | | — | | | 12 | | |
| Losses (gains) reclassified from accumulated other comprehensive income (loss) | | — | | | 7 | | | (4) | | | 3 | | |
| Net current-period other comprehensive income (loss) | | 16 | | | 3 | | | (4) | | | 15 | | |
| Balance at August 1, 2021 | | $ | 6 | | | $ | (4) | | | $ | 3 | | | $ | 5 | | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | | (6) | | | 14 | | | — | | | 8 | | |
| Losses (gains) reclassified from accumulated other comprehensive income (loss) | | — | | | (10) | | | (1) | | | (11) | | |
| Net current-period other comprehensive income (loss) | | (6) | | | 4 | | | (1) | | | (3) | | |
| Balance at July 31, 2022 | | $ | — | | | $ | — | | | $ | 2 | | | $ | 2 | | |
| |
(1)(1)Included no tax as of July 31, 2022, August 1, 2021, and August 2, 2020, and a tax expense of $4 million as of July 28, 2019. (2)Included no tax as of July 31, 2022, and a tax benefit of $1 million as of August 1, 2021 and August 2, 2020, and $2 million as of July 28, 2019. (3)Included a tax expense of $1 million as of July 31, 2022 and August 1, 2021, $2 million as of August 2, 2020, and $8 million as of July 28, 2019. (4)Reflects the reclassification from sale of businesses. See Note 3 for additional information. | Included a tax expense of $6 as of July 30, 2017, July 31, 2016, and August 2, 2015, and $7 as of August 3, 2014.
|
| |
(2)
| Included a tax benefit of $12 as of July 30, 2017, $23 as of July 31, 2016, $5 as of August 2, 2015, and $1 as of August 3, 2014.
|
| |
(3)
| Included a tax expense of $30 as of July 30, 2017, $35 as of July 31, 2016, $1 as of August 2, 2015, and $2 as of August 3, 2014.
|
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Millions) | | 2022 | | 2021 | | 2020 | | Location of Loss (Gain) Recognized in Earnings |
| Foreign currency translation adjustments: | | | | | | | | |
| Currency translation losses (gains) realized upon disposal of businesses | | $ | — | | | $ | — | | | $ | 23 | | | Other expenses / (income) |
| Currency translation losses (gains) realized upon disposal of businesses | | — | | | — | | | 183 | | | Earnings (loss) from discontinued operations |
| Total before tax | | — | | | — | | | 206 | | | |
| Tax expense (benefit) | | — | | | — | | | 4 | | | |
| Loss (gain), net of tax | | $ | — | | | $ | — | | | $ | 210 | | | |
| | | | | | | | |
| Losses (gains) on cash-flow hedges: | | | | | | | | |
| Commodity contracts | | $ | (14) | | | $ | — | | | $ | — | | | Cost of products sold |
| Foreign exchange forward contracts | | 1 | | | 6 | | | (2) | | | Cost of products sold |
| Foreign exchange forward contracts | | — | | | 1 | | | — | | | Other expenses / (income) |
| Foreign exchange forward contracts | | — | | | — | | | 1 | | | Earnings (loss) from discontinued operations |
| Forward starting interest rate swaps | | 1 | | | 1 | | | 1 | | | Interest expense |
| Total before tax | | (12) | | | 8 | | | — | | | |
| Tax expense (benefit) | | 2 | | | (1) | | | — | | | |
| Loss (gain), net of tax | | $ | (10) | | | $ | 7 | | | $ | — | | | |
| | | | | | | | |
| Pension and postretirement benefit adjustments: | | | | | | | | |
| Prior service credit | | $ | (1) | | | $ | (5) | | | $ | (28) | | | Other expenses / (income) |
| Tax expense (benefit) | | — | | | 1 | | | 6 | | | |
| Loss (gain), net of tax | | $ | (1) | | | $ | (4) | | | $ | (22) | | | |
|
| | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income (Loss) Components | | 2017 | | 2016 | | 2015 | | Location of (Gain) Loss Recognized in Earnings |
| (Gains) losses on cash flow hedges: | | | | | | | | |
| Foreign exchange forward contracts | | $ | 6 |
| | $ | (11 | ) | | $ | (4 | ) | | Cost of products sold |
| Foreign exchange forward contracts | | 1 |
| | (2 | ) | | (1 | ) | | Other expenses / (income) |
| Forward starting interest rate swaps | | 4 |
| | 4 |
| | 4 |
| | Interest expense |
| Total before tax | | 11 |
| | (9 | ) | | (1 | ) | | |
| Tax expense (benefit) | | (4 | ) | | 2 |
| | 1 |
| | |
| (Gain) loss, net of tax | | $ | 7 |
| | $ | (7 | ) | | $ | — |
| | |
| | | | | | | | | |
| Pension and postretirement benefit adjustments: | | | | | | | | |
| Prior service credit | | $ | (25 | ) | | $ | (1 | ) | | $ | (2 | ) | | (1) |
| Tax expense (benefit) | | 9 |
| | — |
| | 1 |
| | |
| (Gain) loss, net of tax | | $ | (16 | ) | | $ | (1 | ) | | $ | (1 | ) | | |
| |
(1)
| This is included in the components of net periodic benefit costs (see Note 10 for additional details). |
| |
5. | Goodwill and Intangible Assets |
5. Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:goodwill:
|
| | | | | | | | | | | | | | | |
| | Americas
Simple
Meals and Beverages | | Global
Biscuits
and
Snacks | | Campbell Fresh | | Total |
| Balance at August 2, 2015 | $ | 775 |
| | $ | 732 |
| | $ | 837 |
| | $ | 2,344 |
|
| Impairment charges | — |
| | — |
| | (106 | ) | | (106 | ) |
| Foreign currency translation adjustment | — |
| | 25 |
| | — |
| | 25 |
|
Net balance at July 31, 2016(1) | $ | 775 |
| | $ | 757 |
| | $ | 731 |
| | $ | 2,263 |
|
| Impairment charges | — |
| | — |
| | (191 | ) | | (191 | ) |
| Foreign currency translation adjustment | 5 |
| | 38 |
| | — |
| | 43 |
|
Net balance at July 30, 2017(1) | $ | 780 |
| | $ | 795 |
| | $ | 540 |
| | $ | 2,115 |
|
| | | | | | | | | | | | | | | | | |
| (Millions) | Meals & Beverages | |
Snacks | | Total |
| Net balance at August 2, 2020 | $ | 975 | | | $ | 3,011 | | | $ | 3,986 | |
| | | | | |
Divestiture(1) | (12) | | | — | | | (12) | |
| | | | | |
| | | | | |
| Foreign currency translation adjustment | 7 | | | — | | | 7 | |
| Net balance at August 1, 2021 | $ | 970 | | | $ | 3,011 | | | $ | 3,981 | |
Amounts reclassified due to segment change(2) | 25 | | | (25) | | | — | |
| | | | | |
| | | | | |
| Foreign currency translation adjustment | (2) | | | — | | | (2) | |
| Net balance at July 31, 2022 | $ | 993 | | | $ | 2,986 | | | $ | 3,979 | |
| |
(1)
| The balance of goodwill is reflected net of accumulated impairment charges of $297 as of July 30, 2017 and $106 as of July 31, 2016, respectively. |
In(1)See Note 3 for additional information on the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of $106 was recorded on goodwill for the Bolthouse Farms carrot and carrot ingredients reporting unit within the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second halfsale of the year. The impairment was attributable to a decline in profitability in the second half of 2016Plum baby and a revised outlooksnack foods business.
(2)See Note 6 for the business, with reduced expectations for sales, operating margins, and discounted cash flows.additional information.
During the second quarter of 2017, sales and operating profit performance for the Bolthouse Farms carrot and carrot ingredients reporting unit were well below our revised expectations due to difficulty with regaining market share lost during 2016 and higher carrot costs from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and earnings for the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing effect of unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of current-year performance and the strategic review, we lowered our sales outlook for future fiscal years.We also lowered our average margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance in the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim goodwill impairment assessment as of December 31, 2016, which resulted in a $127 impairment charge to reduce the carrying amount to $75. The updated cash flow projections include expectations that operating margins will improve from reduced levels in 2016 and 2017.
Garden Fresh Gourmet was acquired in June 2015 and is a reporting unit within the Campbell Fresh segment. During 2017, sales and operating profit performance for Garden Fresh Gourmet were well below expectations, and we lowered our outlook for the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore, future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim goodwill impairment assessment on this reporting unit as of December 31, 2016, which resulted in a $64 impairment charge to reduce the carrying amount to $52. The updated cash flow projections include expectations that we will build distribution in the U.S., operating margins will expand partly driven by the benefits from further integration, and sales growth rates will exceed the company's overall sales growth rates.
The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
Intangible Assets
The following table sets forthsummarizes balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:goodwill:
|
| | | | | | | | |
| Intangible Assets | | 2017 | | 2016 |
| Amortizable intangible assets | | | | |
| Customer relationships | | $ | 223 |
| | $ | 222 |
|
| Technology | | 40 |
| | 40 |
|
| Other | | 35 |
| | 35 |
|
| Total gross amortizable intangible assets | | $ | 298 |
| | $ | 297 |
|
| Accumulated amortization | | (92 | ) | | (72 | ) |
| Total net amortizable intangible assets | | $ | 206 |
| | $ | 225 |
|
| Non-amortizable intangible assets | | | | |
| Trademarks | | 912 |
| | 927 |
|
| Total net intangible assets | | $ | 1,118 |
| | $ | 1,152 |
|
Non-amortizable intangible assets consist of trademarks, which include Bolthouse Farms, Pace, Plum, Kjeldsens, Garden Fresh Gourmet and Royal Dansk. Other amortizable intangible assets consist of recipes, patents, trademarks and distributor relationships. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| (Millions) | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| Amortizable intangible assets | | | | | | | | | | | | |
| Customer relationships | | $ | 830 | | | $ | (181) | | | $ | 649 | | | $ | 830 | | | $ | (140) | | | $ | 690 | |
| Non-amortizable intangible assets | | | | | | | | | | | | |
| Trademarks | | | | | | 2,549 | | | | | | | 2,549 | |
| Total net intangible assets | | | | | | $ | 3,198 | | | | | | | $ | 3,239 | |
Amortization of intangible assets in Earnings from continuing operations was $19$41 million for 2017, $202022, $42 million for 20162021 and $17$43 million for 2015.2020. As of July 31, 2022, amortizable intangible assets had a weighted-average remaining useful life of 16 years. Amortization expense for the next 5five years is estimated to be $16 in 2018approximately $41 million per year.
The carrying values of indefinite-lived trademarks as of July 31, 2022 and 2019, and $15 in 2020 through 2022. Asset useful lives range from 5 to 20 years.August 1, 2021, are detailed below:
In | | | | | | | | |
| (Millions) | | |
| Snyder's of Hanover | | $ | 620 | |
| Lance | | 350 | |
| Kettle Brand | | 318 | |
| Pace | | 292 | |
| Pacific Foods | | 280 | |
Various other Snacks(1) | | 689 | |
| Total | | $ | 2,549 | |
(1)Associated with the fourth quarteracquisition of 2016, as part of our annual review of intangible assets, an impairment charge of $35 was recognized on the Bolthouse Farms carrot and carrot ingredients reporting unit trademark as a resultSnyder's-Lance, Inc. (Snyder's-Lance).
As of the factors previously described. Due to the factors previously described, we performed an interim2022 impairment assessment astesting, indefinite-lived trademarks with 10% or less of December 31, 2016, which resulted in a $20 impairment charge on the trademark to reduce the carrying amount to $48.
Due to the factors previously described, we also performed an interim impairment assessment asexcess coverage of December 31, 2016, on the trademark in the Garden Fresh Gourmet reporting unit, which resulted in a $1 impairment charge to reduce the carrying amount to $37.
As part of our annual review of intangible assets, an impairment charge of $6 was recognized in the fourth quarter of 2015 related to minor trademarks used in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as a result of a decrease in the fair value over carrying value had an aggregate carrying value of the brands, resulting from reduced expectations for future sales$434 million and discontinued cash flows.
The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.included Pacific Foods andcertain other Snacks trademarks.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions.
47
| |
6. | Business and Geographic Segment Information |
We manage
6. Segment Information
Our reportable segments are as follows:
•Meals & Beverages, which consists of our businessessoup, simple meals and beverages products in three segments focused mainly on product categories. The segments are:
Americas Simple Meals and Beverages segment includes the retail and food service businessesfoodservice in the U.S., Canada and Latin America.Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell’s tomato juice;
juice. The segment also includes snacking products in foodservice and Canada. The segment included the results of our Plum baby food and snacks business, which was sold on May 3, 2021; andGlobal Biscuits and •Snacks, segment includeswhich consists of Pepperidge Farm cookies, cookies*,crackers, fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*, Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*,Pop Secret popcorn, Emerald nuts, and other snacking products in retail in the U.S. retail; Arnott’s biscuitsBeginning in Australia and Asia Pacific; and Kelsen cookies globally.2022, we refer to the * brands as our "power brands." The segment includes the retail business in Latin America. The segment also includesincluded the simple meals and shelf-stable beveragesresults of our European chips business, in Australia and Asia Pacific; andwhich was sold on October 11, 2019.
Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated soup business.
Beginning in 2018,2022, the foodservice and Canadian business formerly included in Latin America will beour Snacks segment is now managed as part of the Global Biscuits and Snacks segment.
Meals & Beverages segment. Segment results have been adjusted retrospectively to reflect this change.
We evaluate segment performance before interest, taxes and costs associated with restructuring activities.activities and impairment charges. Unrealized gains and losses on outstanding undesignated commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses are reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance. Therefore, only geographic segment asset information is provided.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20%22% of consolidated net sales from continuing operations in 2017, 20162022, and 2015. All21% in 2021 and 2020. Both of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates.
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | | | | | 2022 | | 2021 | | 2020 |
| Net sales | | | | | | | | | | |
| Meals & Beverages | | | | | | $ | 4,607 | | | $ | 4,621 | | | $ | 4,747 | |
| Snacks | | | | | | 3,955 | | | 3,855 | | | 3,944 | |
| | | | | | | | | | |
| Total | | | | | | $ | 8,562 | | | $ | 8,476 | | | $ | 8,691 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (Millions) | | | | | | 2022 | | 2021 | | 2020 |
| Earnings before interest and taxes | | | | | | | | | | |
| Meals & Beverages | | | | | | $ | 874 | | | $ | 922 | | | $ | 1,009 | |
| Snacks | | | | | | 517 | | | 514 | | | 525 | |
Corporate income (expense)(1) | | | | | | (223) | | | 130 | | | (418) | |
Restructuring charges(2) | | | | | | (5) | | | (21) | | | (9) | |
| Total | | | | | | $ | 1,163 | | | $ | 1,545 | | | $ | 1,107 | |
| | | | | | | | | | | | | | | | | | | | |
| (Millions) | | 2022 | | 2021 | | 2020 |
| Depreciation and amortization | | | | | | |
| Meals & Beverages | | $ | 131 | | | $ | 128 | | | $ | 134 | |
| Snacks | | 185 | | | 169 | | | 175 | |
Corporate(3) | | 21 | | | 20 | | | 19 | |
| | | | | | |
| Total | | $ | 337 | | | $ | 317 | | | $ | 328 | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Net sales | | | | | | |
| Americas Simple Meals and Beverages | | $ | 4,325 |
| | $ | 4,380 |
| | $ | 4,483 |
|
| Global Biscuits and Snacks | | 2,598 |
| | 2,564 |
| | 2,631 |
|
| Campbell Fresh | | 967 |
| | 1,017 |
| | 968 |
|
| Total | | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
|
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Earnings before interest and taxes | | | | | | |
| Americas Simple Meals and Beverages | | $ | 1,120 |
| | $ | 1,069 |
| | $ | 948 |
|
| Global Biscuits and Snacks | | 454 |
| | 422 |
| | 383 |
|
| Campbell Fresh | | (9 | ) | | 60 |
| | 61 |
|
Corporate(1) | | (147 | ) | | (560 | ) | | (236 | ) |
Restructuring charges(2) | | (18 | ) | | (31 | ) | | (102 | ) |
| Total | | $ | 1,400 |
| | $ | 960 |
| | $ | 1,054 |
|
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Depreciation and amortization | | | | | | |
| Americas Simple Meals and Beverages | | $ | 118 |
| | $ | 117 |
| | $ | 123 |
|
| Global Biscuits and Snacks | | 98 |
| | 96 |
| | 94 |
|
| Campbell Fresh | | 83 |
| | 77 |
| | 70 |
|
Corporate(3) | | 19 |
| | 18 |
| | 16 |
|
| Total | | $ | 318 |
| | $ | 308 |
| | $ | 303 |
|
| | | | | 2017 | | 2016 | | 2015 | |
| (Millions) | | (Millions) | | 2022 | | 2021 | | 2020 |
| Capital expenditures | | | | | | | Capital expenditures | | | | | | |
| Americas Simple Meals and Beverages | | $ | 117 |
| | $ | 105 |
| | $ | 137 |
| |
| Global Biscuits and Snacks | | 127 |
| | 122 |
| | 137 |
| |
| Campbell Fresh | | 47 |
| | 74 |
| | 82 |
| |
| Meals & Beverages | | Meals & Beverages | | $ | 76 | | | $ | 61 | | | $ | 52 | |
| Snacks | | Snacks | | 120 | | | 153 | | | 153 | |
Corporate(3) | | 47 |
| | 40 |
| | 24 |
| Corporate(3) | | 46 | | | 61 | | | 64 | |
| Discontinued operations | | Discontinued operations | | — | | | — | | | 30 | |
| Total | | $ | 338 |
| | $ | 341 |
| | $ | 380 |
| Total | | $ | 242 | | | $ | 275 | | | $ | 299 | |
| |
(1)
| Represents unallocated items. Pension and postretirement benefit mark-to-market adjustments are included in Corporate. There were gains of $178 in 2017, and losses of $313 and $138 in 2016 and 2015, respectively. Costs related to the implementation of our new organizational structure and cost savings initiatives were $40, $47 and $22 in 2017, 2016 and 2015, respectively. Impairment charges of $212 on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit were included in 2017 and an impairment charge of $141 on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit was included in 2016. See Note 5 for information on the impairment charges. A gain of $25 from a settlement of a claim related to the Kelsen acquisition was also included in 2016. |
(1)Represents unallocated items. Pension and postretirement actuarial gains and losses are included in Corporate. There were actuarial losses of $44 million in 2022, gains of $203 million in 2021, and losses of $164 million in 2020, respectively. Costs related to the cost savings initiatives were $26 million, $32 million and $60 million in 2022, 2021 and 2020, respectively. Unrealized mark-to-market adjustments on outstanding undesignated commodity hedges were losses of $59 million in 2022, gains of $50 million in 2021, and gains of $2 million in 2020, respectively. A loss of $11 million on the sale of the Plum baby food and snacks business was included in 2021. A loss of $64 million on the sale of our European chips business was included in 2020. A loss of $45 million on Acre Venture Partners, L.P. (Acre) was included in 2020. See Note 14 for additional information on Acre.
(2)See Note 7 for additional information.
| |
(2)(3)Represents primarily corporate offices and enterprise-wide information technology systems. | See Note 7 for additional information. |
| |
(3)
| Represents primarily corporate offices. |
Our global net sales based on product categories are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Millions) | | 2022 | | 2021 | | 2020 |
| Net sales | | | | | | |
| Soup | | $ | 2,615 | | | $ | 2,568 | | | $ | 2,653 | |
| Snacks | | 4,103 | | | 3,989 | | | 4,099 | |
| Other simple meals | | 1,091 | | | 1,134 | | | 1,184 | |
| Beverages | | 753 | | | 785 | | | 755 | |
| | | | | | |
| Total | | $ | 8,562 | | | $ | 8,476 | | | $ | 8,691 | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Net sales | | | | | | |
| Soup | | $ | 2,673 |
| | $ | 2,690 |
| | $ | 2,798 |
|
| Baked snacks | | 2,511 |
| | 2,479 |
| | 2,502 |
|
| Other simple meals | | 1,698 |
| | 1,702 |
| | 1,648 |
|
| Beverages | | 1,008 |
| | 1,090 |
| | 1,134 |
|
| Total | | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
|
Soup includes various soup, broths and stock products. Baked Snacks include cookies, pretzels, crackers, biscuitspopcorn, nuts, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, carrot products, refrigerated salad dressings, refrigerated salsa, hummus, dipsgravies, pasta, beans, canned poultry and Plum foodsproducts through May 3, 2021, when the business was sold. Beverages include V8 juices and snacks.beverages, Campbell's tomato juice and PacificFoods non-dairy beverages.
Geographic Area InformationWe are a North American focused company with over 90% of our net sales and long-lived assets related to our U.S. operations.
Information about operations in different geographic areas is as follows:
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Net sales | | | | | | |
| United States | | $ | 6,357 |
| | $ | 6,437 |
| | $ | 6,400 |
|
| Australia | | 610 |
| | 590 |
| | 646 |
|
| Other countries | | 923 |
| | 934 |
| | 1,036 |
|
| Total | | $ | 7,890 |
| | $ | 7,961 |
| | $ | 8,082 |
|
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Long-lived assets | | | | | | |
| United States | | $ | 1,987 |
| | $ | 1,967 |
| | $ | 1,942 |
|
| Australia | | 265 |
| | 242 |
| | 232 |
|
| Other countries | | 202 |
| | 198 |
| | 173 |
|
| Total | | $ | 2,454 |
| | $ | 2,407 |
| | $ | 2,347 |
|
| |
7. | 7. Restructuring Charges and Cost Savings Initiatives |
2015 Initiatives
On January 29,Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
Beginning in fiscal 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under the new structure, which we fully implemented at the beginning of 2016, our businesses are organized in the following divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
In support of the new structure, we designed and implemented a new Integrated Global Services organization to deliver shared services across the company. We also streamlined our organizational structure, implemented an initiative to reduce overhead across the organization and are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time. As part ofto streamline our organizational structure.
Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, including closing our manufacturing facility in Toronto, Ontario, as well as our information technology infrastructure.
On March 26, 2018, we commencedcompleted the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a voluntary employee separationcost transformation program availablefollowing a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to certain U.S.-based salaried employees nearing retirement who met age, length-of-serviceimplement this program and business unit/function criteria. A total of 471 employees elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond that date.identified opportunities for additional cost synergies as we integrated Snyder's-Lance.
In February 2017,2022, we announced thatexpanded these initiatives as we are expanding thesecontinue to pursue cost savings initiatives by further optimizing our supply chain and manufacturing network primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. We have extended the time horizon for the initiatives from 2018 to 2020.through effective cost management. Cost estimates for these expanded initiatives, as well as timing for certain activities, are beingcontinuing to be developed.
A summary of the restructuringpre-tax charges we recorded and charges incurred in Administrative expenses and Cost of products soldEarnings from continuing operations related to the implementation of the new organizational structure and costs savingsthese initiatives is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 | | Recognized as of July 31, 2022 |
| Restructuring charges | $ | 5 | | | $ | 21 | | | $ | 9 | | | $ | 264 | |
| Administrative expenses | 20 | | | 28 | | | 48 | | | 359 | |
| Cost of products sold | 5 | | | 3 | | | 9 | | | 84 | |
| Marketing and selling expenses | 1 | | | 1 | | | 2 | | | 14 | |
| Research and development expenses | — | | | — | | | 1 | | | 4 | |
| Total pre-tax charges | $ | 31 | | | $ | 53 | | | $ | 69 | | | $ | 725 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Restructuring charges | $ | 18 |
| | $ | 35 |
| | $ | 102 |
|
| Administrative expenses | 36 |
| | 47 |
| | 22 |
|
| Cost of products sold | 4 |
| | — |
| | — |
|
| Total pre-tax charges | $ | 58 |
| | $ | 82 |
| | $ | 124 |
|
A summary of the pre-tax costs in Earnings from continuing operations associated with the initiatives is as follows:
|
| | | |
| | Recognized as of
July 30, 2017 |
| Severance pay and benefits | $ | 135 |
|
| Asset impairment/accelerated depreciation | 12 |
|
| Implementation costs and other related costs | 117 |
|
| Total | $ | 264 |
|
| | | | | |
| (Millions) | Recognized as of July 31, 2022 |
| Severance pay and benefits | $ | 227 | |
| Asset impairment/accelerated depreciation | 82 | |
| Implementation costs and other related costs | 416 | |
| Total | $ | 725 | |
The total estimated pre-tax costs for actions associated with continuing operations that have been identified are approximately $380$735 million to $420. We$740 million and we expect to incur substantially all of the costs through 2019. This estimate2023. These estimates will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following: approximately $135$230 million in severance pay and benefits; approximately $20$85 million in asset impairment and accelerated depreciation; and approximately $225$420 million to $265$425 million in implementation costs and other related costs.Wecosts. We expect these pre-tax costs to be associated with our segments as follows: Americas Simple Meals and& Beverages - approximately 30%31%; Global Biscuits and Snacks - approximately 38%; Campbell Fresh - approximately 4%44%; and Corporate - approximately 28%25%.
Of the aggregate $380$735 million to $420$740 million of pre-tax costs associated with continuing operations identified to date, we expect approximately $350$635 million to $390$640 million will be cash expenditures. In addition, we expect to invest approximately $180$445 million in capital expenditures through 20192023, of which we invested $440 million as of July 31, 2022. The capital expenditures primarily relatedrelate to a U.S. warehouse optimization project, improvement of quality, safety and cost structure across the constructionSnyder’s-Lance manufacturing network, implementation of a networkour existing SAP enterprise-resource planning system for Snyder's-Lance, transition of distribution centers forproduction of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and insourcingapplications and optimization of manufacturing for certain simple meal products, of which we invested approximately $10 as of July 30, 2017.the Snyder’s-Lance warehouse and distribution network.
A summary of the restructuring activity and related reserves associated with the initiativescontinuing operations at July 30, 2017,31, 2022, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Severance Pay and Benefits | | | | | | Implementation Costs and Other Related Costs(3) | | Asset Impairment/Accelerated Depreciation | | Other Non-Cash Exit Costs(4) | | Total Charges |
Accrued balance at August 2, 2020(1) | | $ | 15 | | | | | | | | | | | | | |
| 2021 charges | | 6 | | | | | | | 27 | | | 15 | | | 5 | | | $ | 53 | |
| 2021 cash payments | | (14) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Accrued balance at August 1, 2021(2) | | $ | 7 | | | | | | | | | | | | | |
| 2022 charges | | 5 | | | | | | | 26 | | | — | | | — | | | $ | 31 | |
| 2022 cash payments | | (5) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Accrued balance at July 31, 2022 | | $ | 7 | | | | | | | | | | | | | |
(1)Includes $3 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2)Includes $1 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Severance Pay and Benefits | | Other Restructuring Costs | | Non-Cash Benefits(4) | | Implementation Costs and Other Related Costs(5) | | Asset Impairment/Accelerated Depreciation | | Total Charges |
| Accrued balance at August 3, 2014 | | $ | — |
| | $ | — |
| | | | | | | | |
| 2015 charges | | 87 |
| | 8 |
| | 7 |
| | 22 |
| | — |
| | $ | 124 |
|
| 2015 cash payments | | (1 | ) | | — |
| | | | | | | | |
| Foreign currency translation adjustment | | (1 | ) | | — |
| | | | | | | | |
Accrued balance at August 2, 2015(1) | | $ | 85 |
| | $ | 8 |
| | | | | | | | |
| 2016 charges | | 34 |
| | 1 |
| | — |
| | 47 |
| | — |
| | $ | 82 |
|
| 2016 cash payments | | (46 | ) | | (9 | ) | | | | | | | | |
Accrued balance at July 31, 2016(2) | | $ | 73 |
| | $ | — |
| | | | | | | | |
| 2017 charges | | 7 |
| | — |
| | — |
| | 39 |
| | 12 |
| | $ | 58 |
|
| 2017 cash payments | | (54 | ) | | — |
| | | | | | | | |
Accrued balance at July 30, 2017(3) | | $ | 26 |
| | $ | — |
| | | | | | | | |
| |
(1)
| Includes $45 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet. |
| |
(2)
| Includes $17 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet. |
| |
(3)
| Includes $2 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet. |
| |
(4)
| Represents postretirement and pension curtailment costs. See Note 10. |
| |
(5)
| Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses and Cost of products sold in the Consolidated Statements of Earnings. |
(3)Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses, Cost of products sold and Marketing and selling expenses in the Consolidated Statements of Earnings.
(4)Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet.
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows:
|
| | | | | | | |
| | 2017 | | Costs Incurred to Date |
| Americas Simple Meals and Beverages | $ | 21 |
| | $ | 92 |
|
| Global Biscuits and Snacks | 12 |
| | 78 |
|
| Campbell Fresh | 4 |
| | 6 |
|
| Corporate | 21 |
| | 88 |
|
| Total | $ | 58 |
| | $ | 264 |
|
2014 Initiatives | | | | | | | | | | | |
| (Millions) | 2022 | | Costs Incurred to Date |
| Meals & Beverages | $ | 2 | | | $ | 225 | |
| Snacks | 22 | | | 321 | |
| Corporate | 7 | | | 179 | |
| Total | $ | 31 | | | $ | 725 | |
In 2014, we implemented initiatives to reduce overhead acrossaddition, in the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016,second quarter of 2021, we recorded a reduction to restructuring charges of $4 related to the 2014 initiatives. As of July 31, 2016, we incurred substantially all$19 million deferred tax charge in connection with a legal entity reorganization as part of the costs related to the 2014 initiatives. A summarycontinued integration of the pre-tax costs associated with the 2014 initiatives is as follows:Snyder's-Lance.
|
| | | | | | | | | | | |
| | Total Program(1) | | Change in Estimate | | Recognized as of July 31, 2016 |
| Severance pay and benefits | $ | 41 |
| | $ | (4 | ) | | $ | 37 |
|
| Asset impairment | 12 |
| | — |
| | 12 |
|
| Other exit costs | 1 |
| | — |
| | 1 |
|
| Total | $ | 54 |
| | $ | (4 | ) | | $ | 50 |
|
| |
(1)
| Recognized as of August 2, 2015. |
| |
8. | Earnings per Share (EPS) |
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for 20172022, 2021 and 20162020 excludes less thanapproximately 1 million stock options that would have been antidilutive. There were no antidilutive stock options in 2015.
| |
9. | Noncontrolling Interests |
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support our soup9. Pension and broth business in China. We contributed cash of $14 and the joint venture partner contributed cash of $9 in 2015.Postretirement Benefits
We own a 70% controlling interest in a Malaysian food products manufacturing company.
We also own a 99.8% interest in Acre Venture Partners, L.P. (Acre), a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. See also Note 14.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
| |
10. | Pension and Postretirement Benefits |
Pension Benefits — We sponsor a number of noncontributory defined benefit pension plans to provide retirement benefits to all eligible U.S. and non-U.S. employees. The benefits provided under these plans are based primarily on years of service and compensation levels. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly by us from general funds. In 1999, we implemented significant amendments to certain U.S. pension plans. Under a new formula, retirement benefits are determined based on percentages of annual pay and age. To minimize the impact of converting to the new formula, service and earnings credit continued to accrue through the year 2014for fifteen years for certain active employees participating in the plans under the old formula prior to the amendments. Employees will receive the benefit from either the new or old formula, whichever is higher. Benefits become vested upon the completion of three years of service. Effective as of January 1, 2011, our
U.S. pension plans were amended so that employees hired or rehired on or after that date and who are not covered by collective bargaining agreements will not be eligible to participate in the plans. All collective bargaining units adopted this amendment by December 31, 2011.
Postretirement Benefits — We provide postretirement benefits, including health care and life insurance to substantially alleligible retired U.S. employees, and where applicable, their dependents. We establishedAccordingly, we sponsor a retiree medical account benefitsprogram for eligible retired U.S. retirees. Theemployees and fund applicable retiree medical accounts were intended to provide reimbursement for eligible health care expenses on a tax-favored basis.basis for retirees who satisfy certain eligibility requirements. Effective as of January 1, 2011, the retirement medical program was amended to eliminate the retiree medical account benefit for employees not covered by collective bargaining agreements. To preserve the benefit for employees close to retirement age, the retiree medical account will be available to employees who were at least age 50 with at least 10 years of service as of December 31, 2010, and who satisfy the other eligibility requirements for the retiree medical program. In July 2016, the retirement medical program was amended and effective as of January 1, 2017,2019, we no longer sponsor our own retiree medical coverage for certain Medicare-eligible retirees.substantially all retired U.S. employees that are Medicare eligible. Instead, we offer these Medicare-eligible retirees access to health care coverage through a private exchange and offer a health reimbursement account to subsidize benefits for a select group of such retirees. In July 2017, the retirement medical program was once again amended and beginning onWe also provide postretirement life insurance to all eligible U.S. employees who retired prior to January 1, 2018, we will no longer sponsor our own medical coverage foras well as certain Medicare-eligible retireeseligible retired employees covered by one of our collective bargaining agreements. Instead, we will offer these Medicare-eligible retirees access to
Determining net periodic benefit expense (income) is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care coverage through a private exchangetrend rates. Actuarial gains and offer a health reimbursement account to subsidize benefits for a select grouplosses are recognized immediately in Other expenses / (income) in the Consolidated Statements of such retirees.
Earnings as of the measurement date, which is our fiscal year end, or more frequently if an interim remeasurement is required. We use the fiscal year end asfair value of plan assets to calculate the measurement date for the benefit plans.expected return on plan assets.
Components of net periodic benefit expense (income) were as follows:
|
| | | | | | | | | | | |
| | Pension |
| | 2017 | | 2016 | | 2015 |
| Service cost | $ | 26 |
| | $ | 26 |
| | $ | 28 |
|
| Interest cost | 86 |
| | 98 |
| | 105 |
|
| Expected return on plan assets | (144 | ) | | (147 | ) | | (173 | ) |
| Amortization of prior service credit | — |
| | — |
| | (1 | ) |
| Recognized net actuarial (gain) loss | (198 | ) | | 302 |
| | 136 |
|
| Curtailment loss | — |
| | — |
| | 1 |
|
| Net periodic benefit expense (income) | $ | (230 | ) | | $ | 279 |
| | $ | 96 |
|
| | | | | | | | | | | | | | | | | |
| Pension |
| (Millions) | 2022 | | 2021 | | 2020 |
| Service cost | $ | 16 | | | $ | 18 | | | $ | 19 | |
| Interest cost | 49 | | | 41 | | | 65 | |
| Expected return on plan assets | (118) | | | (122) | | | (134) | |
| Amortization of prior service cost | — | | | — | | | — | |
| Actuarial losses (gains) | 80 | | | (197) | | | 141 | |
| | | | | |
| | | | | |
| | | | | |
| Net periodic benefit expense (income) | $ | 27 | | | $ | (260) | | | $ | 91 | |
The curtailment losscomponents of $1 in 2015 was related to a voluntary employee separation program and wasnet periodic benefit expense (income) other than the service cost component associated with continuing operations are included in Restructuring charges. See also Note 7.
|
| | | | | | | | | | | |
| | Postretirement |
| | 2017 | | 2016 | | 2015 |
| Service cost | $ | 1 |
| | $ | 1 |
| | $ | 2 |
|
| Interest cost | 10 |
| | 15 |
| | 15 |
|
| Amortization of prior service credit | (25 | ) | | (1 | ) | | (1 | ) |
| Recognized net actuarial (gain) loss | (14 | ) | | 23 |
| | 7 |
|
| Curtailment loss | — |
| | — |
| | 6 |
|
| Net periodic benefit expense (income) | $ | (28 | ) | | $ | 38 |
| | $ | 29 |
|
The curtailment lossactuarial losses recognized in 2022 were primarily due to losses on plan assets, partially offset by increases in discount rates used to determine the benefit obligation. The actuarial gains recognized in 2021 were primarily due to higher than anticipated investment gains on plan assets and increases in discount rates used to determine the benefit obligation. The actuarial losses recognized in 2020 were primarily due to decreases in discount rates used to determine the benefit obligation, partially offset by higher than anticipated investment gains on plan assets.
Net periodic benefit expense (income) associated with discontinued operations was not material in 2020.
| | | | | | | | | | | | | | | | | |
| | Postretirement |
| (Millions) | 2022 | | 2021 | | 2020 |
| Service cost | $ | — | | | $ | — | | | $ | 1 | |
| Interest cost | 3 | | | 4 | | | 6 | |
| Amortization of prior service credit | (1) | | | (5) | | | (28) | |
| Actuarial losses (gains) | (36) | | | (6) | | | 23 | |
| | | | | |
| Net periodic benefit expense (income) | $ | (34) | | | $ | (7) | | | $ | 2 | |
The components of $6 in 2015 was related to a voluntary employee separation program and wasnet periodic benefit expense (income) other than the service cost component associated with continuing operations are included in Restructuring charges. See also Note 7.Other expenses / (income) in the Consolidated Statements of Earnings.
The estimated prior service credit that will be amortized from Accumulated other comprehensive loss into net periodic postretirement expense during 2018 is $27.actuarial gains recognized in 2022 and 2021 were primarily due to increases in discount rates used to determine the benefit obligation. The prior service credit isactuarial losses recognized in 2020 were primarily relateddue to decreases in discount rates used to determine the amendments in July 2016 and July 2017.
benefit obligation.
Change in benefit obligation:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Postretirement |
| (Millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Obligation at beginning of year | | $ | 2,186 | | | $ | 2,366 | | | $ | 222 | | | $ | 244 | |
| Service cost | | 16 | | | 18 | | | — | | | — | |
| Interest cost | | 49 | | | 41 | | | 3 | | | 4 | |
| Actuarial loss (gain) | | (310) | | | (43) | | | (36) | | | (6) | |
| | | | | | | | |
| Benefits paid | | (106) | | | (152) | | | (17) | | | (20) | |
| Settlements | | (89) | | | (53) | | | — | | | — | |
| | | | | | | | |
| Other | | (6) | | | (2) | | | — | | | — | |
| | | | | | | | |
| Foreign currency adjustment | | (3) | | | 11 | | | — | | | — | |
| Benefit obligation at end of year | | $ | 1,737 | | | $ | 2,186 | | | $ | 172 | | | $ | 222 | |
|
| | | | | | | | | | | | | | | | |
| | | Pension | | Postretirement |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Obligation at beginning of year | | $ | 2,626 |
| | $ | 2,569 |
| | $ | 313 |
| | $ | 392 |
|
| Service cost | | 26 |
| | 26 |
| | 1 |
| | 1 |
|
| Interest cost | | 86 |
| | 98 |
| | 10 |
| | 15 |
|
| Actuarial (gain) loss | | (134 | ) | | 210 |
| | (14 | ) | | 23 |
|
| Participant contributions | | — |
| | — |
| | 1 |
| | 1 |
|
| Plan amendments | | — |
| | — |
| | (12 | ) | | (93 | ) |
| Benefits paid | | (164 | ) | | (116 | ) | | (26 | ) | | (30 | ) |
| Settlements | | — |
| | (160 | ) | | — |
| | — |
|
| Medicare subsidies | | — |
| | — |
| | 3 |
| | 4 |
|
| Other | | (3 | ) | | (6 | ) | | — |
| | — |
|
| Foreign currency adjustment | | 13 |
| | 5 |
| | — |
| | — |
|
| Benefit obligation at end of year | | $ | 2,450 |
| | $ | 2,626 |
| | $ | 276 |
| | $ | 313 |
|
Change in the fair value of pension plan assets:
| | | | | 2017 | | 2016 | |
| (Millions) | | (Millions) | | 2022 | | 2021 |
| Fair value at beginning of year | | $ | 2,111 |
| | $ | 2,316 |
| Fair value at beginning of year | | $ | 2,220 | | | $ | 2,120 | |
| Actual return on plan assets | | 208 |
| | 54 |
| Actual return on plan assets | | (272) | | | 276 | |
| Employer contributions | | 5 |
| | 2 |
| Employer contributions | | — | | | 2 | |
| Benefits paid | | (154 | ) | | (106 | ) | Benefits paid | | (92) | | | (138) | |
| Settlements | | — |
| | (160 | ) | Settlements | | (89) | | | (53) | |
| | Foreign currency adjustment | | 13 |
| | 5 |
| Foreign currency adjustment | | (4) | | | 13 | |
| Fair value at end of year | | $ | 2,183 |
| | $ | 2,111 |
| Fair value at end of year | | $ | 1,763 | | | $ | 2,220 | |
Net amounts recognized in the Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension | | Postretirement |
| (Millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Other assets | | $ | 146 | | | $ | 190 | | | $ | — | | | $ | — | |
| Accrued liabilities | | 13 | | | 14 | | | 19 | | | 23 | |
| Other liabilities | | 107 | | | 142 | | | 153 | | | 199 | |
| | | | | | | | |
| Net amounts recognized asset / (liability) | | $ | 26 | | | $ | 34 | | | $ | (172) | | | $ | (222) | |
|
| | | | | | | | | | | | | | | | |
| | | Pension | | Postretirement |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Other assets | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Accrued liabilities | | 14 |
| | 14 |
| | 29 |
| | 28 |
|
| Other liabilities | | 261 |
| | 501 |
| | 247 |
| | 285 |
|
| Net amounts recognized | | $ | 267 |
| | $ | 515 |
| | $ | 276 |
| | $ | 313 |
|
|
| | | | | | | | |
| Amounts recognized in accumulated other comprehensive income (loss) consist of: | | Postretirement |
| | 2017 | | 2016 |
| Prior service credit | | $ | 83 |
| | $ | 96 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Pension | | Postretirement |
| 2022 | | 2021 | | 2022 | | 2021 |
| Prior service credit (cost) | | $ | (1) | | | $ | (1) | | | $ | 4 | | | $ | 5 | |
The change in amounts recognized in accumulated other comprehensive income (loss) associated with postretirement benefits was due to the plan amendmentsamortization in July 20162022 and July 2017, net of amortization.2021.
The following table provides information for pension plans with projected benefit obligations in excess of plan assets and accumulated benefit obligations in excess of plan assets:
| | | | | 2017 | | 2016 | |
| (Millions) | | (Millions) | | 2022 | | 2021 |
| Projected benefit obligation | | $ | 2,270 |
| | $ | 2,434 |
| Projected benefit obligation | | $ | 120 | | | $ | 156 | |
| Accumulated benefit obligation | | $ | 2,232 |
| | $ | 2,385 |
| Accumulated benefit obligation | | $ | 118 | | | $ | 154 | |
| Fair value of plan assets | | $ | 1,995 |
| | $ | 1,933 |
| Fair value of plan assets | | $ | — | | | $ | — | |
The accumulated benefit obligation for all pension plans was $2,399 at July 30, 2017, and $2,557$1.716 billion at July 31, 2016.
2022, and $2.159 billion at August 1, 2021.
Weighted-average assumptions used to determine benefit obligations at the end of the year:
| | | | | Pension | | Postretirement | | | Pension | | Postretirement |
| | | 2017 | | 2016 | | 2017 | | 2016 | | | 2022 | | 2021 | | 2022 | | 2021 |
| Discount rate | | 3.74% | | 3.39% | | 3.45% | | 3.20% | Discount rate | | 4.58% | | 2.69% | | 4.48% | | 2.37% |
| Rate of compensation increase | | 3.24% | | 3.25% | | 3.25% | | 3.25% | Rate of compensation increase | | 3.23% | | 3.23% | | 3.25% | | 3.25% |
| Interest crediting rate | | Interest crediting rate | | 4.00% | | 4.00% | | Not applicable |
Weighted-average assumptions used to determine net periodic benefit cost for the years ended:
| | | | | | | | | | | | | | | | | | | | |
| | | Pension |
| | | 2022 | | 2021 | | 2020 |
| Discount rate | | 3.13% | | 2.47% | | 3.46% |
| Expected return on plan assets | | 5.82% | | 6.01% | | 6.85% |
| Rate of compensation increase | | 3.23% | | 3.23% | | 3.20% |
| Interest crediting rate | | 4.00% | | 4.00% | | 4.00% |
|
| | | | | | |
| | | Pension |
| | | 2017 | | 2016 | | 2015 |
| Discount rate | | 3.39% | | 4.19% | | 4.33% |
| Expected return on plan assets | | 7.09% | | 7.35% | | 7.62% |
| Rate of compensation increase | | 3.25% | | 3.29% | | 3.30% |
The discount rate is established as of our fiscal year-endthe measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class and a premium for active management.
The discount rate used to determine net periodic postretirement expense was 3.20%2.37% in 2017,2022, 2.15% in 2021, and 4.00%3.28% in 2016 and 2015.2020.
Assumed health care cost trend rates at the end of the year:
|
| | | | |
| | | 2017 | | 2016 |
| Health care cost trend rate assumed for next year | | 7.25% | | 7.25% |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate) | | 4.50% | | 4.50% |
| Year that the rate reaches the ultimate trend rate | | 2023 | | 2022 |
A one-percentage-point change in assumed health care costs would have the following effects on 2017 reported amounts:
|
| | | | | | | | |
| | | Increase | | Decrease |
| Effect on service and interest cost | | $ | — |
| | $ | — |
|
| Effect on the 2017 accumulated benefit obligation | | $ | 3 |
| | $ | (3 | ) |
| | | | | | | | | | | | | | |
| | | 2022 | | 2021 |
| Health care cost trend rate assumed for next year | | 6.50% | | 6.25% |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate) | | 5.00% | | 4.50% |
| Year that the rate reaches the ultimate trend rate | | 2027 | | 2025 |
Pension Plan Assets
The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and regulations.
The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to plan obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.
The portfolio includes investments in the following asset classes: fixed income, equity, real estate and alternatives. Fixed income will provide a moderate expected return and partially hedge the exposure to interest rate risk of the plans’ obligations. Equities are used for their high expected return. Additional asset classes are used to provide diversification.
Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class allocations move outside these parameters, at which time the asset allocation is rebalanced back to the policy target weight.
Our year-end pension plan weighted-average asset allocations by category were:
| | | | Strategic Target | | 2017 | | 2016 | | Strategic Target | | 2022 | | 2021 |
| Equity securities | 47% | | 48% | | 51% | Equity securities | 33% | | 34% | | 36% |
| Debt securities | 40% | | 40% | | 35% | Debt securities | 60% | | 59% | | 57% |
| Real estate and other | 13% | | 12% | | 14% | Real estate and other | 7% | | 7% | | 7% |
| Total | 100% | | 100% | | 100% | Total | 100% | | 100% | | 100% |
Pension plan assets are categorized based on the following fair value hierarchy:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.
•Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.
The following table presents our pension plan assets by asset category at July 30, 2017,31, 2022, and July 31, 2016:August 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of July 31, 2022 | | Fair Value Measurements at July 31, 2022 Using Fair Value Hierarchy | | Fair Value as of August 1, 2021 | | Fair Value Measurements at August 1, 2021 Using Fair Value Hierarchy |
| (Millions) | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Short-term investments | $ | 33 | | | $ | 27 | | | $ | 6 | | | $ | — | | | $ | 43 | | | $ | 41 | | | $ | 2 | | | $ | — | |
| Equities: | | | | | | | | | | | | | | | |
| U.S. | 78 | | | 75 | | | 3 | | | — | | | 106 | | | 100 | | | 6 | | | — | |
| Non-U.S. | 162 | | | 162 | | | — | | | — | | | 234 | | | 233 | | | 1 | | | — | |
| Corporate bonds: | | | | | | | | | | | | | | | |
| U.S. | 571 | | | — | | | 571 | | | — | | | 723 | | | — | | | 723 | | | — | |
| Non-U.S. | 119 | | | — | | | 119 | | | — | | | 138 | | | — | | | 138 | | | — | |
| Government and agency bonds: | | | | | | | | | | | | | | | |
| U.S. | 224 | | | — | | | 224 | | | — | | | 198 | | | — | | | 198 | | | — | |
| Non-U.S. | 20 | | | — | | | 20 | | | — | | | 33 | | | — | | | 33 | | | — | |
| Municipal bonds | 19 | | | — | | | 19 | | | — | | | 29 | | | — | | | 29 | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Mortgage and asset backed securities | 15 | | | — | | | 15 | | | — | | | 10 | | | — | | | 10 | | | — | |
| Real estate | 4 | | | 2 | | | — | | | 2 | | | 5 | | | 2 | | | — | | | 3 | |
| Hedge funds | 11 | | | — | | | — | | | 11 | | | 30 | | | — | | | — | | | 30 | |
| Derivative assets | 10 | | | — | | | 10 | | | — | | | 6 | | | — | | | 6 | | | — | |
| Derivative liabilities | (5) | | | — | | | (5) | | | — | | | (3) | | | — | | | (3) | | | — | |
| Total assets at fair value | $ | 1,261 | | | $ | 266 | | | $ | 982 | | | $ | 13 | | | $ | 1,552 | | | $ | 376 | | | $ | 1,143 | | | $ | 33 | |
| Investments measured at net asset value: | | | | | | | | | | | | | | | |
| Short-term investments | $ | 27 | | | | | | | | | $ | 26 | | | | | | | |
| | | | | | | | | | | | | | | |
| Commingled equity funds | 307 | | | | | | | | | 438 | | | | | | | |
| Commingled fixed income funds | 87 | | | | | | | | | 117 | | | | | | | |
| | | | | | | | | | | | | | | |
| Real estate | 99 | | | | | | | | | 87 | | | | | | | |
| Hedge funds | 14 | | | | | | | | | 34 | | | | | | | |
| Total investments measured at net asset value: | $ | 534 | | | | | | | | | $ | 702 | | | | | | | |
| Other items to reconcile to fair value | (32) | | | | | | | | | (34) | | | | | | | |
| Total pension plan assets at fair value | $ | 1,763 | | | | | | | | | $ | 2,220 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value
as of
July 30, 2017 | | Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy | | Fair Value
as of
July 31, 2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Short-term investments | $ | 46 |
| | $ | 35 |
| | $ | 11 |
| | $ | — |
| | $ | 43 |
| | $ | 41 |
| | $ | 2 |
| | $ | — |
|
| Equities: | | | | | | | | | | | | | | | |
| U.S. | 338 |
| | 338 |
| | — |
| | — |
| | 349 |
| | 349 |
| | — |
| | — |
|
| Non-U.S. | 290 |
| | 290 |
| | — |
| | — |
| | 273 |
| | 273 |
| | — |
| | — |
|
| Corporate bonds: | | | | | | | | | | | | | | | |
| U.S. | 537 |
| | — |
| | 537 |
| | — |
| | 469 |
| | — |
| | 469 |
| | — |
|
| Non-U.S. | 123 |
| | — |
| | 123 |
| | — |
| | 98 |
| | — |
| | 98 |
| | — |
|
| Government and agency bonds: | | | | | | | | | | | | | | | |
| U.S. | 60 |
| | — |
| | 60 |
| | — |
| | 49 |
| | — |
| | 49 |
| | — |
|
| Non-U.S. | 31 |
| | — |
| | 31 |
| | — |
| | 29 |
| | — |
| | 29 |
| | — |
|
| Municipal bonds | 58 |
| | — |
| | 58 |
| | — |
| | 67 |
| | — |
| | 67 |
| | — |
|
| Mortgage and asset backed securities | 8 |
| | — |
| | 8 |
| | — |
| | 7 |
| | — |
| | 7 |
| | — |
|
| Real estate | 17 |
| | 10 |
| | — |
| | 7 |
| | 19 |
| | 13 |
| | — |
| | 6 |
|
| Hedge funds | 38 |
| | — |
| | — |
| | 38 |
| | 45 |
| | — |
| | — |
| | 45 |
|
| Derivative assets | 9 |
| | — |
| | 9 |
| | — |
| | 6 |
| | — |
| | 6 |
| | — |
|
| Derivative liabilities | (10 | ) | | — |
| | (10 | ) | | — |
| | (7 | ) | | — |
| | (7 | ) | | — |
|
| Total assets at fair value | $ | 1,545 |
| | $ | 673 |
| | $ | 827 |
| | $ | 45 |
| | $ | 1,447 |
| | $ | 676 |
| | $ | 720 |
| | $ | 51 |
|
| Investments measured at net asset value: | | | | | | | | | | | | | | | |
| Short-term investments | 31 |
| | | | | | | | 20 |
| | | | | | |
| Commingled funds: | | | | | | | | | | | | | | | |
| Equities | 332 |
| | | | | | | | 309 |
| | | | | | |
| Fixed income | 30 |
| | | | | | | | 31 |
| | | | | | |
| Blended | 86 |
| | | | | | | | 79 |
| | | | | | |
| Real estate | 84 |
| | | | | | | | 108 |
| | | | | | |
| Hedge funds | 103 |
| | | | | | | | 144 |
| | | | | | |
| Total investments measured at net asset value: | 666 |
| | | | | | | | 691 |
| | | | | | |
| Other items to reconcile to fair value of plan assets | (28 | ) | | | | | | | | (27 | ) | | | | | | |
| Total pension plan assets at fair value | $ | 2,183 |
| | | | | | | | $ | 2,111 |
| | | | | | |
Short-term investments — Investments include cash and cash equivalents, and various short-term debt instruments and short-term investment funds. Institutional short-term investment vehicles valued daily are classified as Level 1 at cost which approximates market value. Short-term debt instruments are classified at Level 2 and are valued based on bid quotations and recent trade data for identical or similar obligations. Other investments valued based upon net asset value are included as a reconciling item to the fair value table.
Equities — CommonGenerally common stocks and preferred stocks are classified as Level 1 and are valued using quoted market prices in active markets.
Corporate bonds — These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.
Government and agency bonds — These investments are generally valued based on bid quotations and recent trade data for identical or similar obligations.
Municipal bonds — These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.
Mortgage and asset backed securities — These investments are valued based on prices obtained from third party pricing sources. The prices from third party pricing sources may be based on bid quotes from dealers and recent trade data. Mortgage backed securities are traded in the over-the-counter market.
Real estate — Real estate investments consist of real estate investment trusts, property funds and limited partnerships. Real estate investment trusts are classified as Level 1 and are valued based on quoted market prices. Property funds are classified as either Level 2 or Level 3 depending upon whether liquidity is limited or there are few observable market participant transactions. Property funds are valued based on third party appraisals. Limited partnerships are valued based upon valuations provided by the general partners of the funds. The values of limited partnerships are based upon an assessment of each underlying investment, incorporating valuations that consider the evaluation of financing and sales transactions with third parties, expected cash flows and market-based information, including comparable transactions and performance multiples among other factors. The investments are classified as Level 3 since the valuation is determined using unobservable inputs. Real estate investments valued at net asset value are included as a reconciling item to the fair value table.
Hedge funds — Hedge fund investments include hedge funds valued based upon a net asset value derived from the fair value of underlying securities. Hedge fund investments that are subject to liquidity restrictions or that are based on unobservable inputs are classified as Level 3. Hedge fund investments may include long and short positions in equity and fixed income securities, derivative instruments such as futures and options, commodities and other types of securities. Hedge fund investments valued at net asset value are included as a reconciling item to the fair value table.
Derivatives — Derivative financial instruments include forward currency contracts, futures contracts, options contracts, interest rate swaps and credit default swaps. Derivative financial instruments are classified as Level 2 and are valued based on observable market transactions or prices.
Commingled funds — Investments in commingled funds are not traded in active markets. Blended commingled funds are invested in both equities and fixed income securities. Commingled funds are valued based on the net asset values of such funds and are included as a reconciling item to the fair value table.
Other items to reconcile to fair value of plan assets included amounts due for securities sold, amounts payable for securities purchased and other payables.
The following table summarizes the changes in fair value of Level 3 investments for the years ended July 30, 2017,31, 2022, and July 31, 2016:August 1, 2021: |
| | | | | | | | | | | | |
| | | Real Estate | | Hedge Funds | | Total |
| Fair value at July 31, 2016 | | $ | 6 |
| | $ | 45 |
| | $ | 51 |
|
| Actual return on plan assets | | 1 |
| | 2 |
| | 3 |
|
| Purchases | | 1 |
| | 1 |
| | 2 |
|
| Sales | | (1 | ) | | (10 | ) | | (11 | ) |
| Settlements | | — |
| | — |
| | — |
|
| Transfers out of Level 3 | | — |
| | — |
| | — |
|
| Fair value at July 30, 2017 | | $ | 7 |
| | $ | 38 |
| | $ | 45 |
|
| | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Real Estate | | Hedge Funds | | Total |
| Fair value at August 1, 2021 | | $ | 3 | | | $ | 30 | | | $ | 33 | |
| Actual return on plan assets | | — | | | 1 | | | 1 | |
| Purchases, sales and settlements, net | | (1) | | | (20) | | | (21) | |
| Transfers out of Level 3 | | — | | | — | | | — | |
| Fair value at July 31, 2022 | | $ | 2 | | | $ | 11 | | | $ | 13 | |
| | | | | | | | | | | | | | | | | | | | |
| (Millions) | | Real Estate | | Hedge Funds | | Total |
| Fair value at August 2, 2020 | | $ | 3 | | | $ | 31 | | | $ | 34 | |
| Actual return on plan assets | | — | | | 2 | | | 2 | |
| Purchases, sales and settlements, net | | — | | | (3) | | | (3) | |
| Transfers out of Level 3 | | — | | | — | | | — | |
| Fair value at August 1, 2021 | | $ | 3 | | | $ | 30 | | | $ | 33 | |
|
| | | | | | | | | | | | |
| | | Real Estate | | Hedge Funds | | Total |
| Fair value at August 2, 2015 | | $ | 6 |
| | $ | 39 |
| | $ | 45 |
|
| Actual return on plan assets | | 1 |
| | 1 |
| | 2 |
|
| Purchases | | — |
| | 5 |
| | 5 |
|
| Sales | | (1 | ) | | — |
| | (1 | ) |
| Settlements | | — |
| | — |
| | — |
|
| Transfers out of Level 3 | | — |
| | — |
| | — |
|
| Fair value at July 31, 2016 | | $ | 6 |
| | $ | 45 |
| | $ | 51 |
|
The following tables present additional information about the pension plan assets valued using net asset value as a practical expedient within the fair value hierarchy table:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| | | Fair Value | | Redemption Frequency | | Redemption Notice Period Range | | Fair Value | | Redemption Frequency | | Redemption Notice Period Range |
| Short-term investments | | $ | 31 |
| | Daily | | 1 Day | | $ | 20 |
| | Daily | | 1 Day |
| Commingled funds: | | | | | | | | | | | | | | | | | | |
| Equities | | 332 |
| | Daily, | Monthly | | 2 | to | 60 Days | | 309 |
| | Daily, | Monthly | | 1 | to | 60 Days |
| Fixed income | | 30 |
| | Daily | | 1 Day | | 31 |
| | Daily | | 1 Day |
| Blended | | 86 |
| | Primarily Daily | | 1 | to | 20 Days | | 79 |
| | Primarily Daily | | 1 Day |
Real estate funds(1) | | 84 |
| | Quarterly | | 45 | to | 90 Days | | 108 |
| | Primarily Quarterly | | 1 | to | 90 Days |
Hedge funds(2) | | 103 |
| | Monthly | | 5 | to | 30 Days | | 144 |
| | Monthly, | Quarterly | | 5 | to | 65 Days |
| Total | | $ | 666 |
| | | | | | | | | $ | 691 |
| | | | | | | |
| |
(1)
| Included real estate investments valued at $34 in 2016 for which a redemption queue was imposed by the investment manager increasing the redemption receipt period to up to 9 months after notice. |
| |
(2)
| Includes a fund valued at $2 in 2017 and $45 in 2016 which is being liquidated. Distributions from the fund will be received as the underlying investments are liquidated which is estimated to occur by December 31, 2017. |
There were no unfunded commitments in 2017 or 2016.
No contributions are expected to be made to U.S. pension plans in 2018. We expect contributions to non-U.S. pension plans to be approximately $5 in 2018.
Estimated future benefit payments are as follows: |
| | | | | | | | |
| | | Pension | | Postretirement |
| 2018 | | $ | 175 |
| | $ | 29 |
|
| 2019 | | $ | 171 |
| | $ | 28 |
|
| 2020 | | $ | 162 |
| | $ | 27 |
|
| 2021 | | $ | 160 |
| | $ | 25 |
|
| 2022 | | $ | 161 |
| | $ | 24 |
|
| 2023-2027 | | $ | 801 |
| | $ | 97 |
|
| | | | | | | | | | | | | | |
| (Millions) | | Pension | | Postretirement |
| 2023 | | $ | 168 | | | $ | 20 | |
| 2024 | | $ | 155 | | | $ | 18 | |
| 2025 | | $ | 147 | | | $ | 17 | |
| 2026 | | $ | 142 | | | $ | 15 | |
| 2027 | | $ | 138 | | | $ | 15 | |
| 2028-2032 | | $ | 619 | | | $ | 62 | |
The estimated future benefit payments include payments from funded and unfunded plans.
We do not expect contributions to pension plans to be material in 2023.
Defined Contribution Plans — We sponsor a 401(k) Retirement Plan — We sponsor employee savings plans that covercovers substantially all U.S. employees. Effective January 1, 2011, weemployees and provide a matching contribution of 100% of employee contributions up to 4% of compensationeligible compensation. In addition, for
employees who are not covered by collective bargaining agreements. Employees hired or rehired on or after January 1, 2011, who will not be eligible to participate in the defined benefit plans and who are not covered by collective bargaining agreements receivethat we sponsor, we provide a contribution equal to 3% of eligible compensation regardless of their participation in the 401(k) Retirement Plan. Through December 31, 2019, all Snyder's-Lance U.S. employees were eligible to participate in a 401(k) retirement plan sponsored by Snyder's-Lance that provided participants with matching contributions equal to 100% of the first 4% and 50% of the next 1% of eligible compensation. As of January 1, 2020, Snyder's-Lance employees were transitioned to the 401(k) Retirement Plan and receive the same contributions under the 401(k) Retirement Plan noted above. Amounts charged to Costs and expenses of continuing operations were $34$69 million in 2017, $332022, $64 million in 20162021 and $31$62 million in 2015.
2020.
10. Leases
We lease warehouse and distribution facilities, office space, manufacturing facilities, equipment and vehicles, primarily through operating leases.
Leases recorded on our Consolidated Balance Sheet have remaining terms primarily from 1 to 13 years.
Our fleet leases generally include residual value guarantees that are assessed at lease inception in determining ROU assets and corresponding liabilities. No other significant restrictions or covenants are included in our leases.
The components of lease costs were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | | 2022 | | 2021 | | 2020 | | |
| Operating lease cost | | $ | 79 | | | $ | 80 | | | $ | 81 | | | |
| Finance lease - amortization of ROU assets | | 17 | | | 6 | | | 2 | | | |
| | | | | | | | |
| Short-term lease cost | | 56 | | | 48 | | | 39 | | | |
Variable lease cost(1) | | 202 | | | 201 | | | 172 | | | |
| Sublease income | | — | | | (2) | | | (3) | | | |
Total(2) | | $ | 354 | | | $ | 333 | | | $ | 291 | | | |
(1)Includes labor and other overhead included in our service contracts with embedded leases.
(2)Total lease cost in 2020 included $4 million related to discontinued operations.
The following table summarizes the lease amounts recorded in the Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | |
| | | Operating Leases |
| (Millions) | | Balance Sheet Classification | | 2022 | | 2021 |
| ROU assets, net | | Other assets | | $ | 239 | | | $ | 235 | |
| Lease liabilities (current) | | Accrued liabilities | | $ | 62 | | | $ | 54 | |
| Lease liabilities (noncurrent) | | Other liabilities | | $ | 177 | | | $ | 180 | |
| | | | | | |
| | Financing Leases |
| (Millions) | | Balance Sheet Classification | | 2022 | | 2021 |
| ROU assets, net | | Plant assets, net of depreciation | | $ | 28 | | | $ | 29 | |
| Lease liabilities (current) | | Short-term borrowings | | $ | 14 | | | $ | 11 | |
| Lease liabilities (noncurrent) | | Long-term debt | | $ | 16 | | | $ | 19 | |
Weighted-average lease terms and discount rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | July 31, 2022 | | August 1, 2021 |
| | Operating | | Finance | | Operating | | Finance |
| Weighted-average remaining term in years | | 5.7 | | | 2.4 | | | 6.4 | | | 3.1 | |
| Weighted-average discount rate | | 2.2 | | % | | 0.8 | | % | | 2.3 | | % | | 0.8 | | % |
Future minimum lease payments are as follows:
| | | | | | | | | | | | | | |
| | July 31, 2022 |
| | |
| | |
| (Millions) | | Operating | | Finance |
| 2023 | | $ | 66 | | | $ | 14 | |
| 2024 | | 53 | | | 10 | |
| 2025 | | 40 | | | 3 | |
| 2026 | | 27 | | | 3 | |
| 2027 | | 22 | | | — | |
| Thereafter | | 49 | | | — | |
| Total future undiscounted lease payments | | 257 | | | 30 | |
| Less imputed interest | | 18 | | | — | |
| Total reported lease liability | | $ | 239 | | | $ | 30 | |
The following table summarizes cash flow and other information related to leases:
| | | | | | | | | | | | | | |
| | | | |
| (Millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Operating cash flows from operating leases | | $ | 78 | | | $ | 79 | |
| | | | |
| Financing cash flows from finance leases | | $ | 17 | | | $ | 5 | |
| | | | |
| ROU assets obtained in exchange for lease obligations: | | | | |
| Operating leases | | $ | 79 | | | $ | 59 | |
| Finance leases | | $ | 16 | | | $ | 25 | |
| | | | |
| | | | |
| | | | |
11. Taxes on Earnings
The provision for income taxes on earnings from continuing operations consists of the following:
| | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Income taxes: | | | | | |
| Currently payable: | | | | | |
| Federal | $ | 160 | | | $ | 151 | | | $ | 152 | |
| State | 22 | | | 34 | | | 26 | |
| Non-U.S. | 15 | | | 6 | | | 3 | |
| 197 | | | 191 | | | 181 | |
| Deferred: | | | | | |
| Federal | 29 | | | 102 | | | (12) | |
| State | (6) | | | 33 | | | 4 | |
| Non-U.S. | (2) | | | 2 | | | 1 | |
| 21 | | | 137 | | | (7) | |
| $ | 218 | | | $ | 328 | | | $ | 174 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Income taxes: | | | | | |
| Currently payable: | | | | | |
| Federal | $ | 238 |
| | $ | 235 |
| | $ | 246 |
|
| State | 39 |
| | 34 |
| | 31 |
|
| Non-U.S. | 36 |
| | 47 |
| | 55 |
|
| | 313 |
| | 316 |
| | 332 |
|
| Deferred: | | | | | |
| Federal | 77 |
| | (17 | ) | | (47 | ) |
| State | 2 |
| | — |
| | 1 |
|
| Non-U.S. | 14 |
| | (13 | ) | | (3 | ) |
| | 93 |
| | (30 | ) | | (49 | ) |
| | $ | 406 |
| | $ | 286 |
| | $ | 283 |
|
| | | | | | | | | | | | | | | | | | | | |
| (Millions) | | 2022 | | 2021 | | 2020 |
| Earnings from continuing operations before income taxes: | | | | | | |
| United States | | $ | 948 | | | $ | 1,308 | | | $ | 737 | |
| Non-U.S. | | 27 | | | 28 | | | 29 | |
| | $ | 975 | | | $ | 1,336 | | | $ | 766 | |
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Earnings before income taxes: | | | | | | |
| United States | | $ | 1,103 |
| | $ | 705 |
| | $ | 803 |
|
| Non-U.S. | | 190 |
| | 144 |
| | 146 |
|
| | | $ | 1,293 |
| | $ | 849 |
| | $ | 949 |
|
The following is a reconciliation of the effective income tax rate on continuing operations to the U.S. federal statutory income tax rate:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income taxes (net of federal tax benefit) | 2.2 | | | 2.8 | | | 3.4 | |
| Tax effect of international items | 0.7 | | | 0.2 | | | (0.3) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| State income tax law changes | (1.0) | | | 0.3 | | | 0.1 | |
| | | | | |
| Divestiture impact on deferred taxes | — | | | (0.9) | | | — | |
| Legal entity reorganization | — | | | 1.4 | | | — | |
| Capital loss on the sale of the Plum baby food and snacks business | — | | | (1.3) | | | — | |
| Capital loss valuation allowance on the sale of the Plum baby food and snacks business | — | | | 1.3 | | | — | |
| Benefit on sale of the European chips business | — | | | — | | | (1.3) | |
| Other | (0.5) | | | (0.2) | | | (0.2) | |
| Effective income tax rate | 22.4 | % | | 24.6 | % | | 22.7 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes (net of federal tax benefit) | 2.1 |
| | 2.7 |
| | 2.2 |
|
| Tax effect of international items | (2.1 | ) | | (3.0 | ) | | (2.5 | ) |
| Settlement of tax contingencies | — |
| | — |
| | (0.8 | ) |
| Federal manufacturing deduction | (2.1 | ) | | (3.2 | ) | | (2.9 | ) |
| Goodwill impairment | 3.4 |
| | 4.3 |
| | — |
|
| Claim settlement | — |
| | (0.8 | ) | | — |
|
Foreign exchange losses(1) | (3.9 | ) | | — |
| | — |
|
| Other | (1.0 | ) | | (1.3 | ) | | (1.2 | ) |
| Effective income tax rate | 31.4 | % | | 33.7 | % | | 29.8 | % |
| |
(1)
| The 2017 rate was favorably impacted by a $52 benefit primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses. |
In the second quarter of 2021, we recorded a $19 million deferred tax charge in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance.
Deferred tax liabilities and assets are comprised of the following:
|
| | | | | | | |
| | 2017 | | 2016 |
| Depreciation | $ | 355 |
| | $ | 362 |
|
| Amortization | 521 |
| | 541 |
|
| Other | 20 |
| | 23 |
|
| Deferred tax liabilities | 896 |
| | 926 |
|
| Benefits and compensation | 241 |
| | 266 |
|
| Pension benefits | 98 |
| | 185 |
|
| Tax loss carryforwards | 36 |
| | 37 |
|
| Capital loss carryforwards | 92 |
| | 88 |
|
| Other | 95 |
| | 113 |
|
| Gross deferred tax assets | 562 |
| | 689 |
|
| Deferred tax asset valuation allowance | (120 | ) | | (118 | ) |
| Deferred tax assets, net of valuation allowance | 442 |
| | 571 |
|
| Net deferred tax liability | $ | 454 |
| | $ | 355 |
|
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| Depreciation | $ | 354 | | | $ | 352 | |
| Amortization | 870 | | | 869 | |
| Operating lease ROU assets | 54 | | | 53 | |
| Pension | 35 | | | 45 | |
| Other | 9 | | | 9 | |
| Deferred tax liabilities | 1,322 | | | 1,328 | |
| Benefits and compensation | 119 | | | 127 | |
| Pension benefits | 28 | | | 38 | |
| Tax loss carryforwards | 13 | | | 24 | |
| Capital loss carryforwards | 115 | | | 117 | |
| | | |
| Operating lease liabilities | 54 | | | 53 | |
| Other | 52 | | | 61 | |
| Gross deferred tax assets | 381 | | | 420 | |
| Deferred tax asset valuation allowance | (131) | | | (142) | |
| Deferred tax assets, net of valuation allowance | 250 | | | 278 | |
| Net deferred tax liability | $ | 1,072 | | | $ | 1,050 | |
At July 30, 2017,31, 2022, our U.S. and non-U.S. subsidiaries had tax loss carryforwards of approximately $170.$259 million. Of these carryforwards, $149 expire between 2018 and 2037, and $21$4 million may be carried forward indefinitely.indefinitely, and $255 million expire between 2023 and 2037, with the majority expiring after 2028. At July 30, 2017,31, 2022, deferred tax asset valuation allowances have been established to offset $137$78 million of these tax loss carryforwards. Additionally, atas of July 30, 2017,31, 2022, our U.S. and non-U.S. subsidiaries had capital loss carryforwards of approximately $323,$477 million, all of which were fully offset by valuation allowances.
The net change in the deferred tax asset valuation allowance in 20172022 was an increasea decrease of $2.$11 million. The increasedecrease was primarily due to the impactliquidation of currency and the recognition of additional valuation allowances on tax loss carryforwards, partially offset by the expiration of tax losses.an inactive subsidiary. The net change in the deferred tax asset valuation allowance in 20162021 was an increase of $20 million. The increase was primarily due to the sale of the the Plum baby food and snacks business. The net change in the deferred tax asset valuation allowance in 2020 was a decrease of $4.$305 million. The decrease was primarily due to the expirationsale of tax losses, partially offset by the recognition of additional valuation allowance on tax loss carryforwards.Arnott's and other international operations.
As of July 30, 2017,31, 2022, and August 1, 2021, other deferred tax assets included $1$13 million of state tax credit carryforwards related to various states that expire between 20212023 and 2029.2025. As of July 31, 2016, other2022, and August 1, 2021, deferred tax assets included $2 of state tax credit carryforwards related to various states that expire between 2018 and 2025. Noasset valuation allowances have been established related to these deferred tax assets.offset the $13 million of state credit carryforwards.
As of July 30, 2017, U.S. income taxes have not been provided on31, 2022, we had approximately $820$11 million of undistributed earnings of non-U.S.foreign subsidiaries which are deemed to be permanently reinvested. It isreinvested and for which we have not practical torecognized a deferred tax liability. We estimate that the tax liability that might be incurred if suchpermanently reinvested earnings were remitted to the U.S. would not be material. Foreign subsidiary earnings in 2021 and thereafter are not considered permanently reinvested and we have therefore recognized a deferred tax liability and expense.
A reconciliation of the activity related to unrecognized tax benefits follows:
| | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Balance at beginning of year | $ | 22 | | | $ | 23 | | | $ | 24 | |
| Increases related to prior-year tax positions | 4 | | | — | | | — | |
| Decreases related to prior-year tax positions | (10) | | | (1) | | | (1) | |
| Increases related to current-year tax positions | 1 | | | 3 | | | 2 | |
| Settlements | (2) | | | — | | | (1) | |
| Lapse of statute | (1) | | | (3) | | | (1) | |
| | | | | |
| Balance at end of year | $ | 14 | | | $ | 22 | | | $ | 23 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Balance at beginning of year | $ | 63 |
| | $ | 58 |
| | $ | 71 |
|
| Increases related to prior-year tax positions | 4 |
| | 2 |
| | 9 |
|
| Decreases related to prior-year tax positions | — |
| | — |
| | — |
|
| Increases related to current-year tax positions | 4 |
| | 3 |
| | 5 |
|
| Settlements | (7 | ) | | — |
| | (27 | ) |
| Lapse of statute | — |
| | — |
| | — |
|
| Balance at end of year | $ | 64 |
| | $ | 63 |
| | $ | 58 |
|
The decrease of unrecognized tax benefits was primarily due to audit settlements. The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was $43 as of July 30, 2017, $42$12 million as of July 31, 2016,2022, and $39$18 million as of August 1, 2021 and August 2, 2015.2020. The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting for uncertainty in income taxes. We are unable to estimate what this change may be within the next 12 months, but do not believe that it will be material to the financial statements. Approximately $5 of unrecognized tax benefits, including interest and penalties, were reported in Accounts receivable in the Consolidated Balance Sheets as of July 30, 2017, and July 31, 2016.
Our accounting policy with respect tofor interest and penalties attributable to income taxes is to reflect any expense or benefit as a component of our income tax provision. The total amount of interest and penalties recognized in the Consolidated Statements
of Earnings was $4not material in 2017, $3 in 20162022, 2021, and $1 in 2015.2020. The total amount of interest and penalties recognized in the Consolidated Balance Sheets in Other liabilities was $5 as of July 30, 2017, and $6$4 million as of July 31, 2016.
We do business internationally2022, and as a result,of August 1, 2021.
We file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities, throughoutincluding the world, including such major jurisdictions asU.S. and Canada. With limited exceptions, we have been audited for income tax purposes in the U.S., Australia, through 2020 and in Canada and Denmark. The 2017 tax year is currently under audit by the Internal Revenue Service.through 2016. In addition, several state income tax examinations are in progress for the years 19992016 to 2016.2021.
With limited exceptions, we have been audited for income tax purposes in Australia through 2010, Denmark through 2013,
12. Short-term Borrowings and in Canada through 2014.Long-term Debt
| |
12. | Short-term Borrowings and Long-term Debt |
Short-term borrowings consist of the following:
|
| | | | | | | |
| | 2017 | | 2016 |
| Commercial paper | $ | 874 |
| | $ | 770 |
|
| Australian note | 152 |
| | — |
|
| Current portion of long-term debt | — |
| | 400 |
|
| Current portion of Canadian credit facility | — |
| | 42 |
|
| Variable-rate bank borrowings | 10 |
| | 6 |
|
| Capital leases | 1 |
| | 2 |
|
Other(1) | — |
| | (1 | ) |
| Total short-term borrowings | $ | 1,037 |
| | $ | 1,219 |
|
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| Commercial paper | $ | 235 | | | $ | 37 | |
| | | |
| Notes | 566 | | | — | |
| | | |
| | | |
| | | |
| Finance leases | 14 | | | 11 | |
| | | |
Other(1) | (1) | | | — | |
| Total short-term borrowings | $ | 814 | | | $ | 48 | |
| |
(1)
| Includes unamortized net discount/premium on debt issuances and debt issuance costs. |
As of July 30, 2017, the(1)Includes unamortized net discount/premium on debt issuances and debt issuance costs.
The weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 1.31%. 2.63% as of July 31, 2022, and 0.22% as of August 1, 2021.
As of July 31, 2016, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 0.74%.
As of July 30, 2017, we had $1,037 of short-term borrowings due within one year, of which $874 was comprised of commercial paper borrowings. As of July 30, 2017,2022, we issued $48$32 million of standby letters of credit. We haveOn November 2, 2020, we entered into a committed revolving credit facility totaling $1,850$1.85 billion scheduled to mature on November 2, 2023. On September 27, 2021, we replaced the facility with a new $1.85 billion committed revolving facility that matures in December 2021.on September 27, 2026. This U.S. facility remained unused at July 30, 2017,31, 2022, except for $1 million of standby letters of credit that we issued under it. The U.S.facility contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the credit facility) of not less than 3.25:1.00, measured quarterly, and customary events of default for credit facilities of this type. Loans under this facility will bear interest at the rates specified in the facility, which vary based on the type of loan and certain other customary conditions. The facility supports our commercial paper programsprogram and other general corporate purposes. In March 2020, we borrowed $300 million under our previous revolving credit facility and on May 1, 2020, we repaid the borrowings.
In June 2017, we sold an intercompany note to a financial institution of AUD $190, or $152, with an interest rate of 6.98% that matures on March 29, 2021, but is payable upon demand. Interest on the note is due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes.
Long-term debt consists of the following: |
| | | | | | | | | | | | |
| Type | | Fiscal Year of Maturity | | Rate | | 2017 | | 2016 |
| Notes | | 2017 | | 3.05% | | $ | — |
| | $ | 400 |
|
| Canadian credit facility | | 2019 | | Variable | | 130 |
| | 215 |
|
| Australian note | | 2019 | | 4.88% | | 224 |
| | — |
|
| Notes | | 2019 | | 4.50% | | 300 |
| | 300 |
|
| Notes | | 2021 | | 4.25% | | 500 |
| | 500 |
|
| Debentures | | 2021 | | 8.88% | | 200 |
| | 200 |
|
| Notes | | 2023 | | 2.50% | | 450 |
| | 450 |
|
| Notes | | 2025 | | 3.30% | | 300 |
| | 300 |
|
| Notes | | 2043 | | 3.80% | | 400 |
| | 400 |
|
| Capital leases | | | | | | 7 |
| | 8 |
|
Other(1) | | | | | | (12 | ) | | (18 | ) |
| Total | | | | | | $ | 2,499 |
| | $ | 2,755 |
|
Less current portion(1) | | | | | | — |
| | 441 |
|
| Total long-term debt | | | | | | $ | 2,499 |
| | $ | 2,314 |
|
| | | | | | | | | | | | | | | | | | |
| (Millions) | | | | | | 2022 | | 2021 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 2.50% Notes due August 2, 2022 | | | | | | $ | — | | | $ | 450 | |
| 3.65% Notes due March 15, 2023 | | | | | | 566 | | | 566 | |
| 3.95% Notes due March 15, 2025 | | | | | | 850 | | | 850 | |
| 3.30% Notes due March 19, 2025 | | | | | | 300 | | | 300 | |
| 4.15% Notes due March 15, 2028 | | | | | | 1,000 | | | 1,000 | |
| 2.375% Notes due April 24, 2030 | | | | | | 500 | | | 500 | |
| 3.80% Notes due August 2, 2042 | | | | | | 163 | | | 163 | |
| 4.80% Notes due March 15, 2048 | | | | | | 700 | | | 700 | |
| 3.125% Notes due April 24, 2050 | | | | | | 500 | | | 500 | |
| Finance leases | | | | | | 16 | | | 19 | |
Other(1) | | | | | | (34) | | | (38) | |
| Total | | | | | | $ | 4,561 | | | $ | 5,010 | |
| Less current portion | | | | | | 565 | | | — | |
| Total long-term debt | | | | | | $ | 3,996 | | | $ | 5,010 | |
| |
(1)
| (1)Includes unamortized net discount/premium on debt issuances and debt issuance costs. |
In July 2016, we entered into a Canadian committed revolving credit facility that matures in July 2019. As of July 30, 2017, the total commitment under the Canadian facility was CAD $170, or $137, and we had borrowings of CAD $162, or $130, at a rate of 2.09% under this facility. The Canadian facility supports general corporate purposes.
In June 2017, we sold an intercompany note to a financial institution of AUD $280, or $224, with an interest rate of 4.88% that matures on September 18, 2018. Interest on the note is due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes.debt issuance costs.
Principal amounts of long-term debt mature as follows: $654
| | | | | | | | |
| (Millions) | | |
| 2024 | | $ | 10 | |
| 2025 | | $ | 1,153 | |
| 2026 | | $ | 3 | |
| 2027 | | $ | — | |
| Thereafter | | $ | 2,863 | |
Debt Extinguishments
On March 4, 2022, we completed the redemption of all $450 million outstanding aggregate principal amount of our 2.50% Senior Notes due August 2, 2022. The consideration for the redemption was $453 million, including $3 million of premium. We recognized a loss of $4 million (including the $3 million of premium and other costs), which was recorded in 2019;Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the redeemed notes through the date of settlement. We used a combination of cash on hand and short-term debt to fund the redemption.
On January 22, 2020, we completed the redemption of all $500 million outstanding aggregate principal amount of our 4.25% Senior Notes due 2021. On January 24, 2020, we settled tender offers to purchase $1.2 billion in aggregate principal amount of certain senior unsecured debt, comprising $329 million of 3.30% Senior Notes due 2021, $634 million of 3.65% Senior Notes due 2023, and $237 million of 3.80% Senior Notes due 2043. The consideration for the redemption and the tender offers was $1.765 billion, including $65 million of premium. We recognized a loss of $75 million (including $65 million of premium, fees and other costs paid with the tender offers and unamortized debt issuance costs), which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the purchased notes through the dates of settlement.
Debt Repayments
In March 2021, we repaid our 3.30% $321 million notes and floating rate $400 million notes, and in May 2021, we repaid our 8.875% $200 million notes.
In 2020, we also repaid our $499 million Senior Term Loan due 2021.
Debt Issuances
On April 24, 2020, we issued senior notes in an aggregate principal amount of $1 billion, consisting of $500 million aggregate principal amount of notes bearing interest at a fixed rate of 2.375% per annum, due April 24, 2030, and $500 million aggregate principal amount of notes bearing interest at a fixed rate of 3.125% per annum, due April 24, 2050. On May 1, 2020, we used $300 million of the net proceeds to repay $300 million of borrowings outstanding under a revolving credit facility. The
2.375% Senior Notes due 2030 and the 3.125% Senior Notes due 2050 may each be redeemed at the applicable redemption price, in 2020; $700whole or in 2021; $1 in 2022;part, at our option at any time and from time to time prior to January 24, 2030, and October 24, 2049, respectively. Interest on each of the notes is due semi-annually on April 24 and October 24, commencing on October 24, 2020. The notes contain customary covenants and events of default. If a totalchange of $1,155 in periods beyond 2022.control triggering event occurs, we will be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date.
13. Financial Instruments
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify and others that do not qualify for hedge accounting treatment.treatment and instruments that are not designated as accounting hedges.
Concentration of Credit Risk
We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit-risk-relatedcredit risk-related contingent features in our derivative instruments as of July 30, 2017,31, 2022, or July 31, 2016.August 1, 2021.
We are also exposed to credit risk from our customers. During 2017,2022, our largest customer accounted for approximately 20%22% of consolidated net sales.sales from continuing operations. Our five largest customers accounted for approximately 39%47% of our consolidated net sales from continuing operations in 2017.2022.
We closely monitor credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk, related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged includeprimarily the Canadian dollar, Australian dollarrelated to third-party transactions and U.S. dollar.intercompany transactions. We utilize foreign exchange forward purchase and sale contracts as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We
hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $84 at July 30, 2017, and $91 at$140 million as of July 31, 2016. The effective2022, and $134 million as of August 1, 2021. Changes in the fair value on the portion of the changesderivative included in fair value on these instruments isthe assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. For derivatives that are designated and qualify as hedging instruments, the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in earnings under a systematic and rational method over the life of the hedging instrument and is reclassified into the Consolidated Statements of Earnings onpresented in the same statement of earnings line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the same periodamounts recognized in which the underlying hedged transaction affects earnings.earnings is recorded as a component of other comprehensive income (loss). The notional amount of foreign exchange forward contracts that are not designated as accounting hedges was $336 and $175 at July 30, 2017, and July 31, 2016, respectively. There were no cross-currency swap contracts outstanding$13 million as of July 30, 2017 or July 31, 2016.2022, and as of August 1, 2021.
Interest Rate Risk
We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizingwe may utilize interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of a fair-value hedge, along with the gain or loss on the underlying hedged asset or liability, are recorded in current-period earnings. We manage our exposure to interest rate volatility on future debt issuances by entering into forward starting interest rate swaps or treasury rate lock contracts to lock in the rate on the interest payments related to the anticipated debt issuances. These pay fixed rate/receive variable rate forward starting interest rate swapsThe contracts are accounted foreither designated as cash-flow hedges. The effectivehedging instruments or are undesignated. Changes in the fair value on the portion of the changesderivative included in fair value on these instruments isthe assessment of hedge effectiveness of cash-flow hedges are recorded in Accumulated other comprehensive income (loss), and is reclassified into the Consolidated Statements of EarningsInterest expense over the life of the debt. The notional amount of outstanding forward startingchange in fair value on undesignated instruments is recorded in Interest expense. There were no interest rate swaps totaled $300 at July 30, 2017, andoutstanding as of July 31, 2016, which relates to an anticipated debt issuance in 2018.2022, or August 1, 2021.
Commodity Price Risk
We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, natural gas,aluminum, cocoa, aluminum, butter, corn, soybean meal and cheese, which impact the cost of raw materials.butter. Commodity futures, options and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were noThe notional amount of commodity contracts accounted fordesignated as cash-flowcash flow hedges was $3 million as of July 30, 2017, or July 31, 2016.2022, and $18 million as of August 1, 2021. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. The notional amount of commodity contracts not designated as accounting hedges was $90 at July 30, 2017, and $88 at$254 million as of July 31, 2016.2022, and $190 million as of August 1, 2021. The change in fair value on undesignated instruments is recorded in Cost of products sold.
In 2017, we entered intoWe have a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional value isamount was approximately $35$39 million as of July 30, 2017.31, 2022, and $38 million as of August 1, 2021. The change in fair value was not material as of July 30, 2017. Unrealized gains (losses) and settlements are includedon the embedded derivative is recorded in Cost of products sold in our Consolidated Statements of Earnings.sold.
Equity Price Risk
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return ofVanguard Extended Market Index Plus Fund, the Vanguard Institutional Index andInstitutional Plus Fund, the total return ofVanguard Short-Term Bond Index Fund and the Vanguard Total International Stock Index. Under theseIndex Fund. Prior to 2022, we had entered into swap contracts we pay variable interest rates and receive from the counterparty either the total return on our capital stock;which hedged a portion of exposures linked to the total return of the Standard & Poor's 500 Index, which is expectedour capital stock. As of July 31, 2022, and August 1, 2021, we no longer hedge our exposure linked to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index.our capital stock. These contracts wereare not designated as hedges for accounting purposes. Unrealized gains (losses) and settlements are included in Administrative expenses in the Consolidated Statements of Earnings. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts as of July 30, 2017,31, 2022, and July 31, 2016,August 1, 2021, were $43$50 million and $44,$29 million, respectively.
The following table summarizestables summarize the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of July 30, 2017,31, 2022, and July 31, 2016:August 1, 2021:
| | | | | | | | | | | | | | | | | |
| (Millions) | Balance Sheet Classification | | 2022 | | 2021 |
| Asset Derivatives | | | | | |
| Derivatives designated as hedges: | | | | | |
| Commodity contracts | Other current assets | | $ | 3 | | | $ | 4 | |
| Foreign exchange forward contracts | Other current assets | | 2 | | | 1 | |
| | | | | |
| | | | | |
| | | | | |
| Total derivatives designated as hedges | | | $ | 5 | | | $ | 5 | |
| Derivatives not designated as hedges: | | | | | |
| Commodity contracts | Other current assets | | $ | 20 | | | $ | 49 | |
| | | | | |
| Deferred compensation contracts | Other current assets | | — | | | 3 | |
| | | | | |
| | | | | |
| | | | | |
| Total derivatives not designated as hedges | | | $ | 20 | | | $ | 52 | |
| Total asset derivatives | | | $ | 25 | | | $ | 57 | |
| | | | | | | | | | | | | | | | | |
| (Millions) | Balance Sheet Classification | | 2022 | | 2021 |
| Liability Derivatives | | | | | |
| Derivatives designated as hedges: | | | | | |
| | | | | |
| Foreign exchange forward contracts | Accrued liabilities | | $ | — | | | $ | 3 | |
| | | | | |
| | | | | |
| | | | | |
| Total derivatives designated as hedges | | | $ | — | | | $ | 3 | |
| Derivatives not designated as hedges: | | | | | |
| Commodity contracts | Accrued liabilities | | $ | 30 | | | $ | — | |
| | | | | |
| Deferred compensation contracts | Accrued liabilities | | 4 | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total derivatives not designated as hedges | | | $ | 34 | | | $ | — | |
| Total liability derivatives | | | $ | 34 | | | $ | 3 | |
|
| | | | | | | | | |
| | Balance Sheet Classification | | 2017 | | 2016 |
| Asset Derivatives | | | | | |
| Derivatives designated as hedges: | | | | | |
| Foreign exchange forward contracts | Other current assets | | $ | 3 |
| | $ | 1 |
|
| Total derivatives designated as hedges | | | $ | 3 |
| | $ | 1 |
|
| Derivatives not designated as hedges: | | | | | |
| Commodity derivative contracts | Other current assets | | $ | 5 |
| | $ | 3 |
|
| Deferred compensation derivative contracts | Other current assets | | 1 |
| | 1 |
|
| Commodity derivative contracts | Other assets | | 1 |
| | — |
|
| Total derivatives not designated as hedges | | | $ | 7 |
| | $ | 4 |
|
| Total asset derivatives | | | $ | 10 |
| | $ | 5 |
|
|
| | | | | | | | | |
| | Balance Sheet Classification | | 2017 | | 2016 |
| Liability Derivatives | | | | | |
| Derivatives designated as hedges: | | | | | |
| Foreign exchange forward contracts | Accrued liabilities | | $ | 1 |
| | $ | 4 |
|
| Forward starting interest rate swaps | Accrued liabilities | | 22 |
| | — |
|
| Forward starting interest rate swaps | Other liabilities | | — |
| | 44 |
|
| Total derivatives designated as hedges | | | $ | 23 |
| | $ | 48 |
|
| Derivatives not designated as hedges: | | | | | |
| Commodity derivative contracts | Accrued liabilities | | $ | 1 |
| | $ | 4 |
|
| Deferred compensation derivative contracts | Accrued liabilities | | — |
| | 1 |
|
| Foreign exchange forward contracts | Accrued liabilities | | 19 |
| | 7 |
|
| Foreign exchange forward contracts | Other liabilities | | 1 |
| | — |
|
| Total derivatives not designated as hedges | | | $ | 21 |
| | $ | 12 |
|
| Total liability derivatives | | | $ | 44 |
| | $ | 60 |
|
We do not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if we were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of July 30, 2017,31, 2022, and July 31, 2016,August 1, 2021, would be adjusted as detailed in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| (Millions) | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount |
| Total asset derivatives | | $ | 25 | | | $ | (17) | | | $ | 8 | | | $ | 57 | | | $ | (1) | | | $ | 56 | |
| Total liability derivatives | | $ | 34 | | | $ | (17) | | | $ | 17 | | | $ | 3 | | | $ | (1) | | | $ | 2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| Derivative Instrument | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount |
| Total asset derivatives | | $ | 10 |
| | $ | (3 | ) | | $ | 7 |
| | $ | 5 |
| | $ | (4 | ) | | $ | 1 |
|
| Total liability derivatives | | $ | 44 |
| | $ | (3 | ) | | $ | 41 |
| | $ | 60 |
| | $ | (4 | ) | | $ | 56 |
|
We do not offset fair value amounts recognized for exchange-traded commodity derivative instruments and cash margin accounts executed with the same counterparty that are subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of open positions. At July 30, 2017, andpositions for exchange-traded commodity derivative instruments. A cash margin asset balance of $8 million at July 31, 2016,2022, and a cash margin accountliability balance of $1 and $5, respectively, was$14 million at August 1, 2021, were included in Other current assets and Accrued liabilities, respectively, in the Consolidated Balance Sheets.
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the years ended July 30, 2017, July 31, 2016,2022, August 1, 2021, and August 2, 20152020 in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Cash-Flow Hedge
OCI Activity |
| (Millions) | | | 2022 | | 2021 | | 2020 |
| OCI derivative gain (loss) at beginning of year | | | $ | (5) | | | $ | (8) | | | $ | (11) | |
| Effective portion of changes in fair value recognized in OCI: | | | | | | | |
| Commodity contracts | | | 13 | | | 4 | | | — | |
| Foreign exchange forward contracts | | | 4 | | | (9) | | | 3 | |
| | | | | | | |
| | | | | | | |
| Amount of loss (gain) reclassified from OCI to earnings: | Location in Earnings | | | | | | |
| Commodity contracts | Cost of products sold | | (14) | | | — | | | — | |
| Foreign exchange forward contracts | Cost of products sold | | 1 | | | 6 | | | (2) | |
| Foreign exchange forward contracts | Other expenses / (income) | | — | | | 1 | | | — | |
| Foreign exchange forward contracts | Earnings (loss) from discontinued operations | | — | | | — | | | 1 | |
| Forward starting interest rate swaps | Interest expense | | 1 | | | 1 | | | 1 | |
| OCI derivative gain (loss) at end of year | | | $ | — | | | $ | (5) | | | $ | (8) | |
|
| | | | | | | | | | | | | |
| | | Total Cash-Flow Hedge OCI Activity |
Derivatives Designated as Cash-Flow Hedges
| | | 2017 | | 2016 | | 2015 |
| OCI derivative gain (loss) at beginning of year | | | $ | (64 | ) | | $ | (10 | ) | | $ | (4 | ) |
| Effective portion of changes in fair value recognized in OCI: | | | | | | | |
| Foreign exchange forward contracts | | | (4 | ) | | (9 | ) | | 18 |
|
| Forward starting interest rate swaps | | | 23 |
| | (36 | ) | | (23 | ) |
| Amount of (gain) loss reclassified from OCI to earnings: | Location in Earnings | | | | | | |
| Foreign exchange forward contracts | Cost of products sold | | 6 |
| | (11 | ) | | (4 | ) |
| Foreign exchange forward contracts | Other expenses / (income) | | 1 |
| | (2 | ) | | (1 | ) |
| Forward starting interest rate swaps | Interest expense | | 4 |
| | 4 |
| | 4 |
|
| OCI derivative gain (loss) at end of year | | | $ | (34 | ) | | $ | (64 | ) | | $ | (10 | ) |
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a lossgain of $11. $4 million.
The ineffective portionfollowing table shows the total amounts of line items presented in the Consolidated Statements of Earnings for the years ended 2022, 2021, and 2020 in which the effects of derivative instruments designated as cash-flow hedges are recorded and the total effect of hedge activity on these line items are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| (Millions) | | Cost of products sold | | | | Interest expense | | Cost of products sold | | Other expenses / (income) | | Interest expense | | | | Cost of products sold | | Interest expense | | Earnings (loss) from discontinued operations |
| Consolidated Statements of Earnings: | | $ | 5,935 | | | | | $ | 189 | | | $ | 5,665 | | | $ | (254) | | | $ | 210 | | | | | $ | 5,692 | | | $ | 345 | | | $ | 1,036 | |
| | | | | | | | | | | | | | | | | | | | |
| Loss (gain) on cash-flow hedges: | | | | | | | | | | | | | | | | | | | | |
| Amount of loss (gain) reclassified from OCI to earnings | | $ | (13) | | | | | $ | 1 | | | $ | 6 | | | $ | 1 | | | $ | 1 | | | | | $ | (2) | | | $ | 1 | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | |
The amount excluded from effectiveness testing wererecognized in each line item of earnings using an amortization approach was not material.material in all periods presented.
The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements of Earnings:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | |
| | | | | | |
| (Millions) | | Location of Loss (Gain)
Recognized in Earnings | | 2022 | | 2021 | | 2020 |
| Foreign exchange forward contracts | | Cost of products sold | | $ | — | | | $ | 2 | | | $ | (1) | |
| Foreign exchange forward contracts | | Other expenses / (income) | | — | | | — | | | 2 | |
| | | | | | | | |
| | | | | | | | |
| Commodity contracts | | Cost of products sold | | 8 | | | (55) | | | 12 | |
| Deferred compensation contracts | | Administrative expenses | | 3 | | | (8) | | | (2) | |
| Treasury rate lock contracts | | Interest expense | | — | | | — | | | (3) | |
| Total | | | | $ | 11 | | | $ | (61) | | | $ | 8 | |
14. Variable Interest Entity
|
| | | | | | | | | | | | | | |
| | | | | Amount of (Gain) Loss Recognized in Earnings on Derivatives |
| Derivatives not Designated as Hedges | | Location of (Gain) Loss
Recognized in Earnings | | 2017 | | 2016 | | 2015 |
| Foreign exchange forward contracts | | Cost of products sold | | $ | — |
| | $ | — |
| | $ | (2 | ) |
| Foreign exchange forward contracts | | Other expenses / (income) | | 14 |
| | (1 | ) | | 3 |
|
| Cross-currency swap contracts | | Other expenses / (income) | | — |
| | 2 |
| | (58 | ) |
| Commodity derivative contracts | | Cost of products sold | | (11 | ) | | 6 |
| | 19 |
|
| Deferred compensation derivative contracts | | Administrative expenses | | (3 | ) | | (6 | ) | | (7 | ) |
| Total | | | | $ | — |
| | $ | 1 |
| | $ | (45 | ) |
| |
14. | Variable Interest Entity |
In February 2016, we agreed to make a $125 capital commitment subject to certain qualifications of up to $125 million to Acre, a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. Acre iswas managed by its general partner, Acre Ventures GP, LLC, which iswas independent of us. We arewere the sole limited partner of Acre and ownowned a 99.8% interest. Our share of earnings (loss) is calculated according to the terms of the partnership agreement. Acre iswas a VIE. We have determined that we areentered into an agreement to sell our interest in Acre on April 26, 2020, and completed the primary beneficiary. Therefore, we consolidatesale on May 8, 2020, for $30 million resulting in a loss of $45 million recognized in the third quarter of 2020 as a result of the pending sale. We consolidated Acre and accountaccounted for the third party ownership as a noncontrolling interest. Through July 30, 2017,the date of the sale, we funded $58$86 million of the capital commitment. Except for the remaining unfunded capital commitment of $67, we do not have obligations to provide additional financial or other support to Acre.
Acre elected the fair value option to account for qualifying investments to more appropriately reflect the value of the investments in the financial statements. The investments were $51 and $34 as of July 30, 2017, and July 31, 2016, respectively, and are included in Other assets on the Consolidated Balance Sheets. Changes in the fair values of investments for which the fair value option was elected arewere included in Other expenses / (income) on the Consolidated Statements of Earnings. Changes in the fair value were not material in 2017 or 2016. Current assets and liabilities of Acre were not material as of July 30, 2017, or July 31, 2016.
| |
15. | Fair Value Measurements |
15. Fair Value Measurements
We categorize financial assets and liabilities based on the following fair value hierarchy:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.
•Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presentstables present our financial assets and liabilities that are measured at fair value on a recurring basis as of July 30, 2017,31, 2022, and July 31, 2016,August 1, 2021, consistent with the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value
as of
July 31, 2022 | | Fair Value Measurements at
July 31, 2022 Using
Fair Value Hierarchy | | Fair Value
as of
August 1,
2021 | | Fair Value Measurements at
August 1, 2021 Using
Fair Value Hierarchy |
| (Millions) | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Foreign exchange forward contracts(1) | $ | 2 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
Commodity derivative contracts(2) | 23 | | | — | | | 19 | | | 4 | | | 53 | | | 21 | | | 31 | | | 1 | |
| | | | | | | | | | | | | | | |
Deferred compensation derivative contracts(3) | — | | | — | | | — | | | — | | | 3 | | | — | | | 3 | | | — | |
Deferred compensation investments(4) | 2 | | | 2 | | | — | | | — | | | 3 | | | 3 | | | — | | | — | |
| | | | | | | | | | | | | | | |
| Total assets at fair value | $ | 27 | | | $ | 2 | | | $ | 21 | | | $ | 4 | | | $ | 60 | | | $ | 24 | | | $ | 35 | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | Fair Value
as of
July 31, 2022 | | Fair Value Measurements at
July 31, 2022 Using
Fair Value Hierarchy | | Fair Value
as of
August 1,
2021 | | Fair Value Measurements at
August 1, 2021 Using
Fair Value Hierarchy |
| (Millions) | | (Millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | | Liabilities | | | | | | | | | | | | | | | |
| | Fair Value
as of
July 30,
2017 | | Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy | | Fair Value
as of
July 31,
2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy | |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | |
| Assets | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts(1) | $ | 3 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| Foreign exchange forward contracts(1) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | — | | | $ | 3 | | | $ | — | |
Commodity derivative contracts(2) | 6 |
| | 6 |
| | — |
| | — |
| | 3 |
| | 2 |
| | 1 |
| | — |
| Commodity derivative contracts(2) | 30 | | | 6 | | | 24 | | | — | | | — | | | — | | | — | | | — | |
| Deferred compensation derivative contracts(3) | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| Deferred compensation derivative contracts(3) | 4 | | | — | | | 4 | | | — | | | — | | | — | | | — | | | — | |
Fair value option investments (4) | 50 |
| | — |
| | 1 |
| | 49 |
| | 33 |
| | — |
| | 8 |
| | 25 |
| |
| Total assets at fair value | $ | 60 |
| | $ | 6 |
| | $ | 5 |
| | $ | 49 |
| | $ | 38 |
| | $ | 2 |
| | $ | 11 |
| | $ | 25 |
| |
Deferred compensation obligation(4) | | Deferred compensation obligation(4) | 96 | | | 96 | | | — | | | — | | | 105 | | | 105 | | | — | | | — | |
| Total liabilities at fair value | | Total liabilities at fair value | $ | 130 | | | $ | 102 | | | $ | 28 | | | $ | — | | | $ | 108 | | | $ | 105 | | | $ | 3 | | | $ | — | |
___________________________________ |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value
as of
July 30,
2017 | | Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy | | Fair Value
as of
July 31,
2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy |
| | | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | | | | | | | | | | | | | | | |
Forward starting interest rate swaps(5) | $ | 22 |
| | $ | — |
| | $ | 22 |
| | $ | — |
| | $ | 44 |
| | $ | — |
| | $ | 44 |
| | $ | — |
|
Foreign exchange forward contracts(1) | 21 |
| | — |
| | 21 |
| | — |
| | 11 |
| | — |
| | 11 |
| | — |
|
Commodity derivative contracts(2) | 1 |
| | 1 |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
|
Deferred compensation derivative contracts(3) | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
|
Deferred compensation obligation(6) | 112 |
| | 112 |
| | — |
| | — |
| | 119 |
| | 119 |
| | — |
| | — |
|
| Total liabilities at fair value | $ | 156 |
| | $ | 113 |
| | $ | 43 |
| | $ | — |
| | $ | 179 |
| | $ | 123 |
| | $ | 56 |
| | $ | — |
|
(2)Level 1 and 2 are based on quoted futures exchanges and on observable prices of futures and options transactions in the marketplace. Level 3 is based on unobservable inputs in which there is little or no market data, which requires management’s own assumptions within an internally developed model. | |
(1)
| (3)Based on equity index swap rates. (4)Based on observable market transactions of spot currency rates and forward rates. |
| |
(2)
| Based on quoted futures exchanges and on observable prices of futures and options transactions in the marketplace. |
| |
(3)
| Based on LIBOR and equity index swap rates. |
| |
(4)
| Primarily represents investments in equity securities that are not readily marketable and are accounted for under the fair value option. The investments were funded by Acre. See Note 14 for additional information. Fair value is based on analyzing recent transactions and transactions of comparable companies, and the discounted cash flow method. In addition, allocation methods, |
including the option pricing method, are used in distributing fair value among various equity holders according to rights and preferences. Changes in the fair value of investments were not materialthe participants’ investments.
The following table summarizes the changes in 2017 or 2016.
| |
(5)
| Based on LIBOR swap rates. |
| |
(6)
| Based on the fair value of the participants’ investments. |
Items Measured at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a nonrecurring basis.
In the fourth quarter of 2017, we recognized $12 of charges, primarily asset impairment, on plant assets associated with the 2015 restructuring initiatives described in Note 7. The carrying value was reduced to estimated fair value based on expected proceeds. The carrying value was not material.
In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106 on goodwill and $35 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit. During the second quarter of 2017, we performed an interim impairment assessment as of December 31, 2016, and recognized an impairment charge of $127 on goodwill and $20 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit.
During the second quarter of 2017, we performed an interim impairment assessment of the Garden Fresh Gourmet reporting unit as of December 31, 2016, and recognized an impairment charge of $64 on goodwill and $1 on a trademark.
Fair value was determined based on unobservable Level 3 inputs. The fair value of goodwill was determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital,Level 3 assets for the years ended July 31, 2022, and future economic and market conditions. The fair value of trademarks was determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average cost of capital and assumed royalty rates.
The following table presents fair value measurements of intangible assets that were recognized in the second quarter of 2017 and the fourth quarter of 2016, respectively, consistent with the fair value hierarchy:
|
| | | | | | | | | | | | | | | | |
| | | January 29, 2017 | | July 31, 2016 |
| | | Impairment Charges | | Fair Value | | Impairment Charges | | Fair Value |
| Bolthouse Farms Carrot and Carrot Ingredients | | | | | | | | |
| Goodwill | | $ | 127 |
| | $ | 75 |
| | $ | 106 |
| | $ | 202 |
|
| Trademark | | $ | 20 |
| | $ | 48 |
| | $ | 35 |
| | $ | 68 |
|
|
| | | | | | | | |
| Garden Fresh Gourmet | | | | |
| Goodwill | | $ | 64 |
| | $ | 52 |
|
| Trademark | | $ | 1 |
| | $ | 37 |
|
See also Note 5 for additional information on the impairment charges.August 1, 2021: | | | | | | | | | | | | | | |
| (Millions) | | 2022 | | 2021 |
| Fair value at beginning of year | | $ | 1 | | | $ | 2 | |
| Gains (losses) | | 18 | | | 6 | |
| | | | |
| | | | |
| Settlements | | (15) | | | (7) | |
| Fair value at end of year | | $ | 4 | | | $ | 1 | |
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable and short-term borrowings, excluding the current portion of long-term debt, approximate fair value.
CashThere were cash equivalents of $8 at July 30, 2017, and $74$27 million at July 31, 2016,2022, and none at August 1, 2021. Cash equivalents represent fair value as these highly liquid investments have an original maturity of three months or less. Fair value of cash equivalents is based on Level 2 inputs.
The fair value of short- and long-term debt including the current portion of long-term debt in Short-term borrowings, was $2,582 at July 30, 2017, and $2,949$4.637 billion at July 31, 2016.2022, and $5.613 billion at August 1, 2021. The carrying value was $2,499 at July 30, 2017, and $2,755$4.81 billion at July 31, 2016.2022, and $5.058 billion at August 1, 2021. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.
| |
16. | Shareholders' Equity16.Shareholders' Equity |
We have authorized 560 million shares of Capital stock with $.0375 par value and 40 million shares of Preferred stock, issuable in one or more classes, with or without par as may be authorized by the Board of Directors. No Preferred stock has been issued.
Share Repurchase Programs
In March 2017,June 2021, the Board authorized a newan anti-dilutive share repurchase program to purchaseof up to $1,500.$250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs. The newJune 2021 program has no expiration date, but it may be suspended or discontinued at any time. Effective May 1, 2017,Repurchases under the newJune 2021 program may be made in open-market or privately negotiated transactions.
In September 2021, the Board approved a strategic share repurchase program
replaced of up to $500 million (September 2021 program). The September 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the prior $1,000September 2021 program which our Board approvedmay be made in June 2011. In addition to these publicly announced programs, we have a separate Board authorization to purchase shares to offset the impact of dilution from shares issued under our stock compensation plans.open-market or privately negotiated transactions.
In 2017,2022, we repurchased 83.8 million shares at a cost of $437.$167 million. Of this amount, $129$42 million was used to repurchase shares pursuant to our March 2017 publicly announced share repurchaseJune 2021 program and $271$125 million was used to repurchase share pursuant to our June 2011September 2021 program. Approximately $1,371As of July 31, 2022, approximately $172 million remained available under the March 2017June 2021 program as of July 30, 2017.and approximately $375 million remained under the September 2021 program. In 2016,2021, we repurchased 3approximately 1 million shares at a cost of $143 and in 2015, we repurchased 5 million shares at a cost of $244.$36 million.
| |
17. | Stock-based Compensation |
17. Stock-based Compensation
In 2003,2005, shareholders approved the 20032005 Long-Term Incentive Plan, which authorized the issuance of an aggregate of 31.26 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock/units (including performance restricted stock) and performance units. In 2005, shareholders approved the 2005 Long-Term Incentive Plan, which authorized the issuance of an additional 6 million shares to satisfy the same types of awards. In 2008, shareholders approved an amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to 10.5 million and in 2010, shareholders approved another amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to 17.5 million. In 2015, shareholders approved the 2015 Long-Term Incentive Plan, which authorized the issuance of 13 million shares. Approximately 6 million of these shares were shares that were currently available under the 2005 plan and were incorporated into the 2015 Plan upon approval by shareholders.
Awards under Long-Term Incentive Plans may be granted to employees and directors. Pursuant to the Long-Term Incentive Plan, we adopted a long-term incentive compensation program which provides for grants of total shareholder return (TSR) performance restricted stock/units, EPS performance restricted stock/units, strategic performance restricted stock/units, time-lapse restricted stock/units, special performance restricted stock/units, free cash flow (FCF) performance restricted stock/units and unrestricted stock. Under the program, awards of TSR performance restricted stock/units will be earned by comparing our total shareholder return during a three-year period to the respective total shareholder returns of companies in a performance peer group. Based upon our ranking in the performance peer group after the relevant three-year performance period, a recipient of TSR performance restricted stock/units may earn a total award ranging from 0% to 200% of the initial grant. Awards of EPS performance restricted stock/units granted in 2022 will be earned upon the achievement of our adjusted EPS compound annual growth rate goal (EPS CAGR performance restricted stock/units), measured over a three-year period. A recipient of EPS CAGR performance restricted stock/units may earn a total award ranging from 0% to 200% of the initial grant. Awards of EPS
performance restricted stock/units granted prior to 2022 were earned based upon our achievement of annual earnings per share goals.goals and vested over the relevant three-year period. During the three-year vesting period, a recipient of EPS performance restricted stock/units may earnearned a total award of either 0% or 100% of the initial grant. Awards of the strategic performance restricted stock units were earned based upon the achievement of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a three-year period. A recipient of strategic performance restricted stock units earned a total award ranging from 0% to 200% of the initial grant. Awards of FCF performance restricted stock units were earned based upon the achievement of free cash flow (defined as Net cash provided by operating activities less capital expenditures and certain investing and financing activities) compared to annual operating plan objectives over a three-year period. An annual objective was established each fiscal year for three consecutive years. Performance against these objectives was averaged at the end of the three-year period to determine the number of underlying units that vested at the end of the three years. A recipient of FCF performance restricted stock units earned a total award ranging from 0% to 200% of the initial grant. Awards of time-lapse restricted stock/units will vest ratably over the three-year period. In addition, we may issue special grants of restricted stock/units to attract and retain executives which vest over various periods. Awards are generally granted annually in October.
Annual stock option grants were granted in 2017 and 2016 and were not part of the long-term incentive compensation program for 2015. Stock options are granted on a selective basis under the Long-Term Incentive Plans. The term of a stock option granted under these plans may not exceed ten years from the date of grant. Options granted in 2017 and 2016 under these plans vest ratably over a three-year period. The option price may not be less than the fair market value of a share of common stock on the date of the grant.
Options granted under these plans generally vest ratably over a three-year period. In 2017,2019, we also granted certain options that vest at the end of a three-year period. We last issued stock options in 2019.
In 2022, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS CAGR performance restricted stock units. We last issued FCF performance restricted stock units in 2019, EPS performance restricted stock units and TSR performance restricted stock units. We did not issuein 2018, strategic performance restricted stock units orin 2014 and special performance restricted units in 2017.2015.
In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of Earnings from continuing operations were as follows:
| | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Total pre-tax stock-based compensation expense | $ | 59 | | | $ | 64 | | | $ | 59 | |
| Tax-related benefits | $ | 10 | | | $ | 12 | | | $ | 11 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Total pre-tax stock-based compensation expense | $ | 60 |
| | $ | 64 |
| | $ | 57 |
|
| Tax-related benefits | $ | 22 |
| | $ | 24 |
| | $ | 21 |
|
In 2020, total pre-tax stock-based compensation expense recognized in Earnings (loss) from discontinued operations was $2 million. The tax-related benefits were not material.
The following table summarizes stock option activity as of July 30, 2017:31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual
Life | | Aggregate
Intrinsic
Value |
| (Options in
thousands) | | | | (In years) | | |
| Outstanding at August 1, 2021 | 1,372 | | | $ | 45.61 | | | | | |
| Granted | — | | | $ | — | | | | | |
| Exercised | (75) | | | $ | 38.15 | | | | | |
| Terminated | — | | | $ | — | | | | | |
| Outstanding at July 31, 2022 | 1,297 | | | $ | 46.04 | | | 4.8 | | $ | 6 | |
| Exercisable at July 31, 2022 | 1,297 | | | $ | 46.04 | | | 4.8 | | $ | 6 | |
|
| | | | | | | | | | | | |
| | Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | (Options in thousands) | | | | (In years) | | |
| Outstanding at July 31, 2016 | 681 |
| | $ | 50.21 |
| | | | |
| Granted | 489 |
| | $ | 54.65 |
| | | | |
| Exercised | (33 | ) | | $ | 50.21 |
| | | | |
| Terminated | (95 | ) | | $ | 52.49 |
| | | | |
| Outstanding at July 30, 2017 | 1,042 |
| | $ | 52.08 |
| | 8.6 | | $ | 2 |
|
| Exercisable at July 30, 2017 | 194 |
| | $ | 50.21 |
| | 8.2 | | $ | 1 |
|
The total intrinsic value of options exercised during 20172022 and 2020 was not material. During 2016$1 million and 2015, the$2 million, respectively. The total intrinsic value of options exercised during 2021 was $2 and $5, respectively.not material. We measuremeasured the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
The assumptions and grant-date fair values for grants in 2017 and 2016 were as follows:
|
| | | |
| | 2017 | | 2016 |
| Risk-free interest rate | 1.28% | | 1.68% |
| Expected dividend yield | 2.26% | | 2.46% |
| Expected volatility | 18.64% | | 18.35% |
| Expected term | 6 years | | 6 years |
| Grant-date fair value | $7.51 | | $6.86 |
We expenseexpensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expenseexpensed on an accelerated basis. As of July 30, 2017, total remaining unearnedJanuary 2022, compensation related to nonvested stock options was $1, which will be amortized over the weighted-average remaining service period of 1.4 years.fully expensed.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units, strategicCAGR performance restricted stock units and specialFCF performance restricted stock units as of July 30, 2017:31, 2022:
| | | | | | | | | | | |
| Units | | Weighted-
Average
Grant-Date
Fair Value |
| | (Restricted stock
units in thousands) | | |
| Nonvested at August 1, 2021 | 1,814 | | | $ | 45.63 | |
| Granted | 1,543 | | | $ | 41.96 | |
| Vested | (1,175) | | | $ | 43.97 | |
| Forfeited | (236) | | | $ | 44.38 | |
| Nonvested at July 31, 2022 | 1,946 | | | $ | 43.88 | |
|
| | | | | | |
| | Units | | Weighted- Average Grant-Date Fair Value |
| | (Restricted stock units in thousands) | | |
| Nonvested at July 31, 2016 | 2,004 |
| | $ | 45.08 |
|
| Granted | 586 |
| | $ | 54.79 |
|
| Vested | (990 | ) | | $ | 44.16 |
|
| Forfeited | (379 | ) | | $ | 43.87 |
|
| Nonvested at July 30, 2017 | 1,221 |
| | $ | 50.86 |
|
We determine the fair value of time-lapse restricted stock units, EPS CAGR performance restricted stock units, strategicFCF performance restricted stock units and specialEPS performance restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse restricted stock units and EPS CAGR performance restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. There were 297 thousand EPS CAGR performance target grants outstanding at July 31, 2022 with a weighted-average grant-date fair value of $41.50. We expenseexpensed FCF performance restricted stock units over the requisite service period of each objective. As of October 31, 2021, there were no FCF performance target grants outstanding. We expensed EPS performance restricted stock units on a graded-vestinggraded vesting basis, exceptexpect for awards issued to retirement-eligible participants, which we expenseexpensed on an accelerated basis. ThereAs of November 1, 2020, there were 155 thousandno EPS performance target grants outstanding at July 30, 2017, with a weighted-average grant-date fair value of $49.89.outstanding. The actual number of EPS CAGR performance restricted stock units, FCF performance restricted stock units and strategicEPS performance restricted stock units, that vest will depend on actual performance achieved. We estimate expense based on the number of awards expected to vest. In the first quarter of 2017, recipients of strategic performance restricted stock units earned 35% of the initial grants based on actual performance achieved
during a three-year period ended July 31, 2016. There were no strategic performance restricted stock units outstanding at July 30, 2017.
In 2015, we issued special performance restricted stock units for which vesting was contingent upon meeting various financial goals and performance milestones to support innovation and growth initiatives. These awards vested in the first quarter of 2017 and are included in the table above. Recipients of special performance restricted stock units earned 0% of the initial grants based upon financial goals and 100% of the initial grants based upon performance milestones to support innovation and growth initiatives.
As of July 30, 2017,31, 2022, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS CAGR performance restricted stock units was $22,$37 million, which will be amortized over the weighted-average remaining service period of 1.6 years.1.7 years. In the first quarter of 2022, recipients of FCF performance restricted stock units earned 167% of the initial grants based upon the average of actual performance achieved during a three-year period ended August 1, 2021. As a result, approximately 158 thousand additional shares were awarded. The fair value of restricted stock units vested during 2017, 20162022, 2021 and 20152020 was $55, $44$50 million, $38 million and $56,$41 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during 20162021 and 20152020 was $50.44$48.37 and $43.00,$46.82, respectively.
The following table summarizes TSR performance restricted stock units as of July 30, 2017:31, 2022:
| | | | | | | Units | | Weighted-
Average
Grant-Date
Fair Value |
| | Units | | Weighted- Average Grant-Date Fair Value | | (Restricted stock
units in thousands) | | |
| | (Restricted stock units in thousands) | | | |
| Nonvested at July 31, 2016 | 1,641 |
| | $ | 49.13 |
| |
| Nonvested at August 1, 2021 | | Nonvested at August 1, 2021 | 1,222 | | | $ | 53.60 | |
| Granted | 606 |
| | $ | 39.53 |
| Granted | 331 | | | $ | 45.54 | |
| Vested | (251 | ) | | $ | 36.26 |
| Vested | (178) | | | $ | 31.35 | |
| Forfeited | (222 | ) | | $ | 44.58 |
| Forfeited | (222) | | | $ | 48.85 | |
| Nonvested at July 30, 2017 | 1,774 |
| | $ | 48.24 |
| |
| Nonvested at July 31, 2022 | | Nonvested at July 31, 2022 | 1,153 | | | $ | 55.63 | |
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. AssumptionsWeighted-average assumptions used in the Monte Carlo simulation were as follows:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Risk-free interest rate | 0.46% | | 0.15% | | 1.48% |
| Expected dividend yield | 3.50% | | 2.85% | | 2.95% |
| Expected volatility | 27.42% | | 29.99% | | 27.01% |
| Expected term | 3 years | | 3 years | | 3 years |
|
| | | | | |
| | 2017 | | 2016 | | 2015 |
| Risk-free interest rate | 0.85% | | 0.92% | | 0.97% |
| Expected dividend yield | 2.26% | | 2.46% | | 2.91% |
| Expected volatility | 17.78% | | 17.25% | | 16.20% |
| Expected term | 3 years | | 3 years | | 3 years |
We recognize compensation expense on a straight-line basis over the service period.period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of July 30, 2017,31, 2022, total remaining unearned compensation
related to TSR performance restricted stock units was $27,$15 million, which will be amortized over the weighted-average remaining service period of 1.61.5 years. In the first quarter of 2017,2022, recipients of TSR performance restricted stock units earned 75% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 29, 2016.30, 2021. In the first quarter of 2016,2021, recipients of TSR performance restricted stock units earned 100%50% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 31, 2015. There were no2020. In the first quarter of 2020, recipients of TSR performance restricted stock units scheduled to vestearned 0% of the initial grants based upon our TSR ranking in 2015.a performance peer group during a three-year period ended July 26, 2019. The fair value of TSR performance restricted stock units vested during 20172022 and 20162021 was $14$8 million and $22,$11 million, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 20162021 and 20152020 was $62.44$54.93 and $43.39,$63.06, respectively. In the first quarter of 2018,2023, recipients of TSR performance restricted stock units will receive a 125%100% payout based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2017.29, 2022.
The excess tax benefits on the exercise of stock options in 2022, 2021, and vested restricted stock presented as cash flows from operating activities2020 were $6 in 2017, $7 in 2016 and $6 in 2015.not material. Cash received from the exercise of stock options was $3 million, $2 million and $23 million for 20172022, 2021, and 2016,2020, respectively, and $9 for 2015, and areis reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
| |
18. | Commitments and Contingencies |
18. Commitments and Contingencies
Regulatory and Litigation Matters
We are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with our actual experiences in litigating or
resolving through settlement numerous claims over an extended period of time, demonstrates to us that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
On January 7, 2019, three purported shareholder class action lawsuits pending in the United States District Court for the District of New Jersey (the Court) were consolidated under the caption, Inre Campbell Soup Company Securities Litigation, Civ. No. 1:18-cv-14385-NLH-JS (the Action). Oklahoma Firefighters Pension and Retirement System was appointed lead plaintiff in the Action and, on March 1, 2019, filed an amended consolidated complaint. The company, Denise Morrison (the company's former President and Chief Executive Officer), and Anthony DiSilvestro (the company's former Senior Vice President and Chief Financial Officer) are defendants in the Action. The amended consolidated complaint alleges that, in public statements between July 19, 2017 and May 17, 2018, the defendants made materially false and misleading statements and/or omitted material information about the company's business, operations, customer relationships and prospects, specifically with regard to the Campbell Fresh segment. The amended consolidated complaint seeks unspecified monetary damages and other relief. On April 30, 2019, the defendants filed a motion to dismiss the amended consolidated complaint, which the Court granted on November 30, 2020, with leave to amend the complaint. On January 15, 2021, the plaintiff filed its second amended consolidated complaint. The second amended consolidated complaint again names as defendants the company and certain of its former officers and alleges that, in public statements between August 31, 2017 and May 17, 2018, the defendants made materially false and misleading statements and/or omitted material information about the company's business, operations, customer relationships and prospects, specifically with regard to the Campbell Fresh segment. The second amended consolidated complaint seeks unspecified monetary damages and other relief. On March 10, 2021 the defendants filed a motion to dismiss the second amended consolidated complaint. We are vigorously defending against the Action.
We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated as of July 30, 2017.31, 2022. While the potential future charges could be material in a particular quarter or annual period, based on information currently known by us, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations or financial condition.
We have certain operating lease commitments, primarily related to warehouse and office facilities, and certain equipment. Rent expense under operating lease commitments was $53 in 2017, $45 in 2016 and $48 in 2015. Future minimum annual rental payments under these operating leases as of July 30, 2017, are as follows:
|
| | | | | |
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter |
| $38 | $34 | $30 | $25 | $15 | $21 |
Other Contingencies
We guarantee approximately 2,0004,800 bank loans made to Pepperidge Farm independent contractor distributors by third‑partythird-party financial institutions for the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $204.$500 million as of July 31, 2022. Our guarantees are indirectly secured by the distribution routes. We do not believe it is probableexpect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed. The amounts recognized as of July 30, 2017,31, 2022, and July 31, 2016,August 1, 2021, were not material.
We have provided certain standard indemnifications in connection with divestitures, contracts and other transactions. Certain indemnifications have finite expiration dates. Liabilities recognized based on known exposures related to such matters were not material at July 30, 2017,31, 2022, and July 31, 2016.
August 1, 2021.
| |
19. | Supplemental Financial Statement Data |
19. Supplemental Financial Statement Data
Balance Sheets | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| Accounts receivable | | | |
| Customer accounts receivable | $ | 502 | | | $ | 556 | |
| Allowances | (12) | | | (12) | |
| Subtotal | $ | 490 | | | $ | 544 | |
| Other | 51 | | | 51 | |
| $ | 541 | | | $ | 595 | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| Inventories | | | |
| Raw materials, containers and supplies | $ | 390 | | | $ | 321 | |
| Finished products | 856 | | | 612 | |
| $ | 1,246 | | | $ | 933 | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Plant assets | | | |
| Land | $ | 74 | | | $ | 75 | |
| Buildings | 1,531 | | | 1,493 | |
| Machinery and equipment | 3,932 | | | 3,732 | |
| Projects in progress | 141 | | | 189 | |
| Total cost | $ | 5,678 | | | $ | 5,489 | |
Accumulated depreciation(1) | (3,335) | | | (3,119) | |
| $ | 2,343 | | | $ | 2,370 | |
| | | |
| | | |
| | | |
| | | |
____________________________________
(1)Depreciation expense was $296 million in 2022, $275 million in 2021 and $285 million in 2020. Buildings are depreciated over periods ranging from 7 to 45 years. Machinery and equipment are depreciated over periods generally ranging from 2 to 20 years.
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other assets | | | |
| | | |
| | | |
| | | |
| Operating lease ROU assets, net of amortization | $ | 239 | | | $ | 235 | |
| Pension | 146 | | | 190 | |
| Other | 24 | | | 24 | |
| $ | 409 | | | $ | 449 | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Accounts receivable | | | |
| Customer accounts receivable | $ | 561 |
| | $ | 566 |
|
| Allowances | (11 | ) | | (12 | ) |
| Subtotal | $ | 550 |
| | $ | 554 |
|
| Other | 55 |
| | 72 |
|
| | $ | 605 |
| | $ | 626 |
|
| | | | |
| Inventories | | | |
| Raw materials, containers and supplies | $ | 377 |
| | $ | 391 |
|
| Finished products | 525 |
| | 549 |
|
| | $ | 902 |
| | $ | 940 |
|
| | | | |
| Other current assets | | | |
| Fair value of derivatives | $ | 9 |
| | $ | 5 |
|
| Other | 65 |
| | 41 |
|
| | $ | 74 |
| | $ | 46 |
|
| | | | |
| Plant assets | | | |
| Land | $ | 64 |
| | $ | 58 |
|
| Buildings | 1,553 |
| | 1,488 |
|
| Machinery and equipment | 4,231 |
| | 4,042 |
|
| Projects in progress | 195 |
| | 176 |
|
| Total cost | $ | 6,043 |
| | $ | 5,764 |
|
Accumulated depreciation(1) | (3,589 | ) | | (3,357 | ) |
| | $ | 2,454 |
| | $ | 2,407 |
|
| | | | |
| Other assets | | | |
| Investments | $ | 69 |
| | $ | 47 |
|
| Deferred taxes | 36 |
| | 41 |
|
| Other | 34 |
| | 19 |
|
| | $ | 139 |
| | $ | 107 |
|
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| Accrued liabilities | | | |
| Accrued compensation and benefits | $ | 216 | | | $ | 203 | |
| Fair value of derivatives | 34 | | | 3 | |
| Accrued trade and consumer promotion programs | 141 | | | 121 | |
| Accrued interest | 64 | | | 70 | |
| Restructuring | 7 | | | 6 | |
| Operating lease liabilities | 62 | | | 54 | |
| Other | 97 | | | 119 | |
| $ | 621 | | | $ | 576 | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| (Millions) | 2022 | | 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other liabilities | | | |
| Pension benefits | $ | 107 | | | $ | 142 | |
| Postretirement benefits | 153 | | | 199 | |
| Operating lease liabilities | 177 | | | 180 | |
| Deferred compensation | 81 | | | 92 | |
| | | |
| | | |
| | | |
| Unrecognized tax benefits | 15 | | | 20 | |
| | | |
| Other | 70 | | | 72 | |
| $ | 603 | | | $ | 705 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Accrued liabilities | | | |
| Accrued compensation and benefits | $ | 241 |
| | $ | 263 |
|
| Fair value of derivatives | 43 |
| | 16 |
|
| Accrued trade and consumer promotion programs | 131 |
| | 130 |
|
| Accrued interest | 34 |
| | 35 |
|
| Restructuring | 24 |
| | 57 |
|
| Other | 88 |
| | 103 |
|
| | $ | 561 |
| | $ | 604 |
|
| | | | |
| Other liabilities | | | |
| Pension benefits | $ | 261 |
| | $ | 501 |
|
Deferred compensation(2) | 96 |
| | 100 |
|
| Postretirement benefits | 247 |
| | 285 |
|
| Fair value of derivatives | 1 |
| | 44 |
|
| Unrecognized tax benefits | 34 |
| | 31 |
|
| Restructuring | 2 |
| | 17 |
|
| Other | 56 |
| | 61 |
|
| | $ | 697 |
| | $ | 1,039 |
|
| |
(1)
| Depreciation expense was $299 in 2017, $288 in 2016 and $286 in 2015. Buildings are depreciated over periods ranging from 7 to 45 years. Machinery and equipment are depreciated over periods generally ranging from 2 to 20 years. |
| |
(2)
| The deferred compensation obligation represents unfunded plans maintained for the purpose of providing our directors and certain of our executives the opportunity to defer a portion of their compensation. All forms of compensation contributed to the deferred compensation plans are accounted for in accordance with the underlying program. Deferrals and our contributions are credited to an investment account in the participant's name, although no funds are actually contributed to the investment account and no investments are actually purchased. Seven investment choices are available, including: (1) a book account that tracks the total return on our stock; (2) a book account that tracks the performance of the Vanguard Institutional Index; (3) a book account that tracks the performance of the Vanguard Extended Market Index; (4) a book account that tracks the performance of the Vanguard Total International Stock Index; (5) a book account that tracks the performance of the Vanguard Total Bond Market Index; (6) a book account that tracks the performance of the Vanguard Short-Term Bond Index; and (7) a book account that tracks the BlackRock Short-Term Investment Fund. Participants can reallocate investments daily and are entitled to the gains and losses on investment funds. We recognize an amount in the Consolidated Statements of Earnings for the market appreciation/depreciation of each fund. |
Statements of Earnings | | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Other expenses / (income) | | | | | |
| | | | | |
| Amortization of intangible assets | $ | 41 | | | $ | 42 | | | $ | 43 | |
| | | | | |
| Net periodic benefit expense (income) other than the service cost | (23) | | | (285) | | | 73 | |
| | | | | |
Investment losses(1) | — | | | — | | | 49 | |
Loss on sales of businesses(2) | — | | | 11 | | | 64 | |
| Transition services fees | — | | | (27) | | | (10) | |
| Other | 3 | | | 5 | | | 2 | |
| $ | 21 | | | $ | (254) | | | $ | 221 | |
| | | | | |
Advertising and consumer promotion expense(3) | $ | 314 | | | $ | 399 | | | $ | 463 | |
| | | | | |
Interest expense(4) | | | | | |
| Interest expense | $ | 191 | | | $ | 214 | | | $ | 350 | |
| Less: Interest capitalized | 2 | | | 4 | | | 5 | |
| $ | 189 | | | $ | 210 | | | $ | 345 | |
____________________________________
(1)2020 includes a loss of $45 million related to Acre. See Note 14 for additional information.
(2)In 2021, we recognized a loss of $11 million on the sale of the Plum baby food and snacks business. In 2020, we recognized a loss of $64 million on the sale of the European chips business. See Note 3 for additional information.
(3)Included in Marketing and selling expenses.
(4)In 2022, we recognized a loss of $4 million (including $3 million of premium and other costs) on the extinguishment of debt. In 2020, we recognized a loss of $75 million (including $65 million of premium, fees and other costs paid with the tender offers and unamortized debt issuance costs). See Note 12 for additional information.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Other expenses / (income) | | | | | |
| Amortization of intangible assets | $ | 19 |
| | $ | 20 |
| | $ | 17 |
|
Impairment of intangible assets(1) | 212 |
| | 141 |
| | 6 |
|
Claim settlement(2) | — |
| | (25 | ) | | — |
|
| Other | 7 |
| | (5 | ) | | 1 |
|
| | $ | 238 |
| | $ | 131 |
| | $ | 24 |
|
| | | | | | |
Advertising and consumer promotion expense(3) | $ | 389 |
| | $ | 397 |
| | $ | 385 |
|
| | | | | | |
| Interest expense | | | | | |
| Interest expense | $ | 114 |
| | $ | 118 |
| | $ | 111 |
|
| Less: Interest capitalized | 2 |
| | 3 |
| | 3 |
|
| | $ | 112 |
| | $ | 115 |
| | $ | 108 |
|
| |
(1)
| In 2017, we recognized impairment charges of $212 related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; in 2016, we recognized an impairment charge of $141 related to the intangible assets of the Bolthouse Farmscarrot and carrot ingredients reporting unit; and in 2015, we recognized an impairment charge of $6 related to minor trademarks used in the Global Biscuits and Snacks segment. See also Note 5.
|
| |
(2)
| In 2016, we recorded a gain of $25 from a settlement of a claim related to the Kelsen acquisition. |
| |
(3)
| Included in Marketing and selling expenses. |
Statements of Cash Flows | | | | | | | | | | | | | | | | | |
| (Millions) | 2022 | | 2021 | | 2020 |
| Cash Flows from Operating Activities | | | | | |
| Other non-cash charges to net earnings | | | | | |
| Operating lease ROU asset expense | $ | 74 | | | $ | 75 | | | $ | 75 | |
| Amortization of debt issuance costs/debt discount | 5 | | | 6 | | | 9 | |
| Benefit related expense | 3 | | | 12 | | | 12 | |
| Other | 6 | | | (7) | | | 5 | |
| $ | 88 | | | $ | 86 | | | $ | 101 | |
| | | | | |
| | | | | |
| Other | | | | | |
| Benefit related payments | $ | (45) | | | $ | (49) | | | $ | (53) | |
| Other | 3 | | | 2 | | | (6) | |
| $ | (42) | | | $ | (47) | | | $ | (59) | |
| | | | | |
| Other Cash Flow Information | | | | | |
| Interest paid | $ | 188 | | | $ | 214 | | | $ | 287 | |
| Interest received | $ | 1 | | | $ | 1 | | | $ | 4 | |
| Income taxes paid | $ | 196 | | | $ | 212 | | | $ | 222 | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Cash Flows from Operating Activities | | | | | |
| Other | | | | | |
| Benefit related payments | $ | (53 | ) | | $ | (55 | ) | | $ | (53 | ) |
| Other | — |
| | (3 | ) | | 1 |
|
| | $ | (53 | ) | | $ | (58 | ) | | $ | (52 | ) |
| | | | | | |
| Other Cash Flow Information | | | | | |
| Interest paid | $ | 110 |
| | $ | 113 |
| | $ | 111 |
|
| Interest received | $ | 5 |
| | $ | 4 |
| | $ | 3 |
|
| Income taxes paid | $ | 320 |
| | $ | 325 |
| | $ | 333 |
|
| |
20. | Quarterly Data (unaudited) |
|
| | | | | | | | | | | | | | | |
| | 2017 |
| | First | | Second | | Third | | Fourth |
| Net sales | $ | 2,202 |
| | $ | 2,171 |
| | $ | 1,853 |
| | $ | 1,664 |
|
| Gross profit | 841 |
| | 825 |
| | 678 |
| | 715 |
|
| Net earnings attributable to Campbell Soup Company | 292 |
| | 101 |
| | 176 |
| | 318 |
|
| Per share - basic | | | | | | | |
| Net earnings attributable to Campbell Soup Company | .95 |
| | .33 |
| | .58 |
| | 1.05 |
|
| Dividends | .35 |
| | .35 |
| | .35 |
| | .35 |
|
| Per share - assuming dilution | | | | | | | |
| Net earnings attributable to Campbell Soup Company | .94 |
| | .33 |
| | .58 |
| | 1.04 |
|
| Market price | | | | | | | |
| High | $ | 62.30 |
| | $ | 63.50 |
| | $ | 64.23 |
| | $ | 59.14 |
|
| Low | $ | 52.74 |
| | $ | 52.59 |
| | $ | 56.05 |
| | $ | 50.62 |
|
|
| | | | | | | | | | | | | | | |
| | 2017 |
| | First | | Second | | Third | | Fourth |
| In 2017, the following charges (gains) were recorded in Net earnings attributable to Campbell Soup Company: | | | | | | | |
| Impairment charges | $ | — |
| | $ | 180 |
| | $ | — |
| | $ | — |
|
| Restructuring charges, implementation costs and other related costs | 6 |
| | — |
| | 4 |
| | 26 |
|
| Pension and postretirement benefit mark-to-market adjustments | 13 |
| | — |
| | — |
| | (129 | ) |
| Sale of notes | — |
| | — |
| | — |
| | (56 | ) |
| Per share - assuming dilution | | | | | | | |
| Impairment charges | — |
| | .58 |
| | — |
| | — |
|
| Restructuring charges, implementation costs and other related costs | .02 |
| | — |
| | .01 |
| | .09 |
|
| Pension and postretirement benefit mark-to-market adjustments | .04 |
| | — |
| | — |
| | (.42 | ) |
| Sale of notes | — |
| | — |
| | — |
| | (.18 | ) |
|
| | | | | | | | | | | | | | | |
| | 2016 |
| | First | | Second | | Third | | Fourth |
| Net sales | $ | 2,203 |
| | $ | 2,201 |
| | $ | 1,870 |
| | $ | 1,687 |
|
| Gross profit | 755 |
| | 819 |
| | 660 |
| | 546 |
|
| Net earnings (loss) attributable to Campbell Soup Company | 194 |
| | 265 |
| | 185 |
| | (81 | ) |
| Per share - basic | | | | | | | |
| Net earnings (loss) attributable to Campbell Soup Company | .63 |
| | .85 |
| | .60 |
| | (.26 | ) |
| Dividends | .312 |
| | .312 |
| | .312 |
| | .312 |
|
| Per share - assuming dilution | | | | | | | |
| Net earnings (loss) attributable to Campbell Soup Company | .62 |
| | .85 |
| | .59 |
| | (.26 | ) |
| Market price | | | | | | | |
| High | $ | 52.37 |
| | $ | 56.63 |
| | $ | 65.48 |
| | $ | 67.89 |
|
| Low | $ | 45.23 |
| | $ | 47.77 |
| | $ | 54.97 |
| | $ | 59.51 |
|
|
| | | | | | | | | | | | | | | |
| | 2016 |
| | First | | Second | | Third | | Fourth |
| In 2016, the following charges (gains) were recorded in Net earnings attributable to Campbell Soup Company: | | | | | | | |
| Impairment charge | $ | — |
| | $ | — |
| | $ | — |
| | $ | 127 |
|
| Restructuring charges, implementation costs and other related costs | 23 |
| | 10 |
| | 9 |
| | 7 |
|
| Pension and postretirement benefit mark-to-market adjustments | 80 |
| | (4 | ) | | 34 |
| | 90 |
|
| Claim settlement | — |
| | — |
| | (25 | ) | | — |
|
| Per share - assuming dilution | | | | | | | |
| Impairment charge | — |
| | — |
| | — |
| | .41 |
|
| Restructuring charges, implementation costs and other related costs | .07 |
| | .03 |
| | .03 |
| | .02 |
|
| Pension and postretirement benefit mark-to-market adjustments | .26 |
| | (.01 | ) | | .11 |
| | .29 |
|
| Claim settlement | — |
| | — |
| | (.08 | ) | | — |
|
In the fourth quarter of 2016, an out-of-period adjustment of $13 ($.04 per share) to increase taxes on earnings was recorded. The adjustment related to deferred tax expense that should have been provided on certain cross-currency swap contracts associated with intercompany debt. Most of the adjustment related to the third quarter of 2016. Management does not believe the adjustment is material to the consolidated financial statements for any period.
Management’s Report on Internal Control Over Financial Reporting
The company’s management of Campbell Soup Company (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting.reporting (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
The company’sCompany's internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyCompany are being made only in accordance with authorizations of management and Directors of the company;Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sCompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, any system of internal control over financial reporting, no matter how well defined, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The company’sCompany’s management assessed the effectiveness of the company’sCompany’s internal control over financial reporting as of July 30, 2017.31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on this assessment using those criteria, management concluded that the company’sCompany’s internal control over financial reporting was effective as of July 30, 2017.
31, 2022.
The effectiveness of the company’sCompany’s internal control over financial reporting as of July 30, 201731, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.
| | | | | | | | | | | |
| /s/ Mark A. Clouse | | | |
| Mark A. Clouse | | | |
| President and Chief Executive Officer | | | |
| | | |
/s/ Denise M. MorrisonMick J. Beekhuizen | | | |
Denise M. MorrisonMick J. Beekhuizen | | | |
President and Chief Executive Officer | | | |
| | | |
/s/ Anthony P. DiSilvestro | | | |
Anthony P. DiSilvestro | | | |
Senior Vice President and Chief Financial Officer | | | |
| | | |
| /s/ Stanley Polomski | | | |
| Stanley Polomski | | | |
| Senior Vice President and Controller | | | |
| (Principal Accounting Officer) | | | |
| | | |
|
September 27, 201722, 2022
Report of Independent Registered Public Accounting Firm
To the ShareholdersBoard of Directors and DirectorsShareholders of Campbell Soup Company:Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
In our opinion, the consolidated financial statements listed inWe have audited the accompanying index appearing under Item 15(a)(1) present fairly, in all material respects, the financial positionconsolidated balance sheets of Campbell Soup Company and its subsidiaries (the "Company") as of July 30, 201731, 2022 and July 31, 2016,August 1, 2021, and the resultsrelated consolidated statements of their operationsearnings, of comprehensive income, of equity, and theirof cash flows for each of the three years in the period ended July 30, 201731, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended July 31, 2022 appearing on page 84 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2022 and August 1, 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2022 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 30, 2017,31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-lived Intangible Assets Impairment Test for Certain Trademarks
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s indefinite-lived intangible assets (trademarks) were $2.549 billion as of July 31, 2022. Of the carrying value of all indefinite-lived trademarks, $350 million related to the Lance trademark, $318 million related to the Kettle Brand trademark, $292 million related to the Pace trademark, and $280 million related to the Pacific Foods trademark. Management conducts a test at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Management determines fair value based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates.
The principal considerations for our determination that performing procedures relating to the indefinite-lived intangible assets impairment test for certain trademarks is a critical audit matter are (i) the high degree of auditor judgment and subjectivity involved in applying procedures relating to the fair value estimates of certain trademarks due to the significant judgment by management when developing these estimates, (ii) the significant audit effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s trademark impairment test. These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the discounted cash flow analyses, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analyses, and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance associated with the trademarks, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow analyses and evaluating the reasonableness of the weighted average costs of capital and royalty rates significant assumptions.
| | | | | | | | | | | | | | | | | |
| /s/ PricewaterhouseCoopers LLP | | | |
| PricewaterhouseCoopers LLP | | | | | |
| Philadelphia, Pennsylvania | | | | | |
| | | | | |
/s/ PricewaterhouseCoopers LLPSeptember 22, 2022 | | | |
PricewaterhouseCoopers LLP | | | | | |
Philadelphia, Pennsylvania | | | | | |
| | | | | |
September 27, 2017
We have served as the Company’s auditor since 1954.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the SeniorExecutive Vice President and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in RulesRule 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 30, 2017 (Evaluation31, 2022 (the Evaluation Date). Based on such evaluation, the President and Chief Executive Officer and the SeniorExecutive Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
The annual report of management on our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on page 74. The attestation report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, regarding our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on page 75.pages 75-76.
During the fourth quarter of 2017, we replaced a financial planning and consolidation system with an upgraded version. In connection with this implementation, we modified select controls relating to financial data consolidation and financial reporting.
Except as described above, thereThere were no changes in our internal control over financial reporting that materially affected, or were likely to materially affect, such internal control over financial reporting during the quarter ended July 30, 2017.31, 2022.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The sections entitled "Item 1 — Election of Directors," "Voting Securities and Principal Shareholders — Ownership of Directors and Executive Officers" and "Voting Securities and Principal Shareholders — Compliance with Section 16(a) of the Exchange Act" in our Proxy Statement for the Annual Meeting of Shareholders to be held on November 15, 2017 (the 2017 Proxy) are incorporated herein by reference. The information presented in the section entitled "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure" in the 2017 Proxy relating to the members of our Audit Committee and the Audit Committee’s financial experts is incorporated herein by reference.
Certain of the information required by this Item relating to our executive officers is set forth under the heading "Executive Officers of the Company" in this Report.
We have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Controller and members of the Chief Financial Officer’s financial leadership team. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is posted on our website, www.campbellsoupcompany.com (under the "About Us — Corporate Governance" caption). We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers by posting such information on our website.
We have also adopted a separate Code of Business Conduct and Ethics applicable to the Board of Directors, our officers and all of our employees. The Code of Business Conduct and Ethics is posted on our website, www.campbellsoupcompany.com (under the "About Us — Corporate Governance" caption). Our Corporate Governance Standards and the charters of our four standing committees of the Board of Directors can also be found at this website. Printed copies of the foregoing are available to any shareholder requesting a copy by:
writing to Investor Relations, Campbell Soup Company, 1 Campbell Place, Camden, NJ 08103-1799;
calling 1-800-840-2865; or
e-mailing our Investor Relations Department at investorrelations@campbellsoup.com.
Item 11. Executive Compensation
The information presented in the sections entitled "Compensation Discussion and Analysis," "Executive Compensation Tables," "Corporate Governance Policies and Practices — Compensation of Directors," "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure — Compensation and Organization Committee Interlocks and Insider Participation" and "Compensation Discussion and Analysis — Compensation and Organization Committee Report" in the 2017 Proxy is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information presented in the sections entitled "Voting Securities and Principal Shareholders — Ownership of Directors and Executive Officers" and "Voting Securities and Principal Shareholders — Principal Shareholders" in the 2017 Proxy is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the stock that could have been issued under our equity compensation plans as of July 30, 2017:
|
| | | | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b) | |
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) (c) |
Equity Compensation Plans Approved by Security Holders (1) | | 5,810,861 |
| | $ | 52.08 |
| | 9,650,970 |
|
| Equity Compensation Plans Not Approved by Security Holders | | N/A |
| | N/A |
| | N/A |
|
| Total | | 5,810,861 |
| | $ | 52.08 |
| | 9,650,970 |
|
| |
(1)
| Column (a) represents stock options and restricted stock units outstanding under the 2015 Long-Term Incentive Plan, 2005 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan. Column (a) includes 3,547,900 TSR performance restricted stock units based on the maximum number of shares potentially issuable under the awards, and the number of shares, if any, to be issued pursuant to such awards will be determined based upon performance during the applicable three-year performance period. No additional awards can be made under the 2003 Long-Term Incentive Plan or the 2005 Long-Term Incentive Plan. Future equity awards under the 2015 Long-Term Incentive Plan may take the form of stock options, SARs, performance unit awards, restricted stock, restricted performance stock, restricted stock units, or stock awards. Column (b) represents the weighted-average exercise price of the outstanding stock options only; the outstanding restricted stock units are not included in this calculation. Column (c) represents the maximum number of future equity awards that can be made under the 2015 Long-Term Incentive Plan as of July 30, 2017. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information presented in the section entitled "Corporate Governance Policies and Practices — Transactions with Related Persons," "Item 1 — Election of Directors — Director Independence" and "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure" in the 2017 Proxy is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information presented in the sections entitled "Item 2 — Ratification of AppointmentReport of Independent Registered Public Accounting Firm — Audit Firm Fees
To the Board of Directors and Services"Shareholders of Campbell Soup Company
Opinions on the Financial Statements and "Item 2 — RatificationInternal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Appointment of Independent Registered Public Accounting Firm — Audit Committee Pre-Approval Policy" in the 2017 Proxy is incorporated herein by reference.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this Report:
1. Financial Statements
Consolidated Statements of Earnings for 2017, 2016Campbell Soup Company and 2015
Consolidated Statements of Comprehensive Income for 2017, 2016 and 2015
Consolidated Balance Sheetsits subsidiaries (the "Company") as of July 30, 201731, 2022 and August 1, 2021, and the related consolidated statements of earnings, of comprehensive income, of equity, and of cash flows for each of the three years in the period ended July 31, 20162022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended July 31, 2022 appearing on page 84 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Consolidated StatementsIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cash Flowsthe Company as of July 31, 2022 and August 1, 2021, and the results of its operations and its cash flows for 2017, 2016each of the three years in the period ended July 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and 2015
Consolidated Statementsfor its assessment of Equity for 2017, 2016 and 2015
Notes to Consolidated Financial Statements
the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-lived Intangible Assets Impairment Test for Certain Trademarks
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s indefinite-lived intangible assets (trademarks) were $2.549 billion as of July 31, 2022. Of the carrying value of all indefinite-lived trademarks, $350 million related to the Lance trademark, $318 million related to the Kettle Brand trademark, $292 million related to the Pace trademark, and $280 million related to the Pacific Foods trademark. Management conducts a test at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Management determines fair value based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates.
The principal considerations for our determination that performing procedures relating to the indefinite-lived intangible assets impairment test for certain trademarks is a critical audit matter are (i) the high degree of auditor judgment and subjectivity involved in applying procedures relating to the fair value estimates of certain trademarks due to the significant judgment by management when developing these estimates, (ii) the significant audit effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s trademark impairment test. These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the discounted cash flow analyses, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analyses, and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance associated with the trademarks, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow analyses and evaluating the reasonableness of the weighted average costs of capital and royalty rates significant assumptions.
| | | | | | | | | | | | | | | | | |
| /s/ PricewaterhouseCoopers LLP | | | |
| PricewaterhouseCoopers LLP | | | | | |
| Philadelphia, Pennsylvania | | | | | |
| | | | | |
| September 22, 2022 | | | | | |
We have served as the Company’s auditor since 1954.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of July 31, 2022 (the Evaluation Date). Based on such evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
The annual report of management on our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on page 74. The attestation report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, regarding our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on pages 75-76.
There were no changes in our internal control over financial reporting that materially affected, or were likely to materially affect, such internal control over financial reporting during the quarter ended July 31, 2022.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Campbell Soup Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Campbell Soup Company and its subsidiaries (the "Company") as of July 31, 2022 and August 1, 2021, and the related consolidated statements of earnings, of comprehensive income, of equity, and of cash flows for each of the three years in the period ended July 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended July 31, 2022 appearing on page 84 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2022 and August 1, 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-lived Intangible Assets Impairment Test for Certain Trademarks
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s indefinite-lived intangible assets (trademarks) were $2.549 billion as of July 31, 2022. Of the carrying value of all indefinite-lived trademarks, $350 million related to the Lance trademark, $318 million related to the Kettle Brand trademark, $292 million related to the Pace trademark, and $280 million related to the Pacific Foods trademark. Management conducts a test at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Management determines fair value based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates.
The principal considerations for our determination that performing procedures relating to the indefinite-lived intangible assets impairment test for certain trademarks is a critical audit matter are (i) the high degree of auditor judgment and subjectivity involved in applying procedures relating to the fair value estimates of certain trademarks due to the significant judgment by management when developing these estimates, (ii) the significant audit effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s trademark impairment test. These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the discounted cash flow analyses, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow analyses, and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, weighted average costs of capital, and assumed royalty rates for the Pace and Pacific Foods trademarks and the weighted average costs of capital and assumed royalty rates for the Kettle Brand and Lance trademarks. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance associated with the trademarks, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow analyses and evaluating the reasonableness of the weighted average costs of capital and royalty rates significant assumptions.
| | | | | | | | | | | | | | | | | |
| /s/ PricewaterhouseCoopers LLP | | | |
| PricewaterhouseCoopers LLP | | | | | |
| Philadelphia, Pennsylvania | | | | | |
| | | | | |
| September 22, 2022 | | | | | |
We have served as the Company’s auditor since 1954.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of July 31, 2022 (the Evaluation Date). Based on such evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
The annual report of management on our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on page 74. The attestation report of PricewaterhouseCoopers LLP, our independent registered public accounting firm, regarding our internal control over financial reporting is provided under "Financial Statements and Supplementary Data" on pages 75-76.
There were no changes in our internal control over financial reporting that materially affected, or were likely to materially affect, such internal control over financial reporting during the quarter ended July 31, 2022.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The sections entitled "Item 1 — Election of Directors" and "Voting Securities and Principal Shareholders — Ownership of Directors and Executive Officers" in our Proxy Statement for the 2022 Annual Meeting of Shareholders (the 2022 Proxy) are incorporated herein by reference. The information presented in the section entitled "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure" in the 2022 Proxy relating to the members of our Audit Committee and the Audit Committee’s financial experts is incorporated herein by reference.
Certain of the information required by this Item relating to our executive officers is set forth under the heading "Information about our Executive Officers" in this Report.
We have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Controller and members of the Chief Financial Officer’s financial leadership team. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is posted on the Investor portion of our website, www.campbellsoupcompany.com (under the "About Us—Investors—Governance—Governance Documents" caption). We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers by posting such information on our website.
We have also adopted a separate Code of Business Conduct and Ethics applicable to the Board of Directors, our officers and all of our employees. The Code of Business Conduct and Ethics is posted on the Investor portion of our website, www.campbellsoupcompany.com (under the "About Us—Investors—Governance—Governance Documents" caption). Our Corporate Governance Standards and the charters of our four standing committees of the Board of Directors can also be found at this website. Printed copies of the foregoing are available to any shareholder requesting a copy by:
•writing to Investor Relations, Campbell Soup Company, 1 Campbell Place, Camden, NJ 08103-1799;
•calling 856-342-6081; or
•e-mailing our Investor Relations Department at IR@campbells.com.
Item 11. Executive Compensation
The information presented in the sections entitled "Compensation Discussion and Analysis," "Executive Compensation Tables," "Corporate Governance Policies and Practices — Compensation of Directors," "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure — Compensation and Organization Committee Interlocks and Insider Participation" and "Compensation Discussion and Analysis — Compensation and Organization Committee Report" in the 2022 Proxy is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information presented in the sections entitled "Voting Securities and Principal Shareholders — Ownership of Directors and Executive Officers" and "Voting Securities and Principal Shareholders — Principal Shareholders" in the 2022 Proxy is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the stock that could have been issued under our equity compensation plans as of July 31, 2022: | | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants and Rights (a) | | Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants and Rights (b) | | Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) (c) |
Equity Compensation Plans Approved by Security Holders (1) | | 5,847,284 | | | $ | 46.04 | | | 2,927,470 | |
| Equity Compensation Plans Not Approved by Security Holders | | N/A | | N/A | | N/A |
| Total | | 5,847,284 | | | $ | 46.04 | | | 2,927,470 | |
___________________________________
(1)Column (a) represents stock options and restricted stock units outstanding under the 2015 Long-Term Incentive Plan and the 2005 Long-Term Incentive Plan. Column (a) includes 2,901,544 TSR performance restricted stock units and EPS CAGR performance restricted stock units based on the maximum number of shares potentially issuable under the awards, and the number of shares, if any, to be issued pursuant to such awards will be determined based upon performance during the applicable three-year performance period. No additional awards can be made under the 2005 Long-Term Incentive Plan. Future equity awards under the 2015 Long-Term Incentive Plan may take the form of stock options, stock appreciation rights, performance unit awards, restricted stock, restricted performance stock, restricted stock units, or stock awards. Column (b) represents the weighted-average exercise price of the outstanding stock options only; the outstanding restricted stock units are not included in this calculation. Column (c) represents the maximum number of future equity awards that can be made under the 2015 Long-Term Incentive Plan as of July 31, 2022.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information presented in the section entitled "Corporate Governance Policies and Practices — Transactions with Related Persons," "Item 1 — Election of Directors," "Corporate Governance Policies and Practices — Director Independence" and "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure" in the 2022 Proxy is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information presented in the sections entitled "Item 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Firm Fees and Services" and "Item 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Committee Pre-Approval Policy" in the 2022 Proxy is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
1. Financial Statements
Consolidated Statements of Earnings for 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for 2022, 2021 and 2020
Consolidated Balance Sheets as of July 31, 2022 and August 1, 2021
Consolidated Statements of Cash Flows for 2022, 2021 and 2020
Consolidated Statements of Equity for 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
2. Financial Statement Schedule
II - Valuation and Qualifying Accounts for 2017, 20162022, 2021 and 20152020
3. Exhibits
Reference is made to Item 15(b) below.
(b) Exhibits. The Exhibit Index, which immediately precedes the signature page, is incorporated by reference into this Report.
(c) Financial Statement Schedules. Reference is made to Item 15(a)(2) above.
Item 16. Form 10-K Summary
None.
INDEX TO EXHIBITS
| | | | | |
| |
2*2 | |
| |
| 3(a) | |
| |
| 3(b) | |
| |
4(a)
| |
| |
| 4(b) | Form of First Supplemental Indenture, dated August 2, 2012, among Campbell, The Bank of New York Mellon and Wells Fargo Bank, National Association, as Series Trustee, to Indenture dated November 24, 2008, is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on August 2, 2012. |
| |
| 4(c) | |
| |
| 4(d) | |
| |
4(e) | |
| |
4(f)4(e) | |
| |
4(g) | |
| |
94(f) | |
| |
| |
| 4(g) | |
| |
| 4(h) | |
| |
| 4(i) | |
| |
| 4(j) | |
| |
| 4(k) | |
| |
| 4(l) | |
| |
| 4(m) | 9(d) and 9(e)Description of securities incorporated by reference to Exhibit 4(p) to Campbell's Form 10-K (SEC file number 1-3822) for the fiscal year ended August 3, 2014, each as filed with the SEC.SEC on September 26, 2019. |
| |
| 10(a)+ | |
| |
10(b)+ | |
| |
10(c)10(b)+ | |
| |
10(d)10(c)+ | |
| |
| | | | | |
10(e)10(d)+
| |
| |
10(f)10(e)+ | |
| |
10(g)10(f)+ | |
| |
|
| |
10(h)10(g)+
| |
| |
10(i)10(h)+ | |
| |
10(j)+ | |
| |
10(k)+ | |
| |
10(l)10(i)+ | |
| |
10(m)10(j)+ | |
| |
10(n)10(k)+ | |
| |
10(o)+ | |
| |
10(p)10(l)+ | |
| |
10(q)+ | |
| |
10(r)+ | |
| |
10(s)+ | |
| |
10(t)+ | |
| |
10(u)10(m)+ | |
| |
10(v)10(n)+ | |
| |
10(w)+ | |
| |
10(x)+ | |
| |
10(y)10(o)+ | |
| |
10(z)10(p)+ | |
| |
10(aa)10(q)+
| |
| |
10(bb)10(r)+ | |
| |
| 10(s)+ | |
| |
| 10(t)+ | |
| |
| 10(u) | Five-Year Credit Agreement, dated September 27, 2021, by and among Campbell Soup Company, the Eligible Subsidiaries party thereto from time to time, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders named therein, incorporated by reference to Campbell's Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended October 31, 2021. |
| |
| 10(v) | Support Agreement, dated November 26, 2018, by and among Campbell Soup Company and Third Point LLC, Third Point Partners Qualified L.P., Third Point Partners L.P., Third Point Offshore Master Fund L.P., Third Point Ultra Master Fund L.P., Third Point Enhanced L.P., Third Point Advisors LLC, Third Point Advisors II LLC and the Revocable Trust of Goerge Strawbridge, Jr., dated January 21, 1991 is incorporated by reference to Exhibit 10.1 to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on November 26, 2018. |
| | | | | |
| |
10(cc)+10(w) | |
| |
| 10(x)+ | |
| |
10(dd)10(y)+ | |
| |
| 10(z)+ | |
| 10(aa)+ | |
| |
1221 | |
| |
2123 | |
| |
23 | |
| |
31(a)24 | |
| |
| 31(a) | |
| |
| 31(b) | |
| |
| 32(a) | |
| |
| 32(b) | |
| |
| 101.INS | XBRL Instance Document |
| |
| 101.SCH | XBRL Schema Document |
| |
| 101.CAL | XBRL Calculation Linkbase Document |
| |
| 101.DEF | XBRL Definition Linkbase Document |
| |
| 101.LAB | XBRL Label Linkbase Document |
| |
| 101.PRE | XBRL Presentation Linkbase Document |
| |
| 104 | The cover page from this Annual Report on Form 10-K, formulated in Inline XBRL (see exhibit 101) |
| |
| +This exhibit is a management contract or compensatory plan or arrangement. |
*Disclosure schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Campbell agrees to furnish a copy of any omitted attachment to the SEC on a confidential basis upon request.
+This exhibit is a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Campbell has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 27, 2017
22, 2022 |
| | | | | | | |
| | | CAMPBELL SOUP COMPANY |
| | | |
| By: | By: | /s/ Anthony P. DiSilvestroMick J. Beekhuizen |
| | | Anthony P. DiSilvestroMick J. Beekhuizen |
| | | SeniorExecutive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of Campbell and in the capacities indicated on September 27, 2017.22, 2022.
| | | | | | | | |
| Signatures |
| | |
| /s/ Mark A. Clouse | | * |
| Mark A. Clouse | | Maria Teresa Hilado |
| President and Chief Executive Officer and Director | | Director |
| (Principal Executive Officer) | | |
| | |
Signatures/s/ Mick J. Beekhuizen | | * |
| Mick J. Beekhuizen | | Grant H. Hill |
/s/ Denise M. Morrison | | /s/ Mary Alice D. Malone |
Denise M. Morrison | | Mary Alice D. Malone |
President, Chief Executive Officer and Director | | Director |
(Principal Executive Officer) | | |
| | |
/s/ Anthony P. DiSilvestro | | /s/ Sara Mathew |
Anthony P. DiSilvestro | | Sara Mathew |
Senior Vice President and Chief Financial Officer | | Director |
| (Principal Financial Officer) | | |
| | |
| /s/ Stanley Polomski | | /s/ Keith R. McLoughlin* |
| Stanley Polomski | | Keith R. McLoughlinSarah Hofstetter |
| Senior Vice President and Controller | | Director |
| (Principal Accounting Officer) | | |
| | |
/s/ Les C. Vinney* | | /s/ Charles R. Perrin* |
Les C. VinneyKeith R. McLoughlin | | Charles R. PerrinMarc B. Lautenbach |
ChairmanChair and Director | | Director |
| | |
/s/ * | | * |
| Fabiola R. Arredondo | | /s/ Nick ShreiberMary Alice D. Malone |
Fabiola R. ArredondoDirector | | Nick ShreiberDirector |
Director | | Director |
| * | | * |
/s/ Bennett DorranceHoward M. Averill | | /s/ TraceyKurt T. TravisSchmidt |
Bennett DorranceDirector | | Tracey T. TravisDirector |
Director | | Director |
| * | | * |
/s/ Randall W. LarrimoreJohn P. Bilbrey | | /s/ Archbold D. van Beuren |
Randall W. LarrimoreDirector | | Archbold D. van Beuren Director |
Director | | Director |
| * | | * By: /s/ Charles A. Brawley, III |
/s/ Marc B. LautenbachBennett Dorrance, Jr. | | Name: Charles A. Brawley, III |
Marc B. LautenbachDirector | | Title: Senior Vice President, Deputy General Counsel and Corporate Secretary, |
Director | | as Attorney-in-fact |
| | (pursuant to powers of attorney) |
Schedule II
CAMPBELL SOUP COMPANY
Valuation and Qualifying Accounts
For the Fiscal Years ended July 30, 2017, July 31, 2016,2022, August 1, 2021, and August 2, 20152020
(Millions)
This schedule of valuation and qualifying accounts for continuing operations should be read in conjunction with the Consolidated Financial Statements. This schedule excludes amounts related to discontinued operations. See Note 3 to the Consolidated Financial Statements for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions) | Balance at Beginning of Period | | Charged to/
(Reduction in) Costs
and
Expenses | | Deductions | | Divestiture | | Balance at End of Period |
| Fiscal year ended July 31, 2022 | | | | | | | | | |
| Cash discount | $ | 6 | | | $ | 136 | | | $ | (137) | | | $ | — | | | $ | 5 | |
| Bad debt reserve | 2 | | | 2 | | | — | | | — | | | 4 | |
Returns reserve(1) | 4 | | | (1) | | | — | | | — | | | 3 | |
| Total Accounts receivable allowances | $ | 12 | | | $ | 137 | | | $ | (137) | | | $ | — | | | $ | 12 | |
| | | | | | | | | |
| Fiscal year ended August 1, 2021 | | | | | | | | | |
| Cash discount | $ | 6 | | | $ | 137 | | | $ | (137) | | | $ | — | | | $ | 6 | |
| Bad debt reserve | 4 | | | — | | | (2) | | | — | | | 2 | |
Returns reserve(1) | 4 | | | — | | | — | | | — | | | 4 | |
| Total Accounts receivable allowances | $ | 14 | | | $ | 137 | | | $ | (139) | | | $ | — | | | $ | 12 | |
| | | | | | | | | |
| Fiscal year ended August 2, 2020 | | | | | | | | | |
| Cash discount | $ | 6 | | | $ | 139 | | | $ | (139) | | | $ | — | | | $ | 6 | |
| Bad debt reserve | 3 | | | 2 | | | — | | | (1) | | | 4 | |
Returns reserve(1) | 4 | | | 1 | | | (1) | | | — | | | 4 | |
| Total Accounts receivable allowances | $ | 13 | | | $ | 142 | | | $ | (140) | | | $ | (1) | | | $ | 14 | |
(1)The returns reserve is evaluated quarterly and adjusted accordingly. During each period, returns are charged to net sales in the Consolidated Statements of Earnings as incurred. Actual returns were approximately $110 million in 2022, $100 million in 2021, and $99 million in 2020, or less than 2% of net sales.
|
| | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Charged to/ (Reduction in) Costs and Expenses | | Deductions | |
Balance at End of Period |
| Fiscal year ended July 30, 2017 | | | | | | | |
| Cash discount | $ | 4 |
| | $ | 109 |
| | $ | (109 | ) | | $ | 4 |
|
| Bad debt reserve | 3 |
| | — |
| | (1 | ) | | 2 |
|
Returns reserve(1) | 5 |
| | — |
| | — |
| | 5 |
|
| Total Accounts receivable allowances | $ | 12 |
| | $ | 109 |
| | $ | (110 | ) | | $ | 11 |
|
| | | | | | | | |
| Fiscal year ended July 31, 2016 | | | | | | | |
| Cash discount | $ | 5 |
| | $ | 116 |
| | $ | (117 | ) | | $ | 4 |
|
| Bad debt reserve | 4 |
| | (1 | ) | | — |
| | 3 |
|
Returns reserve(1) | 4 |
| | 2 |
| | (1 | ) | | 5 |
|
| Total Accounts receivable allowances | $ | 13 |
| | $ | 117 |
| | $ | (118 | ) | | $ | 12 |
|
| | | | | | | | |
| Fiscal year ended August 2, 2015 | | | | | | | |
| Cash discount | $ | 4 |
| | $ | 116 |
| | $ | (115 | ) | | $ | 5 |
|
| Bad debt reserve | 3 |
| | 2 |
| | (1 | ) | | 4 |
|
Returns reserve(1) | 5 |
| | — |
| | (1 | ) | | 4 |
|
| Total Accounts receivable allowances | $ | 12 |
| | $ | 118 |
| | $ | (117 | ) | | $ | 13 |
|
| |
(1)
| The returns reserve is evaluated quarterly and adjusted accordingly. During each period, returns are charged to net sales in the Consolidated Statements of Earnings as incurred. Actual returns were approximately $103 in 2017, $95 in 2016 and $105 in 2015, or less than 2% of net sales.
|
