CPB-05.3.2015-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
____________________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
| |
For the Quarterly Period Ended May 3, 2015 | Commission File Number 1-3822 |
CAMPBELL SOUP COMPANY
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| |
New Jersey | 21-0419870 |
State of Incorporation | I.R.S. Employer Identification No. |
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
__________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. R Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). R Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes R No
There were 310,520,682 shares of capital stock outstanding as of June 5, 2015.
TABLE OF CONTENTS
PART I
Item 1. Financial Information
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(unaudited)
(millions, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 |
Net sales | $ | 1,900 |
| | $ | 1,970 |
| | $ | 6,389 |
| | $ | 6,416 |
|
Costs and expenses | | | | | | | |
Cost of products sold | 1,218 |
| | 1,294 |
| | 4,196 |
| | 4,149 |
|
Marketing and selling expenses | 213 |
| | 217 |
| | 702 |
| | 746 |
|
Administrative expenses | 141 |
| | 134 |
| | 416 |
| | 424 |
|
Research and development expenses | 29 |
| | 30 |
| | 85 |
| | 88 |
|
Other expenses / (income) | 3 |
| | 2 |
| | 14 |
| | 16 |
|
Restructuring charges | 9 |
| | 1 |
| | 9 |
| | 35 |
|
Total costs and expenses | 1,613 |
| | 1,678 |
| | 5,422 |
| | 5,458 |
|
Earnings before interest and taxes | 287 |
| | 292 |
| | 967 |
| | 958 |
|
Interest expense | 29 |
| | 31 |
| | 81 |
| | 91 |
|
Interest income | 1 |
| | 1 |
| | 3 |
| | 2 |
|
Earnings before taxes | 259 |
| | 262 |
| | 889 |
| | 869 |
|
Taxes on earnings | 77 |
| | 79 |
| | 266 |
| | 278 |
|
Earnings from continuing operations | 182 |
| | 183 |
| | 623 |
| | 591 |
|
Earnings from discontinued operations | — |
| | — |
| | — |
| | 81 |
|
Net earnings | 182 |
| | 183 |
| | 623 |
| | 672 |
|
Less: Net earnings (loss) attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (9 | ) |
Net earnings attributable to Campbell Soup Company | $ | 182 |
| | $ | 184 |
| | $ | 623 |
| | $ | 681 |
|
Per Share — Basic | | | | | | | |
Earnings from continuing operations attributable to Campbell Soup Company | $ | .59 |
| | $ | .59 |
| | $ | 1.99 |
| | $ | 1.91 |
|
Earnings from discontinued operations | — |
| | — |
| | — |
| | .26 |
|
Net earnings attributable to Campbell Soup Company | $ | .59 |
| | $ | .59 |
| | $ | 1.99 |
| | $ | 2.17 |
|
Dividends | $ | .312 |
| | $ | .312 |
| | $ | .936 |
| | $ | .936 |
|
Weighted average shares outstanding — basic | 311 |
| | 314 |
| | 313 |
| | 314 |
|
Per Share — Assuming Dilution | | | | | | | |
Earnings from continuing operations attributable to Campbell Soup Company | $ | .58 |
| | $ | .58 |
| | $ | 1.98 |
| | $ | 1.90 |
|
Earnings from discontinued operations | — |
| | — |
| | — |
| | .26 |
|
Net earnings attributable to Campbell Soup Company | $ | .58 |
| | $ | .58 |
| | $ | 1.98 |
| | $ | 2.16 |
|
Weighted average shares outstanding — assuming dilution | 312 |
| | 316 |
| | 314 |
| | 316 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(unaudited)
(millions)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| May 3, 2015 | | April 27, 2014 |
| Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
Net earnings | | | | | $ | 182 |
| | | | | | $ | 183 |
|
Other comprehensive income (loss): | | | | | | | | | | | |
Foreign currency translation: | | | | | | | | | | | |
Foreign currency translation adjustments | $ | 12 |
| | $ | — |
| | 12 |
| | $ | 68 |
| | $ | — |
| | 68 |
|
Cash-flow hedges: | | | | | | | | | | | |
Unrealized gains (losses) arising during the period | 12 |
| | (5 | ) | | 7 |
| | (5 | ) | | 2 |
| | (3 | ) |
Reclassification adjustment for (gains) losses included in net earnings | (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
| | 1 |
|
Pension and other postretirement benefits: | | | | | | | | | | | |
Net actuarial gain (loss) arising during the period | (4 | ) | | 2 |
| | (2 | ) | | (1 | ) | | — |
| | (1 | ) |
Reclassification of prior service credit included in net earnings | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
| | (1 | ) |
Reclassification of net actuarial loss included in net earnings | 24 |
| | (9 | ) | | 15 |
| | 40 |
| | (14 | ) | | 26 |
|
Other comprehensive income (loss) | $ | 42 |
| | $ | (12 | ) | | 30 |
| | $ | 102 |
| | $ | (12 | ) | | 90 |
|
Total comprehensive income (loss) | | | | | $ | 212 |
| | | | | | $ | 273 |
|
Total comprehensive income (loss) attributable to noncontrolling interests | | | | | — |
| | | | | | — |
|
Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 212 |
| | | | | | $ | 273 |
|
| | | | | | | | | | | |
| Nine Months Ended |
| May 3, 2015 | | April 27, 2014 |
| Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
Net earnings | | | | | $ | 623 |
| | | | | | $ | 672 |
|
Other comprehensive income (loss): | | | | | | | | | | | |
Foreign currency translation: | | | | | | | | | | | |
Foreign currency translation adjustments | $ | (238 | ) | | $ | 1 |
| | (237 | ) | | $ | (1 | ) | | $ | (1 | ) | | (2 | ) |
Reclassification of currency translation adjustments realized upon disposal of business | — |
| | — |
| | — |
| | (22 | ) | | 3 |
| | (19 | ) |
Cash-flow hedges: | | | | | | | | | | | |
Unrealized gains (losses) arising during period | (21 | ) | | 8 |
| | (13 | ) | | (4 | ) | | 2 |
| | (2 | ) |
Reclassification adjustment for (gains) losses included in net earnings | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Pension and other postretirement benefits: | | | | | | | | | | | |
Net actuarial gain (loss) arising during the period | 13 |
| | (4 | ) | | 9 |
| | 7 |
| | (2 | ) | | 5 |
|
Reclassification of prior service credit included in net earnings | (2 | ) | | — |
| | (2 | ) | | (2 | ) | | — |
| | (2 | ) |
Reclassification of net actuarial loss included in net earnings | 72 |
| | (25 | ) | | 47 |
| | 87 |
| | (30 | ) | | 57 |
|
Other comprehensive income (loss) | $ | (176 | ) | | $ | (20 | ) | | (196 | ) | | $ | 66 |
| | $ | (28 | ) | | 38 |
|
Total comprehensive income (loss) | | | | | $ | 427 |
| | | | | | $ | 710 |
|
Total comprehensive income (loss) attributable to noncontrolling interests | | | | | — |
| | | | | | (9 | ) |
Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 427 |
| | | | | | $ | 719 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(unaudited)
(millions, except per share amounts)
|
| | | | | | | |
| May 3, 2015 | | August 3, 2014 |
Current assets | | | |
Cash and cash equivalents | $ | 230 |
| | $ | 232 |
|
Accounts receivable, net | 641 |
| | 670 |
|
Inventories | 876 |
| | 1,016 |
|
Other current assets | 155 |
| | 182 |
|
Total current assets | 1,902 |
| | 2,100 |
|
Plant assets, net of depreciation | 2,292 |
| | 2,318 |
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Goodwill | 2,281 |
| | 2,433 |
|
Other intangible assets, net of amortization | 1,133 |
| | 1,175 |
|
Other assets | 151 |
| | 87 |
|
Total assets | $ | 7,759 |
| | $ | 8,113 |
|
Current liabilities | | | |
Short-term borrowings | $ | 1,232 |
| | $ | 1,771 |
|
Payable to suppliers and others | 462 |
| | 527 |
|
Accrued liabilities | 491 |
| | 553 |
|
Dividend payable | 100 |
| | 101 |
|
Accrued income taxes | 38 |
| | 37 |
|
Total current liabilities | 2,323 |
| | 2,989 |
|
Long-term debt | 2,553 |
| | 2,244 |
|
Deferred taxes | 573 |
| | 548 |
|
Other liabilities | 725 |
| | 729 |
|
Total liabilities | 6,174 |
| | 6,510 |
|
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 | 331 |
| | 330 |
|
Earnings retained in the business | 2,526 |
| | 2,198 |
|
Capital stock in treasury, at cost | (507 | ) | | (356 | ) |
Accumulated other comprehensive loss | (765 | ) | | (569 | ) |
Total Campbell Soup Company shareholders' equity | 1,597 |
| | 1,615 |
|
Noncontrolling interests | (12 | ) | | (12 | ) |
Total equity | 1,585 |
| | 1,603 |
|
Total liabilities and equity | $ | 7,759 |
| | $ | 8,113 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(unaudited)
(millions)
|
| | | | | | | |
| Nine Months Ended |
| May 3, 2015 | | April 27, 2014 |
Cash flows from operating activities: | | | |
Net earnings | $ | 623 |
| | $ | 672 |
|
Adjustments to reconcile net earnings to operating cash flow | | | |
Restructuring charges | 9 |
| | 35 |
|
Stock-based compensation | 46 |
| | 46 |
|
Depreciation and amortization | 223 |
| | 222 |
|
Deferred income taxes | 12 |
| | 20 |
|
Gain on sale of business | — |
| | (141 | ) |
Other, net | 69 |
| | 90 |
|
Changes in working capital | | | |
Accounts receivable | 19 |
| | (55 | ) |
Inventories | 108 |
| | 104 |
|
Prepaid assets | 11 |
| | (25 | ) |
Accounts payable and accrued liabilities | (112 | ) | | (110 | ) |
Pension fund contributions | (3 | ) | | (45 | ) |
Receipts from (payments of) hedging activities | 11 |
| | (6 | ) |
Other | (45 | ) | | (44 | ) |
Net cash provided by operating activities | 971 |
| | 763 |
|
Cash flows from investing activities: | | | |
Purchases of plant assets | (242 | ) | | (198 | ) |
Sales of plant assets | 9 |
| | 19 |
|
Business acquired, net of cash acquired | — |
| | (329 | ) |
Sale of business, net of cash divested | — |
| | 520 |
|
Other, net | (7 | ) | | (1 | ) |
Net cash provided by (used in) investing activities | (240 | ) | | 11 |
|
Cash flows from financing activities: | | | |
Net short-term repayments | (233 | ) | | (303 | ) |
Long-term borrowings | 300 |
| | — |
|
Repayments of notes payable | (300 | ) | | (300 | ) |
Dividends paid | (297 | ) | | (293 | ) |
Treasury stock purchases | (192 | ) | | (76 | ) |
Treasury stock issuances | 9 |
| | 14 |
|
Excess tax benefits on stock-based compensation | 5 |
| | 11 |
|
Contribution from noncontrolling interest | — |
| | 5 |
|
Other, net | (3 | ) | | — |
|
Net cash used in financing activities | (711 | ) | | (942 | ) |
Effect of exchange rate changes on cash | (22 | ) | | (11 | ) |
Net change in cash and cash equivalents | (2 | ) | | (179 | ) |
Cash and cash equivalents continuing operations — beginning of period | 232 |
| | 333 |
|
Cash and cash equivalents discontinued operations — beginning of period | — |
| | 68 |
|
Cash and cash equivalents discontinued operations — end of period | — |
| | — |
|
Cash and cash equivalents continuing operations — end of period | $ | 230 |
| | $ | 222 |
|
See accompanying Notes to Consolidated Financial Statements.
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 July 28, 2013 | 323 |
| | $ | 12 |
| | (11 | ) | | $ | (364 | ) | | $ | 362 |
| | $ | 1,772 |
| | $ | (565 | ) | | $ | (7 | ) | | $ | 1,210 |
|
Contribution from noncontrolling interest | | | | | | | | | | | | | | | 5 |
| | 5 |
|
Net earnings (loss) |
| |
| |
| |
| |
| | 681 |
| |
| | (9 | ) | | 672 |
|
Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | 38 |
| | — |
| | 38 |
|
Dividends ($.936 per share) |
| |
| |
| |
| |
| | (294 | ) | |
| |
| | (294 | ) |
Treasury stock purchased |
| |
| | (2 | ) | | (76 | ) | |
| |
| |
| |
| | (76 | ) |
Treasury stock issued under management incentive and stock option plans | | | | | 2 |
| | 76 |
| | (40 | ) | | | | | | | | 36 |
|
Balance at April 27, 2014 | 323 |
| | $ | 12 |
| | (11 | ) | | $ | (364 | ) | | $ | 322 |
| | $ | 2,159 |
| | $ | (527 | ) | | $ | (11 | ) | | $ | 1,591 |
|
Balance at August 3, 2014 | 323 |
| | $ | 12 |
| | (10 | ) | | $ | (356 | ) | | $ | 330 |
| | $ | 2,198 |
| | $ | (569 | ) | | $ | (12 | ) | | $ | 1,603 |
|
Net earnings (loss) |
| |
| |
| |
| |
| | 623 |
| |
| | — |
| | 623 |
|
Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | (196 | ) | | — |
| | (196 | ) |
Dividends ($.936 per share) |
| |
| |
| |
| |
| | (295 | ) | |
| |
| | (295 | ) |
Treasury stock purchased |
| |
| | (4 | ) | | (192 | ) | |
| |
| |
| |
| | (192 | ) |
Treasury stock issued under management incentive and stock option plans |
|
| |
|
| | 2 |
| | 41 |
| | 1 |
| |
|
| |
|
| |
| | 42 |
|
Balance at May 3, 2015 | 323 |
| | $ | 12 |
| | (12 | ) | | $ | (507 | ) | | $ | 331 |
| | $ | 2,526 |
| | $ | (765 | ) | | $ | (12 | ) | | $ | 1,585 |
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(unaudited)
(currency in millions, except per share amounts)
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1. | Basis of Presentation and Significant Accounting Policies |
In this Form 10-Q, unless otherwise stated, the terms "we," "us" and "our" refer to Campbell Soup Company and its consolidated subsidiaries.
The financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended August 3, 2014. 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. There were 53 weeks in 2014. There will be 52 weeks in 2015.
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2. | Recent Accounting Pronouncements |
In February 2013, the Financial Accounting Standards Board (FASB) issued guidance for the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount is fixed. Such obligations may include debt arrangements, legal settlements, and other contractual arrangements. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be applied retrospectively to all prior periods presented for applicable obligations that existed as of the beginning of the fiscal year of adoption. We adopted the guidance in the first quarter of 2015. The adoption did not have an impact on our consolidated financial statements.
In March 2013, the FASB issued guidance on the accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance was effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in the first quarter of 2015. The adoption did not have an impact on our consolidated financial statements.
In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and should be applied prospectively to all UTBs that exist at the effective date. We adopted the guidance prospectively in the first quarter of 2015. The adoption did not have a material impact on our consolidated financial statements.
In April 2014, the FASB issued revised guidance that modifies the criteria for determining which disposals can be presented as discontinued operations and requires additional disclosures. The guidance is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted. We will prospectively apply the guidance to applicable transactions.
In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also requires enhanced disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. On April 29, 2015, the FASB issued an exposure draft that would delay the effective date of the new revenue guidance by one year. Under the exposure draft, the updated guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Under the exposure draft, entities will be permitted to adopt the new revenue standard early, but not before the original effective date. Comments on the proposal are due by May 29, 2015. The guidance permits the use of either a full retrospective or modified retrospective transition method. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements, as well as which transition method we will use.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance must be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption is permitted. We do not expect the adoption to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued guidance intended to provide a practical expedient for the measurement date of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not fall on a calendar month-end to measure pension and postretirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year-end.The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods
within those years. Early adoption is permitted. We do not expect the adoption to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued guidance to clarify the accounting for fees paid by a customer in a cloud computing arrangement. The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years. Early adoption is permitted. Entities should apply the new guidance either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In May 2015, the FASB issued guidance that eliminates the requirement to categorize investments measured using the net asset value (NAV) practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the NAV practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. The new guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption to have a material impact on the consolidated financial statements.
On August 8, 2013, we completed the acquisition of Kelsen Group A/S (Kelsen). The final all-cash purchase price was $331. Kelsen is a producer of quality baked snacks that are sold in approximately 85 countries around the world. Its primary brands include Kjeldsens and Royal Dansk.
For the three-month period ended April 27, 2014, the Kelsen acquisition contributed $17 to Net sales and resulted in a Net loss of $4. The acquisition also contributed $161 to Net sales and $7 to Net earnings from August 8, 2013, to April 27, 2014.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Kelsen acquisition had occurred on July 30, 2012:
|
| | | | |
| | Nine Months Ended |
| | April 27, 2014 |
Net sales | | $ | 6,420 |
|
Earnings from continuing operations attributable to Campbell Soup Company | | $ | 601 |
|
Earnings per share from continuing operations attributable to Campbell Soup Company | | $ | 1.90 |
|
The pro forma amounts include additional interest expense on the debt issued to finance the purchase, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the Kelsen acquisition been completed on July 30, 2012, nor are they indicative of future combined results.
| |
4. | Discontinued Operations |
On October 28, 2013, we completed the sale of our European simple meals business to Soppa Investments S.à r.l., an affiliate of CVC Capital Partners. The all-cash preliminary sale price was €400, or $548, and was subject to certain post-closing adjustments, which resulted in a $14 reduction of proceeds. We recognized a pre-tax gain of $141 ($72 after tax or $.23 per share) in 2014. We used the proceeds from the sale to pay taxes on the sale, to reduce debt and for other general corporate purposes.
We have reflected the results of the European simple meals business as discontinued operations in the Consolidated Statements of Earnings.
Results of discontinued operations were as follows:
|
| | | | |
| | Nine Months Ended |
| | April 27, 2014 |
Net sales | | $ | 137 |
|
Gain on sale of the European simple meals business | | $ | 141 |
|
Earnings from operations, before taxes | | 14 |
|
Earnings before taxes | | $ | 155 |
|
Taxes on earnings | | (74 | ) |
Earnings from discontinued operations | | $ | 81 |
|
| |
5. | Accumulated Other Comprehensive Income (Loss) |
The components of Accumulated other comprehensive income (loss) consisted of the following:
|
| | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustments(1) | | Gains (Losses) on Cash Flow Hedges(2) | | Pension and Postretirement Benefit Plan Adjustments(3) | | Total Accumulated Comprehensive Income (Loss) |
Balance at August 3, 2014 | | $ | 137 |
| | $ | (3 | ) | | $ | (703 | ) | | $ | (569 | ) |
Other comprehensive income (loss) before reclassifications | | (237 | ) | | (13 | ) | | 9 |
| | (241 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | — |
| | 45 |
| | 45 |
|
Net current-period other comprehensive income (loss) | | (237 | ) | | (13 | ) | | 54 |
| | (196 | ) |
Balance at May 3, 2015 | | $ | (100 | ) | | $ | (16 | ) | | $ | (649 | ) | | $ | (765 | ) |
_____________________________________
| |
(1) | Included a tax expense of $6 as of May 3, 2015, and $7 as of August 3, 2014. |
| |
(2) | Included a tax benefit of $9 as of May 3, 2015, and $1 as of August 3, 2014. |
| |
(3) | Included a tax benefit of $376 as of May 3, 2015, and $405 as of August 3, 2014. |
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
|
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | |
Details about Accumulated Other Comprehensive Income (Loss) Components | | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 | | Location of (Gain) Loss Recognized in Earnings |
(Gains) losses on cash flow hedges: | | | | | | | | | | |
Foreign exchange forward contracts | | $ | (2 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | Cost of products sold |
Foreign exchange forward contracts | | — |
| | 1 |
| | (1 | ) | | — |
| | Other expenses / (income) |
Forward starting interest rate swaps | | 1 |
| | 1 |
| | 3 |
| | 3 |
| | Interest expense |
Total before tax | | (1 | ) | | 1 |
| | — |
| | 1 |
| | |
Tax expense (benefit) | | — |
| | — |
| | — |
| | — |
| | |
(Gain) loss, net of tax | | $ | (1 | ) | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | |
| | | | | | | | | | |
Pension and postretirement benefit adjustments: | | | | | | | | | | |
Prior service credit | | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | (1) |
Net actuarial losses | | 24 |
| | 40 |
| | 72 |
| | 87 |
| | (1) |
Total before tax | | 23 |
| | 39 |
| | 70 |
| | 85 |
| | |
Tax expense (benefit) | | (9 | ) | | (14 | ) | | (25 | ) | | (30 | ) | | |
(Gain) loss, net of tax | | $ | 14 |
| | $ | 25 |
| | $ | 45 |
| | $ | 55 |
| | |
_____________________________________
| |
(1) | In 2014, net actuarial losses of $2 were recognized in Earnings (loss) from discontinued operations as a result of the sale of the European simple meals business. Excluding the net actuarial losses related to the sale of the business in 2014, these items are included in the components of net periodic benefit costs (see Note 11 for additional details). |
In 2014, a pre-tax loss of $22 ($19 after tax) on foreign currency translation adjustments was also reclassified from Accumulated other comprehensive income. The loss was related to the divestiture of the European simple meals business and was included in Earnings (loss) from discontinued operations.
| |
6. | Goodwill and Intangible Assets |
The following table shows the changes in the carrying amount of goodwill by business segment:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | International Simple Meals and Beverages | | U.S. Beverages | | Bolthouse and Foodservice | | Total |
Balance at August 3, 2014 | $ | 450 |
| | $ | 918 |
| | $ | 115 |
| | $ | 112 |
| | $ | 838 |
| | $ | 2,433 |
|
Foreign currency translation adjustments | — |
| | (140 | ) | | (12 | ) | | — |
| | — |
| | (152 | ) |
Balance at May 3, 2015 | $ | 450 |
| | $ | 778 |
| | $ | 103 |
| | $ | 112 |
| | $ | 838 |
| | $ | 2,281 |
|
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
| | | | | | | | |
Intangible Assets | | May 3, 2015 | | August 3, 2014 |
Amortizable intangible assets | | | | |
Customer relationships | | $ | 174 |
| | $ | 178 |
|
Technology | | 40 |
| | 40 |
|
Other | | 35 |
| | 35 |
|
Total gross amortizable intangible assets | | $ | 249 |
| | $ | 253 |
|
Accumulated amortization | | (48 | ) | | (35 | ) |
Total net amortizable intangible assets | | $ | 201 |
| | $ | 218 |
|
Non-amortizable intangible assets | | | | |
Trademarks | | 932 |
| | 957 |
|
Total net intangible assets | | $ | 1,133 |
| | $ | 1,175 |
|
Non-amortizable intangible assets consist of trademarks, which include Bolthouse Farms, Pace, Plum Organics, Kjeldsens and Royal Dansk. Other amortizable intangible assets consist of recipes, patents, trademarks and distributor relationships.
Amortization of intangible assets of continuing operations was $13 for the nine-month periods ended May 3, 2015, and April 27, 2014. Amortization expense for the next 5 years is estimated to be $17 in each of the fiscal periods 2015 through 2017, and $13 in 2018 and 2019. Asset useful lives range from 5 to 20 years.
| |
7. | Business and Geographic Segment Information |
We manage operations through 10 operating segments based on product type and geographic location and have aggregated the operating segments into the appropriate reportable segment based on similar economic characteristics; products; production processes; types or classes of customers; distribution methods; and regulatory environment. The reportable segments are discussed in greater detail below.
The U.S. Simple Meals segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; and Plum Organics food and snacks.
The Global Baking and Snacking segment aggregates the following operating segments: Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; Arnott’s biscuits in Australia and Asia Pacific; and as of August 8, 2013, Kelsen cookies globally.
The International Simple Meals and Beverages segment aggregates the following operating segments: the retail business in Canada and the simple meals and beverages business in Asia Pacific, Latin America and China.
The U.S. Beverages segment represents the U.S. retail beverages business, including the following products: V8 juices and beverages; and Campbell’s tomato juice.
Bolthouse and Foodservice comprises the Bolthouse Farms carrot products operating segment, including fresh carrots, juice concentrate and fiber; the Bolthouse Farms super-premium refrigerated beverages and refrigerated salad dressings operating segment; and the North America Foodservice operating segment. The North America Foodservice operating segment represents the distribution of products such as soup, specialty entrées, beverage products, other prepared foods and Pepperidge Farm products
through various food service channels in the U.S. and Canada. None of these operating segments meets the criteria for aggregation nor the thresholds for separate disclosure.
We evaluate segment performance before interest, taxes and costs associated with restructuring activities. Unrealized gains and losses on commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate expenses 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. Certain manufacturing, warehousing and distribution activities of the segments are integrated in order to maximize efficiency and productivity. As a result, asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.
On January 29, 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under the new design, our businesses will be organized in the following three new divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh (previously known as Packaged Fresh). We are in the process of implementing plans for this new enterprise design. We expect to manage our operations under the new structure beginning in 2016, and will modify segment reporting as appropriate.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 |
Net sales | | | | | | | | |
U.S. Simple Meals | | $ | 630 |
| | $ | 672 |
| | $ | 2,425 |
| | $ | 2,426 |
|
Global Baking and Snacking | | 555 |
| | 564 |
| | 1,822 |
| | 1,812 |
|
International Simple Meals and Beverages | | 175 |
| | 186 |
| | 558 |
| | 592 |
|
U.S. Beverages | | 187 |
| | 190 |
| | 524 |
| | 539 |
|
Bolthouse and Foodservice | | 353 |
| | 358 |
| | 1,060 |
| | 1,047 |
|
Total | | $ | 1,900 |
| | $ | 1,970 |
| | $ | 6,389 |
| | $ | 6,416 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 |
Earnings before interest and taxes | | | | | | | | |
U.S. Simple Meals | | $ | 147 |
| | $ | 175 |
| | $ | 559 |
| | $ | 600 |
|
Global Baking and Snacking | | 80 |
| | 68 |
| | 277 |
| | 234 |
|
International Simple Meals and Beverages | | 27 |
| | 27 |
| | 69 |
| | 85 |
|
U.S. Beverages | | 34 |
| | 29 |
| | 80 |
| | 84 |
|
Bolthouse and Foodservice | | 31 |
| | 23 |
| | 79 |
| | 88 |
|
Corporate(1) | | (23 | ) | | (29 | ) | | (88 | ) | | (98 | ) |
Restructuring charges(2) | | (9 | ) | | (1 | ) | | (9 | ) | | (35 | ) |
Total | | $ | 287 |
| | $ | 292 |
| | $ | 967 |
| | $ | 958 |
|
_______________________________________
| |
(1) | Represents unallocated corporate expenses. Costs of $9 related to the implementation of our new organizational structure and cost reduction initiatives were included in the three- and nine-month periods ended May 3, 2015. See Note 8 for additional information. A pension settlement charge of $18 associated with a U.S. pension plan was included in the three- and nine-month periods ended April 27, 2014. The settlement resulted from the level of lump sum distributions from the plan's assets in 2014, primarily due to the closure of the facility in Sacramento, California. Restructuring-related costs of $2 and a loss of $9 on foreign exchange forward contracts related to the sale of the European simple meals business were included in the nine-month period ended April 27, 2014. |
| |
(2) | See Note 8 for additional information. |
Our global net sales based on product categories are as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 |
Net sales | | | | | | | | |
Simple Meals | | $ | 1,011 |
| | $ | 1,063 |
| | $ | 3,612 |
| | $ | 3,626 |
|
Baked Snacks | | 587 |
| | 597 |
| | 1,919 |
| | 1,912 |
|
Beverages | | 302 |
| | 310 |
| | 858 |
| | 878 |
|
Total | | $ | 1,900 |
| | $ | 1,970 |
| | $ | 6,389 |
| | $ | 6,416 |
|
Simple Meals include condensed and ready-to-serve soups, broths, sauces, carrot products, refrigerated salad dressings and Plum foods and snacks. Baked Snacks include cookies, crackers, biscuits and other baked products.
| |
8. | Restructuring Charges and Cost Savings Initiatives |
2015 Initiatives
On January 29, 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under the new design, our businesses will be organized in the following three new divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh. We are in the process of implementing plans for this new enterprise design.
To support our new enterprise design, we are designing and implementing a new Integrated Global Services organization to reduce our costs, improve our capabilities by establishing dedicated centers of excellence, and improve our efficiency. We are still in the process of designing this organization.
We are pursuing additional initiatives to reduce costs and to streamline our organizational structure. In the third quarter of 2015, we commenced a voluntary employee separation program and recorded a restructuring charge of $9 related to the program for severance pay and benefits. The program was available to certain U.S.-based salaried employees nearing retirement who met age, length-of-service and business unit/function criteria. A total of 471 employees elected the program. Most of the electing employees will remain with the company through July 31, 2015, with some remaining with the company beyond July 31.
Finally, we incurred charges of $9 recorded in Administrative expenses related to the implementation of the new organizational structure and cost reduction initiatives.
The aggregate after-tax impact of restructuring charges and implementation costs recorded in 2015 was $11, or $.04 per share. A summary of the pre-tax costs and remaining costs associated with the 2015 initiatives is as follows:
|
| | | | | | | | | | | |
| Total Program | | Recognized as of May 3, 2015 | | Remaining Costs to be Recognized |
Severance pay and benefits | $ | 109 |
| | $ | (9 | ) | | $ | 100 |
|
Implementation costs | 22 |
| | (9 | ) | | 13 |
|
Total | $ | 131 |
| | $ | (18 | ) | | $ | 113 |
|
Of the aggregate $131 of pre-tax costs, approximately $124 represents cash expenditures. We expect to incur the majority of these costs in the fourth quarter of 2015.
A summary of the restructuring activity and related reserves associated with the 2015 initiatives at May 3, 2015, is as follows:
|
| | | | | | | | | | | | | | | | |
| | | | Nine Months Ended May 3, 2015 | |
| | Accrued Balance at August 3, 2014 | | Charges | | Cash Payments | | Accrued Balance at May 3, 2015 |
Severance pay and benefits | | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
|
Non-cash benefits(1) | | | | 7 |
| | | | |
Implementation costs(2) | | | | 9 |
| | | | |
Total charges | | | | $ | 18 |
| | | | |
_______________________________________
| |
(1) | Represents postretirement and pension curtailment costs. See Note 11. |
| |
(2) | Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses in the Consolidated Statements of Earnings. |
Segment operating results do not include restructuring charges and implementation costs because we evaluate segment performance excluding such charges. A summary of restructuring charges and implementation costs incurred to date associated with segments is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | U.S. Beverages | | Corporate | | Total |
Severance pay and benefits | $ | 3 |
| | $ | 4 |
| | $ | 1 |
| | $ | 1 |
| | $ | 9 |
|
Implementation costs | — |
| | — |
| | — |
| | 9 |
| | 9 |
|
| $ | 3 |
| | $ | 4 |
| | $ | 1 |
| | $ | 10 |
| | $ | 18 |
|
We expect additional pre-tax costs of approximately $113 associated with segments as follows: U.S. Simple Meals - $37; Global Baking and Snacking - $45; U.S. Beverages - $9; Bolthouse and Foodservice - $5; and Corporate - $17.
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia. Details of the 2014 initiatives include:
| |
• | We streamlined our salaried workforce in North America and our workforce in the Asia Pacific region. Approximately 250 positions were eliminated. |
| |
• | Together with our joint venture partner Swire Pacific Limited, we agreed to restructure manufacturing and streamline operations for our soup and broth business in China. As a result, certain assets were impaired, and approximately 100 positions were eliminated. |
| |
• | In Australia, we implemented an initiative to improve supply chain efficiency by relocating production from our biscuit plant in Marleston to Huntingwood. The relocation will continue through the second quarter of 2016 and will result in the elimination of approximately 90 positions. |
| |
• | We implemented an initiative to reduce overhead across the organization by eliminating approximately 85 positions. The actions will be completed in 2015. |
In 2014, we recorded a restructuring charge of $54 ($33 after tax or $.10 per share in earnings from continuing operations attributable to Campbell Soup Company) related to the 2014 initiatives. Of the amounts recorded in 2014, $34 ($19 after tax or $.06 per share in earnings from continuing operations attributable to Campbell Soup Company) was recorded in the nine-month period ended April 27, 2014. A summary of the pre-tax costs and remaining costs associated with the 2014 initiatives is as follows:
|
| | | | | | | | | | | |
| Total Program | | Recognized as of May 3, 2015 | | Remaining Costs to be Recognized |
Severance pay and benefits | $ | 42 |
| | $ | (41 | ) | | $ | 1 |
|
Asset impairment | 12 |
| | (12 | ) | | — |
|
Other exit costs | 2 |
| | (1 | ) | | 1 |
|
Total | $ | 56 |
| | $ | (54 | ) | | $ | 2 |
|
Of the aggregate $56 of pre-tax costs, approximately $43 represents cash expenditures. In addition, we expect to invest approximately $6 in capital expenditures, primarily to relocate biscuit production and packaging capabilities, of which we invested approximately $1 as of May 3, 2015. We expect to complete the remaining aspects of the 2014 initiatives through 2016.
A summary of the restructuring activity and related reserves associated with the 2014 initiatives at May 3, 2015, is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended May 3, 2015 | | |
| | Accrued Balance at August 3, 2014 | | Charges | | Cash Payments | | Foreign Currency Translation Adjustment | | Accrued Balance at May 3, 2015 |
Severance pay and benefits | | $ | 28 |
| | $ | — |
| | $ | (15 | ) | | $ | (2 | ) | | $ | 11 |
|
Segment operating results do not include restructuring charges because we evaluate segment performance excluding such charges. A summary of restructuring charges incurred to date associated with segments is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | International Simple Meals and Beverages | | U.S. Beverages | | Bolthouse and Foodservice | | Corporate | | Total |
Severance pay and benefits | $ | 7 |
| | $ | 23 |
| | $ | 6 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 41 |
|
Asset impairment | 1 |
| | — |
| | 11 |
| | — |
| | — |
| | — |
| | 12 |
|
Other exit costs | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| $ | 8 |
| | $ | 23 |
| | $ | 18 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 54 |
|
We expect additional pre-tax costs of approximately $2 associated with segments as follows: U.S. Simple Meals - $1 and Global Baking and Snacking - $1.
2013 Initiatives
In 2013, we implemented initiatives to improve supply chain efficiency, expand access to manufacturing and distribution capabilities and reduce costs. Details of the 2013 initiatives include:
| |
• | We implemented initiatives to improve our U.S. supply chain cost structure and increase asset utilization across our U.S. thermal plant network, including closing our Sacramento, California, thermal plant, which produced soups, sauces and beverages. The closure resulted in the elimination of approximately 700 full-time positions and was completed in phases. Most of the positions were eliminated in 2013, and operations ceased in August 2013. We shifted the majority of Sacramento's soup, sauce and beverage production to our thermal plants in Maxton, North Carolina; Napoleon, Ohio; and Paris, Texas. We also closed our South Plainfield, New Jersey, spice plant, which resulted in the elimination of 27 positions. We consolidated spice production at our Milwaukee, Wisconsin, plant in 2013. |
| |
• | In Mexico, we entered into commercial arrangements with third-party providers to expand access to manufacturing and distribution capabilities. The third-party providers produce and distribute our beverages, soups, broths and sauces throughout the Mexican market. As a result of these agreements, we closed our plant in Villagrán, Mexico, and eliminated approximately 260 positions in the first quarter of 2014. |
| |
• | We implemented an initiative to improve our Pepperidge Farm bakery supply chain cost structure by closing our plant in Aiken, South Carolina. The plant was closed in May 2014. We shifted the majority of Aiken's bread production to our bakery plant in Lakeland, Florida. Approximately 110 positions were eliminated as a result of the plant closure. |
| |
• | We streamlined our salaried workforce in U.S. Simple Meals, North America Foodservice and U.S. Beverages by approximately 70 positions. This action was substantially completed in August 2013. |
In 2014, we recorded a restructuring charge of $1 related to the 2013 initiatives. In addition, we recorded approximately $3 of costs related to the 2013 initiatives in Cost of products sold, representing other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in 2014 was $3, or $.01 per share. Of the amounts recorded in 2014, a restructuring charge of $1 was recorded in the nine-month period ended April 27, 2014, and approximately $2 of costs related to these initiatives were recorded in Cost of products sold, representing other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in the nine-month period ended April 27, 2014, was $2, or $.01 per share. In 2013, we recorded a restructuring charge of $51. In addition, we recorded approximately $91 of costs related to these initiatives in 2013 in Cost of products sold, representing accelerated depreciation and other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in 2013 was $90, or $.28 per share. A summary of the pre-tax costs and remaining costs associated with the 2013 initiatives is as follows:
|
| | | | | | | | | | | |
| Total Program | | Recognized as of May 3, 2015 | | Remaining Costs to be Recognized |
Severance pay and benefits | $ | 35 |
| | $ | (35 | ) | | $ | — |
|
Accelerated depreciation/asset impairment | 99 |
| | (99 | ) | | — |
|
Other exit costs | 14 |
| | (12 | ) | | 2 |
|
Total | $ | 148 |
| | $ | (146 | ) | | $ | 2 |
|
Of the aggregate $148 of pre-tax costs, approximately $46 represents cash expenditures. In addition, we expect to invest approximately $31 in capital expenditures, primarily to relocate and refurbish a beverage filling and packaging line, and relocate bread production, of which we invested approximately $29 as of May 3, 2015. We expect to complete the remaining aspects of the 2013 initiatives in 2015.
A summary of the restructuring activity and related reserves associated with the 2013 initiatives at May 3, 2015, is as follows:
|
| | | | | | | | | | | | | | | | |
| | | | Nine Months Ended May 3, 2015 | | |
| | Accrued Balance at August 3, 2014 | | Charges | | Cash Payments | | Accrued Balance at May 3, 2015 |
Severance pay and benefits | | $ | 3 |
| | $ | — |
| | $ | (2 | ) | | $ | 1 |
|
Segment operating results do not include restructuring charges and related costs because we evaluate segment performance excluding such charges. A summary of restructuring charges and related costs incurred to date associated with segments is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | International Simple Meals and Beverages | | U.S. Beverages | | Bolthouse and Foodservice | | Total |
Severance pay and benefits | $ | 19 |
| | $ | 2 |
| | $ | 5 |
| | $ | 7 |
| | $ | 2 |
| | $ | 35 |
|
Accelerated depreciation/asset impairment | 64 |
| | 10 |
| | 3 |
| | 22 |
| | — |
| | 99 |
|
Other exit costs | 7 |
| | 2 |
| | 1 |
| | 2 |
| | — |
| | 12 |
|
| $ | 90 |
| | $ | 14 |
| | $ | 9 |
| | $ | 31 |
| | $ | 2 |
| | $ | 146 |
|
We expect additional pre-tax costs of approximately $2 associated with the Global Baking and Snacking segment.
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. There were no antidilutive stock options for the three-month and nine-month periods ended May 3, 2015, and April 27, 2014.
| |
10. | Noncontrolling Interests |
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of our soup and broth business in China. The joint venture began operations on January 31, 2011. In the three-month period ended January 26, 2014, together with our joint venture partner, we agreed to restructure manufacturing and streamline operations for our soup and broth business in China. The after-tax restructuring charge attributable to the noncontrolling interest was $5. See also Note 8.
We also own a 70% controlling interest in a Malaysian food products manufacturing company.
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.
| |
11. | Pension and Postretirement Benefits |
We sponsor certain defined benefit pension plans and postretirement benefit plans for employees. Components of benefit expense were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Pension | | Postretirement | | Pension | | Postretirement |
| May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 | | May 3, 2015 | | April 27, 2014 |
Service cost | $ | 8 |
| | $ | 11 |
| | $ | 1 |
| | $ | 1 |
| | $ | 22 |
| | $ | 32 |
| | $ | 2 |
| | $ | 2 |
|
Interest cost | 26 |
| | 29 |
| | 3 |
| | 4 |
| | 79 |
| | 87 |
| | 11 |
| | 13 |
|
Expected return on plan assets | (43 | ) | | (44 | ) | | — |
| | — |
| | (130 | ) | | (133 | ) | | — |
| | — |
|
Amortization of prior service credit | (1 | ) | | (1 | ) | | — |
| | — |
| | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Recognized net actuarial loss | 21 |
| | 20 |
| | 3 |
| | 2 |
| | 63 |
| | 58 |
| | 9 |
| | 9 |
|
Curtailment loss | 1 |
| | — |
| | 6 |
| | — |
| | 1 |
| | — |
| | 6 |
| | — |
|
Settlement charge | — |
| | 18 |
| | — |
| | — |
| | — |
| | 18 |
| | — |
| | — |
|
Net periodic benefit expense | $ | 12 |
| | $ | 33 |
| | $ | 13 |
| | $ | 7 |
| | $ | 34 |
| | $ | 61 |
| | $ | 27 |
| | $ | 23 |
|
The curtailment loss of $7 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8.
The settlement charge of $18 in 2014 was associated with a U.S. pension plan. The settlement resulted from the level of lump sum distributions from the plan's assets in 2014, primarily due to the closure of the facility in Sacramento, California.
No contributions are expected to be made to U.S. pension plans in 2015. Contributions to non-U.S. pension plans during the nine-month period ended May 3, 2015, were $3. We expect contributions to non-U.S. pension plans during the remainder of the year to be approximately $1.
In March 2015, we issued $300 of 3.30% notes which mature on March 19, 2025. Interest on the notes is due semi-annually on March 19 and September 19, commencing on September 19, 2015. The notes may be redeemed in whole, or in part, at our option at any time at the applicable redemption price. The notes include a change in control repurchase provision.
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, options, forwards and commodity futures. We enter into 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 do not have credit-risk-related contingent features in our derivative instruments as of May 3, 2015. During 2014, our largest customer accounted for approximately 19% of consolidated net sales. 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 utilize foreign exchange forward purchase and sale contracts, as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. As of May 3, 2015, cross-currency swap contracts mature between 15 and 27 months. The notional amount of foreign exchange forward and cross-currency swap contracts accounted for as cash-flow hedges was $45 at May 3, 2015, and $58 at August 3, 2014. 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 and cross-currency swap contracts that are not designated as accounting hedges was $528 and $561 at May 3, 2015, and August 3, 2014, respectively.
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 to lock in the rate on the interest payments related to anticipated debt issuances. These pay fixed rate/receive variable rate forward starting interest rate swaps are accounted for as cash-flow hedges. 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 over the life of the debt. The notional amount of outstanding forward starting interest rate swaps totaled $300 at May 3, 2015, which relates to an anticipated debt issuance in 2018. The notional amount of outstanding forward starting interest rate swaps totaled $250 at August 3, 2014. We settled forward starting interest rate swaps with a notional value of $250 during 2015 at a loss of $4. The effective portion of the loss was recorded in other comprehensive income (loss) and will be recognized as additional interest expense over the 10-year life of debt issued in March 2015.
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, aluminum, soybean oil, dairy, cocoa and corn, which impact the cost of raw materials. Commodity futures, options, and swap contracts are either accounted for as cash-flow hedges or are not designated as accounting hedges. 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 May 3, 2015, or August 3, 2014. The notional amount of commodity contracts not designated as accounting hedges was $100 at May 3, 2015, and $146 at August 3, 2014.
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, 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; 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 as of May 3, 2015, and August 3, 2014, were $48 and $56, respectively.
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of May 3, 2015, and August 3, 2014:
|
| | | | | | | | | |
| Balance Sheet Classification | | May 3, 2015 | | August 3, 2014 |
Asset Derivatives | | | | | |
Derivatives designated as hedges: | | | | | |
Foreign exchange forward contracts | Other current assets | | $ | 2 |
| | $ | 1 |
|
Forward starting interest rate swaps | Other current assets | | — |
| | 11 |
|
Total derivatives designated as hedges | | | $ | 2 |
| | $ | 12 |
|
Derivatives not designated as hedges: | | | | | |
Commodity derivative contracts | Other current assets | | $ | 2 |
| | $ | 2 |
|
Foreign exchange forward contracts | Other current assets | | 3 |
| | 1 |
|
Cross-currency swap contracts | Other assets | | 23 |
| | — |
|
Total derivatives not designated as hedges | | | $ | 28 |
| | $ | 3 |
|
Total asset derivatives | | | $ | 30 |
| | $ | 15 |
|
|
| | | | | | | | | |
| Balance Sheet Classification | | May 3, 2015 | | August 3, 2014 |
Liability Derivatives | | | | | |
Derivatives designated as hedges: | | | | | |
Foreign exchange forward contracts | Accrued liabilities | | $ | 1 |
| | $ | 1 |
|
Forward starting interest rate swaps | Other liabilities | | 10 |
| | — |
|
Total derivatives designated as hedges | | | $ | 11 |
| | $ | 1 |
|
Derivatives not designated as hedges: | | | | | |
Commodity derivative contracts | Accrued liabilities | | $ | 9 |
| | $ | 10 |
|
Cross-currency swap contracts | Accrued liabilities | | — |
| | 1 |
|
Deferred compensation derivative contracts | Accrued liabilities | | — |
| | 3 |
|
Foreign exchange forward contracts | Accrued liabilities | | 7 |
| | 2 |
|
Commodity derivative contracts | Other liabilities | | — |
| | 1 |
|
Cross-currency swap contracts | Other liabilities | | — |
| | 5 |
|
Total derivatives not designated as hedges | | | $ | 16 |
| | $ | 22 |
|
Total liability derivatives | | | $ | 27 |
| | $ | 23 |
|
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 May 3, 2015, and August 3, 2014, would be adjusted as detailed in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | May 3, 2015 | | August 3, 2014 |
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 | | $ | 30 |
| | $ | (16 | ) | | $ | 14 |
| | $ | 15 |
| | $ | (4 | ) | | $ | 11 |
|
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