Item 1. Financial Statements
Item 1. Financial Statements
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(unaudited)
(millions, except per share amounts)
Three Months Ended Nine Months Ended
April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Net sales $ 2,369 $ 2,229 $ 7,343 $ 7,289
Costs and expenses
Cost of products sold 1,637 1,561 5,047 5,028
Marketing and selling expenses 206 194 645 612
Administrative expenses 208 167 555 487
Research and development expenses 27 24 76 66
Other expenses / (income) 30 23 80 41
Restructuring charges 13 6 17 15
Total costs and expenses 2,121 1,975 6,420 6,249
Earnings before interest and taxes 248 254 923 1,040
Interest expense 70 47 165 139
Interest income 4 1 5 2
Earnings before taxes 182 208 763 903
Taxes on earnings 49 48 193 214
Net earnings 133 160 570 689
Less: Net earnings (loss) attributable to noncontrolling interests — — — —
Net earnings attributable to Campbell Soup Company $ 133 $ 160 $ 570 $ 689
Per Share — Basic
Net earnings attributable to Campbell Soup Company $ .45 $ .54 $ 1.91 $ 2.30
Weighted average shares outstanding — basic 298 299 298 299
Per Share — Assuming Dilution
Net earnings attributable to Campbell Soup Company $ .44 $ .53 $ 1.91 $ 2.29
Weighted average shares outstanding — assuming dilution 300 301 299 301
See accompanying Notes to Consolidated Financial Statements.
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CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(unaudited)
(millions)
Three Months Ended
April 28, 2024 April 30, 2023
Pre-tax amount Tax benefit (expense) After-tax amount Pre-tax amount Tax benefit (expense) After-tax amount
Net earnings (loss) $ 133 $ 160
Other comprehensive income (loss):
Foreign currency translation:
Foreign currency translation adjustments $ ( 3 ) $ — ( 3 ) $ ( 2 ) $ — ( 2 )
Cash-flow hedges:
Unrealized gains (losses) arising during the period 13 ( 2 ) 11 2 ( 1 ) 1
Reclassification adjustment for losses (gains) included in net earnings — — — ( 2 ) 1 ( 1 )
Other comprehensive income (loss) $ 10 $ ( 2 ) 8 $ ( 2 ) $ — ( 2 )
Total comprehensive income (loss) $ 141 $ 158
Total comprehensive income (loss) attributable to noncontrolling interests — —
Total comprehensive income (loss) attributable to Campbell Soup Company $ 141 $ 158
Nine Months Ended
April 28, 2024 April 30, 2023
Pre-tax amount Tax benefit (expense) After-tax amount Pre-tax amount Tax benefit (expense) After-tax amount
Net earnings (loss) $ 570 $ 689
Other comprehensive income (loss):
Foreign currency translation:
Foreign currency translation adjustments $ ( 6 ) $ — ( 6 ) $ ( 7 ) $ — ( 7 )
Cash-flow hedges:
Unrealized gains (losses) arising during the period ( 7 ) 2 ( 5 ) 7 ( 2 ) 5
Reclassification adjustment for losses (gains) included in net earnings ( 1 ) — ( 1 ) ( 8 ) 2 ( 6 )
Other comprehensive income (loss) $ ( 14 ) $ 2 ( 12 ) $ ( 8 ) $ — ( 8 )
Total comprehensive income (loss) $ 558 $ 681
Total comprehensive income (loss) attributable to noncontrolling interests — —
Total comprehensive income (loss) attributable to Campbell Soup Company $ 558 $ 681
See accompanying Notes to Consolidated Financial Statements.
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CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(unaudited)
(millions, except per share amounts)
April 28, 2024 July 30, 2023
Current assets
Cash and cash equivalents $ 107 $ 189
Accounts receivable, net 648 529
Inventories 1,300 1,291
Other current assets 84 52
Total current assets 2,139 2,061
Plant assets, net of depreciation 2,621 2,398
Goodwill 5,072 3,965
Other intangible assets, net of amortization 4,875 3,142
Other assets 536 492
Total assets $ 15,243 $ 12,058
Current liabilities
Short-term borrowings $ 1,427 $ 191
Accounts payable 1,330 1,306
Accrued liabilities 584 592
Dividends payable 114 113
Accrued income taxes 2 20
Total current liabilities 3,457 2,222
Long-term debt 5,752 4,498
Deferred taxes 1,491 1,067
Other liabilities 628 608
Total liabilities 11,328 8,395
Commitments and contingencies
Campbell Soup Company shareholders' equity
Preferred stock; authorized 40 shares; none issued
— —
Capital stock, $ .0375 par value; authorized 560 shares; issued 323 shares
12 12
Additional paid-in capital 421 420
Earnings retained in the business 4,685 4,451
Capital stock in treasury, at cost ( 1,190 ) ( 1,219 )
Accumulated other comprehensive income (loss) ( 15 ) ( 3 )
Total Campbell Soup Company shareholders' equity 3,913 3,661
Noncontrolling interests 2 2
Total equity 3,915 3,663
Total liabilities and equity $ 15,243 $ 12,058
See accompanying Notes to Consolidated Financial Statements.
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CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(unaudited)
(millions)
Nine Months Ended
April 28, 2024 April 30, 2023
Cash flows from operating activities:
Net earnings $ 570 $ 689
Adjustments to reconcile net earnings to operating cash flow
Restructuring charges 17 15
Stock-based compensation 80 48
Amortization of inventory fair value adjustment from acquisition 17 —
Pension and postretirement benefit expense 5 20
Depreciation and amortization 298 284
Deferred income taxes 13 ( 2 )
Other 103 78
Changes in working capital, net of acquisition
Accounts receivable ( 33 ) 1
Inventories 102 ( 40 )
Other current assets ( 28 ) ( 8 )
Accounts payable and accrued liabilities ( 180 ) ( 123 )
Other ( 67 ) ( 44 )
Net cash provided by operating activities 897 918
Cash flows from investing activities:
Purchases of plant assets ( 376 ) ( 257 )
Purchases of route businesses ( 28 ) ( 13 )
Sales of route businesses 33 —
Business acquired, net of cash acquired ( 2,617 ) —
Other 1 1
Net cash used in investing activities ( 2,987 ) ( 269 )
Cash flows from financing activities:
Short-term borrowings, including commercial paper and delayed draw term loan 4,616 2,479
Short-term repayments, including commercial paper and delayed draw term loan ( 4,556 ) ( 2,473 )
Long-term borrowings 2,496 500
Long-term repayments ( 100 ) ( 566 )
Dividends paid ( 334 ) ( 336 )
Treasury stock purchases ( 46 ) ( 141 )
Treasury stock issuances — 22
Payments related to tax withholding for stock-based compensation ( 46 ) ( 19 )
Payments of debt issuance costs ( 22 ) —
Other — ( 1 )
Net cash provided by (used in) financing activities 2,008 ( 535 )
Effect of exchange rate changes on cash — —
Net change in cash and cash equivalents ( 82 ) 114
Cash and cash equivalents — beginning of period 189 109
Cash and cash equivalents — end of period $ 107 $ 223
See accompanying Notes to Consolidated Financial Statements.
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CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(unaudited)
(millions, except per share amounts)
Campbell Soup Company Shareholders’ Equity
Capital Stock Additional Paid-in
Capital Earnings Retained in the
Business Accumulated Other Comprehensive
Income (Loss) Noncontrolling
Interests
Issued In Treasury Total
Equity
Shares Amount Shares Amount
Balance at January 29, 2023
323 $ 12 ( 24 ) $ ( 1,144 ) $ 391 $ 4,344 $ ( 4 ) $ 2 $ 3,601
Net earnings (loss) 160 — 160
Other comprehensive income (loss) ( 2 ) — ( 2 )
Dividends ($ .37 per share)
( 112 ) ( 112 )
Treasury stock purchased ( 2 ) ( 75 ) ( 75 )
Treasury stock issued under stock-based compensation plans 1 — 16 — 16
Balance at April 30, 2023
323 $ 12 ( 25 ) $ ( 1,219 ) $ 407 $ 4,392 $ ( 6 ) $ 2 $ 3,588
Balance at July 31, 2022
323 $ 12 ( 24 ) $ ( 1,138 ) $ 415 $ 4,040 $ 2 $ 2 $ 3,333
Net earnings (loss) 689 — 689
Other comprehensive income (loss) ( 8 ) — ( 8 )
Dividends ($ 1.11 per share)
( 337 ) ( 337 )
Treasury stock purchased ( 3 ) ( 141 ) ( 141 )
Treasury stock issued under stock-based compensation plans 2 60 ( 8 ) — 52
Balance at April 30, 2023 323 $ 12 ( 25 ) $ ( 1,219 ) $ 407 $ 4,392 $ ( 6 ) $ 2 $ 3,588
Balance at January 28, 2024
323 $ 12 ( 25 ) $ ( 1,212 ) $ 407 $ 4,665 $ ( 23 ) $ 2 $ 3,851
Net earnings (loss) 133 — 133
Other comprehensive income (loss) 8 — 8
Dividends ($ .37 per share)
( 113 ) ( 113 )
Replacement share-based awards issued in connection with Sovos Brands, Inc. acquisition (1)
42 42
Treasury stock purchased — ( 17 ) ( 17 )
Treasury stock issued under stock-based compensation plans — 39 ( 28 ) — 11
Balance at April 28, 2024
323 $ 12 ( 25 ) $ ( 1,190 ) $ 421 $ 4,685 $ ( 15 ) $ 2 $ 3,915
Balance at July 30, 2023
323 $ 12 ( 25 ) $ ( 1,219 ) $ 420 $ 4,451 $ ( 3 ) $ 2 $ 3,663
Net earnings (loss) 570 — 570
Other comprehensive income (loss) ( 12 ) — ( 12 )
Dividends ($ 1.11 per share)
( 336 ) ( 336 )
Replacement share-based awards issued in connection with Sovos Brands, Inc. acquisition (1)
42 42
Treasury stock purchased ( 1 ) ( 46 ) ( 46 )
Treasury stock issued under stock-based compensation plans 1 75 ( 41 ) — 34
Balance at April 28, 2024
323 $ 12 ( 25 ) $ ( 1,190 ) $ 421 $ 4,685 $ ( 15 ) $ 2 $ 3,915
(1) See Note 3 for additional information.
See accompanying Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
In this Form 10-Q, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
The financial statements reflect all adjustments which are, in our opinion, necessary for a fair statement of the results of operations, financial position and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended July 30, 2023.
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 July 28, 2024.
2. Recent Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (FASB) issued guidance that enhances the transparency of supplier finance programs by requiring disclosure of the key terms of these programs and a related rollforward of these obligations to understand the effect on working capital, liquidity and cash flows. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We adopted the guidance in the fourth quarter of 2023, with the exception of the rollforward information. The adoption did not have a material impact on our consolidated financial statements. See Note 17 for additional information.
In November 2023, the FASB issued guidance to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In December 2023, the FASB issued guidance to improve income tax disclosures by requiring disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
3. Acquisition
On August 7, 2023 , we entered into a merger agreement to acquire Sovos Brands, Inc. (Sovos Brands) for $ 23.00 per share. On March 12, 2024 , we completed the acquisition. Sovos Brands' portfolio includes a variety of pasta sauces, dry pasta, soups, frozen entrées, frozen pizza and yogurts, all of which are sold in North America under the brand names Rao’s, Michael Angelo’s and noosa . Total purchase consideration was $ 2.899 billion, which was determined as follows:
(Millions)
Cash consideration paid to Sovos Brands shareholders (1)
$ 2,307
Cash paid for share-based awards (2)
32
Cash consideration paid directly to shareholders $ 2,339
Cash paid for transaction costs of Sovos Brands 32
Repayment of Sovos Brands existing indebtedness and accrued interest 486
Total cash consideration $ 2,857
Fair value of replacement share-based awards (3)
42
Total consideration $ 2,899
___________________________________________
(1) Consideration paid to Sovos Brands shareholders which reflects $ 23.00 per share.
(2) Represents cash paid to equity award holders of Sovos Brands restricted stock and restricted stock unit awards attributable to pre-combination service. This excludes $3 million of cash paid that was recognized as expense.
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(3) We issued replacement equity awards in settlement of certain Sovos Brands equity awards that did not become vested in connection with the acquisition. The portion of fair value of the replacement awards attributable to pre-combination service was $ 42 million and is included in the purchase consideration. We recognized $ 26 million of expense related to accelerated vesting of certain replacement awards.
The cash portion of the acquisition was funded through a Delayed Draw Term Loan Credit Agreement (the 2024 DDTL Credit Agreement) of $ 2 billion and cash on hand. See Note 11 for additional information.
The table below presents the fair value that was allocated to acquired assets and assumed liabilities:
(Millions) Estimated Fair Value
Cash $ 240
Accounts receivable 96
Inventories 130
Other current assets 5
Plant assets 102
Other intangible assets 1,785
Other assets 16
Total assets acquired $ 2,374
Accounts payable $ 96
Accrued liabilities 56
Accrued income taxes 1
Long-term debt 9
Deferred taxes 412
Other liabilities 11
Total liabilities assumed $ 585
Net assets acquired $ 1,789
Goodwill 1,110
Total consideration $ 2,899
The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $ 1.11 billion of goodwill. The goodwill is not deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Meals & Beverages segment.
The purchase price allocation of Sovos Brands is preliminary and is subject to the finalization of certain items, including valuations and tax balances, which will be completed within the allowable measurement period.
The identifiable intangible assets of Sovos Brands consist of:
(Millions) Type Life in Years Value
Trademarks Non-amortizable Indefinite $ 1,470
Trademarks Amortizable 20 83
Customer relationships Amortizable 20 to 30 232
Total identifiable intangible assets $ 1,785
As of April 28, 2024, Sovos Brands amortizable intangible assets had a weighted-average remaining useful life of 27 years.
We incurred transaction costs and integration costs, including costs to achieve synergies, of $ 95 million and $ 114 million associated with the Sovos Brands acquisition in the three- and nine-month periods ended April 28, 2024, respectively. Approximately $ 16 million in the three-month period and $ 35 million in the nine-month period represented transaction costs, including outside advisory costs, recorded in Other expenses / (income). In the three-month period ended April 28, 2024, we recognized $ 2 million in Interest expense related to financing fees associated with the 2024 DDTL Credit Agreement. Integration costs included expenses associated with accelerated vesting of replacement awards, severance and retention bonuses, amortization of the acquisition date fair value adjustment to inventories and other costs. Integration costs recognized in the three-month period ended April 28, 2024 included the following:
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• $ 18 million in Costs of products sold, $ 17 million of which related to the amortization of the acquisition date fair value adjustment to inventories;
• $ 2 million of Marketing and selling expenses;
• $ 39 million of Administrative expenses;
• $ 2 million of Research and development expenses; and
• $ 16 million of Restructuring charges to achieve synergies. See Note 7 for additional information.
For the period March 12, 2024 through April 28, 2024, the Sovos Brands acquisition contributed $ 166 million to Net sales and a loss of $ 75 million to Net earnings, including the effect of transaction and integration costs and interest expense on the debt to finance the acquisition.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Sovos Brands acquisition had occurred on August 1, 2022:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Net sales $ 2,510 $ 2,472 $ 8,061 $ 8,023
Net earnings attributable to Campbell Soup Company $ 184 $ 141 $ 595 $ 532
The pro forma results are not necessarily indicative of the combined results had the Sovos Brands acquisition been completed on August 1, 2022, nor are they indicative of future combined results. The pro forma amounts include adjustments to interest expense for financing the acquisition, to amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results include adjustments to reflect amortization of the acquisition date fair value adjustment to inventories, expenses related to accelerated vesting of replacement awards and severance and retention bonuses as of August 1, 2022.
4. Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss) consisted of the following:
(Millions) Foreign Currency Translation Adjustments (1)
Cash-Flow Hedges (2)
Pension and Postretirement Benefit Plan Adjustments (3)
Total Accumulated Comprehensive Income (Loss)
Balance at July 31, 2022
$ — $ — $ 2 $ 2
Other comprehensive income (loss) before reclassifications ( 7 ) 5 — ( 2 )
Losses (gains) reclassified from accumulated other comprehensive income (loss) — ( 6 ) — ( 6 )
Net current-period other comprehensive income (loss) ( 7 ) ( 1 ) — ( 8 )
Balance at April 30, 2023
$ ( 7 ) $ ( 1 ) $ 2 $ ( 6 )
Balance at July 30, 2023
$ ( 1 ) $ ( 4 ) $ 2 $ ( 3 )
Other comprehensive income (loss) before reclassifications ( 6 ) ( 5 ) — ( 11 )
Losses (gains) reclassified from accumulated other comprehensive income (loss)
— ( 1 ) — ( 1 )
Net current-period other comprehensive income (loss) ( 6 ) ( 6 ) — ( 12 )
Balance at April 28, 2024
$ ( 7 ) $ ( 10 ) $ 2 $ ( 15 )
_____________________________________
(1) Included no tax as of April 28, 2024, July 30, 2023, April 30, 2023 and July 31, 2022.
(2) Included a tax benefit of $ 3 million as of April 28, 2024 and $ 1 million as of July 30, 2023, and no tax as of April 30, 2023 and July 31, 2022.
(3) Included tax expense of $ 1 million as of April 28, 2024, July 30, 2023, April 30, 2023 and July 31, 2022.
Amounts related to noncontrolling interests were not material.
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The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Location of Loss (Gain) Recognized in Earnings
Losses (gains) on cash-flow hedges:
Commodity contracts $ — $ — $ — $ ( 3 ) Cost of products sold
Foreign exchange contracts — ( 2 ) ( 2 ) ( 6 ) Cost of products sold
Forward starting interest rate swaps — — 1 1 Interest expense
Total before tax — ( 2 ) ( 1 ) ( 8 )
Tax expense (benefit) — 1 — 2
Loss (gain), net of tax $ — $ ( 1 ) $ ( 1 ) $ ( 6 )
5. Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill:
(Millions) Meals & Beverages Snacks Total
Net balance at July 30, 2023
$ 990 $ 2,975 $ 3,965
Acquisition (1)
1,110 — 1,110
Foreign currency translation adjustment ( 3 ) — ( 3 )
Net balance at April 28, 2024
$ 2,097 $ 2,975 $ 5,072
____________________________________
(1) On March 12, 2024, we acquired Sovos Brands. See Note 3 for additional information.
Intangible Assets
The following table summarizes balance sheet information for intangible assets, excluding goodwill:
April 28, 2024 July 30, 2023
(Millions) Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Amortizable intangible assets
Customer relationships $ 1,062 $ ( 281 ) $ 781 $ 830 $ ( 229 ) $ 601
Definite-lived trademarks 83 — 83 — — —
Total amortizable intangible assets $ 1,145 $ ( 281 ) $ 864 $ 830 $ ( 229 ) $ 601
Indefinite-lived trademarks
Rao's $ 1,470 $ —
Snyder's of Hanover 620 620
Lance 350 350
Kettle Brand 318 318
Pace 292 292
Pacific Foods 280 280
Cape Cod 187 187
Various other Snacks (1)
494 494
Total indefinite-lived trademarks $ 4,011 $ 2,541
Total net intangible assets $ 4,875 $ 3,142
____________________________________
(1) Associated with the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance).
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As part of the Sovos Brands acquisition, we acquired the Rao's indefinite-lived trademark of $ 1.47 billion, customer relationship intangible assets of $ 232 million and definite-lived trademarks of $ 83 million. See Note 3 for additional information.
Amortization expense was $ 52 million for the nine-month period ended April 28, 2024, and $ 31 million for the nine-month period ended April 30, 2023. Amortization expense in 2024 included $ 20 million of accelerated amortization expense on customer relationships, which began in the fourth quarter of 2023 due to the loss of certain contract manufacturing customers. As of April 28, 2024, amortizable intangible assets had a weighted-average remaining useful life of 19 years. Amortization expense is estimated to be approximately $ 73 million in 2024, $ 72 million in 2025 and $ 46 million per year for the following three years.
As of our 2023 annual impairment testing, indefinite-lived trademarks with approximately 10% or less of excess coverage of fair value over carrying value had an aggregate carrying value of $ 434 million and included Pacific Foods and certain other Snacks trademarks. The indefinite-lived trademark related to the Sovos Brands acquisition has been recorded at fair value.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions.
6. Segment Information
Our reportable segments are as follows:
• Meals & Beverages, which consists of our soup, simple meals and beverages products in retail and foodservice in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; V8 juices and beverages; Campbell’s tomato juice; and as of March 12, 2024, Rao's pasta sauces, dry pasta, frozen entrées, frozen pizza and soups; Michael Angelo's frozen entrées and pasta sauces; and noosa yogurts. The segment also includes snacking products in foodservice and Canada; and
• Snacks, which consists of Pepperidge Farm cookies*, crackers, fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*, Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*, Pop Secret popcorn, and other snacking products in retail in the U.S. We refer to the * brands as our "power brands." The segment also includes the retail business in Latin America. The segment included the results of our Emerald nuts business, which was sold on May 30, 2023.
We evaluate segment performance before interest, taxes and costs associated with restructuring activities, cost savings and optimization initiatives, impairment charges and corporate expenses. Unrealized gains and losses on outstanding undesignated commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses are reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Net sales
Meals & Beverages $ 1,272 $ 1,108 $ 4,058 $ 3,971
Snacks 1,097 1,121 3,285 3,318
Total $ 2,369 $ 2,229 $ 7,343 $ 7,289
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Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Earnings before interest and taxes
Meals & Beverages $ 229 $ 182 $ 763 $ 762
Snacks 167 179 489 482
Corporate income (expense) (1)
( 135 ) ( 101 ) ( 312 ) ( 189 )
Restructuring charges (2)
( 13 ) ( 6 ) ( 17 ) ( 15 )
Total $ 248 $ 254 $ 923 $ 1,040
_______________________________________
(1) Represents unallocated items. Costs related to cost savings and optimization initiatives were $ 23 million and $ 68 million in the three- and nine-month periods ended April 28, 2024, and $ 27 million and $ 35 million in the three- and nine-month periods ended April 30, 2023, respectively. Unrealized mark-to-market adjustments on outstanding undesignated commodity hedges were gains of $ 13 million and $ 5 million in the three- and nine-month periods ended April 28, 2024, and losses of $ 9 million in the three- and nine-month periods ended April 30, 2023, respectively. Accelerated amortization expense related to customer relationship intangible assets was $ 6 million and $ 20 million in the three- and nine-month periods ended April 28, 2024, respectively. Costs of $ 77 million and $ 96 million associated with the acquisition of Sovos Brands were included in the three- and nine-month periods ended April 28, 2024, respectively. Litigation expenses related to the Plum baby food and snacks business, which was divested on May 3, 2021, were $ 3 million and were included in the nine-month period ended April 28, 2024. Costs of $ 3 million related to a cybersecurity incident were included in the nine-month period ended April 28, 2024. There were pension actuarial losses of $ 17 million and $ 26 million in the three- and nine-month periods ended April 30, 2023, respectively.
(2) See Note 7 for additional information.
Our net sales based on product categories are as follows:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Net sales
Soup $ 577 $ 571 $ 2,278 $ 2,316
Snacks 1,152 1,169 3,452 3,463
Other simple meals 458 291 1,077 927
Beverages 182 198 536 583
Total $ 2,369 $ 2,229 $ 7,343 $ 7,289
Soup includes various soup, broths and stock products. Snacks include cookies, pretzels, crackers, popcorn, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, yogurts, pasta, frozen entrées, canned poultry, frozen pizza, gravies and beans. Beverages include V8 juices and beverages, Campbell’s tomato juice and Pacific Foods non-dairy beverages.
7. Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives
Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
Continuing Operations
Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.
Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, as well as our information technology infrastructure.
On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.
In 2022, we expanded these initiatives as we continue to pursue cost savings by further optimizing our supply chain and manufacturing network and through effective cost management. In the second quarter of 2023, we announced plans to consolidate our Snacks offices in Charlotte, North Carolina, and Norwalk, Connecticut, into our headquarters in Camden, New Jersey. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.
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A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Recognized as of April 28, 2024
Restructuring charges $ ( 3 ) $ 6 $ 1 $ 15 $ 281
Administrative expenses 13 13 47 21 430
Cost of products sold 3 12 9 12 111
Marketing and selling expenses 1 — 4 — 23
Research and development expenses 1 2 3 2 10
Total pre-tax charges $ 15 $ 33 $ 64 $ 50 $ 855
A summary of the pre-tax costs associated with the initiatives is as follows:
(Millions) Recognized as of April 28, 2024
Severance pay and benefits
$ 241
Asset impairment/accelerated depreciation 124
Implementation costs and other related costs
490
Total $ 855
The total estimated pre-tax costs for actions that have been identified are approximately $ 905 million to $ 930 million and we expect to incur substantially all of the costs through 2025. These estimates will be updated as the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $ 250 million to $ 255 million in severance pay and benefits; approximately $ 140 million in asset impairment and accelerated depreciation; and approximately $ 515 million to $ 535 million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 33 %; Snacks - approximately 43 %; and Corporate - approximately 24 %.
Of the aggregate $ 905 million to $ 930 million of pre-tax costs identified to date, we expect approximately $ 725 million to $ 750 million will be cash expenditures. In addition, we expect to invest approximately $ 705 million in capital expenditures, of which we invested $ 508 million as of April 28, 2024. We expect to invest in substantially all of the capital expenditures through 2025. The capital expenditures primarily relate to optimization of production within our Meals & Beverages manufacturing network, a U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, optimization of information technology infrastructure and applications, enhancements to our headquarters in Camden, New Jersey, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, and optimization of the Snyder’s-Lance warehouse and distribution network.
A summary of the restructuring activity and related reserves at April 28, 2024, is as follows:
(Millions) Severance Pay and Benefits Implementation Costs and Other Related
Costs (3)
Asset Impairment/Accelerated Depreciation Other Non-Cash Exit Costs (4)
Total Charges
Accrued balance at July 30, 2023 (1)
$ 13
2024 charges
1 27 18 18 $ 64
2024 cash payments
( 7 )
Accrued balance at April 28, 2024 (2)
$ 7
__________________________________
(1) Includes $ 7 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2) Includes $ 4 million 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.
(4) Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet.
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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 associated with segments is as follows:
April 28, 2024
(Millions) Three Months Ended Nine Months Ended Costs Incurred to Date
Meals & Beverages $ 7 $ 16 $ 267
Snacks — 30 375
Corporate 8 18 213
Total $ 15 $ 64 $ 855
Other Optimization Initiatives
In the second quarter of 2024, we began implementation of a new initiative to improve the effectiveness of our Snacks direct-store-delivery route-to-market network. Pursuant to this initiative we will purchase certain Pepperidge Farm and Snyder's-Lance routes where there are opportunities to unlock greater scale in select markets, combine them and sell the combined routes to independent contractor distributors. We expect to execute this program in a staggered rollout and to incur expenses of up to approximately $ 115 million through 2029. In the three-month period ended April 28, 2024, we incurred $ 5 million in Marketing and selling expenses related to this initiative.
Sovos Brands Integration Initiatives
On March 12, 2024, we completed the acquisition of Sovos Brands. See Note 3 for additional information. We have identified opportunities for cost synergies as we integrate Sovos Brands. Cost estimates to achieve the synergies are continuing to be developed. The total expected pre-tax costs and timing of when we expect to incur those costs, as well as the expected future cash expenditures, will be updated as detailed plans are developed. We expect the pre-tax costs to be associated primarily with the Meals & Beverages segment.
In the three-month period ended April 28, 2024, we recorded Restructuring charges of $ 16 million related to initiatives to achieve the synergies.
A summary of the restructuring activity and related reserves associated with the Sovos Brands integration at April 28, 2024, is as follows:
(Millions) Severance Pay and Benefits
2024 charges $ 16
2024 cash payments —
Accrued balance at April 28, 2024 (1)
$ 16
__________________________________
(1) Includes $ 5 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
Segment operating results do not include restructuring charges, nor implementation and integration costs, because we evaluate segment performance excluding such charges. The costs incurred in the three-month period ended April 28, 2024 were associated with the Meals & Beverages segment.
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 28, 2024 and April 30, 2023, excludes less than 1 million stock options that would have been antidilutive.
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9. Pension and Postretirement Benefits
Components of net periodic benefit expense (income) were as follows:
Three Months Ended Nine Months Ended
Pension Postretirement Pension Postretirement
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Service cost $ 4 $ 3 $ — $ — $ 10 $ 10 $ — $ —
Interest cost 16 19 2 2 49 55 6 5
Expected return on plan assets ( 20 ) ( 24 ) — — ( 60 ) ( 76 ) — —
Actuarial losses (gains) — 17 — — — 26 — —
Net periodic benefit expense (income) $ — $ 15 $ 2 $ 2 $ ( 1 ) $ 15 $ 6 $ 5
The actuarial losses for the three- and nine-month periods ended April 30, 2023 resulted from the remeasurement of certain U.S. pension plans due to lump sum distributions that exceeded or were expected to exceed service and interest costs resulting in settlement accounting for these plans. The actuarial losses recognized for the three-month period ended April 30, 2023 were primarily due to decreases in discount rates used to determine the benefit obligation and plan experience, partially offset by gains on plan assets. The actuarial losses recognized for the nine-month period ended April 30, 2023 were primarily due to losses on plan assets and plan experience, partially offset by increases in discount rates used to determine the benefit obligation.
10. Leases
The components of lease costs were as follows:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Operating lease cost (1)
$ 25 $ 23 $ 73 $ 63
Finance lease - amortization of right-of-use (ROU) assets 6 4 14 12
Finance lease - interest on lease liabilities 1 — 1 —
Short-term lease cost 15 14 50 48
Variable lease cost 57 52 159 155
Total $ 104 $ 93 $ 297 $ 278
__________________________________________
(1) Excludes costs associated with the cost savings initiatives described in Note 7.
The following tables summarize the lease amounts recorded in the Consolidated Balance Sheets:
Operating Leases
(Millions) Balance Sheet Classification April 28, 2024 July 30, 2023
ROU assets, net Other assets $ 283 $ 275
Lease liabilities (current) Accrued liabilities $ 76 $ 70
Lease liabilities (noncurrent) Other liabilities $ 229 $ 208
Finance Leases
(Millions) Balance Sheet Classification April 28, 2024 July 30, 2023
ROU assets, net Plant assets, net of depreciation $ 61 $ 27
Lease liabilities (current) Short-term borrowings $ 21 $ 13
Lease liabilities (noncurrent) Long-term debt $ 39 $ 15
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The following table summarizes cash flow and other information related to leases:
Nine Months Ended
(Millions) April 28, 2024 April 30, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 70 $ 62
Operating cash flows from finance leases $ 1 $ —
Financing cash flows from finance leases $ 15 $ 12
ROU assets obtained in exchange for lease obligations:
Operating leases $ 78 $ 106
Finance leases
$ 35 $ 10
ROU assets obtained with business acquired:
Operating leases $ 15 $ —
Finance leases
$ 13 $ —
11. Short-term Borrowings and Long-term Debt
On October 10, 2023 , we entered into the 2024 DDTL Credit Agreement totaling up to $ 2 billion scheduled to mature on October 8, 2024 . Loans under the 2024 DDTL Credit Agreement bear interest at the rates specified in the 2024 DDTL Credit Agreement, which vary based on the type of loan and certain other conditions. The 2024 DDTL Credit Agreement contains customary representations and warranties, affirmative and negative covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the 2024 DDTL Credit Agreement) of not less than 3.25:1.00 , and events of default for credit facilities of this type. The proceeds of the loans under the 2024 DDTL Credit Agreement could only be used in connection with the acquisition of Sovos Brands and the payment of fees and expenses incurred in connection therewith. On March 12, 2024, we borrowed $ 2 billion under the 2024 DDTL Credit Agreement and used the proceeds in order to fund the acquisition of Sovos Brands, along with the fees and expenses incurred in connection therewith.
In August 2023, we filed a registration statement with the Securities and Exchange Commission that registered an indeterminate amount of debt securities. Under the registration statement we may issue debt securities from time to time, depending on market conditions. On March 19, 2024, pursuant to the registration statement, we issued senior unsecured notes of $ 2.5 billion, consisting of:
• $ 400 million aggregate principal amount of notes bearing interest at a fixed rate of 5.30 % per annum, due March 20, 2026 , with interest payable semi-annually on each of March 20 and September 20 commencing September 20, 2024;
• $ 500 million aggregate principal amount of notes bearing interest at a fixed rate of 5.20 % per annum, due March 19, 2027 , with interest payable semi-annually on each of March 19 and September 19 commencing September 19, 2024;
• $ 600 million aggregate principal amount of notes bearing interest at a fixed rate of 5.20 % per annum, due March 21, 2029 , with interest payable semi-annually on each of March 21 and September 21 commencing September 21, 2024; and
• $ 1 billion aggregate principal amount of notes bearing interest at a fixed rate of 5.40 % per annum, due March 21, 2034 , with interest payable semi-annually on each of March 21 and September 21 commencing September 21, 2024.
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. We used the net proceeds from the sale of the notes to repay the $ 2 billion of outstanding borrowings under the 2024 DDTL Credit Agreement used to fund the Sovos Brands acquisition, including fees and expenses in connection therewith, and the remainder of the net proceeds to repay commercial paper.
On April 5, 2024, we repaid $ 100 million of the $ 500 million outstanding under our Delayed Draw Term Loan Credit Agreement (the 2022 DDTL Credit Agreement) due November 15, 2025.
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On April 16, 2024, we terminated our existing revolving credit facility dated September 27, 2021 (as amended on April 4, 2023). On April 16, 2024, we entered into a Five-Year Credit Agreement for an unsecured, senior revolving credit facility (the 2024 Revolving Credit Facility Agreement) in an aggregate principal amount equal to $ 1.85 billion with a maturity date of April 16, 2029 or such later date as extended pursuant to the terms set forth in the 2024 Revolving Credit Facility Agreement. The 2024 Revolving Credit Facility Agreement remained unused at April 28, 2024, except for $ 1 million of standby letters of credit that we issued under it. We may increase the 2024 Revolving Credit Facility Agreement commitments up to an additional $ 500 million, subject to the satisfaction of certain conditions. Loans under the 2024 Revolving Credit Facility Agreement will bear interest at the rates specified in the 2024 Revolving Credit Facility Agreement, which vary based on the type of loan and certain other conditions. The 2024 Revolving Credit Facility Agreement contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense of not less than 3.25:1.00 , and customary events of default for credit facilities of this type.
We have $ 1.15 billion aggregate principal amount of senior notes maturing in March 2025 that we expect to repay and/or refinance using available sources, which may include cash on hand, accessing the capital markets, commercial paper and/or revolving credit facility.
12. 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 price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify for hedge accounting treatment and instruments that are not designated as accounting hedges.
Concentration of Credit Risk
We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit risk-related contingent features in our derivative instruments as of April 28, 2024, or July 30, 2023.
We are also exposed to credit risk from our customers. During 2023, our largest customer accounted for approximately 22 % of consolidated net sales. Our five largest customers accounted for approximately 47 % of our consolidated net sales in 2023.
We closely monitor credit risk associated with counterpartie s and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk, primarily the Canadian dollar and Euro, related to intercompany transactions and third-party transactions. We utilize foreign exchange forward purchase and sale contracts and option 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. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $ 75 million as of April 28, 2024, and $ 125 million as of July 30, 2023. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. For derivatives that are designated and qualify as hedging instruments, the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in earnings under a systematic and rational method over the life of the hedging instrument and is presented in the same statement of earnings line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings is recorded as a component of other comprehensive income (loss). The notional amount of foreign exchange forward and option contracts that are not designated as accounting hedges was $ 279 million as of April 28, 2024, and $ 15 million as of July 30, 2023.
Interest Rate Risk
We manage our exposure to changes in interest rates by optimizin g the use of variable-rate and fixed-rate debt. From time to time, we may use interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. We manage our exposure to interest volatility on future debt issuances by entering into forward starting interest rate swaps or treasury lock contracts to hedge the rate on the interest payments related to the anticipated debt issuance. The forward starting interest rate swaps or treasury lock contracts are either designated as cash-flow hedging instruments or are undesignated.
18
Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), and reclassified into Interest expense over the life of the debt issued. The change in fair value on undesignated instruments is recorded in Interest expense. We settled forward starting interest rate swaps with a notional value of $ 1.1 billion in March 2024 at a loss of $ 11 million. The $ 11 million loss on these instruments was recorded in other comprehensive income (loss) and will be recognized as additional interest expense over the 10-year, 5-year, and 3-year lives of the debt issued in March 2024. There were no forward starting interest rate swaps or treasury lock contracts outstanding as of April 28, 2024 and July 30, 2023.
Commodity Price Risk
We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, aluminum, cocoa, corn, soybean meal and butter. Commodity futures, options and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were no commodity contracts designated as cash-flow hedges as of April 28, 2024, or July 30, 2023. The notional amount of commodity contracts not designated as accounting hedges was $ 211 million as of April 28, 2024, and $ 194 million as of July 30, 2023. The change in fair value on undesignated instruments is recorded in Cost of products sold.
We have a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional amount was $ 66 million as of April 28, 2024, and $ 47 million as of July 30, 2023. The change in fair value on the embedded derivative is recorded in Cost of products sold.
Deferred Compensation Obligation Price Risk
We enter into swap contracts which hedge a portion of exposures relating to the total return of certain deferred compensation obligations. These contracts are not designated as hedges for accounting purposes. Unrealized gains (losses) and settlements are included in Administrative expenses in the Consolidated Statements of Earnings. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts were $ 71 million as of April 28, 2024, and $ 42 million July 30, 2023.
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The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of April 28, 2024, and July 30, 2023:
(Millions) Balance Sheet Classification April 28, 2024 July 30, 2023
Asset Derivatives
Derivatives designated as hedges:
Foreign exchange contracts Other current assets $ 1 $ —
Total derivatives designated as hedges $ 1 $ —
Derivatives not designated as hedges:
Commodity contracts Other current assets $ 19 $ 15
Deferred compensation contracts Other current assets — 4
Commodity contracts Other assets 1 1
Total derivatives not designated as hedges $ 20 $ 20
Total asset derivatives $ 21 $ 20
(Millions) Balance Sheet Classification April 28, 2024 July 30, 2023
Liability Derivatives
Derivatives designated as hedges:
Foreign exchange contracts Accrued liabilities $ — $ 1
Total derivatives designated as hedges $ — $ 1
Derivatives not designated as hedges:
Commodity contracts Accrued liabilities $ 4 $ 5
Deferred compensation contracts Accrued liabilities 1 —
Total derivatives not designated as hedges $ 5 $ 5
Total liability derivatives $ 5 $ 6
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 28, 2024, and July 30, 2023, would be adjusted as detailed in the following table:
April 28, 2024 July 30, 2023
(Millions) Gross Amounts Presented in the Consolidated Balance Sheet Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements Net Amount Gross Amounts Presented in the Consolidated Balance Sheet Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements Net Amount
Total asset derivatives $ 21 $ ( 4 ) $ 17 $ 20 $ ( 5 ) $ 15
Total liability derivatives $ 5 $ ( 4 ) $ 1 $ 6 $ ( 5 ) $ 1
We are required to maintain cash margin accounts in connection with funding the settlement of open positions for exchange-traded commodity derivative instruments. A cash margin liability balance of $ 2 million at April 28, 2024, and an asset balance of $ 2 million at July 30, 2023, were included in Accrued liabilities and Other current assets, respectively, in the Consolidated Balance Sheets.
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The following tables show the effect of our derivative instruments designated as cash-flow hedges for the three- and nine-month periods ended April 28, 2024, and April 30, 2023, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
Total Cash-Flow Hedge
OCI Activity
(Millions) April 28, 2024 April 30, 2023
Three Months Ended
OCI derivative gain (loss) at beginning of quarter $ ( 26 ) $ ( 1 )
Effective portion of changes in fair value recognized in OCI:
Foreign exchange contracts 1 2
Forward starting interest rate swaps 12 —
Amount of loss (gain) reclassified from OCI to earnings: Location in Earnings
Foreign exchange contracts Cost of products sold — ( 2 )
Forward starting interest rate swaps Interest expense — —
OCI derivative gain (loss) at end of quarter $ ( 13 ) $ ( 1 )
Nine Months Ended
OCI derivative gain (loss) at beginning of year $ ( 5 ) $ —
Effective portion of changes in fair value recognized in OCI:
Foreign exchange contracts 4 7
Forward starting interest rate swaps ( 11 ) —
Amount of loss (gain) reclassified from OCI to earnings: Location in Earnings
Commodity contracts Cost of products sold — ( 3 )
Foreign exchange contracts Cost of products sold ( 2 ) ( 6 )
Forward starting interest rate swaps Interest expense 1 1
OCI derivative gain (loss) at end of quarter $ ( 13 ) $ ( 1 )
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a loss of $ 1 million.
The following tables show the total amounts of line items presented in the Consolidated Statements of Earnings for the three- and nine-month periods ended April 28, 2024, and April 30, 2023, in which the effects of derivative instruments designated as cash-flow hedges are recorded and the total effect of hedge activity on these line items are as follows:
Three Months Ended
April 28, 2024 April 30, 2023
(Millions) Cost of products sold Interest
expense Cost of products sold Interest
expense
Consolidated Statements of Earnings: $ 1,637 $ 70 $ 1,561 $ 47
Loss (gain) on cash-flow hedges:
Amount of loss (gain) reclassified from OCI to earnings $ — $ — $ ( 2 ) $ —
Nine Months Ended
April 28, 2024 April 30, 2023
(Millions) Cost of products sold Interest
expense Cost of products sold Interest
expense
Consolidated Statements of Earnings: $ 5,047 $ 165 $ 5,028 $ 139
Loss (gain) on cash-flow hedges:
Amount of loss (gain) reclassified from OCI to earnings $ ( 2 ) $ 1 $ ( 9 ) $ 1
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The amount excluded from effectiveness testing recognized in each line item of earnings using an amortization approach was not material in all periods presented.
The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements of Earnings:
Location of Loss (Gain) Recognized in Earnings Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Foreign exchange contracts Cost of products sold $ — $ — $ — $ ( 1 )
Commodity contracts Cost of products sold ( 13 ) 18 ( 9 ) 7
Deferred compensation contracts Administrative expenses ( 1 ) — ( 4 ) ( 1 )
Total loss (gain) $ ( 14 ) $ 18 $ ( 13 ) $ 5
13. 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.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis as of April 28, 2024, and July 30, 2023, consistent with the fair value hierarchy:
Fair Value
as of
April 28, 2024
Fair Value Measurements at
April 28, 2024 Using
Fair Value Hierarchy
Fair Value
as of
July 30, 2023
Fair Value Measurements at
July 30, 2023 Using
Fair Value Hierarchy
(Millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Foreign exchange contracts (1)
$ 1 $ — $ 1 $ — $ — $ — $ — $ —
Commodity derivative contracts (2)
20 5 7 8 16 11 3 2
Deferred compensation derivative contracts (3)
— — — — 4 — 4 —
Deferred compensation investments (4)
1 1 — — 1 1 — —
Total assets at fair value $ 22 $ 6 $ 8 $ 8 $ 21 $ 12 $ 7 $ 2
Fair Value
as of
April 28, 2024
Fair Value Measurements at
April 28, 2024 Using
Fair Value Hierarchy
Fair Value
as of
July 30, 2023
Fair Value Measurements at
July 30, 2023 Using
Fair Value Hierarchy
(Millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Liabilities
Foreign exchange contracts (1)
$ — $ — $ — $ — $ 1 $ — $ 1 $ —
Commodity derivative contracts (2)
4 1 3 — 5 3 2 —
Deferred compensation derivative contracts (3)
1 — 1 — — — — —
Deferred compensation obligation (4)
94 94 — — 91 91 — —
Total liabilities at fair value $ 99 $ 95 $ 4 $ — $ 97 $ 94 $ 3 $ —
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(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 index swap rates.
(4) Based on the fair value of the participants’ investments.
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The following table summarizes the changes in fair value of Level 3 assets and liabilities for the nine-month periods ended April 28, 2024, and April 30, 2023:
Nine Months Ended
(Millions) April 28, 2024 April 30, 2023
Fair value at beginning of year $ 2 $ 4
Gains (losses) 13 4
Settlements ( 7 ) ( 4 )
Fair value at end of quarter $ 8 $ 4
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value.
There were cash equivalents of $ 26 million at April 28, 2024 and none at July 30, 2023. Cash equivalents represent fair value as these highly liquid investments have an original maturity of three months or less.
The fair value of short- and long-term debt was $ 6.714 billion at April 28, 2024, and $ 4.293 billion at July 30, 2023. The carrying value was $ 7.179 billion at April 28, 2024, and $ 4.689 billion at July 30, 2023. 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.
14. Share Repurchases
In June 2021, the Board authorized an anti-dilutive share repurchase program of up to $ 250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs. The June 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the June 2021 program may be made in open-market or privately negotiated transactions.
In September 2021, the Board approved a strategic share repurchase program of up to $ 500 million (September 2021 program). The September 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions.
During the nine-month period ended April 28, 2024, we repurchased 1.08 million shares at a cost of $ 46 million pursuant to our June 2021 program. As of April 28, 2024, approximately $ 58 million remained available under the June 2021 program and approximately $ 301 million remained available under the September 2021 program. During the nine-month period ended April 30, 2023, we repurchased 2.692 million shares at a cost of $ 141 million.
15. 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 2024, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019.
In connection with the Sovos Brands acquisition, we issued 1.721 million time-lapse restricted stock units (Replacement units) in exchange for certain Sovos Brands restricted stock units and performance restricted stock units. The Replacement units are subject to the same terms and conditions of the original Sovos Brands restricted stock units and performance restricted stock units. Certain Replacement units were subject to accelerated vesting. The Replacement units have a total fair value of $ 74 million based on the quoted price of our stock on the acquisition date. The portion of Replacement units attributed to pre-combination service was $ 42 million, which was accounted for as part of consideration transferred and was recorded in Additional Paid-in Capital in our Consolidated Statements of Equity. See Note 3 for additional information. The portion of the Replacement units attributable to post-combination service will be recognized as stock-based compensation expense over the remaining vesting period.
In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of Earnings were as follows:
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Total pre-tax stock-based compensation expense (1)
$ 44 $ 17 $ 80 $ 48
Tax-related benefits $ 3 $ 3 $ 9 $ 9
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_______________________________________
(1) Includes $ 26 million of expense related to accelerated vesting of certain Replacement units in the three- and nine-month periods ended April 28, 2024.
The following table summarizes stock option activity as of April 28, 2024:
Options Weighted-
Average
Exercise
Price Weighted-
Average
Remaining
Contractual
Life Aggregate
Intrinsic
Value
(In thousands) (In years) (Millions)
Outstanding at July 30, 2023
833 $ 44.77
Granted — $ —
Exercised — $ —
Terminated — $ —
Outstanding at April 28, 2024
833 $ 44.77 3.5 $ 4
Exercisable at April 28, 2024
833 $ 44.77 3.5 $ 4
The total intrinsic value of options exercised during the nine-month period ended April 30, 2023 was $ 3 million. We measured the fair value of stock options using the Black-Scholes option pricing model.
We expensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expensed on an accelerated basis. As of January 2022, compensation related to stock options was fully expensed.
The following table summarizes time-lapse restricted stock units and EPS performance restricted stock units as of April 28, 2024:
Units Weighted-Average Grant-Date Fair Value
(In thousands)
Nonvested at July 30, 2023
2,274 $ 45.39
Granted 1,744 $ 41.46
Replacement units granted in connection with Sovos Brands acquisition 1,721 $ 43.01
Vested ( 2,233 ) $ 43.86
Forfeited ( 184 ) $ 43.27
Nonvested at April 28, 2024
3,322 $ 43.23
We determine the fair value of time-lapse restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants and certain Replacement units, which we expense on an accelerated basis.
Since 2022, we have granted EPS performance restricted stock units that will be earned upon the achievement of our adjusted EPS compound annual growth rate goal, measured over a three-year period. The actual number of EPS performance restricted stock units issued at the vesting date could range from 0 % to 200 % of the initial grant depending on actual performance achieved. The fair value of EPS performance restricted stock units is based upon the quoted price of our stock at the date of grant. We expense EPS performance restricted stock units on a straight-line basis over the service period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We estimate expense based on the number of awards expected to vest. There were 887 thousand EPS performance target grants outstanding at April 28, 2024, with a weighted-average grant-date fair value of $ 42.98 .
As of April 28, 2024, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $ 65 million, 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 28, 2024, and April 30, 2023, was $ 95 million and $ 36 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended April 30, 2023 was $ 47.55 .
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The following table summarizes TSR performance restricted stock units as of April 28, 2024:
Units Weighted-Average Grant-Date Fair Value
(In thousands)
Nonvested at July 30, 2023
948 $ 51.81
Granted 387 $ 44.18
Vested ( 289 ) $ 54.93
Forfeited ( 159 ) $ 52.20
Nonvested at April 28, 2024
887 $ 47.40
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation.
Assumptions used in the Monte Carlo simulation were as follows:
2024 2023
Risk-free interest rate 4.84 % 4.29 %
Expected dividend yield 3.54 % 3.09 %
Expected volatility 22.16 % 26.40 %
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 28, 2024, total remaining unearned compensation related to TSR performance restricted stock units was $ 16 million, which will be amortized over the weighted-average remaining service period of 1.8 years. In the first quarter of 2024, recipients of TSR performance restricted stock units earned 75 % of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2023. In the first quarter of 2023, recipients of TSR performance restricted stock units earned 100 % of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 29, 2022. The fair value of TSR performance restricted stock units vested during the nine-month periods ended April 28, 2024, and April 30, 2023, was $ 12 million and $ 21 million, respectively. The grant-date fair value of the TSR performance restricted stock units granted during the nine-month period ended April 30, 2023, was $ 53.74 .
The tax benefits on the exercise of stock options in the nine-month period ended April 30, 2023 were not material. Cash received from the exercise of stock options was $ 22 million for the nine-month period ended April 30, 2023, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
16. 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 March 20, 2024, the United States Department of Justice (DOJ), on behalf of the U.S. Environmental Protection Agency, and National Education Law Center, on behalf of Environment America and Lake Erie Waterkeeper, filed lawsuits in the United States District Court for the Northern District of Ohio – Western Division concerning alleged violations of the Clean Water Act relating to alleged contaminant discharges from the company’s Napoleon, Ohio wastewater treatment facility in excess of the facility’s Clean Water Act permit limits. We have and are continuing to take actions to remediate the exceedances
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and are in settlement discussions with the DOJ and the private environmental groups. While we cannot predict with certainty the amount of any civil penalty or the timing of the resolution of this matter, we do not expect that the ultimate costs to resolve this matter will have a material adverse effect on our financial condition, results of operations, or cash flows.
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 28, 2024. While the potential future charges could be material in a particular quarter or annual period, based on information currently known by us, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations or financial condition.
Other Contingencies
We have provided certain indemnifications in connection with divestitures, contracts and other transactions. Certain indemnifications have finite expiration dates. Liabilities recognized based on known exposures related to such matters were not material at April 28, 2024.
17. Supplier Finance Program Obligations
To manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, including the extension of payment terms. Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 120 days. We also maintain agreements with third-party administrators that allow participating suppliers to track payment obligations from us, and, at the sole discretion of the supplier, sell those payment obligations to participating financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Supplier participation in these agreements is voluntary. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. We have not pledged assets as security or provided any guarantees in connection with these arrangements. The payment of these obligations is included in cash provided by operating activities in the Consolidated Statements of Cash Flows. Amounts outstanding under these programs, which are included in Accounts payable on the Consolidated Balance Sheets, were approximately $ 260 million at April 28, 2024 and July 30, 2023.
18. Supplemental Financial Statement Data
(Millions) April 28, 2024 July 30, 2023
Balance Sheets
Inventories
Raw materials, containers and supplies $ 414 $ 372
Finished products 886 919
$ 1,300 $ 1,291
Three Months Ended Nine Months Ended
(Millions) April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023
Statements of Earnings
Other expenses / (income)
Amortization of intangible assets (1)
$ 18 $ 10 $ 52 $ 31
Net periodic benefit expense (income) other than the service cost ( 2 ) 14 ( 5 ) 10
Costs associated with acquisition (2)
16 — 35 —
Transition services fees
— — ( 2 ) —
Other ( 2 ) ( 1 ) — —
$ 30 $ 23 $ 80 $ 41
_______________________________________
(1) Includes accelerated amortization expense related to customer relationship intangible assets of $ 6 million and $ 20 million in the three- and nine-month periods ended April 28, 2024, respectively.
(2) Related to the acquisition of Sovos Brands. See Note 3 for additional information.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.