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 consolidated financial statements include our accounts and entities in which we maintain a controlling financial interest and a variable interest entity (VIE) for which we were the primary beneficiary. See Note 14 for a discussion of the VIE. Intercompany transactions are eliminated in consolidation. See Note 3 for a discussion of Discontinued Operations.
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 July 28, 2019, except as described below and in Note 2.
The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year. Our fiscal year ends on the Sunday nearest July 31, which is August 2, 2020. There will be 53 weeks in 2020. There were 52 weeks in 2019.
Leases — At the beginning of the first quarter of 2020, we adopted new guidance on accounting for leases. We determine if an agreement is or contains a lease at inception by evaluating if an identified asset exists that we control for a period of time. When a lease exists, we record a right-of-use (ROU) asset and a corresponding lease liability on our Consolidated Balance Sheet. ROU assets represent our right to use an underlying asset for the lease term and the corresponding liabilities represent an obligation to make lease payments during the term. We have elected not to record leases with a term of 12 months or less on our Consolidated Balance Sheet.
ROU assets are recorded on our Consolidated Balance Sheet at lease commencement based on the present value of the corresponding liabilities and are adjusted for any prepayments, lease incentives received, or initial direct costs incurred. To calculate the present value of our lease liabilities, we use a country-specific collateralized incremental borrowing rate based on the lease term at commencement. The measurement of our ROU assets and liabilities includes all fixed payments and any variable payments based on an index or rate.
Our leases generally include options to extend or terminate use of the underlying assets. These options are included in the lease term used to determine ROU assets and corresponding liabilities when we are reasonably certain we will exercise.
Our lease arrangements typically include non-lease components, such as common area maintenance and labor. We account for each lease and any non-lease components associated with that lease as a single lease component for all underlying asset classes with the exception of certain production assets. Accordingly, all costs associated with a lease contract are disclosed as lease costs. This includes any variable payments that are not dependent on an index or a rate and which are expensed as incurred.
Operating leases expense is recognized on a straight-line basis over the lease term with the expense recorded in Cost of products sold, Marketing and selling expenses, or Administrative expenses depending on the nature of the leased item.
For finance leases, the amortization of ROU lease assets is recognized on a straight-line basis over the shorter of the estimated useful life of the underlying asset or the lease term in Cost of products sold, Marketing and selling expenses, or Administrative expenses depending on the nature of the leased item. Interest expense on finance lease obligations is recorded over the lease term and is recorded in Interest expense (based on a front-loaded interest expense pattern).
All operating lease cash payments and interest on finance leases are recorded within Net cash provided by operating activities and all finance lease principal payments are recorded within Net cash used in financing activities in our Consolidated Statements of Cash Flows.
See Notes 2 and 11 for additional information.
2. Recent Accounting Pronouncements
Recently Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued revised guidance on the recognition of revenue from contracts with customers. We adopted the guidance in the first quarter of 2019, effective on July 30, 2018, using the modified retrospective method and recorded a cumulative effect adjustment of $8, net of tax, to decrease the opening balance of Earnings retained in the business, an increase of $10 to Accrued liabilities, an increase of $1 to Accounts payable, a decrease of $2 to Deferred taxes and an increase of $1 to Other assets.
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize most leases on the balance sheet but will recognize expenses similar to current lease accounting. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. In July 2018, the FASB issued an adoption approach that allows entities to apply the new guidance and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We adopted the new guidance at the beginning of 2020 using this transition method. We elected to apply a package of practical expedients, which allowed us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. Adoption of the new guidance resulted in the recognition of operating lease ROU assets of $259 and operating lease liabilities of $254, with the difference between the assets and liabilities primarily due to below market assets, deferred rent and prepaid rent. In addition, we derecognized $20 of an asset and liability associated with a build-to-suit lease arrangement. The adoption did not have a material impact on consolidated net earnings or cash flows. See Note 11 for additional information.
In February 2018, the FASB issued guidance that provides entities an option to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. We adopted the guidance in the first quarter of 2019, effective on July 30, 2018, and elected not to reclassify prior periods. The adoption resulted in a cumulative effect adjustment of $9 to decrease the opening balance of Earnings retained in the business and a corresponding net decrease to the components of Accumulated other comprehensive income (loss). See Note 4 for additional information.
In August 2017, the FASB issued guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. In October 2018, the FASB issued guidance which permits an entity to designate the overnight index swap rate based on the Secured Overnight Financing Rate Fed Funds as a benchmark interest rate in a hedge accounting relationship. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. We adopted the new guidance at the beginning of the first quarter of 2020. The adoption did not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued guidance that changes the disclosure requirements related to defined benefit pension and postretirement plans. The guidance is effective for fiscal years beginning after December 15, 2020. The guidance is to be applied on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance that eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted. Certain disclosures in the guidance must be applied on a retrospective basis, while others must be applied on a prospective basis. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements. We intend to adopt the guidance on a prospective basis.
In December 2019, the FASB issued guidance on simplifying the accounting for income taxes. The guidance removes certain exceptions to the general principles of accounting for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
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. Divestitures
Discontinued Operations
On February 25, 2019, we sold our U.S. refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were $55. On June 16, 2019, we sold our Bolthouse Farms business. Proceeds were $500. Beginning in the third quarter of 2019, we have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Campbell Fresh reportable segment.
We completed the sale of our Kelsen business on September 23, 2019, for $322. We also completed the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott's and other international operations), on December 23, 2019, for $2,286. The purchase price was subject to certain post-closing adjustments, which resulted in $4 of additional proceeds in the third quarter of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment.
Results of discontinued operations were as follows:
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Three Months Ended
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Nine Months Ended
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Campbell International
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Campbell Fresh
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Campbell International
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Campbell Fresh
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April 28, 2019
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April 28, 2019
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April 26, 2020
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April 28, 2019
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April 28, 2019
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Net sales
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$
|
225
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|
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|
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$
|
210
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$
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359
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$
|
802
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$
|
666
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Impairment charges
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$
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—
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|
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|
|
$
|
—
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|
|
$
|
—
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|
$
|
—
|
|
|
|
|
$
|
360
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|
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|
|
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Earnings (loss) before taxes from operations
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$
|
21
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|
|
|
|
|
|
$
|
7
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|
|
$
|
53
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|
|
$
|
115
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|
|
|
|
$
|
(361)
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|
Taxes on earnings (loss) from operations
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|
12
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|
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7
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|
|
17
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39
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|
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(82)
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Gain (loss) on sale of businesses / costs associated with selling the businesses
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|
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(2)
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(24)
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1,039
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(7)
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(31)
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Tax expense (benefit) on sale / costs associated with selling the businesses
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|
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(1)
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23
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|
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39
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|
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(2)
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|
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21
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|
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Earnings (loss) from discontinued operations
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$
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8
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|
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|
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|
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$
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(47)
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|
|
$
|
1,036
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|
$
|
71
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|
|
|
|
$
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(331)
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|
The sale of the Arnott's and other international operations resulted in a substantial capital gain for tax purposes. We were able to utilize capital losses, which were offset with valuation allowances as of July 28, 2019, to offset the capital gain.
In the second quarter of 2019, we performed interim impairment assessments on the intangible and tangible assets of the Campbell Fresh businesses. We revised our future outlook for earnings and cash flows for each of these businesses as the divestiture process progressed and we received initial indications of value. In Bolthouse Farms carrot and carrot ingredients, we recorded impairment charges of $18 on the trademark, $40 on customer relationships, $15 on technology and $104 on plant assets. In Bolthouse Farms refrigerated beverages and salad dressings, we recorded impairment charges of $74 on the trademark, $22 on customer relationships, and $9 on plant assets. In Garden Fresh Gourmet, we recorded impairment charges of $23 on the trademark, $39 on customer relationships, and $2 on plant assets. In the first quarter of 2019, we recorded an impairment charge of $14 on the U.S. refrigerated soup plant assets in Campbell Fresh.
In addition, in the third quarter of 2019, we recorded tax expense of $29 as deferred tax assets on Bolthouse Farms were not realizable.
Under the terms of the sale of the Arnott's and other international operations, we entered into a long-term licensing arrangement for the exclusive rights to certain Campbell brands in certain non-U.S. markets. We provide certain transition services to support the divested businesses.
The assets and liabilities of Campbell International have been reflected as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of July 28, 2019. The assets and liabilities were as follows:
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July 28, 2019
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Cash and cash equivalents
|
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$
|
148
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|
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Accounts receivable, net
|
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|
|
135
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Inventories
|
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|
|
135
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|
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Other current assets
|
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|
|
10
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|
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Current assets
|
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$
|
428
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|
|
|
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|
|
|
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Plant assets, net of depreciation
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|
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340
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|
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Goodwill
|
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661
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|
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Other intangible assets, net of amortization
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|
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135
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|
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Other assets
|
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|
|
31
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Total assets
|
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$
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1,595
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|
|
|
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Short-term borrowings
|
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|
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$
|
232
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|
|
Payable to suppliers and others
|
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|
|
109
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|
|
Accrued liabilities
|
|
|
|
114
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|
|
Accrued income taxes
|
|
|
|
14
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|
|
Current liabilities
|
|
|
|
$
|
469
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|
|
|
|
|
|
|
|
Long-term debt
|
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|
|
6
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|
|
Deferred taxes
|
|
|
|
32
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|
|
Other liabilities
|
|
|
|
27
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Total liabilities
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$
|
534
|
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The depreciation and amortization, capital expenditures, sale proceeds and significant noncash operating items of Campbell Fresh and Campbell International were as follows:
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Nine Months Ended
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|
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April 26, 2020
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April 28, 2019
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Cash flows from discontinued operating activities:
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|
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Impairment charges
|
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$
|
—
|
|
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$
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360
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|
|
|
|
|
|
|
|
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Depreciation and amortization(1)
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—
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|
|
72
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|
|
Net (gain) loss on sales of discontinued operations businesses
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(1,039)
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18
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|
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Cash flows from discontinued investing activities:
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|
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Capital expenditures
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$
|
30
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|
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$
|
45
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|
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Sales of discontinued operations businesses, net of cash divested
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2,466
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54
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_______________________________________________
(1)Depreciation and amortization are no longer recognized once businesses are classified as held for sale/discontinued operations.
Other Divestitures
On October 11, 2019, we completed the sale of our European chips business for £63, or $77. The European chips business had net sales of $25 for the nine-month period ended April 26, 2020. The European chips business had net sales of $33 for the three-month period and $93 for the nine-month period ended April 28, 2019. Earnings were not material in either period. The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment. The pre-tax loss recognized in the first quarter on the sale was $64, which included the impact of allocated goodwill and foreign currency translation adjustments. For tax purposes, in the first quarter, the capital loss on the sale was offset by a valuation allowance.
In the second quarter of 2020, we recognized a $19 tax benefit in continuing operations as we were able to use the capital loss on this sale to offset a portion of the capital gain from the sale of the Arnott's and other international operations.
4. Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss) consisted of the following:
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|
Foreign Currency Translation Adjustments(1)
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|
Gains (Losses) on Cash Flow Hedges(2)
|
|
Pension and Postretirement Benefit Plan Adjustments(3)
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|
Total Accumulated Comprehensive Income (Loss)
|
|
Balance at July 29, 2018
|
|
$
|
(154)
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|
|
$
|
(4)
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|
|
$
|
40
|
|
|
$
|
(118)
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|
|
Cumulative effect of a change in accounting principle(4)
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|
2
|
|
|
(3)
|
|
|
10
|
|
|
9
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
(49)
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|
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1
|
|
|
—
|
|
|
(48)
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|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
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(17)
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|
|
(17)
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|
|
Net current-period other comprehensive income (loss)
|
|
(49)
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|
|
1
|
|
|
(17)
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|
|
(65)
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|
|
Balance at April 28, 2019
|
|
$
|
(201)
|
|
|
$
|
(6)
|
|
|
$
|
33
|
|
|
$
|
(174)
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|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 28, 2019
|
|
$
|
(218)
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|
|
$
|
(9)
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|
|
$
|
29
|
|
|
$
|
(198)
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
(11)
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|
|
7
|
|
|
—
|
|
|
(4)
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|
|
Amounts reclassified from accumulated other comprehensive income (loss)(5)
|
|
210
|
|
|
1
|
|
|
(16)
|
|
|
195
|
|
|
Net current-period other comprehensive income (loss)
|
|
199
|
|
|
8
|
|
|
(16)
|
|
|
191
|
|
|
Balance at April 26, 2020
|
|
$
|
(19)
|
|
|
$
|
(1)
|
|
|
$
|
13
|
|
|
$
|
(7)
|
|
_____________________________________
(1)Included no tax as of April 26, 2020, a tax expense of $4 as of July 28, 2019, and April 28, 2019, and $6 as of July 29, 2018.
(2)Included a tax expense of $1 as of April 26, 2020, and a tax benefit of $2 as of July 28, 2019, $1 as of April 28, 2019, and $4 as of July 29, 2018.
(3)Included a tax expense of $3 as of April 26, 2020, $8 as of July 28, 2019, $10 as of April 28, 2019, and $25 as of July 29, 2018.
(4)Reflects the adoption of the FASB guidance on stranded tax effects. See Note 2 for additional information.
(5)Reflects amounts reclassified from sale of businesses. See Note 3 for additional information.
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
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|
|
|
|
|
|
|
|
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|
|
Three Months Ended
|
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|
|
Nine Months Ended
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
April 26, 2020
|
|
April 28, 2019
|
|
April 26, 2020
|
|
April 28, 2019
|
|
Location of (Gain) Loss Recognized in Earnings
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation (gains) losses realized upon disposal of businesses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
Other expenses / (income)
|
|
Currency translation (gains) losses realized upon disposal of businesses
|
|
—
|
|
|
—
|
|
|
183
|
|
|
—
|
|
|
Earnings (loss) from discontinued operations
|
|
Total before tax
|
|
—
|
|
|
—
|
|
|
206
|
|
|
—
|
|
|
|
|
Tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
210
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
1
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
Cost of products sold
|
|
Foreign exchange forward contracts
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
Other expenses / (income)
|
|
Foreign exchange forward contracts
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Earnings (loss) from discontinued operations
|
|
Forward starting interest rate swaps
|
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
Interest expense
|
|
Total before tax
|
|
1
|
|
|
(1)
|
|
|
2
|
|
|
—
|
|
|
|
|
Tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
1
|
|
|
$
|
(1)
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(7)
|
|
|
$
|
(8)
|
|
|
$
|
(21)
|
|
|
$
|
(22)
|
|
|
Other expenses / (income)
|
|
Tax expense (benefit)
|
|
2
|
|
|
2
|
|
|
5
|
|
|
5
|
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
(5)
|
|
|
$
|
(6)
|
|
|
$
|
(16)
|
|
|
$
|
(17)
|
|
|
|
5. 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 July 28, 2019
|
$
|
977
|
|
|
$
|
3,040
|
|
|
$
|
4,017
|
|
|
|
|
|
|
|
|
|
Divestiture(1)
|
—
|
|
|
(34)
|
|
|
(34)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(6)
|
|
|
4
|
|
|
(2)
|
|
|
Net balance at April 26, 2020
|
$
|
971
|
|
|
$
|
3,010
|
|
|
$
|
3,981
|
|
______________________________________________________
(1)On October 11, 2019, we completed the sale of our European chips business. See Note 3 for additional information.
Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
July 28, 2019
|
|
|
|
Intangible Assets
|
|
Estimated Useful Lives
|
|
|
|
Cost
|
Accumulated Amortization
|
Net
|
|
Cost
|
Accumulated Amortization
|
Net
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
10
|
to
|
22
|
|
$
|
851
|
|
$
|
(100)
|
|
$
|
751
|
|
|
$
|
855
|
|
$
|
(70)
|
|
$
|
785
|
|
|
Other
|
|
1.5
|
to
|
20
|
|
14
|
|
(14)
|
|
—
|
|
|
14
|
|
(13)
|
|
1
|
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
865
|
|
$
|
(114)
|
|
$
|
751
|
|
|
$
|
869
|
|
$
|
(83)
|
|
$
|
786
|
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
2,611
|
|
|
|
|
2,629
|
|
|
Total net intangible assets
|
|
|
|
|
|
|
|
$
|
3,362
|
|
|
|
|
$
|
3,415
|
|
Non-amortizable intangible assets consist of trademarks. As of April 26, 2020, trademarks primarily included $1,978 associated with Snyder's-Lance, $280 associated with Pacific Foods and $292 related to Pace. Other amortizable intangible assets consist of recipes, non-compete agreements, trademarks and patents.
Amortization of intangible assets in Earnings from continuing operations was $33 and $36 for the nine-month periods ended April 26, 2020, and April 28, 2019, respectively. Amortization expense for the next 5 years is estimated to be approximately $44 per year.
Amortization of intangible assets in Earnings (loss) from discontinued operations was $8 for the nine-month period ended April 28, 2019. See Note 3 for additional information on discontinued operations.
6. Segment Information
Through the second quarter of 2019, we had four operating segments based primarily on product type, and three reportable segments. The operating segments were Meals & Beverages; U.S. snacking; international biscuits and snacks; and Campbell Fresh. The U.S. snacking operating segment was aggregated with the international biscuits and snacks operating segment to form the Global Biscuits and Snacks reportable segment. The operating segments were aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment.
As discussed in Note 3, we sold our businesses in Campbell Fresh during 2019. Beginning in the third quarter of 2019, we have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. Prior periods have been adjusted to conform to the current presentation. A portion of the U.S. refrigerated soup business historically included in Campbell Fresh was retained, and is reported as part of foodservice in Meals & Beverages.
Within our international biscuits and snacks operating segment, we sold our Kelsen business on September 23, 2019, and the Arnott’s and other international operations on December 23, 2019. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented.
Our reportable segments are as follows:
•Meals & Beverages, which includes the retail and foodservice businesses 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; Plum baby food and snacks; V8 juices and beverages; and Campbell’s tomato juice; and
•Snacks, which consists of Pepperidge Farm cookies, crackers, fresh bakery and frozen products in U.S. retail, including Milano cookies and Goldfish crackers; and Snyder’s of Hanover pretzels, Lance sandwich crackers, Cape Cod and Kettle Brand potato chips, Late July snacks, Snack Factory Pretzel Crisps, Pop Secret popcorn, Emerald nuts, and other snacking products in the U.S. and Canada. The segment includes the retail business in Latin America. The segment also includes the results of our European chips business, which was sold on October 11, 2019.
Through the fourth quarter of 2019, our retail business in Latin America was managed as part of the Meals & Beverages segment. Beginning in 2020, it is managed as part of the Snacks 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 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
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
Meals & Beverages
|
|
$
|
1,210
|
|
|
$
|
1,006
|
|
|
$
|
3,628
|
|
|
$
|
3,457
|
|
|
|
|
Snacks
|
|
1,028
|
|
|
947
|
|
|
2,955
|
|
|
2,869
|
|
|
|
|
Corporate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
Total
|
|
$
|
2,238
|
|
|
$
|
1,953
|
|
|
$
|
6,583
|
|
|
$
|
6,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
|
|
Earnings before interest and taxes
|
|
|
|
|
|
|
|
|
|
|
|
Meals & Beverages
|
|
$
|
275
|
|
|
$
|
204
|
|
|
$
|
799
|
|
|
$
|
747
|
|
|
|
|
Snacks
|
|
154
|
|
|
129
|
|
|
415
|
|
|
386
|
|
|
|
|
Corporate(1)
|
|
(156)
|
|
|
(86)
|
|
|
(264)
|
|
|
(215)
|
|
|
|
|
Restructuring charges(2)
|
|
—
|
|
|
(2)
|
|
|
(10)
|
|
|
(22)
|
|
|
|
|
Total
|
|
$
|
273
|
|
|
$
|
245
|
|
|
$
|
940
|
|
|
$
|
896
|
|
|
|
_______________________________________
(1)Represents unallocated items. Pension benefit settlement adjustments are included in Corporate. There were settlement charges of $54 and $43 for the three- and nine-month periods ended April 26, 2020, respectively, and charges of $28 in the three- and nine-month periods ended April 28, 2019. A loss of $45 on Acre Venture Partners, L.P. (Acre) was included in the three- and nine-month periods ended April 26, 2020. See Note 14 for additional information on Acre. A loss of $64 on the sale of our European chips business was included in the nine-month period ended April 26, 2020. Costs related to the cost savings initiatives were $14 and $19 in the three-month periods and $40 and $68 in the nine-month periods ended April 26, 2020, and April 28, 2019, respectively.
(2)See Note 7 for additional information.
Our net sales based on product categories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
Soup
|
|
$
|
681
|
|
|
$
|
528
|
|
|
$
|
2,144
|
|
|
$
|
2,020
|
|
|
Snacks
|
|
1,040
|
|
|
967
|
|
|
3,005
|
|
|
2,922
|
|
|
Other simple meals
|
|
324
|
|
|
270
|
|
|
886
|
|
|
829
|
|
|
Beverages
|
|
193
|
|
|
188
|
|
|
548
|
|
|
555
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Total
|
|
$
|
2,238
|
|
|
$
|
1,953
|
|
|
$
|
6,583
|
|
|
$
|
6,327
|
|
Soup includes various soup, broths 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 and Plum products.
7. 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.
In recent 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 continue to implement this program. In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.
Cost estimates, as well as timing for certain activities, are continuing to be developed.
A summary of the pre-tax charges recorded in Earnings from continuing operations related to these initiatives is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Recognized as of April 26, 2020
|
|
Restructuring charges
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
239
|
|
|
Administrative expenses
|
10
|
|
|
12
|
|
|
31
|
|
|
35
|
|
|
294
|
|
|
Cost of products sold
|
4
|
|
|
4
|
|
|
6
|
|
|
25
|
|
|
73
|
|
|
Marketing and selling expenses
|
—
|
|
|
2
|
|
|
2
|
|
|
6
|
|
|
12
|
|
|
Research and development expenses
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
4
|
|
|
Total pre-tax charges
|
$
|
14
|
|
|
$
|
21
|
|
|
$
|
50
|
|
|
$
|
90
|
|
|
$
|
622
|
|
A summary of the pre-tax charges (gains) recorded in Earnings (loss) from discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Recognized as of April 26, 2020(1)
|
|
Total pre-tax charges (gains)
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
_______________________________________
(1)Includes $19 of severance pay and benefits and $4 of implementation costs and other related costs.
As of April 28, 2019, we incurred substantially all of the costs for actions associated with discontinued operations. All of the costs were cash expenditures.
A summary of the pre-tax costs in Earnings from continuing operations associated with the initiatives is as follows:
|
|
|
|
|
|
|
|
|
Recognized as of April 26, 2020
|
|
Severance pay and benefits
|
$
|
215
|
|
|
Asset impairment/accelerated depreciation
|
65
|
|
|
Implementation costs and other related costs
|
342
|
|
|
Total
|
$
|
622
|
|
The total estimated pre-tax costs for actions associated with continuing operations that have been identified are approximately $665 to $690 and we expect to incur the costs through 2021. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following: approximately $215 to $220 in severance pay and benefits; approximately $65 in asset impairment and accelerated depreciation; and approximately $385 to $405 in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 33%; Snacks - approximately 42%; and Corporate - approximately 25%.
Of the aggregate $665 to $690 of pre-tax costs associated with continuing operations identified to date, we expect approximately $590 to $615 will be cash expenditures. In addition, we expect to invest approximately $420 in capital expenditures through 2021, of which we invested $311 as of April 26, 2020. The capital expenditures primarily relate to the U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of an SAP enterprise-resource planning system for Snyder's-Lance, optimization of
information technology infrastructure and applications, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, insourcing of manufacturing for certain simple meal products, 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 April 26, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay and Benefits
|
|
|
|
|
|
Implementation Costs and Other Related
|
|
Asset Impairment/Accelerated Depreciation
|
|
|
|
Total Charges
|
|
|
|
|
|
|
|
|
|
Costs(3)
|
|
|
|
|
|
|
|
Accrued balance at July 28, 2019(1)
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 charges
|
|
10
|
|
|
|
|
|
|
38
|
|
|
2
|
|
|
|
|
$
|
50
|
|
|
2020 cash payments
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued balance at April 26, 2020(2)
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________
(1) Includes $8 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2) Includes $3 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(3) Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses, Cost of products sold, Marketing and selling expenses, and Research and development expenses in the Consolidated Statements of Earnings.
Restructuring reserves included in Current liabilities of discontinued operations were $1 at July 28, 2019.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months
Ended
|
|
Costs Incurred to Date
|
|
Meals & Beverages
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
218
|
|
|
Snacks
|
10
|
|
|
37
|
|
|
238
|
|
|
Corporate
|
2
|
|
|
6
|
|
|
166
|
|
|
Total
|
$
|
14
|
|
|
$
|
50
|
|
|
$
|
622
|
|
8. Earnings per Share (EPS)
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for the three- and nine-month periods ended April 26, 2020, excludes approximately 1 million stock options that would have been antidilutive. The earnings per share calculation for the three- and nine-month periods ended April 28, 2019, excludes approximately 2 million stock options that would have been antidilutive.
9. Noncontrolling Interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited in China. We also owned a 99.8% interest in Acre, a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. See Note 14 for additional information.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
10. Pension and Postretirement Benefits
Components of net benefit expense (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
Postretirement
|
|
|
|
Pension
|
|
|
|
Postretirement
|
|
|
|
|
April 26, 2020
|
|
April 28, 2019
|
|
April 26, 2020
|
|
April 28,
2019
|
|
April 26, 2020
|
|
April 28, 2019
|
|
April 26, 2020
|
|
April 28, 2019
|
|
Service cost
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Interest cost
|
14
|
|
|
21
|
|
|
2
|
|
|
2
|
|
|
48
|
|
|
62
|
|
|
5
|
|
|
6
|
|
|
Expected return on plan assets
|
(31)
|
|
|
(36)
|
|
|
—
|
|
|
—
|
|
|
(100)
|
|
|
(107)
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
(21)
|
|
|
(22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charge
|
54
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit expense (income)
|
$
|
41
|
|
|
$
|
18
|
|
|
$
|
(5)
|
|
|
$
|
(5)
|
|
|
$
|
5
|
|
|
$
|
(1)
|
|
|
$
|
(16)
|
|
|
$
|
(15)
|
|
The components of net periodic benefit expense (income) other than the service cost component associated with continuing operations are included in Other expenses / (income) in the Consolidated Statements of Earnings.
The settlement charges of $54 and $43 for the three- and nine-month periods ended April 26, 2020, respectively, resulted from the level of lump sum distributions associated with a U.S. pension plan and a Canadian pension plan. The settlement charge of $28 for the three- and nine-month periods ended April 28, 2019, resulted from the level of lump sum distributions associated with a U.S. pension plan.
Net periodic pension benefit expense (income) associated with discontinued operations was not material for the nine-month period ended April 26, 2020, and for the three- and nine-month periods ended April 28, 2019.
11. Leases
We lease warehouse and distribution facilities, office space, manufacturing facilities, equipment and vehicles, primarily through operating leases.
Leases recorded on our Consolidated Balance Sheet have remaining terms primarily from 1 to 15 years.
Our fleet leases generally include residual value guarantees that are assessed at lease inception in determining ROU assets and corresponding liabilities. No other significant restrictions or covenants are included in our leases.
The components of lease costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Operating lease cost
|
|
|
$
|
20
|
|
|
$
|
60
|
|
|
Finance lease - amortization of ROU assets
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Short-term lease cost
|
|
|
11
|
|
|
31
|
|
|
Variable lease cost(1)
|
|
|
43
|
|
|
129
|
|
|
Sublease income
|
|
|
(1)
|
|
|
(3)
|
|
|
Total
|
|
|
$
|
74
|
|
|
$
|
219
|
|
__________________________________________
(1)Includes labor and other overhead included in our service contracts with embedded leases.
Total lease cost includes $4 for the nine-month period ended April 26, 2020, related to discontinued operations.
The following table summarizes the lease amounts recorded in the Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
Operating
|
|
Finance
|
|
Assets
|
|
|
|
|
|
Plant assets, net of depreciation
|
|
$
|
—
|
|
|
$
|
9
|
|
|
Other assets
|
|
257
|
|
|
—
|
|
|
|
|
|
|
|
|
Total lease assets
|
|
$
|
257
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Accrued liabilities
|
|
66
|
|
|
—
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
—
|
|
|
7
|
|
|
Other liabilities
|
|
187
|
|
|
—
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
253
|
|
|
$
|
10
|
|
Weighted-average lease terms and discount rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
Operating
|
|
Finance
|
|
Weighted-average remaining term in years
|
|
6.8
|
|
2.9
|
|
Weighted-average discount rate
|
|
2.7
|
%
|
|
1.9
|
%
|
Future minimum lease payments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
|
|
July 28, 2019
|
|
|
|
|
|
New Guidance
|
|
|
|
|
|
|
|
Previous Guidance
|
|
|
|
|
|
Continuing
|
|
|
|
|
|
|
|
Continuing
|
|
Discontinued
|
|
|
|
Operating
|
|
Finance
|
|
|
|
|
|
Operating
|
|
Operating
|
|
2020
|
|
$
|
20
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
61
|
|
|
$
|
7
|
|
|
2021
|
|
66
|
|
|
3
|
|
|
|
|
|
|
48
|
|
|
6
|
|
|
2022
|
|
39
|
|
|
4
|
|
|
|
|
|
|
36
|
|
|
4
|
|
|
2023
|
|
33
|
|
|
2
|
|
|
|
|
|
|
26
|
|
|
3
|
|
|
2024
|
|
25
|
|
|
—
|
|
|
|
|
|
|
20
|
|
|
1
|
|
|
Thereafter
|
|
98
|
|
|
—
|
|
|
|
|
|
|
88
|
|
|
—
|
|
|
Total future undiscounted lease payments
|
|
281
|
|
|
10
|
|
|
|
|
|
|
$
|
279
|
|
|
$
|
21
|
|
|
Less imputed interest
|
|
28
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total reported lease liability
|
|
$
|
253
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
In 2020, we expect to record an operating lease liability of $6 for leases with terms up to 5 years that have not yet commenced and are not included in the future minimum lease payments table.
Supplemental cash flow and other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
|
$
|
59
|
|
|
|
|
Operating cash flows from finance leases
|
|
|
|
$
|
—
|
|
|
|
|
Financing cash flows from finance leases
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
$
|
77
|
|
|
|
|
Finance leases
|
|
|
|
$
|
8
|
|
|
|
|
ROU assets divested with businesses sold:
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
$
|
18
|
|
|
|
|
Finance leases
|
|
|
|
$
|
5
|
|
|
|
|
Lease liabilities derecognized upon adoption:
|
|
|
|
|
|
|
|
Build-to-suit lease commitment
|
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
12. Short-term Borrowings and Long-term Debt
Short-term borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26,
2020
|
|
July 28,
2019
|
|
Commercial paper
|
$
|
485
|
|
|
$
|
853
|
|
|
|
|
|
|
|
Notes
|
721
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases
|
3
|
|
|
1
|
|
|
Revolving credit facility
|
300
|
|
|
—
|
|
|
Build-to-suit lease commitment
|
—
|
|
|
20
|
|
|
Other(1)
|
(5)
|
|
|
(3)
|
|
|
Total short-term borrowings
|
$
|
1,504
|
|
|
$
|
1,371
|
|
_______________________________________
(1)Includes unamortized net discount/premium on debt issuances and debt issuance costs.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Fiscal Year of Maturity
|
|
Rate
|
|
April 26,
2020
|
|
July 28,
2019
|
|
Notes
|
|
2020
|
|
Variable
|
|
$
|
—
|
|
|
$
|
500
|
|
|
Notes
|
|
2021
|
|
Variable
|
|
400
|
|
|
400
|
|
|
Senior Term Loan
|
|
2021
|
|
Variable
|
|
—
|
|
|
499
|
|
|
Notes
|
|
2021
|
|
3.300%
|
|
321
|
|
|
650
|
|
|
Notes
|
|
2021
|
|
4.250%
|
|
—
|
|
|
500
|
|
|
Debentures
|
|
2021
|
|
8.875%
|
|
200
|
|
|
200
|
|
|
Notes
|
|
2023
|
|
2.500%
|
|
450
|
|
|
450
|
|
|
Notes
|
|
2023
|
|
3.650%
|
|
566
|
|
|
1,200
|
|
|
Notes
|
|
2025
|
|
3.950%
|
|
850
|
|
|
850
|
|
|
Notes
|
|
2025
|
|
3.300%
|
|
300
|
|
|
300
|
|
|
Notes
|
|
2028
|
|
4.150%
|
|
1,000
|
|
|
1,000
|
|
|
Notes
|
|
2030
|
|
2.375%
|
|
500
|
|
|
—
|
|
|
Notes
|
|
2042
|
|
3.800%
|
|
163
|
|
|
400
|
|
|
Notes
|
|
2048
|
|
4.800%
|
|
700
|
|
|
700
|
|
|
Notes
|
|
2050
|
|
3.125%
|
|
500
|
|
|
—
|
|
|
Finance leases
|
|
|
|
|
|
7
|
|
|
3
|
|
|
Other(1)
|
|
|
|
|
|
(45)
|
|
|
(49)
|
|
|
Total
|
|
|
|
|
|
$
|
5,912
|
|
|
$
|
7,603
|
|
|
Less current portion
|
|
|
|
|
|
721
|
|
|
500
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
5,191
|
|
|
$
|
7,103
|
|
_______________________________________
(1)Includes unamortized net discount/premium on debt issuances and debt issuance costs.
On January 22, 2020, we completed the redemption of all $500 outstanding aggregate principal amount of our 4.25% Senior Notes due 2021. On January 24, 2020, we settled tender offers to purchase $1,200 in aggregate principal amount of certain senior unsecured debt, comprising $329 of 3.30% Senior Notes due 2021, $634 of 3.65% Senior Notes due 2023, and $237 of 3.80% Senior Notes due 2042. The total consideration for the redemption and the tender offers was $1,765 and the total carrying amount of the purchased notes was $1,691, resulting in a loss of $75 (including $65 of premium, as well as fees and other costs associated with the tender offers) which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the purchased notes through the dates of settlement.
On April 24, 2020, we issued senior notes in an aggregate principal amount of $1,000, consisting of $500 aggregate principal amount of notes bearing interest at a fixed rate of 2.375% per annum, due April 24, 2030, and $500 aggregate principal amount of notes bearing interest at a fixed rate of 3.125% per annum, due April 24, 2050. On May 1, 2020, we used $300 of the net proceeds to repay outstanding borrowings under our revolving credit facility. The 2.375% Senior Notes due 2030 and the 3.125% Senior Notes due 2050 may each be redeemed at the applicable redemption price, in whole or in part, at our option at any time and from time to time prior to January 24, 2030, and October 24, 2049, respectively. Interest on each of the notes is due semi-annually on April 24 and October 24, commencing on October 24, 2020. The notes contain customary covenants and events of default. If a change of control triggering event occurs, we will be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date.
13. Financial Instruments
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify and others that do not qualify for hedge accounting treatment.
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 April 26, 2020, or July 28, 2019.
We are also exposed to credit risk from our customers. During 2019, our largest customer accounted for approximately 20% of consolidated net sales from continuing operations. Our five largest customers accounted for approximately 43% of our consolidated net sales from continuing operations in 2019.
We closely monitor credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar, Australian dollar and U.S. dollar. We primarily 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 primarily 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 $118 at April 26, 2020, and $146 at July 28, 2019, of which $80 at July 28, 2019 related to discontinued operations. The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the Consolidated Statements of Earnings on the same line item and the same period in which the underlying hedged transaction affects earnings. The notional amount of foreign exchange forward contracts that are not designated as accounting hedges was $25 at April 26, 2020, and $177 at July 28, 2019, of which $3 at July 28, 2019, related to discontinued operations.
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. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. We manage our exposure to interest rate volatility on future debt issuances by entering into forward starting interest rate swaps or treasury rate lock contracts to lock in the rate on the interest payments related to the anticipated debt issuances. The contracts are either designated as cash-flow hedging instruments or are undesignated. The effective portion of the changes in fair value on designated instruments is recorded in other comprehensive income (loss) and reclassified into the Consolidated Statements of Earnings over the life of the debt. The change in fair value on undesignated instruments is recorded in interest expense. In conjunction with the debt redemption and tender offer, we entered into $900 of treasury rate lock agreements in the three-month period ended January 26, 2020, which resulted in a gain of $3. There were no forward starting interest rate swaps or treasury rate lock contracts outstanding as of April 26, 2020, or July 28, 2019.
Commodity Price Risk
We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, soybean oil, natural gas, aluminum, cocoa, corn, soybean meal, butter, and cheese, which impact the cost of raw materials. Commodity futures, options, and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were no commodity contracts accounted for as cash-flow hedges as of April 26, 2020, or July 28, 2019. The notional amount of commodity contracts not designated as accounting hedges was $137 at April 26, 2020, and $183 at July 28, 2019, of which $3 at July 28, 2019, related to discontinued operations.
In 2017, we entered into a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional value was approximately $55 as of April 26, 2020, and $27 as of July 28, 2019. Unrealized gains (losses) and settlements are included in Cost of products sold in our Consolidated Statements of Earnings.
Equity Price Risk
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return of the Vanguard Institutional Index Institutional Plus Shares, and
the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either: the total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index Institutional Plus Shares; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. These contracts were not designated as hedges for accounting purposes. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts were $17 as of April 26, 2020, and $31 as of July 28, 2019.
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of April 26, 2020, and July 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
April 26,
2020
|
|
July 28,
2019
|
|
Asset Derivatives
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Other current assets
|
|
$
|
7
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
Commodity derivative contracts
|
Other current assets
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
Deferred compensation derivative contracts
|
Other current assets
|
|
1
|
|
|
1
|
|
|
Foreign exchange forward contracts
|
Other current assets
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
Total asset derivatives
|
|
|
$
|
11
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
April 26,
2020
|
|
July 28,
2019
|
|
Liability Derivatives
|
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Current liabilities of discontinued operations
|
|
$
|
—
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
Commodity derivative contracts
|
Accrued liabilities
|
|
$
|
25
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Accrued liabilities
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
Other liabilities
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
$
|
26
|
|
|
$
|
8
|
|
|
Total liability derivatives
|
|
|
$
|
26
|
|
|
$
|
10
|
|
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 April 26, 2020, and July 28, 2019, would be adjusted as detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2020
|
|
|
|
|
|
July 28, 2019
|
|
|
|
|
|
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
|
|
$
|
11
|
|
|
$
|
(2)
|
|
|
$
|
9
|
|
|
$
|
5
|
|
|
$
|
(2)
|
|
|
$
|
3
|
|
|
Total liability derivatives
|
|
$
|
26
|
|
|
$
|
(2)
|
|
|
$
|
24
|
|
|
$
|
10
|
|
|
$
|
(2)
|
|
|
$
|
8
|
|
We are required to maintain cash margin accounts in connection with funding the settlement of open positions for exchange-traded commodity derivative instruments. The cash margin account balance was $18 at April 26, 2020, and $7 at July 28, 2019, which was included in Other current assets in the Consolidated Balance Sheets.
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the three- and nine-month periods ended April 26, 2020, and April 28, 2019, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash-Flow Hedge
OCI Activity
|
|
|
|
|
Derivatives Designated as Cash-Flow Hedges
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
OCI derivative gain (loss) at beginning of quarter
|
|
|
$
|
(9)
|
|
|
$
|
(8)
|
|
|
|
Effective portion of changes in fair value recognized in OCI:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
8
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (gain) loss reclassified from OCI to earnings:
|
Location in Earnings
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Cost of products sold
|
|
1
|
|
|
(1)
|
|
|
|
Foreign exchange forward contracts
|
Other expenses / (income)
|
|
—
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Forward starting interest rate swaps
|
Interest expense
|
|
—
|
|
|
1
|
|
|
|
OCI derivative gain (loss) at end of quarter
|
|
|
$
|
—
|
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
OCI derivative gain (loss) at beginning of year
|
|
|
$
|
(11)
|
|
|
$
|
(8)
|
|
|
|
Effective portion of changes in fair value recognized in OCI:
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
9
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (gain) loss reclassified from OCI to earnings:
|
Location in Earnings
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
Cost of products sold
|
|
—
|
|
|
(2)
|
|
|
|
Foreign exchange forward contracts
|
Other expenses / (income)
|
|
—
|
|
|
(1)
|
|
|
|
Foreign exchange forward contracts
|
Earnings (loss) from discontinued operations
|
|
1
|
|
|
1
|
|
|
|
Forward starting interest rate swaps
|
Interest expense
|
|
1
|
|
|
2
|
|
|
|
OCI derivative gain (loss) at end of quarter
|
|
|
$
|
—
|
|
|
$
|
(7)
|
|
|
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a gain of $7.
The following table shows the effect of our derivative instruments designated as cash-flow hedges for the three- and nine-month periods ended April 26, 2020, and April 28, 2019, in the Consolidated Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
April 26,
2020
|
|
|
|
April 28,
2019
|
|
|
|
April 26,
2020
|
|
|
|
April 28,
2019
|
|
|
|
|
|
Earnings (Loss) from Discontinued Operations
|
|
Interest Expense
|
|
Earnings (Loss) from Discontinued Operations
|
|
Interest Expense
|
|
Earnings (Loss) from Discontinued Operations
|
|
Interest
Expense
|
|
Earnings (Loss) from Discontinued Operations
|
|
Interest
Expense
|
|
Consolidated Statements of Earnings:
|
|
$
|
2
|
|
|
$
|
55
|
|
|
$
|
(39)
|
|
|
$
|
89
|
|
|
$
|
1,036
|
|
|
$
|
284
|
|
|
$
|
(260)
|
|
|
$
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (gain) loss reclassified from OCI to earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
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- and nine-month periods ended April 26, 2020, and April 28, 2019, in the Consolidated Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss Recognized in Earnings on Derivatives
|
|
|
|
|
|
|
|
Derivatives not Designated as Hedges
|
|
Location of (Gain) Loss
Recognized in Earnings
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
April 26, 2020
|
|
April 28, 2019
|
|
April 26, 2020
|
|
April 28, 2019
|
|
Foreign exchange forward contracts
|
|
Cost of products sold
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
Foreign exchange forward contracts
|
|
Other expenses / (income)
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
|
Cost of products sold
|
|
31
|
|
|
6
|
|
|
27
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation derivative contracts
|
|
Administrative expenses
|
|
5
|
|
|
(4)
|
|
|
1
|
|
|
(1)
|
|
|
Treasury rate lock contracts
|
|
Interest expense
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
Total (gain) loss at end of quarter
|
|
|
|
$
|
35
|
|
|
$
|
2
|
|
|
$
|
26
|
|
|
$
|
6
|
|
14. Variable Interest Entity
In February 2016, we agreed to make a capital commitment subject to certain qualifications of up to $125 to Acre, a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. Acre is managed by its general partner, Acre Ventures GP, LLC, which is independent of us. We were the sole limited partner of Acre and owned a 99.8% interest. Acre is a VIE. We consolidate Acre and account for the third party ownership as a noncontrolling interest. Through April 26, 2020, we funded $86 of the capital commitment. Acre elected the fair value option to account for qualifying investments to more appropriately reflect the value of the investments in the financial statements. The investments were $76 as of July 28, 2019, and were included in Other assets on the Consolidated Balance Sheet. Changes in the fair values of investments are included in Other expenses / (income) on the Consolidated Statements of Earnings.
We entered into an agreement to sell our interest in Acre on April 26, 2020, and completed the sale on May 8, 2020, for $30. As a result of the pending sale, we recorded a loss of $45 in the third quarter. The remaining $29 of assets were reclassified to assets held for sale and are included in Other current assets on the Consolidated Balance Sheet as of April 26, 2020.
15. Fair Value Measurements
We categorize financial assets and liabilities based on the following fair value hierarchy:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.
•Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our financial assets and liabilities that are measured at fair value on a recurring basis as of April 26, 2020, and July 28, 2019, consistent with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
April 26,
2020
|
|
Fair Value Measurements at
April 26, 2020 Using
Fair Value Hierarchy
|
|
|
|
|
|
Fair Value
as of
July 28,
2019
|
|
Fair Value Measurements at
July 28, 2019 Using
Fair Value Hierarchy
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts(1)
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
Commodity derivative contracts(2)
|
3
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation derivative contracts(3)
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Deferred compensation investments(4)
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
Fair value option investments(5)
|
29
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
76
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
Total assets at fair value
|
$
|
43
|
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
30
|
|
|
$
|
85
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
April 26,
2020
|
|
Fair Value Measurements at
April 26, 2020 Using
Fair Value Hierarchy
|
|
|
|
|
|
Fair Value
as of
July 28,
2019
|
|
Fair Value Measurements at
July 28, 2019 Using
Fair Value Hierarchy
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
Commodity derivative contracts(2)
|
26
|
|
|
16
|
|
|
10
|
|
|
—
|
|
|
6
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation obligation(4)
|
86
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
Total liabilities at fair value
|
$
|
112
|
|
|
$
|
102
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
98
|
|
|
$
|
7
|
|
|
$
|
—
|
|
___________________________________
(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.
(5)Primarily represents investments in equity securities that are not readily marketable and are accounted for under the fair value option. The investments were funded by Acre. Prior to April 26, 2020, fair value was based on analyzing recent transactions and transactions of comparable companies, and the discounted cash flow method. In addition, allocation methods, including the option pricing method, were used in distributing fair value among various equity holders according to rights and preferences. We entered into an agreement to sell our interest in Acre on April 26, 2020, and completed the sale on May 8, 2020. As a result of the pending sale, we adjusted the fair value based on the proceeds and reclassified the assets to assets held for sale on the Consolidated Balance Sheet. See Note 14 for additional information.
The following table summarizes the changes in fair value of Level 3 assets for the nine-month periods ended April 26, 2020, and April 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Fair value at beginning of year
|
|
$
|
76
|
|
|
$
|
77
|
|
|
Gains (losses)
|
|
(46)
|
|
|
1
|
|
|
Purchases
|
|
1
|
|
|
—
|
|
|
Settlements
|
|
(1)
|
|
|
—
|
|
|
Fair value at end of quarter
|
|
$
|
30
|
|
|
$
|
78
|
|
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value.
Cash equivalents of continuing operations were $15 at April 26, 2020. Cash equivalents of discontinued operations were $19 at July 28, 2019. 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 of continuing operations was $7,216 at April 26, 2020, and $8,642 at July 28, 2019. The carrying value was $6,695 at April 26, 2020, and $8,474 at July 28, 2019. The fair value and carrying value of short- and long-term debt of discontinued operations was $238 at July 28, 2019. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.
16. Share Repurchases
On March 2017, the Board authorized a share repurchase program to purchase up to $1,500. The program has no expiration date, but it may be suspended or discontinued at any time. In addition to this publicly announced program, we have a separate Board authorization to purchase shares to offset the impact of dilution from shares issued under our stock compensation plans. We suspended our share repurchases as of the second quarter of 2018. Approximately $1,296 remained available under the March 2017 program as of April 26, 2020.
17. 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 2020, we issued time-lapse restricted stock units, unrestricted stock, and TSR performance restricted stock units. We have not issued stock options, FCF performance restricted stock units, or EPS performance restricted stock units in 2020.
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
|
|
|
|
Nine Months Ended
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Total pre-tax stock-based compensation expense
|
$
|
14
|
|
|
$
|
12
|
|
|
$
|
45
|
|
|
$
|
40
|
|
|
Tax-related benefits
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
9
|
|
|
$
|
7
|
|
Total pre-tax stock-based compensation expense and tax-related benefits recognized in Earnings (loss) from discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
April 26,
2020
|
|
April 28,
2019
|
|
April 26,
2020
|
|
April 28,
2019
|
|
Total pre-tax stock-based compensation expense
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
Tax-related benefits
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2
|
|
The following table summarizes stock option activity as of April 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
(Options in
thousands)
|
|
|
|
(In years)
|
|
|
|
Outstanding at July 28, 2019
|
2,059
|
|
|
$
|
46.17
|
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Exercised
|
(481)
|
|
|
$
|
47.33
|
|
|
|
|
|
|
Terminated
|
(155)
|
|
|
$
|
49.46
|
|
|
|
|
|
|
Outstanding at April 26, 2020
|
1,423
|
|
|
$
|
45.42
|
|
|
7.2
|
|
$
|
9
|
|
|
Exercisable at April 26, 2020
|
833
|
|
|
$
|
50.23
|
|
|
6.4
|
|
$
|
2
|
|
The total intrinsic value of options exercised during the nine-month period ended April 26, 2020 was $2. No options were exercised during the nine-month period ended April 28, 2019. We measure the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
The weighted-average assumptions and grant-date fair value for grants in 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Risk-free interest rate
|
|
|
2.79%
|
|
Expected dividend yield
|
|
|
3.84%
|
|
Expected volatility
|
|
|
25.28%
|
|
Expected term
|
|
|
6.1 years
|
|
Grant-date fair value
|
|
|
$6.27
|
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 April 26, 2020, total remaining unearned compensation related to nonvested stock options was $1, which will be amortized over the weighted-average remaining service period of 1.6 years.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of April 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
(Restricted stock
units in thousands)
|
|
|
|
Nonvested at July 28, 2019
|
1,960
|
|
|
$
|
40.57
|
|
|
Granted
|
1,141
|
|
|
$
|
46.77
|
|
|
Vested
|
(723)
|
|
|
$
|
43.23
|
|
|
Forfeited
|
(362)
|
|
|
$
|
41.55
|
|
|
Nonvested at April 26, 2020
|
2,016
|
|
|
$
|
42.95
|
|
We determine the fair value of time-lapse restricted stock units and EPS performance 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. We expense EPS performance restricted stock units on a graded-vesting basis, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. There were 23 thousand EPS performance target grants outstanding at April 26, 2020, with a grant-date fair value of $46.82. The actual number of EPS performance restricted stock units issued at the vesting date could be either 0% or 100% of the initial grant, depending on actual performance achieved. We estimate expense based on the number of awards expected to vest.
In 2019, we issued approximately 388 thousand FCF performance restricted stock units for which vesting is 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 will be established each fiscal year for three consecutive years. Performance against these objectives will be averaged at the end
of the three-year period to determine the number of underlying units that will 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 will be based upon the quoted price of our stock at the date of grant. We will expense FCF performance restricted stock units over the requisite service period of each objective. As of April 26, 2020, we have granted 258 thousand of the issued FCF performance restricted stock units, which are included in the table above. There were 168 thousand FCF performance target grants outstanding at April 26, 2020, with a weighted-average grant-date fair value of $42.16.
As of April 26, 2020, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted units was $42, which will be amortized over the weighted-average remaining service period of 1.8 years. The fair value of restricted stock units vested during the nine-month periods ended April 26, 2020, and April 28, 2019, was $34, and $26, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended April 28, 2019 was $36.50.
The following table summarizes TSR performance restricted stock units as of April 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
(Restricted stock
units in thousands)
|
|
|
|
Nonvested at July 28, 2019
|
1,308
|
|
|
$
|
37.33
|
|
|
Granted
|
619
|
|
|
$
|
63.06
|
|
|
Vested
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
(657)
|
|
|
$
|
41.13
|
|
|
Nonvested at April 26, 2020
|
1,270
|
|
|
$
|
47.90
|
|
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation.
Weighted-average assumptions used in the Monte Carlo simulation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Risk-free interest rate
|
1.48%
|
|
2.80%
|
|
Expected dividend yield
|
2.95%
|
|
3.79%
|
|
Expected volatility
|
27.01%
|
|
24.50%
|
|
Expected term
|
3 years
|
|
3 years
|
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 April 26, 2020, total remaining unearned compensation related to TSR performance restricted stock units was $27, which will be amortized over the weighted-average remaining service period of 2.0 years. In the first quarter of 2020, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 26, 2019. In the first quarter of 2019, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 27, 2018. The weighted-average grant-date fair value of the TSR performance restricted stock units granted during 2019 was $31.29.
The excess tax benefits of $1 in the nine-month period ended April 26, 2020, and the excess tax deficiencies of $2 in the nine-month period ended April 28, 2019, 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 $23 for the nine-month period ended April 26, 2020, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
18. Commitments and Contingencies
Regulatory and Litigation Matters
We are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with our actual experiences in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to us that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
On January 7, 2019, three purported shareholder class action lawsuits pending in the United States District Court for the District of New Jersey 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 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 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 consolidated complaint seeks unspecified monetary damages and other relief. On April 30, 2019, the defendants filed a motion to dismiss the 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 April 26, 2020. 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.
19. Supplemental Financial Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets
|
April 26, 2020
|
|
July 28,
2019
|
|
Inventories
|
|
|
|
|
Raw materials, containers and supplies
|
$
|
291
|
|
|
$
|
271
|
|
|
Finished products
|
440
|
|
|
592
|
|
|
|
$
|
731
|
|
|
$
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
Statements of Earnings
|
|
|
|
|
April 26, 2020
|
|
April 28, 2019
|
|
April 26, 2020
|
|
April 28, 2019
|
|
Other expenses / (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
$
|
11
|
|
|
$
|
13
|
|
|
$
|
33
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit income other than the service cost
|
|
|
|
|
(22)
|
|
|
(20)
|
|
|
(68)
|
|
|
(60)
|
|
|
Pension settlement charges
|
|
|
|
|
54
|
|
|
|
28
|
|
|
|
43
|
|
|
28
|
|
|
Investment (gains) / losses(1)
|
|
|
|
|
45
|
|
|
(8)
|
|
|
49
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of business(2)
|
|
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
Transition services fees
|
|
|
|
|
(3)
|
|
|
|
—
|
|
|
|
(5)
|
|
|
|
—
|
|
|
Other
|
|
|
|
|
(4)
|
|
|
7
|
|
|
(1)
|
|
|
9
|
|
|
|
|
|
|
|
$
|
81
|
|
|
$
|
20
|
|
|
$
|
115
|
|
|
$
|
12
|
|
____________________________
(1)Includes a loss of $45 on Acre for the three- and nine-month periods ended April 26, 2020. See Note 14 for additional information.
(2)See Note 3 for additional information.