CAMPBELL SOUP CO
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
OF THE
SECURITIES
EXCHANGE ACT OF 1934
| For The Quarterly Period Ended | Commission File Number | |||||||||||||
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| State of Incorporation | I.R.S. Employer Identification No. | ||||
Principal Executive Offices
Telephone Number: (
856
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342-4800
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
Yes
☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☑
Yes
☐ No
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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| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes ☑ No
There were
301,737,878
shares of capital stock outstanding as of December 1, 2021.
1
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(unaudited)
(millions, except per share amounts)
| Three Months Ended | |||||||||||
| October 31, 2021 | November 1, 2020 | ||||||||||
| Net sales | $ |
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$ |
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| Costs and expenses | |||||||||||
| Cost of products sold |
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| Marketing and selling expenses |
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| Administrative expenses |
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| Research and development expenses |
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| Other expenses / (income) |
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| Restructuring charges |
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| Total costs and expenses |
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| Earnings before interest and taxes |
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| Interest expense |
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| Interest income |
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| Earnings before taxes |
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| Taxes on earnings |
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| Earnings from continuing operations |
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| Earnings (loss) from discontinued operations |
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| Net earnings |
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| Less: Net earnings (loss) attributable to noncontrolling interests |
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| Net earnings attributable to Campbell Soup Company | $ |
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$ |
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| Per Share — Basic | |||||||||||
| Earnings from continuing operations attributable to Campbell Soup Company | $ |
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$ |
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| Earnings (loss) from discontinued operations |
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| Net earnings attributable to Campbell Soup Company | $ |
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$ |
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| Weighted average shares outstanding — basic |
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| Per Share — Assuming Dilution | |||||||||||
| Earnings from continuing operations attributable to Campbell Soup Company | $ |
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$ |
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| Earnings (loss) from discontinued operations |
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| Net earnings attributable to Campbell Soup Company | $ |
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$ |
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| Weighted average shares outstanding — assuming dilution |
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See accompanying Notes to Consolidated Financial Statements.
3
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(unaudited)
(millions)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| October 31, 2021 | November 1, 2020 | ||||||||||||||||||||||||||||||||||
| Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | ||||||||||||||||||||||||||||||
| Net earnings (loss) | $ |
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$ |
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| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | $ |
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$ |
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$ |
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$ |
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| Cash-flow hedges: | |||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) arising during the period |
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| Reclassification adjustment for losses (gains) included in net earnings |
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| Pension and other postretirement benefits: | |||||||||||||||||||||||||||||||||||
| Reclassification of prior service credit included in net earnings |
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| Other comprehensive income (loss) | $ |
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$ |
(
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$ |
(
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$ |
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(
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| Total comprehensive income (loss) | $ |
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$ |
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| Total comprehensive income (loss) attributable to noncontrolling interests |
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(
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| Total comprehensive income (loss) attributable to Campbell Soup Company | $ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
4
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(unaudited)
(millions, except per share amounts)
| October 31, 2021 | August 1, 2021 | ||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, net |
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| Inventories |
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| Other current assets |
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| Total current assets |
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| Plant assets, net of depreciation |
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| Goodwill |
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| Other intangible assets, net of amortization |
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| Other assets |
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| Total assets | $ |
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$ |
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| Current liabilities | |||||||||||
| Short-term borrowings | $ |
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$ |
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| Payable to suppliers and others |
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| Accrued liabilities |
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| Dividends payable |
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| Accrued income taxes |
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| Total current liabilities |
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| Long-term debt |
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| Deferred taxes |
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| Other liabilities |
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| Total liabilities |
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| Commitments and contingencies |
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| Campbell Soup Company shareholders' equity | |||||||||||
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Preferred stock; authorized
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Capital stock, $
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| Additional paid-in capital |
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| Earnings retained in the business |
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| Capital stock in treasury, at cost |
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| Accumulated other comprehensive income (loss) |
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| Total Campbell Soup Company shareholders' equity |
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| Noncontrolling interests |
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
5
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(unaudited)
(millions)
| Three Months Ended | |||||||||||
| October 31, 2021 | November 1, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to operating cash flow | |||||||||||
| Stock-based compensation |
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| Pension and postretirement benefit income |
(
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| Depreciation and amortization |
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| Deferred income taxes |
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| Other |
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| Changes in working capital | |||||||||||
| Accounts receivable |
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| Inventories |
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| Prepaid assets |
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| Accounts payable and accrued liabilities |
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| Other |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Purchases of plant assets |
(
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(
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| Purchases of route businesses |
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| Sales of route businesses |
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| Net cash used in investing activities |
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(
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| Cash flows from financing activities: | |||||||||||
| Short-term borrowings, including commercial paper |
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| Short-term repayments, including commercial paper |
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| Dividends paid |
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(
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| Treasury stock purchases |
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| Treasury stock issuances |
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| Payments related to tax withholding for stock-based compensation |
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| Other |
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| Net cash used in financing activities |
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| Effect of exchange rate changes on cash |
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| Net change in cash and cash equivalents |
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(
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| Cash and cash equivalents — beginning of period |
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| Cash and cash equivalents — end of period | $ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
6
CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(unaudited)
(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 |
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| Issued | In Treasury |
Total
Equity |
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| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 2, 2020 |
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$ |
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(
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$ |
(
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$ |
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$ |
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$ |
(
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$ |
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$ |
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| Net earnings (loss) |
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| Other comprehensive income (loss) |
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Dividends ($
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(
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(
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| Treasury stock purchased |
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| Treasury stock issued under management incentive and stock option plans |
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| Balance at November 1, 2020 |
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$ |
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$ |
(
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$ |
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$ |
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$ |
(
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$ |
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$ |
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| Balance at August 1, 2021 |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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$ |
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| Net earnings (loss) |
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| Other comprehensive income (loss) |
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Dividends ($
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(
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| Treasury stock purchased |
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| Treasury stock issued under management incentive and stock option plans |
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(
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| Balance at October 31, 2021 |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to Consolidated Financial Statements.
7
Notes to Consolidated Financial Statements
(unaudited)
(currency in millions, except per share amounts)
1.
Basis of Presentation and Significant Accounting Policies
In this Form 10-Q, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
The financial statements reflect all adjustments which are, in our opinion, necessary for a fair statement of the results of operations, financial position, and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended August 1, 2021. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation.
2.
Recent Accounting Pronouncements
Recently Adopted
In December 2019, the Financial Accounting Standards Board (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 first quarter of 2022. The adoption did not have an impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued guidance that provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London 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. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
3.
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)
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Gains (Losses) on Cash-Flow Hedges
(2)
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Pension and Postretirement Benefit Plan Adjustments
(3)
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Total Accumulated Comprehensive Income (Loss) | |||||||||||||||||||||||
| Balance at August 2, 2020 | $ |
(
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$ |
(
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$ |
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$ |
(
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| Other comprehensive income (loss) before reclassifications |
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| Amounts reclassified from accumulated other comprehensive income (loss) |
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(
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| Net current-period other comprehensive income (loss) |
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(
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| Balance at November 1, 2020 | $ |
(
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$ |
(
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$ |
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$ |
(
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| Balance at August 1, 2021 | $ |
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$ |
(
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$ |
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$ |
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| Other comprehensive income (loss) before reclassifications |
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Amounts reclassified from accumulated other comprehensive income (loss)
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| Net current-period other comprehensive income (loss) |
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| Balance at October 31, 2021 | $ |
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$ |
(
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$ |
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$ |
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8
_____________________________________
(1)
Included
no
tax as of October 31, 2021, August 1, 2021, November 1, 2020 and August 2, 2020.
(2)
Included
no
tax as of October 31, 2021, a tax benefit of $
1
as of August 1, 2021, $
2
as of November 1, 2020, and $
1
as of August 2, 2020.
(3)
Included tax expense of $
1
as of October 31, 2021, and as of August 1, 2021, and $
2
as of November 1, 2020, and as of August 2, 2020.
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
| Three Months Ended | ||||||||||||||||||||
| Details about Accumulated Other Comprehensive Income (Loss) Components | October 31, 2021 | November 1, 2020 | Location of Loss (Gain) Recognized in Earnings | |||||||||||||||||
| Losses (gains) on cash-flow hedges: | ||||||||||||||||||||
| Commodity contracts | $ |
(
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$ |
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Cost of products sold | |||||||||||||||
| Foreign exchange forward contracts |
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Cost of products sold | |||||||||||||||||
| Total before tax |
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| Tax expense (benefit) |
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| Loss (gain), net of tax | $ |
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$ |
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| Pension and postretirement benefit adjustments: | ||||||||||||||||||||
| Prior service credit | $ |
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$ |
(
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Other expenses / (income) | |||||||||||||||
| Tax expense (benefit) |
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| Loss (gain), net of tax | $ |
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$ |
(
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4.
Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
| Meals & Beverages | Snacks | Total | |||||||||||||||
| Net balance at August 1, 2021 | $ |
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$ |
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$ |
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Amounts reclassified due to segment change
(1)
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(
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| Foreign currency translation adjustment |
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| Net balance at October 31, 2021 | $ |
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$ |
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$ |
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_____________________________________
(1)
See Note 5 for additional information.
Intangible Assets
The following table summarizes balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
| October 31, 2021 | August 1, 2021 | |||||||||||||||||||||||||
| Intangible Assets | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | ||||||||||||||||||||
| Amortizable intangible assets | ||||||||||||||||||||||||||
| Customer relationships | $ |
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$ |
(
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$ |
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$ |
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$ |
(
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$ |
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| Non-amortizable intangible assets | ||||||||||||||||||||||||||
| Trademarks |
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| Total net intangible assets | $ |
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$ |
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9
As of October 31, 2021, the carrying value of indefinite-lived trademarks is detailed below:
|
Various Other
(1)
|
Snyder's of Hanover | Lance | Pace | Pacific Foods | ||||||||||||||||||||||||||||
| Carrying value | $ |
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$ |
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$ |
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$ |
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$ |
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(1)
Associated with the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance).
5.
Segment Information
Our reportable segments are as follows:
•
Meals & Beverages, which consists of our soup, simple meals and beverages products in retail and foodservice in the U.S. and 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;
V8
juices and beverages; and
Campbell’s
tomato juice. The segment also includes snacking products in foodservice and Canada. The segment included our Plum baby food and snacks business, which was sold on May 3, 2021; and
•
Snacks, which consists of Pepperidge Farm 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. The segment also includes the retail business in Latin America. In 2022, we now refer to the * brands as our "power brands."
Beginning in 2022, the foodservice and Canadian business formerly in our Snacks segment is now managed as part of the 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 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.
| Three Months Ended | ||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Net sales | ||||||||||||||
| Meals & Beverages | $ |
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$ |
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| Snacks |
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| Total | $ |
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$ |
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| Three Months Ended | ||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Earnings before interest and taxes | ||||||||||||||
| Meals & Beverages | $ |
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$ |
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| Snacks |
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Corporate income (expense)
(1)
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(
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(
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Restructuring charges
(2)
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(
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| Total | $ |
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$ |
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10
_______________________________________
(1)
Represents unallocated items. In the three-month periods ended October 31, 2021, and November 1, 2020, there were pension actuarial losses of $
6
and pension actuarial gains of $
4
, respectively. Costs related to the cost savings initiatives were $
4
and $
5
in the three-month periods ended October 31, 2021, and November 1, 2020, respectively. Unrealized mark-to-market adjustments on outstanding undesignated commodity hedges were losses of $
3
and gains of $
6
in the three-month periods ended October 31, 2021, and November 1, 2020, respectively.
(2)
See Note 6 for additional information.
| Our net sales based on product categories are as follows: | Three Months Ended | |||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Net sales | ||||||||||||||
| Soup | $ |
|
$ |
|
||||||||||
| Snacks |
|
|
||||||||||||
| Other simple meals |
|
|
||||||||||||
| Beverages |
|
|
||||||||||||
| Total | $ |
|
$ |
|
||||||||||
Soup includes various soup, broth and stock products. Snacks include cookies, pretzels, crackers, popcorn, nuts, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, gravies, pasta, beans, canned poultry, and Plum products through May 3, 2021, when the business was sold. Beverages include
V8
juices and beverages,
Campbell’s
tomato juice and
Pacific Foods
non-dairy beverages.
6.
Restructuring Charges and Cost Savings Initiatives
Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.
Over the years, we expanded these initiatives by further optimizing 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 completed the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.
A summary of the pre-tax charges recorded in Earnings from continuing operations related to these initiatives is as follows:
| Three Months Ended | |||||||||||||||||
| October 31, 2021 | November 1, 2020 |
Recognized as of October 31, 2021
|
|||||||||||||||
| Restructuring charges | $ |
|
$ |
|
$ |
|
|||||||||||
| Administrative expenses |
|
|
|
||||||||||||||
| Cost of products sold |
|
|
|
||||||||||||||
| Marketing and selling expenses |
|
|
|
||||||||||||||
| Research and development expenses |
|
|
|
||||||||||||||
| Total pre-tax charges | $ |
|
$ |
|
$ |
|
|||||||||||
A summary of the pre-tax costs in Earnings from continuing operations associated with the initiatives is as follows:
| Recognized as of October 31, 2021 | |||||
|
Severance pay and benefits
|
$ |
|
|||
| Asset impairment/accelerated depreciation |
|
||||
|
Implementation costs and other related costs
|
|
||||
| Total | $ |
|
|||
11
The total estimated pre-tax costs for actions associated with continuing operations are approximately $
715
to $
730
. The majority of the remaining costs will be incurred in 2022.
We expect the costs for actions associated with continuing operations to consist of the following: approximately $
225
in severance pay and benefits; approximately $
85
in asset impairment and accelerated depreciation; and approximately $
405
to $
420
in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately
31
%; Snacks - approximately
45
%; and Corporate - approximately
24
%.
Of the aggregate $
715
to $
730
of pre-tax costs associated with continuing operations, we expect approximately $
615
to $
630
will be cash expenditures. In addition, we expect to invest approximately $
450
in capital expenditures through 2022, of which we invested $
415
as of October 31, 2021. The capital expenditures primarily relate to improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, a U.S. warehouse optimization project, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and applications, and optimization of the Snyder’s-Lance warehouse and distribution network.
A summary of the restructuring activity and related reserves associated with continuing operations at October 31, 2021, is as follows:
| Severance Pay and Benefits |
Implementation Costs and Other Related
Costs
(2)
|
Total Charges | ||||||||||||||||||
|
Accrued balance at August 1, 2021
(1)
|
$ |
|
||||||||||||||||||
| 2022 charges |
|
|
$ |
|
||||||||||||||||
| 2022 cash payments |
(
|
|||||||||||||||||||
|
Accrued balance at October 31, 2021
(1)
|
$ |
|
||||||||||||||||||
__________________________________
(1)
Includes $
1
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2)
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.
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:
| October 31, 2021 | |||||||||||
|
Three Months
Ended |
Costs Incurred to Date
|
||||||||||
| Meals & Beverages | $ |
|
$ |
|
|||||||
| Snacks |
|
|
|||||||||
| Corporate |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
Through April 28, 2019, we incurred pre-tax charges of $
23
in Earnings from discontinued operations consisting of $
19
of severance pay and benefits and $
4
of implementation costs and other related costs. All of the costs were cash expenditures.
Expanded Initiatives in 2022
7.
Earnings per Share (EPS)
12
8.
Pension and Postretirement Benefits
Components of net benefit expense (income) were as follows:
| Three Months Ended | |||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||
| October 31, 2021 | November 1, 2020 | October 31, 2021 | November 1, 2020 | ||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
|
|
|||||||||||||||||||
| Amortization of prior service cost |
|
|
|
(
|
|||||||||||||||||||
| Actuarial loss (gain) |
|
(
|
|
|
|||||||||||||||||||
| Net periodic benefit expense (income) | $ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
The actuarial loss of $
6
for the three-month period ended October 31, 2021 and the actuarial gain of $
4
for the three-month period ended November 1, 2020 related to the remeasurement of a U.S. and a Canadian pension plan. These remeasurements were each due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans. The actuarial loss recognized for the three-month period ended October 31, 2021 was primarily due to less than anticipated investment returns on plan assets, partially offset by an increase in the discount rates. The actuarial gain recognized for the three-month period ended November 1, 2020 was primarily due to an increase in the discount rates.
9.
Leases
The components of lease costs were as follows:
| Three Months Ended | ||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Operating lease cost | $ |
|
$ |
|
||||||||||
| Finance lease - amortization of right-of-use (ROU) assets |
|
|
||||||||||||
| Short-term lease cost |
|
|
||||||||||||
|
Variable lease cost
(1)
|
|
|
||||||||||||
|
Sublease income
|
|
(
|
||||||||||||
| Total | $ |
|
$ |
|
||||||||||
__________________________________________
(1)
Includes labor and other overhead in our service contracts with embedded leases.
| Operating Leases | ||||||||||||||||||||
| Balance Sheet Classification | October 31, 2021 | August 1, 2021 | ||||||||||||||||||
| ROU assets, net | Other assets | $ |
|
$ |
|
|||||||||||||||
| Lease liabilities (current) | Accrued liabilities | $ |
|
$ |
|
|||||||||||||||
| Lease liabilities (noncurrent) | Other liabilities | $ |
|
$ |
|
|||||||||||||||
| Finance Leases | ||||||||||||||||||||
| Balance Sheet Classification | October 31, 2021 | August 1, 2021 | ||||||||||||||||||
| ROU assets, net | Plant assets, net of depreciation | $ |
|
$ |
|
|||||||||||||||
| Lease liabilities (current) | Short-term borrowings | $ |
|
$ |
|
|||||||||||||||
| Lease liabilities (noncurrent) | Long-term debt | $ |
|
$ |
|
|||||||||||||||
13
| Three Months Ended | ||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||||||||
| Operating cash flows from operating leases | $ |
|
$ |
|
||||||||||
| Financing cash flows from finance leases | $ |
|
$ |
|
||||||||||
| ROU assets obtained in exchange for lease obligations: | ||||||||||||||
| Operating leases | $ |
|
$ |
|
||||||||||
|
Finance leases
|
$ |
|
$ |
|
||||||||||
10.
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 for hedge accounting 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-related contingent features in our derivative instruments as of October 31, 2021, or August 1, 2021.
We are also exposed to credit risk from our customers. During 2021, our largest customer accounted for approximately
21
% of consolidated net sales from continuing operations. Our five largest customers accounted for approximately
46
% of our consolidated net sales from continuing operations in 2021.
We closely monitor credit risk associated with counterpartie
s and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to third-party transactions and intercompany transactions, including intercompany debt. Principal currencies hedged include the Canadian dollar. We utilize foreign exchange forward purchase and sale contracts 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 for periods consistent with the underlying debt. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $
144
as of October 31, 2021, and $
134
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. 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 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 hedge components excluded from the assessment of effectiveness and the amounts recognized in 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 $
18
as of October 31, 2021, and $
13
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 utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. There were
no
interest rate swaps or treasury rate lock contracts outstanding as of October 31, 2021, or August 1, 2021.
14
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, soybean oil, diesel fuel, natural gas, aluminum, cocoa, soybean meal, corn and 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. The notional amount of commodity contracts designated as cash-flow hedges was $
19
as of October 31, 2021, and $
18
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 $
174
as of October 31, 2021, and $
190
as of August 1, 2021. The change in fair value on undesignated instruments is recorded in Cost of products sold.
We 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 amount was approximately $
14
as of October 31, 2021, and $
38
as of August 1, 2021. The change in fair value on the embedded derivative is recorded in Cost of products 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 the Vanguard Institutional Index Institutional Plus Shares and the total return of the Vanguard Total International Stock Index. Prior to 2022, we had entered into swap contracts which hedged a portion of exposures linked to the total return of our capital stock. As of October 31, 2021, and August 1, 2021, there were no swap contracts outstanding hedging our exposure linked to the total return of our capital stock. These contracts are 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 were $
29
as of October 31, 2021, and August 1, 2021.
15
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of October 31, 2021, and August 1, 2021:
| Balance Sheet Classification | October 31, 2021 | August 1, 2021 | |||||||||||||||
| Asset Derivatives | |||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||
| Commodity contracts | Other current assets | $ |
|
$ |
|
||||||||||||
| Foreign exchange forward contracts | Other current assets |
|
|
||||||||||||||
| Total derivatives designated as hedges | $ |
|
$ |
|
|||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||
| Commodity contracts | Other current assets | $ |
|
$ |
|
||||||||||||
| Deferred compensation contracts | Other current assets |
|
|
||||||||||||||
| Total derivatives not designated as hedges | $ |
|
$ |
|
|||||||||||||
| Total asset derivatives | $ |
|
$ |
|
|||||||||||||
| Balance Sheet Classification | October 31, 2021 | August 1, 2021 | |||||||||||||||
| Liability Derivatives | |||||||||||||||||
| Derivatives designated as hedges: | |||||||||||||||||
| Foreign exchange forward contracts | Accrued liabilities | $ |
|
$ |
|
||||||||||||
| Total derivatives designated as hedges | $ |
|
$ |
|
|||||||||||||
| Derivatives not designated as hedges: | |||||||||||||||||
| Commodity derivative contracts | Accrued liabilities | $ |
|
$ |
|
||||||||||||
| Foreign exchange forward contracts | Accrued liabilities |
|
|
||||||||||||||
| Total derivatives not designated as hedges | $ |
|
$ |
|
|||||||||||||
| Total liability derivatives | $ |
|
$ |
|
|||||||||||||
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 October 31, 2021, and August 1, 2021, would be adjusted as detailed in the following table:
| October 31, 2021 | August 1, 2021 | |||||||||||||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
| Total liability derivatives | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||
We are required to maintain cash margin accounts in connection with funding the settlement of open positions for exchange-traded commodity derivative instruments. Cash margin liability balances of $
13
at October 31, 2021, and $
14
at August 1, 2021, were included in Accrued liabilities in the Consolidated Balance Sheets.
16
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the three-month periods ended October 31, 2021, and November 1, 2020, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
|
Total Cash-Flow Hedge
OCI Activity |
|||||||||||||||||
| Derivatives Designated as Cash-Flow Hedges | October 31, 2021 | November 1, 2020 | |||||||||||||||
| Three Months Ended | |||||||||||||||||
| OCI derivative gain (loss) at beginning of quarter | $ |
(
|
$ |
(
|
|||||||||||||
| Effective portion of changes in fair value recognized in OCI: | |||||||||||||||||
| Commodity contracts |
|
|
|||||||||||||||
| Foreign exchange forward contracts |
|
(
|
|||||||||||||||
| Amount of loss (gain) reclassified from OCI to earnings: | Location in Earnings | ||||||||||||||||
| Commodity contracts | Cost of products sold |
(
|
|
||||||||||||||
| Foreign exchange forward contracts | Cost of products sold |
|
|
||||||||||||||
| OCI derivative gain (loss) at end of quarter | $ |
(
|
$ |
(
|
|||||||||||||
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a gain of $
4
.
The following table shows the total amounts of line items presented in the Consolidated Statements of Earnings for the three-month periods ended October 31, 2021, and November 1, 2020, in which the effects of derivative instruments designated as cash-flow hedges are recorded. The total effect of hedge activity on these line items are as follows:
| Three Months Ended | ||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Cost of products sold | Cost of products sold | |||||||||||||
| Consolidated Statements of Earnings: | $ |
|
$ |
|
||||||||||
| Loss (gain) on cash-flow hedges: | ||||||||||||||
| Amount of loss (gain) reclassified from OCI to earnings | $ |
|
$ |
|
||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | $ |
|
$ |
|
||||||||||
The following table shows the effects of our derivative instruments not designated as hedges for the three-month periods ended October 31, 2021, and November 1, 2020, in the Consolidated Statements of Earnings:
| Derivatives not Designated as Hedges | Location of Loss (Gain) Recognized in Earnings | Three Months Ended | ||||||||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||||||||
| Foreign exchange forward contracts | Cost of products sold | $ |
|
$ |
|
|||||||||||||||
| Commodity contracts | Cost of products sold |
(
|
(
|
|||||||||||||||||
| Deferred compensation derivative contracts | Administrative expenses |
(
|
|
|||||||||||||||||
| Total loss (gain) at end of quarter | $ |
(
|
$ |
(
|
||||||||||||||||
11.
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.
17
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 presents our financial assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2021, and August 1, 2021, consistent with the fair value hierarchy:
|
Fair Value
as of October 31, 2021 |
Fair Value Measurements at
October 31, 2021 Using Fair Value Hierarchy |
Fair Value
as of August 1, 2021 |
Fair Value Measurements at
August 1, 2021 Using Fair Value Hierarchy |
||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
(1)
|
$ |
|
$ | — | $ |
|
$ | — | $ |
|
$ | — | $ |
|
$ | — | |||||||||||||||||||||||||||||||
|
Commodity derivative contracts
(2)
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
Deferred compensation derivative contracts
(3)
|
|
— |
|
— |
|
— |
|
— | |||||||||||||||||||||||||||||||||||||||
|
Deferred compensation investments
(4)
|
|
|
— | — |
|
|
— | — | |||||||||||||||||||||||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
|
Fair Value
as of October 31, 2021 |
Fair Value Measurements at
October 31, 2021 Using Fair Value Hierarchy |
Fair Value
as of August 1, 2021 |
Fair Value Measurements at
August 1, 2021 Using Fair Value Hierarchy |
||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
|
Foreign exchange forward contracts
(1)
|
$ |
|
$ | — | $ |
|
$ | — | $ |
|
$ | — | $ |
|
$ | — | |||||||||||||||||||||||||||||||
|
Commodity derivative contracts
(2)
|
|
|
— | — |
|
|
— | — | |||||||||||||||||||||||||||||||||||||||
|
Deferred compensation obligation
(4)
|
|
|
— | — |
|
|
— | — | |||||||||||||||||||||||||||||||||||||||
| Total liabilities at fair value | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
$ |
|
$ |
|
$ | — | |||||||||||||||||||||||||||||||
___________________________________
(1)
Based on observable market transactions of spot currency rates and forward rates.
(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.
(3)
Based on LIBOR and equity index swap rates.
(4)
Based on the fair value of the participants’ investments.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value.
18
There were $
32
of cash equivalents at October 31, 2021, 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 was $
5,518
at October 31, 2021, and $
5,613
at August 1, 2021. The carrying value was $
5,047
at October 31, 2021, and $
5,058
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.
12.
Share Repurchases
In June 2021, the Board authorized an anti-dilutive share repurchase program of up to $
250
(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 new strategic share repurchase program of up to $
500
(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. The September 2021 program replaced the prior $
1,500
program, which our Board approved in March 2017 and has been cancelled.
During the three-month period ended October 31, 2021, we repurchased approximately
1.5
million shares at a cost of $
63
. Of this amount, $
38
was used to repurchase shares pursuant to our June 2021 program and $
25
was used to repurchase shares pursuant to our September 2021 program. As of October 31, 2021, approximately $
176
remained available under the June 2021 program and approximately $
475
remained available under the September 2021 program.
13.
Stock-based Compensation
We provide compensation benefits by issuing stock options, unrestricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareholder return (TSR) performance restricted stock units and free cash flow (FCF) performance restricted stock units). In 2022, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019.
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 Earnings from continuing operations were as follows:
| Three Months Ended | |||||||||||
| October 31, 2021 | November 1, 2020 | ||||||||||
| Total pre-tax stock-based compensation expense | $ |
|
$ |
|
|||||||
| Tax-related benefits | $ |
|
$ |
|
|||||||
The following table summarizes stock option activity as of October 31, 2021:
| Options |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Life |
Aggregate
Intrinsic Value |
||||||||||||||||||||
|
(Options in
thousands) |
(In years) | ||||||||||||||||||||||
| Outstanding at August 1, 2021 |
|
$ |
|
||||||||||||||||||||
| Granted |
|
$ |
|
||||||||||||||||||||
| Exercised |
(
|
$ |
|
||||||||||||||||||||
| Terminated |
|
$ |
|
||||||||||||||||||||
| Outstanding at October 31, 2021 |
|
$ |
|
|
$ |
|
|||||||||||||||||
| Exercisable at October 31, 2021 |
|
$ |
|
|
$ |
|
|||||||||||||||||
The total intrinsic value of options exercised during the three-month period ended October 31, 2021 was
not
material.
No
options were exercised during the three-month period ended November 1, 2020. We measured the fair value of stock options using the Black-Scholes option pricing model.
19
We expense stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of October 31, 2021, total remaining unearned compensation related to nonvested stock options was less than $
1
, which will be amortized over the weighted-average remaining service period of less than
one year
.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of October 31, 2021:
| Units | Weighted-Average Grant-Date Fair Value | ||||||||||
|
(Restricted stock
units in thousands) |
|||||||||||
| Nonvested at August 1, 2021 |
|
$ |
|
||||||||
| Granted |
|
$ |
|
||||||||
| Vested |
(
|
$ |
|
||||||||
| Forfeited |
(
|
$ |
|
||||||||
| Nonvested at October 31, 2021 |
|
$ |
|
||||||||
We determine the fair value of time-lapse restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse 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.
In 2022, we granted EPS performance restricted stock units that will be earned upon the achievement of our adjusted EPS compound annual growth rate goal, measured over a three-year period. The actual number of EPS performance restricted stock units issued at the vesting date could range from
0
% to
200
% of the initial grant depending on actual performance achieved. The fair value of EPS performance restricted stock units is based upon the quoted price of our stock at the date of grant. We expense EPS performance restricted stock units on a straight-line basis over the service period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We estimate expense based on the number of awards expected to vest. There were
318
thousand EPS performance target grants outstanding at October 31, 2021, with a grant-date fair value of $
41.53
.
In 2019, we issued approximately
388
thousand FCF performance restricted stock units for which vesting was contingent upon 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 would vest at the end of the
three years
. The actual number of FCF performance restricted stock units issued at the vesting date could range from
0
% to
200
% of the initial grant depending on actual performance achieved. The fair value of FCF performance restricted stock units was based upon the quoted price of our stock at the date of grant. We expensed FCF performance restricted stock units over the requisite service period of each objective. We estimated expense based on the number of awards expected to vest. 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. As of October 31, 2021, there were
no
FCF performance target grants outstanding.
As of October 31, 2021, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $
64
, which will be amortized over the weighted-average remaining service period of
2.1
years. The fair value of restricted stock units vested during the three-month periods ended October 31, 2021, and November 1, 2020, was $
48
, and $
34
, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the three-month period ended November 1, 2020 was $
48.43
.
20
The following table summarizes TSR performance restricted stock units as of October 31, 2021:
| Units | Weighted-Average Grant-Date Fair Value | ||||||||||
|
(Restricted stock
units in thousands) |
|||||||||||
| Nonvested at August 1, 2021 |
|
$ |
|
||||||||
| Granted |
|
$ |
|
||||||||
| Vested |
(
|
$ |
|
||||||||
| Forfeited |
(
|
$ |
|
||||||||
| Nonvested at October 31, 2021 |
|
$ |
|
||||||||
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation.
Assumptions used in the Monte Carlo simulation were as follows:
| 2022 | 2021 | ||||||||||
| Risk-free interest rate |
|
|
|||||||||
| Expected dividend yield |
|
|
|||||||||
| Expected volatility |
|
|
|||||||||
| Expected term |
|
|
|||||||||
We recognize compensation expense on a straight-line basis over the service period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of October 31, 2021, total remaining unearned compensation related to TSR performance restricted stock units was $
31
, which will be amortized over the weighted-average remaining service period of
1.9
years. In the first quarter of 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 30, 2021. In the first quarter of 2021, recipients of TSR performance restricted stock units earned
50
% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 31, 2020. The fair value of TSR performance restricted stock units vested during the three-month periods ended October 31, 2021 and November 1, 2020 was $
8
and $
11
, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 2021 was $
54.93
.
The excess tax benefits of $
1
in the three-month periods ended October 31, 2021 and November 1, 2020 on the exercise of stock options and vested restricted stock were presented as cash flows from operating activities. Cash received from the exercise of stock options was $
1
for the three-month period ended October 31, 2021 and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
14.
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,
In re Campbell Soup Company Securities Litigation
, Civ. No. 1:18-cv-14385-NLH-JS (the Action). Oklahoma Firefighters Pension and Retirement System was appointed lead
21
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 October 31, 2021. 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.
Other Contingencies
We have provided certain 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 October 31, 2021.
15.
Supplemental Financial Statement Data
| Balance Sheets | October 31, 2021 |
August 1,
2021 |
|||||||||
| Inventories | |||||||||||
| Raw materials, containers and supplies | $ |
|
$ |
|
|||||||
| Finished products |
|
|
|||||||||
| $ |
|
$ |
|
||||||||
| Statements of Earnings | Three Months Ended | |||||||||||||
| October 31, 2021 | November 1, 2020 | |||||||||||||
| Other expenses / (income) | ||||||||||||||
| Amortization of intangible assets | $ |
|
$ |
|
||||||||||
| Net periodic benefit income other than the service cost |
(
|
(
|
||||||||||||
| Pension actuarial losses (gains) |
|
(
|
||||||||||||
| Transition services fees |
|
(
|
||||||||||||
| Other |
|
|
||||||||||||
| $ |
(
|
$ |
(
|
|||||||||||
22
Item 2.
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, the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements in "Part I - Item 1. Financial Statements," and our Form 10-K for the year ended August 1, 2021, including but not limited to "Part I - Item 1A. Risk Factors" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Executive Summary
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 operate in a highly competitive industry and experience competition in all of our categories.
On May 3, 2021, we completed the sale of our Plum baby food and snacks business. The results of the business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.
Beginning in 2022, the foodservice and Canadian business formerly in our Snacks segment is managed as part of the Meals & Beverages segment. Segment results have been adjusted retrospectively to reflect this change.
Business Trends
We have been actively monitoring the impact of the COVID-19 pandemic on all aspects of our business. During the first quarter of 2022, we continued to experience elevated demand for our retail products, but net sales were lower than in the first quarter of 2021 due to cycling the retailer inventory recovery in the prior-year quarter and the impact of supply constraints which held back our ability to meet persistent elevated demand.
We anticipate that 2022 will continue to be a dynamic macroeconomic environment and we expect elevated levels of input cost inflation and a constrained labor market to persist throughout the remainder of 2022. We anticipate that these headwinds will be partially mitigated by pricing actions that have either taken effect or are expected to take effect in the remaining part of the fiscal year, supply chain productivity improvements and cost saving initiatives, but we do not expect such benefits will fully offset the incremental costs in 2022.
Although we expect the impacts of the COVID-19 pandemic on our business to moderate in the second quarter and beyond there still remains uncertainty around the pandemic. The ultimate impact depends on the severity and duration of the pandemic, including the emergence and spread of COVID-19 variants, the continued availability and effectiveness of vaccines and actions taken by government authorities, including the recent U.S. vaccine mandate, and other third parties in response to the pandemic. We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations and financial condition.
Summary of Results
This Summary of Results provides significant highlights from the discussion and analysis that follows.
•
Net sales decreased 4% in 2022 to $2,236 million due to volume declines and increased promotional spending, partially offset by favorable price and sales allowances. Volumes declined as a result of cycling retailer inventory recovery in the prior-year quarter and supply pressures. Promotional spending increased due in part to moderated levels in the prior-year quarter. Net sales increased 2% in 2022 from $2,183 million in 2020, including a 2-point impact from divestitures.
•
Gross profit, as a percent of sales, decreased to 32.3% in 2022 from 34.7% in the prior-year quarter. The decrease was primarily due to higher cost inflation, higher levels of promotional spending and unfavorable product mix, partially offset by the benefits of recent pricing actions and supply chain productivity improvements.
•
Earnings per share from continuing operations were $.86 in 2022, compared to $1.02 a year ago. The current quarter and prior-year quarter included expenses of $.03 per share and gains of $.01 per share, respectively, from items impacting comparability as discussed below.
23
Net Earnings attributable to Campbell Soup Company
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
•
We implemented several cost savings initiatives in recent years. In the first quarter of 2022, we recorded implementation costs and other related costs of $2 million in Administrative expenses and $2 million in Cost of products sold (aggregate impact of $3 million after tax, or $.01 per share) related to these initiatives. In the first quarter of 2021, we recorded Restructuring charges of $1 million and implementation costs and other related costs of $4 million in Administrative expenses and $1 million in Cost of products sold (aggregate impact of $5 million after tax, or $.02 per share) related to these initiatives. See Note 6 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
•
In the first quarter of 2022, we recognized actuarial losses in Other expenses / (income) of $6 million ($5 million after tax, or $.02 per share). In the first quarter of 2021, we recognized actuarial gains in Other expenses / (income) of $4 million ($3 million after tax, or $.01 per share). The actuarial gains and losses related to the remeasurements of a U.S. and a Canadian pension plan. These interim remeasurements were each due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans; and
•
In the first quarter of 2022, we recognized losses in Cost of products sold of $3 million ($2 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. In the first quarter of 2021, we recognized gains in Cost of products sold of $6 million ($5 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.
The items impacting comparability are summarized below:
| Three Months Ended | |||||||||||||||||||||||
| October 31, 2021 | November 1, 2020 | ||||||||||||||||||||||
| (Millions, except per share amounts) |
Earnings
Impact
|
EPS
Impact
|
Earnings
Impact
|
EPS
Impact
|
|||||||||||||||||||
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 261 | $ |
|
$ | 309 | $ |
|
|||||||||||||||
| Earnings (loss) from discontinued operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Net earnings attributable to Campbell Soup Company | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Continuing operations: | |||||||||||||||||||||||
| Restructuring charges, implementation costs and other related costs | $ | (3) | $ | (.01) | $ | (5) | $ | (.02) | |||||||||||||||
| Pension actuarial gains (losses) | (5) | (.02) | 3 | .01 | |||||||||||||||||||
| Commodity mark-to-market gains (losses) | (2) | (.01) | 5 | .02 | |||||||||||||||||||
|
Impact of items on Earnings from continuing operations
(1)
|
$ | (10) | $ | (.03) | $ | 3 | $ | .01 | |||||||||||||||
__________________________________________
(1)
Sum of the individual amounts may not add due to rounding.
Earnings from continuing operations were $261 million ($
.86
per share) in the current quarter, compared to $309 million ($
1.02
per share) in the year-ago quarter. After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting a lower gross profit performance, sales volume declines and higher administrative expenses, partially offset by lower marketing and selling expenses and a lower effective tax rate.
FIRST-QUARTER DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
| Three Months Ended | |||||||||||||||||
| (Millions) | October 31, 2021 | November 1, 2020 | % Change | ||||||||||||||
| Meals & Beverages | $ | 1,266 | $ | 1,363 | (7) | ||||||||||||
| Snacks | 970 | 977 | (1) | ||||||||||||||
| $ | 2,236 | $ | 2,340 | (4) | |||||||||||||
24
An analysis of percent change of net sales by reportable segment follows:
|
Meals & Beverages
(2)
|
Snacks
|
Total
(2)
|
|||||||||||||||
| Volume and mix | (7)% | (4)% | (6)% | ||||||||||||||
| Price and sales allowances | 4 | 4 | 4 | ||||||||||||||
|
Decreased / (increased) promotional spending
(1)
|
(3) | (1) | (2) | ||||||||||||||
| Divestiture | (2) | — | (1) | ||||||||||||||
| (7)% | (1)% | (4)% | |||||||||||||||
__________________________________________
(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 Meals & Beverages, sales decreased 7%. Excluding the impact from the divestiture of the Plum baby food and snacks business, sales decreased primarily due to declines across U.S. retail products, including
V8
beverages,
Prego
pasta sauces and U.S. soup, as well as in Canada. Volume decreased primarily due to cycling the retailer inventory recovery in the prior-year quarter and due to supply pressures. Promotional spending increased relative to moderated levels in the prior-year quarter, partly offsetting the impact of recent price increases. Sales of U.S. soup decreased 2%, cycling a 21% increase in the first quarter of the prior year, due to volume declines in ready-to-serve soups and condensed soups, partially offset by gains in broth.
In Snacks, sales decreased 1% as volume declines and increased promotional spending relative to moderated levels in the prior-year quarter were partly offset by favorable price and sales allowances. Declines in partner brands, in
Pop Secret
popcorn due to elevated demand in the prior-year quarter and in
Late July
snacks due to supply pressures were partially offset by gains in
Goldfish
crackers and Pepperidge Farm cookies. Partner brands consist of third-party branded products that we sell. Sales of our power brands increased 3%.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, decreased by $91 million in 2022 from 2021. As a percent of sales, gross profit was 32.3% in 2022 and 34.7% in 2021.
The 240 basis-point decrease in gross profit margin was due to the following factors:
| Margin Impact | |||||
|
Cost inflation, supply chain costs and other factors
(1)
|
(480) | ||||
| Higher level of promotional spending | (130) | ||||
| Mix | (70) | ||||
| Productivity improvements | 120 | ||||
| Price and sales allowances | 320 | ||||
| (240) | |||||
__________________________________________
(1)
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 40 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 7.6% in 2022 compared to 8.9% in 2021. Marketing and selling expenses decreased 18% in 2022 from 2021. The decrease was primarily due to lower advertising and consumer promotion expense (approximately 15 points) and lower selling expenses (approximately 3 points). The decrease in advertising and consumer promotion expense was due in part to supply constraints.
Administrative Expenses
Administrative expenses as a percent of sales were 7.0% in 2022 compared to 6.0% in 2021. Administrative expenses increased 11% in 2022 from 2021. The increase was primarily due to expenses related to the settlement of certain legal claims (approximately 11 points) and higher general administrative costs (approximately 4 points), partially offset by increased benefits from cost savings initiatives (approximately 4 points).
25
Other Expenses / (Income)
Other income was $1 million in 2022 compared to other income of $18 million in 2021. Other income in 2022 included pension actuarial losses of $6 million. Other income in 2021 included pension actuarial gains of $4 million. Excluding these amounts, the remaining decrease in other income was primarily due to income from transition services fees in the prior year.
Operating Earnings
Segment operating earnings decreased 14% in 2022 from 2021.
An analysis of operating earnings by segment follows:
| Three Months Ended | ||||||||||||||||||||
| (Millions) | October 31, 2021 | November 1, 2020 | % Change | |||||||||||||||||
| Meals & Beverages | $ | 280 | $ | 337 | (17) | |||||||||||||||
| Snacks | 128 | 135 | (5) | |||||||||||||||||
| 408 | 472 | (14) | ||||||||||||||||||
| Corporate income (expense) | (32) | (10) | ||||||||||||||||||
|
Restructuring charges
(1)
|
— | (1) | ||||||||||||||||||
| Earnings before interest and taxes | $ | 376 | $ | 461 | ||||||||||||||||
__________________________________________
(1)
See Note 6 to the Consolidated Financial Statements for additional information on restructuring charges.
Operating earnings from Meals & Beverages decreased 17%. The decrease was primarily due to lower gross profit performance and sales volume declines, partially offset by lower marketing and selling expenses. Gross profit performance was impacted by higher cost inflation, higher levels of promotional spending, higher other supply chain costs and unfavorable product mix, partially offset by the benefits of recent pricing actions and supply chain productivity improvements.
Operating earnings from Snacks decreased 5%. The decrease was driven by higher administrative expenses due to the settlement of certain legal claims and a slightly lower gross profit performance, partially offset by lower marketing and selling expenses. Gross profit performance was impacted by higher cost inflation, unfavorable product mix and higher levels of promotional spending, largely offset by the benefits of recent pricing actions, supply chain productivity improvements and cost savings initiatives as well as lower other supply chain costs.
Corporate expense in 2022 included pension actuarial losses of $6 million, costs of $4 million related to costs savings initiatives and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $3 million. Corporate expense in 2021 included costs of $5 million related to cost savings initiatives, pension actuarial gains of $4 million and unrealized mark-to-market gains on outstanding undesignated commodity hedges of $6 million.
Interest Expense
Interest expense decreased to $47 million in 2022 from $55 million in 2021, primarily due to lower levels of debt.
Taxes on Earnings
The effective tax rate was 20.7% in 2022 and 23.9% in 2021. The decrease in the effective tax rate was primarily due to the favorable resolution of several tax matters in 2022.
Restructuring Charges and Cost Savings Initiatives
Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.
Over the years, we expanded these initiatives by further optimizing 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 completed the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance). Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.
26
A summary of charges recorded in Earnings from continuing operations related to these initiatives is as follows:
| Three Months Ended | |||||||||||||||||
|
(Millions, except per share amounts)
|
October 31, 2021 | November 1, 2020 | Recognized as of October 31, 2021 | ||||||||||||||
| Restructuring charges | $ |
|
$ |
|
$ |
|
|||||||||||
| Administrative expenses |
|
|
|
||||||||||||||
| Cost of products sold |
|
|
|
||||||||||||||
| Marketing and selling expenses |
|
|
|
||||||||||||||
| Research and development expenses |
|
|
|
||||||||||||||
| Total pre-tax charges | $ | 4 | $ | 6 | $ | 698 | |||||||||||
| Aggregate after-tax impact | $ | 3 | $ | 5 | |||||||||||||
| Per share impact | $ | .01 | $ | .02 | |||||||||||||
A summary of the pre-tax costs in Earnings from continuing operations associated with these initiatives is as follows:
| (Millions) | Recognized as of October 31, 2021 | ||||
|
Severance pay and benefits
|
$ |
|
|||
| Asset impairment/accelerated depreciation |
|
||||
|
Implementation costs and other related costs
|
|
||||
| Total | $ | 698 | |||
The total estimated pre-tax costs for actions associated with continuing operations are approximately $
715
million to $
730
million. The majority of the remaining costs will be incurred in 2022.
We expect the costs for actions associated with continuing operations to consist of the following: approximately $
225
million in severance pay and benefits; approximately $
85
million in asset impairment and accelerated depreciation; and approximately $
405
million to $
420
million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately
31
%; Snacks - approximately
45
%; and Corporate - approximately
24
%.
Of the aggregate $
715
million to $
730
million of pre-tax costs associated with continuing operations, we expect approximately $
615
million to $
630
million will be cash expenditures. In addition, we expect to invest approximately $
450
million in capital expenditures through 2022, of which we invested $
415
million as of October 31, 2021. The capital expenditures primarily relate to improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, a U.S. warehouse optimization project, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and applications, and optimization of the Snyder’s-Lance warehouse and distribution network.
We expect to fund the costs through cash flows from operations and short-term borrowings.
We expect the initiatives for actions associated with continuing operations, once all phases are implemented, to generate annual ongoing savings of approximately $850 million by the end of 2022. In the three-month period ended October 31, 2021, we generated an additional $15 million of pre-tax savings. The annual pre-tax savings associated with continuing operations generated were as follows:
| Year Ended | |||||||||||||||||||||||||||||||||||||||||
| (Millions) | August 1, 2021 | August 2, 2020 | July 28, 2019 | July 29, 2018 | July 30, 2017 | July 31, 2016 | August 2, 2015 | ||||||||||||||||||||||||||||||||||
| Total pre-tax savings | $ | 805 | $ | 725 | $ | 560 | $ | 395 | $ | 325 | $ | 215 | $ | 85 | |||||||||||||||||||||||||||
27
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:
| October 31, 2021 | |||||||||||
| (Millions) | Three Months Ended |
Costs Incurred to Date
|
|||||||||
| Meals & Beverages | $ |
|
$ |
|
|||||||
| Snacks |
|
|
|||||||||
| Corporate |
|
|
|||||||||
| Total | $ | 4 | $ | 698 | |||||||
Through April 28, 2019, we incurred pre-tax charges of $
23
million in Earnings from discontinued operations consisting of $
19
million of severance pay and benefits and $
4
million of implementation costs and other related costs. All of the costs were cash expenditures.
Expanded Initiatives in 2022
We continue to pursue cost savings initiatives by further optimizing our supply chain and manufacturing network and through effective cost management. We are pursuing additional initiatives that will generate incremental annual ongoing savings of approximately $150 million by the end of 2025. With these expanded initiatives, we expect to generate cumulative annual pre-tax savings of approximately $1 billion by the end of 2025. Cost estimates will be updated as the expanded initiatives are developed.
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, which 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 $288 million in 2022, compared to $180 million in 2021. The increase in 2022 was primarily due to changes in working capital, principally accounts payable and accrued liabilities, partially offset by lower cash earnings.
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. We had negative working capital of $462 million as of October 31, 2021, and $119 million as of August 1, 2021. Total debt maturing within one year was $480 million as of October
-
31, 2021, and $48 million as of August 1, 2021.
Capital expenditures were $69 million in 2022 and $74 million in 2021. Capital expenditures are expected to total approximately $300 million in 2022.
Pepperidge Farm and Snyder’s-Lance have a direct-store-delivery distribution model that uses independent contractor distributors. In order to maintain and expand this model, we routinely purchase and sell routes. The purchase and sale proceeds of the routes are reflected in investing activities.
Dividend payments were $116 million in 2022 and $108 million in 2021. The regular quarterly dividend paid on our capital stock was $.37 per share in the first quarter of 2022 and $.35 per share in the first quarter of 2021. On December 1, 2021, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on January 31, 2022 to shareholders of record at the close of business on January 6, 2022.
In 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 new 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. The September 2021 program replaced the prior $1,500 million program, which our Board approved in March 2017 and has been cancelled. We repurchased approximately 1.5 million shares at a cost of $63 million in 2022. Of this amount, $38 million was used to repurchase shares pursuant to our June 2021 program and $25 million was used to repurchase shares pursuant to our September 2021 program. As of October 31, 2021, approximately $176 million remained available under the June 2021 program and approximately $475 million remained available under the September 2021 program. See Note 12 to the Consolidated Financial Statements and “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.
28
As of October 31, 2021, we had $480 million of short-term borrowings due within one year, $15 million of which was comprised of commercial paper borrowings. As of October 31, 2021, we issued $32 million of standby letters of credit. On November 2, 2020, we entered into a committed revolving credit facility totaling $1,850 million scheduled to mature on November 2, 2023. On September 27, 2021, we replaced the current facility with a new $1,850 million committed revolving facility that matures on September 27, 2026. The facility remained unused at October 31, 2021, except for $1 million of standby letters of credit that we issued under it. The 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 program and other general corporate purposes. We expect to continue to access the commercial paper markets, bank credit lines and utilize cash flows from operations to support our short-term liquidity requirements.
We are in compliance with the covenants contained in our credit facilities and debt securities.
In September 2020, we filed a 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.
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. Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended August 1, 2021 (2021 Annual Report on Form 10-K). The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2021 Annual Report on Form 10-K. Our significant accounting estimates are described in Management’s Discussion and Analysis included in the 2021 Annual Report on Form 10‑K.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
FORWARD LOOKING STATEMENTS
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," "intend," "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, 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 our other Securities and Exchange Commission filings, or in our 2021 Annual Report on Form 10-K, 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:
•
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 snacks and growing/maintaining our market share position in soup;
•
the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and 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 integration of recent acquisitions;
29
•
disruptions in or inefficiencies to our supply chain and/or operations including the impacts of the COVID-19 pandemic;
•
the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;
•
risks related to the effectiveness of our hedging activities and 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 maintain significance to our business;
•
product quality and safety issues, including recalls and product liabilities;
•
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 uncertainties of litigation and regulatory actions against us;
•
the costs, disruption and diversion of management's attention associated with activist investors;
•
a material failure in or breach of our or our vendors' information technology systems;
•
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;
•
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 financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations; and
•
unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism, armed hostilities, 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 3.
Quantitative and Qualitative Disclosure About Market Risk
For information regarding our exposure to certain market risk, see Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in the 2021 Annual Report on Form 10-K. There have been no significant changes in our portfolio of financial instruments or market risk exposures from the 2021 year-end.
Item 4.
Controls and Procedures
a.
Evaluation of Disclosure Controls and Procedure
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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of
October 31, 2021
(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.
b.
Changes in Internal Control
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are likely to materially affect, such internal control over financial reporting during the quarter ended October 31, 2021.
30
PART II - OTHER INFORMATION
Item
1.
Legal Proceedings
Information regarding reportable legal proceedings is contained in Note 14 to the Consolidated Financial Statements and incorporated herein by reference.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
| 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)
|
|||||||||||||||||||
| 8/2/21 - 8/31/21 | — |
|
— |
|
— | $714 | |||||||||||||||||
| 9/1/21 - 9/30/21 | 1,076,807 | $42.94 | 1,076,807 | $667 | |||||||||||||||||||
| 10/1/21 - 10/29/21 | 405,000 | $42.24 | 405,000 | $651 | |||||||||||||||||||
| Total | 1,481,807 |
|
$42.75 |
|
1,481,807 | $651 | |||||||||||||||||
____________________________________
(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 new 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. The September 2021 program replaced the company's suspended $1,500 million share repurchase program, which has been cancelled.
Item 6.
Exhibits
The Index to Exhibits, which immediately precedes the signature page, is incorporated by reference into this Report.
31
INDEX TO EXHIBITS
| 10.1* | |||||
| 10.2 |
F
ive
-
Year C
redit Agreem
ent dat
ed Sept
ember 27,
2021 by and amo
ng Campbell Soup Comp
any
, the Eligible Subsidiaries par
t
y thereto
from time to time, JPMor
gan Cha
se Ba
nk, N.A.
, as administrative agent
,
and t
he other lenders
named therein
is incorporat
ed by re
fere
nce to Regist
rant's Curr
ent Report on Form 8-K (SEC file number 1-
3822) fi
led w
ith
t
he SEC on September 27, 2021.
|
||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 101.SCH | Inline XBRL Extension Schema Document. | ||||
| 101.CAL | Inline XBRL Extension Calculation Linkbase Document. | ||||
| 101.DEF | Inline XBRL Extension Definition Linkbase Document. | ||||
| 101.LAB | Inline XBRL Extension Label Linkbase Document. | ||||
| 101.PRE | Inline XBRL Extension Presentation Linkbase Document. | ||||
| 104 | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL (included in Exhibit 101). | ||||
*This exhibit is a management contract or compensatory plan or arrangement.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
December 8, 2021
| CAMPBELL SOUP COMPANY | ||||||||
| By: | /s/ Mick J. Beekhuizen | |||||||
| Mick J. Beekhuizen | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| By: | /s/ Stanley Polomski | |||||||
| Stanley Polomski | ||||||||
| Vice President and Controller | ||||||||
33
TABLE OF CONTENTS
Part I - Financial InformationprintItem 1. Financial StatementsprintItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosure About Market RiskprintItem 4. Controls and ProceduresprintPart II - Other InformationprintItem 1. Legal ProceedingsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint